Findings Of Fact The rule at issue has been variously codified, but will be referred to for purposes of the present case as Rule 10C-7.39(6), Florida Administrative Code. The pertinent language, which was first adopted as part of Rule 10C- 7.03(5), Florida Administrative Code, on March 30, 1976, and which was repealed on July 28, 1981, provides: Reimbursement for services provided is in accord with the standards and principles of reasonable cost as defined and applied under the Social Security Act, Title XVIII, Medicare Program. In lieu of retroactive adjustment, 6 percent shall be added to a participating hospital's costs to determine a current reimbursement rate. Respondent adopted this rule on the claimed authority of Section 409.266, Florida Statutes. In its 1969 legislative session, the Florida Legislature enacted Section 409.266, Florida Statutes, entitled "Medical Assistance for the Needy," providing the original State legislative basis and authority for Florida's entry into the Medicaid program. Section 409.266(2), Florida Statutes, as enacted, authorized the Florida Department of Social Services or any other department that the Governor might designate to: Enter into such agreement with other state agencies or any agency of the federal government and accept such duties with respect to social welfare or public aid as may be necessary to implement the provisions of subsection (1) and to qualify for federal aid including compliance with provisions of Public Law 86-778 and the "Social Security Amendments of 1965" [estab- lishing Title XIX of the Social Security Act.] Section 409.266(3), Florida Statutes, as enacted, stated that: The department of social services is authorized and directed to prepare and operate a program and budget in order to implement and comply with the provisions of public law 86-778 and the "Social Secu- rity Amendments of 1965." Chapter 69-265, Laws of Florida (1969). No provisions of Florida law other than Section 409.266, Florida Statutes, as enacted, authorized any agency to perform any function specifically to implement the Medicaid program. The State of Florida formally commenced participation in the Medicaid program effective January 1, 1970. At all times pertinent to this controversy, respondent, Florida Department of Health and Rehabilitative Services or its predecessor agencies (referred to as "HRS") , has been and continues to be the "State Agency" identified in 42 U.S.C. Section 1396a (a) (5), and charged under Section 409.266, Florida Statutes, as amended, with the formulation of a State Plan for Medical Assistance ("State Plan"), 42 U.S.C. Section 1396a, and with the ongoing responsibility for the administration of the Medicaid program in the State of Florida. Since Florida's entry into the Medicaid program in 1970, HRS has been authorized essentially to "[e]nter into such agreements with appropriate agents, other State agencies, or any agency of the Federal Government and accept such duties in respect to social welfare or public aid as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a), Fla. Stat., as amended. HRS has never been authorized to enter into any agreements, accept any duties, or perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing Federal regulations and requirements. As a prerequisite for Florida's entry into the Medicaid program, HRS prepared and filed with the United States Department of Health, Education, and Welfare ("HEW") a State Plan, pursuant to Title XIX of the Social Security Act, and pursuant to its delegated legislative authority set forth in Section 409.266(2)(a), Florida Statutes. (In May, 1980, HEW was redesignated the United States Department of Health and Human Services, but for purposes of this action both shall be referred to as HEW.) C.W. Hollingsworth was the HRS official who had the responsibility for supervising the preparation, the filing, and for obtaining the approval of HEW of Florida's initial State Plan Florida's initial State Plan was approved by HEW effective January 1, 1970. At the time that Florida received approval of its initial State Plan, Title XIX of the Social Security Act required state plans to provide for the payment of the reasonable cost of inpatient hospital services. At the time that Florida received approval of its initial State Plan, HEW regulations governing reimbursement for inpatient hospital services under Medicaid required the State Plan to provide for reimbursement of Medicaid inpatient hospital services furnished by those hospitals also participating in the Medicare program, applying the same standards, cost reimbursement principles, and methods of cost apportionment used in computing reimbursement to such hospitals under Medicare. 45 C.F.R. Section 250.30(a) and (b), 34 Fed. Reg. 1244 (January 25, 1969). At the time that Florida entered the Medicaid program, Medicare cost reimbursement principles in effect governing reimbursement for the cost of inpatient hospital services required payment of a participating hospital's actual and reasonable costs of providing such services to Medicare beneficiaries, and, moreover, that such payment be made on the basis of the hospital's current costs rather than upon the costs of a prior period or upon a fixed negotiated rate. 42 U.S.C. Section 1395x (v) (1)(A) 20 C.F.R. Section 405.451(c) (2), 405.402(a) [later renumbered 42 C.F.R. Section 405.451(c)(2) and Section 405.402(a)]. Such Medicare principles and standards also provided for interim payments to be made to the hospital during its fiscal year. At the conclusion of the subject fiscal year, the hospital was required to file a cost report wherein the hospital included all of its costs of providing covered inpatient services to Medicare beneficiaries. A settlement or "retroactive adjustment" process then was required to reconcile the amount of interim payments received by the hospital during the fiscal period with its allowable costs incurred during that period. If the hospital had been overpaid during the year, it was required to refund the amount of that overpayment to the Medicare program. Conversely, if the hospital had been underpaid during the year, the Medicare program was required to make an additional payment to the hospital, retroactively, in the amount of the underpayment. 20 C.F.R. Section 405.402(b)(2), 405.451(b)(2). Essentially the same Medicare principles and standards governing reimbursement of inpatient hospital services described in the two preceding paragraphs have been in effect at all times pertinent to this controversy. 42 C.F.R. Section 405.401, et seq. Florida's approved State Plan as of January 1, 1970, governing reimbursement of inpatient hospital services under the Medicaid program, committed HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The only versions of Florida's State Plan provisions that have been approved by HEW and that have governed HRS's reimbursement of inpatient hospital services prior to July 1, 1981, each commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. Attached as an appendix to the final order is the form agreement drafted under the supervision of C.W. Hollingsworth, which has been in use from January 1, 1970, until July 1, 1981. From the inception of the Florida Medicaid program, and as a prerequisite for participation therein, a hospital has been required to execute a copy of the form agreement. A hospital may not participate in the Medicaid program without having executed such an agreement, nor may it propose any amendments thereto. The intent and effect of the form agreement is to require HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The form agreement requires HRS to compute a percentage " allowance in lieu of the retroactive adjustments ("percentage allowances") in determining the rates that hospitals will be paid for providing inpatient hospital services to Medicaid patients. The form agreement requires HRS to compute a new percentage allowance each year based on hospital cost trends. The meanings of the terms "allowance in lieu of retroactive adjustments" in all pertinent state plans and "percentage allowance for the year in lieu of retroactive payment adjustment" contained in the form agreement are identical. In drafting the form agreement, HRS intended that the "percentage allowance for the year in lieu of retroactive payment adjustment" be set at a level sufficient to ensure that hospitals participating in the Medicaid program would be reimbursed their "reasonable costs" of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. At all times pertinent to this controversy, participating hospitals, like petitioner, have been reimbursed by HRS for inpatient hospital services provided to Medicaid patients in the following manner: Within ninety (90) days following the close of its fiscal year, the partici- pating hospital files a Form 2551 or 2552 Annual Statement of Reimbursable Costs, as applicable, with both Blue Cross of Florida, Inc., the major fiscal intermediary respon- sible for the administration of Part A of the federal Medicare program in the State of Florida, and with HRS. This document, also referred to as a "cost report" details various hospital and financial statistical data relating to the patient care activities engaged in by the hospital during the sub- ject fiscal period. Upon receipt of the participating hospital's cost report for a fiscal period, HRS makes an initial determination based upon Medicare cost reimbursement principles and standards of the hospital's total allow- able inpatient costs, charges, and total patient days during the subject fiscal period, and then determines an inpatient per diem reimbursement rate for the period. To the inpatient per diem reimburse- ment rate is then added a percentage allow- ance in lieu of making any further retroactive corrective adjustments in reimbursement which. might have been due the hospital applicable to the reporting period. The adjusted in- patient per diem reimbursement rate is applied prospectively, and remains in effect until further adjustments in the rate are required. If HRS determines that total inpa- tient Medicaid reimbursement to a partici- pating hospital during a fiscal period exceeds the hospital's allowable and rea- sonable costs of rendering such covered inpatient services applying Medicare cost reimbursement principles and standards, then the hospital is required to remit to HRS the amount of such overpayment. If, however, HRS determines that the total inpatient Medicaid reimbursement received by a participating hospital is less than the hospital's actual and reason- able costs of rendering such covered inpa- tient services to Medicaid patients during the period applying Medicare cost reimburse- ment principles and standards, no further retroactive corrective adjustments are made; provided, however, that should an overpayment occur in a fiscal period, it may be offset and applied retroactively against an under- payment to the participating hospital which occurred during the next preceding fiscal period only. HRS has used the following "percentage allowances" in determining Medicaid reimbursement rates for inpatient hospital services: January 1, 1970-June 30, 1972 ...12 percent July 1, 1972-approximately March 30, 1976 ... 