The Issue Whether the agency's audit adjustment of an interim rate should be sustained.
Findings Of Fact The Petitioner is a licensed nursing home located in Chipley, Washington County, Florida. The Petitioner is located in a rural county in Florida's panhandle with high numbers of Medicaid- eligible patients. The Petitioner participates in the Florida Medicaid Program and has agreed to provide skilled or intermediate nursing care services for Medicaid patients. The Respondent is the state agency responsible for administering the Florida Medicaid Program. The parties have entered into an agreement that governs the provision of Medicaid services and the reimbursement to the provider (Petitioner). Such plan authorizes reimbursement based upon rates agreed between the parties and limited by rules and regulations applicable to the Medicaid Program. In this regard, Medicaid reimbursements are made in accordance with the Florida Title XIX Long-Term Care Reimbursement Plan (the Plan). The Plan was adopted and incorporated by reference in Rule Chapter 59G, Florida Administrative Code. To set a reimbursement rate, cost reports are reviewed by AHCA to determine the actual Medicaid allowable costs incurred by the provider. The allowable costs are used to set a prospective rate for the provider. Payments to the provider in subsequent periods are then based upon the rate adjusted for inflation. There are limits on costs and reimbursements. If a provider incurs an expense above the allowed level, it will not be reimbursed. In this regard the approved rate for the provider may not compensate the provider for expenses that were more than anticipated. Medicaid is not intended to pay for luxury care. The Medicaid Program covers rates for providers that are efficiently operated. The providers are not compensated for luxury services, excessive charges, or operating costs that exceed what a prudent, efficiently operated facility would incur. Once the reimbursement rate is set it continues until the next rate-setting period. If circumstances change such that the rate unfairly impacts the provider's ability to provide care, an interim rate adjustment may be requested. An increased interim rate could assist the provider until the regular rate is re-calculated. Nursing homes are subject to inspections or surveys that are performed by AHCA to assure compliance with all applicable standards of operation. The standards are to assure that patients receive a quality of care at or above minimum levels. Pertinent to this case was a survey that found Petitioner deficient due to inadequate staffing levels. Inadequate staffing directly impacts the quality of care a facility is able to provide. Given its rural location and the wages it was offering, the Petitioner could not offer competitive opportunities in order to recruit and retain qualified staff. For entry level employees the Petitioner found itself competing against even McDonald's restaurant for employees. As a result, when a survey found the facility deficient, the Petitioner sought financial relief through a request for an interim rate increase. The provider faced a financial loss if the deficiency were corrected without a corresponding increase in its rate as it would not be able to cover the additional costs within its reimbursement rate. To correct the deficiencies Petitioner sought six additional Certified Nursing Assistants and wage enhancements. As a result, it sought an interim rate increase of $3.56 per day in patient care and $.12 per day in operating cost. The interim reimbursement rate was approved by AHCA in 1996. The reimbursements to this provider then continued based upon the new rate. It then became the facility's objective to follow the plan of correction to assure that the deficiency was, in fact, alleviated. In November of 1997, new rates were established for the Petitioner which became the settled rate. Based upon the cost reports filed with AHCA, the Petitioner's rate was settled with increases of $3.91 per day in patient care and $1.62 in the operating category. The instant case resulted from an audit conducted at the facility. The audit was to verify that the expenses reported were correct and allowable. An audit should also confirm that the statistical information reported by the provider was correct. The auditors used $3.56 instead of $3.91 as the starting point for the cost report figures. The Petitioner had relied on the higher number as the cost- settled figure for the audit. More important, the Petitioner relied on the same accounting methodology it had relied on for the interim rate request. The auditors, an independent accounting firm, did not accept the prior methodology. Subsequent to the audit, the Respondent issued a letter to the Petitioner claiming it was owed $364,621.12 for Medicaid over-payments. The Respondent maintains it is entitled to recoup the over-payments as part of the future reimbursements to the provider. The Petitioner argues that such action will adversely impact the provider's ability to provide the quality of care expected by AHCA. All of the costs reported by this Petitioner are allowable under the Medicaid guidelines. The crux of the issue in the case results from the settled interim rate not being accepted and carried forward by the independent auditors. Because some amounts exceeded the "budgeted" estimates, the auditors disallowed the additional expenses. The amounts, all within the category of wage or salary enhancements, were not deemed proper because they exceeded or altered the granted 50- cent-an-hour pay raise within the original request. Although allowable, the expenditures fell outside the parameters of the budget that support the interim rate increase. Bonuses and wage enhancements paid by the Petitioner during the audited period were not one-time expenses but are on-going programs to encourage and support the retention of qualified employees. This was within the parameter of curing the deficiency that the interim rate sought to address. None of the expenses fell outside of operation and patient care costs. It is anticipated that the reduction in Petitioner's rate will result in reduced staffing. Otherwise, the facility will not be a financially feasible operation. The reimbursement rate for this provider is not higher than other rates for the other providers serving the geographical region served by the Petitioner. When a provider goes through the cost settlement process, AHCA is authorized to and may seek additional information to clarify any form submitted by a Medicaid provider. In this case, the rate was cost- settled without additional information being sought by AHCA. The allowable expenses incurred by the Petitioner support the reimbursement rate paid to this provider.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Administration enter a Final Order reinstating the provider's Medicaid rate to include the interim rate as previously settled and accepted by the Respondent. AHCA should affirm the interim rate established and committed by the cost report allowing $3.91 for patient care and $1.62 for operating costs. DONE AND ENTERED this 30th day of July, 2001, in Tallahassee, Leon County, Florida. _____________________________ J. D. Parrish Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of July, 2001. COPIES FURNISHED: Theodore E. Mack, Esquire Powell and Mack 803 North Calhoun Street Tallahassee, Florida 32303 Steven A. Grigas, Esquire Agency for Health Care Administration 2727 Mahan Drive Building 3 Tallahassee, Florida 32308 Ruben J. King-Shaw, Jr., Director Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3116 Tallahassee, Florida 32308 Julie Gallagher, General Counsel 2727 Mahan Drive Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308
Findings Of Fact Petitioner filed an application for a Certificate of Need for a 180-bed nursing home in Dade County, a subdistrict of Respondent's District 11 service area. The application was not offered into evidence, and no testimony was presented describing Petitioner's proposed project. Respondent reviewed Petitioner's application in accordance with statutory criteria and Section 10-5.11(21), Florida Administrative Code, which contains a formula or methodology for computing whether there is a need for additional community nursing home beds in any health district or subdistrict in Florida. In applying that formula, Respondent utilized the following planning data: the number of licensed and approved beds within the service area, the average patient census data, the number of elderly living in poverty within the service area, and the projected number of persons aged 65 and older residing within the service area three years in the future (the formula's planning horizon). Respondent then projected the theoretical need in the district and subdistrict, subtracted the inventory of licensed and approved beds, and thereby obtained the need / no need ratio. Although a need was demonstrated in both the district and subdistrict, the methodology then further requires a current utilization rate in excess of 85 percent and a prospective utilization rate in excess of 80 percent before additional beds can be approved. In this case, the current utilization rate of 93.4 percent exceeds the 85 percent requirement. However, when the proposed 180 beds are added to the number of already licensed and approved beds, the prospective utilization rate decreases to 69 percent, a figure below the required 80 percent prospective utilization threshold. In accordance with its application of its need methodology, Respondent issued a State Agency Action Report determining there is no need for Petitioner's proposed nursing home facility. Even though District II and the Dade County subdistrict have a current utilization rate of 93.4 percent, Petitioner presented no evidence to show that persons in need of nursing home beds are unable to secure them or that any special or extenuating factors exist to mitigate against the strict application of Respondent's need methodology.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered denying Petitioner's application for a Certificate of Need. DONE and RECOMMENDED this 14th day of November, 1984, in Tallahassee, Florida. LINDA M. RIGOT 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 14th day of November, 1984. COPIES FURNISHED: John D. Whitaker, Esquire 10700 Caribbean Boulevard Suite 202-H Miami, Florida 33189 Culpepper, Turner and Mannheimer 318 North Calhoun Street Post Office Drawer 11300 Tallahassee, Florida 32302-3300 David Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
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.
