Findings Of Fact Introduction Petitioner, New Riviera Health Resort, Inc. (New Riviera or petitioner), operates a fifty-two bed nursing home at 6901 Yumuri Street, Coral Gables, Florida. The facility is licensed by respondent, Department of Health and Rehabilitative Services (HRS). At all times relevant hereto, New Riviera was a participant in the Florida Medicaid Program. Respondent is designated as the state agency responsible for the administration of Medicaid funds under Title XIX of the Social Security Act. In this regard, HRS requires providers such as New Riviera to follow cost reimbursement principles adopted by the federal government. These principles, rules and regulations are codified in publications known as HIM-15 and the Cost Provider Reimbursement Manual. Pursuant to Rule 10C-7.48(4)(a)5.a., Florida Administrative Code, petitioner filed a cost report for its fiscal year ending November 30, 1983, reflecting what it perceived to be its reimburseable costs for providing Medicaid services during the fiscal year. The cost report was audited by HRS field auditors in 1984. Thereafter, on March 20, 1985, HRS issued a Schedule of Audit Adjustments, Statement of Costs, and Statement of Cost and Statistics. As is pertinent here, the Schedule of Audit Adjustments recommended that reimburseable costs be reduced by $71,561.00 in order to bring the cost report in conformity with Federal and State Medicaid reimbursement principles.1 These adjustments relate to the owner's salary and fringe benefits ($50,246), certain roof repairs ($11,613.00), a pension plan contribution ($6,000), and the write-off of certain assets ($3,772). Prior to the preparation of the above reports, an exit conference was held by HRS representatives and petitioner to discuss the proposed adjustments. When no resolution was reached, the reports were issued. That precipitated the instant proceeding. Owner's Salary & Benefits ($50,246.00) Petitioner's facility is owned by Shirley El. St. Clair. Using an HRS formula, New Riviera allocated $30,934.00 of her total salary during the fiscal year to the cost report for reimbursement. It also sought to be reimbursed for $2,312.00 in related payroll taxes, and $17,000.00 for pension plan contributions. All were disallowed by HRS on the ground the costs were "unnecessary" under applicable federal regulations. Specifically, Section 902.2 of HIM-15 provides in part that compensation paid to an owner may be included in allowable provider cost "only to the extent that it represents reasonable renumeration for managerial, administrative, professional, and other services related to the operation of the facility and rendered in connection with patient care." The regulation goes on to provide that "services rendered in connection with patient care include both direct and indirect activities in the provision and supervision of patient care." The same section prohibits reimbursement where services rendered are not related to either direct or indirect patient care but are, for example, rendered "for the purpose of managing or improving the owner's financial investment." The agency takes the position that Ms. St. Clair's efforts are focused in the direction of managing and improving her investment, and that her salary and benefits should be accordingly disallowed. It also contends that the facility had three licensed administrators during fiscal year 1983, and that New Riviera does not need that number to adequately operate a 52- bed facility, which is small by industry standards. St. Clair has been owner-president-administrator of the facility since its inception some thirty two years ago. In response to an audit inquiry, St. Clair gave the following description of her duties: . . . in general terms. I am the Chief Executive Officer of the Corporation and Trustee of the New Riviera Pension Trust. Though I no longer keep regular business hours in the traditional sense, I generally work a 30-50 hour week depending on circumstances, frequently on weekends. Much of my time is spent managing the financial aspect of New Riviera and the Pension Plan. I do most of the banking and a great deal of the grocery and "odds and ends" shopping for New Riviera. At final hearing she described her working hours in 1983 as being "irregular"; but still totaling 30 to 50 hours per week. Her duties included "a bit of everything," including keeping the books, admitting patients, performing marketing and banking activities, and relieving other personnel on weekends. There is no dispute that St. Clair has a voice in all business decisions of the nursing home. Because there are no secretaries or receptionists employed by the facility, she also performed various secretarial tasks. During the fiscal year in question, St. Clair also had two other licensed and full-time individuals performing administrative duties. One was a Mrs. Campbell whose primary duty was to keep the books while the other was her son, Michael, who acted as assistant administrator. According to St. Clair, Michael has a masters -degree in health care administration, supervised the maintenance of the facility, and was there "just to learn the business" in anticipation of her retirement. He recently left New Riviera in September, 1985 and had not been replaced as of the time of final hearing. Mrs. Campbell still remains on the payroll. HRS has allowed Campbell's and Michael's salary and fringe benefits but has proposed to disallow all salary and fringe benefits of Mrs. St. Clair. In this regard, there is no credible evidence that a 52-bed facility requires three licensed administrators. Indeed, a 52-bed facility is unique in terms of size, and is roughly one-half the size of a typical nursing facility. Mrs. St. Clair did perform numerous administrative duties during the fiscal year in question, and without contradiction, it was established she devoted some 30 to 50 hours per week at the facility. On the other hand, her son was simply "learning the trade," and his sole function was described as "supervising the maintenance." Under these circumstances, it is found that Shirley St. Clair's salary and fringes are related to "services rendered in connection with patient care" and should be reimbursed. Conversely, the son's salary and fringe benefits were not necessary, were duplicative in nature, and should be disallowed. This finding is substantiated by the fact that the son has not been replaced since leaving the facility. Reimburseable expenses should be accordingly adjusted. Roof Repairs ($11,613.00) During the fiscal year, repairs costing $11,613.00 were made to a part of the roof structure due to leaks. The facility's accountant recorded these repairs as an expense on the cost report. This accounting treatment was made, according to the provider, on the theory the repairs did not extend the useful life of the building, and were necessary for continued operation of the facility. Section 108.2 of HIM-15 in controlling and provides in part as follows: 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. Repair and maintenance costs are always allowed in the current accounting period. The more credible and persuasive evidence of witness Donaldson supports a finding that the roof expenditure was a "betterment and improvement" that extended the life of the roof (asset). In view of this, it is found that the cost of the repair should have been capitalized, rather than expensed, and that reimburseable costs should be reduced by $11,613 as proposed by the agency. Pension Plan Contribution ($6,000.00) Petitioner reflected $51,000.00 on its cost report for contributions to its employee pension plan during the fiscal year. This included separate payments of $10,000.00, $35,000.00 and $6,000.00 made in April and May, 1983 and January, 1984, respectively. This information is contained on Schedule B of the firm's Form 5500-R filed with the Internal Revenue Service on September 7, 1984. During the course of its audit, HRS requested the pension plan consultant to furnish information concerning minimum funding standards and retirement benefits for the participants. This was required to verify the charges on the cost report. In a letter dated July 3, 1984, the consultant advised in pertinent part: Based on salary and financial information provided by New Riviera, a $45,000.00 contribution to the pension plan met the minimum funding standards and was deductible. Relying upon this information, HRS disallowed $6,000.00 of the $51,000.00 in total costs allocated for the plan during the year ended November 30, 1983. On January 19, 1984, New Riviera issued a check in the amount of $26,000.00 payable to Shearson American Express for a pension plan contribution. Of that total, $6,000.00 was a contribution to 1983 costs. According to New Riviera's accountant, the additional $6,000.00 was required by the plan's actuary. However, this was not confirmed by any documentation or testimony from the actuary. When the audit was being conducted by HRS in the summer of 1984, the check written to Shearson American Express was in its business records, but was not produced for the auditors' inspection. Further, it was not produced at the exit conference held at a later date. In this regard, it was petitioner's responsibility to furnish that information during the course of the audit and exit conference rather than assuming that the auditors would discover the document while reviewing the auditee's books and records. This is particularly true since petitioner was placed on notice that the $6,000.00 was in dispute and subject to being disallowed by the agency.2 Even if the check had been disclosed to the auditors, it does not change the character of the $6,000 payment. The check was issued during the fiscal year ending November 30, 1984 and was therefore outside the scope of the audit year in question. If it is an appropriate expenditure, it is reimburseable on the 1984 cost report rather than the cost report for the year ending November 30, 1983. Therefore, 1983 reimburseable costs should be reduced by $6,000, as proposed by the agency. Write-off of Certain Assets ($3,772.00) During fiscal year 1983 petitioner wrote off $3,722.00 in remaining balances related to certain equipment.3 This amount related to the remaining or salvage value of certain assets whose useful lives had expired according to depreciation guidelines, but which assets were still in service. Even though the assets had not been retired or sold, petitioner wrote off the undepreciated balances remaining on the books. The undepreciated balances arose by virtue of petitioner using the declining balance method of depreciation. Under Medicaid guidelines, assets acquired after 1966 must be depreciated by the straight line method. Therefore, petitioner was in error in using a declining balance method. Even so, according to generally accepted accounting procedures, it was incorrect to write-off a remaining balance related to certain assets before the assets were actually sold or retired. At hearing petitioner agreed that its accounting treatment was contrary to HRS requirements, and accordingly these costs ($3,772.00) should be disallowed.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's cost report for fiscal year ending November 30, 1983 be adjusted in accordance with paragraphs 4 through 7 of the Conclusions of Law portion of this Recommended Order. DONE and ORDERED this 13th day of January, 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 13th day of January, 1986.
Findings Of Fact Petitioner, Greynolds Park Manor, Inc. (Greynolds), operates a skilled nursing home facility at 17400 West Dixie Highway, North Miami Beach, Florida. The facility was constructed in 1968 and has been certified in the Medicaid Program since 1971. It is licensed by Respondent, Department of Health and Rehabilitative Services (HRS), to operate 324 beds. However, its average patient census in 1979 through 1981 was between 220 and 225 patients. It is the largest nursing home in Dade and Broward Counties. HRS is the state agency designated to administer Florida's Medical Assistance (Medicaid) Program pursuant to Section 409.266, et seq., Fla. Stat. HRS and Greynolds have entered into a written agreement, "Agreement for Participation in Florida's Medical Assistance Program," for each fiscal year that Greynolds has participated in the program. Greynolds' fiscal year runs from June 1 through May 31. Effective October 1, 1977, HRS adopted the "Florida Title XIX Long Term Care Reimbursement Plan" (Plan). The Plan is a prospective reimbursement plan, designed to aid the State in containing health care costs for Medicaid recipients. The prospective reimbursement rate for a provider is based on the actual allowable costs of a provider for the previous fiscal year, to which an inflationary factor is added. The mechanics utilized to establish the prospective reimbursement rate under the Plan are clear. The provider is required to submit a uniform cost report within 90 days after the conclusion of its fiscal year. HRS audits the uniform cost report, determines allowable costs, adds an inflationary factor, and thereby sets the provider's prospective reimbursement rate. This rate is effective the first day of the month following receipt of the uniform cost report by HRS, and remains in effect until a new cost report is filed by the provider. Under the provisions of the Plan, all cost reports are desk reviewed within six months after their submission to HRS. HRS, under the terms of the Plan, may perform an audit on the cost report. An on-site audit is a more extensive review of the cost report than desk review. During an on-site audit the financial and statistical records of the provider are examined to ensure that only allowable costs were included in the cost report. The audit findings prevail over those made at desk review. Greynolds submitted its cost report for fiscal year 1979 on September 27, 1979. Previously, by letter dated September 10, 1979, Greynolds had been advised by HRS that an on-site audit was to be done of its ficsal year 1979 cost report, and that Greynolds' Medicare cost report would be a subject of inquiry. The cost report Greynolds submitted to HRS on September 27, 1979, did not make a Medicare cost adjustment, and none was made at desk review. 1/ A rather anomalous situation existed in 1979 through 1980 which lent itself to potential abuse. The Medicare cost adjustment was never made at desk review. It was only made if there was an audit. Yet only one in three providers were designated for audit each year, and even if designated the audit could be terminated at any time. Consequently, if no audit were made, or if terminated prematurely, the provider would not be required to make a Medicare adjustment and would reap a substantial windfall. Greynolds was fully aware of HRS' practice. In 1981 HRS altered its practice and began to make the Medicare adjustment at desk review. The audit of Greynolds' cost report for fiscal year 1979 was actually begun in October 1979 by the Fort Lauderdale Office of HRS. At the same time, the desk review of the cost report was undertaken by HRS' Jacksonville Office and was ultimately finalized on February 29, 1980. The desk review findings contained adjustments to expenditures totaling $46,592, but made no Medicare adjustment, consistent with HRS policy at that time. Based upon these adjustments, HRS' desk review established prospective reimbursement rates effective October 1, 1979. However, HRS advised Greynolds that these rates were "subject to change by any on-site audit." Greynolds used these rates for the period October 1, 1979 through August 31, 1980. In June 1980, HRS' Supervisor of Audit Services requested additional information before the field audit of the 1979 cost report could be completed. Greynolds presumably furnished this information because the field work was completed in September 1980. On June 24, 1981, Greynolds was notified by letter that the audit had been completed and was pending final review. The letter further advised Greynolds that "since this audit will supersede the desk review, the adjustments we made in our desk review letter of February 29, 1980, must stand until the on- site audit results are released." On June 9, 1982, HRS' Fort Lauderdale Office advised Greynolds that its on-site audit of the 1979 cost report had been completed. The audit adjustments to the cost report had been increased from $46,592 to $803,592. Most of this was due to a Medicare adjustment in the amount of $654,282. An exit conference was held by HRS' field representatives and Greynolds on June 21, 1982. None of the adjustments were changed as a result of this meeting. At that time, Greynolds first requested that it be allowed to file an interim rate change. Greynolds was advised, however, that the Office of Audit Services had no authority to approve such a request. On September 23, 1982, the final audit report of Greynolds' 1979 cost report was issued. The audit concluded that the reported allowable expenses of Greynolds would be reduced by $725,953, resulting in an overpayment of $288,024. Most of this was, again, the result of the Medicare adjustment of $654,282. The report further advised Greynolds of the right to request that any audit adjustment in dispute be addressed in a hearing pursuant to Section 120.57, Fla. Stat. Greynolds duly petitioned for a Section 120.57 hearing on the audit adjustments of September 23, 1982. This matter was forwarded to the Division of Administrative Hearings and docketed as Case No. 82-3208. At the outset of the hearing in that case, Greynolds withdrew its challenge to the Medicare adjustment of $654,282. Following receipt of the final audit report of September 23, 1982, Greynolds requested, by letter dated November 2, 1982, an interim rate change for its fiscal year 1980, "in accordance with the Florida Title XIX Long Term Care Reimbursement Plan IVA-10." The reasons assigned by Greynolds for making the request were: A substantial decrease in Medicare patient days in the fiscal year ended May 31, 1980 and the corresponding decrease in the Medicare adjustment; and A change in the percentage of skilled and intermediate Medicaid patients. The request was denied by HRS on January 12, 1983, on the ground that "interim rates will not be granted for a closed cost reporting period." HRS' denial failed, however, to inform Greynolds of its right to request a hearing. On June 7, 1983, Greynolds renewed its request for an interim rate change for its fiscal year ended May 31, 1980. This request was denied October 12, 1983, on the ground that: To grant an interim rate for a closed cost reporting period would be the same as making a retroactive payment to a nursing home whose costs exceed annual payment. Retroactive payments such as this are specifically prohibited by Section 10C-7.48(6)(1), Florida Administrative Code, which was in effect