Findings Of Fact In April 1987, the Department of Administration (DOA) submitted recommendations to the 1987 Florida Legislature which included proposed changes in the state employees group insurance program. Among the recommendations was a proposal that the Legislature authorize the Department to competitively bid health maintenance organization (HMO) participation in the state health program based on cost, service area, plan benefits, and accessibility. The stated objective of the recommendation was to encourage HMOs in a geographic location to structure their premiums to reflect actual cost experience and to provide the lowest possible cost for the state and state employees, while at the same time changing the current concept of the state's contribution to HMOs. It further stated that if the recommendation was approved, effective January 1, 1988, the Department would require the same state and employee contribution for every employee, regardless of whether participation was in the state plan or an HMO. If the individual employee elected to participate in an HMO under contract with the state which had a higher total premium than the state plan, the employee would be subject to paying the additional cost. It was thus envisaged by the Department that projected savings to the state and the majority of employees would be almost $6,000,000 annually which, if realized, would produce reduced monthly premiums which would benefit approximately 73 per cent of the 110,000 employees enrolled in the health program. At that time, the Department currently had sixty-four contracts with HMOs, covering employees in forty counties, and it was a further objective of the proposed legislation to reduce the number of HMOs which the state had to deal with in the program (Testimony of Nye, Petitioner's Exhibit 47) At the time of the DOA legislative recommendation, existing state law provided that persons eligible to participate in the state group health insurance program could exercise an option to elect membership in any qualified HMO engaged in providing basic health services in the HMO service area where the employee resided, in lieu of participating in the state plan. Section 110.123(3)(d), Florida Statutes, Rule 22K-1.103(21), F.A.C. A "qualified" HMO was defined as an entity qualified under the federal Public Health Service Act, 42 U.S.C. 300e-9, or which was certified under Part II of Chapter 641, Florida Statutes, had entered into a contract with the state, and had achieved a designated level of participation by state employees. Rule 22K-1.103(21), F.A.C. By Chapter 87-156, Laws of Florida, effective October 1, 1987, Section 110.123(3)(d) was amended to add the following: (3) STATE GROUP INSURANCE PROGRAM.-- * * * (d) * * * 2. Effective January 1, 1988, the Department of Administration shall, by rule, contract with health maintenance organizations to participate in the state group health insurance plan through the competitive bid process based on cost, service area, plan benefits, and accessibility. Effective January 1, 1988, all employees participating in the state group health insurance plan, irrespective of whether or not the member participates in a health maintenance organization, shall be subject to the same total premium, regardless of the state or employee's share. There are currently 113,400 total state employees in the state group insurance program, of whom 35,000 are enrolled in an HMO. (Testimony of Nye) THE REQUEST FOR PROPOSALS Dennis Nye, the DOA Director of the Office of State Employees Insurance, administers the state health insurance program and was directly responsible for implementing the new legislation regarding contracts with HMOs. He initially determined that procurement of HMO contractual services was governed by Section 287.057, Florida Statutes. At hearing, he testified that the exception to that statutory provision contained in Section 27.012(4)(b)5 relative to health services did not apply because the state was not purchasing health services, but only contracting with HMOs to provide them to employees. Nye determined to obtain the contractual services through competitive sealed proposals, but there was no agency determination in writing as prescribed by Section 287.057(3) that the use of competitive sealed bidding was not practicable. DOA obtained the services of Frank B. Hall and Company, an insurance consulting firm, to help prepare a request for proposals (RFP). Additionally, Nye had several conversations with John Hogan, Executive Director of the Capital Health Plan which was one of the HMOs currently under contract to provide services for state employees in the Leon County area, concerning the implementation of the statute. Hogan was also shown drafts of the RFP and provided suggestions concerning its content. (Testimony of Nye, Aikens, Hogan, Petitioner's Exhibit 36) The Request For Proposals For Health Maintenance Organization Coverage was issued on July 31, 1987, as "Bid No. 88-05." It specified that a pre- submission conference would be held on August 12, 1987, and that the deadline for receipt of proposals was August 28, 1987, with a contemplated date of award of contract on September 14, 1987, and an effective date of contract of January 1, 1988. Section II of the RFP explained that its general purpose was to meet benefit objectives of the DOA and to provide high quality benefits and services to state employees The objectives of the RFP were stated as follows: A proactive approach to cost containment, including an emphasis on aggressive claims management, utilization review and superior statistical reporting. Quality medical care which encourages health promotion, disease prevention, early diag- nosis and treatment. Stability in the financial structure of offered health plans. Professional, high quality service in all administrative areas including claims pro- cessing, enrollment, membership services, grievances, and communications.- Competitive premium rates which take into account the demographics and, if appropriate, the claims experience of State employees. Further stated objectives were as follows: Have each county or contiguous group of counties be considered one service area. Award no more then two contracts per service area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees. Have reciprocal agreements between locations, if an HMO has multiple service areas. For example, an employee covered in Miami with a covered dependent living in Gainesville, should be provided similar services. Enter into a two year, non-experience rated contract. A provision will be included tying renewal action at each of the two renewals to the Consumer Price Index (CPI) for Medical Care Services. This will become part of the contract. Section III stated that to be considered as a "qualified" proposer, an organization must be licensed by the Department of Insurance pursuant to Part II of Chapter 641, Florida Statutes. Section III C required that each proposer submit the following: Form PUR' 7033, properly completed and signed. The completed Questionnaire/ Requirements Section (Please answer questions in the same order as they appear in that Section; do not re-format). The completed Cost Proposal forms (Please use the enclosed form on page 43 and 44; do not re-format). The completed Statement of Compliance on page 47. Documentation in support of the above. Section III N provided in part as follows: Proposals are to be submitted only on the forms and formats provided in this RFP. All exhibits requested must be submitted with your proposal along with