The Issue The issue in this case is whether Respondent properly rejected Petitioner's insurance Policy Form No. SL-94.
Findings Of Fact Petitioner submitted Policy Form No. SL-94 (hereinafter referred to as "the Policy") to Respondent for approval as a stop loss policy pursuant to Section 627.410, Florida Statutes, on or about August 15, 1995. The Policy, standing alone, meets all applicable requirements for approval as a stop loss policy under Section 627.410, Florida Statutes. The Policy obligates Petitioner to pay benefits to an employer, or the trust established by or for the employer, which employer is responsible for the payment of benefits to its employees or their dependents under a self-funded employee welfare benefit plan (hereinafter referred to as "the Plan") qualified under the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Policy purports to provide insurance only to the employer. On its face, the Policy does not assume any of the employer's obligations under the Plan to provide insurance directly to the employer's employees. Under the Policy, Petitioner is obligated to reimburse the employer only after the employer pays a limited amount of benefits under the Plan to any person who is covered under the Plan, i.e. employees or their dependents. The amount of Plan benefits that an employer must pay before Petitioner is obligated to begin reimbursement is determined by specific and aggregate attachment points or deductibles as defined in the Policy's Schedule of Insurance. The specific attachment point is the Plan benefit amount which is wholly retained by the employer for all claims incurred by each covered person during each contract year. The Plan benefit amount does not include deductibles, coinsurance amounts or any other expense or claims which are not reimbursable under the terms of the Plan nor does it include expenses which are reimbursable from any other source. The aggregate attachment point or deductible is the Plan benefit amount which is wholly retained by the employer for all covered persons during a contract year. The Policy's Schedule of Insurance does not specify what the specific and aggregate attachment points will be. However, record evidence indicates that Petitioner intends to market the policy with a specific attachment point as low as $500. Therefore, if the Plan has a deductible of $250 and the Policy has a specific attachment point of $500, the employee would pay the first $250 of eligible expenses, the employer would pay the next $500 of eligible expenses, and Petitioner would reimburse the employer for 100 percent of any excess eligible expenses, for each covered person during a contract year. The Policy's eligible expenses are the covered charges or expenses which are incurred by a covered person while covered under the Plan in the course of treatment for an injury or illness and paid under the Plan subject to the terms, conditions and limitations of the Plan document. In other words, the eligible expenses under the Policy will mirror the eligible expenses of the Plan. Record evidence indicates that Petitioner intends to market the Policy to employers with less than fifty (50) employees. The Policy does not contain provisions related to the following protections: guaranteed availability for any small group employer regardless of whether its employees are sick or have preexisting conditions; guaranteed renewability unless the policyholder fails to pay the premium or commits fraud; limitations on exclusions for pre- existing conditions; portability which allows employees to move from one employer to another regard- less of preexisting conditions; community rated premiums; and, periods of open enrollment. ERISA self-funded benefit plans are not regulated by the state regardless of their terms and conditions. They are not required to include the above referenced protections. If the Plan excludes specific health risks or preexisting conditions such as AIDS, emphysema, heart disease, or cancer, neither the employer nor the Petitioner would be obligated to pay benefits for those risks. Additionally, the Plan is subject to whatever deductible limits the small employer wishes to set. Respondent disapproved the Policy by letter dated August 21, 1995. Respondent correctly rejected the Policy as being inappropriate for the small group health insurance market. The Policy is inappropriate because Petitioner intends to market it to self-insured small group employers with attachment points so low ($500) that it becomes a de facto health insurance policy instead of a stop loss policy. Respondent would not approve a stop loss policy for a small group employer's Plan with specific attachment points at $5,000 or less. Respondent would approve a stop loss policy for a small group employer's Plan with specific attachment points as low as $9,000 or $10,000, regardless of the terms and conditions of that Plan. In that instance, the employer assumes significant risk of loss as a self-funded insurer and the stop loss policy operates to limit that loss. However, an ERISA benefit plan combined with a stop loss policy having specific attachment points as low as $500, such as the one at issue here, substantially limits the self-insured employer's risk of loss to a nominal amount and substitutes Petitioner as a small group health insurer with none of the protections required by Section 627.6699, Florida Statutes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore recommended that Respondent enter a Final Order disapproving Petitioner's Policy Form No. SL-94, for use in Florida's small group health insurance market. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 15th day of March, 1996. SUZANNE F. HOOD, Hearing Officer 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 15th day of March, 1996. APPENDIX The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Petitioner's Proposed Findings of Fact Accepted in Findings of Fact 3. Accepted in substance as restated in Findings of Fact 4. Accepted in substance as restated in Findings of Fact 4. Accepted in substance as restated in Findings of Fact 4. Accepted in Findings of Fact 5-7. Accepted as restated in Findings of Fact 4. Not a finding of fact. More like a conclusion of law. Reject the first sentence as contrary to more persuasive evidence. Second sentence accepted as restated in Conclusions of Law 19-21 and 26-27. Rejected. It is a question of fact whether the Policy is a stop loss policy or a health insurance policy regardless of its denomination. Specifically reject Petitioner's finding that the Policy does not violate public policy as expressed in Section 627.6699, Florida Statutes. See Conclusions of Law 24-27. Accepted in Conclusion of Law 23. Accepted in part as restated in Findings of Fact 15-16. See also Conclusions of Law 22, 24-27. Not a finding of fact. More like a conclusion of law and legal argument which is not persuasive as applied to the facts of this case. Not a finding of fact. More like a conclusion of law. Not a finding of fact. More like a conclusion of law. First sentence rejected as contrary to more persuasive evidence. Next five sentences are not findings of fact. Specifically reject any implication that the Policy is a stop loss policy. See Findings of Fact 15-16 and Conclusions of Law 24-27. First two sentences are not findings of fact. Reject any implication that there is no public policy "relating to the issuance of a stop loss policy in the State of Florida to a Florida employer employing 50 or fewer employees." Accept that the state does not regulate employer self-funded medical benefit programs. See Finding of Fact 12. Accept the last sentence as restated in Finding of Fact 15 and Conclusion of Law 24. Rejected. Petitioner's Exhibit 3 shows the legislature was aware that "the bill could increase the likelihood that an employer would choose to self- insure and due to ERISA would be able to avoid state regulation of the insurance product provided to employees." However, the referenced exhibit is rejected as evidence of legislative intent to exclude "related insurance products" from "the statute's regulatory or public policy purview." Rejected for the reasons set forth in the ruling above. Rejected. See Conclusions of Law 24. Substance accepted as restated in Findings of Facts 12 and Conclusions of Law 24. Substance accepted as restated in Findings of Facts 16. First sentence not a finding of fact. Second sentence rejected as contrary to more persuasive evidence; See Findings of Fact 15-16 and Conclusions of Law 24-27. Accept in part as restated in Findings of Fact 15-16 and Conclusions of Law 24-27. A recitation of the testimony is not a finding of fact; substance accepted as restated in Finding of Fact 16. Accept that the state has no specific statutes or rules regulating attachment points in stop loss insurance policies. See Conclusions of Law 19. However, Section 627.6699(2), Florida Statutes, is applicable here because the Policy is a de facto health insurance policy. See Findings of Fact 15-16 and Conclusions of Law 24-27. First sentence rejected as contrary to more persuasive evidence. See Findings of Fact 15-16 and Conclusions of Law 19. First sentence rejected; More like a conclusion of law or legal argument the substance of which is not persuasive. Second sentence irrelevant. Irrelevant. Accepted but subordinate to Findings of Fact 15-16. NAIC's stop loss model act supports the proposition that the Policy is not a stop loss insurance policy but rather a health insurance policy. Accepted in part as restated in Conclusions of Law 19. Accepted but subordinate to Findings of Fact 15-16. Accepted but subordinate to Findings of Fact 15-16. Irrelevant. Rejected as contrary to more persuasive evidence. Respondent's Proposed Findings of Fact Accepted in Findings of Fact 1. Accepted in Findings of Fact 15. Not a finding of fact. Not a finding of fact. More like a conclusion of law. Accepted in Findings of Fact 1. Accepted as restated in Findings of Fact 2. Accepted as restated in Findings of Fact 11, 15-16. Accepted as restated in Findings of Fact 10, 15-16, and Conclusions of Law 22, 24-27. Accepted as restated in Findings of Fact 4. Accepted as restated in Findings of Fact 4-8 and 10. Accepted in Findings of Fact 10 and Conclusions of Law 22. Accept that the Policy provides for a specific attachment point of not less than $500; See Findings of Fact 8, 15 and 16. There is no evidence that the Policy's specific attachment point can be no more than $1,000. Accepted as restated in Findings of Fact 5-8. Accepted as restated in Findings of Fact 8. Accepted as restated in Conclusions of Law 22. Accepted as restated in Findings of Fact 9, 11-13 and Conclusions of Law 22, 24-27. Accepted as restated in Findings of Fact 9-13. Accepted as restated in Findings of Fact 11. Accepted in part in Findings of Fact 14. Reject that Petitioner could totally avoid the coverage responsibilities otherwise imposed by Section 627.6699, Florida Statutes, merely by setting the Policy's attachment points at the same level as the deductible in the Plan. If the Plan's deductible was $500 and the Policy's specific attachment point was $500, the employee would pay the first $500 of expenses, the employer would be responsible for the next $500 of expenses, and Petitioner would reimburse the employer for 100 percent of any excess eligible expenses for that employee during the contract year. However, Petitioner can totally avoid paying for state mandated protections because the Policy will mirror any prohibited exclusions or provisions in the Plan. Substance accepted in part; See Findings of Fact 15-16. There is no evidence that the Policy's specific attachment point can be as high as $2,000. Accepted as restated in Findings of Fact 16; See Conclusions of Law 24-27. COPIES FURNISHED: Michael H. Davidson, Esquire Department of Insurance Division of Legal Services 200 E. Gaines Street Tallahassee, Florida 32399-0333 Frank J. Santry, Esquire Granger, Santry, et al. Post Office Box 14129 Tallahassee, Florida 32308 Bill Nelson, State Treasurer Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner, Esquire Department of Insurance and Treasurer The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue The issue in these consolidated cases is whether the Agency for Health Care Administration ("AHCA") properly disallowed Petitioners' expense for liability insurance and accrued contingent liability costs contained in AHCA's audit of Petitioners' Medicaid cost reports.
