The Issue Should Petitioner be assessed a late fee for failure to timely file its renewal application for its Home Health license?
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made: At times pertinent to this proceeding, Petitioner was licensed as a Non-Certified Home Health Agency, license no. HHA203220961, with an effective date of October 1, 1997, and an expiration date of September 30, 1998. The Agency furnished Petitioner an application for renewal of its license in June 1998. The renewal application was due to be filed with the Agency 60 days before the expiration of Petitioner's then current license. Petitioner's application for renewal of its then current license was received by the Agency on August 28, 1998. To avoid any late fees, Petitioner's renewal application should have been filed with the Agency no later than August 2, 1998. Petitioner's renewal application was filed 26 days late. Petitioner did not deny that its renewal application was filed late. By letter dated November 2, 1998, the Agency notified Petitioner that its renewal application had been received on August 29, 1998, when in fact the renewal application was received on August 28, 1998. The letter further advised Petitioner that it was being assessed a late fee of $2,700.00. This late fee was calculated by multiplying the number of days late (27) times $100.00 per day. The date received set out in the letter of November 2, 1999, was incorrect and the number of days should have been 26. Therefore, the correct amount of the late fee should have been $2,600.00. The lateness of the renewal application was due to a financial hardship that Petitioner was suffering at that time because Petitioner had to purchase a Medicaid surety bond. There were not enough funds for both the surety bond and application renewal fee. Petitioner has a waiver (Medicaid) for care of certain handicapped persons contracted with the Human Services Foundation which requires a surety bond. Petitioner provides respite home health aid nurses and homemaker's services. There was no evidence that Petitioner had ever been late before in filing its license renewal application.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law and the mitigating circumstances, it is recommended that the Agency enter a final order imposing a late fee of $500.00 to be paid by Petitioner within 60 days of the date of the final order, subject to any other condition the Agency may deem appropriate. DONE AND ENTERED this 15th day of June, 1999, in Tallahassee, Leon County, Florida. WILLIAM R. CAVE 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) 921-6947 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of June, 1999. COPIES FURNISHED: Edmund N. Jackson, Administrator Elite Health Care Services, Inc. Post Office Box 2444 Arcadia, Florida 34265 Karel Baarslag, Esquire Agency for Health Care Administration State Regional Service Center 2295 Victoria Avenue Fort Myers, Florida 33901 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308
The Issue The issue in this case is whether Respondent violated the Fair Housing Act, Section 760.20, et seq., Florida Statutes (2008), by denying Petitioner housing based on her gender (female) and familial status (pregnant).
Findings Of Fact Petitioner, Victoire Merceron, is a single mother with three children. At all times relevant hereto, she was living at an apartment complex known as The Pines pursuant to a Lease with NDC Management. There was an Employee Lease Addendum dated February 2, 2008, attached to Petitioner's Lease. The Addendum was signed by Petitioner to reflect her status as an employee of NDC Management and, therefore, eligible for a reduction in her monthly rent. Respondent, The Partnership, Inc., is a real estate management company specializing in managing affordable housing properties which are experiencing problems or business difficulties. Respondent began managing The Pines on August 1, 2008. Prior to that time, The Pines had been managed by NDC Management. Petitioner had worked as a leasing consultant with NDC Management at The Pines from October 2007 until July 2008. During that time, she enjoyed the benefit of a 20 percent reduction in her rent (which was provided to all employees of NDC Management who lived in a managed property). The Pines is owned by Punta Gorda Pines, Ltd. It is a 336-unit apartment complex which provides low income housing (affordable housing) for qualified persons. One hundred percent of the units at The Pines are set aside for low income residents. Of the 336 units, 202 units (60 percent) have a rental amount which does not exceed 60 percent of the area median income. One hundred and one units (33 percent) have an even lower rental amount. The rental amounts and number of units is established annually by the Florida Housing Finance Corporation. Respondent was contacted by the owner of The Pines at some point in 2008 concerning the assumption of management of The Pines due to problems existing at the property. Respondent visited the property in July and met with some of the existing staff and management. Respondent then assumed management of The Pines on August 1, 2008. At that time, approximately 40 percent of the units at The Pines were not under lease to a tenant, i.e., the property was only 60 percent occupied. Sixty percent occupancy is evidence of a "problem affordable property" from Respondent's perspective. When Respondent took over management of The Pines, it terminated some of NDC Management's employees and retained some other employees. Petitioner was not retained by Respondent as an employee. The Employee Lease Addendum to Petitioner's Lease at The Pines included a clause that required Petitioner to vacate her apartment within 15 days of termination of her employment with NDC Management. Petitioner was terminated as of July 31, 2008. Upon termination of her employment, Petitioner requested from Respondent that she be allowed to remain in her current apartment beyond the 15-day extension period. That request was granted by Respondent, and Petitioner was ultimately allowed to stay in the apartment through the end of August 2008. As of July 31, 2008, Petitioner had two children and was pregnant with a third. Inasmuch as she would need a home for her family, Petitioner asked Respondent to consider her as a new, non-employee tenant. Respondent agreed to consider Petitioner's request and asked Petitioner to provide proof of income so that a predetermination review could be conducted. It was Respondent's policy to do a predetermination review prior to the formal application process. The stated reason for this practice was that Respondent did not want an applicant to have to pay the non-refundable application fee, if the applicant was unlikely to be qualified to obtain an apartment. Respondent made its predetermination of eligibility using an Income and Rental Rates Chart which Respondent had developed. The chart indicates the income necessary for rental of different size apartments within the complex. In response to Respondent's request for income verification, Petitioner provided Respondent with a form (or letter) indicating that she had applied for payment of unemployment compensation for a two-week period. The form indicated that Petitioner would receive $225.00 per week for that two-week period. Petitioner represented to Respondent's agents that she had been approved for up to six months of unemployment compensation at $225.00 per week.1 There was, however, no competent evidence of that fact presented to Respondent (or introduced into evidence at the final hearing). Respondent calculated the amount of Petitioner's anticipated income based on the stated unemployment compensation payments to be made. Two-hundred and twenty-five dollars per week for an entire year (52 weeks) would be a total of $11,700.00. However, inasmuch as Petitioner only represented that she might receive up to six months of unemployment compensation, her anticipated annual income would be one-half that amount, or $5,850.00. That amount of income was not sufficient to warrant approval for even the lowest priced units available at The Pines, i.e., $10,660.00 per year.2 Based upon its predetermination review, Respondent denied Petitioner's initial inquiry concerning eligibility for an apartment at The Pines. That being the case, Respondent did not provide Petitioner a formal application to fill out. It would have been a fruitless exercise based on Petitioner's stated level of income. Respondent does not appear to discriminate on the basis of gender or familial relationship when renting to other residents. In its Rent Roll from March 31, 2009, Respondent can point to over 70 single women with children living at The Pines. A large number of those women were at The Pines when Respondent took over management. Others became residents during Respondent's tenure as manager. Respondent based its decision to deny Petitioner's inquiry solely on the information provided by Petitioner. Petitioner did not suggest to Respondent that she was receiving child support, alimony, or any other kind of support from a third party. However, Petitioner maintains that the fathers of her children would provide support on an as-needed basis (but since Respondent didn't ask her about such support, she did not volunteer the information). In January 2008, when Petitioner filled out a Residency Application to obtain an apartment at The Pines, she said she was not receiving any alimony or child support, nor had any such support been court ordererd.3 Petitioner did not present any evidence at final hearing as to the amount or frequency of child support she received from her children's fathers. It is, therefore, impossible to impute any certain amount for the purpose of determining Petitioner's eligibility for an apartment at The Pines. When Petitioner was working at The Pines and a person seeking an apartment did not qualify financially, Petitioner would ask the person whether he or she could get someone to co-sign for him/her, guarantee his/her rent, etc., or whether he or she could receive child support. It is not clear at what point in the application process (i.e., during predetermination or upon filing of a formal application form) Petitioner would make this inquiry. It appears Respondent did not seek further financial information from Petitioner after the predetermination review indicated she would not qualify. However, there is no evidence that Respondent had a policy to make such inquiries. There is no evidence in the record that Petitioner re-applied to Respondent with an updated or amended statement of income after she was denied. Upon being denied a new apartment, Petitioner remained in her then-current apartment for some time after her lease was terminated. Petitioner owed slightly over $1,000.00 in rent and fees for the apartment when she finally vacated it, but Respondent did not pursue payment of that arrearage.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Florida Commission on Human Relations upholding its Determination: No Cause and dismissing Petitioner, Victoire Merceron's, complaint. DONE AND ENTERED this 21st day of May, 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 21st day of May, 2009.
