Findings Of Fact Background Petitioner, United Health, Inc. (United), is the owner and operator of approximately one hundred and twenty-three nursing homes in thirteen states. In the State of Florida, it owns and operates sixteen nursing homes and one intermediate care facility for the mentally retarded that are licensed by respondent, Department of Health and Rehabilitative Services (HRS). At issue in this proceeding are the cost reports and supplemental schedules filed by thirteen nursing home facilities.1 In accordance with Medicaid guidelines, petitioner was required to annually submit cost reports to HRS reflecting its allowable costs in providing Medicaid services to its patients. HRS is designated as the state agency responsible for the administration of Medicaid funds under Title XIX of the Social Security Act. In order to be reimbursed for said costs, the facility was required to show that the costs were in conformity with Federal and State Medicaid reimbursement principles. Those principles are embodied in the Long Term Care Reimbursement Plan (Plan) adopted by the State.2 This document contains the reimbursement methodology to be used for nursing homes who provide Medicaid services. In addition, providers must comply with Health Insurance Manual 15 (HIM-15), a compendium of federal cost reimbursement guidelines utilized by HRS, and generally accepted accounting principles. By letter dated September 9, 1985 petitioner requested that HRS adjust its July 1, 1985 reimbursement rates for the thirteen facilities to reflect certain annualized costs incurred during the preceding fiscal year ending December 31, 1984. According to the letter, the adjustment was appropriate under Section V.B.I.b. of the September 1, 1984 Plan. On October 21, 1985, an HRS Medicaid cost reimbursement analyst issued a letter denying the request on the following grounds: Our review of the information submitted with the fiscal year end 12/31/84 cost reports revealed that the annualized operating and patient care costs were not documented to be new and expanded services or related to licensure and certification requirements. The annualized property cost appeared to be 1 2 various purchases, repairs and maintenance and was not documented to be capital improvements. The denial prompted the instant proceeding. B. Reimbursement Principles In General Under the Medicaid reimbursement plan adopted for use in Florida, nursing homes are reimbursed by HRS on a prospective basis for their allowable costs incurred in providing Medicaid services. This method is commonly referred to as the prospective plan, and has been in use since 1977. Under this concept, a nursing home files with HRS, within ninety days after the close of its fiscal year, a cost report reflecting its actual costs for the immediate preceding fiscal year. Within the next ninety days, the nursing home is given a per diem reimbursement rate (or ceiling) to be used during the following twelve months.3 For example, if a provider's fiscal year ended December 31, 1984, its cost report would be due by March 31, 1985. HRS would then provide estimated reimbursement rates to be used during the period from July 1, 1985 through June 30, 1986. As can be seen, there is a time lag between the end of a cost reporting year and the provider's receiving the new rate. The new reimbursement rate is based upon the provider's actual costs in the preceding fiscal year (reporting period) adjusted upward by an inflation factor that is intended to compensate the provider for cost increases caused by inflation. The prospective plan enables a provider to know in advance what rates it will be paid for Medicaid services during that year rather than being repaid on a retroactive basis. If a provider operates efficiently at a level below the ceiling, it is "rewarded" being allowed to keep a portion of the difference. Conversely, if it exceeds the caps, it is penalized to the extent that it receives only the rates previously authorized by HRS, and must absorb the shortfall. At the same time, it should be noted that the reimbursement rate is not intended to cover all costs incurred by a provider, but only those that are reasonable and necessary in an efficiently operated facility. These unreimbursed costs are covered through other provider resources, or by a future cut in services. When the events herein occurred, there were two types of adjustments allowed under the prospective plan. The first adjustment is the inflation factor, and as noted above, it 3 authorizes the provider to adjust certain reported costs by the projected rate of inflation to offset anticipated cost increases due to inflation. However, because the prospective plan (and the inflation factor) ignores other cost increases that occur during the given year, HRS devised a second type of adjustment for providers to use. This adjustment is known as the gross-up provision, and allows the annualization of certain costs incurred by a provider during a portion of the reporting period. The concept itself .s embodied in subparagraph B.1.b. of Part V of the September 1, 1984 Plan. Its use may be illustrated with the following example. A provider constructs an addition to its facility with an in-service date at the end of the sixth month of the reporting period. By reflecting only the depreciation associated with the addition during the last six months of the reporting period, the facility understates its actual costs, and is reimbursed for only one-half of the facility's depreciation during the following year. Under the gross-up provision the provider grosses up, or annualizes, the reported cost to give it a full year's effect, thereby ensuring that the next year's rates will be more realistic. Although the provision has application to this proceeding, over objection by the nursing home industry it was eliminated from the Plan on October 1, 1985 and is no longer available to providers. At hearing HRS contended the provision should have been eliminated in 1984, but through oversight remained in effect until 1985. However this contention is rejected as not being credible, and is contrary to the greater weight of evidence. Finally, neither party could recall if a request under this provision had ever been filed. They do acknowledge that HRS has never approved such a request during the more than two years when the provision was operative. In addition to the gross-up and inflation provisions, there exists an alternative means for additional rate reimbursement through what is known as the interim rate provision. Under this provision, a provider can request an interim rate increase from HRS during the period when its prospective rates are in effect to cover major unexpected costs. Assuming a request is valid and substantiated, a provider is eligible for immediate cash relief dating back to the date of the actual expense. However, because of HRS' concern that this provision was being "abused", only those costs which exceed $5,000 and cause a change of 1% or more in the total prospective per diem rate are now eligible for reimbursement. These monetary thresholds on interim rate requests became effective September 1, 1984. When these higher thresholds were imposed, HRS made representations to the nursing home industry that a provider could still utilize the gross-up provision to cover other unexpected costs. Finally, it is noted that unlike the prospective rate, an interim rate is cost settled. This means the provider's cost reports are later audited, and excess reimbursements must be repaid to HRS. This differs from the prospective plan where any "overpayments" are not subject to recoupment by HRS. Even so, a provider is limited by the reasonableness and prudent buyer concepts which serve as a check on potential abuse by a provider. The Gross-Up Feature In its relevant form, the gross-up provision was first adopted for use by HRS in its April 1, 1983 Plan.4 It required HRS to: Review and adjust each provider's cost report referred to in A. (1.) as follows: * * * b. to compensate for new and expanded or discontinued services, licensure and certification requirements, and capital improvements which occurred during the reporting year but were not included or totally accounted for in the cost report. This language was incorporated with only minor changes into the September 1, 1984 Plan and is applicable to the cost reports in issue. In its 1984 form, the provision required HRS to review and adjust each provider's cost report as follows: b. To compensate for new and expanded or discontinued services, licensure and certification requirements, and capital improvements not included or totally accounted for in the reporting year. For additional costs to be provided, the provider must furnish adequate supporting documentation. 4 Accordingly, if a cost fits within one of the three categories, HRS is required to adjust a provider's report to compensate it for the expenditure. The April 1, 1983 Plan was negotiated by the nursing home industry and HRS representatives at a meeting in Gainesville, Florida. For this reason, it is commonly referred to as the Gainesville Plan. Through testimony of negotiators who participated at the meeting, it was established that the Plan had three objectives: to give proper payment to nursing homes; to meet state and federal regulations; and to help upgrade care in the nursing homes. At the same time, the negotiators recognized that a prospective plan based on inFla.ion alone overlooked other cost increases that occurred during a given year. Therefore, the gross-up provision was added to the Plan to ensure that providers could estimate (and recoup) their future costs in as accurate a manner as possible, and to bring the plan into compliance with federal guidelines. It was also designed to ensure that a provider did not have to wait an extraordinarily long time for expenses to be recognized. In addition, HRS was hopeful that the gross-up provision would minimize the providers' reliance upon the interim rate feature (which was intended to cover only major items) thereby reducing the agency's overall workload. Indeed, the interim and gross-up features were intended to complement each other, in that one provided immediate relief on major unexpected items while the other provided a means to adjust partial year costs incurred during the reporting period. The implementation of thresholds on the interim rate provision in September, 1984 increased the importance of the gross-up provision to handle smaller items. Therefore, HRS' contention that the interim and gross-up provisions are in conflict is hereby rejected. In order for a cost to be eligible for annualization, it must fall within one of three categories: new or expanded service, a capital improvement, or a cost to meet HRS' licensure and certification requirements. The parties have stipulated that HRS' denial of United's request was based solely upon HRS' perception that the costs did not fall within any of the three categories. The three types of costs within the feature are not defined in the Plan. Testimony from the Plan's negotiators established that the language in the gross-up feature was meant to be construed broadly and to encompass many costs. For this reason, no limitations were written into the Plan. Even so, the provision was not intended to give carte blanche authority to the providers to annualize every partial cost. There is conflicting testimony regarding the meaning of the term "capital improvement" and what expenditures are included within this category. However, Sections 108.1 and 108.2 of HIM-15, of which the undersigned has taken official notice, define a capital item as follows: If a depreciable asset has, at the time of its acquisition, an estimated useful life of at least 2 years and a historical cost of at least $500, its cost must be capitalized, and written off ratably over the estimated useful life of the asset. . . * * * Betterments and improvements extend the life or increase the productivity of an asset as opposed to repairs and maintenance which either restore the asset to, or maintain it at, its normal or expected service life. Repairs and maintenance costs are always allowed in the current accounting period. With respect to the costs of betterments and improvements, the guidelines established in Section 108.1 must be followed, i.e., if the cost of a betterment or improvement to an asset is $500 or more and the estimated useful life of the asset is extended beyond its original estimated life by at least 2 years, or if the productivity of the asset is increased significantly over its original productivity, then the cost must be capitalized. The above guidelines are more credible and persuasive than the limited definition of capital item enunciated at final hearing by HRS personnel. Therefore, it is found that the HIM-15 definition is applicable to the gross-up feature and will be used to determine the validity of petitioner's claim to gross up certain expenditures. There is also conflicting testimony as to what the term "new and expanded or discontinued services" includes. Petitioner construes this item to include any costs that increase the volume of services to a resident. Therefore, petitioner posits that an increase in staffing which likewise increases services to residents is subject to annualization. Conversely, HRS construes the term to cover any costs for new or expanded services that enable a facility to provide patients with services not previously provided or to expand an existing service to more patients in the facility. The latter definition is more credible and persuasive and will be used by the undersigned in evaluating petitioner's request. Finally, petitioner interprets the term "licensure and certification requirements" to cover any costs incurred to meet staffing requirements that are required by HRS rules. According to petitioner, the category would include expenditures that are made for so-called preventive maintenance purposes and to avoid HRS sanctions. On the other hand, HRS construes the language to cover costs incurred by a provider to either meet a new licensure and certification requirement, or to correct a cited deficiency. It also points out that salary increases were intended to be covered by the inflation factor rather than through this feature of the plan. This construction of the term is more reasonable, and is hereby accepted as being the more credible and persuasive. Petitioner's Request Petitioner's fiscal year ends on December 31. According to HRS requirements its cost reports must be filed by the following March 31. In accordance with that requirement petitioner timely filed its December 31, 1984 cost reports for the thirteen facilities on or before March 31, 1985. The reports have been received into evidence as petitioner's composite exhibit 3. Attached to the reports were schedules supporting a request for gross-up of certain capital items, additions and deletions of various personnel, and union salary increases that exceeded the inflation rate. The parties have not identified the actual dollar value of the items since only the concepts are in issue. In preparing the supporting schedules, United's assistant director of research reviewed all so-called capital items purchased by the thirteen facilities during the fiscal year, and determined which were purchased after the beginning of the year.5 He then calculated the depreciation on those 5 expenditures made after the beginning of the year and has included those amounts on the supporting schedules to be annualized. Consistent with the definition contained in Sections 108.1 and 108.2 of HIM-15, those items that are in excess of $500 (after annualization), that extend the useful life of the asset for two years or more, or that increase or extend the productivity of the asset are subject to annualization. It should be noted that repairs and maintenance items, as defined in Sections 108.1 and 108.2, are excluded from this category. Petitioner next seeks to adjust its rates by grossing up the net increase in costs associated with additions and deletions of various staff during the reporting period. Any net staffing additions that provide patients with services not previously provided or that expand an existing service to more patients in a given facility are properly subject to the gross- up provision. All others should be denied. Petitioner also contends that these costs should be considered as a licensure and certification requirement since they satisfy staffing requirements under HRS rules. To the extent the filling of old positions occurred, such expenditures are appropriately covered by the gross-up provision. The remainder do not fall within the purview of the provision. Finally, petitioner seeks to adjust its rates to cover all salary increases over and above the inflation factor that were awarded to union employees pursuant to its union contract. Under petitioner's theory, if such costs were not paid, United stood to lose staff through a strike which in turn could result in licensure and certification problems. But these concerns are speculative in nature, and such an interpretation would result in automatic approval of any salary increase called for by a union contract, no matter how unreasonable it might be. Since the expenditures do not meet the previously cited criteria, they must be denied.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That petitioner's request to have its July 1, 1985 reimbursement rates adjusted for thirteen facilities to reflect annualized costs as submitted on supplemental schedules with its 1984 cost reports be approved in part, as set forth in the conclusions of law portion of this order. The remaining part of its request should be DENIED. DONE AND ORDERED this 31st day of October, 1986, in Tallahassee, Florida. DONALD R. ALEXANDER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 31st day of October, 1986.