9 percent Approximately March 31, 1976-June 30, 1981... 6 percent Since at least January 1, 1976, HRS has not recomputed the "percentage allowance" on an annual basis. Since at least January 1, 1976, HRS has not based the "percentage allowance" that it has applied in determining Medicaid inpatient hospital reimbursement rates upon hospital cost trends. HRS has used no technical methodology based upon hospital cost trends to develop any of the "percentage allowances." At least since January 1, 1974, HRS's "percentage allowances" have been less than the corresponding average annual increases in the costs incurred by Florida hospitals of providing inpatient hospital services. Prior to March 30, 1976, all of HRS's published regulations addressing reimbursement of participating hospitals for their costs of providing inpatient hospital services to Medicaid patients required HRS to reimburse such hospitals in accordance with Medicare cost reimbursement principles and standards. In certain internal documents, Petitioner's Exhibits P-44 and P-12, HRS states that the average costs of providing inpatient hospital services in the State of Florida rose at least 18 percent during calendar year 1975. In November, 1975, the Secretary of HRS was informed by HRS officials that HRS faced a projected budgetary deficit for its fiscal year ended June 30, 1976. A decision memorandum presented options to the HRS Secretary for reducing the projected deficit. Among such options presented to and approved by the HRS Secretary was to reduce the "percentage allowance" from 9 percent to 6 percent. The reduction of the "percentage allowance" by HRS from 9 percent to 6 percent was effected in response to HRS's projected deficit, and was not based upon an analysis of hospital cost trends. HRS incorporated the 6 percent "percentage allowance" into its administrative rules which were published on March 30, 1976. In response to objections raised by the Florida Hospital Association to the reduction in the percentage allowance by HRS from 9 percent to 6 percent, HRS officials reexamined that reduction. During HRS's reexamination of its previous "percentage allowance" reduction, HRS was aware of and acknowledged the fact that Florida hospital costs were increasing at an average annual rate in excess of both the earlier 9 percent and the resulting 6 percent "percentage allowance." In a memorandum dated September 13, 1976, from HRS official Charles Hall to the Secretary of HRS, Petitioner's Exhibit P-45, Charles Hall informed the Secretary that the methods and standards then used by HRS to reimburse participating hospitals for their costs of providing inpatient hospital services to Medicaid patients was out of compliance with federal requirements. Charles Hall further informed the Secretary that the reason HRS had not theretofore been cited by HEW for noncompliance was the manner in which the Florida State Plan had been drafted, i.e., that the State Plan required HRS to reimburse hospitals under Medicaid for the reasonable costs that they would have been reimbursed applying Medicare cost reimbursement principles and standards. In a letter dated September 20, 1976, Petitioner's Exhibit P-31, HEW informed HRS that HEW had received a complaint from the Florida Hospital Association that the methods HRS was actually using to reimburse hospitals for the costs of providing inpatient hospital services to Medicaid patients were in violation of federal regulation 45 C.F.R. Section 250.30(a). A proposed amendment to Florida's State Plan submitted by HRS to HEW in November, 1976, Petitioner's Exhibit P-49, if approved, would have allowed HRS to reimburse hospitals for the cost of providing inpatient hospital services to Medicaid patients under methods differing from Medicare cost reimbursement principles and standards (an "alternative plan"). "Alternative plans" have been permitted under applicable federal regulations since October 21, 1974. A state participating in the Medicaid program may elect to establish an "alternative plan," but may not implement such "alternative plan" without the prior written approval of HEW. Florida has not had in effect an "alternative plan" of reimbursing participating hospitals for their costs of providing inpatient hospital services to Medicaid patients that was formally approved by HEW at any time prior to July 1, 1981. By letter dated January 7, 1977, Petitioner's Exhibit P-32, HEW notified HRS that it had formally cited HRS for noncompliance with federal regulations governing reimbursement of inpatient hospital services under Medicaid. HRS acknowledged their noncompliance and between November, 1976, and October 30, 1977, HRS attempted to revise its proposed "alternative plan" on at least two occasions in an attempt to obtain HEW approval. In October, 1977, HRS withdrew its proposed "alternative plan" then pending with HEW. HRS then contracted with an outside consultant, Alexander Grant & Company, to assist in the formulation of a new "alternative plan" proposal. In January, 1978, Alexander Grant & Company delivered its draft of an "alternative plan" to HRS. In October, 1978, HRS submitted a draft "alternative plan" to HEW for review and comment, and HEW expected HRS to submit a formal "alternative plan" proposal to HEW for its approval by November 1, 1978. HRS did not submit the formal "alternative plan" proposal to HEW until August 12, 1980. In a letter dated February 21, 1979, from Richard Morris, HEW Regional Medicaid Director, Region IV, to United States Senator Richard Stone of Florida, Mr. Morris advised Senator Stone: For more than two years the Florida Medicaid Program has not met Federal Requirements for inpatient hospital services reimbursement. Their payment methodology under-reimburses certain hospitals year after year. The pros- pective interim per diem rate paid by Florida to hospitals includes a percentage allowance to cover increased costs during the forthcom- ing year that is consistently less than increased costs in some hospitals. If the payments are less than costs, the difference is not reimbursed. This results in underpay- ments. We have worked closely with Florida to develop an acceptable alternative system that would meet Federal requirements. To date, Florida has not implemented such a system despite having received informal HEW agreement on a draft plan developed more than a year ago. It is our understanding that this alternative plan is not a high priority item at this time. We will con- tinue to work with HRS staff to secure Florida compliance regarding this require- ment. Petitioner's Exhibit P-46. Since August 12, 1980, HRS has submitted to HEW for its approval at least four more versions of an "alternative plan." Petitioner's Exhibits P-120, P-121, P-123, and P-152. Each of these versions were approved by the Secretary of HRS, and HRS believes each to comply with applicable Florida law. Mr. Erwin Bodo, Ph.D., was and is the HRS official responsible for the development and drafting of Exhibits P-120, P-121, P-123, and P-152. In June, 1981, HEW approved an "alternative plan" for the State of Florida (Exhibit P-152) , and such "alternative plan" was implemented effective July 1, 1981. Until July 1, 1981, HRS continued to use the 6 percent percentage allowance" to compute inpatient hospital reimbursement under Medicaid. Even after its repeal, Rule 10C-7.39(6), Florida Administrative Code, is applied by respondent in calculating reimbursement for Medicaid services provided between March 30, 1976, and July 1, 1981. From November 20, 1976, until July 1, 1981 the period in which HRS was attempting to secure HEW approval for an alternative plan--HRS was aware that the costs of inpatient hospital services were increasing at an average annual rate in excess of the 6 percent "percentage allowance." From September 1, 1976, through July 1, 1981, HRS has been out of compliance with its approved State Plan provisions, and HEW regulations governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. Since the quarter ending December 31, 1976, until July 1, 1981, HEW has formally cited HRS as being in contravention of its approved State Plan provisions, and HEW (now HHS) regulations, governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals--including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. PAN AMERICAN HOSPITAL CORPORATION Petitioner, Pan American Hospital Corporation, is a not-for-profit corporation, duly organized and existing under the laws of the State of Florida. Petitioner is a tax-exempt organization as determined by the Internal Revenue Service pursuant to Section 501(c)(3) of the Internal Revenue Code of 1954, as amended. At all times pertinent to this controversy, petitioner has operated and continues to operate a duly licensed 146-bed, short-term acute care general hospital, located at 5959 Northwest Seventh Street, Miami, Florida 33126. At all times pertinent to this controversy, petitioner has been and continues to be a duly certified provider of inpatient hospital services, eligible to participate in the Florida Medicaid program since January 27, 1974. The Appendix to this Final Order is a true and correct copy of the "Participation Agreement" entered into between petitioner and HRS, whereunder, inter alia, petitioner became eligible to receive payment from HRS for covered inpatient hospital services provided to Medicaid patients. At all times pertinent to this controversy, petitioner has been a certified "provider of services" participating in the Medicare program. During the fiscal periods in dispute in this action, petitioner did provide covered inpatient hospital services to Medicaid patients, and became eligible for payment by HRS of its reasonable costs of providing such services, determined in accor- dance with Medicare cost reimbursement principles and standards. With respect to each of the fiscal periods in dispute in this action, petitioner timely filed all cost reports and other financial data with HRS or its contracting agents, including Blue Cross of Florida, Inc., to enable HRS to determine petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients. During each of the fiscal periods in dispute in this action, HRS failed to reimburse petitioner for its reasonable costs of providing covered inpatient hospital services to Medicaid patients, determined in accordance with applicable Medicare cost reimbursement principles and standards. Such costs incurred by petitioner were reasonable, necessary, related to patient care, and less than customary charges within the meaning of those Medicare principles and standards. With respect to each of the fiscal periods in dispute, HRS and/or its contracting agent, Blue Cross of Florida, Inc. , reviewed and audited the cost reports filed by petitioner, and as a result of such review and audits set or adjusted, as applicable, the Medicaid inpatient per diem reimbursement rate at which petitioner would be paid during the next succeeding fiscal period or until that rate was again adjusted. MOTION TO DISMISS RULE CHALLENGE DENIED Respondent sought dismissal