Findings Of Fact Based upon the oral and documentary evidence presented at the final hearing, and on the entire record of this proceeding, the following findings of fact are made: Petitioners operate licensed nursing homes that participate in the Florida Medicaid program as institutional providers. The 14 Palm Gardens facilities are limited liability companies operating as subsidiaries of New Rochelle Administrators, LLC, which also provides the facilities with management services under a management contract. AHCA is the single state agency responsible for administering the Florida Medicaid program. One of AHCA's duties is to audit Medicaid cost reports submitted by providers participating in the Medicaid program. During the audit period, Petitioners provided services to Medicaid beneficiaries pursuant to Institutional Medicaid Provider Agreements that they entered into with AHCA. The Provider Agreements contained the following relevant provision: (3) Compliance. The provider agrees to comply with local, state, and federal laws, as well as rules, regulations, and statements of policy applicable to the Medicaid program, including Medicaid Provider Handbooks issued by AHCA. Section 409.908, Florida Statutes (2002)1, provided in relevant part: Reimbursement of Medicaid providers.-- Subject to specific appropriations, the agency shall reimburse Medicaid providers, in accordance with state and federal law, according to methodologies set forth in the rules of the agency and in policy manuals and handbooks incorporated by reference therein. These methodologies may include fee schedules, reimbursement methods based on cost reporting, negotiated fees, competitive bidding pursuant to s. 287.057, and other mechanisms the agency considers efficient and effective for purchasing services or goods on behalf of recipients. . . . * * * (2)(a)1. Reimbursement to nursing homes licensed under part II of chapter 400 . . . must be made prospectively. . . . * * * (b) Subject to any limitations or directions provided for in the General Appropriations Act, the agency shall establish and implement a Florida Title XIX Long-Term Care Reimbursement Plan (Medicaid) for nursing home care in order to provide care and services in conformance with the applicable state and federal laws, rules, regulations, and quality and safety standards and to ensure that individuals eligible for medical assistance have reasonable geographic access to such care. . . . AHCA has adopted the Title XIX Long-Term Care Reimbursement Plan (the "Plan") by reference in Florida Administrative Code Rule 59G-6.010. The Plan incorporates the Centers for Medicare and Medicaid Services ("CMS") Publication 15-1, also called the Provider Reimbursement Manual (the "Manual" or "PRM"), which provides "guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services furnished under the Health Insurance for the Aged Act of l965, as amended." CMS Pub. 15-1, Foreword, p. I. The audit period in these cases spans two versions of the Plan: version XXIII, effective July 1, 2002, and version XXIV, effective January 1, 2003. It is unnecessary to distinguish between the two versions of the Plan because their language is identical as to the provisions relevant to these cases. Section I of the Plan, "Cost Finding and Cost Reporting," provides as follows, in relevant part: The cost report shall be prepared by a Certified Public Accountant in accordance with chapter 409.908, Florida Statutes, on the form prescribed in section I.A. [AHCA form 5100-000, Rev. 7-1-90], and on the accrual basis of accounting in accordance with generally accepted accounting principles as established by the American Institute of Certified Public Accountants (AICPA) as incorporated by reference in Rule 61H1-20.007, F.A.C., the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Reimbursement, the Provider Reimbursement Manual (CMS-PUB. 15-1)(1993) incorporated herein by reference except as modified by the Florida Title XIX Long Term Care Reimbursement Plan and State of Florida Administrative Rules. . . . Section III of the Plan, "Allowable Costs," provides as follows, in relevant part: Implicit in any definition of allowable costs is that those costs shall not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII Principles of Reimbursement, CMS-PUB. 15-1 (1993) and this plan, to exceed the level that a prudent buyer would incur, then the excess costs shall not be reimbursable under the plan. The Plan is a cost based prospective reimbursement plan. The Plan uses historical data from cost reports to establish provider reimbursement rates. The "prospective" feature is an upward adjustment to historical costs to establish reimbursement rates for subsequent rate semesters.2 The Plan establishes limits on reimbursement of costs, including reimbursement ceilings and targets. AHCA establishes reimbursement ceilings for nursing homes based on the size and location of the facilities. The ceilings are determined prospectively, on a semiannual basis. "Targets" limit the inflationary increase in reimbursement rates from one semester to the next and limit a provider's allowable costs for reimbursement purposes. If a provider's costs exceed the target, then those costs are not factored into the reimbursement rate and must be absorbed by the provider. A nursing home is required to file cost reports. The costs identified in the cost reports are converted into per diem rates in four components: the operating component; the direct care component; the indirect care component; and the property component. GL/PL insurance costs fall under the operating component. Once the per diem rate is established for each component, the nursing home's reimbursement rate is set at the lowest of four limitations: the facility's costs; the facility's target; the statewide cost ceiling based on the size of the facility and its region; or the statewide target, also based on the size and location of the facility. The facility's target is based on the initial cost report submitted by that facility. The initial per diem established pursuant to the initial cost report becomes the "base rate." Once the base rate is established, AHCA sets the target by inflating the base rate forward to subsequent six- month rate semesters according to a pre-established inflation factor. Reimbursement for cost increases experienced in subsequent rate semesters is limited by the target drawn from the base rate. Thus, the facility's reimbursement for costs in future rate semesters is affected by the target limits established in the initial period cost report. Expenses that are disallowed during the establishment of the base rate cannot be reclaimed in later reimbursement periods. Petitioners entered the Medicaid program on June 29, 2002. They filed cost reports for the nine- month period from their entry into the program through February 28, 2003. These reports included all costs claimed by Petitioners under the accrual basis of accounting in rendering services to eligible Medicaid beneficiaries. In preparing their cost reports, Petitioners used the standard Medicaid Cost Report "Chart of Accounts and Description," which contains the account numbers to be used for each ledger entry, and explains the meaning of each account number. Under the general category of "Administration" are set forth several subcategories of account numbers, including "Insurance Expense." Insurance Expense is broken into five account numbers, including number 730810, "General and Professional Liability -- Third Party," which is described as "[c]osts of insurance purchased from a commercial carrier or a non-profit service corporation."3 Petitioners' cost report stated the following expenses under account number 730810: Facility Amount Palm Garden of Clearwater $145,042.00 Palm Garden of Gainesville $145,042.00 Palm Garden of Jacksonville $145,042.00 Palm Garden of Largo $171,188.00 Palm Garden of North Miami $145,042.00 Palm Garden of Ocala $217,712.00 Palm Garden of Orlando $145,042.00 Palm Garden of Pinellas $145,042.00 Palm Garden of Port St. Lucie $145,042.00 Palm Garden of Sun City $145,042.00 Palm Garden of Tampa $145,042.00 Palm Garden of Vero Beach $217,712.00 Palm Garden of West Palm Beach $231,151.00 Palm Garden of Winter Haven $145,042.00 AHCA requires that the cost reports of first-year providers undergo an audit. AHCA's contract auditing firm, Smiley & Smiley, conducted an examination4 of the cost reports of the 14 Palm Gardens nursing homes to determine whether the included costs were allowable. The American Institute of Certified Public Accountants ("AICPA") has promulgated a series of "attestation standards" to provide guidance and establish a framework for the attestation services provided by the accounting profession in various contexts. Attestation Standards 101 and 601 set out the standard an accountant relies upon in examining for governmental compliance. Smiley & Smiley examined the Palm Gardens cost reports pursuant to these standards. During the course of the audit, Smiley & Smiley made numerous requests for documentation and other information pursuant to the Medicaid provider agreement and the Plan. Petitioners provided the auditors with their general ledger, invoices, audited financial statements, bank statements, and other documentation in support of their cost reports. The examinations were finalized during the period between September 28, 2006, and October 4, 2006. The audit report issued by AHCA contained more than 2,000 individual adjustments to Petitioners' costs, which the parties to these consolidated proceedings have negotiated and narrowed to two adjustments per Palm Gardens facility.5 As noted in the Preliminary Statement above, the first adjustment at issue is AHCA's disallowance of Palm Gardens' accrual of expenses for contingent liability under the category of GL/PL insurance, where Palm Gardens could not document that it had purchased GL/PL insurance. The second adjustment at issue is ACHA's disallowance of a portion of the premium paid by Palm Gardens for the Mature Care Policies. The total amount of the adjustment at issue for each facility is set forth in the Preliminary Statement above. Of that total for each facility, $18,849.00 constituted the disallowance for the Mature Care Policies. The remainder constituted the disallowance for the accrual of GL/PL related contingent liabilities. Janette Smiley, senior partner at Smiley & Smiley and expert in Medicaid auditing, testified that Petitioners provided no documentation other than the Mature Care Policies to support the GL/PL entry in the cost reports. Ms. Smiley testified that, during much of the examination process, she understood Petitioners to be self-insured. Ms. Smiley's understanding was based in part on statements contained in Petitioners' audited financial statements. In the audited financial statement covering the period from June 28, 2002, through December 31, 2002, Note six explains Petitioners' operating leases and states as follows, in relevant part: The lease agreement requires that the Company maintain general and professional liability in specified minimum amounts. As an alternative to maintaining these levels of insurance, the lease agreement allows the Company to fund a self-insurance reserve at a per bed minimum amount. The Company chose to self-insure, and has recorded litigation reserves of approximately $1,735,000 that are included in other accrued expenses (see Note 9). As of December 31, 2002, these reserves have not been funded by the Company. . . . The referenced Note nine, titled "Commitments and Contingencies," provides as follows in relevant part: Due to the current legal environment, providers of long-term care services are experiencing significant increases in liability insurance premiums or cancellations of liability insurance coverage. Most, if not all, insurance carriers in Florida have ceased offering liability coverage altogether. The Company's Florida facilities have minimal levels of insurance coverage and are essentially self-insured. The Company has established reserves (see Note 6) that estimate its exposure to uninsured claims. Management is not currently aware of any claims that could exceed these reserves. However, the ultimate outcome of these uninsured claims cannot be determined with certainty, and could therefore have a material adverse impact on the financial position of the Company. The relevant notes in Petitioner's audited financial statement for the year ending December 31, 2003, are identical to those quoted above, except that the recorded litigation reserves were increased to $4 million. The notes provide that, as of December 31, 2003, these reserves had not been funded by Petitioners. Ms. Smiley observed that the quoted notes, while referencing "self-insurance" and the recording of litigation reserves, stated that the litigation reserves had not been funded. By e-mail dated April 21, 2005, Ms. Smiley corresponded with Stanley Swindling, the shareholder in the accounting firm Moore Stephens Lovelace, P.A., who had primary responsibility for preparing Petitioners' cost reports. Ms. Smiley noted that Petitioners' audited financial statements stated that the company "chose to self-insure" and "recorded litigation reserves," then wrote (verbatim): By definition from PRM CMS Pub 15-1 Sections 2162.5 and 2162.7 the Company does in fact have self-insurance as there is no shifting of risk. You will have to support your positioning a letter addressing the regs for self-insurance. As clearly the financial statement auditors believe this is self- insurance and have disclosed such to the financial statement users. If you cannot support the funding as required by the regs, the provider will have to support expense as "pay as you go" in accordance with [2162.6] for PL/GL. * * * Please review 2161 and 2162 and provide support based on the required compliance. If support is not complete within the regulations, amounts for IBNR [incurred but not reported] will be disallowed and we will need to have the claims paid reports from the TPA [third party administrator] (assuming there is a TPA handling the claims processing), in order to allow any expense. Section 2160 of the Manual establishes the basic insurance requirement: A. General.