Findings Of Fact Friendly Village of Brevard, Inc. d/b/a Washington Square (herein, Washington Square) is an intermediate care facility for the mentally retarded (ICF/MR), located at 2055 North U.S. 1, in Titusville, Florida. Friendly Village of Orange, Inc., d/b/a Lake View Court (herein, Lake View Court), is also an ICF/MR located at 920 W. Kennedy Boulevard, in Eatonville, Florida. Howell Branch Court is the same type of facility, located at 3664 Howell Branch Road, Winter Park, Florida. All three facilities are operated by Developmental Services, Inc. All are certified ICF/MR's participating in the Florida Medicaid Program. The Department of Health and Rehabilitative Services (HRS) is the state agency responsible for overseeing the ICF/MR Medicaid Program. Howell Branch entered the Florida Medicaid Program in July 1982; Washington Square entered the program on January 19, 1983; and Lake View Court entered the program on February 13, 1983. Prior to beginning operations, medicaid providers were requested to submit a budgeted cost report, a projection of what the provider anticipated spending during the coming year for services to its residents. HRS received those reports and established a per diem rate based on the costs and number of patients and arrived at a per patient, per day rate. Each month as services were provided, the ICF/MR billed the state Medicaid program for the number of patient days times the per diem. During the period in question, cost settlement would occur at the conclusion of the budgeted period. The provider would file his cost report detailing what was actually spent in Medicaid-allowable costs to provide the services, HRS would compare that amount with the amount budgeted and would settle with the provider. Prior to the July 1, 1984 ICF/MR Medicaid Reimbursement Plan, if a provider were under reimbursed (incurred allowable costs in excess of reimbursement) the provider would not receive additional reimbursement in the settlement. However, if the provider received reimbursement in excess of its allowed costs, the excess had to be paid back to HRS. This is called "one-way" cost settlement. Representatives of HRS and Florida's ICF/MR industry began negotiations on a new state reimbursement plan in 1982 and 1983. The participants in the negotiations sought to remove certain cost limitations and to insure that individual facilities would receive fair reimbursement of their Medicaid- allowable costs. The negotiations resulted in the Title XIX ICF/MR Reimbursement Plan dated July 1, 1984 (the 1984 Plan). The 1984 Plan was adopted as a rule by incorporation, in Rule 10C- 7.49(4)(a)2. Florida Administrative Code. The 1984 Plan contains a two-way cost settlement method to replace the one-way settlement method described above. This means that under the 1984 Plan, providers could receive additional reimbursement during settlement if their actual allowable costs exceeded reimbursement under the per diem rate. Washington Square and Lake View Court filed budgeted cost reports for the fiscal year ending February 19, 1984. HRS performed audits of these reports in 1985. The audits were issued in April and May 1988. The audits did not apply the two-way cost settlement method described in the 1984 Plan. Petitioners claim that a proper interpretation of the 1984 Plan is that two-way cost settlement is retroactive to January 1983 for new providers entering the program after January 1, 1983. That claim is based on the following language in the 1984 Plan and subsequent 1985 Plan: For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12 month period submitted by the provider. (Petitioner's Exhibit 2, the 1984 Plan, pp 29-30. For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12-month period submitted by the provider. Overpayment as a result of the difference between the approved budgeted interim rate and actual costs of the budgeted item shall be refunded to HRS. Underpayment as a result of the difference between the budgeted interim rate and actual allowable costs shall be refunded to the provider. The basis for calculating prospective rates will be the first year settled cost report. (Petitioner's Exhibit 3, the 1985 Plan, p. 31.) Neither the above, nor any other language in the plans indicate that the 1984 Plan would become effective for any providers prior to July 1, 1984. HRS intended that the plan be prospectively applied. Francis "Skip" Martin was employed in HRS' Medicaid Cost Reimbursement Planning and Analysis Unit and was involved in negotiating and drafting the 1984 plan for the agency. He remembers no discussions of retroactive application of the plan. Nor could Petitioners' witnesses expressly recall that the negotiations included retroactive application of the "two- way" settlement method. Instead, they were aware that the department was working with them to establish a more acceptable reimbursement plan and they assumed that retroactivity was part of the plan. (transcript pp 95-98, 126.) Skip Martin explained that the January 1, 1983 date was arrived at by working backwards from July 1, 1984, the date of the plan. The intent was to establish a cutoff point for providers entering the program as to whether they would be considered under prospective rates or be given an interim rate and still be considered a new provider when the plan was implemented. The January 1, 1983, cutoff allowed for a year's worth of reporting history plus sufficient time for the provider to compile his cost report and submit it to the department, and time for the department to have received the cost report and have it included in the calculations that would be used on July 1, 1984. ICF/MR's entering the program after January 1, 1983, would not have had sufficient cost history for rate setting, and as "new providers" would come under a separate rate setting provisions in the plan. Carlton Dyke Snipes has worked in HRS' Medicaid Cost Reimbursement Analysis Section since 1983, and in November 1985, he became the section Administrator. He explained that the language cited above from page 31 of the 1985 Plan was a clarification of the intent that the two-way cost settlement implemented on July 1, 1984, apply to new providers, as well as existing providers. The method had not been expressly addressed in the July 1, 1984 plan in that section relating to new providers. As an alternative to retroactive application of the two-way cost settlement provision in the July 1, 1984 Plan, Petitioners contend that they should be allowed a waiver of class ceilings as provided in the plan in effect in 1983. This issue was raised in this proceeding for the first time at the final hearing. The 1983 ICF/MR Medicaid Reimbursement Plan includes this provision regarding waivers: The class ceiling under paragraph c above may be exceeded provided; the period of the limits shall not exceed six (6) months. The HCFA Regional Office will be notified in writing at least 10 days in advance in all situations to which this exception is to be applied and will be advised of the rationale for the decision, the financial impact, including the proposed rate and the number of facilities and patients involved. (Petitioners' Exhibit #7, p. 15) In one case discussed at hearing, HRS granted an exemption under this provision. The facility was an ICF/MR cluster facility, Sunrise Cape Coral. The application by the facility was cleared in advance by the federal agency, Health Care Financing Administration (HCFA). The 1983 Plan is no longer in effect and was superceded by the July 1, 1984 Plan. Petitioners did not apply for a waiver when the 1983 Plan was in effect. Instead, they claim that they did not know such an opportunity existed until discovery for this proceeding uncovered the Sunrise case. The issue with regard to Petitioner's Howell Branch facility differs from the audit issues affecting Washington Square and Lake View Court addressed above. HRS' audit of Howell Branch in 1988 includes an overpayment to the facility of approximately $115,000.00. Petitioners claim that Howell Branch should not have to reimburse those funds because during a portion of the eighteen-month cost reporting period Howell Branch was underpaid for an amount which should more than offset the overpayment. According to the provisions of the reimbursement plan which was in effect during the relevant period, July 1982 (when Howell Branch opened) through December 1983, HRS cost settled based on the lesser of: class ceilings in effect during the period, actual costs, or the budgeted interim rate. Class ceilings are established by HRS for various levels of care required by ICF/MR residents. These ceilings are based on cost reports received by HRS as of each June 30 and go into effect on October 1st of each year. Howell Branch, therefore, experienced three class ceilings during its July 1982 through December 1982 reporting period. HRS applied those three cost ceiling periods to Howell Branch, rather than monthly periods, as contended by Petitioners. As described by Carlton Dyke Snipes, MRS took the average cost determined by an audit report and every rate than had been in effect during that cost reporting period and, for every period that rate was in effect, applied the lesser of the average audited cost or the budgeted rate that was paid or the ceiling that was in effect and reprocessed the claims that had been made. This resulted in the $115,000.00 overpayment. If MRS had used average costs and average rates for the entire eighteen- month period, as advocated by Petitioners, the result would have been that ceilings would be exceeded during a portion of the eighteen month period.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order denying the petitions of Washington Square, Lake View Court and Howell Branch. DONE and ENTERED this 14th day of June, 1989 in Tallahassee, Florida. MARY CLARK 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 14th day of June, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-2939 The following constitute specific rulings on the findings of fact proposed by the parties: Petitioners' Proposed Findings of Fact 1 and 2. Included in Preliminary Statement. 3 through 6. Adopted in Paragraph 1. 7. Adopted in Paragraph 2. 8 through 10. Adopted in Paragraph 3. 11 and 12. Adopted in Paragraph 5. 13 and 14. Adopted in Paragraph 6. Adopted in Paragraph 7. Rejected as unnecessary. 17 and 18. Adopted in Paragraphs 8 and 9, except for the implication that two- way reimbursement applied retroactively to January 1, 1983. Adopted in part in Paragraph 9, but the retroactive application of the methodology is rejected as inconsistent with the evidence. Adopted in Paragraph 11. Adopted in part in Paragraph 10, the statement of entitlement to two-way settlement is rejected as inconsistent with the evidence. Adopted in Paragraph 15. Rejected as argument. Adopted in part in Paragraph 16, otherwise rejected as argument. Rejected as inconsistent with the evidence. Rejected as contrary to the evidence. HAS' method of cost settlement was not inappropriate. Adopted in substances in Paragraph 19. Rejected as unnecessary 29 and 30. Rejected as argument and unnecessary. Respondent's Proposed Findings of Fact Adopted in Paragraph 1. Adopted in Paragraphs 2 and 3 Adopted in Paragraph 8. 4 and 5. Adopted in Paragraphs 4 and 5. Adopted in Paragraph 6. Adopted in Paragraph 10. Adopted in Paragraphs 10 and 11. Adopted in Paragraph 17. COPIES FURNISHED: Michael Bittman, and Karen L. Goldsmith P.O. Box 1980 Orlando, Florida 32802 Carl Bruce Morstadt and Kenneth Muszynski 1323 Winewood Boulevard, Bldg. One Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 R.S. Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Findings Of Fact The rule at issue has been variously codified, but will be referred to for purposes of the present case as Rule 10C-7.39(6), Florida Administrative Code. The pertinent language, which was first adopted as part of Rule 10C- 7.03(5), Florida Administrative Code, on March 30, 1976, and which was repealed on July 28, 1981, provides: Reimbursement for services provided is in accord with the standards and principles of reasonable cost as defined and applied under the Social Security Act, Title XVIII, Medicare Program. In lieu of retroactive adjustment, 6 percent shall be added to a participating hospital's costs to determine a current reimbursement rate. Respondent adopted this rule on the claimed authority of Section 409.266, Florida Statutes. In its 1969 legislative session, the Florida Legislature enacted Section 409.266, Florida Statutes, entitled "Medical Assistance for the Needy," providing the original State legislative basis and authority for Florida's entry into the Medicaid program. Section 409.266(2), Florida Statutes, as enacted, authorized the Florida Department of Social Services or any other department that the Governor might designate to: Enter into such agreement with other state agencies or any agency of the federal government and accept such duties with respect to social welfare or public aid as may be necessary to implement the provisions of subsection (1) and to qualify for federal aid including compliance with provisions of Public Law 86-778 and the "Social Security Amendments of 1965" [estab- lishing Title XIX of the Social Security Act.] Section 409.266(3), Florida Statutes, as enacted, stated that: The department of social services is authorized and directed to prepare and operate a program and budget in order to implement and comply with the provisions of public law 86-778 and the "Social Secu- rity Amendments of 1965." Chapter 69-265, Laws of Florida (1969). No provisions of Florida law other than Section 409.266, Florida Statutes, as enacted, authorized any agency to perform any function specifically to implement the Medicaid program. The State of Florida formally commenced participation in the Medicaid program effective January 1, 1970. At all times pertinent to this controversy, respondent, Florida Department of Health and Rehabilitative Services or its predecessor agencies (referred to as "HRS") , has been and continues to be the "State Agency" identified in 42 U.S.C. Section 1396a (a) (5), and charged under Section 409.266, Florida Statutes, as amended, with the formulation of a State Plan for Medical Assistance ("State Plan"), 42 U.S.C. Section 1396a, and with the ongoing responsibility for the administration of the Medicaid program in the State of Florida. Since Florida's entry into the Medicaid program in 1970, HRS has been authorized essentially to "[e]nter into such agreements with appropriate agents, other State agencies, or any agency of the Federal Government and accept such duties in respect to social welfare or public aid as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a), Fla. Stat., as amended. HRS has never been authorized to enter into any agreements, accept any duties, or perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing Federal regulations and requirements. As a prerequisite for Florida's entry into the Medicaid program, HRS prepared and filed with the United States Department of Health, Education, and Welfare ("HEW") a State Plan, pursuant to Title XIX of the Social Security Act, and pursuant to its delegated legislative authority set forth in Section 409.266(2)(a), Florida Statutes. (In May, 1980, HEW was redesignated the United States Department of Health and Human Services, but for purposes of this action both shall be referred to as HEW.) C.W. Hollingsworth was the HRS official who had the responsibility for supervising the preparation, the filing, and for obtaining the approval of HEW of Florida's initial State Plan Florida's initial State Plan was approved by HEW effective January 1, 1970. At the time that Florida received approval of its initial State Plan, Title XIX of the Social Security Act required state plans to provide for the payment of the reasonable cost of inpatient hospital services. At the time that Florida received approval of its initial State Plan, HEW regulations governing reimbursement for inpatient hospital services under Medicaid required the State Plan to provide for reimbursement of Medicaid inpatient hospital services furnished by those hospitals also participating in the Medicare program, applying the same standards, cost reimbursement principles, and methods of cost apportionment used in computing reimbursement to such hospitals under Medicare. 45 C.F.R. Section 250.30(a) and (b), 34 Fed. Reg. 1244 (January 25, 1969). At the time that Florida entered the Medicaid program, Medicare cost reimbursement principles in effect governing reimbursement for the cost of inpatient hospital services required payment of a participating hospital's actual and reasonable costs of providing such services to Medicare beneficiaries, and, moreover, that such payment be made on the basis of the hospital's current costs rather than upon the costs of a prior period or upon a fixed negotiated rate. 42 U.S.C. Section 1395x (v) (1)(A) 20 C.F.R. Section 405.451(c) (2), 405.402(a) [later renumbered 42 C.F.R. Section 405.451(c)(2) and Section 405.402(a)]. Such Medicare principles and standards also provided for interim payments to be made to the hospital during its fiscal year. At the conclusion of the subject fiscal year, the hospital was required to file a cost report wherein the hospital included all of its costs of providing covered inpatient services to Medicare beneficiaries. A settlement or "retroactive adjustment" process then was required to reconcile the amount of interim payments received by the hospital during the fiscal period with its allowable costs incurred during that period. If the hospital had been overpaid during the year, it was required to refund the amount of that overpayment to the Medicare program. Conversely, if the hospital had been underpaid during the year, the Medicare program was required to make an additional payment to the hospital, retroactively, in the amount of the underpayment. 20 C.F.R. Section 405.402(b)(2), 405.451(b)(2). Essentially the same Medicare principles and standards governing reimbursement of inpatient hospital services described in the two preceding paragraphs have been in effect at all times pertinent to this controversy. 42 C.F.R. Section 405.401, et seq. Florida's approved State Plan as of January 1, 1970, governing reimbursement of inpatient hospital services under the Medicaid program, committed HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The only versions of Florida's State Plan provisions that have been approved by HEW and that have governed HRS's reimbursement of inpatient hospital services prior to July 1, 1981, each commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. Attached as an appendix to the final order is the form agreement drafted under the supervision of C.W. Hollingsworth, which has been in use from January 1, 1970, until July 1, 1981. From the inception of the Florida Medicaid program, and as a prerequisite for participation therein, a hospital has been required to execute a copy of the form agreement. A hospital may not participate in the Medicaid program without having executed such an agreement, nor may it propose any amendments thereto. The intent and effect of the form agreement is to require HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The form agreement requires HRS to compute a percentage " allowance in lieu of the retroactive adjustments ("percentage allowances") in determining the rates that hospitals will be paid for providing inpatient hospital services to Medicaid patients. The form agreement requires HRS to compute a new percentage allowance each year based on hospital cost trends. The meanings of the terms "allowance in lieu of retroactive adjustments" in all pertinent state plans and "percentage allowance for the year in lieu of retroactive payment adjustment" contained in the form agreement are identical. In drafting the form agreement, HRS intended that the "percentage allowance for the year in lieu of retroactive payment adjustment" be set at a level sufficient to ensure that hospitals participating in the Medicaid program would be reimbursed their "reasonable costs" of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. At all times pertinent to this controversy, participating hospitals, like petitioner, have been reimbursed by HRS for inpatient hospital services provided to Medicaid patients in the following manner: Within ninety (90) days following the close of its fiscal year, the partici- pating hospital files a Form 2551 or 2552 Annual Statement of Reimbursable Costs, as applicable, with both Blue Cross of Florida, Inc., the major fiscal intermediary respon- sible for the administration of Part A of the federal Medicare program in the State of Florida, and with HRS. This document, also referred to as a "cost report" details various hospital and financial statistical data relating to the patient care activities engaged in by the hospital during the sub- ject fiscal period. Upon receipt of the participating hospital's cost report for a fiscal period, HRS makes an initial determination based upon Medicare cost reimbursement principles and standards of the hospital's total allow- able inpatient costs, charges, and total patient days during the subject fiscal period, and then determines an inpatient per diem reimbursement rate for the period. To the inpatient per diem reimburse- ment rate is then added a percentage allow- ance in lieu of making any further retroactive corrective adjustments in reimbursement which. might have been due the hospital applicable to the reporting period. The adjusted in- patient per diem reimbursement rate is applied prospectively, and remains in effect until further adjustments in the rate are required. If HRS determines that total inpa- tient Medicaid reimbursement to a partici- pating hospital during a fiscal period exceeds the hospital's allowable and rea- sonable costs of rendering such covered inpatient services applying Medicare cost reimbursement principles and standards, then the hospital is required to remit to HRS the amount of such overpayment. If, however, HRS determines that the total inpatient Medicaid reimbursement received by a participating hospital is less than the hospital's actual and reason- able costs of rendering such covered inpa- tient services to Medicaid patients during the period applying Medicare cost reimburse- ment principles and standards, no further retroactive corrective adjustments are made; provided, however, that should an overpayment occur in a fiscal period, it may be offset and applied retroactively against an under- payment to the participating hospital which occurred during the next preceding fiscal period only. HRS has used the following "percentage allowances" in determining Medicaid reimbursement rates for inpatient hospital services: January 1, 1970-June 30, 1972 ...12 percent July 1, 1972-approximately March 30, 1976 ... 9 percent Approximately March 31, 1976-June 30, 1981... 