The Issue The issue in these cases is whether individual and group Medicare supplement forms with a 39% increase in the rates charged for those forms should be approved by the Department.
Findings Of Fact Introduction. The Parties. Petitioner, Central States Health and Life Company of Omaha (hereinafter referred to as "Central States"), is a corporation domiciled in Nebraska. Central States holds a certificate of authority issued by the Department which allows it to sell life and health insurance, including individual and group standardized Medicare supplement policies, in Florida. Respondent, the Department of Insurance and Treasurer (hereinafter referred to as the "Department"), is an agency of the State of Florida. The Department is charged with the responsibility for, among other things, the review and approval of health insurance policy forms used in Florida. General Requirements for Medicare Supplement Policy Forms in Florida. No "basic insurance policy" may be delivered in Florida unless the "form" has first been approved by the Department. Section 627.410(1), Florida Statutes. Section 627.410(6), Florida Statutes, additionally requires that a copy of the applicable rating manual or rating schedule included as part of a insurance policy form must be filed with the Department for approval before any "health insurance policy form" is delivered in Florida. Pursuant to Section 627.410(7)(a), Florida Statutes, insurers required to file rating manuals or rating schedules pursuant to Section 627.410(6), Florida Statutes, must make an "annual filing" with the department. The "annual filing" requirement of Section 627.410(7)(a), Florida Statutes, may be satisfied in two ways: A "rate filing prepared by an actuary which contains documentation demonstrating the reasonableness of benefits in relation to premiums charged in accordance with the applicable rating laws and rules promulgated by the department." Section 627.410(7)(b)1, Florida Statutes; or "If no rate change is proposed, a filing which consists of a certification by an actuary that benefits are reasonable in relation to premiums currently charged in accordance with applicable laws and rules promulgated by the department." Section 627.410(7)(b)2, Florida Statutes. The filing requirements of Section 627.410(6) and (7), Florida Statutes, apply to Medicare supplement forms. Section 627.6745, Florida Statutes, limits the manner in which entities providing Medicare supplement policies may meet the annual filing requirement of Section 627.410(7), Florida Statutes. Section 627.6745, Florida Statutes, eliminates the use of the certification procedure described in Finding of Fact 7.b., supra, by Medicare supplement policy providers. Section 627.6745(2), Florida Statutes, requires that all providers of Medicare supplement policy forms: . . . file annually its rates, rating schedules, and supporting documentation demonstrating that it is in compliance with the applicable loss ratio standards of this code. The filing of rates and rating schedules shall demonstrate that the actual and expected losses in relations to premiums comply with the requirements of this section. Rule 4-156.011(3), Florida Administrative Code, requires that issuers of Medicare supplement policies and certificates must file their rates annually "for approval by the Department in accordance with Section 627.410, Florida Statutes." Section 627.6745, Florida Statutes, also provides limitations on the rates which may be charged for Medicare supplement policies: Medicare supplement policies shall return the following to policyholders in the form of aggregate benefits under the policy, with respect to the lifetime of the policy, on the basis of earned premiums and on the basis of incurred claims experience . . . and in accordance with accepted actuarial principles and practices: At least 75 percent of the aggregate amount of premiums earned in the case of group policies. . . . for individual policies issued on or after July 1, 1989, at least 65 percent of the aggregate amount of premiums earned. . . . Stated very simply, this provision requires that for every dollar of premiums earned, a minimum of 75 cents must be paid in claims for group policies and a minimum of 65 cents must be paid in claims for individual policies. The grounds for disapproval of "any form filed under s. 627.410" are provided in Section 627.411, Florida Statutes. In pertinent part, Section 627.411(1), Florida Statutes, provides that a "form" may be disapproved if the form: (a) Is in any respect in violation of, or does not comply with, this code. . . . . (e) Is for health insurance, and provides benefits which are unreasonable in relation to the premium charged, contains provisions which are unfair or inequitable or contrary to the public policy of this state or which encourage misrepresentation or which apply rating practices which result in premium escalations that are not viable for the policyholder market or result in unfair discrimination in sales practices. The Department has adopted rules establishing general rate filing procedures. Rule 4-149.003, Florida Administrative Code. Rule 4-149.006, Florida Administrative Code, sets out the information an actuary must provide and the manner in which an actuary is to provide that information. The Department has also adopted rules providing the manner in which the reasonableness of benefits in relation to premiums will be determined. Rule 4- 149.005, Florida Administrative Code. Central States' 1998 Medicare Supplement Form Filings. Central States' Rate Increase Requests. On or about January 20, 1998, Central States filed two requests for rate increase with the Department. One request sought a 39% increase for Individual Medicare supplement policy forms (hereinafter referred to as "Individual Medicare Forms") sold in Florida and the other sought a 39% increase for Group Medicare supplement policy forms (hereinafter referred to as "Group Medicare Forms") sold in Florida. For purposes of this Recommended Order all Findings of Fact and Conclusions of Law apply equally to each type of rate increase request unless otherwise noted. Both rate increase requests were accompanied by an actuarial memorandum certified by Dawn Helwig, an actuary retained by Central States. The Department's Review and Disapproval of Central States' Filings. The rate increase requests were reviewed by Linda Ziegler, an actuary employed by the Department. Following her review, Ms. Ziegler asked for additional information or explanation concerning several issues by letters dated February 10, 1998.. By letter dated February 18, 1998, Central States responded to Ms. Ziegler's letters. Each of the issues raised by Ms. Ziegler was addressed in the February 18, 1998, letter. After review of Central States' rate increase requests, the Department informed Central States that the 39% rate increases it had requested were disapproved. Central States was informed of the denial by letter dated March 6, 1998. The Department also informed Central States in the March 6, 1998, denial letter that rate increases of 9.6% were "APPROVED." Central States was requested to "provide revised rate pages reflecting the approved rate increase by March 20, 1998." Central States did not comply with this instruction. The Department denied the 39% rate increase requests for three reasons: The Department determined that the rate increases sought by Central States did not provide benefits which were reasonable in relation to the premium to be charged. Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(e), Florida Statutes. This determination was based upon a finding that Central States' projected Anticipated Loss Ratio did not meet or exceed the weighted average of the Anticipated Loss Ratio *N (hereinafter referred to as the "*N Test"). "Anticipated Loss Ratio" is defined in Rule 4- 149.006(3)(b)20, Florida Administrative Code, as essentially the present value of future benefits (claims) divided by the present value of future premiums. The conclusion that Central States' projected Anticipated Loss Ratio did not meet or exceed the *N Test was based essentially upon four areas of disagreement with Ms. Helwig's calculations in her actuarial memoranda; The Department determined that Central States' "forms" were in violation of Chapter 627, Florida Statutes. Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(a), Florida Statutes. This determination was based upon the Department's conclusion that Central States had failed to make annual rate filings as required by Section 627.410(7), Florida Statutes, and Rule 4-156.011, Florida Administrative Code; and The Department determined that Central States' requested rates were not "viable." Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(e), Florida Statutes. This determination was based upon the Department's conclusion that because Central States had failed to obtain annual approval of its Individual and Group Medicare Forms for several years the amount of the increases sought by Central States was not "viable." The four areas of disagreement with Ms. Helwig's calculations are: What Individual Medicare Forms should be considered to have been issued to individual customers after "6/1/94" for purposes of Rule 4-149.005(2), Florida Administrative Code. (This issue only impacted Central States' Individual Medicare Forms request); Whether Central States should pool its experience with its Individual and Group Medicare Forms; Whether Central States should use its actual nationwide experience instead of its actual nationwide experience "adjusted to the Florida Rate basis"; and Whether it was appropriate for Central States to assume that its premiums would be received and its claims incurred at the beginning of the year? The Department concluded that 32.7% increases would meet the *N Test if the four areas of disagreement with Ms. Helwig were corrected by Central States. The Department also concluded that even if Central States met the *N Test it would only be entitled to a one-year adjustment which it calculated to be 9.6%. (It is this determination that Central States challenged as the application of an unpromulgated rule in Case Number 98-2767RU). Central States' Rate Increases do not Provide Benefits which are Reasonable in Relation to the Premium to be Charged. Individual Policy Forms Issued After "6/1/94". The Department has provided by rule that a rate filing will be determined to be reasonable in relation to the premium rates charged as required by Section 627.411(1)(e), Florida Statutes, if a premium schedule is "not excessive, not inadequate and not unfairly discriminatory." Rule 4-149.005(1), Florida Administrative Code. Rule 4-149.005(2), Florida Administrative Code, provides that a premium schedule is "not excessive" if certain tests are met. One of those tests requires that the anticipated loss ratio meet or exceed the greater of the loss ratio the insurer initially filed or the *N Test. What policies must be included in this calculation depends on when a "Policy Form" was approved or issued. Both the Department and Central States agree that the determination of whether Central States' rate increases for its Individual and Group Medicare Forms are "not excessive" should be determined pursuant to Section 4.149.005(2), Florida Administrative Code. What they disagree on is how to determine when a Policy Form was "issued." This dispute only applies to the Individual Medicare Forms. The parties agree that all of Central States' Group Medicare Forms were issued after the appropriate date and, therefore, no adjustment was made to Ms. Helwig's calculations on the appropriate rate increase for Group Medicare Forms due to this issue. Rule 4-149.005(2)(b), Florida Administrative Code, requires the inclusion of any "Individual Policy Form approved on or after 2/1/94 or issued on or after 6/1/94." Central States included only those individual Medicare supplement policies it had issued to individual customers after 6/1/94. Any individual Medicare supplement policy customer that purchased a policy prior to 6/1/94 was not included in its calculations. This resulted in a lower Anticipated Loss Ratio *N and, consequently, a higher non-excessive or justifiable rate increase. Central States' interpretation of Rule 4- 149.005(2)(b), Florida Administrative Code, is based upon its conclusion that a "Policy Form" is the individual proof of insurance provided to a customer. The Department on the other hand concluded that if any individual policy is issued after 6/1/94, then an "Individual Policy Form" has been issued after that date and all of the policies must be included in the *N test. This position results in a higher Anticipated Loss Ratio *N and, consequently, a lower non-excessive or justifiable rate increase. The Department's interpretation of Rule 4- 149.005(2)(b), Florida Administrative Code, is based upon its conclusion that the terms "Policy Form" in the rule mean the generic insurance "form" approved by the Department for issuance to any customer. Based upon this definition, the Department takes the position that if one copy of the approved "form" is issued after 6/1/94, all business attributable to that "Policy Form" must be included in the *N Test calculation. "Credible Data" as Defined in Rule 4-149.006(4)(e), Florida Administrative Code; The Use of "Pooling" and Nationwide Experience Adjusted to a Florida Rate Base. Rule 4-149.003(2)(b)4, Florida Administrative Code, requires that all rate filings include an "actuarial memorandum, completed as required by Rule 4-149.006 " Rule 4-149.006(1), Florida Administrative Code, specifies that pricing assumptions in an actuarial memorandum must reflect the "insurer experience to the degree credible, and the industry experience where insurer experience is not credible, available or appropriate." "Credible Data" is defined in Rule 4-149.006(4)(e), Florida Administrative Code, as follows: If a policy form has 2000 or more policies in force, then full (100%) credibility is given to the experience; if fewer than 500 policies are inforce, then zero (0%) credibility is given. Linear interpolation is used for inforce amounts between 500 and 2000. For group policy forms, the numbers in this definition refer to group certificates, not policies. A combination of Florida and nationwide data shall be used only if Florida-only data is not fully credible. Central States had fewer than 500 Individual Medicare Forms policies in-force in Florida. It had approximately 1,065 Group Medicare Forms certificates in-force in Florida. Therefore, Central States' Florida data had zero credibility for Individual Medicare Forms policies and little credibility for Group Medicare Forms certificates under Rule 4-149.006(4)(e), Florida Administrative Code. On a nationwide basis, Central States had a significant number of Individual Medicare Forms policies in effect (369 in Florida plus 1,352 in other states) but very few Group Medicare Forms certificates (1,065 in Florida plus 40 in other states). Due to the similarities between its Individual and Group Medicare Forms, Central States relied upon its nationwide experience for its Individual Medicare Forms policies (1,921) to justify the rate increases for both its Individual Medicare Forms and Group Medicare Forms. The nationwide experience for Individual Medicare Forms policies relied upon by Central States was adjusted by Ms. Helwig to a projected "Florida rate experience." Ms. Helwig certified this adjusted "Florida rate experience" in the actuarial memorandum filed on behalf of Central States with its Individual Medicare Forms as its "credible data." The Department made two adjustments to Central States' use of adjusted nationwide experience for Individual Medicare Forms for both rate increase requests. First, the Department rejected Central States' use of its experience with Individual Medicare Forms as "credible data" that supported its Group Medicare Forms rate increase and its Individual Medicare Forms rate increase. The Department determined, however, that if Central States wanted to rely on its Individual Medicare Forms experience, it could do so if it "pooled" the Individual and Group Medicare Forms experience in Florida and nationwide. The Department's method of pooling the Individual and Group Medicare Forms experience and relying on the resulting number for both the Individual Medicare Forms and Group Medicare Forms review results in a higher justifiable rate increase for Central States. Therefore, Central States has indicated its willingness to accept the Department's determination in this regard. Secondly, the Department rejected Ms. Helwig's adjustment of Central States' actual nationwide experience to determine "Florida rate level." The Department made its calculations solely on Central States' actual Florida and nationwide experience, without adjustment, for its Individual and Group Medicare Forms combined. Central States' Florida experience is 62.3% credible. This data was combined with actual nationwide data to achieve 100% credible data. The Department's calculations were premised upon the requirements of Rules 4-149.006(3)(b)23 and 4- 149.006(4)(e), Florida Administrative Code. Central States presented evidence to prove that its treatment of the nationwide data was actuarially sound. The issue, however, is whether Florida law allows the treatment of nationwide data in the manner utilized by Central States. 45. Rules 4-149.006(3)(b)23 and 4-149.006(4)(e), Florida Administrative Code, both require that an actuarial memorandum report "experience." Rule 4-149.006(3)(b)23, Florida Administrative Code, also requires that the actuarial memorandum display "actual experience" and the experience "expected for the future." While this provision might suggest that "experience" and "actual experience" require different information, the use of "actual" to modify "experience" is only meant to distinguish between an insurer's "experience" and projected future experience. The common definition of the term "experience" contemplates "actual" results: 1a : direct observation of or participation in events as a basis of knowledge b : the fact or state of having been affected by or gained knowledge through direct observation or participation. a : practical knowledge, skill, or practice derived from direct observation of or participation in events or in a particular activity b : the length of such participation has <10 years experience in the job>. a : the conscious events that make up an individual life b : the events that make up the conscious past of a community or nation or mankind generally. 