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.
Findings Of Fact The legal issue presented by agreement to the Hearing Officer for a recommended order is whether the Hospital Cost Containment Board has the authority to amend or adjust a hospital's net revenue per adjusted admission when the budget of the hospital has triggered budget review pursuant to sections 395.509(2)(a) and (b), Fla. Stat. (1984). The petition in case number 85-2465H contains this legal issue with respect to a reduction of net revenue per adjusted admission of an additional $84. Neither of the petitions in case numbers 85-2296H and 85-2297H contain any allegations raising this legal issue. At the final hearing, the parties stipulated that these three cases should be consolidated for the final hearing, and a single recommended order should be entered concerning the stipulated legal issue.
Recommendation For these reasons, it is recommended in the final order to be entered in these cases, that the Hospital Cost Containment Board conclude that it has statutory authority to alter or adjust the net revenues per adjusted admission of a hospital budget if that budget has triggered review pursuant to either of the criteria found in sections 395.509(2)(a) or (b), Fla. Stat. (1984). DONE and ENTERED this 17th day of September, 1985, in Tallahassee, Florida. Hearings Hearings 1985. 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 17th day of September, COPIES FURNISHED: Curtis Ashley Billingsley, Esquire Hospital Cost Containment Board Woodcrest Office Park 325 John Knox Road, Suite 101 Tallahassee, Florida 32303 Ralph H. Haben, Esquire Robert S. Cohen, Esquire Post Office Box 669 Tallahassee, Florida 32302 Jack Shreve, Esquire Kevin O'Donnell, Esquire The Public Counsel 624 Crown Building 202 Blount Street Tallahassee, Florida 32301 Mr. James J. Bracher, Executive Director Hospital Cost Containment Board Woodcrest Office Park 325 John Knox Road Building L, Suite 101 Tallahassee, Florida 32303
The Issue The question in these cases is whether proposed rule 27J-1.062 is an invalid exercise of delegated legislative authority pursuant to section 120.54(4), Fla. Stat. (1985). The stipulated issues in these cases are: Does the Hospital Cost Containment Board have the authority to reduce a hospital's gross revenue per adjusted admission in applying the penalty specified in section 395.5094, Fla. Stat. (1985)? If so, may the reduced gross revenue per adjusted admission serve as the base for comparison in evaluating the rate of increase in the subsequent year's budgeted gross revenue per adjusted admission? No ruling will be made as to the second issue since the parties did not submit evidence or argument on the point. It appears that the issue has been abandoned. Florida Hospital Association, Inc., presented three exhibits, Florida League of Hospitals, Inc., presented one exhibit, the parties presented one joint exhibit, the Hospital Cost Containment Board (HCCB) presented two exhibits, and the prehearing stipulation was made a Hearing Officer's exhibit. All exhibits are in evidence. Testimony was presented from two witnesses, John Benz and James Bracher.
Findings Of Fact Petitioner Florida Hospital Association, Inc., is a non-profit corporation organized for the benefit of its 220 member hospitals, including not-for-profit, investor-owned, and governmental hospitals. T. 6. Petitioner Florida League of Hospitals, Inc., is a non-profit corporation organized for the benefit of its members, which are 80 investor- owned hospitals. The Respondent is the Hospital Cost Containment Board (HCCB). The Intervenor is the Public Counsel on behalf of the Citizens of the State of Florida. The following findings of fact are based upon stipulated facts: Throughout calendar year 1985, various drafts and revisions of the proposed rule were prepared by Respondent. The proposed rule was analyzed and discussed at meetings of the Financial Analysis Technical Advisory Panel (TAP) in August, October, and November 1985 and in January 1986. As a result of industry concern raised at those TAP meetings, Respondent made several substantial revisions to the proposed rule including: Amending subsection (3)(a) regarding the offset to the penalty from indigent care assessments, to allow credit for assessments paid by the hospital, rather than accrued in the fiscal year; Amending subsection (3)(b) to provide a "carry forward" provision in the rule that would allow hospitals to carry forward into subsequent years the amount of assessments paid minus the amount of revenues received for purposes of reducing the excess used in calculating the penalty; Amending subsection (5)(e) of the rule to provide that, in applying the penalty to gross revenues, the penalty would not apply to gross revenue reflecting charity care and certain fixed-priced government payors; and Amending subsection (5)(e) to allow other adjustments to the penalty on gross revenue [that might be justified as fair and equitable to all payors. In addition to the substantive changes described above, Respondent made various technical revisions to the proposed rule in response to suggestions from representatives of the hospital industry. The HCCB voted to adopt rule 27J-1.062 at its January 30, 1986, Board meeting, and instructed staff to initiate the rulemaking process. Joint Exhibit 1 is the April 17, 1986, draft of the proposed rule. This draft has not yet been published in the Florida Administrative Weekly, but is the proposed rule that is challenged herein. The draft incorporates the following stipulations: Paragraph (b) of subsection (1) of proposed rule 27J-1.062 shall be deleted from the proposed rule. Subsection (5) of proposed Rule 27J-1.062 shall be amended to specify that the budget reduction imposed pursuant to the proposed rule shall apply pro rata to the 12 months immediately following final Board action. Subsection (6) of proposed rule 27J-1.062 shall be deleted. Paragraph (c) of subsection (3) of proposed Rule 27J-1.062 shall be changed to specify that adjustments are based on adjusted admissions in the audited actual experience for the most recently complete fiscal year. Paragraph (b) of subsection (3) of proposed rule 27J-1.062 shall be changed to specify that the Board shall consider changes in case-mix in levying any penalty pursuant to the rule, It is officially recognized that the Respondent, the HCCB, published proposed rule 27J-1.062 in Vol. 12, Issue No. 7, at pp. 606-7, of the Florida Administrative Weekly on February 14, 1986. The proposed rule establishes a method of calculating the penalty provided in section 395.5094(1), Fla. Stat. (1985), which is commonly called the "main" penalty. Joint Ex. 1. Rule challenges by the Petitioners were timely filed. The proposed rule, implementing the above statute, requires an annual comparison by the HCCB of the hospital's audited actual experience for that year with both the Board approved budget for that year and the audited actual experience for the prior year. Joint Ex. 1. The proposed rule first calculates what is to be termed the "excess." The excess is the lesser of the following two amounts: either the absolute dollar amount of the difference between the audited actual net revenue per adjusted admission (NRAA) for the most recently completed fiscal year and the NRAA in the Board approved budget for the same year, or the absolute dollar difference between the audited actual NRAA for the most recently completed fiscal year and the prior fiscal year and the prior year's audited actual NRAA increased by the maximum allowable rate of increase (NARI). The Executive Director of the Board testified that the penalty will not be applied unless the hospital's actual audited