Findings Of Fact The Petitioner, Lake Hospital of the Palm Beaches, is a 72 bed psychiatric specialty hospital located in Lake Worth, Florida. The Petitioner timely filed a request for approval of its fiscal year 1986 budget. In preliminary staff action, the Respondent, the Hospital Cost Containment Board, proposed to reduce the gross revenues of Petitioner per adjusted admission for 1986 by $1202, for a total reduction of $751,250. As will be discussed ahead, in the fall of 1984, the Petitioner had requested that the Respondent accept an amendment to its 1984 budget, and the Respondent, acting through staff, proposed to deny the amendment because received less than 90 days before the end of the 1984 fiscal year. Petitioner's Exhibit 4. Effective May 18, 1984, the Legislature substantially amended the Health Care Cost Containment Act of 1979, section 395.501 et seq., Fla. Stat. See Chapter 84-35, Laws of Florida (1984), Petitioner's Exhibit 1. Prior to the 1984 amendments, the Hospital Cost Containment Board merely received the public filing of hospital projected budgets. The Board generally had only the power to subject such budgets to publicity, and did not have the power to disapprove any portion of a budget. Prior to the 1984 amendments, the statutes governing hospital cost containment were silent as to the question of whether a hospital budget could be amended or was required to be amended. T. 56, 57. Prior to the summer of 1984, there was no practice or policy of the staff of the Hospital Cost Containment Board to either encourage or discourage amendment of budgets. T. 57. The staff of the Hospital Cost Containment Board adhered to a policy or practice that amendments to a budget will not be accepted by the Hospital Cast Containment Board if received within the last 90 days of the hospital's fiscal year. T. 54. This policy was created by staff in the summer of 1984 immediately following enactment of chapter 84-35, Laws of Florida. T. 54, 44. The policy is applicable to all hospitals in Florida. T. 54. The policy was never adopted by the Hospital Cost Containment Board as a rule. T. 55. The policy has never been presented to the Hospital Cost Containment Board for adoption as a policy, and has not been adopted by the Board as a policy. T. 56. The policy was never communicated to hospitals in Florida in any general written statement sent to all hospitals, or by notice in a newspaper or the Florida Administrative Weekly. T. 55, 56. Hospitals which submitted amendments to their 1984 budgets were notified of the policy by letter. T. 55. Hospitals, including the Petitioner, having fiscal years ending before the summer of 1984 had no notice or knowledge of the policy prior to the end of their fiscal years. T. 56. Petitioner's 1984 fiscal year budget ended May 31, 1984, 13 days after the 1984 amendments took effect. Petitioner did not submit a revised or amended budget to the Hospital Cost Containment Board until late in November 1984 because it did not learn of the penalty provision of section 395.509(11), Fla. Stat. (1984) until late September or early October 1984. T. 158. Petitioner monitors its budget on a monthly basis, forecasting the budget for the remainder of the fiscal year. T. 85. In the normal process of monitoring the 1984 budget, the Petitioner first became aware that its original 1984 budget was inaccurate sometime after the end of the first quarter on August 31, 1983. T. 86. When the Petitioner became aware that its original 1984 budget was inaccurate, it did not consider filing an amended budget with the Hospital Cost Containment Board because there was no requirement to do so at that time. T. 87, 88. The Petitioner, however, did make an internal adjustment to its original 1984 budget, based upon new forecasts after some experience during the 1984 fiscal year, and did so as an operating tool to explain to management either positive or negative performance. T. 89. Petitioner's sole purpose of submitting the amended budget was to respond to the new penalty provision enacted as section 395.509(11), Fla. Stat. (1984). T. 177. The penalty of section 395.509(11), Fla. Stat. (1984) applies to net revenues per adjusted admission. The Hospital Cost Containment Board then adjusts the 1984 net revenue excess amount using the usual inflation factors to 1986, and then converts the net revenues figure to gross revenues by using a ratio of gross to net revenues. T. 179, 186. Since the penalty will reduce the allowable gross revenues for 1986, the penalty will probably cause the actual experience of the penalized hospital for 1986 to be reduced by an amount similar to the penalty. T. 179, 184, 188. Petitioner's fiscal year 1984 budget was prepared in January and February of 1983. T. 79. At the time of preparing the 1984 budget, the Petitioner had no formal adolescent program, but had plans for a major adolescent program. T. 79. The idea to have a new adolescent program at Lake Hospital was first conceived in 1982. T. 118. At the time of preparing the 1984 budget, the Petitioner assumed that the length of stay of adolescents admitted to the new program would be somewhere between three and six months. T. 80. Dr. Thomas J. Kelly, an adolescent psychiatrist, was recruited to develop the new program. T. 80. Dr. Kelly provided information upon which the Petitioner based its assumption that the length of stay would be between three and six months. T. 81. Petitioner also based its length of stay assumptions upon data which showed that the length of stay in other psychiatric facilities in Florida was running from three to six months. T. 81, 119. Petitioner also based its length of stay assumptions upon the past experience that its Administrator, Alan T. Penn, Ph.D., had had with other adolescent programs. T. 119. Petitioner relied upon the data above to project the expected length of stay, and did not have historical data of its own. T. 82, 123 - 124. Although there is a place for budgeting for psychiatric long-term care on the Hospital Cost Containment Board's budget worksheet, neither the initial budget of the Petitioner, nor the proposed amended budget, contain any provision in that line for such long-term care. Petitioner's Exhibit 2; Respondent's Exhibit 2. The adolescent program was originally projected to have 14 beds. T. 80. Petitioner originally projected in its budget that the adolescent program would not start until June 1, 1983, in a limited way, and would not exceed 14 beds at any time during the first fiscal year, which would end May 31, 1984. T. 83; Petitioner's Exhibit 12. The adolescent program began at Petitioner's hospital in April 1983 with 7 beds. T. 82. When the program first opened, demand exceeded predictions, and a waiting list developed rapidly. T. 84; 126. As a result of the demand, Petitioner expanded the adolescent program sooner than expected, taking unoccupied beds from the north wing, which were previously devoted to the alcohol abuse programs, and using them for the adolescent program. T. 84; 113. By September, 1983, the new adolescent program first exceeded the original forecast of 14 beds. T. 127; Petitioner's Exhibit 12. In the last quarter of the fiscal year, the average daily census of the adolescent program was 19 patients per day, and for the entire 1984 fiscal year, Petitioner had an actual average daily census of 15.3 patients. This was about 42 percent greater than the 10.8 average daily census predicted when the budget was first established. Petitioner's Exhibit 12. At the time of the hearing, the adolescent program had increased to 26 beds. T. 113; Petitioner's Exhibit 10. A new physician without an established practice, who comes to a hospital and begins admitting a lot of patients, could have a significant impact upon the difference between budgeted and actual net revenues per adjusted admission. T. 102; 164. The record does not contain precise evidence as to the actual length of stay experienced by the Petitioner in its new adolescent program. One witness said that it was about nine months. T. 87. Another witness said that it was over one year. T. 127. It is the finding of the Hearing Officer that the length of stay has been at least nine months. In part the longer length of stay has been caused by the fact that the adolescents now admitted to the program are patients that have been unsuccessful in other programs in 1984 in Florida. T. 115. The length of stay in a psychiatric hospital is dependent in part upon the individual characteristics of the admitting physician and the type of program to which the patient is admitted. T. 165. The primary reason that the Petitioner experienced a variance in 1984 between budgeted and actual net revenues per adjusted admission was due to the fact that the overall length of stay was greater. T. 161. Petitioner's original 1984 budget as filed with the Respondent projected a length of stay of 26 days, which is the result of dividing 20,805 patient days projected by a projected 800 admissions. Petitioner's Exhibit 2, worksheet B-1; T. 156-157. The average length of stay actually experienced by the Petitioner in 1984 was 33.7 days. T. 176, 180-181. The longer length of stay experienced in the 1984 fiscal year was caused by the new adolescent program. T. 162. Due to the fact that admissions went up for adolescents who stayed longer in Petitioner's hospital, the total number of admissions went down. T. 133. Lake Hospital actually experienced 510 admissions during fiscal year 1984. Respondent's Exhibit 2 is Petitioner's revised budget for fiscal year 1984 which was prepared and submitted in the latter part of 1984 to the Hospital Cost Containment Board. T. 158. The only change in the revised budget was to change the number of admissions from 800 to 617. T. 159; Respondent's Exhibit 2. However, the Petitioner in fact derived the 617 "predicted" admissions by using the actual length of stay for 1984 (33.7 days) in the calculation with the projected number of patient days (20,805) unchanged. T. 176, 180, 181. As a result of the change in admissions to 617, the predicted net revenues per adjusted admission for the amended 1984 budget changes from $6,473 to $8,411. T. 161; Petitioner's Exhibit 13. If the revised budget is used as the basis to compare with 1984 actual experience, the actual net revenues per adjusted admission are less than the amount in the revised budget, and do not, therefore, exceed 10 percent of the budget. T. 161-162; Petitioner's Exhibit 13. The inaccuracy that became known after August 1983 was both in the number of adolescent patients discussed above, and the fact that the length of stay was longer than anticipated. T. 86-87. However, at the end of the first quarter, it was still too soon to predict what the length of stay actually would be. T. 95. Psychiatric Institutes of America, Inc. owns a number of hospitals, including Lake Hospital. T. 151. Within Psychiatric Institutes of America, Inc., the amount that various managerial officials are paid is related to the extent that actual fiscal experience attains the projections of the budget for the fiscal year. T. 152. The comptroller for Psychiatric institutes of America, Inc., for the region in which Lake Hospital is located and managed, Anthony Cusadi III, did not become aware of the penalty provisions of section 395.509(11), Fla. Stat. (1984) until late September or early October 1984. T. 155. At the same time, late September or early October 1984, Mr. Cusadi also learned that Lake Hospital had experienced a variance between budget and actual net revenues per adjusted admission for fiscal year 1984. T. 156. If the regional comptroller did not know of the variance between budget and actual experience until months after the close of the fiscal year, it must be concluded that the policy of the Petitioner to tie executive compensation to budget accuracy must not have operated to any substantial degree with respect to Petitioner's 1984 budget. Lake Hospital raised its rates on June 1, 1983, the first day of fiscal year 1984, and months before the 1984 amendments to the hospital cost containment law took effect. T. 167. Lake Hospital did not raise its rates at any other time during fiscal year 1984. T. 167. If Lake Hospital had known of the penalty provision of section 395.509(11), Fla. Stat. (1984), on May 18, 1984, when the new law took effect, it would not have had enough time to take steps to change its fiscal practices to avoid imposition of the penalty because only 13 days then remained in its 1984 fiscal year. T. 167-169. There is no evidence to believe or conclude that the Petitioner attempted in any way to inflate its 1984 projected budget in order to gain the advantage of a larger base year for future budget approvals by the Hospital Cost Containment Board pursuant to the new law. The Petitioner, Lake Hospital of the Palm Beaches, was ranked by the Hospital Cost Containment Board as falling below 6 the 50th percentile in 1986 budget projections for gross operating revenues per adjusted admission, and also was ranked below the 50th percentile in all other "major indicators" used by the Hospital Cost Containment Board. T. 59-60, 62. Petitioner's Exhibit 7, p. 2. By statute, hospitals which project budgets having gross operating revenues per adjusted admission below the 50th percentile of hospitals in their group are exempted from detailed budget review by the Hospital Cost Containment Board, T. 58, unless there was some other reason to question the underlying projections in the budget. T. 61. The Respondent did not have any reasons to question the underlying projections of the 1986 budget of Petitioner, and thus the Petitioner was not subjected to detailed review. T. 62. Hospitals which are not subjected to detailed review have their budgets automatically approved by the Respondent. T. 61. The Petitioner's 1986 budget would have been automatically approved by the Respondent, with the exception of the issue of the penalty imposed pursuant to section 395.509(11), Fla. Stat. (1984) . T. 72. Although the Petitioner's 1986 budget fell under the 50th percentile in all relevant categories of indicators, the Petitioner's 1986 budget proposed an increase of 27.0 percent in net operating revenues per adjusted admission from the 1984 actual experience. T. 69. The maximum allowable rate of increase for net revenues per adjusted admission from 1984 to 1986 is 21 percent. T. 69. Although the Petitioner's 1986 budget projects an increase of net operating revenues per adjusted admission greater than the maximum allowable rate of increase, the Respondent's preliminary (staff) recommendation does not propose any corrections of alteration of the 1986 budget of the Petitioner based upon this fact, but instead recommends automatic approval coupled with imposition of the penalty of section 395.509(11) discussed above. Petitioner's Exhibit 7. John Chaddock, who was comptroller at Lake Hospital from 1978 to June 1984, and who prepared the 1984 fiscal year budget for Lake Hospital which was submitted to the Hospital Cost Containment Board, was accepted as an expert in health care financing for psychiatric hospitals. T. 77. Mr. Chaddock understood a "budget" to mean an operating plan for a hospital, a goal to achieve, and thus is a document for a future period of time, and not a period of time which has already occurred. T. 95. Mr. Cusadi also was of the opinion that a "budget" is a plan, not actual experience. T. 175. As previously mentioned, the amount of the penalty imposed due to the variance between budgeted and actual 1984 net revenues per adjusted admission is approximately $750.000. T. 170; Petitioner's Exhibit 7. Once the actual experience of the hospital is reduced in 1986 by an amount similar to the penalty, the future allowed gross revenues will be based upon the 1986 experience, and in that way, the penalty from 1984 may affect future years. T. 180, 188. However, the effect upon future years is quite speculative. If the hospital is below the 50th percentile, as discussed above, the budget may be automatically approved even though the hospital has increased its gross revenues per adjusted admissions to recoup its 1986 loss. T. 190. Further, by having its budget lowered by the penalty, the hospital should fall further within the lower 50th percentile, and budgeted increases in gross revenues per adjusted admission, at least in the first few years after 1986 may still be under the 50th percentile. Finally, even if the hospital falls within the upper 50th percentile for purposes of budget review after 1986, and thus becomes subject to detailed review, it may nonetheless be able to justify its increases of gross revenues, and still obtain Board approval for the budget. T. 190.
Recommendation Upon consideration of the foregoing, it is recommended that the Hospital Cost Containment Board enter its final order approving the staff recommendations contained in Petitioner's Exhibit 7, such that Petitioner's 1986 budget be approved with a reduction of gross revenues per adjusted admission of $1202, and that the approved gross revenues per adjusted admission after such reduction be $11,623. DONE and ENTERED this 9th day of July, 1985, a Tallahassee, Florida. Hearings Hearings WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative this 9th day of July, 1985. COPIES FURNISHED: Curtis Ashley Billingsley, Esquire State of Florida Hospital Cost Containment Board 325 John Knox Road Woodcrest Office Plaza, Suite 101 Building L Tallahassee, Florida 32303 Michael J. Glazer, Esquire AUSLEY, McMULLEN, McGEHEE, CAROTHERS & PROCTOR Post Office Box 391 Tallahassee, Florida 32302 =========================================================== ======
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
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the determination of the Bureau of Community Medical Facilities to deny the applicant's application for a certificate of need for the construction and operation of a 120-bed nursing home facility at a total capital expenditure of $2,217,569.00 be upheld and affirmed. It is further recommended that if the applicant elects to file a new application for a lesser number of beds at a reduced expenditure, said application receive consideration by the reviewing authorities within the time frames set forth above. Respectfully submitted and entered this 18th day of March, 1976, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Dr. E. P. Dickerson Vice-President Alpha Medical Land, Inc. 2010 59th Street West Bradenton, Florida 33505 James G. Mahorner, Esquire State of Florida, Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32304 Mr. Art Forehand, Director Bureau of Community Medical Facilities Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
The Issue The issues in these cases are whether Certificate of Need (CON) Application No. 10432 filed by East Florida-DMC, Inc. (DMC), to build an 80-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, or CON Application No. 10433 filed by The Public Health Trust of Miami-Dade County, Florida d/b/a Jackson Hospital West (JW), to build a 100-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, on balance, satisfy the applicable criteria; and, if so, whether either or both should be approved.