answers to all questions contained in this RFP. Section IV provided that an award as a result of the RFP would be in the form of a 24 month contract, effective January 1, 1988, and that the right was reserved to renew the contracts subject to the same terms and conditions of the initial contract for two one-year periods. Section IX of the RFP specified the following criteria for evaluation of the proposals: Premium Cost Extensiveness of Service Areas - by County and/or contiguous Counties. Note: The State's objective is to award no more than two contracts per services area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees. Plan Benefits as follows: Covered services Limitations and exclusions Copayments, deductibles and co- insurance features Range of providers including specialists and number of hospitals Out of service area coverage Grievance procedures Accessibility as follows: Reciprocal agreements Provider locations Number of primary care physicians and specialists, in relation to membership Completeness of proposals The RFP did not provide information as to the relative importance of price and other evaluation criteria, as required by Section 287.012(11), F.S. Section VI of the RFP, concerning Required Benefits and Services, listed the minimum benefits that must be provided, and also required that a complete list of all other services intended to be provided for each service area be provided. Section X was a questionnaire with forty-nine questions for the proposers to answer, including questions regarding the proposer's license status, corporate structure, reserving practices, reinsurance contracts, service area, employee membership and staff, listing of hospitals and other care facilities, listing of participating physicians, utilization review, and other information regarding the proposer's case management, control mechanisms, statistical reporting, and the like. One of the questions directed each proposer to submit audited financial statements for the last two fiscal years, together with financial statements for the first quarter of 1987. Section XI dealt with cost proposals and provided a form for completion as to proposed premium rates. By an undated addendum to the RFP, a question 50 was added to the questionnaire to provide information concerning specified proposed services and co-payments or deductibles to be used in a brochure which would provide a comparison of benefits offered by the various HMOs. (Petitioner's Exhibit 1) The pre-bid conference was held on August 12, 1987, attended by representatives of HMOs. The minutes of the conference reflect that Nye informed the participants that the two criteria of cost and benefits would be weighed on an equal basis. He also advised that the state would enter into a two year, non-experience rated contract, subject to renewal which would be tied to the Consumer Price Index for Medical Care Services. He explained that proposers should quote a specific rate for the first year of the contract, and a percentage increase or decrease for each of the following three years. However, he noted that the state would evaluate cost solely on the basis of the premium for the first year. He indicated that two HMOs per service area would be awarded contracts based on the receipt of the highest number of points as a result of the bid evaluation, and not based upon the type of HMO, such as an individual practice association (IPA) or staff model. In response to a question as to whether some factors would be weighed higher than others, his response was that benefits and cost would be weighed higher and that after the bidding process, "you can look at them." (Testimony of Nye, Petitioner's Exhibit 18) THE PROPOSERS Three proposals for the Leon County service area were submitted to the state in response to the RFP by the August 28, 1987 deadline for submission of proposals. The three proposers were Capital Group Health Services of Florida, Inc., d/b/a Capital Health Plan (CHP), MetLife Health Care Network of Florida, Inc. (MetLife), and HealthPlan Southeast (HPSE), all of which were currently under state contract to provide health care services to state employees. (Petitioner's Exhibits 2-4) CHP is a state licensed and federally qualified HMO which is a private nonprofit, tax exempt corporation. It is an affiliate of Blue Cross and Blue Shield of Florida, Inc., which controls the majority of the corporate membership, and such membership elects the board of directors. The proposal reflects that CHP's service area includes Jefferson, Gadsden, Leon, and Wakulla Counties. Its total membership consists of 35,157 members, of whom 25,143 are state employees, retirees, and dependents. It first enrolled state workers in June of 1982. It is a "staff model" HMO. It employs 17 primary care physicians (family practitioners and pediatricians) on a full- time basis. It has contracts with several other primary care physicians who provide services to members in their own offices. It has other contractual relationships with a number of referral specialists in the community. CHP has a staff of some two hundred employees, 160 of whom are involved in medical care. Approximately seventy per cent of the plan's members receive services at its central facility in Tallahassee, where the primary care physicians, pharmacists, optometrists, and x-ray and laboratory facilities are located. A staff model HMO uses the "gatekeeper" system whereby a member initially selects one particular primary care physician for all health care needs, and the physician determines whether the patient should be referred to a specialist. (Testimony of Hogan, Petitioner's Exhibit 2) MetLife's proposal states that it is an affiliate of the Metropolitan Life Insurance Company, and received its state certificate of authority to operate as an HMO in 1986. Since that time, it has provided services to members at various cities throughout the state. Its local service area includes Leon, Jefferson, Wakulla, Gadsden, and Taylor Counties. In the Leon County service area, it has a total of 14,652 members, of which 6,665 are state employees. MetLife is an IPA model HMO which contracts with individual physicians based on a pre- negotiated and agreed upon fee schedule. It utilizes a member's designated primary care physician to direct the patient's care and make appropriate referrals to specialists. MetLife's member handbook indicates that it has seventy-seven primary care physicians in the Leon County service area. (Petitioner's Exhibit 4) HPSE is a locally owned and operated for profit corporation that is state licensed as an HMO. It is a wholly owned subsidiary of Health Plan Holding Company, Inc., which is owned and operated by approximately one hundred and sixty Tallahassee physicians. Both corporations were formed in November, 1985 and became operational in October, 1986. The holding company was termed to finance various health-related projects, but HPSE is its only current venture. The boards of directors of both corporations are composed of the same individuals. The proposal reflects that HPSE has 6,338 members in the Leon County service area, of which 2,750 are state employees. Its current service area consists of Gadsden, Jefferson, Leon, and Wakulla Counties. It is an IPA model HMO that has contracted with the Tallahassee Physicians Association for the provision of physician services. Some 218 physicians provide such services. The primary care physician serves as a manager for the member's general health care needs and refers patients to an appropriate specialist when necessary. The