The Issue The issue in these consolidated cases is whether the Agency for Health Care Administration ("AHCA") properly disallowed Petitioners' expense for liability insurance and accrued contingent liability costs contained in AHCA's audit of Petitioners' Medicaid cost reports.
Findings Of Fact Based upon the oral and documentary evidence presented at the final hearing, and on the entire record of this proceeding, the following findings of fact are made: Petitioners operate licensed nursing homes that participate in the Florida Medicaid program as institutional providers. The 14 Palm Gardens facilities are limited liability companies operating as subsidiaries of New Rochelle Administrators, LLC, which also provides the facilities with management services under a management contract. AHCA is the single state agency responsible for administering the Florida Medicaid program. One of AHCA's duties is to audit Medicaid cost reports submitted by providers participating in the Medicaid program. During the audit period, Petitioners provided services to Medicaid beneficiaries pursuant to Institutional Medicaid Provider Agreements that they entered into with AHCA. The Provider Agreements contained the following relevant provision: (3) Compliance. The provider agrees to comply with local, state, and federal laws, as well as rules, regulations, and statements of policy applicable to the Medicaid program, including Medicaid Provider Handbooks issued by AHCA. Section 409.908, Florida Statutes (2002)1, provided in relevant part: Reimbursement of Medicaid providers.-- Subject to specific appropriations, the agency shall reimburse Medicaid providers, in accordance with state and federal law, according to methodologies set forth in the rules of the agency and in policy manuals and handbooks incorporated by reference therein. These methodologies may include fee schedules, reimbursement methods based on cost reporting, negotiated fees, competitive bidding pursuant to s. 287.057, and other mechanisms the agency considers efficient and effective for purchasing services or goods on behalf of recipients. . . . * * * (2)(a)1. Reimbursement to nursing homes licensed under part II of chapter 400 . . . must be made prospectively. . . . * * * (b) Subject to any limitations or directions provided for in the General Appropriations Act, the agency shall establish and implement a Florida Title XIX Long-Term Care Reimbursement Plan (Medicaid) for nursing home care in order to provide care and services in conformance with the applicable state and federal laws, rules, regulations, and quality and safety standards and to ensure that individuals eligible for medical assistance have reasonable geographic access to such care. . . . AHCA has adopted the Title XIX Long-Term Care Reimbursement Plan (the "Plan") by reference in Florida Administrative Code Rule 59G-6.010. The Plan incorporates the Centers for Medicare and Medicaid Services ("CMS") Publication 15-1, also called the Provider Reimbursement Manual (the "Manual" or "PRM"), which provides "guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services furnished under the Health Insurance for the Aged Act of l965, as amended." CMS Pub. 15-1, Foreword, p. I. The audit period in these cases spans two versions of the Plan: version XXIII, effective July 1, 2002, and version XXIV, effective January 1, 2003. It is unnecessary to distinguish between the two versions of the Plan because their language is identical as to the provisions relevant to these cases. Section I of the Plan, "Cost Finding and Cost Reporting," provides as follows, in relevant part: The cost report shall be prepared by a Certified Public Accountant in accordance with chapter 409.908, Florida Statutes, on the form prescribed in section I.A. [AHCA form 5100-000, Rev. 7-1-90], and on the accrual basis of accounting in accordance with generally accepted accounting principles as established by the American Institute of Certified Public Accountants (AICPA) as incorporated by reference in Rule 61H1-20.007, F.A.C., the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Reimbursement, the Provider Reimbursement Manual (CMS-PUB. 15-1)(1993) incorporated herein by reference except as modified by the Florida Title XIX Long Term Care Reimbursement Plan and State of Florida Administrative Rules. . . . Section III of the Plan, "Allowable Costs," provides as follows, in relevant part: Implicit in any definition of allowable costs is that those costs shall not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII Principles of Reimbursement, CMS-PUB. 15-1 (1993) and this plan, to exceed the level that a prudent buyer would incur, then the excess costs shall not be reimbursable under the plan. The Plan is a cost based prospective reimbursement plan. The Plan uses historical data from cost reports to establish provider reimbursement rates. The "prospective" feature is an upward adjustment to historical costs to establish reimbursement rates for subsequent rate semesters.2 The Plan establishes limits on reimbursement of costs, including reimbursement ceilings and targets. AHCA establishes reimbursement ceilings for nursing homes based on the size and location of the facilities. The ceilings are determined prospectively, on a semiannual basis. "Targets" limit the inflationary increase in reimbursement rates from one semester to the next and limit a provider's allowable costs for reimbursement purposes. If a provider's costs exceed the target, then those costs are not factored into the reimbursement rate and must be absorbed by the provider. A nursing home is required to file cost reports. The costs identified in the cost reports are converted into per diem rates in four components: the operating component; the direct care component; the indirect care component; and the property component. GL/PL insurance costs fall under the operating component. Once the per diem rate is established for each component, the nursing home's reimbursement rate is set at the lowest of four limitations: the facility's costs; the facility's target; the statewide cost ceiling based on the size of the facility and its region; or the statewide target, also based on the size and location of the facility. The facility's target is based on the initial cost report submitted by that facility. The initial per diem established pursuant to the initial cost report becomes the "base rate." Once the base rate is established, AHCA sets the target by inflating the base rate forward to subsequent six- month rate semesters according to a pre-established inflation factor. Reimbursement for cost increases experienced in subsequent rate semesters is limited by the target drawn from the base rate. Thus, the facility's reimbursement for costs in future rate semesters is affected by the target limits established in the initial period cost report. Expenses that are disallowed during the establishment of the base rate cannot be reclaimed in later reimbursement periods. Petitioners entered the Medicaid program on June 29, 2002. They filed cost reports for the nine- month period from their entry into the program through February 28, 2003. These reports included all costs claimed by Petitioners under the accrual basis of accounting in rendering services to eligible Medicaid beneficiaries. In preparing their cost reports, Petitioners used the standard Medicaid Cost Report "Chart of Accounts and Description," which contains the account numbers to be used for each ledger entry, and explains the meaning of each account number. Under the general category of "Administration" are set forth several subcategories of account numbers, including "Insurance Expense." Insurance Expense is broken into five account numbers, including number 730810, "General and Professional Liability -- Third Party," which is described as "[c]osts of insurance purchased from a commercial carrier or a non-profit service corporation."3 Petitioners' cost report stated the following expenses under account number 730810: Facility Amount Palm Garden of Clearwater $145,042.00 Palm Garden of Gainesville $145,042.00 Palm Garden of Jacksonville $145,042.00 Palm Garden of Largo $171,188.00 Palm Garden of North Miami $145,042.00 Palm Garden of Ocala $217,712.00 Palm Garden of Orlando $145,042.00 Palm Garden of Pinellas $145,042.00 Palm Garden of Port St. Lucie $145,042.00 Palm Garden of Sun City $145,042.00 Palm Garden of Tampa $145,042.00 Palm Garden of Vero Beach $217,712.00 Palm Garden of West Palm Beach $231,151.00 Palm Garden of Winter Haven $145,042.00 AHCA requires that the cost reports of first-year providers undergo an audit. AHCA's contract auditing firm, Smiley & Smiley, conducted an examination4 of the cost reports of the 14 Palm Gardens nursing homes to determine whether the included costs were allowable. The American Institute of Certified Public Accountants ("AICPA") has promulgated a series of "attestation standards" to provide guidance and establish a framework for the attestation services provided by the accounting profession in various contexts. Attestation Standards 101 and 601 set out the standard an accountant relies upon in examining for governmental compliance. Smiley & Smiley examined the Palm Gardens cost reports pursuant to these standards. During the course of the audit, Smiley & Smiley made numerous requests for documentation and other information pursuant to the Medicaid provider agreement and the Plan. Petitioners provided the auditors with their general ledger, invoices, audited financial statements, bank statements, and other documentation in support of their cost reports. The examinations were finalized during the period between September 28, 2006, and October 4, 2006. The audit report issued by AHCA contained more than 2,000 individual adjustments to Petitioners' costs, which the parties to these consolidated proceedings have negotiated and narrowed to two adjustments per Palm Gardens facility.5 As noted in the Preliminary Statement above, the first adjustment at issue is AHCA's disallowance of Palm Gardens' accrual of expenses for contingent liability under the category of GL/PL insurance, where Palm Gardens could not document that it had purchased GL/PL insurance. The second adjustment at issue is ACHA's disallowance of a portion of the premium paid by Palm Gardens for the Mature Care Policies. The total amount of the adjustment at issue for each facility is set forth in the Preliminary Statement above. Of that total for each facility, $18,849.00 constituted the disallowance for the Mature Care Policies. The remainder constituted the disallowance for the accrual of GL/PL related contingent liabilities. Janette Smiley, senior partner at Smiley & Smiley and expert in Medicaid auditing, testified that Petitioners provided no documentation other than the Mature Care Policies to support the GL/PL entry in the cost reports. Ms. Smiley testified that, during much of the examination process, she understood Petitioners to be self-insured. Ms. Smiley's understanding was based in part on statements contained in Petitioners' audited financial statements. In the audited financial statement covering the period from June 28, 2002, through December 31, 2002, Note six explains Petitioners' operating leases and states as follows, in relevant part: The lease agreement requires that the Company maintain general and professional liability in specified minimum amounts. As an alternative to maintaining these levels of insurance, the lease agreement allows the Company to fund a self-insurance reserve at a per bed minimum amount. The Company chose to self-insure, and has recorded litigation reserves of approximately $1,735,000 that are included in other accrued expenses (see Note 9). As of December 31, 2002, these reserves have not been funded by the Company. . . . The referenced Note nine, titled "Commitments and Contingencies," provides as follows in relevant part: Due to the current legal environment, providers of long-term care services are experiencing significant increases in liability insurance premiums or cancellations of liability insurance coverage. Most, if not all, insurance carriers in Florida have ceased offering liability coverage altogether. The Company's Florida facilities have minimal levels of insurance coverage and are essentially self-insured. The Company has established reserves (see Note 6) that estimate its exposure to uninsured claims. Management is not currently aware of any claims that could exceed these reserves. However, the ultimate outcome of these uninsured claims cannot be determined with certainty, and could therefore have a material adverse impact on the financial position of the Company. The relevant notes in Petitioner's audited financial statement for the year ending December 31, 2003, are identical to those quoted above, except that the recorded litigation reserves were increased to $4 million. The notes provide that, as of December 31, 2003, these reserves had not been funded by Petitioners. Ms. Smiley observed that the quoted notes, while referencing "self-insurance" and the recording of litigation reserves, stated that the litigation reserves had not been funded. By e-mail dated April 21, 2005, Ms. Smiley corresponded with Stanley Swindling, the shareholder in the accounting firm Moore Stephens Lovelace, P.A., who had primary responsibility for preparing Petitioners' cost reports. Ms. Smiley noted that Petitioners' audited financial statements stated that the company "chose to self-insure" and "recorded litigation reserves," then wrote (verbatim): By definition from PRM CMS Pub 15-1 Sections 2162.5 and 2162.7 the Company does in fact have self-insurance as there is no shifting of risk. You will have to support your positioning a letter addressing the regs for self-insurance. As clearly the financial statement auditors believe this is self- insurance and have disclosed such to the financial statement users. If you cannot support the funding as required by the regs, the provider will have to support expense as "pay as you go" in accordance with [2162.6] for PL/GL. * * * Please review 2161 and 2162 and provide support based on the required compliance. If support is not complete within the regulations, amounts for IBNR [incurred but not reported] will be disallowed and we will need to have the claims paid reports from the TPA [third party administrator] (assuming there is a TPA handling the claims processing), in order to allow any expense. Section 2160 of the Manual establishes the basic insurance requirement: A. General.