The Issue Whether the Respondent, the Gadsden County School Board (Respondent or Board), acted illegally, arbitrarily, fraudulently, or dishonestly in rejecting all proposals for telecommunications services as set forth in its E-Rate application for the school year 2003-2004 (the sixth year).
Findings Of Fact The Petitioner is a municipal corporation operating under authority of law. NetQuincy is the utility/entity through which the City sought to provide "information technology resources" as requested by the Board's RFP. NetQuincy is capable of providing internet access and related telecommunication services. "T1" is a specific type of information technology that identifies internet access. It is undisputed that the Petitioner sought to provide such service in connection with the RFP at issue. On October 9, 2002, the Respondent posted a Form 470 requesting various telecommunication services to be provided during the 2003-2004 school year (the sixth year). T1 service was among the requested technological services identified. Form 470 is required pursuant to E-rate guidelines. In connection with the Form 470, the Board also posted the RFP that is the subject of the instant dispute. The original RFP was amended and reposted on October 25, 2002. T1 service for all eligible school sites was specifically noted on the revised RFP. A vendor's meeting regarding the revised RFP was conducted on October 31, 2002. The Petitioner's representative attended the vendor's meeting. On December 2, 2002, three vendors timely submitted responses to the RFP: the Petitioner, the Intervenor, and Trillion (not a party herein). None of the submittals was evaluated. Instead, the Respondent posted a notice on December 6, 2002, that rejected all responses. More specifically, the notice provided in connection with the service in dispute in this cause: **We would like to thank all those who submitted quotes for this section of our RFP, however, during the 28 day period of the bidding process, the School District learned that the Florida Learning Alliance will be providing this service for us. Since this means zero costs for the School District, we will NOT be filling [sic] for E-rate discounts for this service for the 2003-2004 (Year Six) time period. The rejection notice did not contain the language set forth in Section 120.57(3), Florida Statutes. Nevertheless, the City filed a Notice of Intent to Protest the decision to reject all responses. The timeliness of the Notice of Intent to Protest or the Petition for Administrative Hearing has not been challenged. On December 16, 2002, the Florida Learning Alliance (FLA) filed an RFP requesting vendors for the same services identified in the Respondent's revised request. That is, T1 service for all eligible school sites for E-rate (the sixth year). The deadline for submittals to FLA's RFP was January 16, 2003. No decision on FLA's RFP was rendered as the instant action was initiated on December 23, 2002. The parties contend that by operation of law the bid solicitation process for both RFPs (the Board's and FLA's) was suspended. Thus it is uncertain whether the Respondent will be able to participate in the E-rate program for the sixth year. The E-rate program has existed since the 1998-1999 school year. It provides funding to enable schools to obtain internet access and services. The Schools and Libraries Division (SLD) administers the program and offers funding to eligible school districts computed as a "discount." The level of discount is determined by the level of poverty within the population to be served. The Respondent has participated in the E-rate program for several years. Depending on the school to be served, the Respondent's discount is 86 or 87 percent. The remaining amount, the "undiscounted portion" is not paid by the SLD. Participants in the E-rate program are entitled to apply in two ways: individually (as the Respondent has done) or through a consortium. In this case, the FLA is an alliance through which the Respondent may receive E-rate services. FLA is comprised of three educational consortia covering 34 small rural school districts. The Panhandle Area Educational Consortium (PAEC) encompasses the geographical area within which the Respondent is located. As a member of PAEC, the Respondent is entitled to participate with FLA. By virtue of FLA's Technology Innovation Challenge Grant rural schools may receive T1 lines such as requested herein. More important, however, is FLA's ability to provide the undiscounted portion of the E-rate. That means FLA will provide the 13 or 14 percent not covered by the SLD. In order to benefit in this manner, the Form 470 for the services requested must be filed through the FLA. In this case, the Respondent confirmed this potential benefit of receiving the services at no cost only after its Form 470 and RFP had been posted. When they elected to withdraw their own RFP (to allow FLA to pursue the matter in their behalf) the instant protest followed. The Petitioner did file a response to FLA's RFP in order to be considered for the sixth year E-rate. The issue related to the sixth year is complicated by the fact that unbeknownst to the Respondent FLA acted on behalf of the Board for Year 5 T1 connectivity. As to Year 5, when no vendor replied to the FLA's RFP for T1 service, the Intervenor was selected as the "carrier of last resort." No contract was required or signed in connection with Year 5. The Intervenor was selected for Year 5 because TDS provided service in the areas designated for T1 service E-rate Year 5. That is how it was deemed "carrier of last resort." Other vendors provided services in other areas where they were similarly deemed the "carrier of last resort." In fact it was not until October 2002 that the Year 5 funding was made available. During the discussions over the Year 5 services (and with the deadline for filing the application for the sixth year fast approaching) Respondent filed Form 470 without knowing how or if FLA would participate in the sixth year process. When it later confirmed FLA would be available to administer the sixth year E-rate, the Respondent elected to abandon its revised RFP related to T1 service (thereby hoping to save the 13 or 14 percent not covered by the SLD funding). The revised RFP contained the following information: For Year 6 (July 1, 2003-June 30, 2004), the school district is planning to seek the services listed below. Any company that desires to submit a proposal for these services must meet the following criteria: * * * Be willing to enter into an agreement contingent upon E-Rate funding award. In other words, if the District is not successful in obtaining E-Rate funding on the particular service, the agreement will become invalid. Be willing to accept payment of only the non-discounted portion of the service from the school district and bill the SLD for the remaining portion. (this averages to be 86%) When a vendor is selected to provide E-rate services, SLD requires Form 471 to identify the provider and to complete the requisition started by the process (Form 470). The deadline for filing a Form 471 pertinent to this case (the sixth year) was February 6, 2003. Neither the Respondent nor FLA filed a Form 471 for the T1 services at issue. When the deadline for filing Form 471 passes, the opportunity to receive E-rate funding closes. As of the time of hearing in this cause the possibility of the Respondent receiving E-rate funding was slim to none. No entity filed a Form 471 for T1 services for the sixth year. The Respondent has not selected any vendor to provide E-rate services for the sixth year. The Respondent did not direct FLA to submit the Form 471 with the Intervenor as the provider for T1 during the E-rate sixth year. FLA has not submitted such form. The Respondent did not reject all bids for the purpose of avoiding the procurement process. The Respondent does not have a contract with the Intervenor for T1 services for E-rate, Year 6. The Respondent has not attempted to circumvent policies, rules, laws or statutes governing competitive procurement. The T1 services for the sixth year E-rate are "information technology resources" as defined in Section 282.303(13), Florida Statutes. As such they are not subject to any provision requiring competitive procurement.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Amended Formal Notice of Protest/Petition for Administrative Hearing be dismissed. DONE AND ENTERED this 1st day of May, 2003, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of May, 2003. COPIES FURNISHED: Sterling Dupont, Superintendent Gadsden County School Board 35 Martin Luther King Boulevard Quincy, Florida 32351-4400 Daniel J. Woodring, General Counsel Department of Education 325 West Gaines Street 1244 Turlington Building Tallahassee, Florida 32399-0400 Honorable Jim Horne Commissioner of Education Department of Education Turlington Building, Suite 1514 325 West Gaines Street Tallahassee, Florida 32399-0400 Stephen C. Emmanuel, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302-0391 Roosevelt Randolph, Esquire Knowles, Marks & Randolph, P.A. 215 South Monroe Street, Suite 130 Tallahassee, Florida 32301 William E. Williams, Esquire Huey, Guilday, Tucker, Schwartz, & Williams, P. A. 1983 Centre Pointe Boulevard Suite 200 Post Office Box 12500 Tallahassee, Florida 32308
Findings Of Fact In 1975 the Florida Legislature passed the Medical Malpractice Reform Act, Chapter 75-9, Laws of Florida, now codified in Chapter 768, Florida Statutes. Part of this legislative package included the creation of the Fund. This legislation was passed in response to a medical malpractice insurance crisis which arose when the primary underwriter for the Florida Medical Association sought to stop issuing medical malpractice policies in Florida, thus making it difficult, if not impossible, for physicians or hospitals to obtain medical malpractice insurance coverage at reasonable rates. As a result of this problem, many physicians began to practice defensive medicine, curtail or abandon their practices or practice without coverage of any kind. The Fund is a private not-for-profit organization, participation in which is totally voluntary for its member-health care providers. Insofar as Petitioners are concerned, membership in the Fund is but one of several options available to provide legally required evidence of financial responsibility in order to obtain licensure as a hospital facility in Florida. Physicians, hospitals, health maintenance organizations and ambulatory surgical centers who become members of the Fund must maintain at least $100,000 in primary professional liability insurance. Membership in the Fund grants to each participant a limitation of liability above the $100,000 in primary coverage. To the extent that any settlement or judgment exceeds the primary coverage of the participant, it is paid by the Fund without limitation. The Fund is operated subject to the supervision and approval of a board of governors whose membership is required by law to consist of representatives of the insurance industry, the legal and medical professions, physicians' insurers, hospitals, hospitals' insurers and the general public. The Department is charged by statute with certain regulatory functions concerning the Fund. As the law existed in 1980 a base fee for Fund membership was set by statute at $500 for physicians, after an initial $1,000 enrollment fee for the first year of participation, and at $300 per bed for hospital members. The statute required the Department to set additional fees based upon the classifications of health care providers contained in the statute. In the event that base fees are insufficient to pay all claims asserted against the Fund for a given fund year, the Department is empowered, upon request of the Board of Governors of the Fund, to order assessments against Fund participants to meet any such deficiency. Under the original legislation, all classes of health care providers could be assessed unlimited amounts to make up any deficiencies. As a result of legislative amendments which became effective July 1, 1976, the amount which participants, other than hospitals, could be assessed was limited to the amount each Fund member had paid to join the Fund for that particular coverage year. 1976 legislative amendments also required that each fiscal year of the Fund, which runs from July 1 through June 30, be operated independently of preceding fiscal years, and further required that occurrences giving rise to claims in a particular fund year be paid only from fees or investment income on those fees collected for that particular year. Thus, it is entirely possible for the Fund to experience deficits in a given year, and yet hold surplus funds for other years. On March 14, 1983, the Department of Insurance issued a "Notice of Assessment for 1980-81 Fiscal Fund Year" (hereinafter called the "Notice of Assessment). (exh. 20) Notice of this Notice of Assessment was published in the Florida Administrative Weekly, March 25, 1983, Vol. 9, no. 12. The Notice of Assessment announced that the Insurance Commissioner intended to levy and authorize the Fund to collect an assessment in the amount of $23,684,511 from those health care providers that were members of the Fund in fund year 1980-81 (exh. 20). Each of the hospitals named as Petitioners in the Petition for Administrative Proceedings in Case Dos. 83-1067 and 83-1068 were members of the Florida Patient's Compensation Fund during the fund year 1980-1981. (exh. 40; P.H.S. V 1) The chart below contains the following information concerning fund year 1980-81: the amount of the total proposed assessment described in the Notice of Assessment (dated March 14, 1983); the amount of the losses experienced by doctors and hospitals, respectively; the amount of the fees originally paid by doctors and hospitals; and the amount of the proposed assessments for doctors and hospitals; 1980-1981 Fund Year - Total Assessment $23,684,511 DOCTORS HOSPITALS Losses $19,086,800 Losses $29,798,500 Fees Paid 4,299,117 Fees Paid 6,015,827 Assessments 4,322,233 Assessments 18,734,918 (P.H.S. V 9) The Department computed the portion of the assessment to be paid by the different classes of health care providers for the 1980-1981 fund year based upon an "indicated rate method." This method is represented by the following formula: The Department started with the actuarially indicated rate for each class of health care provider as described in the October, 1981 Actuarial Report prepared by Tillinghast, Nelson, et al. This is called the "indicated rate by class." The Department then applied the following formula for each class: Indicated Rate by Class x No. of Members in the Class = Total indicated fees by Class Total Indicated Fees by Class divided by total Indicated Fees for ALL Classes = Percentage of Indicated Fee by Class Percentage of Indicated Fee by Class x Total Expected Loss for ALL Classes = Expected Loss by Class (Expected loss is ALL losses for the fund year including claims previously paid, reserves established on claims asserted and IBNR [incurred but not reported].) (P.H.S. V 12) The "indicated rate method" for allocating assessments among the various classes of health care providers was selected by the Department as the method which most fairly reflected the classifications prescribed in Section 768.54(3)(c), Florida Statutes. The record in this proceeding establishes that this method is the most feasible mechanism for fairly reflecting classifications established by statute, and, at the same time, providing immediate funds necessary to meet all claims against the Fund. (P.H.S. V 13) The difference between the results derived by the "indicated rate method" and the amounts reflected in the Notice of Assessment is due to the application of the statutory cap on assessments against physician members, as applied by the Department of Insurance. (P.H.S. V 14) Exhibit #17 shows (a) the calculations utilized by the Department in spreading the assessments for the 1980-81 fund year, (b) the amount each class would have paid under the "indicated rate method" for the fund year 1980-81 and (c) the amount actually described in the 1980-81 Notice of Assessment of the Department of Insurance. The Notices of Assessment issued by the Department of Insurance for fund years 1980-1981 allocated the "excess assessments" (which could not be applied to physician members because the 768.54(3)(c)'s limitation on the amount physicians could be assessed) among the other classes of health care providers based upon their percentage of "expected losses." (P.H.S. V 16) The amounts of the assessments sought by the Fund, and described in the Notices of Assessment, were calculated by the Fund by using the following formula: Total fees paid during the Fund Year + Investment Income attributable to the Fund Year Expenses allocated to that Fund Year Amount paid on claims for that Fund Year Amount reserved for all known claims for that Fund Year. (P.H.S. V 17) The fees ordered by the Department of Insurance and collected by the Fund plus the interest income generated by such fees for fund year 1980-81 are inadequate to cover claims against the Fund for that year. (P.H.S. V 19) Petitioners, for purposes of this proceeding, do not contest: (a) the method by which the Fund establishes reserves; (b) the amount of the reserves established for any individual claim file; or (c) the amount of the total deficit described in the Notices of Assessment dated March 14, 1983 for fund year 1980-1981. Nonetheless, Petitioners do not concede that the Fund needs all of the money described in the Notice of Assessment dated March 14, 1983 at this time. (P.H.S. V 33,34) The record in this cause establishes that as of March 14, 1983, there existed a deficiency in the Fund's account for the 1980-1981 fund year of at least $23,684,511 for the payment of settlements, final judgments and reserves on existing and known claims. Approximately $19,405.00 of this deficit is directly attributable to one judgment - Von Stetina v. Florida Medical Center. This was a malpractice judgment against a hospital which has been affirmed on appeal by the First District Court. An appeal has been filed in the Florida Supreme Court. (exh. nos. 1, 2, 18, 19, 26, 27 and 38) In view of the statutory cap on the amounts that may be assessed against physician members of the Fund, the foregoing dollar amounts for assessments for the 1980-81 fund year, and the manner in which they are proposed to be allocated among the remaining classes of health care providers are appropriate. The original fees for the 1980-1981 fund year were set in June of 1980. The Fund by letter dated April 21, 1980 requested that the Department approve an increase in membership fees for physicians and surgeons in the amount of twenty-five (25) percent and a redefinition of rate classes that would move eighteen (18) percent of the physicians and surgeons from Class 3 to Class 2. The Department published notice in the Florida Administrative Weekly and notified interested parties on its mailing lists that a public hearing was to be held on June 2, 1980. This hearing was held pursuant to 627.351, 768.54, and Chapter 120, Florida Statutes. The purpose of the hearing was identified as "to afford the Fund an opportunity to present evidence and agreement in support of its filing and, further, to afford any affected person an opportunity to present evidence and argument relating to the filing." A hearing was in fact held on June 2, 1980. The Fund presented evidence and argument in support of its request for twenty-five (25) percent increase in fees. No parties argued or presented evidence contending that the fees should have been higher. Subsequent to the hearing, the Department notified the Fund by letter dated June 12, 1980 that its request was approved. Acting on the Department's approval, the Fund sent all prospective members of the Fund for the 1980-81 year membership forms. These forms notified each health care provider what the fees for membership for all health care providers would be. In order to join the Fund each health care provider was required to fill out and sign these forms, thereby agreeing to pay the membership fees and any future assessments which might be levied. Both Petitioners and Respondent have submitted proposed findings of fact for consideration by the Hearing Officer. To the extent that those proposed findings of fact are not included in this Recommended Order, they have been specifically rejected as being either irrelevant to the issues involved in this cause, or as not having been supported by evidence of record.
The Issue Whether the application of Lexington for registration as an investment adviser and the application for registration of John B. Waymire should be approved?
