The Issue Whether Petitioners' proposed rates are justified pursuant to the requirements of Section 627.062, Florida Statutes, or whether the Department of Financial Services, Office of Insurance Regulation (OIR) was correct in denying the requested rate increases.
Findings Of Fact The Hartford companies are property and casualty insurers transacting insurance in the State of Florida pursuant to valid certificates of authority and the Florida Insurance Code. Two types of personal lines insurance filings submitted by Hartford to the OIR are at issue in this proceeding: two filings for homeowners insurance (Case Nos. 07-5185 and 07-5186) and two filings for dwelling fire insurance (Case Nos. 07-5187 and 07- 5188). Hartford's substantial interests are affected by the notices disapproving the filings in this case. Homeowners insurance includes coverage for a variety of perils in and around a home, is usually purchased by a homeowner, and covers both the structure and the contents of a home. Dwelling/fire insurance is usually purchased by the owners of properties that are leased or rented to others, and provides coverage for the structure only. Both types of insurance cover damage caused by hurricanes. The New Legislation and its Requirements In a special session held in January 2007, the Florida Legislature enacted changes to the Florida Hurricane Catastrophe Fund (CAT Fund), as reflected in Chapter 2007-1, Laws of Florida. The special session was precipitated by a perceived crisis regarding the cost and availability of homeowners insurance after the 2004 and 2005 hurricane seasons. As a result of the substantial number of claims incurred after multiple severe hurricanes each of these years, changes in the insurance marketplace resulted in some insurance companies withdrawing from the Florida market, others non-renewing policies, one company becoming insolvent, and the cost for reinsurance available to all insurers rising dramatically. One of the primary features of the legislation was an expansion of the CAT Fund. The CAT Fund was established in 1993 after Hurricane Andrew to provide reinsurance to insurers for property insurance written in Florida at a price significantly less than the private market. The CAT Fund is a non-profit entity and is tax exempt. Prior to the enactment of Chapter 2007-1, the CAT Fund had an industry-wide capacity of approximately $16 million. The purpose of the changes enacted by the Legislature was to reduce the cost of reinsurance and thereby reduce the cost of property insurance in the state. As a result of Chapter 2007-1, the industry-wide capacity of the CAT Fund was increased to $28 billion, and insurers were given an opportunity to purchase an additional layer of reinsurance, referred to as the TICL layer (temporary increase in coverage limit), from the CAT Fund. Section 3 of Chapter 2007-1 required insurers to submit a filing to the OIR for policies written after June 1, 2007, that took into account a "presumed factor" calculated by OIR and that purported to reflect savings created by the law. The new law delegated to the OIR the duty to specify by Order the date such filings, referred to as "presumed factor filings" had to be made. On February 19, 2007, the OIR issued Order No. 89321-07. The Order required insurers to make a filing by March 15, 2007, which either adopted presumed factors published by the OIR or used the presumed factors and reflected a rate decrease taking the presumed factors into account. The presumed factors were the amounts the OIR calculated as the average savings created by Chapter 2007-1, and insurers were required to reduce their rates by an amount equal to the impact of the presumed factors. The OIR published the presumed factors on March 1, 2007. In its March 15, 2007, filings, Hartford adopted the presumed factors published by OIR. As a result, Hartford reduced its rates, effective June 1, 2007, on the products at issue in these filings by the following percentages: Case No. 07-5185 homeowners product: 17.7% Case No. 07-5186 homeowners product: 21.9% Case No. 07-5187 dwelling/fire product: 8.7% Case No. 07-5188 dwelling/fire product: 6.2% The Order also required that insurers submit a "True-Up Filing" pursuant to Section 627.026(2)(a)1., Florida Statutes. The filing was to be a complete rate filing that included the company's actual reinsurance costs and programs. Hartford's filings at issue in these proceedings are its True-Up Filings. The True-Up Filings Hartford submitted its True-Up filings June 15, 2007. The rate filings were certified as required by Section 627.062(9), Florida Statutes. The filings were amended August 8, 2007. Hartford's True Up Filings, as amended, request the following increases in rates over those reflected in the March 15, 2007, presumed factor filings: Case No. 07-5185 homeowners product: 22.0% Case No. 07-5186 homeowners product: 31.6% Case No. 07-5187 dwelling and fire product: 69.0% Case No. 07-5188 dwelling and fire product: 35.9% The net effects of Hartford's proposed rate filings result in the following increases over the rates in place before the Presumed Factor Filings: Case No. 07-5185 homeowners product: .4% Case No. 07-5186 homeowners product: 2.8% Case No. 07-5187 dwelling/fire product: 54.3% Case No. 07-5188 dwelling/fire product: 27.5% Case Nos. 07-5185 and 07-5186 (homeowners) affect approximately 92,000 insurance policies. Case Nos. 07-5187 and 07-5188 (dwelling/fire) affect approximately 2,550 policies. A public hearing was conducted on the filings August 16, 2007. Representatives from Hartford were not notified prior to the public hearing what concerns the OIR might have with the filings. Following the hearing, on August 20, 2007, Petitioners provided by letter and supporting documentation additional information related to the filings in an effort to address questions raised at the public hearing. The OIR did not issue clarification letters to Hartford concerning any of the information provided or any deficiencies in the filings before issuing its Notices of Intent to Disapprove the True-Up Filings. All four filings were reviewed on behalf of the OIR by Allan Schwartz. Mr. Schwartz reviewed only the True-Up Filings and did not review any previous filings submitted by Hartford with respect to the four product lines. On September 10, 2007, the OIR issued Notices of Intent to Disapprove each of the filings at issue in this case. The reasons give for disapproving the two homeowners filings are identical and are as follows: Having reviewed the information submitted, the Office finds that this filing does not provide sufficient documentation or justification to demonstrate that the proposed rate(s) comply with the standards of the appropriate statute(s) and rules(s) including demonstrating that the proposed rates are not excessive, inadequate, or unfairly discriminatory. The deficiencies include but are not limited to: The premium trends are too low and are not reflective of the historical pattern of premium trends. The loss trends are too high and are not reflective of the historical pattern of loss trends. The loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. The loss trends are excessive and inconsistent compared to other sources of loss trends such as Fast Track data. The catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. The catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. The particular time period from 1992 to 2006 used to calculate these values has not been justified. There has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. The underwriting profit and contingency factors are excessive and not supported. Various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. The underwriting expenses and other expenses are excessive and not supported. The non-FHCF reinsurance costs are excessive and not supported. The FHCF reinsurance costs are excessive and not supported. The fact that no new business is being written has not been taken into account. No explanation has been provided as too [sic] Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. As a result of the deficiencies set forth above, the Office finds that the proposed rate(s) are not justified, and must be deemed excessive and therefore, the Office intends to disapprove the above-referenced filing. The Notices of Intent to Disapprove the two dwelling/fire filings each list nine deficiencies. Seven of the nine (numbers 1-6 and 8) are the same as deficiencies listed for the homeowners filings. The remaining deficiencies named for Case No. 07-5187 are as follows: 7. The credibility standard and credibility value are not supported. 9. No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%. The deficiencies listed for Case No. 07-5188 are the same as those listed for Case No. 07-5187, with the exception that with respect to deficiency number 9, the rate change implemented for the program in Case No. 07-5188 from 2001 to 2006 was a decrease of about -3%. Documentation Required for the Filings Florida's regulatory framework, consistent with most states, requires that insurance rates not be inadequate, excessive, or unfairly discriminatory. In making a determination concerning whether a proposed rate complies with this standard, the OIR is charged with considering certain enumerated factors in accordance with generally accepted and reasonable actuarial techniques. Chapter 2007-1 also amended Section 627.062, Florida Statutes, to add a certification requirement. The amendment requires the chief executive officer or chief financial officer and chief actuary of a property insurer to certify under oath that they have reviewed the rate filing; that to their knowledge, the rate filing does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which the statements were made, not misleading; that based on their knowledge, the information in the filing fairly presents the basis of the rate filing for the period presented; and that the rate filing reflects all premium savings reasonably expected to result from legislative enactments and are in accordance with generally accepted and reasonable actuarial techniques. § 627.062(9)(a), Fla. Stat. (2007). Actuarial Standards of Practice 9 and 41 govern documentation by an actuary. Relevant sections of Standard of Practice 9 provide: Extent of documentation - . . . Appropriate records, worksheets, and other documentation of the actuary's work should be maintained by the actuary and retained for a reasonable length of time. Documentation should be sufficient for another actuary practicing in the same field to evaluate the work. The documentation should describe clearly the sources of data, material assumptions, and methods. Any material changes in sources of data, assumptions, or methods from the last analysis should be documented. The actuary should explain the reason(s) for and describe the impact of the changes. Prevention of misuse - . . . The actuary should take reasonable steps to ensure that an actuarial work product is presented fairly, that the presentation as a whole is clear in its actuarial aspects, and that the actuary is identified as the source of the actuarial aspects, and that the actuary is available to answer questions.. . . . * * * 5.5 Availability of documentation- Documentation should be available to the actuary's client or employer, and it should be made available to other persons when the client or employer so requests, assuming appropriate compensation, and provided such availability is not otherwise improper. . . . In determining the appropriate level of documentation for the proposed rate filings, Petitioner relied on its communications with OIR, as well as its understanding of what has been required in the past. This reliance is reasonable and is consistent with both the statutory and rule provisions governing the filings. Use of the RMS Catastrophic Loss Projection Model In order to estimate future losses in a rate filing, an insurer must estimate catastrophic and