6 percent Since at least January 1, 1976, HRS has not recomputed the "percentage allowance" on an annual basis. Since at least January 1, 1976, HRS has not based the "percentage allowance" that it has applied in determining Medicaid inpatient hospital reimbursement rates upon hospital cost trends. HRS has used no technical methodology based upon hospital cost trends to develop any of the "percentage allowances." At least since January 1, 1974, HRS's "percentage allowances" have been less than the corresponding average annual increases in the costs incurred by Florida hospitals of providing inpatient hospital services. Prior to March 30, 1976, all of HRS's published regulations addressing reimbursement of participating hospitals for their costs of providing inpatient hospital services to Medicaid patients required HRS to reimburse such hospitals in accordance with Medicare cost reimbursement principles and standards. In certain internal documents, Petitioner's Exhibits P-44 and P-12, HRS states that the average costs of providing inpatient hospital services in the State of Florida rose at least 18 percent during calendar year 1975. In November, 1975, the Secretary of HRS was informed by HRS officials that HRS faced a projected budgetary deficit for its fiscal year ended June 30, 1976. A decision memorandum presented options to the HRS Secretary for reducing the projected deficit. Among such options presented to and approved by the HRS Secretary was to reduce the "percentage allowance" from 9 percent to 6 percent. The reduction of the "percentage allowance" by HRS from 9 percent to 6 percent was effected in response to HRS's projected deficit, and was not based upon an analysis of hospital cost trends. HRS incorporated the 6 percent "percentage allowance" into its administrative rules which were published on March 30, 1976. In response to objections raised by the Florida Hospital Association to the reduction in the percentage allowance by HRS from 9 percent to 6 percent, HRS officials reexamined that reduction. During HRS's reexamination of its previous "percentage allowance" reduction, HRS was aware of and acknowledged the fact that Florida hospital costs were increasing at an average annual rate in excess of both the earlier 9 percent and the resulting 6 percent "percentage allowance." In a memorandum dated September 13, 1976, from HRS official Charles Hall to the Secretary of HRS, Petitioner's Exhibit P-45, Charles Hall informed the Secretary that the methods and standards then used by HRS to reimburse participating hospitals for their costs of providing inpatient hospital services to Medicaid patients was out of compliance with federal requirements. Charles Hall further informed the Secretary that the reason HRS had not theretofore been cited by HEW for noncompliance was the manner in which the Florida State Plan had been drafted, i.e., that the State Plan required HRS to reimburse hospitals under Medicaid for the reasonable costs that they would have been reimbursed applying Medicare cost reimbursement principles and standards. In a letter dated September 20, 1976, Petitioner's Exhibit P-31, HEW informed HRS that HEW had received a complaint from the Florida Hospital Association that the methods HRS was actually using to reimburse hospitals for the costs of providing inpatient hospital services to Medicaid patients were in violation of federal regulation 45 C.F.R. Section 250.30(a). A proposed amendment to Florida's State Plan submitted by HRS to HEW in November, 1976, Petitioner's Exhibit P-49, if approved, would have allowed HRS to reimburse hospitals for the cost of providing inpatient hospital services to Medicaid patients under methods differing from Medicare cost reimbursement principles and standards (an "alternative plan"). "Alternative plans" have been permitted under applicable federal regulations since October 21, 1974. A state participating in the Medicaid program may elect to establish an "alternative plan," but may not implement such "alternative plan" without the prior written approval of HEW. Florida has not had in effect an "alternative plan" of reimbursing participating hospitals for their costs of providing inpatient hospital services to Medicaid patients that was formally approved by HEW at any time prior to July 1, 1981. By letter dated January 7, 1977, Petitioner's Exhibit P-32, HEW notified HRS that it had formally cited HRS for noncompliance with federal regulations governing reimbursement of inpatient hospital services under Medicaid. HRS acknowledged their noncompliance and between November, 1976, and October 30, 1977, HRS attempted to revise its proposed "alternative plan" on at least two occasions in an attempt to obtain HEW approval. In October, 1977, HRS withdrew its proposed "alternative plan" then pending with HEW. HRS then contracted with an outside consultant, Alexander Grant & Company, to assist in the formulation of a new "alternative plan" proposal. In January, 1978, Alexander Grant & Company delivered its draft of an "alternative plan" to HRS. In October, 1978, HRS submitted a draft "alternative plan" to HEW for review and comment, and HEW expected HRS to submit a formal "alternative plan" proposal to HEW for its approval by November 1, 1978. HRS did not submit the formal "alternative plan" proposal to HEW until August 12, 1980. In a letter dated February 21, 1979, from Richard Morris, HEW Regional Medicaid Director, Region IV, to United States Senator Richard Stone of Florida, Mr. Morris advised Senator Stone: For more than two years the Florida Medicaid Program has not met Federal Requirements for inpatient hospital services reimbursement. Their payment methodology under-reimburses certain hospitals year after year. The pros- pective interim per diem rate paid by Florida to hospitals includes a percentage allowance to cover increased costs during the forthcom- ing year that is consistently less than increased costs in some hospitals. If the payments are less than costs, the difference is not reimbursed. This results in underpay- ments. We have worked closely with Florida to develop an acceptable alternative system that would meet Federal requirements. To date, Florida has not implemented such a system despite having received informal HEW agreement on a draft plan developed more than a year ago. It is our understanding that this alternative plan is not a high priority item at this time. We will con- tinue to work with HRS staff to secure Florida compliance regarding this require- ment. Petitioner's Exhibit P-46. Since August 12, 1980, HRS has submitted to HEW for its approval at least four more versions of an "alternative plan." Petitioner's Exhibits P-120, P-121, P-123, and P-152. Each of these versions were approved by the Secretary of HRS, and HRS believes each to comply with applicable Florida law. Mr. Erwin Bodo, Ph.D., was and is the HRS official responsible for the development and drafting of Exhibits P-120, P-121, P-123, and P-152. In June, 1981, HEW approved an "alternative plan" for the State of Florida (Exhibit P-152) , and such "alternative plan" was implemented effective July 1, 1981. Until July 1, 1981, HRS continued to use the 6 percent percentage allowance" to compute inpatient hospital reimbursement under Medicaid. Even after its repeal, Rule 10C-7.39(6), Florida Administrative Code, is applied by respondent in calculating reimbursement for Medicaid services provided between March 30, 1976, and July 1, 1981. From November 20, 1976, until July 1, 1981 the period in which HRS was attempting to secure HEW approval for an alternative plan--HRS was aware that the costs of inpatient hospital services were increasing at an average annual rate in excess of the 6 percent "percentage allowance." From September 1, 1976, through July 1, 1981, HRS has been out of compliance with its approved State Plan provisions, and HEW regulations governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. Since the quarter ending December 31, 1976, until July 1, 1981, HEW has formally cited HRS as being in contravention of its approved State Plan provisions, and HEW (now HHS) regulations, governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals--including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. PAN AMERICAN HOSPITAL CORPORATION Petitioner, Pan American Hospital Corporation, is a not-for-profit corporation, duly organized and existing under the laws of the State of Florida. Petitioner is a tax-exempt organization as determined by the Internal Revenue Service pursuant to Section 501(c)(3) of the Internal Revenue Code of 1954, as amended. At all times pertinent to this controversy, petitioner has operated and continues to operate a duly licensed 146-bed, short-term acute care general hospital, located at 5959 Northwest Seventh Street, Miami, Florida 33126. At all times pertinent to this controversy, petitioner has been and continues to be a duly certified provider of inpatient hospital services, eligible to participate in the Florida Medicaid program since January 27, 1974. The Appendix to this Final Order is a true and correct copy of the "Participation Agreement" entered into between petitioner and HRS, whereunder, inter alia, petitioner became eligible to receive payment from HRS for covered inpatient hospital services provided to Medicaid patients. At all times pertinent to this controversy, petitioner has been a certified "provider of services" participating in the Medicare program. During the fiscal periods in dispute in this action, petitioner did provide covered inpatient hospital services to Medicaid patients, and became eligible for payment by HRS of its reasonable costs of providing such services, determined in accor- dance with Medicare cost reimbursement principles and standards. With respect to each of the fiscal periods in dispute in this action, petitioner timely filed all cost reports and other financial data with HRS or its contracting agents, including Blue Cross of Florida, Inc., to enable HRS to determine petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients. During each of the fiscal periods in dispute in this action, HRS failed to reimburse petitioner for its reasonable costs of providing covered inpatient hospital services to Medicaid patients, determined in accordance with applicable Medicare cost reimbursement principles and standards. Such costs incurred by petitioner were reasonable, necessary, related to patient care, and less than customary charges within the meaning of those Medicare principles and standards. With respect to each of the fiscal periods in dispute, HRS and/or its contracting agent, Blue Cross of Florida, Inc. , reviewed and audited the cost reports filed by petitioner, and as a result of such review and audits set or adjusted, as applicable, the Medicaid inpatient per diem reimbursement rate at which petitioner would be paid during the next succeeding fiscal period or until that rate was again adjusted. MOTION TO DISMISS RULE CHALLENGE DENIED Respondent sought dismissal of petitioner's challenge to Rule 10C- 7.39(6), Florida Administrative Code, on grounds that the challenged rule provision has now been repealed (effective July 28, 1981). By this motion, respondent raises the question whether petitioner remains "substantially affected" notwithstanding the repeal. The parties are in agreement that respondent still applies Rule 10C-7.39(6) , Florida Administrative Code, in calculating reimbursement for providers like petitioner who furnished Medicaid services during the time between adoption of the rule and its repeal. The present case resembles State Department of Transportation v. Pan American Construction Company, 338 So.2d 1291 (Fla. 1st DCA 1976), app. dism. 345 So.2d 427 (Fla. 1977). The rule challenged in that case had been promulgated pursuant to a statute that was later amended by legislation which took effect after the Section 120.56 hearing, but before entry of a final order invalidating the rule. In response to the statutory amendment, moreover, the agency whose rule was under challenge adopted an emergency rule superseding the challenged rule. On appeal, the agency argued that the rule challenge was moot. The court ruled: While normally the law as it exists at the time of review will be applied to a pending case, in this proceeding, begun under the old law and rules adopted pursuant to it, we consider that respondents are entitled to construction of such law and rules. Their rights under contracts with peti- tioner which were in existence during the life of the former statute and rules may be affected by the construction of that statute and the rules adopted pursuant to it. State Department of Transportation v. Pan American Construction Co., 338 So.2d 1291, 1294 (Fla. 1st DCA 1976) In the present case there has been no statutory amendment, but here as in State Department of Transportation v. Pan American Construction Co., the proceedings pursuant to Section 120.56, Florida Statutes, began before the repeal of the challenged rule; and the parties' "rights under contracts . . . which were in existence during the life of the former . . . [rule] may be affected by the construction of that . . . [rule]." 