of petitioner's challenge to Rule 10C- 7.39(6), Florida Administrative Code, on grounds that the challenged rule provision has now been repealed (effective July 28, 1981). By this motion, respondent raises the question whether petitioner remains "substantially affected" notwithstanding the repeal. The parties are in agreement that respondent still applies Rule 10C-7.39(6) , Florida Administrative Code, in calculating reimbursement for providers like petitioner who furnished Medicaid services during the time between adoption of the rule and its repeal. The present case resembles State Department of Transportation v. Pan American Construction Company, 338 So.2d 1291 (Fla. 1st DCA 1976), app. dism. 345 So.2d 427 (Fla. 1977). The rule challenged in that case had been promulgated pursuant to a statute that was later amended by legislation which took effect after the Section 120.56 hearing, but before entry of a final order invalidating the rule. In response to the statutory amendment, moreover, the agency whose rule was under challenge adopted an emergency rule superseding the challenged rule. On appeal, the agency argued that the rule challenge was moot. The court ruled: While normally the law as it exists at the time of review will be applied to a pending case, in this proceeding, begun under the old law and rules adopted pursuant to it, we consider that respondents are entitled to construction of such law and rules. Their rights under contracts with peti- tioner which were in existence during the life of the former statute and rules may be affected by the construction of that statute and the rules adopted pursuant to it. State Department of Transportation v. Pan American Construction Co., 338 So.2d 1291, 1294 (Fla. 1st DCA 1976) In the present case there has been no statutory amendment, but here as in State Department of Transportation v. Pan American Construction Co., the proceedings pursuant to Section 120.56, Florida Statutes, began before the repeal of the challenged rule; and the parties' "rights under contracts . . . which were in existence during the life of the former . . . [rule] may be affected by the construction of that . . . [rule]." 338 So.2d at 1294. Simultaneously with the present proceedings, petitioner and respondent are litigating the question of what moneys, if any, respondent owes petitioner as reimbursement for Medicaid services furnished during periods which include the entire time that Rule 10C- 7.39(6) was in effect. No. 80-112. Even though Rule 10C-7.39(6), Florida Administrative Code, stands repealed, petitioner remains "substantially affected by" the rule, within the meaning of Section 120.56(1), Florida Statutes (1979). MOTION TO DISMISS DENIED Respondent contends that these proceedings are defective "for failure to join an indispensable party," viz., the federal government, because it "is Respondent's intention, should any liability result from this action, to make a claim for federal financial participation as to approximately fifty-nine percent of such liability [See generally] 42 U.S.C. Section 1320b-2(a)(2)." Motion to Dismiss, p. 2. This motion is also addressed to the petition in the companion substantial interest case, No. 80-112, and discussed in the recommended order in that case. For present purposes, it suffices to state the self-evident: No agency can avoid an administrative challenge to a rule it alone has promulgated on grounds that some other party's interest may be adversely affected by invalidation of the rule. CONSTITUTIONAL GROUNDS Among other things, petitioner contends that Rule 10C-7.39 (6), Florida Administrative Code, should be invalidated as violative of state and federal constitutional prohibitions against impairment of contractual obligations. Article I, Section 10 of the Constitution of the State of Florida proscribes "law[s] impairing the obligation of contracts," and the federal constitution also forbids any "State . . . [to] pass any . . . law impairing the obligation of contracts." Article I, Section 10. See United States Trust Co. v. New Jersey, 431 U.S. 975 (1977). Challenges to administrative rules brought pursuant to Section 120.56, Florida Statutes (1979), cannot, however, be predicated on constitutional grounds. State Department of Administration, Division of Personnel v. State Department of Administration, Division of Administrative Hearings, 326 So.2d 187 (Fla. 1st DCA 1976). See Department of Environmental Regulation v. Leon County, 344 So.2d 290, 295 n. 2 (Fla. 1st DCA 1977). INVALID EXERCISE OF DELEGATED LEGISLATIVE AUTHORITY The main thrust of petitioner's challenge to Rule 10C-7.39 (6), Florida Administrative Code, is its contention that respondent adopted the challenged rule not to implement Section 409.266, Florida Statutes, but in an attempt to avoid obligations imposed by Section 409.266, Florida Statutes, and the provisions of federal law incorporated by reference in that State statute. The challenged rule pertains to agreements made between respondent and providers of medical services in accordance with the provisions of Title XIX of the Social Security Act. The statute authorizes respondent to "[e]nter into . . . agreements as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a) , Florida Statutes (1979). No party suggests that any other State statutory provision furnishes substantive authority for promulgation of Rule 10C-7.39(6), Florida Administrative Code, and the parties have stipulated that "HRS has never been authorized to . . . perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing Federal regulations and requirements." Agency rules must conform to enabling statutes and may not repeal, amend, or modify any statute. State Department of Health and Rehabilitative Services v. McTigue, 387 So.2d 454 (Fla. 1st DCA 1980); Department of Health and Rehabilitative Services v. Florida Psychiatric Society, 382 So.2d 1280 (Fla. 1st DCA 1980); State Department of Transportation v. Pan American Construction Co., 338 So.2d 1291 (Fla. 1st DCA 1976) app. dism. 345 So.2d 427 (Fla. 1977) Incorporated by reference into Section 409.266, Florida Statutes, was the federal statutory requirement that hospitals providing Medicaid services be reimbursed by respondent for reasonable costs incurred in accordance with an approved State Plan. 42 U.S.C. Section 1396a (a)(13)(B) , Pub. L. 89-97, Section 121(a), redesiquated 42 U.S.C. Section 1396a (a) (13)(D), Pub. L. 90- 248, Section 224(a). At the time of its incorporation into State law, this federal statute had been definitively explicated by federal regulations requiring that reasonable cost for Medicaid purposes be calculated in accordance with applicable Medicare principles for purposes of reimbursing hospitals like petitioner that furnished both Medicaid and Medicare services. 2/ 42 C.F.R. Section 50.30(b), 34 Fed. Reg. 1244 et seq. (January 25, 1969). In addition, all Florida "State Plan provisions . . . approved by HEW and. . govern[ing] HRS's reimbursement of inpatient hospital services prior to July 1, 1981, . . . commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards." Pre-hearing Stipulation, 19. Even before adopting Rule 10C-7.39(6), Florida had begun setting Medicaid reimbursement rates by adjusting the previous year's rates upward to reflect inflation, as a matter of policy. As the parties have stipulated, in November of 1975, a budgetary deficit was projected for HRS; and, even though HRS was aware that inflation was substantially higher than 6 percent, HRS eventually decided to promulgate the rule now under challenge, setting the adjustment at 6 percent. HRS promulgated Rule 10C-7.39(6), Florida Administrative Code, not in furtherance of its statutory charge to reimburse Medicaid providers for costs reasonably incurred, but in order expediently to cut its own costs by disregarding the statutory scheme and reimbursing Medicaid providers less than the costs they had reasonably incurred. Cf. Patricia Godboldt v. David Pingree, Secretary, Department of Health and Rehabilitative Services, State of Florida, No. 81-2862 (2d Cir.; Prelim. Inqy., Nov. 25, 1981). UNCODIFIED POLICY CHALLENGED AS RULE Petitioner challenges not only Rule 10C-7.39(6), Florida Administrative Code, but also, as "an illicit rule," HRS's prior practice of setting reimbursement rates by adjusting the previous year's rates. The percentage allowances under preexisting practice were higher (9 and 12 3/ percent) but the methodology was the same as that codified in Rule 10C-7.39(6), Florida Administrative Code. The parties stipulated to the existence of a practice that reflected a policy that changed over time, see McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977) , but did not stipulate that this practice reflected a hard and fast "rule." The parties stipulated that "HRS used [12 percent from January 1, 1970, to June 30, 1972, and 9 percent from July 1, 1972, to approximately March 30, 1976] . . . in determining Medicaid reimbursement rates for inpatient hospital services," but did not prove or stipulate to the existence of any formal document or other written statement "issued by the agency head for implementation by subordinates with little or no room for discretionary modification." State Department of Administration v. Stevens, 344 So.2d 290, 296 (Fla. 1st DCA 1977). In the absence of such a stipulation or proof, the agency's practice of requiring a 9 percent "percentage allowance, has not been shown to amount in itself to an illicit rule. Department of Corrections v. McCain Sales of Florida, Inc., 400 So.2d 1301 (Fla. 1st DCA 1981). ATTACHMENT 4.19A Petitioner's challenge to Attachment 4.19A of the Florida State Plan for Medical Assistance was conditioned by the words "to the extent that Attachment 4.19A . . . Is interpreted in a manner different than that set forth in Paragraph 15" of the petition. Since the parties stipulated, in substance, to the allegations of paragraph 15 of the petition, the condition for the challenge never occurred. In any event, it is very clear that Attachment 4.19A did not have the force of a rule, inasmuch as its key pronouncement, viz., that "retroactive adjustments are prohibited by skate statute" was completely disregarded by respondent. Rule 10C-7.39(6), Florida Administrative Code, the policies which preceded that rule, and every contract respondent entered into with providers of Medicaid services contemplated retroactive adjustments. It is, accordingly, ORDERED: The final sentence of respondent's Rule 10C-7.39(6), Florida Administrative Code, is hereby declared to be an invalid exercise of delegated legislative authority. Petitioner's challenge to the percentage allowance policies that preexisted Rule 10C-7.39(6), Florida Administrative Code, is dismissed. Petitioner's challenge to Attachment 4.19A of the Florida State Plan for Medical Assistance is dismissed. DONE AND ENTERED this 4th day of December, 1981, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of December, 1981.
The Issue The issue is what is the correct amount of workers’ compensation reimbursement to Aventura Medical Center for emergency services rendered to patient J.R. for a work-related injury?