non-catastrophic losses. Hartford's projected catastrophic losses in the filings are based upon information provided from the Risk Management Solutions (RMS) catastrophic loss projection model, version 5.1a. Hartford's actuaries rely on this model, consistent with the standards governing actuarial practice, and their reliance is reasonable. Catastrophe loss projection models may be used in the preparation of insurance filings, if they have been considered by and accepted by the Florida Commission on Hurricane Loss Projection Methodology (the Hurricane Commission). The Hurricane Commission determined that the RMS model, version 5.1a was acceptable for projecting hurricane loss costs for personal residential rate filings on May 17, 2006. In addition to approval by the Hurricane Commission, use of the model is appropriate "only if the office and the consumer advocate appointed pursuant to s. 627.0613 have access to all of the assumptions and factors that were used in developing the actuarial methods, principles, standards, models, or output ranges, and are not precluded from disclosing such information in a rate proceeding." §627.0628(3)(c), Fla. Stat. Both the Consumer Advocate and a staff person from the OIR are members of the Hurricane Commission. In that context, both have the ability to make on-site visits to the modeling companies, and to ask any questions they choose regarding the models. Both OIR's representative and the Consumer Advocate participated in the meetings and had the same opportunity as other commissioners to ask any question they wished about RMS 5.1a. The Hurricane Commission members, including the Consumer Advocate, clearly have access to the information identified in Section 627.0628(3)(c). However, there are restrictions on the Hurricane Commission members' ability to share the information received regarding trade secrets disclosed by the modeling companies. For that reason, the Commission's deliberations are not, standing alone, sufficient to determine that the Office of Insurance Regulation has access. In this case, credible evidence was submitted to show that RMS officials met with staff from the Office in July and October 2006 to discuss the model. RMS offered to provide any of its trade secret information to the OIR, subject to a non- disclosure agreement to protect its dissemination to competitors. RMS also opened an office in Tallahassee and invited OIR staff to examine any parts of the model they wished. In addition, both RMS and Hartford have answered extensive questionnaires prepared by OIR regarding the RMS model, and Hartford has offered to assist OIR in gathering any additional information it requires. Most of the questions posed by OIR involve the same areas reviewed by the Commission. RMS' representative also testified at hearing that RMS would not object to disclosure of the assumptions during the hearing itself if necessary. Finally, OIR Exhibit 1 is the Florida Hurricane Catastrophe Fund 2007 Ratemaking Formula Report. The Executive Summary from the report explains how rates were recommended for the Florida Hurricane Catastrophic Fund (CAT Fund) for the 2007- 2008 contract year. The report stated that the RMS model, as well as three other models accepted by the Hurricane Commission, were used for determining expected aggregate losses to the CAT Fund reinsurance layer. Three models, including the RMS model, were also used for analysis of detailed allocation to type of business, territory, construction and deductible, as well as special coverage questions. The models were compared in detail and given equal weight. The report notes that these three models were also used in 1999-2006 ratemaking. The report is prepared by Paragon Strategic Solutions, Inc., an independent consultant selected by the State Board of Administration, in accordance with Section 215.555(5), Florida Statutes. While OIR did not prepare the report, they show no hesitation in accepting and relying on the report and the modeled information it contains in these proceedings. Indeed, one of OIR's criticisms is Hartford's failure to use the report with respect to CAT Fund loss recovery estimates. Based upon the evidence presented at hearing, it is found that the OIR and Consumer Advocate were provided access to the factors and assumptions used in the RMS model, as contemplated by Section 627.0628. The Alleged Deficiencies in the Homeowners Filings1/ A rate is an estimate of the expected value of future costs. It provides for all costs associated with the transfer of risk. A rate is reasonable and not excessive, inadequate or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer. In preparing a filing, an actuary identifies the time period that its proposed rates are expected to be in effect. Because ratemaking is prospective, it involves determining the financial value of future contingent events. For the rate filings in question, actuaries for Hartford developed their rate indications by first considering trended premium, which reflects changes in premium revenue based on a variety of factors, including construction costs and the value of the buildings insured. Trended premium is the best estimate of the premium revenue that will be collected if the current rates remain in effect for the time period the filing is expected to be in place. Expenses associated with writing and servicing the business, the reinsurance costs to support the business and an allowance for profit are subtracted from the trended premium. The remainder is what would be available to pay losses. This approach to ratemaking, which is used by Hartford, is a standard actuarial approach to present the information for a rate indication. As part of the process, expected claims and the cost to service and settle those claims is also projected. These calculations show the amount of money that would be available to pay claims if no changes are made in the rates and how much increased premium is necessary to cover claims. The additional amount of premium reflects not only claims payments but also taxes, licenses and fees that are tied to the amount of premium. The first deficiency identified by OIR is that "the premium trends are too low and are not reflective of the historical pattern of premium trends." In determining the premium trend in each filing, Hartford used data from the previous five years and fit an exponential trend to the historical pattern, which is a standard actuarial technique. Hartford also looked at the factors affecting the more recent years, which were higher. For example, the peak in premium trend in 2006 was a result of the cost increases driven by the 2004 and 2005 hurricanes, and the peak in demand for labor and construction supplies not matched by supply. Costs were coming down going into 2007, and Hartford believed that 2006 was out of pattern from what they could anticipate seeing in the future. The premium trends reflected in Hartford's filings are reasonable, reflective of historical patterns, and based on standard actuarial techniques. The second identified deficiency with respect to the homeowner filings was that the loss trends are too high and are not reflective of the historical pattern of loss trends. A loss trend reflects the amount an insurance company expects the cost of claims to change. It consists of a frequency trend, which is the number of claims the insurance company expects to receive, and a severity trend, which is the average cost per claim. The loss trend compares historical data used in the filing with the future time period when the new rates are expected to be in effect. Hartford's loss trends were estimated using a generalized linear model, projecting frequency and severity separately. The model was based on 20 quarters of historical information. The more credible testimony presented indicates that the loss trends were actuarially appropriate. The third identified deficiency is that the loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. As noted above, the generalized linear model uses actual, historical data. Sufficient documentation was provided in the filing, coupled with Hartford's August 20, 2007, letter. The method used to determine loss trends is reasonable and is consistent with standard actuarial practice. The fourth identified deficiency is that loss trends are excessive and inconsistent compared to other sources of loss trends, such as Fast Track data. Saying that the loss trends are excessive is a reiteration of the claim that they are too high, already addressed with respect to deficiency number two. Fast Track data is data provided by the Insurance Services Office. It uses unaudited information and is prepared on a "quick turnaround" basis. Fast Track data is based on paid claims rather than incurred claims data, and upon a broad number of companies with different claims settlement practices. Because it relies on paid claims, there is a time lag in the information provided. Hartford did not rely on Fast Track data, but instead relied upon its own data for calculating loss trends. Given the volume of business involved, Hartford had enough data to rely on for projecting future losses. Moreover, Respondents point to no statutory or rule requirement to use Fast Track data. The filings are not deficient on this basis. The fifth identified deficiency in the Notice of Intent to Disapprove is that catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. ALAE stands for "allocated loss adjustment expenses," and represents the costs the company incurs to settle a claim and that can be attributed to that particular claim, such as legal bills, court costs, experts and engineering reports. By contrast, ULAE stands for "unallocated loss adjustment expense" and represents the remainder of claims settlement costs that cannot be linked to a specific claim, such as office space, salaries and general overhead. Part of the OIR's objection with respect to this deficiency relates to the use of the RMS model. As stated above at paragraphs 25-33, the use of the RMS model is reasonable. With respect to ALAE, Hartford analyzed both nationwide data (4.4%) and Florida data (4.8%) and selected an ALAE load between the two (4.6%). This choice benefits Florida policyholders. It is reasonable to select between the national and Florida historical figures, given the amount of actual hurricane data available during the period used. With respect to ULAE, the factors used were based upon directions received from Ken Ritzenthaler, an actuary with OIR, in a previous filing. The prior discussions with Mr. Ritzenthaler are referenced in the exhibits to the filing. The more credible evidence demonstrates that the ALAE and ULAE expenses with respect to catastrophic hurricane losses are sufficiently documented in Hartford's filings and are based on reasonable actuarial judgment. The sixth identified deficiency is that the catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. According to OIR, the particular time period from 1992 to 2006 used to calculate these values has not been justified, and there has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. OIR's complaint with respect to non-hurricane losses is based upon the number of years of data included. While the RMS model was used for hurricane losses, there is no model for non- hurricane losses, so Hartford used its historical data. This becomes important because in both 1992 and 1993, there were unusual storms that caused significant losses. Hartford's data begins with 1992 and goes through 2006, which means approximately fifteen years worth of data is used. Hartford's explanation for choosing that time period is that hurricane models were first used in 1992, and it was at that time that non-hurricane losses had to be separated from hurricane losses. Thus, it was the first year that Hartford had the data in the right form and sufficient detail to use in a rate filing. Petitioners have submitted rate filings in the past that begin non-hurricane, ALAE and ULAE losses