The Issue Whether the Office of Insurance Regulation (the Office) correctly calculated the New Business Rate in accordance with statutory authority provided by Section 627.9407(7)(c), Florida Statutes, with regard to National States Insurance Company’s (National States or Company or Insurer) request for a rate increase.
Findings Of Fact National States is an insurance company licensed in the State of Florida to engage in the sale of health insurance. National States has been in business since 1964, and currently sells life and health insurance products in 33 states. National States currently has four HHC policy forms in force in Florida: HNF-1, HNF-3, HHC-1 and HNC-1 (collectively referred to as the AHome Health@ policies). The Home Health policies pay benefits for home nursing care on an expense incurred basis up to the daily maximum specified for periods of 12, 24 or 36 months for the HNF-1 and HNF-3 policies; 12,24,36,48 or 60 months for the HHC-1; and 12 or 24 months for the HNC-1 policy. All policies under HNF-1, HNF-3 and HNC-1 policy forms are in renewal only. The Home Health policies are guaranteed renewable and cannot be canceled due to poor financial performance of the product. Rates can, however, be increased with the approval of the Office. The Home Health policies are known as "stand alone home health care policies" because they provide benefits for care in the policyholder's home as opposed to care provided in an institution such as a nursing home. The policy forms identified in the rate filing are not currently sold by National States, and are defined as a “closed block” of business, meaning that no new policies are being issued. Under the policy forms in issue in this proceeding, each time a renewal premium is received, another contract term begins which precludes any impairment of a prior contract, per the following language: This policy may be renewed for another term by the payment, . . . of the renewal premium for such term at the rate in effect at the time of such renewal. We reserve only the right to change the table of premiums for this policy and all the policies in this state. No change in the premium or in this policy may be made solely by us because of a change in your health or job, nor solely because of claims under this policy. On August 16, 2006 National States submitted a rate filing requesting a rate revision for its Home Health policies. The requested rate increase in the 2006 filing was 48.1 percent. The Office denied the requested 48.1 percent increase by National States by a notice of intent to disapprove ("NOI") issued September 19, 2006. Section 627.9407(7)(c), Florida Statutes, was enacted on June 20, 2006, and applies to all long term care policies issued or renewed on or after July 1, 2006. The National States’ rate filing in this case, FLR 06- 10794, is subject to Section 627.9407(7)(c), Florida Statutes. The policy forms at issue in this case were issued prior to the enactment of that statute. A guaranteed renewable form cannot be canceled by the insurer and must be renewed by the insurer as long as the policy holder continues to pay the requested premium. National States does, however, have the option under Section 627.6425, Florida Statutes, to request that the State of Florida close its entire block of business if its solvency is in jeopardy. Florida Administrative Code Rule 69O-157.108 was enacted in 2003, when the Florida Legislature adopted the NAIC (National Association of Insurance Commissioners) Model Rule of 2000 which states: An insurer shall provide the information listed in this subsection for approval pursuant to Section 627.410, Florida Statutes, prior to making a long- term care insurance form available for sale. * * * (c) An actuarial certification consisting of at least the following: A statement that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated; A statement that the policy design and coverage provided have been reviewed and taken into consideration; A statement that the underwriting and claims adjudication processes have been reviewed and taken into consideration; A complete description of the basis for contract reserves that are anticipated to be held under the form, to include: Sufficient detail or sample calculations provided so as to have a complete depiction of the reserve amounts to be held; A statement that the assumptions used for reserves contains reasonable margins for adverse experience; A statement that the net valuation premium for renewal years does not increase; and A statement that the difference between the gross premium and the net valuation premium for renewal years is sufficient to cover expected renewal expenses; or if such a statement cannot be made, a complete description of the situations where this does not occur; Section 627.9407(7)(c), Florida Statutes, applies universally to all carriers selling long term care insurance in the state of Florida. For carriers currently issuing coverage (i.e. “open blocks” of business), the new business rate is determined by that insurer's book of business so that the premium charged to existing insureds will not exceed the premium charged for a newly issued insurance policy except to reflect benefit differences. For insurers not currently issuing new coverage (i.e. “closed blocks” of business), the new business rate shall be as published by the Office at a rate representing the new business rate of insurers representing 80 percent of the carriers currently issuing policies with similar coverage as determined by the prior calendar year earned premium. § 627.9407(7)(c), Fla. Stat. Dan Keating, acting Chief Actuary for the Office, authored the NOI at issue in this proceeding. He is a Fellow of the Society of Actuaries with over 36 years of experience and has reviewed between 250 to 300 rate filings in the state of Florida. His testimony establishes that market share is a percentage that represents how much a particular carrier’s sales are represented in the market. Each carrier’s percentage of the market is based on earned premium of the total volume of that particular share of the market. Market share theory should be used to determine which carriers represented 80 percent of the market share. Any other type of average would give too much weight to one company who might only sell one percent of the policies in the market. Florida premiums should be used to determine which companies represent the 80 percent market share. The Office instigated a data call to all carriers doing business in Florida to respond with confirmation that they were selling long term care business and to provide their premium information. The request was separated according to the definition for similar benefits which was identified as “facility-only,” “non-facility- only,” and “comprehensive.” Upon receipt, company data was verified and compared to the annual reports filed through the NAIC. The steps of the data call commenced with the publishing of the new business rate on September 29, 2006. Delays in publishing the new business rate were caused by the time allotted from enactment (June 20, 2006) to effective date (July 1, 2006), the type and amount of data requested, difficulty in getting companies to respond, review of the data once received, and the action of calculating the market share. Calculation to determine which companies represent the 80 percent market share, a necessity pursuant to compliance with Section 627.9407(7)(c), Florida Statutes, also required a review in this case of each companies’ first-year earned premium by personnel of the Office. Such a review of first-year earned premium is the proper basis to begin the calculation. Three companies were used to comprise the 80 percent market share: Banker’s Life & Casualty, Penn Treaty and Colonial American were chosen. Banker’s Life & Casualty, however, alone comprised 80 percent of the market share and would have been sufficient used alone. Nevertheless, in the interest of diversity and variance, and so that the new business rate would not rely solely on one company’s rate book, Penn Treaty and Colonial American rates were added to the market share. By adding the two additional companies, the new business rate was increased to some degree because both of the other companies were charging more. Banker's Life remained the major shareholder. A weighted average was then applied to the rates of each company to calculate a new business rate. Banker’s Life originally submitted data for the size of their premium (not the premium rates) that were based on its nationwide numbers. This error was not discovered until January 2007, after the new business rates were already published and affected the percentage of weight each company's rates were given. When the error was corrected, Banker’s Life remained above 80 percent of the market share as required by the statutory language of Section 627.9407(7)(c), Florida Statutes. The Office recalculated the new business rate based on the corrected Florida data which increased the new business rate minimally, but not significant enough to warrant a change to the published rates. The Office disapproved National States’ rate filing because approving the filing would have resulted in a premium charged that would have exceeded the new business rate allowed in accordance with Section 627.9407(7)(c), Florida Statutes. Although the percentages differ from one issue age to another, National States current rates without the increase, in the best case scenario, are at least 106 percent above the new business rate, and in general are on average two and one half times the new business rate. Each rate is above 100 percent of the new business rate, indicating that in every situation, for every issue age on all four policy forms, National States’ current rates, before any increase, are already above the new business rate. The Bankers Life and Casualty nationwide data was used to calculate the weighted average because it was the data provided to the Office in response to the data call. Experts for both parties concede that access to this data could only be had via submission by the carriers, as there is no central depository where this type of data is maintained. The market share calculation itself was accurate. A conscious decision was made by personnel of the Office to normalize the new business rate to reflect a 