Findings Of Fact The Parties. The Petitioner in case number 91-4632, Brighton Hall Co. (hereinafter referred to as "Brighton"), is a general partnership. Prior to March 6, 1990, Brighton owned and operated West Bay Nursing Center (hereinafter referred to as "West Bay"), a 120-bed nursing home in Oldsmar, Florida. The Petitioner in case number 91-4634, Shive Nursing Centers, Inc. (hereinafter referred to as "Shive Nursing"), is a corporation. Prior to March 6, 1990, Shive Nursing owned and operated Sunset Point Nursing Center (hereinafter referred to as "Sunset Point"), a 120-bed nursing home located in Clearwater, Florida. The Petitioner in case numbers 91-4635 and 91-4636, GHF, Inc. (hereinafter referred to as "GHF"), is a corporation. Prior to March 6, 1990, GHF owned and operated Oakhurst Manor Nursing Center (hereinafter referred to as "Oakhurst") and Orchard Ridge Nursing Center (hereinafter referred to as "Orchard Ridge"), two 120-bed nursing homes located in Ocala and New Port Richey, Florida, respectively. The Petitioner in case number 4637, Springwood Nursing Center, Ltd. (hereinafter referred to as "Springwood"), is a Florida limited partnership. Prior to March 6, 1990, Springwood owned and operated Springwood Nursing Center, a 120-bed nursing home located in Sarasota, Florida. All of the Petitioners owned and operated nursing homes which participated in the Florida Medicaid program, provided services to Medicaid patients and received reimbursement for Medicaid services from the Respondent. The Respondent in these cases, the Department of Health and Rehabilitative Services (hereinafter referred to as the "Department"), is the state agency charged with administering the Florida Medicaid program. The Florida Medicaid Program. The Florida Medicaid program is a program for the reimbursement of the costs of providing medical care to certain patients in Florida. The State of Florida enters into contracts with nursing homes for the treatment of Medicaid patients. Nursing homes agree to provide medical care and the State of Florida agrees to reimburse the nursing homes on a per diem basis for those services. One of the components of costs which are considered in determining the Medicaid per diem rate is the property cost component. Included within the property cost component is a reimbursement for depreciation expense. Generally, depreciation is the allocation of the cost of certain assets over the useful life of those assets. For example, if an asset cost $100,000.00 and it will be useful for 10 years, it is reasonable to assume that 10% of its cost, or $10,000.00, will be attributable to each year of the asset's useful life. Only assets considered to have a limited useful life are considered depreciable. For Medicaid purposes, those assets generally include tangible assets, such as buildings, equipment and furnishings. Land is not a depreciable asset. Medicaid recognizes that assets with a limited useful life which are used in providing medical services constitute part of the costs which should be reimbursed to providers of Medicaid services. Therefore, depreciation expense is included as part of the property component of the Medicaid per diem reimbursement rate. Sale of the Nursing Home Facilities. When a change of ownership of a nursing home facility which has participated in the Florida Medicaid program takes place, the nursing home terminates its participation in the Medicaid program. Any amounts which were paid for depreciation to the former owner of a nursing home may be recovered (hereinafter referred to as "depreciation recapture"). Depreciation recapture may occur to the extent that there is a gain realized by the former owner of the nursing home facility on the sale of the facility's depreciable assets. There is a gain realized on the sale of depreciable assets when the amount received for a depreciable asset exceeds the net book value (cost less accumulated depreciation) of the asset. To the extent that a gain is realized on the sale of a depreciable asset, the owner may be receiving a reimbursement for amounts the Medicaid program has already paid the owner for depreciation. On or about November 29, 1989, Brighton, Shive Nursing and GHF entered into an Asset Purchase Agreement with Krupp I, Inc., a Massachusetts corporation, for the sale of West Bay, Sunset Point, Oakhurst and Orchard Ridge. On or about November 29, 1989, Springwood entered into an Asset Purchase Agreement with Krupp Yield Plus Limited Partnership, a Massachusetts limited partnership, for the sale of Springwood Nursing Center. The sale of the five nursing home facilities was part of the sale of nine facilities by the principal owner of the facilities. The November 29, 1989, Asset Purchase Agreements referenced in findings of fact 22 and 23 (hereinafter referred to as the "Asset Purchase Agreements"), included as an attachment a schedule titled the "Purchase Price Allocation" allocating the purchase price to the assets of each nursing home facility sold. The total purchase price of $42,239,650.00 was allocated on the Purchase Price Allocation among the nine nursing homes and the corporate offices which were the subject of the sale. The purchase price allocated to each nursing home facility was further allocated on the Purchase Price Allocation to the various assets of each facility, including land (a non-depreciable asset), buildings and improvements, furniture, fixtures and equipment, computer software, supplies and inventory, certificate of need, patient lists, covenant not to compete, assembled work force, favorable lease and enterprise/going concern. The closing of the Asset Purchase Agreements took place on March 6, 1990. The Department's Treatment of the Sale of the Nursing Home Facilities. When the Department was informed of the sale of the five nursing home facilities at issue in this proceeding, the Department made a determination of whether depreciation recapture was due on the sale. The Department, in determining the amount of gain on the sale, utilized the amounts allocated to the various depreciable assets of each nursing home facility on the Purchase Price Allocation as the amount realized for those assets. The amount realized for depreciable assets reported by the Petitioners less the net book value for the depreciable assets was determined to be the gain realized on the sale of the Petitioners' nursing homes facilities. This gain, which was less than the depreciation of the depreciable assets, was determined to be the amount subject to depreciation recapture. After calculating the amount of depreciation recapture for each facility, the Department notified each Petitioner by letter that depreciation recapture was due in the following amounts: Date of Letter Petitioner Recapture June 25, 1991 Brighton $175,627.00 June 5, 1991 Shive Nursing 94,631.00 June 15, 1991 GHF (Oakhurst) 278,169.00 June 14, 1991 GHF (Orchard) 115,492.00 June 7, 1991 Springwood 231,320.00 On July 5, 1991, the Petitioners challenged the Department's proposed action. Following discussions with Department officials by a representative of the Petitioners, the Department amended the amount of depreciation recapture on October 10, 1991, by reducing the amount of recapture for the following Petitioners: Petitioner Recapture Reduction Brighton $3,485.00 Shive Nursing 69,370.00 GHF (Orchard) 36.00 The parties stipulated that these proceedings would take into account these amended amounts and a Motion for Leave to Amend Letter Requesting Depreciation Recapture was granted by Order entered October 23, 1991. The Manner in Which the Department Determined the Amount of Depreciation Recapture. Rule 10C-7.0482, Florida Administrative Code, provides the framework for the operation of the Medicaid program in Florida. This Rule specifically incorporates Florida Title XIX Long-Term Care Reimbursement Plan, Version IV, as a part of the Rule. The manner in which depreciation recapture is determined by the Department is governed by Section III.H.1. of Florida Title XIX Long-Term Care Reimbursement Plan, Version IV (hereinafter referred to as "Title XIX"), which provides, in pertinent part: Recapture of depreciation resulting from sale of assets. The sale of depreciable assets, or substantial portion thereof, at a price in excess of the cost of the property as reduced by accumulated depreciation, resulting in a gain on sale, and calculated in accordance with Medicare (Title XVIII) Principles of Reimbursement, indicates the fact that depreciation used for the purpose of computing allowable costs was greater than the actual economic depreciation. . . . The gross recapture amount shall be the lesser of the actual gain on the sale allocated to the periods during which depreciation was paid or the accumulated depreciation after the effective date of January 1, 1972 and prior to the implementation of payments based on FRVS to the facility. . . . [Emphasis added]. The terms "Medicare (Title XVIII) Principles of Reimbursement", are defined in Section IX of Title XIX as "Health Insurance for the Aged, Blind or Disabled (Medicare), as provided in the Social Security Act (42 U.S.C. 1395- 1395pp)." Medicare (Title XVIII) Principles of Reimbursement, do not contain specific provisions governing how gain on a sale of depreciable assets is to be calculated. The federal regulations to implement Medicare (Title XVIII), however, including the following: (iv) If a provider sells more than one asset for a lump sum sales price, the gain or loss on the sale of each depreciable asset must be determined by allocating the lump sum sales price among all the assets sold, in accordance with the fair market value of each asset as it was used by the provider at the time of sale. If the buyer and seller cannot agree on an allocation of the sales price, or if they do agree but there is insufficient documentation of the current fair market value of each asset, the intermediary for the selling provider will require an expert to establish the fair market value of each asset and will make an allocation of the sales price in accordance with the appraisal. 42 C.F.R. 413.134(f)(2)(iv). The Department of Health and Human Services, the agency responsible for administering the federal Medicaid program, has also promulgated a Provider Reimbursement Manual for guidance in the federal Medicare reimbursement program. Of pertinence to this proceeding is Chapter One, Section 104.14.B, which contains language similar to the provisions of 42 C.F.R. 413.134(f)(2)(iv), quoted in finding of fact 38. The terms "fair market value" are defined in Medicare (Title XVIII), as follows: Fair market value is the price that the asset would bring by bona fide bargaining between well-informed buyers and sellers at the date of acquisition. Usually the fair market value is the price that bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition. 42 U.S.C. 413.134(b)(2). The federal regulations implementing Medicare (Title XVIII), and the Provider Reimbursement Manual are not specifically incorporated by reference in the Department's rules or in Title XIX. As a matter of policy, the Department relies upon the federal regulations and the Provider Reimbursement Manual in determining the amount of gain on the sale of depreciable assets. To the extent that an issue involving depreciation recapture is not resolved by the foregoing rules and policies, the Department relies on Generally Accepted Accounting Principles. These policies are reasonable. The Department, in applying 42 C.F.R. 413.134(f)(2)(iv), treats a written allocation of the sales price between a buyer and a seller included in a sales and purchase agreement as sufficient documentation of the fair market value of each asset sold. Absent other evidence which would cause some question about the reasonableness of relying upon such an allocation, this policy is reasonable. Absent such contrary evidence, there is no reason why the Department should not assume that the parties to a sales and purchase agreement have reached an arms length agreement as to the fair market value of the assets being sold and that a schedule or other document setting out the agreement of the parties is sufficient documentation of that agreement. In this case, the Department has utilized a written allocation of the sales price (the Purchase Price Allocation) to determine gain on the sales at issue despite other documentation indicating that the allocated amounts may not constitute fair market value and raising a question as to whether the Purchase Price Allocation is sufficient documentation. It may be reasonable for the Department to conclude that a sale of assets does not involve "insufficient documentation" if the only evidence of the allocation of the sales price to the assets being sold is a written allocation of the sales price included as part of the sales and purchase agreement. But where other documentation of the fair market value of the assets is provided to the Department which is inconsistent with the written allocation included in the sales and purchase agreement, it is unreasonable for the Department to ignore that additional evidence. Absent a specific rule to the contrary, if other documentation is provided to the Department that calls into question the accuracy of a written allocation of the sales price, the Department should review and consider that documentation in determining whether the written allocation alone constitutes "insufficient documentation". In this case, the Department reasonably relied upon the Purchase Price Allocation originally provided to it to determine the amount of depreciation recapture. It was not reasonable, however, for the Department to ignore appraisals of the depreciable assets at issue performed on behalf of the Petitioners or to ignore other information concerning industry averages for new nursing home equipment in Florida on a per bed basis once this information was provided to the Department. Information Provided by the Petitioners. The Petitioners do not dispute that the Department is entitled to depreciation recapture on the sale of the facilities at issue in this proceeding. They dispute the amount of depreciation recapture, however. During the hearing of these cases, evidence was presented concerning industry averages for new nursing home equipment in Florida: generally, a Florida nursing home facility can be equipped with new equipment for $1,500.00 to $3,500.00 per bed. The cost of equipping the nursing home facilities at issue in these cases with used equipment based upon the allocation of values included in the Purchase Price Allocation is between $8,000.00 and $10,000.00. During 1988 and early 1989, prior to the time that the Asset Purchase Agreements were entered into, Craig Smith, appraised twelve nursing home facilities, including the nursing home facilities at issue in this proceeding. Mr. Smith holds a M.A.I. (Member Appraisal Institute) designation. The appraisals conducted by Mr. Smith were provided to the Department's Office of Licensure and Certification as required by Rule 10D- 29.103, Florida Administrative Code. The appraisals were provided by the purchasers of the nursing home facilities as part of the process of obtaining a license from the Department to operate the nursing homes facilities. The Department did not, however, rely upon or take into account the appraisals in determining the amount of depreciation recapture even though they were provided to the office responsible for making that determination. The Department, for purposes of determining the amount of recapture relied only on the Asset Purchase Agreement. The disparity between the amounts allocated to the depreciable assets of the nursing home facilities in the Purchase Price Allocation and the appraised values is significant. Based upon the weight of the evidence, the appraisals conducted by Mr. Smith and his determination of the fair market value of the depreciable assets of the nursing home facilities at issue in this proceeding are more reflective of the fair market value of those assets. The Petitioners presented evidence as to the amount of depreciation recapture which should be paid to the Department based upon the appraised value of the assets at issue in this proceeding. These amounts were not refuted by the Department. The amount of depreciation recapture the Department may reasonably receive from the Petitioners, based upon appraised fair market value, is as follows: Petitioner Recapture Brighton $ 95,915.00 Shive Nursing 27,502.00 GHF (Oakhurst) 229,222.00 GHF (Orchard) 78,141.00 Springwood 161,762.00 The Treatment of the Purchaser of Nursing Home Facilities. Prior to the change of ownership of a nursing home facility in Florida which intends to continue participating in the Medicaid program, the new owner must file an application with the Department's Office of Licensure and Certification for approval of the change and issuance of a license to operate the facility. Among the things to be reported by the new owner, is a fair market value appraisal of the nursing homes assets conducted by an appraisal expert. This requirement is specified, however, by the specific provisions of Rule 10D- 29.103(7)(i)9.b., Florida Administrative Code. This Rule does not specifically apply to the determination of depreciation recapture. The amount (known as "basis") which may be used by the new owner in the determination of the amount of depreciation expense entering into the new owner's per diem reimbursement rate is determined by a comparison of the fair market value appraisal required by Rule 10D-29.103(7)(i)9.b., Florida Administrative Code, the sales contract price and the cost of the facility for the owner of the facility on July 18, 1984. The manner utilized by the Department in its determination of depreciation recapture on the sale of a nursing home facility and the determination of the basis for the assets of the same facility for the new owner pursuant to Rule 10D-29.103, Florida Administrative Code, can result in the use of different amounts as the amount paid for those assets. In light of the conclusion concerning the invalidity of the Department's policy in these cases, it is not necessary to determine whether the Department's difference in treatment of the Petitioners and the buyers of the Petitioners' nursing homes was improper.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department requiring the Petitioners to pay to the Department the amounts set our in finding of fact 55 as depreciation recapture owed as a result of the sale of depreciable assets utilized by the Petitioners in the Florida Medicaid program. DONE and ENTERED this 20th day of February, 1992, in Tallahassee, Florida. LARRY J. SARTIN 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 20th day of February, 1992. APPENDIX Case Number 91-4632 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioner's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1-2, 9 and hereby accepted. 2 3-4, 9 and hereby accepted. 3 5-6, 9 and hereby accepted. 4 7-9 and hereby accepted. 5 10 and hereby accepted. 6 11-12 and hereby accepted. 7 See 13-14. 8-11 Not relevant. 12 35. 13 15-16. 14 13-14 and 16. 15 18-19. 16 56 and hereby accepted. 17 57. 18 58. 19 19. 20 20-21. 21 36. 22 Hereby accepted. 23 Not relevant. 24 See 36-41. 25 See 38-39. 26 41. 27 42. 28 22-25. 29 50 and hereby accepted. 30 25. 31 26-28. 32 Not relevant. 33 Not supported by the weight of the evidence. 34-35 Not relevant. 36-37 51. 38 32. 39 34 and hereby accepted. 40 34. 41 33. 42 42-44. 43 38-39. 44 40. 45 42-43. The last sentence is not relevant to this proceeding. 46 43. 47 52 48-51 Not relevant to this proceeding. 52-54 See 42-47. 55 49 and 51. 56 Not supported by the weight of the evidence. 57 49 and 52. 58 See 42-47. 59 Hereby accepted. 60 42-47 and 54-55. 61 Not supported by the weight of the evidence. 62 See 42-47 and 54-55. 63 Not relevant to this proceeding. 64-65 54-55. The Respondent's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1-2, 5-8, 14-16 Summary of some of the rulings during the final hearing. Facts which primarily relate to credibility or weight of the evidence. 3 9. 4 48. 9 30-31 and 43-44. 10-13 See 43 and 45-47. 17-19 See 30-31 and 43-44. 20 32. 21 30-32. 22 42. 23 38. 24 Hereby accepted. 25-26 See 43 and 45-52. 27 30-31. 28 43. 29 Not relevant to this proceeding. COPIES FURNISHED: William B. Wiley, Esquire Darrell White, Esquire 600 First Florida Bank Building Tallahassee, Florida 32301 Gordon B. Scott, Esquire Department of Health and Rehabilitative Services 1317 Winewood Boulevard Building 6, Room 230 Tallahassee, Florida 32399-0700 Sam Power Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Slye General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue The issues are (1) whether certain medical expenses incurred by petitioners' daughter should be covered under the state group health insurance program, and (2) whether the state is estopped from denying the claim based upon erroneous misrepresentations made by its agent.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background Petitioner, Etta Aldridge, is a full-time employee of Sunland Training Center in Marianna, Florida and is a participant in the state group health insurance program (the plan). James Aldridge, her husband and also a petitioner in this cause, and Jerrilyn Aldridge, her daughter, are covered by the plan. On November 3, 1987, Jerrilyn, then around seventeen years of age, was severely injured in an automobile accident near her home in Greenwood, Florida. Among other things, she suffered a skull fracture, abrasions, crushed pelvis and hip, and punctured lungs and stomach. She was initially taken to a Marianna hospital for emergency treatment and then transferred to a Tallahassee hospital for longer-term care. While at the Tallahassee hospital, Jerrilyn was diagnosed by her neurologist as having a closed, diffuse brain injury and brain stem contusions. After Jerrilyn was treated in Tallahassee for two and one-half months, which included one month in the hospital and forty-five days at the hospital's extended care facility, her parents were advised that, due to her poor prognosis, they had a choice of putting her in a nursing facility or taking her to their home. Although Jerrilyn was still in a coma, petitioners decided to take her home and care for her in a bedroom which had been converted into a hospital room setting. After six or seven weeks at home, and contrary to earlier medical expectations, Jerrilyn opened her eyes, made noises and manifested some slight arm movement. Based upon these encouraging signs, petitioners sought further medical advice and were told that, given the foregoing signs of improvement, treatment in a facility that specialized in brain injury rehabilitation would improve their daughter's condition. Petitioners contacted the National Head Injury Foundation and were given a list of health care facilities in the state that provided rehabilitative services for brain injured patients. This list included Manatee Springs Nursing Center, Inc. d/b/a Mediplex Rehab-Bradenton (MRB), a facility licensed by the state as a skilled nursing facility but which specialized in rehabilitating brain injured patients. MRB is the largest brain injury rehabilitation facility in the southeastern united States. Since the Aldridges did not have the financial resources to pay for any additional treatment for Jerrilyn, it was essential that they selected a facility that would be covered by the plan. After James Aldridge spoke with and received information from most of the facilities on the list, and conferred with Jerrilyn's neurologist, he eventually narrowed his choice to several facilities, including MRB, which impressed him because of its good reputation and specialty in head injury rehabilitation. To confirm whether coverage would be provided for further treatment, James Aldridge telephoned the customer service unit of Blue Cross and Blue Shield of Florida, Inc. (BCBS), the plan's administrator. He also contacted MRB and authorized it to make an inquiry with BCBS on his behalf. On March 28, 1989 Aldridge received favorable advice from a BCBS service representative concerning coverage and benefits for Jerrilyn at MRB. This advice was independently confirmed by MBR on the same date, and Jerrilyn was accepted as a patient at the facility effective March 31, 1988. Some three months later, and after some of the bills had been paid, BCBS advised MBR and petitioners that a "computer" error had been made and that the requested benefits applied only when rendered in a licensed hospital and not a skilled nursing facility. BCBS accordingly declined to pay the bills. That prompted petitioners to initiate this proceeding. The bills in question total over $225,000. The Insurance Plan The State has elected to provide a self-insured group health insurance program for its employees and their dependents. The legislature has designated respondent, Department of Administration, Division of Employees' Insurance (Division), as the responsible agency for the administration of the plan. To this end, the Division has entered into an agreement with BCBS to administer the plan. Among other things, BCBS provides verification of coverage and benefits, claims payment services, actuarial and printing services, and medical underwriting of late enrollee applications. Including dependents and retirees, there are almost 300,000 persons who are covered by the plan. Upon enrolling in the plan, all employees, including Etta Aldridge, were routinely given an insurance card with BCBS's telephone number and a brochure entitled "State of Florida Employees Group Health Self Insurance Plan Brochure" (brochure) containing a general description of the plan. The brochure warns the insured that the brochure is not a contract since it does not include all the provisions, definitions, benefits exclusions and limitations of the plan. It also contains advice that if the brochure does not answer an employee's question, he should telephone the Division's customer service section in Tallahassee. In actual practice, however, if an employee contacts the Division number, he is told to telephone BCBS's customer service unit in Jacksonville regarding any questions as to coverage and benefits, claims or other problems concerning the plan. The Division generally becomes involved only when an employee is unable to resolve a claims problem with BCBS. BCBS has established a service unit that deals exclusively with inquiries regarding coverage and benefits under the state group health plan. There are approximately twenty- eight service representatives in that unit. Each representative receives four weeks of training before being certified as a customer service representative. After being certified, a representative's primary responsibility is to respond to inquiries from state employees, health providers and physicians regarding verification of benefits and coverage under the state group policy. It should be noted that a distinction exists between verification of benefits and coverage. To verify coverage means to verify that a person has an active policy at the time services are rendered. To verify benefits means to confirm that a specific service is covered under the policy. In this case, there was an inquiry by the insured and provider regarding both benefits and coverage. In the event a representative is unsure as to the licensing status of a facility or provider, the representative has access to BCBS's master registry department which maintains the provider number and licensure status of every facility in the state. That registry identified MRB as a skilled nursing home. BCBS representatives have the authority to make decisions regarding benefits and coverage. It is only when an inquiry falls within a "grey area" that the final decision is referred from the unit to either the Legal or Medical Division of BCBS. The Division, with the assistance of BCBS, has prepared a seventy-five page benefit document (document) which governs all claims arising under the plan. However, the document is for BCBS in-house use only and is not given to state employees or providers. The document first became effective on May 1, 1978 and has been subsequently amended from time to time. When Jerrilyn was admitted to MRB, the document effective October 1, 1987 was controlling. The document was further amended effective July 1, 1988, which was three months after her admission to MRB. As is pertinent here, the July 1, 1988 amendments increased the deductibles and narrowed the definition of a "hospital". According to the state benefits administrator, the document is "the final word" on any dispute regarding coverage or claims. The BCBS service unit uses this document to verify coverage and benefits. Included in the document are numerous definitions that are used to resolve disputed claims. Relevant to this controversy is the definition of a hospital at the time Jerrilyn was admitted to MRB: "Hospital" means a licensed institution engaged in providing medical care and treatment to a patient as a result of illness or accident on an inpatient/outpatient basis at the patient's expense and which fully meets all the tests set forth in 1., 2., and below: It is a hospital accredited by the Joint Commission on the Accreditation of Hospitals, or the American Osteopathic Association or the Commission on the Accreditation of Rehabilitative Facilities; It maintains diagnostic and therapeutic facilities for surgical or medical diagnosis and treatment of patients under the supervision of a staff of fully licensed physicians; It continuously provides twenty-four (24) hour a day nursing service by or under the supervision of registered graduate nurses. It is undisputed that, while MRB may have provided many services comparable to those rendered by a licensed hospital and is considered to be an atypical nursing home, MRB is still licensed by the state as a skilled nursing facility. Thus, MRB cannot qualify as a hospital under the benefit document. Payment for services in a skilled nursing facility, such as MRB, are much more limited and restrictive than for a hospital. To qualify for payment of benefits in a skilled nursing facility, the insured must have been hospital confined for at least three consecutive days prior to the day of hospital discharge before being transferred, upon a physician's advice, to a skilled nursing facility. Once admitted to such a facility, the insured's room and board reimbursement is limited to a maximum of $76 per day. Further, payment of services and facilities is limited to sixty days of confinement per calendar year. In contrast, benefits for hospital care include, for example, unlimited days of coverage per calendar year and much higher reimbursement rates for room, board and other services. In this case, besides having been admitted to MRB directly from her home, and not a hospital, Jerrilyn had already used up forty- five of the sixty days of annual benefits at the extended care unit of a Tallahassee hospital. BCBS also has a fee schedule that is used in paying all covered claims. However, the schedule was not introduced into evidence. Estoppel Before he made a final decision as to where to send his daughter, James Aldridge spoke by telephone with several BCBS representatives, including Michelle Sahdala and Rhonda Hall, the unit supervisor and considered its most experienced representative. 1/ Aldridge made these telephone calls because he wanted to positively confirm which facilities would be covered by the plan. During one conversation, Sahdala advised Aldridge that the proposed treatment would not be covered in several facilities named by the National Head Injury Foundation, including New Medico Rehabilitation Center of Florida in Wauchula, Florida and Capital Rehabilitation Hospital in Tallahassee. Aldridge advised BCBS that he might want to place his daughter in MRB, but only if such treatment was covered under his wife's insurance plan. He heard nothing further from BCBS until a week later. Aldridge contacted MRB on March 21, 1988 and advised an MRB representative that he wished to place his daughter in the facility if his wife's insurance covered the treatment at MRB. He also gave MRB the BCBS unit supervisor's name (Rhonda Hall) and telephone number. To verify coverage and benefits, MRB's admission coordinator, Patricia Dear, telephoned Hall on March 22, 1988. Such an inquiry is routinely made by the provider on behalf of the insured and before the patient is admitted to the facility. This is to ascertain if the prospective patient is insured, and if so, to verify the amount of benefits. Dear identified herself and advised Hall that she was requesting benefits information on Jerrilyn Aldridge, an insured. She told Hall that MRB was a skilled nursing facility and not a hospital, the nature of services that would be provided to Jerrilyn and her need to determine whether such services would be covered under the plan before Jerrilyn was accepted as a patient. When asked if she would need further information in hand concerning MRB before determining the amount of benefits, Hall responded affirmatively. Accordingly, Dear sent Hall by overnight mail a letter and brochure describing the facility's services. They were received by BCBS the next morning, or March 23. The letter included information concerning MRB, the fact that it was a skilled nursing facility and not a hospital, the type of services that MRB provided, a summary of the expected charges for treating Jerrilyn (from $600 to $850 per day), the average length of stay of a patient (3 to 9 months), and an offer to answer any additional questions that BCBS might have. When Dear heard nothing further from Hall within the next few days, she made a follow-up telephone call to Hall on March 28 to see if Hall had any questions and to verify benefits coverage. Hall acknowledged receiving the letter of March 22 with attachment. After Dear discussed each of the disciplines and types of services to be provided and their expected cost, including physician services, physical therapy, neuropsychology, central supply, pharmacy, laboratory services and a room and board charge of $351 per day, Hall advised Dear that the only policy exclusions on coverage would be occupational and speech/language therapy. She added that all charges would be subject to medical necessity, and ambulance costs to transport Jerrilyn to the facility would be covered. The two also discussed the fact that there were no time limitations under the policy and that almost $475,000 in lifetime coverage still remained. Hall represented that after the Aldridges satisfied their $1500 deductible on which BCBS paid only 80% of the bills, BCBS would thereafter pay 100% of all medically necessary charges. In making that representation, Hall did not disclose the fact that BCBS has a fee schedule and that all payments were subject to the limitations specified in that schedule. After verifying that Hall had cited all policy limitations, and consistent with her longtime experience in verifying benefits with other insurance carriers, Dear properly assumed that if the policy contained a provision which limited payment to something less than 100% of covered services, Hall would have said so. Dear asked Hall if there was any reason not to admit Jerrilyn and Hall replied "no." Dear also asked Hall if she (Hall) was in a position to verify benefits and Hall represented that she was. Dear then told Hall that Jerrilyn would be presented to the admissions committee the next day and, if clinically appropriate, she would be admitted. Dear ended the conversation by advising Hall that a letter confirming their understanding would be sent after Jerrilyn was admitted. After speaking with Hall, Dear had a clear understanding that coverage and benefits had been approved and, except for occupational and speech/language therapy, BCBS would pay 80% of all medically necessary charges until the Aldridge's $1,500 deductible was met, and then to pay 100% of all remaining medically necessary charges. 2/ After receiving the favorable advice, Dear telephoned Aldridge the same day and told him the results of her conversation with Hall. Within a few moments after speaking with Dear, Aldridge received a telephone call from an unidentified female BCBS representative who informed him that BCBS would pay for his daughter's treatment at MRB. Jerrilyn was accepted as a patient by MRB's admissions committee on March 28, 1988. Both the provider and the insured relied upon Hall's representations in admitting Jerrilyn to the facility. Had Jerrilyn not been covered by the plan, the committee would not have approved her admission. Also, if the Aldridges had known that the treatment at MRB was not covered, they would have sent their daughter to another facility covered by the plan. On April 4, 1988, and pursuant to her last telephone conversation with Hall, Dear sent Hall by overnight mail the following letter: This is to confirm the admission of Jerrilyn Aldridge on March 31, 1988, to the specialized head trauma rehabilitation program at Mediplex Rehab-Bradenton, Florida. The following benefits information has been verified by you and Patricia Dear, R. N., Admissions Coordinator on March 28, 1988. Effective date: 10/1/79 Benefits: After $1,500 - out of pocket/yr- 100% coverage Days available: Unlimited days Monies available: $474,533.79 Exclusions: Occupational Therapy, Speech- Language Therapy Limitations: Treatment subject to "Medical Necessity" If I do not hear from you, I will consider you to be in agreement with the above information. Please place this in the client's file. Thank you for your prompt attention to this matter. (Emphasis supplied) Although BCBS's records reflect that Dear's letter was received, Hall did not advise Dear that there were any problems concerning Jerrilyn's coverage and benefits under the plan or that Dear's understanding of the benefits to be paid was inaccurate or in error. Of some note is the fact that Hall is considered one of the most knowledgeable BCBS representatives on state health plan benefits and recognizes that her statements concerning benefits are relied upon by providers. Even though Hall was specifically advised both orally and in writing that MRB was licensed as a nursing home, and she had access to BCBS's master registry to confirm MRB's licensure status, she failed to discern that a nursing home was not a covered facility for the requested services within the meaning of the plan. Indeed, she later acknowledged by deposition that she knew that "the state does not pay for nursing homes" and that she had made a mistake by failing to properly "investigate" the matter more thoroughly. By failing to convey accurate advice to James Aldridge and MRB and to note that the proposed treatment would not be covered if rendered by a nursing home, Hall failed to use reasonable care and competence in responding to the inquiry. Three months after Jerrilyn's admission, James Aldridge received notice that BCBS had changed its position and now asserted it was not going to pay for Jerrilyn's rehabilitation and treatment at MRB. Proposed agency action confirming this decision was later issued by the Division on October 21, 1988. Miscellaneous All medical services received by Jerrilyn were medically necessary within the meaning of the benefit document. The necessity of Jerrilyn's placement in a rehabilitation facility was established by Dr. James D. Geissinger, her Tallahassee neurologist, who based it upon Jerrilyn's improvement after leaving the Tallahassee hospital and made her a candidate for brain rehabilitation. Doctor Geissinger also noted that, as a result of receiving treatment at MRB, Jerrilyn had made "remarkable" improvement and was able to partially regain her language function, use her left arm and hand, and improve her "activities of daily living." There are expectations that she will be able to walk again within a year. Further, based upon the testimony of an MRB staff physician, the services and treatment received by Jerrilyn at MRB were medically necessary to facilitate her neurologic and functional recovery. Given the nature of her injury and MRB's nursing staffing ratios, the required intensive medical rehabilitation and monitoring of Jerrilyn's medical and neurological condition was comparable to care in a hospital intensive care unit. These matters were not contradicted. On April 1, 1988, the Aldridges executed a standard financial agreement with MRB whereby they agreed to indemnify MRB for all charges which were not paid by BCBS. As is normally done, they also authorized MRB to directly bill BCBS for all charges incurred by Jerrilyn while being treated at the facility. Finally, the Aldridges authorized MRB to make inquiries on their behalf with BCBS to verify insurance coverage and benefits for Jerrilyn. MRB submitted to BCBS all bills for services and treatment given to Jerrilyn during her five or six month stay at the facility. A summary of the dates of service, charges, payments made by BCBS and balance due is contained in petitioners' exhibit 17. In all, there are thirty-eight outstanding bills totaling $227,139.27. The parties have stipulated that the bills in exhibit 17 represent services that were actually performed and supplies that were actually received by the patient. As noted in finding of fact 21, all such supplies and services were medically necessary. For the reasons given in the conclusions of law portion of this recommended order, the doctrine of equitable estoppel applies, and petitioners are entitled to be reimbursed for all unpaid bills filed with BCBS in accordance with the representations of agent Hall. These include room and board charges (at the intensive care room rate), physician services, neuropsychology, physical therapy, central supply, pharmacy and laboratory charges as more fully described in petitioners' exhibit 17. Such reimbursement should be not be subject to the limitations prescribed in the fee schedule.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the amended petition of Etta and James Aldridge be GRANTED, and the Division order Blue Cross and Blue Shield of Florida, Inc. to reimburse petitioners $227,139.27 as reflected in petitioners' exhibit 17. DONE and RECOMMENDED this 7th day of August 1989, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of August, 1989.