experience for net revenues per adjusted admission exceeds both of these bases. T. 74-5. The proposed rule then contains a procedure for reducing the excess and the excess as reduced is called the "adjusted excess." The "penalty" then is calculated by multiplying the adjusted excess by the total adjusted admissions based on the actual audited data for the most recently completed fiscal year. The proposed rule also establishes procedures for reducing the hospital's budget based upon the penalty. Subparagraph (5), proposed rule 27J- 1.062. The reduction applies on a pro rata basis to the 12 months immediately following final Board action on the penalty. For the first occurrence within a five-year period, the Board is to reduce the hospital's budget for net revenues up to the amount of the adjusted excess not to exceed 5 percent of the prior year's actual net revenues inflated by the NARI. Any amount in excess of the 5 percent is then imposed as a fine. Subparagraphs (5)(a) and (c), proposed rule 27J-1.062. For the second occurrence within a five-year period, the Board is to reduce the hospital's budget for net revenues up to the amount of the adjusted excess not to exceed 2 percent of the prior year's actual net revenues inflated by the NARI. Any amount in excess of the 2 percent is then imposed as a fine. Subparagraphs (5)(a) and (c), proposed rule 27J-1.062. For the third occurrence within a five-year period, the Board does not reduce the budget of the hospital in any amount, but simply applies the entire penalty as a cash fine. Subparagraph (5)(b), proposed rule 27J-1.062. Finally, subparagraph (5)(e) of proposed rule 27J-1.062 provides that the gross revenue in the hospital's budget must be reduced. First, pursuant to subparagraph (5)(d) of the proposed rule, the percentage of the reduction of net revenues is calculated by dividing the amount of the penalty by the amount of actual audited net revenue for the most recently completed fiscal year. The percentage of the reduction of net revenues is then multiplied by the actual audited gross revenues for the most recently completed fiscal year. The result is multiplied again by the percentage of the hospital's gross revenue generated from sources other than charity care (which is further defined in the proposed rule) and fixed-price government payors specified in the FHURS (Florida Hospital Uniform Reporting System). Manual. To convert the reduced net and gross revenues in the budget to the NRRA and GRRA format, the reduced amounts are divided by the number of adjusted admissions in the budget. Subparagraph (5)(f) of the proposed rule. Petitioner, Florida Hospital Association, Inc., presented the testimony of John Benz, who was accepted as an expert in hospital finance, accounting, and budgeting. T. 17. Mr. Benz testified regarding the asserted effect of the proposed rule on a hypothetical group of eleven hospitals. See FHA Ex. 1. In this hypothetical, hospital number three was chosen as the hospital penalized, and the penalty amount was assumed to be $150 in gross revenues per adjusted admission. Hospital number three initially ranked above the 50th percentile, but just below the 80th percentile for GRAA. The hypothetical example further assumed that gross revenues per adjusted admission for each hospital would increase annually for ten years at 7 percent. It thus assumed no Board-approved GRAA in excess of 7 percent, or no automatically approved increase to GRAA above 7 percent. The current MARI is 7 percent. T. 88. It also assumed that the adjusted admissions for hospital number three would be 10,000 each of the ten years. T. 24. This is typical of a 300 bed hospital. T. 29. The assumption of uniform admissions is reasonable T. 54-5. It was also assumed in the hypothetical that the HCCB will annually use the GRAA as adjusted as the basis for future year budget calculations and determining the 50th and 80th percentiles for the group. Finally, the example assumed that a 5 percent overage is equal to $250 and a 2 percent overage is equal to $100. T. 34. The hypothetical example then calculated what the GRAA for all eleven hospitals would be for the ten-year period both without application of a penalty to gross revenues and with the penalty applied to gross revenues. In the first year, application of the penalty to GRAA lowers the GRAA of hospital three by $150, and lowers the total gross revenues of that hospital by $1,500,000. T. The reduction in GRAA lowers the 80th percentile GRAA by $20, or about 0.5 percent. Carrying these changes forward using the constant inflation factor of 7 percent, by the tenth year the GRAA of hospital three is $278 lower than it would have been without the penalty in the first year, the loss of gross revenues in the tenth year is $2,780,000, the cumulative loss of gross revenues in the ten years is $20,790,000, and the 80th percentile GRAA is less than it would have been by $55, or about 0.5 percent. T. 38; FHA Ex. 1. The decrease in the 80th percentile GRAA would potentially affect all eleven hospitals in the group. The hypothetical example presented by the Florida Hospital Association, Inc., also set forth a calculation of the asserted effect of the penalty after ten years imposed as a first, second, or third violation in a five-year period. T. 42. The asserted effect is mathematically different because the rule allocates the penalty differently for the first, second, or third violations. As mentioned above, the example assumes that a 5 percent overage is $250 and a 2 percent overage is $100. Again assuming a 7 percent rate of increase for each year in GRAA, the asserted effect of the three kinds of penalties is: Violation Total 10 year Total Cash Fine Asserted total reduction to effect gross revenues First $20,790,000 -0- $20,790,000 Second 13,880,000 500,000 14,380,000 Third -0- 1,500,000 1,500,000 As will be discussed ahead, it is not possible on this record to conclude that the above three-tiered penalty procedure will result in a harsher penalty for the first violation since (1) it is not certain that there will actually be a reduction to gross revenues for the entire 10 years, and (2) there is no expert evidence as to the time value of the cash fines. In the hypothetical discussed above, assuming as was assumed in the hypothetical that adjusted admissions would be 10,000 each year and that the GRAA would increase at 7 percent each year, in ten years, hospital three would have total gross revenues of $777,140,000. It would have lost $20,790,000 in gross revenues in the hypothetical example, and the sum of these two figures is $797,930,000. Thus, the percentage of the asserted amount of lost revenues is 2.6 percent. The Respondent, the Hospital Cost Containment Board, presented the testimony of James Bracher, Executive Director of the Board, who was accepted as an expert in health care financial regulation, including certificate of need, rate review, and budget regulation. T. 72-3. Mr. Bracher presented another hypothetical example to illustrate the asserted effects of the penalty applied only to net revenues and applied to both net and gross revenues. The hypothetical, contained in HCCB Ex. 2, assumes that net revenues will be 70 percent of gross revenues in any given year, that gross revenues will increase yearly by 8 percent, that 50 percent are fixed government payers, that the penalty is to be applied 3 months in 1987 and 9 months in 1988, and that gross revenues are initially $150,000 in 1987. T. 81-82. Finally, the example assumes that the penalty will be 5 percent of net revenues, and is a first violation penalty. T. 82. The result of the HCCB's hypothetical is that if the 5 percent penalty is applied only to net revenues, the penalty