90-day elimination period because that policy form is the most commonly sold by the carriers. Banker’s Life does not have a corresponding rate for a 90-day elimination period; however, normalizing to Banker’s 42-day elimination period produced a higher new business rate because a shorter elimination period raises the cost of the policy since the policy holder can claim benefits sooner. As with the elimination period, there was a conscious decision to normalize the new business rate to a tax-qualified plan because it was the most commonly sold plan. Normalizing the benefits to calculate the new business rate was done by the use of factors gathered from the carriers making up the 80 percent market share and then weighted as required. The factors were available at the time the office received the data from each company, and prior to the disapproval of National States’ rate filing. National States' personnel were aware of the new statute prior to submitting the rate filing to the Office. Additionally, checks of the Office's website were made in July and again in August of 2006, in order to identify the new business rate applicable to this filing. New business rates were not published on the Office website at that time. National States' actuary concedes that he did not make any attempt to contact the Office to determine if the new business rate for stand alone home health care was available prior to submitting the rate filing to the office, although doing so would have been relatively easy. National States' actuary offered testimony that Florida home health care policies have been performing poorly not just for National States, but for the industry as a whole. This poor performance occurs when the actual claims experience that had emerged is much worse than had been expected when initially pricing the product. He described the pricing process in terms of the durational loss ratio curve, and how that curve impacts subsequent filings under Florida law. National States did not anticipate increasing the premiums at the time the policies were sold. National States' strategy as outlined by its actuary is at variance with requirements of Florida Administrative Code Rule, 69O-149.006(3)(b)23b(IV). Under that Rule's provision, the actuary is required to project the experience that he actually expects to occur. For a plan that was developed more than 15 years ago, it is highly unlikely that expectations today would match those in the original pricing product. 34. Rule 69O-149.006(3)(b)23b(IV) reads: (IV) The projected values shall represent the experience that the actuary fully expects to occur. In order for the proposed premium schedule or rate change to be reasonable, the underlying experience used as the basis of a projection must be reflective of the experience anticipated over the rating period. The Office will consider how the following items are considered in evaluating the reasonableness of the projections and ultimate rates. In order to expedite the review process, the actuary is encouraged to provide information on how each of the following have or have not been addressed in the experience period data used as the basis for determining projected values, or otherwise addressed in the ratemaking process. Large nonrecurring claims; Seasonality of claims; Prior rate changes not fully realized; Rate limits, rate guarantees, and other rates not charged at the full manual rate level; Experience rating, if any; Reinsurance costs and recoveries for excess claims subject to non-proportional reinsurance; Coordination of benefits and subrogation; Benefit changes during the experience period or anticipated for the rating period; Operational changes during the experience period or anticipated for the rating period that will affect claim costs; Punitive damages, lobbying, or other costs that are not policy benefits; Claim costs paid which exceed contract terms or provisions; Benefit payments triggered by the death of an insured, such as waiver of premium or spousal benefits; Risk charges for excess group conversion costs or other similar costs for transferring risk; The extent and justification of any claim administration expenses included in claim costs; and Other actuarial considerations that affect the determination of projected values. Testimony of National States' actuary is not credited.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying National States' requested rate increase. DONE AND ENTERED this 15th day of June, 2007, in Tallahassee, Leon County, Florida. S DON W. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of June, 2007. COPIES FURNISHED: Cynthia S. Tunnicliff, Esquire Brian A. Newman, Esquire Pennington, Moore, Wilkinson, Bell and Dunbar, P.A. 215 South Monroe Street, Second Floor Post Office Box 10095 Tallahassee, Florida 32302-2095 Charlyne Khai Patterson, Esquire Assistant General Counsel Office of Insurance Regulation 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-4206 Kevin M. McCarty, Commissioner Office of Insurance Regulation 200 East Gaines Street Tallahassee, Florida 32399-0305 Steve Parton, General Counsel Office of Insurance Regulation 200 East Gaines Street Tallahassee, Florida 32399-0305
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 is whether Petitioner's application for a 25.75 percent increase for its individual long term care policy form, number 93710(FL), filed on February 7, 2006, meets the applicable tests of Section 627.410, Florida Statutes,1 and Florida Administrative Code Rule 69O-149.005, and should be approved. Also at issue is whether Subsection 627.9407(7)(c), Florida Statutes (as amended by Section 9, Ch. 2006-254, Laws of Florida, effective July 1, 2007), applies in this case; and, if so, the propriety of Respondent's intended implementation of that amended statute to Petitioner's rate filing, and whether Petitioner's rate increase filing should be disapproved due to Respondent's implementation of that statute.
Findings Of Fact Petitioner's rate increase application concerns policy form number 93710(FL), a stand-alone individual home health care policy form, which is a sub-line of long term care health insurance. The policy provides reimbursement for certain medical care delivered outside the in-patient hospital or nursing home setting. The policy form and initial rates for the form were first approved in Florida in 1994. The policy has not been actively sold since 1998, and the existing policies constitute a closed block of business. Periodic rate increases for this policy form have been approved in the past: 30 percent in 1998, 20 percent in 1999, 20 percent in 2000, 50 percent in 2001, 30 percent in 2002, and 25 percent in 2003. OIR has prior approval authority over the rate increase applied for by Petitioner. Petitioner timely sought a formal administrative hearing in this matter. Petitioner's rate filing seeks approval of a 25.75 percent rate increase. Christine Jung, the actuary who submitted the rate filing, is a qualified actuary who meets the Qualification Standards for Prescribed Statements of Actuarial Opinion published by the American Academy of Actuaries ("AAA"). Mr. Yee's opinion that Ms. Jung is not a qualified actuary is not persuasive. He could point to no provision in the AAA's Qualification Standards for Prescribed Statements of Actuarial Opinion that did not meet Ms. Jung's education, training, and experience when she submitted the rate filing at issue in this case. Any objections to Ms. Jung's qualifications go to the weight to be given her testimony when compared with the testimony given by the other actuarial experts in this matter. The greater weight of the evidence supports the fact that a rate increase of 25.75 percent meets the tests prescribed for approval in Florida Administrative Code Rule 69O- 149.005(2)(b). Petitioner's evidence, which is the more persuasive evidence, establishes that the requested rate increase meets the tests of that rule when anticipated future experience is projected properly, in accordance with sound actuarial techniques and Actuarial Standards of Practice ("ASOPs"). Ms. Jung concluded that a rate increase of 25.75 percent was actuarially appropriate based on her actuarial analysis. Ms. Dawn Helwig is a highly qualified health insurance actuary who specializes in rate analysis and rating of long term care insurance, including home health care insurance. Her testimony is persuasive. She evaluated Petitioner's rate filing and its component data, and performed an actuarial analysis using generally accepted actuarial techniques, and in accordance with the ASOPs and actuarial principles. Ms. Helwig concluded, and it is so found, that Petitioner's rate increase request of 25.75 percent is actuarially justified, will yield premiums that are not excessive in relation to the benefits offered under policy form number 93710(FL), and satisfies the tests for approval set forth in Florida Administrative Code Rule 69O- 149.005(2)(b)1.a. and b. Ms. Helwig concluded that a rate increase of 37.4 percent to 39.9 percent (depending upon whether industry medical trend is used in the first year of the rate projection) is actuarially justified based upon Petitioner's claims and premium experience reflected in the rate filing. By comparison, Ms. Jung's rate indication of 25.75 percent was conservative. Ms. Jung used an un-trended average of historical loss ratios to arrive at her starting loss ratio value (or current loss ratio) from which to project forward to determine Petitioner's rate need. Had Ms. Jung trended the claims costs in the three years of Petitioner's historical experience that she used to determine her starting loss ratio, her rate indication would have been higher than the 25.75 percent rate increase for which Petitioner applied. At the hearing, OIR offered three independent grounds for disapproving Petitioner's rate filing: 1) that the proposed rate increase was not based upon a "credible body of past data," which must have occurred over the lesser period of the past five years or at least 1,000 claims; 2) that the use of a medical trend has not been justified; and 3) that the rate increase would result in a rate higher than the OIR's published new business rate pursuant to Subsection 627.9407(7)(c), Florida Statutes. OIR did not assert, as a basis for denial, that Petitioner's requested rate increase