338 So.2d at 1294. Simultaneously with the present proceedings, petitioner and respondent are litigating the question of what moneys, if any, respondent owes petitioner as reimbursement for Medicaid services furnished during periods which include the entire time that Rule 10C- 7.39(6) was in effect. No. 80-112. Even though Rule 10C-7.39(6), Florida Administrative Code, stands repealed, petitioner remains "substantially affected by" the rule, within the meaning of Section 120.56(1), Florida Statutes (1979). MOTION TO DISMISS DENIED Respondent contends that these proceedings are defective "for failure to join an indispensable party," viz., the federal government, because it "is Respondent's intention, should any liability result from this action, to make a claim for federal financial participation as to approximately fifty-nine percent of such liability [See generally] 42 U.S.C. Section 1320b-2(a)(2)." Motion to Dismiss, p. 2. This motion is also addressed to the petition in the companion substantial interest case, No. 80-112, and discussed in the recommended order in that case. For present purposes, it suffices to state the self-evident: No agency can avoid an administrative challenge to a rule it alone has promulgated on grounds that some other party's interest may be adversely affected by invalidation of the rule. CONSTITUTIONAL GROUNDS Among other things, petitioner contends that Rule 10C-7.39 (6), Florida Administrative Code, should be invalidated as violative of state and federal constitutional prohibitions against impairment of contractual obligations. Article I, Section 10 of the Constitution of the State of Florida proscribes "law[s] impairing the obligation of contracts," and the federal constitution also forbids any "State . . . [to] pass any . . . law impairing the obligation of contracts." Article I, Section 10. See United States Trust Co. v. New Jersey, 431 U.S. 975 (1977). Challenges to administrative rules brought pursuant to Section 120.56, Florida Statutes (1979), cannot, however, be predicated on constitutional grounds. State Department of Administration, Division of Personnel v. State Department of Administration, Division of Administrative Hearings, 326 So.2d 187 (Fla. 1st DCA 1976). See Department of Environmental Regulation v. Leon County, 344 So.2d 290, 295 n. 2 (Fla. 1st DCA 1977). INVALID EXERCISE OF DELEGATED LEGISLATIVE AUTHORITY The main thrust of petitioner's challenge to Rule 10C-7.39 (6), Florida Administrative Code, is its contention that respondent adopted the challenged rule not to implement Section 409.266, Florida Statutes, but in an attempt to avoid obligations imposed by Section 409.266, Florida Statutes, and the provisions of federal law incorporated by reference in that State statute. The challenged rule pertains to agreements made between respondent and providers of medical services in accordance with the provisions of Title XIX of the Social Security Act. The statute authorizes respondent to "[e]nter into . . . agreements as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a) , Florida Statutes (1979). No party suggests that any other State statutory provision furnishes substantive authority for promulgation of Rule 10C-7.39(6), Florida Administrative Code, and the parties have stipulated that "HRS has never been authorized to . . . perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing Federal regulations and requirements." Agency rules must conform to enabling statutes and may not repeal, amend, or modify any statute. State Department of Health and Rehabilitative Services v. McTigue, 387 So.2d 454 (Fla. 1st DCA 1980); Department of Health and Rehabilitative Services v. Florida Psychiatric Society, 382 So.2d 1280 (Fla. 1st DCA 1980); State Department of Transportation v. Pan American Construction Co., 338 So.2d 1291 (Fla. 1st DCA 1976) app. dism. 345 So.2d 427 (Fla. 1977) Incorporated by reference into Section 409.266, Florida Statutes, was the federal statutory requirement that hospitals providing Medicaid services be reimbursed by respondent for reasonable costs incurred in accordance with an approved State Plan. 42 U.S.C. Section 1396a (a)(13)(B) , Pub. L. 89-97, Section 121(a), redesiquated 42 U.S.C. Section 1396a (a) (13)(D), Pub. L. 90- 248, Section 224(a). At the time of its incorporation into State law, this federal statute had been definitively explicated by federal regulations requiring that reasonable cost for Medicaid purposes be calculated in accordance with applicable Medicare principles for purposes of reimbursing hospitals like petitioner that furnished both Medicaid and Medicare services. 2/ 42 C.F.R. Section 50.30(b), 34 Fed. Reg. 1244 et seq. (January 25, 1969). In addition, all Florida "State Plan provisions . . . approved by HEW and. . govern[ing] HRS's reimbursement of inpatient hospital services prior to July 1, 1981, . . . commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards." Pre-hearing Stipulation, 19. Even before adopting Rule 10C-7.39(6), Florida had begun setting Medicaid reimbursement rates by adjusting the previous year's rates upward to reflect inflation, as a matter of policy. As the parties have stipulated, in November of 1975, a budgetary deficit was projected for HRS; and, even though HRS was aware that inflation was substantially higher than 6 percent, HRS eventually decided to promulgate the rule now under challenge, setting the adjustment at 6 percent. HRS promulgated Rule 10C-7.39(6), Florida Administrative Code, not in furtherance of its statutory charge to reimburse Medicaid providers for costs reasonably incurred, but in order expediently to cut its own costs by disregarding the statutory scheme and reimbursing Medicaid providers less than the costs they had reasonably incurred. Cf. Patricia Godboldt v. David Pingree, Secretary, Department of Health and Rehabilitative Services, State of Florida, No. 81-2862 (2d Cir.; Prelim. Inqy., Nov. 25, 1981). UNCODIFIED POLICY CHALLENGED AS RULE Petitioner challenges not only Rule 10C-7.39(6), Florida Administrative Code, but also, as "an illicit rule," HRS's prior practice of setting reimbursement rates by adjusting the previous year's rates. The percentage allowances under preexisting practice were higher (9 and 12 3/ percent) but the methodology was the same as that codified in Rule 10C-7.39(6), Florida Administrative Code. The parties stipulated to the existence of a practice that reflected a policy that changed over time, see McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977) , but did not stipulate that this practice reflected a hard and fast "rule." The parties stipulated that "HRS used [12 percent from January 1, 1970, to June 30, 1972, and 9 percent from July 1, 1972, to approximately March 30, 1976] . . . in determining Medicaid reimbursement rates for inpatient hospital services," but did not prove or stipulate to the existence of any formal document or other written statement "issued by the agency head for implementation by subordinates with little or no room for discretionary modification." State Department of Administration v. Stevens, 344 So.2d 290, 296 (Fla. 1st DCA 1977). In the absence of such a stipulation or proof, the agency's practice of requiring a 9 percent "percentage allowance, has not been shown to amount in itself to an illicit rule. Department of Corrections v. McCain Sales of Florida, Inc., 400 So.2d 1301 (Fla. 1st DCA 1981). ATTACHMENT 4.19A Petitioner's challenge to Attachment 4.19A of the Florida State Plan for Medical Assistance was conditioned by the words "to the extent that Attachment 4.19A . . . Is interpreted in a manner different than that set forth in Paragraph 15" of the petition. Since the parties stipulated, in substance, to the allegations of paragraph 15 of the petition, the condition for the challenge never occurred. In any event, it is very clear that Attachment 4.19A did not have the force of a rule, inasmuch as its key pronouncement, viz., that "retroactive adjustments are prohibited by skate statute" was completely disregarded by respondent. Rule 10C-7.39(6), Florida Administrative Code, the policies which preceded that rule, and every contract respondent entered into with providers of Medicaid services contemplated retroactive adjustments. It is, accordingly, ORDERED: The final sentence of respondent's Rule 10C-7.39(6), Florida Administrative Code, is hereby declared to be an invalid exercise of delegated legislative authority. Petitioner's challenge to the percentage allowance policies that preexisted Rule 10C-7.39(6), Florida Administrative Code, is dismissed. Petitioner's challenge to Attachment 4.19A of the Florida State Plan for Medical Assistance is dismissed. DONE AND ENTERED this 4th day of December, 1981, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of December, 1981.
Findings Of Fact There is no genuine issue as to any of the following material facts: The Petitioner is 78 years old and, since at least 1995, has been eligible for Medicare based on her age. The Petitioner's monthly income is $594, and she has no assets or resources. Since at least 1995, she has been eligible for Medicaid based on her income and assets. F.A.C. Rule 59G-3.010(4) provides: (b) Medicare Supplemental Insurance (Part B) The monthly Medicare insurance premium is paid by the Agency directly to the Depart- ment of Health and Human Services for the Medicare and Medicaid eligible recipient. The deductible and co-insurance under Part B, Medicare, are paid for the Medicare and Medicaid eligible recipient by the Medi- caid fiscal agent. For physician services, Medicaid will cover the deductible and co- insurance only to the extent that the total payment received by the physician will not exceed the recognized Medicaid payment or, if there is no comparable Medicaid payment, 100 percent of the deductible and 75 percent of the co-insurance. In these situations, whether the physician did nor did not receive a payment from Medicaid, by billing Medicaid he is bound to the Medicaid payment schedule as payment in full. F.A.C. Rule 59G-3.230(6)(e) provides: Payment Methodology for Covered Services. * * * (e) Services provided to individuals who are covered by both Medicare and Medicaid must be billed to Medicare first. Medicaid will consider payment of the deductible and coinsurance, but in no case shall the combined Medicare and Medicaid payments exceed the maximum allowable Medicaid amount for the procedure. Pages 4-1, 4-2, 4-4, 4-5 and 4-6 and Appendix A-34-35 of The Florida Medicaid Provider Reimbursement Handbook, HCFA-1500, Nov. 1994, incorporated by reference in F.A.C. Rule 59G-3.230(8), contain language that essentially implements F.A.C. Rules 59G-3.010(4) and 59G-3.230(6)(e). When rules on this subject initially were adopted on January 1, 1977, they did not include the challenged provisions. The challenged provisions were added by amendment adopted January 6, 1978. The preamble to the adopting rule's description of the impact of the challenged rules states that the rule "could . . . decrease . . . the number of physicians [and] result in Medicaid eligible individuals paying their own deductible and co-insurance, . . . changing physicians, or maintaining the same physician with the physician accepting a loss in income." (Fla. Admin. Weekly, Vol. 4, No. 1, Jan. 6, 1978, at 224-25.) Some Florida physicians who accept other patients, including patients eligible for Medicare based on age but not eligible for Medicaid, do not accept "dual eligible" patients like the Petitioner (i.e., patients eligible for both Medicare and Medicaid) because the physician makes less money providing services for "dual eligible" patients under the terms of F.A.C. Rules 59G-3.010(4) and 59G-3.230(6)(e) and The Florida Medicaid Provider Reimbursement Handbook than the physician can make providing services for other patients, including patients eligible for Medicare based on age but not eligible for Medicaid. In 1995, the Petitioner's physician required her to pay him fees for service in addition to the reimbursement he received from the Respondent under the terms of F.A.C. Rules 59G-3.010(4) and 59G-3.230(6)(e) and The Florida Medicaid Provider Reimbursement Handbook although those provisions as well as his agreement with the Respondent prohibit him from doing so. The Intervenor asserts that other Florida physicians participating the Medicaid program, likewise in violation of F.A.C. Rules 59G-3.010(4) and 59G-3.230(6)(e) and The Florida Medicaid Provider Reimbursement Handbook as well as their agreements with the Respondent, also "attempt to collect Medicare coinsurance and deductibles from patients who are indigent."