-- A provider participating in the Medicare program is expected to follow sound and prudent management practices, including the maintenance of an adequate insurance program to protect itself against likely losses, particularly losses so great that the provider's financial stability would be threatened. Where a provider chooses not to maintain adequate insurance protection against such losses, through the purchase of insurance, the maintenance of a self-insurance program described in §2161B, or other alternative programs described in §2162, it cannot expect the Medicare program to indemnify it for its failure to do so. . . . . . . If a provider is unable to obtain malpractice coverage, it must select one of the self-insurance alternatives in §2162 to protect itself against such risks. If one of these alternatives is not selected and the provider incurs losses, the cost of such losses and related expenses are not allowable. Section 2161.A of the Manual sets forth the general rule as to the reimbursement of insurance costs. It provides that the reasonable costs of insurance purchased from a commercial carrier or nonprofit service corporation are allowable to the extent they are "consistent with sound management practice." Reimbursement for insurance premiums is limited to the "amount of aggregate coverage offered in the insurance policy." Section 2162 of the Manual provides as follows, in relevant part: PROVIDER COSTS FOR MALPRACTICE AND COMPREHENSIVE GENERAL LIABILITY PROTECTION, UNEMPLOYMENT COMPENSATION, WORKERS' COMPENSATION, AND EMPLOYEE HEALTH CARE INSURANCE General.-- Where provider costs incurred for protection against malpractice and comprehensive general liability . . . do not meet the requirements of §2161.A, costs incurred for that protection under other arrangements will be allowable under the conditions stated below. . . . * * * The following illustrates alternatives to full insurance coverage from commercial sources which providers, acting individually or as part of a group or a pool, can adopt to obtain malpractice, and comprehensive general liability, unemployment compensation, workers' compensation, and employee health care insurance protection: Insurance purchased from a commercial insurance company which provides coverage after a deductible or coinsurance provision has been met; Insurance purchased from a limited purpose insurance company (captive); Total self-insurance; or A combination of purchased insurance and self-insurance. . . . part: Section 2162.3 of the Manual provides: Self-Insurance.-- You may believe that it is more prudent to maintain a total self- insurance program (i.e., the assumption by you of the risk of loss) independently or as part of a group or pool rather than to obtain protection through purchased insurance coverage. If such a program meets the conditions specified in §2162.7, payments into such funds are allowable costs. Section 2162.7 of the Manual provides, in relevant Conditions Applicable to Self-Insurance.-- Definition of Self-Insurance.-- Self- insurance is a means whereby a provider(s), whether proprietary or nonproprietary, undertakes the risk to protect itself against anticipated liabilities by providing funds in an amount equivalent to liquidate those liabilities. . . . * * * Self-Insurance Fund.-- The provider or pool establishes a fund with a recognized independent fiduciary such as a bank, a trust company, or a private benefit administrator. In the case of a State or local governmental provider or pool, the State in which the provider or pool is located may act as a fiduciary. The provider or pool and fiduciary must enter into a written agreement which includes all of the following elements: General Legal Responsibility.-- The fiduciary agreement must include the appropriate legal responsibilities and obligations required by State laws. Control of Fund.-- The fiduciary must have legal title to the fund and be responsible for proper administration and control. The fiduciary cannot be related to the provider either through ownership or control as defined in Chapter 10, except where a State acts as a fiduciary for a State or local governmental provider or pool. Thus, the home office of a chain organization or a religious order of which the provider is an affiliate cannot be the fiduciary. In addition, investments which may be made by the fiduciary from the fund are limited to those approved under State law governing the use of such fund; notwithstanding this, loans by the fiduciary from the fund to the provider or persons related to the provider are not permitted. Where the State acts as fiduciary for itself or local governments, the fund cannot make loans to the State or local governments. . . . The quoted Manual provisions clarify that Ms. Smiley's message to Mr. Swindling was that Petitioners had yet to submit documentation to bring their "self-insurance" expenses within the reimbursable ambit of Sections 2161 and 2162 of the Manual. There was no indication that Petitioners had established a fund in an amount sufficient to liquidate its anticipated liabilities, or that any such funds had been placed under the control of a fiduciary. Petitioners had simply booked the reserved expenses without setting aside any cash to cover the expenses. AHCA provided extensive testimony regarding the correspondence that continued among Ms. Smiley, Mr. Swindling, and AHCA employees regarding this "self-insurance" issue. It is not necessary to set forth detailed findings as to these matters, because Petitioners ultimately conceded to Ms. Smiley that, aside from the Mutual Care policies, they did not purchase commercial insurance as described in Section 2161.A, nor did they avail themselves of the alternatives to commercial insurance described in Section 2162.A. Petitioners did not purchase commercial insurance with a deductible, did not self- insure, did not purchase insurance from a limited purpose or "captive" insurance company, or employ a combination of purchased insurance and self-insurance. Ms. Smiley eventually concluded that Petitioners had no coverage for general and professional liability losses in excess of the $25,000 value of the Mutual Care Policies. Under the cited provisions of the Manual, Petitioners' unfunded self- insurance expense was not considered allowable under the principles of reimbursement. Petitioners were uninsured, which led Ms. Smiley to further conclude that Section 2162.13 of the Manual would apply: Absence of Coverage.-- Where a provider, other than a governmental (Federal, State, or local) provider, has no insurance protection against malpractice or comprehensive general liability in conjunction with malpractice, either in the form of a limited purpose or commercial insurance policy or a self-insurance fund as described in §2162.7, any losses and related expenses incurred are not allowable. In response to this disallowance pursuant to the strict terms of the Manual, Petitioners contend that AHCA should not have limited its examination of the claimed costs to the availability of documentation that would support those costs as allowable under the Manual. Under the unique circumstances presented by their situation, Petitioners assert that AHCA should have examined the state of the nursing home industry in Florida, particularly the market for GL/PL liability insurance during the audit period, and further examined whether Petitioners had the ability to meet the insurance requirements set forth in the Manual. Petitioners assert that, in light of such an examination, AHCA should have concluded that generally accepted accounting principles ("GAAP") may properly be invoked to render the accrued contingent liabilities an allowable expense. Keith Parnell is an expert in insurance for the long- term care industry. He is a licensed insurance broker working for Hamilton Insurance Agency, which provides insurance and risk management services to about 40 percent of the Florida nursing home market. Mr. Parnell testified that during the audit period, it was impossible for nursing homes to obtain insurance in Florida. In his opinion, Petitioners could not have purchased commercial insurance during the audit period. To support this testimony, Petitioners offered a study conducted by the Florida Department of Insurance ("DOI") in 2000 that attempted to determine the status of the Florida long-term care liability insurance market for nursing homes, assisted living facilities, and continuing care retirement communities. Of the 79 companies that responded to DOI's data call, 23 reported that they had provided GL/PL coverage during the previous three years but were no longer writing policies, and only 17 reported that they were currently writing GL/PL policies. Six of the 17 reported writing no policies in 2000, and five of the 17 reported writing only one policy. The responding insurers reported writing a total of 43 policies for the year 2000, though there were approximately 677 skilled nursing facilities in Florida. On March 1, 2004, the Florida Legislature's Joint Select Committee on Nursing Homes issued a report on its study of "issues regarding the continuing liability insurance and lawsuit crisis facing Florida's long-term care facilities and to assess the impact of the reforms contained in CS/CS/CS/SB 1202 (2001)."6 The study employed data compiled from 1999 through 2003. Among the Joint Select Committee's findings was the following: In order to find out about current availability of long-term care liability insurance in Florida, the Committee solicited information from [the Office of Insurance Regulation, or] OIR within the Department of Financial Services, which is responsible for regulating insurance in Florida. At the Committee's request, OIR re-evaluated the liability insurance market and reported that there has been no appreciable change in the availability of private liability insurance over the past year. Twenty-one admitted insurance entities that once offered, or now offer, professional liability coverage for nursing homes were surveyed by OIR. Six of those entities currently offer coverage. Nine surplus lines carriers have provided 54 professional liability policies in the past year. Representatives of insurance carriers that stopped providing coverage in Florida told OIR that they are waiting until there are more reliable indicators of risk nationwide to re-enter the market. Among the Joint Select Committee's conclusions was the following: In the testimony the Committee received, there was general agreement that the quality of care in Florida nursing homes is improving, in large part due to the minimum staffing standards the Legislature adopted in SB 1202 during the 2001 Session. There was not, however, general agreement about whether or not lawsuits are abating due to the tort system changes contained in SB 1202. There was general agreement that the long-term care liability insurance market has not yet improved. After hearing the testimony, there is general agreement among the members of the Joint Select Committee that: * * * General and professional liability insurance, with actual transfer-of-risk, is virtually unavailable in Florida. "Bare- bones" policies designed to provide minimal compliance with the statutory insurance requirement are available; however, the cost often exceeds the face value of the coverage offered in the policy. This situation is a crisis which threatens the continued existence of long-term care facilities in Florida. To further support Mr. Parnell's testimony, Petitioners offered actuarial analyses of general and professional liability in long-term care performed by AON Risk Consultants, Inc. (AON) on behalf of the American Health Care Association. The AON studies analyzed nationwide trends in GL/PL for long-term care, and also examined state-specific issues for eight states identified as leading the trends in claim activity, including Florida. They provided an historical perspective of GL/PL claims in Florida during the audit period. The 2002 AON study for Florida was based on participation by entities representing 52 percent of all Florida nursing home beds. The study provided a "Loss Cost per Occupied Bed" showing GL/PL liability claims losses on a per bed basis. The 2002 study placed the loss cost for nursing homes in Florida at $10,800 per bed for the year 2001. The 2003 AON study, based on participation by entities representing 54 percent of Florida nursing home beds, placed the loss cost for nursing homes in Florida at $11,810 per bed for the year 2002. The studies showed that the cost per bed of GL/PL losses is materially higher in Florida than the rest of the United States. The nationwide loss per bed was $2,360 for the year 2001 and $2,880 for the year 2002. The GL/PL loss costs for Texas were the second-highest in the country, yet were far lower than the per bed loss for Florida ($5,460 for the year 2001 and $6,310 for the year 2002). Finally, Petitioners point to the Mature Care Policies as evidence of the crisis in GL/PL insurance availability. The aforementioned SB 1202 instituted a requirement that nursing homes maintain liability insurance coverage as a condition of licensure. See Section 22, Chapter 2001-45, Laws of Florida, codified at Subsection 400.141(20), Florida Statutes. To satisfy this requirement, Petitioners entered the commercial insurance market and purchased insurance policies for each of the 14 Palm Gardens facilities from a carrier named Mature Care Insurance Company. The policies carried a $25,000 policy limit, with a policy premium of $34,000. These were the kind of "bare bones" policies referenced by the Joint Select Committee's 2004 report. The fact that the policies cost more than they could ever pay out led Mr. Swindling, Petitioners' health care accounting and Medicaid reimbursement expert, to opine that a prudent nursing home operator in Florida at that time would not have purchased insurance, but for the statutory requirement.7 The Mature Care Policies were "bare bones" policies designed to provide minimal compliance with the statutory liability insurance coverage requirement. The policies cost Petitioners more than $37,000 in premium payments, taxes, and fees, in exchange for policy limits of $25,000. In its examination, AHCA disallowed the difference between the cost of the policy and the policy limits, then prorated the allowable costs because the audit period was nine months long and the premium paid for the Mature Care Policies was for 12 months. AHCA based its disallowance on Section 2161.A of the Manual, particularly the language which states: "Insurance premiums reimbursement is limited to the amount of aggregate coverage offered in the insurance policy." Petitioners responded that they did not enter the market and voluntarily pay a premium in excess of the policy limits. They were statutorily required to purchase this minimal amount of insurance; they were required to purchase a 12-month policy; they paid the market price8; and they should not be penalized for complying with the statute. Petitioners