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 issue is whether Respondent discriminated against Petitioner based on her sex or an alleged handicap contrary to Sections 760.20 through 760.37, Florida Statutes (2008), Fair Housing Act, as amended (the Act).
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Introduction Petitioner, Health Care and Retirement Corporation of America (HCRC), owns and operates approximately one hundred forty nursing homes in nineteen states including seven in the State of Florida which are licensed by respondent, Department of Health and Rehabilitative Services (HRS). The seven licensees are Rosedale Manor, Wakulla Manor, Jacaranda Manor, Pasadena Manor, Community Convalescent Manor, Heartland of St. Petersburg and Kensington Manor, all of whom are participants in the Florida Medicaid program administered by HRS. As Medicaid participants, each nursing home was required to annually file with HRS cost reports on its own behalf and its parent, HCRC. Those reports set forth, among other things, the costs which the providers allege were incurred in providing Medicaid services during specified cost reporting years. This controversy involves the cost reports filed by the seven providers for fiscal years ending during varying times in 1986 and 1987. After the cost reports were filed with HRS, an audit was conducted by an independent public accounting firm, Touche & Ross, and an audit report and management letter were issued as to each provider on March 30, 1989. Among other things, the audit reports proposed to disallow various claimed expenditures in the reports. Upon receiving the proposed agency action, each nursing home requested a formal hearing to contest the proposed adjustments. The parties have settled some of the contested items prior to hearing. The disposition of these items is set forth in the parties' prehearing stipulation. This recommended order deals with the remaining contested items. New Beds at Jacaranda Manor Petitioner Jacaranda Manor has challenged HRS's proposed disallowance of part of the costs related to the purchase of new beds at its facility in 1987. The facility was originally constructed in 1970. In 1974 a plant addition was made to the facility which resulted in an increase of one hundred authorized beds. In 1987 Jacaranda Manor replaced both the original beds placed in service in 1970 as well as those added in 1974. The total cost of this expenditure was $74,055. At issue is Jacaranda Manor's request to be reimbursed as a capital expenditure the difference between the estimated cost of the original beds ($38,025) and the cost of the replacement beds ($74,055), or $36,030. The beds in question are considered capital (property) items under the reimbursement process and are reimbursed in accordance with the fair value rental system (FVRS), a valuation method established by HRS in July 1984 for valuing the property assets of a nursing home. At that time, HRS required each provider to file a FVRS base which contained a listing of relevant nursing home assets and their respective value as of July 1, 1984. The valuation was obtained by taking the original cost of the asset and then indexing (inflating) that cost forward to the current time period by the Dodge Construction Index. The information in the base is used by HRS to calculate a FVRS rate which is then used to determine the amount of reimbursement received by a provider for all of its property costs, except taxes, insurance, home office property costs and replacement costs. As to the latter four categories of costs, which are not included in the base, providers are reimbursed separately for those costs through what is known as the pass-through form of reimbursement. Whenever a new item is purchased by a nursing home to replace an existing asset, and it significantly increases or enhances the usefulness of an asset in the FVRS base, the cost of the new asset may be added to the base only after the original cost of the improved (existing or old) asset is removed from the base. By removing the improved asset, HRS ensures that a provider does not receive duplicate reimbursement. To determine the value of the improved asset to be removed from the base, HRS first determines whether the provider has previously identified the asset and its original cost in the FVRS base. If the item is not shown separately in the base, HRS requires that the provider furnish an invoice documenting the original cost of the improved asset. HRS does not accept an estimate of an asset's cost on the grounds it would be inundated with estimates from providers, and an estimate is not susceptible to audit verification. In taking this position, HRS relies upon section 2315 of Health Insurance Manual No. 15 (HIM 15), a compendium of federal Medicare regulations adopted by HRS for use in resolving cost disputes such as this. The cited section reads in relevant part as follows: Cost information as developed by the provider must be current, accurate, and in sufficient detail to support payments for services rendered to beneficiaries. This includes all ledgers, books, records, and original evidences of cost (purchase requisitions, purchase orders, vouchers, requisitions for materials, inventories, labor time cards, payrolls, bases for apportioning costs, etc.), which pertain to the determination of reasonable cost, capable of being audited. (Emphasis supplied) In addition to relying on the above regulation, HRS also takes the position that the new beds are a capital replacement and not a capital improvement. Such a distinction is significant since an asset must fall within the definition of a capital improvement in order to qualify as an addition to the FRVS base. The term is defined in the cost report instructions which have been adopted by HRS for use in assisting providers complete their cost reports. There, a capital improvement is defined as a betterment of land, buildings, building equipment and major moveable equipment or leasehold property which either extends the useful life at least two years beyond the original useful life of such an asset or significantly increases the productivity over the original productivity of such asset, a cost of at least $500 and is not a replacement of a previously acquired asset. (Emphasis in original text) The same instructions define a capital replacement as land, buildings, building equipment, major moveable equipment and leasehold improvements which would be classified as a capital addition or improvement under the above definitions, except that such asset is a replacement of a previously acquired asset. A replacement is an asset which fills the place, position or purpose once filled by an asset which has been lost, destroyed, discarded or is no longer useable or adequate. (Emphasis in original text) When HCRC purchased Jacaranda Manor around 1986, it learned that the prior owners did not have their original accounting records. Indeed, the only invoices now available for the years 1970-1974 simply show the total cost to construct the facility in 1970 and the total cost of the addition in 1974. As a consequence, when Jacaranda Manor's prior owners filed their FVRS base with HRS in 1985, they did not specifically identify the beds installed in 1970 and 1974 nor did they give their original cost. HRS did not reject the filing because it did not require invoices for assets and accepted the amounts shown on the schedule. However, HRS is now in the process of auditing the FRVS schedules and, if original invoices are not available, it intends to rely upon the results of prior audits which presumably would have been based upon the original invoices in establishing the cost of the assets. Whether Jacaranda Manor's schedules are the subject of an on-going audit and whether prior audits establish the costs of the beds is not of record. In an effort to determine the reasonable cost of the original beds, HCRC contacted both the vendor who sold the beds to the original owners and the facility's administrator in 1970-1974. Neither were able to furnish petitioner with the original invoices. However, based upon information supplied by those persons, petitioner arrived at an estimated cost of $38,025 for the beds installed in 1970 and 1974. That amount, which was obtained from a corporate officer of the bed manufacturer, was derived by taking the current price of the old beds. According to section 2315 of HIM 15, which is relied upon by HRS in rejecting the expenditure, the "cost information" supplied by the provider must be current, accurate, and in sufficient detail to support the claimed cost and must be capable of being audited. In this case, the documentation is current, that is, it is based on information supplied by the manufacturer in February 1990, it contains sufficient detail concerning the make, model and cost of the beds that were used to derive the $38,025 figure, and it is capable of being verified in the audit process. Although the number used by Jacaranda Manor represents the current cost of the old beds and thus is only an estimate of the original cost, that amount, with its supporting data, is sufficient under the circumstances to satisfy the above cited regulation. 1/ The affidavit of Alma Hirsch, the long-time administrator of Jacaranda Manor, has been stipulated into evidence, and the parties have agreed that her statements can be treated as competent evidence. According to Hirsch, the new beds installed in 1987 were Triflex beds, which are fully adjustable beds with revolving rails, and are much superior to the old beds which were replaced. For example, the old Easy Care beds were basic beds with no modern improvements or conveniences. They were not moveable and had only the most basic bed rails. In contrast, the new beds can be adjusted for the comfort and convenience of the patient to enter or leave the bed and enables the staff to position the patient in the most appropriate position for the form of care being rendered. In short, the new beds are significantly superior to the old beds and thus significantly increase or enhance the usefulness of the old equipment. Therefore, they should be considered a capital improvement rather than a capital replacement. Given the satisfaction of this criterion and section 2315 above, the proposed disallowance of the capital expenditure should not be made. Subsequent Year Audit Issue While these proceedings were pending, HRS conducted audits of the cost reports filed by Jacaranda Manor, Rosedale Manor, and Kensington Manor for the year ending August 31, 1988. As a result of those audits, HRS proposed to disallow certain costs reported by the nursing homes on the ground the costs were incurred during the cost reporting period ending August 31, 1987. In other words, HRS has proposed to disallow certain costs reported on the 1988 cost report because they should have been reported on the 1987 cost report. It is noted that, as to Jacaranda Manor, Rosedale Manor and Kensington Manor, their 1987 cost reports are the subject of these proceedings. The nursing homes do not disagree with HRS's audit findings as they pertain to the above adjustments. However, the controversy concerns HRS's refusal to allow the costs to be included on the 1987 reports because those reports are in the process of being reviewed in these proceedings. However, through testimony of an HRS representative, it was established that if the audit for the prior year has not been closed or is under appeal such as here, a prior year expense disallowed in a current year audit should be considered in the prior year. Since the 1987 