-- A provider participating in the Medicare program is expected to follow sound and prudent management practices, including the maintenance of an adequate insurance program to protect itself against likely losses, particularly losses so great that the provider's financial stability would be threatened. Where a provider chooses not to maintain adequate insurance protection against such losses, through the purchase of insurance, the maintenance of a self-insurance program described in §2161B, or other alternative programs described in §2162, it cannot expect the Medicare program to indemnify it for its failure to do so. . . . . . . If a provider is unable to obtain malpractice coverage, it must select one of the self-insurance alternatives in §2162 to protect itself against such risks. If one of these alternatives is not selected and the provider incurs losses, the cost of such losses and related expenses are not allowable. Section 2161.A of the Manual sets forth the general rule as to the reimbursement of insurance costs. It provides that the reasonable costs of insurance purchased from a commercial carrier or nonprofit service corporation are allowable to the extent they are "consistent with sound management practice." Reimbursement for insurance premiums is limited to the "amount of aggregate coverage offered in the insurance policy." Section 2162 of the Manual provides as follows, in relevant part: PROVIDER COSTS FOR MALPRACTICE AND COMPREHENSIVE GENERAL LIABILITY PROTECTION, UNEMPLOYMENT COMPENSATION, WORKERS' COMPENSATION, AND EMPLOYEE HEALTH CARE INSURANCE General.-- Where provider costs incurred for protection against malpractice and comprehensive general liability . . . do not meet the requirements of §2161.A, costs incurred for that protection under other arrangements will be allowable under the conditions stated below. . . . * * * The following illustrates alternatives to full insurance coverage from commercial sources which providers, acting individually or as part of a group or a pool, can adopt to obtain malpractice, and comprehensive general liability, unemployment compensation, workers' compensation, and employee health care insurance protection: Insurance purchased from a commercial insurance company which provides coverage after a deductible or coinsurance provision has been met; Insurance purchased from a limited purpose insurance company (captive); Total self-insurance; or A combination of purchased insurance and self-insurance. . . . part: Section 2162.3 of the Manual provides: Self-Insurance.-- You may believe that it is more prudent to maintain a total self- insurance program (i.e., the assumption by you of the risk of loss) independently or as part of a group or pool rather than to obtain protection through purchased insurance coverage. If such a program meets the conditions specified in §2162.7, payments into such funds are allowable costs. Section 2162.7 of the Manual provides, in relevant Conditions Applicable to Self-Insurance.-- Definition of Self-Insurance.-- Self- insurance is a means whereby a provider(s), whether proprietary or nonproprietary, undertakes the risk to protect itself against anticipated liabilities by providing funds in an amount equivalent to liquidate those liabilities. . . . * * * Self-Insurance Fund.-- The provider or pool establishes a fund with a recognized independent fiduciary such as a bank, a trust company, or a private benefit administrator. In the case of a State or local governmental provider or pool, the State in which the provider or pool is located may act as a fiduciary. The provider or pool and fiduciary must enter into a written agreement which includes all of the following elements: General Legal Responsibility.-- The fiduciary agreement must include the appropriate legal responsibilities and obligations required by State laws. Control of Fund.-- The fiduciary must have legal title to the fund and be responsible for proper administration and control. The fiduciary cannot be related to the provider either through ownership or control as defined in Chapter 10, except where a State acts as a fiduciary for a State or local governmental provider or pool. Thus, the home office of a chain organization or a religious order of which the provider is an affiliate cannot be the fiduciary. In addition, investments which may be made by the fiduciary from the fund are limited to those approved under State law governing the use of such fund; notwithstanding this, loans by the fiduciary from the fund to the provider or persons related to the provider are not permitted. Where the State acts as fiduciary for itself or local governments, the fund cannot make loans to the State or local governments. . . . The quoted Manual provisions clarify that Ms. Smiley's message to Mr. Swindling was that Petitioners had yet to submit documentation to bring their "self-insurance" expenses within the reimbursable ambit of Sections 2161 and 2162 of the Manual. There was no indication that Petitioners had established a fund in an amount sufficient to liquidate its anticipated liabilities, or that any such funds had been placed under the control of a fiduciary. Petitioners had simply booked the reserved expenses without setting aside any cash to cover the expenses. AHCA provided extensive testimony regarding the correspondence that continued among Ms. Smiley, Mr. Swindling, and AHCA employees regarding this "self-insurance" issue. It is not necessary to set forth detailed findings as to these matters, because Petitioners ultimately conceded to Ms. Smiley that, aside from the Mutual Care policies, they did not purchase commercial insurance as described in Section 2161.A, nor did they avail themselves of the alternatives to commercial insurance described in Section 2162.A. Petitioners did not purchase commercial insurance with a deductible, did not self- insure, did not purchase insurance from a limited purpose or "captive" insurance company, or employ a combination of purchased insurance and self-insurance. Ms. Smiley eventually concluded that Petitioners had no coverage for general and professional liability losses in excess of the $25,000 value of the Mutual Care Policies. Under the cited provisions of the Manual, Petitioners' unfunded self- insurance expense was not considered allowable under the principles of reimbursement. Petitioners were uninsured, which led Ms. Smiley to further conclude that Section 2162.13 of the Manual would apply: Absence of Coverage.-- Where a provider, other than a governmental (Federal, State, or local) provider, has no insurance protection against malpractice or comprehensive general liability in conjunction with malpractice, either in the form of a limited purpose or commercial insurance policy or a self-insurance fund as described in §2162.7, any losses and related expenses incurred are not allowable. In response to this disallowance pursuant to the strict terms of the Manual, Petitioners contend that AHCA should not have limited its examination of the claimed costs to the availability of documentation that would support those costs as allowable under the Manual. Under the unique circumstances presented by their situation, Petitioners assert that AHCA should have examined the state of the nursing home industry in Florida, particularly the market for GL/PL liability insurance during the audit period, and further examined whether Petitioners had the ability to meet the insurance requirements set forth in the Manual. Petitioners assert that, in light of such an examination, AHCA should have concluded that generally accepted accounting principles ("GAAP") may properly be invoked to render the accrued contingent liabilities an allowable expense. Keith Parnell is an expert in insurance for the long- term care industry. He is a licensed insurance broker working for Hamilton Insurance Agency, which provides insurance and risk management services to about 40 percent of the Florida nursing home market. Mr. Parnell testified that during the audit period, it was impossible for nursing homes to obtain insurance in Florida. In his opinion, Petitioners could not have purchased commercial insurance during the audit period. To support this testimony, Petitioners offered a study conducted by the Florida Department of Insurance ("DOI") in 2000 that attempted to determine the status of the Florida long-term care liability insurance market for nursing homes, assisted living facilities, and continuing care retirement communities. Of the 79 companies that responded to DOI's data call, 23 reported that they had provided GL/PL coverage during the previous three years but were no longer writing policies, and only 17 reported that they were currently writing GL/PL policies. Six of the 17 reported writing no policies in 2000, and five of the 17 reported writing only one policy. The responding insurers reported writing a total of 43 policies for the year 2000, though there were approximately 677 skilled nursing facilities in Florida. On March 1, 2004, the Florida Legislature's Joint Select Committee on Nursing Homes issued a report on its study of "issues regarding the continuing liability insurance and lawsuit crisis facing Florida's long-term care facilities and to assess the impact of the reforms contained in CS/CS/CS/SB 1202 (2001)."6 The study employed data compiled from 1999 through 2003. Among the Joint Select Committee's findings was the following: In order to find out about current availability of long-term care liability insurance in Florida, the Committee solicited information from [the Office of Insurance Regulation, or] OIR within the Department of Financial Services, which is responsible for regulating insurance in Florida. At the Committee's request, OIR re-evaluated the liability insurance market and reported that there has been no appreciable change in the availability of private liability insurance over the past year. Twenty-one admitted insurance entities that once offered, or now offer, professional liability coverage for nursing homes were surveyed by OIR. Six of those entities currently offer coverage. Nine surplus lines carriers have provided 54 professional liability policies in the past year. Representatives of insurance carriers that stopped providing coverage in Florida told OIR that they are waiting until there are more reliable indicators of risk nationwide to re-enter the market. Among the Joint Select Committee's conclusions was the following: In the testimony the Committee received, there was general agreement that the quality of care in Florida nursing homes is improving, in large part due to the minimum staffing standards the