would result in inadequate premium rates under Florida Administrative Code Rule 69O- 149.005(1), and no evidence was offered at the hearing that the requested rate increase would result in inadequate rates. Accordingly, it is found that Petitioner's requested rate increase would not result in inadequate rates. OIR did not assert, as a basis for denial, that Petitioner's requested rate increase would result in unfair discriminatory premium rates under Florida Administrative Code Rule 69O-149.005(1), and no evidence was offered at the hearing that Petitioner's requested rate increase would result in unfair discriminatory rates. Accordingly, it is found that Petitioner's requested rate increase would not result in unfair discriminatory rates. Mr. Keating interprets Florida Administrative Code Rule 69O-149.0025(6) to mean that, in developing the Florida and nationwide rate indications called for in Florida Administrative Code Rule 69O-149.0025(6), the actuary must use the five years of historical data that the Rule prescribes for weighing the separate Florida and nationwide rate indications for credibility. Ms. Jung derived her separate Florida and nationwide rate indications from the three most recent full years of Petitioner's data. Mr. Keating, therefore, asserted that Petitioner's requested rate increase is not supported by sufficiently credible experience data. The more persuasive evidence does not support Mr. Keating's opinion that the experience data Petitioner used to develop its rate request is not sufficiently credible. Mr. Keating's interpretation of Florida Administrative Code Rule 69O-149.006(3)(b)23.b.(II) is not borne out by the Rule's language. With reference to projecting rate need based on in-force experience, the portion of the Rule states as follows: The experience period shall reflect the most current data available, generally the most recent 12 months for coverage subject to medical inflation, or the period of time to determine the credible data pursuant to subsection 69O-149.0025(6), F.A.C. (emphasis supplied) That provision is disjunctive, and its use of the word "generally" connotes that its disjunctive indicators for experience periods are examples, not requirements. As Mr. Keating conceded at the hearing, neither that rule passage nor other related rules equate "the most current data available" with "the period of time to determine credible data pursuant to subsection 69O-149.0025(6), F.A.C." The rules thus leave to actuarial judgment the decision concerning "the most current data available" on which to develop the separate Florida and nationwide rate indications called for in the rules. The rules do not mandate that the actuary use five full years of data to develop the separate Florida and nationwide rate indications. The rules do require that, once those separate Florida and nationwide rate indications are developed, they are to be credibility-weighted using five years of data under Florida Administrative Code Rule 69O-149.0025(6) to arrive at the ultimate rate indication. This is what Ms. Jung did. OIR has not consistently required use of the five years of data as the experience period for making the separate Florida and nationwide rate indications. One of Respondent's exhibits, a Guarantee Trust Life rate filing for this same policy form, was approved by consent order, dated December 23, 2003. It used only the most recent calendar year's loss ratio as the starting value for projection, though there were fewer than 1,000 claims in that calendar year. The more persuasive evidence shows that Mr. Keating's interpretation would double-count the credibility factor in the rules. Moreover, the more persuasive evidence shows that applying Mr. Keating's interpretation of the credibility weighting method set forth in Florida Administrative Code Rule 69O-149.0025(6)(e)3. as "equivalent to" the alternative methods described in Florida Administrative Code Rule 69O-149.0025(6)(e)2. would, in fact, not yield equivalent results for the same data set, as a matter of mathematics. Ms. Jung developed a rate indication based on Petitioner's Florida experience under policy form 93710(FL), and a separate rate indication based on Petitioner's nationwide data on that policy form. She used the most recent three full years of experience on the policy form (2002-2004) which she found to be appropriate current data for developing Florida and nationwide rate indications. After separately deriving an indicated rate increase from Florida data and a rate increase indicated by total nationwide data, consistent with Florida Administrative Code Rule 69O-149.0025(6)(e)3., she then weighed the two separate rate indications for credibility by weighting the resulting rate changes from each district analysis by the credibility of each distinct component assigned by that rule. Her analysis resulted in a 25.79 percent rate increase need, which she rounded down to 25.75 percent. Florida Administrative Code Rule 69O-149.0025(6) establishes the acceptable range for credible data (the number of claims needed for making rate projections) and the procedures for weighting the data for credibility when the claims frequency used in rate projections falls between the Rule's upper and lower bounds of acceptability. A frequency of at least 1,000 claims over the five years preceding the rate filing is given 100 percent, or full, credibility. Two hundred claims or fewer are given no (zero percent) credibility. Claim frequency counts falling between 200 and 1,000 receive a proportionate credibility weight under the formulae in Florida Administrative Code Rule 69O-149.0025(6)(e), which provides, in pertinent part: (b)1. For policy forms . . . such as accident and long term care, at least 1,000 claims, over a period not to exceed the most recent 5-year period, shall be assigned 100 percent credibility; 200 claims shall be assigned 0 percent credibility. * * * (e)1. Florida only experience shall be used if it is 100 percent credible. 2.a. If Florida experience is not 100 percent credible, a combination of Florida and nationwide experience shall be used. The Florida data shall be given the weight of the ratio of the Florida credibility to the nationwide credibility. For example, if Florida data is 10 percent credible and nationwide is 40 percent credible, the Florida data will be given the weight of [10%/40%] 25 percent. The nationwide data shall be given the weight of the ratio of the nationwide credibility less the Florida credibility to the nationwide credibility. In the above example, the nationwide data will be given the weight of [(40%-10%)/40%] 75 percent. The data is combined using the indicated weights (in the example above, the experience data would be weighted 25%/75%). The combination of the two weights will always equal 100 percent. A rate change is determined from the blended data. 3. The analysis in subparagraph 2. above is equivalent to determining the indicated rate increase from the Florida only data and the total nationwide data separately, and then weighting the resulting rate changes from each distinct analysis by the credibility of each distinct component. Ms. Jung's separate Florida and nationwide rate indications were based on claim counts that fall within the credibility range posted by Florida Administrative Code Rule 69O-149.0025(6)b.1. The number of claims in the last three years of data from which Ms. Jung derived her Florida and nationwide rate indications exceeded 200 claims, in each case. Ms. Jung applied five full years of company claims data to combine her Florida and nationwide rate projections, that is, to separate rate indications for credibility in arriving at the ultimate indicated rate need of 25.75 percent. She did so properly, in accordance with the provisions of Florida Administrative Code Rule 69O-149.0025(6)(e)3. Moreover, in her actuarial projections of Florida and nationwide rate indications, Ms. Helwig, Petitioner's consulting actuary, used the five years of Petitioner's historical experience data that Mr. Keating believes should be used. Ms. Helwig concluded that a rate increase of at least 25.75 percent was actuarially justified, and that the full five years of data would support an increase of up to 39.9 percent in her opinion. Mr. Yee, Respondent's actuarial expert, testified that in his opinion neither Ms. Jung's analysis nor Ms. Helwig's analysis is based on a sufficient number of claims to be regarded as adequately credible. The premise for Mr. Yee's opinion is his personal, subjective standard for "fully credible" long term care ("LTC") data. Mr. Yee's full-credibility standard contradicts the full- credibility standards for LTC ratemaking prescribed by Florida in Florida Administrative Code Rule 69O-149.0025(6). Florida Administrative Code Rule 69O-149.0026(6)(b)1. provides that for LTC forms, "at least 1,000 claims, over a period not to exceed the most recent 5-year period, shall be assigned 100 percent credibility; 200 claims shall be assigned 0 percent credibility." The Rule thus prescribes that 1,000 LTC claims over five years are to be considered fully credible; that 200 claims is the credibility floor; and it establishes methods for weighting the credibility value of claim counts falling between 200 and 1,000. Contrary to the Florida rule, Mr. Yee holds the view that at least 3,246 LTC claims are required for "full credibility." Based upon his "full credibility" premise, he believes that at least 649 claims are needed to consider LTC data credible enough for making a rate projection. He arrives at his 649-claim credibility minimum by noting that since 200 claims in the Rule (the credibility floor) is 20 percent of the 1,000 claims assigned full credibility by that Rule, 649 is the minimum number of claims required for making a LTC rate projection (20 percent of 3,246). Since Petitioner's data contains 621 claims for the most recent five-year period, less than the 649 claim floor, Mr. Yee concludes that Petitioner's data is not credible, and, therefore, should not be used for making a rate projection. He, therefore, concludes that the rate increase is not justified by either Ms. Jung's or Ms. Helwig's actuarial analysis. However, Mr. Yee's data credibility opinion directly conflicts with Florida Administrative Code Rule 69O-149.0025(6). The Rule is clear that 1,000 claims