4: something personally encountered, undergone, or lived through. 5: the act or process of directly perceiving events or reality. WWWebster Dictionary, Http://www.m-w.com/dictionary. The Timing of Premiums and Claims. Central States assumed for purposes of the *N Test that it would receive premiums and incur claims at the beginning of the year. The Department rejected this assumption and assumed that premiums would be received at the beginning of the year and that claims would be incurred in the middle of the year. Central States' assumptions concerning premiums and claims did not improve its *N Test results. Central States' proved that its treatment was consistent with actuarial principles. The evidence in this case, however, failed to prove what impact the acceptance of Central States' assumption concerning premiums and claims would have on the amount of rate increases that will meet the *N Test. The Rate Increases Which Will Meet the *N Test. The Department's ultimate determination which it reported to Central States concerning the *N Test was that 39% rate increases did not result in an Anticipated Loss Ratio that met or exceeded the weighted average of the loss ratio *N. Therefore, the requested rate increases failed to meet Section 627.411(1)(e), Florida Statutes, and Rule 4-149.005(2)(b)1, Florida Administrative Code. Using data provided by Central States and accepting the assumptions provided to the Department by Central States, the Department was unable to recreate Central States' projections. The Department, therefore, pooled Central States' actual nationwide experience, projected Central States' future experience, took a weighted average of the nationwide data and compared the future projected loss ratio submitted with Central States' rate requests with its future expected loss ratio under the original pricing assumptions of the *N Test. These calculations resulted in a finding that rate increases of 32.7% would satisfy the *N Test. Based upon information provided by Central States during the formal hearing of these cases, the Department performed the *N Test, adjusted to take into account the time that had passed since the Department's initial decision. Based upon Central States' assumptions and actual data for its nationwide experience, it was determined that the weighted average anticipated loss ratio was 77.1%. This amount did not meet or exceed the *N Test loss ratio which was determined to be 78.3%. Central States has not filed a request for, or an actuary memorandum supporting, a rate increase of 32.7% for its Individual Medicare Forms or Group Medicare Forms. Central States' Individual and Group Medicare Forms do not Violate Chapter 627, Florida Statutes. In addition to determining that Central States' rate increases should be denied because the rate increases would result in policies which provided benefits which were not reasonable in relation to the premium to be charged, the Department determined that Central States' Individual and Group Medicare Forms requested violated Chapter 627, Florida Statutes. Therefore, the Department denied the rate increases pursuant to Section 627.411(1)(a), Florida Statutes. It is the Department's position that the failure of an insurer to annually gain approval of its rates constitutes a violation of Chapter 627, Florida Statutes, for which a future rate increase may be denied pursuant to Section 627.411(1)(a), Florida Statutes. In these cases, the Department determined that Central States had failed to obtain such approval for its Individual Medicare Forms for almost five years and for its Group Medicare Forms for almost three years. Section 627.411(1)(a), Florida Statutes, specifically allows the Department to disapprove "any form filed under s. 627.410" if "the form" is in violation of Chapter 627, Florida Statutes. Central States' initial filing of its Individual Medicare Forms was made in 1991. The rate sought by Central States in that initial filing was lower than the rate ultimately approved by the Department, but it was in compliance with Chapter 627, Florida Statutes. Since the approval of Central States' initial filing of its Individual Medicare Forms, the following is the history of Central States' Individual Medicare Forms filings with the Department: Central States' sought a 15% decrease in its existing approved rate on May 3, 1993. The rate was denied as inadequate. Central States challenged the denial and was ultimately granted an decrease of 7.5% through a settlement of the dispute. No rate filing was made by Central States in 1994. In 1995 Central States filed an annual rate certification. It did not request approval of its rates. The certification was rejected by the Department due to an inadequate actuary memorandum. In May 1996 Central States requested a modification of its Individual Medicare Forms but did not include a rate filing. The Department requested a rate filing from Central States, but Central States did not comply with this request. The Department ultimately disapproved the form modification request. In December 1996 Central States sought a 20% rate increase. The Department requested additional information concerning the rate increase. The Department also asked Central States why it had not made annual rate filings since 1993. On January 14, 1997, the Department disapproved the requested rate increase. The Department informed Central States that it was denying the rate increase, in part, because of the failure to provide projections for future experience and the resulting lifetime loss ratios and because of the failure to explain why Central States had failed to comply with the annual rate filing requirements. In the Spring of 1997 Central States requested a 17% rate increase. After the Department requested further information, Central States amended its request to a 25% increase. The Department denied the requested rate increase by letter dated July 9, 1997. In the denial letter the Department also informed Central States that a rate increase of 11.4% would be justifiable if the findings of the Department were accepted and if Central States submitted a new filing seeking an 11.4% increase. Central States did not resubmit a request for the 11.4% increase. Since 1993 the Department has not approved any rate increase sought by Central States for its Individual Medicare Forms. The following is a summary of the history of Central States' Group Medicare Forms filings: Central States first filed its Group Medicare Forms in 1995. Those forms were approved by the Department. A rate filing made in December 1996 was disapproved by the Department on January 17, 1997. A rate filing made in 1997 was also disapproved by the Department. Since 1995 the Department has not approved any rate increase sought by Central States for its Group Medicare Forms. The only "forms" which the Department may disapprove in these cases is the Individual and Group Medicare Forms, which include the 39% rate increases filed by Central States. These "forms" are not, however, in violation of Section 627.410, Florida Statutes. The only "forms" that may be in violation of Section 627.410, Florida Statutes, due to Central States' failure to get approval of the rate charged for the forms on an annual basis, are forms which Central States has issued in prior years. Central States is not, however, seeking approval of the rates charged in those forms. "Viability." In addition to determining that Central States' rate increases should be denied because the rate increases would result in policies which provided benefits which were not reasonable in relation to the premium to be charged; and because Central States' Individual and Group Medicare Forms violate Chapter 627, Florida Statutes, the Department also determined that the rate increases requested should be denied because they would result in premium escalations that were not "viable" for the policyholder market. Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(e), Florida Statutes. The Department concluded that the requirement that rates be "viable" necessitates that an insurer seek steady, progressive rate changes on an annual basis so that policyholders can plan and budget for their insurance needs. Whether a rate increase is viable depends in part on the amount of the rate increase. The greater the amount of the rate increase, the greater the likelihood that the increase will not be viable. Whether a rate increase is "viable" also depends upon a consideration of the period of time since the insurer sought a rate increase. Finally, whether a rate increase is "viable" will depend upon how the increased rate compares to the rates charged by other insurers for the same policy. The Department's concern over viability is based in part on the concept of "shock lapse." Actuaries are required to take into consideration projected terminations of policies in making their projections. Only terminations that normally occur due to death or other normal consequences are to be considered. "Shock lapse" is the extra-ordinary termination of policies due to some occurrence that causes a larger than normally expected number of people to terminate their policies. Where a rate increase is limited to essentially "medical trend" or the normal inflationary increase in the cost of medical care, it is assumed that there will be no shock lapse. See, Rule 4- 149.006(3)(b)18.a, Florida Administrative Code. In this matter, medical trend was just over 7% for Central States' rate requests. The greater the amount of an increase in rates over medical trend, the greater the shock lapse. The greater the shock lapse, the greater the number of policy terminations. The Department's determination that Central States' requested rates were not viable was based almost entirely upon the fact that Central States had not obtained approval of rates for its policies on an annual basis as required by Chapter 627, Florida Statutes. The Department emphasized the fact that Central States had requested approved rate reductions in the past and had not obtained any rate increases since it began selling Individual and Group Medicare Forms in Florida. The Department failed to take into account, however, whether Central States' proposed rates were too high and whether the proposed rates are comparable to the rates charged by other insurers of Medicare supplement policies. Even with a 39% increase in its rates, Central States' Individual Medicare Forms rate would be 6% lower than the market average for identical coverage and its Group Medicare Forms rate would be 8% lower than the market average for identical coverage. The Department also failed to take into account the fact that Central States' existing policy holders have saved money over the past years when they were not subjected to an annual rate increase and that the proposed increases will not make up that savings. Federal law requires that Medicare supplement forms be standardized. Benefits are, therefore, identical regardless of what insurer may sell a form. As a consequence, policyholders will be able to easily compare a Central States' policy with a 32.7% increase to similar products offered by other insurers. Such a comparison should reduce the amount of shock lapse because Central States' rates, even with a 32.7% increase, will still be below market average. The evidence proved that Central States is not pricing its Medicare forms low in order to give it an unfair advantage in the market. Since Central States entered the Florida market its share of the market has remained at a relatively low share of less than 1%. The Department has not undertaken any analysis of what types of rate increases will actually be viable in Florida. The Department simply relied upon phone call complaints about increases in policies in general. The Challenged Policy. The Challenged Policy is an Unpromulgated Rule. In addition to determining that the rate increases requested were denied, the Department also informed Central States that rate increases of 9.6% were approved based upon the fact that Central States had not obtained annual approval of its rates for the Individual or Group Medicare Forms and the application of a Department policy that only an annual rate increase may be allowed where annual approval has not been obtained by an insurer of the insurer's rates. The Department's policy allowing only an annual rate increase was challenged by Central States in Case Number 98- 2767RU. The specific statement or statement description challenged by Central States in Case Number 98-2767RU as an unpromulgated rule was as follows: If during its review of a rate change filing, DOI determines an insurer is not in compliance with the annual rate filing requirements of section 627.410(7), Florida Statutes, and if the filing involves a Medicare Supplement form, section 627.6745, Florida Statutes, then DOI will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. (The foregoing statement of policy will be referred to as the "Challenged Policy"). The Challenged Policy is actually more than one policy. First, the Challenged Policy includes a policy of the Department that it will not allow a rate increase for Individual or Group Medicare supplement forms attributable to more than a one year period if an insurer fails to comply with the annual filing requirement of Section 627.410(7)(b), Florida Statutes. This policy is based upon the Department's conclusion that the failure to obtain annual approval means that any future "form" filed by an insurer is in violation of Chapter 627, Florida Statutes, and its conclusion that any future rate increase will not be viable. Secondly, the Challenged Policy includes a policy of the Department that, if the annual filing requirement has not been met, it will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. The evidence in these cases proved that the first part of the Challenged Policy formed a large part of the basis for the Department's denial of Central States' applications for rate increases. The evidence also proved that the second part of the Challenged Policy was relied upon by the Department in determining that increases of 9.6% would be acceptable. It has been concluded in the Final Order that the Challenged Policy constitutes a "rule" as that term is defined in Section 120.52(15), Florida Statutes, and that the Challenged Policy had not been adopted by the rulemaking procedure provided in Section 120.54, Florida Statutes, at the time of its application to Central States. Based upon the Final Order, the Department may not rely upon the Challenged Policy in these cases, unless the provisions of Section 120.56(4)(e), Florida Statutes, apply. The Department's Effort to Adopt the Challenged Policy. The Challenged Policy was proposed for adoption as a rule by the Department prior to the filing of the petition in these cases. On November 7, 1997, the Department caused notice of its intent to adopt proposed rules to be published. Volume 23, Number 45, Pages 6045-6068 of the Florida Administrative Weekly (November 7, 1997)(hereinafter referred to as the "Proposed Rules"). Pursuant to this notice the Department indicated its intent to repeal Chapter 4-149, Florida Administrative Code, and replace it with a new Chapter 4-149. The Proposed Rules establish the specific criteria for determining whether a rate filing should be approved as did the rules the Department has proposed to repeal. The Department also included newly proposed rule 4- 149.108(14) in the Proposed Rules: (14) If an insurer has not made an annual rate filing or certification stating the reasonableness of benefits in relation to the premiums charged as required by section 627.410(7), Florida Statutes, other than when the department approved a lower increase than what was requested, the current rate increase request shall be limited to the current year's increase. The current year's increase is defined as the maximum level average annual increase permitted by this part, determined assuming that the insurer had implemented level annual rate increase for the period where no filing or certification had been made. (Hereinafter referred to as the "First Proposed Policy"). Volume 23, Number 45, Pages 6045-6068 of the Florida Administrative Weekly (November 7, 1997)(hereinafter referred to as the "Proposed Rules"). The First Proposed Policy includes the policy of the Department contained in the Challenged Policy that a rate increase will not be allowed for Individual or Group Medicare supplement forms attributable to more than a one-year period if an insurer fails to comply with the annual filing requirement of Section 627.410(7)(b), Florida Statutes. The First Proposed Policy also includes the policy of the Department contained in the Challenged Policy that if the annual filing requirement has not been met it will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. The manner in which the annual portion is calculated pursuant to the First Proposed Policy entails a determination of the amount of lapsed time over which the insurer has not obtained a rate increase, followed by the division of the rate of increase that would otherwise meet the *N Test by the weighted average of that lapsed time period. The Proposed Rules also continue certain prohibited practices listed in existing Rule 4-149.005(10), Florida Administrative Code. Rule 4-149.005(10), Florida Administrative Code, provides the following concerning the concept of viability and unfair discrimination in sales practices: (10) Prohibitions. The Department has determined that certain rating activities are against the public policy of this state and are therefore prohibited because the activities may result in premium escalations which are not viable for the policyholder or in unfair discrimination in sales practices, an example of which is inappropriate risk selection criteria. For all long term care policy forms and other Policy Forms under which more than fifty percent (50%) of the policies/certificates are issued to persons age 65 or older, Attained Age Premium