Findings Of Fact Based upon the parties’ stipulations, the demeanor and credibility of the witnesses, other evidence presented at the final hearing, and on the entire record of this proceeding, the following Findings of Fact are made: The Parties The Public Health Trust of Miami-Dade County d/b/a Jackson Hospital West and Jackson Health System (JHS) JHS is a taxpayer-funded health system located in and owned by Miami-Dade County. It is governed by The Public Health Trust of Miami Dade-County, Florida (PHT), a seven-member board. JHS owns and operates three acute care hospitals in Miami-Dade County--Jackson Memorial Hospital (JMH); Jackson North Medical Center (JN); and Jackson South Medical Center (JS)--as well as three specialty hospitals: Holtz Children’s Hospital (Holtz); Jackson Rehabilitation Hospital; and Jackson Behavioral Health Hospital. JHS also owns and operates numerous other non- hospital healthcare facilities within Miami-Dade County. JHS’s applicant in this proceeding is JW which, if approved, will be another acute care hospital in JHS. JHS is an academic teaching institution, and the University of Miami (UM) is JHS’s affiliated medical school. Over 1,000 UM residents staff JMH pursuant to an operating agreement with JHS. JN and JS are not academic medical centers. JHS annually receives sales tax and ad valorem tax revenues from Miami-Dade County in order to help fund its operations. JS and JN are community hospitals operated as part of JHS. JS was acquired in 2001. JS is licensed for 226 beds and is also home to a verified Level II trauma center. The JN facility was acquired by JHS in 2006. The facility is licensed for 382 beds. East Florida (DMC) DMC is an affiliate of HCA Healthcare, Inc. (HCA), the largest provider of acute care hospital services in the world. DMC will operate within HCA’s East Florida Division (EFD), which is comprised of 15 hospitals, 12 surgery centers, two diagnostic imaging centers, four freestanding emergency departments, nine behavioral health facilities, and one regional laboratory, along with other related services. There are three HCA-affiliated hospitals in Miami-Dade County: KRMC; Aventura Hospital and Medical Center (Aventura); and Mercy Hospital, a campus of Plantation General Hospital (Mercy). Kendall Regional (KRMC) KRMC, which is located at the intersection of the Florida Turnpike and Southwest 40th Street in Miami-Dade County, is a 417-bed tertiary provider comprised of 380 acute care beds, 23 inpatient adult psychiatric beds, eight Level II neonatal intensive care unit (NICU) beds, and five Level III NICU beds. It is a Baker Act receiving facility. KRMC is a verified Level I trauma center. It also has a burn program. KRMC is also an academic teaching facility, receiving freestanding institutional accreditation from the Accrediting Council for Graduate Medical Education (ACGME) in 2013. KRMC currently has six residency programs including, among others, surgery, internal medicine, podiatry, anesthesia, and surgical critical care. Its teaching programs are affiliated with the University of South Florida, Nova Southeastern University, and Florida International University. KRMC also participates in scholarly and clinical research. In 2017, KRMC had over 82,000 Emergency Department (ED) visits. It treated over 115,000 total inpatients and outpatients that year. There are 850 physicians on KRMC’s medical staff. It offers a full range of medical surgery services, interventional procedures, obstetrics (OB), pediatric, and neonatal care, among many other service lines. KRMC primarily serves southern and western portions of Miami-Dade County but also receives referrals from the Florida Keys up through Broward County, Palm Beach County, and the Treasure Coast. Its main competitors include, but are not limited to: Baptist Hospital; Baptist West; South Miami Hospital; PGH; Hialeah; CGH; JS, and Palm Springs General Hospital. The Tenet Hospitals PGH, Hialeah, and CGH are wholly-owned subsidiaries of Tenet South Florida. These are all for-profit hospitals. PGH is a 368-bed tertiary facility that opened in the early 1970s. It has 297 licensed acute care beds, 48 adult psychiatric beds, 52 ICU beds, and 15 Level II NICU beds. It is located at the Palmetto Expressway and Northwest 122nd Street in Hialeah, Florida. The hospital employs about 1,700 people and has over 600 physicians on its medical staff. PGH is a tertiary-level facility offering a variety of specialty services, including adult open heart surgery, a comprehensive stroke center, and robotic surgery. It has inpatient mental health beds and serves the community as a Baker Act receiving facility. It also offers OB and Level II NICU services with approximately 1,500 births a year. It has approximately 70,000 ED visits and between 17,000 and 18,000 inpatient admissions per year. In addition to its licensed inpatient beds, PGH operates 31 observation beds. PGH is ACGME accredited and serves a significant teaching function in the community. It has approximately 89 residents and fellows. The hospital provides fellowships in cardiology, critical care and interventional cardiology, and also has rotations in neurology and gastroenterology. Residents from Larkin General Hospital also rotate through PGH. PGH generally serves the communities of Opa Locka, Hialeah, Miami Lakes, Hialeah Gardens, Doral, and Miami Springs. In reality, all of the hospitals in the county are competitors, but more direct competition comes from Palm Springs Hospital, Memorial in Miramar, Mount Sinai, Kendall, and even its sister hospital, Hialeah. Hialeah first opened in 1951 and is a 378-bed acute care facility. It has 356 acute care beds, 12 adult psychiatric beds, and 10 Level II NICU beds. The ED has 25 beds and about 40,000 visits per year. It has approximately 14,000 inpatient admissions and 1,400 babies delivered annually. It offers services including cardiac, stroke, robotic surgery, colorectal surgery, and OB services. The hospital has a Level II NICU with 12 beds. CGH is located in the City of Coral Gables and is near the border between Coral Gables and the City of Miami on Douglas Road. It first opened in 1926. Portions of the original structure are still in use. CGH has 245 licensed beds, over 725 employees, 367 physicians, and over 100 additional allied providers on its medical staff. The hospital has a full-service ED. Its service lines include general surgery, geriatrics, urology, treatment of cardiovascular and pulmonary disease, and others. The hospital has eight operating rooms and offers robotic surgery. The ED has 28 beds divided into the main area and a geriatric emergency room. It had about 25,000 ED visits last year, which is lower than prior years, due in part to the presence of over a dozen nearby urgent care centers. CGH has over 8,500 inpatient admissions per year and is not at capacity. While patient days have grown slightly, the average occupancy is still just a little over 40%, meaning, on average, it has over 140 empty inpatient beds on any given day. The hospital is licensed for 245 beds, but typically there are only 180 beds immediately available for use. Agency for Healthcare Administration (AHCA) AHCA is the state health-planning agency charged with administration of the CON program as set forth in sections 408.31-408.0455, Florida Statutes. The Proposals Doral Medical Center (DMC) DMC proposes to build an 80-bed community hospital situated within the residential district of Doral. The hospital will be located in southwestern Doral in zip code 33126 and will serve the growing population of Doral, along with residential areas to the north and south of Doral. The hospital will be located in the City of Doral’s residential district on Northwest 41st Street between Northwest 109th Avenue to the east, and Northwest 112th Avenue to the west. Doral has seen significant growth in the past 15 years and has been consistently included on the list of the fastest growing cities in Florida. The new facility will have a bed complement of 80 licensed acute care beds, including 72 medical/surgical and eight OB beds. The proposed acute care hospital will be fully accredited by the Joint Commission for the Accreditation of Healthcare Facilities and licensed by the State of Florida. No public funds will be utilized in construction of the hospital and it will contribute to the state, county, and municipal tax base as a proprietary corporation. DMC will offer a full range of non-tertiary services, including emergency services, imaging, surgery, intensive care, cardiac catheterization, and women's services, including an OB unit, and pediatric care. DMC will be a general medical facility that will include a general medical component and a surgery component. Although DMC will operate an OB unit, NICU services will not be offered at DMC. If DMC’s patients need more advanced services, including NICU, the EFD hopes they will receive them from KRMC. The open medical staff will be largely community-based, but University of Miami physicians would be welcome at DMC. Before the hospital is built, KRMC will construct and operate a freestanding emergency department (FSED) at the location that will eventually become the ED of DMC. Construction of the FSED is now underway, and Brandon Haushalter, chief executive officer (CEO) of KRMC, estimated that it will open in March or April of 2019. Jackson West JHS proposes to build a community hospital to be known as “Jackson West” near the eastern edge of Doral. The proposed 100-bed general acute care hospital would have medical surgical and obstetrical beds and offer basic acute care services. JHS is a public health system owned by Miami-Dade County. All of JHS’s assets, as well as its debts, belong to the county. JHS is a not-for-profit entity, and therefore does not pay taxes, though it receives hundreds of millions of dollars from property taxes and sales taxes in Miami-Dade County. JHS’s main campus is a large health campus located near the Midtown Miami area in between Allapattah (to the north) and Little Havana (to the south). In addition to JMH, the campus includes Holtz Children’s Hospital, a behavioral health hospital, an inpatient rehabilitation hospital, and several specialty clinics. Bascom-Palmer Eye Institute, a Veterans Administration hospital, and University of Miami Hospital are also located adjacent to Jackson West’s main campus. JMH is a 1,500-bed hospital with a wide array of programs and services, including tertiary and quaternary care, and a Level I trauma program, the Ryder Trauma Center. JMH receives patients from throughout Miami-Dade County, elsewhere in Florida, and internationally. JMH is a teaching hospital and has a large number of residents, as well as professors from the University of Miami, on staff. UM and JMH have had a relationship for many years, and in addition to research and teaching, UM provides physician staffing to JMH. JN is a 342-bed community hospital located in between Miami Gardens and North Miami Beach, just off of I-95 and the Turnpike. JS is a 252-bed community hospital located in the Palmetto Bay area just south of Kendall. It has stroke certification and interventional cardiology, and was recently approved for a trauma program, which began in May 2016. Both JN and JS were existing hospitals that were acquired by JHS. JHS has never built a hospital from the ground up. In 2014, JHS leadership directed its internal planning team to review the healthcare needs of county residents. JHS’s analysis identified a need for outpatient services in western Miami-Dade, the only remaining quadrant of the county in which JHS did not have a hospital or healthcare program at the time. As part of its due diligence, JHS then consulted healthcare firm Kurt Salmon & Associates (KSA) to independently evaluate the data. KSA’s investigation validated a need in the west county for adult and pediatric outpatient services, including need for an FSED. This prompted JHS to explore opportunities for expansion of outpatient services where needed: in the western corridor of Miami-Dade. This was also the genesis of JHS’s long-range plan to first build an FSED in the Doral area, to be followed ultimately by the addition of a general acute care hospital at the site. The JW site is a 27-acre parcel of land located just west of the Palmetto Expressway and north of 25th Street. The site is in an industrial area only a short distance from the western end of the runways at Miami International Airport. The site is located in zip code 33122, which is very sparsely populated. JW proposed a primary service area (PSA) consisting of zip codes 33126, 33144, 33166, 33172/33122, 33174, 33178, and 33182, and a secondary service area (SSA) of zip codes 33155, 33165, 33175, and 33184. JW intends to serve general, acute care non-tertiary patients and OB patients. Detailed below, trends in the JW service area do not demonstrate need for its proposed hospital. The location of the JW site will not contribute to the viability of the proposed hospital. According to 2010 census data, only 328 people live within a one-mile radius of the JW site. Since 2000, only 32 total people have moved into that same area around the JW site--an average of three per year. There are virtually no residences within a one-mile radius of the JW site. From 2000 to 2010, the population within a two- mile radius of the JW site decreased by a rate of 9.4%. The JW health planner projects JW’s home zip code of 33122 will have a total population of only eight (8) people in 2022. From 2012 to 2014, the use rate in the JW service area for non-tertiary patients decreased by 3.9%. That decline continued at a steeper pace of 4.2% from 2014 to 2017. This was largely due to the 65+ age cohort, the demographic of patients that utilize inpatient services the most. The 65+ age cohort is growing at a slower pace in the JW service area than in Miami- Dade or Florida as a whole. Non-tertiary discharges in the JW service area are declining at a greater pace than that of Miami- Dade County--negative 4.2% compared to negative 1.9%. The rate of projected population growth in the JW PSA is decreasing. The projected rate of growth for the JW service area is lower than that of Miami-Dade County and Florida as a whole. The OB patient base JW intends to rely on is projected to remain flat. The inpatient discharges for all ages in the JW service area have declined from 2014 to 2017. For ages 0-17, discharges in the JW service area declined 21.4% during that time period. The discharges for ages 18-44 declined by 4.8%, and the discharges for ages 45-64 declined by 8.9%. The discharges for the important 65+ age cohort declined by 0.1%. Specifically, the discharges for ages 65-74 declined by 6.5%, and the discharges for ages 75-84 declined by 3.3%. The discharges for ages 85+ are the only age cohort that has not declined from 2012 to 2017. Overall, the non-tertiary discharges per 1,000 population (i.e., use rate) for all ages in the JW service area declined from 2012 to 2014 by 6%, and from 2014 to 2017 by 7.8%. Despite these declines in discharges in the JW service area, the health planners who crafted the JW projections used a constant use rate for the 0-17, 18-44, and 45-64 age cohorts. The JW health planners used a declining use rate for the 65+ age cohort. These use rates were applied uniformly across all zip codes, despite wide variance in actual use rates in each zip code. Applying the zip code specific use rates in conjunction with the other assumptions used by the JW health planner demonstrates that the JW projections are unreasonable. For instance, JW’s reliance on a uniform use rate over-projects the number of discharges in JW PSA zip code 33178 by nearly 1,000 patients. This occurs because the population is only growing at a 2% rate in the zip code, but JW’s reliance on service area-wide projections cause the discharges to grow at an extraordinary rate of 8.9% per year. Applying actual use rates across all zip codes causes a drastic change in the JW PSA and SSA definition. Section 408.037(2) requires a CON applicant to identify its PSA and SSA by listing zip codes in which it will receive discharges in descending order, beginning with the zip code with the highest amount of discharges, then proceeding in diminishing order to the zip code with the lowest amount of discharges. The zip codes, which comprise 75% of discharges, constitute the PSA; and the remaining zip codes, which consist of the remaining 25% of discharges, makes up the SSA. However, JW did not project its utilization in this manner. In its application, JW did not define its service area, PSA, and SSA zip codes in descending order by number or percentage of discharges. When this correct adjustment is made, its PSA consists of zip codes 33126, 33172, 33178, 33174, 33144, and 33165; and its SSA consists of zip codes 33175, 33166, 33155, 33182, and 33184. Zip codes 33166 and 33182 were in the original JW PSA, and zip code 33165 was in the original JW SSA. As such, JW’s home zip code should actually be in its SSA. JW health planners call this illogical, but it demonstrates that the JW site is located within a zip code that has almost no population of potential patients. JHS is developing an FSED and outpatient/ambulatory facilities on the JW site regardless of whether its CON application for a hospital is approved. Construction has begun on the JW site, and JHS is actually building a “shelled in” structure intended to house a future hospital, notwithstanding lack of CON approval for the hospital. There is no contingency plan for use of the shelled-in hospital space if CON approval is not obtained. JHS executives unequivocally stated that they intend to continue pursuing CON approval for the JW hospital, even if the proposed DMC hospital is approved. Indeed, JHS has filed third and fourth CON applications for its proposed JW hospital. The budget for the JW campus is $252 million. Sixty to $70 million is being funded from a bond issuance approved by voters in Miami-Dade County. Notably, the bond referendum approved by voters made no mention of a new hospital. The remaining $180 to $190 million is being funded by JHS, which has chosen to only keep 50 days cash-on-hand, and put any surplus toward capital projects. This is well below the number of days cash-on-hand ws advisable for a system like JHS. The specific programs and services to be offered at JW have not been finalized, but it is clear that JW will be a small community hospital that will not offer anything unique or different from any of the existing hospitals in the area, nor will it operate NICU beds. Patients presenting to JW in need of specialized or tertiary services will need to be transferred to another hospital with the capability of serving them, most likely JMH. The Applicants’ Arguments Doral Medical Center (DMC) DMC’s arguments in support of its proposed hospital may be summarized as follows: Geographic features surrounding Doral create transportation access barriers for the residents of the area; Doral is a densely-populated community that is growing quickly and lacks a readily accessible hospital; KRMC, which is the provider of choice for Doral residents, is a growing tertiary facility that cannot sufficiently expand to meet its future demands. DMC will serve much of the same patient population currently served by KRMC and help decompress KRMC’s acute care load so KRMC can focus on its tertiary service lines; From a geographic standpoint, the Doral community and its patients are isolated from much of Miami-Dade County to the north, west, and east, and the nearest hospitals. East Florida-DMC is a subsidiary of HCA and would be a part of the HCA EFD. Michael Joseph is the president of the EFD, which includes 15 hospitals and other facilities from Miami north through the Treasure Coast. Mr. Joseph authorized the filing of the DMC CON application, which proposes an 80-bed basic acute care hospital that includes 72 medical surgical and eight OB beds. As noted, there will be neither unique services at DMC nor any tertiary services, such as a NICU. HCA anticipates that DMC patients needing tertiary services would be referred and treated at KRMC. The proposed hospital would be built on 41st Street, between Northwest 109th Avenue and Northwest 112th Avenue. This site is located on the western edge of Doral, just east of the Everglades. When the consultants were retained to write the first DMC CON application, HCA had already made the decision to go forward with the project. Mr. Joseph described Miami-Dade County as one of the most competitive markets in the country for hospital services. There is robust competition in the Miami-Dade market from the standpoints of payors, physicians, and the many hospitals located in the county, including Jackson, HCA, Tenet, Baptist and others. HCA is not proposing this project because any of the existing hospitals in the area do not provide good quality care. HCA is currently building an FSED on the DMC site that will open regardless of whether the DMC hospital is approved. Mr. Joseph acknowledged that there is a trend toward outpatient rather than inpatient care. Inpatient occupancy of acute care hospitals in Miami-Dade County has been declining in recent years. Managed care has added further pressure on reducing inpatient admissions. Surgical advances have also resulted in fewer inpatient admissions. Surgeries that formerly required an inpatient stay are now often done on an outpatient basis. Mr. Joseph agreed that 30 minutes is a reasonable travel time to access an acute care hospital. The home zip code for the proposed DMC hospital is 33178. KRMC’s market share for that zip code is 20%. Individuals in that zip code are currently accessing a wide variety of hospitals. PGH is only 6.7 miles away and has the fourth highest market share in that zip code. HCA’s healthcare planning expert, Dan Sullivan, acknowledged that, if approved, DMC would likely have an adverse financial impact on KRMC and other area hospitals. Several witnesses testified that the travel time from the DMC site to KRMC is about 10 minutes, and that an ambulance could do it in as little as five minutes. As to the argument that the residents of Doral face geographic access barriers, the evidence did not indicate that there is anything unique about Doral from a traffic standpoint compared to other parts of Miami-Dade