Conclusions THIS CAUSE came on for consideration before the Agency for Health Care Administration (“the Agency”), which finds and concludes as follows: 1. The Agency issued the Petitioner (“the Applicant”) the attached Notice of Intent to Deny. (Ex. 1) The parties entered into the attached Settlement Agreement (Ex. 2), which is adopted and incorporated by reference. 2. The parties shall comply with the terms of the Settlement Agreement. If the Agency has not already completed its review of the application, it shall resume its review of the application. The Applicant shall pay the Agency an administrative fee of $500.00 within 30 days of the entry of this Final Order. A check made payable to the “Agency for Health Care Administration” containing the AHCA ten-digit case number should be sent to: Agency for Health Care Administration Office of Finance and Accounting Revenue Management Unit 2727 Mahan Drive, MS# 14 Tallahassee, Florida 32308 ORDERED in Tallahassee, Florida, on this 6 day of Ochber- , 2014, sax oy Agency for Health Care Administration Filed October 8, 2014 12:59 PM Division of Adminlstrative Hearings NOTICE OF RIGHT TO JUDICIAL REVIEW. A party that is adversely affected by this Final Order is entitled to seek 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 HEREBY CERTIFY that a true and correct copy of this Final Order was served on the below- named persons/entities by the method designated on this day of , 2014. Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308-5403 Telephone (850) 412-3630 Facilities Intake Unit Thomas M. Hoeler, Chief Facilities Counsel Agency for Health Care Administration Office of the General Counsel (Electronic Mail) Agency for Health Care Administration (Electronic Mail) Finance and Accounting Jay Adams, Esquire Revenue Management Unit Broad and Cassel Agency for Health Care Administration 215 South Monroe Street, Suite 400 (Electronic Mail) Tallahassee, FL 32301 (U.S. Mail)
The Issue Whether Oak Hill Hospital should be awarded certificate of need 6383 to add 54 additional acute care beds in Hernando County, HRS District III. PRELIMINARY STATEMENT This cause was initiated by Petition for Formal Administrative Hearing filed by Oak Hill Hospital challenging HRS' preliminary decision to deny its application for CON 6383 filed on February 7, 1991 with the HRS department clerk and referred to the Division of Administrative Hearings for assignment of a hearing officer. By Order of April 19, 1991, Hernando Healthcare Inc., d/b/a Brooksville Regional Hospital was granted intervention in the cause. At the commencement of the hearing, the parties stated that a stipulated settlement had been reached, but a short additional period of time was needed to reduce the stipulated facts to writing and present same to the Hearing Officer. Accordingly, the hearing was adjourned, and the parties subsequently submitted a proposed recommended order signed by all parties. Based upon the stipulated facts the following is submitted.
Findings Of Fact On August 10, 1990, HRS published in Volume 16, Number 32 edition, of the Florida Administrative Weekly, a fixed need pool of zero needed acute care hospital beds for HRS District III, Subdistrict VI, Hernando County. Thereafter, Oak Hill Hospital timely and properly filed a letter of intent requesting the addition of 56 acute care beds in Hernando County District III. The letter of intent was followed by a timely filed application to add 54 acute care beds at Oak Hill Hospital at a project cost of $4,498,690. The addition of 54 acute care beds will be accomplished by the addition of a fifth floor of 19,800 gross square feet to the existing hospital. The application was properly deemed complete effective November 13, 1990, and the application was preliminarily denied on January 11, 1991. Oak Hill Hospital is a 150 bed acute care hospital located in Hernando County, Florida, HRS District III. There are three existing acute care facilities in Hernando County. In addition to Oak Hill Hospital, Hernando Healthcare, Inc., operates Brooksville Regional Hospital and its Satellite facility, Springhill Hospital, with 166 combined licensed beds. Pursuant to the bed need formula in the Acute Care Rule, the projected need for acute care beds in the relevant horizon is 4,785 beds in District III. Because the base period occupancy rate for the district was less than 75 percent, the net need for acute care beds defaulted to zero in accordance with the terms of the rule. During the base period, calendar year 1989, Oak Hill Hospital experienced a 93.87 percent occupancy rate. This occupancy level would allow the facility to seek beds pursuant to the provisions of Rule 10-5.038(7)(e), Florida Administrative Code. Oak Hill Hospital has demonstrated a need for an additional 54 acute care beds. Oak Hill Hospital is JCAHO accredited. It provides quality care at its facility. Likewise, Brooksville Regional Medical Center and its satellite facility provide quality of care in those facilities. The proposed costs and methods of construction contained in the application are reasonable. Oak Hill Hospital can properly equip its proposal for the amount contained in the application. Oak Hill Hospital's proposal is financially feasible in both the short and the long term. Oak Hill Hospital can achieve the utilization level it projects in its application, which is reasonable. Oak Hill Hospital has committed to provide a minimum of 1.5 percent of total annual patient days to Medicaid patients and a minimum of 1.0 percent of total annual patient days to indigent patients.