Structures, as defined in Rule 4- 149.006(4)(c) are prohibited. Only premium structures which pre-fund the aging component of future claim costs are allowed. Select and Ultimate Premium Schedules, as defined in Rule 4-149.006(4)(p), are prohibited. Attained age premium schedules where the slope by age is substantially different from the slope of the ultimate claim cost curve are prohibited. Two of the three prohibitions listed in Rule 4-149.005(10), Florida Administrative Code, were already specifically prohibited by Section 627.410(6)(d), Florida Statutes, independently of the requirement that a form be "viable." The Proposed Rules clarify that the prohibited acts of Rule 4-149.005(10), Florida Administrative Code, relate to unfair discrimination in sales practices or the specific prohibitions of Section 627.410(6)(d), Florida Statutes, and not viability. See proposed rule 4-149.108(11), (12), and (13). Neither party disputes the fact that the Challenged Policy is included in the First Proposed Policy. Nor do the parties dispute the fact that the Department applied the policies of the First Proposed Policy to Central States in March 1998 in denying it's requested rate increases and approving a 9.6% rate increase. Based upon the foregoing, the Department published proposed rules pursuant to Section 120.54(3)(a), Florida Statutes, addressing the Challenged Policy prior to the entry of the Final Order as required by Section 120.56(4)(e), Florida Statutes. The Department's Continuing Rulemaking Efforts. A copy of the Proposed Rules was mailed by the Department to Florida licensed health insurers, including Central States. On December 15, 1997, the Proposed Rules were challenged pursuant to Section 120.56(2), Florida Statutes, by Health Insurance Association of America, an association to which Central States belongs. As a consequence, Chapter 4-149, Florida Administrative Code, continues to be part of the existing, valid rules of the Department. On May 15, 1998, the Department caused to be published a "Notice of Change" modifying the Proposed Rules. Volume 24, Number 20, Pages 2689-2701 (May 15, 1998)(hereinafter referred to as the "May Notice of Change"). Pursuant to the May Notice of Change, the Department specifically deleted the First Proposed Policy of proposed rule 4-149.108(14). In place of the First Proposed Policy, the Department has indicted its intention to adopt the following proposed rule 4-149.108(9)(a): (9)(a) Notwithstanding the above, the minimum anticipated loss ratio or lifetime loss ratio for the form will be increased to at least equal the anticipated loss ratio or lifetime loss ratio certified as being reasonable in the most recent ARC filed with the Department. The expected claims and associated durational loss ratios shall also be increased to reflect this higher standard. If no filing has been made, in violation of section 627.410(7), Florida Statutes, or rule 4-156.012, the increased loss ratio will be determined based on the company experience for the period when a filing was due as if an ARC had been made [Emphasis added]. (Hereinafter referred to as the "Second Proposed Policy"). The Second Proposed Policy continues to set out the Department's policy that it will not allow a rate increase for individual or group Medicare supplement forms attributable to more than a one-year period if an insurer fails to comply with the annual filing requirement of Section 627.410(7)(b), Florida Statutes. The Second Proposed Policy also includes the second part of the policy of the Challenged Policy and the First Proposed Policy that if the annual filing requirement has not been met the Department will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. The manner in which the annual portion is determined pursuant to the Second Proposed Policy has changed from simply dividing the rate increase which meets the *N Test by the weighted average of the lapsed period of time to an adjustment to the insurer's loss ratio standards by "ratcheting." An insurer's projected loss ratio with a proposed rate increase taken into account must meet or exceed the minimum anticipated and lifetime loss ratios. An upward or ratcheted adjustment in the minimum anticipated or lifetime loss ratio reduces the amount of rate increase for which the projected loss ratio will meet or exceed these loss ratios. On July 31, 1998, the Department caused to be published a Second Notice of Change modifying the Proposed Rules for a second time. Volume 24, Number 31, Pages 3973-3993 (July 31, 1998)(hereinafter referred to as the "July Notice of Change"). The July Notice of Change did not significantly modify the Second Proposed Policy: (9)(a) Notwithstanding the above, the minimum anticipated loss ratio and lifetime loss ratio for the form will be increased to at least equal the anticipated loss ratio and lifetime loss ratio certified as being reasonable in the most recent ARC filed with the Department. The expected claims and associated durational loss ratios shall also be increased to reflect this higher standard. If no filing has been made, in violation of section 627.410(7), Florida Statutes, or rule 4-156.012, the increased loss ratio will be determined based on the company experience for the period when a filing was due as if an ARC had been made. [Emphasis added to reflect that the word "or" was replaced with the word "and"]. The May and July Notices of Change also contain other modifications of the Proposed Rules, some of which specifically relate to the consequences of failing to obtain approval of annual rate increase requests. Those modifications do not, however, impact the application of the Challenged Policy to Central States. Those changes relate to circumstances that are not involved in these cases. For example, the May Notice of Change allows some insurers to have two rates if certain circumstances are met, provides four circumstances where a loss ratio standard adjustment will not be made, and includes changes relating to "credibility." None of these provisions applies to Central States' current dispute with the Department. Examples of modifications included in the July Notice of Change which have no application to Central States include the modification of the circumstances under which the loss ratio standard adjustment will not be made, the addition of a safe harbor provision, and the addition of a provision defining "insurer misconduct." None of these provisions has any application to Central States' dispute in these cases either. The modification to the Challenged Policy in the May and July Notice of Change which do relate directly to the Department's denial of Central States' rate increase requests embodies essentially the same concepts and constitutes "substantially similar statements" as the Challenged Policy. Those concepts are generally that an insurer that has not obtained approval of rate filings annually as required by Chapter 627, Florida Statutes, and Chapters 4-149 and 4-156, Florida Administrative Code, were satisfied that its rates were appropriate and satisfactory. When the insurer later decides to seek an increase in its rates, it is assumed that only a one-year rate is necessary, since its rates in prior years were appropriate and satisfactory. The First Proposed Policy and the modifications of the May and July Notices of Change all provide for a limitation to a one-year increase in rates where an insurer has not complied with filing requirements. The only thing that changed from the First Proposed Policy to the July Notice of Change was the manner in which the one-year increase is calculated. The First Proposed Policy provides for a calculation of the approvable rate increase based on a loss ratio standard where an average of the insurer's loss ratio is determined over the period of non-compliance with rate filing requirements. The Second Proposed Policy provides for a calculation of the approvable rate increase based on a loss ratio standard where the annual increase is determined based upon the most recent one-year period, adjusted to reflect that the insurer's rate for the period of non-compliance prior to that one-year period was assumed to be appropriate. Based upon an application of the Second Proposed Policy contained in the July Notice of Change to these cases, Central States would be entitled to rate increases of 10% rather than 9.6%. Based upon the foregoing, it is concluded that the Department has been proceeding expeditiously and in good faith to adopt rules which address the Challenged Policy or a substantially similar statement to the Challenged Policy. Are the First and Second Proposed Policies Valid? The final requirement of Section 120.56(4)(e), Florida Statutes, which must be met in order for the Department to apply the Challenged Policy is that the Challenged Policy must meet the requirements of Section 120.57(1)(e)2, Florida Statutes. Section 120.57(1)(e)2, Florida Statutes, requires that any agency which wishes to rely on an unadopted rule must demonstrate that the unadopted rule: Is within the powers, functions, and duties delegated by the Legislature . . .; Does not enlarge, modify, or contravene the specific provisions of law implemented; Is not vague, establishes adequate standards for agency decisions, or does not vest unbridled discretion in the agency; Is not arbitrary or capricious; Is not being applied to the substantially affected party without due notice; Is supported by competent and substantial evidence; and Does not impose excessive regulatory costs on the regulated person, county, or city. Powers, Functions, and Duties Delegated by the Legislature and Specific Laws Implemented by the Proposed Rules. The specific authority cited by the Department for the Proposed Rules is Section 624.308, Florida Statutes, which provides, in part, the following: (1) The department may adopt reasonable rules necessary to effect any of the statutory duties of the department. Such rules shall not extend, modify, or conflict with any law of this state or the reasonable implications of such laws. The specific laws implemented by the portion of the Proposed Rules which establish the First and Second Proposed Policies are Sections 627.410(7)(b) and 627.411(1)(e), Florida Statutes. These provisions require that annual approval of rates for Medicare supplement policies be obtained by insurers and that rates be "viable." The difficulty with the Department's implementation of the statutory requirement that annual approval of rates be obtained and that those rates must be viable is that the Department's First and Second Proposed Policies assume that any failure to obtain approval of an annual rate will result in a rate that is not viable. This determination, at least for purposes of these cases, was based only on telephone complaints that the Department has received about rate increases. Telephone complaints do not necessarily mean that a rate is not viable. The Department's policy concerning the failure to obtain approval of Medicare supplement policy rates annually as a ground for denial of a rate increase pursuant to Section 627.411(1)(a), Florida Statutes, is also not supported by that provision. Based upon the foregoing, it is concluded that the Challenged Policy and the First and Second Proposed Policies enlarge, modify, or contravene the specific provisions of law implemented. The Challenged Policy's Standards. The Challenged Policy has been proposed as the First and Second Proposed Policies. Those proposed Policies are understandable to those actuaries and insurers who would be required to comply with the Proposed Rules. The Challenged Policies leave little discretion in the hands of the Department. If an insurer fails to obtain annual approval of its rates, it will be denied any increase other than an annual rate increase regardless of whether its proposed rates are viable. The Challenged Policy and the First and Second Proposed Policies are not vague, they establish adequate standards for Department decisions, and they do not vest unbridled discretion in the Department. The Reasonableness of the Challenged Policy. The terms "arbitrary" and "capricious" have been defined as follows: A capricious action is one which is taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic, or despotic. Agrico Chemical Company v. Department of Environmental Regulation, 365 So. 2d 759 (Fla. 1st DCA 1979). While it may reasonable for the Department to disapprove rates that are not "viable," the Challenged Policy provides that any rate will be treated as not being "viable" regardless of the facts simply if an insurer has not obtained annual approval of its rates. The Challenged Policy and the First and Second Proposed Policies are arbitrary and capricious. Notice of the Department's Intent to Apply the First Proposed Policy to Central States. The Department put Central States on notice of its intent to adopt the First Proposed Policy prior to its application of the Challenged Policy to Central States. The Department did not, however, specifically notify Central States of its intent to actually apply the First Proposed Policy to Central States. While Central States was not informed that the Department intended to specifically apply the Proposed Rules or, more specifically, the First Proposed Policy to it, Central States was aware that the Department would likely apply the Challenged Policy to it. In a memorandum of December 31, 1997 (Respondent's Exhibit 1), Ms. Helwig informed Ira Nathan of Central States of the following: . . . the DOI has tried to take the position that, if rate increase efforts in past years were not successful, then it was the company's fault, and the part year's trend increases are "forfeited" unless justified by credible experience (1-year trend would be only 7.1%) . . . . The Department also informed Central States in the Department's denial letter of its intent to apply the Challenged Policy to Central States in denying its 39% rate increases and approving 9.6% rate increases. Evidence in Support of the Challenged Policy. The facts which supported a finding that the Challenged Policy and the First and Second Proposed Policies are not consistent with the law implemented and are arbitrary and capricious also support a finding that the Challenged Policy and the First and Second Proposed Policies are not supported by competent substantial evidence. Administrative Costs. The Challenged Policy does not impose any regulatory costs on insurers. The Existing Rules. Chapter 4.149, Florida Administrative Code (hereinafter referred to as the "Existing Rules"), includes rules adopted by the Department to implement Chapter 627, Florida Statutes, and other pertinent statutes. Although the Proposed Rules provide for the repeal of the Existing Rules, that repeal is not yet effective. Central States' rate increase requests were reviewed and denied based upon the Existing Rules, except to the extent that the Challenged Policy was applied by the Department. The Existing Rules, while referring to the "viability" concept, do not require the determination of an annual rate increase where an insurer has not obtained approval of its rates in past years. Nor do the Existing Rules specifically require denial of a rate increase if annual rate filings have not been made. The Challenged Policy did not exist until the Proposed Rules were being developed during the Fall of 1997. The Challenged Policy did, however, exist prior to the filing of the instant rate increase requests. Because the Existing Rules were silent as to how a form should be treated where annual rate approvals have not been obtained by an insurer, the Challenged Policy is not in conflict with the provisions of the Existing Rules. The Characterization of the Challenged Policy as a Penalty. Section 627.411(1)(e), Florida Statutes, authorizes the denial of a rate increase if the rate increase is not "viable." Whether such a result is characterized as a "penalty" is of no consequence. Calculation of the Annual Portion. The Department's reduction of the 32.7% rate increases to 9.6% rate increases was based upon the First Proposed Policy. The Department first determined the period of time since Central States had not obtained a rate approval. For Central States' Individual Medicare Forms that period ran from August 5, 1993 to January 20, 1998. That constitutes 4.6 years. For Central States' Group Medicare Forms that period ran from August 9, 1995, to January 20, 1998, or a period of 2.5 years. The weighted average of the two periods of time was calculated to be 3.08. The Department then applied the number to the 32.7% rate increase and determined that the unacceptable rate increase was 9.6%. The Department's determination of the period of time for which no rate approval was obtained is called "tail to tail." The First Proposed Policy provides that the rate increase is determined from the insurer's experience at the end of the twelve-month period of the last approved rate filing through the end of the twelve-month period of the current filing.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a Final Order denying Central States' requested 39% rate increases for its Individual and Group Medicare Forms. It is further RECOMMENDED that the Department and Treasurer approve rate increases of 32.7% for Central States Individual and Group Medicare Forms provided revised rate pages reflecting the approved rate increases are filed by Central States. DONE AND ENTERED this 1st day of December, 1998, in Tallahassee, Leon County, Florida. LARRY J. SARTIN 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 Filed with the Clerk of the Division of Administrative Hearings this 1st day of December, 1998. COPIES FURNISHED: R. Terry Rigsby, Esquire Timothy J. Meenan, Esquire A. Kenneth Levine, Esquire Blank, Rigsby & Meenan, P.A. Post Office Drawer 11068 Tallahassee, Florida 32302-3068 Elizabeth G. Arthur, Senior Attorney Division of Legal Services Department of Insurance 200 East Gaines Street Tallahassee, Florida 32399-0333 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Daniel Y. Sumner, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300
The Issue Whether Olin Scott Stoutamire is required to repay monies paid to Olin Scott Stoutamire as salary, which is alleged by the Department of Transportation (DOT) to be excess salary.