members also have direct access to specialists if they believe it to be appropriate. (Testimony of Mahoney, Petitioner's Exhibit 3) THE EVALUATION PROCESS The evaluation of the proposals submitted by HMOs throughout the state for approximately seven service areas was initially accomplished by some fifteen employees in Nye's office. He was assisted in his selection by Marie Walker, state benefits analyst in his office. Nye and she decided which employees could best evaluate the proposals based on the established criteria, including familiarity with benefits and the request for proposal process. The employees selected for these duties had varying degrees of knowledge concerning health plan benefits, HMOs, and bid evaluations. None had any technical expertise in the health care field other than resolving questions concerning benefits under the state health care program. Three employees were designated to evaluate the proposals in each service area. Those designated to evaluate the proposals in the Leon County service area were Andrew W. Lewis, a state benefits analyst; Aviedell Holley, personnel technician II; and Jeffrey Griswold, research associate. These employees have had differing experience in various aspects of the state health insurance program. Only one of them had previous experience in evaluating proposals, but such experience did not involve HMOs. (Testimony of Nye, Walker [Petitioner's Exhibit 22], Holley [Petitioner's Exhibit 20], Lewis [Petitioner's Exhibit 21] Yates [Petitioner's Exhibit 19], Rowe [Petitioner's Exhibit 27], Griswold, Petitioner's Exhibit 26) After the proposals had been received, Nye had a meeting with the employees who were to evaluate them. At this time, he explained to them how to complete an evaluation form that he had designed which provided for the scoring of the five criteria stated in the request for proposals of premium costs, plan benefits, accessibility, extensiveness of service area, and completeness of proposal. The evaluators were instructed to score all criteria using a ten point system and then weight the various criteria according to a point system reflected on the evaluation form. The scoring method required the evaluators to use a certain degree of subjectivity in determining the award of points, and the results differed to some degree among the various evaluators in comparing the three proposals. The results of the evaluation ranked HPSE first, MetLife second, and CHP third in the scoring. (Testimony of Nye, Griswold, Holley [Petitioner's Exhibit 20], Lewis [Petitioner's Exhibit 21], Petitioner's Exhibits 5, 7, 26, 44) By memorandum, dated September 11, 1987, Nye informed Augustus Aikens, DOA General Counsel, of recommendations for awarding the state's HMO contracts. It was recommended that all three HMOs in the Leon County service area be awarded contracts because of the high number of state employees in the service area and because the point spread was very close. Aikens was unavailable at that time and William Frieder, a DOA senior attorney, was serving as Acting General Counsel. He reviewed the evaluation process and found that the evaluators had used inconsistent methods to score the proposals. He discussed the situation with DOA Secretary Adis Vila and, by memorandum of September 23, 1987, she directed Nye to "... continue the evaluation process to its conclusion by documenting each ranking and each score which contributed to the ranking in the most complete and the most objective fashion possible." She also expressed concern over the financial soundness of HMOs and asked him to keep that aspect of the evaluation in mind when making his final recommendation. (Testimony of Vila, Frieder [Respondent's Exhibit 8], Petitioner's Exhibits 9-10, Respondent's Exhibit 12) Nye proceeded to design another evaluation form which made it much simpler for the evaluators to score the proposals. It used a different method for awarding points based on premium costs and reduced the need to search the proposals for information; however, the same criteria as used in the first evaluation were the ones that were scored. As one evaluator put it, the second evaluation form focused on things one could count and was mechanical in nature, such as "bean counting." The three evaluators for the Leon County service area checked with one another and arrived at an identical number of points for each proposal. (Testimony of Nye, Griswold, Holley [Petitioner's Exhibit 20], Lewis [Petitioner's Exhibit 21], Petitioner's Exhibits 6, 26) By memorandum of October 6, 1987, Nye recommended to Secretary Vila that contracts be awarded to certain HMOs in the various service areas. As to the Leon County area, it was recommended that contacts be awarded to all three proposers based on the large number of employees in Leon County. It was noted that HPSE had received 74.595 points, MetLife had received 66.95 points, and CHP 45.115 points. It was also stated that although CHP had received the lowest number of points, it was the only staff model in the area and should be retained in order to meet federal requirements of including one of each HMO model. Also, Secretary Vila was advised therein that a review of the financial conditions of the HMOs indicated that they were currently in compliance with Department of Insurance requirements. (Petitioner's Exhibits 8, 11) On September 22, 1987, by letter to the Department of Insurance, Nye had listed the proposed rates of the HMOs that had been recommended for inclusion in the state health program. In a memorandum from Secretary Vila to Robert Johnson of the Department of Insurance, dated September 23, 1987, she referred to her concerns of avoiding awarding a bid to an HMO which was either not in compliance with the law or the Department of Insurance rules, and requested his assistance in helping a DOA accountant review the records of the Department of Insurance concerning the ability of the HMOs to fulfill the needs of state employees. Andrew W. Lewis of DOA subsequently reviewed copies of financial statements of the HMOs, including those who had submitted proposals for the Leon County service area, but was unable to determine the financial soundness of any of them except MetLife based on financial guarantees by its parent corporation. By letter of October 23, 1987, Dinkar B. Koppikar, an actuary with the Department of Insurance, advised Nye that the rates of certain HMOs, including HPSE and MetLife, had been approved by the Department of Insurance. (Testimony of Vila, Johnson, Lewis [Petitioner's Exhibit 21], Nye, Respondent's Exhibits 4-6) After receiving Nye's memorandum of October 6 concerning recommended awards, Secretary Vila was concerned about Nye's comment that CHP should be retained as the only staff model in the area in order to meet federal requirements. She asked General Counsel Aikens about this matter, and he informed her that the federal requirement was not applicable because a state was not included within the definition of "employer" under the applicable federal law. This was an accurate statement. She also asked Nye if two HMOs could provide the necessary services in the Leon County service area and he told her that based on the proposals, HPSE and MetLife had indicated their ability to service the additional employees. She also asked Nye if there was anything else she should take into consideration as to his recommendation to select all three HMOs for the Leon County area since the request for proposals specifically indicated that only two would be selected. He said that the only other