Findings Of Fact Florida Life Care, Inc., d/b/a Beneva Nursing Pavilion (Beneva) and Florida Life Care, Inc., d/b/a Venice Nursing Pavilion North (Venice), the Petitioners in these cases, are both nursing homes that participate in the Florida Medicaid program and the Medicare program. T. 16. In order to receive reimbursement from Florida's Medicaid program, the Petitioners were required to submit to the Department of Health and Rehabilitative Services (HRS) a Medicaid cost report. T. 123. The Medicaid cost report is a report by the provider of its costs and other statistics and is the basis for calculation of the Medicaid reimbursement rate for that facility. Id. The provider is responsible for the correctness of its Medicaid cost report. T. 163. The Medicaid cost report is an accounting estimate. T. 169, 162. The Florida Title XIX Long-Term Care Reimbursement Plan is commonly called the Gainesville Plan, and was adopted on April 1, 1983. P. Ex. 14. The Gainesville Plan is incorporated by reference in rule 10C-7.0482, Florida Administrative Code, and establishes the manner in which Medicaid cost reports must be submitted and evaluated. P. Ex. 15. Beneva filed its first Medicaid cost report for the period covering September 7, 1982, through September 30, 1983. T. 24-25. Venice also filed its Medicaid cost report for the year ending September 30, 1983. T. 24. Both reports were filed by the Petitioners' accountants, Touche Ross & Co., on March 14, 1984, and were timely filed. P. Exs. 1 and 2; T. 24. Each of the Medicaid cost reports contained an adjustment for estimated Medicare costs. The adjustment appears in the Medicare Adjustment Schedule (MAS) of the Medicaid cost report. In so doing, the Petitioners were electing to use old cost reporting forms which allowed use of data from the Medicare cost report. Had they elected to use the new forms, there technically would have been no Medicare adjustment because the cost report calculates a Medicaid rate in a way that makes it unnecessary to delete Medicare costs. T. 143-144. The Medicare adjustment in the Medicaid cost report is designed to comply with the Gainesville Plan. T. 123. It is intended to prevent double reimbursement for the same costs. T. 124. The Medicare adjustment was taken directly from the Medicare cost report which each Petitioner had earlier submitted to Medicare. T. 25-26. The Medicare cost report is an accounting estimate, T. 169, and is the best and most reasonable estimate of costs associated with Medicare at the time that it is filed, but is subject to change after desk review, audit, or appeal. T. 12. There is no requirement imposed by HRS that changes occurring in the Medicare cost report be reported to HRS with respect to the Medicaid cost report. Venice reported a Medicare adjustment in its Medicaid cost report of $1,242,501. Beneva reported a Medicare adjustment in its Medicaid cost report of $1,798,107. T. 26. HRS audited the Medicaid cost reports of the Petitioners. HRS transmitted the audit of Venice by letter dated August 16, 1985, and transmitted the audit of Beneva by letter dated August 27, 1985. T. 29; P. Exs. 5 and 6. As a result of the audits, Venice had to reimburse HRS $43,637.57, and Beneva had to reimburse HRS $101,849.55. T. 36-37. Both letters of transmittal described in the last paragraph stated that the provider had 30 days in which to request a formal administrative hearing to contest any audit adjustment in dispute or disagreement. T. 29. Neither Petitioner requested a formal administrative hearing at that time because neither objected to the audit reports. T. 31. On August 25, 1985, the Medicare cost reports of both Beneva and Venice were substantially reduced (by hundreds of thousands of dollars) as a result of a federal audit. T. 32-35, 154. Petitioners did not know that these costs would be reduced in these amounts until the federal audit was completed. T. 35. The Medicare cost reductions are the subject of a pending appeal. T. The Medicare cost reductions may change again depending upon the result of the appeal. Id. Petitioners contend that if the numbers change again on appeal, they will have to again change their Medicaid cost report for the year ending September 30, 1983. T. 74. Accounting issues which arise with respect to the Medicaid cost report are resolved by reference first to the Gainesville Plan, then to the Medicare Health Insurance Manual (HIM) 15, and then to generally accepted accounting principles. T. 78. Section IV.E. of the Gainesville Plan provides: The prospectively determined individual nursing home's rate will be adjusted retroactively to the effective date of the affected rate . . . under the following circumstances: An error was made by HRS in the calculation of the provider's rate. A provider submits an amended cost report used to determine the rate in effect. An amended cost report may be submitted in the event of a change of one percent in the reimbursement rate. The amended cost report must be filed by the filing date of the subsequent cost report. Further desk or on-site audits of cost reports used in the establishment of the prospective rate disclose a change in allowable costs in those reports. HRS interprets subparagraph 1 above to be available to correct either mathematical errors or misstatements of fact that existed at that time. T. 129. It is the policy of HRS to use the best data available with respect to the Medicaid cost report, and thus it is the policy of HRS to use the Medicare cost report as a basis for estimating Medicare costs for the Medicaid cost report when it is the best information available. T. 138, 125. This policy is reasonable. HRS relied upon the Medicaid cost report as submitted by the Petitioners' accountants in establishing the Medicaid rates for the Petitioners. As discussed above, the Medicaid cost report contained estimates of Medicare costs which were the best estimates then available. These estimates were not in error at that time (that is, these estimates were not erroneous statements of fact) even though later changed by audit. T. 133. HRS did not commit any mathematical errors in the use of Petitioners' Medicare cost estimates. HRS did not commit any error in relying upon the data submitted to it by the Petitioners. T. 128. Petitioners did not, pursuant to subparagraph 2 of the Gainesville Plan set forth above, file an amended cost report by the filing date of the subsequent Medicaid cost report. In fact, they could not have availed themselves of this provision since the deadline for filing such an amended cost report was December 31, 1984, and the Medicare cost report audit adjustment did not occur until eight months later. T. 153-154. When the Gainesville Plan was implemented, HRS no longer used or relied upon Medicare desk or on-site audits. HRS interprets subparagraph 3 of the Gainesville Plan, set forth above, to apply only to changes in allowable costs disclosed in Medicaid desk or on-site audits. T. 131. Audited information is better information than an initial report which is not audited, and is preferable to unaudited information. T. 140. It, therefore, is the policy of HRS to use audited information if it is available. This policy is reasonable. It is a generally accepted accounting principle that a change in an accounting estimate is defined as the result of new information, changing conditions, more experience, or additional information that requires revision of previous estimates. T. 133; HRS Ex. 20. It is a generally accepted accounting principle that a change in an accounting estimate should not be accounted for by restating the prior year final statements, but should be accounted for in the period in which the change occurs. T. 132. See also P. Ex. 20, p. 125. Petitioners' accounting firm, Touche Ross & Co., prepared the original Medicaid cost report, but have not returned to that report as a result of the change in Medicare cost to file a restatement of the Medicaid cost report. T. 78. Pursuant to the principles and policies described above in findings of fact 21 through 23, it is the policy of HRS to recognize material changes to the Medicare adjustment which results from an audit of the Medicare cost report; HRS recognizes such changes by recognizing a change in the Medicaid cost report, but only in the current period. T. 126, 139, 142. If the change in Medicare costs for Beneva and Venice from the year ending September 30, 1983, are accounted for in the current period (1986), the effect on current allowable reimbursement rates will be negligible because most of the effect would be to cause the reimbursement rates to exceed the reimbursement ceilings established by HRS. T. 70-71. If a provider's reimbursement rate is already at the ceiling, there is no benefit from an adjustment that would otherwise have increased the rate. T. 144. Petitioners are already at that ceiling. T. 146. If the change in Medicare costs were accounted for by revision of the 1983 costs reports, Beneva and Venice would be entitled to substantial amounts of reimbursement. T. 94-95. The parties have stipulated that the exact amounts of reimbursement are not at issue in this formal administrative proceeding, but would be determined informally should the Petitioners prevail on the legal issues presented. T. 92-93. The Petitioners applied to HRS for a retroactive revision of its 1983 Medicaid cost reports. P. Ex. 16 and 17. By letter dated February 28, 1986, HRS denied the request for retroactive revision of the 1983 Medicaid cost reports. P. Ex. 18. The letter of denial did not inform the Petitioners of their right to request a formal administrative hearing regarding the denial, and did not specify the time in which such a request could be made. Id. Within 30 days of the date of the letter denying the request for retroactive revision of the 1983 Medicaid cost reports, the Petitioners in writing requested formal administrative hearings concerning the denials as to that issue. P. Ex. 19. HRS has never allowed a retroactive amendment of a closed cost report in the circumstances presented in this case. T. 127, 191-92. Were it to do so, it would turn the Medicaid reimbursement plan into a retroactive reimbursement plan because cost reports would continue to be changed retrospectively as changes in the underlying data occur. T. 127, 171. A second issue in this case is whether HRS has correctly applied the low occupancy provision of the Gainesville Plan to Beneva. On October 30, 1985, some eight days after being notified by HRS that HRS intended to make a low occupancy adjustment to Beneva, Beneva wrote to HRS asserting that it had incorrectly applied a low occupancy adjustment to Beneva. T. 46; P. Ex. 14. Prior to this time, HRS had not informed Beneva of a right to request a formal administrative hearing as to this issue, or the time limits for making such a request. There then ensued several conferences between HRS and the Petitioners concerning the low occupancy adjustment and the Medicare adjustment. T. 54, 90- On February 7 and 21, 1986, Petitioners wrote to HRS concerning the dispute over the Medicare adjustment. P. Exs. 16 and 17. No mention is made in these letters of the low occupancy issue. As discussed in finding of fact 27, by letter dated February 28, 1986, HRS denied the Petitioners' requests with respect to the Medicare adjustment. The denial does not mention the low occupancy adjustment, and only refers to the letters of February 7 and 28, 1986. P. Ex. 18. On March 26, 1986, the Petitioners requested a formal administrative hearing only with respect to the Medicare issue. P. Ex. 19. However, on June 5, 1986, Beneva filed a petition for formal administrative hearing (actually a first amended petition), and paragraph 7 of that petition raises the issue of the low occupancy adjustment. Prior to June 5, 1986, HRS had not informed Beneva of its right to request a formal administrative hearing as to this issue or the time limits for making such a request. Section V.B.7.e. of the Gainesville Plan calculates an adjusted per diem by multiplying each of the per diem components by a fraction that has as its numerator the individual facility occupancy level." P. Ex. 15, p. 33. Thus, the lower the individual facility occupancy level, the smaller the fraction, resulting in lower per diem allowance. Section V.B.7.f.2. of the Gainesville Plan provides that the occupancy adjustment in subparagraph e above "will not apply to . . . facilities with 18 or fewer months of operating experience." P. Ex. 15, p. 33. Beneva commenced operation as a nursing home on September 7, 1982. T. 25. On the day that it opened, the occupancy of Beneva was very low. It increased during the first year, and had an average occupancy of about 57 percent in the first 13 months. T. 43. The average annual occupancy of Beneva in 1984 was 83 percent. In 1985 it was 95 percent. T. 47; P. Ex. 14. HRS could have obtained these statistics from Beneva if it had wanted to. T. 201. HRS applied the low occupancy adjustment to the per diem rates at Beneva for the months beginning April 1, 1984, to June 30, 1985. T. 43, 50, 63. April 1984, was the nineteenth month from the commencement of operations at Beneva. T. 194. HRS used the occupancy rate for the first 13 months of operation (57 percent) in this low occupancy adjustment. T. 43. The reason for using the occupancy rate for the first 13 months is that HRS uses the occupancy rate for the last cost report (in this case, the first cost report for the period ending September 30, 1983) to set rates for the prospective period. T. 200. HRS reasons that the same cost report used to set the prospective rates should be used for all purposes, including ascertainment of the "individual facility occupancy level," the numerator in the occupancy adjustment fraction in section V.B.7.e. of the Gainesville Plan. T. 202. It further reasons that this is required in order that the Medicaid reimbursement program be a prospective plan (based upon a fixed historical operation period, including all statistics associated with that cast) rather than upon current data. T. 212, 222-224. A new facility is expected to have low occupancy during its initial months of operation. T. 195. However, since some patient care costs are relatively fixed, a lower occupancy results in a higher per diem because the per diem cost is simply costs divided by patient days. T. 195-96. In this sense, start-up per diem cost rates are temporarily high due to the temporarily low occupancy. Id. The low occupancy adjustment has the effect of containing health care costs by adjusting this temporarily and unusually high per diem downward. T. 196-197, 192. It serves to partially preclude the receipt of an unwarranted high per diem cost reimbursement in a period when occupancy is relatively high. Id. HRS's interpretation of the method for applying the occupancy adjustment in the Gainesville Plan is an unwritten HRS policy. T. 202-203. HRS has applied this interpretation in the same manner to other Medicaid providers. T. 195, 214. As a result of application of the low occupancy adjustment, Beneva had its per diem reimbursement reduced by $15 to $18. T. 45, 233. If HRS had used the occupancy rate for 1984 (83 percent), there would have been very little impact upon Beneva's per diem rates. T. 207.