is completely recovered from those revenues in the first two years (pro rated since the first year has only a 3- month impact under the hypothetical assumption), and thereafter, net revenues return to the same level as if no penalty had been levied. This occurs directly as a result of the assumption that net revenues will always be 70 percent of gross revenues. T. 83. If the penalty is applied to gross revenues as well as net revenues, the HCCB hypothetical asserts that both gross revenues and net revenues will be permanently lowered. T. 83. This occurs because gross revenues in future years are assumed to be only a constant percentage increase from the penalty year, and net revenues are assumed to be 70 percent of gross revenues in any given year. By 1990, the gross revenues of the hypothetical hospital would be less by $4,462, or by about 2.4 percent, and net revenues would be less by $3,123, which of course would be the same percentage reduction since net revenues are directly related to gross revenues. HCCB Ex. 2. A projected budget is based in part upon historical budgets, and thus, if an earlier budget is incorrectly too high, it is possible that the error may be carried into the future. T. 96. However, the current Florida regulatory scheme provides all hospitals with the opportunity to justify increases in gross revenues annually, based upon current information. T. 86-7. It is possible in a future year for a hospital to gain HCCB approval of a budget for increased gross revenues due to new or expanded services, a change in case mix, or a change in length of stay. T. 90, 51. It is also possible for increases in GRAA to be automatically approved by the HCCB if the hospital is ranked below the 50th percentile in its group, or if the hospital is ranked below the 80th percentile in its group and the increase is less than the MARI. Thus, it is possible that the effect of a penalty to gross revenues in one year may be cancelled out in a future year by increases to GRAA due to approval of a new budget justified upon new facts or due to automatic approval. None of the hypotheticals presented in this case are expected to actually occur precisely as set forth above, and only serve as reasonable illustrations of the potential mathematical relationships between the penalty and future gross or net revenues. As discussed above, since a hospital might be able to justify a higher GRAA in a future year, the Petitioner's and Respondent's hypotheticals might never occur, or at least it is impossible to say whether the cumulative effect may continue for ten years, five years, or forever. Similarly, the assumption of the examples used, that a uniform increase in GRAA of 7 percent or 8 percent per year, while useful as a mathematical example, is unlikely to actually occur. T. 90. The rates of increase for competitor hospitals of the North Broward Hospital District have not been uniform. T. 55. Finally, the assumption of the HCCB that NRAA will be a uniform 70 percent of GRAA might be roughly correct, but in fact the relationship will vary from year to year. T. 123-4. However, notwithstanding the lack of precise examples, several conclusions can be drawn from the hypotheticals presented. First, although it is impossible to predict how long and how much of a cumulative penalty will be felt by a hospital if the penalty is applied to gross revenues, it is relatively certain that the effect of the penalty on gross revenues will continue for several years beyond the base year. This will occur because the budget review process of the HCCB is based primarily upon past history of GRAA. T. 120. If a hospital's GRAA is lowered in a single year, it is likely that this loss of approved GRAA will affect a number of future years. Second, it is also relatively certain that if the penalty is applied only to NRAA, a hospital will be able to return to the same NRAA it would have had without the penalty in a relatively short time, even if one assumes that the relationship between NRAA and GRAA will not uniformly be 70 percent each year. This should occur because GRAA has not been lowered, and thus stands as an approved basis in future years for justification of the higher NRAA. Indeed, if the GRAA is below the 50th percentile, approval will be automatic. Gross revenues minus other operating revenues equals total patient charges. T. 51, 57. Gross revenues minus other operating revenues is what is billable to the patient. Id; T. 56-7. Not all charges billed are collected. The percentage of uncollected patient billings differs from hospital to hospital. Indigents do not pay, and the percentage of indigent care can be 10 percent in some hospitals. T. 97. Medicare may not pay the entire amount billed for a Medicare eligible patient. T. 97. In Florida, hospitals may have 45-50 percent of their patients as Medicare patients. T. 98. Health maintenance organization patients and preferred provider patients may be billed discounted rates. T. 97. Net revenues equal the amount received from patients, and reflect gross receipts from charges to patients. T. 50, 57, 58. Net revenues are a product of patient charges, but are not a direct reflection of such charges. T. 59. Gross revenues thus do not "equal" the amount paid by patients since at least one-half of all patients in Florida do not themselves pay charges. However, excluding other operating revenue, gross revenues do reflect the charges paid by charge-paying patients and the charges paid by third-party payors whose payments are charge-based or discounted, which is somewhat less than one-half of all patients in Florida. There is a significant relationship between gross revenues and charges to patients such that the reduction of gross revenues in a budget is likely, over time, to contain or slow the increase of charges to Florida patients. Petitioner's example of a lump sum Medicare settlement causing a penalty due to increase of net revenues, without increase in gross revenues, is not likely to occur. The HCCB has procedures whereby receipt of a lump sum Medicare settlement may be recognized and approved through budget amendment. T. 90-3. Two prior final orders of the HCCB are in evidence as arguable precedent for the case at bar. These are the final orders in the Lake Hospital of the Palm Beaches case, DOAH Case Number 85-1666H, FHA Ex. 2, and the American Medical International cases, DOAH Case Numbers 85-2296H, 85-2297H, and 85-2265H, HCCB Ex. 1. In the Lake Hospital case, the Board applied the base year adjustment of section 395.509(11), Fla. Stat. (1984), to net revenues only. In the American Medical International cases, the Board construed its authority to review and approve "budgets" to include the power to approve or disapprove net revenue amounts as well as gross revenues. The North Broward Hospital District invests excess funds at a rate of interest of 8 percent to 10 percent. T. 50. The practical effect of the proposed rule is to provide a way to return a hospital to the approximate place it would have been had it not exceeded either its approved budget or its actual audited experience inflated by the MARI. A secondary effect is to alter the percentile relationship of all hospitals to the level it would have been had the subject hospital not exceeded these limits. If it is lawful for the HCCB to reduce GRAA as is intended in the proposed rule, and if the HCCB adopts the proposed rule and fails to follow it, the failure would unlawfully benefit both the subject hospital and all hospitals in the group since both the GRAA of the hospital and the percentile ranking of GRAA of all hospitals in the group, in that event, should be reduced. It would be an unlawful detriment in that event to Florida consumers as well.