contend they should be reimbursed the full amount of the premiums for the Mature Care Policies, as their cost of statutory compliance. Returning to the issue of the contingent liabilities, Petitioners contend that, in light of the state of the market for GL/PL liability insurance during the audit period, AHCA should have gone beyond the strictures of the Manual to conclude that GAAP principles render the accrued contingent liabilities an allowable expense. Under GAAP, a contingent loss is a loss that is probable and can be reasonably estimated. An estimated loss from a loss contingency may be accrued by a charge to income. Statement of Financial Accounting Standards No. 5 ("FAS No. 5"), Accounting for Contingencies, provides several examples of loss contingencies, including "pending or threatened litigation" and "actual or possible claims and assessments." Petitioners assert that the contingent losses reported in their cost reports were actual costs incurred by Petitioners. The AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, provides: The ultimate costs of malpractice claims, which include costs associated with litigating or settling claims, are accrued when the incidents that give rise to the claims occur. Estimated losses from asserted and unasserted claims are accrued either individually or on a group basis, based on the best estimates of the ultimate costs of the claims and the relationship of past reported incidents to eventual claims payments. All relevant information, including industry experience, the entity's own historical experience, the entity's existing asserted claims, and reported incidents, is used in estimating the expected amount of claims. The accrual includes an estimate of the losses that will result from unreported incidents, which are probable of having occurred before the end of the reporting period. Section 8.10 of AICPA Guide provides: Accrued unpaid claims and expenses that are expected to be paid during the normal operating cycle (generally within one year of the date of the financial statements) are classified as current liabilities. All other accrued unpaid claims and expenses are classified as non-current liabilities. As noted above, Petitioners' audited financial statements for the fiscal years ending December 31, 2002, and December 31, 2003, showed that the accrual was incurred and recorded by Petitioners during the audit period. Mr. Swindling prepared Petitioners' cost reports, based on information provided by Petitioners, including trial balances reflecting their costs, statistics on patient days, cost data related to square footage, and revenue information. Mr. Swindling advised Petitioners to include the accrued losses. He believed that the loss contingency was probable and could be reasonably estimated. The losses were probable because it was "a given in the state of Florida at that time period that nursing homes are going to get sued." Mr. Swindling testified that the accrual reflected a per bed loss amount of $1,750, which he believed to be a reasonable estimate of the contingent liabilities faced by Petitioners during the audit period. This amount was much less than the per bed loss indicated by the AON studies for Florida. Mr. Swindling used the criteria set forth in Section 8.05 of the AICPA Guide to establish the estimate. He determined that the lesser amount was adequate based on his discussions with Petitioners' management, who indicated that they had a substantial risk management program. Management also disclosed to Mr. Swindling that Petitioners' leases required $1,750 per bed in liability coverage. See Finding of Fact 22, supra. Mr. Swindling believed that the estimated loss per bed was reasonable based on the AON studies and his knowledge and experience of the state of the industry in Florida during the audit period, as further reflected in the DOI and Joint Committee on Nursing Homes materials discussed above. Mr. Swindling's opinion was that the provisions of the Manual relating to GL/PL insurance costs do not apply under these circumstances. The costs at issue in this proceeding are not general and professional liability insurance costs subject to CMS Pub. 15-1; rather, they are loss contingencies related to general and professional liability, including defense costs, litigation costs, and settlement costs. Mr. Swindling placed the loss contingency under number 730810, "General and Professional Liability -- Third Party" because, in the finite chart of accounts provided by Medicaid, that was the most appropriate place to record the cost.9 Despite the initial confusion it caused the agency's auditors, the placement of the loss contingency under number 730810 was not intended to deceive the auditors. Mr. Swindling opined that, under these circumstances, Sections 2160 through 2162 are in conflict with other provisions in the Manual relating to the "prudent buyer" concept, and further conflict with the Plan to the extent that the cited regulations "relate to a retrospective system as opposed to prospective target rate-based system." Mr. Swindling agreed that the application of Sections 2160 through 2162 to the situation presented by Petitioners would result in the disallowance of the loss contingencies. Mr. Swindling observed, however, that Sections 2160 through 2162 are Medicare regulations. Mr. Swindling testified that Medicare reimbursements are made on a retrospective basis.10 Were this situation to occur in Medicare -- in which the provider did not obtain commercial insurance, self-insurance, or establish a captive insurer -- the provider would be deemed to be operating on a pay-as-you-go basis. Though its costs might be disallowed in the current period, the provider would receive reimbursements in subsequent periods when it could prove actual payment for its losses. Mr. Swindling found a conflict in attempting to apply these Medicare rules to the prospective payment system employed by Florida Medicaid, at least under the circumstances presented by Petitioners' case. Under the prospective system, once the contingent loss is disallowed for the base period, there is no way for Petitioners ever to recover that loss in a subsequent period, even when the contingency is liquidated. During his cross-examination, Mr. Swindling explained his position as follows: . . . Medicare allows for that payment in a subsequent period. Medicaid rules would not allow that payment in the subsequent period; therefore you have conflict in the rules. When you have conflict in the rules, you revert to generally accepted accounting principles. Generally accepted accounting principles are what we did. Q. Where did you find that if there's a conflict in the rules, which I disagree with, but if there is a conflict in the rules, that you follow GAAP? Where did you get that from? I mean, we've talked about it and it's clear on the record that if there is no provision that GAAP applies, but where did you get that if there's a conflict? Just point it out, that would be the easiest way to do it. A. The hierarchy, if you will, requires providers to file costs on the accrual basis of accounting in accordance with generally accepted accounting principles. If there's no rules, in absence of rules -- and I forget what the other terms were, we read it into the record before, against public policy, those kind of things -- or in my professional opinion, if there is a conflict within the rules where the provider can't follow two separate rules at the same time, they're in conflict, then [GAAP] rules what should be recorded and what should be reimbursed. * * * Q. [T]he company accrued a liability of $2 million for the cost reporting period of 2002-2003, is that correct? A. Yes. * * * Q. Do you have any documentation supporting claims paid, actually paid, in 2002-2003 beyond the mature care policy for which that $2 million reserve was set up? A. No. Q. So what did Medicaid pay for? A. Medicaid paid the cost of contingent liabilities that were incurred by the providers and were estimated at $1,750 per bed. Generally accepted accounting principles will adjust that going forward every cost reporting period. If that liability in total goes up or down, the differential under [GAAP] goes through the income statement, and expenses either go up or they go down. It's self-correcting, which is similar to what Medicare is doing, only they're doing it on a cash basis. Mr. Swindling explained the "hierarchy" by which allowable costs are determined. The highest governing law is the Federal statutory law, Title XIX of the Social Security Act, 42 U.S.C. Subsection. 1396-1396v. Below the statute come the federal regulations for implementing Title XIX, 42 C.F.R. parts 400-426. Then follow in order Florida statutory law, the relevant Florida Administrative Code provisions, the Plan, the Manual, and, at the bottom of the hierarchy, GAAP. Mr. Swindling testified that in reality, a cost report is not prepared from the top of the hierarchy down; rather, GAAP is the starting point for the preparation of any cost report. The statutes, rules, the Plan and the Manual are then consulted to exclude specific cost items otherwise allowable under GAAP. In the absence of an applicable rule, or in a situation in which there is a conflict between rules in the hierarchy such that the provider is unable to comply with both rules, the provider should fall back on GAAP principles as to recording of costs and reimbursement. John A. Owens, currently a consultant in health care finance specializing in Medicaid, worked for AHCA for several years up to 2002, in positions including administrator of the audit services section and bureau chief of the Office of Medicaid Program Analysis. Mr. Owens is a CPA and expert in health care accounting and Medicare/Medicaid reimbursement. Mr. Owens agreed with Mr. Swindling that AHCA's disallowance of the accrued costs for GL/PL liability was improper. Mr. Owens noted that Section 2160 of the Manual requires providers to purchase commercial insurance. If commercial insurance is unavailable, then the Manual gives the provider two choices: self-insure, or establish a captive program. Mr. Owens testified that insurers were fleeing the state during the period in question, and providers were operating without insurance coverage. Based on the state of the market, Petitioners' only options would have been to self-insure or establish a captive. As to self-insurance, Petitioners' problem was that they had taken over the leases on their facilities from a bankrupt predecessor, Integrated Health Services ("IHS"). Petitioners were not in privity with their predecessor. Petitioners had no access to the facilities' loss histories, without which they could not perform an actuarial study or engage a fiduciary to set up a self-insurance plan.11 Similarly, setting up a captive would require finding an administrator and understanding the risk exposure. Mr. Owens testified that a provider would not be allowed to set up a captive without determining actuarial soundness, which was not possible at the time Petitioners took over the 14 IHS facilities. Thus, Petitioners were simply unable to meet the standards established by the Manual. The options provided by the Manual did not contemplate the unique market situation existing in Florida during the audit period, and certainly did not contemplate that situation compounded by the problems faced by a new provider taking over 14 nursing homes from a bankrupt predecessor. Mr. Owens agreed with Mr. Swindling that, under these circumstances, where the requirements of the Manual could not be met, Petitioners were entitled to seek relief under GAAP, FAS No. 5 in particular. In situations where a loss is probable and can be measured, then an accounting entry may be performed to accrue and report that cost. Mr. Owens concluded that Petitioners' accrual was an allowable cost for Medicaid purposes, and explained his rationale as follows: My opinion is, in essence, that since they could not meet -- technically, they just could not meet those requirements laid out by [the Manual], they had to look somewhere to determine some rational basis for developing a cost to put into the cost report, because if they had chosen to do nothing and just moved forward, those rates would be set and there would be nothing in their base year which then establishes their target moving forward. So by at least looking at a rational methodology to accrue the cost, they were able to build something into their base year and have it worked into their target system as they move forward. Steve Diaczyk, an audit evaluation and review analyst for AHCA, testified for the agency as an expert in accounting, auditing, and Medicaid policy. Mr. Diaczyk was the AHCA auditor who reviewed the work of Smiley & Smiley for compliance with Medicaid rules and regulations, and to verify the accuracy of the independent CPA's determinations. Mr. Diaczyk agreed with Mr. Swindling's description of the "hierarchy" by which allowable costs are determined. Mr. Diaczyk affirmed that Petitioners employed GAAP rather than Medicaid regulations in preparing their cost reports. Mr. Diaczyk testified regarding the Notes to Petitioners' audited financial statements, set forth at Findings of Fact 22-24, supra, which left AHCA's auditors with the understanding that Petitioners were self-insuring. Mr. Diaczyk pointed out that Section 2162.7 of the Manual requires a self- insurer to contract with an independent fiduciary to maintain a self-insurance fund, and that the fund must contain monies sufficient to cover anticipated losses. The fiduciary takes title to the funds, the amount of which is determined actuarially. Mr. Diaczyk explained that, in reimbursing a provider for self-insurance, Medicaid wants to make sure that the provider has actually put money into the fund, and has not just set up a fund on its books and called it "self-insurance" for reimbursement purposes. AHCA's position is that it would be a windfall for a provider to obtain reimbursement for an accrued liability when it has not actually set the money aside and funded the risk. Medicaid wants the risk transferred off of the provider's books and on to the self-insurance fund. Mr. Diaczyk testified as to the differing objectives of Medicaid and GAAP. Medicaid is concerned with reimbursing costs, and is therefore especially sensitive regarding the overstatement of costs. Medicaid wants to reimburse a provider for only those costs that have actually been paid. GAAP, on the other hand, is about report presentation for a business entity and is concerned chiefly with avoiding the understatement of expenses and overstatement of revenue. Under GAAP, an entity may accrue a cost and not pay it for years. In the case of a contingent liability, the entity may book the cost