Recommendation For these reasons, it is recommended that the Department of Health and Rehabilitative Services enter its final order or orders denying retrospective adjustment to the fiscal year 1983 Medicaid cost reports of the Petitioners, and denying the requested alteration to the occupancy adjustment as applied to the Petitioner, Florida Living Care, Inc., d/b/a Beneva Nursing Pavilion. DONE and RECOMMENDED this 1st of June 1987, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. 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 1st day of June 1987. Appendix to Recommended Order in DOAH Case Numbers 86-2418 and 86-2419 The following is an explanation of the reasons for rejection of findings of fact proposed by the parties. The numbers correspond to the numbers used by the parties. Proposed findings of fact not discussed in this appendix have been adopted as findings of fact in this Recommended Order. Findings of fact proposed by the Petitioners: 13. In the last sentence, the verb "would" is rejected as a matter of law in this Recommended Order. The sentence has, however, been adopted as the contention of the Petitioners. 15. This proposed finding has been adopted with the addition of the finding that the recalculation is to be done only in the current period. 27. While the occupancy rates for 1983, 1984, and 1985 are provided by the evidence, there does not appear to be any evidence as to the occupancy rate on April 1, 1984. 31, 33, 37, 38, 40, 42, 44, 45, and 47. These proposed findings of fact are subordinate to findings of fact adopted in the Recommended Order, and are not necessary. The only portion of this proposed finding that is marginally relevant is the matter of efficiency of operation. Moreover, HRS had adequately explained its policy for interpretation of the low occupancy adjustment, and did not have to have specific evidence as to the efficiency of Beneva. If Beneva thought that that evidence would be useful, it could have presented it. The remainder of the proposed finding concerns whether HRS had evidence that Beneva was receiving a reimbursement rate higher than similar providers, or was receiving reimbursement in excess of its allowable cost on April 1, 1984. Again, HRS adequately explained its incipient policy in general terms, and did not need to present specific evidence concerning Beneva. But more important, the issue is whether the per diem costs of Beneva as reported to HRS for the year ending September 30, 1983, were normal, or unusually high as assumed by HRS in its interpretation of the Gainesville Plan. The reimbursement rate of Beneva is not relevant. There is no testimony at the record cited that Beneva was operating efficiently. The witness did not respond to the question and give any evidence concerning efficiency of operation. With respect to the remainder of the proposed finding of fact, whether or not Beneva was operating at a reimbursement rate under the caps on April 1, 1984, sheds little light on whether Beneva's Medicaid costs for the period ending September 30, 1983, as reported in the Medicaid cost report at issue in this case were normal, or unusually high as assumed by HRS in its interpretation of the Gainesville Plan. See the discussion with respect to proposed finding of fact 35. 46. Rejected for the reasons discussed in finding of fact 18. Moreover, it would have been error for HRS to have allowed the revisions requested by Mr. Fox because it would have been incorrect to revise previous accounting estimates. A change in an accounting estimate is to be made in the current period. Finding of fact 22. 50. This proposed finding of fact is not relevant because double reimbursement is not an issue raised by any party. Findings of fact proposed by the Respondent: 4. Whether the August 1985, audit reports gave the Petitioners a "point of entry" is a question of law. It is true that these were points of entry, but not with respect to the issues raised in these cases. Thus, the proposed finding is irrelevant as well. 12. The record does not support the proposed finding that FLC "did not wish to incorporate the change in the Medicare adjustment in its later cost reports." There is no evidence of what FLC wished to do. A finding has been made that it would not have benefited FLC to have sought such a revision. 19. This proposed finding is a conclusion of law. COPIES FURNISHED: Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 Theodore E. Mack, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Blvd. Building One, Room 407 Tallahassee, Florida 32399-0700 Michael J. Bittman, Esquire R. Bruce McKibben, Esquire Jonathan S. Grout, Esquire DEMPSEY & GOLDSMITH P. O. Box 10651 Tallahassee, Florida 32302
The Issue Whether Petitioner's Medicaid provider number should be cancelled for the reason stated in Respondent's October 1, 1995, letter to Petitioner?
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: Petitioner is a provider of community mental health services. It provides these services to residents of Palm Beach County and the surrounding areas. Some of the services it provides are unique to the area it serves. Petitioner provides services to Medicaid recipients pursuant to a Medicaid provider agreement dated September 6, 1994, paragraphs 8 and 9 of which provide as follows: The provider and the Department agree to abide by the Florida Administrative Code, Florida Statutes, policies, procedures, manuals of the Florida Medicaid Program and Federal laws and regulations. The agreement may be terminated upon thirty days written notice by either party. The Depart- ment may terminate this agreement in accordance with Chapter 120, Florida Statutes. Petitioner has attempted to enter into a contract with the Department of Health and Rehabilitative Services' Alcohol, Drug Abuse and Mental Health office (hereinafter referred to as "ADM"), but to date has been unable to do so because ADM has not had the money to fund such a contract.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered terminating Petitioner's provider agreement and cancelling its provider number on the grounds that it "does not have a contract with the [Department of Health and Rehabilitative Services] ADM [Alcohol, Drug Abuse and Mental Health] office." DONE and ENTERED this 26th day of February, 1996, at Tallahassee, Leon County, Florida. STUART M. LERNER, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SC 278-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of February, 1996. COPIES FURNISHED: Darlene Silvernail, Esquire Forest Hill Counseling Center 2624 Forest Hill Boulevard West Palm Beach, Florida 33406 Gordon B. Scott, Esquire Agency for Health Care Administration 2727 Mahan Drive, Fort Knox Number 3 Tallahassee, Florida 32308-5403 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Fort Knox Number 3 Tallahassee, Florida 32308-5403 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Fort Knox Number 3 Tallahassee, Florida 32308-5403
Findings Of Fact The Home The Miami Jewish Home and Hospital for the Aged is a multi-faceted operation located on an entire city block in Miami. It provides a variety of services including an adult congregate living facility, an auditorium, a nursing home and a 32-bed hospital. Residents may come to the Home bringing with them their cash, and property and other possessions, to be sold. An account is opened for the resident from which charges made by the Home may be deducted. This fund is the Resident Asset Fund. Earings on the Resident Asset Fund are applied to reduce the Home's operating deficit. The Home provides Medicare and Medicaid services. Medicaid provides for long-term care for the indigent. About 60% of the Home's patient days were devoted to Medicaid patients in 1985. By participating in the Medicaid program, the Home is required to file cost reports each year to determine its allowable costs under Medicaid rules. The fiscal year for the nursing home runs from July 1 to June 30. The Medicaid Program Medicaid costs are shared between the federal government and the State of Florida. The Medicaid program is administered at the federal level by the Department of Health and Human Services (HHS), and at the state level by the Department of Health and Rehabilitative Services (HRS). The Health Care Financing Administration (HCFA) of HHS establishes the Medicaid costs the federal government will pay for. HCFA's Provider Reimbursement Manual, also referred to as HIM-15, contains reimbursement guidelines. Medicaid reimbursement is calculated as a rate per Medicaid patient per day. Reimbursement is provided prospctively and is based on prior cost reports, inflated forward to the period of reimbursement. The Home's unaudited cost report data is used for that purpose. In order to insure the accuracy of the Medicaid cost reports, HRS performs either test reviews or full field audits of the reports. Full audits are done either by HRS auditors or by outside auditors on contract with HRS. Here the Home's cost report was audited for HRS by Peat Marwick Mitchell & Co. HRS reviews the preliminary audit reports of its contract auditors, which can result in changes before the final audit report is issued. The 1985 Medicaid Cost Report A Medicaid cost report for the fiscal year ending June 30, 985 was filed by the Home in mid-October 1985. David Farkas, the Director of Financial Operations for the nursing home prepared that Medicaid cost report; he also had it reviewed by the accounting firm of Deloitte Haskins & Sells before it was submitted to the Department. In the Medicaid cost report, a nursing home's costs are broken down into four components: (a) those from operations; (b) those from patient care, (c) return on equity and (d) property. Costs within each of those four categories are determined and then divided by the number of patient days at the nursing home to determine a cost per patient day. The cost per patient day for the categories of operating costs and patient care are compared to a ceiling or cap that is generated through surveys performed by the Department of Health and Rehabilitative Services. Caps are adjusted for the geographical location and size of the facility. Assuming that the nursing home is at or below the cap for operations and patient care determined from the survey, the cost per patient day in each of the four components are added to form a composite reimbursement rate. Costs incurred in excess of the caps for operations and patient care are not reimbursed. An inflation factor is then added to a provider's costs because the State of Florida operates on prospective reimbursement system. Patient Trust Fund A nursing home which holds residents' funds is required by Section 400.162, Florida Statutes (1987) to provide a bond equal to twice the average monthly balance of the funds it held during the preceding year in order to ensure that the funds will be available to residents. The nursing home also has the option, in lieu of a bond, to provide a self-insurance fund protecting the monies it holds in trust. By letter dated May 31, 1985, the nursing home received approval from the Department to establish a self-insurance fund under Section 400.162 Florida Statutes. Its account was opened with Sun Bank of Miami. When the account was established the Home was required to deposit in it twice the average monthly balance of its Resident Asset Fund for the preceding year. As of June 30, 1985, the Patient Trust Fund contained $2,750,000, representing twice the $1,375,000 in resident assets held in the Resident Asset Fund. The money the Home placed in the Patient Trust Fund came from donations and from the building fund for the Home. Those funds are held in the form of treasury notes and certificates of deposit. The nursing home treated the Patient Trust Fund as part of the building fund in its 1985 Medicaid cost report. When the funds which comprise the Patient Trust Fund are placed with a trustee, they are restricted. The trustee holds the securities, and the State has the right to draw against those securities when a default occurs in the nursing home's handling of residents' funds. Only the principal amount of the Home's self-insurance fund is restricted, however. The Home itself receives the benefit of interest or dividends which accrue on the monies deposited in the self-insurance fund. Those earnings accrue to the benefit of the Home's building fund. The premium for a surety bond of the type required by Section 400.162(5)(b)1. Florida Statutes in 1985 would have cost the Home 2 percent of the amount bonded; based on 2 percent of $2,750,000, the premium would have been $55,000. This bond premium would have been