County. People come in and out of Doral on a daily basis in significant numbers for work and other reasons via various access points. Witnesses agreed that 25 to 30 minutes is a reasonable drive time for non-tertiary acute care services, and the evidence showed that residents of Doral, and the DMC service area, are well within 30 minutes of multiple hospitals providing more intensive services than are proposed by DMC. Indeed, many residents of DMC’s service area are closer to other hospitals than to the DMC site. None of the DMC witnesses were able to identify any patient in Doral who had been unable to access acute care services, or had suffered a bad outcome because of travel from Doral to an area hospital. The evidence did not establish that there currently exists either geographic or financial access barriers within the service area proposed to be served by DMC. Jackson West As in its Batch One application, JW advances six arguments as to why its proposed hospital should be approved. They are: It will serve a significant amount of indigent and Medicaid patients. JHS already serves residents of the proposed service area, which JW characterizes as “fragmented,” in that residents go to a number of different hospitals to receive services. Development of the freestanding ED and ambulatory center is under way. JW would provide an additional opportunity to partner with UM and FIU. There is physician and community support for the project. JW will add to the financial viability of JHS and its ability to continue its mission. JW presented very little analysis of the types of factors typically considered in evaluating need for a new hospital. JW did not discuss existing providers and their programs and services, the utilization of existing hospitals, and whether they have excess capacity, or other important considerations. Instead, JW advanced the six arguments noted above, for approval of its proposed hospital, none of which truly relate to the issue of need. First, JW states that its proposed hospital will serve a significant level of Medicaid and indigent patients. While it is true that JHS serves a significant amount of Medicaid and indigent patients, there are a number of reasons why this is not a basis to approve its proposed hospital. As an initial matter, JW treads a fine line in touting its service to Medicaid and indigent patients, while also targeting Doral for its better payer mix and financial benefit to JHS. JHS also receives an enormous amount of tax dollars to provide care to indigent and underserved patients. While other hospitals in Miami-Dade County provide care to such patients, they do not receive taxpayer dollars, as does JHS, although they pay taxes, unlike JHS. Also, Medicaid is a good payer for JHS. With its substantial supplement, JHS actually makes money from Medicaid patients, and it costs the system more for a Medicaid patient to be treated at a JHS hospital than elsewhere. More significantly, there is not a large Medicaid or indigent population in Doral, nor evidence of financial access issues in Doral. Second, JW argues that its CON application should be approved because JHS already serves patients from the Doral area, which JW characterizes as “fragmented” because area residents go to several different hospitals for care. This so- called “fragmentation” is not unique to Doral, and is not unusual in a densely-populated urban market with several existing hospitals. The same phenomenon occurs in other areas of Miami-Dade County, some of which actually have a hospital in the localized area. The fact that Doral residents are accessing several different hospitals demonstrates that there are a number of existing providers that are accessible to them. As discussed in greater detail below, residents of the Doral area have choices in every direction (other than to the west, which is the Everglades). JHS itself already serves patients from the Doral area. If anything, this tells us that patients from Doral currently have access to the JHS hospitals. Third, JW argues that its CON application should be approved because development of the JW campus is under way. This is irrelevant to the determination of need, and is simply a statement of JHS’s intent to build an FSED and outpatient facilities on a piece of land that was acquired for that purpose, regardless of CON approval. Fourth, JW argues for approval of its proposed hospital because it would provide an additional opportunity to partner with UM and Florida International University (FIU). However, the statutory criteria no longer addresses research and teaching concerns, and JHS’s relationship with UM or FIU has no bearing on whether there is a need for a new hospital in the Doral area. Moreover, JW did not present any evidence of how it would partner with UM or FIU at JW, and there does not seem to be any set plans in this regard. Fifth, JW claims that there is physician and community support for its proposed hospital, but it is very common for CON applicants to obtain letters in support for applications. Indeed, the DMC application was also accompanied by letters of support. Sixth and finally, JW argues that its proposed hospital will add to the financial viability of HSA and allow it to continue its mission. However, JW provided no analysis of the projected financial performance of its proposed hospital to substantiate this. The only financial analysis in the record is from KSA, a consulting firm that JHS hired to analyze the programs and services to be developed at JW. The KSA analysis posits that the JW FSED project will lose millions of dollars and not achieve break-even unless there is an inpatient hospital co-located there so that JW can take advantage of the more lucrative hospital-based billing and reimbursement. The sixth “need” argument relates to the issue of JHS’s historical financial struggles, which bear discussion. Only a handful of years ago, the entire JHS was in dire financial trouble, so much so that selling all or parts of it was considered. Days cash-on-hand was in the single digits, and JHS fell out of compliance with bond covenants. JHS’s financial difficulties prompted the appointment of an outside monitor to oversee JHS’s finances. Price Waterhouse served in that role, and made several recommendations for JHS to improve its revenue cycle, make accounting adjustments, and improve its staffing and efficiency. As a result of these recommendations, JHS went through a large reduction in force, and began to more closely screen the income and residency of its patients. As a result of these measures, overall financial performance has since improved. Despite its improved financial position, JHS still consistently loses money on operations, including a $362,000,915 loss as of June 30, 2018. JHS clearly depends upon the hundreds of millions of non-operating tax-based revenues it receives annually. JHS’s CEO expressed concerns over decreases in the system’s non-operating revenue sources, and claimed that JHS needs to find ways to increase its operating revenue to offset this. JW is being proposed as part of this strategy. However, JHS’s chief financial officer testified that “the non-operating revenues are a fairly stable source of income.” In fact, JHS’s tax revenues have gone up in the last few years. JHS sees the more affluent Doral area as a source of better paying patients that will enhance the profitability of its new hospital. Beyond this aspiration however, there is no meaningful analysis of the anticipated financial performance of its proposed hospital. This is a glaring omission given that a significant impetus for spending millions of public dollars on a new hospital is to improve JHS’s overall financial position. The KSA analysis referenced above determined that changes to the Hospital Outpatient Prospective Payment System rule would result in the JW campus losing hundreds of millions of dollars and never reaching “break even,” absent an inpatient hospital on the campus for “hospital based” billing and reimbursement. Though a financial benefit to the system, the increased reimbursement JHS would receive by having an inpatient hospital on the JW campus would be a financial burden on the healthcare delivery system since it would cost more for the same patient to receive the same outpatient services in a hospital- based facility. Reports by KSA also state that a strategic purpose of JW is to attract patients that would otherwise go to nearby facilities like PGH and Hialeah, and to capture tertiary or higher complexity cases which would then be sent to JMH. JW’s witnesses and healthcare planning experts fully expect this to happen. In 2015, and again in 2017, JHS conducted a “Community Health Needs Assessment,” which is required by law to be performed by public safety net hospitals. The assessments were conducted by gathering responses to various questions from a wide array of community leaders and stakeholders, including the CEOs of JHS’s hospitals, about the healthcare needs of the community. The final Community Health Needs Assessment documents are lengthy and cover a variety of health-related topics, but most notable for this case is that: (1) nowhere in either the 2015 or 2017 assessment is the development of a new hospital recommended; and (2) expansion into western Miami-Dade County scored by far the lowest on a list of priorities for JHS. In its application and at hearing, JW took the position that JW can enter the Doral area market without impacting existing providers to any meaningful extent. While JW acknowledges that its proposed hospital would impact the Tenet Hospitals, it argues that the impact is not significant. The evidence established that the financial impact to the Tenet Hospitals (calculated based upon lost contribution margin) would total roughly $3 million for lost inpatients, and $5.2 million including lost outpatients. While these losses will not put the Tenet Hospitals in financial peril, they are nonetheless significant and material. The Existing Healthcare Delivery System Miami-Dade County is home to 18 freestanding acute care hospitals, comprising a total of 7,585 licensed and approved acute care beds. With an average annual occupancy of 53.8% in calendar year 2017, there were, on average, approximately 3,500 unoccupied acute care beds in the county on any given day. While the countywide occupancy rate fluctuates from year to year, it has been on a downward trend in the past several years. As pointed out by several witnesses, the lack of a hospital in Doral is not itself an indication of need. In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. The population of Doral currently is only about 59,000 people. It is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. As set forth in JW’s CON application, the better payer mix in Doral was a significant factor behind its decision to file its CON application. Although there is not a hospital within the Doral city limits, there are a number of healthcare providers in Doral and several hospitals nearby. PGH and Palm Springs Hospital are just north of Doral. KRMC is just south of Doral. Hialeah is northeast of Doral. CGH, Westchester General, and NCH are southeast of Doral. JMH and all of its facilities are east of Doral. And there are others within reasonable distance. KRMC is only six miles due south of the proposed DMC site, and PGH is just eight miles north of the DMC site. As to the JW site, PGH is 6.9 miles distant, CGH is 8.6 miles distant, and Hialeah is 7.4 miles distant. Residents of the Doral area have many choices in hospitals with a wide array of services, and they are accessing them. The parties to this case, as well as other existing hospitals, all have a share of the Doral area market. JW calls this “fragmentation” of the market and casts it in a negative light, but the evidence showed this to be a normal phenomenon in an urban area like Miami, with several hospitals in healthy competition with each other. Among the experts testifying at the hearing, it was undisputed that inpatient acute care hospital use rates are on the decline. There are different reasons for this, but it was uniformly recognized that decreasing use rates for inpatient services, and a shift toward outpatient services, are ongoing trends in the market. Recognizing the need for outpatient services in the Doral area, both JW and DMC (or, more accurately, their related entities) have proposed outpatient facilities and services to be located in Doral. Kendall Regional Medical Center KRMC is currently the dominant hospital provider in the Doral area. Regarding his motivation for filing the DMC application, Mr. Joseph readily admitted “it’s as much about protecting what I already currently provide, number one.” KRMC treats Medicaid and indigent patients. KRMC has never turned away a patient because it did not have a contract with a Medicaid-managed care company. The CEO agreed that there is no access problem for Medicaid or charity patients justifying a new hospital. It was argued that KRMC is crowded, and the DMC hospital would help “decompress” KRMC, but the evidence showed that KRMC has a number of licensed beds that are not being used for inpatients. In addition, its ED has never gone on diversion, and no patient has ever been turned away due to the lack of a bed. Moreover, the census at KRMC has been declining. It had 25,324 inpatient admissions in 2015, 24,649 admissions in 2016, and 23,301 in 2017. The most recent data available at the time of hearing reflected that KRMC has been running at a little less than 75% occupancy, before its planned bed additions. KRMC is between an eight to 10 minute drive from Doral, and currently has the largest market share within the applicants’ defined service areas. KRMC is readily available and accessible to the residents of Doral. KRMC currently has a $90 million dollar expansion project under way. It involves adding beds and two new floors to the West Tower--a new fifth floor which will add 24 ICU beds and 24 step-down beds, and a new sixth floor which will house the relocated pediatric unit and 12 new medical-surgical beds. KRMC is also adding a new nine-story, 765 parking space garage and other ancillary space. This expansion will reduce the occupancy rate of KRMC’s inpatient units, and in particular its ICUs. These bed additions, in conjunction with increasing emphasis on outpatient services and the resultant declining inpatient admissions, will alleviate any historical capacity constraints KRMC may have had. There are also a number of ways KRMC could be further expanded in the future if needed. The West Tower is designed so it could accommodate a seventh floor, and the East Tower is also designed so that an additional floor could also be added to it. In addition, KRMC recently completed construction of a new OR area that is built on pillars. The new construction includes a third floor of shelled-in space that could house an additional 12 acute care beds. Moreover, this new OR tower was designed to go up an additional two to three floors beyond the existing shelled-in third floor. It is clear that KRMC has implemented reasonable strategies for addressing any bed capacity issues it may have experienced in the past. Decompression of KRMC is not a reason to approve DMC. Palmetto General Hospital Evidence regarding PGH was provided by its CEO Ana Mederos. Ms. Mederos is a registered nurse and has lived in Miami-Dade County for many years. She has a master of business education from Nova University and has worked in several different hospitals in the county. Specifically, she was the chief operating officer (COO) at Cedars Medical Center, the CEO at North Shore Medical Center, the CEO at Hialeah Hospital, and has been the CEO at PGH since August of 2006. Ms. Mederos is one of the few witnesses that actually lives in Doral. She travels in and out of the area on a daily basis. Her average commute is only about 15 minutes, and she has multiple convenient options in and out of Doral. PGH is located just off the Palmetto Expressway at 68th Street. It opened in the early 1970s and has 368 licensed beds, including 52 ICU beds. The hospital employs about 1,800 people and has over 600 physicians on its medical staff. PGH’s occupancy has declined from 79.8% in 2015 to 64% in 2016, and even further to 56.7% in 2017. There are many reasons for this decline, including pressure from managed care organizations, the continued increase in the use of outpatient procedures, improvements in technology, and increased competition in the Miami-Dade County market. Ms. Mederos expects that inpatient demand will continue to decline into the foreseeable future. PGH recently activated 31 observation beds to help improve throughput and better accommodate the increasing number of observation patients. PGH offers high-quality care and uses various metrics and indicators to measure and monitor what is going on in the hospital. The hospital has also been recognized with numerous awards. Through its parent, Tenet, PGH has contracts with just about every insurance and managed care company that serves the community. The hospital treats Medicaid and indigent patients. PGH’s Medicaid rate of $3,580 per patient is significantly lower than the rate paid to JMH. PGH has an office dedicated to helping patients get qualified for Medicaid or other financial resources, which not only helps the hospital get paid for its services, it also assists patients and families to make sure that they have benefits on an ongoing basis. Roughly 9-10% of PGH’s patients annually are completely unfunded. PGH only transfers patients if there is a need for a service not provided at the hospital, or upon the patient’s request. PGH does not transfer patients just because they cannot pay. PGH pays physicians to take calls in the ED which also obligates those physicians to provide care to patients that are seen at the hospital. PGH is a for-profit hospital that pays income taxes and property taxes, and does not receive any taxpayer subsidies like those received by JHS. Ms. Mederos reviewed the applications of JW and DMC, and articulated a number of reasons why, in her opinion, neither application should be approved. She sees no delays in providing care to anyone in the area, as there are hospitals serving Doral in every direction. There are a multitude of FSEDs available and additional FSEDs are being built in Doral by both applicants. There is another FSED being built close to PGH by Mount Sinai Medical Center. NCH has also opened an FSED that has negatively affected the volume of pediatric patients seen at PGH. There are also multiple urgent care centers. It was Ms. Mederos’ firm belief that persons living in Doral have reasonable geographic access to both inpatient and outpatient medical services. Ms. Mederos’ testimony in this regard is credited. There are no programs or services being proposed by either applicant that are not already available in the area. Ms. Mederos also noted that there is currently no problem with access to OB services in the area. However, she has a particular concern in that both applicants propose to offer OB services, but neither is proposing to offer NICU services. The evidence showed that most all of the hospitals that provide OB services to the Doral area offer at least Level II and some Level III NICU services. Thus, in terms of OB care, both proposed hospitals would be a step below what has developed as the standard of care for OB patients in the county. Ms. Mederos acknowledged that PGH does not have a huge market share in the zip codes that the applicants are proposing to serve, but that does not mean that the impact from either would not be real and significant. If a hospital is built by either applicant, it will need physicians, with some specialists in short supply. There are tremendous shortages in certain medical fields, such as orthopedics and neurology. In addition, there will be additional competition for nurses and other staff, which will increase the cost of healthcare. The loss of $1.3 to $2 million in contribution margin, as projected by Tenet’s healthcare planner, is a negative impact on PGH as hospital margins become thinner, and those numbers do not include costs like those needed to recruit and retain staff. PGH is again experiencing a nursing shortage, and losing nurses, incurring the higher cost for contract labor, paying overtime, and essentially not having the staff to provide the required services is a serious potential adverse impact from either proposed new hospital. JHS also tends to provide more lucrative benefits than PGH, and a nearby JW hospital is a threat in that regard. As a final note, Ms. Mederos stated that her conviction that there is no need for either proposed hospital in Doral is even more resolute than when she testified in the Batch One Case. With continued declines in admissions, length of stay and patient days, the development of more services for the residents of Doral, the shortages of doctors and nurses, the ever increasing role of managed care that depresses the demand for inpatient hospital services and other factors, she persuasively explained why no new hospitals are needed in the Doral area. Coral Gables Hospital (CGH) Maria Cristina Jimenez testified on behalf of CGH, where she has worked in a variety of different capacities since 1985. She was promoted to CEO in March 2017. She has lived in Miami her entire life. Ms. Jimenez has been involved in initiatives to make her hospital more efficient. She is supportive of efforts to reduce inpatient hospitalizations and length of stay, as this is what is best for patients. Overall, the hospital length of stay is dropping, which adds to the decreasing demand for inpatient services. CGH is accredited by the Joint Commission, has received multiple awards, and provides high-quality care to its patients. It also has contracts with a broad array of managed care companies as do the other Tenet hospitals. CGH treats Medicaid patients, and its total Medicaid rate is less than $3,500 per inpatient. The hospital has a program similar to PGH to help patients get qualified for Medicaid and other resources. CGH also provides services to indigent patients, and self-pay/charity is about 6% of the hospital’s total admissions. The hospital does not transfer patients just because they are indigent. Physicians are compensated to provide care in the