reason would be "political" and she informed him that as long as she was Secretary of the Department, they would do what is correct and not what is "politically expedient." (Testimony of Vila, Nye, Aikens, Petitioner's Exhibit 41, 45, Respondent's Exhibit 7) During ensuing meetings with Nye and Aikens, Secretary Vila expressed concern that state employees should receive health benefits that they could depend on and this entered into her decision as to whether to award contracts to two or three HMOs. She also felt that since employees would be paying the same premiums in the future regardless of the kind of medical care they selected, the health care needs should be provided at a price the state could afford to pay. These meetings resulted in a series of memorandums from Nye to Secretary Vila. An October 26, 1987, memorandum listed the "lowest, best bids" for each service area, including HPSE and MetLife in the Leon County service area. In addition, the memorandum enclosed the Department of Insurance letter of October 23 which showed that the rates of those two HMOs had been approved. In an October 29 memorandum, Nye again recommended the three HMOs for award because of the large number of state employees and the counties embraced in the Leon County service area, and his view that a third HMO was necessary to ensure that there would be a response to the needs of the employees. An October 30 memorandum was similar in content to the previous one except that only HPSE and MetLife were recommended for contract awards. (Testimony of Vila, Nye, Aikens, Frieder [Respondent's Exhibit 8], Petitioner's Exhibits 12-15, Respondent's Exhibit 11) By letter of November 4, 1987, Secretary Vila advised John Hogan of CHP that, using the criteria of Section IX of the RFP, it was the intention to award contracts to HPSE and MetLife in the Leon County service area, and advised him of the right to contest the decision by filing a notice of protest pursuant to Section 120.53(5), Florida Statutes. By letter of November 13, 1987, to Nye, CHP filed its notice of protest, pointing out that the notification letter of November 4 had not been signed by Secretary Vila and made available to CHP until November 12, 1987. CHP subsequently filed its formal notice of protest and request for administrative hearing, dated November 23, 1987. Thereafter, on December 9, 1987, HPSE filed a petition to intervene which was granted by order dated December 11, 1987. (Testimony of Hogan, Petitioner's Exhibits 25, 28; Joint exhibit 1 [Pre-hearing Stipulation]) DOA issued a press release on November 10, 1987, announcing the award of contracts to, among others, HPSE and MetLife for the Leon County Service area. The press release explained the manner in which DOA had arrived at the points for each of the proposers for the five criteria upon which the intended awards were based, and stated that award to two HMOs would produce a potential total cost savings of over three million dollars to the state while, if award had been made to all three HMOs, the potential savings would be reduced to slightly over one million dollars. (Petitioner's Exhibit 24) By letters dated November 15, 1987, Secretary Vila advised HPSE and MetLife that their companies had been selected to provide HMO service to state employees. (Respondent's Composite Exhibit 13) EVALUATION OF THE PROPOSALS The second or "final evaluation" of the proposals was solely based on the five criteria contained in the RFP, i.e., premium cost, extensiveness of service area, plan benefits, accessibility, and completeness of proposals. The manner in which each criterion was evaluated is set forth below. Premium Costs The cost proposal set forth in the RFP required each proposer to list separate costs in categories of "employee only" and "family" for active employees and retired employees under sixty-five. It also required rates to be shown for Medicare recipients separately for retirees, retiree and spouse (both on Medicare), and retiree and spouse (one with Medicare, with or without other eligible dependents.) Rates were to be applicable to the particular service area of the HMO. A fixed cost was required for calendar year 1988 and a percentage of that rate was to be shown for successive years 1989, 1990, 1991. In this regard, the RFP instructions in Section XI stated as follows: If the contract is renewed by the State in the second or third years, the premiums for those years shall be established as a percentage of the first year's premiums. If such percentage results in a higher premium than the previous year's, the maximum increase permitted will be limited to the increase, if any, in the overall medical portion of the Consumer Price Index. The instructions also provided that the total cost of the family plan shall not be greater than 2.5 times the total cost of the employee premium. The method for evaluation of this criterion was for the evaluators to add the premium costs of each of the three proposers in both the single and family categories and divide by three to arrive at a mean premium cost. The mean was accorded the value of five points on a scale of one to ten points. If the proposed rate was higher than the mean, it was worth somewhat less than the five points, and if the rate were lower than the mean, it was worth something more than five points. The evaluators made the determination of the point total by a determination of how close the particular quoted cost was to the mean figure. The rates bid by the three proposers were as follows: Employee Only Family 1. MetLife $ 77.95 $198.05 2. HPSE 79.50 198.42 3. CHP 89.64 204.78 The evaluators did not determine the percentage of deviation from the mean, but according to Nye, were supposed to look at the price and decide in their judgment how many points should be awarded in relation to the mean. In this manner, for the single employee rate, MetLife received ten points, HPSE eight points, and CHP four points. The family rate was calculated in the same manner, and HPSE received ten points, MetLife nine and a half points, and CHP four points. The two groups were then divided by two, resulting in total points for the two groups of 9.75 points for MetLife, nine points for HPSE, and four points for CHP. The three Medicare retiree groups were evaluated in the same manner, and total rate points were arrived at by giving each proposer 90 per cent of its active employee points and ten per cent of its Medicare points, the latter figure being based on the assumption that ten per cent of the covered employees were retired. As a result, the total points for premium costs were 4.37 for CHP, 9.07 for HPSE, and 9.18 for MetLife. Although the RFP stated that one of the objectives was to obtain competitive premium rates which take into account the demographic and, if appropriate, the claims experience of state employees, there was no requirement that the proposers show that their rates had taken such factors into consideration. The evaluation was based on Nye's assumption that giving equal rates to the single and family costs represented what demographic mix would be achieved in the future on a statewide basis. Nye had explained at the pre-bid conference that in competitive premium rates that take demographics into consideration, there should be some relationship between the proposed and actual rates. Although Dr. Robert A. Zelton, an expert consultant in the HMO field, was of the opinion that the cost factor should have been based on the percentage of single and family groups, he acknowledged that such a consideration would