or more shall be accorded full credibility for LTC ratemaking and that claim counts falling between 200 and 1,000 are to be credibility-weighted as set forth in the Rule. Mr. Yee concedes that his "full credibility" standard, the foundation of his no-credibility opinion, is a subjective standard that he and four other actuaries recommended in a report to the National Association of Insurance Commissioners on the subject of LTC data credibility. He further concedes that his "full credibility" standard has not been adopted by any regulatory body or embraced by AAA. It has not even been circulated for comment to the AAA membership. Mr. Keating testified that a claims frequency of 1,000 claims should be regarded as fully credible for LTC ratemaking under the Florida rules. Mr. Yee's opinion, while interesting and apparently well-intended, is, therefore, not credited. The more persuasive evidence shows that Petitioner's data is adequately credible under Florida's adopted standards, and was properly used by Petitioner's actuaries in developing the rate indications supporting Petitioner's requested rate increase. Although in its interrogatory responses OIR stated that Petitioner failed to adjust earned premium on a current rate basis, Mr. Keating testified at hearing that Petitioner had, in fact, provided earned premium on a current rate basis. Therefore, this asserted reason for denial of Petitioner's rate increase is not supported by the evidence. The actuaries who testified agreed that putting both historical premiums and losses (claim costs) on a "current basis" or a "current rate basis" is actuarially appropriate in order to arrive at the correct starting point for a rate projection (whether that starting point is expressed as a loss ratio on a current basis or claim costs on a current basis), and that an accurate current starting point is centrally important in making and evaluating rates. However, neither the phrase "earned premium on a current rate basis" nor the terms "current rate basis" or "current basis" is defined in Section 617.410, Florida Statutes, or in Florida Administrative Code Rule 69O-149, Part I. Moreover, the statutes and rules do not prescribe how to arrive at a "current rate basis" starting value for rate projection. The propriety of a "current rate basis" technique, therefore, must be judged by whether it comports with the ASOPs and accepted actuarial principles. The major point of contention among the actuaries who testified was on the question of the appropriate "current rate basis" methodology for determining the starting value for future projection (the correct starting loss ratio on a current rate basis or the correct starting claims cost on a current basis). Mr. Keating made what he refers to as a "current rate basis" adjustment to Petitioner's historical data. He testified that, based on his current rate basis adjustment, he estimated the "current rate basis" Actual-to-Expected (A/E) ratio for Petitioner's historic Florida experience to be 95.41 percent, which he testified results in a current-rate-basis starting loss ratio value of 74.34 percent for making a rate projection. Mr. Keating applied that 74.34 percent starting-point value, and restructured Petitioner's rate projection, culminating in his estimate of a future A/E ratio for Florida of 96.66 percent. Since, according to his restructuring, the future A/E ratio is less than 1.0, he concluded that Petitioner failed to meet the "Anticipated Loss Ratio" test of Florida Administrative Code Rule 69O-149.005(2)(b)1.a. He performed the same analysis, using the same "current rate basis" method on Petitioner's nationwide data, and reached the same conclusion. The more persuasive evidence, however, shows that the "current rate basis" adjustment Mr. Keating made to Petitioner's data does not comport with the ASOPs and the Florida rules. His "current rate basis" analysis yields starting values for projecting Petitioner's need (his starting loss ratio of 74.34 percent for Florida data and 76.66 percent for nationwide data), which do not match Petitioner's recent experience, and which, in fact, Petitioner has not experienced since 2002, even when Petitioner's historical experience is adjusted by earned premium on a current rate basis. Under Mr. Keating's starting loss ratio of 74.34 percent, and the corresponding number of claims implied by that loss ratio, Ms. Helwig demonstrated that if Mr. Keating's starting loss ratio were correct (if it were the true mean loss ratio), then the probability of Petitioner experiencing the actual number of claims it has in fact experienced in the two- to three-year period before 2005 is less than one percent. ASOP 25, which instructs that the methods an actuary uses should produce a starting value with less than a one percent probability of occurrence, is not found to be reasonable. ASOP 8 instructs that the actuary is to adjust past experience, specifically historical loss ratios, for trends in morbidity in a way that reasonably matches claim experience to exposure. Mr. Keating's current rate basis method did not do so. The more persuasive evidence shows that Mr. Keating's "current rate basis" analysis does not comport with ASOP 8, which provides that when past experience is used to project future results, both past premium rates and morbidity (claims experience) should be adjusted to reflect changes and trends. Mr. Keating did not recognize or take into account the claims trend in the company's historical experience when coming to his "current rate basis" A/E ratios and his starting values for the restated projections he made from Petitioner's data. To derive the "current rate basis" A/E ratios of 95.41 percent (Florida) and 98.53 percent (nationwide), which he then used to develop starting loss ratios of 74.34 percent based on Florida data and 76.66 percent based on nationwide data, Mr. Keating simply took a weighted average of 4.75 years of Petitioner's historical A/E ratios (each year's A/E ratio, as adjusted by earned premium on a current rate basis). Mr. Keating did not trend Petitioner's historical data to arrive at his current basis A/E ratios and his starting-point loss ratio values. To derive the "current rate basis" starting point A/E ratios, Mr. Keating used an average of Petitioner's historic yearly A/E ratios, and did not trend the yearly A/E ratios, based upon this rationale: In his view, only medical (utilization) trend should be used to trend historical data, since he believes that "aging" trend should be pre-funded in the initially approved premium for any long term care product. Since he believed that Petitioner had not sufficiently identified medical "utilization" trend separately from the "aging" trend in the historical data, Mr. Keating, therefore, averaged Petitioner's historical experience and did not apply any trends in the company's claims experience when arriving at his starting loss ratio. The actuaries, four of whom testified at hearing, disagreed about whether, in the context of making projections of future anticipated experience from a current-basis starting- point value, Petitioner's actuaries properly isolated medical (utilization) trend from "aging" trend, and whether, therefore, utilization trends should be used in projecting forward. The more persuasive trend, as discussed more fully below, shows that utilization trend over and above aging trend is adequately identified in the company's data, and was appropriately used for projecting forward. That debate, however, is separate from the issue of whether an actuary may ignore trend in a company's historical data to develop the current-basis starting-point for projecting into the future. The more persuasive evidence is that the ASOPs require the actuary to take trend in the company's historical data into account in coming to a starting-point value for future projection (the current basis loss ratio or current basis claims cost), regardless of whether the historical trend is categorized as "medical," "aging," or otherwise. The more persuasive evidence is that, if the actuary fails to recognize and take into account historical trend in evaluating the starting point for a future projection, the starting-point value will be actuarially incorrect, thus making the future projection incorrect, regardless of whether, for purposes of the future projection, the actuary includes a medical trend assumption or excludes it. The persuasive evidence on this point is reinforced by the language of Florida Administrative Code Rule 69O- 149.006(3)(b)18. That Rule passage calls for differentiating between medical (utilization) trend and insurance (aging) trend in making "trend assumptions." "Assumptions" about medical trend or aging trend denotes something the actuary assumes to be the case for future periods, not something that is an observable past fact. In contrast, a company's historical claims experience, which must be taken into account in arriving at the starting value for a rate projection, is a directly observable fact, not an assumption. Likewise, the trend in a company's past experience is a directly observable fact, not an assumption. According to the more persuasive evidence and the applicable ASOPs, an actuary may not disregard such observed historical claims trend in arriving at a "current basis" starting point to make future projections. Mr. Keating arrived at his starting-point values without considering and accounting for trend in Petitioner's historical data. His methodology was, therefore, actuarially flawed. If Mr. Keating had properly accounted for historical trend in his evaluation, his starting-point loss ratio values would have been approximately 113 percent, which compares closely with Ms. Helwig's starting value of 107 percent. His projection would, therefore, have resulted in a future A/E ration of 148 percent, which calls for approval of Petitioner's rate request under the "Anticipated Loss Ratio" test of Florida Administrative Code Rule 69O-149.005(2)(b)1.a. Ms. Helwig properly took historical trend into account in reaching the starting value for her future projections, and concluded that the appropriate starting value was a loss ratio of 107 percent. Her projections show that Petitioner's rate increase application meets the approval tests of Florida Administrative Code Rule 69O-149.005(2)(b)1. Ms. Jung