emergency room and are expected to continue with that care if the patients are admitted to the hospital, even if they do not have financial resources. CGH also pays income and property taxes, but does not receive any taxpayer support. CGH generally serves the Little Havana, Flagami, Miami, and Coral Gables communities, and its service area overlaps with those of the applicants. In order to better serve its patients and to help it compete in the highly competitive Miami-Dade County marketplace, CGH is developing a freestanding ED at the corner of Bird Road and Southwest 87th Avenue, which is scheduled to open in January 2020. This will provide another resource for patients in the proposed service areas. Ms. Jimenez had reviewed the CON applications at issue in this case. She does not believe that either hospital should be approved because it will drain resources from CGH, not only from a financial standpoint, but also physician and nurse staffing. CGH experiences physician shortages. Urologists are in short supply, as are gastrointestinal physicians that perform certain procedures. Hematology, oncology, and endocrinology are also specialty areas with shortages. The addition of another hospital will exacerbate those shortages at CGH. While CGH does not have a large market share in the proposed PSA of either applicant, anticipated impact from approval of either is real and substantial. A contribution margin loss of $1.2 to $2.2 million per year, as projected by Tenet’s healthcare planner, would be significant. The drain on resources, including staff and physicians, is also of significant concern. Hialeah Hospital Dr. Jorge Perez testified on behalf of Hialeah. Dr. Perez is a pathologist and medical director of laboratory at the hospital. More significantly, Dr. Perez has been on the hospital’s staff since 2001 and has served in multiple leadership roles, including chair of the Performance Improvement Council, chief of staff; and since 2015, chair of the Hialeah Hospital Governing Board. Hialeah offers obstetrics services and a Level II NICU with 12 beds. Approximately 1,400 babies a year are born there. Hialeah’s occupancy has been essentially flat for the past three years, at below 40%, and it clearly has ample excess capacity. On an average day, over 200 of Hialeah’s beds are unoccupied. Like other hospitals in the county, Hialeah has a number of competitors. The growth of managed care has affected the demand for inpatient beds and services at Hialeah. Hialeah treats Medicaid and indigent patients. Approximately 15% of Hialeah’s admissions are unfunded. As with its sister Tenet hospitals, Hialeah is a for- profit hospital that pays taxes and does not receive tax dollars for providing care to the indigent. Dr. Perez succinctly and persuasively identified a variety of reasons why no new hospital is needed in Doral. First and foremost, there is plenty of capacity at the existing hospitals in the area, including Hialeah. Second, both inpatient admissions and length of stay continue trending downward. Care continues to shift toward outpatient services, thereby reducing the demand for inpatient care. According to Dr. Perez, if a new hospital is approved in Doral it will bring with it adverse impacts on existing hospitals, including Hialeah. A new hospital in Doral will attract patients, some of which would have otherwise gone to Hialeah. Moreover, Doral has more insured patients, meaning the patients that would be lost would be good payors. There would also be a significant risk of loss of staff to a new hospital. Dr. Perez’s testimony in this regard is credible. Statutory and Rule Review Criteria In 2008, the Florida Legislature streamlined the review criteria applicable for evaluating new hospital applications. Mem’l Healthcare Grp. v. AHCA, Case No. 12- 0429CON, RO at 32 (Fla. DOAH Dec. 7, 2012). The criteria specifically eliminated included quality of care, availability of resources, financial feasibility, and the costs and methods of proposed construction. Lee Mem’l Health System v. AHCA, Case No. 13-2508CON, RO at 135 (Fla. DOAH Mar. 28, 2014). The remaining criteria applicable to new hospital projects are set forth at section 408.035(1), Florida Statutes. Section 408.035(1)(a): The need for the healthcare facilities and health services being proposed. Generally, CON applicants are responsible for demonstrating need for new acute care hospitals, typically in the context of a numeric need methodology adopted by AHCA. However, AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. Florida Administrative Code Rule 59C-1.008(2)(e) provides that if no agency need methodology exists, the applicant is responsible for demonstrating need through a needs assessment methodology, which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory and rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Both applicants propose to build small community hospitals providing basic acute care and OB services in the Doral area of western Miami-Dade County. Both applicants point to the increasing population and the lack of an acute care hospital in Doral as evidence of need for a hospital. The DMC application focuses largely on geographic access concerns, while the JW application is premised upon six arguments as to why JHS contends its proposed JW hospital should be approved. The lack of a hospital in Doral is not itself an indication of need.3/ In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals, and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. Doral is in the west/northwest part of Miami-Dade County, in between the Miami International Airport (to the east) and the Everglades (to the west). It is surrounded by major roadways, with US Highway 27/Okeechobee Road running diagonally to the north, US Highway 836/Dolphin Expressway running along its southern edge, US Highway 826/Palmetto Expressway running north-south to the east, and the Florida Turnpike running north- south along the western edge of Doral. To the west of the Turnpike is the Everglades, where there is minimal population and very limited development possible in the future. The City of Doral itself has an area of about 15 square miles, and is only two or three times the size of the Miami International Airport, which sits just east of Doral. Much of Doral is commercial and industrial, with the largest concentration of residential areas being in the northwest part of the city. While there is unquestionably residential growth in Doral, the population of Doral is currently only about 59,000 people. Doral is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. JW proposes to locate its hospital on the eastern side of Doral, just west of Miami International Airport, while the DMC site is on the western side of Doral, just east of the Everglades. JW’s site is located in an industrial area with few residents, while the DMC site is located in an area where future growth is likely to be limited. Both sites have downsides for development of a hospital, with both applicants spending considerable time at hearing pointing out the flaws of each other’s chosen location. Both applicants define their service areas to include the City of Doral, but also areas outside of Doral. Notably, the entire DMC service area is contained within KRMC’s existing service area, with the exception of one small area. While the population of Doral itself is only 59,000 people, there are more concentrated populations in areas outside of Doral (except to the west). However, the people in these areas are closer to existing hospitals like PGH, Hialeah, KRMC, and others. For the population inside Doral, there are several major roadways in and out of Doral, and area residents can access several existing hospitals with plenty of capacity within a 20-minute drive time, many closer than that. It was undisputed that inpatient acute care hospital use rates continue to decline. There are different reasons for this, but it was uniformly recognized that decreasing inpatient use rates, and a shift toward outpatient services, are ongoing trends in the market. These trends existed at the time of the Batch One Case. As observed by Tenet’s healthcare planner at hearing: “The occupancy is lower today than it was two years ago, the use rates are lower, and the actual utilization is lower.” Both applicants failed to establish a compelling case of need. While there is growth in the Doral area, it remains a relatively small population, and there was no evidence of community needs being unmet. Sound healthcare planning, and the statutory criteria, require consideration of existing hospitals, their availability, accessibility, and extent of utilization. These considerations weigh heavily against approval of either CON application, even more so than in the prior case. Section 408.035(1)(b): The availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the service district of the applicant; and Section 408.035(1)(e): The extent to which the proposed services will enhance access to healthcare for residents of the service district. As stated above, there are several existing hospitals in close proximity to Doral. Thus, the question is whether they are accessible and have capacity to serve the needs of patients from the Doral area. The evidence overwhelmingly answers these questions in the affirmative. Geographic access was a focal point of the DMC application, which argued that there are various barriers to access in and around Doral, such as a canal that runs parallel to US Highway 27/Okeechobee Road, train tracks and a rail yard, industrial plants, and the airport. While the presence of these things is undeniable, as is the fact that there is traffic in Miami, based upon the evidence presented, they do not present the barriers that DMC alleges. Rather, the evidence was undisputed that numerous hospitals are accessible within 20 minutes of the proposed hospital sites, and some within 10 to 15 minutes. All of Doral is within 30 minutes of multiple hospitals. These are reasonable travel times and are not indicative of a geographic access problem, regardless of any alleged “barriers.” In addition, existing hospitals clearly have the capacity to serve the Doral community, and they are doing so. Without question, there is excess capacity in the Miami-Dade County market. With approximately 7,500 hospital beds in the county running at an average occupancy just over 50%, there are around 3,500 beds available at any given time. Focusing on the hospitals closest to Doral (those accessible within 20 minutes), there are hundreds of beds that are available and accessible from the proposed service areas of the applicants. KRMC is particularly noteworthy because of its proximity to, and market share in, the Doral area. The most recent utilization and occupancy data for KRMC indicate that it has, on average, 100 vacant beds. This is more than the entire 80-bed hospital proposed in the DMC application (for a service area that is already served and subsumed by KRMC). Moreover, KRMC is expanding, and will soon have even more capacity at its location less than a 10-minute drive from the DMC site. From a programmatic standpoint, neither applicant is proposing any programs or services that are not already available at numerous existing hospitals, and, in fact, both would offer fewer programs and services than other area hospitals. As such, patients in need of tertiary or specialized services will still have to travel to other hospitals like PGH, KRMC, or JMH. Alternatively, if they present to a small hospital in Doral in need of specialized services, they will then have to be transferred to an appropriate hospital that can treat them. The same would be true for babies born at either DMC or JW in need of a NICU. Similarly, there are bypass protocols for EMS to take cardiac, stroke, and trauma patients to the closest hospital equipped to treat them, even if it means bypassing other hospitals not so equipped, like JW and DMC. Less acute patients can be transported to the closest ED. And since both applicants are building FSEDs in Doral, there will be ample access to emergency services for residents of Doral. This criterion does not weigh in favor of approval of either hospital. To the contrary, the evidence overwhelmingly established that existing hospitals are available and accessible to Doral area residents. Section 408.035(1)(e), (g) and (i): The extent to which the proposed services will enhance access to healthcare, the extent to which the proposal will foster competition that promotes quality and cost-effectiveness, and the applicant’s past and proposed provision of healthcare services to Medicaid patients and the medically indigent. It goes without saying that any new hospital is going to enhance access to the people closest to its location; but as explained above, there is no evidence of an access problem, or any pressing need for enhanced access to acute care hospital services. Rather, the evidence showed that Doral area residents are within very reasonable travel times to existing hospitals, most of which have far more extensive programs and services than either applicant is proposing to offer. Indeed, the proposed DMC service area is contained within KRMC’s existing service area, and KRMC is only 10 minutes from the DMC site. Neither applicant would enhance access to tertiary or specialized services, and patients in need of those services will still have to travel to other hospitals, or worse, be transferred after presenting to a Doral hospital with more limited programs and services. Although it was not shown to be an issue, access to emergency services is going to be enhanced by the FSEDs being built by both applicants. Thus, to the extent that a new hospital would enhance access, it would be only for non-emergent patients in need of basic, non-tertiary level care. Existing hospitals are available and easily accessible to these patients. In addition, healthy competition exists between several existing providers serving the Doral area market. That healthy competition would be substantially eroded by approval of the DMC application, as HCA would likely capture a dominant share of the market. While approval of the JW application might not create a dominant market share for one provider, it would certainly not promote cost-effectiveness given the fact that it costs the system more for the same patient to receive services at a JHS hospital than other facilities. Indeed, approval of JW’s application would mean that the JW campus will have the more expensive hospital-based billing rates. Florida Medicaid diagnosis related group (DRG) payment comparisons among hospitals are relevant because both DMC and JW propose that at least 22% of their patients will be Medicaid patients. Data from the 2017-18 DRG calculator provided by the Medicaid program office was used to compare JHS to the three Tenet hospitals, KRMC, and Aventura Hospital, another EFD hospital in Miami-Dade County. The data shows that JHS receives the highest Medicaid rate enhancement per discharge for the same Medicaid patients ($2,820.06) among these six hospitals in the county. KRMC receives a modest enhancement of $147.27. Comparison of Medicaid Managed Care Reimbursement over the period of fiscal years 2014-2016 show that JHS receives substantially more Medicaid reimbursement per adjusted patient day than any of the hospitals in this proceeding, with the other hospitals receiving between one-third and one-half of JHS reimbursement. In contrast, among all of these hospitals, KRMC had the lowest rate for each of the three years covered by the data, which means KRMC (and by extension DMC) would cost the Medicaid program substantially less money for care of Medicaid patients. Under the new prospective payment system instituted by the State of Florida for Medicaid reimbursement of acute care hospital providers, for service between July 1, 2018, and March 31, 2019, JHS is the beneficiary of an automatic rate enhancement of more than $8 million. In contrast, KRMC’s rate enhancement is only between $16,000 and $17,000. Thus, it will cost the Medicaid program substantially more to treat a patient using the same services at JW than at DMC. Furthermore, rather than enhance the financial viability of the JHS system, the evidence indicates that the JW proposal will be a financial drain on the JHS system. Finally, JHS’s past and proposed provision of care to Medicaid and indigent patients is noteworthy, but not a reason to approve its proposed hospital. JW is proposing this hospital to penetrate a more affluent market, not an indigent or underserved area, and it proposes to provide Medicaid and indigent care at a level that is consistent with the existing hospitals. JHS also receives the highest Low Income Pool (LIP) payments per charity care of any system in the state, and is one of only a handful of hospital systems that made money after receipt of the LIP payments. HCA-affiliated hospitals, by comparison, incur the second greatest cost in the state for charity care taking LIP payments into consideration. Analysis of standardized net revenues per adjusted admission (NRAA) among Miami-Dade County acute care hospitals, a group of 16 hospitals, shows JHS to be either the second or the third highest hospital in terms of NRAA. KRMC, in contrast, part of the EFD/HCA hospitals, is about 3% below the average of the 16 hospitals for NRAA. DMC’s analysis of standardized NRAA using data from 2014, 2015, and 2016, among acute care hospitals receiving local government tax revenues, shows JHS receives more net revenue than any of the other hospitals in this grouping. Using data from FY 2014 to FY 2016, DMC compared hospital costs among the four existing providers that are parties to this proceeding and JMH as a representative of JHS. Standardizing for case mix, fiscal year end, and location, an analysis of costs per adjusted admission shows that the hospitals other than JMH have an average cost of between a half and a third of JMH’s average cost. The same type of analysis of costs among a peer group of eight statutory teaching hospitals shows JHS’s costs to be the highest. It should also be noted that if JW were to fail or experience significant losses from operations, the taxpayers of Miami-Dade County will be at risk. In contrast, if DMC were to fail financially, EFD/HCA will shoulder the losses. When the two applications are evaluated in the context of the above criteria, the greater weight of the evidence does not mitigate in favor of approval of either. However, should AHCA decide to approve one of the applicants in its final order, preference should be given to DMC because of its lower costs per admission for all categories of payors, and in particular, the lower cost to the Florida Medicaid Program. In addition, the risk of financial failure would fall upon EFD/HCA, rather than the taxpayers of Miami-Dade County. Rule 59C-1.008(2)(e): Need considerations. Many of the considerations enumerated in rule 59C- 1.008(2)(e) overlap with the statutory criteria, but there are certain notable trends and market conditions that warrant mention. Specifically, while the population of Doral is growing, it remains relatively small, and does not itself justify a new hospital. And while there are some more densely populated areas outside of the city of Doral, they are much closer to existing hospitals having robust services and excess capacity. Doral is a more affluent area, and there was no evidence of any financial or cultural access issues supporting approval of either CON application. The availability, utilization, and quality of existing hospitals are clearly not issues, as there are several existing hospitals with plenty of capacity accessible to Doral area residents. In terms of medical treatment trends, it was undisputed that use rates for inpatient hospital services continue trending downward, and that trend is expected to continue. Concomitantly, there is a marked shift toward outpatient services in Miami-Dade County and elsewhere. Finally, both applicants are proposing to provide OB services without a NICU, which is below the standard in the market. While not required for the provision of obstetrics, NICU backup is clearly the most desirable and best practice. For the foregoing reasons, the considerations in rule 59C-1.008(2)(e) do not weigh in favor of approval of either hospital.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Healthcare Administration enter a final order denying East Florida-DMC, Inc.’s CON Application No. 10432 and denying The Public Health Trust of Miami-Dade County, Florida, d/b/a Jackson Hospital West’s CON Application No. 10433. DONE AND ENTERED this 30th day of April, 2019, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS 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 30th day of April, 2019.
Conclusions Having reviewed the Administrative Complaint, and all other matters of record, the Agency for Health Care Administration finds and concludes as follows: 1. The Agency has jurisdiction over the above-named Respondent pursuant to Chapter 408, Part II, Florida Statutes, and the applicable authorizing statutes and administrative code provisions. 2. The Agency issued the attached Administrative Complaint and Election of Rights form to the Respondent. (Ex. 1) The Election of Rights form advised of the right to an administrative hearing. 3. The parties have since entered into the attached Settlement Agreement. (Ex. 2) Based upon the foregoing, it is ORDERED: 1. The Settlement Agreement is adopted and incorporated by reference into this Final Order. The parties shall comply with the terms of the Settlement Agreement. 2. The Respondent shall pay the Agency $500. If full payment has been made, the cancelled check acts as receipt of payment and no further payment is required. If full payment has not been made, payment is due within 90 days of the Final Order. Overdue amounts are subject to statutory interest and may be referred to collections. A check made payable to the “Agency for Health Care Administration” and containing the AHCA ten-digit case number should be sent to: Office of Finance and Accounting Revenue Management Unit Agency for Health Care Administration 2727 Mahan Drive, MS 14 Tallahassee, Florida 32308 Filed August 29, 2014 9:49 AM Division of Administrative Hearings ORDERED at Tallahassee, Florida, on this 24 day of Dutuat , 2014.