have affected the result only slightly. At the pre-bid conference, Nye stated that approximately forty per cent of the state employees in the health program are employee only and sixty per cent had dependents. Another objective of the RFP was to enter into a two year non-experience rated contract with a provision to tie renewal action at each of the two renewals to the Consumer Price Index for Medical Care Services. However, Nye announced at the pre-bid conference that for 1988, the proposals would be evaluated solely on the basis of the premium for that year. Accordingly, although the premium cost criterion was evaluated solely on the basis of the specific first-year cost, the proposers were put on notice of this fact. For years two to four, CHP in its proposal showed a six per cent increase over 1988 rates, and MetLife and HPSE showed an eight per cent increase. Although Petitioner's experts Zelton and Dr. Elton Scott were of the opinion that the evaluation should have been based on present value methodology over the potential four year life of a contract, such a computation would have been conjectural due to the fact that successive year premium costs would be limited to the lower of such costs or the presently unknown future Consumer Price Index for Medical Care Services. Finally, although the points awarded for the premium cost criterion were not computed by mathematical percentage of deviation from the mean, the method employed was sufficient to fairly assess the difference in price among the proposals. It is found that, overall, the method of evaluating premium cost was reasonable and not arbitrary or capricious. (Testimony of Nye, Zelton, Scott, Petitioner's Exhibits 1, 6, 8, 18) Extensiveness Of Service Area Section XI of the RFP stated that this criterion would be evaluated on the basis of county and/or contiguous counties. At the pre-bid conference, Nye advised the proposers that they should designate their service areas and that bids would be awarded on the basis of the entire service area. In their proposals, CHP and HPSE designated Leon, Jefferson, Wakulla, and Gadsden Counties as their service areas, and MetLife designated the same counties, plus Taylor County. The evaluators awarded two points for each full county and, as a result, CHP and HPSE received eight points each for four counties and MetLife received ten points for five counties. Both Drs. Zelton and Scott felt it was improper to give MetLife the same number of points for service in Taylor County which had only 197 state employees residing therein, as was given for the more populated counties. In Dr. Scott's opinion, this would encourage higher cost to an HMO to service only a few individuals. However, as Nye pointed out, the state's position was that it should encourage an HMO to extend service to a county with a small number of state employees rather than to deny those employees HMO enrollment solely because of an HMO's reluctance to extend such coverage for economic reasons. It is considered that the method of evaluation of this criterion was reasonable and not arbitrary and capricious. (Testimony of Zelton, Scott, Nye, Petitioner's Exhibits 1, 6, 8, 18) Plan Benefits Section IX of the RFP describes this criterion as follows: Covered services Limitations and exclusions Copayments, deductibles and coinsurance features Range of providers including specialists and number of hospitals Out of service area coverage Grievance procedures In this regard, Section VI of the RFP listed the minimum benefits that an HMO must provide, and was requested to provide a complete list of all other services, if any, that it intended to provide for each service area. It was further stated that each proposer must specify co-insurance, deductible, co- payment and other features for all benefits and services for each service area, and list all limitations and exclusions for all benefits and services for each service area. The questionnaire (Section X), which was provided for each proposer to complete, provided space for the proposer to list information concerning hospital, ambulatory care facilities services, available services in certain categories (psychologists, osteopathic, chiropractic, and naturopathic physicians, nurse midwives, and podiatrists), programs for health status evaluation, screening and health promotion, limitations or restrictions relative to organ transplants, range of providers and number of hospitals, availability of skilled nursing benefits, a list of the proposer's physician panel, and out of service area coverage. All of these categories were scored on the evaluation form and all were the subject of specific reference to the RFP questionnaire, except as indicated hereafter. One was the requirement of Section VI to provide a complete list of all services other than the services specified in that section. HPSE and MetLife provided a separate list of additional benefits. CHP did not. The other matter that was scored for evaluation purposes that was not included in the form questionnaire was one involving co-payments, deductibles, and co- insurance. The evaluators were directed in the evaluation form to refer to paragraph 3 of page 13 and question 50 of the RFP to determine the number of points to be awarded. Paragraph 3 of page 13 merely referred to the statement in Section VI that each proposer must specify such features. Question 50 was the addendum to the RFP which asked the proposers to list benefits its and co- payment information for use in a projected comparison HMO brochure as a part of the proposal. However, the evaluators were not referred in the evaluation form to question 50 to determine the additional services to be offered by the proposers. No explanation has been offered by DOA as to why the evaluators were permitted to use question 50 as a basis for scoring in one instance and not in the other. CHP submitted a detailed answer to question 50 wherein it listed a number of services that it provided to its members. However, as the result of its failure to provide a separate list of "additional services," it received no credit for the item of "covered services," whereas HPSE received 300 points on the basis of ten points for each additional service, and MetLife received 70 points. Although CHP did not submit a separate "list" of "additional services," a perusal of CHP's proposal would have disclosed the necessary information. For instance, question 49 of the questionnaire asked proposers currently providing HMO coverage to explain the differences in the current coverage from the coverage proposed. CHP explained, in question 49, that the only difference was in co-payments for prescription drugs from its own pharmacy and non-owned pharmacies. Thus, reference to its current contract would have disclosed the benefits offered. Further, permitting the evaluators to use the information contained in question 50 for the scoring of one aspect of the criterion and not permitting it for the other was unreasonable under the circumstances. Compounding the problem is the fact that some of the benefits listed by CHP in question 50, such as hospice care, eye examinations, immunizations, health education, hearing tests, appliance rental, radiation therapy, and other benefits were identical to those listed by MetLife and HPSE. A substantial number of other HMOs submitting proposals in various areas of the state also received no points for additional benefits because of their failure to provide a separate list. It is found that the evaluation of the "Plan Benefits" criterion was arbitrary and did