The Issue The issue in this case is whether notice was accorded the patient, as contemplated by section 766.316, Florida Statutes (2012).
Findings Of Fact Ashley Lamendola first presented to Gulf Coast OB/GYN on the morning of December 16, 2011, for a prenatal visit. This visit constituted the beginning of her professional relationship with the physicians who were part of the Gulf Coast OB/GYN group, which included Dr. Calderon and Dr. Shamas.1/ Violet Lamendola, Ms. Lamendola’s mother, accompanied Ms. Lamendola to that visit. When she arrived at Gulf Coast OB/GYN, Ms. Lamendola was given information and forms to fill out by the receptionist. According to both Ms. Lamendola and her mother, the materials included a NICA brochure in Spanish and an acknowledgment of receipt of the NICA form. While reviewing the materials, Ms. Lamendola, who does not speak Spanish, noted that the NICA brochure given to her was in Spanish. She asked her mother to take the brochure back to the receptionist. When Ms. Lamendola’s mother asked the receptionist about the Spanish brochure, the receptionist told her that the office had run out of NICA brochures printed in English, but that she would obtain one from another office and give it to Ms. Lamendola at the end of her appointment. Ms. Lamendola was instructed to sign and did sign the acknowledgment form so that she could see the physician. The acknowledgment form advised that all physicians in the Gulf Coast OB/GYN, P.A., were participating physicians in the NICA program. Ms. Lamendola received a black-and-white facsimile copy of the NICA brochure on her way out of the office along with other materials relating to prenatal and infant care. The brochure, received by Ms. Lamendola from Gulf Coast OB/GYN, bears a facsimile transmission header dated December 16, 2011, at 9:47 a.m. The brochure prepared by NICA is a color brochure which contains the following text in white letters on a light-to-medium green background on the back of the brochure: Section 766.301-766.316, Florida Statutes, (“NICA Law”) provides rights and remedies for certain birth-related neurological injuries and is an exclusive remedy. This brochure is prepared in accordance with the mandate of Section 766.316, Florida Statutes. A copy of the complete statute is available free of charge to completely inform patients of their rights and limitations under the application provision of Florida law. Since 1989, numerous court cases have interpreted the NICA law, clarifying legislative intent. The above-quoted language is absent from the facsimile copy of the brochure that Ms. Lamendola received from Gulf Coast OB/GYN. Apparently because the letters in the original brochure were white, the letters did not transmit. It is noted that on the front of the brochure, white lettering that appears on the green background of the color brochure did not transmit on the copy that Ms. Lamendola received. The majority of the information contained in Ms. Lamendola’s facsimile copy of the brochure is contained in the color copy of the brochure. The facsimile copy informed Ms. Lamendola that the statutes provide an exclusive remedy and a copy of the statutes may be obtained from NICA. The facsimile outlined the rights and limitations provided in the statutes. The only things that are not contained in the original brochure are that a copy of the statutes is available free of charge, the preparation of the brochure was mandated by section 766.316, and court cases have interpreted the statutes. St. Petersburg General Hospital offers a tour of its obstetrical department to expectant mothers and their families. Ms. Lamendola’s mother called St. Petersburg General Hospital to register for a tour. The hospital employee who was scheduling the tour asked to speak to Ms. Lamendola to obtain pertinent biographical information. Ms. Lamendola provided the information to the hospital employee. The tour is an informational tour and attendance at the tour does not constitute pre-registration at St. Petersburg General Hospital for the delivery of a baby. Ms. Lamendola and her mother, along with 12 other couples, attended the tour on March 22, 2012. During the tour, Ms. Lamendola received a tour packet, which contained a document titled Preadmission and Financial Information. This document instructed Ms. Lamendola to fill out the pre-admission form and return it to the hospital. Ms. Lamendola filled out the pre- admission form, but did not return it to St. Petersburg General Hospital. Ms. Lamendola did not pre-register for admission to the hospital. On April 3, 2012, Ms. Lamendola presented to St. Petersburg General Hospital with complaints of vaginal bleeding. Ms. Lamendola was told by a hospital employee that she was already in the system and that additional information would not be necessary. Ms. Lamendola signed a “Consent to Treat” form and was treated in the labor and delivery unit of the hospital. A short time later, she was given informational materials relating to prenatal and infant care and released. She was not given a NICA brochure during the visit on April 3, 2012. It was the hospital’s policy to give a NICA brochure to a patient only when the patient was being admitted as an inpatient for delivery of her baby. Ms. Lamendola’s professional relationship with St. Petersburg General Hospital relating to her pregnancy began with her visit on April 3, 2012. At 20:19 on June 26, 2012, Ms. Lamendola presented to St. Petersburg General Hospital. She had been experiencing contractions for six hours prior to her arrival at the hospital. She had been placed on bed rest for gestational hypertension five days prior to coming to the hospital. When she arrived at the hospital, she had hypertension. Normally when a patient is 37 to 39 weeks gestation, her physician will bring the prenatal records to the hospital or the physician’s office will send the records to the hospital by facsimile transmission. When Ms. Lamendola arrived at St. Petersburg General Hospital, her prenatal records from her physicians’ office were not on file. Megan Muse, R.N., was on duty when Ms. Lamendola presented at St. Petersburg General Hospital. Because Ms. Lamendola’s records were not on file, Ms. Muse requested that Bayfront Hospital send Ms. Lamendola’s records to St. Petersburg General Hospital. The evidence did not establish how Ms. Muse knew that the prenatal records were at Bayfront Hospital. Ms. Lamendola’s prenatal records, consisting of 11 pages, were sent by facsimile transmission to St. Petersburg General Hospital beginning at 21:35 on June 26, 2012. Ms. Muse recorded in her notes that Ms. Lamendola’s prenatal records were received from Bayfront Hospital at 21:45 on June 26, 2012. Although Ms. Lamendola’s prenatal records may have been sent to Bayfront Hospital, it was never Ms. Lamendola’s intention to deliver her baby at Bayfront Hospital. She took the informational tour offered by St. Petersburg General Hospital and went to St. Petersburg General Hospital in April 2012 when she had a problem related to her pregnancy. At 20:33, Dr. Javate admitted Ms. Lamendola to St. Petersburg General Hospital for the delivery of her infant. Ms. Lamendola was examined by Emanuel Javate, M.D., at approximately 21:35. At 22:02, Ms. Lamendola signed the hospital’s Condition of Admission form. At 22:10 the hospital gave Ms. Lamendola the brochure prepared by NICA, and Ms. Lamendola signed the acknowledgment form, acknowledging that she had received the brochure. Ms. Lamendola gave birth to Hunter Lamendola (Hunter) on June 27, 2012, at St. Petersburg General Hospital, which is a licensed Florida Hospital. At birth, Hunter weighed in excess of 2,500 grams and was a single gestation. Ashley Lamendola received obstetrical care from Guillermo Calderon, M.D. Dr. Calderon was a “participating physician” as defined in section 766.302(7). Christina Shamas, M.D., provided obstetrical services in the course of labor, delivery, and resuscitation in the immediate post-delivery period. Dr. Shamas was a “participating physician” as defined in section 766.302(7).
Findings Of Fact Veazey's Restorium was operated in Tampa for many years as a skilled- care 72-bed nursing home by George Veazey, Jr. and his wife, Fairolene Veazey, as owners. During the years here involved, Respondents contracted with the Social and Economic Services program office to provide services as a skilled nursing home. The Florida Medicaid Program permits payment for services performed based upon a recognized maximum or reasonable costs plus 6 percent, whichever is lower. The charges here disputed are directly related to the computation of patient costs authorized to be paid to Respondent for Medicaid patients. In 1972, Raymond Kernon and his wife, Jacqueline, bought into the business and Mrs. Kernon, a professional registered nurse, took over as Director of Nursing at the facility. A new nursing home was constructed containing 120 beds and the patients were moved to the new facility in August, 1973. In 1976 the Kernons purchased the Veazeys' interest in the nursing home and changed the name to Kernon's Su Casa. The land on which the new facility is built is owned by Ve-Ker, a corporation whose stock is owned by the owners of the nursing home. No specific testimony was submitted regarding the land ownership except that of Mrs. Kernon, who testified she and her husband owned the Ve-Ker corporation. It appears from the corporate name that the Veazeys originally were shareholders of the corporation, but no evidence on this was presented. It was not contested that common ownership of the land and the nursing home existed. During 1972 Raymond Veazey, the brother of George L. Veazey, Jr., was the administrator of the nursing home. In 1973 George Louis Veazey, III, the son of the owners, was administrator. George L. Veazey, Jr. was in charge of the kitchen prior to the hiring of a dietician subsequent to fiscal year 1973. During this period he made up menus and bought groceries, laundry and medical supplies. He ran errands for patients, carried them for doctor's visits, shopping, and acted as general handyman while not occupied in the kitchen. He had no job title in 1972 but in 1973 his title was Kitchen Supervisor. Prior to his departure in 1976, he acted as a general handyman and performed numerous tasks, the principal one being purchasing agent. Upon his departure no one was hired to replace him. No testimony was presented regarding the duties performed by Raymond Veazey or George Louis Veazey, III, while they were assigned as administrator. This is significant only to show that if they performed as full-time administrators and did not have time to perform the duties for which George L. Veazey, Jr. was paid, the latter's work was necessary and beneficial. In 1972 George L. Veazey, Jr. was in charge of the kitchen and purchased supplies for the home, George L. Veazey, III, was assistant administrator and Raymond Veazey was the administrator. By allowing only the salary for one administrator to perform all of these functions in a 72-bed nursing home, Petitioner disallowed $10,954 of the total salary expense for these three people. In addition, Petitioner disallowed $5,300 of the salary paid to Fairolene Veazey. Mrs. Veazey's testimony respecting her duties, which was submitted by affidavit after the hearing concluded, shows that many of the functions she performed were necessary and proper and that the disallowance of more than $3,000 of her total salary was not appropriate. Other items disallowed by Petitioner in the audit included: $1,525 in telephone directory advertisement. No evidence was presented to rebut Petitioner's testimony that the purpose of this advertising was to entice patrons to the nursing home; Cost of officers' life insurance policy where the provider was the beneficiary. No evidence was presented to rebut the testimony that the provider was a direct beneficiary of this policy or policies. Cost of an administrator's license in the amount of $87. No evidence was presented to show a need for more than one administrator at a 72- bed facility. Rent in the amount of $86,640 apparently allocated but never paid to the Ve-Ker corporation. No evidence was submitted that this rent was actually paid, or that the Ve-Ker corporation was not owned by the same shareholders that owned the nursing home. Similarly, with respect to the 1973 audit, the $1,644 for directory advertising and rent expense in the amount of $87,360 were disallowed for the same reasons as these items were disallowed in 1972 and no evidence was presented to show this disallowance to be in error. Salaries in 1973 for owners was again reduced to the maximum salary for one full-time administrator and the maximum salary for a full-time director of nursing. This reduced the salaries to $21,004 in administration from more than $50,000 paid to owners, George Veazey, Jr., George Veazey, III, Jacqueline Kernon, Fairolene Veazey, Ramond Kernon and Ray Estes, son-in-law of Kernon. No evidence was presented indicating that George L. Veazey, III, was fully occupied as administrator and could not have performed some of those services which his father actually performed and for which compensation was disallowed. Similarly no evidence was presented that Kernon or his son-in-law provided services beneficial to the patients. Evidence presented would indicate that no salary was approved for anyone other than the Administrator and Director of Nursing. Fifty percent of the salaries claimed for those other owners should be allowed. Fairolene Veazey obviously performed some beneficial function other than as housekeeper for which compensation could and should be authorized. George Veazey, Jr. was performing an essential function in 1973 for which he is entitled to compensation. Although his position as Kitchen Supervisor was not filled when his services were terminated in 1976, George Veazey, Jr. obviously performed many functions related to patient care. The fact that his specific position was not filled after his departure is not sufficient, standing alone, to say he did not perform essential services related to patient care. Many businesses learn they can do without the services of a particular employee after he leaves, whereas that was not believed true before his departure. The fact this employee was an owner does not change the concept. Fifty percent of Veazey's disallowed salary should be restored. With respect to those items disallowed on the 1976 audit, all of Respondents' evidence was directed at owners' compensation and no evidence was presented by Respondents to rebut Petitioner`s witnesses who stated the following expenses are not allowed because not patient-related: Forgiveness of a note receivable from George Veazey, Jr. in the amount of $28,774 in connection with Provider's purchase of Treasury stock. Professional fees incurred by Provider in connection with buy-out agreement with George L. Veazey, Jr. in the amount of $2,150. Interest paid to Randolph Kernon of $1,475. Offset of undocumented miscellaneous revenue against general and administrative expenses in amount of $1,215. Legal expenses in the amount of $330. Interest expense on loan from former shareholder in the sum of $4,414. Provider. Sales tax totaling $2,747 by Ve-Ker on rents collected by Employee benefits on disallowed salary. This item covers several owners' salaries which were disallowed. No evidence was presented to show any basis for benefits if the salary to which the benefit is pertinent is removed. Mrs. Jacqueline Kernon during the periods in question performed her duties as Director of Nursing, but also exercised additional supervisory duties in her role as owner. These duties consisted of being on call every weekend, remaining at the nursing home late every evening, visiting the nursing home on weekends, paying extra attention to the personal needs of the patients, spending 70 to 80 hours per week at the nursing home, and generally operating the nursing home efficiently and effectively. The work over and above that normally expected of a Director of Nursing should be compensated at 25 percent of the salary allowed her for Director of Nursing. This finding is based partially on the fact that the patient per-day cost at this nursing home is substantially lower than the costs in other comparable nursing homes in Florida.