and never actually pay it. Mr. Diaczyk described the self-insurance and liquidation provisions of 42 C.F.R. Section 413.100, "Special treatment of certain accrued costs." The federal rule essentially allows accrued costs to be claimed for reimbursement, but only if they are "liquidated timely." Subsection (c)(2)(viii) of the rule provides that accrued liability related to contributions to a self-insurance program must be liquidated within 75 days after the close of the cost reporting period. To obtain reimbursement, Petitioners would have had to liquidate their accrued liability for GL/PL insurance within 75 days of the end of the audit period. Mr. Diaczyk also noted that, even if the 75-day requirement were not applicable, the general requirement of Section 2305.2 of the Manual would apply. Section 2305.2 requires that all short-term liabilities must be liquidated within one year after the end of the cost reporting period in which the liability is incurred, with some exceptions not applicable in this case. Petitioners' accrued liability for general and professional liability insurance was not funded or liquidated for more than one year after the cost reporting period. It was a contingent liability that might never be paid. Therefore, Mr. Diaczyk stated, reimbursement was not in keeping with Medicaid's goal to reimburse providers for actual paid costs, not for potential costs that may never be paid. Petitioners responded that their accrued liabilities constituted non-current liabilities, items that under normal circumstances will not be liquidated within one year. Mr. Parnell testified that there is great variation in how long it takes for a general and professional liability claim against a nursing home to mature to the point of payment to the claimant. He testified that a "short" timeline would be from two to four years, and that some claims may take from eight to eleven years to mature. From these facts, Petitioners urge that 42 C.F.R. Section 413.100 and Section 2305.2 of the Manual are inapplicable to their situation. As to Section 2305.2 in particular, Petitioners point to Section 2305.A, the general liquidation of liabilities provision to which Section 2305.2 provides the exceptions discussed above. The last sentence of Section 2305.A provides that, where the liability is not liquidated within one year, or does not qualify under the exceptions set forth in Sections 2305.1 and 2305.2, then "the cost incurred for the related goods and services is not allowable in the cost reporting period when the liability is incurred, but is allowable in the cost reporting period when the liquidation of the liability occurs." (Emphasis added.) Petitioners argue that the underscored language supports the Medicare/Medicaid distinction urged by Mr. Swindling. In its usual Medicare retroactive reimbursement context, Section 2305.2 would operate merely to postpone reimbursement until the cost period in which the liability is liquidated. Applied to this Medicaid prospective reimbursement situation, Section 2305.2 would unfairly deny Petitioners any reimbursement at all by excluding the liability from the base rate. Mr. Diaczyk explained that, where the Medicaid rules address a category of costs, the allowable costs in a provider's cost report are limited to those defined as allowable by the applicable rules. He stated that if there is a policy in the Manual that addresses an item of cost, the provider must use the Manual provision; the provider cannot use GAAP to determine that cost item. In this case, Mr. Diaczyk agreed with Ms. Smiley as to the applicable rules and the disallowance of Petitioners' contingent liability costs. According to Mr. Diaczyk, GAAP may be used only if no provisions farther up the chain of the "hierarchy" are applicable. In this case, the Medicaid rules specifically addressed the categories of cost in question, meaning that GAAP did not apply. Under cross-examination, Mr. Diaczyk testified that the accrual made by Petitioners in their cost reports would be considered actual costs under GAAP, "[a]ssuming that they had an actuarial study done to come up with the $1.7 million that they accrued." Mr. Diaczyk acknowledged that AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, does not limit the provider to an actuarial study in estimating losses from asserted and unasserted claims. See Finding of Fact 49, supra, for text of Section 8.05. Mr. Diaczyk pointed out that the problem in this case was that Petitioners gave AHCA no documentation to support their estimate of the accrual, despite the auditor's request that Petitioners provide documentation to support their costs. Mr. Diaczyk's testimony raised a parallel issue to Mr. Swindling's concern that Medicaid's prospective targeting system permanently excludes any item of cost not included in the base rate. Mr. Swindling solved the apparent contradiction in employing Medicare rules in the Medicaid scenario by applying GAAP principles. Responding to the criticism that GAAP could provide a windfall to Petitioners by reimbursing them for accrued costs that might never actually result in payment, Mr. Swindling responded that GAAP principles would adjust the cost for contingent liabilities going forward, "truing up" the financial statements in subsequent reporting periods. This truing up process would have the added advantage of obviating the agency's requirement for firm documentation of the initial accrual. Mr. Swindling's "truing up" scenario under GAAP would undoubtedly correct Petitioners' financial statements. However, Mr. Swindling did not explain how the truing up of the financial statements would translate into a correction of Petitioners' reimbursement rate.12 If costs excluded from the base rate cannot be added to future rate adjustments, then costs incorrectly included in the base rate would also presumably remain in the facility's rate going forward.13 Thus, Mr. Swindling's point regarding the self-correcting nature of the GAAP reporting procedures did not really respond to AHCA's concerns about Petitioners' receiving a windfall in their base rate by including the accrual for contingent liabilities. On April 19, 2005, Petitioners entered into a captive insurance program. Petitioners' captive is a claims-made GL/PL policy with limits of $1 million per occurrence and $3 million in the aggregate. Under the terms of the policy, "claims-made" refers to a claim made by Petitioners to the insurance company, not a claim made by a nursing home resident alleging damages. The effective date of the policy is from April 21, 2005, through April 21, 2006, with a retroactive feature that covers any claims for incidents back to June 29, 2002, a date that corresponds to Petitioners' first day of operation and participation in the Medicaid program. The Petitioners' paid $3,376,906 for this policy on April 22, 2005. Mr. Parnell testified that April 2005 was the earliest time that the 14 Palm Gardens facilities could have established this form of insurance program. In summary, the evidence presented at the hearing regarding the contingent liabilities established that Petitioners took over the 14 Palm Gardens facilities after the bankruptcy of the previous owner. Petitioners were faced with the virtual certainty of substantial GL/PL expenses in operating the facilities, and also faced with a Florida nursing home environment market in which commercial professional liability insurance was virtually unavailable. Lacking loss history information from their bankrupt predecessor, Petitioners were unable to self-insure or establish a captive program until 2005. Petitioners understood that if they did not include their GL/PL expenses in their initial cost report, those expenses would be excluded from the base rate and could never be recovered. Petitioners' leases for the facilities required them to fund a self-insurance reserve at a per bed minimum amount of $1,750. Based on the AON studies and the general state of the industry at the time, Petitioners' accountant concluded that, under GAAP principles, $1,750 per bed was a reasonable, conservative estimate of Petitioners' GL/PL loss contingency exposure for the audit period.14 Based on all the evidence, it is found that Petitioners' cost estimate was reasonable and should be accepted by the agency. Petitioners included their GL/PL loss contingency expenses in their initial Medicaid cost report, placing those expenses under a heading indicating the purchase of insurance from a third party. The notes to Petitioners' audited financial statements stated that the facilities were "essentially self- insured." These factors led AHCA to request documentation of Petitioners' self-insurance. Petitioners conceded that they were not self-insured and carried no liability insurance aside from the Mature Care policies. The parties had little dispute as to the facts summarized above. The parties also agreed as to the applicability of the "hierarchy" by which allowable costs are determined. Their disagreement rests solely on the manner in which the principles of the hierarchy should be applied to the unique situation presented by Petitioners in these cases.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that AHCA enter a final order that allows Petitioners' accrual of expenses for contingent liability under the category of general and professional liability ("GL/PL") insurance, and that disallows the Mature Care policy premium amounts in excess of the policy limits, prorated for a nine- month period. DONE AND ENTERED this 24th day of October, 2008, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 24th day of October, 2008.
The Issue Whether Respondent violated the provisions of chapter 440, Florida Statutes (2017), by failing to secure the payment of workers’ compensation coverage as alleged in the Stop-Work Order and Second Amended Order of Penalty Assessment and, if so, what penalty is appropriate.1/
Findings Of Fact The Department is the state agency responsible for the enforcement of the workers’ compensation insurance coverage requirements established in chapter 440. On September 14, 2017, Investigator Murvin conducted a random workers’ compensation compliance check at a residential construction site at 8256 Lake James Drive in Lakeland, Florida. During the course of the compliance check, Investigator Murvin observed two individuals--Donald Steven Paul, Jr. and Dean Wayne Paul--painting the home. It is undisputed that Respondent had been subcontracted to perform painting services at this site; and that these two individuals were, at the time of Investigator Murvin’s visit, employed by Respondent. After speaking to Donald and Dean Paul, Investigator Murvin used the Department’s database to verify that Respondent did not have workers’ compensation insurance coverage, nor did Donald or Dean Paul have an exemption from the coverage requirements. Donald Paul admitted to Investigator Murvin at the hearing that he did not have workers’ compensation coverage for himself or Dean Paul. Donald Paul explained that he believed that his incorporation with the state and securing of liability insurance provided compliance of all insurance requirements. Based on the information provided by Dean and Donald Paul, and from the database, Investigator Murvin issued a SWO to Respondent on the same day as the site visit. A Request for Production of Business Records was also issued to Respondent. In response to the request for documentation, Respondent provided bank statements that indicated the business began in August 1, 2016. The bank statements also established that there was money being deposited and being paid out, but there was no indication what the money was for or how it was allocated. In other words, there was no way to discern whether the money paid out of the bank account was for employee salaries or other business expenses. In support of its Second Amended Order of Penalty Assessment, the Department prepared a penalty calculation worksheet showing a total penalty owed of $2,090.14. At the hearing, Respondent did not challenge the accuracy or method of calculating the assessed penalty, but only asserted that it believed it had the appropriate coverage and that the penalty was “too high.” Based on the evidence, it is clear Respondent provides construction services and has at least one employee; therefore, it was required to secure workers’ compensation insurance. The Department established by clear and convincing evidence that Respondent failed to secure the payment of workers’ compensation as required by chapter 440. The Department has established through the records submitted and testimony of Auditor Murcia, the appropriate penalty for Respondent’s failure to obtain workers’ compensation coverage is $2,090.14 for the audit period of August 1, 2016, to August 14, 2017.
Recommendation Based on the Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED that the Department of Financial Services, Division of Workers’ Compensation, enter a final order finding that Respondent, Donald Steven Paul d/b/a/ D. P. Painting of Lakeland, violated the provisions of chapter 440 by failing to secure the payment of workers’ compensation and assessing against Respondent a penalty in the amount of $2,090.14. DONE AND ENTERED this 20th day of April, 2018, in Tallahassee, Leon County, Florida. S HETAL DESAI 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 20th day of April, 2018.
The Issue This case involves a dispute as to whether the Petitioner underpaid the premiums due on his health insurance coverage and, if so, what action should be taken by the Department of Administration as a result of any premium underpayments. By notice dated March 18, 1988, the Department of Administration notified the Petitioner that the Department records "show a total underpayment of $1,117.81 for the coverage periods 9/86 through 9/87." At the formal hearing, over the objection of the Petitioner, the Department was permitted to offer evidence regarding the Petitioner's premium history (both the amounts due and the amounts actually paid) for the entire period of the Petitioner's employment with the State of Florida, a period which runs from May 1978 until October 1988. At the formal hearing the Department of Administration presented the testimony of one witness and offered several exhibits, all of which were received. The Petitioner did not present any evidence, but did present oral argument on his own behalf. The parties were allowed 10 days from November 3, 1988, within which to file their post-hearing submissions with the Hearing Officer. The Department of Administration timely filed Proposed Findings Of Fact. Those findings are specifically addressed in the appendix to this recommended order. The Petitioner did not file any post-hearing submission.