used a 10 percent medical trend assumption, for one year only, in her projection forward of anticipated experience, appropriately weighted under Florida Administrative Code Rule 69O-149.0025(6). Ms. Helwig also assumed medical trend, likewise for one year only, in her projection of anticipated experience, appropriately weighted under Florida Administrative Code Rule 69O-149.0025(6). The more persuasive evidence shows that using medical (utilization) trend in projecting forward in this case is appropriate, and the medical trend values used by Petitioner's actuaries for projection are reasonable and appropriate. Florida Administrative Code Rule 69O-149.006(3)(b)18. provides that, when making future projections, medical trend (which includes "utilization" trend) may be used, but "aging" trend may not be included. The Rule directs the actuary to "make appropriate adjustments to claims data to isolate the effects of medical trend." The evidence demonstrates that Ms. Helwig appropriately adjusted Petitioner's claims data to isolate the effects of the medical (utilization) trend, and properly included utilization trend in her projections. "Aging" trend refers to the expected increase in frequency of claims as policyholders' ages increase after policies are originally issued. As Ms. Helwig persuasively testified, companies filing original rates for long term care policies make an actuarial assumption about what the expected increase in claim frequency due to aging will be over the life of the policies, which is commonly understood by health actuaries to be aging trend. The aging trend assumption is incorporated into the durational loss ratio curve (or table) for the policy form, approved by Respondent when the policy form and its original rates are approved. The originally approved premium rate is intended to cover increases in claims frequency assumed in the durational loss ratio curve, that is, increase over time in claim frequency from aging, assumed in the durational loss ratio curve, is pre-funded by the originally- approved premium rates. As Ms. Helwig persuasively testified, increases in claims frequency, over and above the aging trend originally assumed in the durational loss ratio curve, is utilization trend, which is properly included in medical trend. It is an experienced trend in claims frequency that exceeds the trend which was originally assumed, and that exceeds what was assumed to be pre-funded in the originally approved premium rate. Ms. Helwig testified, without contradiction that, in Petitioner's five years of experience, she evaluated that a clear, observable trend exists in the frequency of claims that exceeds the frequency trend assumed in Petitioner's approved durational loss ratio curve, and that this excess claims frequency trend was not pre-funded in the original approved premium rate. She, therefore, subtracted the aging trend assumed in the durational loss ratio curve from the average observed total trend, and properly included the excess utilization trend as medical trend in evaluating the propriety of Petitioner's requested rate increase. She properly isolated the effects of medical trend, and properly included the medical trend, so derived, in her experience projections. Mr. Keating's and Mr. Yee's opinions on the use or non-use of medical trend to make projections in this case, under Florida Administrative Code Rule 69O-149.006(3)(b)18., are not persuasive. Both Mr. Keating and Mr. Yee testified that Petitioner had not "separately identified" (isolated) medical trend, in their opinion, and thus use of medical trend in projecting future experience to derive rates for Petitioner's policy is not justified. However, both of Respondent's actuaries based their opinions on the assumption that all utilization increases were intended to be pre-funded in the rates originally submitted and approved for this particular policy form (i.e., that all claims frequency increases were intended to be subsumed in the aging trend originally included in the durational loss ratio curve when the initial premium rate for this policy form was proposed and approved). They, therefore, assumed that all frequency increases under this policy form must be aging trend, and, therefore, that no utilization increase in the company's experience can be treated as part of medical trend for this product. However, Mr. Keating's and Mr. Yee's assumption on this point is contradicted by the evidence. The actuarial memorandum for the original 1994 rate filing (which Respondent approved) clearly noted that the initial premium rate for this particular policy form was not intended to fully pre-fund all expected utilization increases, and that utilization increases in excess of what is pre-funded in the original premium rate would be funded by periodic rate increases. Mr. Keating and Mr. Yee did not consult the original rate filing and the original actuarial memorandum in forming their opinions. As Ms. Helwig testified, and it is concluded here, it is consistent with how the premium rate for this particular policy form was initially filed and approved to classify, as medical trend, the utilization trend in the company's experience that exceeds the utilization frequency assumed in the durational loss ratio curve. Mr. Yee and Mr. Keating additionally offered the opinion that medical trend was not justified because Petitioner's data was insufficiently credible. These opinions are not credited. Petitioner's actuaries used adequately credible data in their analyses under the standards set forth in the Florida rules, as discussed above. Respondent disagreed at hearing with Ms. Helwig's use of industry medical trend in her projections. However, the more persuasive evidence shows that Ms. Helwig properly used industry medical trend. The industry medical trend value she used was derived from the Milliman Claim Cost Guidelines, adjusted to Petitioner's benefit structure and in-force business. The Milliman Claim Cost Guidelines are the type of data health actuaries reasonably rely upon in reaching professional opinions in their field. Ms. Helwig gave appropriate credibility weight to the industry medical trend she used in her projections, in accordance with Florida Administrative Code Rule 69O- 149.0025(6). Moreover, she testified without contradiction that, even if industry medical trend were excluded from her projections, the indicated rate need from her analysis would still meet or exceed the 25.75 percent rate increase for which Petitioner has applied. Mr. Keating and Mr. Yee testified that Petitioner's rate increase application should not be approved because Petitioner should have filed a new durational loss ratio curve for approval, and phased-in the resultant rate increase over time, rather than making a periodic rate increase filing, as Petitioner chose to do. Respondent did not assert this as a basis for denial in its denial letter, in its interrogatory responses, or otherwise before hearing. Petitioner chose to present evidence on this issue, and on the more persuasive evidence, Mr. Keating's and Mr. Yee's opinions that Petitioner was required to file a new durational loss ratio curve are not found to be persuasive. Both of Respondent's actuaries rest their opinion upon their interpretation of two provisions in Florida Administrative Code Chapter 69O-149, Part I. Their interpretation does not comport with the plain language of the rules they rely upon. Respondent's actuaries testified that Florida Administrative Code Rule 69O-149.006(3)(b)20. requires Petitioner to file a new durational loss ratio curve (or table), rather than seek a periodic rate increase, when company experience shows utilization exceeding what was assumed in the existing loss ratio curve. That subsection reads, in pertinent part, as follows: [The actuarial memorandum for a rate increase] shall also include the current approved durational loss ratio table for the form. If a revised durational loss ratio table is being proposed, the proposed table, together with a justification for the new table, shall be provided. The proposed new table shall be consistent with the claim projections contained in the new filing. If approved, the new table will be used in filings made subsequent to the one in which it is being proposed. (V)(A) When the slope of the shape of the durational loss ratio table is changed . . . from those used in the last approved rate filing, any rate increase due to the change shall be uniformly implemented over a 3 year period. Contrary to Mr. Keating's and Mr. Yee's views, the plain language of this Rule does not require Petitioner to propose a revised curve. The Rule prescribes a particular course of conduct if a revised curve is proposed, but that does not require that the rate filer propose a new curve. Mr. Keating and Mr. Yee also testified that Florida Administrative Code Rule 69O-149.0025(7)(a) required Petitioner to file a new durational loss ratio curve. These opinions are inconsistent with the plain language of that Rule, as well. That Rule provides, in pertinent part: (a)1.a. The company shall adjust the durational loss ratio table when the average annual premium at the time of filing results in a loss ratio standard pursuant to the provisions of subsection 69O-149.005(4), F.A.C., that is changed by at least .5 percent from the current lifetime loss ratio standard for the form. b. Each loss ratio in the durational loss ratio table shall be increased by the ratio of the loss ratio standard determined from the current average annual premium divided by the prior lifetime loss ratio standard . . . . This Rule refers to Florida Administrative Code Rule 69O- 149.005(4). Florida Administrative Code Rule 69O-149.005(4), in turn, contains tables setting out minimum loss ratio standards (and formulas for revising minimum loss ratio standards in those tables) for some types of health insurance policies: policy forms whose loss ratio standards are subject to change based on the average annual premium at the time of the rate filing. Florida Administrative Code Rule 69O-149.005(4), however, explicitly excludes long term care policies. It provides: These tables are not applicable to Medicare Supplement or Long-Term Care Policy Forms. The minimum loss ratios for those policy forms are found in Rule Chapters 69O-156 and 69O-157, respectively. Florida