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review, which shall be instituted by filing one copy of a notice of appeal with the Agency Clerk of AHCA, and a second copy, along with filing fee as prescribed by law, with the District Court of Appeal in the appellate district where the Agency maintains its headquarters or where a party resides. Review of proceedings shall be conducted in accordance with the Florida appellate rules. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed. CERTIFICATE OF SERVICE I CERTIFY that a true and ory or this Final Order was served on the below-named persons by the method designated on this 6 2 , 2014, lay of 7485 as Richard Shoop, Agency Cletk Agency for Health Care Administration 2727 Mahan Drive, Bldg. #3, Mail Stop #3 Tallahassee, Florida 32308-5403 Telephone: (850) 412-3630 Jan Mills Finance & Accounting Facilities Intake Unit Revenue Management Unit (Electronic Mail) (Electronic Mail) Andrea M. Lang Miriam Alonso, Administrator Office of the General Counsel Living Care Solutions LLC d/b/a The Pointe of Agency for Health Care Administration North Gables (Electronic Mail) 5890 S.W. 8” Street Miami, Florida 33144 (U.S. Mail) Darren A. Schwartz Administrative Law Judge Division of Administrative Hearings (Electronic Mail)
Findings Of Fact The Agency is statutorily responsible for administering the Certificate of Need (CON) program and the promulgation of rules pertaining to tertiary health services. Promise Healthcare, Inc., is located at 999 Yamato Road, Third Floor, Boca Raton, Florida. Promise's wholly-owned subsidiary, Promise Healthcare of Florida III, Inc., has received approval to construct and operate an LTCH in AHCA Health Service Planning District (District) 3. See Promise Healthcare of Florida III, Inc. v. State of Florida, Agency for Health Care Administration, Case No. 06-0568CON (DOAH April 10, 2008; AHCA May 16, 2008). Select owns and operates an LTCH in Orlando, Florida, within District 7. Petitioners related corporations are currently and have been applicants in proceedings before the Division of Administrative Hearings (DOAH) seeking to establish LTCHs in the State of Florida. Id. See also Select Specialty Hospital - Marion, Inc. v. State of Florida, Agency for Health Care Administration, Case No. 04-3150CON (DOAH July 11, 2006; AHCA Sept. 23, 2006); Select Specialty Hospital - Broward, Inc. v. Agency for Health Care Administration, Case No. 07-0597CON and Promise Healthcare of Florida X, Inc. v. Agency for Health Care Administration, Case No. 07-0598CON (Consolidated). The Proposed Rule In December 2005 and September 2006, the Agency published separate notices of proposed rule development proposing to include long-term care hospitals within the rule definition of tertiary health service. On June 8, 2007, the Agency published a copy of the proposed rule at issue in this proceeding in the Florida Administrative Weekly. The proposed rule is one of several proposed changes to Florida Administrative Code Rule 59C-1.002, providing definitions. The stated purpose and effect of the entire proposed rule changes to Rule 59C-1.002 is "to amend the rule that defines terms in Chapter 59C-1, F.A.C. due to recent statutory changes " On July 13, 2007, a public hearing was held. Proposed rule 59C-1.002(41)(i) provides: "'Tertiary health service' means a health service. . . . .The types of tertiary services to be regulated under the Certificate of Need Program in addition to those listed in Florida Statutes include: . . . (i) Long-term care hospitals. The Agency relies on Sections 408.034(6) and 408.15(8), Florida Statutes, as the specific authority for all of the changes to Rule 59C-1.002, including subsection(41)(i). All of the proposed rule changes implement Sections 408.033(1)(a), 408.036(1)-(3), 408.037(1), 408.039(1) and (2), and 651.118, Florida Statutes. See also endnote 3. ("'Law implemented' means the language of the enabling statute being carried out or interpreted by an agency through rulemaking." Ch. 2008-104, § 2, Laws of Fla.) Section 408.034(6) authorizes the Agency to adopt rules necessary to implement Sections 408.031-408.045, known as the "Health Facility and Services Development Act." See also § 408.15(8), Fla. Stat., providing similar authority. Section 408.033(1)(a) pertains to Local Health Councils. Section 408.036(1)-(3) include projects that are subject to CON review, including expedited review, and projects that are exempt from CON review. (The new construction or establishment of additional health care facilities, which includes long-term care hospitals by definition, see Section 408.032(8), Florida Statutes, are subject to CON review.) Section 408.037(1) pertains to CON application content. Section 408.039(1) and (2) pertains to CON review cycles and letters of intent, respectively. Section 651.118 pertains generally to the Agency's authority regarding nursing home beds and sheltered nursing home beds. Statutory Definitions "'Health services' means inpatient diagnostic, curative, or comprehensive medical rehabilitative services and includes mental health services. Obstetric services are not health services for purposes of ss. 408.031-408.045." § 408.032(9), Fla. Stat. In 2004, the Legislature amended the definition of "health services" as follows: "'Health services' means inpatient diagnostic, curative, or comprehensive medical rehabilitative services and includes mental health services. Obstetrical services are not health services for purposes of ss. 408.031- 408.045." Ch. 2004-383, § 2, Laws of Fla. (emphasis in original). "'Health care facility' means a hospital, long-term care hospital. . . ." § 408.032(8), Fla. Stat. "'Hospital' means a health care facility licensed under chapter 395." § 408.032(11), Fla. Stat. "Hospital" is defined in Section 395.002(12), Florida Statutes. "'Hospital' means any establishment that" offers "services more intensive than those required for room, board, personal services, and general nursing care, and offers facilities and beds for use beyond 24 hours by individuals requiring diagnosis, treatment, or care for illness, injury, deformity, infirmity, abnormality, disease, or pregnancy. " § 395.002(12)(a)-(b), Fla. Stat. The parties stipulated that the Agency licenses LTCH facilities as Class 1 general hospitals. Generally, a Class 1 general hospital is a "basic multipurpose hospital." Like Class 1 general hospitals, LTCHs are subject to CON review and approval prior to offering those services. Unlike a Class 1 general hospital, a Class I LTCH seeks exclusion from the acute care Medicare prospective payment system for inpatient services. "'General hospital' means any facility which meets the provisions of subsection (12) and which regularly makes its facilities and service available to the general population." § 395.002(10), Fla. Stat. See also § 395.002(28), Fla. Stat. for a definition of "specialty hospital." For example, a freestanding children's hospital is classified as a Class 3 specialty hospital because it provides services to a specialized population related to gender or age. Comprehensive rehabilitation hospitals are classified as Class 2 specialty hospitals. Gregg deposition at 35-39. If a Class 1 general hospital desires to add a tertiary health service, such as pediatric cardiac catheterization, the hospital would need to obtain a CON. Aside from LTCHs and perhaps some referral hospitals, the Agency believes a comprehensive inpatient rehabilitation facility is an example of a facility providing services that are high in intensity, complexity, or a specialized or limited application at a high cost associated with the Medicare program. Gregg deposition at 36-37. The new construction or establishment of additional health care facilities, including an LTCH, is subject to CON review. § 408.036(1)(b), Fla. Stat.1 Conversions from one type of health care facility to another, including the conversion from a general hospital, a specialty hospital, or a long-term care hospital are also subject to CON review. § 408.036(1)(c), Fla. Stat. See endnote 5. Also, unless exempt, all health care-related projects requesting "[t]he establishment of tertiary health services, including inpatient comprehensive rehabilitation services" are subject to CON review. § 408.036(1)(f), Fla. Stat. An LTCH desiring to offer a tertiary health service is required to obtain a CON in order to provide the service. LTCHs, like other general hospitals, can add additional beds without CON review by filing an appropriate notice with the Agency. "'Long-term care hospital' means a hospital licensed under chapter 395 which meets the requirements of 42 C.F.R. s. 412.23(e)[2] and seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services." § 408.032(13), Fla. Stat. See also Fla. Admin. Code R. 59C- 1.002(28), as amended, which mirrors the statutory definition. In 2004, the Legislature amended the definition of long-term care hospital in Section 408.032(13), adding the terms "acute care" before "Medicare." Ch. 2004-383, § 2, Laws of Fla.3 "'Tertiary health service' means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost-effectiveness of such service. Examples of such service include, but are not limited to, pediatric cardiac catheterization, pediatric open- heart surgery, organ transplantation, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. The agency shall establish by rule a list of all tertiary health services. § 408.032(17), Fla. Stat.(emphasis added).4 In 2004, the Legislature added "pediatric cardiac catheterization" and "pediatric open-heart surgery" to the statutory list of tertiary health services and deleted "specialty burn units". Ch. 2004-383, § 2, Laws of Fla.(emphasis in original).5 By its terms, the statutory list of tertiary health services is not exhaustive. The Agency reviews this list periodically. To accomplish the legislative purpose stated in the statutory definition of tertiary health service, the Agency includes a list of tertiary health services in Florida Administrative Code Rule 59C-1.002(41)(a)-(j). Like its statutory counterpart, Section 408.032(17), Florida Statutes, all of the items listed in Rule 59C- 1.002(41(a)-(j) are health services, which, by definition, "should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost- effectiveness of such service." Fla. Admin. Code R. 59C- 1.002(41). Over time, the Agency has added several tertiary health services, such as heart, kidney, liver, bone marrow, lung, pancreas, islet cells, and heart/lung transplantation, and adult open heart surgery. The Agency proposes to delete neonatal and pediatric cardiac and vascular surgery, and pediatric oncology and hematology, from the list and add pediatric cardiac catheterization and pediatric open-heart surgery to the list, the latter reflecting the 2004 statutory amendments. See proposed rule 59C-1.002(41)(a)-(j). The Agency's Rationale for the Proposed Rule According to the Agency, Section 408.032(17) provides a broad definition of tertiary health services and the Agency has the authority to decide if certain services, due to their complexity and cost, should be added to or deleted from the list of tertiary health services. Notwithstanding the stated purpose and effect of the proposed rule, see Finding of Fact 6, "[t]he Agency has proposed to include long term care hospital (LTCH) services as a tertiary service in the [CON] program because the services are intense, complex, specialized and costly." See AHCA's Motion for Summary Final Order, "Rationale for Proposing Long Term Care Hospital Services as a Tertiary Service in the CON Program" at 1. In attachments to its Motion for Final Summary Order, the Agency provided information that the Agency believes demonstrates that LTCH services are tertiary health services. The Agency contends that "[t]he undisputed evidence shows that a long term care hospital is a tertiary health service" and further asserts "[t]here are no genuine issues of material fact present in this case." AHCA's Motion at 2, ¶¶ 2 and 3. For the Agency, "[t]here is really no such thing as a tertiary hospital. Tertiary has to do with the services that are provided." Within the Agency's framework, tertiary health services are "a combination of specialized, complicated, complex services that are a high cost." Further, "[t]hey are somewhat unique. They are high-end services that are the most complex, the most technologically advanced, the most difficult to provide, the most resource intensive, and inherently limited as a result." According to the Agency, LTCHs are health services that provide a high level of intensity, treat complex patients, and have a high cost associated with the services provided. Gregg deposition at 30-33, 48-53. By the proposed rule, the Agency proposes to make services that are provided in an LTCH a tertiary health service. But, if those same services are provided in some other type of facility, they are not LTCH services. Gregg deposition at 48- 49.6 The Agency's approach is based in part on several reports published by, for example, MedPAC, which characterize the role of the LTCH to provide post-acute care to a small number of medically complex patients at a high cost and for relatively extended periods. Id. at 21-29, 67-68. (The MedPAC reports relied on by the Agency do not define tertiary services. Id. at 58.) The Agency's approach is also based on the experience of the Agency in reviewing LTCH CON applications and developing an understanding of the complex patient population treated at LTCHs. Id. at 29, 68. See also AHCA's Motion at Gregg affidavit and supporting information. The Agency's rationale for the proposed rule is informative and thoughtful, but not material to the disposition of this rule challenge in light of the facial challenge to the proposed rule as written. See endnotes 7 and 13. If the case was resolved on the current record, none of the parties would be entitled to entry of a final order as a matter of law if the issue was whether LTCH services within an LTCH are tertiary health services because whether LTCH services provided within an LTCH are tertiary health services requires the resolution of genuine issues of material fact. Compare, e.g., Petitioners' Motion for Summary Final Order, Exhibit 9 (Kornblatt affidavit) with AHCA's Motion for Summary Final Order, Gregg affidavit and supporting information. Rather, the challenge is resolved based on an evaluation of the proposed rule in light of the plain meaning of several statutory provisions.
Conclusions For Petitioner Promise Healthcare, Inc.: F. Philip Blank, Esquire Blank & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 For Petitioner/Intervenor Select Specialty Hospital- Orlando, Inc.: Mark A. Emanuele, Esquire Panza, Maurer & Maynard, P.A. Bank of America Building, Third Floor 3600 North Federal Highway Fort Lauderdale, Florida 33308 For Respondent Agency for Health Care Administration: Bart O. Moore, Esquire Shaddrick A. Haston, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing one copy of a Notice of Appeal with the agency clerk of the Division of Administrative Hearings and a second copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the appellate district where the party resides. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed.
Findings Of Fact North Ridge is a 396 bed short term general acute care hospital located in Broward County, Florida. The ownership of North Ridge changed on September 3, 1985, and the fiscal year was changed from September 30th to August 31st. NRGH Ex. 1, p. 4; NRGH Ex. 2. North Ridge is an investor owned hospital owned by American Medical International, Inc. NRGH Ex. 2. Staff of the HCCB conducts the review of budgets and budget amendments using certain screens and guidelines, T. 21,27, as well as the hospital's 1984 and 1986 budgets. T. 26, 104. In reviewing a budget or a budget amendment, the staff of the HCCB follows certain internal procedures consisting of several steps of review. A budget or amended budget (which, unless stated otherwise, will be deemed to be the same for purposes of this order) is first stamped with the date it is received. T. 21-22. It is then given to Aldric Borders, Regulatory Analyst Supervisor, who distributes budgets to analysts, including Melvin Austin, who is under the supervision of Mr. Borders, and is a Regulatory Analyst II. T. 22, 21, 434. This is not controlled by the hospital. The process thus begins with the date the budget is received and date stamped, although actual substantive review cannot begin until the budget reaches an analyst. The analyst checks the documents to see that they are "in order" and begins the review process. Preliminary findings and recommendations are the end result of the work of the analyst. T. 25-6. A proposed budget amendment is reviewed using the same internal procedures used to review a budget, but the amended budget is not sent to TMIC for generation of computer printouts. T. 24-5. The staff of the HCCB has an internal goal of 25 days within which staff attempts to send out to the hospital their preliminary findings and recommendations. T. 27. It is not clear whether the 25 day period is calculated from the date that the amended budget is received by the HCCB or the date that staff determines the amendment to be complete. T. 27, 104. The 25 days includes approval by James Bracher, Executive Director of the HCCB. T. 27- The 25 day period is only a staff goal, and is not contained in rule or statute. T. 91-2. The HCCB received the proposed amendment filed by North Ridge on December 16, 1985. T. 31; NRGH Exhibit 2; T. 202. The amended budget requested a gross revenue per adjusted admission of $7,569. T. 272. A few days later, North Ridge received NRGH Exhibit 4, which is a letter from the HCCB stating that the amended budget report was "incomplete, nonconforming, and not verifiable." The letter (dated December 17, 1985, from John Pattillo, Chief Financial Analyst) asked North Ridge to complete the enclosed wcrksheets and return it as soon as possible, and mentioned instructions included. Attached was an instruction form to complete worksheet C2A. T. 202. Upon receipt of this letter, Richard Wichmann, Hospital Financial Manager for the Petitioner, called the HCCB and spoke to Pace Allen, who was then employed by the HCCB, asking him how to complete the form. T. 202. On January 13, 1986, Mr. Wichmann wrote to Mr. Allen enclosing worksheet C2A which had been completed in response to the December 17, 1985, letter from Mr. Pattillo. NRGH Exhibit 5. It is stipulated that worksheet C2A was submitted to the HCCB on January 13, 1986. Worksheet C2A was developed to provided a logical, consistent manner for hospitals to provide data that staff of the HCCB would need to help them analyze a proposed budget amendment. The form was first developed just shortly before it was required of North Ridge, in late 1985. The form has been changed several times, but generally is being consistently applied by the HCCB to all hospitals seeking to amend their budgets. There is no evidence that the form is a part of the Hospital Uniform Reporting System Manual. The form is the subject of a proposed rule. T. 410-11. Thus, the letter of Mr. Pattillo on December 17, 1985, requiring that North Ridge submit a completed form C2A was based upon incipient and evolving policy of the HCCB to require such forms when proposed budget amendments are received. There was no evidence that the policy is unreasonable in any respect, and it is the conclusion of the Hearing Officer that the policy is in fact reasonable. The North Ridge amended budget was first assigned to Nancy Speccia, who began the review process. T. 435. Ms. Speccia then left her position with the HCCB, T. 436, and on about January 31, 1986, the proposed amended budget was assigned by Aldric Borders to Melvin Austin for review. Id. T. 92. Ms. Speccia's work was not sufficiently complete at this point to allow the issuance of preliminary findings and recommendations. T. 436. The only reason for delay between early January and early February 1986 was that Ms. Speccia had been originally assigned to the amended budget and had left the HCCB without completing the analysis. T. 206-7. On February 11, 1986, Mr. Wichmann met with Aldric Borders and Melvin Austin at the offices of the HCCB in Tallahassee. T. 204. If staff of the HCCB had completed the preliminary findings and recommendations based upon the information available to staff as of the beginning of the meeting on February 11, 1986, staff would have recommended denial of the proposed amendment by North Ridge. T 441. During this meeting, there was a discussion of the increase in the amended budget from the original budget of gross revenue per adjusted admission and the change in case mix. T. 440, 36, 39, 41. The change in gross revenue in the amended budget was not based upon a change in rates or charges to patients, but was based solely upon a change in case mix. T. 205. During the meeting on February 11, 1986, the HCCB staff asked Mr. Wichmann to provide additional information concerning the change in case mix. T. 43. The only witness who asserted that interest expense was discussed at the meeting on February 11th was Mr. Borders. T. 440. Mr. Borders, however, did not testify that the staff of the HCCB at the February 11th meeting requested that Mr. Wichmann supply additional information concerning interest expense. See T. 441. Mr. Borders simply testified that "we wanted some details on that," but he did not say that he asked Mr. Wichmann for those details. T. 441. Indeed, Mr. Borders denied that he himself had "made a request of the hospital regarding the hospital's interest expense." T. 471. Mr. Austin did not testify that he had asked Mr. Wichmann to supply information concerning interest expense at the February 11th meeting. Thus, it is concluded that the only additional information that Mr. Wichmann was asked to gather and submit as of February 11, 1986, was information concerning case mix. This conclusion is further Supported by the pattern of very prompt responses by Mr. Wichmann with respect to all other requests for information. It is inferred that Mr. Wichmann would have also promptly supplied interest expense information had anyone asked him for such information at the February 11th meeting. At the meeting on February 11, 1986, Mr. Austin requested that North Ridge take some action to alter the 120-day period. T. 44. As will be discussed ahead, all parties at the meeting were aware of the fact that nearly 60 days had already elapsed since the proposed amended budget was first received by the HCCB, and Mr. Wichmann expressed his concerns about this lapse of time. T. 206. In response to the request from Mr. Austin, Mr. Wichmann sent Mr. Austin a letter dated February 13, 1986, NRGH Exhibit 6. T. 207-8. The letter in its entirety states: Per our conversation on Tuesday, February 11, 1986, this letter is to request a waiver of the 120 day approval period for the above provider until documentation is provided to your satisfaction of the the above provider until documentation is provided to your satisfaction of the narrative. My understanding is that once the above information is supplied to your satisfaction, the 120 day period will begin when received. If this is not correct, please notify me immediately. Prior to writing the letter of February 13, 1986, Mr. Wichmann did not consult with an attorney. T. 253. At the time of writing the letter, Mr. Wichmann said that he did not know what a "waiver" was. T 207. It is unclear from the question whether Mr. Wichmann was referring to the ordinary meaning of the word or the legal concept. Mr. Wichmann did not remember a lot of the discussion of the "waiver" (except the part about the budget being returned, discussed ahead), and there appears to have been very little discussion among Mr. Wichmann, Mr. Austin, and Mr. Borders concerning the details of the "waiver." T 442-3. On February 14, 1986, Mr. Austin received NRGH Exhibit 6, T. 45. The letter was copied to Mr. Borders by Mr. Austin, but was not shown to the HCCB Executive Director, Mr. Bracher at that time. T. 45-6. Mr. Bracher was unaware of any requested or allegedly granted waiver until early April of 1986. Hearing Officer Exhibit 1 (Prehearing Stipulation), p. 2. No written acknowledgment of acceptance of any requested or offered