Recommendation It is recommended that CON 6383 be issued to Oak Hill Hospital to construct and operate an additional 54 acute care beds at a cost of $4,498,690 by the addition of a fifth floor of 19,800 gross square feet to the existing hospital in Hernando County, Florida. It is further recommended that the CON be conditioned upon the requirement of a minimum of 1.5 percent total annual Medicaid patient days and a minimum of 1 percent total annual charity patient days, as reported to the Health Care Cost Containment Board. RECOMMENDED this 7th day of November, 1991, in Tallahassee, Florida. K. N. AYERS Hearing Officer Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of November, 1991. COPIES FURNISHED: Robert S. Cohen, Esquire 306 North Monroe Street Tallahassee, FL 32301 Leslie Mendelson, Esquire 2727 Mahan Drive Tallahassee, FL 32308 Stephen Ecenia, Esquire Post Office Box 1877 Tallahassee, FL 32302 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Linda Harris General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700
The Issue Whether the Petitioner is a hospital which "opened since May 18, 1982" and therefore comes within the purview of Section 395.509(11), Florida Statutes (1984 Supp.), as amended by Section 2, Chapter 85-157, Laws of Florida?
Findings Of Fact The following findings of fact are contained in the Prehearing Stipulation filed by the parties and are hereby adopted: On July 1, 1983, Lehigh Acres Hospital, Inc., a subsidiary corporation of Hospital Corporation of America, entered into a Purchase and Lease Agreement with Lehigh Acres General Hospital Association wherein the corporation agreed to enter into a thirty (30) month lease with the Association for the facility known as Lehigh Acres General Hospital and the license of Lehigh Acres General Hospital was to be purchased by the corporation contingent upon the corporation's ability to obtain a Certificate of Need for a replacement hospital. The corporation purchased property adjacent to the property owned by the Association for the purpose of building a new facility for Lehigh Acres General Hospital. The Certificate of Need was acquired, the new facility built and on December 21, 1983, the patients at Lehigh Acres General Hospital were transferred to the new facility. When the new replacement hospital opened on December 21, 1983, Lehigh Acres Hospital, Inc., began doing business as EAST POINTE HOSPITAL. The Department of Health and Rehabilitative Services, State of Florida, issued a new hospital license to EAST POINTE HOSPITAL on December 16, 1983, license no. 1769. Lehigh Acres General Hospital's license no. was 416. When EAST POINTE HOSPITAL opened, services were substantially expanded as follows: When East Pointe Hospital opened, the bulk of the laboratory testing was able to be done inhouse, whereas prior to opening East Pointe, most of the laboratory was a contracted service; When East Pointe Hospital opened, the cardiology area was able to begin perform- ing stress testing, and echocardiology; When East Pointe Hospital opened, the radiology department was able to perform ultrasound analysis; In Lehigh Acres General Hospital twenty of the beds were skilled nursing beds, in East Pointe Hospital there are no skilled nursing beds, all beds are acute care beds. There was no change in the Medicare contractual number in the change from the old hospital to the new hospital for the reasons that (a) it was not required; and (b) it was not to the economic advantage of the hospital to do so. The parties stipulate to all facts found within the attached depositions of Richard Klusmann, Joseph Feith and Julie Cox, except that the deposition of Julie Cox is modified (by her off the record testimony with respect to East Pointe Hospital's preopening costs) as follows: as the preopening costs were incurred, they were expensed against Lehigh Acres Hospital (see item #2 on attached Exhibit A) rather than capitalized by East Pointe Hospital. East Pointe Hospital utilizes the same sales tax number acquired in 1982 by Lehigh Acres Hospital. When East Pointe Hospital began operations, patients were not discharged