Findings Of Fact Petitioner is an agency of state government. The Respondent is a career service employee of the Petitioner, and is employed at a site located away from the Petitioner's District Office in Chipley, Florida. The Respondent is the Project Manager of the Petitioner's Thomasville Road and Interstate 10 Intersection Improvement Project in Tallahassee, Florida. The Respondent is paid less than other Petitioner's Construction Project Managers because the Respondent has less tenure. The Respondent's supervisor told Respondent that he would try to correct what appeared to be a salary inequity. The Petitioner initiated a raise for Respondent equal to 5 percent of the Respondent's base rate of pay. The proposed 5 percent salary increase was initiated by his supervisor completing and submitting an "Employee Action" form. The form provides the employee's identification, position, and includes the employee's current base pay rate and the calculated pay rate after the proposed increase becomes effective. The Respondent's base rate of pay and the resulting calculations as to the proposed resulting pay increase were incorrect on the Employee Action form submitted to the Petitioner's Personnel Office (Personnel) in Chipley, Florida. Personnel detected the supervisor's error, but then committed its own error, resulting in an $80 bi-weekly overpayment. The Respondent noticed the apparent overpayment and inquired of his supervisor if there had been a mistake. Respondent told his supervisor that he did not want the State to seek reimbursement for a large amount at a later date. The Respondent's supervisor told Respondent that the payment was correct and to accept it. The Respondent asked him to check and be certain because he did not want to have to repay the money. A short time later, the Respondent's supervisor told Respondent to accept the total amount of the warrant as being correct. His supervisor mentioned other pay increases for which the Respondent was being considered during the same time that the 5 percent pay increase was being processed. The Respondent thought that his supervisor had checked with personnel, and that his pay was correct. The Petitioner did not become aware of the error until an overpayment of $1,200 had accumulated. The Petitioner's Office of Financial Services requested reimbursement in the amount of $771.15 as payment in full within ten days or a payment of $117.00 biweekly pursuant to Sections 110.205(2) and 216.251, Florida Statutes and Chapter 60L-8, Florida Administrative Code. The Respondent's salary was immediately adjusted to show the correct amount. The Respondent contends he did his best to determine if he was being overpaid and was assured the payment was correct. The Respondent changed his budget and spent the money in reliance upon the assurance that the payment to him was correct. The Respondent concedes that Petitioner's records reflect an error and an overpayment. However, the Respondent does not believe he should have to repay the money immediately or in amounts greater than he received the overpayment.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: Respondent repay $40 per pay period to the Department beginning on the effective date of the next annual pay raise and continuing each month thereafter until the overpayment is repaid. The Department refer the case to the Department of Banking and Finance if an agreement cannot be reached. DONE AND ENTERED this 9th day of July, 1997, in Tallahassee, Leon County, Florida. COPIES FURNISHED: Ben G. Watts, Secretary Department of Transportation Haydon Burns Building 605 Suwannee Street STEPHEN F. DEAN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 9th day of July, 1997. Tallahassee, Florida 32399-0450 Pamela Leslie, General Counsel Department of Transportation Haydon Burns Building 605 Suwannee Street Tallahassee, Florida 32399-0450 Charles G. Gardner, Esquire Department of Transportation Haydon Burns Building 605 Suwannee Street, Mail Station 58 Tallahassee, Florida 34399-0458 Olin Scott Stoutamire 63 Graham Trail Crawfordville, Florida 32327
Findings Of Fact At all times material hereto, Petitioner was a duly licensed nursing home facility participating in the Medicaid Program administered and funded by Respondent. As a Medicaid Program participant, Petitioner is required annually to file a cost report with Respondent. From this cost report, Respondent establishes a per diem rate for the provider reimbursement effective the first day of the month following the month in which the cost report is received. Respondent provides each participating facility with forms to be used in submitting the annual cost report. These forms are sent to the participants by mail and are accompanied by instructions. Petitioner's cost report for the fiscal year ending October 31, 1980, was prepared by an independent accounting firm which, on November 26, 1980, mailed the report by Express mail to the following address: Department of Health and Rehabilitative Services, Reimbursement Supervisor, Medicaid Desk Review, Post Office Box 2050, Jacksonville, Florida 32203. Express mail guarantees next-day delivery. On November 27, 1980, a legal holiday under Section 683.01, Florida Statutes, petitioner's cost report was placed in Respondent's post office box in Jacksonville, Florida. Because of the holiday on November 27, 1980, Respondent's offices were closed. Respondent's offices were also closed on November 29, 1980, which is also a state holiday as observed by all state branches and agencies pursuant to Section 110.117, Florida Statutes. November 29 and 30, 1980, were Saturday and Sunday, respectively, on which days Respondent's offices were also closed. Petitioner's annual cost report was picked up from the post office by employees of Respondent on December 1, 1980, and delivered on that day to Respondent's Medicaid Review Desk. Because the cost report was received on December 1, 1980, Respondent assigned January 1, 1981, as the effective date of Petitioner's new rates, rather than the December 1, 1980, date which Petitioner contends is the correct effective date of its new rates because of its report having been placed in Respondent's post office box prior to December 1, 1980.
The Issue Whether accounting fees charged in connection with petitioner's rate increase application should be included as rate case expense; and Whether anticipated accounting fees for "pass-through" rate increase requests should be included in annual operating expenses.
Findings Of Fact Accounting Fees as Part of Rate Case Expense At issue was whether Atlantis had substantiated the accounting fees it sought to include as rate case expense. Without objection, Atlantis agreed to submit a late-filed exhibit (P-2) itemizing the accounting tasks performed, the time required, and the fees charged. After reviewing that exhibit, the Commission agreed that the accounting fees were justified and should be included in rate case expenses. Consequently, operating expenses included in the Commission's proposed agency decision 2/ should be increased $2,659 for both water and sewer systems; this represents actual rate case expenses of $15,954 amortized over three years, allocated equally to each system. ($15,954/3 = $5,318/2 = $2,659.) (Testimony of Mitchell, Deterding; Commission's Recommended Order; P-2, R-1.) II. Accounting Fees for Projected "Pass-Through" Rate Increase Requests Atlantis is a small private utility providing water and sewer service to customers located in the City of Atlantis, Palm Beach County, Florida. On December 31, 1980, it had 893 residential- and 65 general-service water customers; 877 residential- and 28 general-service sewer customers. (Commission Order No. 10445.) The City of Lake Worth pumps Atlantis sewage effluent to the West Palm Beach regional sewer plant for treatment and disposal. The regional plant imposes a treatment charge which Lake Worth passes on to Atlantis. Twice a year the regional plant has increased its treatment charge to Lake Worth which, in turn, has passed on the increased costs to Atlantis. Such increases may be recovered by filing a "pass-through" rate increase request with the Commission. (Testimony of Mitchell, Deterding.) In the past, Atlantis employed a certified public accountant to assist in preparing "pass-through" rate increase requests. The accountant charged approximately $900 per "pass-through" request. He worked 25-30 hours per request at $36 per hour. Much of his time was spent preparing a billing analysis-- showing the number of bills rendered, cumulative gallons consumed, cumulative bills, and a consolidated factor. (Testimony of Mitchell, Neville.) Atlantis wishes to continue retaining the accountant for this purpose in the future by including $1,800 in operating expenses in anticipation of biannual "pass-through" rate increase requests. It contends that such an accounting expense is reasonable and necessary because of its limited staff: one full-time bookkeeper who handles billing and one part-time accountant who supervises daily office procedures and bookkeeping routines. The Commission contends that this anticipated accounting expense is unnecessary--that a "pass- through" rate increase request and the necessary documentation could easily be prepared by the staff bookkeeper. (Testimony of Mitchell, Neville, Deterding.) There is conflicting expert testimony on whether the preparation of such "pass-through" rate increase requests require the supervision and assistance of a certified public accountant. Phillip Mitchell, the accountant who performed this service for Atlantis in the past, testified that it is necessary; Floyd Deterding, the Commission's accountant, testified that it was not. Mr. Deterding's opinion is accepted as persuasive. Don Neville, the accountant who manages the daily affairs of Atlantis, testified that it would be much "easier" having Mr. Mitchell assist in preparing the "pass-through" requests; but he admitted that he thought the bookkeeper was competent enough to perform the work if Mr. Mitchell was unavailable. (Tr. 30.) Furthermore, a billing analysis (containing a consolidated factor and consumption by customer groups) is not a requirement for filing a "pass-through" request. The only items required are: A schedule of monthly charges for sewage treatment from governmental authority. A schedule of monthly gallons of purchased sewage treatment. A schedule of sewage treatment sold (billings to customers in gallons) by month. A schedule of the proposed rates which will pass the increased costs through, showing calculations thereof. A[n] affirmation from an officer that the increase will not cause the util- ity to overearn. A copy of the notice of the increase to customers. A certified copy of the letter, Order or Ordinance setting out the increased charges from the governmental authority. Finally, Mr. Mitchell was not a disinterested witness since--as the outside accountant--he stood to gain from including the $1,800 accounting fee in annual operating expenses. (Testimony of Neville, Deterding, Mitchell.)
Recommendation Based on the foregoing, it is RECOMMENDED: That the application of Atlantis to increase its water and sewer rates be granted, consistent with the Commission's proposed agency action dated December 9, 1981, and this recommended order. DONE AND RECOMMENDED this 2nd day of July, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. 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 2nd day of July, 1982.
The Issue The issues in this case are whether Respondent applied the proper reimbursement principles to Petitioners' initial Medicaid rate setting, and whether elements of detrimental reliance exist so as to require Respondent to establish a particular initial rate for Petitioners' facilities.