cost year is still open, the costs should be included in the 1987 cost reports and reimbursed in accordance with the plan. Home Office Property Costs As noted earlier, HCRC is the parent corporation of the seven nursing homes and, in regulatory parlance, is called a home office or related organization. In that role, HCRC provides various support functions for its affiliates from its headquarters located in Toledo, Ohio. At issue is the manner in which certain indirect home office property costs incurred by HCRC on behalf of the chain members are reimbursed. To resolve this issue, a brief overview of the Medicaid reimbursement process is necessary. There are two separate and distinct steps in the reimbursement process: (1) the completion and filing of a cost report by the provider, and (2) the audit process to confirm whether the reported expense classifications in the report have been made in accordance with reimbursement principles. To aid the provider in completing its cost report, HRS has adopted a set of instructions which are contained in a document known as "Instructions to Cost Report for Nursing Homes Participating in the Florida Medicaid Program Adopted April 1, 1983." The agency has also prescribed a basic classification of accounts which assists the provider in classifying costs into the proper cost centers when reporting its expenditures to HRS. Both documents have been received in evidence. After the reports are filed, through a series of allocations and other steps the unaudited information in the report is used to calculate prospective reimbursement rates for the provider for each of the four cost components used by HRS in the reimbursement process: patient care costs, property costs, operating costs, and return on equity. In some cases, the cost reports are later subjected to an audit which may result in the rates being revised in a manner consistent with the audit results. During the audit process, and as an aid in resolving cost disputes, HRS relies upon the following principles in descending order of importance: the reimbursement plan adopted and incorporated by reference in rule 10C-7.0482, federal Medicare reimbursement principles embodied in Health Insurance Manual No. 15 (HIM 15), and generally accepted accounting principles (GAAP). Therefore, whenever a cost dispute arises, the plan is controlling except where it fails to address an issue. In those cases, HRS looks to HIM 15 for guidance, and if the issue is not addressed in that document, the problem is resolved in accordance with GAAP. As noted in finding of fact 4, nursing homes are reimbursed for their property costs in one of two ways. First, HRS has established an FRVS base containing most of the provider's property assets which is indexed forward to take into account the effects of inflation. However, certain property costs, including home office property costs, property taxes and property insurance, are not included in the indexed portion of the FRVS calculation and are reimbursed instead through what is known as the pass-through form of reimbursement. Under this latter method, the provider receives reimbursement of the actual property cost. If the provider does not receive reimbursement for these costs as a pass- through, it would lose reimbursement for those items as a property component. The dispute herein arises over HRS's requirement that indirect home office property costs be classified on the cost report as general and administrative (G & A) costs and thereafter reimbursed as an operating component. The requirement that costs be recorded in this manner is based on language contained in paragraph E of the instructions which reads as follows: Home office costs which are not directly allocated to the provider but are allocated on a functional or pooled basis should be included in the provider's cost report as part of the provider's general and administrative costs. Relying on the foregoing language, HRS required each provider to record indirect (functional or pooled) home office property costs as G & A costs in the operating component of the cost report. Once the costs were recorded in that manner, HRS applied its long-standing policy of not allowing such costs to be reclassified to their original character for reimbursement purposes. By final order issued on July 24, 1990, in Case No. 90-1492R, the undersigned declared the above language in the instructions to be an invalid exercise of delegated legislative authority and the policy to be an unpromulgated rule. Therefore, the classification of such costs on the cost report is not dispositive of the manner in which they are reimbursed, and HRS is obliged to prove up the legitimacy of its policy in order to sustain its prescribed manner of reimbursement. Home office and home office costs are not referred to by name in the plan. However, paragraph F of section III of the plan provides that home home costs shall be reimbursed in the following manner: Cost applicable to services, facilities, and supplies furnished to a provider by organizations related to a provider by common ownership or control shall be governed by 42 CFR 405.427, Medicare (Title XVIII) Principles of Reimbursement, and Chapter 10, HIM 15. Thus, the plan requires that home office (related organization) costs be reimbursed in accordance with federal Medicare reimbursement principles and HIM 15. The record shows that HCRC incurs property costs at its home office. These include depreciation of furniture, fixtures, interest expense, rental expense, and a minor cost related to insurance and taxes. The agency proposes to treat these costs as operating costs for reimbursement purposes under the authority of the instructions, incipient policy and its interpretation of other regulations. Although the plan itself does not distinguish between direct and indirect costs, HRS takes the position that home office property costs necessarily fall into one of two categories: direct costs and indirect costs. If a property cost is a direct cost, that is, a cost that can be specifically identified with an individual facility, HRS reimburses that cost as a property cost for the individual nursing home. If the property cost is deemed to be an indirect cost, that is, a cost that has no specific identification with a particular facility, the item is classified in the operating cost component and reimbursed on that basis. Even though the plan permits the reclassification of costs from one cost center to another for reimbursement purposes, once the costs are classified as G & A costs, HRS will not allow them to be reclassified to another cost center irrespective of their original character. As discussed in subsequent findings, such a position is contrary to a number of plan regulations and accepted testimony. In making this finding, it is important to note that the classification and reimbursement of costs are two separate and distinct steps in the Medicaid reimbursement process, and while certain plan provisions may support the classification and allocation of a cost in a particular manner, other provisions may then dictate that the cost be reimbursed differently. HRS reasons, although not entirely correctly, 2/ that a home office provides nothing more than general and administrative services for the chain members and thus any costs other than direct costs should be classified on the cost report in that manner. Indeed, this classification treatment is consistent with both the Florida plan instructions and the corresponding instructions for Medicare providers (paragraph E, section 9904 of federal instructions). However, section 2150.3 of HIM 15 requires that home office costs be "identified as capital related costs and noncapital related costs" and then allocated as provided by the instructions. In this regard, the record supports a finding that property costs are capital related costs within the meaning of the plan. After home office costs are classified on one line of the cost report as a G & A entry, other HIM 15 provisions, which are controlling as to the reimbursement of home office costs, call for reclassifying property costs out of the G & A entry into the property cost center. More specifically, section 1310 of HIM 15 provides instructions for "necessary reclassifications and adjustments to certain accounts." The section goes on to identify numerous costs which may be initially entered as G & A costs on the trial balance but do not permanently remain in that cost center. The same section also provides that Where a provider is including on the cost report costs incurred by a related organization, the nature of the costs (i.e., capital related or operating costs) do not change. The provider must treat capital related costs incurred by a related organization as capital related costs of the provider. In other words, the character of a cost should not be changed for reimbursement purposes simply because it was incurred by a related party (home office). This regulation is consistent with petitioner's accepted testimony which supports a finding that a property cost remains a property cost, whether it is allocated directly or indirectly to a specific facility. Put another way, there is nothing in the plan or HIM 15 which suggests that the nature of costs should be changed depending on whether they are allocated directly or indirectly. This is particularly true since the rationale for direct and indirect allocations is to more equitably allocate costs incurred by the home office to the facility or entity which benefitted from those costs. Therefore, after a cost is found to be capital related or noncapital related, its character should not change irrespective of whether it is allocated on a direct, functional or pooled basis. The agency's policy of reimbursing indirect home office costs as operating costs is grounded in part on the fact that the operating component is capped, that is, there is a ceiling or cap on the amount of operating costs for which a provider may be reimbursed. This cap is based on a somewhat complicated statewide median of operating costs, plus one standard deviation, and it may not be exceeded even if the provider incurs operating costs above that ceiling. HRS reasons that because the property component is not similarly capped, its policy is necessary to prevent a provider from abusing the process by shifting an operating cost to the property cost center in order to avoid the operating component limitation. However, this argument incorrectly assumes that the character of a cost can be changed from property to operating if the cost is allocated on an indirect basis, and it is contrary to various provisions of the plan, including section 1310 of HIM 15 which permits the reclassification of G & A costs to other components. HRS also justifies its policy on the theory that the function of an asset is the best way to determine whether the asset is directly or indirectly related to the provider, and that reimbursement should be consistent with this determination. While this methodology may be useful in the classification and allocation of a cost, the more logical and persuasive evidence supports a finding that the nature of a cost is not determined by its method of allocation and that this type of determination is not appropriate for reimbursement purposes.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered consistent with this recommended order and that the agency's proposed disallowance or treatment of the challenged expenditures not be made. DONE AND ORDERED this 31st day of July, 1990, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 1990.