from Lehigh Acres Hospital and re-admitted to East Pointe Hospital. Patients were simply transferred to East Pointe Hospital. One reason for this procedure was to maintain continuity of billings. Pursuant to the Purchase and Lease Agreement entered into between Lehigh Acres Hospital, Inc., and Lehigh Acres General Hospital Association, the sale of the hospital license was contingent upon the Petitioner obtaining a certificate of need for a replacement facility and the construction of a replacement facility within 30 months after the date of the sale and lease. The replacement facility had to be completed by December 31, 1983. Requiring a replacement facility as a condition of the sale of the hospital license was provided because of a study which Lehigh Acres General Hospital Association had conducted. As a result of this study, the Association had concluded that a new facility was needed because the old facility was not meeting the need for a general acute care hospital in Lehigh Acres, Florida. The Department of Health and Rehabilitative Services issued a certificate of need on October 23, 1981, to the Petitioner authorizing it to construct an 88-bed replacement facility. This certificate of need was a prerequisite to construction of the replacement facility. Construction of the replacement facility was completed in December of 1983. On December 21, 1983, all of the patients in the old facility were transferred to the replacement facility and the replacement facility began operating as East Pointe Hospital. The old facility, which had been operated as Lehigh Acres General Hospital, ceased operation as a hospital on December 21, 1983. That facility is presently being converted for operation as a nursing home. The replacement facility consist of approximately twice the square footage as the old facility. Because of the greater available space, the Petitioner was able to expand some of the services it had been offering in the old facility. The expanded services have been stipulated to by the parties and findings of fact concerning those services have been made under finding of fact 1, supra. There was no change in the general types of services offered by the Petitioner as a result of the move. When the replacement facility was moved into, the Petitioner moved all of the patients then in the old facility to the replacement facility. No patient was treated as having been discharged from the old facility or as having been admitted or readmitted to the replacement facility. All of the supplies and some of the equipment in the old facility were also moved to the replacement facility by the staff of the hospital and the Lehigh Acres Fire Department. There was no change in the staff of the hospital when the replacement facility was moved into. The staff, including physicians, of the replacement facility was the same as the staff of the old facility. The Blue Cross participating contract of the old facility was not changed as a result of the move and was used as the participating contract at the replacement facility. The accreditation of the old facility was transferred as the accreditation of the replacement facility. The Medicare contractual number of the old facility was transferred to the replacement facility. This number could not have been changed under Federal law. A change in the number would not have been financially advantageous to the Petitioner because it would have lost approximately $600.00 per admission in reimbursements if it had acquired a new number. The employer number used for purposes of collecting withholding tax at the old facility was transferred to the replacement facility. A new license was issued in the name of East Pointe Hospital by the Department of Health and Rehabilitative Services when the replacement facility began operating. The Department of Health and Rehabilitative Services issues a new license anytime a hospital changes its ownership or its name, renews its license or replaces an old facility with a replacement facility.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Hospital Cost Containment Board enter its final order approving the Petitioner's budget without application of the reduction provided for in Section 395.509(11), Florida Statutes (1984 Supp.), as amended by Section 2, Chapter 85-157, Laws of Florida. DONE and ENTERED this 9th percent day of January 1986, in Tallahassee, Florida. LARRY J. SARTIN 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 9th day of January 1986. APPENDIX The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they were accepted. Those proposed findings of fact which have been rejected and the reason for their rejection has also been noted. Paragraph numbers in the Recommended Order are referred to as "RO Petitioner's Proposed Findings of Fact: Paragraph 1: Accepted in RO 1. Paragraph 2: Accepted in RO 1. Paragraph 