Administrative Code Rule 69O-149.005(4) excludes long term care policies because, unlike the types of policies governed by Florida Administrative Code Rule 69O-149.005(4), the minimum loss ratio standard for long term care policies does not change when the average annual premium changes. The minimum loss ratio standard for long term care policies is a constant value, as stated in Florida Administrative Code Rule 69O- 157.022. Florida Administrative Code Rule 69O-149.0025(7) only requires a revised durational loss ratio curve to be submitted for policy forms whose minimum loss ratio standards are subject to change under Florida Administrative Code Rule 69O-149.005(4). As noted, that is not true of long term care policies. Accordingly, Mr. Keating's and Mr. Yee's opinions that this rule required Petitioner to submit a new durational loss ratio curve are not persuasive. Both Mr. Keating and Mr. Yee further suggested that Petitioner should file a new durational loss ratio curve, rather than seek a periodic rate increase, because of their assumption that all utilization (frequency) increases for long term care policies should have been pre-funded in the rates originally submitted and approved for the product. In other words, they opine, all claim frequency increases should be included in the aging assumption of the original durational loss ratio curve for a long term care policy. Whatever the accuracy of that assumption may be as to the rate structure of long term care products in general, the evidence shows it is factually incorrect as to this particular product. The actuarial memorandum for the initial, approved rate filing for this particular policy form clearly noted that the initial premium rates were not intended to fully pre-fund all expected utilization increases. The rate structure approved by Respondent for this product expressly contemplated that utilization increases, in excess of the utilization trend assumed in the initial durational loss ratio curve, would be funded by future periodic rate increases. Consistent with that approved rate structure, Respondent has approved several periodic rate increases for this product (most recently by consent order in 2003), and did not previously take the position that Petitioner should file a revised durational loss ratio curve. Respondent's actuaries' opinions on this point are contradicted by the evidence and are not persuasive. Mr. Yee opined that annual variation or volatility in Petitioner's claim reserves may mean that the claim reserves in Petitioner's data may not actually reflect the company's true experience. He thus concluded that a rate increase was not justified. Respondent did not assert this as a basis for denial in its denial letter, responses to interrogatories, or otherwise prior to the hearing. Nevertheless, Petitioner presented evidence on the issue, and on the more persuasive evidence Mr. Yee's opinion is not persuasive. Mr. Keating did not testify that annual variation in Petitioner's claim reserves was cause to deny the rate increase, and did not mention any concern over annual claim reserve variation as a basis to deny the rate increase. Mr. Yee admitted that trending and averaging of the data smoothes claim reserve year-to-year volatility. Ms. Helwig persuasively testified that the observed claim reserve variations correspond closely with observed annual fluctuations in claim frequency, and that averaging Petitioner's claims history (as both she and Ms. Jung did) smoothes year-to-year data variability. The more persuasive evidence does not support Mr. Yee's opinion on this point. Mr. Yee testified that he believed there was a discrepancy between current premiums on this book of policies and "active life reserves" displayed in Ms. Jung's actuarial memorandum supporting the filing. Mr. Yee characterized the discrepancy as "alarming," but did not offer an objective basis for that characterization. He testified that, because Ms. Jung did not explain the active life reserves in her actuarial memorandum, he concluded that she was not qualified to make the filing, and it should, therefore, be disapproved. Respondent did not assert this as a basis for denial in its denial letter, its interrogatory responses, or otherwise before hearing. Nevertheless, Petitioner presented evidence on the issue, and on the more persuasive evidence Mr. Yee's opinion is not persuasive. On cross-examination, Mr. Yee testified that a rate filing actuarial memorandum is not intended to be a reserve opinion by the actuary, and that annual reserve opinions are separately made. Mr. Yee also testified that companies often pool active life reserves across policy forms, and he does not know whether Petitioner's reported active life reserves are the result of such multi-policy-form pooling, or pertain exclusively to policy form 93710(FL). He admitted he had no personal knowledge concerning the accuracy of Petitioner's life reserves displayed in Ms. Jung's actuarial memorandum. He, therefore, has no factual basis to question them. He further conceded that neither Florida Administrative Code Rule 69O- 149.006, nor applicable ASOPs place any obligation on Petitioner or its actuaries to provide explanation in the rate filing actuarial memorandum concerning the reported life reserves. Mr. Keating did not request any further explanation from Petitioner concerning its reported life reserves, did not list a deficiency of explanation concerning life reserves as a basis for denial, and did not testify that he asked for more explanation concerning life reserves, or found the absence of explanation a reason for disapproving Petitioner's rate increase filing. Ms. Helwig testified that active life reserves play no role in evaluating the appropriateness of a proposed rate for a home health care product. Consistent with her testimony, Florida Administrative Code Rule 69O-149.006(3)(b)17. expressly provides: "Because these [active life] reserves do not represent claim payments, but provide for timing differences, they shall not be included in any benefit and loss ratio calculations." The Rule expressly acknowledges that active life reserves are not material to evaluating whether the benefit/premium relationship, often expressed in terms of loss ratios, meets the rules' tests for approval of the requested rate. Mr. Keating testified that certain data inconsistencies in Ms. Jung's actuarial memorandum supporting the rate increase filing were not significant, and did not affect his review or his conclusions. Respondent did not cite these minor data discrepancies as a basis for denial. Ms. Jung testified that the data discrepancies were immaterial, and did not affect her rate analysis. It is found that the data inconsistencies are immaterial to the issues to be decided in this case, and are not a basis to deny Petitioner's requested rate increase. As noted in the Preliminary Statement above, before the final hearing, Petitioner made a Motion to Strike and Motion in Limine, directed to Respondent's assertion that amended Subsection 627.9407(7)(c), Florida Statutes, would serve as an additional basis for the disapproval of Petitioner's rate increase. Respondent asserted this additional basis for the first time in its statement of position in the Pre-Hearing Stipulation filed in this matter. Petitioner's Motion was denied at the time it was made in order to hear evidence as to how Respondent intended to implement and apply the amended statute to Petitioner's rate filing. Numerous facts were elicited at hearing that bear on the applicability of Subsection 627.9407(7)(c), Florida Statutes. Section 9, Chapter 2006-254, Laws of Florida, amended Subsection 627.9407(7), Florida Statutes, in June 2006, after this rate filing was made and disapproved. Section 9 (creating Subsection 627.9407(7)(c), Florida Statutes) provides, in part, and Section 11, Chapter 2006-254, Laws of Florida, provides in pertinent part: (c) Any premium increase for existing insureds shall not result in a premium charged to the insureds that would exceed the premium charged on a newly issued insurance policy, except to reflect benefit differences. If the insurer is not currently issuing new coverage, the new business rate shall be as published by the office at the rate representing the new business rate of insurers representing 80 percent of the carriers currently issuing policies with similar coverage as determined by the prior calendar year earned premium. Section 11. This act shall apply to long- term care insurance policies issued or renewed on or after July 1, 2006. Petitioner is not issuing new coverage under this policy form. Amended Subsection 627.9407(7)(c), Florida Statutes, is not self-executing in its application to insurers, such as Petitioner, that are not issuing new coverage. As to Petitioner (and similarly situated insurers), Respondent implemented amended Subsection 627.9407(7)(c), Florida Statutes, by publishing benchmark charges, developed by Respondent, to which Petitioner's rates were compared. In developing its published benchmarks, Respondent made a number of policy decisions, which are discussed below. Respondent posted its benchmark charges on its website in late September of 2006. Well before hearing, while a meaningful opportunity for discovery still was available to Petitioner, Respondent had ample opportunity to notify Petitioner that it would be asserting its benchmarks as additional grounds for the disapproval of Petitioner's rate increase filing. Respondent could have done so by amending the denial letter or by amending its interrogatory responses. Respondent failed to do so. Respondent asked to continue the final hearing scheduled for November 21, 2006, which was granted, and never asserted as a basis for the continuance that it intended to assert a new basis for denial of Petitioner's rate increase filing, namely, the implementation of the amended statute. Respondent did not even assert the amended statute as a further basis for denial at a deposition taken by Petitioner of its actuary and designated agency representative, Mr. Keating, on November 30, 2006. Mr. Keating was specifically asked at that deposition whether Respondent intended to assert any additional bases for disapproval of Petitioner's rate filing. Mr. Keating responded that Respondent had no such intention. Had Respondent