not fairly reflect the contents of CHP's proposal in that regard. Scoring of the other items for the criterion of plan benefits is found to have been accomplished in a reasonable and fair manner. As a result of the scoring for plan benefits, HPSE was awarded 503 points, MetLife 267, and CHP 212. These points were converted under a system similar to that used for the premium cost criterion by determining the mean number of points which had the value of five points, except that points were then awarded to each of the HMOs on the extent of their deviation from the mean. In this manner, HPSE was awarded 7.68 points, MetLife 4.08 points, and CHP 3.24 points. (Testimony of Nye, Petitioner's Exhibits 1-4, 6, 8, 34, 37) Accessibility The accessibility criterion was scored on the basis of ten points each for reciprocal agreements providing state wide and national services, ten points for each county of the service area in which a hospital was located, two points for each specialty provider in each county, and one point for each provider physician and specialist. For this criterion, HPSE had 309 points, CHP had 258, and MetLife had 253. After using the conversion method, HPSE received 5.65 points, CHP 4.72 points, and MetLife 4.63. Although some question was raised as to whether CHP should be awarded more points for its full-time staff positions, this contention is found to be without merit. It is further found that the evaluation method for this criterion was reasonable and fair. (Testimony of Nye, Zelton, Petitioner's Exhibits 1-4, 6, 8) Completeness Of Proposal This criterion was not required by statute, but was added by Nye as a method by which to ensure that the proposers provided the information required by the RFP on which to base a decision. The evaluators were instructed to award ten points if all questions were answered and to deduct one point for each unanswered question. These instructions apparently made reference only to the portions of the questionnaire which was scored on the evaluation form, and not to other requirements in the questionnaire or the rest of the RFP. This finding is based on the testimony of one evaluator who followed that method and did not look at other requirements, such as whether audited financial statements were attached to the proposal. Accordingly, although the evaluation of this criterion did not thoroughly assess the completeness of the proposals, it did serve a limited purpose and cannot be found to be invalid solely for that reason. HPSE and MetLife received ten points for this criterion, and CHP was given nine points as a result of its perceived failure to list additional benefits. In keeping with the finding regarding the validity of the plan benefits scoring criteria, this deduction should not have been made as to the CHP proposal. (Testimony of Nye, Griswold, Petitioner's Exhibits 1-4, 6, 8) Total Points The method of arriving at total points for the three proposals was to add the raw point scores for each of the five criteria, plus a weight factor of 2.5 times the cost points and 1.5 times the raw points for benefits. As a result, HPSE received 74.595 total points, MetLife received 66.96 total points, and CHP received 45.115 points. (Testimony of Nye, Petitioner's Exhibit 8) Responsiveness Of Proposals Question 4 of the Section X questionnaire of the RFP required the proposers to "attach audited financial statements including income statements and balance sheets for the last two fiscal years, together with financial statements for the first quarter of 1987." In response to this requirement, HPSE stated in its proposal: The fiscal year of HPSE is July 1, through June 30. An audit of the first fiscal year of operation, which concluded June 30, 1987, is now in the process of being conducted. Unaudited financial statements and balance sheets for the first quarter of 1987 are presented in Attachment 3. HPSE filed an unaudited annual report for the period July 1, 1986, through June 30, 1987, with the Department of Insurance on August 17, 1987, but did not file its audited annual report until September 28, 1987. John P. Thomas, certified public accountant who audited the HPSE report, testified that he had not completed his audit by August 28, 1987, the date for submission of the RFP. He explained that, although it would have been difficult to have completed the work by that date due to the fact that the SEC filing had barely been made within the prescribed filing period, an audited financial statement could have been produced by August 28, 1987, if sufficient accounting resources had been made available. However, this was HPSE's first annual financial statement which was not required by law to be filed until three months after the June 30, 1987 end of its reporting period. Section 641.26, F.S. The audited statement was filed within the statutory time period on September 28, 1987. It is found that although HPSE did not attach an audited annual financial statement to its proposal, it was not thereby non-responsive to a material requirement of the RFP. The RFP requirement did not address the question of whether an annual statement had been timely filed with the Department of Insurance, or otherwise provide exceptions, such as would be necessary in the case of a newly-organized HMO which had not yet reached the end of a reporting period. DOA was able to examine HPSE's audited statement prior to arriving at intended award decisions, and there is no evidence that the other proposers were placed at a competitive disadvantage. RESPONSIBILITY OF PROPOSERS In this proceeding, CHP challenged the financial capability of HPSE to carry out the requirements of a contract under the RFP. DOA did not make any affirmative determination of an offeror's responsibility at the time the proposals were submitted, but merely instructed the evaluators to determine if the HMO was "qualified" by licensure as a health care service contractor by the Department of Insurance pursuant to Chapter 641, Florida Statutes. However, the RFP required the proposers to submit financial statements, information concerning insolvency insurance, reserving practices, and re-insurance contracts. (Testimony of Nye, Petitioner's Exhibits 1, 6) In order for an HMO to secure a certificate of authority from the Department of Insurance, it must be shown that, among other things, it is actuarially sound. Once certified, it is thereafter required to file quarterly financial reports, and an annual report within three months after the end of its reporting period concerning its operations, including an audited financial statement and an actuarial certification that the HMO is actuarially sound. Each HMO is required to maintain a minimum surplus in an amount which is the greater of $100,000 or five per cent of total liabilities. The Department of Insurance determines the solvency of an HMO as a result of the financial reports, but it does not specifically determine whether an HMO is financially capable of carrying out the terms of a particular health services contract. (Testimony of Johnson, Part II, Chapter 641, F.S.) Although HPSE has not been in statutory compliance with regard to surplus requirements on the dates of its first three quarterly reports of March 31, June 30 and September 30, 1987, subsequent infusion of capital by Health Plan Holding Company, Inc., resulted in compliance with state requirements. (testimony of Johnson, Thomas, Mahoney, Petitioner's Exhibits 29- 31, 49, 52-53, Intervenor's Exhibits 4-5) Another disputed aspect of the financial responsibility of HPSE was