during the cost reporting period in question. Greynolds filed a timely request for a Section 120.57(1), Fla. Stat., hearing. The circumstances relied on by Greynolds to justify an interim rate request were primarily the result of a substantial decline in its Medicare patient census resulting from a staphytococcus bacterial infection among its patients. The bacterial infection arose in February 1979 and continued through May 31, 1980 (the end of Greynolds' 1980 fiscal year). Greynolds is a dual provider facility, treating both Medicare and Medicaid eligible patients. The bacterial infection, which was contained within the Medicare section of the facility, resulted in a 45 percent decline in Medicare admissions during the period. Under the Medicare and Medicaid reimbursement systems, a provider is required to first request payment from Medicare if the patient is Medicare eligible. Medicare reimburses at a higher rate than does Medicaid. Consequently, a substantial decrease in the number of Medicare patient days would result in a substantial decrease in the revenue received by the provider. Greynolds was fully aware of the change in the patient mix, as it occurred, during fiscal year 1980. Greynolds opined that it did not apply for an interim rate request at that time because the prospective reimbursement rate which had been set October 1, 1980, based on its cost report for fiscal year 1979, was "adequate" until the Medicare adjustment was finally made. The facts, however, reveal a different motivation. Under the Plan, whether on desk review or on audit, a Medicare adjustment is made to a provider's uniform cost report when developing a prospective reimbursement rate. The Medicare adjustment is made by excluding the Medicare patient days and Medicare costs from the provider's cost report, since these items are reimbursed by Medicare. The reimbursement rate is then established by adding an inflationary factor to the remaining patient days and costs. This reimbursement rate remains in effect until the provider files its next cost report. If the provider maintains its costs under the reimbursement rate, it may retain the difference; if the provider's costs exceed the reimbursement rate, it will not be reimbursed for its inefficiency. The Plan is predicated on a cost containment methodology. It is designed to encourage efficient administration by nursing home providers when providing services to Medicaid recipients. The Plan does, however, permit an adjustment to a provider's prospective reimbursement rate ("an interim rate") when unforeseen events during that fiscal year occur which were not contemplated in setting the provider's prospective reimbursement rate predicated on the previous year's costs. Greynolds was aware of the change, as it occurred, in its 1980 patient mix. Therefore, it could have applied for an interim rate adjustment at that time. To have done so, however, would have required it to make the Medicare cost adjustment to its 1979 cost report since its justification for an increase was the substantial decrease in Medicare patients and the corresponding decrease in the Medicare adjustment it was currently experiencing. To raise the Medicare adjustment issue was not, however, to its financial advantage. If it "escaped" the Medicare adjustment to its 1979 cost report, it would profit by the amount of that adjustment ($288,024). Greynolds' request for an increase in its reimbursement rate for 1980, after the 1980 cost reporting period was closed, also raises the disquieting specter that Greynolds will be reimbursed for the same costs twice. Since each year's reimbursement rate is based on the previous year's cost report, to retrospectively pick one reimbursement period from the series of years is disruptive of all the rates which were subsequently established. Under the Plan, if a provider experiences a substantial decrease in Medicare patient days and costs for a cost reporting period, the Medicaid reimbursement rate for the next period, based on that cost report, would substantially increase. Accordingly, Greynolds' 1981 reimbursement rate would be reflective of the loss of Medicare patient days in 1980. To now ignore the effect 1980 costs had in establishing 1981 reimbursement rates, and to reimburse Greynolds for 1980 without regard to the reimbursement rate for the subsequent year, ignores reality. Greynolds has on one other occasion availed itself of an interim rate request. On June 17, 1981, Greynolds applied for an interim rate for its fiscal year 1981. Greynolds' request was based on the fact that it had negotiated a union contract effective April 1, 1981, which resulted in a substantial increase in salaries for its employees. Since this factor was not reflected in its cost report for fiscal year 1980, upon which its current reimbursement rate was predicated, HRS, by letter dated July 29, 1981, granted Greynolds' request. Greynolds asserts that the granting of its 1981 interim rate request occurred after the close of its 1981 cost reporting period and is, therefore, evidence that the denial by HRS of its interim rate request in this case is inconsistent and improper. HRS asserts that the granting of Greynolds' interim rate request in 1981 was proper, and that it was not granted outside a closed cost reporting period. HRS interprets "cost reporting period" to be that period within which the provider must file its cost report for the previous fiscal year ("the cost report period"). Rule 10C-7.48(5)(c), F.A.C., in effect at the time, provided A cost report will be submitted as prescribed by the Department to cover the facility's fiscal year, along with the facility's usual and customary charges to private patients receiving comparable medicaid service, within 90 days after the end of the cost report period. According to HRS, the "cost reporting period" would be closed when the provider submits its cost report, which could be as much as 90 days after the "cost report period" had ended. HRS' interpretation is certainly reasonable, within the range of possible interpretations, and is therefore adopted. The interim rate request, granted Greynolds in 1981, was not granted after a closed cost reporting period. The reimbursement rate in effect on June 17, 1981, had commenced September 1, 1980. This rate remained in effect until the interim rate was granted, which interim rate remained in effect until Greynolds submitted its cost report for fiscal year 1981. Greynolds' 1981 cost report was submitted August 31, 1981, and its new reimbursement rate was therefore effective September 1, 1981. Accordingly, the grant of Greynolds' 1981 interim rate request was not inconsistent with the position it has adopted in this case. Had Greynolds "timely filed" its interim rate request in this case, HRS concedes the circumstances which gave rise to the request would have entitled the request to consideration under the provisions of Florida Title XIX Long Term Care Reimbursement Plan, paragraph IVA-10. However, since HRS rejected Greynolds' interim rate request as untimely, it never addressed, by review or audit, the accuracy or prospective impact of Greynolds' request.
The Issue The issues to be determined are: whether Petitioners have standing; whether the petition of Automated HealthCare Solutions, Inc. (AHCS), was timely filed1/; and whether Respondent’s proposed rules 69L-31.005(2)(d), 69L-31.016(1), and 69L-31.016(2) are invalid exercises of delegated legislative authority on the grounds raised by Petitioners.
Findings Of Fact The Challenged Proposed Rules At issue in the proposed rule challenge proceeding are three provisions that are part of an overall rulemaking exercise by Respondent Department of Financial Services, Division of Workers’ Compensation (Respondent, Department, or Division), to amend Florida Administrative Code Chapter 69L-31. That rule chapter bears the misnomer “Utilization and Reimbursement Dispute Rule”--a misnomer because, rather than a single rule, the chapter currently contains 12 rules, with a history note of one additional rule that was repealed. The existing 12 rules in chapter 69L-31, in effect without amendment since November 2006, carry out the Department’s statutory authority to receive, review, and resolve reimbursement disputes between workers’ compensation insurance carriers (carriers) and providers of health care services, medication, and supplies to injured workers. See § 440.13(7), Fla. Stat. A “reimbursement dispute” is “any disagreement” between a provider and carrier “concerning payment for medical treatment.” § 440.13(1)(q), Fla. Stat. The proposed amendments to chapter 69L-31 include revisions to existing rules, the repeal of one existing rule, and the addition of two new rules. The challenges at issue here are directed to both paragraphs of a newly proposed rule which would become rule 69L-31.016, if adopted. One challenge is also directed to an amendment of an existing rule. Proposed rule 69L-31.016, entitled “Reimbursement Disputes Involving a Contract or Workers’ Compensation Managed Care Arrangement or Involving Compensability or Medical Necessity,” would provide as follows, if adopted: When either the health care provider or carrier asserts that a contract between them establishes the amount of reimbursement to the health care provider, or where the carrier provided health care services to the injured worker through a workers’ compensation managed care arrangement pursuant to Section 440.134, F.S., the Department will not issue a finding that there has been any improper disallowance or adjustment. Instead, the determination will only indicate the reimbursement amount for the treatment established by the appropriate reimbursement schedules, practice parameters, and protocols of treatment in Chapter 440, F.S., to assist the health care provider and carrier in their independent application of the provisions of the contract or workers’ compensation managed care arrangement to resolve the dispute. When the carrier asserts the treatment is not compensable or medically necessary and as a result does not reimburse, the determination will only address line items not related to compensability or medical necessity. If the petitioner has submitted documentation demonstrating the carrier authorized the treatment, the Department will issue a finding of improper disallowance or adjustment. Although these rules were not proposed for adoption until December 2016, Respondent has been implementing an unadopted policy that is consistent with paragraph (1) since August 2015. Respondent also has been implementing an unadopted policy that is similar to paragraph (2) since November 2015. The other object of challenge is the proposed deletion of rule 69L-31.005(2)(d), which currently provides: If the answer to question 5 on the Petition for Resolution of Reimbursement Dispute Form [asking if reimbursement is pursuant to a contract or rate agreement] is yes, [submit] a copy of all applicable provision(s) of the reimbursement contract. Although the evidence was less than clear, it does not appear that Respondent is already implementing this proposed change. The Parties Petitioners and Intervenors all are regular participants (or, in the case of FSASC, an association whose members are regular participants) in provider-carrier reimbursement disputes pursuant to section 440.13(7), Florida Statutes, before the Division. Petitioners represent the provider side of these reimbursement disputes, while Intervenors represent the carrier side of the reimbursement disputes. Petitioner Oak Hill is a private, for-profit hospital that cares for thousands of Florida patients each year, including injured workers. Petitioner Parallon provides revenue cycle services for HCA-affiliated Florida hospitals, including Oak Hill. Among other things, Parallon acts on behalf of the HCA-affiliated hospitals in workers’ compensation claim disputes. Parallon acts on the hospitals’ behalf to resolve reimbursement disputes with carriers, including: acting for the hospitals to resolve reimbursement disputes under chapter 69L-31; coordinating any resultant administrative litigation before DOAH; and taking steps necessary to collect amounts owed following receipt of the Division’s determination. Parallon is expressly authorized to participate in reimbursement disputes as a “petitioner,” as defined in proposed rule 69L-31.003, on behalf of Oak Hill and other HCA-affiliated hospitals. Oak Hill and Parallon are regulated by, and must comply, with the requirements of chapter 69L-31 (which will include the proposed rules, if adopted) in reimbursement disputes with carriers. Petitioner FSASC is the primary organization of ambulatory surgical centers (ASCs) in Florida. Among the purposes of the FSASC is to advance the ASC industry, and its member centers’ interests, through governmental advocacy. To that extent, the FSASC maintains close contact with state agencies to monitor and provide input into legislation and regulations that govern or affect ASC operations. In furtherance of this role, the FSASC has been an active participant in all phases of Respondent’s rulemaking efforts with regard to the proposed rules. Another purpose of the FSASC is to promote, assist, and enhance its members’ ability to provide ambulatory surgical services to injured workers efficiently and cost effectively throughout Florida and, in so doing, promote and protect the interests of the public, patients, and FSASC members. FSASC’s participation in this proceeding is consistent with its purposes, and the relief sought--invalidation of the challenged proposed rules (with possible attorney’s fees incurred in connection with this proceeding)--is appropriate for an organization to pursue in a representative capacity. A substantial number of FSASC’s members provide health care services to patients who are injured workers in Florida and who receive workers’ compensation benefits in accordance with chapter 440. These health care services are reimbursable by the patients’ employers’ carriers. FSASC’s members are participants in reimbursement disputes with carriers and are regulated by, and must comply with, the requirements of chapter 69L-31 (which will include the proposed rules, if adopted). Petitioner AHCS is a technology and prescription medication claims processing company. Many physicians who dispense medication from their offices to injured workers assign their rights, title, and interest to the prescription medication claims to AHCS. Prescription Partners, LLC, is wholly-owned and operated by AHCS and is the billing entity of AHCS. In some instances, AHCS contracts with physicians, while Prescription Partners, LLC, pursues the billing and reimbursement disputes on behalf of the physicians under the contract of assignment. AHCS is authorized to participate in reimbursement disputes as a “petitioner,” as defined in proposed rule 69L-31.003. As a participant in reimbursement disputes, AHCS is regulated by, and must comply with, the requirements of chapter 69L-31 (which will include the proposed rules, if adopted). Respondent is the state agency tasked with administering chapter 440 in a way that promotes “an efficient and self-executing” workers’ compensation system “which is not an economic or administrative burden” and ensures “a prompt and cost-effective delivery of payments.” § 440.015, Fla. Stat. The Division’s medical services section administers the provider-carrier reimbursement dispute process and issues the required determinations pursuant to section 440.13(7). The determinations are made in accordance with chapter 440 and the applicable reimbursement manuals, which are codified as rules. Intervenor Zenith is a foreign, for-profit corporation licensed by the Department to provide workers’ compensation insurance to employers throughout Florida. As a carrier, and in the normal course of its workers’ compensation claim-handling responsibilities, Zenith regularly authorizes, adjusts, and pays for medical benefits for injured workers for causally-related and medically necessary treatment, including treatment rendered by physicians, hospitals, ASCs, pharmacies and prescription drug vendors, physical therapists, and other licensed health care providers, such as Petitioners. As a carrier, Zenith is regulated by chapter 440 and the related rules of the Division, including chapter 69L-31 (which will include the proposed rules, if adopted). All parties stipulated that the challenged proposed rules directly and immediately affect the rights and obligations of Zenith, and directly impact the financial obligations of Zenith in medical bill payment, as well as in any statutory reimbursement dispute between a health care provider and Zenith under section 440.13(7). The proposed rules dictate which processes will govern reimbursement disputes involving Zenith, and whether Zenith may rely fully on the provisions of reimbursement contracts. Intervenors, the Summit Companies, are Florida- licensed monoline workers’ compensation insurance companies that are managed by a managing general agent, Summit Consulting LLC, and regulated by the Department. Pursuant to their workers’ compensation insurance policies, the Summit Companies pay workers’ compensation claims for injured workers, including payment of medical benefits for care provided to injured workers by health care providers who have filed petitions for reimbursement dispute resolution under chapter 69L-31. Also, the Summit Companies have a workers’ compensation managed care arrangement authorized by the Agency for Health Care Administration (AHCA) pursuant to section 440.134. Their delegated managed care entity, Heritage Summit HealthCare, LLC, has its own proprietary PPO network. The Summit Companies, either corporately or through their delegated managed care entity, regularly authorize, adjust, and pay medical benefits for injured workers for causally- related and medically necessary treatment, including payment for treatment rendered by physicians, hospitals, ASCs, pharmacies and prescription drug vendors, physical therapists, and other licensed health care providers, such as Petitioners. All parties stipulated that the challenged proposed rules directly and immediately affect the rights and obligations of the Summit Companies, and directly impact their financial obligations in medical bill payment, as well as in reimbursement disputes under section 440.13(7) and chapter 69L-31. The proposed rules dictate which processes will govern reimbursement disputes involving the Summit Companies, including whether the Summit Companies may rely on their managed care arrangements and contracts regulated under the authority of AHCA. To the same extent that all Intervenors are directly and immediately impacted by the challenged proposed rules, Petitioners Oak Hill, Parallon, and AHCS, as well as the members of Petitioner FSASC, are also directly and immediately impacted