with 1992, increasing the number of years included in the data with each filing. Prior filings using this data have been approved by OIR. It is preferable to use thirty years of experience for this calculation. However, there was no testimony that such a time-frame is actuarially or statutorily required, and OIR's suggestion that these two high-loss years should be ignored is not based upon any identified actuarial standard. Hartford attempted to mitigate the effect of the severe losses in 1992 and 1993 by capping the losses for those years, as opposed to relying on the actual losses.2/ The methodology used by Hartford was reasonable and appropriate. No other basis was identified by the OIR to support this stated deficiency. The seventh identified deficiency is that the underwriting profit and contingency factors are excessive and not supported. The underwriting profit factor is the amount of income, expressed as a percentage of premium, that an insurance company needs from premium in excess of losses, settlement costs and other expenses in order to generate a fair rate of return on its capital necessary to support its Florida exposures for the applicable line of business. Hartford's proposed underwriting profit factor for its largest homeowners filing is 15.3%. Section 627.062(2)(b), Florida Statutes, contemplates the allowance of a reasonable rate of return, commensurate with the risk to which the insurance company exposes its capital and surplus. Section 627.062(2)(b)4., Florida Statutes, authorizes the adoption of rules to specify the manner in which insurers shall calculate investment income attributable to classes of insurance written in Florida, and the manner in which investment income shall be used in the calculation of insurance rates. The subsection specifically indicates that the manner in which investment income shall be used in the calculation of insurance rates shall contemplate allowances for an underwriting profit factor. Florida Administrative Code Rule 69O-170.003 is entitled "Calculation of Investment Income," and the stated purpose of this rule is as follows: (1) The purpose of this rule is to specify the manner in which insurers shall calculate investment income attributable to insurance policies in Florida and the manner in which such investment income is used in the calculation of insurance rates by the development of an underwriting profit and contingency factor compatible with a reasonable rate of return. (Emphasis supplied). Mr. Schwartz relied on the contents of this rule in determining that the underwriting profit factor in Hartford's filings was too high, in that Florida Administrative Code Rule 69O-170.003(6)(a) and (7) specifies that: (6)(a) . . . An underwriting profit and contingency factor greater than the quantity 5% is prima facie evidence of an excessive expected rate of return and unacceptable, unless supporting evidence is presented demonstrating that an underwriting profit and contingency factor included in the filing that is greater than this quantity is necessary for the insurer to earn a reasonable rate of return. In such case, the criteria presented as determined by criteria in subsection (7) shall be used by the Office of Insurance Regulation in evaluating this supporting evidence. * * * An underwriting profit and contingency factor calculated in accordance with this rule is considered to be compatible with a reasonable expected rate of return on net worth. If a determination must be made as to whether an expected rate of return is reasonable, the following criteria shall be used in that determination. An expected rate of return for Florida business is to be considered reasonable if, when sustained by the insurer for its business during the period for which the rates under scrutiny are in effect, it neither threatens the insurer's solvency nor makes the insurer more attractive to policyholders or investors from a corporate financial perspective than the same insurer would be had this rule not been implemented, all other variables being equal; or Alternatively, the expected rate of return for Florida business is to be considered reasonable if it is commensurate with the rate of return anticipated for other industries having corresponding risk and it is sufficient to assure confidence in the financial integrity of the insurer so as to maintain its credit and, if a stock insurer, to attract capital, or if a mutual or reciprocal insurer, to accumulate surplus reasonably necessary to support growth in Florida premium volume reasonably expected during the time the rates under scrutiny are in effect. Mr. Schwartz also testified that the last published underwriting profit and contingency factor published by OIR was 3.7%, well below what is identified in Hartford's filings. Hartford counters that reliance on the rule is a misapplication of the rule (with no explanation why), is inconsistent with OIR's treatment of the profit factors in their previous filings, and ignores the language of Section 627.062(2)(b)11., Florida Statutes. No evidence was presented to show whether the expected rate of return threatens Hartford's solvency or makes them more attractive to policyholders or investors from a corporate financial perspective than they would have been if Rule 69O- 170.003 was not implemented. Likewise, it was not demonstrated that the expected rate of return for Florida business is commensurate with the rate of return for other industries having corresponding risk and is necessary to assure confidence in the financial integrity of the insurer in order to maintain its credit and to attract capital. While the position taken by OIR with respect to Hartford's filings may be inconsistent with the position taken in past filings, that cannot be determined on this record. The prior filings, and the communications Hartford had with OIR with regard to those filings, are not included in the exhibits in this case. There is no way to determine whether Petitioners chose to present evidence in the context of prior filings consistent with the criteria in Rule 69O-170.003, or whether OIR approved the underwriting profit and contingency factor despite Rule 69O- 170.003. Having an underwriting profit factor that is considered excessive will result in a higher rate indication. Therefore, it is found that the seventh identified deficiency in the Notices of Intent to Disapprove for the homeowners filings and the second identified deficiency in the Notices of Intent to Disapprove for the dwelling/fire filings is sustained. The eighth identified deficiency is that various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. Return on surplus is the total net income that would result from the underwriting income and the investment income contributions relative to the amount of capital that is exposed. Surplus is necessary in addition to income expected from premium, to insure that claims will be paid should losses in a particular year exceed premium and income earned on premium. Hartford's expected return on surplus in these filings is 15%. The return on surplus is clearly tied to the underwriting profit factor, although the percentages are not necessarily the same. It follows, however, that if the underwriting income and contingency factor is excessive, then the return on surplus may also be too high. Hartford has not demonstrated that the return on surplus can stand, independent of a finding that the underwriting profit and contingency factor is excessive. Premium-to-surplus ratio is a measure of the number of dollars of premium Hartford writes relative to the amount of surplus that is supporting that exposure. Hartford's premium-to- surplus ratio in the AARP homeowners filing is 1.08, which means that if Hartford wrote $108 of premium, it would allocate $100 of surplus to support that premium.3/ The premium-to-surplus ratio is reasonable, given the amount of risk associated with homeowners insurance in Florida. The OIR's position regarding investment income and tax rates are related. The criticism is that the filing used a low- risk investment rate based on a LIBOR (London Interbank Offering Rate), which is a standard in the investment community for risk- free or low-risk yield calculations. The filing also used a full 35% income tax rate applied to the yield. Evidence was presented to show that, if the actual portfolio numbers and corresponding lower tax rate were used in the filings, the rate after taxes would be the same. The problem, however, is that Section 627.062(2)(b)4., Florida Statutes, requires the OIR to consider investment income reasonably expected by the insurer, "consistent with the insurer's investment practices," which assumes actual practices. While the evidence at hearing regarding Hartford's investments using its actual portfolio yield may result in a similar bottom line, the assumptions used in the filing are not based on Petitioner's actual investment practices. As a result, the tax rate identified in the filing is also not the actual tax rate that has been paid by Hartford. The greater weight of the evidence indicates the data used is not consistent with the requirements of Section 627.062(2)(b)4., Florida Statutes. Therefore, the eighth deficiency is sustained to the extent that the filing does not adequately support the return on surplus, investment income and tax rate. The ninth identified deficiency is that the underwriting expenses and other expenses are excessive and not supported. Hartford used the most recent three years of actual expense data, analyzed them and made expense selections based on actuarial judgment. The use of the three-year time frame was both reasonable and consistent with common ratemaking practices. Likewise, the commission rates reflected in the agency filings are also reasonable. The tenth identified deficiency is that the non-FHCF (or private) reinsurance costs are excessive and not supported. The criticism regarding private reinsurance purchases is three- fold: 1) that Hartford paid too much for their reinsurance coverage; 2) that Hartford purchases their reinsurance coverage on a nationwide basis as opposed to purchasing coverage for Florida only; and 3) that the percentage of the reinsurance coverage allocated to Florida is too high. Hartford buys private reinsurance in order to write business in areas that are exposed to catastrophes. It buys reinsurance from approximately 40 different reinsurers in a competitive, arm's-length process and does not buy reinsurance from corporate affiliates. Hartford used the "net cost" of insurance in its filings, an approach that is appropriate and consistent with standard actuarial practices. Hartford also used the RMS model to estimate the expected reinsurance recoveries, which are subtracted from the premium costs. Hartford buys private catastrophic reinsurance on a nationwide basis to protect against losses from hurricanes, earthquakes and terrorism, and allocates a portion of those costs to Florida. Testimony was presented, and is accepted as credible, that attempting to purchase reinsurance from private vendors for Florida alone would not be cost-effective. The cost of reinsurance, excluding a layer of reinsurance that covers only the Northeast region of the country and is not reflected in calculating costs for Florida, is approximately $113 million. Hartford retains the first $250 million in catastrophe risk for any single event, which means losses from an event must exceed that amount before the company recovers from any reinsurer. In 2006, Hartford raised its retention of losses from $175 million to $250 million in an effort to reduce the cost of reinsurance. Hartford purchases reinsurance in "layers," which cover losses based on the amount of total losses Hartford incurs in various events. Hartford allocates approximately 65% of the private reinsurance costs (excluding the Northeast layer) to Florida in the AARP homeowners filing. Only 6-7% of Hartford's homeowners policies are written in Florida. The