the question of whether or not it could render the required medical services based on the premium rates quoted in its proposal. Conflicting expert testimony was adduced at the hearing in this regard, but the qualified opinion of HPSE's consulting actuary, Robert G. Maule, was that HPSE rates will "work" with very careful management. He pointed out that, during its first year of operation, HPSE was saddled with marketing efforts and with learning the business. It normally takes a new HMO several years to break even financially. However, because it is an IPA type HMO which is owned and operated by its member physicians, it can assume an amount of risk that its members are willing to undertake, such as capitation of fees. The success of such an organization depends upon its ability to keep claims costs of physicians, hospitals, and other services at a low enough rate where there is enough premium remaining to cover the firm's operating expenses and leave some margin for safety. HPSE did not meet that goal during its first year of operation. However, in Maule's opinion, that would not be unexpected due to developmental costs and the unfamiliarity of the physicians group with necessary controls in the delivery of medicine. This requires reduced hospitalization and use of specialists' services, among other things. He has noted definite trends downward in loss ratios during 1987 and an ability to support ongoing maintenance expenses. Maule predicts that based on estimated fourth quarter 1987 figures, HPSE should experience a loss of $412,000 in 1988, but achieve a gain of $82,000 for 1989. HPSE's current arrangement with the Tallahassee Physicians Association is to pay a discounted fee for services and then to withhold some thirty-five per cent of the discounted fee from the payment to the physician providing the services. The amount withheld is returned to the physician in the future, depending upon the success of overall operations of the HMO. However, Maule's prediction for 1988-89 does not envision the return of any of the amount withheld to the providers. This is not a desirable long term situation, but affords risk protection to the plan as long as the physicians are willing to accept the lower fees. Maule's projections were based on the assumption that two HMOs would receive contracts from the Leon County service area and that HPSE would acquire some 6500 new state members. (Testimony of Maule, Intervenor's Exhibits 7-8) In keeping with Maule's recommendations, HPSE has tightened controls on its administrative costs, renegotiated hospital contracts, and instituted an aggressive utilization review process, whereby certain health care services must receive approval before a particular procedure is authorized. A retrospective review process has been instituted in which every claim is reviewed for appropriateness. (Testimony of Mahoney, Petitioner's Exhibit 51). The premium rates proposed by HPSE in its proposal were found to "... appear actuarially reasonable and adequate," as noted in a memorandum of Dinkar B. Koppikar of the Department of Insurance in a memorandum for file, dated October 12, 1987. By a letter of October 23, 1987 to Nye, Koppikar stated that the rates of HPSE and MetLife had been approved by the Department of Insurance. This representation was made despite a determination made in a final order of the Department of Insurance involving this procurement process that there had been no departmental approval of the filed rate. (Petitioner's Exhibits 32, 42) A substantial number of HMOs have had financial difficulties during the past year. Some have gone out of business; others have been forced to merge with larger organizations. HPSE is not the only one of the three HMOs involved in this proceeding that has experienced losses in 1987. In fact, CHP's executive director, John Hogan, stated that CHP has sustained an approximate $2.5 million loss for 1987. One HMO which submitted a proposal in another service area has been placed in receivership due to insolvency. (Testimony of Hogan, Johnson, Nye, Petitioner's Exhibit 16) In view of the foregoing findings, it is further found that there is sufficient evidence to show that HPSE is a responsible contractor with regard to its overall ability to provide the medical services required under its contract proposal. THE OTHER INTERVENORS Prior to hearing, Martha Billings and Dorothy L. Hutchison filed a motion to intervene in this proceeding which was provisionally granted. Martha Billings is married to Dr. Charles Billings, an associate professor at Florida State University. They and five children have had health care coverage with CHP for over four years. They utilize two primary care staff physicians, one of whom is a pediatrician. The family utilizes the services of CHP and its staff frequently. They have an excellent relationship with their physicians, one of whom provided services to them for four years before leaving CHP. They have been receiving services from the two present physicians for the past six months. Mrs. Billings expressed extreme satisfaction with the personal attention provided by CHP physicians and staff, the convenience of a central location for prescriptions, laboratory and x-ray, and the ability to receive health education courses provided under the plan. She also believes that there is a significant financial factor for her household due to the low co- payments of CHP for office visits. Also, she feels that CHP has been very responsive to the requests of members for additional services. She was "absolutely devastated" when she learned that CHP was not one of the two HMOs selected for a state contract award, and has been active since that time in protesting the agency decision. (Testimony of Billings) Dorothy L. Hutchison is employed at Florida State University. She and her husband, Dr. Jack Hutchison, have been members of CHP since December 1984. They utilize a CHP staff physician as their primary care physician. They use CHP's main facilities in Tallahassee for health and pharmaceutical services. Their physician was very supportive when her husband suffered a heart attack. She is very satisfied with the level of benefits provided by CHP and the, financial arrangements. She would be very upset if it is not awarded a contract in the procurement process. (Testimony of Hutchison) PROPOSED DOA RULES DOA initiated rulemaking under Chapter 120, F.S., in October 1987 to implement Chapter 87-156, Laws of Florida, which amended Section 110.23, F.S. Although Nye had overall responsibility for the rulemaking process, he delegated the actual work to William Seaton of his office. Mr. Seaton prepared two draft proposed amendments to Chapter 22K-1,F.A.C., which were thereafter approved by Nye and the Secretary of DOA. In response to a requirement of Chapter 87-156, it was proposed that the definition of "Qualified health maintenance organization," as set forth in Rule 22K-1.103(21) be amended to change subparagraph (b) therein from "Enters into contract with the State of Florida" to "Enters into contract with the State of Florida through the competitive bid process." The proposed rule amendments were noticed in the Florida Administrative Weekly on November 20, 1987. Seaton was not instructed to nor did he ever consider drafting more specific guidelines for the competitive bidding process with respect to HMOs. (Testimony of Nye, Aikens, Seaton [Petitioner's Exhibit 26], Petitioner's Exhibit 38, Respondent's Exhibit 10) THE CAPITAL HEALTH PLAN SURVEY James Ritchens, an expert in public opinion research and