by the proposed challenged rules, which govern reimbursement disputes under section 440.13(7). Just as the challenged proposed rules directly and immediately impact Intervenors’ financial obligations in medical bill payment to providers, such as Petitioners, the challenged proposed rules also directly and immediately impact Petitioners’ financial rights in having medical bills paid by carriers, such as Intervenors. The challenged proposed rules dictate what processes will be available in reimbursement disputes, not only for Intervenors, but for Petitioners. The challenged proposed rules dictate when the cost-efficient reimbursement dispute process will be, and will not be, fully available to Petitioners and FSASC’s members, and when the prompt delivery of payment envisioned as the end result of the reimbursement dispute process will, or will not be, available to them. The parties also stipulated that the Division’s challenged proposed rules immediately and substantially affect Intervenors because prior authorization, the managed care defense, provider contract disputes, and medical necessity all have been raised as issues in prior chapter 69L-31 provider disputes with these carriers. It stands to reason that the providers who are on the other side of these disputes with carriers are just as immediately and substantially impacted by the proposed rules in this regard. Reason aside, Respondent readily stipulated to the direct, immediate, and substantial impacts to Intervenors, but steadfastly disputed that Petitioners (or the members of Petitioner FSASC) must necessarily be impacted to the same degree. Yet they are, after all, the other side of the reimbursement dispute coin. It is difficult to understand how one side of a dispute could be directly, immediately, and substantially impacted by proposed rules regulating the dispute process, while the other side of the dispute would not be equally impacted. At hearing, the undersigned raised this seeming incongruity, and suggested that Respondent would need to explain its different positions with regard to the factual predicates for standing for Intervenors and for Petitioners, besides the obvious difference that Intervenors were supporting Respondent’s proposed rules while Petitioners were challenging them. Respondent offered no explanation for its incongruous positions, either at hearing or in its PFO. Respondent’s agreement that Intervenors are immediately, directly, and substantially affected by the challenged proposed rules serves as an admission that Petitioners (or Petitioner FSASC’s members) are also immediately, directly, and substantially affected by the challenged proposed rules. Specific examples were offered in evidence of the Division’s refusal to resolve reimbursement disputes because contracts and managed care arrangements were involved, or because payment was adjusted or disallowed due to compensability or medical necessity issues. FSASC provided a concrete example of the application of the unadopted policies to one of its members, resulting in immediate injury when the Division refused to resolve a reimbursement dispute because a contract was involved. Petitioner Oak Hill identified a single reimbursement dispute over a $49,000 underpayment that remained unresolved because of the Division’s refusal to resolve the dispute because either a contract or managed care arrangement was involved. Petitioner Parallon’s income is based, in part, on paid claims by carriers, so it loses income when these reimbursement disputes are not resolved and the carriers are not ordered to promptly pay an amount. Petitioner AHCS offered examples of reimbursement disputes that the Division refused to resolve because the carrier disallowed or adjusted payment due to compensability or medical necessity issues. AHCS also noted that the incidence of carrier disallowances and adjustments of payment for compensability and medical necessity reasons has increased since the Division stopped making determinations to resolve reimbursement disputes on those issues. At the very least, Petitioners have already been harmed in these ways: by the delay in resolving reimbursement disputes, which includes lost cash flow and the time value of the money that carriers are not ordered to pay; by the increased personnel costs necessary to try some other way to pursue these claims; and by the prospect of court filing fees and attorney’s fees to try to litigate their right to payment when deprived of the statutory mechanism for cost-efficient resolution of reimbursement disputes. Conceivably, providers will not have recourse in court to contest disallowance or adjustment of payment, given Respondent’s exclusive jurisdiction to decide any matters concerning reimbursement. § 440.13(11)(c), Fla. Stat. Meanwhile, carriers immediately benefit from delay, by not being ordered to promptly pay claims. In an annual report addressing reimbursement dispute determinations for the fiscal year from July 1, 2015, through June 30, 2016, the Division reported that in 85.5 percent of its reimbursement dispute determinations, it determined that the health care providers had been underpaid. Overview of Workers’ Compensation Reimbursement Dispute Process Under Florida’s statutory workers’ compensation system, injured workers report their injury to the employer and/or the carrier. With an exception for emergency care, a health care provider must receive authorization for treatment from the carrier prior to providing treatment. After providing treatment, health care providers, including hospitals and physicians, must submit their bills to employers’ carriers; they are prohibited from billing the injured employees who received the treatment. These bills typically have multiple line items, such as for pharmaceutical prescriptions, diagnostic tests, and other services rendered. Carriers are required to review all bills submitted by health care providers to identify overutilization and billing errors, and to determine whether the providers have complied with practice parameters and protocols of treatment established in accordance with chapter 440. § 440.13(6), Fla. Stat. Mr. Sabolic explained that the “protocols of treatment” are the standards of care in section 440.13(15). These include criteria for “[r]easonable necessary medical care of injured employees.” § 440.13(15)(c), Fla. Stat. The carrier review of provider bills must culminate in a determination of whether the bill reflects overutilization of medical services, whether there are billing errors, and whether the bill reflects any violations of the practice parameters and protocols of treatment (standards of care). If a carrier finds any of these to be the case, the carrier is required by statute to disallow or adjust payment accordingly. The carrier is expressly authorized to make this determination “without order of a judge of compensation claims or the department,” if the carrier makes its determination in compliance with section 440.13 and Department rules. § 440.13(6), Fla. Stat. The Department’s rules require carriers to communicate to providers the carriers’ decisions under section 440.13(6) to pay or to deny, disallow, or adjust payment, with reasons for their decisions, in an “explanation of bill review” (EOBR).5/ If a carrier contests or disputes certain line items on a medical bill, the EOBR must identify the line items disputed and the reasons for the dispute, using EOBR codes and code descriptor. The EOBR code list, with 98 codes and descriptors, is set forth in Florida Administrative Code Rule 69L-7.740(13)(b). All but two of the codes describe reasons for disallowing or adjusting payment. EOBR Code 10 means payment denial of the entire bill, when the injury or illness is not compensable. EOBR Code 11 is used for partial denial of payment, where, although there is a compensable injury or illness, a diagnosis or procedure code for a particular line item service is determined by the carrier to be unrelated to the compensable condition. The EOBR coding rule provides that up to three codes can be assigned to each line item to “describe the basis for the claim administrator’s reimbursement decision in descending order of importance[.]” In addition, there is a “free-form” box in which additional notes of explanation may be given. The carrier’s determination to disallow or adjust payment of a health care provider’s bill, made pursuant to section 440.13(6), and explained to the health care provider by means of an EOBR, is the action that sets up a potential reimbursement dispute pursuant to section 440.13(7). “Any health care provider who elects to contest the disallowance or adjustment of payment by a carrier under subsection (6) must, within 45 days after receipt of notice of disallowance or adjustment of payment, petition the department to resolve the dispute.” § 440.13(7)(a), Fla. Stat. (emphasis added). The petition must be accompanied by “all documents and records that support the allegations in the petition.” Id. The carrier whose EOBR is disputed “must” then submit to the Department within 30 days of receipt of the petition all documentation substantiating the carrier’s disallowance or adjustment. § 440.13(7)(b), Fla. Stat. Section 440.13(7)(c) and (d) provide for the culmination of the reimbursement dispute process, as follows: Within 120 days after receipt of all documentation, the department must provide to the petitioner, the carrier, and the affected parties a written determination of whether the carrier properly adjusted or disallowed payment. The department must be guided by standards and policies set forth in this chapter, including all applicable reimbursement schedules, practice parameters, and protocols of treatment, in rendering its determination. If the department finds an improper disallowance or improper adjustment of payment by an insurer, the insurer shall reimburse the health care provider, facility, insurer, or employer within 30 days, subject to the penalties provided in this subsection. (emphasis added). Section 440.13(7)(e) provides that the Department “shall adopt rules to carry out this subsection,” i.e., the reimbursement dispute process. As noted, the Department did so in 2006, in promulgating chapter 69L-31. The rules were transferred from AHCA, which was the state agency vested with the statutory authority to determine reimbursement disputes between providers and carriers until the Department took over those functions in 2005.6/ Evolution of the Policies in the Challenged Proposed Rules Reimbursement Pursuant to a Provider-Carrier Contract or Managed Care Arrangement For approximately a decade, the Division accepted petitions to resolve reimbursement disputes when the reimbursement amount was determined by a contract between the provider and carrier. The Division resolved these disputes by issuing written determinations of whether the carrier properly adjusted or disallowed payment, and if the Division determined the carrier improperly adjusted or disallowed payment, the Division would specify the contract reimbursement amount that the carrier was required to pay within 30 days. That is because section 440.13(12) expressly recognizes that reimbursement to providers shall be either an amount set as the maximum reimbursement allowance (MRA) in fee schedules (or other amount set by a statutory formula), or the agreed-upon contract price.7/ Health care network reimbursement contracts typically do not (but may) include prices stated in dollar amounts. Instead, they frequently establish the price for reimbursement as a percentage of the MRA, or a percentage of allowable charges for services rendered. The Division’s reimbursement manuals in effect today, adopted as rules, recognize in a variety of contexts that the amount a provider is to be reimbursed is the contract amount, when there is a contract between the provider and carrier. The Workers’ Compensation Health Care Provider Reimbursement Manual currently in effect provides this introductory statement: Reimbursement will be made to a Florida health care provider after applying the appropriate reimbursement policies contained in this Manual. A carrier will reimburse a health care provider either the MRA in the appropriate reimbursement schedule or a mutually agreed upon contract price. (emphasis added). Florida Workers’ Compensation Health Care Provider Reimbursement Manual (2016 edition) at 15, adopted and incorporated by reference in rule 69L-7.020, effective July 1, 2017. The manual has dozens of references to reimbursing at the contract price, such as this example for reimbursement for multiple surgeries: Reimbursement for the primary surgical procedure will be the MRA listed in Chapter 3, Part B of this Manual or the agreed upon contract price. Reimbursement for additional surgical procedure(s) will be fifty percent (50%) of the listed MRA in Chapter 3, Part B of this Manual or the agreed upon contract price. * * * Note: If there is an agreed upon contract between the health care provider and the carrier, the contract establishes the reimbursement at a specified contract price. (emphasis added). Id. at 63. Similarly, the ASC reimbursement manual in effect has multiple references to reimbursement at the contract price or contract amount, such as this example for surgical services: For each billed CPT® code listed in Chapter 6 of this Manual, the ASC shall be reimbursed either: The MRA if listed in Chapter 6 of this Manual; or The agreed upon contract price. For each billed CPT® code not listed in Chapter 6 of this Manual, the ASC shall be reimbursed: Sixty percent (60%) of the ASC’s billed charge; or The agreed upon contract price. * * * Note: If there is an agreed upon contract between the ASC and the carrier, the contract establishes the reimbursement at the specified contract price. (emphasis added). Florida Workers’ Compensation Ambulatory Surgical Center Reimbursement Manual (2015 edition) at 17, incorporated by reference in rule 69L-7.020, effective January 1, 2016. See also ASC Manual App. A at 1 (surgical implant MRA is “50% above acquisition cost; amount certified or contract amount.”). The reimbursement manual for hospitals has similar references, including this directive for inpatient services: Except as otherwise provided in this Manual, charges for hospital inpatient services shall be reimbursed according to the Per Diem Fee Schedule provided in this Chapter or according to a mutually agreed upon contract reimbursement agreement between the hospital and the insurer. (emphasis added). Florida Workers’ Compensation Reimbursement Manual for Hospitals (2014 edition) at 15, adopted and incorporated by reference in rule 69L-7.501, effective January 1, 2015. In 2013, the Division submitted a legislative proposal for the Department to consider including in its proposed bill. The Division requested an amendment to section 440.13 to “[r]emove contracted reimbursement from [reimbursement dispute] resolution authority of [the] department.” Jt. Ex. 51 at 1. That proposal did not lead to a statutory change. An example of how the Division resolved reimbursement disputes involving contracts before its recent policy is shown in Exhibit FS1, a “Resolution of Reimbursement Dispute Determination.” According to the document, at issue was a reimbursement dispute regarding a bill for one service, for which the carrier issued an EOBR disallowing payment. The Division’s finding regarding reimbursement was that the contract at issue “provides for reimbursement at the lesser of 90% of billed charges or 90% of the fee schedule.” The Division calculated the contract price and determined that the “total correct reimbursement amount” per the contract was $2,334.60. The determination, issued June 30, 2015, was: The Department of Financial Services, Division of Workers’ Compensation has determined that the petitioner substantiated entitlement to additional reimbursement of disputed services based upon the documentation in evidence and in accordance with the provisions of the Florida Workers’ Compensation Reimbursement Manual [for ASCs], 2011 Edition, Chapter 3, page 26. The respondent shall remit the petitioner the amount of $2,334.60 and provide the Division proof of reimbursement to the petitioner within thirty (30) days of receipt of this notice[.] Ex. FS1 at 2. The evolution was a little different for reimbursement disputes involving workers’ compensation managed care arrangements. Rule 69L-31.015, adopted by the Department in 2006, provided as follows: A health care provider may not elect to contest under Section 440.13(7), F.S., disallowance or adjustment of payment by a carrier for services rendered pursuant to a managed care arrangement. Mr. Sabolic explained that while this rule was in effect, the Division would dismiss petitions that disclosed managed care arrangements. But the rule was repealed in response to a challenge to the rule’s validity. As Mr. Sabolic recalled it, the challenger was Parallon or an individual HCA-affiliated hospital. According to Mr. Sabolic, the Division agreed that it did not have the authority to simply dismiss petitions. The rule history note states that the rule repeal was effective May 22, 2014.8/ For the 15-month period from late May 2014 through late August 2015, the Division accepted reimbursement dispute petitions and resolved the reimbursement disputes, even though a workers’ compensation managed care arrangement was involved, just as it had been doing for years for reimbursement disputes involving contracts. On or about August 24, 2015, the Division changed its policy on issuing determinations when a contract (including a managed care arrangement) was alleged in the petition. In all determinations of reimbursement disputes issued after August 24, 2015, if a contract or managed care arrangement was alleged, the Division stopped making findings regarding the contracted-for reimbursement amount. Instead, the Division started reciting the fee schedule/MRA amount or applicable statutory formula amount, making no determination regarding whether the carrier properly adjusted or disallowed payment, or, if an improper adjustment or disallowance, how much the reimbursement should have been under the contract and how much the carrier was required to reimburse the provider within 30 days. The Division changed the name of the form it used from “Resolution of Reimbursement Dispute Determination” to just “Reimbursement Dispute Determination,” signaling that the Division would no longer be resolving reimbursement disputes involving contracts. Instead, the following language appeared in each such determination: The amount listed above does not apply to any contractual arrangement. If a contractual arrangement exists between the parties, reimbursement should be made pursuant to such contractual arrangement. Exhibit FS3 is an example showing a Division “determination” applying its new policy to a reimbursement