Legislature adopted in SB 1202 during the 2001 Session. There was not, however, general agreement about whether or not lawsuits are abating due to the tort system changes contained in SB 1202. There was general agreement that the long-term care liability insurance market has not yet improved. After hearing the testimony, there is general agreement among the members of the Joint Select Committee that: * * * General and professional liability insurance, with actual transfer-of-risk, is virtually unavailable in Florida. "Bare- bones" policies designed to provide minimal compliance with the statutory insurance requirement are available; however, the cost often exceeds the face value of the coverage offered in the policy. This situation is a crisis which threatens the continued existence of long-term care facilities in Florida. To further support Mr. Parnell's testimony, Petitioners offered actuarial analyses of general and professional liability in long-term care performed by AON Risk Consultants, Inc. (AON) on behalf of the American Health Care Association. The AON studies analyzed nationwide trends in GL/PL for long-term care, and also examined state-specific issues for eight states identified as leading the trends in claim activity, including Florida. They provided an historical perspective of GL/PL claims in Florida during the audit period. The 2002 AON study for Florida was based on participation by entities representing 52 percent of all Florida nursing home beds. The study provided a "Loss Cost per Occupied Bed" showing GL/PL liability claims losses on a per bed basis. The 2002 study placed the loss cost for nursing homes in Florida at $10,800 per bed for the year 2001. The 2003 AON study, based on participation by entities representing 54 percent of Florida nursing home beds, placed the loss cost for nursing homes in Florida at $11,810 per bed for the year 2002. The studies showed that the cost per bed of GL/PL losses is materially higher in Florida than the rest of the United States. The nationwide loss per bed was $2,360 for the year 2001 and $2,880 for the year 2002. The GL/PL loss costs for Texas were the second-highest in the country, yet were far lower than the per bed loss for Florida ($5,460 for the year 2001 and $6,310 for the year 2002). Finally, Petitioners point to the Mature Care Policies as evidence of the crisis in GL/PL insurance availability. The aforementioned SB 1202 instituted a requirement that nursing homes maintain liability insurance coverage as a condition of licensure. See Section 22, Chapter 2001-45, Laws of Florida, codified at Subsection 400.141(20), Florida Statutes. To satisfy this requirement, Petitioners entered the commercial insurance market and purchased insurance policies for each of the 14 Palm Gardens facilities from a carrier named Mature Care Insurance Company. The policies carried a $25,000 policy limit, with a policy premium of $34,000. These were the kind of "bare bones" policies referenced by the Joint Select Committee's 2004 report. The fact that the policies cost more than they could ever pay out led Mr. Swindling, Petitioners' health care accounting and Medicaid reimbursement expert, to opine that a prudent nursing home operator in Florida at that time would not have purchased insurance, but for the statutory requirement.7 The Mature Care Policies were "bare bones" policies designed to provide minimal compliance with the statutory liability insurance coverage requirement. The policies cost Petitioners more than $37,000 in premium payments, taxes, and fees, in exchange for policy limits of $25,000. In its examination, AHCA disallowed the difference between the cost of the policy and the policy limits, then prorated the allowable costs because the audit period was nine months long and the premium paid for the Mature Care Policies was for 12 months. AHCA based its disallowance on Section 2161.A of the Manual, particularly the language which states: "Insurance premiums reimbursement is limited to the amount of aggregate coverage offered in the insurance policy." Petitioners responded that they did not enter the market and voluntarily pay a premium in excess of the policy limits. They were statutorily required to purchase this minimal amount of insurance; they were required to purchase a 12-month policy; they paid the market price8; and they should not be penalized for complying with the statute. Petitioners contend they should be reimbursed the full amount of the premiums for the Mature Care Policies, as their cost of statutory compliance. Returning to the issue of the contingent liabilities, Petitioners contend that, in light of the state of the market for GL/PL liability insurance during the audit period, AHCA should have gone beyond the strictures of the Manual to conclude that GAAP principles render the accrued contingent liabilities an allowable expense. Under GAAP, a contingent loss is a loss that is probable and can be reasonably estimated. An estimated loss from a loss contingency may be accrued by a charge to income. Statement of Financial Accounting Standards No. 5 ("FAS No. 5"), Accounting for Contingencies, provides several examples of loss contingencies, including "pending or threatened litigation" and "actual or possible claims and assessments." Petitioners assert that the contingent losses reported in their cost reports were actual costs incurred by Petitioners. The AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, provides: The ultimate costs of malpractice claims, which include costs associated with litigating or settling claims, are accrued when the incidents that give rise to the claims occur. Estimated losses from asserted and unasserted claims are accrued either individually or on a group basis, based on the best estimates of the ultimate costs of the claims and the relationship of past reported incidents to eventual claims payments. All relevant information, including industry experience, the entity's own historical experience, the entity's existing asserted claims, and reported incidents, is used in estimating the expected amount of claims. The accrual includes an estimate of the losses that will result from unreported incidents, which are probable of having occurred before the end of the reporting period. Section 8.10 of AICPA Guide provides: Accrued unpaid claims and expenses that are expected to be paid during the normal operating cycle (generally within one year of the date of the financial statements) are classified as current liabilities. All other accrued unpaid claims and expenses are classified as non-current liabilities. As noted above, Petitioners' audited financial statements for the fiscal years ending December 31, 2002, and December 31, 2003, showed that the accrual was incurred and recorded by Petitioners during the audit period. Mr. Swindling prepared Petitioners' cost reports, based on information provided by Petitioners, including trial balances reflecting their costs, statistics on patient days, cost data related to square footage, and revenue information. Mr. Swindling advised Petitioners to include the accrued losses. He believed that the loss contingency was probable and could be reasonably estimated. The losses were probable because it was "a given in the state of Florida at that time period that nursing homes are going to get sued." Mr. Swindling testified that the accrual reflected a per bed loss amount of $1,750, which he believed to be a reasonable estimate of the contingent liabilities faced by Petitioners during the audit period. This amount was much less than the per bed loss indicated by the AON studies for Florida. Mr. Swindling used the criteria set forth in Section 8.05 of the AICPA Guide to establish the estimate. He determined that the lesser amount was adequate based on his discussions with Petitioners' management, who indicated that they had a substantial risk management program. Management also disclosed to Mr. Swindling that Petitioners' leases required $1,750 per bed in liability coverage. See Finding of Fact 22, supra. Mr. Swindling believed that the estimated loss per bed was reasonable based on the AON studies and his knowledge and experience of the state of the industry in Florida during the audit period, as further reflected in the DOI and Joint Committee on Nursing Homes materials discussed above. Mr. Swindling's opinion was that the provisions of the Manual relating to GL/PL insurance costs do not apply under these circumstances. The costs at issue in this proceeding are not general and professional liability insurance costs subject to CMS Pub. 15-1; rather, they are loss contingencies related to general and professional liability, including defense costs, litigation costs, and settlement costs. Mr. Swindling placed the loss contingency under number 730810, "General and Professional Liability -- Third Party" because, in the finite chart of accounts provided by Medicaid, that was the most appropriate place to record the cost.9 Despite the initial confusion it caused the agency's auditors, the placement of the loss contingency under number 730810 was not intended to deceive the auditors. Mr. Swindling opined that, under these circumstances, Sections 2160 through 2162 are in conflict with other provisions in the Manual relating to the "prudent buyer" concept, and further conflict with the Plan to the extent that the cited regulations "relate to a retrospective system as opposed to prospective target rate-based system." Mr. Swindling agreed that the application of Sections 2160 through 2162 to the situation presented by Petitioners would result in the disallowance of the loss contingencies. Mr. Swindling observed, however, that Sections 2160 through 2162 are Medicare regulations. Mr. Swindling testified that Medicare reimbursements are made on a retrospective basis.10 Were this situation to occur in Medicare -- in which the provider did not obtain commercial insurance, self-insurance, or establish a captive insurer -- the provider would be deemed to be operating on a pay-as-you-go basis. Though its costs might be disallowed in the current period, the provider would receive reimbursements in subsequent periods when it could prove actual payment for its losses. Mr. Swindling found a conflict in attempting to apply these Medicare rules to the prospective payment system employed by Florida Medicaid, at least under the circumstances presented by Petitioners' case. Under the prospective system, once the contingent loss is disallowed for the base period, there is no way for Petitioners ever to recover that loss in a subsequent period, even when the contingency is liquidated. During his cross-examination, Mr. Swindling explained his position as follows: . . . Medicare allows for that payment in a subsequent period. Medicaid rules would not allow that payment in the subsequent period; therefore you have conflict in the rules. When you have conflict in the rules, you revert to generally accepted accounting principles. Generally accepted accounting principles are what we did. Q. Where did you find that if there's a conflict in the rules, which I disagree with, but if there is a conflict in the rules, that you follow GAAP? Where did you get that from? I mean, we've talked about it and it's clear on the record that if there is no provision that GAAP applies, but where did you get that if there's a conflict? Just point it out, that would be the easiest way to do it. A. The hierarchy, if you will, requires providers to file costs on the accrual basis of accounting in accordance with generally accepted accounting principles. If there's no rules, in absence of rules -- and I forget what the other terms were, we read it into the record before, against public policy, those kind of things -- or in my professional opinion, if there is a conflict within the rules where the provider can't follow two separate rules at the same time, they're in conflict, then [GAAP] rules what should be recorded and what should be reimbursed. * * * Q. [T]he company accrued a liability of $2 million for the cost reporting period of 2002-2003, is that correct? A. Yes. * * * Q. Do you have any documentation supporting claims paid, actually paid, in 2002-2003 beyond the mature care policy for which that $2 million reserve was set up? A. No. Q. So what did Medicaid pay for? A. Medicaid paid the cost of contingent liabilities that were incurred by the providers and were estimated at $1,750 per bed. Generally accepted accounting principles will adjust that going forward every cost reporting period. If that liability in total goes up or down, the differential under [GAAP] goes through the income statement, and expenses either go up or they go down. It's self-correcting, which is similar to what Medicare is doing, only they're doing it on a cash basis. Mr. Swindling explained the "hierarchy" by which allowable costs are determined. The highest governing law is the Federal statutory law, Title XIX of the Social Security Act, 42 U.S.C. Subsection. 