Findings Of Fact In May of 1975 Petitioner's application submitted August 1974 for a certificate of need to construct auxiliary facilities at Palmetto General Hospital was approved for approximately $5.3 million construction costs and $1.2 million for equipment. (Exhibit 3). When the contract for the construction was let in December 1975 the base contract price (for construction only) amounted to $6,250,000. Petitioner also contracted for additional work not included within the scope of the certificate of need of some $771,000 for which it is not here seeking approval. (Exhibit 7 and Tr. p. 40). By letter of September 7, 1976 (Exhibit 4) Petitioner advised Respondent that it was considering the purchase of telephone equipment, the cost of which would exceed $100,000 and inquired if it was necessary to process a certificate of need application for the purchase. By letter dated 15 September 1976 (Exhibit 5) Petitioner was advised that the approved certificate of need contemplated costs for communications equipment and no new approval for such was required. No mention was made in either letter of the possibility or consequences of costs exceeding those approved in the certificate of need application. During an internal audit by Petitioner's auditors in 1978 the auditors advised Petitioner that there was a requirement to notify HRS at least 60 days prior to approving any expenditures which were more than $100,000 in excess of the costs contained in the certificate of need approval. On March 17, 1978 (Exhibit 6) Petitioner notified Respondent that expenses over the approved cost were expected to be some $845,000. In the Application for Certificate of Need (Exhibit 3) forwarded to HRS on February 1, 1979 these overruns are reported as $4,199,118. It is from this approximately $4.2 million overrun Respondent stipulated it would agree the $91,000 for a generator and the other equipment purchases after May 17, 1978 of $66,568.30 and $427,041.03 should be deducted. This leaves $3,614,408.67 Respondent contends it should report to HEW. Petitioner in Exhibit 1 shows payments made between May 17, 1978 and June 30, 1978 of $105,631.17 and payments made after June 30, 1978 of $729,655.76. No evidence was presented when the obligation to make these payments accrued. Both parties agreed that Petitioner's Notice of 17 March 1979 constituted notice of overruns and the date of May 17, 1978 was accepted as being 60 days thereafter. The agreement between HRS and HEW requiring the reporting of cost overruns to HEW expired on June 30, 1978. During the period here involved the language contained in Rule 10-5, Florida Administrative Code Supplement 96, was in effect. The certificate of need application forms in use in 1974 and 1975 contained no separate line item on which to include costs related to interest during construction or for inflation. Petitioner's primary cost overruns involved expenses for communications equipment, interest during construction and inflation higher than anticipated.
Findings Of Fact The Prehearing Stipulation filed by the parties included stipulated facts which are found as follows: Petitioner's 1988 budget amendment request was timely filed. HCCB staff preliminary findings and recommendations were timely provided to Petitioner. Petitioner timely filed objections and requested a hearing regarding staff's preliminary findings and recommendations. Petitioner's original 1988 budget was subject to automatic approval and was automatically approved. The Petitioner, Memorial Medical Center of Jacksonville (hereinafter Petitioner or Memorial) is a 353-bed not-for-profit hospital located in Jacksonville, Florida. Memorial is a full service, acute care hospital, which offers a wide range and high level of medical services and is involved in efforts to improve services, and to contain costs. Health South, Inc., is the parent corporation of Memorial. Other subsidiary corporations of Health South, Inc., which are relevant to this matter, include Memorial Regional Rehabilitation Center, a 128-bed, full service rehabilitation center, and HSI Support systems, Inc., which provides financial support and other services to Memorial. Health South, Inc., Memorial, Memorial Regional Rehabilitation Center, and HSI Support Systems, Inc., are related parties for purposes of HCCB reporting requirements. Memorial's administrator, Mark Mrozek, reports to the president of Health South, Inc. Memorial's vice-president of finance, Martin Gutkin, reports to a senior vice-president of Health South, Inc. Memorial's fiscal year runs from May 1 to April 30. Memorial's fiscal year 1988 budget covered the period from May 1, 1987, through April 30, 1988. Preparation of the FY 1988 budget began in mid-August of 1986, therefore, only three to four months of actual data from FY 1987 were available for use in preparing the FY 1988 budget. The gross revenue per adjusted admission (hereinafter GRAA) which was automatically approved by the HCCB for Memorial in its original 1988 budget was $5,816. Memorial implemented a rate increase of between 8.1 percent to 8.3 percent in May 1987. On December 23, 1987, Memorial filed a request to amend its budget. In the amendment, Memorial requested an increase in its GRAA of $556, which would increase Memorial's GRAA to $6,372. The amendment requested by Memorial was reviewed by Judy Cooper, an analyst employed by the HCCB. Ms. Cooper's analysis was reviewed by Terry Richardson, a Regulatory Analyst Supervisor, and James Bracher, HCCB Executive Director, both of whom approved her analysis. The maximum allowable rate of increase for the FY 1987 through FY 1988 period was 8.3 percent, as determined by the HCCB pursuant to the applicable statute. The FY 1988 budget amendment requested by Memorial was in excess of 8.3 percent. In its request for approval of its budget amendment, Memorial identified a number of increased costs which, according to Memorial, provided justification for the request. The Petitioner identified an increase in outlier experience beyond what was projected for the original 1988 budget as a justification for the budget amendment. An outlier is a hospital patient whose length of stay or cost of medical treatment exceeds the range established by Medicare as normal or the level of reimbursement applicable for a particular diagnosis. It is not possible to predict with any degree of certainty, the types of patients or types of illnesses that a hospital will experience from year to year, or the length of time it will take to treat those illnesses. For example, the fact that a hospital could have 1,000 outliers two years ago and 1,500 outliers last year, does not indicate that the hospital could expect 2,000 outliers this year. The HCCB staff methodology for projecting outlier experience for the purpose of budget amendments is to project the ratio of outlier to total cases actually experienced by the hospital from the beginning of its current fiscal year to the remaining portion of the fiscal year covered by the budget amendment. In other words, a hospital is permitted to project outlier experience consistent with that which it has experienced from the beginning of its fiscal year to the point of amendment. Memorial proposes, and in its requested budget amendment attempted, to project outliers based on the rate of change in outliers experienced between the first and second six month period of FY 1987. In recent years Memorial has experienced a