dispute petition filed by an ASC member of FSASC. Part IV of the form, “Reimbursement Dispute Policies and Guidelines,” reflects (as did prior determinations) that the reimbursement manual for ASCs, adopted by rule, “sets the policies and reimbursement amounts for medical bills.” As previously noted, the reimbursement manuals set reimbursement amounts at either the MRA/statutory formula or the agreed-upon contract price, consistent with the policy in section 440.13(12)(a). Nonetheless, the Division added a note to the end of part IV: NOTE: This reimbursement determination is limited in scope to standards and policies set forth in chapter 440, Florida Statutes, including all applicable reimbursement schedules, practice parameters, and protocols of treatment. It does not interpret, apply or otherwise take into account any contractual arrangement between the parties governing reimbursement for services provided by health care providers, including any workers’ compensation managed care arrangement under section 440.134, Florida Statutes. Ex. FS3 at 2. Accordingly, even though the determination form reflects that the ASC petitioner met its filing requirements for a reimbursement dispute over a bill for services in the amount of $5,188.00, none of which was paid according to the EOBR, and even though the carrier failed to file a response to the petition, the Division did not make a determination that the carrier improperly disallowed payment or that the petitioner had substantiated entitlement to additional reimbursement in the amount of the agreed-upon contract price, as it had in previous determinations. Instead, the Division set forth the “correct reimbursement” amount that would apply if the MRA applied, while noting that amount would not apply if there was a contractual arrangement providing a different amount. The carrier was not ordered to remit any amount within 30 days. Reimbursement Disputes Involving Issues of Compensability or Medical Necessity Prior to November 2015, the Division resolved reimbursement disputes by determining the issues as framed by the carrier’s actions under section 440.13(6), to disallow or adjust payment of a bill or specific line items in a bill for reasons (codes) in the EOBR, which were contested by the provider in a timely-filed petition under section 440.13(7)(a). The EOBR code list contains one code (code 10) for denial of payment of an entire claim based on non-compensability of an injury or illness. One other code (code 11) is for partial denial of payment, where there is a compensable injury, but a specific line item indicates treatment unrelated to the compensable injury. Five additional codes (codes 21 through 26) apply to disallowed payments for various medical necessity reasons. Fla. Admin. Code R. 69L-7.740(13)(b). Prior to November 2015, the Division resolved reimbursement disputes when the provider timely petitioned to contest the disallowance or adjustment of payment by a carrier, as set forth in the EOBR, including when the EOBR cited compensability and/or medical necessity code(s) as the reason(s) for disallowing or adjusting payment of a provider’s bill. On or about November 2, 2015, the Division changed its policy and no longer addressed in its reimbursement dispute determinations whether a carrier properly or improperly disallowed or adjusted payment for reasons of medical necessity or compensability. Exhibit AH6 is an example of a Division written determination that makes no determination of whether a carrier properly or improperly disallowed payment of a line item based on a medical necessity issue (EOBR Code 24). Instead, the “determination” included this note: Note: The Department will not address any disallowance or adjustment of payment where the basis for the disallowance or adjustment or payment by the carrier involves denial of compensability of the claim or assertion that the specific services provided are not medically necessary. Ex. AH6 at 2. This note has been included in all determinations issued after November 2015, where payment was disallowed or adjusted based on medical necessity or compensability. Rulemaking Process The Division began rule development to incorporate its policy changes in amendments to chapter 69L-31. A Notice of Development of Proposed Rules was published on December 16, 2015. The notice set forth the preliminary text of proposed amendments, including new proposed rule 69L-31.016, entitled “Reimbursement Disputes Involving a Contract or Workers’ Compensation Managed Care Arrangement.” The notice stated that the purpose and effect of proposed rule 69L-31.016 was “to limit the scope of dispute resolutions to compliance with standards under Chapter 440, F.S. and exclude issues of contract interpretation.” The exclusion of disallowed or adjusted payments based on issues of compensability and medical necessity, not mentioned in the statement of purpose and effect, was initially put in rule 69L-31.005, in a paragraph stating that the Department will only address specific EOBR line items where the carrier adjusted or disallowed payment and are disputed by the provider, but then stating that the Department will not address specific EOBR adjustment or disallowance items involving compensability or medical necessity, even if disputed. A rule development workshop was held on January 12, 2016. The Department published a second Notice of Development of Proposed Rules, revising the proposed changes to chapter 69L-31, including both the contract/managed care exclusion and the compensability/medical necessity exclusion. On June 10, 2016, the Division held a second rule development workshop addressing the proposed rule revisions. On December 7, 2016, the Division published a Notice of Proposed Rules, formally initiating rulemaking to revise chapter 69L-31. The notice set forth a revised proposed rule 69L-31.016. Its new title was “Reimbursement Disputes Involving a Contract or Workers’ Compensation Managed Care Arrangement or Involving Compensability or Medical Necessity,” joining in one rule all of the new exceptions, for which the Division would not be making determinations of whether carriers properly or improperly adjusted or disallowed payments. As proposed, the rule provided: When either the health care provider or carrier asserts that a contract between them establishes the amount of reimbursement to the health care provider, or where the carrier provided health care services to the injured worker through a workers’ compensation managed care arrangement pursuant to Section 440.134, F.S., the Department will not issue a finding that there has been any improper disallowance or adjustment. Instead, the determination will only indicate the reimbursement amount for the treatment established by the appropriate reimbursement schedules, practice parameters, and protocols of treatment under Chapter 440, F.S., to assist the health care provider and carrier in their independent application of the provisions of the contract or workers’ compensation managed care arrangement to resolve the dispute. When the carrier asserts the treatment is not compensable or medically necessary and as a result does not reimburse, the Department will not issue a finding that there has been any improper disallowance or adjustment. Instead, the determination will only indicate the reimbursement amount for the treatment established by the appropriate reimbursement schedules, practice parameters, and protocols of treatment under Chapter 440, F.S., should compensability or medical necessity be later established. The stated purpose of proposed rule 69L-31.016 was to specify “that the scope of Department determinations involving reimbursement disputes is limited to findings relating to reimbursement schedules, practice parameters, and protocols of treatment, and [to clarify] that the Department will issue no findings regarding an improper disallowance or adjustment in reimbursement involving managed care contracts or when the carrier asserts that medical treatment was either not compensable or not medically necessary[.]” Jt. Ex. 3. As published in December 2016, proposed rule 69L- 31.016 cited sections 440.13(7)(e) and 440.591 as the “rulemaking authority,” and sections 440.13(7) and (12)(a) and 440.134(15) as the “laws implemented.” The Division’s notice stated that, based on its determinations as to adverse impact and regulatory costs: “A SERC has not been prepared by the Agency.” Jt. Ex. 3. By letter dated December 28, 2016, Parallon proposed a LCRA to the proposed rule 69L-31.016(1) (and to other proposed rules not at issue in this proceeding). The LCRA explained that Parallon was already experiencing increased costs because of the Division’s unadopted policy, and Parallon proposed that the most appropriate lower cost alternative to accomplish the statutory objectives was not to adopt proposed rule 69L-31.016(1). On January 5, 2017, the Division held a public hearing on the proposed rules. Petitioners (through counsel) offered comments in opposition to the proposed rules. Parallon’s counsel also submitted the LCRA letter into the record. On May 2, 2017, the Division published a Notice of Correction. The notice stated that, contrary to the statement in the Notice of Proposed Rules, SERCs had been prepared for the proposed rules, and that the SERC for proposed rule 69L-31.016 now had been revised to address the LCRA. The impression given by the various documents identified as a SERC or revised SERC, half of which are entitled “Department of Financial Services Analysis to Determine if a [SERC] is Required,” all of which are similar or identical in content, and none of which bear a date, is that, prior to the LCRA, Respondent did not prepare a SERC for proposed rule 69L- 31.016; it prepared a document by which it determined that no SERC was required. After the LCRA was filed, Respondent added a reference to the LCRA, but otherwise did not change the content of its non-SERC. In the Notice of Correction, the Division stated: “The [SERC] for each of the above-referenced proposed rules is available by accessing the Department’s website at http://www.myfloridacfo.com/Division/WC/noticesRules.htm.” The document titled “Department of Financial Services Analysis to Determine if Statement of Estimated Regulatory Costs Is Required,” referred to by the Division as the SERC, was not available on the DFS website on May 2, 2017, as the Notice of Correction indicated. Instead, it was available at the referenced website location on or after May 3, 2017. Upon request by counsel for Parallon on May 3, 2017, the document referred to as a SERC was also provided to Parallon. Mr. Sabolic testified that the document referred to as the SERC was actually available at the Division on May 2, 2017, and would have been made available to someone if it was requested on that day. However, the noticed means by which the document would be “made available” was at a specific website location that was not functional until May 3, 2017. The so-called SERC document for proposed rule 69L- 31.016 suffers from several obvious deficiencies. As to the Division’s “economic analysis,” the document states: “N/A.” That is because the Division did no economic analysis.9/ In response to two separate prompts, for the Division to set forth a “good faith estimate of the number of individuals and entities likely to be required to comply with the rule,” and separately, to give a “general description of the types of individuals likely to be affected by the rule,” the Division gave the identical response: “This Rule changes how the Medical Services Section review Petitions for Resolution of Reimbursement Disputes. Only the Medical Services Section will be required to comply.” In addition, the document indicates (with no explanation or analysis) that there will be no transactional costs to persons required to comply with the new rule, and no adverse impact at all on small businesses. In contrast to the so-called SERC document indicating that only the medical services section will be required to comply with, or be impacted by, the proposed rule, in the Division’s 2013 legislative proposal seeking to remove its statutory authority to determine reimbursement disputes involving contracts, the Division was able to identify persons who would be affected by the proposal, acknowledging as follows: “Workers’ compensation carriers, including self- insurers (DFS Div. of Risk Mgmt), third party administrators, and health care providers, including facilities, are affected.” And, of course, the Division was well aware by May 2017 of the variety of providers and carriers expressing their interests and concerns during the rule development that had been ongoing for 17 months by then. To say that the Division gave the SERC task short shrift would be generous. The Division did not take this task seriously. The so-called SERC document also identified the Parallon LCRA. In response to the requirement to describe the LCRA and provide either a statement adopting it or a statement “of the reasons for rejecting the alternative in favor of the proposed rule,” the Division stated: Parallon’s lower cost regulatory alternative consisted of a cost-based argument against the adoption of the proposed rule on the basis that the existing rule provides a lower cost alternative. The Division rejected the regulatory alternative and intends to move forward with adoption on the proposed rule, but will revise the proposed rule to read as follows[.] Jt. Ex. 12, at bates-stamp p. 48. The reference to a revision to the proposed rule does not belong in the statement of reasons for rejecting the LCRA. Its placement there was misleading, as if the revision to the proposed rule helped to explain why the Division rejected the LCRA. But no revision was made to the rule to which the LCRA was directed--proposed rule 69L-31.016(1). The revision was to proposed rule 69L- 31.016(2), not addressed by the LCRA. At hearing, Mr. Sabolic attempted to provide the statement of reasons for rejecting the LCRA, missing in the so- called SERC document. He said that the cost-based argument was considered speculative and lacked data (but that explanation was not in the so-called SERC document). Although he thought that the SERC document stated that the LCRA was rejected because it was based on a “faulty” cost-based argument, the word “faulty” was not in the SERC. On its face, the SERC offers no reason why the “cost-based argument” was rejected— just that it was rejected. The amendment to proposed rule 69L-31.016(2) mentioned in the SERC document was also published on May 2, 2017, in a Notice of Change. The change was shown as follows: When the carrier asserts the treatment is not compensable or medically necessary and as a result does not reimburse, the Department will not issue a finding that there has been any improper disallowance or adjustment. Instead, the determination will only address line items not related to indicate the reimbursement amount for the treatment established by the appropriate reimbursement schedules, practice parameters, and protocols of treatment under Chapter 440, F.S., should compensability or medical necessity be later established. If the petitioner has submitted documentation demonstrating the carrier authorized the treatment, the Department will issue a finding of improper disallowance or adjustment. The Notice of Change did not change either of the other challenged provisions—proposed rule 69L-31.016(1) and the proposed deletion of rule 69L-31.005(2)(d). The Notice of Change deleted the prior citation to section 440.13(12)(a) as one of the laws implemented by proposed rule 69L-31.016, leaving only sections 440.13(7) and 440.134(15) as the laws implemented. Division’s Justifications for the Challenged Proposed Rules Mr. Sabolic was Respondent’s hearing representative and sole witness to explain and support the challenged rules. Mr. Sabolic testified that when a contract dictates the reimbursement amount, the Division does not believe it has statutory authority to interpret or enforce contract terms. Yet he acknowledged that the Division’s reimbursement determinations were required to be based on policies set forth in chapter 440, and that the Division was required to apply its reimbursement manuals that are promulgated as rules. Both chapter 440 and the reimbursement manuals expressly require reimbursement at the agreed-upon contract price, as detailed above. The Division recognized this for a decade, during which it applied chapter 440 and its reimbursement manuals to determine the agreed-upon contract price, resolve reimbursement disputes, and order carriers to pay the amount required by their contracts. The Division’s rationale stands in stark contrast to the Division’s 2013 request for a legislative amendment to remove its statutory authority to determine reimbursement disputes when reimbursement is dictated by contracts. The Division’s request constitutes an admission that it believes it has the statutory authority it now says it lacks. Apart from statutory authority, Mr. Sabolic indicated that in the decade during which the Division did resolve reimbursement disputes involving contracts, it was sometimes difficult to determine whether there was a contract in effect between the parties. There was a variety of contracts, and sometimes they were complex. With regard to managed care arrangements, Mr. Sabolic said that, similar to contracts, the Division does not think it has the power to interpret or enforce managed care arrangements, because that power lies within AHCA under section 440.134. He said that section 440.134(15) was cited as a law implemented by proposed rule 69L-31.016 because the statute addresses grievance or complaint procedures under a managed care arrangement. Intervenors Summit Companies attempted to prove that providers are required to resolve reimbursement disputes involving workers’ compensation managed care arrangements by using the grievance process described in section 440.134(15). The evidence failed to support that contention. The evidence showed that the grievance form used by the Summit Companies’ managed care arrangement, approved by AHCA, describes the grievance process as encompassing “dissatisfaction with medical care issues provided by or on behalf of a workers’ compensation managed care arrangement.” Tr. 323. As confirmed by the definitions of “complaint” and “grievance” in the workers’ compensation managed care law, the grievance process is used to resolve an injured worker’s dissatisfaction with an insurer’s managed care arrangement, including a refusal to provide medical care or the care provided. See § 440.134(1)(b) and (d), Fla. Stat. Although under AHCA’s rules and the Summit Companies’ form, providers may initiate the grievance process, they would be doing so essentially on behalf of the injured worker or in tandem with the injured worker to resolve the