Findings Of Fact The Department's Division of Securities and Investor Protection is charged with the administration and enforcement of Chapter 517, Florida Statutes, the Florida Securities and Investor Protection Act. Lexington filed an application for registration as an investment adviser in the State of Florida. The application was filed on May 30, 1985. At the time the application was filed Lexington was known as Amvest Capital Management, Inc. The application was accompanied by an application for registration of John B. Waymire, as principal. By letter dated June 7, 1985, the Department notified Lexington that its application was deficient in 3 ways: The application did not indicate that Lexington was a Foreign Corporation or include a legal opinion stating why such registration was not required under Florida law; The application did not include financial reports as required by Rule 3E-300.02(2)(d), Florida Administrative Code; and Lexington did not meet the net capital/net worth requirements of Rule 3E-600.16, Florida Administrative Code. By letter dated June 17, 1985, Lexington corrected the first 2 deficiencies and requested that the Department waive the net capital requirements of Rule 3E-600.016(3)(b), Florida Administrative Code (hereinafter referred to as the "Net Capital Requirement"). By letter dated August 23, 1985, the Department denied Lexington's request for a waiver of the Net Capital Requirement. By letter dated November 11, 1985, Lexington requested that the Department reconsider its request for a waiver of the Net Capital Requirement. In the letter of November 11, 1985, Lexington also informed the Department that its name had been changed from Amvest Capital Management, Inc., to Lexington Capital Management, Inc. By letter dated February 7, 1986, the Department informed Lexington that it would reconsider its request for a waiver of the Net Capital Requirement and requested audited financial statements of Lexington and Piedmont Management Company, Inc., and information concerning the acquisition of a surety bond by Lexington. On May 7, 1986, Lexington provided the Department with documentation, including an audited financial statement for Lexington as of December 31, 1985, which indicated that Lexington had a negative net worth of $1,248,595.00, a general undertaking from Safeco Insurance Company to issue a surety bond for $100,000.00, and a proposed "Continuing Guaranty" agreement from Piedmont Management Company, Inc., guaranteeing all debt of Lexington. The Financial Administrator of the Department was requested to review the Continuing Guaranty agreement submitted by Lexington. She raised questions which led the Department to conclude that it had no authority to waive the Net Capital Requirement as requested by Lexington. The Financial Administrator of the Department orally informed Lexington of its position and indicated that a Declaratory Statement on the issue could be requested. In September of 1986, Lexington filed a Petition for Declaratory Statement on the issue of whether the Department had the authority to waive the Net Capital Requirement. The request was withdrawn by Lexington by letter on March 13, 1987. On April 29, 1987, the Department issued a letter denying Lexington's application for registration as an investment adviser in the State of Florida for failure to meet the Net Capital Requirement. The Department also denied the application of Mr. Waymire for registration as the principal of Lexington because Lexington's application had been denied. The Department's denial was based upon its determination that it did not have the authority to waive the Net Capital Requirement. The information that the Department had requested that Lexington provide was not considered or analyzed by the Department. The following facts concerning the following investment advisers currently licensed in the State of Florida were proved: FSC Advisory Corporation has filed financial statements with the Department for 1978, 1979, 1980 and 1981 which indicate that the Corporation had a negative net capital of $46,278.00, $79,127.00, $101,024.00 and $90,141.00, respectively, in each of those years. FSC Advisory Corporation has been licensed as an investment adviser in the State of Florida since at least 1977. [The Department has taken no action against FSC Advisory Corporation for failing to maintain the net capital required of licensed investment advisers.] Richard W. Whitehead, Inc., was licensed as an investment adviser on February 5, 1981. Its application included a December, 1980, financial statement which indicated that the company had a negative capital of $589.00. The evidence did not prove that the Department "waived" the Net Capital Requirement. Subsequently filed financial statements for 1981, 1983, 1984, 1985 and 1986 indicate that the company had a negative net capital of $1,071.00, $3,838.00, $4,978.00, $46,582.00 and $33,989.00, respectively, in each of those years. FCA Corporation filed financial statements with the Department for 1984 and 1985 indicating a negative net capital of $115,325.00 for 1984 and $40,136.00 for 1985. The 1985 financial statement was filed in response to a letter of August 13, 1986 from the Department notifying FCA Corporation that it had failed to file a financial statement. Coordinated Financial Services Advisors, Inc., filed a financial statement indicating that it had a negative net capital of $9,019.00 as of March 31, 1987. This statement was filed in response to a letter from the Department dated April 29, 1987, notifying the company that it had failed to file a financial statement. Stratfield Investment Management, Inc., filed a financial statement with the Department indicating that it had a negative net capital of $12,149.00 as of December 31, 1986. Consortium Group, Inc., filed a financial with the Department indicating a negative net capital of $19,947.00 as of October 31, 1986. TFG Consulting, Inc., was registered as an investment adviser by the Department on February 24, 1987. Its application included a July 31, 1986, financial statement indicating a negative net capital of $281.72. The Department informed TFG Consulting, Inc., of this deficiency by letter dated June 13, 1986. Market Metrics, Inc., filed a financial statement with the Department indicating it had a negative net capital of $38,357.00 as of June 30, 1984. Investment Management included a document with its application for registration which indicated that it had a negative net capital of $94,979.00. The Department, however, notified Investment Management of its failure to meet the Net Capital Requirement. By letter dated September 16, 1981, Investment Management notified the Department that it complied with the Net Capital Requirement; it had a net capital of $36,132.00. Generally, the Department took no action against the companies discussed in paragraphs 13a through 13i for failing to maintain the net capital required of licensed investment advisers except to the extent specifically noted in those paragraphs. The evidence did not, however, prove that the Department had waived the Net Capital Requirement for any entity filing an initial application for registration as an investment adviser. The Division of Securities and Investor Protection of the Department has a total staff of approximately 74 persons. The Division's Bureau which processes registrations consists of only 8 professional employees and several clerical positions. The 8 professional employees of the Bureau processed approximately 500 new broker-dealer and investment adviser applications which were approved during the past fiscal year. They also processed applications which were not approved and approximately 3,200 renewals. There are approximately 3,200 broker-dealers and investment advisers, 1,500 branch offices and 120,000 associated persons registered with the Department. Except for bank holding companies, which are discussed, infra, companies which received and/or retained registrations with the Department despite their failure to meet the Net Capital Requirement did so because of Department employee error. From March 6, 1979 until March 20, 1986, the Department issued thirty- three letters in response to requests for waivers of the net capital requirements. In each case the Department indicated that it interpreted Rule 3E-300.02(7)(a), Florida Administrative Code, to allow the Department to waive the Net Capital Requirement if the waiver would not be contrary to the interest of the investing public. Of the thirty-three cases where a waiver was granted, thirty of those cases involved bank holding companies. It is a common practice in bank mergers or reorganizations for a bank to form a bank holding company. Stock of the existing bank is then exchanged for stock of the bank holding company. The bank holding company is required to register as an issuer-dealer and must meet a $5,000.00 net capital requirement. Often, the bank holding company does not meet this requirement until after the transaction has occurred. Therefore, bank holding companies request a conditional waiver from the net capital requirement. Each request is reviewed on a case-by-case basis to be sure the public is adequately protected. The waivers that have been granted were conditioned on the bank holding company complying with the Net Capital Requirement after the exchange of stock occurs. Of the thirty-three waivers proved in this proceeding, thirty were bank holding companies. The evidence failed to prove what type of transaction was involved in the other three cases. The Department's position with regard to waiving the Net Capital Requirement of bank holding companies applied to investment advisers as well as broker-dealers or issuer-dealers. The Department's interpretation of Rule 3E-300.02(7)(a), Florida Administrative Code, with regard to its authority to waive the Net Capital Requirement for bank holding companies set out in the letter to the thirty-three companies referred to above was the same as set out in the Department's letter of February 7, 1986, indicating that the Department would reconsider Lexington's request for a waiver. The Department has stopped granting waivers from the Net Capital Requirement to bank holding companies based upon its present interpretation of the law. The $2,500.00 Net Capital Requirement for investment advisers does not guarantee that customers will not sustain losses or that the adviser will remain solvent. Lexington is an investment adviser doing business in 46 states. The State of Arkansas has taken action to revoke the registration of Lexington in that State. This action is based, in part, on the refusal of the State of Florida to approve Lexington's application. As of the date of its application Lexington had a negative net capital of $1,248,955.00. The negative net capital is due in part to $1,650,000.00 in long-term debt owed to Piedmont Management Company, Inc., and Lexington Management Corporation of New Jersey. Piedmont Management Company, Inc., owns 100 percent of the stock of Lexington Management Corporation of New Jersey, which in turn owns 50 percent of the stock of Lexington. The other 50 percent of the stock of Lexington is owned by "senior management" in Lexington. Lexington's $1,650,000.00 of long-term debt to Piedmont Management Company, Inc., and Lexington Management Corporation of New Jersey is subordinated; all other debts of Lexington would have priority over the long- term dept. Piedmont Management Company, Inc., had net capital of $78,394,000.00 as of December 31, 1985. Lexington does not take physical possession of its clients' assets. Clients' assets are kept with a broker-dealer. Lexington only has the authority to trade a client's account; it does not authority to transfer assets in or out of a client's account. The Continuing Guaranty agreement submitted to the Department by Lexington is not effective indefinitely. The agreement does place the asset and net worth of Piedmont Management Company, Inc., behind the liabilities of Lexington, except subordinated debt. The surety bond commitment was to be in a form specified by the Department. The parties stipulated that Lexington has never met the Net Capital Requirement. If the Net Capital Requirement were waived the investing public would be adequately protected if the actions which the Department and Lexington have discussed are taken. This protection will only be for the effective period of the Continuing Guaranty agreement, however.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the requested waiver of the Net Capital Requirement be DENIED. It is further, RECOMMENDED that the application of Lexington for registration as an investment adviser in the State of Florida and the application of John B. Waymire as principal be DENIED. DONE and ENTERED this 16th day of February, 1988, in Tallahassee, Florida. LARRY J. SARTIN 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 16th day of February, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-2289 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioner's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact of Acceptance or Reason for Rejection 1 2. 2 7. 3 3. 4-5 4. 6 5. 7 6. 8 8. 9 9. The "unconditional guarantee" is for a limited period of time, however. 10 30. 11 31. 12-13 12. 14 23. 15 18. 19. The evidence failed to prove that there was a "substantial minority" or that the 3 applicants which were not bank holding companies were broker- dealers or investment advisers. The evidence failed to prove that there is such a "policy." See 21. 18 22. 19-20 12. The evidence failed to prove that the Department's discontinuance of its treatment of waiver request was "abrupt" or a discontinuance of a policy applicable to the Petitioners. 21 Hereby accepted. 22 24. 23 25. 24 29. The first sentence is irrelevant. The last sentence was not proved by the weight of the evidence. 26. The evidence failed to prove that Lexington has a "parent" company. 27 27. 20 Not a proposed finding of fact. 21 18-20. 22 19. 23 14. 24 15 and 16. 25 17. 26 12 and 23. 27 25. 28 32. The last sentence is a statement of law and not a proposed finding of fact. Not supported by the weight of the evidence. 29 26. 30 28. 31 See 33. 32 13a and 13j. 33 13b and 13j. 34 Not supported by the weight of evidence. 35 13c and 13j. 36 13d and 13j. 37 13e and 13j. 38 13f and 13j. 39 13g. 40 13h and 13j. 41 13i. 42 Not supported by the weight of the evidence. One Department employee testified that he believed that the rationale for waiving the Net Capital Requirement for bank holding companies (that the investing public was adequately protected) would apply to investment advisers also. This testimony does not prove, however, that the Department has implemented a policy with regard to permanent waivers of the Net Capital Requirement for initial applications of investment advisers. 43 Not supported by the weight of the evidence. The Department's Proposed Findings of Fact 1 1. 2 2. 3 3. 4 4. 5 5. 6 6 and 7. 7 8. 8 9. 9 10 and 11. 10 12. 11 13a and 13j. 12 13b and 13j. 13 13c and 13j. 14 13d and 13j. 15 13e. 16 13f. 17 13g. 18 13h. 19 13i. COPIES FURNISHED: Edward W. Dougherty, Esquire and Charles T. Collette, Esquire Mang, Rett & Collettee Post Office Box 11127 Tallahassee, Florida 32302-3127 Walter W. Wood Deputy General Counsel and Margaret S. Karniewicz Assistant General Counsel and Charles E. Scarlett Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32399-0350 Honorable Gerald Lewis Comptroller, State of Florida Banking & Finance Department The Capitol Tallahassee, Florida 32399-0350
Findings Of Fact The Medicaid reimbursement program is a joint state and federal program which provides reimbursement to Florida-licensed nursing homes for long-term care provided to Medicaid eligible persons. The Florida Title XIX Long Term Care Reimbursement Plan (Plan) governs reimbursement to nursing homes for the provision of Medicaid services. The Agency for Health Care Administration (AHCA) is the State agency responsible for implementation of the Medicaid program in the State of Florida. The AHCA is the successor in interest to the Department of Health and Rehabilitative Services, the agency originally responsible for Medicaid reimbursement. At all times material to this case, Quality Health Care (Quality) is and has been a provider of services for purposes of the Medicaid program. Medicaid per diem reimbursement rates for nursing home care were historically based on a "cost" system, which included four components: operating costs, patient care costs, property asset costs and return on equity. Re-valuation of property due to property asset sales and refinancing mechanisms, resulted in a steadily increasing property cost component to the reimbursement formula. The Federal Deficit Reduction Act of 1984 (DEFRA) was enacted in part to limit the effect of property asset re-valuation on reimbursement. The DEFRA restricted the "step up" in property costs which occurred when existing facilities were sold and existing property was re-valued. The actual effect of the DEFRA provisions was to freeze property cost reimbursement. In response to DEFRA, the State of Florida revised its reimbursement program in 1984-85 to shift from the traditional cost system to the fair rental value system (FRVS.) The FRVS, designed to provide an alternative to the DEFRA imposed limits, was created by the State of Florida and the nursing home industry to address the industry's concerns about the effect of DEFRA on reimbursement rates and cash flow. The FRVS methodology imputes a provider's property asset value and indexes the value to specified inflation factors. A provider is reimbursed for a portion of the indexed value rather than actual property costs. The methodology itself is not at issue in this proceeding. On October 1, 1985, the State of Florida implemented Medicaid reimbursement on the FRVS program. At the time of implementation of the FRVS, it was determined that application of the FRVS should be temporarily deferred for some providers. The temporary deferment was intended to protect existing providers committed to long term property liability in anticipation of cost reimbursement rates from being injured by the altered reimbursement program and the resulting reduction in reimbursement rates. In order to provide for deferment of the FRVS, the creators of the system created a "hold harmless" provision designed to protect providers in existence and enrolled in the Medicaid program prior to the October 1, 1985 FRVS implementation date by continuing to reimburse such providers under the cost system for an extended period of time. For purposes of the "hold harmless" provision, Quality was in existence and was enrolled in the Medicaid program on October 1, 1985. In creating the FRVS and hold harmless provision, it was clear that facilities qualifying for cost reimbursement under the hold harmless system would receive a benefit unavailable to FRVS-reimbursed providers. It was necessary to create a mechanism by which the advantage of cost reimbursement could be negated. Accordingly the creators determined that the continued cost reimbursement would, be viewed as an "overpayment" by the agency to the facility which would need at some future date to be repaid. The overpayment is known as the "hold harmless payback liability." Because actual property costs decrease over time due to depreciation and retirement of debt, a provider's cost reimbursement eventually becomes less than the projected FRVS reimbursement rate. When a provider's projected reimbursement under the FRVS exceeds the costs system reimbursement, a provider would normally become entitled to reimbursement at the higher rate. In order to collect the hold harmless payback liability, a provider in the hold harmless program otherwise entitled to the higher FRVS reimbursement receives only cost reimbursement until the point when the "overpayment" by the agency has been "reimbursed." When the hold harmless payback liability is extinguished, the provider receives full FRVS reimbursement. Plan section IV.D. provides that during the transition period, some facilities shall continue receive cost reimbursement until such time as FRVS payments exceed cost reimbursement as specified in Section V.E.1.h. of the Plan, at which time a facility shall begin reimbursement under the FRVS. Plan section IV.D. provides as follows: Effective October 1, 1985, a fair rental value system (FRVS) shall be used to reimburse facilities for property. To prevent any facility from receiving lower reimbursement under FRVS than under the former method where depreciation plus interest costs were used to calculate payments, there shall be a transition period in which some facilities shall continue to be paid depreciation plus interest until such time as FRVS payments exceed depreciation and interest as specified in Section V.E.1.h. At that time a facility shall begin reimbursement under the FRVS. Facilities entering the program after October 1, 1985 that had entered into an armslength (not between related parties) legally enforceable agreement for construction or purchase loans prior to October 1, 1985 shall be eligible for the hold harmless clause per Section V.E.1.h. Plan section V.E.1.h. sets forth the hold harmless provision and provides that if after calculation of the FRVS rate FRVS reimbursement is lower than cost reimbursement, a facility shall continue to receive cost reimbursement until such time as the hold harmless payback liability is extinguished. Plan section V.E.1.h. provides as follows: A "hold harmless" provision shall be implemented to ensure that facilities existing and enrolled in the Medicaid program at October 1, 1985 do not receive reimbursement for property and return on equity or use allowance under the FRVS method less than the property cost reimbursement plus return on equity or use allowance given at September 30, 1985. If, after calculation of the FRVS rate, that reimbursement would be lower than depreciation plus interest costs under III.G. 3.