analysis, was employed by CHP to conduct a survey of state employees enrolled in the Capital Health Plan. His survey was conducted during the period December 14-16, 1987, during which random telephone calls were made by ten interviewers to 419 state employee members of CHP from a list of 10,136 names of state employees who were CHP members. A series of questions was asked of the individuals called and the data gathered was placed in a computer and thereafter analyzed by Kitchens. The employees who were called were not aware that the survey was being conducted by CHP. As a result of the survey, Kitchens concluded that there was an "extremely high level" of consumer satisfaction with CHP and that it received "extremely positive" job performance ratings in all areas of the delivery system. He further concluded that if the employees had to change to one of the other two HMOs without such providers presenting persuasive information, approximately one-third would enroll in the state insurance program. He finally concluded that consistency of care is very important to the employees and that if they were required to choose a new provider every two years, or if financial problems required the employee to change doctors, approximately half of the employees preferred the state health insurance program. (Testimony of Kitchens, Petitioner's Exhibit 33, Intervenor's Exhibit 3) A statistical expert employed by HPSE, Dr. Mandell Bellmore, questioned the scientific validity of the survey in several aspects, including the failure to include members of the other HMOs in the survey, bias in the questioning techniques, and the failure of the report to comment on the influence that prior publicity of the HMO dispute and letters generated by CHP to its members would have had on the ability to predict future action of the members who were interviewed. (Testimony of Bellmore, Respondent's Composite Exhibit 3) Regardless of the validity of the survey, it is found to have no probative value in the determination of pertinent issues concerning the propriety of the procurement process and intended awards. The pertinent statute controlling this competitive bidding process does not address criteria of quality of care or customer satisfaction with an HMO.
The Issue The issue is whether Petitioner is eligible for the receipt of general revenue funds in the categories of homemaker services and equipment repair and replacement.
Findings Of Fact Petitioner was born on July 11, 1953. She suffers from cerebral palsy. She received special education for several years. For 11 years, she has worked two and one-half days weekly in the Dade County State Attorney's Office, where she mails out orders. Petitioner lives by herself in a home that she owns. Her disability interferes with walking. She entered the hearing room by placing her outstretched arms across her mother's shoulders, against which she placed her weight that her immobilized legs could not bear. Petitioner frequently falls. When walking without the assistance of another person or device, Petitioner presses her arms against a wall for the necessary support. For the last 12 years, Petitioner has used a three- wheeled scooter with a small electric motor to ambulate. This device has proved superior to crutches, which "get away from me." Petitioner has used the scooter to get to the physician's office, take out the garbage from her home, and perform her work in the State Attorney's Office. Seven months ago, the scooter broke. Petitioner has previously had the scooter repaired three times; her present scooter is four years old. The two batteries remain good, but the motor has become inoperative. No longer able to use the scooter at work, Petitioner sometimes falls down as she tries to walk along the walls. When this happens, a coworker brings her a chair so she can get back up. Recently, during a bomb threat, a coworker had to wheel Petitioner out of the building using an executive chair. In the past, Petitioner has obtained monetary support from her mother. However, her mother has recently retired and is now living on a pension of $800 monthly. Petitioner's disabilities prevent her from performing common housekeeping chores like mopping floors and putting clothes in the washer. Able to do a limited amount of these tasks, Petitioner has long relied on her daughter to perform the portion of these tasks that Petitioner cannot perform. However, her daughter is 19 years old and has moved out to attend college, so she is no longer available to perform these tasks. Petitioner's 65-year-old mother cannot do household chores due to an arthritic shoulder. More than anything else, Petitioner seeks limited assistance to achieve maximum independence. Unable to afford special transportation services and without her scooter, Petitioner now mostly watches television at home alone. During her one-hour lunch break, Petitioner is no longer able to leave the building. Petitioner became a client of Respondent in August 2001. As conceded by Respondent's sole witness, Petitioner is otherwise eligible for the services that she seeks, except that sufficient funds are not available. As reflected in the Developmental Disabilities Hearing Request, Petitioner has sought services funded by general revenue funds, not Medicaid Waiver funds. In support of its denial of services based on funding limitation, Respondent has relied upon spending-plan criteria contained in Respondent Exhibit 1. Respondent Exhibit 1 details a five-part prioritization schedule for the provision of services. In order, the following persons are served: persons who were clients as of July 1, 1999; members of the class action styled Cramer v. Bush; persons in crisis (estimated at 10 new clients monthly statewide); persons discharged from the Mentally Retarded Defendant Program; and persons who have become clients since July 1, 1999. Based on the present record, Respondent's reliance upon Respondent Exhibit 1 is misplaced. The present record suggests that the five-part prioritization schedule described in the preceding paragraph is for persons seeking Medicaid Waiver services, not General Revenue funds. For instance, immediately following the fifth priority, the document reveals that the schedule is for Medicaid Waiver clients when the document states: "In order to serve the estimated additional 6,774 individuals who are projected to want and need Waiver services during FY 01-02, enrollment on the Waiver will be phased in as described above." The testimony of Respondent's sole witness relied on Respondent Exhibit 1, which appears on its face not to govern Petitioner's request for services. Thus, Respondent's evidence of insufficiency of funds is itself insufficient.
Recommendation It is RECOMMENDED that the Department of Children and Family Services enter a final order granting Petitioner's requests for homemaker and equipment repair and replacement services. DONE AND ENTERED this 3rd day of July, 2002, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 3rd day of July, 2002. COPIES FURNISHED: Paul F. Flounlacker, Jr., Agency Clerk Department of Children and Family Services 1317 Winewood Boulevard Building 2, Room 204B Tallahassee, Florida 32399-0700 Josie Tomayo, General Counsel Department of Children and Family Services 1317 Winewood Boulevard Building 2, Room 204 Tallahassee, Florida 32399-0700 Veronica Roker 2282 Northwest 152nd Street Opa Locka, Florida 33054 Hilda Fluriach District 11 Legal Counsel Department of Children and Family Services 401 Northwest 2nd Avenue Suite N-1014 Miami, Florida 33128