3: Accepted in RO 1. Paragraph 4: Accepted in RO 1. Paragraph 5: Accepted in RO 1. Respondent's Proposed Findings of Fact: Paragraph 1: This proposed finding of fact is contrary to the facts as stipulated to by the parties. The parties stipulated that the Purchase and Lease Agreement was entered into on July 1, 1983. The parties also stipulated that the purchase was made by Lehigh Acres Hospital, Inc., a subsidiary of Hospital Corporation of America. Paragraph 2: Accepted in RO 2. Paragraph 3: Accepted in RO 2 and 3. Paragraph 4: Accepted in RO 4. Paragraph 5: Accepted in RO 4. Paragraph 6: Accepted in RO 1, 5 and 6. Paragraph 7: Accepted in RO 7. Paragraph 8: Accepted in RO 8. Paragraph 9: Accepted in RO 6 and 9. Paragraph 10: Accepted in RO 1 and 9. Paragraph 11: Accepted in RO 10 and 11. Paragraph 12: Accepted in RO 12. Paragraph 13: Accepted in RO 13. Paragraph 14: Accepted in RO 14. Paragraph 15: Accepted in RO 1. Paragraph 16: Accepted in RO 15. Paragraph 17: Accepted in RO 16 and 17. Paragraph 18: Accepted in RO 1. COPIES FURNISHED: Curtis Ashley Billingsley, Esquire Hospital Cost Containment Woodcrest Office Park 325 John Knox Road, Suite 101 Tallahassee, Florida 32303 Ronald R. Richmond, Esquire Richmond, Booth & Cook 1311 Executive Center Drive Suite 235 Tallahassee, Florida 32301 James J. Bracher, Director Hospital Cost Containment Boar 325 John Knox Road, Suite L-101 Tallahassee, Florida 32303
The Issue The issues are (a) whether petitioners' budget letters for fiscal year 1991-1992 should be accepted by respondent, and (b) whether the agency has utilized a non-rule policy in rejecting the letters, and if so, whether the policy has been adequately explained and justified.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background Petitioners are hospitals subject to the regulatory jurisdiction of respondent, Health Care Cost Containment Board (Board). As such, they are required to annually file their projected budgets with the Board for review and approval. This controversy relates to petitioners' fiscal year 1991-1992 budgets (1992 budget) and whether such filings conformed with the Board's requirements and should have been accepted. Budget letters for the fiscal year 1992 were filed by petitioners with the Board in May 1991. After the 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 the hospital that it should resubmit a corrected budget document and until it did so, its submission would be considered incomplete. As provided for by agency rule, the hospitals then filed general and specific objections to this preliminary determination. After such objections were reviewed by the Board and presumably found to be without merit, petitioners requested a formal hearing to contest the proposed agency action. The Parties Petitioners are fourteen hospitals located throughout the State of Florida. Intervenor, Florida League of Hospitals, Inc., is a non-profit 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. This is accomplished by an annual review of the budgets of all regulated hospitals. Intervenor, Citizens of the State of Florida, is represented by the Office of the Public Counsel. That office is charged with the responsibility of representing the citizens in all proceedings before the Board. The parties have stipulated that petitioners and the two intervenors have standing to initiate or participate in this proceeding. The Review Process As noted above, budgets must be filed on an annual basis at least ninety days prior to the beginning of a hospital's fiscal year. In these cases, all petitioners have fiscal years ending on August 31 and thus their budgets are due no later than June 1 of each year. 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 the letter, the hospitals are required to acknowledge and certify to certain information contained in Subsection 407.50(2), Florida Statutes (1989). Secondly, a hospital may file a detailed budget which is more complicated than the budget letter and requires the completion of a twenty-seven page form. In a detailed filing, a hospital must provide, at a minimum, detailed information regarding the hospital's unit and hospital statistics, related party transactions, patient rates and discount policies, explanation of increases in revenue and expense, and prospective payment arrangements. The detailed budget filing is obviously a more expensive, complicated and time-consuming process than is the filing of a budget letter. It should be noted here that the current filing process was created by the legislature in 1988 when substantial amendments to the law were enacted. Those amendments provided, inter alia, that budget letters could be used for the first time beginning with fiscal year 1990. Prior to that time, all hospitals filed detailed budgets. Given the technical language which governs the Board's budget review process, a brief discussion regarding that process is appropriate. In very broad terms, the Board's principal function is to ensure that the revenues (charges) received by a hospital are not excessive or unreasonable. It performs this function by reviewing the budgets of each hospital during the annual budget review process. As is relevant to this controversy, the Board uses two major financial indicators in the review process. They are the gross revenues per adjusted admission and the maximum allowable rate of return, also known in regulatory parlance as the "GRAA" and "MARI", respectively. 