fluctuation in its outlier experience with a larger proportion of outliers occurring in the second half of the fiscal year. The fiscal year 1987 outlier data which Memorial used to project 1988 outliers in its budget amendment request reflects a greater rate of change between the first and second year halves in 1987 than Memorial has experienced in other years. Had Memorial used the rate of change in outliers it experienced in 1986 to calculate its amended request, a smaller request for outlier case credit would have resulted. The unpredictability of projecting outliers indicates that Memorial's methodology is not more reasonable than the methodology employed by HCCB staff. There are two mechanisms which protect the Petitioner from being unfairly impacted by the staff methodology. Credit for outliers is available retrospectively to the Petitioner. In other words, if actual outliers exceed predicted outliers, the HCCB permits a revision of the entire year's outlier projection to reflect the actual outliers in a hospital. Further, if a hospital's revenue exceeds its budgeted revenue because of changes in outlier cases, any penalty which may be applied against the hospital for exceeding approved revenue limits would be reduced or eliminated by crediting the increase in outlier experience against the penalty. Accordingly, hospitals may recover any outlier credits to which they are entitled. Utilizing the detailed outlier data submitted by Memorial and the HCCB methodology in projecting outliers, HCCB staff calculated that Memorial was entitled to additional GRAA of $87 based on its increase in outliers. Memorial is entitled to $87 in additional GRAA applied retroactively from the beginning of FY 1988. In its 1988 budget amendment request, Memorial indicated that it was projecting an increase in insurance expense related to increased malpractice insurance and requested additional GRAA of $21. At hearing, Memorial indicated it does not now anticipate that this increase will occur. Memorial is not entitled to any related GRAA adjustment. In its requested budget amendment, Memorial sought additional GRAA for an increase in pharmacy revenue. HCCB staff policy is to deny requests for increased GRAA for pharmacy revenue because pharmacy revenue is viewed as "an effect, rather than a cause." In other words, the staff policy classifies increased pharmacy revenue as a reflection of increased case mix and outlier- related revenue for which credit is already provided. The policy is reasonable. To provide credit for both an increase in pharmacy revenue and an increase in outlier and case mix revenue would constitute double credit. Memorial did not dispute this policy, therefore, Memorial is not entitled to additional GRAA related to these pharmacy revenues. In its requested budget amendment, Memorial submitted information related to changes in Medicare reimbursement policy, which related to changes in the "blended rate" and the "capital pass through rate." Memorial requested additional GRAA of $58 related to Medicare program changes. The staff agreed that Memorial was entitled to the full $58. Accordingly, Memorial is entitled to receive the adjustment, which is credited prospectively from the time of the filing of the budget amendment. As further justification for the requested budget amendment, Memorial sought additional GRAA for increases in Medicaid contractuals and HCCB staff agreed that it was appropriate. Utilizing the HCCB staff methodology as applied to data provided by Memorial, additional GRAA of $1 results. Memorial is entitled to the additional GRAA, applied prospectively from the date of the filing of the budget amendment. Memorial, in its requested budget amendment, sought additional GRAA of $24 based on an increase in its level of charity/uncompensated care. After clarifying information was provided to HCCB staff, the request for the $24 in GRAA was approved. Memorial is entitled to the additional GRAA, applied prospectively from the date of the filing of the budget amendment. During the period of time in which the HCCB staff was reviewing Memorial's requested amended budget, Memorial submitted information related to an increase in its case mix index during FY 1988. The HCCB and Memorial agree that Memorial has justified $137 in additional GRAA to which the Petitioner is entitled, applied retrospectively from the beginning of the fiscal year. Memorial originally requested additional GRAA of $48 based on interest expense of approximately $500,000 related to the acquisition of new equipment. Memorial subsequently withdrew its request for this expense item. Accordingly, no additional GRAA is appropriate. Memorial sought, in its requested budget amendment, additional GRAA for the impact of increased costs associated with the drug, tissue plasmogen activator, which is used in the treatment of cardiac patients. HCCB staff agreed with the request. Application of staff methodology results in additional GRAA of $7. Memorial also provided information to HCCB staff related to the use of isoview contrasting during the course of cardiac procedures. HCCB staff also agreed with this request. Utilizing HCCB staff methodology results in additional GRAA of $26 based on the increased cost of the application of this new drug. Both adjustments are applied prospectively from the date of the filing of the amended budget. At the hearing, Petitioner provided testimony related to $2,058,900 in additional expenses which were not reported in the original budget. Such expenses included increased costs related to nursing, quality assurance programs, and various efforts to improve efficiency. Other expenses were related to employee programs, additional hospital services, a generator repair and a tax related to the recently adopted medical malpractice tax. Some of the additional expenses were reflected in the 1988 amended budget requested by Petitioner, others were not. During the hearing, no evidence was introduced to support the claimed additional expenses. Based on the absence of admissible supporting evidence, and the inability to allocate those costs in an appropriate manner between the pre- amendment and post-amendment periods, no finding can be made relative to the $2,058,900 in additional expenses which were claimed at the hearing. The Hospital Cost Containment Board has established policy which governs the examination of related party transactions during the budget review process. As authorized by the HCCB, Mr. Bracher expressed and explained the HCCB policy. The Respondent has recently promulgated rules which are the result of approximately one year's experience during which time the board's non-rule policy has evolved. The Respondent's treatment of related party transactions is similar to the treatment accorded to any other cost. Related party transaction expenses which are disallowed are deducted from total expenses in computation of appropriate revenue levels. The HCCB policy regarding related party transactions has resulted in the examination of other hospital's related party transactions and has been at issue in other litigation involving the HCCB. Worksheet D-3-2 of the Florida Hospital Uniform Reporting System (FHURS) Manual, incorporated by reference in Rule 10N-1.018, Florida Administrative Code, requires that a hospital report the cost it pays to related parties for services, facilities and supplies furnished to the hospital by related parties. The worksheet