-5. of this plan, a facility shall continue to be reimbursed depreciation plus interest according to III.G. 3.-5. of this plan until such time as the net difference in total payments between III.G. 3.-5. and FRVS is -0-. Plan section III.G. 3.-5. provides the methodology for calculation of cost reimbursement. As of October 1, 1985, Quality's cost reimbursement exceeded the FRVS reimbursement and the "hold harmless" provision was applicable to Quality. As of October 1, 1985, Quality was entitled to cost reimbursement under the "hold harmless" provision based on the Plan provisions cited herein. The Medicaid program establishes reimbursement rates on a semiannual basis. Rates are communicated to providers via rate notices. For all periods except the July 1, 1987 and January 1, 1988 rate cycles, Quality's cost reimbursement rate exceeded the projected FRVS reimbursement rate. For the July 1, 1987 and January 1, 1988 rate cycles, Quality's cost reimbursement rate was less than the projected FRVS reimbursement rate. The rate fluctuation experienced by Quality in the July 1, 1987 and January 1, 1988 rate periods is best described as an anomaly. On August 19, 1993, the agency issued a retroactive notice of rate adjustment from cost to FRVS beginning in the July 1989 rate cycle and for all subsequent periods. The evidence is unclear as to why the retroactive rate adjustment was to become effective beginning in the July 1989 rate cycle. By letter of September 24, 1993, the AHCA notified Quality that its hold harmless payback liability was $212,574.32. The agency asserts that based on Plan section IV.D., Quality should be shifted to the FRVS reimbursement program based on that fact that for the two rate cycles beginning in July 1, 1987, FRVS reimbursement payments exceeded costs reimbursement. The agency's position is contrary to the language of Plan section V.E.1.h. (the hold harmless provision) which states as follows: ...If, after calculation of the FRVS rate, that reimbursement would be lower than depreciation plus interest costs under III.G. 3.-5. of this plan, a facility shall continue to be reimbursed depreciation plus interest according to III.G. 3.-5. of this plan until such time as the net difference in total payments between III.G. 3.-5. and FRVS is -0-. Based on the Plan provisions cited herein, for the July 1, 1987 and January 1, 1988 rate periods, and for the subsequent period within the time frame at issue in this proceeding, Quality would be entitled to cost reimbursement because the net difference in total payments between cost and FRVS has not reached zero. It is not unusual for reimbursement rates to be set at times other than at the beginning of a rate cycle. Such rate changes result in additional rate notices to providers. On three occasions, the agency sent notices to Quality stating that the reimbursement rate was being set at the lower FRVS level. On each occasion, Quality inquired and was informed that the reimbursement rate would remain at cost. The AHCA asserts that the responses to the Quality inquiries were erroneous and that it is entitled to correct the errors. Quality asserts that it relied to its detriment on the responses to its inquiries and that the agency should be estopped from retroactively altering the reimbursement mechanism under which Quality is paid.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Agency for Health Care Administration enter a Final Order providing that Quality Health Care Center continue to be reimbursed under the cost reimbursement system until such time as Quality's hold harmless payback liability is extinguished. DONE and RECOMMENDED this 29th day of June, 1994 in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of June 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-0164 To comply with the requirements of Section 120.59(2), Florida Statutes, the following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 24. Rejected, cumulative. 27-28. Rejected, unnecessary. 30. Rejected, unnecessary. 39-56. Rejected, unnecessary. Respondent The Respondent's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 8. Rejected, cumulative. 11. Rejected, not supported by cited testimony. 20-23. Rejected, unnecessary. 24. Rejected as to use of term "discovered." ,The agency had sent three notices Quality prior to the August 1993 action. 26-36. Rejected, unnecessary. 37. Rejected, irrelevant. The testimony is clear that the drafters of the Plan did not contemplate the situation at issue in this case. 40-43. Rejected, irrelevant, not supported by the greater weight of the evidence. There is no credible evidence that any other provider has experienced this situation. Further, such treatment would be contrary to the clear provisions of the Plan. 47. Irrelevant. There is no deadline for payment of hold harmless payback liability. 48-52. Rejected, unnecessary. COPIES FURNISHED: Douglas M. Cook, Director 2727 Mahan Drive Tallahassee, Florida 32308 Harold D. Lewis, Esquire The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Peter A. Lewis, Esquire 307 West Park Avenue Post Office Box 1017 Tallahassee, Florida 32302-1017 Heidi Garwood, Esquire 1317 Winewood Boulevard Building 6, Room 234 Tallahassee, Florida 32399-0700
Findings Of Fact In 1975 the Florida Legislature passed the Medical Malpractice Reform Act, Chapter 75-9, Laws of Florida, now codified in Chapter 768, Florida Statutes. Part of this legislative package included the creation of the Fund. This legislation was passed in response to a medical malpractice insurance crisis which arose when the primary underwriter for the Florida Medical Association sought to stop issuing medical malpractice policies in Florida, thus making it difficult, if not impossible, for physicians or hospitals to obtain medical malpractice insurance coverage at reasonable rates. As a result of this problem, many physicians began to practice defensive medicine, curtail or abandon their practices or practice without coverage of any kind. The Fund is a private not-for-profit organization, participation in which is totally voluntary for its member health care providers. Insofar as Petitioners are concerned, membership in the Fund is but one of several options available to provide legally required evidence of financial responsibility in order to obtain licensure as a hospital facility in Florida. In fact, of the approximately 260 hospitals in Florida, only 125 satisfy their financial responsibility requirement via membership in the Fund. Physicians, hospitals, health maintenance organizations and ambulatory surgical centers who become members of the Fund must maintain at least $100,000 in primary professional liability insurance. Membership in the Fund grants to each participant a limitation of liability above the $100,000 in primary coverage. To the extent that any settlement or judgment exceeds the primary coverage of the participant, it is paid by the Fund without limitation. The Fund is operated subject to the supervision and approval of a board of governors whose membership is required by law to consist of representatives of the insurance industry, the legal and medical professions, physicians' insurers, hospitals, hospitals' insurers and the general public. The Department is charged by statute with certain regulatory functions concerning the Fund. The base fee for Fund membership is set by statute at $500 for physicians, after an initial $1,000 enrollment fee for the first year of participation, and at $300 per bed for hospital members. The statute requires the Department to set additional fees based upon the classifications of health care providers contained in the statute. In the event that base fees are insufficient to pay all claims asserted against the Fund for a given Fund year, the Department is empowered, upon request of the Board of Governors of the Fund, to order additional assessments against Fund participants to meet any such deficiency. Under the original legislation, all classes of health care providers could be assessed unlimited amounts to make up any deficiencies. As a result of legislative amendments in 1976, however, the amount which participants, other than hospitals, could be assessed was limited to the amount each Fund member had paid to join the Fund for that particular coverage year. 1976 legislative amendments also required that each fiscal year of the Fund be operated independently of preceding fiscal years, and further required that occurrences giving rise to claims in a particular Fund year be paid only from fees or investment income on these fees collected for that particular year. Thus, it is entirely possible for the Fund to experience deficits in a given year, and yet hold surplus funds for other years. The dispute in these consolidated proceedings arises from assessments for deficits incurred for the Fund years 1977-1978 and 1978-1979. Each of the hospitals named as Petitioners in the Petition for Administrative Proceedings in Case No. 82-776 were members of the Fund during the Fund year 1977-1978. Each of the hospitals named in the style and listed on Exhibit "A" to the Amendment to Petition for Administrative Proceedings in Case Nos. 82-530 and 82-571 were members of the Fund during the Fund year 1978-1979. On October 31, 1981, the Fund certified to the Department a deficiency in the amount of $1,350,672 for the Fund year 1977-1978. On January 18, 1982, the Fund certified to the Department an additional deficiency for the Fund year 1977-1978 in the amount of $1,759,591. On January 18, 1982, the Fund certified to the Department a deficiency of $13,935,927 for the Fund year 1978-1979. On January 13, 1982, the Department issued an "order" assessing various classes of health care providers the deficiency originally certified by the Fund for the Fund year 1977-1978. The "order" of January 13, 1982, was amended by the "order" of February 1, 1982, for the Fund year 1977-1973. The amended order contained the same dollar amount of assessments, but altered the amount charged to various classes of Fund members. On February 17, 1982, the Department issued its "order" granting the second assessment for the Fund year 1977-1978. On January 22, 1982, the Department issued its "order" granting the assessment for the 1978-1979 Fund year. The Department has not promulgated any rules pursuant to Chapter 120, Florida Statutes, pertaining to its regulation of or duties in conjunction with the Fund under Section 768.54, Florida Statutes. As members of the Fund, each of the Petitioners' interests are substantially affected by the Orders of January 13, 1982; January 22, 1982; February 1, 1982; and February 17, 1982. For the Fund year 1977-1978 the total assessment ordered by the Department is $3,110,263. The total assessment for the Fund year 1978-1979 is $13,935,972. For the Fund year 1977-1978, physicians and professional association members are proposed to be assessed $1,730,207. During the Fund year 1977-1978, hospital members paid into the Fund, exclusive of interest earned on the fees, the amount of $5,292,498. For the Fund year 1977-1978, physicians and professional association members paid into the Fund the sum of $2,326,541. For the Fund year 1978-1979, hospital members paid into the Fund, exclusive of interest earned on their fees, the sum of $5,627,553. Interest earned through December 31, 1981, on these fees is $1,725,845. For the Fund year 1978-1979, physicians and professional association members paid into the Fund, exclusive of interest earned on their fees, the sum of $2,411,205. Interest earned through December 31, 1981, on the fees contributed by physicians and professional associations is $739,463. For the Fund year 1977-1978, the proposed assessments against hospital members of the Fund is $1,374,827. For the Fund year 1978-1979, the Fund retained the services of an independent actuarial firm to study and recommend appropriate additional fees to charge its members. The following table reflects the statutory base fees, the fees recommended by the actuary, the fees sought by the Fund and the fees ordered by the Department of Insurance for the 1977-1978 Fund year. Base Fees Actuary's Additional Additional Paid Recommended Fees Fees Pursuant Additional Requested Ordered to Stat. Fees by FPCF By DOI Class I Physicians $ $ $ $ Dade/Broward Co. 500.00 2,233.00 2,233.00 -0- Rest of State 500.00 l,749.00 1,749.00 -0- Class II Physicians Dade/Broward Co. 500.00 4,420.00 4,420.00 -0- Rest of State 500.00 3,549.00 3,549.00 -0- Class III Physicians Dade/Broward Co. 500.00 12,619.00 12,619.00 -0- Rest of State 500.00 10,297.00 10,297.00 -0- Hospitals (per occupied bed) 300.00 222.00 222.00 -0- Ambiatory Surgical Centers -0- 22.00 22.00 -0- (per 100 patients) Health Maintenance Organizations -0- 150.00 150.00 -0- (per 100 subscribers) Professional -0- 20 percent of additional (SAME) -0- fee to be paid by each individual member For the Fund year 1978-1979, the Department made no independent actuarial study of the recommended fees proposed by the independent actuary employed by the Fund, and no member of the Casualty Actuarial Society evaluated the Fund's recommendations on behalf of the Department. The independent actuary employed by the Fund was the only actuary who presented any evidence at the hearing conducted by the Department on the Fund's fee increase request for the Fund year 1978-1979. Each year since the Fund year 1977-1979 the Fund has employed the services of an actuary who, among other things, projected the expected losses above the claims previously paid and reserves established for known claims. These expected losses are reported as IBNR ("incurred but not reported") for each Fund year. The IBNR projected by the actuary employed by the Fund in the most recent report (October 1981) for the Fund year 1977-1978 is $6,306,036, and for the Fund year 1978-1979 is $15,965,324. The Department computed the portion of the assessment to be paid by the different classes of health care providers for the Fund year 1977-1978 based upon an approach known as the "indicated rate method." It is concluded from the record that this method is the most feasible of all suggested alternatives under existing law for reflecting the statutory classifications and, at the same time, providing immediate funds necessary to meet all claims against the Fund. This method is represented by the following formula: The Department started with rates which should have been charged each class in 1981-1982. This is called the "indicated rate by class." (The indicated rates were taken from the October, 1980 report by the Fund actuary.) The Department then applied the following formula for each class: Indicated Rate by Class x Number of Members in the Class = Total indicated fees by Class Total Indicated Fees by Class - Total Indicated Fees for ALL Classes Percentage of Indicated Fees by Class. Percentage of Indicated Fee by Class x Total Expected Loss for ALL Classes Expected Loss by Class. (Expected loss is all losses for the fund year included claims previously paid, reserves established on claims asserted and IBNR (incurred but not reported) Expected Loss by Class - Actual Fees paid by Class = Potential Loss Assessment by Class. Potential Loss Assessment by Class - Potential Loss Assessment for ALL Classes Percentage of Potential Loss Assessment by Class. Percentage of Potential Loss Assessment by Class x Total Assessment to be Ordered by the DOI = Amount of Assessment by Class. The following chart shows the amount each class would have paid under the "indicated rate method" for the Fund year 1977-1978, and the amount actually proposed to be assessed in the "orders" of the Indicated Rate Assessment Department: Actual Assessment a) Class I Physicians $ 146,487.00 $ 138,000.00 b) Class II Physicians 213,502.00 438,297.00 c) Class III Physicians 2,195,383.00 813,048.00 d) Hospitals 521,560.00 1,374,827.00 e) HMO 614.00 Surgical Centers 1,381.00 79,953.00 Professional Associations 28,336.00 Based upon the "indicated rate method" and based upon the application of Section 768.54, Florida Statutes, employed by the Department, assessments for the Fund year 1977-1978 which would otherwise be attributable to physician members of the Fund in the approximate amount of $1,500,000 were not charged to any class of physician. Based upon the "indicated rate method" and based upon the application of Section 768.54, Florida Statutes, employed by the Department, assessments for the Fund year 1978-1979 otherwise attributable to physician members of the Fund in the approximate amount of $9,000,000 were not charged to any class of physicians. The assessments described in the "orders" of the Department for the Fund year 1977-1978 which could not be applied to physician members, based upon the Department's interpretation of Section 768.54, Florida Statutes, were spread among the other classes of health care providers based upon their percentage of "expected losses." The Petitioners in this case, each of whom are members of the Fund, consist of 30 government hospitals, 43 private, nonprofit hospitals, and seven private, for-profit hospitals. During the Fund years 1977-1978 and 1978-1979, the Fund consisted of the following classes and numbers of members: 1977-1978 1978-1979 a) Class I Physicians 1392 1516 b) Class II Physicians 814 971 c) Class III Physicians 1584 1690 d) Hospitals 120 130 e) HMO 2 3 f) Surgical Centers 11 14 g) Professional Associations 572 855 The "orders" of the Department dated January 13, 1982; January 22, 1982; February 1, 1982; and February 17, 1982, were the first time any member of the Fund has been assessed under Section 768.54, Florida Statutes. The fees paid into the Fund; the investment income earned through December 31, 1981, on such fees; the expenses incurred through December 31, 1981; the amounts paid on claims through December 31, 1981; reserves established through and the IBNR for each Fund year for 1975-1976 through 1980-1981 are reflected on the table on page 10a. (IBNR figures are projections of future losses prepared by the Fund's actuary in October 1981.) The rates applicable to physicians and hospital members of the Fund for the years 1977-1978 and 1978-1979 were the base fees provided in Section 768.54, Florida Statutes. No additional fees were set for those Fund years. The rate order for the 1978-1979 year entered by the Department on June 9, 1978, was not appealed. The Fund in fact experienced deficits in both Fund years in controversy in this proceeding. The Fund certified to the Department the amount of its projected deficit for the years in question. The amount of money ultimately certified by the Fund to the Department accurately reflects the amounts derived from the following formula: FUND YEAR: 1975-1976 1976-1977 1977-1978 FEES PAID $2,928,672 $6,303,257 $7,467,605 INTEREST EARNED 1,475,41 3,000,118 2,592,179 ADMINISTRATIVE EXPENSES (54,846) (95,002) (148,113) NET FUNDS AVAILABLE 4,349,227 9,208,373 9,911,671 TO PAY LOSSES LOSSES PAID TO DATE (3,004,273) (6,869,395) (8,271,696) INDEMNITY EXPENSES (300,334) (343,433) (391,858) RESERVED LOSSES (971,733) (4,249,604) (3,663,348) RESERVED EXPENSES (57,584) (111,466) (172,869) PRESENT SURPLUS/DEFICIT (14,697) (2,365,525) (2,588,100) LOSSES INCURRED NOT YET REPORTED (IBNR) (AS OF 6/30/81) (1,189,136) (3,878,887) (7,970,235) FUND YEAR: 1978-1979 1979-1980 1980-1981 FEES PAID $8,060,374 $9,836,157 $11,225,275 INTEREST EARNED 2,543,698 2,589,547 1,882,319 ADMINISTRATIVE EXPENSES (128,556) (279,838) (406,641) NET FUNDS AVAILABLE 10,475,506 12,145,866 12,700,953 TO PAY LOSSES LOSSES PAID TO DATE (9,760,650) (3,410,358) (37,500) INDEMNITY EXPENSES (532,197) (206,616) (32,619) RESERVED LOSSES (13,782,271) (6,445,000) (3,750,000) RESERVED EXPENSES (267,932) (342,787) (114,417) PRESENT SURPLUS/DEFICIT (13,867,544) (1,741,105) (8,766,417) LOSSES INCURRED NOT YET (14,979,237) (28,295,428) (51,500,564) REPORTED (IBNR) (AS OF 6/30/81) FUND YEAR: TOTALS FEES PAID $45,821,340 