injured worker’s dissatisfaction with medical care issues. When the issue is the insurer’s refusal to provide medical care, the grievance process is an administrative remedy for the injured worker that has to be exhausted before an injured worker can file a petition for benefits pursuant to section 440.192. Not surprisingly, providers have not attempted to file grievances to raise reimbursement disputes with insurers, as nothing in section 440.134(15), the rules, or the Summit Companies’ approved form contemplate use of the process for that purpose, much less mandate it. Strangely, Mr. Sabolic attempted to justify the proposed rule’s carve-outs from the reimbursement dispute process by reference to section 440.13(11)(c), which gives the Department “exclusive jurisdiction to decide any matters concerning reimbursement[.]” As he put it: I think that the statute indicates we can decide any matter relating to reimbursement under 440.13(11)(c), and that’s how we’re deciding to deal with those situations when a managed care arrangement or a contract is involved. That’s our decision. Our decision is that that determination’s going to reflect the amount that is in the applicable reimbursement manual for that service date. Tr. 232. It must be noted that section 440.13(11)(c) was not cited as one of the laws implemented by the proposed rules, even if the premise could be accepted that a grant of exclusive jurisdiction to decide any matter concerning reimbursement includes authority to decide never to decide certain matters concerning reimbursement. Mr. Sabolic admitted that under proposed rule 69L-31.016(1), the Division does not and will not issue a written determination of whether the carrier properly adjusted or disallowed payment when a contract or managed care arrangement is involved. Mr. Sabolic testified that the proposed deletion of rule 69L-31.005(2)(d) (requiring a copy of the contract or managed care arrangement addressing reimbursement) is tied to proposed rule 69L-31.016(1) that gets the Division out of the business of looking at contracts. The Division will not require any proof that a contract or managed care arrangement governs reimbursement so as to trigger the no-decision decision. Instead, if either a provider indicates in its petition or a carrier indicates in its response that reimbursement is pursuant to a contract or managed care arrangement, that ends the inquiry, and the Division will not determine whether the carrier properly adjusted or disallowed payment. Mr. Sabolic said that he was not concerned with the potential for abuse, because in the decade when the Division was in the business of interpreting and applying reimbursement provisions in contracts, it was very rare that the parties disagreed on whether a contract was in effect between them that governed reimbursement. Mr. Sabolic offered no justification for carving out from reimbursement disputes carrier adjustments or disallowances of payment based on compensability or medical necessity issues. He just reported the Division’s decision that if a carrier disallows or adjusts payment for line items on bills and cites reasons (EOBR codes) involving compensability or medical necessity, “we will indicate that we’re not going to issue a determination on those line items and [we will] only issue a determination on those line items which don’t reflect the carrier’s disallowance related to compensability or medical necessity.” But if the petitioner gives “proof that the carrier authorized treatment,” the Division “will proceed with rendering a determination related to those line items.” Tr. 197. The Division’s determinations under proposed rules 69L-31.016(1) (when a contract or managed care arrangement is alleged) and 69L-31.016(2) (when payment is disallowed or adjusted for compensability or medical necessity reasons) are characterized by the Division as “neutral determinations” in which there is no winner and no loser. A more fitting characterization is “non-determination.”
Findings Of Fact From April 20, 1981, through April 4, 1988, the Petitioner was employed as a life and health actuary for the Florida Department of Insurance. Petitioner is a member of the Asian race, his national origin is India, and he is a United States citizen. Gary Granoff was Division Director of the Division of Rating for the Florida Department of Insurance from early 1981 until mid-1983, during the time Petitioner was recruited and hired by the Department. Mr. Granoff has been a property/ casualty actuary for fourteen years. Jack Nicholson was Bureau Chief of Rates in the Division of Rating of the Florida Department of Insurance from May 1986 until March 26, 1989, and supervised Petitioner from May 1986 until Petitioner left the Department. Dale H. Hazlett was Division Director of the Division of Rating, Florida Department of Insurance, from May 1986 until 1988. Prior to that time, he had been Bureau Chief of the Bureau of Rates for approximately one year. As Bureau Chief he was Petitioner's direct supervisor. As Division Director he supervised Petitioner's direct supervisor. Actuaries are highly trained and highly qualified individuals who do uniquely specialized work as is evidenced by their salary levels which, as a group, are the highest in the Department of Insurance. Few people in management have statistical or mathematical backgrounds and they have to rely heavily on the judgment of actuaries. The Department necessarily expects sound, reliable advice on a variety of issues from their actuaries and regular reporting on sensitive pending matters in order to keep management informed. STARTING SALARY Gary Granoff, Petitioner's own witness, personally requested and hired Petitioner because he had worked with Petitioner previously and had a good relationship with him. Then-Division-Director Granoff was instrumental in the setting of the Petitioner's salary. Mr. Granoff testified categorically that Petitioner's race or national origin played no part in setting Petitioner's salary. This testimony is credible. Even Petitioner admitted that he did not believe Mr. Granoff would have discriminated against him relative to his starting salary. Many factors are considered in the setting of an actuary's starting salary and were considered in the setting of Petitioner's starting salary. For example, according to Mr. Nicholson, a major factor in setting the starting salary is the prior earnings of that actuary. Mr. Hazlett agreed that the single strongest factor was probably the prior salary. Other factors enumerated by Mr. Nicholson include the amount of rate monies available to the division to pay actuaries, the education and experience of the actuary, market value of actuaries in general and that actuary in particular, and the actuary's area of specialty. Other factors listed by Mr. Hazlett were budget constraints on the Department, education and professional status, market value and the type of actuary. There is a broad salary range for actuaries as a result of the disparity among actuaries in ability and value. Additionally, severe budget constraints faced by most state agencies mandate that the Department pay an adequate salary, but not more than necessary to recruit an actuary. When he applied for his job with the Department, Petitioner requested a starting salary of $30,000.00. His starting salary, was, in fact, $29,650.00 or approximately 99% of what he requested. There is a great disparity in the number of property/casualty actuaries versus life/health actuaries. The limited number of property/casualty actuaries, fewer than 1600, makes them harder and more expensive to recruit than life/health actuaries, who number almost 12,000. During the time that Mr. Nicholson was Bureau Chief of the Bureau of Rates in the Division of Rating, there were four property/casualty actuary positions and two life/health actuary positions. There are substantial differences between the duties of life/health actuaries and property/casualty actuaries relative to subject matter, calculating loss ratios, insurance pricing, reserving, investment income, statutory limits of regulation, volatility of certain lines and "long-tail" calculations. Mr. Granoff acknowledged that it was hard to compare Petitioner with other actuaries at the Department because he was a life/health actuary while the others were property/casualty actuaries. Mr. Granoff indicated that he had a responsibility to make the most efficient use of public funds and he simply would not have offered an actuary a higher salary than that actuary asked for to bring him on board. The Petitioner's starting salary was 32.37% greater than he had been making with all of his previous experience. This was the highest percentage of increase of all other actuaries. There was no discrimination by the Department in setting Petitioner's starting salary. CONTINUING SALARY Petitioner was an adequate employee until the last several months of his employment. The Petitioner received across-the-board raises when all other actuaries received raises. The Petitioner's supervisors possessed no animosity toward the Petitioner and worked with him to correct existing problems. The Petitioner appeared to function adequately when dealing with routine actuarial assignments. His work, however, never warranted merit raises. In his several years with the Department, no one ever attempted to lure him away to a higher-paying job. The Petitioner, in fact, never asked for a merit increase or even questioned his evaluations. In spite of this, he received higher percentage increases than other actuaries on two separate occasions. Not only did Petitioner receive the largest percentage increase over prior salary when starting with the Department (32.37%), but upon election to the SES (Select Exempt Service) classification, he and one other actuary received higher percentage increases than all other actuaries. While other actuaries received 10% increases, those two received an increase of 15%. During the period of time before actuaries switched to SES, Petitioner received all raises that were received by other actuaries except for merit increases and special pay increases. Merit increases were awarded based on exceeds ratings during that time and actuaries could not receive merit raise without an exceeds rating. Petitioner points to a merit increase given to Mr. Ritzenthaler in September 1980 when he did not have an exceeds rating in effect. However, that increase was actually a special, one-time increase authorized by the Legislature. Even though Petitioner was the lowest-paid actuary in the Bureau of Rates from April 1981 through December 1987, Petitioner's salary and salary increases were not a result of discrimination. TERMINATION On February 25, 1988, Petitioner was advised that his services were no longer needed by the Department. This termination was based on a lack of confidence by his superiors in his ability and judgment. This lack of confidence developed over a period of time and was due to a series of situations which were mishandled by Petitioner. Mr. Hazlett made the recommendation to discharge Petitioner because "he was a loose cannon" and the results of his work activities often produced negative results. Petitioner's termination as approved by Bill Gunter, the Commissioner of Insurance; Ann Wainwright, the Assistant Commissioner of Insurance; Gerald Wester, Deputy Insurance Commissioner; and Mike Gresham, Division Director of Administration. Select Exempt Service employees serve strictly at the pleasure of the agency head. No reason need be given for terminating such employees. They receive additional benefits in this classification, but are not entitled to job security protections afforded Career Service employees. Mr. Nicholson supported Mr. Hazlett's recommendation to terminate Petitioner. Mr. Nicholson was concerned about the job his bureau had been doing in the life/health area and he thought that the actuaries on the property/casualty side were "head and shoulders above" those on the life/health side. Until a few months before the termination, Petitioner's job performance had been rated satisfactory. ACLU LETTER Without consulting with his superiors, Petitioner responded to an inquiry from the American Civil Liberties Union relative to possible discriminatory rating policies for insurance companies doing business in the state of Florida. The Petitioner's unauthorized action committed the Department to a large-scale investigation and retroactive reimbursement if discrimination was found. Although the Petitioner treated the ACLU white ship as a routine consumer complaint, any white slip inquiry from a nationwide organization dealing with sensitive issues such as discrimination should not have been treated as a routine consumer complaint. At hearing, the Petitioner initially admitted that the ACLU inquiry was not routine. A competent actuary should have known by merely reading the ACLU correspondence that it was of a sensitive nature and needed to be brought to the attention of his supervisor. In fact, the ACLU letter raised issues of such importance that it should have been brought to the attention of the Insurance Commissioner himself. Petitioner never notified his supervisors that he had taken such an action and never followed through on his promise to investigate this matter. Mr. Hazlett communicated the problems with his response directly to Mr. Koppikar. The issues raised by the ACLU letter were extremely volatile and had state and national attention by the press. The Petitioner's handling of this matter harmed or had the potential of harming the Department in several ways: It committed Department resources in an inappropriate manner; it committed the Department to ensuring restitution to insureds relative to problems predating the federal antidiscrimination laws, which was potentially detrimental to the credibility of the Department; and it subjected the Insurance Commissioner to potentially embarrassing press coverage. ASSOCIATED DOCTORS In this matter, Petitioner sent a letter to Associated Doctors informing them that all of their medicare supplement rates were disapproved. The effect of this letter would have been to put that company out of business. The Petitioner took this action without consulting with his superiors after becoming frustrated in his attempts to get information from that company. When Mr. Nicholson investigated the file, he found correspondence from the company never answered by Petitioner. He also found evidence that Petitioner did not understand what the company was saying and that he was making judgments without sufficient support. Had Mr. Hazlett not immediately rescinded the letter, Petitioner's action could have jeopardized the financial condition of the company and the interests of its insureds. The Department has responsibilities to all of the public, and the public includes both consumers and insurance companies. While violators should ultimately have appropriate action taken against them, they are entitled to an opportunity to respond to those allegations made against them, and if in violation, an opportunity to correct those violations. Before putting a company out of business, in carrying out the Department's duties, proper notice should be given along with an opportunity to correct the noncompliance. Petitioner's letter to Associated Doctors ignored these duties. The Associated Doctors matter was ultimately resolved with Petitioner's determining that no reduction in rates was called for. MEDICARE SUPPLEMENT REVIEW Petitioner was in charge of reviewing the rate increase requests of insurance companies selling Medicare supplement insurance in Florida. As a direct result of Petitioner's failure to do his job properly, the Department was placed in a potentially embarrassing situation of not knowing that several companies were in violation of the loss ratio standards required by Florida statutes. After the publication of a newspaper article critical of the Department's regulation of those companies writing Medicare supplement policies, Petitioner was instructed by Mr. Nicholson to ask all of those companies to justify their rating practices. Petitioner testified that he told his superiors the article was going to be written. This testimony is not supported by the competent, substantial evidence. In fact, Mr. Nicholson learned of the problem through an outside source. Petitioner testified that the loss ratio in Florida was very satisfactory as far as the Department was concerned. According to Mr. Nicholson, it was Petitioner's job to monitor these rates. The requested response from those companies, in fact, demonstrated that 42 out of 100 companies were not in compliance with Florida law. The Medicare supplement issue was one of rising visibility because the Department was working on a national level through the National Association of Insurance Companies on the regulation of Medicare supplement policies and Petitioner's superiors were understandably surprised to find that the Department was not adequately regulating this area. The Commissioner of Insurance was concerned about the critical article and the issues it raised. Petitioner was asked to prepare a report to be used for a presentation to the Commissioner to satisfy him that the Department was taking all action possible to make sure these companies were in compliance with the Florida statutes. Petitioner testified that he prepared this report and presented it. However, in reality, Mr. Koppikar was unable to pull the information together in a coherent fashion. Mr. Nicholson completed the report and made the presentation in a meeting with the commissioner which merely included Mr. Hazlett and the Petitioner. Petitioner admitted that the report in question may have been prepared on Mr. Nicholson's personal computer. In fact, the reports were prepared by Mr. Nicholson because the Petitioner could not prepare the analysis in a cohesive, prioritized and presentable form. AV-MED HMO After receiving a complaint from Miami-Dade Community College about the rates charged to them by AV-MED, an HMO doing business in Florida, Petitioner was unable to determine for an extended period of time what rates AV- MED should have been charging. According to Mr. Nicholson, Petitioner was never able to tell management if the Department had approved their rates. Petitioner had been involved in the review of HMO rates for a period of seven years, from 1979 to 1982 in Massachusetts and from 1982 to 1986 in Florida. From 1982, Petitioner had been reviewing the rates of AV-MED and had not noticed any problems with their rating methodology. By 1987, Petitioner determined that AV-MED was in violation of Florida law. When AV-MED contended that they were a federally qualified HMO and that their rates were regulated by the federal government's HMO office, Mr. Koppikar was not aware of what federal regulations existed. Accompanied by an