Findings Of Fact There are nine Petitioners in this case. Each of them is a long-term health care facility (nursing home) operated under independent and separate legal entities, but, generally, under the umbrella of a single owner, Tzvi "Steve" Bogomilsky. The issues in this case are essentially the same for all nine Petitioners, but the specific monetary impact on each Petitioner may differ. For purposes of addressing the issues at final hearing, only one of the Petitioners, Madison Pointe Rehabilitation and Health Center (Madison Pointe), was discussed, but the pertinent facts are relevant to each of the other Petitioners as well. Each of the Petitioners has standing in this case. The Amended Petition for Formal Administrative Hearing filed by each Petitioner was timely and satisfied minimum requirements. In September 2008, Bogomilsky caused to be filed with AHCA a Change of Licensed Operator ("CHOP") application for Madison Pointe.1 The purpose of that application was to allow a new entity owned by Bogomilsky to become the authorized licensee of that facility. Part and parcel of the CHOP application was a Form 1332, PFA. The PFA sets forth projected revenues, expenses, costs and charges anticipated for the facility in its first year of operation by the new operator. The PFA also contained projected (or budgeted) balance sheets and a projected Medicaid cost report for the facility. AHCA is the state agency responsible for licensing nursing homes in this state. AHCA also is responsible for managing the federal Medicaid program within this state. Further, AHCA monitors nursing homes within the state for compliance with state and federal regulations, both operating and financial in nature. The AHCA Division of Health Quality Assurance, Bureau of Long-Term Care Services, Long-Term Care Unit ("Long-Term Care Unit") is responsible for reviewing and approving CHOP applications and issuance of an operating license to the new licensee. The AHCA Division of Health Quality Assurance, Bureau of Health Facility Regulation, Financial Analysis Unit ("Financial Analysis Unit") is responsible for reviewing the PFA contained in the CHOP application and determining an applicant's financial ability to operate a facility in accordance with the applicable statutes and rules. Neither the Long-Term Care Unit nor the Financial Analysis Unit is a part of the Florida Medicaid Program. Madison Pointe also chose to submit a Medicaid provider application to the Medicaid program fiscal agent to enroll as a Medicaid provider and to be eligible for Medicaid reimbursement. (Participation by nursing homes in the Medicaid program is voluntary.) The Medicaid provider application was reviewed by the Medicaid Program Analysis Office (MPA) which, pursuant to its normal practices, reviewed the application and set an interim per diem rate for reimbursement. Interim rate-setting is dependent upon legislative direction provided in the General Appropriations Act and also in the Title XIX Long-Term Care Reimbursement Plan (the Plan). The Plan is created by the federal Centers for Medicare and Medicaid Services (CMS). CMS (formerly known as the Health Care Financing Administration) is a federal agency within the Department of Health and Human Services. CMS is responsible for administering the Medicare and Medicaid programs, utilizing state agencies for assistance when appropriate. In its PFA filed with the Financial Analysis Unit, Madison Pointe proposed an interim Medicaid rate of $203.50 per patient day (ppd) as part of its budgeted revenues. The projected interim rate was based on Madison Pointe's expected occupancy rate, projected expenses, and allowable costs. The projected rate was higher than the previous owner's actual rate in large part based on Madison Pointe's anticipation of pending legislative action concerning Medicaid reimbursement issues. That is, Madison Pointe projected higher spending and allowable costs based on expected increases proposed in the upcoming legislative session. Legislative Changes to the Medicaid Reimbursement System During the 2007 Florida Legislative Session, the Legislature addressed the status of Medicaid reimbursement for long-term care facilities. During that session, the Legislature enacted the 2007 Appropriations Act, Chapter 2007-72, Laws of Florida. The industry proposed, and the Legislature seemed to accept, that it was necessary to rebase nursing homes in the Medicaid program. Rebasing is a method employed by the Agency periodically to calibrate the target rate system and adjust Medicaid rates (pursuant to the amount of funds allowed by the Legislature) to reflect more realistic allowable expenditures by providers. Rebasing had previously occurred in 1992 and 2002. The rebasing would result in a "step-up" in the Medicaid rate for providers. In response to a stated need for rebasing, the 2007 Legislature earmarked funds to address Medicaid reimbursement. The Legislature passed Senate Bill 2800, which included provisions for modifying the Plan as follows: To establish a target rate class ceiling floor equal to 90 percent of the cost- based class ceiling. To establish an individual provider- specific target floor equal to 75 percent of the cost-based class ceiling. To modify the inflation multiplier to equal 2.0 times inflation for the individual provider-specific target. (The inflation multiplier for the target rate class ceiling shall remain at 1.4 times inflation.) To modify the calculation of the change of ownership target to equal the previous provider's operating and indirect patient care cost per diem (excluding incentives), plus 50 percent of the difference between the previous providers' per diem (excluding incentives) and the effect class ceiling and use an inflation multiplier of 2.0 times inflation. The Plan was modified in accordance with this legislation with an effective date of July 1, 2007. Four relevant sentences from the modified Plan are relevant to this proceeding, to wit: For a new provider with no cost history resulting from a change of ownership or operator, where the previous provider participated in the Medicaid program, the interim operating and patient care per diems shall be the lesser of: the class reimbursement ceiling based on Section V of this Plan, the budgeted per diems approved by AHCA based on Section III of this Plan, or the previous providers' operating and patient care cost per diem (excluding incentives), plus 50% of the difference between the previous providers' per diem (excluding incentives) and the class ceiling. The above new provider ceilings, based on the district average per diem or the previous providers' per diem, shall apply to all new providers with a Medicaid certification effective on or after July 1, 1991. The new provider reimbursement limitation above, based on the district average per diem or the previous providers' per diem, which affects providers already in the Medicaid program, shall not apply to these same providers beginning with the rate semester in which the target reimbursement provision in Section V.B.16. of this plan does not apply. This new provider reimbursement limitation shall apply to new providers entering the Medicaid program, even if the new provider enters the program during a rate semester in which Section V.B.16 of this plan does not apply. [The above cited sentences will be referred to herein as Plan Sentence 1, Plan Sentence 2, etc.] Madison Pointe's Projected Medicaid Rate Relying on the proposed legislation, including the proposed rebasing and step-up in rate, Madison Pointe projected an interim Medicaid rate of $203.50 ppd for its initial year of operation. Madison Pointe's new projected rate assumed a rebasing by the Legislature to eliminate existing targets, thereby, allowing more reimbursable costs. Although no legislation had been passed at that time, Madison Pointe's consultants made calculations and projections as to how the rebasing would likely affect Petitioners. Those projections were the basis for the $203.50 ppd interim rate. The projected rate with limitations applied (i.e., if Madison Pointe did not anticipate rebasing or believe the Plan revisions applied) would have been $194.26. The PFA portion of Madison Pointe's CHOP application was submitted to AHCA containing the $203.50 ppd interim rate. The Financial Analysis Unit, as stated, is responsible for, inter alia, reviewing PFAs submitted as part of a CHOP application. In the present case, Ryan Fitch was the person within the Financial Analysis Unit assigned responsibility for reviewing Madison Pointe's PFA. Fitch testified that the purpose of his review was to determine whether the applicant had projected sufficient monetary resources to successfully operate the facility. This would include a contingency fund (equal to one month's anticipated expenses) available to the applicant and reasonable projections of cost and expenses versus anticipated revenues.2 Upon his initial review of the Madison Pointe PFA, Fitch determined that the projected Medicaid interim rate was considerably higher than the previous operator's actual rate. This raised a red flag and prompted Fitch to question the propriety of the proposed rate. In his omissions letter to the applicant, Fitch wrote (as the fourth bullet point of the letter), "The projected Medicaid rate appears to be high relative to the current per diem rate and the rate realized in 2006 cost reports (which includes ancillaries and is net of contractual adjustments). Please explain or revise the projections." In response to the omissions letter, Laura Wilson, a health care accountant working for Madison Pointe, sent Fitch an email on June 27, 2008. The subject line of the email says, "FW: Omissions Letter for 11 CHOW applications."3 Then the email addressed several items from the omissions letter, including a response to the fourth bullet point which says: Item #4 - Effective July 1, 2007, it is anticipated that AHCA will be rebasing Medicaid rates (the money made available through elimination of some of Medicaid's participation in covering Medicare Part A bad debts). Based on discussions with AHCA and the two Associations (FHCA & FAHSA), there is absolute confidence that this rebasing will occur. The rebasing is expected to increase the Medicaid rates at all of the facilities based on the current operator's spending levels. As there is no definitive methodology yet developed, the rebased rates in the projections have been calculated based on the historical methodologies that were used in the 2 most recent rebasings (1992 and 2002). The rates also include the reestablishment of the 50% step-up that is also anticipated to begin again. The rebasing will serve to increase reimbursement and cover costs which were previously limited by ceilings. As noted in Note 6 of the financials, if something occurs which prevents the rebasing, Management will be reducing expenditures to align them with the available reimbursement. It is clear Madison Pointe's projected Medicaid rate was based upon proposed legislative actions which would result in changes to the Plan. It is also clear that should those changes not occur, Madison Pointe was going to be able to address the shortfall by way of reduced expenditures. Each of those facts was relevant to the financial viability of Madison Pointe's proposed operations. Madison Pointe's financial condition was approved by Fitch based upon his review of the PFA and the responses to his questions. Madison Pointe became the new licensed operator of the facility. That is, the Long-Term Care Unit deemed the application to have met all requirements, including financial ability to operate, and issued a license to the applicant. Subsequently, MPA provided to Madison Pointe its interim Medicaid rate. MPA advised Madison Pointe that its rate would be $194.55 ppd, some $8.95 ppd less than Madison Pointe had projected in its PFA (but slightly more than Madison Pointe would have projected with the 50 percent limitation from Plan Sentence 1 in effect, i.e., $194.26). The PFA projected 25,135 annual Medicaid patient days, which multiplied by $8.95, would equate to a reduction in revenues of approximately $225,000 for the first year of operation.4 MPA assigned Madison Pointe's interim Medicaid rate by applying the provisions of the Plan as it existed as of the date Madison Pointe's new operating license was issued, i.e., September 1, 2007. Specifically, MPA limited Madison Pointe's per diem to 50 percent of the difference between the previous provider's per diem and the applicable ceilings, as dictated by the changes to the Plan. (See Plan Sentence 1 set forth above.) Madison Pointe's projected Medicaid rate in the PFA had not taken any such limitations into account because of Madison Pointe's interpretation of the Plan provisions. Specifically, that Plan Sentence 3 applies to Madison Pointe and, therefore, exempts Madison Pointe from the new provider limitation set forth in Plan Sentences 1 and 2. However, Madison Pointe was not "already in the Medicaid program" as of July 1, 2007, as called for in Plan Sentence 3. Rather, Madison Pointe's commencement date in the Medicaid program was September 1, 2007. Plan Sentence 1 is applicable to a "new provider with no cost history resulting from a change of ownership or operator, where the previous operator participated in the Medicaid program." Madison Pointe falls within that definition. Thus, Madison Pointe's interim operating and patient care per diems would be the lesser of: (1) The class reimbursement ceiling based on Section V of the Plan; (2) The budgeted per diems approved by AHCA based on Section III of the Plan; or (3) The previous provider's operating and patient care cost per diem (excluding incentives), plus 50 percent of the difference between the previous provider's per diem and the class ceiling. Based upon the language of Plan Sentence 1, MPA approved an interim operating and patient care per diem of $194.55 for Madison Pointe. Plan Sentence 2 is applicable to Madison Pointe, because it applies to all new providers with a Medicaid certification effective after July 1, 1991. Madison Pointe's certification was effective September 1, 2007. Plan Sentence 3 is the primary point of contention between the parties. AHCA correctly contends that Plan Sentence 3 is not applicable to Petitioner, because it addresses rebasing that occurred on July 1, 2007, i.e., prior to Madison Pointe coming into the Medicaid system. The language of Plan Sentence 3 is clear and unambiguous that it applies to "providers already in the Medicaid program." Plan Sentence 4 is applicable to Madison Pointe, which entered the system during a rate semester, in which no other provider had a new provider limitation because of the rebasing. Again, the language is unambiguous that "[t]his new provider reimbursement limitation shall apply to new providers entering the Medicaid program. . . ." Madison Pointe is a new provider entering the program. Detrimental Reliance and Estoppel Madison Pointe submitted its CHOP application to the Long-Term Care Unit of AHCA for approval. That office has the clear responsibility for reviewing and approving (or denying) CHOP applications for nursing homes. The Long-Term Care Unit requires, as part of the CHOP application, submission of the PFA which sets forth certain financial information used to determine whether the applicant has the financial resources to operate the nursing home for which it is applying. The Long-Term Care Unit has another office within AHCA, the Financial Analysis Unit, to review the PFA. The Financial Analysis Unit is found within the Bureau of Health Facility Regulation. That Bureau is responsible for certificates of need and other issues, but has no authority concerning the issuance, or not, of a nursing home license. Nor does the Financial Analysis Unit have any authority to set an interim Medicaid rate. Rather, the Financial Analysis Unit employs certain individuals who have the skills and training necessary to review financial documents and determine an applicant's financial ability to operate. A nursing home licensee must obtain Medicaid certification if it wishes to participate in the program. Madison Pointe applied for Medicaid certification, filing its application with a Medicaid intermediary which works for CMS. The issuance of a Medicaid certification is separate and distinct from the issuance of a license to operate. When Madison Pointe submitted its PFA for review, it was aware that an office other than the Long-Term Care Unit would be reviewing the PFA. Madison Pointe believed the two offices within AHCA would communicate with one another, however. But even if the offices communicated with one another, there is no evidence that the Financial Analysis Unit has authority to approve or disapprove a CHOP application. That unit's sole purpose is to review the PFA and make a finding regarding financial ability to operate. Likewise, MPA--which determines the interim Medicaid rate for a newly licensed operator--operates independently of the Long-Term Care Unit or the Financial Analysis Unit. While contained within the umbrella of AHCA, each office has separate and distinct duties and responsibilities. There is no competent evidence that an applicant for a nursing home license can rely upon its budgeted interim rate--as proposed by the applicant and approved as reasonable by MPA--as the ultimate interim rate set by the Medicaid Program Analysis Office. At no point in time did Fitch tell Madison Pointe that a rate of $203.50 ppd would be assigned. Rather, he said that the rate seemed high; Madison Pointe responded that it could "eliminate expenditures to align them with the available reimbursement." The interim rate proposed by the applicant is an estimate made upon its own determination of possible facts and anticipated operating experience. The interim rate assigned by MPA is calculated based on the applicant's projections as affected by provisions in the Plan. Furthermore, it is clear that Madison Pointe was on notice that its proposed interim rate seemed excessive. In response to that notice, Madison Pointe did not reduce the projected rate, but agreed that spending would be curtailed if a lower interim rate was assigned. There was, in short, no reliance by Madison Pointe on Fitch's approval of the PFA as a de facto approval of the proposed interim rate. MPA never made a representation to Madison Pointe as to the interim rate it would receive until after the license was approved. There was, therefore, no subsequent representation made to Madison Pointe that was contrary to a previous statement. The Financial Analysis Unit's approval of the PFA was done with a clear and unequivocal concern about the propriety of the rate as stated. The approval was finalized only after a representation by Madison Pointe that it would reduce expenditures if a lower rate was imposed. Thus, Madison Pointe did not change its position based on any representation made by AHCA.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by Respondent, Agency for Health Care Administration, approving the Medicaid interim per diem rates established by AHCA and dismissing each of the Amended Petitions for Formal Administrative Hearing. DONE AND ENTERED this 23rd day of February, 2009, in Tallahassee, Leon County, Florida. R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 23rd day of February, 2009.
The Issue The issue in this case is whether Respondent applied the following policy to Petitioner and, if so, whether the policy constitutes an unpromulgated "rule" as defined in Section 120.52(15), Florida Statutes. If during its review of a rate change filing, DOI determines an insurer is not in compliance with the annual rate filing requirements of section 627.410(7), Florida Statutes, and if the filing involves a Medicare Supplement form, section 627.6745, Florida Statutes, then DOI will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing.