Findings Of Fact Based on the evidence received at the formal hearing, I make the following findings of fact. From May 1, 1978, until August 1, 1978, the Petitioner requested and received family coverage under the State Group Health Self-insurance Plan. From November 1, 1978, until November 1, 1985, the Petitioner requested and received individual coverage under the State Group Health Self-Insurance Plan. From November 1, 1985, until the date of the hearing, the Petitioner requested and received family coverage under the State Group Health Self-Insurance Plan. From May 1, 198, until July 1, 1984, the Petitioner was a part-time employee of the State of Florida, working .25 of a full-time equivalent position. Accordingly, his premiums for health insurance coverage under the State Group Health Self-Insurance Plan during this period should have been paid on the basis of employment in a .25 full-time equivalent position. From July 1, 1984, until at least the date of the hearing, the Petitioner has been a part-time employee of the State of Florida, working .20 of a full-time equivalent position. Accordingly, his premiums for health insurance coverage under the State Group Self-Insurance Plan during this period should have been paid on the basis of employment in a .20 full-time equivalent position. During the period beginning May 1, 1988, and continuing through October of 1988, the amount by which the Petitioner underpaid his health insurance coverage premiums totals S1,116.36. 1/ During the period beginning March 1, 1986, and continuing through October of 1988, the amount by which the Petitioner underpaid his health insurance coverage premiums totals $861.74. During the thirteen-month period beginning with September 1986 and ending with (but including) September 1987, the amount by which the Petitioner underpaid his health insurance coverage premiums totals $258.36.
Recommendation Based on all of the foregoing, I recommend the entry of a Final Order to the following effect: Finding the Petitioner to be in debt to the State of Florida in the amount of $258.36 by reason of underpayment of premiums during the period of September 1986 through September 1987. Providing that the Petitioner's health insurance coverage under the State Group Health Self-Insurance Plan will be cancelled unless within thirty (30) days following the entry of the final order the Petitioner either pays the full amount of $258.36 or enters into an installment payment program consistent with Rule 22K-1.049(1)(a)2., Florida Administrative Code. DONE AND ENTERED this 23rd day of November, 1988, at Tallahassee, Florida. MICHAEL M. PARRISH, 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 23rd day of November, 1988.
Findings Of Fact At all times material hereto, Respondent, Ralph Steven Carmona, was licensed as an insurance agent by Petitioner, Department of Insurance. On October 25, 1989, Respondent was eligible for licensure and licensed as a Life and Health Insurance Agent. From April 7, 1967 to April l, 1989, Respondent was licensed as a General Lines - Property, Casualty, Surety and Miscellaneous Lines Insurance Agent and is currently eligible for such licensure. From January 21, 1985 through April 1, 1987, Respondent was licensed as a Surplus Lines - Property, Casualty, Surety and Miscellaneous Lines Insurance Agent and remained eligible for such licensure until March 31, 1989. Respondent also served as an officer and director of the Greater Miami Insurance Agency, Inc., an incorporated general lines and life and health insurance agency in Miami. At the time of the incident at issue, Respondent, also, was associated with and conducted insurance transactions in the name of Greater Miami Insurance Agency. In August of 1987, Dr. Lucien Armand, a medical general surgeon, approached Respondent about the possibility of obtaining medical malpractice insurance. Dr. Armand was in the process of establishing his practice with Lawnwood Regional Medical Center in Fort Pierce, Florida. As a condition for employment at Lawnwood Regional Medical Center, Dr. Armand was required to obtain medical malpractice insurance from an insurer authorized to do the business of insurance in Florida. At Dr. Armand's request, Respondent made several inquiries about the possibility of insuring Dr. Armand. Since Dr. Armand had suffered at least four medical malpractice insurance claims from the period of 1982 through 1986, obtaining coverage for him was difficult. However, Respondent gathered several quotations from various medical malpractice insurance companies including the Florida Medical Malpractice Joint Underwriting Association (FMMJUA) which quoted a premium of between $75,000 to $80,000, annually. Dr. Armand rejected each of the plans offered by Respondent as too expensive and requested Respondent to continue his search for a less expensive coverage. Sometime prior to the time he was approached by Dr. Armand, Respondent had been contacted by a company with an address in the Bahamas, International Med Trust Fund (IMTF). Respondent called IMTF and requested additional information concerning their offerings and financial status. In response to his request, Respondent received a letter from a G.L.J. Wilson written on the letterhead of Paramount Insurance Broker & Agents Limited. Respondent represented that Mr. Wilson was the broker and agent for IMTF. The letter was dated February 2, 1987 and, as quoted from the letter, made the following apparent representations pertinent to IMTF: * * * International Ned Trust Fund has been doing business in the State of Florida for over three years. The Fund has retained the services of Melsar Ltd, Inc., a Florida Corporation that are Financial and General Consultants to the Insurance Industry whose job it is to advise us on strategy and regulations of the Insurance Agency. We have not been authorized to write business in the state of Florida simply because up until now authorization was not required. We are however, advised that the office of The Insurance commissioner does not object to our writing business in Florida so long as we state our intent to defend all claims and actions within the state. This we have done. We do have the services of a Florida Lawyer whose job it is to co-ordinate the legal defence of the fund, should action from a claim commence. * * * Respondent also received a letter from Gulf Union Bank (Bahamas) Ltd. dated February 4, 1987 which stated that the "dollar value" of IMTF was in the moderate seven figure bracket. To verify the allegations in Mr. Wilson's letter, Respondent called Petitioner and spoke with someone whom Respondent believed to be a representative of Petitioner. Respondent understood the alleged spokesperson to say that the Petitioner had no jurisdiction over IMTF and from that assumed that IMTF was not required to be licensed by Petitioner before doing business in Florida. Feeling assured that IMTF need not be licensed from his understanding of the alleged representation by Petitioner, that IMTF had adequate financial resources from the representation made by Gulf Union Bank and that IMTF had previously transacted business in Florida from Mr. Wilson's letter, Respondent ended his inquiries about the status of IMTF to conduct insurance business in Florida. Respondent prepared to offer policies for IMTF. Respondent solicited for IMTF under his General Lines - Property, Casualty, Surety and Miscellaneous Lines agent's license. Although medical malpractice insurance can be written under the license, existent law requires that the insurer, itself, must be authorized by Petitioner and an agent must hold an appointment with the insurer which is registered with Petitioner. As of August 20, 1987, IMTF was also not an authorized insurer. Further, Respondent was not authorized to solicit insurance in Florida on behalf of International Med Trust Fund. When Dr. Armand rejected coverage by the FMMJUA, Respondent gave Dr. Armand an application for IMTF and quoted him a premium of $24,500, a substantial decrease from the $75,000 to $80,000 premium quoted by the FMMJUA. Respondent also shared with Dr. Armand the information he had received concerning IMTF. Dr. Armand paid the deposit of $7,500 by tendering $5,000 in cash and financing the remainder with Respondent. Dr. Armand was then given a one month binder from Greater Miami Insurance Agency for coverage by IMTF dated August 20, 1989. Later, Respondent received the Certificate of Insurance from IMTF dated November 3, 1987 for the indemnity period of August 20, 1987 through August 20, 1988. Respondent copied the certificate and forwarded it to Dr. Armand. Dr. Armand's policy was the first and only policy which Respondent has written for IMTF. However, Respondent's reliance on the representations he obtained about the status of IMTF and his failure to have adequate knowledge about the insurers for which he was authorized to solicit under his general lines license clearly demonstrate a lack of reasonable knowledge about the transactions for which he was licensed. Between October 28, 1987 and March 7, 1988, Dr. Armand paid four premium installments totaling $6,674.00 to Greater Miami Insurance Agency in addition to the deposit. The funds were deposited, in trust, in the corporate account of Greater Miami Insurance Agency. In the regular course of business, the monies, minus Respondent's commission and approximately $1,500, were forwarded to IMTF. Sometime in early 1988, the hospital questioned the validity of the IMTF policy and contacted Petitioner. Petitioner responded with a letter dated April 6, 1988 stating that IMTF was not approved or authorized to write any kind of coverage in Florida. Dr. Armand was informed by the hospital about Petitioner's letter and its contents and that he must obtain substitute insurance to remain on staff there. Dr. Armand then informed Respondent about the letter from Petitioner. Respondent offered to return Dr. Armand's money, but Dr. Armand, having confidence that Petitioner's letter was in error, requested Respondent to clarify the matter with the hospital. During the months of April and May, 1988, Dr. Armand repeatedly tried to contact Respondent concerning the status of Respondent's efforts to clarify the matter. Failing to reach him by telephone, Dr. Armand wrote Respondent on June 11, 1988 and requested a refund of the amount of premium paid to IMTF. Then, on June 15, 1988, Dr. Armand again wrote to Respondent requesting assurance that IMTF would indemnify Dr. Armand for claims arising from acts occurring during the period of time which Dr. Armand thought he was covered by IMTF. Dr. Armand made this request although he had requested that the premium be refunded to him. The proof was unclear as to whether the funds were, or were not, refunded to Dr. Armand and no competent, substantial evidence was presented to show whether IMTF would, or would not, honor a claim against Dr. Armand. Respondent attempted to satisfy Dr. Armand's requests. He telephoned IMTF and requested it to submit its Bahamian license certificate to the hospital. He, also, sought substitute coverage for Dr. Armand by again contacting the FMMJUA and secured a one month binder with FMMJUA. The proof is unclear as to what funds Respondent used as the deposit for the binder. However, the premium quoted for the coverage by the FMMJUA, in this instance, was $125,000 which Dr. Armand rejected. Although alternate insurance was available to Dr. Armand, he terminated his staff privileges at Lawnwood Regional Medical Center. The reasons for his departure from Lawnwood are unclear. Dr. Armand currently practices in Broward County, Florida. Respondent still holds some of the remaining premium funds in trust, and a balance on the premium is owing IMTF. The amount of these funds, in addition to the amount of commission paid to Respondent, were not proven by competent, substantial evidence. The instant claim represents the first and only complaint filed with Petitioner against Respondent since Respondent was first licensed by Petitioner in 1967.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Insurance enter a final order which finds that Respondent committed the multiple violations of the Florida Insurance Code as set forth in the Conclusions of Law portion of this Recommended Order, imposes a an administrative fine of five hundred dollars ($500) on Respondent and places Respondent on probation for a period of three (3) months. DONE AND ENTERED this 10th day of January, 1990, in Tallahassee, Leon County, Florida. JANE C. HAYMAN Hearing Officer The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of January, 1990.
The Issue The issue to be determined is the amount to be reimbursed to Respondent, Agency for Health Care Administration ("AHCA"), for medical expenses paid on behalf of Yisell Cabrera Rodriquez pursuant to section 409.910, Florida Statutes, from settlement proceeds received by Petitioner from third parties.