INTEREST EARNED 14,083,262 ADMINISTRATIVE EXPENSES (1,113,006) NET FUNDS AVAILABLE 58,791,596 TO PAY LOSSES LOSSES PAID TO DATE (31,353,872) INDEMNITY EXPENSES (1,837,057) RESERVED LOSSES (32,861,956) RESERVED EXPENSES (1,067,055) PRESENT SURPLUS/DEFICIT (8,328,344) LOSSES INCURRED NOT YET (107,813,487) REPORTED (IBNR) (AS OF 6/30/81) Total fees paid during the Fund Year + Investment Income attributable to the Fund Year Expenses allocated to that Fund Year Amount paid on claims for that Fund Year Amount reserved for all known claims for that Fund Year. The Department entered orders levying the assessments on January 13, 1982; January 22, 1982; February 1, 1982; and February 17, 1982. The parties to this proceeding stipulated that the assessments entered by the Department for 1977-1978 and 1978-1979 are to be considered to be proposed agency action as to such parties. The Department limited the amount assessed against any physician member to an amount equal to the annual membership fee paid by the physician for the year giving use to the assessment. According to the "orders" of the Department for the Fund year 1977- 1978, Class III physicians' share of the assessment, based upon the assessment formula utilized, was in excess of the amount of membership fees paid by that group, and the balance was spread over the rest of the classes of health care providers. According to the "orders" of the Department for the Fund year 1978- 1979, Class I, II, and III physicians' share of the assessment, based upon the assessment formula utilized, was in excess of the amount of membership fees paid by those groups, and the balance was spread among those health care providers described in Section 768.54(1)(b)l.,5.,6., and 7., Florida Statutes. The Department, by order dated June 9, 1978, denied the Fund's request for additional fees for the year 1978-1979. In April 1981, at the request of the Department, the Fund filed a "Retrospective Rating Plan." This plan provided that at such time as the Fund dropped below 25 percent of the original fees paid in any fund year an assessment would be triggered. The plan further provided for the assessment to be based upon all settlements or final judgments entered but unpaid at the time of the assessment, and all reserves established by the Fund at the time of the assessment. This "Retrospective Rating Plan" was approved by the Department, but not adopted pursuant to Chapter 120, Florida Statutes. Although the Fund sought to amend the plan both before and after the assessments now at issue, the original plan remained in effect at all times material to this cause. Although Petitioners have not disputed the amount of the reserves set by the Fund, such reserves constitute a substantial portion of the assessment amounts requested by the Fund. The Department has not made any evaluation of the accuracy of the case reserves, nor has the Department made any analysis of the method employed by the Fund in setting case reserves. There was some evidence that the cash shortages experienced by the Fund for the Fund years 1977-1978 and 1978-1979 may have been caused in part by the manner in which the Fund has paid claims. In 1976 the Florida Legislature limited the amount which the Fund could payout on claims to $100,000 per person, per year. In addition, the law provides that reasonable attorneys' fees and costs shall be paid to a successful claimant within the first 90 days following a judgment or settlement. In most instances, the Fund does not inquire into the fee arrangement between plaintiffs and their attorneys. Moreover, no claim for attorneys' fees is required to be submitted to the Fund or the trial court to set a reasonable percent fee for such services. The Fund has indicated that for claims paid for the Fund years 1977-1978 and 1978-1979, the Fund simply assumed that attorneys' fees and costs equalled 40 percent of the amount of the settlement or judgment. In most cases, the Fund does not consider any portion of the attorneys' fees as having been paid by the primary insurance carrier. In some instances, it appears that payments made by the Fund may have disregarded the $100,000 per person, per year payout limitation, and in other instances the Fund has been ordered to pay amounts in excess of the statutory limit and has not pursued an appeal of such orders. In still other instances the Fund has purchased annuities to fund settlements or judgments, the cost of which annuities exceeded the $100,000 payout limitation. The Fund does not consider such payments to be subject to the payout limitation although no rights of ownership in the annuities are retained by the Fund. It is possible that the cumulative effect of these practices has been significant. Petitioners adduced evidence estimating "excess payments" by the Fund for 1977-1978 over the statutory limit could be as high as $2,684,737. For the Fund year 1978-1979 these "excess payments" could be as high as $4,827,690. Under the Department's application of Section 768.54, Florida Statutes, no physician member will again be assessed for the Fund years 1977- 1978 and 1978-1979. Yet, based upon the latest estimates by the Fund's consulting actuary, additional claims for those two years which have not yet been reported could reach as high as $22,949,472. Under the Department's construction of the statute, hospital members will have to pay all of these additional losses, if the actuary's projections prove correct.
The Issue The issue in this proceeding is whether Petitioner's lottery prize should be withheld and used to pay an outstanding debt for child support.
Findings Of Fact The Petitioner did not appear and no evidence was presented.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Banking and Finance enter a final order dismissing the Petitioners request for a formal hearing, and transferring Petitioner's lottery prize to the Department of Revenue in partial satisfaction of Petitioner's debt for past public assistance obligation. DONE and ENTERED this 20th day of October, 1995, at Tallahassee, Florida. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 20th day of October, 1995. COPIES FURNISHED: James Merriweather 1333 7th Street West Jacksonville, FL 32209 Chriss Walker, Esquire Child Support Enforcement Department of Revenue P. O. Box 8030 Tallahassee, FL 32314-8030 Louisa Warren, Esquire Department of the Lottery 250 Marriott Drive Tallahassee, FL 32399 Stephen S. Godwin, Esquire Office of the Comptroller Suite 1302, The Capitol Tallahassee, FL 32399-0350 Hon. Robert F. Milligan, Comptroller Department of Banking and Finance The Capitol, Plaza Level Tallahassee, FL 32399-0350 Harry Hooper, Esquire Department of Banking and Finance The Capitol - Room 1302 Tallahassee, FL 32399-0350
Conclusions Having reviewed the Notice of Intent to Deem Application Incomplete and Withdrawn from Further Review dated March 13, 2013 (Ex. 1), and the Administrative Law Judge’s Order Granting Respondent’s Motion to Relinquish Jurisdiction and Dismiss Case As Moot (Ex. 2), the Agency for Health Care Administration finds concludes as follows: 1. The license of the Licensee/Transferor, License Number 5799, was revoked by Final Order dated March 8, 2013. 2. The change of ownership application filed by the Petitioner/Transferee is moot because the Licensee no longer has a license. 3. The Petitioner’s change of ownership application is therefore withdrawn from further review in accordance with the Administrative Law Judge’s order. ORDERED in Tallahassee, Florida, on this 23 day of _ Marly , 2014. Sel retary th-Care Administration
Other Judicial Opinions A party that is adversely affected by this Final Order is entitled to seek judicial review which shall be instituted by filing one copy of a notice of appeal with the agency clerk of AHCA, and a second copy, along with filing fee as prescribed by law, with the District Court of Appeal in the appellate district where the agency maintains its headquarters or where a party resides. Review of proceedings shall be conducted in accordance with the Florida appellate rules. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed. Filed March 31, 2014 3:56 PM Division of Administative Hearings CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy offhis Final Order was served on the below- named persons/entities by the method designated on this .$/-day of Space , 2014. Richard J. Shoop, Agency Cler Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308-5403 Telephone (850) 412-3630 Jan Mills Shaddrick Haston, Unit Manager Facilities Intake Unit Licensure Unit Agency for Health Care Administration Agency for Health Care Administration (Electronic Mail) (Electronic Mail) John E. Bradley, Assistant General Counsel Arlene Mayo-Davis, Field Office Manager Office of the General Counsel Local Field Office Agency for Health Care Administration Agency for Health Care Administration (Electronic Mail) (Electronic Mail) Honorable June C. McKinney Administrative Law Judge Division of Administrative Hearings (Electronic Filing) Bernard P. Coniff, Esquire Counsel for Special Care, Inc. 760 Ponce De Leon, Suite. 101 Coral Gables, Florida 33134 (U.S. Mail) HORIDA AGENCY FOR HEALTH CARE ADMINSTRATION Pa RICK SCOTT ELIZABETH DUDEK GOVERNOR Better Health Care for all Floridians SECRETARY 1c, (OP 2% March 13, 2013 my wk eS CERTIFIED MAIL Bernard P. Coniff, Esq. Wilfred Braceras Special Care, Inc. 760 Ponce De Leon, Ste. 101 Coral Gables, Florida 33134 cense Number: 5799 Po} 300 LE 2°) Fy Certified Article Number 756 9008 9111 6923 4301 SENDERS RECORD NOTICE OF INTENT TO DEEM APPLICATION INCOMPLETE AND ENE EY DERM APPLICATION INCOMPLETE AND WITHDRAWN FROM FURTHER REVIEW Dear Sir/s: Your change of ownership (CHOW) application for a license is deemed incomplete and withdrawn from further consideration pursuant to Section 408.806(3)(b), Florida Statutes (F.S.), which states that “Requested information omitted from an application for licensure, license renewal, or change of ownership, other than an inspection, must be filed with the agency within 21 days after the agency’s request for omitted information or the application shall be deemed incomplete and shall be withdrawn from further consideration and the fees shall be forfeited’. You were notified by correspondence dated 01/18/2013 to provide further information addressing identified apparent errors or omissions within twenty-one days from the receipt of the Agency’s correspondence. Our records indicate you received this correspondence by certified mail on 01/24/2013. The requested information was reviewed by the Agency. However, your application is deemed incomplete and withdrawn from further consideration, The outstanding issues remaining for licensure are: Proof of Financial Ability To Operate Conclusion: The applicant has not met the following Statutory filing requirements for proof of financial ability to operate: ¢ The applicant failed to provide independent evidence that the funds necessary for startup costs, working capital, and contingency financing exist and will be available as needed as required under Section 408.810(8), Florida Statutes. Analysis: Staff reviewed the documents submitted by the applicant to demonstrate proof of financial ability to operate. Due to errors and omissions in the filing, staff is unable to evaluate the applicant’s financial ability to operate. Proof of Funding: The applicant did not provide adequate proof of ability to fund start-up costs, working capital, and required contingency funding as required by Section 408.810(8), Florida Statutes. : The inter-office omissions letter dated January 18, 2013, raised the following issues: 2727 Mahan Drive,MS#30 Tallahassee, Florida 32308 Visit AHCA online at ahca.myflorida.com CYHIBIT 1 Mr. Braceras * BOYNTON BEACH ASSIS. LIVING FACILITY Page 2 03/13/2013 CHOW Purchase Price The applicant did not indicate the purchase price on Schedule 1. In addition, the applicant did not provide documentation of the purchase (purchase agreement, bill of sale, etc.) and did not provide proof of available funding to complete the purchase transaction. Please provide supporting documentation indicating the availability of funds to complete the purchase. Proof may include account statements of the purchaser prior to purchase. If the purchase has already been completed (an executed bill of sale exists) please provide documentation of the transfer of funds including canceled checks, and or electronic funds transfer receipts. if the applicant borrowed any of the funds for the purchase from an institution or individual, please disclose the amount borrowed, the identity of the lender, and documentation supporting the loan. While the applicant did indicate a purchase price of $30,000, it again did not provide proof of CHOW price, potentially significantly understating its. funding requirement. Working Capital, and Contingency Financing Working capital as defined on Schedule 1 as the largest cumulative cash need from year one or two, from Schedule 7, Projected Cash Flow Statement, Line 21 of the application. In its application, the agency listed its largest cumulative cash need as $0. However, the correct figure, according to the applicants’ Schedule 7, as filed, is $62,182. In addition to providing funding for start-up costs and working capital requirement, all applicants are required by law to provide for contingency financing. Contingency financing as defined in Section 400.471(2}(e), Florida Statutes, and applies to all agency licensure and requires an applicant’s access to contingency financing in addition to funding anticipated cash flows. The purpose of contingency financing is to provide funding for unanticipated, extraordinary occurrences that the applicant cannot project. The contingency financing should cover at least one-month’s average operating expense over the first year of operations. This funding should be in addition to the funding for working capital and Start-up cost on Schedule 1. On Schedule 1, the applicant calculated its contingency funding requirement as $0. However, based on the financial projections in the application, the total annual operating expense in year one is $1,240,565; therefore, one month’s average operating expense would be $103,380. Note: the amounts above are based on the application as filed. The amounts may change due to the financial and application omissions in this notice. Together, the combined total working capital, and contingency funding requirement for the applicant is $165,562, as filed. In its initial application, the applicant did not complete the working capital or contingency funding components of the minimum funding requirement calculation. The only amount listed were pre- opening costs of $66,375. In its response to omissions, the applicant included those omitted items and adjusted pre-opening costs, which appears to have incorrectly contained the purchase price instead of it being listed separately. Because the applicant did not provide any documentation proving the purchase had been completed, and confirming the purchase price, the purchase price must be added to the minimum funding requirement. Mr. Braceras BOYNTON BEACH ASSIS. .O LIVING FACILITY Page 3 03/13/2013 As a result, the minimum funding requirement, as filed in its omission response, is $213,965 ($60,000 purchase price + $50,780 working capital + $103,185 contingency funding). Insufficient Proof of Funding The applicant did not indicate any source of funds on Schedule 1, and did not provide any supporting documentation as evidence that any required financing exist and are available for immediate use, as directed in the instructions to Schedule 1. Failure to provide proof of ability to fund the minimum funding requirement will result in denial of the application. Pursuant to Schedule 1 instructions, please provide independent, certifiable documentation of the existence and availability of these funds, Examples of documents that support funding include: * copies of current bank statements for accounts owned by the proposed agency, * letters of commitment from a bank or other independent lending source, * or a copy of a line of credit agreement indicating credit line and available credit and any restrictions, * parent company audited financial statements (Note: unaudited financial statements will not be considered as proof of funding ability). In addition, if submitting more than one document as Support for funding, attach a Separate schedule that clearly lists each item, including: Name of the financial institution Cutoff (balance) date Last four digits of the account/identification number Ending balance For a line of credit, along with the above, provide total credit line and available credit Note: any parent company or personal funds pledged to the applicant must meet the above criteria and the owner of the funds must provide a binding letter of financial commitment pledging the funds to the applicant. Note: already paid pre-opening costs being claimed must be supported by paid invoices, receipts, etc. All receipts must be accompanied by a separate schedule prepared in an orderly fashion that recaps the nature of the expenditure, amount, and that ultimately ties to the amount claimed as pre-paid expense on Schedule 1. Receipts received alone, without an orderly analysis attached will not be considered as @ source of funding. As its source of funds the applicant provided bank statements proving $143,760 (one statement indicating $4,916, and the second indicating a balance of $138,844). In addition, the applicant included a copy of a check in the amount of $30,000. Staff is unsure of the nature and relevance of the check as no explanation was given for it. However, the funding shortfall is $70,205 and even if the $30,000 check were proof of some prepaid costs, the minimum funding requirement would still be under funded by $40,205. : Since the proven funding is less than the required funding the applicant has not met the provisions of Section 408.810(8), Florida Statutes, and has not proven the financial ability to operate. Mr. Braceras BOYNTON BEACH ASSIS._D LIVING FACILITY Page 4 03/13/2013 Residential Group Care Inspection Report (DOH Form 4029 Please provide a copy of this report from your county health department. The report must be satisfactory and have a current date. EXPLANATION OF RIGHTS Pursuant to Section 120.569, ES, you have the right to request an administrative hearing. In order to obtain a formal proceeding before the Division of Administrative Hearings under Section 120.57(1), F.S., your request for an administrative hearing must conform to the requirements in Section 28- 106.201, Florida Administrative Code (F.A.C), and must state the material facts you dispute. SEE ATTACHED ELECTION AND EXPLANATION OF RIGHTS FORMS. Sincerely, Shaddrick Haston, Manage) Assisted Living Unit SH/Pottere ce: Agency Clerk, Mail Stop 3 Legal Intake Unit, Mail Stop 3 STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS SPECIAL CARE, INC., Petitioner, vs. Case No. 13-1450 AGENCY FOR HEALTH CARE ADMINISTRATION, Respondent. ORDER GRANTING RESPONDENT’S MOTION TO RELINQUISH JUR[ISDIC]TION AND DISMISS CASE AS MOOT Respondent's Motion to Relinquish Jurfisdic]tion and Dismiss Case as Moot ("Motion") came before the undersigned on June 10, 2013, in which the Agency for Health Care Administration ("Respondent" or “ACHA") asserted that there are no disputed material facts before the undersigned in this matter. ACHA contends that license number 5799, which Special Care, Inc.,*/ is seeking with its change of ownership application, has been revoked by final agency action. Respondent further contends that since license number 5799 ceases to exist, all collateral matters regarding the license are moot, including sufficiency of an application for Petitioner, which is the issue before the undersigned. On June 17, 2013, Special Care, Inc. filed Petitioner's Objection to Respondent's Motion to Relinquish Jurisdiction and Dismiss Case as Moot ("Response"). In the Response, Petitioner did not dispute the material facts of Respondent's Motion stated in paragraphs two through six. Petitioner only alleged duress by Respondent as the reason for Petitioner's submission of a change of ownership application instead of an initial licensure application. After careful consideration of the pleadings, and there being no disputed issues of material fact to be resolved by the Division of Administrative Hearings since Petitioner's change of ownership application is moot because license number 5799 does not exist, it is, therefore, EXHIBIT 2 ORDERED that: 1. The Motion is granted. 2. The final hearing scheduled for July 10, 2013, is canceled. 3. Jurisdiction is relinquished to the Agency for Health Care Administration for entry of a final order. The file of the Division of Administrative Hearings is closed. DONE AND ORDERED this 19th day of June, 2013, in Tallahassee, Leon County, Florida. COHN, JUNE C. McKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of June, 2013.