waiver of the 120-day period was ever sent by the Hospital Cost Containment Board or its staff to North Ridge, and the question of whether North Ridge was requested to provide the staff with a waiver of the 120-day period, or in fact had offered to granted any such waiver, was never presented to the Board for approval or consideration. Id. Mr. Wichmann was never told by the HCCB whether his letter of February 13, 1986, had been approved. T. 216. Mr. Austin did, however, tell Mr. Wichmann on February 14, 1986, that the letter was "what he had wanted." T. 216. That was the last that Mr. Wichmann heard from the HCCB regarding his letter. Id. 14, 1956, Mr. Wichmann had no further communication with the staff of the HCCB or the HCCB concerning the issue of waiver contained in his letter of February 13, 1986. T. 240, 247. Mr. Austin testified that "case mix was a major thrust at the meeting" on February 11, 1986. T. 41. He also testified that after leaving the meeting on February 11, 1986, we all discovered the problem in that we would probably need more information regarding the case mix data." T. 37-8. Mr. Austin further testified that the purpose of the requested "waiver" was "to get the proper documents to evaluate the hospital amendment" with respect to case mix. T. 42-3. In the same passage, Mr. Austin mentions evaluation of the case mix data, but does not appear to envision the "waiver" as clearly covering evaluation time. The entire passage is as follow: Well, we talked about getting a 120-day waiver notice, and the reasons behind that was based on the hospital requesting sending in their amendment based on case mix. We would need more time to -- to get the proper documents to evaluate the hospital amendment, but -- and by having the 120-day waiver notice, perhaps time constraints would not be a factor in trying to evaluate the information properly. T. 42-3 (E.S.) Mr. Borders similarly limited his characterization of the purpose of the requested "waiver" to a period of time for North Ridge to submit additional information: To the best of my knowledge, we told Mr. Wichmann that if North Ridge, in order for us to make a valid review of his 1986 amended budget, that a waiver would be-- if he wanted to submit to us additional information concerning justification for the budget, then a waiver would be in line. T. 469. (E.S.) In summary, both Mr. Austin and Mr. Borders were given full opportunity to characterize what they understood to be the purpose of the requested "waiver." Both focused primarily upon the time needed for North Ridge to submit additional case mix information. Neither clearly stated that the "waiver" was intended to cover time for staff to evaluate the new information. Neither clearly stated that intended to cover time for staff to evaluate the new information. If either Mr. Austin or Mr. Borders had clearly stated that the "waiver" was needed for a time to evaluate the case mix information, they then would also have had to have established in their testimony a clear event--such as the completion of such evaluation, or the completion of the evaluation coupled with a favorable recommendation or request for more data--as the end of the period under "waiver." It must therefore be concluded that Mr. Austin and Mr. Borders intended the requested "waiver" to cover only the time required for North Ridge to submit additional case mix data as requested at the February 11, 1986, meeting. Mr. Wichmann similarly understood the purpose of the requested "waiver" to be to allow time for North Ridge to submit additional data concerning case mix. T. 246. He also testified: During our meeting at the staff office on February 11, 1986, discussed North Ridge's amended budget, I was asked by Mr. Austin to submit a waiver to the Board, or to himself for North Ridge's amended budget because he believed that the amended budget was, the narrative was not complete and needed more information on case mix. T. 563-64. Finally, and most persuasive, the "waiver" letter sent by Mr. Wichmann only mentions waiver "until the documentation is Provided to your satisfaction." The letter also states that "and the above information is supplied to your satisfaction, the 120 day period will begin when received." The last two words are critical, for it is evident that Mr. Wichmann intended the 120-day period to be again fully operative as of the date of receipt of the information, not the date of "satisfaction." It is therefore concluded that the purpose of the requested "waiver" was to give North Ridge time to submit additional information concerning case mix. The purpose was not to give the staff of the HCCB a specified additional time to evaluate new data as to case mix. At the meeting on February 11, 1986, Mr. Austin, Mr. Borders, and Mr. Wichmann all thought that the 120-day period had already started to run with respect to the proposed amended budget of North Ridge, and the meaning of the "waiver" letter of Mr. Wichmann must be construed with this fact in mind. Mr. Wichmann stated this as he testified as to the purpose he intended in drafting his letter of February 13, 1986: The intent was to stop the clock and start it again on March 4th when the narrative had been received by the staff. T. 246. In response to a question as to why the 120-day period should not begin with March 4, 1986, Mr. Wichmann further testified: Because on December 16, 1985, I submitted North Ridge amended budget complete, conforming and verifiable. T. 244. Similarly, as set forth above, on page 42 of the transcript, Mr. Austin had described the purpose of the waiver and used the phrase "time constraints" in that context. He then was asked what he had meant by "time constraints," and he answered: Well, in terms of getting--once a budget amendment is received and getting approved by the Board, there is 120 days, and based the time that the amendment was received and the time--at that point in time, we were already at February 11th and we were nowhere near recommending any approval or disapproval. So that's why we requested the 120-day waiver notice. T. 43. (E.S.) Moreover, the following testimony confirms that at the meeting on February 11, 1986, Mr. Austin thought that the 120-day period had already started to run: Q. Did you make a statement to anyone that you would send the budget back? A. Yes, I did. Q. What was the circumstance of making that statement? A. That was the circumstances of the hospital not justifying their budget amendment . . . . It had nothing to do with a waiver notice. Q. What did you tell Mr. Wichmann? A. That the hospital's amendment was not justified, and that the fact that the amendment had been in-house since December the 16th, and the mere fact that proper justification had not been received, and in order to avoid time constraints, and in order to allow the hospital to justify the budget, I felt, and my supervisor felt that a waiver notice would be best for both parties involved here. And that is to give the hospital time to submit justification and to allow time constraints on staff's part to avoid the time constraints. T., 638-9. (E.S.) Mr. Borders also believed at the February 11, 1986, meeting that the 120-day period had started to run. He characterized the circumstances surrounding that meeting as follows: Well, we were into February, and the budget had come in December, and we still didn't have enough information in which to evaluate it, and to give him a positive recommendation, which was what he was seeking. At that time, we discussed the 120-day waiver, and what that would do would allow him more time to get us additional information, and also keep us from running out of the -- keep the 120 days from running out on us while the budget was in-house. T. 442. (E.S.) It is true that Mr. Borders also testified that "we" told Mr. Wichmann that: . . . we needed a waiver that would allow us time to evaluate his analysis, and that the 120 days wouldn't start until we received sufficient documentation of his budget. T. 443. (E.S.) One cannot conclude, however, from this testimony that Mr. Borders did not think that the 120-day period had not already started to run by February 11, 1986. First, if Mr. Borders had actually thought that the 120-day period had not already started, he would have had no reason to ask for a "waiver." He simply would have asked for agreement that the period would begin at some future date. Second, the testimony conflicts with what Mr. Borders said on page 442 of the transcript, set forth above. Mr. Wichmann understood from his meeting with Mr. Austin and Mr. Borders that if he did not agree to an alteration of the 120-day period (a "waiver"), the proposed amended budget of North Ridge would be returned to him as if it had never been filed. T 205. Mr. Wichmann heard Mr. Austin tell him this. Id. Mr. Austin testified that he did not connect "waiver" and his statement that the budget would be returned to Mr. Wichmann. T 637. He admitted, however, that he did not tell Mr. Wichmann that he would send the proposed budget amendment back to North Ridge. T. 638. He testified that the statement about sending the budget back was made in connection with the perceived failure of North Ridge as of February 11, 1986, to "justify" its amendment to the Satisfaction of Mr. Austin, and that "in order to allow the hospital to justify the budget, I felt, and my supervisor felt that a waiver notice would be best for both parties Involved here." T. 638. The manner in which Mr. Austin combined the concepts of "justification of the budget, the "waiver notice," and the statement, admittedly made, that the budget would be "sent back" leads to the conclusion that in context, the implication was left with Mr. Wichmann that the budget would have been sent back to Mr. Wichmann if he had not submitted additional information and provided a "waiver notice." Mr. Borders apparently did not understand the Implications of what Mr. Austin said, since Mr. Borders testified that he did not hear it and would have Corrected Mr. Austin if it had been said. T. 441-2. On about March 4, 1986, Mr. Wichmann hand delivered to Mr. Austin NRGH Exhibit 7, which is a letter of the same date from Mr. Wichmann to Mr. Austin conveying additional information concerning case mix. T. 46-7. During the period from February 11, 1986, to March 4, 1986, Mr. Austin was waiting for additional information to justify the increase in case mix, and Mr. Austin characterized the March 4, 1986, letter as "a better narrative trying to support their amendment." T. 47-8. On March 4, 1986, Mr. Wichmann also met with Mr. Austin and spent additional time explaining case mix changes. T. 219. Upon receipt of the case mix information, Mr. Austin again began to review the amended budget. T. 48. On March 10, 1986, North Ridge received another request from the staff of the HCCB for additional information relating to case mix which had previously been provided. Although this information was provided to staff on March 13, 1986, on about March 12, 1986, Mr. Austin told Mr. Wichmann that the information concerning case mix was acceptable. T. 220. On March 5, 1986, Mr. Bracher, Executive Director of the HCCB wrote to Rudy Noriega, Acting Chief Executive Officer of North Ridge. NRGH Exhibit 8. The first two paragraphs of that letter stated: A preliminary review of the first request to amend the 1986 approved budget has been completed for North Ridge General Hospital. It is concluded that the first request to amend is not complete, conforming and verified based or the lack of information discussed below. The 120 day review period cannot begin until additional data is received. (E.S.) The letter does not mention NRGH Exhibit 4, which was dated December 17, 1986, and advised that the amended budget was not complete, conforming, or verifiable due to a lack of worksheet C2A. The March 5, 1986, letter from Mr. Bracher is concerned solely with obtaining "information regarding the hospital's actual experience for this year, and its' [sic] projected revenues for the remainder of the year." NRGH Exhibit 8. (E.S.) The letter is not concerned with case mix information as had been discussed with Mr. Borders and Mr. Austin on February 11, 1986, but, rather, sought entirely new information. Since the letter of March 5, 1986, was aimed at gathering actual historical data from that portion of the 1986 fiscal year which had already elapsed, it included within as item 17 on page 2 a request for the 1986 actual operating experience for "interest expense." On March 13, 1986, Mr. Wichmann responded to the letter of Mr. Bracher of March 5, 1986, and supplied the fiscal year 1986 actual experience data by cost center as requested. NRGH Exhibit 9. On page two of that exhibit Mr. Wichmann provided Mr. Austin with the actual interest expense that had been incurred by North Ridge from September 1, 1985 to December 31, 1985, which was $2,533,311. If one were to assume that the interest expense was to remain the same throughout the fiscal year, the projected interest expense would be 4 times that amount, or $10,133,244. On March 19 and 25, 1986, additional refinements in previously submitted case mix information was discussed between staff and representatives of North Ridge. Additional case mix data was sent by North Ridge to the board on April 7, 1986. Prehearing stipulation. On April 1, 1986, Mr. Pattillo, Chief Financial Analyst for the HCCB, who wrote the letter of December 17, 1985, NRGH Exhibit letter to Mr. Noriega again stating that the amended budget report was "incomplete, nonconforming, or not verifiable," this time a result of the amended budget having been entered into the computer. NRGH Exhibit 10. Mr. Noriega (L was requested to enter changes on the computer printout which needed changing, and to return the signed copy to the HCCB. Id. The information requested by Mr. Pattillo did not concern case mix. On April 7, 1986, Edward F. Kipp, Chief Financial Officer of North Ridge, responded to NRGH Exhibit 10, the letter of April 1, 1986, providing the information that had been requested by Mr. Pattillo. NRGH Exhibit 11. On April 17, 1986, Mr. Wichmann sent a letter to Allen Pearman, deputy director of research for the HCCB, with additional case mix information requested by Mr. Pearman as a result of an earlier meeting with Mr. Wichmann. T. 222-5; NRGH Exhibit 12. On April 23, 1986, Mr. Austin wrote to Don S. Steigman, Chief Executive Officer of North Ridge, requesting that North Ridge complete the attached MDC report and provide certain other information with respect to case mix. NRGH Exhibit 13. Mr. Wichmann responded by sending the information contained in NRGH Exhibit 14, which was received by the HCCB on May 5, 1986, and concerned only case mix information. See also T. 49-50. In the first week of May 1986, the HCCB staff determined, based upon all information submitted by North Ridge, that North Ridge had justified the amended gross revenue per adjusted admission based on the change to case mix. T. 50-1. This occurred upon receipt of information concerning MDC's, T. 51, which is contained in NRGH Exhibit 14. During the first two weeks of May, 1986, Mr. Austin spoke to Terry Richardson about Mr. Austin's concern that interest expense was not appropriate in the amended budget. T. 55. This was the first time that Mr. Austin had considered interest expense as an issue. T. 55. Mr. Austin was in the process of drafting a version of the staff preliminary findings and recommendations during the first two weeks of May, and had written it approving the change to gross revenue per adjusted admission, but was uncertain about the interest expense. T. 56. Mr. Austin sent his draft of preliminary findings and recommendations to Mr. Borders on May 14, 1986, T. 54, and the draft disapproved the amended budget. T. 53. The basis for disapproval was not disapproval of case mix or gross revenue per adjusted admission. T. 56. On about May 9, 1986, Mr. Richardson told Mr. Wichmann that the HCCB staff would recommend approval of the amended budget with respect to the case mix issue. At the same time Mr. Richardson told Mr. Wichmann that staff would be recommending a reduction of the amended budget for all long-term interest expense in excess of the 80th percentile of their hospital group. T. 227. This was the first time that anyone from the HCCB had informed North Ridge that interest expense was a problem. T. 229. Until about May 9, 1986, the only issue had been case mix. Id. During this same conversation, Mr. Richardson made a request to Mr. Wichmann for information concerning interest expense. The request was not made in writing, and the testimony of Mr. Richardson and Mr. Wichmann as to what was requested evidences misunderstanding of what Mr. Richardson may have intended. The problem arises because Mr. Richardson could have asked Mr. Wichmann for information concerning the current actual interest expense of North Ridge, or how the budgeted interest expense was projected, or both. Mr. Richardson's testimony on this point is not clear. He was asked by counsel "what did you ask of Mr. Wichmann" and responded "we asked him how the interest expense for the hospital was calculated." T. 406. It would appear from this answer that Mr. Richardson meant how was the budgeted expense projected, but it also could have meant how was the actual current Interest expense calculated. The matter is further confused by the next question asked. Mr. Richardson was directed to the precise place in the amended budget which contains the budgeted interest expense, and was asked: "Did you ask Mr. Wichmann to submit justification regarding that figure?" (E.S.) T. 406. Justification implies having a basis in fact, and a basis in fact would involve the current actual interest expense. Mr. Richardson replied: "We asked him to submit the method of calculation of that figure for purposes of determining whether it was justifiable." T. 406-7. (E.S.) It must be concluded from Mr. Richardson's testimony that Mr. Richardson intended to ask Mr. Wichmann to justify the projected interest expense in the budget, which would include both the method of calculation of the budgeted figure and the actual current interest expense. It also must be concluded from the above testimony that Mr. Richardson did not clearly communicate his intention to Mr. Wichmann. Mr. Wichmann understood Mr. Richardson's request to be concerned only with substantiation of actual current interest expense. T. 227-8. Mr. Wichmann understood Mr. Richardson to have said that the amended budget would be approved if North Ridge could substantiate the actual current interest expense incurred. Id. Mr. Wichmann did not understand that Mr. Richardson had requested or intended that North Ridge present information concerning how the budgeted interest expense had been calculated. T. 257. In an attempt to comply with this request, Mr. Wichmann contacted Arthur Andersen & Company to have them substantiate what would be North Ridge's actual interest expense, and to show what the interest expense would be based on external forms of financing. T. 231, 256. Had he understood that Mr. Richardson wanted to know how the amended budgeted interest expense had been calculated, Mr. Wichmann would have provided that information. T. 261-2. NRGH Exhibit 15 is the information provided to Mr. Wichmann from Arthur Andersen & Co. in response to Mr. Wichmann's request, and this was submitted to the HCCB on May 19, 1986. T. 231, 57. At the time of delivery of this document, Mr. Wichmann spoke to Mr. Austin and Mr. Borders to explain what he thought Arthur Andersen & Co. had presented. T. 254. Mr. Wichmann also told Mr. Austin that he thought that the interest expense was 10 per cent of the $85 million which had been paid by AMI for the hospital. T. 255-6. Upon review of NRGH Exhibit 15, the HCCB staff concluded that NRGH exhibit 15 " . . . did not in detail justify how the interest expense was calculated." T. 61. (E.S.) The May 14, 1986, draft of preliminary findings and recommendations did not reduce the amended budget due to interest expense, but was simply negative in tone on this issue. T. 63. That draft did not go any further than Mr. Borders. Id. On May 23, 1986, Mr. Austin told Mr. Wichmann that the interest expense had not been substantiated and that staff intended to recommend that the amended budget be reduced due to the interest expense. T. 232. This recommendation was put into written form as preliminary findings and recommendations and sent by Mr. Austin to Mr. Borders and Mr. Bracher, Executive Director, recommending that the interest expense in the amended budget of North Ridge be reduced back to the group 80th percentile level. T. 64-5, 233. This recommendation was disapproved, however, by Mr. Bracher, and Mr. Bracher directed that the reduction focus upon the operating margin of North Ridge. T. 65-6, 233-5. Mr. Bracher disapproved the preliminary findings and recommendations on Thursday, May 28, 1986, and the disapproved document was received by Mr. Borders and Mr. Austin on Friday, May 29, 1986. T. 67-8. Mr. Austin then told Mr. Wichmann that the basis for the recommendation of staff to reduce the amended budget of North Ridge was not interest expense, but was operating margin. T. 69, 236. He also told Mr. Wichmann that staff approved the case mix change. Id. Mr. Austin then prepared another version of the preliminary findings and recommendations and sent that forward for staff review. T70. This document was ultimately approved by Mr. Bracher and became the final staff version of the staff preliminary findings and recommendations which is NRGH Exhibit 1, T. 71, and is dated June 12, 1986. It was received by Mr. Wichmann the next day. T. 236-7. As of the date of this recommended order, there has been no final order of the Hospital Cost Containment Board approving or disapproving the proposed amended budget of North Ridge. In view of the foregoing findings of fact and the conclusions of law which follow, findings of fact concerning the substantive issues in this case pertaining to the proposed amended budget are not necessary. However, since the budget review process is necessarily compressed into such a short period of time, the following findings of fact will nonetheless be made for the record. The following facts are part of the prehearing stipulation: North Ridge has submitted sufficient justification of a change in case mix to establish that the hospital's requested GRAA of $7,569 appears to be reasonable and justified considering the noted change in North Ridge's cardiac patients. As a result, the Hospital has met its burden of proof regarding case mix. The statewide average operating margin for proprietary hospitals in Florida, based upon 1984 actual data, is 13.3 percent. The operating margin requested by North Ridge in its FY 1986 amended budget after application of the base year adjustment is 4.5 percent. The State of Florida has not obtained a waiver allowing state regulation of Medicare and Medicaid revenues. The Hospital Cost Containment Board does not at the current time have a definition for "reasonable rate of return." North Ridge General Hospital's original FY 1986 budget was approved by the Board for gross revenue per adjusted admission (GRAA) of $7,122. T. 42, 452. The original budget was criticized by staff with respect to four issues, but the amended budget was not criticized by staff on these issues, T. 348-9 After approval of the FY 1986 budget, North Ridge filed its corrected FY 1986 budget. T. 453. The corrected budget conformed the budget to all reductions made in the approved budget, including the base year adjustment. T. 452-3. As previously found as fact, the proposed amended budget requested a GRAA of $7,569. It also requested a net revenue per adjusted admission (NRRA) of $5,684. T. 272-3. Interest expense was not a basis for recommendation of reduction of the proposed amended budget in the preliminary findings and recommendations issued by the HCCB staff on June 13,1986. See findings of fact 43; T. 472. It is not reasonable or proper to calculate interest expense on capital. Interest expense must be calculated on debt. T. 528. North Ridge asserts that the interest expense is reasonable because it was a result of the purchase of the hospital by American Medical International, Inc. North Ridge asserts that there is no equity in