attorney, he traveled to Washington to determine the nature of the pertinent federal regulations. In addition to qualifying at the state level, all federally qualified HMOs in Florida had to qualify on the federal level under a rating form called community rating. According to Mr. Nicholson, Petitioner did not understand federal guidelines for community ratings, and the Department had to hire a consultant at taxpayers' expense to explain them to him. Although Petitioner had been involved in the review of HMO rates in general, and this one in particular, for a period of several years, he was not familiar with the requirements of federal regulation to the extent he needed to be in order to respond to AV-MED's defense. Petitioner should have been more familiar with this area of regulation. HMO-IN-HOUSE BIDS When given an assignment to review the bids of several HMOs wanting to provide health coverage to state employees, Petitioner was unable to give firm answers with backup explanations so that the Department could defend its findings. The review of HMO rate filings was a routine part of Petitioner's job and it was especially distressing to his supervisors that they were unable to get firm recommendations from him. Each time that Mr. Hazlett questioned Petitioner about his analysis, the answers would change so that Mr. Hazlett never felt comfortable that the Department could defend its position. Mr. Nicholson agreed that in meetings with Mr. Hazlett, Petitioner would "flip flop" when asked questions by Mr. Hazlett. This was a high-visibility issue because only one HMO would be allowed to provide coverage. The Department correctly expected that unsuccessful HMOs would challenge the recommendations of the Department. Thus, in a situation in which Petitioner knew the Department's credibility was on the line, he was unable to perform a routine part of his job at the level of competence necessary to give his superiors confidence that he could effectively defend his recommendations. PETITIONER'S SUPERVISORY ACTIVITIES Petitioner gave little, if any, supervision to employees assigned to him. At times he did not know where they were. When Petitioner was supervising Marvin Farmer, that employee's attendance record was so poor that Petitioner's supervisors had to speak to Petitioner about that problem. Petitioner finally issued a written reprimand to Farmer, but only in response to the expressed dissatisfaction of his superiors. Petitioner never adequately supervised Mr. Farmer on his own initiative. As a direct result of the Petitioner's lack of supervision, office morale became very low. After Petitioner no longer supervised Mr. Farmer, Mr. Farmer was terminated for unauthorized and fraudulent absence from the job. These absences were easily documented by the Petitioner's successor, Mark Peavy. Petitioner was informed many times that his supervisors were dissatisfied with each and every issue enumerated above. Although Petitioner maintains that no one ever discussed these issues with him, the record evidence strongly contradicts this contention. Petitioner's testimony in this regard was vague. It was simply not believable. Moreover, throughout his testimony the Petitioner was being deliberately evasive and unresponsive to questioning. ALLEGED RETALIATORY EXIT REVIEWS On March 23, 1988, Mr. Nicholson completed an initial exit review for the Petitioner. Department policy was that exit reviews would be completed on all employees leaving the Department. The Chief of Personnel Management, Mr. Yohner, was aware of no exceptions. Respondent did not retaliate against Petitioner for filing a charge of discrimination by lowering the ratings of his job performances on an exit review prepared by Jack Nicholson. The first exit review prepared by Mr. Nicholson was inappropriately favorable to Petitioner because Mr. Nicholson did not want to harm Petitioner's opportunity for finding other employment. Mr. Nicholson submitted a second exit review on the same day or the next day, which review accurately reflected Petitioner's abilities in comparison to other actuaries in the Department. Mr. Nicholson submitted the second exit review because Mr. Yohner advised him that the purpose of the exit review was to document information to the Department, not to provide information to potential employers. Petitioner was not harmed by the exit reviews. Other than the Petitioner, no one ever made a request to see them. At a much later date, Mr. Nicholson wrote a memo to Mr. Yohner explaining the basis for the first exit review and the second exit review. Petitioner's petition of discrimination, received by the Department on April 8, 1988, was the first notice the Department received of any challenge to Petitioner's termination. The second exit review was not an attempt to retaliate against the Petitioner because the second exit review had already been filed when the Petitioner brought his complaint to the Human Relations Commission. Mr. Wester, Deputy Insurance Commissioner at the time, offered to assist Petitioner in any way he could in trying to locate another job. Petitioner wrote a letter to Mr. Wester thanking him for his offer of assistance. Mr. Nicholson counselled Petitioner, at length, to assist him in finding other employment and on one occasion provided him a list of corporate recruiters accumulated through responses to ads for actuaries. Elaine Cooper in Personnel also made at least one phone call on behalf of Petitioner to assist him in finding employment.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Commission on Human Relations enter a Final Order and therein DISMISS the charges of discrimination filed by Dinkar B. Koppikar against the Department of Insurance. DONE and ENTERED this 28th day of November, 1990, in Tallahassee, Florida. DIANE K. KIESLING, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 1990. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-6459 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case. Specific Rulings on Proposed Findings of Fact Submitted by Petitioner, Dinkar B. Koppikar Each of the following proposed findings of fact is adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(1); 2(2); 9(7); 20(32); and 28(39). Proposed findings of fact 3, 6, 14-17, 19, 24, 27, 29, 30, 38, 41, 43-45, 47-49, 59, 68, 71, 84, 91, 97, 100, 106, 107, 109, 116, 117, and 120-122 are irrelevant. Proposed findings of fact 4, 5, 8, 10, 13, 21, 22, 26, 31, 32, 34, 36, 37, 39, 40, 52-54, 61, 63, 64, 72, 77- 79, 87-89, 93-95, 98, 102, 105, 112, 113, 115, and 119 are subordinate to the facts actually found in this Recommended Order. Proposed findings of fact 7, 11, 12, 18, 23, 25, 33, 35, 42, 46, 50, 51, 55, 56, 57, 58, 60, 62, 65-67, 69, 70, 73-76, 80-83, 85, 86, 90, 92, 96, 99, 101, 103, 104, 108, 110, 111, 114, and 118 are unsupported by the credible, competent and substantial evidence. Specific Rulings on Proposed Findings of Fact Submitted by Respondent, Department of Insurance and Treasurer Each of the following proposed findings of fact is adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(1); 2-5(3-6); 8-10(7-9); 11(7); 12-20(10-18); 21(7); 22(19); 23(20); 25-33(26-31); 35-37(34-38); and 39- 107(40-106). Proposed findings of fact 7, 24, 34, and 38 are subordinate to the facts actually found in this Recommended Order. Proposed finding of fact 6 is unnecessary. COPIES FURNISHED: Dennis Silverman, Senior Attorney Department of Insurance and Treasurer 412 Larson Building Tallahassee, FL 32399-0300 Jeanne M. L. Player Attorney at Law Spriggs & Kidder West College Avenue Tallahassee, Florida 32301 Dana Baird, Acting Executive Director and General Counsel Florida Commission on Human Relations Building F, Suite 240 John Knox Road Tallahassee, Florida 32399-1570
The Issue The issue in this proceeding is whether the intended action of Respondent, Agency for Health Care Administration, to award a contract to Intervenor, eQHealthSolutions, Inc., is contrary to the agency's governing statutes, the agency's rules or policies, or the solicitation specifications. The standard of proof for this proceeding is whether the proposed agency action is clearly erroneous, contrary to competition, arbitrary, or capricious.
Findings Of Fact AHCA and the Invitation to Negotiate AHCA is the state agency responsible for administering the Medicaid Program in Florida. Medicaid is the state and federal partnership that provides health coverage for selected categories of people with low incomes. Florida's Medicaid recipient population is over 2.8 million individuals. Over one third of this population receives services on a fee-for-services basis. Florida Medicaid spending in Fiscal Year 2008-2009 was approximately $18.8 billion. AHCA’s Division of Medicaid Services is responsible for serving the Medicaid population. AHCA seeks, through the Invitation to Negotiate (ITN) that is the subject of this case, to enter into a new contract with a federally designated Quality Improvement Organization (QIO) for the development and implementation of a statewide comprehensive utilization management program. Utilization management is the process of determining the medical necessity of particular health care procedures and treatments, and their appropriateness under Medicaid or other relevant insurance plans. Prior authorization is a major part of utilization management. Prior authorization, as the name implies, requires a provider or beneficiary to propose the service to be provided, identify the reasons for it, and obtain authorization before providing the service in order to receive payment from Medicaid. It requires determinations of whether the service is covered by Medicaid, whether the service is medically appropriate in the circumstances, and whether it is the most cost effective service in the situation. KePro currently provides AHCA prior authorization services under a contract. Lakia Daniels, Government Operations Consultant for AHCA, manages the current KePro contract with AHCA. Florida law establishes three competitive procurement processes for state agencies. They are Invitation to Bid, Request for Proposal, and Invitation to Negotiate. Agencies use an Invitation to Bid when they can specifically define the scope of work for a service or establish precise specifications defining the commodity sought. Agencies may use the Request for Proposal when the purposes and uses for a service or commodity can be specifically defined and the agency can identify necessary deliverables. Agencies may use the ITN process when they need to determine the best method for achieving a specific goal or solving a particular problem. An agency uses the ITN process to identify one or more responsive vendors with which it may negotiate in order to obtain the best value for the state. The ITN process is the most flexible and least restrictive competitive procurement process. On May 19, 2010, AHCA issued ITN No. 1007, which is the subject of this proceeding. AHCA’s ITN sought vendors to provide a Comprehensive Utilization Management Program for Inpatient Medical and Surgical, Home Health, Prescribed Pediatric Extended Care (PPEC), and Therapy Services. The ITN included Attachments A through L. AHCA amended the ITN on June 25, 2010. References to ITN in this Recommended Order are to the ITN as amended. None of the parties challenged the ITN or the amendment. The contract and the utilization management to be provided under it are critical to Florida's system for controlling Medicaid costs and reducing Medicaid fraud. The ITN contained "Evaluation Criteria." It specified that the criteria were for use in the initial evaluation of vendor replies to the ITN. The ITN also said that vendors whose replies did not comply with the mandatory criteria would not be considered for evaluation. The ITN provided vendors the opportunity to develop methodologies and systems for achieving the purposes of the contract. It repeatedly stated that requirements were minimum requirements, leaving vendors free to propose better or more comprehensive services or means of providing services. The ITN stated that "[t]he use of 'shall,' 'must,' or 'will' (except to indicate futurity) . . . indicates a requirement or condition from which a material deviation may not be waived by the State." It defined a material deviation as one in which "the deficient response is not in substantial accord with the solicitation requirements, provides an advantage to one respondent over another, or has a potentially significant effect on the quality of the response or on the cost to the State." The ITN included a process for vendor questions. The process provided that AHCA's responses to the vendor questions would be posted as an addendum to the ITN. Vendor questions and AHCA answers were included in the June 25, 2010, amendment to the ITN. AHCA is using the ITN procurement process to select a vendor to undertake the substantial task of providing comprehensive utilization management for inpatient medical and surgical, home health, and prescribed pediatric extended care (PPEC), and therapy services for Florida's Medicaid population. The ITN also described providing a Neonatal Intensive Care Unit (NICU) care and home health monitoring program and retrospective medical record reviews as services under the contract. The contract will be a fixed price, also described as fixed fee, contract. The ITN schedules refer to the fee or price as cost. This and the varying use in the ITN, the responses, and the testimony of "fee", "price", and "cost" foster confusion. This Recommended Order uses "cost" to refer to the amount that vendors proposed to charge AHCA either in the aggregate for the services, or as they allocate the amount charged to various components of the services provided including specific staff, training, web site maintenance and the like. The implementation and execution period for the contract for all services, except therapy services, ends June 30, 2011. For therapy services the implementation and execution period is to end March 31, 2011. For all services the contract is to run for three years ending June 30 2014. It may be renewed for up to three years. The ITN provided vendors the anticipated annual review volume in Attachment M-1, a form vendors were required to complete. The anticipated volumes were: Prior Authorization Inpatient Services - 510,000 Prior Authorization Home Health Visits - 55,000 Prior Authorization for Private Duty Nursing, PC, and PPEC 140,000 Prior Authorization Therapy Services - 140,000 Claims Analysis, Respiratory Therapy - 1 Retrospective Medical Record Reviews - 2,000 NICU Care Monitoring Program 700 Home Health Comprehensive Care Monitoring Program - 4,000 Special Studies/Quality Improvement Projects - 1. Although the contract will be for three years, the service volumes do not vary year to year. Florida's Medicaid program has not previously required prior authorization for therapy services. Attachment M-1 sought detailed cost information about various services and components of the project from replying vendors. Effectively, it asked the vendors to allocate their proposed total costs among the various services and components used to provide the services. They include, but are not limited to, items such as prior authorization review for inpatient services, prior authorization review for home health visits, prior authorization for therapy service, NICU care monitoring, customer service, development and Maintenance of a web-based system, database development, salaries, benefits, temporary personnel, postage, rent, office equipment, advertising, telecommunicating equipment, computer equipment, overhead, and profit. The ITN described the Medicaid program and services. It described the purpose of the intended contract, giving the goals of the contract and describing general services the vendor would provide. The ITN left to the vendors the challenge and opportunity of proposing the best method for achieving the purposes of the contract and providing the services needed. The ITN also emphasized the importance of "timely, efficient, productive, consistent, courteous, and professional" performance of services. The technical specifications of the ITN included a wealth of factors and required information. Among them were: limitations on the use of subcontractors, descriptions of how beneficiary information would be protected, lobbying disclosures, client references, information about the vendor's experience and qualifications, information about management and key personnel qualifications, detailed staffing information, a draft contract implementation plan, training plans, computer hardware requirements, computer software requirements, and disaster recovery plans. A 52 page attachment to the ITN described the scope of services the successful vendor would provide. The ITN required that the vendor maintain the ability to manage the volume of work 24 hours per day, seven days a week. It required at least one Florida location where the vendor would perform its contractual responsibilities. The ITN required vendors to develop electronic review instruments for the contract services. It mandated that the instruments allow data input by reviewing professionals. It permitted vendors to provide up to 30 percent of inpatient reviews through a rules-based or criteria-driven algorithm. It permitted vendors to apply recognized medical necessity standards, so long as they met the minimum of InterQual Level of Care criteria and fulfilled all state and federal Medicaid requirements. The ITN advised that the contract would include rigorous review completion timeframes for the contract services. Examples of the timeframes follow. First level review of prior authorization reviews for elective pre-admission, admission, and continued stay inpatient services must be completed within four hours from receipt of a completed request. If a service request is referred to a physician, the ITN required physician review of the requests within one business day of when the request is complete. First level review of home health skilled nursing or nurse's aide visits must be completed with one business day of the request. Physician review must be completed within two days of the request. First level review of requests for therapy services must be completed within one business day of completion of the request. Physician review must be completed within three business days. By repeated references to subcontracting and limitations upon the practice, AHCA manifested both the importance of subcontracting and caution about the issues that could accompany subcontracting. For instance, the ITN prohibited subcontracting, assigning, or transferring any work to any party, except for subcontractors identified in the response, without AHCA's prior written consent. Prior written consent required AHCA’S review and written approval of the terms of the subcontract. The ITN also required