amount Hartford paid for reinsurance from private vendors is reasonable, given the market climate in which the insurance was purchased. Hartford has demonstrated that the process by which the reinsurance was purchased resulted in a price that was clearly the result of an arms-length transaction with the aim of securing the best price possible. Likewise, the determination to purchase reinsurance on a nationwide basis as opposed to a state-by-state program allows Hartford to purchase reinsurance at a better rate, and is more cost-effective. Purchasing reinsurance in this manner, and then allocating an appropriate percentage to Florida, is a reasonable approach. With respect to the allocation of a percentage of reinsurance cost to Florida, OIR argues that, given that Florida represents only 6-7% of Hartford's homeowner insurance business, allocation of 65% of the reinsurance costs to Florida is per se unreasonable. However, the more logical approach is to examine what percentage of the overall catastrophic loss is attributable to Florida, and allocate reinsurance costs accordingly. After carefully examining both the testimony of all of the witnesses and the exhibits presented in this case, the undersigned cannot conclude that the allocation of 65% of the private reinsurance costs is reasonable, and will not result in an excessive rate.4/ The eleventh identified deficiency is that the FHCF (or CAT Fund) reinsurance costs are excessive and not supported. Hartford purchases both the traditional layer of CAT Fund coverage, which is addressed in a separate filing and not reflected in these filings, and the TICL layer made available pursuant to Chapter 2007-1, Laws of Florida. Hartford removed the costs of its previously purchased private reinsurance that overlapped with the TICL layer and those costs are not reflected in these filings and have not been passed on to Florida policyholders. In estimating the amount of premium Hartford would pay for the TICL coverage, it relied on information provided by Paragon, a consulting firm that calculates the rates for the CAT Fund. As noted in finding of fact number 31, the RMS model, along with three other models accepted by the Hurricane Commission, were used by Paragon for determining expected aggregate losses to the CAT Fund reinsurance layer, clearly a crucial factor in determining the rate for the CAT fund. Hartford did not use the loss recoveries calculated by Paragon, but instead estimated the total amount of premium it would pay for the TICL coverage and subtracted the expected loss recoveries based on the RMS model alone. The expected loss recoveries under the RMS model standing alone were 60% of the loss recovery estimate calculated by Paragon when using all four models. Hartford claimed that its use of the RMS model was necessary for consistency. However, it pointed to no actuarial standard that would support its position with respect to this particular issue. Moreover, given that the premium used as calculated by Paragon used all four models, it is actually inconsistent to use one number which was determined based on all four models (the Paragon-based premium estimate) for one half of this particular calculation and then subtract another number using only one model for the other half (the loss recoveries rate) in order to determine the net premium. To do so fails to take into account the unique nature of the CAT fund, in terms of its low expenses and tax-exempt status. Accordingly, it is found that the CAT-Fund reinsurance costs for the TICL layer are excessive. The twelfth identified deficiency is that Hartford did not consider in the filing that no new business is being written. OIR's explanation of this asserted deficiency is that the costs associated with writing new business are generally higher than that associated with writing renewals. Therefore, according to OIR, failure to make adjustments to their historical experience to reflect the current mix of business, means that the costs included in the filing would be excessive. Hartford began restricting the writing of new business for these filings in 2002. Ultimately, no new business for the AARP program was written after November 2006 and no new business was written for the agency program after June 2006. Credible evidence was presented to demonstrate that a very low percentage of new business has been written over the period of time used for demonstrating Hartford's historical losses. As a result, the effect of no longer writing new business is already reflected in the data used to determine expenses. No additional adjustment in the filing was necessary in this regard. The thirteenth identified deficiency is that no explanation has been provided as to why Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, OIR states that only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. OIR pointed to no actuarial standard that would require a specific explanation regarding how much of the premium should be returned to policyholders. Nor was any statutory or rule reference supplied to support the contention that such an explanation was required. Finally, the more credible evidence presented indicates that the correct percentage is 44%. In any event, this criticism is not a basis for finding a deficiency in the filing. Alleged Deficiencies in the Dwelling/Fire Filings The seventh deficiency identified in the dwelling/fire filings, not reflected in the homeowner filings, is that the credibility standard and credibility values are not supported. Credibility is the concept of identifying how much weight to put on a particular set of information relative to other potential information. Credibility value is determined by applying the "square root rule" to the credibility value, a commonly used actuarial approach to credibility. Hartford used the credibility standard of 40,000 earned house years in these filings. This credibility standard has been the standard within the industry for personal property filings for over forty years and has been used in prior filings submitted to OIR. Mr. Schwartz testified that his criticism with respect to the credibility standard and credibility values is that Hartford did not explain why they used that particular standard. However, Florida Administrative Code Rule 69O-170.0135 discusses those items that must be included in the Actuarial Memorandum for a filing. With respect to credibility standards and values, Rule 69O-170.0135(2)(e)5., provides that the basis need only be explained when the standard has changed from the previous filing. Given that no change has been made in these filings with respect to the credibility standard, this criticism is not a valid basis for issuing a Notice of Intent to Disapprove. The ninth deficiency in the Notice relating to the dwelling/fire filing in Case No. 07-5187 provides: "No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%." With respect to Case No. 07-5188, the deficiency is essentially the same, except the cumulative rate change identified for the same period of time is a decrease of about -3%. Testimony established that the dwelling/fire rate increases were larger than those identified for the homeowners filings because Hartford did not seek rate increases for these lines for several years. The decision not to seek increases was not based on the adequacy of current rates. Rather, the decision was based on an internal determination that, based on the relatively small number of policies involved in these two filings, the amount of increased premium reflected in a rate increase was not sufficient to incur the costs associated with preparing the filings. Mr. Schwartz pointed to no authority, either in statute, rule, or Actuarial Standard, that requires the explanation he desired. He acknowledged that he understood the basis of how Hartford reached the rate increase they are requesting. The failure to provide the explanation Mr. Schwartz was seeking is not a valid basis for a Notice of Intent to Disapprove.
Recommendation Upon consideration of the facts found and conclusions of law reached, it is RECOMMENDED: That a final order be entered that disapproves the rate filings in Case Nos. 07-5185 and 07-5186 based upon the deficiencies numbered 7,8,10 and 11 in the Notices of Intent to Disapprove, and that disapproves the rate filings in Case Nos. 07-5187 and 07-5188 based on the deficiencies numbered 2,3,5 and in the Notices of Intent to Disapprove. DONE AND ENTERED this 28th day of March 2008, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON 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 28th day of March, 2008.
Findings Of Fact Introduction Petitioner, Stacey Health Care Centers, Inc. d/b/a Riverside Care Center (RCC or petitioner), operates an eighty bed nursing home at 899 Northwest Fourth Street, Miami, Florida. The facility is licensed by respondent, Department of Health and Rehabilitative Services (HRS). At all times relevant hereto, RCC was a participant in the Florida Medicaid Program. The facility has been in operation since March, 1983, and has always attained a superior rating. In July, 1984 it filled all eighty beds and has remained full since that time. As a Medicaid participant, RCC was required to submit to HRS a cost report for the fiscal year ending December 31, 1984. This was filed in the latter part of March, 1985. The report sets forth those costs which RCC claims it incurred in providing Medicaid services during the fiscal year. In 1985, HRS contracted with Grant Thornton, an independent accounting firm, to perform a field audit of RCC's books and records to verify whether RCC's reported costs for fiscal year 1984 were proper expenditures and therefore reimbursable. On May 7, 1986 an audit report and management letter were issued by Grant Thornton proposing that RCC's cost report be adjusted in nineteen respects. The report and letter were later forwarded by HRS to RCC on January 7, 1987. Contending that seven of the adjustments (2, 3, 5, 6, 7, 12 and 15) were not appropriate or justified, RCC requested a formal hearing to contest the report. This resulted in the instant proceeding. Audit Principles and Guidelines Under the Medicaid contract entered into by RCC and HRS, the provider agreed to conform with all pertinent rules and regulations governing Medicaid providers. These include, in order of importance, (a) relevant agency rules codified in the Florida Administrative Code, (b) the Florida Title XIX Long-Term Care Reimbursement Plan (Long Term Plan) then in effect, (c) the Health Insurance Manual (HIM-15), which is a compendium of federal cost reimbursement principles for nursing homes, and (d) where applicable, generally accepted accounting principles (GAAP). Of particular relevance to this proceeding is Subsection III.G.1. of the September 1, 1984 Long Term Plan which provides that "the 0wner administrator . . . compensation will be limited to reasonable levels determined in accordance with HIM-15." The latter document utilizes Bureau of Health Insurance (BHI)/2 data to determine reasonable compensation for owner- administrators in other similar sized institutions in the same geographic area. From this data, a cap or limitation is derived, and any owner compensation above this cap is disallowed and not reimbursed. The theory behind this cap is that an owner- administrator should receive no more compensation than does a non- owner administrator. Also relevant is the so-called prudent buyer concept embodied in section 2103 of HIM-15. Paragraph A of that section provides in part that "the prudent and cost- conscious buyer not only refuses to pay more than the going price for an item or service, he also seeks to economize by minimizing cost." Put another way, the buyer will pay no more than is necessary to procure a supply or service and if he does not, the expense is disallowed. The Concept of Hateriality (Items 2, 7 and 12) The audit report proposes to disallow items 2, 7 and 12 on the ground RCC did not provide