Findings Of Fact The Parties Petitioner, Julio Cesar Cabrera, is the duly-appointed Personal Representative of the Estate of Yisell Cabrera Rodriquez, his deceased daughter. Respondent is the state agency charged with administering the Florida Medicaid program, pursuant to chapter 409. The Events Giving Rise to this Proceeding On August 30, 2015, Petitioner's 23-year old daughter, Yisell, was severely injured in an automobile accident. She was a passenger in an automobile that was struck by another automobile that failed to yield the right-of-way at an intersection. The automobile in which Yisell was a passenger previously had been in an accident and had been determined a total loss. It subsequently was rebuilt by Unique Body Works in Miami. A sister company, Unique Automotive, sold the vehicle to the driver of the car in which Yisell was a passenger on August 30, 2015. When Unique Body Works rebuilt the automobile, it did not replace the passenger side airbags. When the automobile was struck in the accident, airbags on the passenger side were not available to deploy. As a result, Yisell was severely injured. She was transported to Jackson Memorial Hospital, where she received medical treatment in intensive care. Tragically, on August 31, 2015, Yisell died from the injuries she sustained in the accident. Petitioner instituted a wrongful death action against the at-fault driver ("Carlos Espinoza") and the owner of the automobile ("Ana Ramirez") that struck the automobile in which Yisell was a passenger, Unique Body Works, and Unique Automotive, to recover damages to Yisell's parents and to her estate. Espinoza/Ramirez were insured by Infinity Auto Insurance Company under a policy having a bodily injury limit of $10,000. Unique Body Works was insured by Grenada Insurance Company under a policy having a liability limit of $100,000. Unique Automotive was insured by Western Heritage Insurance Company under a policy having a liability limit of $30,000. All of the insurers tendered their respective policy limits for a total of $140,000. On July 14, 2017, Petitioner, on behalf of the Estate of Yisell Cabrera Rodriquez, entered into settlement agreements with Espinoza/Ramirez, Unique Body Works, and Unique Automotive, for a total of $140,000, which constitutes the total amount of the third-party benefits received.4/ Yisell's medical care related to her injury was paid by Medicaid.5/ The medical expenses paid by Medicaid totaled $86,491.86. Pursuant to section 409.910(6)(c)1., AHCA has a Medicaid lien for that amount. Petitioner's Challenge to the Repayment Amount Section 409.910(11)(f) establishes a formula for distributing the benefits that are recovered by a recipient or his or her legal representative in a tort action against a third party that results in a judgment, settlement, or award from that third party. Applying this formula to the $140,000 that Petitioner received in third-party benefits results in a lien repayment amount of $51,838.61.6/ In this proceeding, AHCA asserts that it is owed this amount. As noted above, Petitioner disputes that $51,838.61 is the amount of recovered medical expenses payable to Respondent, and instead asserts that $4,039.17 in medical expenses are payable to Respondent. In support of his position, Petitioner presented the testimony of Mrs. Maria Rodriquez, Yisell's mother. She testified, persuasively, that theirs was a very close-knit family who did everything together, and that the loss of Yisell has destroyed their family life. She also testified that as a result of the emotional trauma of losing Yisell, her health has suffered, and she has difficulty sleeping and has gastric reflux for which she is being treated. Petitioner also testified, persuasively, that the loss of Yisell changed his life and the lives of his family members. As he described it, "[her loss] has changed our life. It's all the sadness. It's all the pain, everything. Everything's changed. . . . We were happy. We were so happy. We were so close." Petitioner also presented the expert testimony of Oscar Ruiz7/ regarding the valuation of Petitioner's wrongful death claim. Mr. Ruiz testified that in his opinion, $3 million constituted a very conservative valuation of the damages suffered by Yisell's parents in this case. He based this opinion on having interviewed Yisell's parents regarding the impact of her loss on their family, and on his knowledge of jury verdicts and settlements in recent Florida cases involving awards of damages to parents for the loss of their children in automobile accidents or due to medical malpractice. He emphasized that his valuation was far more conservative than many comparable cases that yielded substantially higher verdicts or settlements. Petitioner asserts that Respondent is only entitled to recover $4,039.17 in medical expenses on the basis of the calculation method used in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006). Specifically, Petitioner proposes to apply the same ratio that the settlement of $140,000 bore to the total monetary value of all damages ($3 million, according to Petitioner's expert) to determine the amount Respondent is owed for medical expenses. Petitioner contends that although Ahlborn did not establish a uniform calculation method applicable in all cases, it nonetheless has been accepted and applied by ALJs in other Medicaid third-party recovery cases to determine the amount of reimbursable medical expenses under section 409.910(17)(b), without challenge from AHCA regarding the accuracy of that method. Respondent did not present any evidence regarding the value of Petitioner's claim or propose a differing valuation of the damages. As more fully discussed below, Respondent contends that the opportunity to rebut the medical expense allocation provided under section 409.910(17)(b) is not available in cases such as this, where the Medicaid recipient dies before third- party benefits are recovered through settlement or other means.
The Issue Whether Respondent violated the provisions of chapter 440, Florida Statutes (2016), by failing to secure the payment of workers' compensation coverage, as alleged in the Second Amended Order of Penalty Assessment; and, if so, what penalty is appropriate.
Findings Of Fact The Department is the state agency responsible for enforcing the requirement of chapter 440 that employers in Florida secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107, Fla. Stat. Respondent owns and operates a gas station/convenience store in Miami, Florida. The Investigation. The Department received a public referral that Respondent was operating without workers' compensation coverage. The case was assigned by the Department to Compliance Investigator Julio Cabrera ("Cabrera"). Cabrera first checked the Florida Department of State, Division of Corporations, Sunbiz website to verify Respondent's status as an active corporation. Cabrera then checked the Department's Coverage and Compliance Automated System ("CCAS") to see whether Respondent had a workers' compensation policy or any exemptions. An exemption is a method in which a corporate officer can exempt himself from the requirements of chapter 440. See § 440.05, Fla. Stat. CCAS is the Department's internal database that contains workers' compensation insurance policy information and exemption information. Insurance providers are required to report coverage and cancellation information, which is then input into CCAS. Cabrera's CCAS search revealed that Respondent had no coverage or exemptions during the relevant period. On February 23, 2016, Cabrera visited Respondent's place of business and observed two women, Margarita Maya ("Maya"), and Nuri Penagos ("Penagos") serving customers. Cabrera asked to speak to the owner. Maya telephoned John Obando ("Obando"). After introducing himself, Cabrera asked how many employees worked for the business. Obando indicated he needed to check with his accountant. Shortly thereafter, Obando called Cabrera back and indicated that his employees included Maya; Carolina Santos ("Santos"); his wife, Marta Ayala ("Ayala"); and himself. Obando confirmed that the business did not currently have workers' compensation insurance coverage nor did any of the members of the LLC have an exemption. The LLC had three managing members: Obando; Maria Rios ("Rios"); and Carlos Franco ("Franco"). Obando explained that Rios lived out of the country and did not provide services to Respondent. According to Obando, Franco also resides outside of the United States, but he travels to Florida and periodically assists with the running of Respondent's business enterprise. Cabrera contacted his supervisor and relayed this information. With his supervisor's approval, Cabrera issued a SWO and served a Business Records Request. Respondent provided the requested business records to the Department. The evidence showed that during the two-year look-back period, Respondent did not have workers' compensation coverage for its employees during a substantial portion of the period in which it employed four or more employees, including managing members without exemptions. As such, Respondent violated chapter 440 and, therefore, is subject to penalty under that statute. Penalty Calculation. The Department assigned Penalty Auditor Matt Jackson ("Jackson") to calculate the penalty assessed against Respondent. Jackson used the classification code 8061 listed in the Scopes® Manual, which has been adopted by the Department through Florida Administrative Code Rule 69L-6.021(1). Classification code 8061 applies to employees of gasoline stations with convenience stores. Classification codes are four-digit codes assigned to various occupations by the National Council on Compensation Insurance to assist in the calculation of workers' compensation insurance premiums. In the penalty assessment, Jackson applied the corresponding approved manual rate for classification code 8061 for the related periods of non-compliance. The corresponding approved manual rate was correctly utilized using the methodology specified in section 440.107(7)(d)1. and rule 69L-6.027 to determine the final penalties. Utilizing the business records provided by Respondent, the Department determined Respondent’s gross payroll pursuant to the procedures required by section 440.107(7)(d) and rule 69L- 6.027. The Department served an Amended OPA on March 29, 2016, imposing a total penalty of $29,084.62. On May 6, 2016, following receipt of additional records, the Department issued a Second Amended OPA, reducing the penalty to $25,670.88. Because Respondent had not previously been issued a SWO, pursuant to section 440.107(7)(d)1., the Department applied a credit toward the penalty in the amount of the initial premium Respondent paid for workers' compensation coverage. Here, the premium payment amount for which Respondent received credit was $1,718.00. This was subtracted from the calculated penalty of $25,670.88, yielding a total remaining penalty of $23,952.88. No records were provided regarding the compensation of Penagos, who was observed working on the date of the inspection. According to Respondent, Penagos was present and working on that date, not as an employee, but as an unpaid volunteer who was testing out the job to see if it was to her liking. The Department imputed gross payroll for Penagos for February 23, 2016, which resulted in a penalty in the amount of $16.26 and was included in the Second Amended OPA. Respondent's Defenses. At the final hearing, Obando testified that he and the other co-owners of Respondent always attempted to fully comply with every law applicable to Respondent's business and have never had compliance problems. He testified that the business carried workers' compensation coverage until 2013, when its insurance agent advised Respondent it could go without coverage due to the size of the business, if the managing members of the LLC were to apply for, and be granted, an exemption. Obando offered no explanation why Respondent failed to secure the exemptions before letting coverage lapse during the penalty period. Obando also argues that on the date of the investigation, Penagos was not an employee, but rather his sister-in-law, who was trying out the job for a day as a volunteer to determine if she would replace Obando's wife, Ayala, who no longer wanted to work in the store. Obando asserts that only two employees were actually working in the store that day, so Respondent should not have been considered out of compliance. Obando also testified that at most, no more than three employees work at the store on any particular day. Obando testified that Respondent has ample liability coverage and that each worker has health insurance, suggesting that workers' compensation insurance coverage is unnecessary. According to Obando, the $23,952.88 penalty is a substantial amount that Respondent, a small family-owned business, cannot afford to pay. Findings of Ultimate Fact. Excluding Penagos as a volunteer, and Rios as a managing member of the LLC with no active service to Respondent, Respondent was a covered employer with four or more employees at all times during the penalty period. The Department demonstrated, by clear and convincing evidence, that Respondent violated chapter 440, as charged in the SWO, by failing to secure workers' compensation coverage for its employees.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: The Department of Financial Services, Division of Workers' Compensation, enter a final order determining that Respondent, S & S of Florida, LLC, violated the requirement in chapter 440 to secure workers' compensation coverage and imposing a total penalty of $23,936.62. DONE AND ENTERED this 7th day of December, 2016, in Tallahassee, Leon County, Florida. S MARY LI CREASY 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 7th day of December, 2016. COPIES FURNISHED: Joaquin Alvarez, Esquire Trevor Suter, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-4229 (eServed) John J. Obando S & S of Florida, LLC 8590 Southwest Eighth Street Miami, Florida 33144 Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)
The Issue Whether the Petitioner, Robbie Reynolds, is eligible for family medical insurance coverage for medical expenses incurred by the Petitioner's son?