Findings Of Fact The parties stipulated during the course of the formal hearing in this cause that the adjustments made by Respondent to Petitioner's Medicaid cost report for the fiscal year ending June 30, 1981, were the same as the adjustments made by Respondent to Petitioner's Medicaid cost report for the fiscal year ending June 30, 1980. They therefore presented evidence and arguments on the adjustments made for 1980 with the stipulation that if Petitioner prevailed regarding any item which was adjusted for 1980, then that item would automatically be so adjusted for 1981. The parties further stipulated that the cost item "return on equity" is merely a function of the other proposed adjustments and, therefore, if the Petitioner prevailed on other disputed adjustments herein, then "return on equity" would be automatically revised to reflect an increase. Respondent proposed an adjustment to Petitioner's Medicaid cost report for the fiscal year ending June 30, 1980, in the amount of $15,223 for short- term liabilities. At the commencement of the formal hearing, Respondent withdrew its adjustment to that item and stipulated that Petitioner was correct in its position. Accordingly, that portion of the dispute has been withdrawn from consideration herein. Petitioner claimed $5,191 as the advertising cost for Hollywood Hills Nursing Home in the fiscal year ending June 30, 1980, which amount represents the cost of a large, yellow pages advertisement in the Southern Bell Telephone Directory. Respondent disallowed all Southern Bell advertising cost except for the sum of $178.20, which represents the cost of a simple alphabetical listing in the yellow pages. The advertisement in question is excessive in size and primarily consists of the name of the facility, a reproduction of the facility's logo, a picture of the facility, and a picture of a very happy couple. The ad is not primarily informational but rather is clearly promotional and intended to increase patient utilization. Accordingly, Respondent properly, disallowed this cost item and properly allowed the cost of a simple alphabetical listing, the norm in the nursing home industry at the time. In the fiscal year ending June 30, 1980, Petitioner included in its cost report the sum of $37,147.18 representing the "Herlee consulting fee," and Petitioner further claimed a similar amount as a cost item in its 1981 report. Respondent disallowed this reported home office cost. This cost includes salaries for Herbert and Leonore Kallen and other allocated expenses of the "home office" such as rent, automobiles, utilities, insurance, depreciation and amortization thereof, legal fees, and outside consulting fees. Respondent disallowed all Herlee expenses. The Kallens own three health care providers which are located in two facilities, to wit: Hollywood Hills Nursing Home and Hollywood Pavilion Psychiatric Hospital located in the same facility in Hollywood, Florida; and Norwichtown Convalescent Home located in Norwichtown, Connecticut. Contracts were entered into on behalf of these providers whereby they would be managed by Herlee Management Company, another of the Kallens' corporations. Although Herlee, Inc., was formed to manage the Kallens' two physical facilities under the "chain organization" provisions of the health insurance manual, none of the Herlee or home office costs are proper. No documents reflect the proportion of the Kallens' time which is spent in managing Hollywood Hills Nursing Home. Petitioner's evidence ranges from the Kallens spending an approximate 12.5 percent of their time to them spending an approximate 75 percent of their time related to Petitioner. The evidence is simply not credible. No time sheets exist; likewise, no records exist regarding any duties performed at any particular time. Rather, both the administrator and the "executive manager" of Hollywood Hills Nursing Home are full-time employees of Herlee Management Corporation, both of whom were capable of performing and did perform all of the duties alleged to have been performed by the Kallens at unknown times. The Herlee home office cost/Herlee consulting fee is not documented, is not reasonable, is duplicitous rather than necessary, and is not related to any patient care. Any time spent by the Kallens in the management of Hollywood Hills Nursing Home, if any, was spent merely as a protection of their financial investment. In further support of the lack of documentation to substantiate this cost item, it is noteworthy that Petitioner's witnesses did not even agree on the location of the Kallens' home office. Respondent properly disallowed the Herlee cost items as to the Kallens and properly allowed only that portion of the cost which related to the salary and benefits paid to the full-time employee of Herlee who also served as the nursing home administrator. The Kallens acquired Hollywood Hills Nursing Home through a purchase of stock rather than through a purchase of assets. Petitioner, therefore, took its vendor's basis for depreciation purposes directly from the books of its predecessor. When the audit of 1980 and again of 1981 revealed that Petitioner had no documentation on which to substantiate the basis used for depreciation, Respondent could have disallowed all property costs. Rather than doing so and possibly forcing Petitioner out of the Medicaid program or out of business, Respondent utilized the next best source of information, a 1969 appraisal indicating a verified construction cost, although utilizing that appraisal was admittedly a departure from normal audit procedures. The deviation from normal auditing principles is proper in this situation where Petitioner could provide no documentation to substantiate its basis for depreciation, and the appraisal provided estimates of cost at the time the facility was constructed. The adjustments made by Respondent for both 1980 and 1981 were therefore proper. Petitioner claimed $7,844 as an amortization expense for the fiscal year ending June 30, 1980, and $6,747 as the amortization expense for the fiscal year ending June 30, 1981. Amortization expense is the cost of acquiring the original mortgage on the facility and is a legitimate and recognized expense which is reimbursable under Medicaid regulations. Respondent totally disallowed Petitioner's claimed amortization expense since Petitioner possesses no data showing the actual cost of financing. Petitioner also failed to present any evidence as to when the Kallens purchased the facility, as to when the mortgage was placed on the facility, and as to whether the Kallens assumed a prior mortgage or obtained their own financing. Accordingly, Respondent properly disallowed the amortization expense in both Petitioner's 1980 and 1981 cost reports. Respondent had made a total adjustment for non-legend drugs in the amount of $15,244 for 1980 and 1981 combined. At the formal hearing, counsel requested an opportunity to attempt to work out an independent solution to this adjustment in order to remove that adjustment from consideration herein. The parties have agreed posthearing that $11,185 out of the Respondent's $15,244 adjustment should be disallowed and overpayment deductions by Respondent have been erroneous. Accordingly, Petitioner is entitled to receive from the Respondent the amount of $11,185 representing this non-legend drugs item.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered upholding Respondent's adjustments to Petitioner's Medicaid cost reports for the fiscal years ending June 30, 1980, and June 30, 1981, as to advertising, the Herlee consulting fee/home office costs, depreciation, and amortization; making any adjustment necessary as to Petitioner's return on equity; withdrawing Respondent's adjustment for short- term liabilitites for 1980; and memorializing the terms of the parties' stipulation as to non-legend drugs. DONE and RECOMMENDED this 4th day of April, 1984, in Tallahassee, Leon County, 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 4th day of April, 1984. COPIES FURNISHED: Howard Todd Jaffe, Esquire 1915 Harrison Street Hollywood, Florida 33020-5098 Jay Adams, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 David H. Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background Petitioners, Community Convalescent Center, Rosedale Manor, Kensington Manor, Jacaranda Manor, Wakulla Manor, Pasadena Manor and Heartland of St. Petersburg (petitioners, providers or nursing homes), are nursing homes operating in the State of Florida and licensed by respondent, Department of Health and Rehabilitative Services (HRS). They are owned and operated by the parent corporation, Health Care and Retirement Corporation of America (HCRC), which is also a petitioner in this cause. As the parent corporation, HCRC is commonly known in regulatory parlance as both a home office and a related party to all nursing homes in the chain organization. The parties have stipulated that HCRC provides various functions for the individual nursing homes and incurs property costs at the home office'. The nursing homes are participants in the Medicaid program administered by HRS. As such, each nursing home annually files with HRS a Medicaid cost report for itself and its home office. For regulatory purposes, the cost reports are identified as HRS Form 1542 and are revised from time to time by the agency. In conjunction with those reports, HRS has prepared a twenty-nine page document entitled "Instructions to Cost Report for Nursing Homes Participating in the Florida Medicaid Program Adopted April 1, 1983" (the instructions). The instructions have been distributed to all nursing homes in the State that participate in the Medicaid program, including petitioners. A copy of the instructions has been received in evidence as respondent's exhibit 3. Use of the instructions in the preparation of a provider's cost report is mandatory, and if not followed by the provider, may result in the rejection of the provider's cost report. This is evidenced by language in the cover letter sent with the instructions to each provider and which reads in pertinent part as follows: Please review these cost reports carefully, including