1/ In order to measure the reasonableness of a hospital's charges, the Board requires each hospital to calculate a GRAA, which is the result of dividing the gross operating revenues of the hospital during a fiscal year by adjusted admissions. This financial indicator is basically a measure of revenue per case after adjusting for outpatient admissions and represents an average of all gross revenues per case. Except when authorized by the Board, a hospital may not increase its charges (GRAA) from one year to the next by more than its maximum allowable rate of increase. This percentage limitation, more commonly known as the MARI, is calculated pursuant to a statutorily defined formula. It is important to note that a budget letter is used when a hospital does not intend to increase its charges by more than the percentage amount specified in its approved MARI. Thus, in return for the hospital agreeing to operate within its MARI during the next fiscal year, the Board allows the hospital to have its budget approved through the less complicated budget letter process. Conversely, when a hospital intends to increase its charges from one fiscal year to the next by a greater percentage amount, it is obliged to file a detailed budget and subject itself to this more time-consuming process. In each budget letter filing, a "base GRAA" must be calculated. After that calculation is made, the base GRAA is then inflated by the hospital's MARI plus one, which produces what is known as the "budget letter GRAA". Thus, where a base GRAA is $10,000 and the MARI is 10%, the budget letter GRAA is $11,000, which is derived by multiplying the base GRAA ($10,000) by one plus the MARI (1 plus .10%, or 1.10). The budget letter GRAA represents the maximum projected gross revenues per adjusted admission the hospital can receive during the next fiscal year without having to justify the excess charges to the Board. The principal point of contention in these cases is the appropriate manner in which the base GRAA for each of petitioners' budget letters should be calculated. This in turn bears directly on the issue of whether petitioners are eligible to file a budget letter. There is no dispute as to the appropriate MARI, and the parties have agreed that the dollar figures and percentages applicable under each party's proposed calculations are accurately reflected in joint composite exhibit 1 received in evidence. Calculation of the Base GRAA Petitioners and supporting intervenor contend that the appropriate base GRAA should be calculated so as to most accurately reflect the GRAA from the previous fiscal year. In this vein, they have proposed three methodologies which are described on page 2 of joint composite exhibit 1 and are also discussed in greater detail in a subsequent portion of these findings. Petitioners cite the language in Subsection 407.50(2)(a), Florida Statutes (1989) as the authority for these approaches. On the other hand, the Board and its supporting intervenor assert that the GRAA base must be calculated by using the methodology identified as alternative 5 on page two of joint exhibit 1 and also described in Subsection 407.50(3), Florida Statutes (1989). In every case, this produced a smaller base GRAA than was proposed by petitioners, and unless they accede to the Board's calculation, they will be required to file detailed budgets. Like the petitioners, the Board and supporting intervenor also rely upon the language in Section 407.50, Florida Statutes (1989) as authority for their position. Even so, petitioners contend that respondent's methodology is actually a rule, not duly promulgated, and thus it must be justified and explained in this proceeding as is required of any non-rule policy. In a separate final order issued this same date in Case Nos. 91-4762R through 91- 4776R, the undersigned has determined that the methodology is in fact a policy having all of the attributes of a rule and thus it must be defended and explicated in a section 120.57(1) proceeding. Pursuant to a statutory amendment enacted in 1988, existing subsection 407.50(1) provided a so-called phase-in period for calculating a budget letter GRAA in fiscal years 1990 and 1991, and the manner for doing so was spelled out rather clearly in the law. The problem here