Findings Of Fact In its 1969 legislative session, the Florida Legislature enacted Section 409.266, Florida Statutes, entitled "Medical Assistance for the Needy," providing the original state legislative basis and authority for Florida's entry into the Medicaid program. Section 409.266(2), Florida Statutes, as enacted, authorized the Florida Department of Social Services or any other department that the Governor might designate to: Enter into such agreement with other state agencies or any agency of the federal government and accept such duties with respect to social welfare or public aid as may be necessary to implement the provisions of subsection (1) and to qualify for federal aid including compliance with provisions of Public Law 86-778 and the "Social Security Amendments of 1965" [estab- lishing Title XIX of the Social Security Act] Section 409.266(3), Florida Statutes, as enacted, stated that: The Department is authorized and directed to prepare and operate a program and budget in order to implement and comply with the provisions of public law 86-778 and the "Social Security Amendments of 1965." No provisions of Florida law other than Section 409.266, Florida Statutes, as enacted, authorized any agency to perform any function specifically to implement the Medicaid program. The State of Florida formally commenced participation in the Medicaid program effective January 1, 1970. At all times pertinent to this controversy, respondent, Florida Department of Health and Rehabilitative Services or its predecessor agencies (referred to as "HRS"), has been and continues to be the "State Agency" identified in 42 U.S.C. Section 1396a(a)(5), and charged under Section 409.266, Florida Statutes, as amended, with the formulation of a State Plan for Medical Assistance ("State Plan"), 42 U.S.C. Section 1396a, and with the ongoing responsibility for the administration of the Medicaid program in the State of Florida. Since Florida's entry into the Medicaid program in 1970, HRS has been authorized essentially to "[e]nter into such agreements with appropriate agents, other State agencies, or any agency of the Federal Government and accept such duties in respect to social welfare or public aid as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a), Fla. Stat., as amended. HRS has never been authorized to enter into any agreements, accept any duties, or perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing federal regulations and requirements. As a prerequisite for Florida's entry into the Medicaid program, HRS prepared and filed with the United States Department of Health, Education, and Welfare ("HEW") a State Plan, pursuant to Title XIX of the Social Security Act, and pursuant to its delegated legislative authority set forth in Section 409.266(2)(a), Florida Statutes. (In May, 1980, HEW was redesignated the United States Department of Health and Human Services, but for purposes of this action both shall be referred to as HEW.) C.W. Hollingsworth was the HRS official who had the responsibility for supervising the preparation, the filing, and for obtaining the approval of HEW of Florida's initial State Plan. Florida's initial State Plan was approved by HEW effective January 1, 1970. At the time that Florida received approval of its initial State Plan, Title XIX of the Social Security Act required state plans to provide for the payment of the reasonable cost of inpatient hospital services. At the time that Florida received approval of its initial State Plan, HEW regulations governing reimbursement for inpatient hospital services under Medicaid required the State Plan to provide for reimbursement of Medicaid inpatient hospital services furnished by those hospitals also participating in the Medicare program, applying the same standards, cost reimbursement principles, and methods of cost apportionment used in computing reimbursement to such hospitals under Medicare. 45 C.F.R. Section 250.30(a), and (b), 34 Fed. Reg. 1244 (January 25, 1969). At the time that Florida entered the Medicaid program, Medicare cost reimbursement principles in effect governing reimbursement for the cost of inpatient hospital services required payment of a participating hospital's actual and reasonable costs of providing such services to Medicare beneficiaries, and, moreover, that such payment be made on the basis of the hospital's current costs rather than upon the costs of a prior period or upon a fixed negotiated rate. 42 U.S.C. Section 1395x(v)(1)(A); 20 C.F.R. Sections 405.451(c)(2), 405.402(a) [later renumbered 42 C.F.R. Section 405.451(c)(2) and Section 405.402(a)]. Such Medicare principles and standards also provided for interim payments to be made to the hospital during its fiscal year. At the conclusions of the subject fiscal year, the hospital was required to file a cost report wherein the hospital included all of its costs of providing covered inpatient services to Medicare beneficiaries. A settlement or "retroactive adjustment" process then was required to reconcile the amount of interim payments received by the hospital during the fiscal period with its allowable costs incurred during that period. If the hospital had been overpaid during the year, it was required to refund the amount of that overpayment to the Medicare program. Conversely, if the hospital had been underpaid during the year, the Medicare program was required to make an additional payment to the hospital, retroactively, in the amount of the underpayment. 20 C.F.R. Sections 405.402(b)(2), 405.451(b)(2). Essentially the same Medicare principles and standards governing reimbursement of inpatient hospital services described in the two preceding paragraphs have been in effect at all times pertinent to this controversy. 42 C.F.R. Section 405.401, et seq. Florida's approved State Plan as of January 1, 1970, governing reimbursement of inpatient hospital services under the Medicaid program, committed HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The only versions of Florida's State Plan provisions that have been approved by HEW and that have governed HRS's reimbursement of inpatient hospital services prior to July 1, 1981, each commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. Attached as an appendix to the recommended order is the form agreement drafted with the supervision of C.W. Hollingsworth, which has been in use from January 1, 1970, until July 1, 1981. From the inception of the Florida Medicaid program, and as a prerequisite for participation therein, a hospital has been required to execute a copy of the form agreement. A hospital may not participate in the Medicaid program without having executed such an agreement, nor may it propose any amendments thereto. The intent and effect of the form agreement is to require HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The form agreement requires HRS to compute a percentage allowance in lieu of the retroactive adjustments ("percentage allowances") in determining the rates that hospitals will be paid for providing inpatient hospital services to Medicaid patients. The form agreement requires HRS to compute a new percentage allowance each year based on hospital cost trends. The meanings of the terms "allowance in lieu of retroactive adjustments" in all pertinent state plans and "percentage allowance for the year in lieu of retroactive payment adjustment" contained in the form agreement are identical. In drafting the form agreement HRS intended that the "percentage allowance for the year in lieu of retroactive payment adjustment" be set at a level sufficient to ensure that hospitals participating in the Medicaid program would be reimbursed their "reasonable costs" of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. At all times pertinent to this controversy, participating hospitals, like petitioner, have been reimbursed by HRS for inpatient hospital services provided to Medicaid patients in the following manner: Within ninety (90) days following the close of its fiscal year, the partici- pating hospital files a Form 2551 or 2552 Annual Statement of Reimbursable Costs, as applicable, with both Blue Cross of Florida, Inc., the major fiscal intermediary respon- sible for the administration of Part A of the federal Medicare program in the State of Florida, and with HRS. This document, also referred to as a "cost report" details various hospital and financial statistical data relating to the patient care activities engaged in by the hospital during the sub- ject fiscal period. Upon receipt of the participating hospital's cost report for a fiscal period, HRS makes an initial determination based upon Medicare cost reimbursement principles and standards of the hospital's total allow- able inpatient costs, charges, and total patient days during the subject fiscal period, and then determines an inpatient per diem reimbursement rate for the period. To the inpatient per diem reimburse- ment rate is then added a percentage allow- ance in lieu of making any further retroactive corrective adjustments in reimbursement which might have been due the hospital applicable to the reporting period. The adjusted inpa- tient per diem reimbursement rate is applied prospectively, and remains in effect until further adjustments in the rate are required. If HRS determines that total inpa- tient Medicaid reimbursement to a partici- pating hospital during a fiscal period exceeds the hospital's allowable and rea- sonable costs of rendering such covered inpatient services applying Medicare cost reimbursement principles and standards, then the hospital is required to remit to HRS the amount of such overpayment. If, however, HRS determines that the total inpatient Medicaid reimbursement received by a participating hospital is less than the hospital's actual and reason- able costs of rendering such covered inpa- tient services to Medicaid patients during the period applying Medicare cost reimburse- ment principles and standards, no further retroactive corrective adjustments are made; provided, however, that should an overpayment occur in a fiscal period, it may be offset and applied retroactively against an under- payment to the participating hospital which occurred during the next preceding fiscal period only. HRS has used the following "percentage allowances" in determining Medicaid reimbursement rates for inpatient hospital services: a. January 1, 1970 - June 30, 1972 . . . 12 percent July 1, 1972 - approximately March 30, 1976 . . . . . . . . . . 9 percent Approximately March 31, 1976 - June 30, 1981 . . . . . . . . . . . 6 percent Since at least January 1, 1976, HRS has not recomputed the "percentage allowance" on an annual basis. Since at least January 1, 1976, HRS has not based the "percentage allowance" that it has applied in determining Medicaid inpatient hospital reimbursement rates upon hospital cost trends. HRS has used no technical methodology based upon hospital cost trends to develop any of the "percentage allowances." At least since January 1, 1974, HRS's "percentage allowances" have been less than the corresponding average annual increases in the costs incurred by Florida hospitals of providing inpatient hospital services. Prior to March 30, 1976, all of HRS's published regulations addressing reimbursement of participating hospitals for their costs of providing inpatient hospital services to Medicaid patients required HRS to reimburse such hospitals in accordance with Medicare cost reimbursement principles and standards. In certain internal documents, Petitioner's Exhibits P-44 and P-12, HRS states that the average costs of providing inpatient hospital services in the State of Florida rose at least 18 percent during calendar year 1975. In November, 1975, the Secretary of HRS was informed by HRS officials that HRS faced a projected budgetary deficit for its fiscal year ended June 30, 1976. A decision memorandum presented options to the HRS Secretary for reducing the projected deficit. Among such options presented to and approved by the HRS Secretary was to reduce the "percentage allowance" from 9 percent to 6 percent. The reduction of the "percentage allowance" by HRS from 9 percent to 6 percent was effected in response to HRS's projected deficit, and was not based upon an analysis of hospital cost trends. HRS incorporated the 6 percent "percentage allowance" into its administrative rules which were published on March 30, 1976. In response to objections raised by the Florida Hospital Association to the reduction in the percentage allowance by HRS from 9 percent to 6 percent, HRS officials reexamined that reduction. During HRS's reexamination of its previous "percentage allowance" reduction, HRS was aware of and acknowledged the fact that Florida hospital costs were increasing at an average annual rate in excess of both the earlier 9 percent and the resulting 6 percent "percentage allowance." In a memorandum dated September 13, 1976, from HRS official Charles Hall to the Secretary of HRS, Petitioner's Exhibit P-45, Charles Hall informed the Secretary that the methods and standards then used by HRS to reimburse participating hospitals for their costs of providing inpatient hospital services to Medicaid patients was out of compliance with federal requirements. Charles Hall further informed the Secretary that the reason HRS had not theretofore been cited by HEW for noncompliance was the manner in which the Florida State Plan had been drafted, i.e., that the State Plan required HRS to reimburse hospitals under Medicaid for the reasonable costs that they would have been reimbursed applying Medicare cost reimbursement principles and standards. In a letter dated September 20, 1976, Petitioner's Exhibit P-31, HEW informed HRS that HEW had received a complaint from the Florida Hospital Association that the methods HRS was actually using to reimburse hospitals for the costs of providing inpatient hospital services to Medicaid patients were in violation of Federal Regulation 45 C.F.R. Section 250.30(a). A proposed amendment to Florida's State Plan submitted by HRS to HEW in November, 1976, Petitioner's Exhibit P-49, if approved, would have allowed HRS to reimburse hospitals for the cost of providing inpatient hospital services to Medicaid patients under methods differing from Medicare cost reimbursement principles and standards (an "alternative plan"). "Alternative plans" have been permitted under applicable federal regulations since October 21, 1974. A state participating in the Medicaid program may elect to establish an "alternative plan, but may not implement such "alternative plan" without the prior written approval of HEW. Florida has not had in effect an "alternative plan" of reimbursing participating hospitals for their costs of providing inpatient hospital services to Medicaid patients that was formally approved by HEW at any time prior to July 1, 1981. By letter dated January 7, 1977, Petitioner's Exhibit P-32, HEW notified HRS that it had formally cited HRS for noncompliance with federal regulations governing reimbursement of inpatient hospital services under Medicaid. HRS acknowledged their noncompliance and between November, 1976, and October 30, 1977, HRS attempted to revise its proposed "alternative plan" on at least two occasions in an attempt to obtain HEW approval. In October, 1977, HRS withdrew its proposed "alternative plan" then pending with HEW. HRS then contracted with an outside consultant, Alexander Grant & Company, to assist in the formulation of a new "alternative plan" proposal. In January, 1978, Alexander Grant & Company delivered its draft of an "alternative plan" to HRS. In October, 1978, HRS submitted a draft "alternative plan" to HEW for review and comment, and HEW expected HRS to submit a formal "alternative plan" proposal to HEW for its approval by November 1, 1978. HRS did not submit the formal "alternative plan" proposal to HEW until August 12, 1980. In a letter dated February 21, 1979, from Richard Morris, HEW Regional Medicaid Director, Region IV, to United States Senator Richard Stone of Florida, Mr. Morris advised Senator Stone: For more than two years the Florida Medicaid Program has not met Federal Requirements for inpatient hospital services reimbursement. Their payment methodology under-reimburses certain hospitals year after year. The pros- pective interim per diem rate paid by Florida to hospitals includes a percentage allowance to cover increased costs during the forthcom- ing year that is consistently less than increased costs in some hospitals. If the payments are less than costs, the difference is not reimbursed. This results in underpay- ments. We have worked closely with Florida to develop an acceptable alternative system that would meet Federal requirements. To date, Florida has not implemented such a system despite having received informal HEW agreement on a draft plan developed more than a year ago. It is our understanding that this alternative plan is not a high priority item at this time. We will continue to work with HRS staff to secure Florida compliance re- garding this requirement. Petitioner's Exhibit P-46. Since August 12, 1980, HRS has submitted to HEW for its approval at least four more versions of an "alternative plan." Petitioner's Exhibits P-120, P-121, P-123, and P-152. Each of these versions was approved by the Secretary of HRS, and HRS believes each to comply with applicable Florida law. Mr. Erwin Bodo, Ph.D., was and is the HRS official responsible for the development and drafting of Exhibits P-120, P-121, P-123, and P-152. In June, 1981, HEW approved an "alternative plan" for the State of Florida (Exhibit P-152), and such "alternative plan" was implemented effective July 1, 1981. Until July 1, 1981, HRS continued to use the 6 percent "percentage allowance" to compute inpatient hospital reimbursement under Medicaid. Even after its repeal, Rule 10C-7.39(6), Florida Administrative Code, is applied by respondent in calculating reimbursement for Medicaid services provided between March 30, 1976, and July 1, 1981. From November 20, 1976, until July 1, 1981--the period in which HRS was attempting to secure HEW approval for an alternative plan--HRS was aware that the costs of inpatient hospital se vices were increasing at an average annual rate in excess of the 6 percent "percentage allowance." From September 1, 1976, through July 1, 1981, HRS has been out of compliance with its a proved State Plan provisions, and HEW regulations governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals-- including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. Since the quarter ending December 31, 1976, until July 1, 1981, HEW has formally cited HRS as being in contravention of its approved State Plan provisions, and HEW (now HHS) regulations, governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals--including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. PAN AMERICAN HOSPITAL CORPORATION Petitioner, Pan American Hospital Corporation, is a not-for-profit corporation, duly organized and existing under the laws of the State of Florida. Petitioner is a tax-exempt organization as determined by the Internal Revenue Service pursuant to Section 501(c)(3) of the Internal Revenue Code of 1954, as amended. At all times pertinent to this controversy, petitioner has operated and continues to operate a duly licensed 146-bed, short-term acute care general hospital, located at 5959 Northwest Seventh Street, Miami, Florida 33126. At all times pertinent to this controversy, petitioner has been and continues to be a duly certified provider of inpatient hospital services, eligible to participate in the Florida Medicaid program since January 27, 1974. The appendix to this recommended order is a true and correct copy of the "Participation Agreement" entered into between petitioner and HRS, whereunder, inter alia, petitioner became eligible to receive payment from HRS for covered inpatient hospital services provided to Medicaid patients. At all times pertinent to this controversy, petitioner has been a certified "provider of services" participating in the Medicare program. During the fiscal periods in dispute in this action, petitioner did provide covered inpatient hospital services to Medicaid patients, and became eligible for payment by HRS of its reasonable costs of providing such services, determined in accordance with Medicare cost reimbursement principles and standards. With respect to each of the fiscal periods in dispute in this action, petitioner timely filed all cost reports and other financial data with HRS or its contracting agents, including Blue Cross of Florida, Inc., to enable HRS to determine petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients. During each of the fiscal periods in dispute in this action, to reimburse petitioner for its reasonable costs of providing covered inpatient hospital services to Medicaid patients, determined in accordance with applicable Medicare cost reimbursement principles and standards. Such costs incurred by petitioner were reasonable, necessary, related to patient care, and less than customary charges within the meaning of those Medicare principles and standards. With respect to each of the fiscal periods in dispute, HRS and/or its contracting agent, Blue Cross of Florida, Inc., reviewed and audited the cost reports filed by petitioner, and as a result of such review and audits set or adjusted, as applicable, the Medicaid inpatient per diem reimbursement rate at which petitioner would be paid during the next succeeding fiscal period or until that rate was again adjusted. On May 3, 1976, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1975, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period in respect to those services. During its fiscal year ended March 31, 1975, petitioner received $86,469 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On February 14, 1979, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1976, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1976, petitioner received $199,328 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On September 29, 1978, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1977, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1977, petitioner received $6,083 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On March 13, 1980, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1978, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1978, petitioner received $178,506 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On June 30, 1981, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1979, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1979, petitioner received $302,347 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On or about June 30, 1981, the audit of petitioner's Medicaid cost report for the period ending March 31, 1980, was concluded. A formal Notice of Program Reimbursement had not been issued at the time of the hearing. MOTION TO DISMISS DENIED Respondent contends that these proceedings should be summarily concluded "for failure to join an indispensable party," viz., the Federal Government, because it "is Respondent's intention, should any liability result from this action, to make a claim for federal financial participation as to approximately fifty-nine percent of such liability . . . [See generally] 42 U.S.C. Section 1320b-2(a)(2)." Motion to Dismiss, p. 2. This contention must fail for several reasons. Neither the Division of Administrative Hearings nor the Department of Health and Rehabilitative Services has the power or means to bring an unwilling party into a proceeding instituted pursuant to Section 120.57, Florida Statutes (1979). At most, "the presiding officer may, upon motion of a party, or upon his own initiative enter an order requiring that the absent person be notified of the proceeding and be given an opportunity to be joined as a party of record." Rule 28-5.107, Florida Administrative Code. There exists no administrative writ for joining a non-petitioning party in a substantial interest proceeding in the way judicial process can join a party within a court's jurisdiction in a pending judicial proceeding. The two cases respondent cites in support of its motion, Bannon v. Trammell, 118 So. 167 (Fla. 1928), and Heisler v. Florida Mortgage Title and Bonding Co., 142 So.2d 242 (Fla. 1932), are inapposite, because both cases involve judicial, not administrative proceedings. HRS does not really seek joinder of the United States Department of Health and Human Services; instead, HRS argues that the petition should be dismissed and the controversy relegated to federal court because it "believes that the Secretary [of the United States Department of Health and Human Services] will not succumb voluntarily to the jurisdiction of the Division of Administrative Hearings." 2/ Motion to Dismiss, p. 3. Participation by the Department of Health and Human Services in the present proceedings would have been welcomed, as the Hearing Officer indicated at the prehearing conference, but neither the Department itself nor either of the parties requested such participation. In any event, petitioner is seeking additional reimbursement from respondent HRS, not from any federal agency. Medicaid providers like petitioner do not receive any funds directly from the Department of Health and Human Services. Since "[t]he contracts involved are clearly between the hospitals and [H]RS [, n]o third party requirement appears," Montana Deaconess Hospital v. Department of Social and Rehabilitation Services, 538 P.2d 1021, 1024 (Mont. 1975), and the Department of Health and Human Services is not an indispensable party to administrative proceedings arising out of contracts between HRS and Medicaid providers. HRS protests that it might find itself making additional reimbursement to petitioner, yet be deprived of the federal component of such expenditures. See 42 U.S.C. Section 1396b. This prospect is an unlikely one in view of the fact that the Department of Health, Education, and Welfare has repeatedly cited HRS for noncompliance because of under-reimbursements to Medicaid providers. If the Federal Government fails to contribute to any additional reimbursement, it would not be for want of a forum in which HRS could present its claim. There are administrative mechanisms within the Department of Health and Human Services, including its Grant Appeals Board. See 42 U.S.C. Section 1116(d). After exhaustion of administrative remedies, HRS would have access to the courts, if necessary. See Georgia v. Califano, 446 F. Supp. 404 (N.D. Ga. 1977). There is no danger that HRS will be deprived of an opportunity to litigate any question about federal contribution because the United States Department of Health and Human Services is not a party to the present proceedings. MOTION FOR PARTIAL SUMMARY JUDGMENT Petitioner's motion for partial summary judgment was amended ore tenus at the final hearing to delete "and FYE March 31, 1981," on page 1 of the motion, after leave to amend was granted, without objection by respondent. As a technical matter, the motion is a misnomer, since substantial interest proceedings before the Division of Administrative Hearings eventuate in recommended orders, not judgments. But, petitioner's contention that there is no genuine issue as to any material fact is well founded. The parties have so stipulated. (T. 70; Mr. Weiss's letter of November 12, 1981.) At the time the petition was filed, the parties contemplated numerous factual disputes which, however, had all been resolved by the time of final hearing through the commendable efforts of counsel. In the absence of a disputed issue of material fact, the Administrative Procedure Act provides for informal proceedings pursuant to Section 120.57(2), Florida Statutes (1979), "[u]nless otherwise agreed." Section 120.57, Florida Statutes (1979). On December 7, 1981, the parties filed their Stipulation and Agreement to proceed pursuant to Section 120.57(1), Florida Statutes (1979), notwithstanding the absence of any factual dispute. DISPUTE COGNIZABLE In the present case, as in Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), there "can be no doubt that the Department's contract . . . calls for agency action which potentially affects . . . substantial interests," 363 So.2d at 812, of the petitioning contractor. Cf. Solar Energy Control, Inc. v. State Department of Health and Rehabilitative Services, 377 So.2d 746 (Fla 1st DCA 1979) (reh. den. 1980) (disappointed bidder substantially affected). See Section 120.52(10)(a), Florida Statutes (1979). In Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), the petitioner sought "additional money and construction time under its contract," 363 So.2d at 813, with a state agency. The court found "no difficulty . . . with sovereign immunity," 363 So.2d at 813, and held that a contractor with a state agency could invoke the Administrative Procedure Act in order to enforce its contract, even though the contract purported to establish another method for settling the contract dispute. A clause in the contract at issue in the Graham Contracting case contemplated agency action outside the parameters of Chapter 120, Florida Statutes, in resolving certain disputes under the contract. In contrast, each of the successive contracts on which petitioner predicates its claim in the present case contains the following provision: "The hospital agrees to comply with the rules, policies, and procedures required by [HRS's] Division of Family Services for this program." Among the rules thus incorporated by reference into the contracts between petitioner and respondent is Rule 10C-7.35, Florida Administrative Code, which provides: An official representative of a facility participating in Medicaid, . . . or . . . representative, may appeal Medicaid Program policy, procedure, or administrative rulings whenever the provider feels there has been an unfair, illegal or inappropriate action by the Department affecting them or their facility. (1) Provider Appeals The Administrative Procedures [sic] Act, Chapter 120 F.S., provides for provider appeals and hearings, which are conducted by the Division of Administrative Hearings in the Department of Administration. The spe- cific rule relative to the appeal and hearing process is Chapter 28-3 [sic] of the Florida Administrative Rules. . . Since, by reference to Rule 10C-7.35, Florida Administrative Code, the contract in the present case incorporates Chapter 120, Florida Statutes, the applicability of the Administrative Procedure Act is even clearer here than in the Graham Contracting case. THE MERITS The parties have stipulated that petitioner has been reimbursed by respondent less than its reasonable costs of providing covered inpatient hospital services over the time period in question. Under-reimbursement of this kind is not authorized by Section 409.266, Florida Statutes, which incorporates the federal statutory requirement that hospitals which, like petitioner, provide Medicaid services be reimbursed by respondent for reasonable costs incurred, in accordance with an approved State Plan, and not some lesser amount. 42 U.S.C. Section 1396a(a)(13)(B), Pub. L. 89-97, Section 121(a) redesignated 42 U.S.C. Section 1396a(a)(13)(D), Pub. L. 90-248, Section 224(a). All Florida "State Plan provisions . . . approved by HEW and . . . govern[ing] HRS's reimbursement of inpatient hospital services prior to July 1, 1981, commit HRS to reimburse hospitals [like petitioner] that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards." Prehearing Stipulation, Paragraph 19. The record is clear. Respondent consistently reimbursed petitioner less than its reasonable costs of providing inpatient hospital services in order to cut its own expenses and in doing so jeopardized the entire Medicaid program. This cannot be condoned, even though respondent acted under color of law, viz., Rule 10C-7.39(6), Florida Administrative Code [now repealed and declared invalid; see Pan American Hospital Corporation v. Department of Health and Rehabilitative Services, No. 81-1480R (DOAH; December 4, 1981)], and even though a lack of money or, at least, an apparent shortage was the reason for respondent's parsimony. The question remains, however, whether this dereliction on respondent's part should inure to the benefit of petitioner; and the answer turns on the construction of the agreement between the parties attached as an appendix to this order. Petitioner argues cogently that public policy has clearly been enunciated by statute to be full reimbursement for costs reasonably incurred by Medicaid providers in furnishing covered services. There can be no clearer expression of public policy than a statute duly enacted; and the reasons behind the full reimbursement policy are themselves compelling: to deal fairly with the providers, not only for fairness sake, but also to assure their participation in the program, and to remove any temptation to give indigent patients substandard care, inter alia. But, there is surely an overriding public policy requiring that a contractor with state government who voluntarily agrees to forego a claim against the public fisc be held to that agreement in administrative proceedings like these. The form agreement between petitioner and respondent, which they renewed annually, states: "It is understood that reimbursement will be made on the basis of an interim payment plan in the form of a per diem cost rate, plus a percentage allowance for the year in lieu of retroactive payment adjustment. However, . . . in the event the hospital did not receive its audited reasonable costs in the year prior to the current year then the hospital may deduct from the refund the prior year deficiency." (Emphasis supplied.) The agreement thus contemplated under-reimbursement and specified the method for recoupment, if there was to be any. Any "retroactive payment adjustment," as the result of administrative proceedings or otherwise, is specifically ruled out. Elsewhere in the parties' agreement is found this language: [T]he fiscal responsibility of [respondent's] Division of Family Services is subjected [sic] to the appropriation and availability of funds to the Medicaid program . . . by the state legislature every year." The terms of the agreement make clear that under-reimbursement is not in itself a breach. Respondent's failure to compute annually a "new percentage . . . based on hospital cost trends" was attributable to a shortage of funds; and the agreement provided that respondent's "fiscal responsibility" was subject to just such a shortage. In sum, provisions of the agreement petitioner voluntarily entered into with respondent operate in much the same way as a liquidated damages clause and preclude the relief petitioner seeks. Petitioner's invocation of the parol evidence rule is unavailing. Even if the stipulated facts outside the four corners of the form agreement are looked to, the course of dealing between these parties buttresses the construction outlined above. The fact that respondent may have settled a case it litigated against another hospital in some other way, as asserted by petitioner, is technically irrelevant.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent deny the prayer of the petitioner for additional reimbursement. DONE AND ENTERED this 10th day of December, 1981, in Tallahassee, Florida. ROBERT T. BENTON II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of December, 1981.
The Issue The issue is whether Respondent properly determined that there is a numeric need for one additional hospice program in health planning Service Area 2B for the January 2003 planning horizon pursuant to a revised fixed need pool projection.