given timely advance notice, Petitioner would have had a fair opportunity to take discovery on the issue, to amend its Petition, or both. Prior approval of Petitioner's rate increase is an authorization required by law before it can implement the rate pursuant to Subsection 120.52(15) and Section 627.410, Florida Statutes. Respondent did not assert this additional basis for disapproval until December 22, 2006, after discovery had been completed. In light of this late date and the intervening holidays, Respondent's delay deprived Petitioner of a fair and meaningful opportunity to take discovery and prepare to defend Respondent's assertion at the final hearing beginning January 3, 2007. Since Petitioner could not implement the new rate unless and until the proceedings were completed and it received approval, additional continuances and delays would only have served to further prejudice Petitioner's position. Additionally, Respondent's proposed implementation and application of amended Subsection 627.9407(7)(c), Florida Statutes, constitutes agency action that determines Petitioner's substantial interests on the basis of non-rule policy. Numerous facts support this finding. Amended Subsection 627.9407(7)(c), Florida Statutes, is not self-executing to insurers like Petitioner that are not issuing new coverage. Respondent made policy decisions on several matters to implement the statute and to apply it to Petitioner, including: 1) What constitutes "similar coverage;" 2) Which insurers comprise 80 percent of carriers currently issuing policies "with similar coverage" for purposes of developing the benchmarks; 3) Within that 80 percent of carriers, whether the charges of each carrier are to be given equal weight in developing the benchmark charges, or instead, will be weighted according to each carrier's percentage of the previous year's earned long term care premium; 4) Since the carriers whose charges are used in developing benchmarks offer multiple home health care policy forms and various benefit levels and correspondingly varying premium charges, which particular charges by those carriers will be used in developing the benchmark charges; 5) What information, if any, other than the published benchmark charges will be used in making the comparison called for by the statute; and 6) What claims experience adjustments, if any, to the published benchmark charges will be used to make the comparison. When Respondent first gave notice, on December 22, 2006, that it would assert benchmarks under Subsection 627.9407(7)(c), Florida Statutes, Petitioner promptly put Respondent on notice that it believed the benchmarks to be non- rule policy assertions by the agency, by filing its Motion to Strike and Motion in Limine on December 27, 2006. Respondent did not in any manner publish the benchmarks it actually used to make the Subsection 627.9407(7)(c) comparison to Petitioner. The benchmarks Respondent published were developed for benefit configurations that are materially different from the benefit configurations in Petitioner's policy. Mr. Keating made a number of adjustments to the published benchmarks in making his comparison with Petitioner. However, none of these adjusted benchmarks were published in any manner, and Mr. Keating could not recall details of the methods by which the adjustments were made. Respondent compared Petitioner's rate filing to unpublished information, contrary to the plain language of Subsection 627.9407(7)(c), Florida Statutes. Respondent was aware of 20-25 insurers who would be affected by the published benchmarks, yet did not serve any affected insurer, including Petitioner, with a copy of the benchmarks published; and did not offer any of them a point of entry to proceedings in which to explore and test the adequacy or validity of Respondent's benchmarks. The published benchmarks developed by Mr. Keating for Respondent gave more than 92 percent weight to just one company- -Bankers Life. Two other companies' charges were also used, but Mr. Keating gave less than five percent combined weight to them. Mr. Keating did not give equal weight to the selected charges of the three insurers chosen as benchmark companies. Instead, he gave greater weight based upon the companies' prior year earned premium. He offered no actuarial basis for this decision. He also offered no testimony about the other companies' charges and what the posted benchmark values would be had he given equal weight to all three companies' charges. Respondent offered no point of entry for proceedings to question the decision. Mr. Keating also selected the lowest Bankers Life charges to develop the published benchmarks. He gave no actuarial basis for that decision, and no point of entry was given for affected insurers to question the decision. The benefit configurations in Petitioner's policy differ significantly from those in the Bankers Life policy from which Mr. Keating developed the published benchmarks. The differences in benefit configurations are material to the Subsection 627.9407(7)(c) comparison that Mr. Keating undertook. Mr. Keating used unpublished information in performing the comparison, and he could not recall the underlying methods and assumptions in making the comparisons. Therefore, some doubt was cast as to their validity. Further, no affected insurers were given a point of entry to question the comparisons or their underlying assumptions. The greater weight of the evidence shows that the policy decisions made by Respondent in implementing and applying Subsection 627.9407(7)(c), Florida Statutes, in many respects are not supported by logic or critical facts. Petitioner offered facts to demonstrate that Respondent's intended implementation and application of amended Subsection 627.9407(7)(c), Florida Statutes, would impair Petitioner's existing contracts, and would violate due process of law. The factual findings in this regard are set forth below. Petitioner's existing contracts were entered into at least nine years before amended Subsection 627.9407(7)(c), Florida Statutes, was proposed and became law, and before Respondent proposed to apply its benchmark charges to Petitioner. Petitioner's contracts are guaranteed-renewable contracts. Petitioner must continue to renew them indefinitely. When Petitioner entered into these contracts, the Laws of Florida, which were incorporated into the contracts, provided that Petitioner had the right to receive premiums for such guaranteed-renewable policies at rates actuarially justified under the provisions of Section 627.410, Florida Statutes, and the tests in Florida Administrative Code Rule 69O- 149.005(2)(b)1. Petitioner has demonstrated that the proposed rates in question are actuarially justified and meet those tests.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent issue a final order approving Petitioner's rate increase request of 25.75 percent. DONE AND ENTERED this 8th day of June, 2007, in Tallahassee, Leon County, Florida. S ROBERT S. COHEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of June, 2007.
Findings Of Fact Health Quest filed an application for a Certificate of Need (CON) to construct a 120-bed nursing home facility in Lee County, Florida. The application was dated June 24, 1983, was filed on June 27, 1983, and projected the project cost to be $5,557,000. The application was denied by DHRS by letter dated December 19, 1983. Based on the stipulation of the parties, the application met all of the criteria of Section 381.494(6)(c), Florida Statutes, and Rule 10-5.11, Florida Administrative Code, except for Rule 10-5.11(21), hereinafter referred to as "the bed need methodology." The relevant service area for determination of need is the Lee County subdistrict of DHRS District B. The district poverty ratio is .68; the bed need ratio is 18.3 beds per 1000 for District B. For District 8, the projected 1987 elderly population is 213,561, and for Lee County it is 69,649. By applying the bed need ratio to the projected elderly population, a raw numeric need is established of 3,910 beds for District 8 and 1,275 beds for Lee County. In District 8 there are 3,671 beds licensed and 1,053 beds approved, for a total bed inventory of 4,724 beds. This exceeds the numeric need of 3,910 and results in no need showing. In Lee County there are 808 beds licensed and 332 beds approved, for a total bed inventory of 1,140 beds. This is less than the numeric need of 1,275 and results in a need showing for Lee County. Where there is no need in the District and need in the subdistrict, subsection 10-5.11(21)(e)(1) becomes operative and the situation is denoted as "c2". For category c2, the current utilization threshold is 90 percent occupancy in the subdistrict. Lee County, with a current utilization of 95.5 percent meets this threshold. By applying the occupancy rate of 95.5 percent to the 808 licensed beds, it is determined that the patient census for Lee County is 772. For a c2 subdistrict the prospective base rate of utilization is 80 percent. The limit for projected need for the subdistrict is the maximum number of beds for which the census would produce an occupancy rate of 80 percent. Here, patient census of 772 divided by 80 percent produces a limit of 965. The inventory of 1,140 beds in the subdistrict is greater than the limit for projected need. Approval of additional beds would be inconsistent with these calculations of need under Rule 10-5.11(21). Lee County has a low supply of nursing home beds in comparison with the remainder of District 8. District 8 has a low supply of nursing home beds in comparison with the remainder of the State of Florida. The beds currently in operation in Lee County are being fully utilized. Nursing home facilities do not operate at 100 percent capacity. For all practical purposes, a 95.5 percent occupancy rate indicates full utilization. There are currently four approved nursing home facilities in Lee County. DHRS has received no correspondence from residents of Lee County or other interested persons indicating the presence of waiting lists at existing nursing home or claiming the unavailability of accessible nursing home facilities in the service area.
Recommendation Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, DIANE K. KIESLING, held a formal hearing in this case on September 11, 1984, in Tallahassee, Florida.