adequate documentation to support the expenditures. In sum, the three items total $145. The parties have stipulated that the issue of adequate documentation is not yet ripe. Even so, petitioner suggests the expenses should be allowed since they are "immaterial to the overall cost report." However, the testimony herein reflects that even though an item is immaterial, it may still be disallowed if not in compliance with pertinent regulations. Put another way, there is no regulation or rule which requires an expenditure to be automatically approved simply because it is immaterial. Therefore, the proposed adjustments are proper. Owner's Compensation (Items 3, 5, 6 and 15) Corporate structure The majority (95 percent) of the capital stock of RCC is owned by Stacey Enterprises, Inc. (SEI) located in Cincinnati, Ohio. SEI also owns and operates a 63-bed skilled nursing facility, Gerrard Convalescent Home (GCH), in Covington, Kentucky which is subject to that state's regulatory jurisdiction. Under this corporate structure, which is called a "chain organization" in federal bureaucratese, SEI is considered to be a "home office" providing certain administrative and support functions to RCC. In theory, a home office managing more than one facility should be more efficient than a nursing home that provides its own administrative functions. This is because a home office should reduce costs through economy of scale. In the health care industry, a home office may provide such services as purchasing, personnel, payroll, accounting, computer, and the like. Ralph L. Stacey, Jr. (Stacey), who resides in Covington, Kentucky, is the president and sole stockholder of SEI. He is licensed as a nursing home administrator in Florida and Kentucky, and serves in that capacity at both RCC and GCH. However, in 1984 he had another full-time licensed administrator at RCC and consequently did not claim reimbursement for a full- time salary at either facility. Stacey is also the sole employee of the home office. As such, his duties for the three entities (RCC, GCH and SEI) overlap, and coupled with his place of residence, constitute the source of this controversy. Filing requirements Because of the chain organizational setup, HRS required the provider to file two annual cost reports, one in the name of RCC and the other by SEI as the home office. Both purported to reflect those costs which were properly allocated to Florida operations and were therefore reimbursable under the Florida Medicaid program. However, since the RCC report contains Florida's allocated portion of home office costs, the HRS audit refers only to RCC's 1984 Medicaid cost report. Content of two reports Since SEI claims it provided services in 1984 to both RCC and GCH, an allocation of its regulatory expenses ($7,504) was necessary in order to determine what portion applied to Florida operations. To do this, and for purposes of filing the home office report, SEI developed a ratio based on total patient days of the two facilities, an accepted method for making such an allocation. After removing $139 in non-regulatory expenses, SEI then allocated 54.4 percent of the remaining home office expenses to RCC, or a total of $4,007. Of that amount, over ninety-seven percent fell within the category of "travel." Included within this category are $2,103 in airline tickets, while the make up of the remaining expenses has not been identified. However, the parties have suggested they include primarily "living" expenses incurred by Stacey while living part- time in Miami in 1984. All were ostensibly incurred while Stacey served in the role of a home office employee. The home office charges are referred to on the audit report as adjustment number 5. In addition to the home office charges, RCC's cost report claims reimbursement for a pro rate portion of expenses incurred by Stacey while serving as administrator for both RCC and GCH in 1984. To allocate these costs, Stacey determined the amount of time devoted to each facility, and then assigned appropriate portions of his total expenses to each operation. The precise factor used is not of record. It is noted that the audit report classifies these expenses into three categories (gas and electric, other travel and rent) while the witnesses referred to them as rent, meals, utilities, motor vehicle expenses, supplies, salary, and other miscellaneous items. Whatever their nature, they are reflected on the audit report as adjustment numbers 3, 6 and 15. The controversy and HRS' Proposed action The principal controversy herein centers around Stacey's claimed expenses while commuting to and living in Florida in 1984, and which were charged to RCC as administrative costs or as indirect home office charges. The commuting was necessary since Stacey's primary residence was Covington, Kentucky, and he was also required to tend to duties as an administrator in Kentucky and a home office employee in Ohio. In its audit report, the agency has proposed to disallow all such costs on the general ground they were not related to patient care, relying principally on Sections 2102.3 and 2304 of HIM- 15 as authority for such action. As clarified at hearing, HRS then relied upon the prudent buyer concept and owner's compensation rule to combine Stacey's travel and lodging expenses and certain other minor items with his salary and treat them as part of owner's compensation. These items are characterized in the audit report as gas and electric charges ($2,114), "other" travel ($9,243), and rent expense ($5,910), and, as noted above, are identified as adjustments 3, and 15, respectively.2/ In addition, HRS concluded that all of the home office expenses ($4,007) were violative of the prudent buyer concept since none would be needed if RCC had used a Florida resident as administrator. Accordingly, it reclassified them as owner's compensation on the theory the expenditures benefited the owner and therefore constituted personal compensation to Stacey. These charges (both home office and administrative) collectively totaled $37,082/4 The agency then utilized what it perceived to be the proper cap under then-applicable BHI guidelines ($33,830) for owner's compensation, and applied a 55.9 percent factor to that amount./5 This produced a cap for RCC in the amount of $18,911. All expenses ($21,274) above that cap were disallowed. An analysis of the services provided During 1984, and as reflected in petitioner's exhibit 1, Stacey made numerous trips by airline between Cincinnati and Miami while visiting the RCC facility. Each month Stacey spent between nine and eighteen days in Miami. This is confirmed by his personal calendar introduced in evidence as petitioner's exhibit 1. He also executed a one-year lease on an apartment in Miami on February 1, 1984 at a cost of $465 per month. He did so on the theory it was cheaper to rent than to pay nightly motel charges. However, Stacey acknowledges that if he had elected to spend $50 per day on lodging, he would have spent $7,040, or $984 less than that amount claimed on the cost report for apartment rent and utilities. While in Miami, Stacey utilized the RCC station wagon to transport patients between the hospital and the facility, for screening purposes, and for errands to purchase supplies. This was not controverted. However, the vehicle was also used by Stacey to carry him from his apartment to the facility and return, a use considered personal by HRS. To separate the two functions, Stacey should have kept a record (e.g. a trip log) to show what part of the usage was personal, and what part was related to patient care. Here no such records were apparently maintained, and consequently a precise allocation cannot be made. But, since documentation is not in issue, this point is not now germane. In his role as administrator and home office employee, Stacey's duties included staffing the facility, dealing with governmental agencies, developing and implementing policies and procedures, handling payroll and purchasing, and approving vouchers for both reasonableness and payment. The duties and functions, if prudent and necessary, are clearly within the scope of those performed by an administrator and home office employee. However, the record is less than clear as to which duties were performed when and in what capacity. Reconciling what happened with HRS rules - A cost difficult task There is no rule or regulation that prohibits a Florida nursing home from employing a nonresident administrator. /6 Moreover, it is not uncommon for an administrator to serve in that capacity at more than one facility. At the same time HRS routinely reimburses a provider for legitimate, reasonable home office expenses such as travel, lodging and administrative functions that are incurred while performing necessary support. Notwithstanding the lack of a rule that prohibits Stacey from being administrator, his position must be viewed in light of the prudent buyer concept. Under this concept, Stacey must show that it is more efficient and economical to utilize his services as administrator than to hire one who lives in the Miami area. In this regard, the proof is lacking. More Specifically, other than self-serving statements that this type of setup was more economical and efficient, Stacey did not provide any concrete evidence that contradicted the testimony of HRS witness Donaldson./7 This is especially true since Stacey already had a full-time licensed administrator (Tim Newren) on RCC's payroll who was able to run RCC's day-to-day operations in Stacey's absence. Indeed, their functions seemed to be duplicative in nature, and Stacey, when asked to describe Newren's duties when both were in Miami, indicated that Newren "consults with me." There was also no evidence to show that Stacey performed special services that Newren could not, or that it was necessary he be in Florida around twelve days each month, particularly since Stacey acknowledged he was in daily telephonic contact with Newren when in Ohio and Kentucky. Therefore, with one exception noted hereinafter, the expenditures in adjustments 3, 6 and 15 were not prudent and were properly disallowed. As noted earlier, the RCC station wagon was used to transport and screen patients, and for errands related to patient care. Such usage would have occurred even if Stacey had not come to Florida. Because their reasonableness has not been questioned, and the expenses relate to patient care, they should be allowed subject to the provision by RCC of proper documentation. HRS regulations and acknowledged prior audit policy allow reimbursement for reasonable travel expenses associated with the provision of home office services. However, to prove their legitimacy, they must be shown to be necessary, and to ef- fectuate savings to the provider. In this case, the charges to Florida operations were principally airline tickets for periodic trips to Florida, and living expenses for Stacey while in Miami. Although the record is not altogether clear, these charges were incurred by Stacey to come to Florida where he presumably then performed certain tasks that would normally be provided by a home office. Here again, the provider did not show that it was essential to perform the services in Florida, or that they could not have been performed by Newren. As such, they were not prudent, and should be disallowed. Finally, HRS utilized the wrong BHI cap in computing compensation to be allowed the owner. Instead of using $35,824, HRS erroneously used the figure of $33,830. The former limitation is the correct amount, and results in an increase in owner's compensation of $1,131.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's cost report be adjusted and reimbursement accordingly made in a manner consistent with this Recommended Order subject to the furnishing of proper documentation by the provider where necessary. DONE AND ORDERED this 17th day of September, 1987, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of September, 1987.