Findings Of Fact Petitioner, Guarantee, is a carrier within the meaning of Subsections 440.02(4) and (38), Florida Statutes, and Florida Administrative Code Rule 69L-7.602(1)(w). Respondent, the Department, is charged with the review and resolution of disputes regarding the payment of providers by carriers for medical services rendered to injured workers. The Department has exclusive jurisdiction to decide reimbursement disputes. § 440.13(7) and (11)(c), Fla. Stat. Intervenor, Aventura, is a health care provider within the meaning of Subsections 440.13(1)(h), Florida Statutes. Aventura is an acute care hospital located in Aventura, Miami- Dade County, Florida. On May 27, 2009, Aventura provided emergency services to the patient J.R., a 41-year-old male, who was injured at his place of work. J.R. was examined by Aventura’s emergency department physician. He received two Computed Tomography (“CT”) scans, one of the abdomen and one of the pelvis. He also received a urinalysis, a complete blood count (CBC), and an X-ray of his left side and ribs. J.R. was discharged after these tests. Aventura’s total charges for J.R.’s outpatient emergency services were $9,877.47. Aventura submitted its claim for reimbursement using the standard “uniform billing” form, UB-04. The UB-04 sets out each service provided to J.R., the individual charge for each service, and the total charge. The individual services on the UB-04 submitted for patient J.R. are listed as follows: comprehensive metabolic; assay lipase; amylase syrum; automated hemocram; urinalysis; X-ray of the ribs and chest; X-ray of the abdomen; contrast CT scan of the pelvis; contrast CT scan of the abdomen; the emergency department visit itself, and low osmolar contrast media (LOCM). Aventura’s claim was received by MCMC, an organization described as a “third-party administrator,” and was referred in turn to Qmedtrix. Qmedtrix is a medical bill-review agent located in Portland, Oregon. Qmedtrix performs bill review by referral from carriers and third-party administrators, and performed a bill review for Guarantee of the bill submitted by Aventura. For its compensation, Qmedtrix is paid a percentage of the difference, if any, between the amount billed by the facility and the amount paid by the carrier. Following Qmedtrix’ review, Aventura received a check from Guarantee in the amount of $6,987.21, along with an “Explanation of Medical Benefits” review (EOBR), which is required to be sent along with the bill payment. The EOBR sets out the 11 individual components of Aventura’s claim, and indicates that the first nine were approved for reimbursement at 75 percent of the charge billed by Aventura. The tenth component is the charge for the emergency department visit itself. For that charge, Aventura billed $722.00, of which 75 per cent would be $541.50. The EOBR indicates the corresponding 25 percent discount from billed charges ($180.50) under a column entitled “MRA,” and indicates further that an additional reduction of $143.28 was applied, leaving an approved payment of $398.22 for the emergency room component of the claim. The additional reduction of $143.28 is under a column entitled “Ntwk Redc,” and the narrative explanation under the total payment states, ”The network discount shown above is based on your contract with the network.” Guarantee conceded at hearing that there was no contract applicable to the claim. The eleventh and last component is the charge for the LOCM, which was completely disallowed with the explanation, “Correction to a Prior Claim.” The EOBR also has references to “convalescent care” and “PIP days,” neither of which apply to Aventura’s claim. The EOBR indicates a “procedure code” of 99283. The UB-04 submitted by Aventura also used the code 99283. This code is among five codes that are used by hospitals to bill emergency department visits based on “level” of intensity rendered. These codes are taken from the American Medical Association’s Current Procedural Terminology (or CPT), a coding system developed for physician billing, not for hospitals. Over the years, these CPT codes were adopted by hospitals for billing emergency department visits. Emergency department services are billed with CPT codes 99281 through 99285. After receiving the payment and EOBR, Aventura timely filed a Petition for Resolution of Reimbursement Dispute, with attachments, to the Department. Aventura alleged in its Petition that the correct reimbursement amount owed was $7,408.10, leaving an underpayment of $420.89. Qmedtrix, acting as Guarantee’s representative, then filed Guarantee’s Response to Petition for Resolution of Reimbursement Dispute and attachments with the Department. Attached to the Response was a letter from Mr. von Sydow dated November 9, 2009. The letter asserted that the correct payment to the hospital (Aventura) should be determined on an average of usual and customary charges for all providers in a given geographic area, rather than the hospital’s usual and customary charges. As authority, Mr. von Sydow cites the case of One Beacon Insurance v. Agency for Health Care Administration, 958 So. 2d 1127 (Fla. 1st DCA 2007). The letter also requested that the Department “scrutinize the bill in question in order to determine, first, whether the hospital in fact charged its usual charge for the services provided and, second, whether the billed charges are in line with the customary charges of other facilities in the community.” The letter further alleges that the hospital “upcoded” the emergency room visit, billing using CPT code 99283, asserting that the proper billing code should have been 99282. The letter concludes that the amount paid, $398.22, for the emergency department visit is closer to the “usual and customary” charges that Qmedtrix asserts, on behalf of Guarantee, is applicable to the claim. On November 18, 2009, the Department issued its Determination. The Determination states in pertinent part: The 2006 HRM, Section 12.,A., vests specific authority in the carrier to review the hospital’s Charge Master to verify charges on the itemized statement and to disallow reimbursement for specifically itemized services that do not appear to be medically necessary. No documentation submitted indicates the carrier elected to exercise this option. Moreover, the carrier did not allege that any service was deemed not “medically necessary” or that the charges present on the DWC-90 failed to match the charges on the provider’s Charge Master. Therefore, the OMS finds the charges billed by the hospital are the hospital’s usual and customary charges. The 2006 HRM provides for reimbursement of emergency room services at seventy-five percent (75%) of the hospital’s usual and customary charges. Whereas, the carrier failed to substantiate is [sic] adjustments and disallowances of reimbursement on the EOBR and the hospital’s billed charges are accepted as the hospital’s billed charges are accepted as the hospital’s usual and customary charges, the OMS determines correct total reimbursement equals $7,408.10 ($9,877.47 x 0.75). The determination letter also informed Guarantee of its right to an administrative hearing. Guarantee timely filed a Request for Administrative Hearing, which gave rise to this proceeding. CODING FOR J.R.’S EMERGENCY SERVICES As mentioned above, Aventura reported the emergency department visit using CPT Code 99283. No one from the hospital testified but Aventura’s expert, Allan W. March, M.D., reviewed Aventura’s hospital record for J.R. Dr. March is a graduate of Dartmouth College and Johns Hopkins University Medical School. He has extensive experience in, among other things, hospital physician practice and utilization review. Dr. March describes utilization as the oversight of medical care to affirm that it is appropriate, cost-effective, and medically necessary. Dr. March has worked as an emergency department physician and has personally treated upwards of 5,000 workers’ compensation patients. Dr. March testified on behalf of Intervenor and Respondent. Dr. March described J.R. from the hospital record as follows: This is a 41-year-old male who was kicked in the flank one week prior to his presentation to the emergency department, while engaged in a fight, and was seen immediately prior to his appearance in the emergency department by a workers’ compensation physician, who referred the patient to the emergency department noting a stat referral, meaning that he wanted that patient evaluated within the hour. Dr. March reviewed Aventura’s hospital record for J.R. to analyze whether Aventura appropriately used CPT code 99283. Dr. March explained that Aventura’s selection of CPT code 99283 for the UB-04 was, in all likelihood, due to a particular reference in J.R.’s patient record. Specifically, in that section of the record indicating “Permanent Medical Record Copy” at the bottom of each page, page 6 reflects an entry made on May 29, 2009, which was two days after the services were rendered. The May 29, 2009, entry was made by the emergency physician to assign a level for emergency physician services, and indicates “ER LEVEL III.” Although the “level” reference is for physician services and not for facility services, it would have been used by Aventura’s hospital coder in the absence of an emergency department charge sheet adopting the widely used guidelines from the American College of Emergency Physicians (ACEP Guidelines).” Aventura used an alternate methodology of determining the severity level of the patient, in which the coder would have used the complexity of the medical evaluation by the physician. Under the ACEP guidelines, the CPT code level assigned is always the highest level at which a minimum of one “possible intervention” is found. In this case, Dr. March determined that two CT scans were ordered by the physician and performed by the hospital, which substantiates the use of a 99284 code under the ACEP Guidelines. Thus, Dr. March determined that Aventura could have justified the use of CPT code 99284, which is higher than the 99283 CPT code assigned by Aventura, had the ACEP guidelines been used. Dr. March further explained that the separate charge for the emergency visit is intended to compensate the hospital for “evaluation and Management” costs not captured in other line items. According to Mr. March, the separate charge does not duplicate charges for specific procedures rendered, such as a CT scan. The claim submitted by Aventura was sent to Qmedtrix for a bill review. Its data elements were first entered into Qmedtrix’ proprietary bill-review software known as “BillChek.” The software placed Aventura’s claim on hold for manual review. The claim was then manually reviewed by Mr. von Sydow, Director of National Dispute Resolution for Qmedtrix. Although his educational background is in law, Mr. von Sydow is a certified coder certified by the American Health Information Management Association (AHIMA). Mr. von Sydow determined in his bill review that Aventura should have used code 99282 instead of 99283. Mr. von Sydow supported his conclusion that CPT code 99282 is the appropriate code for the emergency department visit by comparing the procedure codes and diagnosis codes reported by the hospital with examples of appropriate billing for emergency department services in the CPT code handbook. Mr. von Sydow concluded that the hospital’s billing with CPT code 99283 was not appropriate and that the hospital should have billed with CPT code 99282. Mr. von Sydow also calculated that while the hospital billed $722 with CPT code 99283, its usual and customary charge for a visit billed with 99282 is $600. Moreover, Mr. von Sydow referenced a study by American Hospital Association (AHA) and AHIMA, which suggests that hospitals should count the number and kind of interventions to approximate the CPT factors, but that a hospital should not include in this count interventions or procedures, such as CTs or X-rays, which the hospital bills separately. He further acknowledged that the federal Centers for Medicare and Medicaid Services (CMS) allow hospitals to use their own methodology in applying the CPT codes. David Perlman, M.D., received his undergraduate degree from Brown University and his medical degree from the University of Oregon. He has considerable experience as an emergency room physician. For the past six years, he has worked for Qmedtrix initially doing utilization review and as its medical director since 2005. Dr. Perlman testified on behalf of Guarantee. Dr. Perlman is also familiar with the ACEP guidelines referenced by Dr. March and the AHA/AHIMA study relied upon by Mr. von Sydow. He is also familiar with the CPT code handbook. Dr. Perlman suggested that the use of the ACEP guidelines could result in reimbursement essentially already provided in a separate line-item. He agrees with the methodology recommended by the AMA/AHIMA study. That is, counting the number and kind of interventions or procedures to approximate the CPT book’s factors to consider in selecting the code billed for emergency department services, but not including in this count interventions or procedures, such as CTs or X-rays, which the hospital bills separately. In Dr. Perlman’s opinion, J.R.’s injuries supported the assignment of CPT code 99283 as designated by Aventura. Dr. Perlman agreed with Dr. March’s opinion that Aventura could have billed at a higher level (99284), but not based on the number and kind of interventions or procedures. Dr. Perlman instead referenced examples in the ACEP guidelines. Dr. Perlman acknowledged that hospitals are free to use the ACEP guidelines and that many hospitals do so. Both Drs. March and Perlman are of the opinion that Aventura’s use of CPT code 99283 was appropriate, and further agreed that Aventura could have assigned the higher code of 99284. Therefore, coding J.R.’s emergency department visit as 99283 by Aventura was appropriate.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Financial Services, Division of Workers' Compensation, enter a Final Order requiring Petitioner to remit payment to Aventura consistent with the Determination Letter dated November 18, 2009, and Section 440.13(7)(c), Florida Statutes. DONE AND ENTERED this 17th day of June, 2010, in Tallahassee, Leon County, Florida. S BARBARA J. STAROS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of June, 2010.