Findings Of Fact The Parties. Petitioner, Central States Health and Life Company of Omaha (hereinafter referred to as "Central States"), is a corporation domiciled in Nebraska. Central States holds a certificate of authority issued by the Department which allows it to sell life and health insurance, including individual and group standardized Medicare supplement policies, in Florida. Respondent, the Department of Insurance and Treasurer (hereinafter referred to as the "Department"), is an agency of the State of Florida. The Department is charged with the responsibility for, among other things, the review and approval of health insurance policy forms used in Florida. General Requirements for Medicare Supplement Policy Forms in Florida. No "basic insurance policy" may be delivered in Florida unless the "form" has first been approved by the Department. Section 627.410(1), Florida Statutes. Section 627.410(6), Florida Statutes, additionally requires that a copy of the applicable rating manual or rating schedule included as part of a insurance policy form must be filed with the Department for approval before any "health insurance policy form" is delivered in Florida. Pursuant to Section 627.410(7), Florida Statutes, insurers required to file rating manuals or rating schedules pursuant to Section 627.410(6), Florida Statutes, must make an "annual filing" with the department. The rating manual and rating schedule requirements of Section 627.410(7), Florida Statutes, may be satisfied by: A "rate filing prepared by an actuary which contains documentation demonstrating the reasonableness of benefits in relation to premiums charged in accordance with the applicable rating laws and rules promulgated by the department." Section 627.410(7)(b)1, Florida Statutes; or "If no rate change is proposed, a filing which consists of a certification by an actuary that benefits are reasonable in relation to premiums currently charged in accordance with applicable laws and rules promulgated by the department." Section 627.410(7)(b)2, Florida Statutes. The filing requirements of Section 627.410(6) and (7), Florida Statutes, apply to Medicare supplement forms. Section 627.6745, Florida Statutes, limits the manner in which entities providing Medicare supplement policies may meet the annual filing requirement of Section 627.410(7), Florida Statutes. Section 627.6745, Florida Statutes, eliminates the use of the certification procedure described in Finding of Fact 7.b., supra, by Medicare supplement policy providers. Section 627.6745(2), Florida Statutes, requires that all providers of Medicare supplement policy forms: . . . file annually its rates, rating schedules, and supporting documentation demonstrating that it is in compliance with the applicable loss ratio standards of this code. The filing of rates and rating schedules shall demonstrate that the actual and expected losses in relations to premiums comply with the requirements of this section. Rule 4-156.012(3), Florida Administrative Code, requires that issuers of Medicare supplement policies and certificates must file their rates annually "for approval by the Department in accordance with Section 627.410, Florida Statutes." Section 627.6745, Florida Statutes, also provides limitations on the rates which may be charged for Medicare supplement policies: Medicare supplement policies shall return the following to policyholders in the form of aggregate benefits under the policy, with respect to the lifetime of the policy, on the basis of earned premiums and on the basis of incurred claims experience . . . and in accordance with accepted actuarial principles and practices: At least 75 percent of the aggregate amount of premiums earned in the case of group policies. . . . for individual policies issued on or after July 1, 1989, at least 65 percent of the aggregate amount of premiums earned. . . . Stated very simply, this provision requires that for every dollar of premiums earned, a minimum of 75 cents must be paid in claims for group policies and a minimum of 65 cents must be paid in claims for individual policies. The grounds for disapproval of "any form filed under s. 627.410" are provided in Section 627.411, Florida Statutes. In pertinent part, Section 627.411(1), Florida Statutes, provides that a "form" may be disapproved if the form: (e) Is for health insurance, and provides benefits which are unreasonable in relation to the premium charged, contains provisions which are unfair or inequitable or contrary to the public policy of this state or which encourage misrepresentation or which apply rating practices which result in premium escalations that are not viable for the policyholder market or result in unfair discrimination in sales practices. The Department has adopted rules establishing rate filing procedures. Rule 4-149.003, Florida Administrative Code. Rule 4-149.006, Florida Administrative Code, sets out the information an actuary must provide and the manner in which an actuary is to provide that information. The Department has also adopted rules providing the manner in which the reasonableness of benefits in relation to premiums will be determined. Rule 4-149.005, Florida Administrative Code. Central States' 1998 Rate Increase Filings and the Department's Denial Thereof. On or about January 20, 1998, Central States filed two requests for rate increase with the Department. One request sought a 39% increase for Individual Medicare supplement policy forms (hereinafter referred to as "Individual Medicare Forms") sold in Florida and the other sought a 39% increase for Group Medicare supplement policy forms (hereinafter referred to as "Group Medicare Forms") sold in Florida. For purposes of this Final Order all Findings of Fact and Conclusions of Law apply equally to each type of rate increase request unless otherwise noted. Both rate increase requests were accompanied by an actuarial memorandum certified by Dawn Helwig, an actuary retained by Central States. The rate increase requests were reviewed by Linda Ziegler, an actuary employed by the Department. Following her review, Ms. Ziegler asked for additional information or explanation concerning several issues by letters dated February 10, 1998. By letter dated February 18, 1998, Central States responded to Ms. Ziegler's letters. Each of the issues raised by Ms. Ziegler was addressed in the February 18, 1998, letter. After review of Central States' rate increase requests, the Department informed Central States that the 39% rate increases it had requested were disapproved. Central States was informed of the denial by letter dated March 6, 1998. The Department also informed Central States in the March 6, 1998, denial letter that rate increases of 9.6% were "APPROVED." Central States was requested to "provide revised rate pages reflecting the approved rate increase by March 20, 1998." The Department denied the 39% rate increase requests for three reasons: The Department determined that the rate increases sought by Central States did not provide benefits which were reasonable in relation to the premium to be charged. Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(e), Florida Statutes. This determination was based upon a finding that Central States' projected Anticipated Loss Ratio did not meet or exceed the weighted average of the Anticipated Loss Ratio *N (hereinafter referred to as the "*N Test"). "Anticipated Loss Ratio" is defined in Rule 4- 149.006(3)(b)20, Florida Administrative Code, as essentially the present value of future benefits (claims) divided by the present value of future premiums. The conclusion that Central States' projected Anticipated Loss Ratio did not meet or exceed the *N Test was based essentially upon four areas of disagreement with Ms. Helwig's calculations in her actuarial memoranda; The Department determined that Central States' "forms" were in violation of Chapter 627, Florida Statutes. Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(a), Florida Statutes. This determination was based upon the Department's conclusion that Central States had failed to make annual rate filings as required by Section 627.410(7), Florida Statutes, and Rule 4-156.011, Florida Administrative Code; and The Department determined that Central States' requested rates were not "viable." Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(e), Florida Statutes. This determination was based upon the Department's conclusion that because Central States had failed to obtain annual approval of its Individual and Group Medicare Forms for several years the amount of the increases sought by Central States was not "viable." The four areas of disagreement with Ms. Helwig's calculations are: What Individual Medicare Forms should be considered to have been issued to individual customers after "6/1/94" for purposes of Rule 4-149.005(2), Florida Administrative Code. (This issue only impacted Central States' Individual Medicare Forms request); Whether Central States should pool its experience with its Individual and Group Medicare Forms; Whether Central States should use its actual nationwide experience instead of its actual nationwide experience "adjusted to the Florida Rate basis"; and Whether it was appropriate for Central States to assume that its premiums would be received and its claims incurred at the beginning of the year. The Department concluded that 32.7% increases would meet the *N Test if the four areas of disagreement with Ms. Helwig were corrected by Central States. The four areas of disagreement are the subject of Case Numbers 98-1562 and 98-1563. The Department also concluded, however, that even if Central States met the *N Test it would only be entitled to a one-year adjustment which it calculated to be 9.6%. It is this determination that Central States has alleged constitutes the application of an unpromulgated rule. The Challenged Unpromulgated "Rule." The specific statement or statement description challenged by Central States as an unpromulgated rule is as follows: If during its review of a rate change filing, DOI determines an insurer is not in compliance with the annual rate filing requirements of section 627.410(7), Florida Statutes, and if the filing involves a Medicare Supplement form, section 627.6745, Florida Statutes, then DOI will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. (The foregoing statement of policy will be referred to as the Challenged Policy"). Central States has alleged that the Department applied the Challenged Policy to it in denying its rate increase requests. Central States has also alleged that the Challenged Policy had not been adopted or proposed as a rule pursuant to Section 120.54, Florida Statutes, at the time of its application by the Department. The Department's Application of the Challenged Policy. The Challenged Policy is actually more than one policy. First, the Challenged Policy includes a policy of the Department that it will not allow a rate increase for Individual or Group Medicare supplement forms attributable to more than a one-year period if an insurer fails to comply with the annual filing requirement of Section 627.410(7)(b), Florida Statutes. This policy is based upon the Department's conclusion that the failure to obtain annual approval means that any future "form" filed by an insurer is in violation of Chapter 627, Florida Statutes, and its conclusion that any future rate increase will not be viable. Secondly, the Challenged Policy includes a policy of the Department that, if the annual filing requirement has not been met, it will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. The evidence in this case proved that the first part of the Challenged Policy formed a large part of the basis for the Department's denial of Central States' applications for rate increases. The evidence also proved that the second part of the Challenged Policy was relied upon by the Department in determining that increases of 9.6% would be acceptable. The Challenged Policy was a statement of general applicability implementing and interpreting Section 627.411(1)(e), Florida Statutes, and prescribing policy of the Department concerning the procedures the Department intended to follow in determining a viable rate of increase for Medicare supplement forms where an insurer has not made the annual filings required by Section 627.410(7), Florida Statutes. The Department has not disputed this finding. The Challenged Policy, as alleged by Central States, constitutes a "rule" as that term is defined in Section 120.52(15), Florida Statutes. The Challenged Policy had not been adopted by the rulemaking procedure provided in Section 120.54, Florida Statutes, at the time of its application to Central States. Throughout this proceeding, the Department has conceded that the Challenged Policy is a "rule" and that the Challenged Policy has not been adopted by rulemaking. Feasibility of Rulemaking. The Challenged Policy was proposed for adoption as a rule by the Department prior to the filing of the petition in this case. On November 7, 1997, the Department caused notice of its intent to adopt proposed rules to be published. Volume 23, Number 45, Pages 6045-6068 of the Florida Administrative Weekly (November 7, 1997). Pursuant to this notice the Department indicated its intent to repeal Chapter 4-149, Florida Administrative Code, and replace it with a new Chapter 4-149. Included in the newly proposed rule chapter, the Department included newly proposed rule 4-149.108(14): (14) If an insurer has not made an annual rate filing or certification stating the reasonableness of benefits in relation to the premiums charged as required by section 627.410(7), Florida Statutes, other than when the department approved a lower increase than what was requested, the current rate increase request shall be limited to the current year's increase. The current year's increase is defined as the maximum level average annual increase permitted by this part, determined assuming that the insurer had implemented level annual rate increase for the period where no filing or certification had been made. (Hereinafter referred to as the "First Proposed Policy"). Volume 23, Number 45, Pages 6045-6068 of the Florida Administrative Weekly (November 7, 1997)(hereinafter referred to as the "Proposed Rules"). Neither party disputes the fact that the Challenged Policy is included in the First Proposed Policy. Nor do the parties dispute that the Department applied the policies of the First Proposed Policy to Central States in March 1998 in denying its requested rate increases and approving a 9.6% rate increase. Therefore, the evidence failed to prove that rulemaking was not feasible and practicable under Section 120.54(1)(a), Florida Statutes.
The Issue The general issue is whether Health Quest is entitled to a Certificate of Need for nursing home beds in Seminole County for the July 1985 batching cycle. The more limited issues on which this case focused are whether July 1985, or July 1987, is the appropriate release date for population data; whether the base period for "current population" is January 1985, or July 1985; and whether the applicant could, at the final hearing, scale down its request for beds to a number substantially less than the 120 beds requested in its July 1985 application.