1396-1396v. Below the statute come the federal regulations for implementing Title XIX, 42 C.F.R. parts 400-426. Then follow in order Florida statutory law, the relevant Florida Administrative Code provisions, the Plan, the Manual, and, at the bottom of the hierarchy, GAAP. Mr. Swindling testified that in reality, a cost report is not prepared from the top of the hierarchy down; rather, GAAP is the starting point for the preparation of any cost report. The statutes, rules, the Plan and the Manual are then consulted to exclude specific cost items otherwise allowable under GAAP. In the absence of an applicable rule, or in a situation in which there is a conflict between rules in the hierarchy such that the provider is unable to comply with both rules, the provider should fall back on GAAP principles as to recording of costs and reimbursement. John A. Owens, currently a consultant in health care finance specializing in Medicaid, worked for AHCA for several years up to 2002, in positions including administrator of the audit services section and bureau chief of the Office of Medicaid Program Analysis. Mr. Owens is a CPA and expert in health care accounting and Medicare/Medicaid reimbursement. Mr. Owens agreed with Mr. Swindling that AHCA's disallowance of the accrued costs for GL/PL liability was improper. Mr. Owens noted that Section 2160 of the Manual requires providers to purchase commercial insurance. If commercial insurance is unavailable, then the Manual gives the provider two choices: self-insure, or establish a captive program. Mr. Owens testified that insurers were fleeing the state during the period in question, and providers were operating without insurance coverage. Based on the state of the market, Petitioners' only options would have been to self-insure or establish a captive. As to self-insurance, Petitioners' problem was that they had taken over the leases on their facilities from a bankrupt predecessor, Integrated Health Services ("IHS"). Petitioners were not in privity with their predecessor. Petitioners had no access to the facilities' loss histories, without which they could not perform an actuarial study or engage a fiduciary to set up a self-insurance plan.11 Similarly, setting up a captive would require finding an administrator and understanding the risk exposure. Mr. Owens testified that a provider would not be allowed to set up a captive without determining actuarial soundness, which was not possible at the time Petitioners took over the 14 IHS facilities. Thus, Petitioners were simply unable to meet the standards established by the Manual. The options provided by the Manual did not contemplate the unique market situation existing in Florida during the audit period, and certainly did not contemplate that situation compounded by the problems faced by a new provider taking over 14 nursing homes from a bankrupt predecessor. Mr. Owens agreed with Mr. Swindling that, under these circumstances, where the requirements of the Manual could not be met, Petitioners were entitled to seek relief under GAAP, FAS No. 5 in particular. In situations where a loss is probable and can be measured, then an accounting entry may be performed to accrue and report that cost. Mr. Owens concluded that Petitioners' accrual was an allowable cost for Medicaid purposes, and explained his rationale as follows: My opinion is, in essence, that since they could not meet -- technically, they just could not meet those requirements laid out by [the Manual], they had to look somewhere to determine some rational basis for developing a cost to put into the cost report, because if they had chosen to do nothing and just moved forward, those rates would be set and there would be nothing in their base year which then establishes their target moving forward. So by at least looking at a rational methodology to accrue the cost, they were able to build something into their base year and have it worked into their target system as they move forward. Steve Diaczyk, an audit evaluation and review analyst for AHCA, testified for the agency as an expert in accounting, auditing, and Medicaid policy. Mr. Diaczyk was the AHCA auditor who reviewed the work of Smiley & Smiley for compliance with Medicaid rules and regulations, and to verify the accuracy of the independent CPA's determinations. Mr. Diaczyk agreed with Mr. Swindling's description of the "hierarchy" by which allowable costs are determined. Mr. Diaczyk affirmed that Petitioners employed GAAP rather than Medicaid regulations in preparing their cost reports. Mr. Diaczyk testified regarding the Notes to Petitioners' audited financial statements, set forth at Findings of Fact 22-24, supra, which left AHCA's auditors with the understanding that Petitioners were self-insuring. Mr. Diaczyk pointed out that Section 2162.7 of the Manual requires a self- insurer to contract with an independent fiduciary to maintain a self-insurance fund, and that the fund must contain monies sufficient to cover anticipated losses. The fiduciary takes title to the funds, the amount of which is determined actuarially. Mr. Diaczyk explained that, in reimbursing a provider for self-insurance, Medicaid wants to make sure that the provider has actually put money into the fund, and has not just set up a fund on its books and called it "self-insurance" for reimbursement purposes. AHCA's position is that it would be a windfall for a provider to obtain reimbursement for an accrued liability when it has not actually set the money aside and funded the risk. Medicaid wants the risk transferred off of the provider's books and on to the self-insurance fund. Mr. Diaczyk testified as to the differing objectives of Medicaid and GAAP. Medicaid is concerned with reimbursing costs, and is therefore especially sensitive regarding the overstatement of costs. Medicaid wants to reimburse a provider for only those costs that have actually been paid. GAAP, on the other hand, is about report presentation for a business entity and is concerned chiefly with avoiding the understatement of expenses and overstatement of revenue. Under GAAP, an entity may accrue a cost and not pay it for years. In the case of a contingent liability, the entity may book the cost and never actually pay it. Mr. Diaczyk described the self-insurance and liquidation provisions of 42 C.F.R. Section 413.100, "Special treatment of certain accrued costs." The federal rule essentially allows accrued costs to be claimed for reimbursement, but only if they are "liquidated timely." Subsection (c)(2)(viii) of the rule provides that accrued liability related to contributions to a self-insurance program must be liquidated within 75 days after the close of the cost reporting period. To obtain reimbursement, Petitioners would have had to liquidate their accrued liability for GL/PL insurance within 75 days of the end of the audit period. Mr. Diaczyk also noted that, even if the 75-day requirement were not applicable, the general requirement of Section 2305.2 of the Manual would apply. Section 2305.2 requires that all short-term liabilities must be liquidated within one year after the end of the cost reporting period in which the liability is incurred, with some exceptions not applicable in this case. Petitioners' accrued liability for general and professional liability insurance was not funded or liquidated for more than one year after the cost reporting period. It was a contingent liability that might never be paid. Therefore, Mr. Diaczyk stated, reimbursement was not in keeping with Medicaid's goal to reimburse providers for actual paid costs, not for potential costs that may never be paid. Petitioners responded that their accrued liabilities constituted non-current liabilities, items that under normal circumstances will not be liquidated within one year. Mr. Parnell testified that there is great variation in how long it takes for a general and professional liability claim against a nursing home to mature to the point of payment to the claimant. He testified that a "short" timeline would be from two to four years, and that some claims may take from eight to eleven years to mature. From these facts, Petitioners urge that 42 C.F.R. Section 413.100 and Section 2305.2 of the Manual are inapplicable to their situation. As to Section 2305.2 in particular, Petitioners point to Section 2305.A, the general liquidation of liabilities provision to which Section 2305.2 provides the exceptions discussed above. The last sentence of Section 2305.A provides that, where the liability is not liquidated within one year, or does not qualify under the exceptions set forth in Sections 2305.1 and 2305.2, then "the cost incurred for the related goods and services is not allowable in the cost reporting period when the liability is incurred, but is allowable in the cost reporting period when the liquidation of the liability occurs." (Emphasis added.) Petitioners argue that the underscored language supports the Medicare/Medicaid distinction urged by Mr. Swindling. In its usual Medicare retroactive reimbursement context, Section 2305.2 would operate merely to postpone reimbursement until the cost period in which the liability is liquidated. Applied to this Medicaid prospective reimbursement situation, Section 2305.2 would unfairly deny Petitioners any reimbursement at all by excluding the liability from the base rate. Mr. Diaczyk explained that, where the Medicaid rules address a category of costs, the allowable costs in a provider's cost report are limited to those defined as allowable by the applicable rules. He stated that if there is a policy in the Manual that addresses an item of cost, the provider must use the Manual provision; the provider cannot use GAAP to determine that cost item. In this case, Mr. Diaczyk agreed with Ms. Smiley as to the applicable rules and the disallowance of Petitioners' contingent liability costs. According to Mr. Diaczyk, GAAP may be used only if no provisions farther up the chain of the "hierarchy" are applicable. In this case, the Medicaid rules specifically addressed the categories of cost in question, meaning that GAAP did not apply. Under cross-examination, Mr. Diaczyk testified that the accrual made by Petitioners in their cost reports would be considered actual costs under GAAP, "[a]ssuming that they had an actuarial study done to come up with the $1.7 million that they accrued." Mr. Diaczyk acknowledged that AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, does not limit the provider to an actuarial study in estimating losses from asserted and unasserted claims. See Finding of Fact 49, supra, for text of Section 8.05. Mr. Diaczyk pointed out that the problem in this case was that Petitioners gave AHCA no documentation to support their estimate of the accrual, despite the auditor's request that Petitioners provide documentation to support their costs. Mr. Diaczyk's testimony raised a parallel issue to Mr. Swindling's concern that Medicaid's prospective targeting system permanently excludes any item of cost not included in the base rate. Mr. Swindling solved the apparent contradiction in employing Medicare rules in the Medicaid scenario by applying GAAP principles. Responding to the criticism that GAAP could provide a windfall to Petitioners by reimbursing them for accrued costs that might never actually result in payment, Mr. Swindling responded that GAAP principles would adjust the cost for contingent liabilities going forward, "truing up" the financial statements in subsequent reporting periods. This truing up process would have the added advantage of obviating the agency's requirement for firm documentation of the initial accrual. Mr. Swindling's "truing up" scenario under GAAP would undoubtedly correct Petitioners' financial statements. However, Mr. Swindling did not explain how the truing up of the financial statements would translate into a correction of Petitioners' reimbursement rate.12 