Findings Of Fact AHCA is the state agency that is responsible for administering the CON program and laws in Florida. In conjunction with these duties, AHCA determines, on a semi-annual basis, the net numeric need for new hospice programs pursuant to Rule 59C-1.0355(4), Florida Administrative Code (the Rule). AHCA then publishes such need in the Florida Administrative Weekly. Community volunteers began organizing BBH in 1981. After its incorporation in 1983 as a not-for-profit community organization, BBH commenced operation under a license that authorized it to provide hospice services only in SA 2B, consisting of the following eight counties: Franklin, Gadsden, Jefferson, Leon, Liberty, Madison, Taylor, and Wakulla. On average, BBH serves 162 patients per day. Its main office is located in Tallahassee, Florida, but it operates the following branch offices and/or community centers: Franklin County at Carrabelle, Florida; Gadsden County at Quincy, Florida; Jefferson County at Monticello, Florida; Madison County at Madison, Florida; and Taylor County at Perry, Florida. BBH also operates a twelve-bed inpatient facility, The Hospice House, located in Tallahassee, Florida. Covenant, formerly known as Hospice of Northwest Florida, is a not-for-profit community organization that was founded by a committee in 1982. Covenant began treating its first patients in 1984 and is currently licensed to provide hospice services in SA 1 and SA 2A. The following counties are located in SA 1: Escambia, Santa Rosa, Okaloosa, and Walton. The following counties are located in SA 2A: Holmes, Washington, Jackson, Calhoun, Bay and Gulf. Covenant also is licensed to provide hospice services in 26 southern Alabama counties. On average, Covenant serves 429 Florida hospice patients per day. Its main office and its eight-bed inpatient facility are located in Pensacola, Florida. Covenant operates the following Florida branch offices: Okaloosa County at Niceville, Florida; Jackson County at Marianna, Florida, and Bay County at Panama City, Florida. Covenant operates Florida community centers in Okaloosa County at Crestview, Florida, and in Walton County at Destin, Florida. The Hospice CON Rule and Need Methodology The Rule establishes criteria and standards for assessing the need for new hospice programs. The Rule includes a numeric need formula for determining whether a new hospice is needed in a particular SA. In this case, AHCA used the following data sources to produce need projections: (a) population projections from the Executive Office of the Governor; (b) mortality data as reported in the applicable Florida Vital Statistics Annual Report from the Department of Health's Office of Vital Statistics; and (c) utilization data based on the number of hospice patients served by all licensed hospice programs in the SA as reported by licensed hospice programs. Under the Rule, numeric need is demonstrated if the projected number of unserved patients who would elect a hospice program is 350 or greater. The Rule targets 350 as the minimum number of patients that should be admitted to a hospice program in a 12-month period. Pursuant to the Rule, AHCA calculates need for additional facilities and services every six months or twice annually. The numeric need formula contained in the Rule is a conditional formula, which works as follows: If HPH minus HP is equal to or greater than 350, then a net numeric need exists. HPH is the projected number of patients who will elect hospice services in a particular SA during the 12-month period beginning in the planning horizon. Specifically, HPH is the sum of (U65C X P1) + (65C X P2) + (U65NC X P3) + (65NC X P4). U65C is the projected number of SA resident cancer deaths under age 65. U65C is calculated by dividing the current annual number of cancer deaths under age 65 by the current annual total of resident deaths, and multiplying the result by the SA's projected annual total of resident deaths at the planning horizon. P1 is the projected proportion of U65C who will be hospice patients. P1 is calculated by dividing the current 12-month statewide total of hospice admissions under age 65 with cancer by the current statewide total of deaths under age 65 from cancer. 65C is the projected number of SA resident cancer deaths age 65 and over. 65C is calculated by dividing the current annual number of cancer deaths age 65 and over by the current annual total of resident deaths, and multiplying the result by the SA's projected annual total of resident deaths at the planning horizon. P2 is the projected proportion of 65C who will be hospice patients. P2 is calculated by dividing the current 12-month statewide total of hospice admissions age 65 and over with cancer by the current statewide total of deaths age 65 and over from cancer. U65NC is the projected number of SA resident deaths under age 65 from all causes except cancer. U65NC is calculated by dividing the current annual number of deaths under age 65 from all causes except cancer by the current annual total of resident deaths, and multiplying the result by the SA's projected annual total of resident deaths at the planning horizon. P3 is the projected proportion of U65NC who will be hospice patients. P3 is calculated by dividing the current 12-month total of hospice admissions under age 65 with diagnoses other than cancer by the current statewide total of deaths under age 65 from causes other than cancer. 65NC is the projected number of SA resident deaths age 65 and over from all causes except cancer. 65NC is calculated by dividing the current annual number of deaths age 65 and over from all causes except cancer by the current annual total of resident deaths, and multiplying the result by the SA's projected annual total of resident deaths at the planning horizon. P4 is the projected proportion of 65NC who will be hospice patients. P4 is calculated by dividing the current 12-month statewide total of hospice admissions age 65 and over with diagnoses other than cancer by the current statewide total of deaths age 65 and over from causes other than cancer. In other words, HPH is a projection of the number of persons who will elect hospice care in a particular SA, irrespective of their normal place of residence. It is a compilation of projected hospice usage for four age and diagnostic classes. Thus, the need methodology and need projection is specific to the particular demographics and diagnostic experiences of a SA. HP represents the number of admissions to hospice programs serving a SA during the most recent 12-month period ending on June 30 or December 31. The number is derived from reports on standardized forms submitted to AHCA by licensed hospice programs every six months. The Rule uses a statewide use rate as a normative standard for each age and diagnostic category. The use rate is a ratio of the hospice admissions in a particular age and diagnostic class to deaths in the same age and diagnostic class for the state as a whole. When applied to any particular hospice SA, the use rate projects what the hospice admissions should be in that SA, based upon the performance of the state as a whole, rather than the actual historical penetration rate in the SA. The need methodology thus provides that the hospice penetration rate in a SA should equal the state average penetration rate. The need methodology does not assume that the level of hospice services being provided in a particular area is sufficient to meet the needs of the area. This is appropriate because hospice is a fast-growing and relatively new service that has been widely available only since the early 1980s. Not only has there been a rapid increase in hospice penetration rates but also there is a wide variation in hospice penetration from SA to SA. The numeric need formula set forth in the Rule provides a reasonable and appropriate methodology to project need for additional hospice services. In this case, AHCA's procedures for collecting and analyzing data and for calculating numeric need were consistent with the Rule. Publication of the Fixed Need Pools AHCA initially published the "Florida Need Projections for Hospice Programs: Background for Use in Conjunction with the July 2001 Batching Cycle for the January 2003 Hospice Planning Horizon." The initial publication resulted a numeric need in SA 2B of 340. In other words, there was no net numeric need for an additional hospice program in SA 2B. AHCA subsequently published a revision to the fixed need pool after it was notified of some errors in the data used in the numeric need calculation. The errors principally involved AHCA's failure to update the population data from a previous batching cycle. The necessity of a revised publication created an opportunity for hospices to submit revised admissions data, which was then incorporated into the second computations of the need methodology. Several hospices took advantage of this opportunity. Using the revised data, AHCA determined that the projected number of hospice admissions in SA 2B would be 1209 patients (HPH = 1209). AHCA also determined that the number of patients served by SA 2B's licensed provider, BBH, for the relevant period was 858 patients (HP = 858). The difference between these calculations was 351, indicating a need for an additional hospice program in SA 2B. AHCA published the revised fixed need pool determination on August 17, 2001. Counting Admissions At issue here is the definition and use of the term "admissions" on AHCA's semiannual utilization report form (report form). Item 1 on the report form indicates that hospice providers should show the "[n]umber of patients admitted to your program (unduplicated) for the following categories " The reporting block also indicates that the data to be included are "New Patients Admitted." The term "unduplicated" means admissions in the reporting period, exclusive of those from a prior reporting period. In other words, the same admission is not counted and reported twice. For example, a patient initially admitted in one reporting period, subsequently discharged, and readmitted in the following reporting period should be reported as an admission in the prior reporting period and as an admission in the following reporting period. Likewise, a patient who initially is admitted, discharged, and subsequently readmitted in the same reporting period is counted as two admissions. This is true whether the second admission occurs in the same SA or in a different SA and whether the second admission is to the same or a different hospice provider. The second admission relates to the same patient but is counted as a "new patient admitted" each time the patient is admitted as long as the same admission is not counted twice on a report form. The counting of unduplicated admissions is consistent with the language of the Rule, which requires hospice providers to "indicate the number of new patients admitted during the six- month period . . . ." It also is consistent with the language of the Rule that requires the report form to show "[t]he number of admissions during each of the six months covered by the report by service area of residence." The "service area of residence" is not defined by the Rule. AHCA interprets the term to mean the location of patients when they are admitted regardless of the place that they consider their permanent residence. AHCA's interpretation of the term "service area of residence" is reasonable and appropriate. The fact that admissions are counted for each SA regardless of a patient's normal place of residence, while resident death data is derived from information contained in death certificates showing the deceased person's permanent residence (no matter where the death occurred) does not change this result or improperly skew the hospice use rates. In the course of treatment, a hospice patient may account for two or more admissions to the same or another hospice, in the same or another service area, during a period of time that covers two reporting periods. This could happen for a number of reasons, including but not limited to the following: (a) a patient may temporarily decide that he or she no longer desires hospice services resulting in an admission, a discharge, and second admission to the same or another hospice in the same or another SA; (b) a patient may decide to relocate and receive services in another SA with the same or another hospice resulting in separate admissions in both SAs; and (c) a patient may elect to transfer from one hospice to another hospice in the same SA resulting in a separate admission for each hospice. All Florida hospices, including BBH, count a patient as having generated two admissions when the patient is admitted, discharged, and readmitted to the same hospice in the same SA. They also count a patient as having generated a second admission when the patient transfers or relocates to their hospice from another hospice in the same or another SA. AHCA's report form requires hospices that serve multiple SAs to separate their admissions by SA to enhance the verisimilitude of the counts. Twelve hospice providers, including Covenant, serve multiple SAs in Florida. Under the Rule, multiple SA providers, like Covenant and unlike BBH, count admissions when a patient transfers from the provider's program in one SA to the same provider's program in another SA. The ability to count an admission in both SAs when a patient transfers from one SA to another SA but continues to receive services from the same hospice, does not result in impermissible "double counting" or give multiple SA providers a competitive edge. To the contrary, it is consistent with AHCA's interpretation of an unduplicated admission. More importantly, AHCA's methodology of counting of such admissions is consistent with the method that Medicare uses to count admissions and with the way AHCA counts admissions in determining numeric need for nursing homes, hospitals, and open-heart programs. For the reporting period at issue here, Covenant reported zero admissions based on transfers of its patients between SA 1 and SA 2A. Moreover, there is no persuasive evidence that allowing any multiple SA provider to count transfers of its patients from one of its SAs to another of its SAs as two separate admissions has adversely impacted the fixed need pool determination in this case. Covenant is not the only hospice provider in SA 1 and SA 2A. No doubt, some patients in one of Covenant's SAs transferred to and from Covenant and the alternate providers in SA 1 and SA 2A or other Florida SAs with no corresponding death being recorded in one of Covenant's SAs. Covenant surely served some Alabama patients who sought hospice care in Florida but whose deaths were not counted as resident deaths in any Florida SA. At least for the calendar years 1999 and 2000, Covenant experienced a net in-migration of patients while BBH experienced a net out-migration of patients for the same periods. Even so, there is no persuasive evidence that in- migration and out-migration of patients has affected the validity of the numeric need at issue in this proceeding. AHCA consistently has counted admissions in this manner since the Rule was adopted and implemented. Counting admissions by "service area of residence" as interpreted by AHCA ensures that all patients served are counted, even those who are homeless or have a permanent residence in another state. AHCA's interpretation of an admission based on "service area of residence" also is consistent with Section 400.601(6), Florida Statutes, which provides that hospice services may be provided in "a place of temporary or permanent residence used as the patient's home . . . ." Thus, a patient's residence could be a private home, an assisted living facility, a nursing home, or a hospital regardless of the location of the patient's legal or permanent residence. The State of Florida has an interest in knowing how much hospice care is provided in each SA. The application of the Rule promotes that interest because HPH projects the number of patients in a particular SA who will choose hospice care in the applicable time frame. HP is the number of patients admitted to hospice programs during the most recent 12-month period. HPH and HP measure the utilization of hospice care in a SA and not the number of residents of an SA who will elect hospice care or who are admitted to hospice care. In calculating the numeric need in this case, the number of admissions was based on data for the year ending June 2001. The resident deaths were based on data for the period ending December 2000. The time periods do not match because the Rule requires AHCA to use the most recent mortality data from the Department of Health's Office of Vital Statistics. The time periods are never the same and can differ from six months to one year. Thus, there is no intent under the Rule to have a one-to-one correspondence between the deaths that are used in determining the P factors and the admissions that are multiplied by the factors. Every SA in the state is treated consistently. No SA is disadvantaged by this characteristic of the Rule's need methodology. The batching cycle at issue here is the only one since the Rule was implemented that showed a fixed need for another hospice program in SA 2B. Until now, AHCA has never preliminarily approved any applicant where the net numeric need was only 351. The numeric need projection made in April 2002 showed no fixed need in SA 2B for another hospice program. None of these facts serve to undermine the validity of AHCA's determination of numeric need in this case. The Revised Fixed Need Pool Determination The initial fixed need pool projection published by AHCA did not indicate that there was a numeric need for an additional hospice in SA 2B. However, the initial publication was based on incorrect population projections. AHCA published a revised fixed need pool projection based, in part, on the updated and most current population data. That revision alone would have resulted in a numeric need for an additional hospice program in SA 2B, i.e. HPH - HP equaled 350. However, other corrections also were made based on revisions to semiannual utilization reports of several hospices. BBH's revised report form increased its HP number by four. Another hospice, Hospice of Southwest Florida, reported a substantial revision. The total revisions resulted in a numeric need for one additional hospice program in SA 2B because HPH - HP equaled 351. The revised fixed need pool determination was correctly calculated in accordance with AHCA's application and interpretation of all rules relating to fixed need pool determination. AHCA's interpretation and application of the rules is reasonable and appropriate. Therefore, the fixed need pool projection at issue here is valid and correct. As discussed below, there is no persuasive evidence that BBH over-reported its admissions. BBH's Reported Admissions An admission consists of several components: (a) a physician's diagnosis and prognosis of a terminal illness; (b) a patient's expressed request for hospice care; (c) the informed consent of the patient; (d) the provision of information regarding advance directives to the patient; and (e) performance of an initial professional assessment of the patient. At that point, the patient is considered admitted. A patient does not have to sign an election of Medicare benefits form for hospice care prior to being deemed admitted. BBH reported 858 admissions for the July 2000 through June 2001 reporting period. These admissions included patients who had completed the admission process outlined above. For accounting and billing purposes only, BBH separates its admissions into patients who have authorized the election of Medicare benefits and those who have not made that election. For the latter group, BBH uses the acronym WAP as a billing code. BBH provides WAP patients with services but does not bill them for those services because BBH is unable to report them to Medicare for reimbursement. BBH does not bill patients for services that it has no intention of collecting. In fact, BBH's billing department initially logs all patients in as WAPs. BBH's admission policy states that patients who will not be accepting services immediately should be entered as a WAP with reasons and follow-up dates to initiate regular services. The admission specialist at BBH enters a patient as a WAP then gets the attending physician's signature on the interdisciplinary care plan and certification of terminal illness. The admission specialist also requests the patient's medical record and completes the other admission steps. The WAP designation is not removed until the admission process is complete and the patient has elected the Medicare benefit. The WAP patient is not counted as an admission for purposes of reporting to AHCA until the admission process is complete. Occasionally, a WAP patient dies before the admission process is complete. In that case, the patient is not counted as an admission. Sometimes a WAP patient dies after completing the admissions process but before electing the Medicare benefit or receiving any additional hospice services. It is not necessary for a hospice to develop a plan of care in order for a patient to be considered admitted. An admitted patient has a right to choose or refuse additional services. In such a case, the patient is still counted as an admission for purposes of reporting to AHCA. BBH's practice of including WAP patients who have completed the admission process in its count of admissions is consistent with AHCA's interpretation of the Rule. AHCA's interpretation of the Rule is reasonable and appropriate in this regard. The fact that 10 percent of BBH's admissions are WAP patients while Covenant has no such patients does not change this result. BBH's financial department also is responsible for submitting reports to the Department of Elder Affairs (DEA). Therefore, BBH has filed reports with DEA consistent with its Medicare reports and has not included the WAP patients.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED: That AHCA enter a final order determining the fixed need pool for SA 2B for the January 2003 planning horizon to be one. DONE AND ENTERED this 7th day of November, 2002, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD 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 7th day of November, 2002. COPIES FURNISHED: J. Robert Griffin, Esquire J. Robert Griffin, P.A. 2559 Shiloh Way Tallahassee, Florida 32308 Michael O. Mathis, Esquire Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308-5403 W. David Watkins, Esquire R. L. Caleen, Jr., Esquire Watkins & Caleen, P.A. 1725 Mahan Drive, Suite 201 Post Office Box 15828 Tallahassee, Florida 32317-5828 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3431 Tallahassee, Florida 32308
Findings Of Fact The Parties. University is a 180-bed skilled nursing home located in Gainesville, Florida. The facility was licensed by the Department and all 180 beds were Medicaid certified at all times relevant to this proceeding. University's facility is managed by Covenant Care Corporation. The Department is the State agency designated the responsibility for administering Florida's Medical Assistance (Medicaid) Program. Section 409.266, et. seq., Florida Statutes. The Office of Licensure and Certification is the office of the Department responsible for licensing and the certification of nursing homes in Florida. 1989 Annual Survey. The Office of Licensure and Certification (hereinafter referred to as "OLC"), conducted an annual survey of University's nursing home facility for 1989 from February 28, 1989, through March 3, 1989, to determine the extent of University's compliance with federal and state laws. At the conclusion of the 1989 annual survey the Department issued a Statement of Deficiencies and Plan of Correction, Form HCFA-2567 (10-84) (hereinafter referred to as the "Annual Survey Statement"). The Annual Survey Statement was provided to University. A number of deficiencies in the operation of University's facility were noted on the Annual Survey Statement. In relevant part, the deficiencies involved the need for University to improve the manner in which patient rehabilitation care was provided. The Annual Survey Statement did not indicate that University was required to add staff to its facility to correct the deficiencies. The Annual Survey Statement included space for University to indicate how it intended to correct the deficiencies noted by OLC. University completed this portion of the Annual Survey Statement noting how it intended to correct each deficiency and the date by which the deficiency would be corrected. University indicated on the Annual Survey Statement that it would correct the deficiencies by May 12, 1989. University did not indicate that it intended to add staff to its facility in order to correct any deficiency noted on the Annual Survey Statement. As part of its plan of correction, University drafted and adopted a Rehabilitative and Restorative Care Program (hereinafter referred to as the "Care Program"). The Care Program provided for the employment of a "Rehabilitative-Restorative Registered Nurse" and "Rehabilitative-Restorative Certified Nursing Assistant(s)". The Annual Survey Statement with the corrections University intended to make noted on it was submitted to OLC. A copy of University's Care Program was also provided to employees of the Department as part of University's corrective plan. The Department, through OLC, accepted University's corrections and its Care Program. By "accepting" University's corrections and Care Program, OLC agreed that the corrections addressed the deficiencies noted in the Annual Survey Statement. OLC did not, however, inform University that it "approved" of the corrections University indicated it intended to make or the Care Program. May 31, 1989 Survey. On May 31, 1989, OLC personnel surveyed University's facility in response to a complaint the Department had received concerning alleged inadequate certified nursing assistants at University. Certified nursing assistants perform "hands on" rehabilitation work at skilled nursing homes. Rehabilitation work performed by certified nursing assistants includes assisting residents to walk, eat and with other activities of daily living. A Statement of Deficiencies and Plan of Correction (hereinafter referred to as the "May Survey Statement") was issued by OLC as a result of the May 31, 1989, survey. The May Survey Statement was provided to University. The May Survey Statement noted the following deficiencies: NH-106. Review of facility staffing for five of seven days selected at random revealed significant shortages of non-licensed nursing staff as evidenced by but not limited to: Insufficient staff to meet the personal care and hygiene needs of the residents. Insufficient staff to monitor the nutritional needs of the residents ([?] residents with significant weight loss). Insufficient staff to implement the restorative nursing program so as to maximize the optimal level of independence enjoyed by each resident. Ref: 405.1124(c)(B)3; 10D-29.108(4) The overall deficiency of University's facility noted in the May Survey Statement was based upon OLC's determination that, although University had sufficient certified nursing assistants scheduled to work during the seven shifts reviewed, an insufficient number of certified nursing assistants actually reported to work during five of those shifts. This determination formed the basis of OLC's determination that there was "insufficient staff" and not a determination that additional staff needed to be scheduled for work. University indicated in the May Survey Statement that it intended to take the following actions to correct the deficiencies noted by OLC: 5 bonus, recruitment and retention programs established along with the use of nursing pools (see attached). Seven new positions above the required standards established and filled (see attached staffing schedule). New assignment policy assures monitoring of feeding (3 meals a day) 7 days a week. New Rehab. R.N. and five restorative aides now assigned to restorative programs (see attached). The May Survey Statement with the corrections University intended to make noted on it was submitted to OLC. The Department, through OLC, accepted University's corrections. Again, by "accepting" University's corrections, OLC agreed that the corrections addressed the deficiencies noted in the May Survey Statement. OLC did not, however, inform University that it "approved" of the corrections University indicated it intended to make. June 5, 1989, Survey. On June 5, 1989, OLC personnel visited University's facility. As a result of this survey, a moratorium on admissions to University's facility was imposed. University was informed of the moratorium at the conclusion of the June 5, 1989, survey and in a letter from the Department dated June 6, 1989. In the letter of June 6, 1989, University was informed, in pertinent part: This moratorium is being imposed . . . because of the serious deficiencies identified by personnel from the Pensacola Office of Licensure and Certification during a survey conducted on June 5, 1989. These deficiencies include but are not limited to the following: Number of staff insufficient to meet minimum standards. Lack of adequate staff to meet resident needs. Lack of adequate monitoring of changes in residents' conditions. Lack of nutritional monitoring. [Emphasis added]. University and the Department ultimately entered into a Joint Stipulation resolving the issues which gave rise to the moratorium. Pursuant to the Joint Stipulation, the Department rescinded the moratorium effective June 29, 1989. Although the Joint Stipulation did not specifically require that University add staff to its facility, it did provide, in pertinent part, the following: 3. Effective upon signing this stipulation, Respondent [University] shall maintain the minimum staffing standards for licensed and non- licensed nursing personnel to meet the resident care needs. June 22-23, 1989, Survey. The Joint Stipulation called for interim visits to University's facility by OLC. An interim visit was conducted on June 22-23, 1989. A Statement of Deficiencies and Plan of Correction (hereinafter referred to as the "June Survey Statement") was issued by OLC as a result of the June 22-23, 1989, survey. Among other things, OLC noted in the June Survey Statement the following deficiency: NH-106 Progress has been made but "NOT CORRECTED" as evidenced by: Continued insufficient staff to monitor nutritional needs or residents (see F-181) implement restorative nursing program. Ref: 405.1124(c)(b)3 10D-29.108(4) Class III 7-23-89 The June Survey Statement was provided to University. University indicated in the June Survey Statement that it intended to take the following actions to correct the deficiency noted in finding of fact 29: Five Rehab. Aides (in addition to required number of certified aides) are monitoring all meals. In addition to Two new positions of Resident Care Supervisors whose duties include meal monitoring. The June Survey Statement with the corrections University intended to make noted on it was submitted to OLC and was "accepted" by OLC in the same manner that the Annual and May Survey Statements were accepted. Additional Staff at University's Facility. Between May, 1989, and August, 1989, University established the following positions and employed individuals for those positions: 1 Rehabilitation Coordinator 5 Rehabilitation Aides 7 Certified Nursing Assistants 4 Resident Care Supervisors University also employed the services of a nursing consultant and used pooled nursing staff. University incurred the following costs associated with the newly created positions, the pooled nursing staff and the nursing consultant: Rehabilitation Coordinator $ 26,817.78 Rehabilitation Aides -0- Certified Nursing Assistants 121,919.60 Nursing Consultant 25,000.00 Resident Care Supervisors 60,559.38 Pooled Nursing Staff 183,040.00 Total $417,336.76 The Rehabilitation Aide positions were filled with 5 employees who were serving as certified nursing assistants. Medicaid Reimbursement. The method by which Medicaid providers are reimbursed for their services is provided for in the Florida Title XIX Long-Term Care Reimbursement Plan (hereinafter referred to as the "Reimbursement Plan"). The Reimbursement Plan is a "cost-based prospective plan." The rate of reimbursement is determined by calculating a provider's historical costs for a specified reporting period and factoring in an inflation index to estimate the provider's future costs. The provider is then paid a rate of Medicaid reimbursement based upon the projected future costs. In Florida, prospective rates are calculated January 1 and July 1 of each year. During a reimbursement period a providers' actual expenditures may be greater or less than the estimated costs for the period. If actual expenditures are less, the additional amount the provider receives may be kept. If actual expenditures are more, the provider must absorb the difference. The Reimbursement Plan allows providers to request and receive a rate change between reporting periods if certain exceptional circumstances are met. The rate change is referred to as an "interim rate change." The requested rate increase at issue in this case was a request for an interim rate change. Section IV, J.2. of the Reimbursement Plan provides the following concerning requests for interim rate changes: Interim rate changes reflecting increased costs occurring as a result of patient care or operating changes shall be considered only if such changes were made to comply with existing State or Federal rules, laws, or standards, and if the change in cost to the provider is at least $5000 and would cause a change of 1 percent or more in the provider's current total per diem rate. [Emphasis added]. The Department stipulated that the requirements of the Reimbursement Plan that interim rate changes involve a change in cost of at least $5,000.00 and cause a change of 1% or more have been met in this case. Interim Rate Increase. On August 23, 1989, the Controller of Covenant Care Corporation requested a Medicaid interim rate increase from the Department in University's Medicaid funding. This was the first time during 1989 that University requested an interim rate increase. University had not sought approval of an interim rate increase at any time while the surveys conducted during the first 8 months of 1989 were being conducted. Nor had the Department indicated that it would approve a rate increase as a result of its surveys, the deficiencies it found at University's facility or the acceptance of University's plan of correction. The request was reviewed by the Medicaid Cost Reimbursement Analysis section of the Department in consultation with OLC. University requested a rate increase for the $417,336.76 of additional costs incurred by University for additional staff during 1989. This resulted in an increase in per diem of $6.90 per patient day. The rate increase requested by University was very large. If approved, University would have the highest per diem patient care cost of all Medicaid approved nursing homes in the Department's District 3 where University is located. By letter dated October 19, 1989, the Department informed University that it would allow an increase in rate of $1.16 per patient day and that the additional requested increase of $5.74 was denied. The approved increase was effective August 12, 1989. The increase in rate approved by the Department was attributable to 7 new certified nursing assistant positions. The Department was confused during its review of the rate increase request and during the formal hearing of this case about the number of newly established certified nursing assistant positions and rehabilitation aide positions. The Department believed that there were only 7 new positions created. The evidence established that there were a total of 12 newly created positions: 5 rehabilitation aide positions (which were filled by 5 existing certified nursing assistants) and 7 new certified nursing assistant positions. The 7 new certified nursing assistant positions and the 5 certified nursing assistant positions which were vacated by employees filling the 5 new rehabilitation aide positions were filled by new employees. The amounts expended by University for these 5 new rehabilitation aide positions were included with the amounts expended for the 7 new certified nursing assistant positions. I. Standard Imposed by the Department. During the period of time at issue in this proceeding, University's facility met the nursing staff requirements of Rule 10D-29, Florida Administrative Code. The nursing staff requirements of Rule 10D-29, however, are minimum requirements. Nursing home facilities may have to provide nursing staff in excess of the requirements of Rule 10D-29 in order to provide proper resident care. The Department informed University, as a result of the surveys conducted by OLC during 1989, that residents at University's facility were not receiving adequate care. The Department indicated on a number of occasions that inadequate care was being provided because of "insufficient staff." The Department did not, however, inform University specifically that it needed to add staff positions at its facility. When used by OLC, the terms "insufficient staff" can mean that a facility has an insufficient number of employees assigned and hired to work on shifts. "Insufficient staff" may also mean that, although a sufficient number of employees have been assigned and hired to work on shifts, the employees are not properly carrying out their tasks. In the latter instance, required tasks may not be carried out because an insufficient number of the employees who were scheduled to be present were actually at work or because those present were simply not working adequately. When the Department uses the terms "insufficient staff" to mean that an insufficient number of employees were assigned and hired, then it would be appropriate to hire additional staff. When the Department uses the terms "insufficient staff" to mean that required tasks are not being carried out because an insufficient number of employees were present or because those employees present were simply not working adequately, then it would not be appropriate to hire additional staff. In this case the Department did not consistently inform University what it meant by "insufficient staff." In some instances (i.e., the May Survey Statement) the Department did clearly indicate that it meant that, although a sufficient number of employees were assigned and hired to work, an insufficient number of employees actually were at work. On other occasions, however, this was not the clearly expressed intent. The Department's determination that University needed to improve the quality of the care it was providing to its residents and its use of the terms "insufficient staff" were reasonably interpreted by University to mean that University had an insufficient number of employees scheduled to provide the care required by the Department. Therefore, it was reasonable for University to conclude that it needed to increase its staff to some extent to meet the standards imposed upon it by the Department. This finding of fact is consistent with the Department's determination that an interim rate increase based upon an additional 7 certified nursing assistant positions established at University's facility should be granted. The crucial determination in this case is a determination of the extent to which University should have reasonably added staff in response to the Department's surveys. Based upon the weight of the evidence, it was reasonable for University to establish the 5 new rehabilitation aide positions and the 7 new certified nursing assistant positions in response to the Department's findings of deficiencies during its surveys of University's facility during 1989. These positions resulted in a total increased cost of $121,919.60 and a per diem increase of $2.02. Although it may have been good health planning to establish the rehabilitation coordinator position and the 4 resident care supervisor positions, and to hire a nursing consultant and use pooled nursing staff, it was not reasonable for University to conclude that it was being required to take these steps by the Department. Therefore, University did not incur the costs associated with these staffing changes in order to "comply with existing State or Federal rules, laws, or standards " University did not reasonably rely on the Department's findings of deficiencies or any comments or actions of Department employees during 1989, in establishing the rehabilitation coordinator position or the 4 resident care supervisor positions, or in employing the nursing consultant or pooled nursing staff. The $4.88 of increased per diem and the costs associated with these positions should not be reimbursed as part of an interim rate increase.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Department granting University an interim rate increase of $2.02 and denying the remaining $4.88 of interim rate increase requested by University. DONE and ENTERED this 24th day of April, 1990, in Tallahassee, Florida. LARRY J. SARTIN 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 24th day of April, 1990. APPENDIX The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. University's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1. 2 3. 3 4. 4 5 and 7. 5 15 and 17-18. 6 20. 7 22. 8 Not relevant to this proceeding. 9 See 50-58. 10 24. 11 Hereby accepted. 12 27. 13 See 31. 14 See 50-58. 15 11 and 13-14. 16 Testimony is taken out of context. 17 Not supported by the weight of the evidence. 18 See 34. See 49. See 34 and hereby accepted. 21 41. 22 45 and 47. 23 34. 24-25 Hereby accepted. 26-31 Not totally supported by the weight of the evidence. See 50-58. 32 36-41. 33 Not totally supported by the weight of the evidence. See 50-58. The Department's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1-2. 2 3. 3 4-6 and 9. 4 5 and hereby accepted. 5 6-7. 6 7-8. 7 Hereby accepted. 8 9. 9 10. 10 12. 11 14. 12 15. 13 16. 14 11. 15 17-18. 16 18-19. 17 Hereby accepted. 18 20. 19 21-22. 20 43. 21 34 and hereby accepted. 22 23-24. 23 25. 24 25 and 43. 25 27 and 29. 26 42 and hereby accepted. 27 34 and 45. 28 36. 29 37. 30 38. 31 39. 32 Hereby accepted. 33 39. 34 40. 35 39. 36 41. 37-38 Hereby accepted. 39 44. 40-42 Hereby accepted. 43 18-19, 29 and 51-55. 44 47-48 and 55. 45 46. 46 See 51-58. See 57. Hereby accepted. 49 47-48. Copies Furnished To: Grafton B. Wilson, II, Esquire Post Office Box 1292 Gainesville, Florida 32609 Carl Bruce Morstadt, Esquire Chief Medicaid Counsel Department of Health and Rehabilitative Services 1317 Winewood Boulevard Building 6, Room 230 Tallahassee, Florida 32399-0700 Sam Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0500
The Issue The issue in this proceeding is whether DHRS should approve the application for certificate of need of any one or more of the January, 1987, applicants for community nursing home beds in Hillsborough County. STIPULATIONS The parties stipulated to the following facts: All applicants timely filed their respective letters of intent, applications and omission responses with DHRS and the appropriate local health council for the January, 1987, batching cycle. The petitioners each timely filed a petition requesting a Section 120.57(1) hearing and have standing in this proceeding. The parties agree the Division of Administrative Hearings has jurisdiction over this matter and the parties. The CON application content requirements of Section 381.494, Florida Statutes (1985), apply as that was the statute in effect at the time the applications were filed. The review criteria in Section 381.705(1) and (2), Florida Statutes (1987), apply to this proceeding. The following statutory criteria have been met orare not applicable in this proceeding: Section 381.705(1)(d), (f), (g), (j) and (k) and all of Section 381.705(2), Florida Statutes (1987). Except for the effects the project will have on clinical needs of health professional training programs, the extent to which services will be accessible to schools for health professionals and the availability of alternative uses of such resources for the provision of other health services, Section 381.705(1)(h) is in dispute and remains to be litigated.