the general instructions and basic classification of accounts, before attempting to complete these forms. Failure to use the current official forms or to abide by the current instructions will result in rejection of your cost report. Even so, in those instances where a provider ignores the instructions and records a cost in a manner different from that prescribed in the instructions, HRS does not summarily reject the report. However, during the audit process, the cost will be reclassified by HRS so that conformity with the instructions is achieved. Thus, at least as to the manner in which costs are treated for reimbursement purposes, the instruction form is the substantive standard for allocating such costs in all instances. In this regard, HRS agrees the instructions are enforced as if they were a rule. This controversy involves an allegation by petitioners that a portion of the instructions which requires nursing homes to classify and allocate certain indirect home office property costs as operating costs is a rule, not duly promulgated by the agency, and is therefore invalid. In the alternative, they contend that the instructions, if properly promulgated, are nonetheless an invalid exercise of delegated legislative authority because they are arbitrary, vague and vest unbridled discretion in the agency. Finally, they contend that HRS has utilized a policy, not adopted as a rule, which has the effect of permanently classifying indirect home office property costs as operating costs for reimbursement purposes. In this case, petitioners filed their cost reports, and after the audit process was concluded, suffered a reduction in their Medicaid reimbursement because of the challenged instructions and use of the policy. Accordingly, they have standing to initiate this action. Have the instructions been adopted as a rule? The parties are in disagreement as to whether the instructions have been adopted as a rule. To resolve this issue, the following facts have been established. To implement the Medicaid program, HRS has adopted a seventy-nine page plan known as the Florida Title XIX long Term Care Reimbursement Plan (the plan), which establishes a reimbursement by for nursing homes. The plan, which has been amended from time to time, has been adopted and incorporated by reference in Rule 10C-7.0482, Florida Administrative Code (1989). The relevant portion of that rule reads as follows: Reimbursement to participating nursing homes for services provided shall be in accord with the Florida Title XIX long-Term Care Reimbursement Plan as revised July 1, 1986 and incorporated herein by reference. (Emphasis supplied) Each time the plan has been revised, the rule has likewise been amended and a copy of the plan filed with the Department of State. The above rule does not make reference to the instructions. Moreover, the plan does not use the words "incorporated by reference" when it refers to the instructions. However, the following advice to its users is found in paragraph A of section I of the plan: Each provider participating in the Florida Medicaid nursing home program shall submit a uniform cost report and related documents required by this Plan using Department of Health and Rehabilitative Serviced (HRS) form HRS 1542, April 1983, as revised and prepared in accordance with the related instructions. (Emphasis supplied) Until June 1986 HRS did not file the instructions with the Department of State nor did it refer to the instructions in the plan. At that time HRS was in the process of amending rule 10C-7.0482 to incorporate by reference the latest version of the plan and was advised by the Joint Administrative Procedures Committee, which reviews all agency rules, to reference the cost report (Form 1542) and related instructions in the plan and to file a copy of both documents with the committee Pursuant to that suggestion, HRS amended its plan by adding the above underscored language and thereafter filed a copy of both documents with the Department of State and the committee when the rule amendment was adopted. Thus, the instructions and the form are an integral part of the plan, and the users of the plan have been placed on notice that the cost report must be "prepared in accordance with the related instructions", a copy of which is on file for public scrutiny with the Department of State. C. A general overview of the reimbursement process Petitioners have alleged that a portion of paragraph E of the instructions which directs providers to record indirect home office costs as operating costs on Form 1542 vests unbridled discretion in the agency and is arbitrary and vague. The paragraph which underlies this controversy is found on page 6 of the instructions and reads in relevant part as follows: Inclusion in Provider Costs. Home office costs not directly allocated to the providers should be included in each account in the provider's trial balance and then through the provider's cost-finding process. . . Home office costs which are not directly allocated to the provider but are allocated on a functional or pooled basis should be included in the provider's cost report as part of the provider's general and administrative costs. (Emphasis supplied) To resolve this technical issue, it is necessary to briefly review the manner in which costs are recorded and allocated in the Medicaid reimbursement process as well as the pertinent guidelines used by HRS in performing that task. In the most basic terms, there are two separate and distinct steps in the Medicaid reimbursement process: (1) the completion and filing of a cost report by the provider, and (2) the audit process to confirm whether the reported expense classifications in the report have been made in accordance with reimbursement principles. As to the first step, a Medicaid provider must annually file a cost report with HRS setting forth both its own and its parent's costs incurred in providing services to Medicaid patients during a specified accounting period. To this end, HRS has prescribed a cost report form, basic classification of accounts and related instructions for use by the provider. The classification of accounts assists providers in classifying costs into the proper cost centers when reporting their expenditures to HRS while the instructions provide directions to the nursing home for completion of the cost report. After the reports are filed, through a series of allocations and other steps the unaudited information in the report is used to calculate prospective reimbursement rates for the provider for each of four cost components used by HRS in the reimbursement process: patient care costs, property costs, operating costs, and return on equity. It is noted here that for the operating component, HRS has established a "cap" on the amount of reimbursement which may not be exceeded even if a provider's costs exceed that limitation. For that reason, a provider might wish to shift a cost from the operating component to the property component in the event the ceiling had already been reached. Finally, in some cases, the cost reports are later subjected to an audit which may result in the rate being revised in a manner consistent with the audit results. Indeed, it was after petitioners' cost reports were audited that this proceeding ensued. As noted earlier, HRS has adopted by reference in rule 10C-7.0482 the Florida Title XIX long Term Care Reimbursement Plan which establishes the methodology for reimbursement of nursing home Medicaid providers. It is fair to say that, whenever a cost issue arises, the plan is controlling except where the plan does not address the issue. In that case, HRS looks to the federal Medicare principles of reimbursement for guidance. These principles are contained in Health Insurance Manual No. 15 (HIM 15), a compendium of federal regulations pertaining to Medicare which have been adopted for use by the plan. If the issue is not addressed in HIM 15, generally accepted accounting principles (GAAP) control the resolution of the problem. Therefore, except where modified by the plan or administrative rule, HRS utilizes the same cost finding principles as Medicare. As noted in finding of fact 8, paragraph E of the instructions directs a provider to record indirect home office costs on its cost report in the following manner: Home office costs which are not directly allocated to the provider but are allocated on a functional or pooled basic should be included in the provider's cost report as part of the provider's general and administrative costs. Although the plan itself makes no distinction between direct and indirect costs, the instructions distinguish between direct, functional and pooled home office costs. Relying on the above language, HRS considers all home office functional and pooled costs to be indirect in nature, and requires that they be recorded and then allocated as G & A (operating) costs irrespective of their original character. 