The Issue The issue is whether Respondent should grant or deny a Petition for Resolution of Reimbursement Dispute filed by a health care provider or its assignee. The dispute concerns the proper reimbursement amount for 60 units of meloxicam 15 mg.
Findings Of Fact J. G. is 30 years old and suffered a compensable injury on September 14, 2009. On December 14, 2011, J. G. visited the Advanced Pain Management office of Dr. Daitch, who dispensed to the employee 60 units of meloxicam 15 mg. Meloxicam is a prescription pain medication. Dr. Daitch obtains certain prescription drugs from Unit Dose Services for dispensing in his office. Although Dr. Daitch sees patients who are not covered by Workers' Compensation, he dispenses prescription drugs in his office only to patients covered by Workers' Compensation and has been doing so for four years. Dr. Daitch testified that he was unaware of the pricing of the prescription drugs that he dispenses in his office, and he was unaware of any contract that, in this case, might require him or his assignee, as described in the next paragraph, to discount this reimbursement claim. But he testified that the dispensing of prescription drugs through retail chains such as Walgreens and CVS is "very profitable." (Tr. of deposition of Dr. Daitch 16). All of this testimony is credited. However, it is not unusual for providers to be unaware of in-network or preferred-provider contracts when that they dispense prescription drugs to injured employees. As a certified health care provider, Dr. Daitch was presumptively aware that, whenever he dispenses prescription drugs, his reimbursement may be limited to what is authorized for an in- network or preferred provider.3/ As he did in this case, Dr. Daitch routinely assigns his claims for reimbursement for dispensed prescription drugs. Dr. Daitch testified that he or his practice has a contract with Automated Healthcare Solutions, but the assignee in this case is Prescription Partners--either as a result of a reassignment or Dr. Daitch's misunderstanding of the identity of the billing contractor. For the December 14 office visit, Dr. Daitch completed a CMS-1500, which includes a National Drug Code (NDC) for the meloxicam that he dispensed, a note that he dispensed 60 units of the drug, a reimbursement claim of $437.48 for the drug, and a reimbursement claim of $4.18 as a dispensing fee. Appearing in the upper right-hand corner of the CMS-1500 is the name, "AmTrust of North America," suggesting that Dr. Daitch or Prescription Partners believed that AmTrust North America, Inc., or AmTrust North America of Florida, Inc., was the carrier or claims administrator. The CMS-1500 states that Prescription Partners is the "billing provider" and that Prescription Partners submitted the CMS-1500 to AmTrust North America. The carrier is Petitioner. AmTrust North America, Inc., is a multistate insurance agency, although it is not licensed in Florida. Formerly known as Associated Industries Insurance Service, Inc., AmTrust North America of Florida, Inc., is an insurance agency licensed in Florida and serves as a third-party administrator of claims on policies issued by Petitioner and other carriers, including the claim involved in this case. Each of these corporations is owned by AmTrust Financial Services, Inc., although AmTrust North America of Florida, Inc., was principally owned, as of July 1, 2009, by AmTrust North America, Inc. By EOBR received on January 11, 2012, Petitioner notified Prescription Partners that Petitioner was disallowing the dispensing fee and adjusting the reimbursement amount for the 60 units of meloxicam to $385.48. The explanation for both actions is: "Paid; no modification to the information provided on the medical bill; payment made pursuant to written contractual arrangement (network or PPO named required): ."4/ There is no network or PPO identified in the space after the final colon. The EOBR advises that reconsiderations or appeals must be submitted to Petitioner and Fair Pay SOLUTIONS, if Prescription Partners had any questions about the "analysis." Prescription Partners had questions about the analysis, but addressed them to OMS by filing the Petition. The Petition, which was timely filed, shows that the petitioner is Dr. Daitch, but that the Petition is presented by Prescription Partners, as an entity acting on behalf of the health care provider. The Petition shows copies were mailed to "AmTrust" and Petitioner. The Petition states the gist of the dispute as follows: "Carrier is paying under the AWP not according to the FL fee schedule. This claim is being processed incorrectly." The Petition states that the amount in dispute is $56.18. Attached to the Petition are four documents: the above-described CMS-1500 and EOBR, a Calculation Sheet that renders the above-described details on the amounts in dispute, and a document identified as "Detailed Product Information" from the "Red Book." The "RedBook" is the Drug Topics Red Book™, which is a price index published by Medical Economics Company, Inc. The Red Book™ provides an AWP, by NDC, for all prescription drugs, including repackaged drugs. The "Detailed Product Information," which is from an online version of the Red Book™, identifies the same UDC referenced in the above-described CMS-1500 and indicates that the drug is a repackaged generic. The "Detailed Product Information" also contains "current pricing information" for meloxicam 15 mg. The "current pricing information" shows that the AWP is $218.74 and "HCFA"-- evidently referring to Medicare reimbursement through the Health Care Financing Administration (HCFA)--is $6.28. These prices appear to apply to 30 units. The AWP is a price that is designated by the manufacturer or repackager and reported to the Red Book™ publisher. Contrary to its name, the AWP does not necessarily correspond to the mean price of all of the arm's length, wholesale transactions in the drug over a period of time; the AWP more closely resembles the "undiscounted sticker price" assigned to a drug by its manufacturer or repackager.5/ Unlike AWP, repackaging is self-explanatory. A repackager purchases a drug from its manufacturer in bulk--say, 1000 units--and repackages the drug in small quantities--say, 30 units--for dispensing by physicians and other appropriate health care providers. The repackager provides a package and label and obtains a unique UDC for the repackaged drug. By obtaining a unique UDC for the repackaged drug, the repackager is able to set a different AWP from the AWP assigned the drug by its manufacturer. In general, the AWPs assigned by repackagers are 80%-200% higher than the AWPs assigned by manufacturers. As between manufacturers and repackagers of meloxicam at the time in question, the AWP for 60 units ranged from about $290 for manufacturers to about $450 for repackagers. At the time in question, meloxicam was a generic. Now a MAC drug, which means it carries a "maximum allowable cost" because it is now manufactured by several manufacturers, meloxicam presently supports an AWP of $60.91 for 60 units. Petitioner timely filed a carrier response to the Petition. The response states that the carrier has contracted with Carlisle for the reimbursement of prescription drugs at reduced prices. The response states that neither Prescription Partners nor Dr. Daitch is a party to the contract, and they must accept the reduced reimbursement rate. The response includes a copy of a written contract between Carlisle and AmTrust North America (Written Contract); a letter dated January 12, 2012, from the president of Carlisle to the Claims Manager of AmTrust North America of Florida, Inc.; an invoice showing the reduced reimbursements for the subject transaction; and Informational Bulletin DFS-02-2009 dated August 12, 2009. Signed by both parties on August 2, 2012, and, from all appearances, taking effect on that date, the Written Contract is only 22 lines long, exclusive of headings. Its provisions are as follows: AmTrust North America will "exclusively" use Carlisle's "PBM" services. Carlisle will provide PBM services for AmTrust North America throughout the United States. Carlisle's PBM program includes over 64,000 pharmacies, including all of the major retail chains--Walgreens, CVS, Target, and Rite-Aid. If there are no contracted pharmacies that are "reasonably accessible" to an employee, the employee may use an out-of-network pharmacy. Carlisle will submit all pharmacy invoices on a form acceptable to AmTrust North America. The "terms" are "net-30, or as mandated by the appropriate state law." Carlisle will maintain pharmacy records for three years from the last activity. "Insurance. See attachment." (The versions of the contract submitted into evidence have no attachments.) g. The agreement is for one year, after which the agreement automatically renews unless either party provides written notice of termination at least 90 days prior to the renewal date. Carlisle is not an affiliate of AmTrust North America, Inc. Carlisle has a contract with an entity that has contracts with large chains of retail pharmacies. This networking-forming entity obtains discounts from AWPs for various classes of prescription drugs: brand name drugs, generic drugs, and MAC drugs. Pursuant to these contractual arrangements, Carlisle obtains for AmTrust North America, Inc., and its affiliates discounts of 12% off AWP for generic drugs. Eric Lloyd, OMS Program Administrator, testified that this is a relatively low percentage among in-network or preferred providers; this testimony is credited. The January 12, 2012, letter from Carlisle to AmTrust North America of Florida states that AmTrust North America of Florida has the right, under the Written Contract, to reimburse an out-of-network or nonpreferred provider at the same rate that applies to an in-network or preferred provider. The letter states that the pricing worksheet that Carlisle supplies to AmTrust North America of Florida, Inc., shows the reimbursement amount for prescription drugs obtained through in-network or preferred-provider pharmacies. Carlisle uses Medi-Span, which provides AWPs by NDCs like the Red Book™, as the source of the AWP for every prescription drug, to which Carlisle then applies the appropriate discount, depending on whether the drug is a brand name, generic, or MAC drug. Respondent's Information Bulletin DVS-02-2009, which was issued on August 12, 2009, is irrelevant to this case.6/ OMS resolved this reimbursement dispute in favor of Prescription Partners. In its Reimbursement Dispute Determination, OMS cites two grounds for this proposed agency action: 1) the Written Contract is between Carlisle and AmTrust North America, not Petitioner, and 2) the Written Contract provides no drug pricing methodology by which OMS could validate the accuracy of the discount that Petitioner applied to the AWP. The Reimbursement Dispute Determination mentions the Florida Workers' Compensation Health Care Provider Reimbursement Manual, 2008 edition (Provider Manual), which is incorporated by reference at Florida Administrative Code Rule 69L-7.020. Provider Manual II.F.1.b.