The Issue At issue in this proceeding is whether proposed Florida Administrative Code Rule 69O-125.005 is an invalid exercise of delegated legislative authority.
Findings Of Fact Petitioners AIA is a trade association made up of 40 groups of insurance companies. AIA member companies annually write $6 billion in property, casualty, and automobile insurance in Florida. AIA's primary purpose is to represent the interests of its member insurance groups in regulatory and legislative matters throughout the United States, including Florida. NAMIC is a trade association consisting of 1,430 members, mostly mutual insurance companies. NAMIC member companies annually write $10 billion in property, casualty, and automobile insurance in Florida. NAMIC represents the interests of its member insurance companies in regulatory and legislative matters throughout the United States, including Florida. PCI is a national trade association of property and casualty insurance companies consisting of 1,055 members. PCI members include mutual insurance companies, stock insurance companies, and reciprocal insurers that write property and casualty insurance in Florida. PCI members annually write approximately $15 billion in premiums in Florida. PCI participated in the OIR's workshops on the Proposed Rule. PCI's assistant vice president and regional manager, William Stander, testified that if the Proposed Rule is adopted, PCI's member companies would be required either to withdraw from the Florida market or drastically reorganize their business model. FIC is an insurance trade association made up of 39 insurance groups that represent approximately 250 insurance companies writing all lines of insurance. All of FIC's members are licensed in Florida and write approximately $27 billion in premiums in Florida. FIC has participated in rule challenges in the past, and participated in the workshop and public hearing process conducted by OIR for this Proposed Rule. FIC President Guy Marvin testified that FIC's property and casualty members use credit scoring and would be affected by the Proposed Rule. A substantial number of Petitioners' members are insurers writing property and casualty insurance and/or motor vehicle insurance coverage in Florida. These members use credit-based insurance scoring in their underwriting and rating processes. They would be directly regulated by the Proposed Rule in their underwriting and rating methods and in the rate filing processes set forth in Sections 627.062 and 627.0651, Florida Statutes. Fair Isaac originated credit-based insurance scoring and is a leading provider of credit-based insurance scoring information in the United States and Canada. Fair Isaac has invested millions of dollars in the development and maintenance of its credit-based insurance models. Fair Isaac concedes that it is not an insurer and, thus, would not be directly regulated by the Proposed Rule. However, Fair Isaac would be directly affected by any negative impact that the Proposed Rule would have in setting limits on the use of credit-based insurance score models in Florida. Lamont Boyd, a manager in Fair Isaac's global scoring division, testified that if the Proposed Rule goes into effect Fair Isaac would, at a minimum, lose all of the revenue it currently generates from insurance companies that use its scores in the State of Florida, because Fair Isaac's credit-based insurance scoring model cannot meet the requirements of the Proposed Rule regarding racial, ethnic, and religious categorization. Mr. Boyd also testified that enactment of the Proposed Rule could cause a "ripple effect" of similar regulations in other states, further impairing Fair Isaac's business. The Statute and Proposed Rule During the 1990s, insurance companies' use of consumer credit information for underwriting and rating automobile and residential property insurance policies greatly increased. Insurance regulators expressed concern that the use of consumer credit reports, credit histories and credit-based insurance scoring models could have a negative effect on consumers' ability to obtain and keep insurance at appropriate rates. Of particular concern was the possibility that the use of credit scoring would particularly hurt minorities, people with low incomes, and young people, because those persons would be more likely to have poor credit scores. On September 19, 2001, Insurance Commissioner Tom Gallagher appointed a task force to examine the use of credit reports and develop recommendations for the Legislature or for the promulgation of rules regarding the use of credit scoring by the insurance industry. The task force met on four separate occasions throughout the state in 2001, and issued its report on January 23, 2002. The task force report conceded that the evidence supporting the negative impact of the use of credit reports on specific groups is "primarily anecdotal," and that the insurance industry had submitted anecdotal evidence to the contrary. Among its nine recommendations, the task force recommended the following: A comprehensive and independent investigation of the relationship between insurers' use of consumer credit information and risk of loss including the impact by race, income, geographic location and age. A prohibition against the use of credit reports as the sole basis for making underwriting or rating decisions. That insurers using credit as an underwriting or rating factor be required to provide regulators with sufficient information to independently verify that use. That insurers be required to send a copy of the credit report to those consumers whose adverse insurance decision is a result of their consumer credit information and a simple explanation of the specific credit characteristics that caused the adverse decision. That insurers not be permitted to draw a negative inference from a bad credit score that is due to medical bills, little or no credit information, or other special circumstances that are clearly not related to an applicant's or policyholder's insurability. That the impact of credit reports be mitigated by imposing limits on the weight that insurers can give to them in the decision to write a policy and limits on the amount the premium can be increased due to credit information. No evidence was presented that the "comprehensive and independent investigation" of insurers' use of credit information was undertaken by the Legislature. However, the other recommendations of the task force were addressed in Senate Bills 40A and 42A, enacted by the Legislature and signed by the governor on June 26, 2003. These companion bills, each with an effective date of January 1, 2004, were codified as Sections 626.9741 and 626.97411, Florida Statutes, respectively. Chapters 2003-407 and 2003-408, Laws of Florida. Section 626.9741, Florida Statutes, provides: The purpose of this section is to regulate and limit the use of credit reports and credit scores by insurers for underwriting and rating purposes. This section applies only to personal lines motor vehicle insurance and personal lines residential insurance, which includes homeowners, mobile home owners' dwelling, tenants, condominium unit owners, cooperative unit owners, and similar types of insurance. As used in this section, the term: "Adverse decision" means a decision to refuse to issue or renew a policy of insurance; to issue a policy with exclusions or restrictions; to increase the rates or premium charged for a policy of insurance; to place an insured or applicant in a rating tier that does not have the lowest available rates for which that insured or applicant is otherwise eligible; or to place an applicant or insured with a company operating under common management, control, or ownership which does not offer the lowest rates available, within the affiliate group of insurance companies, for which that insured or applicant is otherwise eligible. "Credit report" means any written, oral, or other communication of any information by a consumer reporting agency, as defined in the federal Fair Credit Reporting Act, 15 U.S.C. ss. 1681 et seq., bearing on a consumer's credit worthiness, credit standing, or credit capacity, which is used or expected to be used or collected as a factor to establish a person's eligibility for credit or insurance, or any other purpose authorized pursuant to the applicable provision of such federal act. A credit score alone, as calculated by a credit reporting agency or by or for the insurer, may not be considered a credit report. "Credit score" means a score, grade, or value that is derived by using any or all data from a credit report in any type of model, method, or program, whether electronically, in an algorithm, computer software or program, or any other process, for the purpose of grading or ranking credit report data. "Tier" means a category within a single insurer into which insureds with substantially similar risk, exposure, or expense factors are placed for purposes of determining rate or premium. An insurer must inform an applicant or insured, in the same medium as the application is taken, that a credit report or score is being requested for underwriting or rating purposes. An insurer that makes an adverse decision based, in whole or in part, upon a credit report must provide at no charge, a copy of the credit report to the applicant or insured or provide the applicant or insured with the name, address, and telephone number of the consumer reporting agency from which the insured or applicant may obtain the credit report. The insurer must provide notification to the consumer explaining the reasons for the adverse decision. The reasons must be provided in sufficiently clear and specific language so that a person can identify the basis for the insurer's adverse decision. Such notification shall include a description of the four primary reasons, or such fewer number as existed, which were the primary influences of the adverse decision. The use of generalized terms such as "poor credit history," "poor credit rating," or "poor insurance score" does not meet the explanation requirements of this subsection. A credit score may not be used in underwriting or rating insurance unless the scoring process produces information in sufficient detail to permit compliance with the requirements of this subsection. It shall not be deemed an adverse decision if, due to the insured's credit report or credit score, the insured continues to receive a less favorable rate or placement in a less favorable tier or company at the time of renewal except for renewals or reunderwriting required by this section. (4)(a) An insurer may not request a credit report or score based upon the race, color, religion, marital status, age, gender, income, national origin, or place of residence of the applicant or insured. An insurer may not make an adverse decision solely because of information contained in a credit report or score without consideration of any other underwriting or rating factor. An insurer may not make an adverse decision or use a credit score that could lead to such a decision if based, in whole or in part, on: The absence of, or an insufficient, credit history, in which instance the insurer shall: Treat the consumer as otherwise approved by the Office of Insurance Regulation if the insurer presents information that such an absence or inability is related to the risk for the insurer; Treat the consumer as if the applicant or insured had neutral credit information, as defined by the insurer; Exclude the use of credit information as a factor and use only other underwriting criteria; Collection accounts with a medical industry code, if so identified on the consumer's credit report; Place of residence; or Any other circumstance that the Financial Services Commission determines, by rule, lacks sufficient statistical correlation and actuarial justification as a predictor of insurance risk. An insurer may use the number of credit inquiries requested or made regarding the applicant or insured except for: Credit inquiries not initiated by the consumer or inquiries requested by the consumer for his or her own credit information. Inquiries relating to insurance coverage, if so identified on a consumer's credit report. Collection accounts with a medical industry code, if so identified on the consumer's credit report Multiple lender inquiries, if coded by the consumer reporting agency on the consumer's credit report as being from the home mortgage industry and made within 30 days of one another, unless only one inquiry is considered. Multiple lender inquiries, if coded by the consumer reporting agency on the consumer's credit report as being from the automobile lending industry and made within 30 days of one another, unless only one inquiry is considered. An insurer must, upon the request of an applicant or insured, provide a means of appeal for an applicant or insured whose credit report or credit score is unduly influenced by a dissolution of marriage, the death of a spouse, or temporary loss of employment. The insurer must complete its review within 10 business days after the request by the applicant or insured and receipt of reasonable documentation requested by the insurer, and, if the insurer determines that the credit report or credit score was unduly influenced by any of such factors, the insurer shall treat the applicant or insured as if the applicant or insured had neutral credit information or shall exclude the credit information, as defined by the insurer, whichever is more favorable to the applicant or insured. An insurer shall not be considered out of compliance with its underwriting rules or rates or forms filed with the Office of Insurance Regulation or out of compliance with any other state law or rule as a result of granting any exceptions pursuant to this subsection. A rate filing that uses credit reports or credit scores must comply with the requirements of s. 627.062 or s. 627.0651 to ensure that rates are not excessive, inadequate, or unfairly discriminatory. An insurer that requests or uses credit reports and credit scoring in its underwriting and rating methods shall maintain and adhere to established written procedures that reflect the restrictions set forth in the federal Fair Credit Reporting Act, this section, and all rules related thereto. (7)(a) An insurer shall establish procedures to review the credit history of an insured who was adversely affected by the use of the insured's credit history at the initial rating of the policy, or at a subsequent renewal thereof. This review must be performed at a minimum of once every 2 years or at the request of the insured, whichever is sooner, and the insurer shall adjust the premium of the insured to reflect any improvement in the credit history. The procedures must provide that, with respect to existing policyholders, the review of a credit report will not be used by the insurer to cancel, refuse to renew, or require a change in the method of payment or payment plan. (b) However, as an alternative to the requirements of paragraph (a), an insurer that used a credit report or credit score for an insured upon inception of a policy, who will not use a credit report or score for reunderwriting, shall reevaluate the insured within the first 3 years after inception, based on other allowable underwriting or rating factors, excluding credit information if the insurer does not increase the rates or premium charged to the insured based on the exclusion of credit reports or credit scores. The commission may adopt rules to administer this section. The rules may include, but need not be limited to: Information that must be included in filings to demonstrate compliance with subsection (3). Statistical detail that insurers using credit reports or scores under subsection (5) must retain and report annually to the Office of Insurance Regulation. Standards that ensure that rates or premiums associated with the use of a credit report or score are not unfairly discriminatory, based upon race, color, religion, marital status, age, gender, income, national origin, or place of residence. Standards for review of models, methods, programs, or any other process by which to grade or rank credit report data and which may produce credit scores in order to ensure that the insurer demonstrates that such grading, ranking, or scoring is valid in predicting insurance risk of an applicant or insured. Section 626.97411, Florida Statutes, provides: Credit scoring methodologies and related data and information that are trade secrets as defined in s. 688.002 and that are filed with the Office of Insurance Regulation pursuant to a rate filing or other filing required by law are confidential and exempt from the provisions of s. 119.07(1) and s. 24(a), Art. I of the State Constitution.3 Following extensive rule development workshops and industry comment, proposed Florida Administrative Code Rule 69O-125.005 was initially published in the Florida Administrative Weekly, on February 11, 2005.4 The Proposed Rule states, as follows: 69O-125.005 Use of Credit Reports and Credit Scores by Insurers. For the purpose of this rule, the following definitions apply: "Applicant", for purposes of Section 626.9741, F.S., means an individual whose credit report or score is requested for underwriting or rating purposes relating to personal lines motor vehicle or personal lines residential insurance and shall not include individuals who have merely requested a quote. "Credit scoring methodology" means any methodology that uses credit reports or credit scores, in whole or in part, for underwriting or rating purposes. "Data cleansing" means the correction or enhancement of presumed incomplete, incorrect, missing, or improperly formatted information. "Personal lines motor vehicle" insurance means insurance against loss or damage to any motorized land vehicle or any loss, liability, or expense resulting from or incidental to ownership, maintenance or use of such vehicle if the contract of insurance shows one or more natural persons as named insureds. The following are not included in this definition: Vehicles used as public livery or conveyance; Vehicles rented to others; Vehicles with more than four wheels; Vehicles used primarily for commercial purposes; and Vehicles with a net vehicle weight of more than 5,000 pounds designed or used for the carriage of goods (other than the personal effects of passengers) or drawing a trailer designed or used for the carriage of such goods. The following are specifically included, inter alia, in this definition: Motorcycles; Motor homes; Antique or classic automobiles; and Recreational vehicles. "Unfairly discriminatory" means that adverse decisions resulting from the use of a credit scoring methodology disproportionately affects persons belonging to any of the classes set forth in Section 626.9741(8)(c), F.S. Insurers may not use any credit scoring methodology that is unfairly discriminatory. The burden of demonstrating that the credit scoring methodology is not unfairly discriminatory is upon the insurer. An insurer may not request or use a credit report or credit score in its underwriting or rating method unless it maintains and adheres to established written procedures that reflect the restrictions set forth in the federal Fair Credit Reporting Act, Section 626.9741, F.S., and these rules. Upon initial use or any change in that use, insurers using credit reports or credit scores for underwriting or rating personal lines residential or personal lines motor vehicle insurance shall include the following information in filings submitted pursuant to Section 627.062 or 627.0651, F.S. A listing of the types of individuals whose credit reports or scores the company will use or attempt to use to underwrite or rate a given policy. For example: Person signing application; Named insured or spouse; and All listed operators. How those individual reports or scores will be combined if more than one is used. For example: Average score used; Highest score used. The name(s) of the consumer reporting agencies or any other third party vendors from which the company will obtain or attempt to obtain credit reports or scores. Precise identifying information specifying or describing the credit scoring methodology, if any, the company will use including: Common or trade name; Version, subtype, or intended segment of business the system was designed for; and Any other information needed to distinguish a particular credit scoring methodology from other similar ones, whether developed by the company or by a third party vendor. The effect of particular scores or ranges of scores (or, for companies not using scores, the effect of particular items appearing on a credit report) on any of the following as applicable: Rate or premium charged for a policy of insurance; Placement of an insured or applicant in a rating tier; Placement of an applicant or insured in a company within an affiliated group of insurance companies; Decision to refuse to issue or renew a policy of insurance or to issue a policy with exclusions or restrictions or limitations in payment plans. The effect of the absence or insufficiency of credit history (as referenced in Section 626.9741(4)(c)1., F.S.) on any items listed in paragraph (e) above. The manner in which collection accounts identified with a medical industry code (as referenced in Section 626.9741(4)(c)2., F.S.) on a consumer's credit report will be treated in the underwriting or rating process or within any credit scoring methodology used. The manner in which collection accounts that are not identified with a medical industry code, but which an applicant or insured demonstrates are the direct result of significant and extraordinary medical expenses, will be treated in the underwriting or rating process or within any credit scoring methodology used. The manner in which the following will be treated in the underwriting or rating process, or within any credit scoring methodology used: Credit inquiries not initiated by the consumer; Requests by the consumer for the consumer's own credit information; Multiple lender inquiries, if coded by the consumer reporting agency on the consumer's credit report