lies in the fact that other provisions within section 407.50, which are not as clear as subsection 407.50(1), govern the filing of budget letters for fiscal year 1992 and beyond. The problem was recognized by the Board as early as July 1988 when its general counsel prepared a memorandum for Board members which compared the then existing law with amendments just adopted by the 1988 legislature. At that time, the Board was advised that for fiscal year 1992 and beyond, the base GRAA would be calculated in a manner generally consistent with the methodology proposed by the Board in these cases. This memorandum was placed in what is known as the "Board Book", a compilation of all documents considered by the Board at its meetings, and copies of the memorandum were later distributed to virtually all regulated hospitals in the State. The memorandum read in pertinent part as follows: For FY 1992 and beyond, will be determined as in following 1992 example. Base for 1992 budget will be 1990 actual GRAA unless 1990 actual GRAA exceeded 1989 actual GRAA by more than Board-approved MARI, 1991 base will be 1989 actual GRAA inflated by Board-approved rate of increase for 1990. In addition, at a technical advisory panel meeting held on November 7, 1990, hospital representatives were advised that while subsection 407.50(1) provided a phase-in period with a specified procedure for calculating a budget letter GRAA, the Board staff was in the process of developing a calculation of budget letter GRAA for fiscal year 1992 and beyond. Testimony at hearing established that the Board staff conveyed a description of the methodology to hospital representatives at that time. These actions suggested that the Board intended for the base GRAA for fiscal year 1992 to be calculated differently than the methodology used during the phase-in period. Not surprisingly, there is no agency precedent on this matter since these cases represent the first occasion on which 1992 budget letters were filed and reviewed. As noted earlier, a budget letter is appropriate when a hospital does not seek a rate of increase in GRAA in excess of the MARI for the hospital's next fiscal year. Whether the rate of increase in the GRAA is of such magnitude as to require detailed review is directly dependent on the manner in which the base GRAA is calculated, and this issue lies at the heart of the dispute. This is because the Board uses the results of the calculation (base GRAA x applicable rate of return) solely for the purpose of creating a so-called threshold GRAA, which if exceeded by the hospital's requested GRAA, triggers the need for detailed review. Thus, the calculation simply provides the Board with a means for determining whether the proposed increase in the GRAA falls within budget letter guidelines. 2/ In every case here, petitioners' GRAA exceeded the Board's threshold GRAA so as to trigger the need for a detailed budget. The Board's calculation of the base is done in a manner consistent with subsection 407.50(3). That subsection reads in pertinent part as follows: 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 applicable rate of increase for the prior year, and then inflated by the applicable rate of increase for the current year. Thus, the methodology requires that the prior year audited actual experience be used as the starting point unless such charges exceeded the applicable (approved) rate of increase. Although the parties agree that 1991 actual data would be the most desirable to use, that data is unavailable. Therefore, fiscal year 1990 results of operation, which are the most current audited actual experience, must necessarily constitute "the prior year audited actual experience" within the meaning of the statute. To determine whether the 1990 actual experience exceeded the applicable rate of increase, the Board measured the increase in the actual GRAA from 1989 to 1990. If the actual rate of increase did not exceed the approved rate of increase, the Board took the 1990 actual GRAA, inflated that amount by the applicable rate of increase for the current year (1991), and used the resulting number as the base GRAA. Conversely, if the 1990 actual GRAA exceeded the 1989 approved GRAA by more than the authorized rate, the Board used the 1989 actual GRAA (the gross revenues from the year before the prior year) inflated by the 1990 MARI, as further increased by the applicable rate of increase for the current year (1991) to produce the GRAA base. The Board has used the above described methodology for several reasons. First, it found nothing in subsection 407.50(2) which calculated a base for budget letter submissions. Indeed, the word "base" is found only in subsections 407.50(1) and (3), and by its own terms the former subsection does not apply to 1992 budget letter filings. Thus, the Board calculated the base in accordance with