1/ Once the home office property costs are recorded in the cost report pursuant to the instructions, HRS utilizes a policy of treating the classification as permanent, that is the cost item cannot be reclassified to another component or reimbursed other than as an operating cost. This policy has all of the attributes of a rule, is given the force and effect of a rule in the reimbursement process but has never been formally promulgated as a rule under chapter 120. The agency has given a number of reasons to justify its actions, including the use of an asset's function as a means of determining whether the asset is directly or indirectly related to the home office or provider, its view that the home office provides nothing more than general and administrative services to the chain members, and its laudable goal of not allowing providers to abuse the Medicaid process by shifting costs from one cost center to another to avoid a capped component. However, as will be shown hereinafter, and within the context of the issues framed in the petition, the justification for such actions is not pertinent to a resolution of this controversy. D. Differences between the instructions and the plan Petitioners point to a number of provisions in the plan which provide for a different treatment of home office property costs in the reimbursement process and which are at odds with HRS's policy of prohibiting a reclassification of such costs once they are recorded in the cost report. To begin with, home office costs are not referred to by name in the plan. Rather, the plan provides that home office costs be reimbursed in accordance with principles applicable to related organizations. According to paragraph F of section III of the plan: Costs applicable to services, facilities, and supplies furnished to a provider by organizations related to a provider by common ownership or control shall be governed by 42 CFR 405.427, Medicare (Title XVIII) Principles of Reimbursement, and Chapter 10, HIM 15. Thus, the plan requires that home office (related organization) costs be reimbursed in accordance with federal Medicare reimbursement principles and HIM In this vein, it is noted that Chapter 10 of HIM 15, which governs the Medicaid reimbursement principles applicable to home office costs, is facially at variance in several respects with the treatment of home office costs required by the instructions. More specifically, section 1005 provides that: The related organization's costs include all reasonable costs, direct and indirect, incurred in the furnishing of services, facilities and supplies to the provider. The intent is to treat the costs incurred by the supplier as if they were incurred by, the provider itself. (Emphasis supplied) This means that if a home office incurs property costs, they should be treated as if they were incurred by the facility itself. Next, section 2150.3, which pertains to the allocation of home office costs to components in the chain, requires that the following identification and classification of home office costs be made: Starting with its total costs, including those costs on behalf of providers, the home office must delete all costs which are not allowable in accordance with program instructions. The remaining costs (total allowable costs) will then be identified as capital-related costs and noncapital-related costs and allocated as stated below to all the components . . . in the chain which received services from the home office. In other words, inn the reimbursement process, after the elimination of nonallowable costs all remaining costs must be segregated into capital and noncapital classifications and allocated on that basis. It should be noted here that for purposes of both Medicare and Medicaid reimbursement principles, a capital-related cost is a property cost. Finally, section 1310 of HIM 15 establishes the following general prohibition regarding the character of home office costs: Where the provider is including in the cost report costs incurred by related organizations, the nature of the costs (i. e., capital-related or operating costs) do not change. The provider must treat capital- related costs incurred by a related organization as capital-related costs of the provider. (Emphasis supplied) Put another way, the foregoing regulation provides that the character of a cost should not be changed simply because it was incurred by a related party. Accordingly, under the literal language of the regulation, if the home office incurs a capital- related cost, it should be treated in the same fashion by the provider for reimbursement purposes. This principle is further supported by section 1311 of HIM 15 which allows a G & A cost to be reclassified to a property cost in order to satisfy the requirements of section 1310. Therefore, as to the above principles enunciated in the plan, the challenged instructions are facially at variance and leave the user in doubt as to which allocation and reimbursement scheme will be used by the agency. In addition to the foregoing Medicare principles, petitioners rely on two other definitions and an allocation principle within the plan which support their position. First, the plan defines "nursing home property costs" as: Those costs related to the ownership or leasing of a nursing home. Such costs may include property taxes, insurance, interest and depreciation or rent. It also defines "nursing home operating costs" as: Those costs not directly related to patient care or property costs, such as administrative, plant operation, laundry and housekeeping costs. Return on equity or use allowance costs are not included in operating costs. Finally, paragraph B.4. of section V of tee plan provides that, in calculating the reimbursement rates for a provider, HRS must: . . . determine allowable Medicaid property costs, operating costs, patient care costs, and return on equity or use allowance. Patient care costs include those costs directly attributable to nursing services, dietary costs, activity costs, social services costs, and all medically ordered therapies. All other costs, exclusive of property costs and return on equity or use allowance costs, are considered operating costs. These definitions, if taken literally, would lead a user of the plan to believe that if a cost had the characteristics of a property cost, it would be so classified and allocated on that basis. Finally, petitioners cite to provisions within the chart of accounts which define property and operating costs in a manner similar to those in the preceding paragraph. These provisions can also be reasonably construed to mean that a cost will be classified and allocated in a manner consistent with those definitions. Of particular significance is the fact that HRS has failed to include language in either the plan or instructions which advises the user which choice is controlling where facial differences between the plan and instructions exist.
The Issue The issue is whether Respondent is entitled to the renewal of his license to operate an adult family-care home.
Findings Of Fact At all material times, Petitioner has operated an adult family-care home at 7128 North 50th Street in Tampa. Petitioner owns this home with his cousin. In anticipation of the expiration of his license on September 29, 2006, Petitioner filed with Respondent an application for renewal on May 23, 2006. Renewal applications prompt annual survey inspections, so, after the receipt of Petitioner's renewal application, one of Respondent's surveyors visited the home and performed an annual survey inspection. She noted items that required a follow-up inspection, so, on August 3, 2006, one of Respondent's surveyors returned for the follow-up inspection. Respondent's surveyor was met at the door by Sherille Guider, who stated that she was the caregiver. The surveyor asked to see Petitioner, but she told her that Petitioner did not live at the house, although she showed the surveyor the locked room that belonged to Petitioner. When asked to produce certain routine documents, the caregiver replied that she did not have access to such documents, as they were in the locked room of Petitioner and the caregiver did not have a key. Petitioner appeared a short time after the surveyor's arrival and produced the requested documents. There is some dispute as to whether he offered to show his room to the inspector, but his testimony is unrebutted that he kept a room, with clothes and toiletries, for his exclusive use at the home. He claimed that he resided at the home, although he admitted that did not spend every night there. Subsequent investigation revealed that Petitioner and his wife, from whom he has been separated for two years, claim a different residence within Hillsborough County as their homestead property. Also, Petitioner's driver license currently bears the address of the home, but, at the time of the incident, bore the address of his homestead property. The same appears to be true of the certificate of title to his motor vehicle. Petitioner testified that he originally planned to operate the home as his fulltime job, but was unable to generate enough money doing so. He has since found employment as a certified nursing assistant and often works the 11:00 p.m. to 7:00 a.m. shift. Four or five months prior to the follow-up inspection, Petitioner had hired Ms. Guider to serve as a caregiver at the home. In return for her services as a caregiver, Petitioner rented a room in the home to her at reduced rent. Petitioner allowed her boyfriend also to move into a room, but required a background screening on him, as well as on Ms. Guider. After several delays, the boyfriend completed his form, and, after submitting it, Petitioner learned that the boyfriend had a criminal record. Petitioner demanded that the boyfriend move out. Eventually, Petitioner had to summon law enforcement officers to eject the man. This episode preceded the follow-up inspection. Ms. Guider's hearsay statement to Respondent's surveyor appears to be the strongest evidence on which Respondent is relying in this case. However, for the reason noted above, Ms. Guider was unhappy with Petitioner. Even before her boyfriend had been ejected from the home, Ms. Guider had approached Petitioner's two residents with a plan for her to start her own adult family-care home and for them to move into it. Ms. Guider's short period of employment with Petitioner terminated one day when, without notice, she asked a friend of Petitioner to drive her to the airport so she could fly home to Chicago. She did and never returned. For all these reasons, Ms. Guider does not appear to be a reliable source of information as to Petitioner's place of residence. Petitioner testified that he resides at the home. A friend of 20 years, who also operates an adult family-care home, testified that she visits Petitioner's home regularly and knows that he resides there. Petitioner's claiming of homestead exemption at another address is less evidence of his primary residence and more evidence of his carelessness or fraud in maintaining current information with the Hillsborough County property appraiser's office. The old addresses shown on the driver license and certificate of title are of little importance in determining Petitioner's residence, given the other evidence establishing the home as his residence and his subsequent updating of the addresses in these official records.