the budgeted debt. T. 147. If it was a reasonable projection of debt expense, then the amount of $8.5 million interest expense would be reasonable based on 10 percent interest. T. 546. The intercompany interest rate of American Medical International, Inc., which is the rate AMI charges its affiliates for the cost of capital, is 10 percent. T. 148, 150. North Ridge actually calculated its projected interest expense for its proposed amended budget using the 10 percent rate and a debt amount asserted to be $84,977,800. Citizens Ex. 5. The debt amount is asserted to consist of $28,840,800, a mortgage assumed from a commercial bank, $36,750,000, a note issued to the former owner of North Ridge, $17,037,000, an amount due for redemption of preferred stock, and $2,350,000, an amount associated within the company for "domestic development," which was labeled legal, accounting, and related company acquisition costs. Citizens Ex. 5; NRGH Ex. 15. All of these items were associated with the acquisition of North Ridge by AMI. If all of these were legitimate projections of debt when the proposed amended budget was prepared, and do not contain equity, then the budgeted interest expense of $8.5 million is reasonable pursuant to the testimony of Pace Allen, T. 546, and John Hutchins, T. 151-2. The analysis of the reasonableness of the budgeted interest expense performed by Mr. Hutchins, NRGH Ex. 15, is based upon debt information available September 2, 1985, the beginning of the fiscal year for 1986. T. 147; NRGH Ex. 15. The note payable, in the amount of $36,750,000, had no stated interest rate, and was to be paid off on February 28, 1986, by North Ridge or by AMI on behalf of North Ridge. T. 148, 181. It was refinanced on February 28, 1986, by A-I and reflected in the "intercompany financing account" of North Ridge. NRGH 15, p. 2; T. 572. Mr. Hutchins imputed a reasonable rate of interest to the note. T. 148. The preferred stock was redeemed prior to June 30, 1986. T. 572. It had a mandatory redemption date of June 26, 1986, and a mandatory redemption amount of $17,888,550. T. 148; NRGH Ex. 15, p. 2. The unaudited balance sheet for North Ridge for the period ending June 30, 1986, showed only $28,135,803 as long term debt, Citizens Ex. 6, because the note and preferred stock were paid or redeemed prior to June 30,1986. T. 572. The June 30, 1986, balance sheet of North Ridge contains an item "intercompany accounting" under capital. North Ridge put on no evidence to show that this term should be considered to be debt, or that it was carried as capital on this balance sheet by mistake. The item usually is carried above capital. T. 556. At 10 percent interest, the interest on the item shown as long term debt, $28,135,803, would be $2,013,503. T. 529. For the period ending June 30, 1986, the unaudited statement of income and expenses of North Ridge showed $6,673,686 as "cost of capital." Citizens Ex. 7. This figure could include any number of things, including the cost of floating bonds or interest. T. 534. If it was all interest expense, extrapolated for the full fiscal year, the interest expense would be about $8,000,000. Id. There is no evidence in the record to show what the "cost of capital" item is in fact. The interest expense in the approved 1986 budget was about $41,000. T. 440-1. None of the three methods used in NRGH Ex. 15, prepared by Arthur Andersen & Co., were used by North Ridge to calculate projected interest expense for the proposed amended budget. T. 180; Citizens Ex. 5. North Ridge did not present evidence to explain the amount of $2,350,000 shown on Citizens Ex. 5 for "domestic development." T. 176 The proposed interest expense of $8.5 million is about twice that of the amount of the 80th percenti1e for hospitals in North Ridge's group. T. 115. The interest expense could be less by $4,100,000 to equal the 80th percentile. Citizens Ex. 2. The percentile is calculated by comparing interest expense to total operating expense. HCCB Ex. 1. At the 50th percentile, the interest expense of North Ridge would be $2,286,909. Id. North Ridge has failed to justify the reasonableness of the interest expense that it projected in its proposed amended budget filed December 16, 1985. Mr. Hutchins, for Arthur Andersen & Co., testified as an expert, but his report disclaims any opinion as to the "elements" of his report, which include the propriety of treating the various amounts as proper projected debt at the time the proposed amended budget was filed. NRGH Ex. 15. The disclaimer is due to the fact that Mr. Hutchins did not do an examination in accordance with generally accepted auditing principles. Id. North Ridge put on no direct testimony or evidence to show to whom the $36.7 million note was payable, why it bore no interest, when it was due, and who paid it off. It would appear from the fact that it was completely paid on February 28, 1986, by "refinancing" and thereafter was reflected in the "intercompany financing account," see finding of fact 56 above, it would appear that AMI paid it off in cash. This action should have been foreseen when the proposed amended budget was prepared in December 1985. There is no evidence when the preferred stock was redeemed. Page 2 of the Arthur Andersen & Co. report states that management intended to refinance the obligation to redeem the preferred stock, but this statement is hearsay and is not further explained by direct evidence as to when the refinancing would occur. It might not have occurred until June 26, 1986. There is no evidence to explain why the preferred stock caused an interest expense prior to redemption. Further, North Ridge did not attempt to explain the "cost of Capital" item on Citizens Ex. 7, despite the testimony that this item did not necessarily contain interest expense. Nor did North Ridge credibly prove that it was proper to project an interest expense on the $2,350,000 it labeled "domestic development." In the absence of credible expert opinion as to the factual basis of all these "elements" and absent direct evidence from North Ridge, other than hearsay contained in NRGH Ex. 15, a finding of fact cannot be made that these were reasonable projections of reasonably ascertainable amounts of interest expense as of the time the proposed amended budget was prepared. Since the debt to an outside bank in the amount of about $28 million is still shown by implication as long term debt as of June 30, 1986, and since 10 percent interest is a reasonable rate of interest, the proper interest rate for the proposed amended budget of North Ridge should be at least $2,013,503, which is quite close to the 50th percentile for its group. Staff of the HCCB and the Public Counsel propose that the interest rate be reduced to the 80th percentile of the group by subtraction of $4,100,000 from allowed interest. Citizens Exhibit 2. This in effect acknowledges $4,400,000 as proper interest expense in the amended budget. Given the possibility that some interest was paid prior to redemption of the preferred stock and payment of the note, see finding of fact 28, and upon consideration of there commendations of staff, it is concluded that reduction of the interest expense by $4,100,000 would be reasonable. Operating margin is the difference between a hospital's operating expenses and its net operating revenues, divided by net operating revenues to obtain a percentage. T. 77. The statewide operating margin for proprietary hospitals in Florida based on 1984 actual data is 13.3 percent. See finding of fact 47. As requested in its amended budget after application of the base year adjustment, the operating margin of North Ridge is projected for FY 1986 to be 4.5 percent. Id. The operating margin is 7.4 percent without the base year adjustment. T.273. The operating margin in the 1986 approved budget was 1.5 percent. T. 286. A proposed increase in operating margin can be analyzed for reasonableness by comparison to the statewide average for like hospitals and by comparison to the previous operating margin for the hospital concerned. T. 116- In most cases in the past, the HCCB had made the comparison only to the statewide average. T. 329. Compared only to the statewide average of 13.3 percent for proprietary hospitals, the proposed operating margin of 4.5 percent is very reasonable. Comparison of the proposed increase in operating margin to the prior operating margin in the hospital's budget is an appropriate comparison, but some care must be taken when the Initial operating margin approaches zero. It is misleading to use the "percentage of the increase" method in this circumstance since an increase, as here, from 1.5 percent to 4.5 percent, is mathematically an increase of 200 percent when compared to the original amount, but really is quite small, only 3 percent. T. 328-9. Staff of the HCCB did not consider the statewide operating margin average to be a relevant basis for comparison for an amended budget, T. 118, add did not do so in this case. T. 121. Staff asserted that the foregoing is a policy of the HCCB in reviewing amendments to budgets. T. 120. The policy is not contained in a rule or statute. T. 120. There is no specific evidence in the record to justify the policy. The policy is reasonable on its face an initial means to identify the nature of increases proposed in a budget amendment, but it is facially unreasonable to stop at that point and not analyze the basis for increases. A hospital should not be barred from correcting errors in their budgets. A primary reason that the projected operating margin of North Ridge is only 4.5 percent is due to the interest expense of $8.5 million. If the interest expense projected were at the group 50th percentile, the operating margin would be 12.8 percent. HCCB Ex. 1; T. 98. This interest expense would be $2,286,909, which is substantially the same as the interest expense of $2,013,503 for the commercial mortgage loan. It should be noted that the operating margin of 4.5 percent and 12.6 percent both contain the base year adjustment T. 98-9; finding of fact 47. As discussed above, North Ridge has not proved by credible evidence that as of the time of preparing the proposed amended budget, there was a basis for expecting that an interest expense of $8.5 million would actually be incurred for the entire year. Clearly it was known that the preferred stock was to be redeemed by June 1986 and the $37 million note was to be completely paid by the end of February, 1986. If, thereafter, North Ridge's interest expense is merely a payment of interest to American Medical International, which owns North Ridge, this is a payment on capital, and should not be deducted from operating revenue as an operating expense to calculate operating margin. T. 536-7. There really is no clear evidence in this record to prove conclusively that North Ridge has been paying AMI interest at about a 10 percent rate, but it appears that some sort of inter- company transaction of this sort is occurring. T. 294. Thus, for the portion of the year that such interest was paid to AMI rather than to an outside entity, those amounts (whatever they may be) should not be considered to be a deduction from operating revenue to calculate operating margin. There is evidence concerning other factors that could be used to justify an increase in operating margin. Of these, the only one applicable is the need to purchase capital equipment. Operating margin is a source of funds for capital equipment. T. 284. North Ridge's approved 1986 budget and the amended budget contain the same equipment expenditure projections. T. 288-9. The operating margin in the approved budget was 1.5 percent. T. 286. This margin was not felt to be sufficient by Mr. Wichmann to purchase the capital equipment planned in the approved budget. T. 286, 289. The increase in case mix may be a reason for needing more capital in the amended budget, and thus a greater operating margin, but the record is not clear on this point. T 287. Increased services would require a greater operating margin if increased capital was associated with the increased services. T. 287. An insufficiency of supplies would be a reason to increase operating margin. T287. There is no evidence that North Ridge's supplies are inadequate. T 287. The amended budget does not project a higher level of services for the service index than did the 1986 approved budget. T. 525. In the short run, deferred income taxes could be used as a source of funds, as could depreciation, T. 289-90, and these funds could be used to purchase capital equipment. T. 524. Staff of the HCCB currently uses an incipient and evolving policy to require that benefits that a hospital may receive from a reduction in Medicare contractual allowances, which results in Increased revenues from the federal government, be passed on to non-Medicare patients by "netting out" these benefits against any increase proposed by the hospital in its budget or amended budget. T 416. The policy was first mentioned in March at the Board meeting to Venice Hospital T. 413-7, 582. The policy was not "applied" except as a basis for a critical public comment. The hospital's proposed amendment did not propose a change in gross revenue. T, 414. The reduction in the contractual adjustment referred to in the testimony is the difference between the Medicare contractual adjustment in the 1986 original budget and the proposed budget amendment. A Medicare contractual adjustment is the amount of shortfall in Medicare reimbursement which is written off by the Hospital. The amount of reduction in contractual adjustment in this case is $3,152,818. T. 80. The proposed amendment to the 1986 budget also has $171,203 of additional revenue over costs to private payors compared to the approved 1986 budget. T. 79-80. The sum of these two amounts, which is $3,324,021, ultimately has a positive effect on operating margin. T. 490. Staff of the HCCB recommends that the $3,324,021 be passed on as a benefit to private paying patients by a reduction in net revenues and gross revenues. T. 79-17; Citizens Ex. 2. The amount of $3,324,021 discussed in the last paragraph is exactly the difference between the operating margin in the 1986 approved budget (corrected) and the proposed amended budget. T. 492, 455. The Medicare contractual adjustment of $3,152,818 was caused by an increase in the hospital's case mix, T. 312-3, and the Medicare prospective payment system of reimbursement for Medicare patients has impacted both case mix and contractual adjustment. Id. Under the perspective payment system, it is the policy of the federal government that a hospital may keep the excess of reimbursement if more than costs, but the hospital is at risk if costs exceed the payment. T. 321-2. Medicare pays a flat amount per case, and cases are weighted for determining the amount of payment into types called diagnostic related groups, or DRG's. T. 315. The percentage of fixed payment patients at North Ridge is 73.3 percent. T. 170. The percentage of Medicare patients days is 67.1 percent. NRGH Ex. 1. The State of Florida, has not obtained a waiver allowing state regulation of Medicare and Medicaid revenues. Prehearing Stipulation. A hospital could reduce its net revenues by the amount of the contractual adjustment by giving that amount away, T. 167, or by some combination of actions which amounts to the same thing: lowering rates for private payment patients and performing more indigent care. See T. 387. The testimony that a hospital has no method to do this is rejected. See T. 167. It would appear that North Ridge has 26.7 percent of its patients days that are not Medicare patient days that could be involved in the lowering or waiving of charges. See finding of fact 94. The corrected budget as approved by the HCCB for FY 1986 contains a base year adjustment of $1,662,632, and the proposed amended budget does not. T. 484, 314. There is no clear or competent evidence as to precisely how the corrected budget distributed the base year adjustment, but since the adjustment is a result of statute and only effects net revenues, it ultimately must reduce net revenues by this amount. T. 386. Lawrence R. Murray testified for North Ridge as an expert in hospital finance and accounting and third-party reimbursement matters including Medicare and Medicaid. T. 301. Mr. Murray argued that the similarity between the dollar amounts relating to the contractual adjustment (about $3 million) and the differences between the operating margin in the corrected budget and the proposed amended budget (see findings of facts 79 and 80) meant that the contractual adjustment recommendations of the staff of the HCCB were really recommendations to reduce the operating margin of North Ridge by that amount. T. 596-7. He then reasoned that the operating margin in the corrected budget already had the base year adjustment made but the proposed amended budget did not, and this was partially the cause of the increase in operating margin. He concluded that if the operating margin of North Ridge should be reduced by the amount of the contractual adjustments, then the amount of the reduction should be reduced by first subtracting the base year adjustment. Id. The problem with the argument is that the reduction recommended by the staff of about $3 million is premised upon this amount being a change entirely in contractual adjustments, not a change in operating margin. Since admittedly the proposed amended budget has not had the base year adjustment made, that adjustment has to be made at some time, and it is proper to do it as shown on Citizens Ex. 2. The similarity between the contractual adjustment figure and the difference in operating margins appears to be caused by the fact that operating revenues rose by $1.6 million (to $72.6 million from the corrected budget revenues of $71 million) and this amount is the amount of the base year adjustment. T. 453-4. The difference in revenues less deductions between the corrected budget (with the base year adjustment) and the proposed amended budget (without the base year adjustment) is $4.6 million. Id. The corrected budget with the base year adjustment had gross revenues of $71 million and deductions of $51 million, and the proposed amended budget had gross revenues of $72.6 million and deductions of $15 million. Cost shifting is the shifting of a cost from one payor to another who presumably did not incur the cost. As such, it results in higher costs to the payor to whom the cost is shifted. The contractual adjustment in the instant case is the result in an increase in reimbursement of costs which results in higher net revenues for Medicare patients. T. 187. A requirement to lower revenues for private payment patients in the same amount results in a lower cost to these patients, and thus is the opposite in effect of cost shifting as defined above. T. 536. In its preliminary findings and recommendations, staff applied a methodology to calculate how a predetermined reduction in gross revenue would be applied to net revenue. NRGH Exhibit 1; T. 82. This methodology uses a fixed percentage based upon the amended budget ratio of net to gross revenues. Id. There is a conflict in the record as to whether staff of the HCCB purposes to apply this method to North Ridge, although it appears from representations of counsel as well as proposed finding of fact 27 that staff clearly proposes not to apply this method to North Ridge. T. 17,425-6. The fixed percentage method of calculating from gross to net revenues does not properly consider payor mix and should not be used in this case because it is inaccurate. T. 169-70. Administrative, courtesy and policy discounts include discounts to clergymen, physicians, employees, and employee dependents, and discounts to health maintenance organizations and preferred provider organizations. T. 179. About 1.8 percent of total patient days are represented by these discounts. NRGH Exhibit 16. Indigent and charity care represents the amount of revenue that is written off by a hospital to indigent care. T. 179. About 4.4 percent of total patient days are represented by indigent care. NRGH Exhibit 16. About 67.1 percent of total patient days of North Ridge come from Medicare. NRGH Exhibit 16. North Ridge thus has about 73.3 percent of its patients as fixed payment patients. T. 170; NRGH Exhibit 16. If the Contractual adjustment net revenues are to be shifted as a benefit to non-fixed payment patients, the percentage of those patients so benefiting is 26.7 percent. If there is to be a reduction in net revenues due to the contractual adjustment issue, the total amount of the reduction would be $3,324,021, which is a reduction of $344 per adjusted admission for net revenues. Citizens Exhibit 2. The proper method of converting a net revenues reduction for contractual adjustments to a gross revenue figure, using the fixed payment patients percentage, is found on Citizens Exhibit 2. T. 513. This exhibit correctly projects admissions using actual admissions projected for the year. T. 515. However, the percentage to be used should be 73.3 percent fixed payment patients. This method accurately takes into account the fixed price payor mix by calculating the GRAA reduction from the NRAA reduction by dividing the percentage of non-Medicare and Medicaid patient days by total patient days. Thus, the reduction in NPAA as shown on Citizens Exhibit 2 of $344 is correct if there is to be a reduction for contractual adjustments, but the reduction in GRAA should be $1288, which is $344 divided by 26.7 percent. T. 190. Citizens Exhibit 2 blends the proposed amended budget with actual experience for the fiscal year. T. 514. It is not a new policy to do this. T. 542. The policy is also contained in a proposed rule 27J-1.0205(3), which was officially recognized, and is made Hearing Officer's Exhibit 1. The proposed rule does not prohibit blending in this case. There was no explicit evidence offered to substantiate the reasonableness of this policy, but the policy is facially reasonable given the obvious fact that a projected budget, including an amendment in midyear, should be based on the most recent historical data for making the projection Mr. Murray's testimony did not demonstrate that the policy is unreasonable. Moreover, none of the hospital budgets mentioned by Mr. Murray involved a reduction in contractual adjustment for Medicare. T. 641. 102. Pace Allen testified as an expert in hospital accounting and finance. T. 505. Mr. Allen's testimony with respect to Citizens Exhibits 1 and 2 was concerned primarily with calculation methods. Mr. Allen did not perform an independent analysis of the reasonableness of North Ridge's proposed amended budget, T. 540, and did not compare interest expense to other hospitals. T. 544. Mr. Allen had not express an opinion as to what the final GRAA and NRRA should be. T. 560. Citizens Exhibit 2, however, shows as a result a GRAA of $6224 which was verified by Mr. Murray. T. 625. It appears that the GRAA at the 50th percentile for North Ridge's group is $6422. NRGH Ex. 1. A GPAA of $6224 is less than the approved budget for 1986 of North Ridge. There is no rule to provide standards for determining the justification and extent to which a decrease in contractual adjustments for Medicare should be passed on to non-Medicare patients by decreasing gross revenue per adjusted admission. Further, in the case at bar, the HCCB has not presented evidence to justify the application of the policy in the case at bar. While it is true that application of the policy will lower the operating margin of North Ridge to about 6 percent, there is no explanation in the record why that is the correct figure for North Ridge. It cannot be assumed to be the correct figure since the statewide average operating margin for proprietary hospitals is 13.3 percent. It is true that there is some evidence that North Ridge does not need an increase in operating margin for capital needs associated with case mix change, or to purchase supplies, or to provide new services. There is also some evidence that North Ridge may need an increased operating margin for capital equipment. But the evidence on the whole is insufficient to determine whether this means windfall profits to North Ridge or simply an Increase of reimbursement that is in whole or in part reasonably necessary to reimburse actual costs for services.