the method prescribed in subsection (3). Second, prior to the change in the law in 1988, the budget review process was "budget-based" in contrast to the present process which is tied to actual rates of increase. In other words, under the "old" process, the Board compared a budget under review with a prior budget number while the "new" process compares the budget under review with prior actual numbers. The Board's methodology is consistent with this philosophy and ties the base measurement to actual experience rather than estimated or budget figures. Third, for budget years 1990 and 1991, hospitals did not incur a penalty for exceeding their GRAA. The Board now intends to impose a penalty should this threshold be exceeded by hospitals in 1992 budget year and beyond. The Board's methodology is obviously geared toward this type of review process. Fourth, if a hospital's actual charges are less than its budgeted GRAA, by increasing the budgeted GRAA by the MARI as petitioners propose, a hospital's actual rate of increase would be greater than the MARI. Under the Board's methodology, a hospital would be required to justify such an increase. Similarly, if the Board's methodology was not used, a hospital could file a budget letter certifying a maximum GRAA which exceeds the threshold GRAA under subsection 407.50(3), thereby circumventing the detailed review process. Such a result should be avoided since to do otherwise would create an internal conflict within the terms of section 407.50 and would be contrary to the Board's mission under the law, as expressed in subsection 407.003(3)(a), which is to "contain hospital charges that exceed certain thresholds". Finally, Board experience shows that it is not unusual for a hospital to have a wide variance between actual experience and budget. Indeed, as many as one half of all hospitals have a marked variation between actual results and budget projections. Because of this, the Board methodology is a reasonable way in which to take these variances into account in the budget review process. Collectively, these considerations support a finding that, while not perfect or ideal in every respect, the Board methodology is logical, reasonable and appropriate. Petitioners have lodged several objections to the methodology. First, they point out that seven of the fourteen petitioners went through detailed budget review during their last budget filing and were required to justify all matters in their 1991 budgets. Thus, they contend that if they do not agree with the Board imposed budget letter GRAA, they must undergo detailed review a second time for some items that were already reviewed and approved in the prior budget year. However, the greater part of the review here will be of new projections for 1992 which were not included in the 1991 budget. Therefore, there will be little, if any, redundancy in the process. Moreover, detailed review is called for whenever a hospital seeks a rate of increase greater than its MARI even if this occurs in consecutive budget years. Secondly, petitioners contend that two hospitals were penalized by the use of the methodology simply because they had less charges than were budgeted. In other words, when actual results of operations became available, two hospitals learned that their actual charges were less than their budgeted charges. 3/ This resulted in at least one hospital receiving a smaller budget letter GRAA in 1992 than it had in 1991. Petitioners characterize this as a "perverse incentive" since the Board's methodology seemingly encourages a hospital to increase its charges to the budgeted level to avoid having its charges reduced in future years. However, the legislature recognized this anomaly by providing that if a hospital's GRAA increased at a rate of increase lower than its MARI, it would receive "banked" percentage points which it could carry forward in the form of credits to subsequent budget years. In these cases, no hospital elected to use banked credits. Then, too, if a hospital desires a greater rate of increase (and concomitant larger GRAA), it has the statutory mechanism to justify that increase through the detailed budget review process. Similarly, for those hospitals that exceed their budget, and under the Board's methodology are faced with a future reduction in revenue caps, they need only justify those excess charges in the detailed review process in order to avoid this dilemna. Petitioners also criticize the methodology because it does not consider the budget GRAA from the previous fiscal year even though a hospital has already gained approval to operate at the prior year budget level. However, this argument fails to recognize that the use of actual data over budget data is preferred since budgets are merely projections that are often times not attained. Petitioners next point out that the current detailed