as being from the automobile lending industry or the home mortgage industry and made within 30 days of one another; Multiple lender inquiries that are not coded by the consumer reporting agency on the consumer's credit report as being from the automobile lending industry or the home mortgage industry and made within 30 days of one another, but that an applicant or insured demonstrates are the direct result of such inquiries; Inquiries relating to insurance coverage, if so identified on a consumer's credit report; and Inquiries relating to insurance coverage that are not so identified on a consumer's credit report, but which an applicant or insured demonstrates are the direct result of such inquiries. The list of all clear and specific primary reasons that may be cited to the consumer as the basis or explanation for an adverse decision under Section 626.9741(3), F.S. and the criteria determining when each of those reasons will be so cited. A description of the process that the insurer will use to correct any error in premium charged the insured, or in underwriting decision made concerning the insured, if the basis of the premium charged or the decision made is a disputed item that is later removed from the credit report or corrected, provided that the insured first notifies the insurer that the item has been removed or corrected. A certification that no use of credit reports or scores in rating insurance will apply to any component of a rate or premium attributed to hurricane coverage for residential properties as separately identified in accordance with Section 627.0629, F.S. Insurers desiring to make adverse decisions for personal lines motor vehicle policies or personal lines residential policies based on the absence or insufficiency of credit history shall either: Treat such consumers or applicants as otherwise approved by the Office of Insurance Regulation if the insurer presents information that such an absence or inability is related to the risk for the insurer and does not result in a disparate impact on persons belonging to any of the classes set forth in Section 626.9741(8)(c), This information will be held as confidential if properly so identified by the insurer and eligible under Section 626.9711, F.S. The information shall include: Data comparing experience for each category of those with absent or insufficient credit history to each category of insureds separately treated with respect to credit and having sufficient credit history; A statistically credible method of analysis that concludes that the relationship between absence or insufficiency and the risk assumed is not due to chance; A statistically credible method of analysis that concludes that absence or insufficiency of credit history does not disparately impact persons belonging to any of the classes set forth in Section 626.9741(8)(c), F.S.; A statistically credible method of analysis that confirms that the treatment proposed by the insurer is quantitatively appropriate; and Statistical tests establishing that the treatment proposed by the insurer is warranted for the total of all consumers with absence or insufficiency of credit history and for at least two subsets of such consumers. Treat such consumers as if the applicant or insured had neutral credit information, as defined by the insurer. Should an insurer fail to specify a definition, neutral is defined as the average score that a stratified random sample of consumers or applicants having sufficient credit history would attain using the insurer's credit scoring methodology; or Exclude credit as a factor and use other criteria. These other criteria must be specified by the insurer and must not result in average treatment for the totality of consumers with an absence of or insufficiency of credit history any less favorable than the treatment of average consumers or applicants having sufficient credit history. Insurers desiring to make adverse decisions for personal lines motor vehicle or personal lines residential insurance based on information contained in a credit report or score shall file with the Office information establishing that the results of such decisions do not correlate so closely with the zip code of residence of the insured as to constitute a decision based on place of residence of the insured in violation of Section 626.9741(4)(c)(3), F.S. (7)(a) Insurers using credit reports or credit scores for underwriting or rating personal lines residential or personal lines motor vehicle insurance shall develop, maintain, and adhere to written procedures consistent with Section 626.9741(4)(e), F.S. providing appeals for applicants or insureds whose credit reports or scores are unduly influenced by dissolution of marriage, death of a spouse, or temporary loss of employment. (b) These procedures shall be subject to examination by the Office at any time. (8)(a)1. Insurers using credit reports or credit scoring in rating personal lines motor vehicle or personal lines residential insurance shall develop, maintain, and adhere to written procedures to review the credit history of an insured who was adversely affected by such use at initial rating of the policy or subsequent renewal thereof. These procedures shall be subject to examination by the Office at any time. The procedures shall comply with the following: A review shall be conducted: No later than 2 years following the date of any adverse decision, or Any time, at the request of the insured, but no more than once per policy period without insurer assent. The insurer shall notify the named insureds annually of their right to request the review in (II) above. Renewal notices issued 120 days or less after the effective date of this rule are not included in this requirement. The insurer shall adjust the premium to reflect any improvement in credit history no later than the first renewal date that follows a review of credit history. The renewal premium shall be subject to other rating factors lawfully used by the insurer. The review shall not be used by the insurer to cancel, refuse to renew, or require a change in the method of payment or payment plan based on credit history. (b)1. As an alternative to the requirements in paragraph (8)(a), insurers using credit reports or scores at the inception of a policy but not for re-underwriting shall develop, maintain, and adhere to written procedures. These procedures shall be subject to examination by the Office at any time. The procedures shall comply with the following: Insureds shall be reevaluated no later than 3 years following policy inception based on allowable underwriting or rating factors, excluding credit information. The rate or premium charged to an insured shall not be greater, solely as a result of the reevaluation, than the rate or premium charged for the immediately preceding policy term. This shall not be construed to prohibit an insurer from applying regular underwriting criteria (which may result in a greater premium) or general rate increases to the premium charged. For insureds that received an adverse decision notification at policy inception, no residual effects of that adverse decision shall survive the reevaluation. This means that the reevaluation must be complete enough to make it possible for insureds adversely impacted at inception to attain the lowest available rate for which comparable insureds are eligible, considering only allowable underwriting or rating factors (excluding credit information) at the time of the reevaluation. No credit scoring methodology shall be used for personal lines motor vehicle or personal lines residential property insurance unless that methodology has been demonstrated to be a valid predictor of the insurance risk to be assumed by an insurer for the applicable type of insurance. The demonstration of validity detailed below need only be provided with the first rate, rule, or underwriting guidelines filing following the effective date of this rule and at any time a change is made in the credit scoring methodology. Other such filings may instead refer to the most recent prior filing containing a demonstration. Information supplied in the context of a demonstration of validity will be held as confidential if properly so identified by the insurer and eligible under Section 626.9711, F.S. A demonstration of validity shall include: A listing of the persons that contributed substantially to the development of the most current version of the method, including resumes of the persons, if obtainable, indicating their qualifications and experience in similar endeavors. An enumeration of all data cleansing techniques that have been used in the development of the method, which shall include: The nature of each technique; Any biases the technique might introduce; and The prevalence of each type of invalid information prior to correction or enhancement. All data that was used by the model developers in the derivation and calibration of the model parameters. Data shall be in sufficient detail to permit the Office to conduct multiple regression testing for validation of the credit scoring methodology. Data, including field definitions, shall be supplied in electronic format compatible with the software used by the Office. Statistical results showing that the model and parameters are predictive and not overlapping or duplicative of any other variables used to rate an applicant to such a degree as to render their combined use actuarially unsound. Such results shall include the period of time for which each element from a credit report is used. A precise listing of all elements from a credit report that are used in scoring, and the formula used to compute the score, including the time period during which each element is used. Such listing is confidential if properly so identified by the insurer. An assessment by a qualified actuary, economist, or statistician (whether or not employed by the insurer) other than persons who contributed substantially to the development of the credit scoring methodology, concluding that there is a significant statistical correlation between the scores and frequency or severity of claims. The assessment shall: Identify the person performing the assessment and show his or her educational and professional experience qualifications; and Include a test of robustness of the model, showing that it performs well on a credible validation data set. The validation data set may not be the one from which the model was developed. Documentation consisting of statistical testing of the application of the credit scoring model to determine whether it results in a disproportionate impact on the classes set forth in Section 626.9741(8)(c), A model that disproportionately affects any such class of persons is presumed to have a disparate impact and is presumed to be unfairly discriminatory. Statistical analysis shall be performed on the current insureds of the insurer using the proposed credit scoring model, and shall include the raw data and detailed results on each classification set forth in Section 626.9741(8)(c), F.S. In lieu of such analysis insurers may use the alternative in 2. below. Alternatively, insurers may submit statistical studies and analyses that have been performed by educational institutions, independent professional associations, or other reputable entities recognized in the field, that indicate that there is no disproportionate impact on any of the classes set forth in Section 626.9741(8)(c), F.S. attributable to the use of credit reports or scores. Any such studies or analyses shall have been done concerning the specific credit scoring model proposed by the insurer. The Office will utilize generally accepted statistical analysis principles in reviewing studies submitted which support the insurer's analysis that the credit scoring model does not disproportionately impact any class based upon race, color, religion, marital status, age, gender, income, national origin, or place of residence. The Office will permit reliance on such studies only to the extent that they permit independent verification of the results. The testing or validation results obtained in the course of the assessment in paragraphs (d) and (f) above. Internal Insurer data that validates the premium differentials proposed based on the scores or ranges of scores. Industry or countrywide data may be used to the extent that the Florida insurer data lacks credibility based upon generally accepted actuarial standards. Insurers using industry or countrywide data for validation shall supply Florida insurer data and demonstrate that generally accepted actuarial standards would allow reliance on each set of data to the extent the insurer has done so. Validation data including claims on personal lines residential insurance policies that are the result of acts of God shall not be used unless such acts occurred prior to January 1, 2004. The mere copying of another company's system will not fulfill the requirement to validate proposed premium differentials unless the filer has used a method or system for less than 3 years and demonstrates that it is not cost effective to retrospectively analyze its own data. Companies under common ownership, management, and control may copy to fulfill the requirement to validate proposed premium differentials if they demonstrate that the characteristics of the business to be written by the affiliate doing the copying are sufficiently similar to the affiliate being copied to presume common differentials will be accurate. The credibility standards and any judgmental adjustments, including limitations on effects, that have been used in the process of deriving premium differentials proposed and validated in paragraph (i) above. An explanation of how the credit scoring methodology treats discrepancies in the information that could have been obtained from different consumer reporting agencies: Equifax, Experian, or TransUnion. This shall not be construed to require insurers to obtain multiple reports for each insured or applicant. 1. The date that each of the analyses, tests, and validations required in paragraphs (d) through (j) above was most recently performed, and a certification that the results continue to be applicable. 2. Any item not reviewed in the previous 5 years is unacceptable. Specific Authority 624.308(1), 626.9741(8) FS. Law Implemented 624.307(1), 626.9741 FS. History-- New . The Petition 1. Statutory Definitions of "Unfairly Discriminatory" The main issue raised by Petitioners is that the Proposed Rule's definition of "unfairly discriminatory," and those portions of the Proposed Rule that rely on this definition, are invalid because they are vague, and enlarge, modify, and contravene the provisions of the law implemented and other provisions of the insurance code. Section 626.9741, Florida Statutes, does not define "unfairly discriminatory." Subsection 626.9741(5), Florida Statutes, provides that a rate filing using credit reports or scores "must comply with the requirements of s. 627.062 or s. 627.0651 to ensure that rates are not excessive, inadequate, or unfairly discriminatory." Subsection 626.9741(8)(c), Florida Statutes, provides that the FSC may adopt rules, including standards to ensure that rates or premiums "associated with the use of a credit report or score are not unfairly discriminatory, based upon race, color, religion, marital status, age, gender, income, national origin, or place of residence." Chapter 627, Part I, Florida Statutes, is referred to as the "Rating Law." § 627.011, Fla. Stat. The purpose of the Rating Law is to "promote the public welfare by regulating insurance rates . . . to the end that they shall not be excessive, inadequate, or unfairly discriminatory." § 627.031(1)(a), Fla. Stat. The Rating Law provisions referenced by Subsection 626.9741(5), Florida Statutes, in relation to ensuring that rates are not "unfairly discriminatory" are Sections 627.062 and 627.0651, Florida Statutes. Section 627.062, Florida Statutes, titled "Rate standards," provides that "[t]he rates for all classes of insurance to which the provisions of this part are applicable shall not be excessive, inadequate, or unfairly discriminatory." § 627.062(1), Fla. Stat. Subsection 627.062(2)(e)6., Florida Statutes, provides: A rate shall be deemed unfairly discriminatory as to a risk or group of risks if the application of premium discounts, credits, or surcharges among such risks does not bear a reasonable relationship to the expected loss and expense experience among the various risks. Section 627.0651, Florida Statutes, titled "Making and use of rates for motor vehicle insurance," provides, in relevant part: One rate shall be deemed unfairly discriminatory in relation to another in the same class if it clearly fails to reflect equitably the difference in expected losses and expenses. Rates are not unfairly discriminatory because different premiums result for policyholders with like loss exposures but different expense factors, or like expense factors but different loss exposures, so long as rates reflect the differences with reasonable accuracy. Rates are not unfairly discriminatory if averaged broadly among members of a group; nor are rates unfairly discriminatory even though they are lower than rates for nonmembers of the group. However, such rates are unfairly discriminatory if they are not actuarially measurable and credible and sufficiently related to actual or expected loss and expense experience of the group so as to assure that nonmembers of the group are not unfairly discriminated against. Use of a single United States Postal Service zip code as a rating territory shall be deemed unfairly discriminatory. Petitioners point out that each of these statutory examples describing "unfairly discriminatory" rates has an actuarial basis, i.e., rates must be related to the actual or expected loss and expense factors for a given group or class, rather than any extraneous factors. If two risks have the same expected losses and expenses, the insurer must charge them the same rate. If the risks have different expected losses and expenses, the insurer must charge them different rates. Michael Miller, Petitioners' expert actuary, testified that the term "unfairly discriminatory" has been used in the insurance industry for well over 100 years and has always had this cost-based definition. Mr. Miller is a fellow of the Casualty Actuarial Society ("CAS"), a professional organization whose purpose is the advancement of the body of knowledge of actuarial science, including the promulgation of industry standards and a code of professional conduct. Mr. Miller was chair of the CAS ratemaking committee when it developed the CAS "Statement of Principles Regarding Property and Casualty Insurance Ratemaking," a guide for actuaries to follow when establishing rates.5 Principle 4 of the Statement of Principles provides: "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." In layman's terms, Mr. Miller explained that different types of risks are reflected in a rate calculation. To calculate the expected cost of a given risk, and thus the rate to be charged, the insurer must determine the expected losses for that risk during the policy period. The loss portion reflects the risk associated with an occurrence and the severity of a claim. While the loss portion does not account for the entirety of the rate charged, it is the most important in terms of magnitude. Mr. Miller cautioned that the calculation of risk is a quantification of expected loss, but not an attempt to predict who is going to have an accident or make a claim. There is some likelihood that every insured will make a claim, though most never do, and this uncertainty is built into the incurred loss portion of the rate. No single risk factor is a complete measure of a person's likelihood of having an accident or of the severity of the ensuing claim. The prediction of losses is determined through a risk classification plan that take into consideration many risk factors (also called rating factors) to determine the likelihood of an accident and the extent of the claim. As to automobile insurance, Mr. Miller listed such risk factors as the age, gender, and marital status of the driver, the type, model and age of the car, the liability limits of the coverage, and the geographical location where the car is garaged. As to homeowners insurance, Mr. Miller listed such risk factors as the location of the home, its value and type of construction, the age of the utilities and electrical wiring, and the amount of insurance to be carried. 