requires that if such costs are in excess of "the amount a prudent and cost conscious buyer would pay for comparable services, facilities, or supplies that could be purchased elsewhere," an explanation of the cost is required. Memorial projects to pay HSI Support Systems, Inc., $1,653,274 in rental payments during the FY 1988 period. The cost to HSI Support Systems, Inc., for the same rental payments is $866,774. The difference between the rental payments by Memorial to HSI Support Systems, Inc., and the related cost to HSI Support Systems, Inc., is $786,500. Memorial provided no information which could identify the specific goods or facilities for which rental expense to Memorial was incurred, thus there is no information which would lead to a finding that the difference is reasonable. The $786,500 difference between the rental payment made by Memorial and the related cost to HSI Support Systems is unreasonable and should be deducted from allowable expenses in the HCCB computation of permissible revenue levels. Memorial projects total depreciation expense during FY 1988 of $3,684,512. Health South, Inc., and HSI Support Systems, Inc., project combined depreciation expense of $3,184,512 during the same period. The difference between the depreciation expense of Memorial and the depreciation expense of Health South, Inc., and HSI Support Systems, Inc., is $500,000. (R 1) The HCCB provided no information, beyond noting the difference between the stated depreciation expenses, which would indicate that such depreciation was related to services, facilities, and supplies provided to the Petitioner by related parties, as stated in the rule. Although Memorial, in responding to the Interrogatories of the Public Counsel (R 1), indicated that these depreciation figures may result in payments to related organizations, there was no specific evidence introduced as to what was being depreciated and under what circumstances such depreciation could result in payments to related parties. No finding is made related to depreciation. The HCCB did not introduce any evidence which would lead to a presumption that the depreciation was unreasonable. Depreciation is a method of allocating an asset's cost over the period of the asset's useful life. It is generally a non-cash expense. There was no evidence introduced at hearing which indicated that any payment of expenses would actually be made or was expected to be made. Memorial projects to pay to Health South, Inc., a sum of $1,644,187 for management services during the FY 1988 period. The related cost to Health South, Inc., is $1,927,614. The cost to Health South, Inc., is $283,427 greater than the charge to Memorial. Although, HCCB staff asserted at hearing that the $283,427 could be treated as a credit to Memorial, there is insufficient evidence to support a finding that such treatment methodology is appropriate. Subsequent to the filing of the Petitioner's request to amend its original FY 1988 budget, the HCCB further amended the FHURS manual (incorporated by reference, Rule 10N-1.018, Florida Administrative Code, amendment filed February 29, 1988) to specifically address the issue of interest paid between related parties. The rule was not applicable at the time Petitioner filed the request to amend the FY 1988 budget. The board's non-rule policy, as it has evolved during the past year, and which is now codified by the rule, is that interest paid to related parties is reviewed to determine whether the interest rate is reasonable in light of market conditions which existed at the time the obligation through which the interest is paid was incurred. The board presumes that any interest paid by a hospital to a related party, which exceeds the cost to the related party for the same funds, is unreasonable. The HCCB policy requires that the hospital establish the need for and reasonableness of interest charged by a related party which exceeds the cost to the related party. In 1983, Health South, Inc., received $45,000,000 as proceeds from the sale of a fixed rate bond issue. The funds were used in part to construct hospital facilities. Health South, Inc., is a cost-effective negotiator for the use of funds. The interest rate charged to Health South, Inc., approximately 9.8 percent, is found to be reasonable. The relevant interest amount on the bonds to be paid by Health South, Inc., during Memorial's FY 1988 period is $4,261,495. (R 1) Memorial projects to pay to Health South, Inc., $7,584,576 in short- term interest related to the bonds during FY 1988. The interest is allegedly paid pursuant to a 31 year "lease" to Memorial from Health South, Inc., on the 500,000 square feet which constitutes the hospital facility used by Memorial. Although at hearing, the arrangement giving rise to the short term interest was characterized by Memorial as a lease, it is not so identified in Memorial's responses to the Intervenor's interrogatories, where it is identified as an interest expense. Memorial did not introduce evidence of any agreement which would indicate that the expense is in fact a lease payment. The characterization of the arrangement as a lease arrangement is rejected. It is treated for the purposes of this finding as an interest expense. Based on the amount of interest being paid by Memorial to Health South, Inc., the imputed interest rate upon which the payment by Memorial to Health South, Inc., is based is approximately 14.5 percent. The difference between the interest charges to Memorial by Health South, Inc., and the related interest cost to Health South, Inc., is $3,323,081. Memorial projects to pay HSI Support Systems, Inc., $228,912 in interest during the FY 1988 period. The interest cost to HSI Support Systems, Inc., for the amount of funds loaned to Memorial is $140,523. The difference between the interest charges to Memorial by HSI Support Systems, Inc., and the interest cost to HSI Support Systems, Inc., for the same funds is $88,389. The total interest projected to be paid by Memorial to related parties is $7,813,488 ($7,584,576 to Health South, Inc., plus $228,912 to HSI Support Systems, Inc.). The interest cost to related parties for the same funds is $4,402,018 ($4,261,495 to Health South, Inc., plus $140,523 to HSI Support Systems, Inc.). The difference in total interest charges to Memorial and the interest cost to related parties is $3,411,470. Memorial did not introduce evidence which would lead to a finding that such interest as is charged to Memorial is reasonable. There was no evidence which indicated that Memorial would not have been able to obtain the same interest rate that Health South, Inc., obtained. Accordingly, the $3,411,470 difference between the interest paid by Memorial and the cost to related parties is unreasonable and should be deducted from allowable expenses in the HCCB computation of permissible revenue levels. Memorial provides services in excess of $2,000,000 annually to Memorial Rehabilitation Center. Memorial bills such services at its cost, charging no mark-up to the Rehabilitation Center. Some of the services provided by Memorial to the Rehabilitation Center may be provided for less than Memorial's cost. The effect of the expenses charged to Memorial for funds, facilities or services provided by related parties in which the charge to Memorial exceeds the cost of the funds, facilities, or services to the related parties, is to increase the total expenses of Memorial. The effect of