(1) requires carriers to reimburse certified Florida health care providers pursuant to the reimbursement guidelines contained in the manual: the reimbursement shall be the "agreed upon contract price (whether agreed upon prior to rendering service(s) or upon submission of bill) or the maximum reimbursement allowance (MRA) in the appropriate schedule pursuant to section 440.13(12)(a), F.S." Provider Manual V.A recognizes that prescription drugs may be dispensed by pharmacists or dispensing physicians. Provider Manual V.A.5.a. limits reimbursement to the pharmacist or dispensing practitioner, pursuant to the formula contained in the manual. For prescription drugs, Provider Manual V.A.5.b states that reimbursement shall be by the "pharmaceutical reimbursement formula," which is either the AWP plus a $4.18 dispensing fee or the "contracted reimbursement amount determined in accordance with the contractual arrangement between the provider and insurer." The Provider Manual does not address the dispensing of prescription drugs by an out-of- network or nonpreferred provider. Alan McClain, Jr., Carlisle executive vice-president, negotiated the Written Contract. In testimony, Mr. McClain identified a few contractual provisions that are not contained in the Written Contract, such as that the discounts are confidential, but that AmTrust North America could disclose them if it wished, and that the affiliates of AmTrust North America, including Petitioner, are parties to the Written Contract. Mr. McClain also testified that the three levels of discounts are primarily derived from course of dealing, rather than a formal schedule to the Written Contract. Mr. McClain's testimony is credited. Nothing in this record suggests any discord between the AmTrust family of corporations, on the one hand, and Carlisle and its direct and indirect contractual counterparties described above, on the other hand. To the contrary, the business relationships among all of these parties appear to be entirely satisfactory. This simple fact, not fraud or collusion, explains the readiness of the parties freely to supplement the Written Contract with layers of oral agreements-- some express and some implied in fact from course of dealing--in order to perpetuate, reinforce, and extend these advantageous business relationships. These same written and oral contracts, both express and implied, that have produced such satisfaction among the parties on the carrier side of the transaction have produced no similar effect on Respondent, which has limited its consideration to the Written Contract and rejected the oral contracts and course of dealing. Petitioner objects to Respondent's treatment of these contractual arrangements on the ground that Respondent has not scrutinized as closely the business relationships and their documentation on the provider's side of the transaction. In its least appealing form, Petitioner's argument is: if Respondent casually accepts the role of Prescription Partners as assignee without insisting on documentation, it must do the same as to the right of Petitioner to access the discounts provided by Carlisle and impose them on out-of-network or nonpreferred providers such as Dr. Daitch. The ultimate question, as a matter of law, is whether the operative reimbursement provisions of the Workers' Compensation Law support Respondent's proposed agency action. But Petitioner's argument, as a matter of fact, exposes serious flaws in Respondent's posture in this case. Nothing in the record suggests any problems demanding regulatory intervention in the form of Respondent's prosecution of Prescription Partner's claim to an additional reimbursement of $56.18. There is no suggestion that Petitioner or its contractual counterparties have disrupted the reimbursement process. In particular, there is no suggestion that the 12% discount from AWP at issue in this case is excessive by industry standards; to the contrary, it is a relatively modest discount. In a more appealing form, Petitioner's argument reflects that multiple parties may be involved in what would seem to the injured employee to be the simplest of transactions--obtaining 60 pills for chronic or recurring pain-- and the business relationships among these parties are defined by a variety of oral and written, express and implied, contracts. In this light, Respondent's failure to demand documentation of the contractual arrangements among the multiple parties on the provider side of the transaction implicitly acknowledges the role of oral contracts and course of dealing in defining business relationships. By contrast, Respondent's insistence on documentation of the business relationships among the multiple parties on the carrier side of the transaction is inconsistent with legitimate business practices. The Conclusions of Law will consider the extent to which Respondent's insistence on documentation on the carrier side of the transaction finds any support among the operative reimbursement provisions.
Recommendation It is RECOMMENDED that the Division of Workers' Compensation enter a final order dismissing the petition of Dr. Jonathan Daitch and Prescription Partners, LLC, for resolution of a reimbursement dispute. DONE AND ENTERED this 7th day of May, 2013, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of May, 2013.
The Issue The issues in this case are whether Respondent applied the proper reimbursement principles to Petitioners' initial Medicaid rate setting, and whether elements of detrimental reliance exist so as to require Respondent to establish a particular initial rate for Petitioners' facilities.
Findings Of Fact There are nine Petitioners in this case. Each of them is a long-term health care facility (nursing home) operated under independent and separate legal entities, but, generally, under the umbrella of a single owner, Tzvi "Steve" Bogomilsky. The issues in this case are essentially the same for all nine Petitioners, but the specific monetary impact on each Petitioner may differ. For purposes of addressing the issues at final hearing, only one of the Petitioners, Madison Pointe Rehabilitation and Health Center (Madison Pointe), was discussed, but the pertinent facts are relevant to each of the other Petitioners as well. Each of the Petitioners has standing in this case. The Amended Petition for Formal Administrative Hearing filed by each Petitioner was timely and satisfied minimum requirements. In September 2008, Bogomilsky caused to be filed with AHCA a Change of Licensed Operator ("CHOP") application for Madison Pointe.1 The purpose of that application was to allow a new entity owned by Bogomilsky to become the authorized licensee of that facility. Part and parcel of the CHOP application was a Form 1332, PFA. The PFA sets forth projected revenues, expenses, costs and charges anticipated for the facility in its first year of operation by the new operator. The PFA also contained projected (or budgeted) balance sheets and a projected Medicaid cost report for the facility. AHCA is the state agency responsible for licensing nursing homes in this state. AHCA also is responsible for managing the federal Medicaid program within this state. Further, AHCA monitors nursing homes within the state for compliance with state and federal regulations, both operating and financial in nature. The AHCA Division of Health Quality Assurance, Bureau of Long-Term Care Services, Long-Term Care Unit ("Long-Term Care Unit") is responsible for reviewing and approving CHOP applications and issuance of an operating license to the new licensee. The AHCA Division of Health Quality Assurance, Bureau of Health Facility Regulation, Financial Analysis Unit ("Financial Analysis Unit") is responsible for reviewing the PFA contained in the CHOP application and determining an applicant's financial ability to operate a facility in accordance with the applicable statutes and rules. Neither the Long-Term Care Unit nor the Financial Analysis Unit is a part of the Florida Medicaid Program. Madison Pointe also chose to submit a Medicaid provider application to the Medicaid program fiscal agent to enroll as a Medicaid provider and to be eligible for Medicaid reimbursement. (Participation by nursing homes in the Medicaid program is voluntary.) The Medicaid provider application was reviewed by the Medicaid Program Analysis Office (MPA) which, pursuant to its normal practices, reviewed the application and set an interim per diem rate for reimbursement. Interim rate-setting is dependent upon legislative direction provided in the General Appropriations Act and also in the Title XIX Long-Term Care Reimbursement Plan (the Plan). The Plan is created by the federal Centers for Medicare and Medicaid Services (CMS). CMS (formerly known as the Health Care Financing Administration) is a federal agency within the Department of Health and Human Services. CMS is responsible for administering the Medicare and Medicaid programs, utilizing state agencies for assistance when appropriate. In its PFA filed with the Financial Analysis Unit, Madison Pointe proposed an interim Medicaid rate of $203.50 per patient day (ppd) as part of its budgeted revenues. The projected interim rate was based on Madison Pointe's expected occupancy rate, projected expenses, and allowable costs. The projected rate was higher than the previous owner's actual rate in large part based on Madison Pointe's anticipation of pending legislative action concerning Medicaid reimbursement issues. That is, Madison Pointe projected higher spending and allowable costs based on expected increases proposed in the upcoming legislative session. Legislative Changes to the Medicaid Reimbursement System During the 2007 Florida Legislative Session, the Legislature addressed the status of Medicaid reimbursement for long-term care facilities. During that session, the Legislature enacted the 2007 Appropriations Act, Chapter 2007-72, Laws of Florida. The industry proposed, and the Legislature seemed to accept, that it was necessary to rebase nursing homes in the Medicaid program. Rebasing is a method employed by the Agency periodically to calibrate the target rate system and adjust Medicaid rates (pursuant to the amount of funds allowed by the Legislature) to reflect more realistic allowable expenditures by providers. Rebasing had previously occurred in 1992 and 2002. The rebasing would result in a "step-up" in the Medicaid rate for providers. In response to a stated need for rebasing, the 2007 Legislature earmarked funds to address Medicaid reimbursement. The Legislature passed Senate Bill 2800, which included provisions for modifying the Plan as follows: To establish a target rate class ceiling floor equal to 90 percent of the cost- based class ceiling. To establish an individual provider- specific target floor equal to 75 percent of the cost-based class ceiling. To modify the inflation multiplier to equal 2.0 times inflation for the individual provider-specific target. (The inflation multiplier for the target rate class ceiling shall remain at 1.4 times inflation.) To modify the calculation of the change of ownership target to equal the previous provider's operating and indirect patient care cost per diem (excluding incentives), plus 50 percent of the difference between the previous providers' per diem (excluding incentives) and the effect class ceiling and use an inflation multiplier of 2.0 times inflation. The Plan was modified in accordance with this legislation with an effective date of July 1, 2007. Four relevant sentences from the modified Plan are relevant to this proceeding, to wit: For a new provider with no cost history resulting from a change of ownership or operator, where the previous provider participated in the Medicaid program, the interim operating and patient care per diems shall be the lesser of: the class reimbursement ceiling based on Section V of this Plan, the budgeted per diems approved by AHCA based on Section III of this Plan, or the previous providers' operating and patient care cost per diem (excluding incentives), plus 50% of the difference between the previous providers' per diem (excluding incentives) and the class ceiling. The above new provider ceilings, based on the district average per diem or the previous providers' per diem, shall apply to all new providers with a Medicaid certification effective on or after July 1, 1991. The new provider reimbursement limitation above, based on the district average per diem or the previous providers' per diem, which affects providers already in the Medicaid program, shall not apply to these same providers beginning with the rate semester in which the target reimbursement provision in Section V.B.16. of this plan does not apply. This new provider reimbursement limitation shall apply to new providers entering the Medicaid program, even if the new provider enters the program during a rate semester in which Section V.B.16 of this plan does not apply. [The above cited sentences will be referred to