Recommendation Based upon the foregoing, it is recommended that the Hospital Cost Containment Board enter its Final Order confirming that the proposed amended budget of North Ridge General Hospital for fiscal year 1986 has been approved in its entirety by operation of law. DONE and ORDERED this 25th day of August, 1986, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of August, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-2412H Pursuant to section 120.159(2), Fla. Stat. (1985) the following are specific rulings upon all proposed findings of fact submitted by the parties which have been rejected in this recommended order, using the same numbers used by the parties. Findings of fact proposed by the Petitioner: The finding is not necessary. The finding is not necessary. The finding is not necessary. The finding is a matter of law. The finding is not necessary. 9. The second sentence is a matter of law. It is not clear whether staff considers the 25 day--period to start with receipt of the budget or substantive review. The first sentence is thus rejected. The finding is a matter of law. 21. The last clause of the sentence is irrelevant. 25. The second sentence is irrelevant. 36. This finding is rejected because the exhibit did not explain the basis of the interest expense as found in the findings of fact. This finding is irrelevant. This finding is irrelevant. 56. The last sentence is a matter of law. The first sentence is a matter of law, as is the second sentence. This finding is irrelevant since Petitioner admits there was a valid partial waiver. This finding is legally incorrect since the amended budget would be complete, conforming, and verifiable on the 40th day from receipt, absent a valid notice within the 40 day period to the contrary which remained uncorrected. Irrelevant. Irrelevant. Rejected as explained in detail in the findings of fact. Rejected in detail in the findings of fact. While it is true that interest expense is a fixed cost, the failure of North Ridge to explain the expense makes this finding irrelevant. Irrelevant. Rejected as stated in the findings of fact for lack of evidence. The first sentence is rejected since Arthur Andersen & Co. only "obtained information," and the basis was uncorroborated hearsay. T. 147. The last sentence is rejected for lack of supporting evidence. Rejected because not supported by competent evidence. 91. The last sentence is not relevant since a policy may properly be applied the first time in this ease. 92-100. No ruling has been made upon these proposed findings of fact since the recommended orders relies upon other issues, making these findings unnecessary. 105. The second sentence is rejected in finding 85. 107. The second sentence is rejected as a matter of law, not fact. 111. Rejected in finding of fact 88. The third and fourth sentences are rejected as being irrelevant. There was no proof of this policy or any reliance on it by the Board, and thus this is irrelevant. 116. Irrelevant. Rejected as not supported by persuasive evidence. Rejected with respect to interest expense. No ruling was made with respect to contractual adjustments or operating margin. Findings of fact proposed by the Respondent: 2. The lack of worksheet C2A has been found as a fact, but there is no evidence in the record to find as fact that the amendment "could not be properly analyzed" without additional information. Staff could have analyzed what they had and recommended disapproval based on what they had. 4. There is no evidence in the record that there was a "paucity of supporting documentation." It is true that Mr. Austin and others felt they needed more information to give a favorable recommendation. The last phrase of the second sentence is rejected since it implies that something other than case mix information was discussed at the February 11, 1986, meeting. The evidence is not sufficient to make that finding. The last phrase of the second sentence is rejected since the evidence does not show that the "waiver" was discussed in the context of allowing staff time to analyze the amendment. 9. The last sentence is rejected since the evidence does not show that staff asked Mr. Wichmann at the February 11, 1986, meeting to supply any information except case mix. The last phrase of the second sentence is rejected because the evidence does not show that the "waiver" was discussed in the context of allowing staff time to evaluate the amendment. The fifth sentence is rejected because there is no evidence that the purpose of the "waiver" was clearly discussed with Mr. Wichmann, at least in terms of how the "waiver" would operate. There is no credible evidence that Mr. Wichmann was told that "the 120 days would not start until sufficient documentation was received by the Board." The last sentence is rejected because Mr. Wichmann only testified that he did not remember much about the discussion concerning "waiver" except that the budget would be returned to him. The second and third sentences have been partially rejected since what Mr. Austin did tell Mr. Wichmann could reasonably have been interpreted by Mr. Wichmann as saying that without the waiver and the new information, the budget would be returned. The ultimate conclusion of this proposed finding is rejected because not supported by the weight of credible evidence. As discussed in the findings of fact, neither Mr. Austin nor Mr. Borders clearly or credibly testified that it was clearly understood by Mr. Wichmann that his "waiver" letter was intended to erase the first 58 days of the 120-day period which had elapsed. Moreover, neither Mr. Austin nor Mr. Borders clearly testified that they understood the "waiver" to include time for them to evaluate the new information concerning case mix. But more important, Mr. Wichmann's letter clearly did not grant time to evaluate. The period would start running again as of the date of receipt of the information once "satisfaction" had been achieved. Regardless of what Mr. Austin or Mr. Borders wanted, they got only what the letter says. Finally, with regard to specific proposed findings in this paragraph, Mr. Wichmann did not testify that he did not know the "ordinary" meaning of the word waiver. He was not asked that. It is unclear from the question whether the legal meaning, which was clearly at issue at the time of the question, or the ordinary" meaning, was meant by the question. The failure of Mr. Wichmann, Mr. Austin, and Mr. Borders to clarify what was desired and what was intended by the letter of February 13, 1986, is perhaps true, and if pursued as a finding of fact, could result in a finding that there was never a meeting of the minds, and hence, no waiver at all. This finding, however, is rejected, by findings of fact 12-23. Reading the Health Care Access Act is irrelevant since the statute does not define "waiver" or "extension," and Mr. Wichmann admittedly had no advice from a lawyer when he wrote his letter. Finally, the failure of Mr. Wichmann to explain the contents of his letter to the staff of the HCCB is wholly irrelevant. He ended the letter with the sentence "If this is not correct, please notify me immediately." The burden of clarifying ambiguities in the letter was on the staff of the HCCB, not Mr. Wichmann. The fifth and sixth sentences are rejected because Mr. Wichmann did not repudiate his letter, and the meaning of his letter has previously been discussed and found as fact. The eighth and ninth sentences are irrelevant. The rules of the HCCB do not prohibit submission of additional information after a budget is "filed," and it would be completely unreasonable to preclude a continuing exchange of information in an effort to resolve budget issues in free form action without the necessity of a formal administrative hearing. Moreover, the power of staff, pursuant to rule 4D-1.014, to ask for more information, as previously discussed above, has nothing to do with whether a budget has been "filed" so as to commence the 120-day period. The Legislature surely did not intend that the 12-day period be postponed indefinitely by staff through unending requests for information. The eleventh through fourteenth sentences are rejected as matters of law. The first sentence is rejected in the conclusions of law. See the last sentence of the immediately preceding paragraph also. The last sentence is also rejected for the reasons stated in the conclusions of law, paragraph 33. The facts proposed in this paragraph are irrelevant. Mr. Wichmann failed to submit information concerning the original budget compared to the amended budget, staff should have immediately recommended disapproval of the North Ridge amendment, thus allowing enough time for a section 120.57(1) hearing and a final order by the Board. Moreover, staff already had the original budget in its files, so it is unclear what Mr. Wichmann's asserted "failure" was. Finally, case mix was the central focus, and case mix was in fact approved by staff. There is insufficient evidence to conclude that Mr. Wichmann's attempt to "disassociate the budget amendment request from the original budget submission" had anything to do with the issues in this case, if it occurred at all. This finding is rejected because it is irrelevant. The second sentence is an issue of law. The second sentence is an issue of law. The sixth sentence through the end are irrelevant. 28. The last two sentences are rejected because contrary to the evidence. 35. Irrelevant. Findings of fact proposed by the Intervenor: 8. It is unclear from the testimony whether the 25 day goal is commenced by the filing of the budget or the day when substantive review begins, and therefore the finding as stated categorically is rejected. This finding is irrelevant, although it is true and provides background information. The phone call was not in writing and was not within the 40 days from receipt of the budget amendment by the HCCB. This finding is also irrelevant for the reasons stated in the last paragraph. 29. This finding is rejected for the reasons stated in finding of fact 12, and also 11, 17, and 18. The portion of this proposed finding concerning "time to analyze further justification and further evaluate the requested amended budget" is rejected in findings of fact 17-20. This proposed finding is rejected in finding of fact 22. This proposed finding is essentially rejected in finding of fact 23. 40. The second sentence is rejected because the question did not use the word "ordinary" and Mr. Wichmann could easily have thought counsel meant some legal definition. 55. This proposed finding is essentially rejected in findings of fact 37 and 38. 64. Irrelevant. 72-78. Rejected because cumulative. The ultimate finding is accepted and adopted. 79. The last two sentences are rejected as hearsay. 82-84, 88-91. Irrelevant and cumulative. 108. Rejected because the evidence is not sufficient. 122-123. Rejected in favor of the percentages found from other evidence in the record. 124. Cumulative and unnecessary. 128 The amount of GRAA proposed cannot be found for lack of supporting calculations or facts in the record. Irrelevant. Irrelevant since this legal issue has not been reached in this order. Rejected as an issue of law. Rejected as specified in detail in the findings of fact. Rejected as specified in detail in the findings of fact. COPIES FURNISHED: Curtis Ashley Billingsley, Esquire Hospital Cost Containment Board Woodcrest Office Plaza, Building L, Suite 101 325 John Knox Road Tallahassee, Florida 32303 Ralph Haben, Jr., Esquire Steven T. Mindlin, Esquire 306 N. Monroe Street Tallahassee, Florida 32301 Jack Shreve, Public Counsel John Knight, Esquire Office of Public Counsel 202 Blount Street 624 Fuller Warren Building Tallahassee, Florida 32301 James Bracher, Secretary Executive Director Hospital Cost Containment Board Woodcrest Office Plaza 325 John Knox Road Tallahassee, Florida 32303
Conclusions Having reviewed the Administrative Complaint, and all other matters of record, the Agency for Health Care Administration finds and concludes as follows: 1, The Agency has jurisdiction over the above-named Respondent pursuant to Chapter 408, Part II, Florida Statutes, and the applicable authorizing statutes and administrative code provisions. 2. The Agency issued the attached Administrative Complaint and Election of Rights form to the Respondent. (Ex. 1) The Election of Rights form advised of the right to an administrative hearing. 3. The parties have since entered into the attached Settlement Agreement. (Ex. 2) Based upon the foregoing, it is ORDERED: 1, The Settlement Agreement is adopted and incorporated by reference into this Final Order. The parties shall comply with the terms of the Settlement Agreement. 2. The Respondent shall pay the Agency $2,000.00. If full payment has been made, the cancelled check acts as receipt of payment and no further payment is required. If full payment has not been made, payment is due within 30 days of the Final Order. Overdue amounts are subject to statutory interest and may be referred to collections. A check made payable to the “Agency for Health Care Administration” and containing the AHCA ten-digit case number should be sent to: Office of Finance and Accounting Revenue Management Unit Agency for Health Care Administration 2727 Mahan Drive, MS 14 Tallahassee, Florida 32308 1 Filed February 4, 2013 2:20 PM Division of Administrative Hearings ORDERED at Tallahassee, Florida, on this 40 day of aces , 2013. My ; Elizabéth Dudeks'Secretary Agenty for Helth Care Administration
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review, which shall be instituted by filing one copy of a notice of appeal with the Agency Clerk of AHCA, and a second copy, along with filing fee as prescribed by law, with the District Court of Appeal in the appellate district where the Agency maintains its headquarters or where a party resides. Review of proceedings shall be conducted in accordance with the Florida appellate rules. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed. CERTIFICATE OF SERVICE I CERTIFY that a true and wig copy of this Fina] Order was served on the below-named persons by the method designated on this day of tv ff , 2013. Richard Shg6p, Agency Co ey Agency fgt Health Care Administration 2727 Mahan Drive, Bldg. #3, Mail Stop #3 Tallahassee, Florida 32308-5403 Telephone: (850) 412-3630 Jan Mills Finance & Accounting Facilities Intake Unit Revenue Management Unit (Electronic Mail) (Electronic Mail) Andrea M. Lang, Senior Attorney | Jacob Weiss, President Office of the General Counsel OJCommerce, LLC Agency for Health Care Administration 1700 N.W. 64" Street, Suite 460 (Electronic Mail) Fort Lauderdale, Florida 33309 | (U.S. Mail) The Honorable Stuart M. Lerner Administrative Law Judge Division of Administrative Hearings (Electronic Mail) _ |
The Issue The issue is whether the methodology employed by respondent in calculating petitioners' budget letter gross revenues per adjusted admission is a rule, not duly promulgated, and thus is an illegal exercise of delegated legislative authority.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: A. Parties Petitioners, Easte Point Hospital, Inc. and others, are fourteen hospitals in the State of Florida who are subject to the regulatory jurisdiction of respondent, Health Care Cost Containment Board (Board). Petitioner, Florida League of Hospitals, Inc., is a nonprofit organization which is organized and maintained for the benefit of the proprietary hospitals which comprise its membership. The Board is a state agency charged with the responsibility of annually reviewing hospital budgets to insure that a hospital's charges do not exceed certain established thresholds. Intervenor, Citizens of the State of Florida, is represented by the Office of the Public Counsel. That office has the duty of representing citizens in all proceedings before the Board. Events Leading to the Filing of the Rule Challenges Petitioners are required to annually file their projected budgets with the Board for its review and approval. This controversy pertains to the filing of budgets for fiscal year 1992. There are two types of budget filings authorized by law. First, a hospital may file what is known as a budget letter, which is a one- page submission on a form provided by the Board. In preparing such a letter, the hospitals are required to provide information regarding their gross revenues per adjusted admission (GRAA) and maximum allowable rate of increase (MARI), two financial indicators that are used by the Board in measuring the reasonableness of a hospital's charges. A budget letter is to be filed whenever a hospital does not intend to increase its charges (GRAA) in the next fiscal year by more than the percentage amount specified in its approved MARI. Secondly, a hospital may file a detailed budget which is much more complicated than the budget letter and requires the completion of a twenty-seven page form. The preparation of a detailed budget is obviously more time- consuming and expensive than a budget letter and requires the hospital to justify its entire budget. The detailed budget is to be filed whenever a hospital intends to increase its charges (GRAA) from one fiscal year to the next by a greater percentage amount than is specified in the MARI. These cases deal with the legitimacy of a methodology used by the Board in determining whether a hospital is eligible to file a budget letter. In this proceeding, each of the fourteen hospitals filed budget letters with the Board in May 1991. After the budget documents were reviewed by the Board's staff, on June 21, 1991, the Board issued virtually identical proposed agency action to each hospital advising the hospital that its budget letter was "nonconforming for the following reason: The hospital's maximum GRAA should be $ , instead of $ , ", with the appropriate dollar amounts inserted in the blanks. The letter went on to advise each hospital that it should resubmit a corrected budget document and until it did so, its submission would be considered incomplete. The effect of the Board's action was to reduce each hospital's budget letter GRAA and the amount of revenues (charges) it could receive in the next fiscal year unless it agreed to file a detailed budget. The hospitals are accordingly affected by the proposed agency action and thus have standing to being this action. Likewise, since the methodology employed by the Board in rejecting the budget letters affects all members of the Florida League of Hospitals, Inc. who file budget letters, that organization also has standing to participate. The parties have further stipulated to the standing of intervenor, Citizens of the State of Florida. Although the proposed agency action does not show the methodology used by the Board in reaching its conclusion that the "maximum GRAA" was overstated, the record reveals that the Board utilized a certain methodology to calculate the "base GRAA", the first calculation in the budget letter review process. /2 This methodology is described in the second sentence of Subsection 407.50(3), Florida Statutes (1989) as follows: In determining the base, the hospital's prior year audited actual experience shall be used unless the hospital's prior year audited experience exceeded the applicable rate of increase in which case the base shall be the gross revenue per adjusted admission from the year before the prior year, and then inflated by the applicable rate of increase for the current year. Petitioners concede that the methodology used by the Board tracks the language in the above statute verbatim. However, they contend that, when the language in subsection 407.50(2)(a) is considered, it becomes apparent that the use of this methodology is the review of budget letters is not clearly called for, and thus the methodology is a policy having all of the attributes of a rule which has not been adopted pursuant to chapter 120. Conversely, respondent and intervenor claim the methodology is not a policy but simply an interpretation of the controlling statute. Is the Methodology a Rule? By virtue of rather extensive amendments to the law in 1988, budget letters were first authorized for use by hospitals beginning with budget years 1990 and 1991. Prior to that time, all hospitals filed detailed budgets. There was no quarrel over the manner in which hospitals performed their calculations in the first two budget letter filings since subsection 407.50(1) clearly specified the methodology for making all calculations during the first two years. This controversy arises because all subsequent filings of budget letters are controlled by language found in other portions of section 407.50. The relevant portions of that statute read as follows: (a) Except for hospitals filing a budget pursuant to subsection (3), each hospital, at least 90 days prior to the commencement of its next fiscal year, shall file with he board a certified statement, hereafter known as the "budget letter", acknowledging its applicable maximum allowable rate of increase in gross revenue per adjusted admission from the previous fiscal year as calculated pursuant to s. 407.002(17) and its maximum projected gross revenue per adjusted admission for the next fiscal year, and shall affirm that the hospital shall not exceed such applicable maximum allowable rate of increase. . . * * * At least 90 days prior to the beginning of its fiscal year, each hospital requesting a rate of increase in gross revenue per adjusted admission in excess of the maximum allowable rate of increase for the hospital's next fiscal year, shall be subject to detailed budget review and shall file its projected budget with the board for approval. In determining the base, the hospital's prior year audited actual experience shall be used unless the hospital's prior year audited actual experience exceeded the applicable rate of increase in which case the base shall be the gross revenue per adjusted admission from the year before the prior year, increased by the then applicable rate of increase for the current year. * * * A reading of the above statute indicates that subsection 407.50(2) (a) prescribes the form and manner for a budget letter submission. The submission consists primarily of a certified statement by the hospital acknowledging "its applicable maximum allowable rate of increase in gross revenue per adjusted admission from the previous fiscal year as calculated pursuant to s. 407.0C2(17) and its maximum projected gross revenue per adjusted admission for tie next fiscal year, and shall affirm that the hospital shall not exceed such applicable maximum allowable rate of increase. At the same time, subsection 407.50(2) (a) provides that its provisions shall apply to all hospitals "except those filing a (detailed) budget pursuant to subsection (3)". However, the subsection does not prescribe the manner in which the budget letter's base GRAA should be calculated. On the other hand, subsection 407.50(3) appears, at least facially, to impose certain requirements upon detailed budget filings, including the time requirements for filing a detailed budget, who must file one, and the manner in which to calculate the "base". Thus, a literal reading of the statute could lead the reader to reasonably conclude that, while subsection 407.50(2) (a) does not prescribe the manner in which the base GRAA should be calculated for purposes of a budget letter submission, the same judgment can be reached with respect to subsection 407.50(3). In other words, an affected person would not necessarily know from a reading of the law that the base GRAA for a budget letter submission filed under subsection (2) (a) would be calculated using a methodology found in subsection (3). Accordingly, it is found that the methodology used by the Board in calculating the budget letter GPAA is not a statutory interpretation but instead is a policy. While respondent and intervenor presented evidence to justify and explain the rationale for calculating the budget letter base GRAA in this manner, this evidence is more relevant in the companion section 120.57(1) cases. The methodology employed by the Board is one of general applicability since it applies to all hospitals who file budget letters in fiscal year 1992 and beyond. It is applied uniformly without discretion by agency personnel to all hospitals, requires compliance and has the direct and consistent effect of law. The policy has not been adopted as a rule.