Memorial's provision of services to related parties at Memorial's cost is to reduce the total revenue of Memorial. The effect of disallowing expenses in Memorial's budget is to reduce levels of allowable gross revenue per adjusted admission. The reason is that disallowing such expenses reduces the underlying costs which influence the need for revenue. Memorial is in HCCB group 8. (T 207) There are 19 hospitals in group Hospitals are grouped to provide a meaningful basis for comparison. Relative to the other hospitals in group 8, Memorial ranked first in the amount of interest expense budgeted. In the computation of the GRAA level, HCCB staff stated that the appropriate methodology which should be applied in deducting, from allowable expenses, those expenses which are not found to be reasonable, is to equally divide the expenses into two periods, the "actual" period which extends from May 1, 1987, to October 31, 1987, and the "projected" period which extends from November 1, 1987, to April 30, 1988, and then remove one half of the disallowed expenses from each period. The methodology utilized to remove the disallowed expenses from Memorial's budget is reasonable. One of the statistical measures used by the HCCB to determine the appropriateness of hospital revenue and expenses is operating margin. The operating margin is a source of funds which may be used by a hospital to make capital expenditures. Memorial states that it experienced an operating loss in FY 1987, due primarily to problems related to reimbursement under prospective payment systems. In other words, losses were related to the fact that under prospective payment systems (in which a specific reimbursement level is established based on type of diagnosis) Memorial's reimbursement levels were not sufficient to cover the expense. However, there were additional factors in the FY 1987 loss which were not identified at hearing. In the requested budget amendment, Memorial requested an approved GRAA of $6,372 which results in an operating margin of 0.9 percent (P-1). Memorial asserts that the 0.9 percent operating margin is reasonable (P-1). According to Memorial, the average operating margin for hospitals in group 8 is 5.19 percent (P-4). Assuming that the GRAA level was approved at the level requested by Memorial and that all related party expenses were excluded from Memorial's allowable expenses, Memorial's operating margin for FY 1988 would be 5.9 percent. Assuming that the Petitioner's originally requested GRAA level was reduced to the staff recommended level, and that all related party expenses were deducted from Memorial's allowable expenses, the operating margin for FY 1988 would be .06 percent. Two hospitals in group 8 have negative operating margins (P-4). An operating margin of .06 percent, while not an acceptable margin for an extended period, would not be detrimental to a hospital's survival for a period of one or two years and under the circumstances in this case is reasonable. Memorial's operating margin is between .06 and 5.9 percent. An operating margin of .06 percent is reasonable, as is an operating margin of 5.9 percent. Accordingly, an operating margin which falls within that range is reasonable. In light of the unreasonable expenses charged to Memorial by related parties and the failure of Memorial to increase revenue through charges for services provided to the Rehabilitation Center, the operating margin of Memorial is found to be reasonable. The HCCB does not have the authority to force a hospital to renegotiate or otherwise alter a previously existing financial arrangement between a hospital and another entity and it is not doing so here. The HCCB does have the authority to disallow inappropriate expenses in reviewing the proposed budget of a hospital. The HCCB does not consider that the disallowance of certain expenses is a penalty in the sense of the meaning of the term "penalty" as provided in the statute.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the HCCB amend and adopt a budget for Petitioner's FY 1988 period which contains gross revenue per adjusted admission and net revenue per adjusted admission levels reflecting the following: A total of $4,197,970 in related party expenses should be disallowed and deducted from the Petitioner's allowable expenses and in establishing the HCCB-approved revenue levels. Credit should be given in the amount of $340 gross revenue per adjusted admission due to increased expenses related to outliers, case mix, Medicare program changes, Medicaid contractuals, additional charity/uncompensated care costs, and administration of TPA and Isoview contrast drugs. The net revenue per adjusted admission should be amended to reflect the same credit. DONE and ORDERED this 15th day of April 1988, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM 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 15th day of April 1988. APPENDIX The following constitute rulings on the proposed findings of fact which were contained in proposed recommended orders filed by the parties: Petitioner: 1-3. Accepted. 4. Accepted insofar as necessary for purpose of identifying relevant related parties. 5-8. Rejected. Characterization as "lease" is not supported by the evidence, including Petitioner's identification of expense as "interest" in documentation. Accepted, generally, in reference to increasing costs associated with operation of hospital. Use of word "skyrocketed" is rejected. Accepted. Accepted, generally, in reference to Memorial's attempts to monitor costs. Use of word "leader" is rejected. Accepted. Rejected, this is merely restatement of witness testimony. Accepted. Rejected, restatement of testimony. Rejected, restatement of testimony. Hospital could increase revenue in other ways in order to reduce cost of services. Accepted. Accepted, generally, insofar as costs associated with operation of a hospital continue to increase. 19-20. Accepted. Accepted, reflected in specific credit items sought by Memorial. Accepted. COPIES FURNISHED: W. David Watkins, Esquire OERTEL & HOFFMAN, P.A. Post Office Box 6507 Tallahassee, Florida 32314 David R. Terry, Esquire Gary Walker, Esquire Hospital Cost Containment Board Building L, Suite 101 325 John Knox Road Tallahassee, Florida 32303 John M. Knight, Esquire Office of the Public Counsel 624 Fuller Warren Building Tallahassee, Florida 32303 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
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 $5,000.00. 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 Filed May 28, 2013 9:41 AM Division of Administrative Hearings ORDERED at Tallahassee, Florida, on this 2 day of Muy , 2013. Agency for Ht4élth 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 1 CERTIFY that a true and correct copy of this Final Order was served on the below-named persons by the method designated on this gletay of va , 2013. Richard Shoop, Agency 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) Alba M. Rodriguez, Senior Attorney Andrew M. Schwartz, Esq. Office of the General Counsel Attorney for Respondent Agency for Health Care Administration 101 Plaza Real South (Electronic Mail) Suite 218 Boca Raton, Florida 33432 (U.S. Mail) Errol H. Powell Administrative Law Judge Division of Administrative Hearings (Electronic Mail)
The Issue The issue is whether proposed rules 10N-6.011(1) and (8) constitute an invalid exercise of delegated legislative authority as alleged by petitioners.