herein as Plan Sentence 1, Plan Sentence 2, etc.] Madison Pointe's Projected Medicaid Rate Relying on the proposed legislation, including the proposed rebasing and step-up in rate, Madison Pointe projected an interim Medicaid rate of $203.50 ppd for its initial year of operation. Madison Pointe's new projected rate assumed a rebasing by the Legislature to eliminate existing targets, thereby, allowing more reimbursable costs. Although no legislation had been passed at that time, Madison Pointe's consultants made calculations and projections as to how the rebasing would likely affect Petitioners. Those projections were the basis for the $203.50 ppd interim rate. The projected rate with limitations applied (i.e., if Madison Pointe did not anticipate rebasing or believe the Plan revisions applied) would have been $194.26. The PFA portion of Madison Pointe's CHOP application was submitted to AHCA containing the $203.50 ppd interim rate. The Financial Analysis Unit, as stated, is responsible for, inter alia, reviewing PFAs submitted as part of a CHOP application. In the present case, Ryan Fitch was the person within the Financial Analysis Unit assigned responsibility for reviewing Madison Pointe's PFA. Fitch testified that the purpose of his review was to determine whether the applicant had projected sufficient monetary resources to successfully operate the facility. This would include a contingency fund (equal to one month's anticipated expenses) available to the applicant and reasonable projections of cost and expenses versus anticipated revenues.2 Upon his initial review of the Madison Pointe PFA, Fitch determined that the projected Medicaid interim rate was considerably higher than the previous operator's actual rate. This raised a red flag and prompted Fitch to question the propriety of the proposed rate. In his omissions letter to the applicant, Fitch wrote (as the fourth bullet point of the letter), "The projected Medicaid rate appears to be high relative to the current per diem rate and the rate realized in 2006 cost reports (which includes ancillaries and is net of contractual adjustments). Please explain or revise the projections." In response to the omissions letter, Laura Wilson, a health care accountant working for Madison Pointe, sent Fitch an email on June 27, 2008. The subject line of the email says, "FW: Omissions Letter for 11 CHOW applications."3 Then the email addressed several items from the omissions letter, including a response to the fourth bullet point which says: Item #4 - Effective July 1, 2007, it is anticipated that AHCA will be rebasing Medicaid rates (the money made available through elimination of some of Medicaid's participation in covering Medicare Part A bad debts). Based on discussions with AHCA and the two Associations (FHCA & FAHSA), there is absolute confidence that this rebasing will occur. The rebasing is expected to increase the Medicaid rates at all of the facilities based on the current operator's spending levels. As there is no definitive methodology yet developed, the rebased rates in the projections have been calculated based on the historical methodologies that were used in the 2 most recent rebasings (1992 and 2002). The rates also include the reestablishment of the 50% step-up that is also anticipated to begin again. The rebasing will serve to increase reimbursement and cover costs which were previously limited by ceilings. As noted in Note 6 of the financials, if something occurs which prevents the rebasing, Management will be reducing expenditures to align them with the available reimbursement. It is clear Madison Pointe's projected Medicaid rate was based upon proposed legislative actions which would result in changes to the Plan. It is also clear that should those changes not occur, Madison Pointe was going to be able to address the shortfall by way of reduced expenditures. Each of those facts was relevant to the financial viability of Madison Pointe's proposed operations. Madison Pointe's financial condition was approved by Fitch based upon his review of the PFA and the responses to his questions. Madison Pointe became the new licensed operator of the facility. That is, the Long-Term Care Unit deemed the application to have met all requirements, including financial ability to operate, and issued a license to the applicant. Subsequently, MPA provided to Madison Pointe its interim Medicaid rate. MPA advised Madison Pointe that its rate would be $194.55 ppd, some $8.95 ppd less than Madison Pointe had projected in its PFA (but slightly more than Madison Pointe would have projected with the 50 percent limitation from Plan Sentence 1 in effect, i.e., $194.26). The PFA projected 25,135 annual Medicaid patient days, which multiplied by $8.95, would equate to a reduction in revenues of approximately $225,000 for the first year of operation.4 MPA assigned Madison Pointe's interim Medicaid rate by applying the provisions of the Plan as it existed as of the date Madison Pointe's new operating license was issued, i.e., September 1, 2007. Specifically, MPA limited Madison Pointe's per diem to 50 percent of the difference between the previous provider's per diem and the applicable ceilings, as dictated by the changes to the Plan. (See Plan Sentence 1 set forth above.) Madison Pointe's projected Medicaid rate in the PFA had not taken any such limitations into account because of Madison Pointe's interpretation of the Plan provisions. Specifically, that Plan Sentence 3 applies to Madison Pointe and, therefore, exempts Madison Pointe from the new provider limitation set forth in Plan Sentences 1 and 2. However, Madison Pointe was not "already in the Medicaid program" as of July 1, 2007, as called for in Plan Sentence 3. Rather, Madison Pointe's commencement date in the Medicaid program was September 1, 2007. Plan Sentence 1 is applicable to a "new provider with no cost history resulting from a change of ownership or operator, where the previous operator participated in the Medicaid program." Madison Pointe falls within that definition. Thus, Madison Pointe's interim operating and patient care per diems would be the lesser of: (1) The class reimbursement ceiling based on Section V of the Plan; (2) The budgeted per diems approved by AHCA based on Section III of the Plan; or (3) The previous provider's operating and patient care cost per diem (excluding incentives), plus 50 percent of the difference between the previous provider's per diem and the class ceiling. Based upon the language of Plan Sentence 1, MPA approved an interim operating and patient care per diem of $194.55 for Madison Pointe. Plan Sentence 2 is applicable to Madison Pointe, because it applies to all new providers with a Medicaid certification effective after July 1, 1991. Madison Pointe's certification was effective September 1, 2007. Plan Sentence 3 is the primary point of contention between the parties. AHCA correctly contends that Plan Sentence 3 is not applicable to Petitioner, because it addresses rebasing that occurred on July 1, 2007, i.e., prior to Madison Pointe coming into the Medicaid system. The language of Plan Sentence 3 is clear and unambiguous that it applies to "providers already in the Medicaid program." Plan Sentence 4 is applicable to Madison Pointe, which entered the system during a rate semester, in which no other provider had a new provider limitation because of the rebasing. Again, the language is unambiguous that "[t]his new provider reimbursement limitation shall apply to new providers entering the Medicaid program. . . ." Madison Pointe is a new provider entering the program. Detrimental Reliance and Estoppel Madison Pointe submitted its CHOP application to the Long-Term Care Unit of AHCA for approval. That office has the clear responsibility for reviewing and approving (or denying) CHOP applications for nursing homes. The Long-Term Care Unit requires, as part of the CHOP application, submission of the PFA which sets forth certain financial information used to determine whether the applicant has the financial resources to operate the nursing home for which it is applying. The Long-Term Care Unit has another office within AHCA, the Financial Analysis Unit, to review the PFA. The Financial Analysis Unit is found within the Bureau of Health Facility Regulation. That Bureau is responsible for certificates of need and other issues, but has no authority concerning the issuance, or not, of a nursing home license. Nor does the Financial Analysis Unit have any authority to set an interim Medicaid rate. Rather, the Financial Analysis Unit employs certain individuals who have the skills and training necessary to review financial documents and determine an applicant's financial ability to operate. A nursing home licensee must obtain Medicaid certification if it wishes to participate in the program. Madison Pointe applied for Medicaid certification, filing its application with a Medicaid intermediary which works for CMS. The issuance of a Medicaid certification is separate and distinct from the issuance of a license to operate. When Madison Pointe submitted its PFA for review, it was aware that an office other than the Long-Term Care Unit would be reviewing the PFA. Madison Pointe believed the two offices within AHCA would communicate with one another, however. But even if the offices communicated with one another, there is no evidence that the Financial Analysis Unit has authority to approve or disapprove a CHOP application. That unit's sole purpose is to review the PFA and make a finding regarding financial ability to operate. Likewise, MPA--which determines the interim Medicaid rate for a newly licensed operator--operates independently of the Long-Term Care Unit or the Financial Analysis Unit. While contained within the umbrella of AHCA, each office has separate and distinct duties and responsibilities. There is no competent evidence that an applicant for a nursing home license can rely upon its budgeted interim rate--as proposed by the applicant and approved as reasonable by MPA--as the ultimate interim rate set by the Medicaid Program Analysis Office. At no point in time did Fitch tell Madison Pointe that a rate of $203.50 ppd would be assigned. Rather, he said that the rate seemed high; Madison Pointe responded that it could "eliminate expenditures to align them with the available reimbursement." The interim rate proposed by the applicant is an estimate made upon its own determination of possible facts and anticipated operating experience. The interim rate assigned by MPA is calculated based on the applicant's projections as affected by provisions in the Plan. Furthermore, it is clear that Madison Pointe was on notice that its proposed interim rate seemed excessive. In response to that notice, Madison Pointe did not reduce the projected rate, but agreed that spending would be curtailed if a lower interim rate was assigned. There was, in short, no reliance by Madison Pointe on Fitch's approval of the PFA as a de facto approval of the proposed interim rate. MPA never made a representation to Madison Pointe as to the interim rate it would receive until after the license was approved. There was, therefore, no subsequent representation made to Madison Pointe that was contrary to a previous statement. The Financial Analysis Unit's approval of the PFA was done with a clear and unequivocal concern about the propriety of the rate as stated. The approval was finalized only after a representation by Madison Pointe that it would reduce expenditures if a lower rate was imposed. Thus, Madison Pointe did not change its position based on any representation made by AHCA.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by Respondent, Agency for Health Care Administration, approving the Medicaid interim per diem rates established by AHCA and dismissing each of the Amended Petitions for Formal Administrative Hearing. DONE AND ENTERED this 23rd day of February, 2009, in Tallahassee, Leon County, Florida. R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 23rd day of February, 2009.