Findings Of Fact SUMMARY DESCRIPTION OF THE PARTIES. HCR's application (CON Action No. 5000) is to construct a 120-bed nursing home consisting of 40,000 square feet at a cost of $3,964,000.00, or $33,033 per bed (including adult day care; $32,1127 when the cost for day care is excluded.) The HCR application describes special programs and services for Alzheimer's Disease and related disorder patients in a distinct special care unit and an Alzheimer's day care center, both Identified in the plans submitted by HCR showing special design elements. HCR also proposes to offer sub-acute care and respite care. The HCR nursing home will have 2.08 (120/57.6) patients per staff, which includes the assistant director of nursing and occupational therapy and recreational therapy aides listed by HCR in its application. FCP submitted an application for 30 nursing home beds to be constructed as a part of a retirement facility (CON Action NO. 4993). The 30 beds will comprise approximately 17,558 square feet at a cost of $1,549,599.00, or $51,653 per bed. The Florida Country Place application proposes a patient staff ratio of approximately 2.3 (30/13). Palm Court submitted an application for a 60-bed addition to its existing 120-bed facility (CON Action No. 4987). The 60-bed addition would consist of 15,260 square feet at a cost of $1,472,435.00, or $24,571 per bed. The Palm Court facility is located in Plant City in the far eastern portion of Hillsborough County, near the Polk County line. Palm Court proposed a ratio of 2.31 (60/26) patients per nursing staff. Manor Care submitted an application (CON Action No. 5006) to add 60 beds to an approved certificate of need for 60-beds for which construction has not yet begun. The area to be added would consist of 19,000 square feet at a cost of $2,187,045.00, or $36,451 per bed. The Manor Care addition would include a distinct special care unit for Alzheimer's Disease and related disorder victims and the 60-bed addition would provide a patient staff ratio of 1.98 (60/30.3), which includes a half-time physical therapy aide, a half-time recreational therapy assistant and an assistant director of nursing. Forum submitted an application (CON Action No. 4999) to construct a 120-bed nursing home as a part of a retirement complex. The nursing home element will consist of 49,283 square feet at a cost of $5,053,301.00, or $42,111 per bed. Forum proposes a staffing ratio of 3.0 patients per staff FTE. Forum proposed to provide respite care and hospice care, and adult day care and meals on wheels during or after the second year of operation. HHL submitted an application (CON Action No. 4978) for 120-bed nursing home consisting of 37,700 square feet at a cost of $3,900,000.00, or $32,500 per bed. The HHL facility proposes 2.27 (120/52.8) patients per staff, which includes the rehabilitation assistants and the assistant director of nursing listed by HHL. HHL proposes sub-acute care, respite care, programs for Alzheimer's Disease victims (but not a distinct special care unit) and an Alzheimer's adult day care program of from four to six patients. Cypress submitted an application (CON Action No. 5004) to construct a 60-bed nursing home in Sun City Center in southeastern Hillsborough County. The nursing home described in the application would contain 24,069 square feet at a cost of $2,125,000.00, or $35,419 per bed. But Cypress' estimated construction cost per square foot of $49.81 does not account for inflation and is unreasonably low. Median cost of nursing home construction in Florida is $55 per square foot. It is estimated that Cypress' construction cost estimate is 10-15 percent too low. Assuming that the cost estimate is 12.5 percent too low, the cost of construction would increase to approximately $2,274.485 or $37,914 per bed. Cypress did not detail any special programs in its application and proposed 2.45 (60/24.5) patients per staff. However, this ratio is questionable in view of the confusion surrounding Cypress' evidence regarding staffing and the apparent inaccuracy of the staffing presented by the application. DHRS is the state agency that preliminarily reviewed and passed on the applications and is responsible for final agency action on them. DHRS PRELIMINARY REVIEW AND ACTION. HCR, FCP, Palm Court, Manor Care, Forum, HHL, Cypress, and others filed their applications for community nursing home bed certificates of need for Hillsborough County in the January, 1987, batching cycle. On June 18, 1987, DHRS issued its State Agency Action Report (SAAR), in which it denied all of the applications except HCR's, FCP's and VHA/Oxford's (for 120 beds). Review of the SAAR in light of the evidence introduced at the final hearing indicates that DHRS erred in reviewing the applications in at least the following respects: Manor Care. -- The SAAR indicates that DHRS was not cognizant that Manor Care had a final approval for a 60-bed nursing home CON (No. 4155) to which to add the 60 beds applied for in this case, CON Action No. 5006. The SAAR was somewhat critical of the Manor Care proposal for being a two-story structure. It appears that DHRS confused the proposal to add 60-beds (CON Action No. 5006) with a parallel contingent proposal to build a new 120-bed facility (CON Action No. 5005), which Manor Care eventually withdrew during the final hearing. Actually, CON Action No. 5006, added to the approved CON No. 4155 for a new 60-bed nursing home, would result in a one-story 120-bed nursing home. On page 7 of the SAAR, DHRS indicated its understanding that Manor Care had not specified a location for its proposal. Later, on page 11, the SAAR acknowledges the true fact that Manor Care's proposed nursIng home would be located in the Northwest Hillsborough County subdistrict, which is the Local Health Plan's first priority for location of additional nursing home beds in DHRS District 6. HHL. The SAAR (p. 13) states that Convalescent Services, Inc. (CSI), the management corporation HHL and other limited partnerships for which the Kellett Brothers are the general partners, has no other nursing homes in Florida. While technically correct, Kellett limited partnerships do have other nursing homes in Florida. Staffing tables on page 17 of the SAAR are incorrect, attributing no LPNs to the HHL proposal instead of 6 and only 36 aides instead of 38. On page 18 of the SAAR, the table of patient privileges incorrectly states that the HHL applications had no patients' bill of rights. Also on page 18 of the SAAR, DHRS incorrectly omitted adult day care and community outreach from the table of programs provided by HHL. On page 26 of the SAkR, it gives HHL's private pay private room rate ($101) as its semi-private room rate (actually $69.92) The SAAR Review Matrix incorrectly omits adult day care, community outreach and sub-acute care from HHL's proposed programs and omits HHL's patients' bill of rights. Forum. -- The SAAR starts out on page 3 by misidentifying Forum as being affiliated with Hospital Corporation of America. On pages 4, 6 and 15, the SAAR incorrectly fails to recognize that a retirement living center (apartments) is part of the overall development Forum proposes. The semi-private room rate of $110 attributed to Forum's application on page 26 of the SAAR is wrong; it should have been $85. Cypress. -- The Review Matrix in the SAAR failed to identify several services and programs Cypress stated in its application that it would offer. The matrix did not recognize that Cypress would offer social activity functions within the community, would offer rehabilitation, would provide some Alzheimer's type services, (which Cypress called supportive care and mentally frail services) and physically frail services. Cypress also spoke of hospice care and respite care in its application, as well as specialized rehabilitation, physical therapy, and speech therapy. Cypress also spoke of community outreach programs, psychiatric services, home health agencies, and numerous other areas that were not recognized by DHRS in its matrix. However, there are valid reasons for some of these omissions. On May 9, 1988, the first day of the final hearing, VHA/Oxford withdrew its application. On the afternoon of May 17, 1988, DHRS announced it was supporting the grant of Palm Court's application since VHA/Oxford had withdrawn. But the only evidence to support the new DHRS position was through the testimony of Reid Jaffe, DHRS Health Services and Facilities Consultants Supervisor, who did not express a personal opinion but acted as a messsenger to relay the positions taken by others at DHRS who did not testify. NUMERIC NEED. Rule 10.5.011(1)(k), Florida Administrative Code, is a methodology for calculating net numeric need for nursing home beds. Under the methodology, gross numeric need is calculated essentially by multiplying the population of two age cohorts projected on the planning horizon by a use rate. The use rate is calculated by divIding current population by the current number of licensed beds. To obtain net need in a health planning sub-district, the methodology first prorates the gross need in the entire district, using the proportion of current licensed beds in the subdistrict to the current licensed beds in the district, and adjusts the resultant by a current occupancy rate factor (occupancy rate /0.90); then, the number of licensed beds, plus 90 percent of the number of approved beds in the subdistrict, are subtracted from the adjusted gross need in the subdistrict. With three exceptions, the parties agree on how net numeric need is calculated under the rule methodology. The parties disagree only on the current licensed bed count, the current approved bed count, and the occupancy rate at one facility that has both community nursing home beds and sheltered nursing home beds. (Sheltered nursing home beds generally are not factored into the formula.) As for the licensed bed count, the issue is whether The Home Association, a 96-bed facility in Hillsborough County, should be included as a licensed community nursing home facility or excluded as a sheltered facility. At hearing, all of the parties presenting evidence on the issue except Forum counted The Home Association's 96 beds as licensed community beds. Forum excluded The Home Association from the licensed bed count because it was not listed on the Department's Community Nursing Home Report for January 1, 1988. This same report reflects three other facilities in Hillsborough County in which the beds were formerly sheltered but as of August 1, 1987, began to be counted by the Department as community beds. Forum conceded, however, that if the Department recognizes The Home Association as a community facility, then it would be appropriate to include those beds in the licensed bed count under the rule formula. In its proposed recommended order, even Forum agrees that The Home Association beds are included in the licensed bed count. Two issues are presented relating to the inventory of approved beds under the rule formula: the date at which approved beds are to be counted; and whether the 120 beds under Careage CON #4714 and Manor Care's 60 beds under CON #4155 were approved at the pertinent time. On the first question, Forum again stands alone. In the face of a rule which is silent as to the date on which approved beds are to be counted, Forum suggests that they be counted cn the same day licensed beds are counted, December 1, 1986, for this batch. All other interested parties follow the Department's general practice of counting approved beds as of the date the State Agency Action Report for this batch was executed, June 18, 1987. Forum supports its position on the ground that use of the same date for both licensed and approved beds avoids the prospect that beds may be "lost" from the calculation if they are not licensed as of December 1, 1986, but become licensed before June 18, 1987, and therefore are no longer approved beds on that latter date. The argument is meritless. There is no evidence of any "lost" beds under this policy for this batch. Indeed, the evidence is that such beds are not lost: 120 beds at Carrollwood were licensed on December 15, 1986, after the December 1 licensed bed cut-off and before the June 18, 1987, SAAR date. These beds were included in the approved bed inventory on June 18, 1987. The Department's policy under its numeric need rule is to count approved beds as of the execution date of the SAAR. Under this policy, the need for beds in the future is predicated on the number of beds currently or soon to be available to meet the need. When more than seven months can elapse after licensed beds are counted but before the agency decision is formulated, it makes sense to count beds approved during this intervening period. A 120-bed award to Careage in the prior batch was published by DHRS in the Florida Administrative Weekly of January 23, 1987, reflecting approval on January 7, 1987. However, DHRS then received criticism.of the approval, and a new supervisor in charge initiated a second review of the circumstances and of the Careage approval. The second review did not conclude until after June 18, 1987. When it did, DHRS re- affirmed its decision to approve Careage and issued a CON for 120 beds on August 18, 1987. Although the Careage CON was issued after June 18, 1987, DHRS proved that there is a rational basis for including it in the approved bed count under these unusual circumstances. The Careage CON represents 120 beds approved in the batching cycle preceding the one at issue in this case. Counting the 120 beds as approved promotes sound health planning. The projection of net need on the planning horizon is predicated on the most accurate count of approved beds from prior batching cycles that can be anticipated to come on line in the near future. As of June 18, 1987, there were 308 other beds approved but not yet licensed in Hillsborough County. Included among these 308 approved beds are 60 beds awarded to Manor Care under CON 4155 by Stipulation dated March 30, 1987. By mistake, DHRS did not count Manor Care's 60-bed CON in the SAAR. This mistake was not discovered, and DHRS served discovery responses and took a final position on need, as required by prehearing orders, that did not count the Manor Care CON. But this mistake f fact should now be corrected, even if it could have been discovered earlier through the use of due diligence, so that the health planning decision resulting from these de novo proceedings will be predicated on the correct facts. See Gulf Court Nursing Center v. HRS, 483 So.2d 700, 712 (Fla. 1st DCA 1986). It is appropriate to include Manor Care's finally approved 60 beds in the rule formula. Adding Careage's 120 beds, the total approved bed count is 428. The final variation accounting for the differences in the parties' calculations under the formula is the manner in which the occupancy rate should be computed at John Knox Village, a facility containing both community and sheltered beds. The issue is whether the patient days in this mixed facility should be prorated between the two types of beds or whether the full patient days for both types of beds should be used in calculating the occupancy rate in the facility. There is no separate report of occupancy by bed type for this mixed facility. The number of patient days delivered in the community beds at John Knox is not known. If the patient days for the entire facility are prorated according to the percentage the community beds bear to the total number of beds, there is a necessary but wholly unsupported and speculative assumption that the proportion of patient days delivered in community beds is identical to the proportion of community beds. DHRS historically has been unwilling to make this assumption and has always included the total number of beds and patient days in mixed facilities to determine the occupancy rate under the community bed rule. The rationale supporting this policy has been appropriately explicated on the record. The use of prorated patient days to determine occupancy in mixed facilities, as suggested by DHRS for the first time at final hearing, also is a change from the position the Department took when exhibits were exchanged and the prehearing stipulation was executed and then relied on by the parties. Because the Department, as a party litigant, did not prorate in its prehearing submissions, it cannot do so at hearing in the absence of fraud, mistake of fact, or newly discovered evidence. No evidence of any such extenuating circumstances was presented. The only explanation DHRS gave for changing its treatment of the John Knox occupancy data was that more accurate recent data (using daily census data instead of first day of the month census data) furnished by the Local Health Council was prorated. But DHRS just as easily could have prorated the older, less accurate data if it had chosen to take that position at the time the parties were required to take final positions in prehearing procedures. The Department, therefore, is precluded from adopting a posture at hearing relating to the treatment of patient days in mixed facilities which is different from that reflected in the Department's prehearing stipulation and exchanged exhibits. In summary, the appropriate numeric need calculation must include The Home Association in licensed beds, count both Careage's 120-bed CON and Manor Care's 60-bed CON in the approved bed count, and use the full John Knox bed complement and patient days in determining the Hillsborough County occupancy rate. Using these factors in the rule methodology, the net need for community nursing home beds in Hillsborough County for the January, 1990, planning horizon is 231, as reflected in the calculation included in the attached Appendix To Recommended Order, Case Nos. 87-3409, etc. Rule 10-5.011(1)(k), Florida Administrative Code, provides that DHRS normally may not approve more beds than the numeric net need calculated under rule methodology. In this case, none of the circumstances specified in the rule that would justify exceeding the numeric net need were proven by the evidence. At the same time, the rule does not require DHRS to fill all, or as much as possible, of the numeric net need by attempting to "mix and match" applications to come as close as possible to the calculated number. LOCAL GEOGRAPHIC NEED PRIORITIES. The current, 1985 District VI Local Health Plan provides that, after consideration of numeric bed need under the rule need methodology, its "priority need rankings" should be considered in the competitive review for new nursing homes. Hil1sborough County, Northwest, is priority rank number one. HCR, FCP, Manor Care, Forum and HHL all propose to locate their nursing homes there. Cypress proposes to locate in Sun City Center and Palm Court is in Plant City, both in Hillsborough County, Southeast, an area ranked fifth in priority in District VI. Plant City is close to Polk County, which the Local Health Plan designates as the fourth ranked area in priority. Cypress proposes its 60-bed nursing home approximately 1/4 mile down the road from an existing nursing home called Sun Terrace, operated by CSI. Quality of care concerns have arisen due to rapid fill-up of 60 additional beds recently licensed at Sun Terrace and opened in September, 1987. See Findings of Fact 83-87, below. As a result, Sun Terrace has imposed on itself a moratorium on new admissions until quality of care concerns can be addressed. In part as a result of the moratorium, Sun Terrace's occupancy rate at the time of the final hearing was only approximately 65 percent, leaving 42 empty beds. MEDICAID NEED. One of the three major considerations for competitive review of nursing home CON applications in the Longterm Care section of the 1985-1987 State Health Plan is "resource access." Except as reflected in the priority rankings, geographic access is not an issue in this proceeding. (Priority/Policy 7 of the Local Health Plan, setting a goal of providing for nursing home services within 30 minutes travel time of 90 percent of urban residents and within 45 minutes travel time of 90 percent of rural residents, already has been achieved in District VI.) But, to address concern for financial access, Priority/Policy 2 of the Local Health Plan provides that applicants "should commit, at a minimum, to serve Medicaid eligible patients in proportion to the representation of elderly poor in the subdistrict." In Hillsborough County, Northwest, where all but two of the applicants propose to locate, the elderly poverty rate is 18.6; in Hillsborough County, Southeast, where Cypress and Pal:n Court would be located, the elderly poverty rate is 15.6 percent. The applicants propose to commit the following percentages of their nursing home beds to the care of Medicaid- 4 eligible patients: HCR, 70 percent; FCP, 70 percent; Manor Care, 30 percent; HHL, 45 percent; Palm Court, 70 percent; and Cypress, approximately 10 percent. Cypress proposed in its application to commit 10 percent of its beds for Medicaid use. It attempted to update its application to provide for a 15 percent Medicaid commitment. The update was said to have been the result of a decrease in the average age of the residents of Sun City Center, Cypress' proposed primary service area, from 73 to 70. But the percentage was calculated by first estimating 60 percent private pay and "backing down" to a Medicare percentage of 25 percent, leaving 15 percent Medicaid. The evidence was persuasive that this attempted update was not due to extrinsic factors. See Conclusions of Law 20 to 25, below. Forum has committed only to have 50 percent of its beds Medicaid- certified and to meet the requirements of Priority/Policy 2. Although Priority/Policy 2 is written as a minimum Medicaid percentage, no evidence was presented from which to determine how high a percentage of Medicaid commitment is desirable. There was, e.g., no evidence on which to find that a Medicaid percentage as high as four times the elderly poverty rate is more desirable than a percentage approximately equal to or perhaps just a bit higher than the elderly poverty rate. To the contrary, the only evidence on the subject was that DHRS does not now consider the Medicaid percentage to be as important as it was considered to be in the past and that DHRS now just checks to see that the percentage approximates the elderly poor rate in the County. NEED FOR ALZHEIMER'S DISEASE PROGRAMS. Description Of The Disease And The Need. There is a need in Hillsborough County for additional nursing home beds and services for Alzheimer's Disease and related disorder victims. There is no known nursing home in Hillsborough County which provides a distinct care unit for Alzheimer's Disease and related disorder victims. There is an estimated unmet need by Alzheimer's patients for nursing home care in Hillsborough County of approximately 1,271 by July, 1989. DHRS has recommended that "preference should be given to applicants for new nursing home beds which propose the development of special Alzheimer's units" and "greater preference should be given to units that will also provide adult day care and/or respite care." Alzheimer's Disease is a brain disorder that was discovered at the turn of the century. It primarily affects persons over the age of 60. The term "related disorders" is used because some non-Alzheimer's disorders mimic Alzheimer's Disease symptoms and create many of the same needs for specialized care. Typically, Alzheimer's Disease results in gradual memory loss and, as memory loss progresses, results in the need for ever- increasing personal care. In the earlier stages, the victim is often in reasonably good physical condition and simply exhibits signs of recent memory loss. However, as memory loss increases, various activities of daily living are disrupted. Victims encounter more serious physical problems and exhibit symptoms such as wandering, significant weight loss, clumsiness, incontinence and antisocial behavior. In the last stages of the disease, the victim requires increasingly intense medical attention, becomes totally dependent on others, and may eventually require total skilled nursing care. The intensity of care required for the Alzheimer's Disease and related disorder victim increases as the disease progresses. In early stages, the victims are typically cared for at home by a family member. The nature of care required for an Alzheimer's Disease or related disorders victim is very exhausting for the care giver. Toward the end of the first stage of the disease when the victim requires increasing supervision, the victim can be maintained longer in the home if there is available to the care giver some form of occasional rest, such as adult day care or respite care. Adult day care and respite care provide opportunities for the primary care giver to "take a break". See Findings of Fact 133 to 135, below. An Alzheimer's Disease patient usually requires inpatient nursing home care late in the second stage of the disease. If the patient is ambulatory, he often exhibits a wandering behavior. Approximately 50 percent of the Alzheimer's victims admitted to a nursing home have the potential to wander. Ultimately, Alzheimer's victims become bed-ridden and require skilled or sub- acute nursing home care, including tube feedings, cathethers, and artificial life support. Historically, ambulatory Alzheimer's patients in nursing homes have been mixed with other patients. The Alzheimer's victim has often disrupted life in the nursing home because of the victim's wandering, incontinence, confusion, and socially unacceptable behavior. Because of these characteristics, some nursing homes avoid admitting Alzheimer's patients and others control problem behavior with sedation and physical restraint. A separate Alzheimer's care unit enables the nursing home to utilize special techniques to manage the Alzheimer's disease victim and allows the victim to maintain his cognitive capabilities for as long as possible, without restraint and sedation. Nursing home patients who do not suffer from Alzheimer's and related diseases are often agitated and disrupted by the Alzheimer's patients' unacceptable social behavior. A separate unit for Alzheimer's Disease victims accommodates the needs of the non-Alzheimer's patient by eliminating unpleasant, often violent encounters between dementia victims and other patients. Distinct Alzheimer's special care units provide better care for Alzheimer's disease and related disorder victims for several reasons. A separate unit eliminates the tendency of the Alzheimer's disease patient to disrupt the remainder of the nursing home. A separate unit provides a smaller, safer, specially designed area with specially trained staff to address the unique needs of the Alzheimer's disease victim. A separate unit is preferable to mixing Alzheimer's patients with non- Alzheimer's patients. Traditional nursing home programs and activities are often inappropriate and counterproductive for the Alzheimer's patient. HCR's Proposal. The 120-bed nursing home proposed by HCR will help meet the needs in Hillsborough County for adult day care, respite care, sub-acute care and a special care unit for Alzheimer's Disease and related disorder victims. The programs and services will enable the HCR nursing home to provide at one location a complete continuum of care from the least intense level of care in adult day care to total (sub-acute) care. HCR's Alzheimer's special care unit will incorporate special design features, special patient activities and programs and higher staffing levels to meet the unique needs cf Alzheimer's disease victims. These features are intended to compensate for memory loss and provide a safe environment where cognitive capabilities can be maintained for as long as possible while patients enjoy personal freedom without the use of restraints and sedation which have typified the treatment of unmanageable Alzheimer's and dementia patients. The architectural design of the HCR nursing home will accommodate the tendency of Alzheimer's victims to wander by allowing the victims to ambulate in circular patterns through the facility and the adjacent court yard and by providing an electronic warning system to prevent inadvertent exit from the nursing home. Patient bathrooms are specially designed to avoid fright and confusion through the use of automatic lighting fixtures, appropriate coloring and distinctly shaped fixtures and waste baskets. Calming colors, color coding, carefully selected art work, special floor coverings and labeling are provided. Separate dining and activities areas enable the nursing home to provide programs and activities for Alzheimer's disease victims in a more effective and efficient manner than would be possible if the same areas also had to be used for non- Alzheimer's Disease victims. The proposed HCR nursing home includes a discreet area designed for an adult day care center, which will share some resources with the nursing home. The program will accommodate 12 persons and be operated in accordance with adult day care regulations. The physical spaces include an entry separate from the main nursing home entry, a lobby, an office, a therapeutic kitchen for use by the patients, toilet facilities, an activities center, and a lounge with an adjacent covered porch. The adult day care program will be staffed by a nurse director, an assistant and volunteers. The participants in this program will be provided with various activities of daily living in an environment developed for Alzheimer's Disease victiMs. This program is intended to provide placement for persons not yet in need of in-patient care and will provide an alternative to premature nursing home admission. Manor Care's Proposal. Manor Care proposes a dedicated 30-bed specialized unit for persons suffering from Alzheimer's disease and related disorders. In 1985, Manor Care perceived the need to treat Alzheimer's patients in a manner different than patients in the general nursing home population. Manor Care's task force of nurses, administrators, architects, and designers developed an Alzheimer's program which recognizes the special needs of the patient. Manor Care now operates 21 special dedicated Alzheimer's units throughout the country and is planning 16 additional Alzheimer's units. Manor Care's comprehensive Alzheimer's program encompasses five components: (1) environment, (2) staffing and training, (3) programming, (4) specialized medical services, and (5) family support. Environment. The proposed 30-bed Alzheimer's unit will be separate from the rest of the facility and self-contained, with its own dining room, activities room, lounge, quiet/privacy room, nurses sub-station, director's office, and outdoor courtyard. A separate dining room for Alzheimer's residents enables staff to provide individualized attention and special assistance. By providing a simple and separate dining environment, residents are no longer embarrassed by confusion and agitation displayed in the presence of non-Alzheimer's residents during mealtime. A separate lounge area is provided for families to visit with residents. In a typical nursing center, the family must visit a confused resident in the presence of other families; families of Alzheimer's residents can find this embarrassing. A separate lounge makes visitation more desirable for Alzheimer's residents and families. The quiet/privacy room can be used by families as a quiet area to visit with a family member, by residents who want to spend time alone, or by staff persons and residents for individualized programming away from the activity on the unit. The outdoor courtyard, which is enclosed and accessible to the unit through the activities room and hallway door, allows Alzheimer's residents to walk outside freely without wandering off. The Manor Care Alzheimer's unit is specially designed with features which reduce environmental stress by minimizing glare (using parabolic lenses), noise and bold patterns which increase agitation in Alzheimer's residents. Throughout the unit, a residential, uncluttered atmosphere is emphasized, using soft, contrasting colors and textures. The unit also