detailed information about proposed subcontractors' Medicaid experience and other information, just as it did for key employees and Management Information Systems (MIS) employees of the vendors. The ITN required vendors to describe how they would coordinate with subcontractors and communicate with them. It emphasized that the vendor remained fully responsible for fulfilling all contractual requirements to AHCA. These are just some of the references to subcontracting and requirements for it imposed by the ITN. The tasks described by the ITN rely upon computer and internet technology for communication, analysis, efficiency, and speed. Among other things, the ITN sought a vendor that would provide a web portal for communication, for providers to submit requests for authorization, and for providers to submit information and documents necessary to support the request. The ITN made the importance of a vendor's MIS abilities, experience, and personnel to successfully accomplishing the task clear. The ITN required a detailed description of the vendor's "approach for designing, developing, and maintaining a web-based prior authorization system, which is available to authorized users and providers, as described in the ITN." AHCA identified some required characteristics and tasks that must be performed. Similarly, the ITN identified minimum requirements for system generated reports, but it did not limit the frequency or content of the reports. It left to the vendors the task of developing and maintaining the system that would perform the tasks, have the needed characteristics, and generate the reports required. The ITN required that: The Vendor shall have in-house Management Information Systems (MIS) capability. The Agency will not approve a subcontractor for this function. The Vendor shall maintain a sufficient number of qualified MIS and technical staff to continue operation of the Vendors systems, provide prompt, on-going system support and accurate data access to the Agency and its authorized service providers. It did not specifically identify this requirement as a mandatory criterion. The ITN also required vendors to provide résumés for "MIS staff." This is the only area of expertise where the requirement for résumés went beyond identified key staff positions. The vendor's staff is essential to achieving the goals of the ITN's proposed contract. Staff is key to making judgments about what services should be authorized and obtaining more information about the reasons that the service has been requested. Staff is also critical to meeting the short review timeframes. The ITN emphasized the importance of staff. It cautioned vendors that AHCA reserved the right to determine that staff was insufficient and to require the vendor to cure the insufficiency. It also required detailed information about staff including résumés, staffing charts, and minimum requirements for key staff. Protection of beneficiary privacy is another subject emphasized by the ITN. Several portions required compliance with state and federal privacy requirements, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Also, the ITN required vendors to explain in detail how they would protect patient privacy. Evaluation and Negotiation Process AHCA established a two-step process for selecting a vendor with which to contract. Stage one was evaluation of the prospective vendors' responses to the ITN. Stage two was the negotiation phase. In the evaluation phase, each vendor submitted a reply to the ITN. The replies contained the vendor's technical proposal, cost proposal, and staffing proposal for providing services identified in the ITN. It also provided information requested by the ITN and any other information that the vendor chose to include. During the evaluation stage, the vendor replies were to be evaluated, scored, and ranked based on the requirements of the ITN. The purpose of the evaluation and scoring was to determine which vendor or vendors would move to the negotiation phase. It was not to determine which vendor would be awarded the contract. The negotiation phase was to determine with which vendor AHCA would contract. In the negotiation phase, AHCA would gather more information about the vendors, their abilities, and their proposals. The negotiation phase was an opportunity for AHCA to critique vendor proposals and question vendors. It also was an opportunity for each vendor to respond to those critiques and questions as it determined best. July 14, 2010, was the deadline for submitting replies to the ITN. KePro, EQ, and Alliant ASO ("Alliant") timely submitted replies to the ITN. KePro and EQ are parties to this proceeding. Alliant is not. No vendor protested the terms, conditions, or specifications of the ITN. AHCA’s procurement office reviewed the replies for compliance with mandatory minimum requirements. All met the requirements. The Deputy Secretary for Medicaid for AHCA, Roberta Bradford, appointed seven AHCA employees to the evaluation team. They were Claire Anthony-Davis, Lakia Daniels, Princilla Jefferson, Kathleen Core, John Loar, Ryan Fitch and Scott Ward. Ms. Bradford selected these individual because of their experience and subject matter expertise in areas involved in the ITN. For example, Claire Anthony-Davis was AHCA’s Home Health Policy Analyst. She had experience in utilization management and prior authorization of home health services, as well as experience monitoring AHCA’s contracted peer review organization (PRO). Kathleen Core, AHCA’s Medical Health Care Program Analyst, managed the Pediatric Extended Care (PPEC) Services program. She had experience in Medicaid policy and prior authorization. The other evaluation team members had similarly relevant experience. The members of the evaluation team were sufficiently skilled and experienced to evaluate the ITN replies in accordance with the ITN and in compliance with Florida law. The members of the evaluation team independently evaluated the vendor replies. Each employed his or her personal skills and experience in the course of the evaluations. The evaluators had and considered written evaluation instructions, Conflict of Interest Questionnaires, the ITN, all addenda including the vendors' written questions and AHCA's answers, all the vendors' ITN replies, and the evaluation tool. The evaluation process took place over several days. Each team member completed his or her own individual, detailed score sheets for each vendor. Each of the evaluators carefully and thoughtfully scored the ITN replies to the best of their ability and in good faith in accordance with the ITN requirements. Only Ryan Fitch reviewed the financial information and scored the financial stability of the responding vendors. He rated KePro higher for financial stability than the other two vendors. He gave KePro a perfect score. This was the only time in more than two dozen reviews that Mr. Fitch has assigned a perfect score to a company. Scott Ward, AHCA's Information Technology officer, was the only evaluator to review the information technology components of the ITN responses. Mr. Ward did not review any other aspects of the proposals. Mr. Ward assigned a score of 56 to KePro's information technology response and a score of 47 to EQ's. Mr. Ward focused on responsiveness of the replies to specific and limited information technology requirements of the ITN. Those were primarily minimum technical requirements necessary for compatibility with the Agency hardware and software and compliance with AHCA information technology standards. He also checked to verify that the vendors had provided the descriptions of their information technology systems required by the ITN and descriptions of their experience with the systems. He did not and could not evaluate whether those descriptions were accurate. He did not evaluate or score the ability of the systems described to perform the tasks required. Mr. Ward also was not aware of misrepresentations by KePro in the information technology section of its response. This Recommended Order addresses those misrepresentations later. After the evaluators completed scoring, AHCA's procurement office tabulated the vendors' original cost proposals and recorded the scores in the scoring sheets. The individual evaluators ranked the vendors. Two evaluators scored EQ the highest. Two evaluators scored Alliant the highest. One evaluator scored KePro the highest. The average of all scores for each vendor was the same. AHCA invited all three vendors to participate in the negotiation phase. The letter advising the vendors that they had been selected to proceed to negotiations stated: "The negotiation and selection process will consider each company's ability to meet or exceed the requirements of the ITN." Ms. Bradford appointed an eight-person negotiation team. The team members were Darcy Abbott, Shevaun Harris, Lakia Daniels, Claire Anthony-Davis, Kathleen Core, Scott Ward, Barbara Vaughan and Anne Frost. As with the evaluation team, Ms. Bradford selected the negotiation team members because of their experience and subject matter expertise in matters related to the services addressed in the ITN. Five of the negotiators, Darcy Abbott, Shevaun Harris, Lakia Daniels, Claire Anthony-Davis and Kathleen Core, worked in the bureau of Medicaid services with direct responsibility for the current and contemplated contracts. Scott Ward was the director of AHCA Information Technology. Barbara Vaughan and Anne Frost were procurement office representatives. Scott Ward and Anne Frost also were Certified Project Management Professionals. Claire Anthony-Davis, Lakia Daniels, Kathleen Core and Scott Ward, had served on the evaluation team. Ms. Daniels is the AHCA contract manager for the current utilization management contract. Ms. Abbott is the Administrator of all Medicaid sections under the current contract. The members of the negotiation team were sufficiently skilled and experienced to conduct the ITN negotiations. Shevaun Harris facilitated the negotiation sessions. A court reporter transcribed all sessions. Shevaun Harris was the team lead and is direct managing supervisor of the project and the contract that will result from the ITN. AHCA negotiators met with KePro representatives on August 10, 2010. They met with EQ’s and Alliant’s representatives on August 12, 2010. AHCA gave each vendor the same opportunity to appear at the negotiation sessions, by telephone and in person. AHCA gave each vendor the same opportunity to answer questions from the negotiation team. The day before the first negotiation session, AHCA informed all vendors that they would not be permitted to make presentations as part of their negotiation session. This included PowerPoint and web-based presentations. AHCA did this because the negotiation team wanted to spend the time learning about the ITN replies and asking questions instead of basically listening to a sales pitch. The restriction applied equally to all the vendors. Nothing in the ITN or AHCA's letter scheduling the negotiation sessions advised the vendors that they would be permitted to use internet, PowerPoint, or any other assistive devices during negotiations. After the first round of negotiations, the AHCA negotiation team discussed the replies and negotiations. It preliminarily ranked the vendors. EQ ranked highest, but the team was concerned about EQ's costs. They were substantially greater than the costs of the other two vendors. The team consulted with AHCA senior management to ensure that the members understood the budgeted amount available for the contract and any other financial constraints on the decision. AHCA conducted a second negotiation session with EQ on August 18, 2010. It focused on costs. AHCA scheduled the negotiation to obtain more information from EQ about the basis for its costs. AHCA obtained clarification and determined that EQ was willing to reduce its costs. After the negotiation sessions, AHCA asked all of the vendors to submit their best and final offers (BAFOs). The team also concluded that EQ was the preferred vendor if it reduced its costs sufficiently. All three vendors timely submitted their BAFOs to AHCA. The request to EQ for a BAFO stated: Your proposed implementation costs exceed the Agency's budget for Fiscal Year 2010-2011. Please provide a revised cost proposal as follows: One time Implementation Costs for Therapy Services reduced by at least 70-80%. One time Implementation Costs for all other services (Inpatient, Home Health, and PPEC) reduced by at least 65-75%. In addition to the revised cost proposal, please provide the following: A detailed staffing plan to reflect the changes in the reduced Implementation costs. Best and Final Cost Proposal for Implementation Costs, Operations Year 1, Operations Year 2, and Operations 3, eliminating the costs for analysis of respiratory therapy in Year 2 and Year 3. AHCA's request to KePro for a BAFO asked KePro to: Provide a detailed staffing plan with a breakdown- of FTE's for each aspect of the ITN's scope of services which includes the number of staff, when each staff member will start, whether the staff member will be on- going and if so, when they will be phased out. Provide the number of on-site face-to- face assessments for Private Duty Nursing (PON), Prescribed Pediatric Extended Care (PPEC), and Therapy services. Provide Best and Final Cost Proposal for Implementation Costs, Operations Year 1, Operations Year 2, and Operations 3, eliminating the costs for analysis of respiratory therapy in Year 2 and Year 3. All three vendors submitted the requested BAFOs. KePro and EQ both reduced their costs. The negotiation team unanimously agreed that AHCA should contract with EQ. It did not determine a "second place" vendor. A memorandum dated September 27, 2010, (Award Memo) states the team's recommendation. It summarizes the history of the ITN issuance and reply review. The Award Memo concludes with these two paragraphs: Overall, EQ Health Solutions prevailed as the most favorable vendor. Their [sic] proposal demonstrated that they [sic] can provide qualified and experienced professionals to meet the requirements of this multi-faceted program. Out of the three respondents, their [sic] proposed approach will provide the most comprehensive quality model for utilization management. Per the recommendation of the negotiation team, and as Deputy Secretary for Medicaid, my signature below indicates my decision to award a contract for the comprehensive utilization management of Inpatient Medical and Surgical, Home Health, Prescribed Pediatric Extended Care (PPEC) and Therapy Services to EQ Health Solutions. Deputy Secretary Roberta Bradford is the AHCA official with the authority to sign off on the contract. She signed the Award Memo, but the negotiation team prepared the memorandum. Ms. Bradford deferred to the team's recommendation. Neither Ms. Bradford nor other senior management officials of AHCA reviewed any information or documents other than the Award Memo to decide upon the proposed award. The Award Memo does not explain how the EQ proposal provides the best value to the state. The Award Memo does not provide AHCA senior management with any analysis of the respective cost proposals submitted by the vendors. The AHCA files and records and records for the ITN do not contain a document that analyzes the cost differential between the vendors or that articulates how contracting with EQ would provide the best value for the state. They also do not contain a short plain statement that explains the basis for the selection of the vendor and that sets forth the vendor's deliverables and price pursuant to the contract, along with an explanation of how these deliverables and price provide the best value to the state. AHCA's practice before awarding a contract is to maintain a "solicitation file" that contains documents relating to the solicitation process. After awarding a contract AHCA creates a "contract file." Ms. Bradford did not receive or review a cost comparison of the BAFOs. She was not aware of the cost difference between the KePro and EQ proposals. She did not receive or review a written or oral presentation of the relative merits of the vendor proposals or the reasons for choosing EQ, other than the Award Memo. Ms. Bradford relied entirely upon the recommendation of the negotiation team. On September 28, 2010, AHCA posted Notice of its intent to contract with EQ on the Agency procurement website. AHCA did not post an explanation or basis for its proposed decision. Reply and Negotiation Overview As a whole, the reply of EQ and its responses in the negotiation sessions demonstrated a more thorough analysis of the tasks presented by the ITN and the challenges they presented. EQ presented more detail in descriptions of its systems and web portal than KePro did. This is true both in the narrative and the screen shots provided. EQ's reply demonstrated research and understanding of legal requirements involved in the process, such as the work needed to prepare for fair hearings. KePro did not display the same level of research and understanding. For example, KePro proposed a Facebook page for Medicaid beneficiaries, but it had not considered the legal and personal privacy issues that may arise or how to address them. Another example, addressed in detail later, is the analysis of the needs for newly established prior authorization review of therapy services. EQ identified factors and difficulties that newly imposed therapy reviews would create. It determined that therapy reviews could be more difficult and time consuming than inpatient service reviews. EQ crafted its proposal to address those factors and difficulties. KePro did not demonstrate even consideration of the differences between therapy reviews and inpatient service reviews. EQ provided a link to a demonstration site for its information technology system. There is, however, no evidence that any AHCA employee used the link. In its reply and in negotiations, KePro repeatedly referred to its experience as an AHCA contractor and specific individuals' knowledge of KePro. AHCA concluded that EQ's reply and the information EQ presented in negotiations demonstrated a greater understanding of what was needed to successfully administer the prior authorization program and how to do it. The evidence supports that conclusion. Costs and Staffing The three vendors proposed significantly different costs, i.e. fees, to AHCA for the contract. KePro proposed $38,900,064 for the life of the contract. EQ proposed $51,084,928. The third vendor, Alliant, which is not a party to this proceeding, proposed $46,325,552. EQ's proposed costs, the amount that the State will pay over the contract term, are $12,184,864 more than those of KePro. AHCA intends to contract with EQ instead of KePro, despite the twelve million dollar cost differential. This is in part because the replies and the negotiation sessions