Findings Of Fact The Parties. At all times relevant to this proceeding, the Petitioner, Robbie W. Reynolds, was an employee of Department of Corrections, an agency of the State of Florida. The Respondent, the Department of Management Services, Division of State Employees' Insurance (hereinafter referred to as the "Division"), is an agency of the State of Florida. The Division is responsible for managing the State's employee health insurance system. Participation in the State of Florida Health Insurance Plan. The State of Florida makes health insurance available to its employees (hereinafter referred to as the "State Health Plan"). Employees may choose health insurance through the State of Florida Employees' Group Health Self Insurance Plan or through various health maintenance organizations (hereinafter referred to as "HMOs"). The Division has promulgated Chapter 60P, Florida Administrative Code, regulating the State Health Plan. Employees pay part of the premiums for their health insurance and the State contributes a part of the cost of premiums. The amount of premiums paid by an employee and the State depends on the type of coverage selected. Employees may elect coverage only for themselves ("individual" coverage), or coverage for themselves and certain qualified dependents ("family" coverage). Female employees who elect individual coverage are eligible for the payment of maternity or pregnancy benefits. Included in these benefits are certain benefits for the newborn child referred to as "well-baby care." In order for medical expenses attributable solely to a newborn baby that is ill at or after birth to be covered by the State Health Plan, an employee must elect family coverage for the employee and the child. The family coverage must be effective as of the date the medical expenses are incurred for the child. Open Enrollment Periods. Once an employee selects the type of health insurance he or she desires, that employee generally may change the election only during certain designated periods of time, referred to as "open enrollment periods." During an open enrollment period, an employee may change from HMO coverage to the State of Florida Employees' Group Health Self Insurance Plan, or vice versa, may change from individual coverage to family coverage, or vice versa, and may add or delete dependents to the employee's family coverage. Changes to an employees' State Health Plan coverage made during an open enrollment period are effective for the calendar year immediately following the open enrollment period. Other Changes in Health Insurance Coverage. An exception to the requirement of the State Health Plan that changes in coverage only be made during an open enrollment period is provided for certain specified events, referred to as "qualifying events." The acquisition of an "eligible dependent" during a year may constitute a qualifying event. For example, if an employee marries, the employee may elect family coverage for himself or herself and the employee's spouse. A change from individual coverage to family coverage may also be made if an employee or an employee's spouse gives birth to a child. The change to family coverage as a result of marriage or the birth of a child must be made within thirty-one days after the eligible dependent is acquired. An employee may also elect family coverage as a result of the employee or the employee's spouse becoming pregnant. If the employee or employee's spouse elects family coverage in time for the family coverage to be effective at the time of the child's birth, the child may then be added as a dependent to the family coverage by notifying the Division of the child's birth within thirty-one days after the child is born. In order to change to family coverage when an employee or employee's spouse becomes pregnant, the employee, must apply for the change to family coverage in time for the employee to make a month's premium payment on the first day of at least the month during which the child is born or an earlier month. For example, if an employee elects to change from individual coverage to family coverage for a yet to be born child in July effective for September, the first full month's premium is paid on September 1, and the child is born on September 2, the employee has family coverage for all of September and the child will be covered if the Division is notified of the child's birth within thirty-one days after the date of birth. In order for an employee to make a change in coverage as the result of a qualifying event, the employee must file a Change of Information form with the employee's personnel office. The personnel office forwards the form to the Division. Ms. Reynolds' Health Insurance. Ms. Reynolds, as an employee of the State of Florida, was eligible for state health insurance. She elected to participate in the HMO that was available in the Gainesville area where she is employed. AvMed is the name of the HMO for the Gainesville area and Ms. Reynolds' insurer. Although married, Ms. Reynolds initially elected individual coverage. Ms. Reynolds did not elect family coverage for her husband because he received health insurance benefits from his employer. During 1992, Ms. Reynolds became pregnant. The baby's projected due date was April 15, 1993. The Open Enrollment Period for 1993. The open enrollment period for the next calendar year (1993) after Ms. Reynolds became pregnant took place in October of 1992. During the October 1992 open enrollment period the Department of Corrections, through its personnel office, conducted meetings with employees to discuss health care benefits and coverage available to its employees. Two benefits consultants, trained by the Division, conducted the meetings, providing information to, and answering questions from, employees concerning the open enrollment period. Ms. Reynolds, who was approximately three months pregnant at the time of the benefit consultation meetings, attended one of the sessions. Ms. Reynolds attended the session for the purpose of determining what steps she should take to insure that her yet-to-be-born infant was covered by health insurance. Ms. Reynolds spoke for some time with Gail Page and Jordaina Chambers, benefits consultants of the Department of Corrections. Ms. Reynolds informed the benefits consultants that she was pregnant and that she wanted to insure that her yet-to-be-born infant was covered by her health insurance. Ms. Reynolds was incorrectly told that she could not elect family coverage for just her and her yet-to-be-born infant. This incorrect advice, however, did not have any effect on the effective date Ms. Reynolds ultimately decided to begin her family coverage. Ms. Reynolds also informed the benefits consultants that the baby was due April 15, 1993. The benefits consultants informed Ms. Reynolds that her pregnancy constituted a qualifying event and that she could, therefore, switch to family coverage in order to cover her baby. She was also informed that she would have to notify the Division of her child's birth with thirty-one days after birth to add the child to the policy. After being told that she would have to switch her coverage from individual coverage to family coverage, adding her husband as a dependent, Ms. Reynolds asked the benefits consultants when she should switch to family coverage. Consistent with the policies of the Division, and the training the benefits consultants had received from the Division, the benefits consultants advised Ms. Reynolds that she should elect family coverage effective two or three months prior to her due date. The Division makes this recommendation so that employees can save the increased premiums for family coverage a reasonable period of time before the child is born. In light of the fact that Ms. Reynolds' conversation with the benefits consultants took place during the 1992 open enrollment period and the fact that January 1, 1993 was three and one-half months prior to Ms. Reynolds' due date, Ms. Reynolds was advised by the benefits consultants that it would be reasonable to switch from individual coverage to family coverage through the open enrollment period. Based upon this advice, Ms. Reynolds' family coverage would be effective January 1, 1993. The benefits consultants did not advise Ms. Reynolds of any possible consequences of not electing to switch from individual coverage to family coverage with an effective date prior to January 1, 1993. The benefits consultants also did not tell Ms. Reynolds that she could not choose to switch from her individual coverage to family coverage with an effective date prior to January 1, 1993. On or about October 15, 1992, Ms. Reynolds executed and filed with the Division an Annual Benefit Election Form. Respondent's exhibit 1. Pursuant to this form Ms. Reynolds elected to change her health insurance coverage from individual to family effective January 1, 1993. Ms. Reynolds elected to add her husband as a covered dependent. Based upon the election made by Ms. Reynolds, her family coverage became effective on January 1, 1993. If her child was born before that date, any expenses attributable solely to medical services received by the child would not covered by Ms. Reynolds' medical coverage. If the child was born on or after that date and Ms. Reynolds notified the Division of the child's birth within thirty-one days after the child's birth, any expenses attributable solely to medical services received by the child would be covered by Ms. Reynolds' medical coverage. The evidence failed to prove that the advice given by the benefits consultants in October 1992 was not reasonable based upon the information available to them and to Ms. Reynolds. The evidence also failed to prove that either the benefits consultants or Ms. Reynolds unreasonably failed to realize that the child would be born more than three and one-half months premature. Ms. Reynolds, while reasonably relying on the advice of the benefits consultants, knew or should have known that the ultimate decision as to when to begin family coverage was hers to make. Ms. Reynolds also should have been somewhat wary of the advice she was given, in light of the fact that Ms. Reynolds admitted that she was told by the benefits consultants that they "did not know that much about what she was asking." Despite this warning, Ms. Reynolds testified during the final hearing that she followed their advice because she felt there was "no reason to believe they would be wrong." The Premature Birth of the Reynolds' Child. On December 29, 1992, Ms. Reynolds underwent surgery, due to unforeseen medical complications, to deliver her child. The child died on January 1, 1993. In order to add the child as a dependent to her medical insurance when the child was born, Ms. Reynolds had to have family coverage in effect as of December 1, 1992 or earlier. Unfortunately for Ms. Reynolds, on December 29, 1992 when her child was born, Ms. Reynolds only had individual coverage. The rules governing medical benefits of state employees do not allow employees with individual coverage to add dependents. Therefore, even though Ms. Reynolds attempted to get the Division, through the personnel office of the Department of Corrections, to add her child by notifying the personnel office of the birth of the child immediately after December 29, 1993, the child could not be added to her individual coverage. The child received medical services and incurred medical expenses between December 29, 1992 and January 1, 1993. Those expenses were not covered by the well-baby care provided by Ms. Reynolds' individual coverage. Because Ms. Reynolds did not have family coverage at the time the child was born and the child could not be added to her individual coverage, the medical expenses incurred for the child were not covered by Ms. Reynolds' health insurance. Although the child should be added as a dependent to Ms. Reynolds family coverage which took effect as of January 1, 1993, the evidence failed to prove that any medical expenses incurred for the care of the child on January 1, 1993, were not attributable to a preexisting condition. Therefore, expenses incurred for the care of the child on January 1, 1993, are not eligible for reimbursement. Should the Division be Estopped from Denying Coverage? The Division relies on benefits consultants to assist the Division in administering the State Health Plan. Benefits consultants are trained by the Division, they are state employees and they hold themselves out as representing the State in general and the Division in particular. The Division's rules provide for the active involvement of the various personnel offices in administering the State Health Plan. See, Rule 60P- 2.003(1), Florida Administrative Code. The Annual Benefit Election Forms issued by the Division during the open enrollment specifically provide that the forms are to be turned in to employees' personnel offices. The Division allows personnel offices of the various state agencies to hold themselves out to employees as agents of the Division. In this case, Ms. Reynolds was given advice by benefits consultants, on behalf of the Division and consistent with Division policy, which played a role in Ms. Reynolds making a decision which resulted in medical expenses incurred upon the premature birth of her child not being covered by her medical insurance. While Ms. Reynolds was given some incorrect advice, she was not given incorrect advice concerning the effective date of her family coverage. The advice given to Ms. Reynolds concerning when to start her family coverage was reasonable at the time given and, as she admitted during the hearing, there was no reason in October of 1992 to doubt the wisdom of the advice she received. Ultimately, it was Ms. Reynolds decision. While she may not have understood that advice, she made the decision to make choices and act on the advice even after being warned that the benefits consultants were not knowledgeable about what she was asking.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Employees' Insurance enter a Final Order dismissing Robbie W. Reynolds' petition in this matter. DONE AND ENTERED this 19th day of November, 1993, in Tallahassee, Florida. LARRY J. SARTIN 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 19th day of November, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-3731 The Division has 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. Ms. Reynolds did not file a proposed recommended order. The Division's Proposed Findings of Fact Accepted in 2-3 and 19. Accepted in 4-5, 9 and hereby accepted. Hereby accepted. Accepted in 6 and 9. Accepted in 11-17. Accepted in 7-8. Accepted in 1 and 18-19. Accepted in 23-26. Accepted in 20, 28 and 30-32. But See 27-20. See 29-30. But see 27. Accepted in 34 and 38. See 40. Hereby accepted. Accepted in 40-41 COPIES FURNISHED: Robbie W. Reynolds 2635 South West 35th Place, #1304 Gainesville, Florida 32608 Augustus D. Aikens, Jr. Chief of Bureau of Benefits and Legal Services Division of State Employees' Insurance Department of Management Services 2002 Old St. Augustine Road, B-12 Tallahassee, Florida 32301-4876 William H. Lindner, Secretary Department of Management Services Knight Building, Suite 307 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950 Sylvan Strickland, Esquire Department of Management Services Knight Building, Suite 309 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950
The Issue The issue in this proceeding is whether the Agency for Health Care Administration's denial of Petitioners', Brookwood- Walton County Convalescent Center and Brookwood-Washington County Convalescent Center (Brookwood), interim rate request for general and professional liability insurance was proper and in keeping with state and federal laws and the rules and regulations governing Florida's Medicaid program.