Findings Of Fact Health Quest Corporation maintains its home office in South Bend, Indiana. As described by its Vice-President for Planning, the company is a moderately-sized, long-term care and assisted living company. Health Quest has been in existence since 1969, under its President and CEO, Larry Garratoni. The Company has approximately twelve facilities, including three Florida facilities: a 120-bed freestanding nursing home, a 107- bed nursing home with 80 attached assisted living units, and a facility in Sarasota with 300 retirement units. In July 1985, Health Quest filed its application for a new 120-bed nursing home in Seminole County, HRS District VII. After an exchange of correspondence and information relating to omissions to the application, the application was deemed complete effective September 30, 1985, and the application was denied on December 17, 1985. At the final hearing, Health Quest presented two exhibits with updated information to support its original 120-bed application, and updated information to support a scaled-down 60-bed Certificate of Need. These two exhibits, Petitioner's Exhibits 10 and 11, were admitted over HRS objection that they constituted amendments to the completed application, prohibited by HRS Rule 10- 5.008(3), Florida Administrative Code. Health Quest argued that the updates were intended to present a more current description of the cost structure and operating structure that Health Quest would be using, and to support partial approval of the original application. The relevance of these documents is addressed in my conclusions of law, below. The basis for HRS' denial of the Health Quest original application is, "... insufficient need for an additional 120 bed nursing home in the subdistrict." (Petitioner's No. 7) A determination of need in this case depends largely upon the proper application of the methodology described in HRS Rule 10-5.011(1)(k), Florida Administrative Code, which provides, in pertinent part: Community Nursing Home Beds. A community nursing home bed is a nursing home bed not located within a life care facility certified under Chapter 651, Florida Statutes. Departmental Goal. The Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds calculated by the methodology described in sub- paragraphs (k)2., 3., and 4., of this rule. Need Methodology. In addition to other relevant statutory and rule criteria to be used in considering the allocation of new or additional community nursing home beds, the Department will determine if there is a projected need for new or additional beds 3 years in the future according to the methodology specified under Sub-subparagraphs through j. This methodology provides for adjustments to current community nursing home bed rates based upon expected changes in the proportion of district residents age 75+ and the current utilization of community nursing home beds in the subdistricts designated by local health councils. In districts with a high proportion of elderly residents living in poverty, the methodology specifies a minimum bed rate. A = (POPA x BA) + (POPB x BB) Where: A is the district's age- adjusted number of community nursing home beds for the review cycle for which a projection is being made. POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future. BA is the estimated current bed rate for the population age 65-74 years in the relevant district. BB is the estimated current bed rate for the population age 75 years and over in the relevant district. BA = LB/(POPC + (6 x POPD) Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. BB 6 x BA SA A x (LBD/LB) x (OR/.90) Where: SA is the preliminary subdistrict allocation of community nursing home beds. LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of appli- cations submitted for the July batching cycle shall be based upon occupancy rate data for the months of October through March pre- ceeding that cycle; appli- cations submitted for the January batching cycle shall be based upon occu- pancy rate data for the months of April through September proceeding the cycle. For the purposes of this rule, the occupancy data to be considered shall be that collected by the Department's Office of Health Planning and Development or a contractor assigned to collect the data. * * * For purposes of applying the methodology, the parties have agreed to the following factors: Occupancy rate (OR) is .9366. Licensed beds in the subdistrict (LBD) is 725. The number of approved beds in the subdistrict is 179 Licensed beds in the district (LB) is 4425. July 1988 is the planning horizon. (Petitioner's Exhibit No. 12, Respondent's Exhibit No. 1, Prehearing Stipulation filed 11/13/87). While the parties have not agreed which figures are applicable, they have stipulated to the population figures for the following periods: (1) January 1, 1988, as of July 1, 1985: Pop A: 93,987 Pop B: 56,612 (2) July 1, 1985, as of July 1, 1985: Pop C: 96,295 Pop D: 58,307 (3) July 1, 1988, as of July 1, 1985: Pop A: 110,788 Pop B: 69,020 (4) January 1, 1985, as of August 1987: Pop C: 96,741 Pop D: 57,545 (5) July 1, 1985, as of August 1987: Pop C: 100, 276 Pop D: 60,133 (6) July 1, 1988, as of August 1987: Pop A: 119, 915 Pop B: 75,704 (Prehearing Stipulation filed 11/13/87) The source of the population figures are the official estimates and projections adopted by the Office of the Governor. These are prepared by the Bureau of Economic and Business Research at the University of Florida and are released periodically. Because better data is available, the July 1987 releases of estimates and projections is more accurate than the July 1985 releases of estimates and projections. The rule does not specify which version must be used. HRS relied on the July 1985 releases that were available at the time the application was first received. HRS did not present evidence to support that policy in this proceeding. HRS does include updated data for other factors in the methodology, for example, occupancy rate and number of licensed beds. Health Quest advocates the use of the July 1987 releases that were available at the time of hearing and presented competent expert testimony from a demographer to support its position. The parties also disagree on the base period for current population, ages 65-74 and 75+ (POPC and POPD). With the exception of the January 1987 batching cycle, HRS' Certificate of Need review staff have consistently applied a three year planning horizon; that is, the base period is considered the date of the batching cycle (here, July 1985). It appears that in its state agency action report, HRS originally used January 1985 as the current population base period. HRS' Office of Comprehensive Health Planning, a separate office within the agency, uses a base period six months prior to the application date in its published semiannual bed need reports. Health Quest advocates use of the earlier base period and argues that it is consistent with good health planning because the earlier period is the midpoint of the six-month occupancy period prescribed by the rule. The rule does not explicitly state that current population is determined as of the batching cycle, but the context strongly supports that interpretation, as discussed in the conclusions of law. Health Quest submitted four iterations of the methodology, including one utilizing the July 1985 base population, a July 1987 release date, and the other values stipulated by the parties. (Petitioner's Exhibit 12). This is adopted as follows, with a resulting bed need of 53.58: NET BED ALLOCATION: SEMINOLE COUNTY, 7/88 PLANNING HORIZON (Using 7/85 base population and the 7/87 population set) 1. BA = LB + 4425 POPC + (6 X POPD) 100,276 + (6 x 60,133) = 4,425 = 9.597 Per 1000 461,074 2. BB = 6 x BA = 6 x 9.597 = 57.582 Per 1000 3. A = (POPA x BA) + (POPB x BB) = (119,915 x 9.597/K) + (75,704 x 57.582/K) = 1,150.82 + 4,359.19 = 5,510.01 4. SA = A x LBD X OR = 5,510.01 x 725 LB .90 4,425 x 0.9366 x 939.48 .90 5. Net Bed Allocation SA - (LBD + (AB x .90) = 939.48 - [725 + (179 x .90)] = 939.48 - 886.10 53.38 The Local Health Council of East Central Florida (District VII,) has adopted a standard that the minimum size of new nursing homes should be 120 beds in all counties, except Osceola, where the minimum size should be 60 beds. (Petitioner's Exhibit 26). Health Quest's expert conceded that a 120-bed home is more efficient to operate. (Transcript, p. 77) It is a generally accepted standard that nursing home units should be organized in groups of 60 beds. Health Quest's expert urged that if a need for 54 beds is found, the approved number should be rounded up to 60 beds. With the exception of need and the above-mentioned policy of the District Health Council, Health Quest's proposed facility (both 120-bed and 60- bed version) meets the applicable criteria for Certificate of Need approval, including quality of care and financial feasibility. In advance of hearing, the parties stipulated that most non-need related criteria were met. (Prehearing stipulations filed 11/13/87 and 11/16/87). In addition, .Health Quest presented perfunctory, unrebutted testimony with regard to the facility's compliance with statutory and rule criteria. Approval of either a 60-bed or 120-bed new nursing home in Seminole County would result in a surplus of beds for the July 1988 planning horizon. Health Quest did not present evidence of special circumstances to justify approval of additional beds, as provided in Rule 10-5.011(1)(k)2.j., Florida Administrative Code.
Recommendation Based upon the foregoing, it is hereby RECOMMENDED: that Health Quest's application for Certification of Need for nursing home beds in Seminole County be denied. that the applications by R. H. Little and Gulf South be dismissed, in accordance with those parties' earlier notices of voluntary dismissal. DONE and RECOMMENDED this 15th day of March, 1988, in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of March, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 86-0136, 86-0355, 86-0638 The following constitute my specific rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Fact Addressed in Preliminary Statement. Addressed in paragraph's 1 and 2. Adopted in paragraph 2. 4-5. Rejected as unnecessary. 6-12. Adopted in substance in paragraph 3. 13-14. Rejected as unnecessary 15-16. Adopted in paragraph 4. 17-72. Rejected as unnecessary, except as summarized in paragraph 14. Rejected as unnecessary Adopted in paragraph 7 and 8. 75-76. Adopted in paragraph 10. 78-80. Adopted in paragraph 7. 81-82. Rejected as unnecessary. Rejected as contrary to the weight of evidence and contrary to the rule. Adopted in paragraph 11, except for the conclusion relating to "rounding-up." Rejected as unnecessary. 86-93. Adopted in substance in paragraph 9. 94. Rejected as argument. 95-96. Rejected as unnecessary. Rejected as cumulative and unnecessary. Rejected as irrelevant. Rejected as contrary to the rule. Rejected as irrelevant. Further, while HRS has used the 3-1/2 year horizon in a single batching cycle, that horizon in CON review has not been accepted by HRS. Rejected as irrelevant. Adopted in paragraph 10. Rejected as contrary to the rule. However, the sentence regarding need calculation in the SAAR is adopted in paragraph 10. Rejected as cumulative and irrelevant. 105-170. Rejected as unnecessary. That Health Quest meets the criteria except those related to need is adopted in summary, in paragraph 14. Respondent's Proposed Findings of Fact Adopted in paragraph 3. Adopted in paragraph 5. Adopted in paragraph 6. Rejected as contrary to the evidence and contrary to the rule. Rejected as contrary to the evidence. Rejected as irrelevant, except as addressed in paragraph 4. Adopted in paragraph 7. Adopted in paragraph 10. Rejected as irrelevant. Adopted in paragraph 15. COPIES FURNISHED: Robert Powell, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Steven W. Huss, Esquire 1017 Thomasville Road Tallahassee, Florida 32303 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700
Findings Of Fact Claridge House is a 240 bed nursing home located at 13900 N.E. 3rd Court, Miami, Florida. Approximately 60 percent of its residents are Medicaid patients. Respondent is the state agency responsible under state and federal law for the administration of the Medicaid program in Florida. Petitioner has its principal place of business in Lincolnwood, Illinois. Petitioner is owned by a partnership. All of the partnership interests are owned by Messrs. Bernard Hollander, Jack Rajchenbach, and Joseph Chou. Petitioner owns and operates a number of health care, facilities including Claridge House. Petitioner, Claridge House, and the individual partners are related parties for Medicaid cost reporting purposes. Approximately 77 percent of all nursing homes are operated by independent management companies. Management companies typically provide accounting services, computer processing, payroll processing, and other technical services directly related to patient care. Management companies generally provide a nursing home administrator. Management companies generally charge a management fee of four to seven percent of the net revenues of the nursing home. Claridge House is a large nursing home facility. It is the fourth or fifth largest facility in the state. Use of an independent management company would have cost Claridge House approximately $500,000 to $600,000 annually. Messrs. Hollander and Rajchenbach together have over 40 years experience in the management and operation of long term care facilities. Mr. Rajchenbach has a degree in Social Services and is uniquely qualified to manage the Social Services Department at Claridge House. In addition, Claridge House is a kosher facility. Mr. Rajchenbach has a Rabbinical degree and supervises the kosher food department. Petitioner decided to avoid the expense of an independent management company and manage Claridge House internally. Claridge House employs a full-time nursing home administrator, Mr. Larry Mankoff. Petitioner filed a cost report for Claridge House for the fiscal year ending February 28, 1990. Petitioner did not file a home office cost report for the same period. The cost report for Claridge House claimed expenses for owners' compensation in the amount of $50,000 for Messrs. Hollander and Rajchenbach. No owner's compensation was claimed for Mr. Chou because he is not actively involved in the operation of Claridge House. Petitioner filed a home office cost report for the preceeding year and claimed owners' compensation of $48,000. The owners' compensation claimed for the preceeding year was allowed by Respondent. The cost report was prepared by Lovelace, Roby & Company, Certified Public Accountants, and signed by Mr. Mankoff. Messrs. Hollander and Rajchenbach were actually compensated in an amount substantially in excess of $50,000. After consulting representatives of Lovelace, Roby & Company, Mr. Mankoff, and the individual partners, it was decided that $50,000 accurately represented that portion of the actual owners' compensation attributable to management services for Claridge House. One of the factors considered in determining the amount of compensation was that Respondent allowed $48,000 in owners' compensation on the cost report for the preceding year. Another consideration was the fact that the current year involved a number of unusual events. Most significantly, a freeze on Medicaid reimbursement increases coupled with increased inflation required closer management and cost control for Claridge House. Many of the services performed by Messrs. Hollander and Rajchenbach were similar to services typically performed by independent management companies. The services were also similar to those performed by Messrs. Hollander and Rajchenbach the previous year. The services performed by Messrs. Hollander and Rajchenbach were reasonably related to patient care. They included: computerization of the facility for more efficient operation; purchasing the hardware and software needed for computerization; supervising an individual computer consultant; supervising the Social Services Department; supervising the kosher food department; cash flow management during the Medicaid freeze, including the management of staffing and patterns and other expenses; negotiating lines of credit with existing creditors and banks; preparing the budget and supervising its administration; overseeing maintenance and operations; supervising key employees such as the nursing home administrator; negotiating with labor unions; approving large purchases; handling landlord-tenant matters; reviewing monthly reports; reviewing reports filed with the Health Care Cost Containment Board; setting fiscal policy; reviewing policies on admissions; supervising the redecoration of the building; and supervising and reviewing insurance coverage for the facility and its personnel. Messrs. Hollander and Rajchenbach had daily telephone contact with key personnel at Claridge House and visited the facility once a month for various periods during the year. The services performed by Messrs. Hollander and Rajchenbach provided a necessary function. If those services had not been performed by Messrs. Hollander and Rajchenbach, it would have been necessary to purchase those services elsewhere at a substantially greater cost to the facility. The services performed by Messrs. Hollander and Rajchenbach were not the same services as those performed by the nursing home administrator. The services performed by the owners are similar to those performed by a regional manager for an independent management company. 5/ Both the services of the regional manager and those of the facility administrator are necessary for the efficient operation of a quality nursing home.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order allowing the expenses claimed in the cost report for owners' compensation in the amount of $50,000. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 22nd day of January, 1992. DANIEL MANRY 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 22nd day of January, 1992.
The Issue The issues are whether proposed and existing Florida Administrative Code rules, both numbered 59G-6.030, are valid exercises of delegated legislative authority.