If costs excluded from the base rate cannot be added to future rate adjustments, then costs incorrectly included in the base rate would also presumably remain in the facility's rate going forward.13 Thus, Mr. Swindling's point regarding the self-correcting nature of the GAAP reporting procedures did not really respond to AHCA's concerns about Petitioners' receiving a windfall in their base rate by including the accrual for contingent liabilities. On April 19, 2005, Petitioners entered into a captive insurance program. Petitioners' captive is a claims-made GL/PL policy with limits of $1 million per occurrence and $3 million in the aggregate. Under the terms of the policy, "claims-made" refers to a claim made by Petitioners to the insurance company, not a claim made by a nursing home resident alleging damages. The effective date of the policy is from April 21, 2005, through April 21, 2006, with a retroactive feature that covers any claims for incidents back to June 29, 2002, a date that corresponds to Petitioners' first day of operation and participation in the Medicaid program. The Petitioners' paid $3,376,906 for this policy on April 22, 2005. Mr. Parnell testified that April 2005 was the earliest time that the 14 Palm Gardens facilities could have established this form of insurance program. In summary, the evidence presented at the hearing regarding the contingent liabilities established that Petitioners took over the 14 Palm Gardens facilities after the bankruptcy of the previous owner. Petitioners were faced with the virtual certainty of substantial GL/PL expenses in operating the facilities, and also faced with a Florida nursing home environment market in which commercial professional liability insurance was virtually unavailable. Lacking loss history information from their bankrupt predecessor, Petitioners were unable to self-insure or establish a captive program until 2005. Petitioners understood that if they did not include their GL/PL expenses in their initial cost report, those expenses would be excluded from the base rate and could never be recovered. Petitioners' leases for the facilities required them to fund a self-insurance reserve at a per bed minimum amount of $1,750. Based on the AON studies and the general state of the industry at the time, Petitioners' accountant concluded that, under GAAP principles, $1,750 per bed was a reasonable, conservative estimate of Petitioners' GL/PL loss contingency exposure for the audit period.14 Based on all the evidence, it is found that Petitioners' cost estimate was reasonable and should be accepted by the agency. Petitioners included their GL/PL loss contingency expenses in their initial Medicaid cost report, placing those expenses under a heading indicating the purchase of insurance from a third party. The notes to Petitioners' audited financial statements stated that the facilities were "essentially self- insured." These factors led AHCA to request documentation of Petitioners' self-insurance. Petitioners conceded that they were not self-insured and carried no liability insurance aside from the Mature Care policies. The parties had little dispute as to the facts summarized above. The parties also agreed as to the applicability of the "hierarchy" by which allowable costs are determined. Their disagreement rests solely on the manner in which the principles of the hierarchy should be applied to the unique situation presented by Petitioners in these cases.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that AHCA enter a final order that allows Petitioners' accrual of expenses for contingent liability under the category of general and professional liability ("GL/PL") insurance, and that disallows the Mature Care policy premium amounts in excess of the policy limits, prorated for a nine- month period. DONE AND ENTERED this 24th day of October, 2008, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 24th day of October, 2008.
The Issue This issue in this case is whether the Petitioner is responsible for payment of certain state employee health insurance premiums.
Findings Of Fact In July, 1986, Ms. Phyllis McCluskey-Titus became employed at Florida State University ("FSU"). She and her husband, John, moved to Tallahassee from outside Florida, so that she could accept her employment. At the time Ms. McCluskey-Titus became employed, Mr. Titus had not yet accepted employment. She appropriately enrolled in the state health insurance plan. Mr. Titus was listed as, and had coverage as, a dependent on her family coverage. In August, 1986, Mr. Titus accepted employment at Tallahassee Memorial Regional Medical Center ("TMRMC"). Although TMRMC offered an employee health insurance benefit, Mr. Titus retained his coverage on his wife's plan, because the couple believed the state plan's benefits to be more beneficial. Enrollment in the state health insurance plan requires the payment of premiums. Such premiums are generally paid through joint contributions, by the employee (through payroll deduction) and by the state. However, where spouses are both state employees, and one spouse is listed as an eligible dependent on the other spouse's family coverage, the state makes the full health insurance premium contribution (the "spouse plan"). In August, 1988, Mr. Titus became employed by the Department of Health and Rehabilitative Services ("DHRS"). Both FSU (Ms. McCluskey-Titus's employer) and DHRS are state agencies. Therefore, upon Mr. Titus' employment at DHRS, the couple became eligible for the spouse plan. On August 24, 1988, Ms. McCluskey-Titus went to her personnel office and completed the necessary forms to qualify for the spouse plan. At the time of his employment, Mr. Titus received a package of materials from DHRS. Included in the materials was a five page document entitled "EMPLOYEE BENEFITS INFORMATION PACKAGE". The document outlines various insurance benefits and lists premiums related to coverages. On the first page of the information document, under the heading "PREMIUMS (full-time employees)" is the following statement: "If you and your spouse are both employed with State Agencies, please contact the Personnel office for information on the Spouse Program. If you are eligible, the State will pay up to 100% of your premium". Believing that his wife's completion of the appropriate form at the FSU personnel office was sufficient, Mr. Titus did not contact his personnel office for information. On the third page of the information document, is a form which was to be completed and returned to the DHRS personnel office. Contained on the form is the following statement: "If your spouse is employed with a State Agency in a Career Service position, please contact the Personnel office to request an application for the Spouse Program". Ms. McCluskey-Titus was not employed in a Career Service position. Mr. Titus believed that his wife's completion of the appropriate form at the FSU personnel office was sufficient. He did not obtain or submit an application for the program. Neither form provided to Mr. Titus stated that both spouses were required to submit separate documentation. There is no evidence that either Mr. or Ms. Titus were informed, by either employer or the Respondent, that the failure to complete separate documentation would preclude enrollment in the spouse program and could result in an assessment of unpaid premiums. After Ms. McCluskey-Titus submitted the form to the FSU personnel office, the state discontinued deducting her contribution to the health insurance premium from her check. The couple believed that, since no premium deduction was being withheld, the spouse plan enrollment had been completed. In February, 1989, Mr. Titus was informed that, because he had not completed the appropriate form at the DHRS office, the couple was ineligible for the spouse plan. The Respondent requires that both spouses complete separate documentation in order to enroll in the spouse plan. He completed the form and by March 1, 1989, their coverage in the spouse plan became effective. The Respondent is now attempting to assess Ms. McCluskey-Titus for the $83.46 monthly family coverage premiums which were not deducted from her pay during the five month period preceding Mr. Titus' completion of the appropriate form. The total amount claimed by Respondent is $417.30. The evidence indicates that, but for Mr. Titus' failure to complete and submit the form, the couple would have been entitled to participate in the spouse plan and no premium contribution would be owed.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that: The Department of Administration, Division of State Employees' Insurance, enter a Final Order dismissing the assessment against the Petitioner for additional insurance premiums in the total amount of $417.30. DONE and RECOMMENDED this 9th day of February, 1990, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM 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 9th day of February, 1990. APPENDIX CASE NO. 89-4943 The following constitute rulings on proposed findings of facts submitted by the parties. Petitioner Accepted as modified. Accepted as modified, except for last sentence, rejected, argument, not appropriate finding of fact. Statement that prescription drug claims were covered is rejected, not supported by evidence. Rejected, irrelevant. Nature of communication between the respective personnel offices, rejected, not supported by evidence. Respondent Accepted. Rejected, not supported by evidence. 3-4. Accepted as modified. However, requirement that both spouses must submit forms, not supported by evidence. Accepted as to amount, rejected as to indicating that Petitioner was responsible for payment, not supported by evidence. Rejected. Paragraph 2E(2) of the Petition does not state that Mr. Titus failed to read the document, but states only that he took no action. Rejected, not supported by evidence. COPIES FURNISHED: Phyllis McCluskey-Titus 2353 Skyland Drive Tallahassee, Florida 32303 William A. Frieder, Esq. Department of Administration Room 438, Carlton Building Tallahassee, Florida 32399-1550 Aletta Shutes Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32399-1550 =================================================================
Findings Of Fact Petitioner resigned from State Government on July 23, 1987. At the time of his resignation, Petitioner was covered under the Florida State Group Health Insurance Plan. His wife, who is a diabetic, was also covered under Petitioner's insurance. Upon termination Petitioner was eligible for continuation of coverage benefits under the federal COBRA Act. However, prior to receiving any notice of his COBRA rights, Petitioner elected to continue his State Employees' Insurance for two months from July 1, 1987 and then begin coverage under his new employer's insurance plan. 2/ Petitioner made advance payment on the 2 months additional coverage. The payments carried his State Employees' health insurance through September 1, 1987 when it was terminated. DOA notified Petitioner on August 27, 1987, of his right to elect continuation of coverage under the COBRA Act. This notice complied with the notice requirements under the COBRA Act. COBRA provides continued health insurance coverage for up to (18) months, after a covered employee leaves employment. However, coverage does not continue beyond the time the employee is covered under another group health plan. COBRA simply fills the gap between two different employers group health insurance plans so that an employee's group health insurance does not lapse while the employee changes jobs. Petitioner's new employer's health coverage began around September 1, 1987. After Petitioner had begun coverage under his new insurance plan, he discovered that his wife's preexisting diabetic condition would not be covered. However, no evidence was presented that Petitioner, within 60 days of September 1, 1987 requested the Division of State Employee's Insurance to continue his insurance coverage pursuant to COBRA. Moreover, Petitioner's COBRA rights terminated when he began his coverage under his new employer's health plan.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Administration enter a Final Order denying Petitioner's request for continuation of coverage under COBRA. DONE and ENTERED this 5th day of April, 1989, in Tallahassee, Florida. DIANE CLEAVINGER 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 5th day of April, 1989.