budget review scheme now codified in Chapter 10N-5, Florida Administrative Code, was not adopted until after subsection 407.50(3) became law in 1988. Thus, they suggest that the word "base" in subsection (3) represents a statutory directive to use a GRAA base specific to detailed budget review. However, the rules in question implement subsections 407.05(6) and 407.50(6) rather than subsection 407.50(3), and the challenged base GRAA calculation is not used during that subsequent detailed budget review process. In other words, even though subsection (3) pertains generally to detailed budget review and provides a calculation of a "base", the Board has opted to use a different methodology found in chapter 10N- 5 in the detailed review process. Although the legislature amended the law in both 1989 and 1991, it chose not to disturb this process or otherwise limit the Board's authority to continue to apply those rules. Therefore, the Board's rejection of petitioners' interpretation is found to be persuasive. Finally, it should be recognized that fiscal years 1990 - 1992 are so-called transition years after the major substantive changes in the law in 1988 and it is not unexpected to have some unusual cases arise. While petitioners have cited a few such cases occurring in budget year 1992, the appropriate remedy is to explain and justify these abnormalities through the detailed review process. Accordingly, these criticisms are found to be without merit. Alternative Proposals Petitioners have proposed three alternative methodologies to calculate the base. They are identified as alternatives 2, 3 and 4 on page 2 of joint composite exhibit 1. 4/ Petitioners assert their alternatives most accurately reflect the GRAA from the previous fiscal year and thus are in compliance with the language in subsection 407.50(2)(a) that requires a hospital to acknowledge its applicable rate of increase in its GRAA "from the previous fiscal year". Accordingly, in formulating their methodologies, petitioners have relied heavily on the words "previous fiscal year" and in some form or fashion have tied all of their calculations to the year 1991. Under petitioners' proposal, a hospital could presumably choose from one of the three alternatives depending on which one was best suited to that hospital's financial circumstances. Petitioners have first proposed to calculate the base by taking the 1990 actual GRAA and inflating it by the 1991 MARI. They contend that this alternative is reasonable because it uses the most recent actual data (1990) as well as reliable numbers (1991 MARI). While this methodology is the same as the Board's methodology for those hospitals whose 1990 actual GRAA did not exceed their 1990 budget GRAA, petitioners do not propose to use it in that manner. Rather, they intend to use it to calculate the base GRAA for two hospitals whose 1990 actual results exceeded budget projections. By doing so, however, those hospitals would be allowed to circumvent the otherwise required detailed review process. Secondly, petitioners suggest that the 1991 budget GRAA be used as the base for calculating a 1992 budget GRAA. This methodology was apparently designed for seven hospitals which underwent detailed budget review during the last fiscal year. Petitioners contend this formula is reasonable because the 1991 budget GRAA has already been approved by the Board, and the seven hospitals had extensive review of last year's budgets. Even so, there is nothing that prohibits detailed review, if warranted, in consecutive budget years, and in any event, actual data is generally preferred over budget projections. Lastly, petitioners propose that the same methodology described in subsection 407.50(1) and used for budget years 1990 and 1991 be used again on the theory that if it was reasonable in those years, it is still reasonable to use now. This methodology calls for the higher of fiscal year 1990 actual GRAA inflated by the 1991 MARI or 1991 budget GRAA to be used as the 1992 base GRAA. Pursuant to the methodology, five hospitals have used the 1991 budget letter GRAA as their 1992 base GRAA. However, by its own terms the methodology used in subsection 407.50(1) is specifically limited to budget years 1990 and 1991, and the law contemplates a change in the calculation of the base in all subsequent budget years. Moreover, the use of actual versus projected numbers is to be favored. In short, then, while the three methods arguably have some beneficial features, they still do not have all of the favorable attributes found in the Board's methodology.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered by the Board confirming that petitioners' budget letters should be rejected as being non-conforming. DONE and ORDERED this 16th day of October, 1991, at Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of October, 1991.