Findings Of Fact Petitioners, Brookwood-Washington County Convalescent Center and Walton County Convalescent Center (Brookwood) are licensed nursing homes in the State of Florida. The Brookwood facilities have historically been high Medicaid providers. Both participate in the Florida Medicaid program. Washington County Convalescent Center is currently 90 percent Medicaid and Walton County Convalescent Center is 85 percent Medicaid. The statewide average for all nursing homes in Florida is 50-55 percent Medicaid. Such high Medicaid participation makes Brookwood extremely sensitive to changes in its allowable costs and its ability to recover those costs. Florida's Medicaid program is needs-based, providing nursing home care to persons eligible for such care who fall below a certain level of income and assets. Medicaid is a "prospective" reimbursement program in that reimbursement to a nursing home is based on the facility's cost history adjusted or inflated to approximate future costs. Adjustments are made and reimbursement rates are set based on a nursing home's cost report for allowable costs it has incurred in the past year. In determining allowable reimbursable costs, AHCA utilizes the Florida Title XIX Long-Term Care Reimbursement Plan, Version XIX, dated November 27, 1995 (Reimbursement Plan), the reimbursement principles of the Federal Medicare Program's Health Insurance Manual (also known as the Provider Reimbursement Manual, PRM, or HIM-15), and Generally Accepted Accounting Principles (GAAP) or accepted industry practice. In making determinations as to allowable reimbursable costs, one first looks to the Plan, then HIM-15 and finally, GAAP. With certain exceptions not relevant here, The Florida Medicaid program reimburses all allowable costs, as those costs are defined in the Reimbursement Plan and HIM-15. Premiums paid by a nursing home for liability insurance are an allowable cost under the Reimbursement Plan. Allowable costs are broken out in the categories of property, patient care, and operating expenses. As indicated, in determining the prospective rate, AHCA inflates the reported allowable costs in each category forward subject to various class ceiling limitations and target limitations. A class ceiling is an upper limit on the cost that will be reimbursed. A target limitation is a limit on the rate of increase of costs from year to year. In short, a nursing home provider may be under its class ceilings; however, any increase in its costs that exceeds a certain percentage amount will not be recognized for reimbursement purposes. After applying the inflation factor, the class ceilings and the target limitations to allowable costs, AHCA arrives at a per-patient, per-day rate that the nursing home will be paid during the next year. Because nursing home reimbursement is prospective and subject to target limits, a nursing facility might be unable to recover its allowable costs of providing services if it experiences unanticipated expenses that cause its allowable costs to unexpectedly rise. In such cases, the Plan has provisions that allow, under very limited circumstances, an interim rate adjustment for an unexpected increase in costs. Such interim rate increases are covered in Section IV.J. of the Plan. In 1999, Brookwood's liability insurance premium cost was $400,000 for its six Florida facilities and one North Carolina facility. In the year 2000, Brookwood's liability insurance premium cost increased to $4,000,000. Of that amount, the premium cost for Walton County Convalescent Center increased from $56,000 to $546,000 and the premium cost for Washington County Convalescent Center increased from $84,000 to $819,000. The premium increase occurred after Brookwood's rates had been set based on its 1999 insurance costs. Additionally, in September of 2000, Brookwood's liability insurer left the state. Brookwood has since been unable to obtain liability insurance for its Florida facilities. It was possible for Brookwood to self-insure, but it did not. Self-insurance is generally only feasible for facilities larger than Brookwood. However, the evidence did not demonstrate that Brookwood could not self-insure. On May 30, 2000, faced with this unforeseen increase in liability insurance premiums, Brookwood applied to AHCA for an interim rate effective retroactively to January 1, 2000. This was necessary because the large increase in costs would not be covered by the normal rate of inflation allowed by the department and the cost of the increase would not be recoverable through the normal prospective reimbursement methodology due to the lag time between the cost increase and the filing of the cost report. In addition, without an interim rate Brookwood would not receive an adjustment to its target rate, thereby, limiting reimbursement for any increased costs it did report on its cost reports. Brookwood only requested interim rates for these two facilities because its other four facilities were at or above the cost ceilings and could get no relief from an interim rate. In other words, for those four facilities, Medicaid will not participate in payment for the extra costs incurred by the increased liability insurance premiums. Even for the two facilities at issue here, if an interim rate is granted, AHCA will not reimburse for any costs that exceed the cost ceilings. The increase of premiums and subsequent pull out by several insurance companies were part of a reaction to increased loss in the area of nursing home liability. The crisis was, in part, due to an increase in civil litigation against nursing homes being brought under Sections 400.022 and 400.023, Florida Statutes. Indeed, Florida's rate of nursing home liability litigation is significantly above the national average. However, Florida's nursing home population is also significantly larger than the national average. However, the crisis was also due to many other factors which impact liability and rates in Florida. While there may be some debate about the causes of the increased litigation, there is no debate that the cost of liability insurance increased significantly over a short period of time with some insurance companies ceasing to write liability insurance for nursing homes in Florida. The Agency denied Brookwood's request because no new interpretation of law by the state or federal government pertaining to liability insurance had occurred which caused Brookwood's costs to increase. As indicated earlier, the Plan contains provisions that allow a nursing home participating in the Medicaid program to request an interim change in its reimbursement rate when it incurs costs resulting from patient care or operating changes made to comply with existing state regulations and such costs are at least $5,000 or one percent of its per diem. The language of Section IV.J.2 of the Estate's Long- Term Care Reimbursement Plan states that: J. The following provisions apply to interim changes in component reimbursement rates, other than through the routine semi- annual rate setting process. * * * 2. Interim rate changes reflecting increased costs occurring as a result of patient care or operating changes shall be considered only if such changes were made to comply with existing State or Federal rules, laws, or standards, and if the change in cost to the provider is at least $5000 and would cause a change of 1 percent or more in the provider's current total per diem rate. Other subsections of Section J of the Reimbursement Plan deal with new requirements or new interpretation of old requirements. Those subsections do not apply in this case. The term standards as used in Section J refers to standards in the Reimbursement Plan, Section IV titled "Standards," the standards of care and operation detailed by the Medicaid program in its provider handbooks and such standards as are detailed in the Code of Federal Regulations, and HCFA/HHS guidelines, as well as state statutes and rules. These standards are the usual or customary method or practice used by the nursing home industry to gain reimbursement from Medicaid. The term standards include reimbursement standards, methods or principles for medicaid providers. In essence, a nursing home would have to incur additional or new costs to receive an interim rate adjustment. Brookwood's increase in insurance premiums was such an increase in costs, which would be allowable subject to ceiling and target limitations. At the time of Brookwood's request, there was no specific requirement in the state Reimbursement Plan, state or federal law requiring that liability insurance be carried by a nursing home. Additionally, there was no change to the Reimbursement Plan, state, or federal law or regulation requiring that liability insurance be carried by a nursing home. On the other hand, the reimbursement standards or requirements set forth in HIM-15 make it clear that a prudent Medicaid provider is expected to carry liability insurance or self-insurance in order to be reimbursed for any uninsured losses. Specifically, Section 2160.2 of the Provider Reimbursement Manual states: Liability damages paid by the provider, either imposed by law or assumed by contract, which should reasonably have been covered by liability insurance, are not allowable. Section 2161 of HIM-15 states that the reasonable costs of such insurance are allowable. Section 2162.1 of HIM-15 states that losses in excess of the deductible or co-insurance are allowable costs so long as the amount of insurance was consistent with sound management practices. Section 2162.5 of HIM-15 recognizes the allowability of deductibles, so long as they do not exceed 10 percent of the entity's net worth or $100,000 per provider. It also states that if you set a deductible higher than those amounts (or assume all the risk), any losses exceeding the 10 percent or $100,000 will not be allowable as recognized costs. The general implication of these and other related sections of HIM-15 is that a prudent provider is expected to carry liability insurance or be self-insured. Thus, a provider will be reimbursed for the reasonable costs of liability insurance, any reasonable deductible, and any losses in excess of reasonable insurance coverage. These limitations on loss recovery or reimbursement are standards for purposes of determining whether a interim rate increase is allowable. These standards were in effect at the time Brookwood's premiums increased. Thus, in order to comply with Medicaid's reimbursement standards, Brookwood had to remain insured or self-insured. The choice of which type of insurance to utilize to meet the reimbursement standard is left to the provider. Brookwood reasonably chose to insure through an insurance company. Since Brookwood was required to make such a choice in order to comply or conform to Medicaid's reimbursement standards, Brookwood is entitled to an interim rate increase. However, the interim rate provisions of the Plan only recognize such rates submitted within 60 days prior to the date of the interim rate request. Based on this limitation, Petitioners' rate increase is limited to the increase in premium incurred 60 days prior to its interim rate request around May 30, 2000.
Recommendation Based upon the foregoing findings of fact and Conclusions of Law, it is RECOMMENDED that A final order be entered granting Brookwood's interim rate request limited to the 60 days prior to the initial rate request. DONE AND ENTERED this 31st day of September, 2001, in Tallahassee, Leon County, Florida. DIANE CLEAVINGER 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 21st day of September, 2001. COPIES FURNISHED: Steven A. Grigas, Esquire Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Theodore E. Mack, Esquire Powell & Mack 803 North Calhoun Street Tallahassee, Florida 32303 Diane Grubbs, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403
The Issue The issue is the amount of the Petitioner’s personal injury settlement proceeds that should be paid to the Agency for Health Care Administration (AHCA) to satisfy its Medicaid lien under section 409.910, Florida Statutes (2016).1/
Findings Of Fact The Petitioner’s right hand and wrist were cut by glass in the bathroom of her apartment in March 2012. Her injuries included damage to the tendons and nerves. She was hospitalized and received medical care and treatment, which Medicaid paid in the amount of $4,348.45. The Petitioner also personally owes $123 for physical therapy she received. The Petitioner sued the owner of the apartment, who vigorously contested liability and raised several affirmative defenses alleging that the Petitioner’s negligence or recklessness was wholly or partially responsible for her injuries and that she assumed the risk. The Petitioner’s damages were substantial because she lost the effective use of her right hand. She applied and was approved for Social Security supplemental security income benefits, subject to periodic reviews of her disability status. She presented evidence in the form of her and her attorney’s testimony and a report prepared by a vocational evaluation expert that she will suffer lost wages in the amount of approximately a million dollars, calculated by assuming she would have worked full-time earning $12-15 an hour until age 70, but for her accident, and assuming she cannot be gainfully employed in any capacity as a result of her injury. While that amount of lost wages might be overstated, the Petitioner presented evidence in the form of her attorney’s testimony and a supporting affidavit of another attorney with experience in personal injury case valuations that the monetary value of her damages was no less than approximately $550,000.2/ AHCA’s cross-examination did not reduce the persuasiveness of the Petitioner’s evidence, and AHCA presented no contrary evidence. In March 2017, the Petitioner settled her lawsuit for a mere $55,000 because of her concern that a jury would find for the defendant or reduce the recoverable damages due to comparative negligence. The Petitioner knew at the time of her settlement that AHCA was claiming a $4,348.45 Medicaid lien on the settlement proceeds. The Petitioner offered AHCA $434.85 in full satisfaction of the Medicaid lien claim. AHCA declined and asserts its entitlement to the full amount of the lien claim. The Petitioner’s settlement agreement included an allocation of $434.85 to AHCA’s Medicaid lien, $123 to the other past medical expenses, and the rest to other components of damages (which did not include any future medical expenses). AHCA was not a party to the settlement and did not agree to that allocation. The Petitioner’s attorney testified that the Petitioner’s proposed allocation is fair and reasonable and introduced the concurring affidavit of another attorney. AHCA did not present any evidence but argued that the Petitioner did not prove that AHCA’s Medicaid lien should be reduced and that, as a matter of law, AHCA was entitled to the claimed lien.