Recommendation It is RECOMMENDED that the Agency for Health Care Administration enter a final order granting Petitioner's application to renew his adult family-care home license. DONE AND ENTERED this 16th day of April, 2007, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of April, 2007. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Kenneth A. Donaldson 7128 North 50th Street Tampa, Florida 33617 Gerald L. Pickett Agency for Health Care Administration 525 Mirror Lake Drive Sebring Building, 330K St. Petersburg, Florida 33701
Findings Of Fact The Department of Insurance (Respondent) is charged with regulating the business of insurance in the State of Florida. As part of this responsibility, Respondent examines and analyzes rate increases. The scope of proposed Rule 4-166.051, Florida Administrative Code, entitled "Examination of Significant Rate Increases," provides: (2) Scope. This rule applies to residential and habitational, personal and commercial property insurance in the State of Florida . . . . The proposed rule requires Respondent to conduct public hearings on rate increases of insurers under certain specific conditions: (3) Public Hearings. Significant Rate Increases. The Department will hold a public hearing on any rate filing where the percentage of rate increase is 25 percent or more and the aggregate amount of such rate increase is $2,000,000 or more, or a rate increase of 50 percent or more. The Department will hold a public hearing as to any rate filing which appears to have a signi- ficant or disproportionate impact on any group or geographic area. Respondent contends that insurers employing the present methods for rate filings would be able to calculate the increases and would, therefore, have no difficulty in determining whether they meet the threshold in the proposed rule. The proposed rule provides in Section (3) a procedure for the public hearings: Procedure. The time and place of the public hearing will be noticed by order of the Department. The public hearing shall be for the purpose of gathering information and evidence, and is not subject to the procedures of Chapter 120, Florida Statutes. Each insurer shall bear its own costs, including any attorney's fees, which may be associated with this examination and with its attendance at the public hearing. Specifically, the public hearing will provide the Department with, and the insurer shall be prepared to present, information necessary to determine whether: The proposed activity will have a hazardous or detrimental effect upon the residential property insurance market in this State and a specific adverse, hazardous, or detrimental effect upon its policyholders located in this State. The proposed activity violates the terms and conditions of residential property insurance policies and constitutes material misrepresentation, or results in the insurer having unlawfully misrepresented the benefits and promises which induced its policyholders to purchase policies from the insurer. The proposed rating structure, elimination of current policyholders, and overall marketing strategies of the insurer, in relation to current market conditions in this State, render the insurer's rates excessive, inadequate, or unfairly discriminatory. The proposed activity constitutes an arbitrary or capricious act of unfair discrimination against policyholders, and constitutes a practice detrimental to the insurer's policyholders or the insurance buying public. The proposed activity will adversely contribute to a further reduction in the availability of residential property insurance in this State and the ability of the current admitted market to absorb further losses or liabilities. The proposed activity will adversely impact the Residential Property and Casualty Joint Underwriting Association's (RPCJUA) ability to provide coverage and/or service to present or potential insureds. Other relevant impact. Respondent is granted general authority by the Legislature, through Section 624.324, Florida Statutes, to hold public hearings within the scope of the insurance code 1/ whenever it deems such action necessary. Respondent contends that this authorization includes holding public hearings on rate increases which it has deemed necessary to be in the public eye. Section 627.062, Florida Statutes, entitled "Rate standards," provides that no rate shall be "excessive, inadequate, or unfairly discriminatory" and mandates certain specific factors and standards to be considered by Respondent when making a determination whether a rate is excessive, inadequate, or unfairly discriminatory. Respondent contends that the factors and standards in Section 627.062 are not all inclusive but are only some of the factors and standards to be considered; the others are located throughout the insurance code. Respondent contends that interpreting Section 627.062, Florida Statutes, requires a reading of the insurance code as a whole. For example, some terms in Section 627.062 are explained in other parts of the code, so the applicable parts of the code defining and explaining the terms would have to be read in para materia with Section 627.062. The proposed rule is designed, as contended by Respondent, to affect only those insurers which significantly increase their residential property insurance rates; it is not designed to affect all insurers which increase their rates. Also, as part of its design, the proposed rule reflects Respondent's experience with the impact of Hurricane Andrew on the consumer and the insurance industry and with an emergency rule which addressed the same subject of rate increases. However, the emergency rule included lower thresholds in which Respondent attempted to affect only those insurers with significant rate increases. The proposed rule serves, as contended by Respondent, four purposes: to assist Respondent in its statutory duty to report annually to the Legislature; (2) to reveal subtle, but important, factors which affect Respondent's decision in determining whether a proposed rate is excessive; (3) to assist Respondent in uncovering unfair trade practices, if any, in proposed rate increases; and (4) to ameliorate the impact of large rate increases on consumers. As to Respondent's reporting duty, part of Respondent's statutory responsibility is to report the ramifications and implications of large rate hikes to the Legislature. Because of the devastation caused by Hurricane Andrew, an unprecedented number of rate filings for large increases have occurred and a severe availability crisis exists with residential property insurance; if insurance is unaffordable, it is unavailable. Respondent contends that in order to make a determination on the rate filings, it must know the ramifications of the rate hikes on insureds and that public hearings provide an avenue to obtain such information. Regarding the subtle, but important, factors affecting Respondent's determination of whether a proposed rate is excessive, a public hearing, contends Respondent, would allow Respondent to include the effects of the proposed rate increase on the lives of consumers, removing the effect from only the mathematical or academic arena. Respondent contends that obtaining information of such an effect would include an examination of market conditions, which it is authorized to do by Section 627.062, 2/ and which examination includes reviewing marketing techniques, such as advertising, for misrepresentations by insurers. As to assisting Respondent to uncover unfair trade practices, Respondent points to "redlining" as an example which in the context of rate increases would encompass the denial of insurance by an insurer to a certain group of people in a given territory because of the increase, i.e., the increase would cause the insurance to be unaffordable and, therefore, unavailable to a certain group of people within a given territory. The insurance code provides a redlining statute 3/ which addresses redlining as the refusal to insure or to continue to insure a risk solely because of certain enumerated factors. Regarding the amelioration of the impact of large rate increases on consumers, Respondent contends that public hearings would provide a forum for the insurer and consumer or insured to freely exchange information and to educate one another on their respective positions and on the effects of a rate increase on both of them. According to Respondent, consumers have a belief that insurers increase rates unreasonably. Additionally, Respondent contends that, through the public hearing, it could direct consumers to less expensive alternatives. The term "proposed activity" is used in the proposed rule but is not defined by it. Respondent contends that no limits would be placed on the subject matter addressed in the public hearings but that any matter which may have a bearing on any of the items in the proposed rule would be addressed in the public hearings. Pursuant to Section 627.0613, Florida Statutes, the insurance code provides for an Insurance Consumer Advocate who is authorized to examine rate filings and to make a recommendation to Respondent that the Consumer Advocate deems to be in the public interest. There are approximately 1,200 rate filings a year, and the Consumer Advocate is unable to examine each filing, so he has developed a formula for selecting the rate filings for review. A public hearing on a rate filing would be useful to him in executing his statutory function regarding rate filings; however, such a public hearing is not authorized by Section 627.0613. American Insurance Association's standing is not at issue in this proceeding.
The Issue The issue addressed in this proceeding is whether Respondent's life, health, life and health and general lines insurance agent's licenses should be suspended, revoked, or otherwise disciplined for violations of Chapter 626, Florida Statutes.