Findings Of Fact The Petitioners are 120 hospitals--some not-for-profit, some for-profit, and some governmental--that are licensed under chapter 395, Florida Statutes, provide both inpatient and outpatient services, and participate in the Medicaid program. AHCA is the state agency authorized to make payments for services rendered to Medicaid patients. Before 2013, all Medicaid outpatient services were provided and paid fee-for-service. Under the fee-for-service model, hospitals submit claims to AHCA, and AHCA reimburses the hospitals based on the established rate. For many years, AHCA has set prospective Medicaid fee- for-service reimbursement rates for outpatient hospital services, either semi-annually or annually, based on the most recent complete and accurate cost reports submitted by each hospital; has re-published the Florida Title XIX Hospital Outpatient Reimbursement Plan (Outpatient Plan) that explained how the rates were determined; and has adopted the current Outpatient Plan by reference in rule 59G-6.030. In 2005, the Florida Legislature’s General Appropriations Act (GAA) stated that the funds appropriated for Medicaid outpatient hospital services reflected a cost savings of $16,796,807 “as a result of modifying the reimbursement methodology for outpatient hospital rates.” It instructed AHCA to “implement a recurring methodology in the Title XIX Outpatient Hospital Reimbursement Plan that may include, but is not limited to, the inflation factor, variable cost target, county rate ceiling or county ceiling target rate to achieve the cost savings.” AHCA responded by amending the Outpatient Plan to provide: “Effective July 1, 2005, a recurring rate reduction shall be established until an aggregate total estimated savings of $16,796,807 is achieved each year. This reduction is the Medicaid Trend Adjustment.” The amended Outpatient Plan was then adopted by reference in rule 59G-6.030, effective July 1, 2005. AHCA collaborated with the hospitals to determine how to accomplish the legislatively mandated reduction in a manner that would be fair to all the hospitals. It was decided to take the hospitals’ unaudited cost reports from the most recent complete fiscal year and the number of Medicaid occasions of service from the monthly report of AHCA’s Medicaid fiscal agent that corresponded to the hospitals’ fiscal years, and use an Excel spreadsheet program with a function called Goal Seek to calculate proportionate rate adjustments for each hospital to achieve the legislatively mandated aggregate savings. The resulting rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2005. In 2006, there was no further Medicaid Trend Adjustment (MTA) reduction. However, in accordance with the instructions in the 2005 GAA, the 2005 MTA reduction of $16,796,807 was treated as a recurring reduction and was applied again in the 2006 Outpatient Plan, which again stated: “Effective July 1, 2005, a recurring rate reduction shall be established until an aggregate total estimated savings of $16,796,807 is achieved each year. This reduction is the Medicaid Trend Adjustment.” The 2006 Outpatient Plan also stated: “This recurring reduction, called the Medicaid Trend Adjustment, shall be applied proportionally to all rates on an annual basis.” It also came to be known as the first cut or cut 1. It again was applied by taking the hospitals’ most current unaudited cost reports and the corresponding occasions of service from the appropriate monthly report of the fiscal agent, and using the Excel spreadsheets and the Goal Seek function to calculate rate adjustments for each hospital. The cut 1 rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2006. In 2007, the GAA stated that the funds appropriated for Medicaid outpatient hospital services were reduced by $17,211,796 “as a result of modifying the reimbursement for outpatient hospital rates, effective July 1, 2008.” This has been referred to as the second cut or cut 2. It instructed AHCA to “implement a recurring methodology in the Title XIX Outpatient Hospital Reimbursement Plan to achieve this reduction.” The 2008 Outpatient Plan again applied the first cut as a recurring reduction and stated that it was to be “applied proportionally to all rates on an annual basis.” It then made the second cut, which was to be “applied to achieve a recurring annual reduction of $17,211,796.” These cuts were again applied by taking the hospitals’ most current unaudited cost reports and the corresponding occasions of service from the appropriate monthly report of the fiscal agent, and using the Excel spreadsheets and the Goal Seek function to calculate rate adjustments for each hospital. The resulting rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2008. This process was repeated in subsequent years. The third cut (cut 3) was in 2008; it was a $36,403,451 reduction. The fourth cut (cut 4) was in 2009, during a special session; it was a $19,384,437 reduction; however, per the GAA that made the fourth cut, it was not applied to the rates of certain children’s specialty hospitals, which were excluded from the reduction. In addition, using language similar to what AHCA had been using in the Outpatient Plans, the 2009 GAA stated: “The agency shall reduce individual hospital rates proportionately until the required savings are achieved.” The Legislature enacted cut 5 and cut 6 in 2009 and 2010. However, the GAAs stated that AHCA should not take these cuts if the unit costs before the cuts were equal to or less than the unit costs used in establishing the budget. AHCA determined that cuts 5 and 6 should not be taken. However, cuts 1 through 4 continued to be applied as recurring reductions, and rates were adjusted for cuts 1 through 4 in 2009 and 2010 in the same manner as before. In 2011, the GAA enacted cut 7; it was for $99,045,233 and was added to the previous cuts for all but certain children’s specialty and rural hospitals, which were excluded from the additional reduction. In setting the individual hospitals’ reimbursement rates, AHCA first applied cut 7 in the same manner as cuts 1 through 4. The result was a 16.5 percent rate adjustment for cut 7, which was much higher than for previous cuts. Some of the hospitals pointed this out to AHCA and to the Legislature and its staff. There was lots of discussion, and it was determined that the rate adjustment from cut 7 would be more like what the Legislature was expecting (about 12 percent), if budgeted occasions of service were used, instead of the number from the fiscal agent’s monthly report that corresponded to the most recent cost reports. AHCA agreed to change to budgeted fee-for- service occasions of service for cut 7, with the concurrence of the hospitals and the Legislature and its staff. The year 2011 was also the year the Legislature instituted what became known as the “unit cost cap.” In that year, the Legislature amended section 409.908, Florida Statutes, to provide: “The agency shall establish rates at a level that ensures no increase in statewide expenditures resulting from a change in unit costs effective July 1, 2011. Reimbursement rates shall be as provided in the General Appropriations Act.” § 409.908(23)(a), Fla. Stat. (2011). This part of the statute has not changed. The GAA that year elaborated: In establishing rates through the normal process, prior to including this reduction [cut 7], if the unit cost is equal to or less than the unit cost used in establishing the budget, then no additional reduction in rates is necessary. In establishing rates through the normal process, if the unit cost is greater than the unit cost used in establishing the budget, then rates shall be reduced by an amount required to achieve this reduction, but shall not be reduced below the unit cost used in establishing the budget. “Unit cost” was not defined by statute or GAA. To calculate what it was in 2011, AHCA divided the total dollar amount of Medicaid payments made to hospitals by AHCA by the number of Medicaid occasions of service for all hospitals. The result was $141.51. Since 2011, AHCA has applied the unit cost cap with reference to the 2011 unit cost of $141.51. Since then, AHCA has compared the 2011 unit cost to the current cost, calculated by dividing the total dollar amount of Medicaid payments made to all hospitals by AHCA by the number of Medicaid occasions of service for all hospitals, except in children’s and rural hospitals, to determine whether the unit cost cap would require a further rate reduction, after applying the MTA cuts. Using this comparison, the unit cost cap never has been exceeded, and no further rate adjustments ever have been required. It is not clear why AHCA excluded Medicaid occasions of service for children’s and rural hospitals from the unit cost calculations made after 2011. It could have been because those hospitals were excluded from cut 7 and cut 8. Cut 8 was enacted in 2012; it was for $49,078,485 and was added to the previous cuts for all but certain children’s specialty and rural hospitals, which were excluded from the additional reduction. In 2012, the Legislature specified in the GAA that budgeted occasions of service should be used in calculating the MTA reduction for inpatient hospitals. AHCA always treated inpatient and outpatient MTAs the same, and it viewed the specific legislative direction for the inpatient MTA as guidance and indicative of legislative intent that it should continue to use budgeted occasions of service for the outpatient cut 7 and should also use them for the outpatient cut 8. Again, the hospitals did not object since the result was a higher reimbursement rate. In 2014, the Florida Medicaid program began to transition Medicaid recipients from a fee-for-service model to a managed care model. Under the managed care model, AHCA pays a managed care organization (MCO) a capitation rate per patient. The MCOs negotiate contracts with hospitals to provide outpatient care at an agreed reimbursement rate per occasion of service. Since August 2014, the majority of Medicaid recipients has been receiving services through MCOs, rather than through fee-for-service. Currently, about 75 to 80 percent of Medicaid outpatient hospital occasions of service are provided through managed care In recognition of the shift to MCOs, the Legislature began to divide the Medicaid outpatient hospital reimbursement appropriation in the GAA between what AHCA reimburses directly to hospitals under the fee-for-service model and what it pays MCOs to provide those services under the MCO delivery system. This allocation of the budgets between fee-for-service and managed care necessarily accomplished a corresponding division of the recurring MTA reductions between the two delivery systems. The Legislature did not enact any statutes or GAAs requiring AHCA to change how it applies MTA reductions to determine fee-for-service outpatient reimbursement rate adjustments, or make any other changes in response to the transition to MCOs. There were no additional MTA reductions in 2015. The 2015 Outpatient Plan, which is incorporated in existing rule 59G- 6.030, applied the previous cuts as recurring reductions. The evidence was confusing as to whether cuts 7 and 8 were applied using the occasions of service in the fiscal agent’s monthly report corresponding to the hospitals’ most current unaudited cost reports, or using budgeted occasions of service. If the former, the numbers did not yet reflect much of the shift to the managed care model because of a time lag in producing cost reports, and the evidence suggested that the numbers were approximately the same as the budgeted occasions of service used previously. Whichever numbers were used, the resulting rate adjustments were incorporated in the hospitals’ reimbursement rates, effective July 1, 2015. Leading up to the 2016 legislative session, there was a legislative proposal to determine prospective Medicaid outpatient reimbursement rates using a completely new method called Enhanced Ambulatory Patient Groups (EAPGs). EAPGs would eliminate the need to depend on hospital cost reports and complicated calculations to determine the effects of MTA reductions on prospective hospital outpatient reimbursement rates, effective July 1, following the end of the legislative session each year. Hospitals, including some if not all of the Petitioners, asked the Legislature not to proceed with the proposed EAPG legislation until they had an opportunity to study it and provide input, and EAPGs were not enacted in 2016. However, section 409.905(6)(b) was amended, effective July 1, 2017, to require the switch to EAPGs. See note to § 409.905, Fla. Stat.; and ch. 2016-65, § 9, Laws of Fla. (2016). When it became apparent that EAPGs would not be in use for prospective reimbursement rates for fiscal year 2016/2017, AHCA basically repeated the 2015/2016 process, but adjusted the occasions of service used for calculating the hospitals’ rate reductions for cuts 7 and 8 by adding 14,000 occasions of service. At the end of July, AHCA published new rates effective July 1, 2016. When the new rates were published, they were challenged by some of the Petitioners under section 120.57(1), Florida Statutes. Citing section 409.908(1)(f)1., AHCA took the position that there was no jurisdiction and dismissed the petitions. That decision is on appeal to the First District Court of Appeal. The Petitioners also challenged the methodology used to calculate the new prospective reimbursement rates as a rule that was not adopted as required, and challenged the validity of existing rule 59G-6.030, which incorporated the 2015 Outpatient Plan by reference. These challenges became DOAH cases 16-6398RX through 16-6414RX. In response to DOAH cases 16-6398RX through 16-6414RX, AHCA adopted the 2016 Outpatient Plan by reference in proposed rule 59G-6.030. The 2016 Outpatient Plan provides more detail than the 2015 version. AHCA’s position is that the additional detail was provided to clarify the 2015 version. However, it changed the occasions of service used for calculating the hospitals’ rate reductions for cuts 7 and 8, as indicated in Finding 22, as well as some other substantive changes. The 2015 Outpatient Plan addressed the unit cost cap by stating: “Effective July 1, 2011, AHCA shall establish rates at a level that ensures no increase in statewide expenditures resulting from a change in unit costs.” The 2016 Outpatient Plan elaborates and specifies the calculation AHCA has been using, as stated in Finding 14. The 2015 Outpatient Plan provided that an individual hospital’s prospective reimbursement rate may be adjusted under certain circumstances, such as when AHCA makes an error in the calculation of the hospital’s unaudited rate. It also stated: “Any rate adjustment or denial of a rate adjustment by AHCA may be appealed by the provider in accordance with Rule 28-106, F.A.C., and section 120.57(1), F.S.” The 2016 Outpatient Plan deleted the appeal rights language from the existing rule. The effect of the existing and proposed rules on the Petitioners through their effect on managed care contract rates is debatable. Those rates do not have to be the same as the fee- for-service outpatient reimbursement rates, although they are influenced by the fee-for-service rates, and it is not uncommon for them to be stated as a percentage of the fee-for-service rates. By law, managed care contract rates cannot exceed 120 percent of the fee-for-service rates unless the MCO gets permission from AHCA, as provided in section 409.975(6). Currently, rates paid by MCOs for Medicaid hospital outpatient services average about 105 percent of the fee-for-service reimbursement rates. AHCA has indicated that it would not expect or like to see the contract rates much higher than that. It is not clear whether that still is AHCA’s position. If higher rates were negotiated, the impact of fee-for-services rate adjustments on managed care rates could be reduced or even eliminated. The effect of the existing and proposed rules on the Petitioners through their effect on how fee-for-service reimbursement rates are calculated is not disputed. With the transition to managed care, the effect is greater and clearly substantial. The recurring MTA reductions enacted by the Legislature through 2014, which total $224,015,229 (after taking into account $10,656,238 that was reinstated, and $4,068,064 that was added in consideration of trauma centers), are being spread over fewer fee-for-service occasions of service, especially for cuts 7 and 8, which significantly lowers the fee-for-service outpatient reimbursement rates calculated under the proposed rule. The Petitioners’ objections to the validity of the proposed and existing rules can be summarized as follows: a lack of legislative authority for recurring (i.e., cumulative) MTA reductions; a failure to adopt a fixed methodology to calculate individual hospital outpatient reimbursement rate adjustments resulting from MTA reductions; specifically, a failure to derive the number of fee-for-service occasions of service used in calculating individual hospital outpatient reimbursement rate adjustments in the same manner every year; conversely, a failure to increase the occasions of service used to calculate individual hospital outpatient reimbursement rate adjustments resulting from cuts 1 through 4; a failure of the unit cost cap in the existing rule to specify how it is applied; a failure of the unit cost cap in the proposed rule to compare the 2011 unit cost to the current cost, calculated by dividing the total dollar amount of Medicaid payments made to all hospitals by AHCA by the number of Medicaid occasions of service for all hospitals, including in children’s and rural hospitals; and proposed rule’s deletion of the language in the existing rule stating that a rate adjustment or denial can be appealed in accordance with Florida Administrative Code Rule 28-106 and section 120.57.