contains visual cues to increase orientation. Furnishings are functional, durable and easy to maintain. Staffing and Training. The Alzheimer's unit has its own specialized staff including a Unit Director, Activities Director, and nursing staff. The unit is staffed at a higher "nurse to resident" ratio than the rest of the facility. Staffing patterns emphasizu continuity to ensure that residents receive individualized care. The nurses become f;i1iar with the behavior and abilities of each resident and are able to render care appropriately. Programming. The goal of programming and activities in the Alzheimer's unit is to improve the quality of life of the Alzheimer's resident. This specialized programming results in reducing the use of medications and restraints necessary to manage the Alzheimer's resident. The Manor Care Alzheimer's activity program is success-oriented; staff provide activities designed to allow Alzheimer's residents to succeed more frequently. (They usually fail when mixed in with the general nursing home population.) specialized Medical Services. The use of consultant medical specialists is an integral part of Manor Care's Alzheimer's Program. Specialists provide diagnostic and treatment services for Alzheimer's residents upon admission to the unit, and thereafter when deemed medically appropriate. Family support. Family support is another important aspect of the Manor Care Alzheimer's program. Families are very supportive of the unit's programming and have benef itted from the understanding and support available to them. The Others' Proposals. None of the other applicants propose specialized units for the care of patients with Alzheimer's disease and related disorders. Alzheimer's sufferers will be treated in an "open unit" at the HHL facility and will be placed as compatibly as possible with other residents. Although these residents will be able to intermingle with other residents, their movements will be monitored by the "wander guard" system and all doors will be equipped with buzzers connected to the nurse's stations. The HHL facility will be designed to incorporate secure courtyards and other areas where residents will be free to wander safely throughout the living areas. The facility's nursing personnel will be specially trained to provide services to Alzheimer's sufferers. The proposed HHL facility will also offer an adult Alzheimer's day care program. Although the program will be small (accommodating between four to six individuals) it will interface with the Alzheimer's program offered to the in-house residents. As with the respite program, the Alzheimer's adult day care program will give the families of Alzheimer's disease sufferers an opportunity to take a breather during the day, and the participants will benefit from the special Alzheimer's programs and activities offered. With its proposed 60-bed addition, Palm Court plans to add a program directed specifically at persons suffering from Alzheimers and related brain disorders. Currently, it does not have one. Neither FCP nor Forum make any particular provision for the care of Alzheimer's patients. FCP points out that its facilities in other states historically have cared for this special category of patient, primarily through use of high quality, thereapy-oriented programs, especially at the earlier stages of the disease. Cypress proposes to locate off of a central core: a 60-bed nursing home, offering both intermediate and skilled care, with its own recreation area and dining, serviced from the central kitchen; (2) a 20-bed assisted living unit (which Cypress also calls "supportive care") for mentally frail and physically strong individuals which has its own outdoor recreation area and dining area; and (3) another 40 assisted living beds broken into two 20-unit wings for mentally strong and physically frail individuals, with their own dining and recreation area, including outdoor recreation. The various levels of care are separate since each of the levels have different needs and methods of treatment. However, Cypress will only accept in the mentally frail, physically strong wing, Alzheimer's-type patients who are in the earlier stages of the disease. QUALITY OF CARE. Priority/Policy 9 of the 1985 Local Health Plan states: "Applicants should be evaluated as to their achievement of superior quality ratings by DHRS and other indications of quality as available." Track Record. At the time of application, three of the nursing homes operated by HCR in Florida had superior licenses and the remaining homes had standard licenses. FCP has one nursing home in Florida. It is rated standard by DHRS. None of the facilities operated by FCP's principals, the Phillipses, has ever been in receivership or had a Medicaid or Medicare certification revoked. The Phillipses have an excellent reputation in Ohio for their operation and management of nursing homes and have remained in positive standing with federal and state certification agencies. Manor Care's proposed 60-bed addition will be owned by Manor Care of Florida, Inc., a wholly-owned subsidiary of Manor HealthCare Corporation. Manor HealthCare Corporation is a publicly-held corporation which owns and operates about 130 nursing homes in various states. Manor Care owns and operates nine nursing homes and three adult congregate living facilities (ACLFs) in Florida. All nine Florida nursing homes exceed DHRS licensure standards; the majority of Manor Care's Florida facilities hold a superior license rating. Manor Care has never had a license denied, revoked, or suspended in Florida. Manor Care has opened three nursing homes in Florida in recent years. All three are superior rated. Palm Court Nursing Home has a superior license, with zero deficiencies, from DHRS' Office of Licensure and Certification with the most recent inspection having occurred between May 2 and May 4 immediately preceding the beginning of the final hearing. It is managed by National Health Corp., Murpheesboro, Tennessee. National Health Corp is an owner-operator of other facilities and either owns or operates some 19 facilities in Florida. It has managed Palm Court Nursing Home since its inception and, if the 60 bed addition is approved, will manage the addition. Forum has never had a license denied, revoked or suspended, nor had a facility placed in receivership. Forum has never had any nursing home placed in receivership at any time during its ownership, management or leasing. Forum has a history of providing quality of care and owns and operates facilities in other states which hold superior ratings. Forum has a corporate policy of seeking to attain a superior rating in those states which have such a system. Forum presently owns and operates one facility in Florida. That facility is rated standard and was acquired by Forum within the past two years. That facility, which only has 35 nursing beds, is not a prototype of what Forum proposes in this case. Seventeen (17) of the twenty-one (21) nursing homes currently managed by CSI are located in states which utilize a superior rating system. Of the facilities that are eligible to receive superior licenses, CSI maintains superior ratings in over 80 percent of its beds. CSI's Sun Terrace in Sun City Center was the subject of an extensive survey issued by the Office of Licensure and Certification, an arm of DHRS, in April, 1988, that cited numerous deficiencies in the areas of quality of care, staffing, and programs at the Sun Terrace facility. The licensure survey also cited violations of state and federal laws in the handling of controlled substances and problems with resident care plans at the facility. The findings of DHRS in its licensure survey of Sun Terrace appear to be serious matters, the resolution of which is clearly within the control of CSI. Following the opening of the second 60 beds at Sun Terrace in September, 1987, the facility experienced a shortage of nursing personnel which necessitated a greater use of agency personnel to staff the facility. The problems cited by DHRS at Sun Terrace were largely the result of the increased use of agency personnel, lack of documentation, a newly licensed administrator, and the unexpected resignation of the director of nursing. Even before the DHRS licensure survey, CSI had taken affirmative action to address the problems at Sun Terrace, including a voluntary moratorium on new admissions. In response to the recent problems at Sun Terrac, CSI has moved toward more centralized management of its facilities. CSI now requires administrators to adhere very closely to the corporate policies and procedures. Further, the addition of a second full-time nurse/consultant will double the frequency of quality of care monitoring visits at CSI facilities. The problems experienced at Sun Terrace are atypical of CSI-managed facilities. When CSI's policies and procedures are properly followed, the result is excellent nursing care and services. But the problems at Sun Terrace are examples of what can happen when an organization attempts to expand operations more rapidly than it should. In this connection, CSI has received seven CONs since July 1984. Two of the seven are preliminary approvals that have been challenged and have not yet gone to hearing. One was the 60-bed addition to Sun Terrace which is now licensed. Another is a 73-bed nursing home in Brevard County which is expected to open within the next several months, and another is a 21-bed addition project in Collier County. Cypress has never operated a nursing home and has no track record. Staffing. Staffing arrangments are important considerations in assessing the quality of care to be expected from a proposal, but there is not necessarily a proportional correlation between staffing and quality. How staffing affects quality also depends on the breadth and types of programs to be offered. For example, Alzheimer's programs and sub-acute care will require higher staffing ratios. HCR, FCP, Manor Care, Palm Court and Forum all propose staffing arrangments that meet or exceed state requirements. See Findings Of Fact 1-5, above. Cypress' application, on the other hand, leaves much to be desired in its proposed staffing. The staffing plan presented by Cypress on its Updated Table 11 fails to meet the requirements of Rule 10D-29, F.A.C. Specifically, no provision has been made for an activity director (10D-29.116), a medical director (10D-29.107), a pharmacy consultant (10D-29.112), or a medical records consultant (10D-29.118), all of which are required by rule. (Cypress attempted to explain that it would have a pharmacy consultant on contract who would bill patients separately.) Further, no provision has been made for utilization review to monitor the appropriateness of the placement of residents, as required by Rule 10D-29. Cypress' Updated Table 11 provides for LPNs of 1.5 FTEs on the first shift and night shift and 6.0 FTEs on the second shift. The second shift LPN coverage is over-staffed by 4 1/2 FTEs which will result in inefficiency. Rule 10D-29.108, F.A.C., requires staffing of nursing assistants on all shifts. The Cypress staffing plan makes no provision for nursing assistants on the second shift. In testimony, Cypress attempted to explain that Table 11 was wrong and that the second shift LPNs should have been aides. The proposes Cypress nursing home will not offer 24-hour RN coverage. The third shift has no RN coverage. Based upon the proposed staffing pattern appearing in Cypress' Updated Table 11, its proposed facililty would not qualify for licensure under Florida regulations, much less qualify for a superior rating. Cypress has not secured or identified the day-to-day management of the proposed nursing home. No medical director has been secured or identified. Quality Assurance programs. All of the applicants except Cypress have existing quality assurance (QA) programs that are adequate to assL're quality of care. From the evidence HCR's, Manor Care's, HHL's and Forum's QA programs are comparable and are the best among the applicants. Palm Court has had results comparable to or better than the others , which is itself evidence of an adequate QA program. Meanwhile, CSI, despite an evidently superior QA program, has experienced quality programs due to rapid fill-up of its 60 additiional beds at Sun Terrace. Cypress has no experience operating a nursing home. Not surprisingly, it professes to desire quality and to plan to implement stringent QA programs. But its plans at this stage are not as developed and detailed as the existing QA programs being used by the other applicants at other facilities. Other Factors. Whether Therapies Are In-House or Contracted. Assuming a need for it, and reasonable cost of providing it, provision of therapies--e.g., physical therapy, occupational therapy and speech therapy-- in-house generally is preferable to providing them by contracts with third parties. From an operational and administrative perspective, there are advantages to providing physical therapy services (PT) on an in- house basis. Contracted physical therapy staff tend to be available only for scheduled treatments; in-house staff are always available to assist staff and perform unscheduled maintenance therapy. In-house physical therapy staff work regularly with the nursing home staff. They are present within the facility anc learn the operation of the nursing home facility better than outside agencies. Manor Care proposes to provide in-house physical therapy staff, as opposed to employing outside physical therapy staff on a contract basis. The evidence was that the other applicants plan to provide all of these therapies through third- party contracts. Palm Court has one full-time PT assistant who works under the direction of a licensed physical therapist who now divides time among three 120- bed nursing homes managed by National Health Corp. The service of this licensed physical therapist is provided as part of National Health Corp's management services. Having to cover another 60 beds at Palm Court will spread the service even thinner. In addition, Palm Court's administrator conceded that the single PT assistant in Palm Court's application will not be enough once 60-beds are added to the facility; two will be required. Of course, the trade-off (implied in Finding of Fact 102, above) for providing in-house therapy is that it is less efficient if full use of the services is not required. De-institutionalization. FCP, Forum and Cypress have made special efforts to "de- institutionalize" nursing home care at their proposed facilities. All three proposals emphasize the provision of nursing care within aresidential development--a combination of retirement apartments, assisted living accommodations and nursing home. (See also this concept's impact on Continuum of Care concerns, Findings of Fact 114-127, below.) FCP's proposed facility is designed with a residential appearance to facilitate and implement the philosophy of de-institutionalization co:tained in its application. It reflects FCP's modular approach to care with residential units in wings tied to a common area of support services. The support services are extensive. There are activities areas, craft areas, exercise rooms, therapy areas, a beauty salon and barber shop, men's and women's recreational areas, private dining rooms, a community dining room, screened patios and porches, a newsstand, a bank, a post office, a library, a chapel, a screened-in gazebo, and a swimming pool. The exterior amenities of the design include a pond, an exercise course, a sitting deck, and a putting green. The center core and its recreation and therapy programs are designed to encourage interact ion among the residents in all the different levels of care. Although the third floor, where the nursing home is located, also has a secondary lounge and supplemental dining area, the primary dining area, as well as all of the other amenities, are on the first floor to enhance the interaction. The 30-bed size of FCP's proposed nursing home unit is a part of the original Phillips concept of a de- institutionalized setting, enabling the provision of more personalized care. Where there are fewer residents to care for, a better rapport between the residents and the care givers and a more family-type, personal atmosphere are achieved. This 30-bed concept previously has been approved by the Department in Lee and Polk Counties. Those projects are operationally, structurally, and physically identical to this proposed project. The symmetrical, 3-story design minimizes the amount of travel distance for the resident at the farthest unit to the amenities of the center core and its services. The nursing unit is on the third and smallest floor so that the distance by elevator to the central core for the nursing home iesidents is at a minimum'while still providing those residents with the greatest opportunity for quiet time. Privacy is an essential element in achieving high quality of care. The semi-private room plan utilized in this proposal is a unique approach to maximizing privacy for each resident. A permanent partial partition separating the two beds in each room effectively creates two private rooms. This provides a private space for each resident with his or her own thermostat, window, storage space, television, and telephone accommodation, and heightened auditory privacy. There will be equal access to and control of the vestibule and bathroom for each resident. The 585 gross square feet per bed in the FCP proposal is approximately one-third greater than standard nursing home room configuration. Forum's proposal's chief effort in furtherance of the goal of deinstitutiona1izationother than the continuum of care concept and overall residential appearance--is in the relatively large and "up-scale" living areas. The Cypress facility will include a central core dividing the two 60- bed portions of the project. The central core will include an administrative area, a chapel, a beauty and barber shop, enclosed courtyard, physical and occupational therapy, dining, a central kitchen, and a laundry area. One trade-off for de-institutionalization is cost. Both FCP and Forum generally cost more than the others. Cypress claims not to, but its projected construction cost of $49 per square foot is unrealistically low. See Findings of Fact 147 and 149, below. PROGRAMS (OTHER THAN ALZHEIMER'S). Continnum of Care. As just alluded to, several of the proposals emphasize the placement of their nursing home within a larger community of persons needing different levels of care. FCP. FCP proposes the construction of a 30-bed nursing unit as part of a family owned and operated, 120-unit, full continuum of care facility for the elderly. The facility also contains 60 independent living apartments and 30 adult congregate living units. The full continuum of care is proposed in a uniquely designed, de-institutionalized, home-like atmosphere. FCP offers a therapeutic community offering individualized, personalIzed care in small self- contained units, each specializing in various levels of care ranging from day care and respite care, through apartments for the elderly and assisted living, to skilled, post-hospital rehabilitation. The continuum of care will provide a homogeneous environment through which residents can move as their medical and personal needs change. Forum. Forum Group, Inc., is a national company which owns, develops and operates retirement living centers in a number of states. Forum's proposed nursing home will be part of a total retirement living center containing two other levels of care, assisted living (or ACLF units) and independent apartment units. Forum's proposal calls for provision of a continuum of care, from independent living to assisted living to nursing care, all on the same campus. Cypress. Cypress Total Care would be part of an overall medical project known as Cypress Park. The corporation was formed and a master plan was created, to be developed in two phases. Phase I is a 120-bed nursing facility consisting of 60 skilled and intermediate nursing beds, the subject of these proceedings, and 60 personal care units. Phase II would consist of a 290-unit adult congregate living facility (ACLF) and 143 units of independent villa housing on a golf course with nature trails and other amenities. Also proposed in Phase II would be units of medical offices and commercial health-related facilities to support the community. The area selected by Cypress is adjacent to the Sun Hill Medical Arts Building and the Community Arts Building, as well as a hospital owned by Hospital Corporation of America known as Sun City Hospital. These components would be worked into the overall master plan proposed by Cypress. Cypress proposes a multi-level assessment program. The 120-bed Cypress Park Community facility will have an independent level one facility in Sun City Center which will admit healthy elderly residents. These elderly may have canes, but no walkers or wheelchairs, and they will function normally in their activities of daily living. These individuals may prepare two meals a day in their apartments, or have them in the dining room. The main meal will be in the dining room. Social services and activities will be provided and recommended to the independent living residents to enhance their lifestyles. A home health agency is planned as a part of the center so that house calls can be made to insure that any necessary medications are taken and that residents receive the services they might need from time to time. (Cypress has not yet applied for a CON for its home health agency.) The next level of living is for patients who need more assistance. These are residents who require 24-hour companion service. These patients do not require skilled nursing care and do not require the institutional environment of a nursing home. Some of these paients may be in the first stage of Alzheimer's, or they may be physically frail, but not enough to require skilled nursing care. This level is primarily for those individuals who are physically frail and mentally strong or mentally frail and physically strong. The physically frail and mentally strong may have limited ambulatory capabilities, need assistance in activities of daily living, need medication, or need all their meals prepared. As noted above, this level of services also will be provided to individuals who are physically strong but mentally frail. The majority of these people will be Alzheimer's residents, they must be carefully monitored 24 hours a day and receive strong psychological support. The next level of care offered is for individuals who require some nursing care and no longer qualify for the level two care described above. This will be intermediate nursing care and will consist of care from certified nursing aides and licensed practical nurses. These individuals do not require skilled nursing care. Rehabilitation is the key to this portion of the plan, and the rehabilitative center will be involved to constantly push these individuals to the point of rehabilitation where they can reenter an independent lifestyle. If individuals progress further, they can move into the skilled nursing care center in which they will receive care not only from nursing aides and licensed practical nurses, but also from registered nurses. The final level would be acute hospital care which would be provided by the existing Sun City Hospital. The medical staff who are involved in the Cypress project also are on the medical staff of the Sun City Hospital and will be working and consulting with individuals both in the acute hospital care and the nursing home setting to provide appropriate levels of care to the individuals who need it. The nursing home will share IV teams, work with tracheotomy patients, A.D.A. dieticians, accounting services, and other services with the existing hospital in Sun City Center. Palm Court. Palm Court, while currently a free-standing 120- bed nursing home, is located on property where construction of a 360-bed adult congregate living facility (ACLF) is now starting. In addition, Palm Court has transfer agreements with area hospitals including Plant City Hospital, South Florida Baptist Hospital, Brandon Humana Hospital and Lakeland Regional Medical Center. It also has formal working relationships with home health agencies and with elderly programs in the area. The Others. The other applicants--HCR, Manor Care and HHL-- propose free-standing nursing homes. But all can be expected to make efforts to achieve transfer and other agreements with local hospitals, home health agencies and providers of care for the elderly where reasonable and appropriate. Sub-Acute Care. The HCR nursing home will be staffed and equipped to provide sub- acute care. The sub-acute care services provided by HCR will include high tech services such as ventilator care, IV therapy, pulmonary aids, tube feeding, hyperalimentation, and short and long term rehabilitation. HCR currently provides a wide variety of these sub-acute services in its existing nursing homes. CSI currently provides sub-acute nursing services at its existing Florida facilities. Those services include ventilators, hyperalimentation, intravenous therapy, Clinitron beds, heparin pumps, nosogastric and Jejunoscopy tube feedings, subclavian lines, and Hickman catheters. These service will be provided at HHL's proposed facility. Forum will provide skilled and intermediate care, and the following services will be offered at the proposed facility: Sterile dressing changes for decubitus care. Brittle diabetics on sliding scale insulin. Continuous administration of oxygen. Sterile case of tracheotomies. Ventilators. Continuous bladder irrigation. Hyper-alimentation or N-G feeding. IV treatment. Special medication monitoring (e.g. heparin, comadin). New post-operative cases facing hospital discharge as a result of D.R.G. reimbursement. The skilled nursing services to be provided by FCP include parenteral nutrition, internal nutrition, tracheostomy care, respirator care, skin wound decubitus care, ostomy care, and head trauma care. Palm Court also will provide sub-acute care. Adult Day Care Adult day care is a part of the specialized Azfleimer's program HCR proposes. In addition, HHL, FCP and Forum offer adult day care. Respite Care. HCR and Manor Care offer respite care as part of their Alzheimer's programs. Both will have no minimum length of stay and no extra charge over the regular daily rate for nursing home care. All the others except Palm Court also offer respite care, but Cypress' proposal for respite care is sketchy. HHL says it will offer respite care at no extra charge. D. Hospice. Only HCR, Forum and HHL offer hospice care as part of their nursing home programs. F. Rehabilitation and Community Outreach. All of the applicants propose rehabilitative (or restorative) care and some kind of community outreach programs. The distinctions among the ideas expressed by the applicants are not particularly competitively significant. However, the manner in which the therapies are delivered can be significant. See Finding of Facts 102 to 105, above. HOW SOON THE PROJECT BECOMES OPERATIONAL. Because there is a shortage of nursing home beds in Hillsborough County, there is a valid concern how long it would take for the holder of a CON to get its facility operational. Priority/Policy 3 of the 1985 Local Health Plan gives expression to this concern as follows: In competitive reviews, preference should be given to applicants with a documented history of implementing certificates of need within the statutory time frames. Of the applicants who have developed nursing homes in the past (i.e., excluding Cypress), all but Palm Court have a history of timely implementing their CONs. Palm Court had to request an extension of time in implementing its existing 120-bed facility. But Palm Court bought the CON for that project from the original owners in 1982 or 1983. Palm Court then had to secure another, more suitable location, re-design the facility, get construction financing and enter into a construction contract before construction could begin. This delayed the project and resulted in administrative litigation to decide whether Palm Court should lose the CON for failure to timely implement it or be given an extension of time. Palm Court prevailed, and the facility opened in September, 1985. HHL, through CSI, also has a history of timely implementing CONs but recent expansion in Florida raises some question whether it can continue to be as timely in implementing this CON, along with the others. See Findings of Fact 82-87,98, and 100, above. Generally, an addition of beds to an existing nursing home can be constructed more quickly than a new facility, giving Palm Court an advantage in potential speed of implementation. similarly, Manor Care, which is prepared to begin construction on its finally approved 60-bed CON, has an advantage over the others, as well as a potential construction cost savings over Palm Court. See Findings of Fact 146, below. COST OF CARE. Cost of Construction And Development. Advantage of Additions. Within limits placed on recovery of capital costs under the Medicaid and Medicare reimbursement programs now in place (which, to some extent, are emulated by private health care insurers and employers' health benefit plans), construction and development costs generally are reflected in the charges patients pay for nursing home care. Additions, such as Palm Court's and Manor Care's proposals, have a cost advantage over the other proposals. Construction sites already have been prepared, and it is not ncessary to duplicate some features already incorporated in the original structure, such as the kitchen, laundry and building plant. Due to delays in finalization of its approved CON for 60 beds, Manor Care has the fortuitous additional potential cost advantage of being able to construct both the "original facility" and the 60-bed "addition" at the same time. Quality vs. Cost Trade-Off. Other than the cost advantage of adding on, and of saving the contractor's fee by using an in-house construction team (as HCR does), reduced cost of construction generally will reflect reduced quality. For example, some of the quality features incorporated in the proposals of Forum, FCP and Cypress will cost more. See Finding of Fact 113, above. Put another way, lower costs may result in lower patient charges but also may result in lower quality, everything else being equal. The costs of construction of the various proposals may be found in Findings of Fact 1 to 7, above. It should also be noted at this point that Cypress' facility design has features--primarily unusual wall and roof angles and one water heater requiring larger pipe sizing-- which make its construction costs appear lower than they should be. Cost Overruns. The applicants' respective records for cost overruns in implementing CONs mirror their records for timeliness. See Findings of Fact 138-143, above. Cypress has no track record; all the others except Palm Court have experienced no cost overruns; Palm Court's $1.3 million cost overrun was precipitated by the need to secure another site and re-design the facility after it acquired the CON for 120 beds; and CSI, which would be responsible for implementing HHL's proposal, is involved in recent expansion which could affect its ability to bring all of its' CONs on line within budget. Cost of Operations. Economies of Scale--Size of Facility. In addition to construction and development costs, cost of operations are reflected in patient charges. It generally is accepted that a 120-bed nursing home is the optimal size for operational efficiencies. In this respect, the proposals by HCR, Forum and HHL have an advantage over the others. Manor Care has the advantage of proposing to expand a less efficient 60-bed nursing home to an optimally efficient 120-bed facility. To some extent, the generally accepted principle that 120-bed nursing homes are more desirable may have become dated. Two of the proposals--FCP's and Cypress'--combine some of the operating efficiencies of a 120-bed nursing home with the continuum of care and quality of care that can be achieved in a 