The Issue The issues concern the question of Petitioner's responsibility to pay additional insurance premiums related to Family I coverage in the State Employees' Group Health Insurance program for the period February 1981 through April 1982, based upon alleged underpayments of required premiums. See Section 110.123, Florida Statutes and Rule 22K-1.20, Florida Administrative Code.
Findings Of Fact According to the Florida law which has application in this dispute, when a husband and wife were employed by separate agencies of the State of Florida, cost of the Family I coverage under the State Group Health Insurance Plan was defrayed by those state agencies. This is as contrasted with the circumstance in which one spouse would be responsible for contributing to the cost of the Family I coverage under the State Group Health Insurance Plan, should the second spouse cease to be employed by the second state agency. The State of Florida, Department of Administration, has she responsibility for administering the State Group Health Insurance Plan, to include collection of necessary premium payments. Both Petitioner and his wife had been reported in the records of the Department of Administration as employed by the Department of Corrections and Department of Health and Rehabilitative Services respectively, as employees entitled to participate in the spouse program for payment of health care, i.e., the program in which no contribution is made by the employees toward payment of health insurance premiums. On October 28, 1982, the Petitioner informed the Department of Administration on a form provided by the Bureau of Insurance of the Department of Administration that his wife, Caroline Wilson, had terminated her employment with Health and Rehabilitative Services effective March 23, 1982. This form was executed in cooperation with the Petitioner's employing agency. The second part of the form related to information to be provided by the wife and her employing agency on the question of her employment was not completed by the spouse nor signed off by her employing agency. A copy of this item or form may be found as Respondent's Exhibit No. 3, admitted into evidence. As a result of information he provided, Petitioner was informed of an underpayment of premiums for the period May 1982 through November 1982, related to his wife's lack of eligibility for contribution from her employing agency and the responsibility of the Petitioner to substitute as payor of those premiums. This referred to the point of departure identified by the Petitioner allowing for a grace month of April 1982, thereby making the period of underpayment May 1982 through November 1982. The amount of nonpayment was $280.06, which was eventually reimbursed by the Petitioner. Subsequently, in January 1984, Respondent, Bureau of Insurance, in an attempt to ascertain why Health and Rehabilitative Services had not contributed the full amount of its share to the insurance related to Caroline P. Wilson in times before March 23, 1982, discovered that the wife, Caroline P. Wilson, had terminated her employment some time before March 23, 1982. As was revealed in the final hearing, the last day of employment with Health and Rehabilitative Services was January 3, 1981. After that date, Mrs. Wilson did not return to her job at the Florida State Hospital in Chattahoochee, Florida, and was eventually considered to have abandoned that job. (It was the first impression of the Department of Administration that she had last been employed in December 1980 and as a consequence this case pertains to the claim of the Department of Administration that there is an underpayment related to the family coverage which starts on February 1, 1981 and runs until April 1, 1982, allowing for a credit of overpayment in the amount of $48.46 for the month of September 1983, leaving a total claimed of $382.64. It is this amount that Petitioner took issue with and requested a timely formal Section 120.57(1), Florida Statutes' hearing to resolve.) Based upon the evidence adduced at the hearing, the date from which the responsibility of the husband to contribute the premiums share no longer being provided by Health and Rehabilitative Services would be January 1981, as opposed to December 1980. Allowing for the grace month of February 1981, the payments would be due for March 1, 1981, through April 1, 1982, allowing credit again for the $48.46 for the month of September 1983, leaving a total due and owing in the way of underpayment of $353.90.
Findings Of Fact Petitioner, Marcus Paul, was employed part-time as a dentist by the State of Florida, Department of Health and Rehabilitative Services, Pensacola, Florida. As part of his employment Dr. Paul was enrolled in the State's Employee Health Insurance Plan. The State's Health Plan is a self-insurance plan. Blue Cross and Blue Shield (BCBS) of Florida is the State's agent for administering the Health Plan and is initially responsible for timely and promptly investigating and paying legitimate health claims. Under the State's Health Plan an employee is responsible for the first $1,000 of covered expenses. The Plan pays the balance of any covered expenses incurred by the employee. Covered expenses are defined in the plan. Such expenses are basically limited to reasonably necessary medical treatment or care of some kind. Dr. Paul also carried a direct pay health insurance policy with Blue Cross and Blue Shield of Philadelphia, Pennsylvania. The Pennsylvania policy was a non-coordinating policy with the State's Health Plan. In essence, the Pennsylvania policy paid directly to its insured, Dr. Paul, regardless of the benefits paid by the State's Plan and the State's Plan benefits are not reduced by the Pennsylvania policy's payment of health benefits. Around September 15, 1984, Dr. Paul suffered a pulmonary embolism. He was hospitalized for his condition from September 15, 1984 to September 30, 1984. On admission, the hospital obtained Dr. Paul's health insurance information and had him sign the usual authorizations to allow the hospital to file his insurance claim. The total hospital charge resulting from Petitioner's hospitalization was $10,873.01 of which $10,582.30 was eligible for payment under the State Plan. The hospital filed a claim on both of Dr. Paul's contracts of insurance. Both contracts of insurance paid benefits to the hospital. BCBS of Pennsylvania paid approximately $9,500 and BCBS of Florida paid $9,582.00. The amount paid by BCBS of Florida represents the total covered expenses less the $1,000 the insured is responsible for. Because of the double payment the hospital told Dr. Paul that he was entitled to a refund from it. However, before the hospital refunded the money to Dr. Paul, BCBS of Florida discovered the double payment. No evidence was presented as to how BCBS of Florida discovered the other insurance company's co-payment. BCBS of Florida immediately demanded the hospital refund its payment. The hospital did so. BCBS of Florida mistakenly took the position that it was not the primary payor on the claim and refused to pay the claim. The hospital thereafter looked to the Pennsylvania proceeds for its payment. Dr. Paul was thereby prevented from receiving the monies due him under his Pennsylvania policy at a time when his need for funds was high since, due to his illness, he could not conduct a regular practice. For approximately one year Dr. Paul attempted to correct BCBS of Florida's mistake. However, he ran into a brick wall. Finally, after Dr. Paul retained an attorney to deal with BCBS, BCBS admitted its mistake and paid the hospital as the primary payor of Dr. Paul's claim. BCBS' failure to pay Dr. Paul's claim for over one year was a breach of his contract of insurance and negligent. BCBS' actions caused Dr. Paul not to be able to receive other monies that were rightfully his and at a minimum caused Dr. Paul to incur damages in the amount of attorney's fee he was forced to pay to rectify BCBS' mistake. When BCBS paid the claim the second time the company paid $10,281.93 to the hospital. Dr. Paul's $1,000 deductible was not subtracted from the amount BCBS paid. The hospital then refunded $10,105.70 to Dr. Paul. The discrepancy between the original `84 payment and the second `85 payment is $300.17. Therefore, only $699.83 could be attributable to Dr. Paul. Additionally Dr. Paul did not receive the full BCBS payment from the hospital. The amount he received was $176.23 less than the amount paid by BCBS. Therefore, the amount owed by Dr. Paul, if any, is $523.60. The hospital has possession of the other $176.23. BCBS later discovered its error and attempted to collect the full $1,000 deductible from Dr. Paul. He refused to pay since he had incurred and paid more than $3,000 in attorney's fees when he was forced to hire an attorney to obtain proper payment of his insurance claim. Since Dr. Paul refused to pay, BCBS turned his name over to DOA, its principal, for further collection action. DOA terminated further payment of Dr. Paul's ongoing insurance claims. 1/ Additionally, DOA unsuccessfully attempted to have the comptroller garnish Dr. Paul's wages. These actions were taken even in light of the breach of contract and negligent failure of DOA's agent to properly pay Dr. Paul's claim.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is Recommended: That the Department enter a final order determining that Dr. Paul is liable to it for the $523.60. DONE and ENTERED this 25th day of April, 1989, in Tallahassee, Leon County, Florida. DIANE CLEAVINGER 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 25th day of April, 1989.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the Respondent, the Department of Administration, enter a final order denying coverage for the orthodontia recommended for Sandra Walsh. RECOMMENDED this 18th day of March, 1988, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 18th day of March, 1988.