Findings Of Fact Based upon all of the evidence, including the stipulation of fact and affidavits, the following findings of fact are determined: Background On November 27, 1991, respondent, Health Care Cost Containment Board (Board or respondent), proposed to adopt new rules 10N-6.008 through 10N-6.024 for the purpose of implementing section 177 of Chapter 91-112, Laws of Florida, now codified as Section 395.1015, Florida Statutes (1991). That statute imposes an annual assessment on certain health care entities for the purpose of funding indigent care through the Public Medical Assistance Trust Fund. Petitioners, Damon Clinical Laboratories, Metpath, Inc., National Health Laboratories, Inc. and Smith Kline Beecham Clinical Laboratories (petitioners), have filed a petition to determine the invalidity of the proposed rules. Petitioners are all clinical laboratories licensed under Section 483.091, Florida Statutes (1991) and are affected by and subject to the proposed rules. Respondent is the agency responsible for the collection of the assessment and the administering of the law. Among other things, the proposed rules impose a 1.5 percent annual assessment of the net operating revenues of each clinical laboratory licensed under section 483.091. They also require the furnishing of documentation on required forms to verify the accuracy of the assessment, prescribe and adopt forms, provide the manner in which such forms are to be filed, provide how the assessment shall be calculated and paid, and impose penalties for reporting and payment deficiencies. As a result of a settlement conference by the parties, on January 24, 1992, the Board proposed certain changes to the originally proposed rules. The precise changes are not of record. However, as a result of that conference, there remain only the contentions by petitioners that (a) proposed rule 10N- 6.011(1), which requires the health care entity to elect a fiscal period to which its first and later assessments shall apply and to report that election on a particular form, is invalid because it allegedly imposes the assessment retroactively and thus the Board has exceeded its delegated legislative authority and the rule is arbritrary, capricious and unconstitutional, and (b) proposed rule 10N-6.011(8), which requires each licensee to file separate reports, is invalid as being arbitrary and capricious. B. Rule 10N-6.011(1) Section 177(2) of Chapter 91-112, Laws of Florida, which is now codified as subsection 395.1015(2), provides that the first assessment imposed by the act shall be due on March 31, 1992, and that by January 1, 1992, each licensee shall make a one-time election and choose the fiscal year on which the first and later assessments shall be based. To implement that requirement, the Board has proposed to adopt rule 10N-6.011(1) which reads as follows: By January 1, 1992, the health care entity shall make a one-time election to base the assessments on net operating revenue received in the health care entity's latest fiscal year ending on or before December 31, 1991, or December 31, 1992, respectively, or the 12 month period ending March 31 of the year the assessment is due. The health care entity shall report the elected assessment period to the Board on the AMBFACi report forms. Except for the last sentence in the rule, the rule tracks verbatim the language in subsection 395.1015(2)(a)1. cited above. Under the terms of the rule, a health care entity is required to choose the fiscal period to which the first and later assessments are based and to report that election to the Board on form AMBFACi. Like the enabling statute, the rule provides that the first assessment is based on the net operating revenues received by the entity during either the twelve-month period ending December 31, 1991, or March 31, 1992, depending on which time period the entity elects to use. Under either fiscal year, the assessment will be based on revenues received by the entity prior to July 1, 1991. 1/ The history note to rule 10N-6.011(1) identifies section 395.1015 as the statute being implemented. C. Rule 10N-6.011(8) Subsection 395.1015(2)(b)2. defines a "health care entity" as each clinical laboratory licensed under chapter 483. Among other things, rule 10N- 6.011 requires each health care entity to annually file various financial reports. To clarify its intention as to who must file those reports, given the definition in subsection 395.1015(2)(b)2., the Board has proposed to adopt new rule 10N-6.011(8) which reads as follows: (8) Where more than one health care entity is operated by the reporting organization, the information required by this section shall be reported for each health care entity separately. Accordingly, under the terms of the rule, each licensed laboratory must furnish the Board with reports of receipts and other financial information. The history note to the rule cites section 395.1015 as the statute being implemented. At least two of petitioners own and operate several major, licensed clinical laboratories in this state. They also maintain and operate subordinate or satellite licensed laboratory facilities within the state. The satellite facilities include those used as patient collection stations, "STAT" laboratory facilities (to perform limited immediate and emergency patient testing) and remote cytology screening centers. The satellite facilities do not maintain accounting or financial records. Rather, the major or central clinical laboratory bills, collects, and reports for all financial purposes on an aggregrate basis for itself and for each of the satellite laboratories. The billing, collection and other financial data generated and maintained in central laboratories is complete, on an aggregate basis, both for that laboratory and for all of the satellite laboratories in the state and would provide the Board, if requested, precisely the same information on an aggregate basis which could have been obtained collectively from each of the satellite facilities in Florida if the information were available from each facility on a separate basis. In the clinical laboratory industry, some clinical laboratories which are requested to perform clinical and diagnostic services by physicians, hospitals and other health care providers do not actually perform those services. Rather, testing of materials and diagnostic services are referred to other clinical laboratories (performing laboratories) both in and outside the state for actual testing and clinical evaluations. Thus, the referring laboratory may be little more than a collection point for the convenience of health care providers in a community. It may also be a full service laboratory which, however, refers a limited class or type of testing to another facility where special equipment is available. The parties have agreed that the performing laboratories render a bill for their services to the referring laboratories, the referring laboratories in turn render a bill to the hospital, physician, or other health care provider who initiated the request for clinical or diagnostic services, and the referring laboratories' billing to the health care provider may be for an amount larger than the performing laboratories' charges if it includes the amounts charged by the performing laboratory. Proposed rule 10N-6.018, which has not been challenged, authorizes the Board's executive director, with the Board's approval, to make interpretative rulings and modifications with respect to the instructions contained in the Board's forms to be used for reporting financial and statistical information.