Findings Of Fact Petitioner, Golfcrest Nursing Home (Golfcrest), is a properly licensed 67-bed nursing home located in Broward County, Florida. Respondent, the Department of Health and Rehabilitative Services (HRS), was the state agency responsible for administration and implementation of the Florida Medicaid Program. Those responsibilities have been transferred to the Agency For Health Care Administration. Golfcrest participates in the Florida Medicaid Program and provides inpatient nursing home services to Medicaid eligible persons. Golfcrest is entitled to reimbursement in accordance with the Florida Title XIX Long-Term Care Reimbursement Plan (Plan) which has been adopted and incorporated by reference in Rule 10C-7.0482, Florida Administrative Code. The Plan contains provisions which authorize a nursing home participating in the Medicaid Program to request an interim change in its Medicaid reimbursement rate when it incurs property related costs which would change its reimbursement rate by one percent (1 percent) or when it incurs costs resulting from patient care or operating changes made to comply with existing state regulations, and said costs are at least $5,000 or one percent (1 percent) of its reimbursement rate. In 1980 Americare Corporation (Americare) purchased Golfcrest. In 1983 or 1984, Americare did some cosmetic renovations at Golfcrest. Portions of the facility are 45 years old. Americare contracted with Diversicare Management Services to manage the operations of Golfcrest. In 1988-1989, Joann Verbanic, a regional vice- president for Diversicare Management Services, recommended to the Board of Directors of Americare that major renovations to the Golfcrest facility be done. On March 19, 1990, Americare sent a team to Golfcrest to survey the facility for needed renovations. Later a plan was presented to Americare's Board of Directors and permission was given to proceed with a major renovation. In May of 1990 and July of 1991, HRS conducted its annual licensure surveys at Golfcrest. As a result, HRS identified several licensure deficiencies. Correction of these deficiencies was mandated by HRS. Failure to correct these deficiencies would have resulted in sanctions against Golfcrest's nursing home license, including administrative fines, a reduction in licensure rating, other civil penalties, and a reduction in Medicaid reimbursement. In order to correct the licensure deficiencies, Golfcrest incurred substantial property costs and costs due to patient care and operating changes. By letter dated January 6, 1992, Golfcrest submitted to HRS a request for an interim rate increase for patient care costs, operating costs, and property costs incurred or to be incurred to comply with existing state regulations and to correct identified licensure deficiencies. By letter dated April 14, 1992, Golfcrest provided additional information which had been requested by HRS. Golfcrest requested that the following costs be included in the calculation of its interim rate: Operating Costs Office Furniture $ 896.45 3 Laundry Carts 696.31 Office Door 125.00 Light Fixtures 1,067.30 Laundry Table 482.00 Structural Repairs 100.00 Repairs for Boiler 390.00 42 Overhead Lights 11,861.07 Patient Care Costs 57 Hi-Lo Beds 19,301.40 Blinds 5,145.02 Dining Room Furniture 3,167.70 Lobby Furniture 2,500.00 Bedspreads 3,404.78 Valances 3,472.05 Cubicle Curtains, Tracks 9,579.51 Activity Furniture 1,000.00 Property Costs Bldg. Imp. Depreciation 16,356.00 HRS denied in part and granted in part, Golfcrest's interim rate request by letter dated June 15, 1992, as revised by letter dated July 1, 1992. HRS granted the patient care costs for the 57 Hi-Lo beds and for the cubicle curtain and tracks and the property costs for the building improvement depreciation. In its proposed recommended order, Golfcrest withdrew its request for costs of the boiler leak, the lobby furniture, folding table for the laundry, and structural repairs. Golfcrest incurred the costs for which the interim rate is requested. Golfcrest requested that the purchase of office furniture be accepted as an allowable cost. Golfcrest did not specify what office furniture was purchased nor did it adequately relate such a purchase to a cited deficiency in either the 1990 or the 1991 survey. Additionally, Golfcrest did not establish that the cost of the office furniture was what a prudent and cost-conscious buyer would pay for office furniture. In the 1990 survey report, Golfcrest was cited for having linen stored on dressers in residents' rooms. There was insufficient space to store the linen in the laundry area so Golfcrest purchased three laundry carts to store the linens in the hallways. The purchase of the laundry carts was necessary to correct the deficiency cited in the 1990 survey. However, no evidence was presented to establish that the amount paid for the laundry carts was what a prudent and cost-conscious buyer would pay for the item. In the 1991 survey, Golfcrest was cited for having exit doors with screens missing and broken jalousie slats; therefore, it did not meet the requirement that the facility must provide housekeeping and maintenance services necessary to maintain an orderly and comfortable interior. Golfcrest relies on this cited deficiency to support its claim for the cost of replacing a new office door. Golfcrest's reliance is misplaced. The deficiency is the failure to perform ordinary maintenance services. The replacement of the office door is not necessary to comply with the cited licensure requirements. Golfcrest stated in its plan of correction that it would repair the cited doors by replacing the screens. Additionally, Golfcrest did not establish that the cost of the door was what a prudent and cost-conscious buyer would pay for the door. Rule 10D-29.121(7)(d), Florida Administrative Code, required that renovations to restore a nonconforming building to its condition previous to deterioration must minimally meet standards for a new facility. The unrebutted testimony was that termites had damaged the wall studs and the walls had to be torn out and replaced. In order to meet the required NFPA standards and building code requirements for lumens and wiring, it was necessary to replace 42 overbed lights and 14 light fixtures for 3-bed wards. The purchase of this lighting was necessary to correct deficiencies that would result if the old lighting were retained after the renovations. However, no evidence was presented that would establish that the cost of the lighting fixtures was what a prudent and cost-conscious buyer would pay for the lighting. In the 1990 survey report, Golfcrest was cited for having broken venetian blinds in rooms 6 and 33. Golfcrest stated in its plan of correction that "broken blinds are repaired/replaced as needed." Golfcrest requested that in its interim rate request that $5,145.02 be considered an allowable cost for the replacement of blinds. Although there was a deficiency noted concerning broken venetian blinds, Golfcrest did not establish that the cost for the blinds was what a prudent and cost-conscious buyer would pay for the blinds. In the 1991 survey, Golfcrest was cited for not being adequately furnished in the dining areas and not having sufficient space to accommodate all activities. In order to provide more space in the dining areas, Golfcrest purchased ten collapsible dining tables which could be easily removed to provide more space for large group activities in the dining room. The purchase of the dining tables was necessary to correct the deficiency of inadequate space, however, Golfcrest did not establish that the cost of the dining tables did not exceed the level of what a prudent and cost-conscious buyer would pay for dining tables. Golfcrest purchased 67 dining room chairs. However, Golfcrest did not establish how the purchase of the dining room chairs corrected the cited deficiency and did not establish that the cost of the dining room chairs was what a prudent and cost-conscious buyer would pay for dining room chairs. In the 1991 survey report, Golfcrest was cited for not providing clean beds. As an example of this deficiency, the survey listed torn blankets, threadbare sheets, pillow cases and towels and sunrotted sheets. Golfcrest purchased 104 bedspreads to replace all the bedspreads in the facility and to maintain an inventory of bedspreads to be used while bedspreads was being laundered. The purchase of the bedspreads were related to a cited deficiency, but Golfcrest did not establish that the cost of the bedspreads was what a prudent and cost-conscious buyer would pay for the bedspreads. Golfcrest requested that the purchase of valances be considered an allowable cost in its interim rate request. In its proposed recommended order, Golfcrest relied on the deficiencies cited in the 1991 survey report relating to the life safety survey dealing with privacy curtains which did not have netting at the top for support of its request for the valances. Golfcrest did not establish that the valances purchased were part of the cited privacy curtains. Given the fact that Golfcrest's request for replacement of cubicle curtains and tracks, was a separate request from the valances, it is reasonable to infer that the valances did not relate to the licensure requirement relied upon by Golfcrest. Additionally, Golfcrest did not establish that the cost of the valances was what a prudent and cost-conscious buyer would pay for valances. Golfcrest requested that the purchase of furniture for the activities area be considered an allowable cost in the calculation of its interim rate. Golfcrest did not establish what furniture was purchased for the activity area; thus, it did not establish how the purchase of the furniture was necessary to correct the deficiency that Golfcrest did not provide sufficient space and equipment and did not adequately furnish recreation and program areas to enable staff to provide residents with needed services as required. Additionally, Golfcrest did not establish that the cost of the furnishings for the activity room was what a prudent and cost-conscious buyer would pay for the furnishings. In its January 6, 1992 letter requesting an interim rate request, Golfcrest used 22,676 patient days to calculate the per diem rate for property costs. This number was taken from the July 31, 1990 cost report. HRS used 23,010 patient days to calculate the per diem rate. This number was taken from the last cost report dated July 31, 1991 and is the appropriate number to use in calculating the interim rate. The total per diem reimbursement rate for Golfcrest which was in effect at the time of the interim rate request was $71.2565. The per diem reimbursement for the property component is not one percent or more of Golfcrest's total per diem reimbursement rate.