2. Credit Scoring as a Rating Factor In the current market, the credit score of the applicant or insured is a rating factor common to automobile and homeowners insurance. Subsection 626.9741(2)(c), Florida Statutes, defines "credit score" as follows: a score, grade, or value that is derived by using any or all data from a credit report in any type of model, method, or program, whether electronically, in an algorithm, computer software or program, or any other process, for the purpose of grading or ranking credit report data. "Credit scores" (more accurately termed "credit-based insurance scores") are derived from credit data that have been found to be predictive of a loss. Lamont Boyd, Fair Isaac's insurance market manager, explained the manner in which Fair Isaac produced its credit scoring model. The company obtained information from various insurance companies on millions of customers. This information included the customers' names, addresses, and the premiums earned by the companies on those policies as well as the losses incurred. Fair Isaac next requested the credit reporting agencies to review their archived files for the credit information on those insurance company customers. The credit agencies matched the credit files with the insurance customers, then "depersonalized" the files so that there was no way for Fair Isaac to know the identity of any particular customer. According to Mr. Lamont, the data were "color blind" and "income blind." Fair Isaac's analysts took these files from the credit reporting agencies and studied the data in an effort to find the most predictive characteristics of future loss propensity. The model was developed to account for all the predictive characteristics identified by Fair Isaac's analysts, and to give weight to those characteristics in accordance to their relative accuracy as predictors of loss. Fair Isaac does not directly sell its credit scores to insurance companies. Rather, Fair Isaac's models are implemented by the credit reporting agencies. When an insurance company wants Fair Isaac's credit score, it purchases access to the model's results from the credit reporting agency. Other vendors offer similar credit scoring models to insurance companies, and in recent years, some insurance companies have developed their own scoring models. Several academic studies of credit scoring were admitted and discussed at the final hearing in these cases. There appears to be no serious debate that credit scoring is a valid and important predictor of losses. The controversy over the use of credit scoring arises over its possible "unfairly discriminatory" impact "based upon race, color, religion, marital status, age, gender, income, national origin, or place of residence." § 626.9741(8)(c), Fla. Stat. Mr. Miller was one of two principal authors of a June 2003 study titled, "The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity." This study was commissioned by several insurance industry trade organizations, including AIA and NAMIC. The study addressed three questions: whether credit-based insurance scores are related to the propensity for loss; whether credit- based insurance scores measure risk that is already measured by other risk factors; and what is the relative importance to accurate risk assessment of the use of credit-based insurance scores. The study was based on a nationwide random sample of private passenger automobile policy and claim records. Records from all 50 states were included in roughly the same proportion as each state's registered motor vehicles bear to total registered vehicles in the United States. The data samples were provided by seven insurers, and represented approximately 2.7 million automobiles, each insured for 12 months.6 The study examined all major automobile coverages: bodily injury liability, property damage liability, medical payments coverage, personal injury protection coverage, comprehensive coverage, and collision coverage. The study concluded that credit-based insurance scores were correlated with loss propensity. The study found that insurance scores overlap to some degree with other risk factors, but that after fully accounting for the overlaps, insurance scores significantly increase the accuracy of the risk assessment process. The study found that, for each of the six automobile coverages examined, insurance scores are among the three most important risk factors.7 Mr. Miller's study did not examine the question of causality, i.e., why credit-based insurance scores are predictive of loss propensity. Dr. Patrick Brockett testified for Petitioners as an expert in actuarial science, risk management and insurance, and statistics. Dr. Brockett is a professor in the departments of management science and information systems, finance, and mathematics at the University of Texas at Austin. He occupies the Gus S. Wortham Memorial Chair in Risk Management and Insurance, and is the director of the university's risk management and insurance program. Dr. Brockett is the former director of the University of Texas' actuarial science program and continues to direct the study of students seeking their doctoral degrees in actuarial science. His areas of academic research are actuarial science, risk management and insurance, statistics, and general quantitative methods in business. Dr. Brockett has written more than 130 publications, most of which relate to actuarial science and insurance. He has spent his entire career in academia, and has never been employed by an insurance company. In 2002, Lieutenant Governor Bill Ratliff of Texas asked the Bureau of Business Research ("BBR") of the University of Texas' McCombs School of Business to provide an independent, nonpartisan study to examine the relationship between credit history and insurance losses in automobile insurance. Dr. Brockett was one of four named authors of this BBR study, issued in March 2003 and titled, "A Statistical Analysis of the Relationship between Credit History and Insurance Losses." The BBR research team solicited data from insurance companies representing the top 70 percent of the automobile insurers in Texas, and compiled a database of more than 173,000 automobile insurance policies from the first quarter of 1998 that included the following 12 months' premium and loss history. ChoicePoint was then retained to match the named insureds with their credit histories and to supply a credit score for each insured person. The BBR research team then examined the credit score and its relationship with prospective losses for the insurance policy. The results were summarized in the study as follows: Using logistic and multiple regression analyses, the research team tested whether the credit score for the named insured on a policy was significantly related to incurred losses for that policy. It was determined that there was a significant relationship. In general, lower credit scores were associated with larger incurred losses. Next, logistic and multiple regression analyses examined whether the revealed relationship between credit score and incurred losses was explainable by existing underwriting variables, or whether the credit score added new information about losses not contained in the existing underwriting variables. It was determined that credit score did yield new information not contained in the existing underwriting variables. What the study does not attempt to explain is why credit scoring adds significantly to the insurer's ability to predict insurance losses. In other words, causality was not investigated. In addition, the research team did not examine such variables as race, ethnicity, and income in the study, and therefore this report does not speculate about the possible effects that credit scoring may have in raising or lowering premiums for specific groups of people. Such an assessment would require a different study and different data. At the hearing, Dr. Brockett testified that the BBR study demonstrated a "strong and significant relationship between credit scoring and incurred losses," and that credit scoring retained its predictive power even after the other risk variables were accounted for. Dr. Brockett further testified that credit scoring has a disproportionate effect on the classifications of age and marital status, because the very young tend to have credit scores that are lower than those of older people. If the question is simply whether the use of credit scores will have a greater impact on the young and the single, the answer would be in the affirmative. However, Dr. Brockett also noted that young, single people will also have higher losses than older, married people, and, thus, the use of credit scores is not "unfairly discriminatory" in the sense that term is employed in the insurance industry.8 Mr. Miller testified that nothing in the actuarial standards of practice requires that a risk factor be causally related to a loss. The Actuarial Standards Board's Standard of Practice 12,9 dealing with risk classification, states that a risk factor is appropriate for use if there is a demonstrated relationship between the risk factor and the insurance losses, and that this relationship may be established by statistical or other mathematical analysis of data. If the risk characteristic is shown to be related to an expected outcome, the actuary need not establish a cause-and-effect relationship between the risk characteristic and the expected outcome. As an example, Mr. Miller offered the fact that past automobile accidents do not cause future accidents, although past accidents are predictive of future risk. Past traffic violations, the age of the driver, the gender of the driver, and the geographical location are all risk factors in automobile insurance, though none of these factors can be said to cause future accidents. They help insurers predict the probability of a loss, but do not predict who will have an accident or why the accident will occur. Mr. Miller opined that credit scoring is a similar risk factor. It is demonstrably significant as a predictor of risk, though there is no causal relationship between credit scores and losses and only an incomplete understanding of why credit scoring works as a predictor of loss. At the hearing, Dr. Brockett discussed a study that he has co-authored with Linda Golden, a business professor at the University of Texas at Austin. Titled "Biological and Psychobehavioral Correlates of Risk Taking, Credit Scores, and Automobile Insurance Losses: Toward an Explication of Why Credit Scoring Works," the study has been peer-reviewed and at the time of the hearing had been accepted for publication in the Journal of Risk and Insurance. In this study, the authors conducted a detailed review of existing scientific literature concerning the biological, psychological, and behavioral attributes of risky automobile drivers and insured losses, and a similar review of literature concerning the biological, psychological, and behavioral attributes of financial risk takers. The study found that basic chemical and psychobehavioral characteristics, such as a sensation-seeking personality type, are common to individuals exhibiting both higher insured automobile losses and poorer credit scores. Dr. Brockett testified that this study provides a direction for future research into the reasons why credit scoring works as an insurance risk characteristic. 3. The Proposed Rule's Definition of "Unfairly Discriminatory" Petitioners contend that the Proposed Rule's definition of the term "unfairly discriminatory" expands upon and is contrary to the statutory definition of the term discussed in section C.1. supra, and that this expanded definition operates to impose a ban on the use of credit scoring by insurance companies. As noted above, Section 626.9741, Florida Statutes, does not define the term "unfairly discriminatory." The provisions of the Rating Law10 define the term as it is generally understood by the insurance industry: a rate is deemed "unfairly discriminatory" if the premium charged does not equitably reflect the differences in expected losses and expenses between policyholders. Two provisions of Section 626.9741, Florida Statutes, employ the term "unfairly discriminatory": (5) A rate filing that uses credit reports or credit scores must comply with the requirements of s. 627.062 or s. 627.0651 to ensure that rates are not excessive, inadequate, or unfairly discriminatory. * * * (8) The commission may adopt rules to administer this section. The rules may include, but need not be limited to: * * * (c) Standards that ensure that rates or premiums associated with the use of a credit report or score are not unfairly discriminatory, based upon race, color, religion, marital status, age, gender, income, national origin, or place of residence. Petitioners contend that the statute's use of the term "unfairly discriminatory" is unexceptionable, that the Legislature simply intended the term to be used and understood in the traditional sense of actuarial soundness alone. Respondents agree that Subsection 626.9741(5), Florida Statutes, calls for the agency to apply the traditional definition of "unfairly discriminatory" as that term is employed in the statutes directly referenced, Sections 627.062 and 627.0651, Florida Statutes, the relevant texts of which are set forth in Findings of Fact 18 and 19 above. However, Respondents contend that Subsection 626.9741(8)(c), Florida Statutes, calls for more than the application of the Rating Law's definition of the term. Respondents assert that in the context of this provision, "unfairly discriminatory" contemplates not only the predictive function, but also "discrimination" in its more common sense, as the term is employed in state and federal civil rights law regarding race, color, religion, marital status, age, gender, income, national origin, or place of residence. At the hearing, OIR General Counsel Steven Parton testified as to the reasons why the agency chose the federal body of law using the term "disparate impact" as the test for unfair discrimination in the Proposed Rule: Well, first of all, what we were looking for is a workable definition that people would have some understanding as to what it meant when we talked about unfair discrimination. We were also looking for a test that did not require any willfulness, because it was not our concern that, in fact, insurance companies were engaging willfully in unfair discrimination. What we believed is going on, and we think all of the studies that are out there suggest, is that credit scoring is having a disparate impact upon various people, whether it be income, whether it be race. . . . Respondents' position is that Subsection 626.9741(8)(c), Florida Statutes, requires that a proposed rate or premium be rejected if it has a "disproportionately" negative effect on one of the named classes of persons, even though the rate or premium equitably reflects the differences in expected losses and expenses between policyholders. In the words of Mr. Parton, "This is not an actuarial rule." Mr. Parton explained the agency's rationale for employing a definition of "unfairly discriminatory" that is different from the actuarial usage employed in the Rating Law. Subsection 626.9741(5), Florida Statutes, already provides that an insurer's rate filings may not be "excessive, inadequate, or unfairly discriminatory" in the actuarial sense. To read Subsection 626.9741(8)(c), Florida Statutes, as simply a reiteration of the actuarial "unfair discrimination" rule would render the provision, "a nullity. There would be no force and effect with regards to that." Thus, the Proposed Rule defines "unfairly discriminatory" to mean "that adverse decisions resulting from the use of a credit scoring methodology disproportionately affects persons belonging to any of the classes set forth in Section 626.9741(8)(c), F.S." Proposed Florida Administrative Code Rule 69O-125.005(1)(e). OIR's actuary, Howard Eagelfeld, explained that "disproportionate effect" means "having a different effect on one group . . . causing it to pay more or less premium than its proportionate share in the general population or than it would have to pay based upon all other known considerations." Mr. Eagelfeld's explanation is not incorporated into the language of the Proposed Rule. Consistent with the actuarial definition of "unfairly discriminatory," the Proposed Rule requires that any credit scoring methodology must be "demonstrated to be a valid predictor of the insurance risk to be assumed by an insurer for the applicable type of insurance," and sets forth detailed criteria through which the insurer can make the required demonstration. Proposed Florida Administrative Code Rule 69O-125.005(9)(a)-(f) and (h)-(l). Proposed Florida Administrative Code Rule 69O-125.005(9)(g) sets forth Respondents' "civil rights" usage of the term "unfairly discriminatory." The insurer's demonstration of the validity of its credit scoring methodology must include: [d]ocumentation consisting of statistical testing of the application of the credit scoring model to determine whether it results in a disproportionate impact on the classes set forth in Section 626.9741(8)(c), F.S. A model that disproportionately affects any such class of persons is presumed to have a disparate impact and is presumed to be unfairly discriminatory.11 Mr. Parton, who testified in defense of the Proposed Rule as one of its chief draftsmen, stated that the agency was concerned that the use of credit scoring may be having a disproportionate effect on minorities. Respondents believe that credit scoring may simply be a surrogate measure for income, and that using income as a basis for setting rates would have an obviously disparate impact on lower-income persons, including the young and the elderly. Mr. Parton testified that "neither the insurance industry nor anyone else" has researched the theory that credit scoring may be a surrogate for income. Mr. Miller referenced a 1998 analysis performed by AIA indicating that the average credit scores do not vary significantly according to the income group. In fact, the lowest income group (persons making less than $15,000 per year) had the highest average credit score, and the average credit scores actually dropped as income levels rose until the income range reached $50,000 to $74,000 per year, when the credit scores began to rise. Mr. Miller testified that a credit score is no more predictive of income level than a coin flip. However, Respondents introduced a January 2003 report to the Washington State Legislature prepared by the Social & Economic Sciences Research Center of Washington State University, titled "Effect of Credit Scoring on Auto Insurance Underwriting and Pricing." The purpose of the study was to determine whether credit scoring has unequal impacts on specific demographic groups. For this study, the researchers received data from three insurance companies on several thousand randomly chosen customers, including the customers' age, gender, residential zip code, and their credit scores and/or rate classifications. The researchers contacted about 1,000 of each insurance company's customers and obtained information about their ethnicity, marital status, and income levels. The study's findings were summarized as follows: The demographic patterns discerned by the study are: Age is the most significant factor. In almost every analysis, older drivers have, on average, higher credit scores, lower credit-based rate assignments, and less likelihood of lacking a valid credit score. Income is also a significant factor. Credit scores and premium costs improve as income rises. People in the lowest income categories-- less than $20,000 per year and between $20,000 and $35,000 per year-- often experienced higher premiums and lower credit scores. More people in lower income categories also lacked sufficient credit history to have a credit score. Ethnicity was found to be significant in some cases, but because of differences among the three firms studied and the small number of ethnic minorities in the samples, the data are not broadly conclusive. In general, Asian/Pacific Islanders had credit scores more similar to whites than to other minorities. When other minority groups had significant differences from whites, the differences were in the direction of higher premiums. In the sample of cases where insurance was cancelled based on credit score, minorities who were not Asian/Pacific Islanders had greater difficulty finding replacement insurance, and were more likely to experience a lapse in insurance while they searched for a new policy. The analysis also considered gender, marital status and location, but for these factors, significant unequal effects were far less frequent. (emphasis added) The evidence appears equivocal on the question of whether credit scoring is a surrogate for income. The Washington study seems to indicate that ethnicity may be a significant factor in credit scoring, but that significant unequal effects are infrequent regarding gender and marital status. The evidence demonstrates that the use of credit scores by insurers would tend to have a negative impact on young people. Mr. Miller testified that persons between ages 25 and 30 have lower credit scores than older people. Petitioners argue that by defining "unfairly discriminatory" to mean "disproportionate effect," the Proposed Rule effectively prohibits insurers from using credit scores, if only because all the parties recognize that credit scores have a "disproportionate effect" on young people. Petitioners contend that this prohibition is in contravention of Section 626.9741(1), Florida Statutes, which states that the purpose of the statute is to "regulate and limit" the use of credit scores, not to ban them outright. Respondents counter that if the use of credit scores is "unfairly discriminatory" toward one of the listed classes of persons in contravention of Subsection 626.9741(8)(c), Florida Statutes, then the "limitation" allowed by the statute must include prohibition. This point is obviously true but sidesteps the real issues: whether the statute's undefined prohibition on "unfair discrimination" authorizes the agency to employ a "disparate impact" or "disproportionate effect" definition in the Proposed Rule, and, if so, whether the Proposed Rule sufficiently defines any of those terms to permit an insurer to comply with the rule's requirements. Proposed Florida Administrative Code Rule 69O-125.005(2) provides that the insurer bears the burden of demonstrating that its credit scoring methodology does not disproportionately affect persons based upon their race, color, religion, marital status, age, gender, income, national origin, or place of residence. Petitioners state that no insurer can demonstrate, consistent with the Proposed Rule, that its credit scoring methodology does not have a disproportionate effect on persons based upon their age. Therefore, no insurer will ever be permitted to use credit scores under the terms of the Proposed Rule. As discussed more fully in Findings of Fact 73 through 76 below, Petitioners also contend that the Proposed Rule provides no guidance as to what "disproportionate effect" and "disparate impact" mean, and that this lack of definitional guidance will permit the agency to reject any rate filing that uses credit scoring, based upon an arbitrary determination that it has a "disproportionate effect" on one of the classes named in Subsection 626.9741(8)(c), Florida Statutes. Petitioners also presented evidence that no insurer collects data on race, color, religion, or national origin from applicants or insureds. Mr. Miller testified that there is no reliable independent source for race, color, religious affiliation, or national origin data. Mr. Eagelfeld agreed