120-bed living complex that incorporates a smaller nursing unit with other living units of different levels of care. By c(Jmparison, these type facilities are less institutionalized than a 120-bed nursing home, whether free-standing or incorporated within a larger complex with other living units. See Findings of Fact 106 to 113, above. Economies of Scale--Size of Organization. Economies of scale also can be realized from the size of the organization that owns or manages a nursing home. The proposals of all of the applicants except Cypress benefit from this principle, Palm Court to a lesser extent than the others, including in the area of quality assurance, nurse training and nurse recruiting. At the time of hearing, HCR operated nine nursing homes in Florida. HCR has approximately twelve nursing homes scheduled to begin construction in Florida within the next year. Nationwide, HCR operates more than 125 facilities containing approximately 16,000 beds. HCR has designed and built over 200 nursing homes and related health care facilities. HCR realizes substantial savings by using national contracts for the purchase of furniture, equipment, hardware and other operating supplies. Forum, as a national company, has the experience and purchasing power to cut operational costs through national purchase contracts and through economies and improvements experienced at the local level with a total retirement facility all on one campus. The Manor Care Florida Regional Office offers the services of a Regional Director, a Regional Nurse, a Nurse Recruiter, and a Comptroller to work with the corresponding departments of the Manor Care Florida nursing homes. FCP's long term plans are to develop homes in clusters, currently concentrating on the central west coast area of Florida. FCP has previously been granted certificates of need in Lee County and Polk County and has been recommended by the Department for a certificate of need in Hillsborough County. This cluster will operate under a unified local administration and share rehabilitative, medical, social, dietary and transportation personnel, enhancing economies of operation. CSI was formed in 1978 for the purpose of operating extended care facilities, including nursing homes and retirement centers. Since that time, the company has grown to its current operations of twenty-one (21) nursing homes, two (2) retirement centers and one (1) home for the aged located in seven states. Historically, much of this growth has occurred through the acquisition of existing facilities, although more recently the focus has shifted to the development of new facilities. Because CSI has established "national accounts" for the acquisition of movable equipment CSI can purchase nursing home equipment and furnishings and other operating supplies for HHL at reduced prices. (3) Patient Charges. The applicants propose the following room charges for semi-private rooms. Applicant Medicaid Medicare Private Pay HCR 60.94 76.00 75.00 FCP 60.00 65.00 80.00 Manor Care 1/ 69.37 ---- 72.57 HHL 66.30 109.33 2/ 72.76 Forum 67.18 80.67 79.50 Palm Court 77.00 100.00 77.00 Cypress 58.00 65.00 69.00 However, Cypress' charges are suspect; they probably are unrealistically low. Palm Court's charges also are suspect. It is difficult to understand from the evidence whether they are charges or Medicaid reimbursements. It also is difficult to tell if they are current or projected. In any event, they do not relate to the information in Palm Court's pro forma. As previously alluded to, patient charges do not necessarily proportionately reflect construction and development and operating efficiencies. They also are affected by programs and quality. BUILDING DESIGN AND ENERGY FEATURES. Patient Care and Safety. Overall, HCR's design is excellent. Functional elements are effectively inter-related, the building is designed to be open to landscaping, sunlight and court yards, and there is a wide range of amenities. Cypress' patient rooms are smaller than allowed under state requirments. The state minimum in Chapter 10D-29, Florida Administrative Code, is 80 net square feet per bed for multi-bed and 100 net square feet in a single room. Cypress' proposal only has approximately 65.58 gross square feet per bed. Cypress' building design also has rooms that are approximately 130 feet from the nurses' stations and clean utility and soiled utility rooms, 10 feet over the state maximum under Rule 10D-29.121(24), Florida Administrative Code. Forum's :4 floor plan also violates this standard. Rule 10D-29.121(6), Florida Administrative Code, requires a 20 foot clear view out room windows. Cypress' design also violates this standard. Manor Care's floorplan is the most compact one- story design. It has four compact wings off a central core. Forum proposes a two-story structure, creating a potential increased hazard for patients with reduced mobility. But DHRS rules provide for nursing homes of more than one floor, and required safety features, which Forum will provide, keep the potential to an insignificant minimum. FCP proposes a three-story facility with the nursing home on the third floor adjacent to the elevators connecting it to the first floor central core and amenities. FCP, too, adequately addresses DHRS safety concerns and actually could be more convenient to more nursing home patients than a one-story structure. Energy Conservation Features. All of the applicants propose to insulate their facilities for energy efficiency, some, e.q., HHL, somewhat better than others. Building design itself also affects energy consumption. Cypress' high exterior building surface area makes it a less energy-efficient design; Manor Care's compact design aces it a more energy-efficient design. FCP's three-story design also is a more energy-efficient design. Cypress' design incorporates only one water heater. This will produce line loss and lower energy efficiency, as well as potential total loss of hot water. (Cypress also has only one electrical plant.) Other Unique Design Features. Several unique features in FCP's room design helps "de- institutionalize" the facility and contributes to overall quality of care. Similarly, residents at FCP will be able to offer their guests refreshments from the kitchen at any time of the day or nights and children, spouses, and entire families will be encouraged to join residents for meals as often as they wish, assisting in the maintenance of ties with the community. Dining may be either communal or in the several lounge areas and private dining rooms. One of Cypress' unique design features is of the bizarre and morbid variety--a room designed to store deceased residents. FINANCIAL FEASIBILITY. The short-term and long-term feasibility of the proposals of HCR, FCP, Manor Care, Forum and HHL was never seriously questioned and was easily proven. Not so with Palm Court and Cypress. Palm Court. The duty to defend the immediate and long term financial feasibility of Palm Court's project rested with Steve Jones. Mr. Jones, who was not involved in the preparation of the application, offered his opinion that the Palm Court 60-bed addition would be feasible in the immediate and long terms. In giving his opinion of the project's financial feasibility, Mr. Jones stated he believed the pro forma in years 1 and 2 relate back to the corresponding tables in the application; but acknowledged he performed no analysis of his own, but rather he took the information provided him at face value. The pro forma is one of the key components of an application, as literally the heart of the application ties directly or indirectly into developing the pro forma, including Tables 1, 2, 3, 7, 8, 10, 11 and 25, as well as the amortization schedule. It is a required component of the application. Section 381.494(4)(e), F.S. (1985). Mr. Jones was asked to render an opinion on the reasonableness of Tables 8, 10, 11 and 25, which he did. On cross examination, however, Mr. Jones acknowledged he did not evaluate existing staff at Palm Court to determine the reasonableness of the pro forma. He did not verify the projected management fee and, in fact, stated he didn't know if it was included as a line item under "administration and general" on the pro forma nor how the management fee was computed. Mr. Jones, who has never prepared all the financial information in a CON application, also admitted he didn't know what current nursing salaries were in Hillsborough County, or any other salaries for that matter. He further acknowledged that he could not testify that the application's hourly wage times the number of working hours in a year would give you the stated nursing salaries. In sum, Mr. Jones admitted his opinion of the project's feasibility was based solely on his review of Tables 8, 11, 20 and 25 and his firm's involvement in the preparation of Palm Court's two most recent cost reports and not on the pro forma filed with Palm Court's application. Mr. Jones' accounting firm, in preparing Palm Court's cost reports, does not conduct an audit or express any opinion relating to the reasonableness of the statement of revenues and expenses. Joseph Lennartz, an expert in financial feasibility analysis, gave persuasive testimony outlining the inconsistencies in Palm Court's application. Palm Court's total revenue projections appearing in Table 7 for years 1 and 2 do correspond to the daily room and board revenues appearing in the pro forma, yet none of the Table 7 revenue projections correspond to the projected charges on Table 8. Assuming the salaries on Table 11 do not include fringe benefits, all FTE's and salaries on Table 11 are not accounted for in the pro forma. The pro forma salaries are significantly lower than on Table 11: RNs ,- understated by $12,426 LPNs - understated by $30,518 CNAS -understated by $239,541 Social Worker - understated by $2,983 Dietary - understated by $3,009 Maintenance - understated by $10,165 Activities - understated by $4,486 Housekeeping - understated by $6,365 Laundry & Linen - understated by $6,498 Admin & General - understated by $2,560 Palm Court's salary information on Table 11 is in 1987 dollars and needs to be inflated forward at least two to three years. Palm Court's current average salaries exceeded the proposed salaries on Table 11--including the administrator's salary, proposed at an annual salary of just over $31,000 when it actually was over $50,000 in 1987. Based on Palm Court's answers to interrogatories, Palm Court's management fee is not accurately reflected in the pro forma and is $44,559 too low in year 2; the projected dietary expense is understated by $112,386 in year 2; the projected housekeeping expense is understated by $46,609 in year 2; the projected laundry expense is understated by $35,308 in year 2; and plant expenses are understated by $100,116 in year 2. The terms of debt financing appearing on Table 2 of Palm Court's application do not conform to the amortization table, causing the interest expense line item on the pro forma to be understated. Cypress. As previously alluded to, the reasonableness of Cypress' projected Medicaid and Medicare rates appearing on its Updated Table 8 has not been established by competent substantial evidence. The Cypress pro forma fails to make provision for interest expense, depreciation, and property tax expense. These omissions represent an understatement of expenses as follows: YEAR ONE YEAR TWO INTEREST $177,818 $176,186 DEPRECIATION $110,000 $100,000 PROPERTY TAXES 2,200 25,000 (at assessed value 75 percent of market) TOTAL $290,018 $301,186 When interest, depreciation, and property taxes are included in the Cypress pro forma, the result is a loss of $90,000 in year one and $80,000 in year two. Furthermore, from a cash flow perspective, Cypress will incur a cash loss of $2,037 in year one and a cash gain of just $6,342 in year two. If property taxes are based on an assessed value at 100 percent of fair market value, there would be a $2,000 cash loss even in year two. It is not unusual for a nursing home to experience a negative cash flow in its first year of operation due to its low occupancy. However, it is unusual for a nursing home to experience a negative cash flow, as the Cypress facility will, while operating at optimal occupancy (95 percent). Cypress' owner/investors are willing to proceed with the project because they expect to be able to use some of the approximately $90,000 per year tax loss in years one and two to offset personal income, resulting in a cash on cash return of approximately $23,000 or 5.4 percent. Cypress' Table 1, "source of funds" states that the applicant has $425,000 "in hand". In fact, Cypress does not have those funds in hand. They are in the hands of the Cypress owner/investors. So far they have contributed $90,000 to the venture and will have to contribute not only an additional $425,000 to fund the nursing home but also an unspecified larger sum to fund Cypress planned ACLF and other projects. The evidence suggests that at least $425,000 more of equity contribution would be required for the rest of the project. Cypress did not prove that its proposed facility is financially feasible, either in the immediate or long term. BALANCED CONSIDERATION. Giving a balanced consideration to all of the statutory and rule factors addressed in the preceding findings, it is found that there is a net need for 231 community nursing home beds in Hillsborough County, that the applications of HCR, FCP and Manor Care should be granted and that the other applications should be denied.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the Department of Health and Rehabilitative Services enter a final order granting the applications of HCR (CON Action No. 5000), FCP (CON Action No. 4993) and Manor Care (CON Action No. 5006) and denying the applications of Forum (CON Action No. 4999), HHL (CON Action No. 4978) Palm Court (CON Action No. 4987) and Cypress (CON Action No. 5004). RECOMMENDED this 14th day of November, 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 14th day of November, 1988.
The Issue Whether Florida Convalescent Centers, Inc., (FCC) and National Health Corporation, LP (NHC) are "related parties" by either ownership or control for the purposes of Medicaid reimbursement.
Findings Of Fact Respondent Agency for Health Care Administration (AHCA) is the successor agency to the Department of Health and Rehabilitative Services and the agency responsible for administration and implementation of the Medicaid Program. The Florida Title XIX Long-Term Care Reimbursement Plan ("the Plan"), which was adopted and incorporated by reference in Rule 10C-7.0482, Florida Administrative Code, (now Rule 59G-0.010, F.A.C.), is the overall guide for Medicaid reimbursement in the State of Florida. According to the Plan, nursing homes participating in the Medicaid Program are required to submit cost reports to determine reimbursement and ensure that the costs which are reported are allowable under Medicaid. Florida Convalescent Centers, Inc. (FCC), is a Florida corporation which owns 16 nursing homes located throughout the State of Florida. The audits of the cost reports for 1989, 1990 and 1991 for twelve of the facilities are involved in this proceeding. The sole shareholders of FCC are James McCarver and his wife, Pat McCarver. The president of FCC is James McCarver (McCarver). FCC's secretary/treasurer and Senior Vice President is Pat McCarver. Its Vice President and assistant secretary is John Robenalt. FCC's chief financial officer is Charles Wysocki. The directors of the corporation are James and Pat McCarver and John Robenalt. National Health Corp., L.P. (NHC) is a long-term health care company that operates health care centers. NHC was founded in 1971 and became a publicly held corporation in 1983. In 1986, it was converted to a limited partnership and is traded on the American Stock Exchange. None of the corporate officers or directors of FCC have ever been corporate officers, directors, agents or employees of NHC, and none of the corporate officers of NHC have ever been corporate officers, directors, agents or employees of FCC. NHC cannot elect to remove any officers, directors or personnel of FCC. All of the employees at each nursing home are employed by FCC and salaries are paid by FCC from FCC payroll accounts, except for the nursing home administrator. McCarver, either individually or with his wife, has always owned 100 percent of the stock in FCC, and the McCarvers have never owned any stock in NHC. As president/owner of FCC, McCarver runs the company and specifically performs the following functions, among others: review and approval of operating budgets, review and approval of all capital budgets, approval of all expenditures exceeding $5,000, long range planning for the corporation, deciding when and where to file for certificates of need, and determining the corporate philosophy and mission. As a corporation with a sole, owner/manager shareholder, the McCarvers have focused the corporate philosophy toward providing a higher level of patient care than is found in the average nursing home. Such dedication to patient care is reflected in the superior licensure rating which all sixteen of the FCC nursing homes have achieved and maintained and room sizes in the facilities which exceed industry standards. The home office for FCC is located in Sarasota, Florida. Charles Wysocki, the chief financial officer of FCC, operates out of an office located in the NHC offices in Murfreesboro, Tennessee; FCC does not pay rent for use of the office space provided by NHC. FCC was chartered in 1983. The initial and sole owner of FCC was James McCarver. McCarver is educated as an attorney and certified public accountant. He provided the initial capitalization for FCC. He had extensive experience in the formation, building, development and ownership of nursing homes prior to the formation of FCC. Subsequent to its organization, James McCarver transferred a portion of his shares in FCC to his wife, Pat McCarver. The corporation was chartered by McCarver for the purpose of securing certificates of need in the State of Florida, and for the building, developing and owning those nursing homes in the State of Florida. McCarver's prior experience with nursing homes was as a part owner of over 20 nursing homes in the States of Texas and Missouri. Dissatisfied with the limitations which ownership with partners entailed, McCarver began to explore other states in which he could develop nursing homes so that he would be the sole owner. After reviewing the available demographic information and conducting extensive market analyses, McCarver determined that the nursing home market was underserved in Florida and identified several geographic locations in the State of Florida for which nursing homes would be feasible. The demographic and market analysis was conducted by a staff assembled and directly employed by McCarver. He also assembled and directly employed the architectural, construction management and development staff to prepare certificate of need applications for the State of Florida. With the assistance of his staff he filed 66 applications for certificates of need in the State of Florida, which were all initially denied. However, after considerable certificate of need litigation, McCarver was awarded 20 certificates of need (CONs) in 1985. Having been successful in obtaining 20 CONs at one time, McCarver was faced with the large task of building, financing, staffing and operating twenty brand new nursing homes. CONs expire one year from the date when issued, unless construction of the facility is commenced. Thus, McCarver had the immediate task of assembling significant financial, construction, and managerial resources to develop 20 CONs in time to avoid losing them. While McCarver had significant independent financial resources and employed managerial personnel, he did not possess sufficient resources to accomplish the task of building all 20 nursing homes in a one year time period. McCarver sought to find assistance with respect to the financial and managerial resources he needed. As to the actual development/construction and opening of the facilities, McCarver was faced with the prospect of either expanding his current staff and then laying off the new hires afterwards, or finding a national development company which had sufficient development volume of its own to justify retaining a staff of the magnitude required and from whom he could purchase the services for this burst of development activity. McCarver decided to seek the services of a large nursing home company to purchase the necessary services. He and/or his corporate counsel, John Robenalt, contacted and visited several companies, including: Arbor, Beverly, HCR, Hillhaven, Manor Care, Waverly Group, U.S. Care Corporation, Mediplex, NHC, Life Care Corporation, Care Age and Forum. The purpose of contacting so many companies was to obtain the most competitive pricing and terms for the services to be purchased. While he was not necessarily seeking a package of services from any one company, McCarver recognized that financing and management services usually were sold together. All of the companies contacted insisted on an ownership component as part of their offer to do business with McCarver. McCarver rejected these offers because he wanted to maintain complete ownership of the nursing homes. During the search for assistance, McCarver came into contact with NHC in June 1985 through the efforts of John Robenalt. Prior to June 1985, the parties were unknown to each other and did not have any business relations. Intensive negotiations and discussions were held between McCarver and Robenalt on behalf of FCC, and Ted LaRoche on behalf of NHC. The specific concerns of FCC in the negotiations with NHC were as follows: (1) desire to retain ownership of the facilities and certificates of need; (2) desire to assure itself that NHC would not mismanage the facilities, cause a default and then obtain ownership by foreclosure; (3) quality of care and quality of construction of the facilities; (4) control of capital expenditures; and (5) insistence that all employees of the facilities be employees of FCC and not NHC. NHC's concern during the negotiations was to avoid mistakes that it had made as a guarantor on previous transactions with other third parties. NHC wished 1) to provide default and foreclosure remedies, should NHC be required to make payments on its guaranty; 2) to prevent owners from stripping the cash flow and value from the facility by syndication; 3) to ensure that the contractor was bonded; and 4) to make sure the site had the proper zoning. During the time of the negotiations, the parties recognized the related party limitations, as contained in the Medicare and Medicaid regulations, and considered such in structuring their arrangement. The intent of the parties was to insure that FCC retained ownership and control of all monetary and policy-making decisions. The negotiations were at arm's length and competitively priced. As a result of the negotiations, FCC and NHC entered into a master Agreement, dated June 14, 1985, (hereinafter the "Development Agreement"), in which FCC purchased from NHC the following services: development services for 13 nursing homes, including three in California, credit enhancement and guaranty backing for financing the facilities, working capital financing and management services. Subsequent to the initial development and pursuant to the Development Agreement, FCC added and dropped facilities from the Agreement and negotiated amendments. The 16 facilities now owned by FCC were developed pursuant to the terms of the Development Agreement, with some modifications for each individual facility. The development services purchased by FCC from NHC were to assist McCarver's existing staff of two architects, construction supervisor and interior designer in co-developing ten of the facilities for which certificates of need had been awarded. In addition, NHC obtained and provided recommendations of qualified, bonded contractors for FCC to choose from to construct the various facilities. FCC had final say as to which contractor and sites were acceptable; NHC's role was to prevent FCC from making a mistake during the contracting and site selection phase. FCC also negotiated a provision to obtain reimbursement of part of its up-front investment in architectural, interior design and some certificate of need procurement expenses as part of the construction contracts. The sum reimbursed was $400,000 per facility. However, in subsequent projects, these expenditures were not reimbursed to FCC. The financing services purchased from NHC were credit enhancement and guaranty assistance, and are set forth fully in an Agreement to Guarantee attached as Exhibit "B" to the Development Agreement. Credit enhancement is essentially purchasing the financial strength of a well capitalized company by getting that company to guaranty debts. The primary benefit of purchasing credit enhancement is that a start-up company such as FCC on its own would have to pay a substantially higher interest rate to a lender, but could obtain a much lower rate with a credit enhancement. FCC used the financing assistance of NHC to obtain tax-exempt industrial revenue bond financing or loans from private banks to construct the nursing home facilities. While NHC contributed its knowledge and expertise in locating acceptable lenders, much of the financing was located by FCC's officers, and all of the financing is a direct debt of FCC. As a result of NHC's credit enhancements, FCC was able to obtain interest rates of eight percent when the interest rate at that time, without the NHC credit support, would have been 13 1/2 percent. In return for providing such credit enhancements, NHC receives annually a guarantee fee of one percent of the outstanding indebtedness which is guaranteed by NHC. Also, NHC for assuming the initial risk involved in the start-up and development of the nursing home facilities, receives the following deferred, contingent guaranty fees: For facilities financed by non-tax-exempt financing, a right to 25 percent of the net proceeds in the event the facility is sold. No right exists to force the sale of any facility; and, as long as FCC does not sell the facility, no right to such contingent fee accrues; furthermore, no fee accrues upon the transfer of stock which occurs because of testamentary disposition to family members of McCarver. This contingent guaranty fee is speculative since it assumes, first, the facility will be sold and, second, that it will sell for more than the debt. For facilities financed with tax-exempt financing, based on bond counsel advice, NHC is to receive a fee accruing at 3 percent a year on the outstanding principal balance guaranteed by NHC, the payment of which fee is deferred until the year 1997. Payment of contingent guarantee/credit enhancement fees is common and accepted in the nursing home industry as additional compensation for the risk taken by the guarantor in connection with a new venture. FCC is not obligated to purchase credit enhancement assistance from NHC. Nothing contained in the Development Agreement prohibits or prevents FCC from obtaining financing without the NHC credit enhancements, and if such credit enhancements are not used, then the applicable annual fees do not have to be paid. FCC has actively sought to refinance its projects when interest rates were declining. The contingent guarantee fees are not an equity or ownership interest in FCC nor a control interest in FCC. To secure its loan guarantees NHC required that FCC grant subordinated mortgages on its facilities. In the event FCC defaults on debt payments guaranteed by NHC, and NHC is required to make the payments, FCC has a 120-day grace period, after notice, to repay NHC before NHC can declare FCC in default and exercise its foreclosure remedies. NHC also provided working capital loans to finance the start-up operation of the facilities; however such loans are capped at a maximum dollar amount. FCC is not limited to obtaining the working capital loans only from NHC and can seek other lenders. FCC has actively canvassed the market for cheaper working capital financing, if available. After the working capital loan from NHC is exhausted, FCC is required to provide all additional working capital needs for the individual nursing homes. The working capital loans with NHC had an original maturity of five years. Each were renewed for an additional five years. None of the working capital loans are demand loans. The working capital interest rate is 2-1/2 percent over the prime rate. An interest rate for working capital loans at two and one half percent over the prime rate is a competitive rate. The working capital interest rate does not exceed the price of comparable services that could be purchased elsewhere, and is in line with the charge for such services in the open market. The management services purchased from NHC are described in a Management Agreement, attached as Exhibit "C" to the Development Agreement, and include the following, among others: NHC recruits and recommends the administrator for each facility. Final selection of the administrator is made by McCarver. NHC conducts all collections for services provided at the facilities and manages the various banking accounts for the facilities. The bank accounts for each facility are FCC accounts owned by FCC. Checks on such accounts are written by the bookkeeper at each facility, who is an FCC employee, and are signed by the facility's administrator. While such accounts are the source for payment of NHC's management and guarantee fees, pursuant to the Management Agreement, NHC must first submit an invoice to the facility to initiate payment. NHC is prohibited from commingling such funds and handles such funds as a fiduciary. The management fee is six percent of gross revenue. A 6 percent fee is a competitive rate, and does not exceed the price of comparable services that could be purchased elsewhere. It is in line with the charge for such service in the open market. In addition, as further consideration for the services provided by the Development Agreement, NHC requires the following: The personal guaranty of McCarver A right of first refusal upon the sale of any facility to a third party. Covenants, contained in paragraph 5(a), (b) and (c), page 3 of the Agreement to Guarantee, that failure to pay the guaranty fee would result in a default and that such default would entitle NHC to commence foreclosure of subordinated mortgages recorded to secure its guaranty position. Covenant, contained in paragraph 6(a), page 3 of the Agreement to Guarantee, prohibiting the owner from incurring additional debt on the facility or conducting an equity offering, without retaining the monies raised for use in the facility. This provision is included to prevent the owner from stripping all the cash from the facility. Covenant contained in paragraph 14(b), page 12 of the Management Agreement, which would require any purchaser of the facility to assume the Management Agreement in the event of a sale while the debt guaranteed by NHC is still outstanding. Covenant contained in paragraph 4(c), page 8 of the Management Agreement, requiring the owner to maintain a reasonable operating reserve, which at a minimum will be three months operating costs. Extensive monitoring and evaluation of NHC's performance under the Management Agreement is performed by FCC's employees; McCarver on an ongoing basis monitors the patient care performance of NHC at the facilities by site visits and patient and family interviews. Wysocki extensively monitors NHC's financial performance, management of FCC's banking accounts, verifying the accuracy of any charges invoiced by NHC for guarantee, management and any other fees, and all other financial matters. Wysocki is located at NHC's offices in order to have ready access to financial data and to be FCC's watchdog over NHC's contract performance. FCC has delegated only the day-to-day operations of the facilities to NHC under the management agreement. FCC retains the power to direct the actions