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration as successor in interest for the Department of Health and Rehabilitative Services determining the interim rate for Golfcrest to be $1.2551. DONE AND ENTERED this 3rd day of August, 1994, in Tallahassee, Leon County, Florida. SUSAN B. KIRKLAND 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 3rd day of August, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-847 To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact Paragraphs 1-6: Accepted. Paragraph 7-9: Accepted in substance. Paragraph 10: Rejected as unnecessary detail. Paragraph 11-16: Accepted in substance. Paragraphs 17-19: Rejected as subordinate to the facts actually found. Paragraph 20: Accepted in substance. Paragraph 21: Rejected as constituting a conclusion of law. Paragraph 22: Accepted in substance. HRS had allowed the cost of the Hi-Lo beds, thus, those costs were not in dispute. Paragraph 23: Accepted in substance as to the blinds but not as to the shades and shower curtains. The shades and shower curtains were not part of the interim rate request, thus whether they were necessary to correct a deficiency is not addressed in this Recommended Order. Paragraph 24: Accepted in substance as it relates to the dining tables but not as to the dining chairs. Paragraph 25: Accepted in substance. Paragraph 26: Accepted in substance as it relates to the cubicle curtains and tracks but not as it relates to the valances. The cubicle curtains and tracks were allowed by HRS as a cost and thus was not in dispute. Paragraphs 27-28: Accepted in substance. Paragraph 29: Rejected as not supported by the greater weight of the evidence. Paragraph 30: Accepted in substance. Paragraph 31: Rejected as not supported by the greater weight of the evidence. Paragraphs 32 and 33: Accepted in substance. Paragraph 34: The first two sentences are accepted in substance. The third, fifth, sixth and seventh sentences are rejected as constituting conclusions of law. The fourth sentence is accepted. Paragraphs 35-36: Rejected as not supported by the greater weight of the evidence. Paragraph 37: The first sentence is accepted. The second sentence is rejected as not supported by the greater weight of the evidence. Paragraph 38: Rejected as subordinate to the facts actually found. Paragraph 39: With exception of the last sentence the paragraph is rejected as unnecessary detail. The last sentence is rejected as constituting a conclusion of law. Respondent's Proposed Findings of Fact. Paragraph 1: Accepted in substance. Paragraphs 2-9: Accepted. Paragraph 10-11: Accepted in substance. Paragraph 12-22: Rejected as unnecessary detail. Paragraphs 23-28: Accepted in substance except in paragraph 24 the reference to floor coverings should be to light fixtures. Paragraph 29: Rejected as not supported by the greater weight of the evidence. Paragraph 30: Accepted in substance. Paragraph 31-33: Rejected as subordinate to the facts actually found. Paragraph 34: Accepted in substance. Paragraph 35: Rejected as subordinate to the facts actually found. Paragraphs 36-39: Accepted in substance. COPIES FURNISHED: Alfred W. Clark, Esquire 117 South Gadsden, Suite 201 Tallahassee, Florida 32301 Karel Baarslag, Esquire HRS Medicaid Office 1317 Winewood Boulevard Building Six, Room 233 Tallahassee, Florida 32399-0700 R. S. Power, Agency Clerk Agency for Health Care Administration Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Harold D. Lewis, Esquire Agency For Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303
Findings Of Fact Respondent, Phillip Harrison Bare, was first licensed as a registered general contractor by the State of Florida in December, 1974, when license number RG 0023484, was issued to him as an individual. This license was renewed on an annual basis until June 30, 1979. Effective July 1, 1979, Respondent's license went into delinquent status. It was suspended for one year by Petitioner, CILB, effective June 22, 1979. In addition to the suspension, the Board imposed a $500.00 fine on Respondent which, to this date, has not been paid. Respondent's license as a registered general contractor has not been revoked or voluntarily surrendered. He has never been licensed as a roofing contractor by the state. A search of the records of CILB also indicates that Southern Improvement and Siding Company, Inc., is not now, nor has it ever been, qualified by Respondent or any other licensee of the CILB. However, during the period 1980 and 1981, Respondent was doing business in the name Southern Improvement and Siding Company, Inc. His license has never been registered in Ocala, Marion County or Lake County. On or about May 21, 1980, Respondent, doing business as Southern Improvement and Siding Company, Inc. entered into a home improvement installment sales contract with Ethorn and Alberta Buie of Ocala, Florida. The contract called for Respondent to remove the existing kitchen cabinets, install new cabinets with trim, and a new counter top in their home. Work was to begin on or about April 25, and to be completed on or about April 26, 1980. Cash price for the work was $2,800.00. Some additional funds were advanced to the Buie's by Respondent for debt consolidation consisting of $600.00 due and payable on the Buie's van and $1,900.00 for sheet rock which Mr. Buie was to install, which brought the total amount to $5,300.00. The interest charged on the home improvement portion of the contract price was $1,476.60 and on the debt consolidation portion, $1,316.80, for a total of $2,793.40. This figure, when added to the base amount of the contract, brought about a total deferred payment price of $8,093.40 which was to be paid in 60 monthly installments of $134.89 each. This reflected an annual percentage rate of 18 percent interest. On the same date as the contract. Respondent also prevailed upon the Buie's to execute a mortgage on their home as security for the contract price. This mortgage was subsequently assigned eight days later to Mr. E. O. Hodge, Sir. Attached to the assignment of mortgage was a sworn certificate of completion dated April 28, 1980 which reflects that all material and labor called for in the contract were furnished and installed and the work satisfactorily completed. Consistent with the terms of the contract, Respondent ordered cabinets for the Buie kitchen from a local supplier. When they were delivered, however, the seller learned that Respondent was the individual who had purchased the cabinets, and he refused to leave them without payment. Mr. Buie subsequently borrowed $715.00 from the bank to pay for the cabinets which he, himself installed. Respondent performed no work whatever called for under the terms of the contract. All attempts by the Buie's to contact Respondent at his place of business by leaving phone messages on an answering machine were without any success. He never returned calls and never accomplished any work for them. Respondent got the Buies to sign the mortgage and the other papers without explaining to them what these papers were. Though Mrs. Buie denies that either she or her husband ever signed a mortgage for the Respondent, the mortgage in question bears what looks to her "kind of" like her and her husband's signatures. They were not given a copy of the contract, mortgage, or the notice of right of recission by Respondent. They do not recall signing a certificate of completion but Mr. Buie's signature appears thereon. There is, actually, no doubt that Respondent prevailed upon the Buies to signs the documents in question and that the signatures on them are theirs. On May 12, 1980, Respondent, still doing business as Southern Improvement and Siding Co., Inc., entered into a home improvement installment contract with Lillie Terry and Ollise Mitchell to do some work on their home in Citra, Florida. The work to be done consisted of the removal and replacement of the roof; the replacement of all rotten sheeting and facia boards; the replacement of flooring on the front porch; the installation of new front and back doors with locks; the installation of a new screen door at the front; the installation of paneling in two bedrooms; the installation of ceiling tile in the front room and kitchen: the leveling of concrete piers around the house, and the painting of the exterior of the house with one coat of latex paint. The total price for this work was $2,850.00 with interest at 18 percent for 60 months. Deferred payment price was $4,342.80 to be paid in the monthly amount of $72.38. On the same day that the contract was signed, both homeowners were given a notice of right of recission which they acknowledged, and they also executed a mortgage on their property to Southern Improvement and Siding Company, Inc. Several days later, on June 13, 1980, they executed the certificate of completion for the work and thereafter, on June 17, 1980, Respondent assigned the mortgage previously given to Southern to Mr. E. O. Hodge, Sr., identified previously. Work on the house was begun approximately one week after the contract was signed but was not completed nor was much done until late 1980 to mid 1981. The work was done in snatches and after mid 1981 Respondent quit work on their house and never returned. Repeated calls left on his answering machine were unanswered. All the work called for in the contract was done except the paneling in the two bedrooms and the screen door. Neither of these items was accomplished. The work that was done, however, was of poor quality. Though the evidence shows that these ladies signed a certificate of completion, Mr. Mitchell contends she did not know what it was when she signed it, and when she received the letter from Mr. Hodges reflecting that the mortgage had been assigned to him, Respondent was still working on the property. Mr. Hodges had indicated that he would not take an assignment of a mortgage until the work was completed and a certificate of completion furnished him. From the state of the evidence here, it is obvious that Respondent secured certificates of completion before completing the work. On or about May 21, 1980 Mr. LeRoy Pruitt, who can neither read nor write, was contacted by Respondent concerning doing some repair and modification to the Pruitt home in Ocala, Florida. Mr. Bare prepared a proposal on a form bearing the heading American General Corporation of Florida in which he proposed to build an addition to the existing house and do the finishing work thereon. On May 23, 1980, before any work was done, he came back to the Pruitts and secured from them an $800.00 down payment on the proposal, to be applied against the $7,700.00 total cash price of their project. On May 26, he came back and had the Pruitts sign two separate installment contracts with Southern Improvement and Siding Company, Inc. The first contract was to build the 11 by 24 foot addition for a cash price of $5,100.00 from which the down payment of $400.00 was deducted leaving an unpaid cash balance- of $4,700.00. Finance charges of $5,014.00, representing 10 years of interest at 16.75 percent, raised the total price of this contract to $9,714.00. The second contract, for the finishing work, in the amount of $3,400.00, from which $400.00 down payment was deducted was to be paid off over 5 years at an interest rate of 16.75 percent also. The total price on this contract was $4,449.60. The 10 year contract was to be paid at $80.95 per month and the 5 year contract was to be paid at $74.16 per month. That same day, May 26, 1980, Respondent also got the Pruitts to sign two separate mortgage deeds on their property - one for each of the two contracts. Mr. Pruitt signed all these documents because he believed the Respondent to be honest. He believed that all the work was to cost him $9,000.00 instead of the in excess of $14,000.00 total for the two contracts. Respondent didn't start work on the project until two months after the contract was signed. Even when work was begun, Respondent merely framed in the addition, put in the floor and the ceiling, and then quit. Mr. Pruitt had to have someone else finish the job at a cost of an additional $2,000.00. Respondent, at no time, pulled a permit for the construction work he did, or agreed to do, under the contract. The Pruitts received their mortgage payment books for the two mortgages from the assignee of the mortgage before the work was even started. They were surprised to see that the mortgages had been assigned to Mr. E. O. Hodge. Even after Respondent quit work on the project, they continued to make the monthly mortgage payments of $155.05 for both mortgages. On July 13, 1980, Respondent, still acting for Southern Improvement and Siding, Inc., entered into a home improvement installment contract with Susie and Shirley Williams to do repair work on their home in Ocala, Florida. This work was to include removing existing windows and installing aluminum ones; rescreening the front porch; installing an exterior and interior door; putting a ceiling in the bathroom with paneling; replacing some flooring and installing some floor joists; and installing sheet rock in the kitchen. The cash price for this job, which was supposed to have been started on July 21, and been completed on July 30, 1980, was $2,900.00. When interest at 16 percent for 5 years was added, the total price amounted to $4,419.00. On the same day the contract was signed, Respondent furnished to the Williams' a notice of right of recission, and he also secured a mortgage on their property in favor of Southern Improvement and Siding Company, Inc. Though Respondent did not fix the floor joists or flooring, on July 23, 1980, he secured from Susie Williams a certificate of completion. Thereafter, on July 24, 1980, he assigned the Williams mortgage to Mr. Hodge. Somewhat later, on January 7, 1981, Respondent, as owner of Southern Improvement and Siding Company, Inc., entered into a home improvement installment sales contract with John Fields for repairs to his home in Ocala, Florida. These repairs were to include installing a kitchen sink; hooking up a tub and commode; and installing facia boards in both the front and back of the house. The cash price for this work was to be $2,200.00 and it was to be completed by January 15, 1981. However, when an interest rate of 17.6 percent was applied, according to the terms of the contract, for 48 months, the total price of the work was raised to $3,079. 68. On the same day the contract was signed, Mr. Bare secured from Mr. Fields a mortgage on his property to cover the cost of the repairs. Thereafter, Respondent secured the signature of Mr. Fields on an undated Certificate of Completion form, and on January 7, 1981, the date of the contract and mortgage were signed by Mr. Fields, he assigned the mortgage to Mr. E. O. Hodge, Sr. No work was performed under the terms of this contract on the Fields property. On August 4, 1981, Micque Little, signed a mortgage note in favor of Southern Improvement and Siding Company, Inc. in the amount of $2,800.00 with interest at 18 percent, to be paid in monthly installments of $58.86 per month, for the Respondent to some repairs on her house in Okahumpaka, Florida. The work was to include reroofing the house on the north side; installing hot tar and gravel on the addition; repairing the existing plumbing; installing a new bathroom vanity and sink; installing 10 feet of kitchen base cabinets; replacing rotten facia boards; replacing a window pane in the bedroom; and putting a coating on the existing tin roof. On the same date, she signed the Notice Of Recission furnished her by Respondent and an affidavit stating that she understood her first payment was due on September 15, 1981. Though the work was not done to her satisfaction in that the roof still leaks as does the sink, on August, 19, 1981, she signed a certificate of completion. Once she signed the initial mortgage and agreement, she did not see the Respondent again. What work was done by other. At the time she signed the documents for the Respondent, be did not explain them to her nor did he give her time to read them. The terms of the mortgage were explained to her by Mr. Hodges at a later date. She signed the completion certificate for Respondent on his representation that he would get someone out to fix what had to be fixed but he never did this. Little had to pay extra to get someone else to fix the work that Respondent's crew was supposed to have done. Respondent failed to pull a permit for any of the work done or called for in the contract. In August, 1981, while doing business as Southern Improvement and Siding Company, Inc. (Southern), Respondent contracted with Ernest Gram, of Yalaha, Florida, to replace the roof on the Gram residence and install two outside doors and two steps. The contract price for this proposed modification was $8,000.00. Thereafter, Southern removed the old roof as required and installed ruled roofing in its place. The contract entered into by Respondent and Gram called for installation of shingle roofing. Shingle roofing is different than ruled roofing. Respondent at no time installed the doors or the steps as called for in the contract. Respondent failed to pull a permit for any of the work done or called for in the contract. Mr. E. O. Hodges, Sr. of Clermont, Florida started investing with the Respondent in 1973. When he started buying Respondent's mortgages, he found Respondent to be quite reliable based on his personal checking of Respondent's projects. He found Respondent to be timely in getting the work done and on the basis of his own observation, developed a trust in Respondent that made him quit checking out the individual jobs. Mr. Hodge contends that every mortgage that he bought was contingent upon his receiving a certificate of completion and that he would not buy a mortgage without one. He also contends that on most of the mortgages, he did not know that the work was not completed and did not learn of the difficulties until as much as a year after the Respondent walked off the job. Mr. Hodge's testimony, however, is unworthy of belief in that he contends that he personally checked the Fields job in January, 1981 before he bought that mortgage. No work was done by Respondent at all under the Fields contract.
Recommendation Based on the foregoing, it is, therefore: RECOMMENDED THAT Respondent's license as a registered general contractor in the State of Florida be revoked and that he be fined $1,000.00. RECOMMENDED this 6th day of September, 1984, in Tallahassee, Leon County, Florida. ARNOLD H. POLLOCK 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 6 day of September, 1984. COPIES FURNISHED: Douglas A. Shropshire, Esquire Department of Professional Regulation 130 North Monore Street Tallahassee, Florida 32301 Mr. Phillip H. Bare 3920 S.W. Sixth Avenue Ocala, Florida 32674 James Linnan, Executive Director Post Office Box 2 Jacksonville, Florida 32202 Fred Roche, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Stephanie Daniels, Esquire 130 North Monroe Street Tallahassee, Florida 32301
Findings Of Fact Florida Export Tobacco Co., Inc., Petitioner, operates, as a concessionaire, duty-free stores at Miami International Airport. The premises are owned by the Dade County Aviation Department and the stores are leased to Petitioner pursuant to the terms of a lease and concession agreement dated 19 July 1977, effective 1 August 1977 and continuing until 30 September 1987. (Exhibit 1 to Deposition) Pursuant to this agreement Petitioner occupies six stores and additional warehouse space at the Terminal Building and the International Satellite Facility. Article II in Exhibit 1 entitled Rental Charges and Payments provides for rental payments for each store and space occupied based upon a fixed fee of $X per square foot per year with the dollar per square foot cost varying with the space occupied. In addition to this minimal rental fee, Section 2.03 of this agreement provides: County Profit Participation: As additional consideration for the rights and privileges granted Concessionaire herein, Concessionaire shall pay the County a portion of its profits. As a convenience and in order to eliminate requirements for detailed auditing of expenditures, assets and liabilities and in order to provide an even flow of annual revenues for budgeting and bond financing purposes, said portion of the profits of the Concessionaire shall be calculated as the amount by which sixteen percent of the monthly gross revenues, as defined in Arti- cle 2.07, exceeds the sum of monthly rental payments required by Articles 2.01 and 2.04. Concessionaire shall pay such portion of its profits to County by the twentieth (20th) day of the month following the month in which the gross revenues were received or accrued. For the period October 1, 1982 through September 30, 1987, the percent of monthly gross revenues to be paid by Concessionaire as a portion of its profits shall be eighteen percent, payable and calculated in the same manner as above. The lessor provides air conditioning, garbage and sewage disposal facilities, security, and many other services to the lessee in addition to the space leased. From October 1976 through September 1977 Petitioner paid $40,499.66 in additional sales tax over the guaranteed minimum amount; for the year ending September 1978 this additional sales tax was $66,284.85; for the year year ending September 1979 this additional sales tax was $93,837.15; and for the year ending September 1980 this additional sales tax was $137,521.87. (Exhibit 2 to the Deposition) As the owner of the facility Dade County has the option of operating the various facilities and services available to the public or having these operated by a concessionaire. Dade County has opted for the manner it believed more profitable to the county and in the case of the duty free stores this has resulted in leasing the space to a concessionaire. The hotel at the airport is operated by the Aviation Department under a management contract. It is Petitioner's and Dade County's position that a sales tax should not be paid on the county profit participation charges because, if the Aviation Department operated the stores there would be no sales tax on any rental income and the County operates the facilities at the airport so as to maximize profits to the county. Therefore by requiring the concessionaire to pay sales tax, this reduces the profit available to share with the County.