Findings Of Fact Respondent is currently licensed in this state as a life agent, as a health agent, as a life and health agent, and as a general lines agent, Respondent was so licensed in 1993. In 1993, Respondent was doing business as John Drew Insurance Group (Group). Group was and remains a general lines insurance agency located in Panama City, Florida. Around October 4, 1993, Trilby L. Williams of Panama City, Florida phoned Respondent and sought a quotation for homeowners insurance on her mobile home. Respondent specifically requested a quotation for coverage on the mobile home. She did not seek any other insurance or non-insurance product or service from Respondent. Respondent provided a phone quotation of $490.00. During the conversation Respondent described only coverage under the mobile home policy. He did not describe any other insurance coverage or membership in a travel or auto club. Ms. Williams advised Respondent she would accept the quotation and made arrangements to go to Respondent's agency to complete the transaction. Around October 6, 1993, Ms. Williams and her husband, Robert L. Williams went to the office of the Group. The Williams' met with Dana Baxter Watkins, an unlicensed employee of the agency working under Respondent's direct supervision and control. Respondent was not present. However, Ms. Watkins was expecting the Williams. Respondent had left her the Williams' file and paperwork for the mobile home insurance plus an ancillary product. Mr. Williams signed an application for a mobile home insurance policy to be issued by American International Insurance Company through the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA). The premium for the mobile home policy was $400.00 which was tendered to Group by Robert and Trilby Williams. Since Respondent had binding authority with the FRPCJUA, he bound the mobile home coverage effective October 6, 1993, at 9:45 A.M. Ms. Watkins also had Robert L. Williams execute a contract for and purchase an American Travelers Association (ATA) ancillary product without the informed consent of Robert or Trilby Williams. Mr. and Ms. Williams were led to believe through Ms. Watkins' statements that they were required to purchase the ATA ancillary product in order to be eligible to purchase the mobile home coverage. Ms. Watkins advised the Williams that "they didn't make any money on the homeowners' policies and that they had to sell this policy." Ms. Watkins explained the ATA ancillary product as an accident benefit policy. The Williams understood the product to be some sort of accident insurance policy designed to provide Ms. Williams with benefits in the event Mr. Williams were to have an accident around their mobile home. The fee for the ATA ancillary product was $90.00, which was paid to Group by Robert and Trilby Williams on October 6, 1993. Robert and Trilby Williams believed that the entire $490.00 which they paid to Group on October 6, 1993, was premium monies required for the purchase of the mobile home insurance policy. The ATA ancillary product is in fact a "motor club" membership as defined in Section 624.124, Florida Statutes, The motor club provides certain benefits of membership such as rewards to witnesses in the event of the theft of the member's private passenger vehicle, travel agency services, rental car discounts, and very circumscribed accidental death and dismemberment coverage for accidental death and qualifying dismemberments while the insured is a passenger in a private passenger automobile. An example of a qualifying dismemberment is the loss of a finger, but only if the digit is a thumb or index finger and only if it is severed through or above the joint closest to the wrist. The cost of the ATA motor club varies from $20.00 to $100.00 depending on the level of benefits selected. Commissions on such products are approximately eighty (80) to ninety (90) percent of the price charged to the consumer. Shortly after departing Respondent's agency Robert and Trilby Williams became concerned about having been required to purchase the ATA "policy". Ms. Williams telephoned Respondent to request a refund of the $90.00 fee they had paid. Respondent informed Robert and Trilby Williams that they could not purchase the mobile home insurance policy without purchasing the ATA ancillary product and again reiterated that "they make very little or no profit selling homeowners or mobile home . . . insurance and that they needed this in order to make overhead." When Ms. Williams, in a somewhat nasty manner, persisted in her request for a refund of the $90.00 ATA fee and threatened to contact the Department of Insurance, Respondent decided he did not wish to do business with the Williams and informed Ms. Williams that he would refund the entire $490.00. Respondent cancelled the American mobile home policy and refunded the entire $490.00 paid by the Williams. However, there was no question that Respondent would not have sold the mobile home insurance without the ATA club membership. At no time did either Williams' authorize the cancellation of the mobile home policy. As a result of the cancellation, Mr. and Ms. Williams were without an insurance policy on their mobile home for approximately a week. Additionally, because the policy had been bound, the FRPCJUA was exposed to a risk of loss for that period of time for which they received no premium. Around September 13, 1993, Doris Steen of Panama City, Florida phoned Respondent and sought a quotation for homeowners insurance on her mobile home. Respondent specifically requested a quotation for coverage on her mobile home. She did not seek any other insurance or non-insurance product or service from Respondent. Ms. Steen and her husband were members of another auto club and did not need a second membership. Around September 15, 1993, Ms. Steen went to the office of the Group. She was met by Dana Baxter Watkins. Ms. Watkins had Ms. Steen's file and paperwork for mobile home coverage and membership in ATA. Ms. Steen signed an application for a mobile home insurance policy to be issued by American through FRPCJUA. The premium for said policy was $277.00, which was tendered to Group by Doris Steen. The coverages applied for were bound effective September 15, 1993. Ms. Watkins also had Doris Steen purchase an ATA ancillary product without Doris Steen's informed consent. Ms. Steen was led to believe through Ms. Watkins' statements that she was required to purchase the ATA ancillary product as part of a package which included the mobile home policy and the one was not available without the other. Ms. Watkins explained the ATA ancillary product as an accident and life insurance policy and Ms. Steen understood the product to be a life insurance policy to cover her if she were killed at her mobile home. The fee for the ATA ancillary product was $100.00, which was paid to Group by Doris Steen on September 15, 1993. The ATA ancillary product sold to Ms. Steen was the same motor club product sold to the Williams. Dana Baxter Watkins was under the direct supervision of Respondent and was trained by Respondent to sell ATA motor club memberships in accordance with a routine business practice implemented by Respondent to increase his agency revenues. In furtherance of the business practice Respondent developed a chart that indicated what price to charge for the ATA motor club given a particular premium level for the mobile home insurance being purchased. The higher the premium for the insurance the less the charge for the motor club. From the charge for the motor club, Respondent would back into the level of benefits provided rather than choosing a level of benefits and then determining the cost. In short, the cost of the ATA policy had nothing to do with the insured's needs. Respondent instructed Ms. Watkins to give mobile home insurance quotations over the phone which included both the mobile home insurance premium and the cost of the motor club as determined by using the chart. No disclosure of the motor club was made at the time of the phone quotation. When consumers came into the office to purchase the coverage they were required to purchase the motor club in conjunction with the insurance and were lead to believe that the two items were a package. The motor club was routinely misrepresented to be some sort of insurance product. In fact, Ms. Watkins was unaware that the ATA product was in fact a motor club rather than an insurance policy. Respondent focused on the accidental death and dismemberment benefit included with the memberships when describing the product to Ms. Watkins and to any consumer that questioned the paperwork. Respondent maintained his inaccurate description of the ATA product at the hearing. Respondent justified the requirement to purchase the ATA motor club on the basis that his commission for the sale of mobile home insurance was too small to cover agency expenses and the sale of the motor club membership made up the small commission on mobile home insurance. In the instant case, Respondent's acts and those undertaken by Ms. Watkins at his direction constituted routine, deceptive, fraudulent and unfair business practices in violation of Chapter 626, Florida Statutes. The deceptive, fraudulent aspect of Respondent's practice makes the violations particularly serious. Respondent offered no credible evidence of mitigation for his business practice. Respondent was disciplined by the Department in 1976 for charging a cancellation fee in violation of the Florida Insurance Code. There he justified the charge on the basis that he was not adequately compensated by commission when policies were cancelled mid-term. Respondent was again disciplined by the Department in 1992 for having collected a "consulting fee" in violation of the Florida Insurance Code. Given the deceptive, fraudulent nature of Respondent's business practice and the previous discipline of Respondent's license, Respondent's license should be revoked.
Recommendation Based upon the foregoing Findings of Fact and the Conclusions of Law, it is accordingly, RECOMMENDED that Respondent, John Walter Drew, be found guilty of the violations set forth in the Conclusions of Law portion of this Order and that the Respondent's license as an insurance agent in this State be revoked and he be ordered to pay a fine of $5,000 within thirty (30) days of entry of the Final Order in this matter. DONE and ENTERED this 5th day of April, 1995, in Tallahassee, Florida. DIANE CLEAVINGER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of April, 1995. APPENDIX The facts contained in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 and 38 of Petitioner's proposed findings of fact are adopted in substance, insofar as material. The facts contained in paragraphs 3 and 11, are adopted in substance, insofar as material. Paragraphs 1, 2, 6, 7, 8 and 9 of Respondent's proposed findings of fact pertain to either procedural matters or are legal argument. The facts contained in paragraphs 4, 5, 10, 12, 13, 14, and 18 of Respondent's proposed findings of fact are subordinate. The facts contained in paragraphs 15, 16, and 17 of Respondent's proposed findings of fact were not shown by the evidence. COPIES FURNISHED: John R. Dunphy, Esq. Michael McCormick, Esq. Division of Legal Services 612 Larson Bldg. Tallahassee, FL 32399-0333 Charles P. Hoskins, Esq. Wells, Brown & Brady, P.A. P. O. Box 12584 Pensacola, FL 32573-2584 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300 Dan Sumner Acting General Counsel Dept. of Insurance The Capitol, PL-11 Tallahassee, FL 32399-0300