treated as an allowable operating cost. The Home's operating costs exceeded the cap, however, so it actually would have received no additional reimbursement for the $55,000 bond premium if a bond had been purchased. The Audit After the nursing home submitted its 1985 Medicaid cost report, Barry Scutillo of Peat Marwick contacted the Home on behalf of HRS to audit the Home's records supporting its 1985 report. The audit resulted in a number of adjustments which were discussed with representatives of the nursing home at an exit conference. The issue of the proper treatment of the nursing home's funds deposited in the Patient Trust Fund at Sun Bank was discussed during the audit. The auditor for Peat Marwick, Mr. Scutillo, thought that the Home had accounted for the use of those funds correctly by seeking a return on equity from Medicaid for the securities in the Patient Trust Fund. The Audit Report Ultimately, Mr. Scutillo's field work was reviewed by more senior members of Peat Marwick and by HRS. An audit report was issued by Peat Marwick Mitchell & Company dated November 18, 1986 which did propose adjustments to the Home's cost report arising from the treatment of the funds which had been deposited in the Patient Trust Fund in Sun Bank. The audit report proposed to reduce nursing home's equity by $2,734,270 and to adjust the return on equity before apportionment by $108,515. The other adjustments proposed are of no consequence, because the nursing home is already at or exceeds the Medicaid cost caps, and federal regulations would prevent the Home from receiving additional reimbursement on the other adjustments even if they were made in the nursing home's favor. After the nursing home filed a request for an administrative hearing on the adjustments made in the Peat Marwick audit, representatives of the nursing home and HRS met to discuss the issues, and agreed to present a joint position paper to HCFA for a non-binding determination on the issue whether the Home was entitled to a return on equity for the funds in the Patient Trust Fund at Sun Bank. The parties agreed that each would prepare a position paper which would be forwarded to the appropriate federal officials for review. The Home's position paper was submitted to HRS but HRS failed to submit it to the federal government. Instead, HRS submitted only its own position paper. After the Home discovered this, it sent its position paper directly to the HCFA. HCFA's Response The HCFA responded, after reviewing the position of both parties, that the self-insurance fund should be excludedfrom the Home's equity capital. 1/ The HCFA believed that the fund was segregated and not used to provide patient care. 2/ The manual which HCFA relied upon, (HIM-15), contains in Section 1202.1 a definition of equity capital which includes the health care provider's investment in property, plant and equipment related to patient care, and that working capital necessary for the proper operation of patient care activities. A proprietary provider is entitled to a rate of return on its equity capital which is "a percentage equal to 1 and 1/2 times the average of the rates of interest on special issues of public debt obligations issued to the Federal Hospital Insurance Trust Fund for each of the months during the provider's reporting period." (HIM-15, Section 1206). The manual also describes items which are to be excluded from the computation of equity capital, and in Section 1218.9 states: Where a provider maintains a self- insurance program in lieu of purchasing conventional insurance, the funds in the self-insurance reserve fund must be set aside in a segregated account to cover possible losses and not used to provide patient care. Therefore, the amount deposited in the fund and the earnings on the self-insurance reserve remaining in the fund are not included in equity capital. The nursing home argues that Section 1218.9 focuses on self-insurance funds which a health care provider maintains to protect itself, and that the section is inapplicable here, because the funds deposited with Sun Bank were deposited for the protection of patients, not of the nursing home. This is unpersuasive. The nursing home itself is responsible for any defalcations in the handling of residents' assets placed with it as trustee. The Patient Trust Fund which serves as self-insurance for claims against the Home for mismanagement of the Resident Trust Funds is similar to conventional insurance.
The Issue The amount to be paid by Petitioners, Pedro Garcia, a minor by and through his parents and natural guardians, Jesus Garcia and Norma Cisneros ("Petitioners") to Respondent, Agency for Health Care Administration ("AHCA"), out of the settlement proceeds, as reimbursement for past Medicaid expenditures pursuant to section 409.910, Florida Statutes.
Findings Of Fact Pedro Garcia ("Pedro") was born on October 30, 2014. When he was two months old, he presented to the emergency room ("ER") with vomiting and excessive crying. The doctors failed to diagnose an intestinal blockage and discharged Pedro home. Pedro was taken again to the ER in dire distress. He was airlifted to a pediatric hospital where emergency surgery was performed to remove 90 percent of his intestine. Pedro now suffers from the effects of having 90 percent of his intestine removed, including: nutritional deficiencies, diarrhea, dehydration, and abdominal distress. He cannot play with exertion and his activities are limited. Pedro will suffer the effects of his injury for the remainder of his life. A portion of Pedro's medical care related to the injury was paid by AHCA through the Medicaid program and Medicaid, through AHCA, provided $71,230.43 in benefits. Pedro's parents and natural guardians, Jesus Garcia and Norma Cisneros, brought a medical malpractice action against the medical providers and staff responsible for Pedro's care ("Defendants") to recover all of Pedro's damages, as well as their individual damages associated with their son's injury. Because of uncertainty on issues of liability and only a $250,000 insurance policy on the most culpable defendant, Pedro's medical malpractice action against the Defendants was settled for a confidential unallocated lump sum of $2,000,000. During the pendency of Pedro's medical malpractice action, AHCA was notified of the action and AHCA asserted a $71,230.43 Medicaid lien against Pedro's cause of action and settlement of that action. The Medicaid program through AHCA, spent $71,230.43 on behalf of Pedro, all of which represents expenditures paid for Pedro's past medical expenses. Another non-AHCA Medicaid provider, Integral Quality Care, provided $223,089.26 in past medical expenses on behalf of Pedro. Another non-AHCA Medicaid provider, Department of Health, Child's Medical Services, provided $168,161.12 in past medical expenses on behalf of Pedro. Accordingly, a total of $462,480.81 was paid for Pedro's past medical expenses. AHCA did not commence a civil action to enforce its rights under section 409.910 or intervene or join in Pedro's action against the Defendants. By letter, AHCA was notified of Pedro's settlement. AHCA has not filed a motion to set-aside, void, or otherwise dispute Pedro's settlement. Application of the formula in section 409.910(11)(f) to Pedro's $2,000,000 settlement requires payment to AHCA of the full $71,230.43 Medicaid lien. At the hearing, Petitioners presented the expert testimony of attorney Edward H. Zebersky, who represented Pedro throughout the underlying medical malpractice action against the Defendants. Without objection, Mr. Zebersky was accepted as an expert in the valuation of damages suffered by injured parties. Mr. Zebersky has been an attorney since 1991. Since 1992, Mr. Zebersky has been a plaintiff's trial lawyer, with a substantial portion of his practice devoted to personal injury cases, including medical malpractice matters. He is a partner with the law firm of Zebersky Payne Shaw Lewenz, LLP and AV rated by Martindale-Hubbell. Mr. Zebersky is a member of numerous trial attorney associations and has held leadership positions in several associations, including president of the Florida Justice Association in 2006 and serving on the Board of Governors of the American Association for Justice for the past ten years. Mr. Zebersky handles jury trials. He has secured multiple eight-figure verdicts and several seven-figure verdicts, and he stays abreast of jury verdicts on other cases in his area. As a routine part of his practice, Mr. Zebersky makes assessments concerning the value of damages suffered by his clients. Mr. Zebersky was accepted as an expert in a Medicaid lien dispute at DOAH in the case of Herrera v. Agency for Health Care Administration, Case No. 16-1270MTR, 2016 Fla. Div. Admin. Hear. LEXIS 493 (Fla. DOAH Oct. 11, 2016). Mr. Zebersky was familiar with the circumstances surrounding Pedro's injury and medical malpractice claims and gave a detailed explanation of them. Mr. Zebersky reviewed Pedro's life care plan, which details Pedro's future medical needs, and an economist report, which calculated the present value of Pedro's future medical care and present value of Pedro's lost future earnings. The economist placed the present value of Pedro's future medical expenses and lost future earnings at approximately $9,500,000. According to Mr. Zebersky, past medical expenses would also be added to arrive at the full value of Pedro's economic damages. Mr. Zebersky testified that in addition to economic damages, a jury would also be asked to assign a value to past and future noneconomic damages (i.e., pain and suffering and loss of enjoyment of life). Mr. Zebersky testified that Pedro's claim for noneconomic damages would have an exceedingly high number, which as a "rule of thumb" is three times the value of his economic damages. Mr. Zebersky persuasively and credibly testified that the total value of all of Pedro's damages would be in excess of $20,000,000, and that valuing Pedro's damages at $15,000,000 is a very conservative and low valuation of his damages. Mr. Zebersky persuasively and credibly testified that the $2,000,000 settlement did not fully compensate Pedro for the full value of his damages. Mr. Zebersky testified that based on a conservative value of all of Pedro's damages of $15,000,000, the $2,000,000 settlement represents a recovery of 13.33 percent of the full value of his damages. AHCA did not call any witnesses, present any evidence as to the value of damages, or propose a different valuation of damages. Mr. Zebersky's testimony regarding the total value of Pedro's damages was credible, unimpeached, and unrebutted. Petitioner proved that the settlement of $2,000,000 does not fully compensate Pedro for the full value of his damages. Mr. Zebersky further testified that because Pedro only recovered in the settlement 13.33 percent of the full value of his damages, he only recovered 13.33 percent of AHCA's $71,230.43 Medicaid lien, or $9,495.01. Mr. Zebersky testified that it would be reasonable to allocate $9,495.01 of the settlement to past medical expenses paid by AHCA through the Medicaid program. Following the settlement, Mr. Zebersky negotiated the non-AHCA Integral Quality Care Medicaid lien from $233,089.26 to $18,737.00, and the non-AHCA Department of Health, Child's Medical Services lien from $168,161.12 to $22,415. On cross-examination, Mr. Zebersky acknowledged that the $233,089.26 and $168,161.12 from Integral Quality Care and Department of Health, Child's Medical Services are part of Pedro's claim for past medical expenses. However, Mr. Zebersky failed to include these past medical expenses in applying the ratio to reduce the Medicaid lien amount owed to AHCA. AHCA successfully contested the methodology used to calculate the allocation to past medical expenses based on Mr. Zebersky's failure to include these past medical expenses in applying the ratio. Accordingly, Petitioners proved by a preponderance of the evidence that 13.33 percent is the appropriate pro rata share of Pedro's past medical expenses to be applied to determine the amount recoverable by AHCA in satisfaction of its Medicaid lien. Total past medical expenses is the sum of AHCA's lien in the amount of $71,230.43, and the past medical expenses in the amounts of $233,089.26 and $168,161.12, which equals $462,480.81. Accordingly, following Mr. Zebersky's methodology and applying the $15,000,000 valuation to the proper amount of total past medical expenses of $462,480.81, the settlement portion properly allocable to Pedro's past medical expenses to satisfy AHCA's lien is $61,648.69 ($462,480.81 x 13.33 percent = $61,648.69).