or policies of the facilities and corporation through the following provisions in the Management Agreement, among others: (1) review and approval of the selection of the administrator; (2) review and approval of all operating and capital expenditure requests above $5,000; (3) review and approval of all annual operating and capital expenditures budgets; (4) decision making on pursuit of certificate of need and other facility expansion decisions; and (5) setting of corporate philosophy and corporate mission. FCC does not lease any facilities from NHC, nor is FCC subject to any non-competition clause with NHC. The contractual agreements with FCC are not a substantial part of the business activity of NHC. The FCC beds managed by NHC totaled 1,578 beds in 15 facilities. In 1991, NHC owned or managed a total of 10,204 nursing home beds in 82 facilities; owned 17 home care programs and three retirement apartment complexes with 235 units, and NHC managed a total of 38 facilities for third parties. NHC's gross revenues were $184,612,000 and its gross revenues from FCC were approximately $4,000,000 plus the guarantee fee of 1 percent on the outstanding principal balance which equals at least $500,000 annually. NHI, a real estate investment trust (REIT) which is affiliated with NHC, in 1991 purchased by assignment the taxable financing on five of the FCC facilities representing about $14,000,000 of debt. NHI has outstanding 183 different loans and over $500,000,000 of assets. Therefore, the outstanding indebtedness of FCC represents approximately 2.5 percent of NHI's assets and loans. Within the nursing home industry there have developed expertise and economies of scale for construction and development services. It is possible for owners to purchase development services to take advantage of such expertise and economies of scale. It is not uncommon for the nursing home owner, to the extent he has incurred fees for architectural services and other up-front development costs, to receive reimbursement of such development fees from the project's financing. There are significant numbers of suppliers of management services in the nursing home industry and pricing is competitive and open among the suppliers. It is a common practice in the nursing home industry for owners to engage management companies to provide day-to-day operating services. Management companies are utilized by owners to access special expertise and economies of scale in management skills and talent, medical staff recruitment and retention, purchasing, quality control, regulatory compliance and reimbursement practices. It is a common contractual term in the industry for management companies to provide the administrator for the facility. It is a common contractual term in the industry for management companies, as part of their services to manage the operating accounts of the facilities. It is a common contractual term in the industry for companies that perform the management of a facility to require a right of first refusal upon the sale of the facility to third parties. It is a common contractual term in the industry for management agreements to require that the owner maintain operating account reserves. The Management Agreement entered into between FCC and NHC is not out of line with the standard in the industry. A typical ancillary service provided as part of the management services is working capital loans. The terms of the working capital loans between FCC and NHC are common provisions required by lenders of working capital funds. The purchase of credit enhancement services is a standard and common practice in the industry. When credit enhancement services are purchased, it is standard business practice for the lender to require the corporate shareholder to guaranty the financing. When credit enhancement services are obtained, it is normal business practice for the lender to secure the funds or credit advanced by default provisions, lien rights and foreclosure remedies, and standard grace periods for default are 5 days. When credit enhancement services are obtained, it is a normal contractual term to limit the ability of the purchaser to conduct additional financing by syndication or otherwise, which could result in the owner "cashing out" from the property, leaving the guarantor with a financially bankrupt asset. The Agreement to Guarantee between FCC and NHC is typical and contains terms and provisions common to comparable business transactions, as required by the open market for such services. The sale of financing and management services as a package is a standard industry offering. The documentation and terms for management and credit enhancement services have become standardized in the nursing home industry. The terms and pricing of the Development Agreement, Agreement to Guarantee, and Management Agreement are not excessive within the industry and do not exceed the price or terms of comparable services that could be purchased elsewhere. They are in line with the terms and charges for such services in the open market, and are not in excess of what is available to other organizations under circumstances comparable to FCC's. NHC is charging FCC the same or less for the services it is providing, pursuant to the Development Agreement and Agreement to Guarantee, as is provided to other comparable organizations it supplies such services. The services being obtained pursuant to the Development Agreement, Agreement to Guarantee and Management Agreement are not a basic element of patient care ordinarily furnished directly to patients by such institutions; delivery of patient care services is made only by FCC employees. All default provisions in the Development Agreement, Agreement to Guarantee, and Management Agreement are triggered by objective criteria by which default is to be determined. These provisions do not give NHC the ability to use the threat of default to coerce FCC into paying greater compensation or otherwise control the business decisions of FCC, or influence or direct the actions or policies of FCC, as would be the case if the loans and guarantees were in the form of demand notes. The Development Agreement and its Exhibits are within the standard in the nursing home industry. The Development Agreement and its Exhibits do not give NHC an ownership interest in FCC. The Development Agreement and its Exhibits do not give NHC control over FCC. Medicaid is a federal social welfare program, created as "Title XIX of the Social Security Act." It is administered by the states, and the method of reimbursement is generally set forth by each state. However, the states to a large extent utilize the regulations promulgated for the Medicare program for determining provider reimbursement issues. Florida has elected to participate in the Medicaid Program and has passed appropriate authorization statutes and regulations to promulgate the state plan required by the federal statutes. One component of the state plan established and implements a Florida Title XIX Long-Term Care Reimbursement Plan. The Plan for nursing houses has been adopted as Rule 59G-6.010, Florida Administrative Code. In the Plan, Florida does not have a separate "related party" rule for its Medicaid program, but relies upon the Medicare rule contained in 42 C.F.R. Section 413.17 and Chapter 10 of the Provider Reimbursement Manual (HIM-15). The applicable Medicare reviewing entities, applying the Medicare related party rules, have not found a related party relationship between FCC and NHC. FCC has submitted annually cost reports to the fiscal intermediary for the federal Medicare program. The fiscal intermediary questioned the nature of the relationship between FCC and NHC as to whether related parties exist. The fiscal intermediary requested all of the underlying documentation and explored the nature of the relationship between the parties, and repeatedly has found that a related party relationship does not exist. AHCA seeks to use generally accepted accounting principles (GAAP) to support its decision that FCC and NHC are related parties. The regulatory objective of 42 C.F.R. Section 413.17 is to assure that the government program pays no more than a provider's reasonable costs for services rendered. It achieves that by collapsing or combining the business operations of related parties to prevent such related parties from collaborating to increase the costs to the Medicare and Medicaid programs by internal transactions in which a related party's charges become the provider's costs for such services, facilities or supplies. HIM-15 recognizes and permits providers to purchase a bundle of services, including but not limited to, working capital loans and management services, without creating a related party transaction. HIM-15 permits providers, in lieu of employing in-house staff, to purchase management services, and authorizes reimbursement for a: full service management contract in which the management contractor provides a complete package of services, has overall day-to-day management responsibility for the operation of the provider, and is accountable only to the governing board (or delegated representative) of the provider. In order for the bundle of services between FCC and NHC to be considered as a control relationship, HIM-15 requires each of the following: (1) the management agreement would replace several of the key employees of FCC, (2) the working capital loans would be evidenced by demand notes, and (3) NHC would own and lease the nursing home facilities to FCC, with NHC having the sole right to cancel the lease. In this case, although NHC does provide, subject to FCC's approval, the nursing facility administrator, the working capital loans provided by NHC are not demand notes that afford control by economic coercion but, rather, are term loans having default provisions based on objective criteria with a 120-day period for cure. Similarly, the facilities are not owned by NHC and leased to FCC with a sole right of termination in NHC. Here, the converse is true, FCC owns the facilities and has the right to terminate NHC's management contracts. 42 C.F.R. Sections 455.100 and 455.101 are regulatory requirements relating to disclosure by providers and do not provide standards as to whether a related party relationship exists for reimbursement purposes. The "evil" which the related party regulations are designed to prevent is not occurring in the business relationship between FCC and NHC. FCC and NHC are not related parties pursuant to the applicable Medicaid statutes and rules.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED as follows: AHCA issue a final order finding that FCC and NHC are not related parties for the purposes of reimbursement under the Medicaid program. AHCA issue a final order rescinding its previous notices to FCC that it reimburse the Medicaid Program as a result of previous overpayments by the Medicaid Program. AHCA issue a final order rescinding the audit report which was issued for the years and facilities at issue, and re-audit those years based on the recommendation herein. DONE and ENTERED this 31st day of August, 1994, in Tallahassee, Florida. DANIEL M. KILBRIDE 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 31st day of August, 1994. APPENDIX The following constitutes my specific rulings, in accordance with section 120.59, Florida Statutes, on proposed findings of fact submitted by the parties. Proposed findings of fact submitted by Petitioner. Accepted in substance: paragraphs 1 (in part), 3 (in part), 8, 9, 10 through 57, 59-87, 88 (in part), 89-95. Rejected as subsumed, irrelevant or immaterial or argument: paragraphs 1 (in part), 2, 3 (in part), 4, 5, 6, 7, 58, 88 (in part). Proposed findings of fact submitted by Respondent. Accepted in substance: paragraphs 1, 3, 4 (in part), 5, 6, 7, 8, 9. Rejected as a conclusion of law: paragraph 2. Rejected as subsumed, irrelevant, immaterial or argument: paragraphs 10, 11. Rejected as against the greater weight of evidence: paragraphs 4 (in part). COPIES FURNISHED: Harold D. Lewis, Esquire Agency for Health Care Administration 325 John Knox Road Tallahassee, Florida 32303 Sam Power, Agency Clerk Agency for Health Care Adminsitration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Gerald B. Sternstein, Esquire Frank P. Ranier, Esquire RUDEN, BARNETT, MCCLOSKEY, SMITH, SCHUSTER & RUSSELL, P.A. 215 South Monroe Street, Suite 815 Tallahassee, Florida 32301 Harold M. Knowles, Esquire KNOWLES & RANDOLPH 528 East Park Avenue Tallahassee, Florida 32347
Findings Of Fact There is a need for an additional 120 community nursing home beds in Department of Health and Rehabilitative Services ("HRS") District 7, Subdistrict 1, Orange County, for the July 1993 planning horizon. Health Care and Retirement Corporation of America, d/b/a Heartland Health Care Center of Orange County ("HCR") is a wholly owned subsidiary of Owens-Illinois, Inc., and has been in nursing home development and operation for 26 years. HCR proposes to develop, own and operate a 120 bed community nursing home, in an innovative pod design consisting of 20 beds in each of 6 pods. HCR currently operates 139 nursing homes in 19 states, 16 of the nursing homes are in Florida. HCR proposes to designate four of the 20 bed pods for separate groups of patients. One for those suffering from Alzheimer's and related dementia ("ARD"), one for short-term rehabilitative transitional care services, one for high acuity patients, and a fourth pod for extended rehabilitative services, operated in affiliation with the Brain Injury Rehabilitation Center of Sand Lake Hospital. HCR proposes to locate its facility near Sand Lake Hospital. HCR's total project cost is $7,944,787 intended to be funded from its operation of nursing homes. 1/ HCR currently operates facilities in Florida, nine of which have superior licenses, eight of which have standard licenses, and one of which has a conditional license. Two of the eight with standard licenses have been recommended, but not yet approved for superior licenses. The one facility with a conditional license has been recommended, but not yet approved for a standard license. HCR has not had a license denied, suspended, or revoked within the past thirty-six months. HCR has no facilities in receivership. HCR has had moratoria on admissions in three Florida facilities, and in facilities in Michigan and Connecticut within the past 36 months. Coordinated Care, Inc. ("CCI") proposes to construct a 120 bed facility in excess of 44,000 square feet on a 5 1/2 acre site which has not been located, in a design that the architect described as two "T-shaped" groups of 60 beds each. Twenty-four beds would be designated for subacute care. The certificate of need ("CON") would be conditioned on the provision of fifty percent (50%) service to Medicaid patients, eighteen percent (18%) to Medicare patients, and services to AIDs patients. CCI is proposing to serve ventilator dependent patients and to provide intravenous (I.V.) therapy. In addition, CCI proposes to have a rehabilitative restorative program, respite care, and a mentally impaired program. CCI, CCI related entities, and CCI stockholders currently operate four nursing homes and three adult congregate living facilities ("ACLF") in Florida. Of the four nursing homes, all of which are located in Volusia County, three have superior licenses and one has a standard license. The facilities managed or owned in whole or in part by CCI or CCI stockholders have never had a CON transferred, voided, decertified or suspended and have never had a moratorium on admissions to any of its facilities. CCI has projected a total project cost of 6.4 million dollars. CCI's application has two different funding sources described. First, a combined conventional loan for five million dollars and a 1.4 million capital contribution in exchange for a limited partnership or loan in exchange for stock from another corporation, PMV, Inc. Second, CCI's president secured a letter of interest from a bank, for financing one hundred percent of the project, in the range of $6.5 to $7 million. Section 381.707, Florida Statutes - Identity of Applicant, License Holder, and Operator, and Financial Feasibility of CCI Proposal Of the three alternative arrangements for financing its project proposed by CCI, the first would result in an impermissible change of identity from the applicant to the license holder/operator, if PMV, Inc. obtains an interest as a limited partner. Although CCI is the applicant, the operator would be the partnership, with CCI as general partner and PMV, Inc., as limited partner, the latter in return for the $1.4 million capital contribution. PMV, Inc., is a limited partner in three of the four Volusia County nursing homes operated by CCI family members. The president of CCI candidly admitted that the partnership arrangement was initially intended for the current project until he found out, after his deposition was taken in this case, that the proposed partnership arrangement violated the provisions of Section 381.707, Florida Statutes. CCI's president testified that a second alternative financial arrangement is for PMV, Inc. to take an interest as a stockholder at CCI in exchange for $1.4 million contribution to the project costs. The financial feasibility of CCI's second alternative cannot be determined from its application. The record contains no information identifying the principles, assets (other than an unspecified limited interest in three nursing homes), or liabilities of PMV, Inc. Although, there is a letter of interest from First Union Bank, which corroborates the availability of financing by that institution, there is no similar representation by PMV, Inc. There is no basis in the record to conclude that PMV, Inc. will provide $1.4 million as either capital contribution or loan, with or without a partnership or stockholder interest, or as conventional financing for CCI's proposed project. CCI's corporate resolution certifies that CCI will license and operate the facility, as required by Subsection 381.707(4), Florida Statutes. CCI's president's testimony of a third alternative financing plan is consistent with the resolution, that of obtaining the entire $6.4 million from First Union Bank. The plan is corroborated by a letter of interest from the Bank, expressing an interest in providing 100 percent financing for the project, in the range of $6.5 to $7 million. Assuming, arguendo, that other projections in the CCI pro forma are correct, the additional debt of $1.4 million would result in additional interest payments in year 1 of $136,776.49 and in year 2 of $129,776.49 and additional principal payments of $70,000 annually. 2/ The combined totals of $206,776.49 in year one and $199,776.49 in year two, when subtracted from projected net positive cash flow of $269,450, still results in a profit in year two. 3/ Therefore, under CCI's third alternative, the project is financially feasible in the short and long terms. CCI's Other Pro Forma Assumptions HCR asserts that CCI's application overstates revenues and understates expenses when compared to CCI's actual experience at Halifax Convalescent Center, which CCI offers as the basis for its projections. HCR asserts that CCI's projected revenues are inflated by overstated utilization, understated salaries, omitted start-up costs, and underestimated per patient day costs which will approximate $93.15, not $84.02. CCI's revenues are based on utilization calculated from per patient days averaged over an entire quarter. That calculation is accepted as more reasonable than one based on the census on the last day of the quarter. The salary for the administrator which was estimated by CCI is below the median for Orange County, but not shown to be inconsistent with what CCI stockholders receive as nursing home administrators, and are therefore reasonable for CCI's family-owned operation. The testimony offered by CCI that start-up costs, although not included in fixed assets on Schedule 6 of CCI's application, are included in Schedule 15 as "financial and developmental costs" is accepted. Total expenses per patient day, as reported to the HCCB for 1990 for CCI managed Halifax Convalescent Center, Ltd., which has 84 licensed beds, were $93.15. CCI stockholder managed facilities reported the following data to the HCCB: Facility Licensed Beds Occupancy Rate Total Expenses Patient Day 84 96.53 93.15 192 80.64 63.60 122 95.14 64.06 93 97.36 60.51 for 303 (not 365) days for 102 (not 365) days Halifax* Fairview Manor** Deland Convalescent Center DeBary Manor * Reporting ** Reporting Based on the fact that CCI plans to operate the new facility with a mix of patient acuity levels much the same as those at Halifax, but since Halifax is smaller and, for 1990, did not report data for two months, the HCR assertion that per patient day expenses will be the same as for Halifax ($93.15), not as projected by CCI ($84.02), is rejected. HCR's assertion that the various items in CCI's schedules as overstatements of revenue and understatements of expenses is rejected. CCI's proposal is accepted as financially feasible in the short and long term. Subsection 381.705(a) - District and State Health Plans Preference one of the 1990 District 7 Health Plan, favoring applicants proposing to locate in Brevard County, is inapplicable to CCI and HCR. Preference two of the District 7 plan, favoring applicants who commit to serving AIDS patients, is met by CCI and not by HCR. Preference three of the District 7 plan, for applicants with clear recruitment plans including salaries, benefits, bonuses and training opportunities is met by both CCI and HCR. The preference is better met by HCR which proposes to pay higher salaries and to provide a greater benefits package. Preference three of the district plan, overlaps with Subsection 381.705(1)(h), Florida Statutes, in the criterion focused on the availability of resources, including staff and management personnel. Both HCR and CCI have demonstrated the adequacy of their recruitment plans and that they have plans to establish relationships with Orlando area technical schools, community colleges or universities, which will enhance training and hiring qualified personnel. Preference one of the 1989 Florida State Health Plan for nursing homes proposals to locate in districts with over 90% occupancy rates is met by both CCI and HCR. State health plan preference two is for applicants proposing to serve Medicaid residents in proportion to the average subdistrict-wide percentage of nursing homes in the same subdistrict. The subdistrict-wide average of Medicaid residents in Orange County is 62.5 percent. HCR does not meet the requirement for the preference, based on its unwillingness to make a Medicaid commitment. CCI's commitment to a minimum of 50 percent Medicaid patient days better meets the requirements for the second preference in the state health plan. The third preference of the state health plan for applicants proposing to serve special care residents, including AIDS, Alzheimer's and mentally-ill residents is met by both HCR and CCI. CCI gives greater emphasis to serving AIDS patients, while HCR proposes to have a designated unit more adequately suited for Alzheimer's sufferers. The fourth state health plan preference for applicants offering a continuum of services to the community, by offering respite care, is met by both CCI and HCR. The fifth state health plan preference for facilities constructed to maximize resident comfort and quality of care is met, in different ways, by both CCI and HCR. CCI's rooms will be 30 percent larger than required which allows residents space to decorate with more of their personal items and to have more comfortable areas for visitors in their rooms. CCI has emphasized visual openness and space in dining areas. HCR's pod design offers the elimination of institutional like corridors, provides multiple unique living room type visitation areas, and the advantage of separating the frail but mentally alert elderly from Alzheimer's sufferers. The sixth state health plan preference is for applicants proposing innovative therapeutic programs. HCR asserts that it best meets the preference by its proposal to provide in-house therapeutic services. Although the in-house staff may enhance residents accessibility to the services, that fact is not sufficient to find that the service itself is innovative. Neither CCI nor HCR proposes an innovative therapeutic program. Preference seven of the state health plan, for applicants whose charges do not exceed the highest Medicaid per diem in the subdistrict, was not addressed by either applicant. Preference eleven of the state health plan, for applicants who ensure patient privacy and residents rights was minimally demonstrated, with regard to residents councils by CCI, but not by HCR. Preference twelve applies to applicants proposing lower administrative costs and higher resident care costs, compared to the district average. CCI and HCR propose to charge patients, as follows: Private Semi-Private Medicaid Medicare CCI-Year One $ 92.00 $ 92.00 $ 90.00 $115.00 HCR-Year One 95.00 95.00 93.00 120.54 CCI-Year Two 132.00 98.00 79.30 137.75 HCR-Year One 136.50 102.90 72.63 128.50 Administrative costs for HCR are approximately one-fourth of patient care costs, but those of CCI are approximately one-half of patient care costs. CCI's total costs and charges are lower. Based on HCR Exhibit 8, ratios in the district range from lows of one-fourth to highs of two-thirds. HCR compares most favorably to the preference for lower relative administrative costs. Subsection 381.705(1)(b) - availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services and hospices in the services district Although, by prehearing stipulation the parties placed the criteria in 381.705(1)(b) at issue, no evidence on any like or existing services in the service district was presented at final hearing. Both applicant parties stipulated that HRS correctly determined that a need exists for an additional 120 community nursing home beds in Orange County. Subsection 381.705(1)(c) - ability and record of providing quality of care; and preferences eight, nine and ten - superior history; higher staffing levels; and varied professions and disciplines CCI's four family/stockholders operated facilities hold three superior and one standard license. CCI has never transferred, sold, or voided, nor have CCI-related facilities ever had a moratorium on patient admissions. CCI also proposes to provide staffing above minimum requirements. CCI has established its ability and record of providing high level quality of care. HCR holds 8 standard and 9 superior facilities licenses in Florida. HCR has not had a license denied, suspended or revoked within the last 36 months. HCR has had moratoria on admissions at three of its Florida facilities and at two out of state facilities within the past 36 months. HCR's expert also testified that two of the eight facilities with standard licenses have been recommended for superior licenses, and the one facility with a conditional license has been recommended for a standard license. HCR has allowed a prior CON for a facility in Orange County to lapse. HCR does not, to same extent as CCI, meet the preference for applicants with a record for quality of care. HCR does propose staffing which meets the requirements of the preference for having the ability to provide quality care, and its proposal is, only with regard to the provision of in-house therapy services, superior to the staffing proposed by CCI. Subsection 381.705(1)(h) - funds for project accomplishment; accessibility for district residents; and Subsection 381.705(1)(i) - financial feasibility HCR proposes to finance construction and development from cash flows from the operation of its existing facilities. CCI and HRS assert that HCR does not have the ability to finance the project from "operations" and that HCR's projected fill rates are overly optimistic. HCR had cash on hand of $125,000 in 1989, in part generated from the sale and not operations of facilities. HCR also has a history of significant cost overruns. HCR has been able to finance previous projects from cash flow and it is reasonable to conclude that the same will occur with this project. The testimony of the HCR expert in nursing home design, development and construction that the estimated costs for this project take into account the prior cost overruns is accepted. HCR's fill-up rates were estimated based on the experience of other HCR facilities in the state. However, none of those facilities have the patient mix projected for the new HCR facility. For this project, HCR proposes 85% private-pay. For the facilities which were used to project utilization, Medicaid patients equal the percentage of Medicaid patients in the respective districts. Undisputed evidence was presented that a number of private pay patients "spend-down" and become Medicaid eligible in less than a year. In addition, only 30% of District 7 patients are private pay patients. Although HCR plans to keep patients who spend down, the pro forma fails to take in account any spend-downs within the first two years. HCR has failed to demonstrate the short term financial feasibility of its project by failing to demonstrate the reasonableness of projected utilization and by failing to project the need to accommodate spend-downs in light of the stated intention to keep such residents. HCR's proposal is financially feasible in the long-term after its beds are certified as Medicaid eligible. CCI's proposal is more accessible to Medicaid residents, at least for the first two years of operation. Subsection 381.705(1)(l) - probable impact on costs, effect of competition, improvements or innovations There was no evidence of the impact of either proposal on costs or competition among nursing homes in the area, despite the prehearing stipulation that the statutory criterion was at issue. Subsection 381.705(1)(m) - costs and methods of construction; and 381.705 (2) construction alternatives HCR's proposed facility of 47,000 square feet will cost $3,600,000 to build. Construction costs are reasonable. HCR has taken into account prior cost overruns in projecting the cost of this project. Revisions in the HCR schematic design to enhance visibility of room doors and exits to courtyards can be accommodated in the final design plans. CCI's proposed 44,000 square foot facility will cost $4,200,000 to build. Construction costs are reasonable to include all site work, including driveways and sidewalks. Revisions required in the CCI design can be appropriately included when the schematic design is revised for submission with final construction documents. Subsection 381.705(1)(n) - past and proposed provision of services to Medicaid and medically indigent CCI proposes to commit to serving 50 percent Medicaid patient days and CCI family/stockholder facilities have the following Medicaid commitments and record: Halifax Convalescent Center DeBary Manor CON Commitment 44 percent 0 1989 Record 70 percent 54 percent DeLand 0 * Fairview Manor 0 75-80 percent *No information was found in the record, except a statement that the Medicaid percentage was "above" the subdistrict county coverage. HCR proposes to commit no patient days to Medicaid in the first two years, except to certify beds as needed for those patients who spend-down to Medicaid eligibility. HCR currently provides Medicaid services to 60 percent of its Florida nursing home residents. Both HCR and CCI have established a history of past services to Medicaid, but CCI has established the superior proposed service to Medicaid patients in its proposed project.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered: Granting Certificate of Need application 6530 to Coordinated Care, Inc., based upon the conditions agreed to in the application; Denying Certificate of Need application 6532 of HCR; and Closing Case No. 91-2927 consistent with FCC's voluntary dismissal of its petition. RECOMMENDED this 6th day of April, 1992, at Tallahassee, Florida. ELEANOR M. HUNTER 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 6th day of April, 1992.