The Issue Whether the Department of Management Services properly denied medical insurance reimbursement to Petitioner, a covered dependent of a state employee insured by the State Employees' Preferred Provider Organization health plan, for Genotropin recombinant growth hormone prescribed for the treatment of long- term growth failure associated with idiopathic short stature.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following findings of fact are made: The state group insurance program is a package of insurance plans offered to, among others, state employees and their dependents. § 110.123(2)(k), Fla. Stat.1/ Petitioner Arturo Puerto is insured as a dependent of a state employee, and is a participant in the state's group self- insured plan, known as the State Employees' Preferred Provider Organization health plan ("PPO plan" or "state plan"). The state plan includes a state employees' prescription drug program. § 110.12315, Fla. Stat. Pursuant to Section 110.123(3)(c), Florida Statutes, the Department is responsible for contract management and day- to-day management of the state employee health insurance program. Section 110.123(5)(c), Florida Statutes, authorizes the Department to contract with an insurance carrier or professional administrator to administer the state plan. The current contract provider of the state plan's pharmacy program is CareMark Inc. ("CareMark"). However, the Department makes all final decisions concerning the existence of coverage or covered benefits under the state plan. The Department's authority in this regard may not be delegated to a contract provider. § 110.123(5), Fla. Stat. Petitioner was born on February 12, 1992. On or about February 3, 2009, Petitioner's physician prescribed Genotropin, a recombinant growth hormone ("GH")2/ approved by the United States Food and Drug Administration ("FDA") as therapy for short stature, including idiopathic short stature ("ISS"). ISS is short stature that does not have a diagnostic explanation, in an otherwise healthy child. ISS is also called "non-GH-deficient short stature." The Group Health Insurance Plan Booklet and Benefits Document, effective January 1, 2007, as modified on January 1, 2009, includes the terms and conditions of participation in the PPO plan and the benefits provided by the PPO plan. The booklet and benefits document contains a section describing the prescription drug program. Participants in the PPO plan are automatically enrolled in the prescription drug program, which features a network of retail pharmacies and a mail order program. The participant makes a co-payment for covered prescriptions. The booklet and benefits document sets forth a list of drugs that are covered, and a list of drugs that are not covered under the prescription drug program. Under the heading "Important Information about the Prescription Drug Program," the document states the following concerning specialty medications:3/ 5. Certain medications, including most biotech drugs, are only available through Caremark Specialty Pharmacy Services. Generally, these drugs are for chronic or genetic disorders including, but not limited to, multiple sclerosis, growth deficiency and rheumatoid arthritis and may require special delivery options, (i.e. temperature control). Caremark Specialty Pharmacy provides 24/7 access and can be contacted at 1-800-237-2767. * * * 12. As part of the Caremark Specialty Services, Caremark will administer the Advanced Guideline Management program for the State Employees' PPO Plan. Advanced Guideline Management is intended to optimize outcomes and promote the safe, clinically appropriate and cost-effective use of specialty medications supported by evidence based medical guidelines. Failure to meet the criteria for Advanced Guideline Management during the respective use review will result in denial of medication coverage for the Plan participant and discontinuation of medication coverage for the Plan participant in the case of concurrent use review. The Advanced Guideline Management Program is a process by which authorization for a specialty medication is obtained based on the application of currently acceptable medical guidelines and consensus statements for appropriate use of the medication in a specific disease state. Therapies reviewed under the Specialty Guideline Management Program include, but are not limited to, the following: multiple sclerosis, oncology, allergic asthma, human growth hormone, hepatitis C, psoriasis, rheumatoid arthritis, and respiratory syncytial virus. Additional therapies may be added from time to time.... CareMark's current guideline covering Genotropin and similar GH medications is set forth in a 2008 CareMark document titled, "Specialty Pharmacy Program for Growth Hormone and Endocrine-Metabolic Disorders." The document contains flow charts describing the criteria employed by CareMark to determine coverage for specific conditions. Among the criteria set forth in the flow chart for prescribing GH to children with ISS is the following question: "Does pre-treatment growth velocity and height meet the AACE (American Association of Clinical Endocrinologists) criteria for short stature?" (See Appendix N). If the answer to the question is "no," then the criteria direct that coverage for the prescription of GH should be denied. Appendix N sets forth the following "AACE criteria for short stature": < -2.25 standard deviations below the mean for age and sex based on patient's growth rate, adult height prediction of less than 5'3" for boys and less than 4'11" for girls. Appendix N is based on the AACE's "Medical Guidelines for Clinical Practice for Growth Hormone Use in Adults and Children-- 2003 Update" and a December 2003 AACE Position Statement on growth hormone usage in short children.4/ The CareMark document is not explicit as to whether the quoted elements of the AACE criteria for short stature are to be considered in the disjunctive. However, the AACE Position Statement expressly states that GH use is indicated for ISS only for children whose height is "< - 2.25 standard deviations below the mean and have an adult height prediction of less than 5'3" for boys and less than 4'11" for girls." (Emphasis added.) The height standard deviation criterion used by CareMark to determine the appropriateness of Genotropin therapy as a treatment for ISS was shown to be consistent with FDA criteria and the specifications established by Pfizer, the manufacturer of Genotropin. The medical records submitted on behalf of Petitioner show that at the time Genotropin therapy was prescribed in February 2009, Petitioner's height was 162.5 cm (5'4"). This was 1.66 standard deviations below the mean for his age and sex. Untreated, his predicted final height was 164 cm (5'4 1/2"). At the time Genotropin therapy was prescribed, Petitioner did not meet the height standard deviation requirement. His height standard deviation was 1.66 standard deviations below the mean. The deviation required by the CareMark criteria was greater than 2.25 standard deviations below the mean. At the time Genotropin therapy was prescribed, Petitioner did not meet the adult height prediction requirement. Petitioner was already 5'4" tall and was projected to reach a height of 5'4 1/2" without treatment. The CareMark criteria required a projected adult height without treatment of 5'3" or below. The PPO plan denied payment for the Genotropin therapy because Petitioner did not meet criteria established by CareMark through its Specialty Pharmacy Program guidelines. The booklet and benefits document makes no provision for exceptions to strict conformity to the CareMark criteria. At the hearing, Petitioner's representative acknowledged that Petitioner does not meet the criteria for Genotropin therapy, but requested that the Department order such coverage as an exception to the criteria.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED: That the Department of Management Services, Division of State Group Insurance enter a final order denying coverage for Petitioner's prescription for Genotropin therapy. DONE AND ENTERED this 10th day of March, 2010, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 10th day of March, 2010.
Findings Of Fact Aurelio Durana has been employed with the Department of Administration continuously since 1979. He enrolled in the State of Florida Employees' Group Health Self-Insurance Plan before the period in dispute and had maintained individual coverage until August 1, 1980. Alina Durana, Petitioner's spouse, was employed by the Department of State from 1977 until her resignation on March 9, 1981. From September 9, 1980, through March 9, 1981, Alina Durana was on maternity leave without pay from her position at the Department of State. This maternity leave expired March 9, 1981 (Exhibit 2). Alina Durana had enrolled in the Group Health Insurance Plan from the beginning of her employment and maintained individual coverage until August 1, 1980. Effective August 1, 1980, Petitioner and his spouse elected family coverage, entitling them to a State contribution covering the entire premium. On Application for Multiple Contributions dated 1 July 1980 (Exhibit 8), Petitioner agreed to be responsible for any underpayment of premium resulting from his wife's ineligibility for a State contribution and agreed that any such underpayment should be deducted from any salary due him. Under the State Health Insurance program the agency for whom the employee worked contributes one-half of the family premium of $69.96 per month. Since both Petitioner and his wife were working for the State, each agency contributed $34.98 per month, thereby covering the entire premium. The agencies contribute this sum to the trust fund from which medical claims of employees are paid. When an employee ceases to be on the agency's payroll the agency stops this contribution to the fund and is supposed to notify the Department of Administration so pay adjustments to employees' pay can be made if necessary. When Mrs. Durana commenced her leave without pay on September 9, 1980, the Department of State failed to notify the Department of Administration that they were no longer contributing $34.98 per month to the Durana family health plan. Had they done so, the Department of Administration would have notified Durana that he would have $34.98 deducted from his pay each month if he desired to remain in the program. In September 1981 Petitioner notified the Department of Administration Personnel Office that health insurance premiums were not being deducted from his pay. Thereafter, Respondent learned of the departure of Mrs. Durana from the Department of State payroll in September 1980 and made claim against Durana for $316.14 for underpayment of premiums from the period the Department of State had not contributed to the fund and no premiums were paid by Petitioner. During the period Mrs. Durana was not on the payroll and the Department of State was contributing nothing to the trust fund, no claims were submitted by Durana for medical costs. However, during this period Petitioner was included in the list of beneficiaries of the State Health Insurance Plan and medical bills submitted by him would have been paid by the administrator of the trust fund.