that there is no independent source from which insurers can obtain credible data on race or religious affiliation. Mr. Parton testified that this lack of data can be remedied by the insurance companies commencing to request race, color, religion, and national origin information from their customers, because there is no legal impediment to their doing so. Mr. Miller testified that he would question the reliability of the method suggested by Mr. Parton because many persons will refuse to answer such sensitive questions or may not answer them correctly. Mr. Miller stated that, as an actuary, he would not certify the results of a study based on demographic data obtained in this manner and would qualify any resulting actuarial opinion due to the unreliability of the database. Petitioners also object to the vagueness of the broad categories of "race, color, religion and national origin." Mr. Miller testified that the Proposed Rule lacks "operational definitions" for those terms that would enable insurers to perform the required calculations. The Proposed Rule places the burden on the insurer to demonstrate no disproportionate effect on persons based on these categories, but offers no guidance as to how these demographic classes should be categorized by an insurer seeking to make such a demonstration. Petitioners point out that even if the insurer is able to ascertain the categories sought by the regulators, the Proposed Rule gives no guidance as to whether the "disproportionate effect" criterion mandates perfect proportionality among all races, colors, religions, and national origins, or whether some degree of difference is tolerable. Petitioners contend that this lack of guidance provides unbridled discretion to the regulator to reject any disproportionate effect study submitted by an insurer. At his deposition, Mr. Parton was asked how an insurer should break down racial classifications in order to show that there is no disproportionate effect on race. His answer was as follows: There is African-American, Cuban-American, Spanish-American, African-American, Haitian- American. Are you-- you know, whatever the make-up of your book of business is-- you're the one in control of it. You can ask these folks what their ethnic background is. At his deposition, Mr. Parton frankly admitted that he had no idea what "color" classifications an insurer should use, yet he also stated that an insurer must demonstrate no disproportionate effect on each and every listed category, including "color." At the final hearing, when asked to list the categories of "color," Mr. Parton responded, "I suppose Indian, African-American, Chinese, Japanese, all of those."12 At the final hearing, Mr. Parton was asked whether the Proposed Rule contemplates requiring insurers to demonstrate distinctions between such groups as "Latvian-Americans" and "Czech-Americans." Mr. Parton's reply was as follows: No. And I don't think it was contemplated by the Legislature. . . . The question is race by any other name, whether it be national origin, ethnicity, color, is something that they're concerned about in terms of an impact. What we would anticipate, and what we have always anticipated, is the industry would demonstrate whether or not there is an adverse effect against those folks who have traditionally in Florida been discriminated against, and that would be African-Americans and certain Hispanic groups. In our opinion, at least, if you could demonstrate that the credit scoring was not adversely impacting it, it may very well answer the questions to any other subgroup that you may want to name. At the hearing, Mr. Parton was also questioned as to distinctions between religions and testified as follows: The impact of credit scoring on religion is going to be in the area of what we call thin files, or no files. That is to say people who do not have enough credit history from which credit scores can be done, or they're going to be treated somehow differently because of that lack of history. A simple question that needs to be asked by the insurance company is: "Do you, as a result of your religious belief or whatever [sect] you are in, are you forbidden as a precept of your religious belief from engaging in the use of credit?" When cross-examined on the subject, Mr. Parton could not confidently identify any religious group that forbids the use of credit. He thought that Muslims and Quakers may be such groups. Mr. Parton concluded by stating, "I don't think it is necessary to identify those groups. The question is whether or not you have a religious group that you prescribe to that forbids it." Petitioners contend that, in addition to failing to define the statutory terms of race, color, religion, and national origin in a manner that permits insurer compliance, the Proposed Rule fails to provide an operational definition of "disproportionate effect." The following is a hypothetical question put to Mr. Parton at his deposition, and Mr. Parton's answer: Q: Let's assume that African-Americans make up 10 percent of the population. Let's just use two groups for the sake of clarity. Caucasians make up 90 percent. If the application of credit scoring in underwriting results in African-Americans paying 11 percent of the premium and Caucasians paying 89 percent of the premium, is that, in your mind, a disproportionate affect [sic]? A: It may be. I think it would give rise under this rule that perhaps there is a presumption that it is, but that presumption is not [an irrebuttable] one.[13] For instance, if you then had testimony that a 1 percent difference between the two was statistically insignificant, then I would suggest that that presumption would be overridden. This answer led to a lengthy discussion regarding a second hypothetical in which African-Americans made up 29 percent of the population, and also made up 35 percent of the lowest, or most unfavorable, tier of an insurance company's risk classifications. Mr. Parton ultimately opined that if the difference in the two numbers was found to be "statistically significant" and attributable only to the credit score, then he would conclude that the use of credit scoring unfairly discriminated against African-Americans. As to whether his answer would be the same if the hypothetical were adjusted to state that African-Americans made up 33 percent of the lowest tier, Mr. Parton responded: "That would be up to expert testimony to be provided on it. That's what trials are all about."14 Aside from expert testimony to demonstrate that the difference was "statistically insignificant," Mr. Parton could think of no way that an insurer could rebut the presumption that the difference was unfairly discriminatory under the "disproportionate effect" definition set forth in the proposed rule. He stated that, "I can't anticipate, nor does the rule propose to anticipate, doing the job of the insurer of demonstrating that its rates are not unfairly discriminatory." Mr. Parton testified that an insurer's showing that the credit score was a valid and important predictor of risk would not be sufficient to rebut the presumption of disproportionate effect. Summary Findings Credit-based insurance scoring is a valid and important predictor of risk, significantly increasing the accuracy of the risk assessment process. The evidence is still inconclusive as to why credit scoring is an effective predictor of risk, though a study co-authored by Dr. Brockett has found that basic chemical and psychobehavioral characteristics, such as a sensation-seeking personality type, are common to individuals exhibiting both higher insured automobile losses and poorer credit scores. Though the evidence was equivocal on the question of whether credit scoring is simply a surrogate for income, the evidence clearly demonstrated that the use of credit scores by insurance companies has a greater negative overall effect on young people, who tend to have lower credit scores than older people. Petitioners and Fair Isaac emphasized their contention that compliance with the Proposed Rule would be impossible, and thus the Proposed Rule in fact would operate as a prohibition on the use of credit scoring by insurance companies. At best, Petitioners demonstrated that compliance with the Proposed Rule would be impracticable at first, given the current business practices in the industry regarding the collection of customer data regarding race and religion. The evidence indicated no legal barriers to the collection of such data by the insurance companies. Questions as to the reliability of the data are speculative until a methodology for the collection of the data is devised. Subsection 626.9741(8)(c), Florida Statutes, authorizes the FSC to adopt rules that may include: Standards that ensure that rates or premiums associated with the use of a credit report or score are not unfairly discriminatory, based upon race, color, religion, marital status, age, gender, income, national origin, or place of residence. Petitioners' contention that the statute's use of "unfairly discriminatory" contemplates nothing more than the actuarial definition of the term as employed by the Rating Law is rejected. As Respondents pointed out, Subsection 626.9741(5), Florida Statutes, provides that a rate filing using credit scores must comply with the Rating Law's requirements that the rates not be "unfairly discriminatory" in the actuarial sense. If Subsection 626.9741(8)(c), Florida Statutes, merely reiterates the actuarial requirement, then it is, in Mr. Parton's words, "a nullity."15 Thus, it is found that the Legislature contemplated some level of scrutiny beyond actuarial soundness to determine whether the use of credit scores "unfairly discriminates" in the case of the classes listed in Subsection 626.9741(8)(c), Florida Statutes. It is found that the Legislature empowered FSC to adopt rules establishing standards to ensure that an insurer's rates or premiums associated with the use of credit scores meet this added level of scrutiny. However, it must be found that the term "unfairly discriminatory" as employed in the Proposed Rule is essentially undefined. FSC has not adopted a "standard" by which insurers can measure their rates and premiums, and the statutory term "unfairly discriminatory" is thus subject to arbitrary enforcement by the regulating agency. Proposed Florida Administrative Code Rule 69O-125.005(1)(e) defines "unfairly discriminatory" in terms of adverse decisions that "disproportionately affect" persons in the classes set forth in Subsection 626.9741(8)(c), Florida Statutes, but does not define what is a "disproportionate effect." At Subsection (9)(g), the Proposed Rule requires "statistical testing" of the credit scoring model to determine whether it results in a "disproportionate impact" on the listed classes. This subsection attempts to define its terms as follows: A model that disproportionately affects any such class of persons is presumed to have a disparate impact and is presumed to be unfairly discriminatory. Thus, the Proposed Rule provides that a "disproportionate effect" equals a "disparate impact" equals "unfairly discriminatory," without defining any of these terms in such a way that an insurer could have any clear notion, prior to the regulator's pronouncement on its rate filing, whether its credit scoring methodology was in compliance with the rule. Indeed, Mr. Parton's testimony evinced a disinclination on the part of the agency to offer guidance to insurers who attempt to understand this circular definition. The tenor of his testimony indicated that the agency itself is unsure of exactly what an insurer could submit to satisfy the "disproportionate effect" test, aside from perfect proportionality, which all parties concede is not possible at least as to young people, or a showing that any lack of perfect proportionality is "statistically insignificant," whatever that means. Mr. Parton seemed to say that OIR will know a valid use of credit scoring when it sees one, though it cannot describe such a use beforehand. Mr. Eagelfeld offered what might be a workable definition of "disproportionate effect," but his definition is not incorporated into the Proposed Rule. Mr. Parton attempted to assure the Petitioners that OIR would take a reasonable view of the endless racial and ethnic categories that could be subsumed under the literal language of the Proposed Rule, but again, Mr. Parton's assurances are not part of the Proposed Rule. Mr. Parton's testimony referenced federal and state civil rights laws as the source for the term "disparate impact." Federal case law under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-2, has defined a "disparate impact" claim as "one that 'involves employment practices that are facially neutral in their treatment of different groups, but that in fact fall more harshly on one group than another and cannot be justified by business necessity.'" Adams v. Florida Power Corporation, 255 F.3d 1322, 1324 n.4 (11th Cir. 2001), quoting Hazen Paper Co. v. Biggins, 507 U.S. 604, 609, 113 S. Ct. 1701, 1705, 123 L. Ed. 2d 338 (1993). The Proposed Rule does not reference this definition, nor did Mr. Parton detail how OIR proposes to apply or modify this definition in enforcing the Proposed Rule. Without further definition, all three of the terms employed in this circular definition are conclusions, not "standards" that the insurer and the regulator can agree upon at the outset of the statistical and analytical process leading to approval or rejection of the insurer's rates. Absent some definitional guidance, a conclusory term such as "disparate impact" can mean anything the regulator wishes it to mean in a specific case. The confusion is compounded by the Proposed Rule's failure to refine the broad terms "race," "color," and "religion" in a manner that would allow an insurer to prepare a meaningful rate submission utilizing credit scoring. In his testimony, Mr. Parton attempted to limit the Proposed Rule's impact to those groups "who have traditionally in Florida been discriminated against," but the actual language of the Proposed Rule makes no such distinction. Mr. Parton also attempted to limit the reach of "religion" to groups whose beliefs forbid them from engaging in the use of credit, but the language of the Proposed Rule does not support Mr. Parton's distinction.
The Issue Whether the agency's audit adjustment of an interim rate should be sustained.
Findings Of Fact The Petitioner is a licensed nursing home located in Chipley, Washington County, Florida. The Petitioner is located in a rural county in Florida's panhandle with high numbers of Medicaid- eligible patients. The Petitioner participates in the Florida Medicaid Program and has agreed to provide skilled or intermediate nursing care services for Medicaid patients. The Respondent is the state agency responsible for administering the Florida Medicaid Program. The parties have entered into an agreement that governs the provision of Medicaid services and the reimbursement to the provider (Petitioner). Such plan authorizes reimbursement based upon rates agreed between the parties and limited by rules and regulations applicable to the Medicaid Program. In this regard, Medicaid reimbursements are made in accordance with the Florida Title XIX Long-Term Care Reimbursement Plan (the Plan). The Plan was adopted and incorporated by reference in Rule Chapter 59G, Florida Administrative Code. To set a reimbursement rate, cost reports are reviewed by AHCA to determine the actual Medicaid allowable costs incurred by the provider. The allowable costs are used to set a prospective rate for the provider. Payments to the provider in subsequent periods are then based upon the rate adjusted for inflation. There are limits on costs and reimbursements. If a provider incurs an expense above the allowed level, it will not be reimbursed. In this regard the approved rate for the provider may not compensate the provider for expenses that were more than anticipated. Medicaid is not intended to pay for luxury care. The Medicaid Program covers rates for providers that are efficiently operated. The providers are not compensated for luxury services, excessive charges, or operating costs that exceed what a prudent, efficiently operated facility would incur. Once the reimbursement rate is set it continues until the next rate-setting period. If circumstances change such that the rate unfairly impacts the provider's ability to provide care, an interim rate adjustment may be requested. An increased interim rate could assist the provider until the regular rate is re-calculated. Nursing homes are subject to inspections or surveys that are performed by AHCA to assure compliance with all applicable standards of operation. The standards are to assure that patients receive a quality of care at or above minimum levels. Pertinent to this case was a survey that found Petitioner deficient due to inadequate staffing levels. Inadequate staffing directly impacts the quality of care a facility is able to provide. Given its rural location and the wages it was offering, the Petitioner could not offer competitive opportunities in order to recruit and retain qualified staff. For entry level employees the Petitioner found itself competing against even McDonald's restaurant for employees. As a result, when a survey found the facility deficient, the Petitioner sought financial relief through a request for an interim rate increase. The provider faced a financial loss if the deficiency were corrected without a corresponding increase in its rate as it would not be able to cover the additional costs within its reimbursement rate. To correct the deficiencies Petitioner sought six additional Certified Nursing Assistants and wage enhancements. As a result, it sought an interim rate increase of $3.56 per day in patient care and $.12 per day in operating cost. The interim reimbursement rate was approved by AHCA in 1996. The reimbursements to this provider then continued based upon the new rate. It then became the facility's objective to follow the plan of correction to assure that the deficiency was, in fact, alleviated. In November of 1997, new rates were established for the Petitioner which became the settled rate. Based upon the cost reports filed with AHCA, the Petitioner's rate was settled with increases of $3.91 per day in patient care and $1.62 in the operating category. The instant case resulted from an audit conducted at the facility. The audit was to verify that the expenses reported were correct and allowable. An audit should also confirm that the statistical information reported by the provider was correct. The auditors used $3.56 instead of $3.91 as the starting point for the cost report figures. The Petitioner had relied on the higher number as the cost- settled figure for the audit. More important, the Petitioner relied on the same accounting methodology it had relied on for the interim rate request. The auditors, an independent accounting firm, did not accept the prior methodology. Subsequent to the audit, the Respondent issued a letter to the Petitioner claiming it was owed $364,621.12 for Medicaid over-payments. The Respondent maintains it is entitled to recoup the over-payments as part of the future reimbursements to the provider. The Petitioner argues that such action will adversely impact the provider's ability to provide the quality of care expected by AHCA. All of the costs reported by this Petitioner are allowable under the Medicaid guidelines. The crux of the issue in the case results from the settled interim rate not being accepted and carried forward by the independent auditors. Because some amounts exceeded the "budgeted" estimates, the auditors disallowed the additional expenses. The amounts, all within the category of wage or salary enhancements, were not deemed proper because they exceeded or altered the granted 50- cent-an-hour pay raise within the original request. Although allowable, the expenditures fell outside the parameters of the budget that support the interim rate increase. Bonuses and wage enhancements paid by the Petitioner during the audited period were not one-time expenses but are on-going programs to encourage and support the retention of qualified employees. This was within the parameter of curing the deficiency that the interim rate sought to address. None of the expenses fell outside of operation and patient care costs. It is anticipated that the reduction in Petitioner's rate will result in reduced staffing. Otherwise, the facility will not be a financially feasible operation. The reimbursement rate for this provider is not higher than other rates for the other providers serving the geographical region served by the Petitioner. When a provider goes through the cost settlement process, AHCA is authorized to and may seek additional information to clarify any form submitted by a Medicaid provider. In this case, the rate was cost- settled without additional information being sought by AHCA. The allowable expenses incurred by the Petitioner support the reimbursement rate paid to this provider.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Administration enter a Final Order reinstating the provider's Medicaid rate to include the interim rate as previously settled and accepted by the Respondent. AHCA should affirm the interim rate established and committed by the cost report allowing $3.91 for patient care and $1.62 for operating costs. DONE AND ENTERED this 30th day of July, 2001, in Tallahassee, Leon County, Florida. _____________________________ J. D. Parrish Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of July, 2001. COPIES FURNISHED: Theodore E. Mack, Esquire Powell and Mack 803 North Calhoun Street Tallahassee, Florida 32303 Steven A. Grigas, Esquire Agency for Health Care Administration 2727 Mahan Drive Building 3 Tallahassee, Florida 32308 Ruben J. King-Shaw, Jr., Director Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3116 Tallahassee, Florida 32308 Julie Gallagher, General Counsel 2727 Mahan Drive Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308
Findings Of Fact Petitioner, 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