caused AHCA to conclude that KePro was "lowballing" its costs and/or unrealistic in establishing them. That conclusion is not clearly erroneous, arbitrary, or capricious. Direct personnel costs account for $5,247,861 of the twelve million dollar difference. This is due to the differences in proposed staffing. EQ proposed 136.95 FTEs for the contract. KePro proposed 85 FTEs. EQ's average compensation cost per FTE is 95,521,518. This amount is $3,358.70 than KePro's average of $92,162.482. But the compensation difference only accounts for $460,021 of the $12,184,864 difference over the contract period. The number of FTEs is what causes the difference. The difference between EQ's and KePro's plans for the Home Health Comprehensive Care Monitoring program contributed to the difference in FTEs in the vendor proposals. EQ's costs are $2,081,669 more than KePro's costs. The Home Health Monitoring program calls for visits to the homes of home health care recipients in Miami-Dade County. The visits serve several purposes. One is to verify that the patients are receiving appropriate services. Another is to determine if the patients are actually receiving services. This purpose arises from the fact that 85 percent of the Medicaid funds expended on home health services in the nation are expended in Miami-Dade County. Consequently AHCA surmises that fraud may be an issue in that county. This second purpose is part of AHCA's effort to reduce Medicaid fraud. EQ staffed these visits with two people. KePro staffed them with one. AHCA determined that two people was a better staffing proposal due to the fraud detection facet of the visits and bad experiences of individuals making similar visits in the past. AHCA's preference for the more costly EQ staffing proposal has not been proven clearly erroneous, arbitrary, or capricious. Realistic consideration of the completion timeframe requirements are one reason. Even with the use of rules driven or criteria based algorithms that will trigger some automatic approvals, people perform critical functions in the review process. The role includes nurse or other professional review of requests that do not trigger automatic approval, doctor review of all denials, communication with providers and patients, provider education, assistance preparing for fair hearings, participation in fair hearings, and training for staff and providers. EQ's greater staffing level will likely result in more satisfactory performance of these functions. The contract will include short timeframes for many tasks. Meeting the time requirements is important to prompt provision of needed medical services. EQ's staffing makes EQ more likely to meet or better the timeframe requirements. Inadequate staffing can cause delays, possible medical complications, increased costs, dissatisfied providers, dissatisfied patients, AHCA handling customer inquiries and complaints that the contractor should be handling, and friction between the State and its contractor. The ability to require more staff or impose penalties, likely to involve delay or even legal proceedings, is a poor substitute for adequate staffing from the beginning. In other areas, EQ's more costly proposals are more plausible than KePro's cheaper proposals. This too makes AHCA's decision that the KePro costs were unrealistically low not clearly erroneous, arbitrary, or capricious. The "other direct" cost category includes the following components: software, hardware, equipment purchase and rental, professional services, advertising, training, licensing, recruiting, legal, taxes, and miscellaneous. KePro proposed no costs for these components. EQ proposed costs of $1,443,691 for the same components. While the record does not reveal the basis for EQ's costs, it is more credible that there will be costs of some amount over a three year period than that there will be none. Similarly EQ's rent costs are more plausible than KePro's. This is another reason AHCA's conclusion that KePro's costs were not realistic has not been proven clearly erroneous, arbitrary, or capricious. For the implementation period, KePro allocates no rent cost. This is plausible since KePro is currently providing services and would be as it shifted from its existing contract to the new contract. It is plausible that KePro could handle the implementation work from the offices where it currently provides services. For each full year of the contract, KePro represents rent costs of around $26,000 per year or an average for the three year period of $2,177.42 per month. EQ proposes rent costs of $1,073,267. That includes implementation period rent of $43,139 and first year rent of $330,000, apparently increased by four percent per year to a third-year rent cost of $356,928. EQ's average monthly rent costs for the three full years of the contract are $28,614.67. Nothing indicates AHCA arbitrarily or capriciously accepted these costs instead of EQ's. EQ and KePro differed $242,773 in their postage, shipping, and fulfillment costs. EQ's costs were $349,137 and KePro's costs were $106,364. For the 716,000 annual authorization reviews this correlates to EQ having 48.7 cents postage, shipping, and fulfillment costs per review and KePro having 14.8 cents costs per review. The record does not establish that accepting EQ's costs was clearly erroneous, arbitrary, or capricious or even that KePro's costs of less than one postage stamp per review were reasonable. The difference between EQ's proposed cost for therapy services review and KePro's is $8,015,250. For AHCA to choose EQ as the vendor, despite the difference in proposed costs, it necessarily must have determined the EQ's costs for therapy services were more reasonable than KePro's. In contrast to the magnitude of the differences between the vendors' costs for therapy services, the costs for inpatient reviews are similar. EQ's cost for 510,000 reviews per year of inpatient services exceeds KePro's by $1,307,187 for the contract period. For each full year of the contract, differences between the vendors' inpatient review costs are relatively small. Year one KePro exceeds EQ by $8,832. Year two EQ exceeds KePro by $129,455. Year three EQ exceeds KePro by $350,287. The cost differences each year for providing 140,000 therapy service reviews are, on the other hand, dramatic. In year one EQ costs for therapy reviews exceed KePro's by $2,481,073. In year two the difference is $2,558,825. For year three the difference is $2,673,456. Year one, EQ's costs for therapy reviews are $4,788,242. This is more than EQ costs for 510,000 inpatient service reviews the same year. Year two, EQ's costs for the inpatient service reviews are only $152,490 more than its costs for 140,000 therapy reviews. Year three, EQ's inpatient service review costs exceed the therapy review costs by just $219,207. This is true even though the number of therapy reviews anticipated is 27.5 percent of the anticipated inpatient reviews. EQ justified the therapy costs in its second negotiation session. The review for therapy services is likely to consume a disproportionate amount of staff time for several reasons. Florida does not currently require prior authorization for therapy services. The change will be disruptive and time consuming. Providers, patients, patient families, and patient advocates will have to learn the system. They will have to learn how to request services. And they will have to learn how to support the service requests. As importantly, they will have to learn to accept the fact that prior authorization is now required. All these facts may reasonably be expected to cause difficulties for the vendor and AHCA. Therapy review is likely to result in a higher incidence of requests for additional information and more time spent communicating reasons for decisions than inpatient reviews. Therapy review is also likely to engender a disproportionate number of requests for reconsideration and fair hearings. This is partly due to the human reaction of people being told "no" for the first time in a system. Normal difficulties adjusting to new requirements and to a new system will also contribute. Support in the fair hearing process, which will be mandated by the contract, requires staff time. So too will the multiple communications and re-reviews that inevitably will be required as providers and patients alike learn and accept a new process. The nature of therapy services is also likely to result in more fair hearing requests. Authorization of less service than requested will be a denial of services subject to fair hearing review. In the inpatient setting, this is not always so. Often, services such as a hospital stay can be extended if review at the end of the authorized stay indicates further time in the hospital is needed. Because of these differences between prior authorization of therapy services and prior authorization of inpatient services, AHCA's decision to accept EQ's costs for therapy services has not been shown to be clearly erroneous, arbitrary, or capricious. Information Management Systems AHCA determined that EQ's proposal presented a better, fully developed and previously used information technology (IT) system than KePro. The IT systems and IT staffing proposed by the vendors were important aspects of the utilization management services to be provided under the contract. The ITN made it clear that a significant portion of the prior authorization and other systems in the utilization management services were to be facilitated through the vendors' IT systems. EQ developed its IT system. EQ has operated its system in a state Medicaid environment in Mississippi for approximately thirteen years and in Illinois for eight years. EQ’s in-house IT staff, the same staff that developed the system, will support it. KePro did not develop its proposed IT system, MedManager. Another company, Preferred Physicians Health Alliance (PPHA) developed MedManager. KePro had never used the system or managed prior authorization reviews with it. KePro was attempting to acquire PPHA's MedManager system through a purchase of PPHA’s assets in the summer of 2010. But when KePro submitted its ITN reply on July 14, 2010, KePro had not completed the asset purchase. There was no signed purchase agreement between KePro and PPHA, and no money had been exchanged. KePro did not disclose these facts in its reply. KePro represented in its ITN reply that: Our corporate system, MedManager, is wholly owned by KePro outright, including the design, software source code, and database schema. That enables us to control software changes and be responsive to change requests. We will make all system changes using our in- house, MIS staff. This statement was not accurate. KePro did not own MedManager outright and did not have an enforceable agreement to purchase it. KePro did not acquire the assets of PPHA, including MedManager until July 16, 2010. During the entire period of the ITN process from reply submission to negotiations and BAFOs, KePro and its management had never used MedManager in any setting, commercial or Medicaid. KePro’s Chief Executive Officer, Joseph Dougher, testified that KePro had hired PPHA's personnel and would rely upon them to maintain and refine MedManager. The ITN required vendors to provide résumés for the MIS personnel. KePro’s reply did not provide the résumés of any of the PPHA employees now employed by KePro. It provided only the résumé of Wayne Bolton, a KePro employee of some 20 years. Mr. Bolton had no part in developing MedManager and has not overseen use of MedManager for any prior authorization program. During KePro's negotiations with AHCA on August 10, 2010, Shevaun Harris of AHCA asked KePro Chief Executive Joseph Dougher directly if MedManager was a new system launching for the first time. Mr. Dougher stated that KePro had been using MedManager "on the commercial side of our business for about ten years." This statement was not accurate. KePro had never used MedManager. In addition, the MedManager system KePro proposed had never been used before by KePro or PPHA in a state Medicaid environment. The MedManager system was also not complete at the time of KePro's ITN reply. KePro did not disclose this to AHCA until the negotiation session. The provider portal portion of the MedManager system was not complete. The ITN made clear that the provider portal was a critical part of the system AHCA was seeking. At the time of the final hearing, KePro had not completed the provider portal. And KePro had not yet implemented it for any of its other Medicaid customers. AHCA would have been the first KePro customer to use the MedManager provider portal in a Medicaid environment. The AHCA negotiation team preferred EQ's IT system because it was fully developed and had been used in Medicaid environments for several years. Conversely team members were concerned that the KePro system was still under development. The content of the replies and communications during the negotiations provided a basis for these concerns even without the information revealed during discovery for this proceeding that KePro did not own MedManger when it submitted its reply and had not used MedManager before. AHCA's preference for the existing and tested system used by EQ is not clearly erroneous, arbitrary, or capricious. EQ's proposed disaster recovery plan is superior to KePro's. KePro proposed a tape back-up system. EQ proposed a network-based back-up system. KePro's tape back-up system saves or backs up information and data once a day at 5:00 p.m. Under this system, if the system crashes any time before the daily back-up, all the day's data could be lost. In addition, the back-up tapes would have to be transferred to another site. This will delay recovery. EQ's network-based back-up system backs up data and information continuously throughout the day. If the system crashes, all the day's data entered before the crash would be saved. A network-based back-up system also provides continuous access to the backed-up data on the network in real time rather than having tapes that would have to be delivered from another site. The network-based back-up system is superior. AHCA's preference for the EQ disaster recovery plan is not clearly erroneous, arbitrary, or capricious. Additional ITN Considerations EQ’s proposal recognized the importance of employee training to success. It provided for more training and more extensive training than KePro. AHCA determined that the training provisions added value to EQ's proposal. EQ committed to having its reviewing physicians attempt to contact the physician ordering a service before denying the service. This practice has the potential to reduce incorrect denials and therefore mitigate the costs and disruption of fair hearing disputes. KePro did not make a similar proposal. AHCA determined that this, too, added value to EQ's proposal. EQ proposed to handle all functions of the contract in-house without subcontractors. KePro proposed subcontractors. Although subcontractors were permitted, the AHCA team preferred the EQ proposal without subcontractors. This preference was based upon experience with delays and disputes arising with subcontractors under other contracts. The ITN's many subcontractor provisions issues that can arise with subcontractors made it plain that use of subcontractors was a criterion for consideration. AHCA's preference for the EQ in- house proposal was not clearly erroneous, arbitrary, or capricious. The ITN asked vendors to identify five hospitals that would be part of the NICU Care Monitoring Program. KePro identified five hospitals. EQ did not. AHCA asked EQ about this failure. EQ representatives advised AHCA of the geographic area for the hospitals and represented that they could identify them if requested. This response did not comply with the requirement to identify the five hospitals. However, identification of the five hospitals was not specified as a requirement of the ITN that could not be waived. It also has not been shown to provide EQ an advantage over KePro or to have a potentially significant effect on the quality of EQ's response or on the cost of the services to the State. The 2009 Request for Information AHCA first sought a vendor to provide the services involved here in 2009. At that time, AHCA issued a Request for Information inviting possible vendors to provide information about ways to provide the prior authorization services. KePro and EQ's predecessor, Louisiana Health Care Review, were among those providing information. AHCA reviewed their information and met with representatives of each of them. During that process one or more of the 2010 negotiation team viewed a demonstration of EQ's system. AHCA decided that it was not required to use competitive procurement to contract for the services. It selected EQ as the provider and moved toward executing a contract. In the process, Ms. Core received a more detailed explanation and demonstration of the EQ system. KePro challenged the decision and requested an administrative hearing. AHCA denied the request. KePro appealed. During the appeal, the First District Court of Appeal stayed AHCA from contracting with EQ. The court subsequently issued an opinion holding that KePro was entitled to an administrative hearing to challenge the decision to contract with EQ. Keystone Peer Review Organization, Inc. v. AHCA, 26 So. 2d 652 (Fla. 1st DCA). AHCA decided not to proceed with the hearing. Instead it began the ITN process resulting in this proceeding. Neither Ms. Core nor other AHCA negotiation team members considered the EQ system information they received during the aborted 2009 contracting efforts in deciding to contract with EQ after the ITN negotiations. If they had, it would not have mattered. EQ's ITN reply thoroughly describes and documents its MIS system. The reply also provided a link to a demonstration of EQ's system. Consequently, any information the team members may have recalled from the 2009 efforts was provided in the 2010 ITN process.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is Recommended that Agency for Health Care Administration enter a final order dismissing the formal written protest of Keystone Peer Review Organization, Inc. and awarding the contract to eQHealth Solutions, Inc. DONE AND ENTERED this 12th day of January, 2011, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 12th day of January, 2011. COPIES FURNISHED: Daniel Lake, Esquire Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 J. Stephen Menton, Esquire Martin P. McDonnell, Esquire Rutledge, Ecenia, & Purnell, P.A. 119 South Monroe Street, Suite 202 Post Office Box 551 Tallahassee, Florida 32302 Robert H. Hosay, Esquire John A. Tucker, Esquire Foley & Lardner LLP 106 E. College Avenue, Suite 900 Tallahassee, Florida 32311 Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Elizabeth Dudek, Interim Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308