The Issue The issues are whether proposed and existing Florida Administrative Code rules, both numbered 59G-6.030, are valid exercises of delegated legislative authority.
Findings Of Fact The Petitioners are 120 hospitals--some not-for-profit, some for-profit, and some governmental--that are licensed under chapter 395, Florida Statutes, provide both inpatient and outpatient services, and participate in the Medicaid program. AHCA is the state agency authorized to make payments for services rendered to Medicaid patients. Before 2013, all Medicaid outpatient services were provided and paid fee-for-service. Under the fee-for-service model, hospitals submit claims to AHCA, and AHCA reimburses the hospitals based on the established rate. For many years, AHCA has set prospective Medicaid fee- for-service reimbursement rates for outpatient hospital services, either semi-annually or annually, based on the most recent complete and accurate cost reports submitted by each hospital; has re-published the Florida Title XIX Hospital Outpatient Reimbursement Plan (Outpatient Plan) that explained how the rates were determined; and has adopted the current Outpatient Plan by reference in rule 59G-6.030. In 2005, the Florida Legislature’s General Appropriations Act (GAA) stated that the funds appropriated for Medicaid outpatient hospital services reflected a cost savings of $16,796,807 “as a result of modifying the reimbursement methodology for outpatient hospital rates.” It instructed AHCA to “implement a recurring methodology in the Title XIX Outpatient Hospital Reimbursement Plan that may include, but is not limited to, the inflation factor, variable cost target, county rate ceiling or county ceiling target rate to achieve the cost savings.” AHCA responded by amending the Outpatient Plan to provide: “Effective July 1, 2005, a recurring rate reduction shall be established until an aggregate total estimated savings of $16,796,807 is achieved each year. This reduction is the Medicaid Trend Adjustment.” The amended Outpatient Plan was then adopted by reference in rule 59G-6.030, effective July 1, 2005. AHCA collaborated with the hospitals to determine how to accomplish the legislatively mandated reduction in a manner that would be fair to all the hospitals. It was decided to take the hospitals’ unaudited cost reports from the most recent complete fiscal year and the number of Medicaid occasions of service from the monthly report of AHCA’s Medicaid fiscal agent that corresponded to the hospitals’ fiscal years, and use an Excel spreadsheet program with a function called Goal Seek to calculate proportionate rate adjustments for each hospital to achieve the legislatively mandated aggregate savings. The resulting rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2005. In 2006, there was no further Medicaid Trend Adjustment (MTA) reduction. However, in accordance with the instructions in the 2005 GAA, the 2005 MTA reduction of $16,796,807 was treated as a recurring reduction and was applied again in the 2006 Outpatient Plan, which again stated: “Effective July 1, 2005, a recurring rate reduction shall be established until an aggregate total estimated savings of $16,796,807 is achieved each year. This reduction is the Medicaid Trend Adjustment.” The 2006 Outpatient Plan also stated: “This recurring reduction, called the Medicaid Trend Adjustment, shall be applied proportionally to all rates on an annual basis.” It also came to be known as the first cut or cut 1. It again was applied by taking the hospitals’ most current unaudited cost reports and the corresponding occasions of service from the appropriate monthly report of the fiscal agent, and using the Excel spreadsheets and the Goal Seek function to calculate rate adjustments for each hospital. The cut 1 rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2006. In 2007, the GAA stated that the funds appropriated for Medicaid outpatient hospital services were reduced by $17,211,796 “as a result of modifying the reimbursement for outpatient hospital rates, effective July 1, 2008.” This has been referred to as the second cut or cut 2. It instructed AHCA to “implement a recurring methodology in the Title XIX Outpatient Hospital Reimbursement Plan to achieve this reduction.” The 2008 Outpatient Plan again applied the first cut as a recurring reduction and stated that it was to be “applied proportionally to all rates on an annual basis.” It then made the second cut, which was to be “applied to achieve a recurring annual reduction of $17,211,796.” These cuts were again applied by taking the hospitals’ most current unaudited cost reports and the corresponding occasions of service from the appropriate monthly report of the fiscal agent, and using the Excel spreadsheets and the Goal Seek function to calculate rate adjustments for each hospital. The resulting rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2008. This process was repeated in subsequent years. The third cut (cut 3) was in 2008; it was a $36,403,451 reduction. The fourth cut (cut 4) was in 2009, during a special session; it was a $19,384,437 reduction; however, per the GAA that made the fourth cut, it was not applied to the rates of certain children’s specialty hospitals, which were excluded from the reduction. In addition, using language similar to what AHCA had been using in the Outpatient Plans, the 2009 GAA stated: “The agency shall reduce individual hospital rates proportionately until the required savings are achieved.” The Legislature enacted cut 5 and cut 6 in 2009 and 2010. However, the GAAs stated that AHCA should not take these cuts if the unit costs before the cuts were equal to or less than the unit costs used in establishing the budget. AHCA determined that cuts 5 and 6 should not be taken. However, cuts 1 through 4 continued to be applied as recurring reductions, and rates were adjusted for cuts 1 through 4 in 2009 and 2010 in the same manner as before. In 2011, the GAA enacted cut 7; it was for $99,045,233 and was added to the previous cuts for all but certain children’s specialty and rural hospitals, which were excluded from the additional reduction. In setting the individual hospitals’ reimbursement rates, AHCA first applied cut 7 in the same manner as cuts 1 through 4. The result was a 16.5 percent rate adjustment for cut 7, which was much higher than for previous cuts. Some of the hospitals pointed this out to AHCA and to the Legislature and its staff. There was lots of discussion, and it was determined that the rate adjustment from cut 7 would be more like what the Legislature was expecting (about 12 percent), if budgeted occasions of service were used, instead of the number from the fiscal agent’s monthly report that corresponded to the most recent cost reports. AHCA agreed to change to budgeted fee-for- service occasions of service for cut 7, with the concurrence of the hospitals and the Legislature and its staff. The year 2011 was also the year the Legislature instituted what became known as the “unit cost cap.” In that year, the Legislature amended section 409.908, Florida Statutes, to provide: “The agency shall establish rates at a level that ensures no increase in statewide expenditures resulting from a change in unit costs effective July 1, 2011. Reimbursement rates shall be as provided in the General Appropriations Act.” § 409.908(23)(a), Fla. Stat. (2011). This part of the statute has not changed. The GAA that year elaborated: In establishing rates through the normal process, prior to including this reduction [cut 7], if the unit cost is equal to or less than the unit cost used in establishing the budget, then no additional reduction in rates is necessary. In establishing rates through the normal process, if the unit cost is greater than the unit cost used in establishing the budget, then rates shall be reduced by an amount required to achieve this reduction, but shall not be reduced below the unit cost used in establishing the budget. “Unit cost” was not defined by statute or GAA. To calculate what it was in 2011, AHCA divided the total dollar amount of Medicaid payments made to hospitals by AHCA by the number of Medicaid occasions of service for all hospitals. The result was $141.51. Since 2011, AHCA has applied the unit cost cap with reference to the 2011 unit cost of $141.51. Since then, AHCA has compared the 2011 unit cost to the current cost, calculated by dividing the total dollar amount of Medicaid payments made to all hospitals by AHCA by the number of Medicaid occasions of service for all hospitals, except in children’s and rural hospitals, to determine whether the unit cost cap would require a further rate reduction, after applying the MTA cuts. Using this comparison, the unit cost cap never has been exceeded, and no further rate adjustments ever have been required. It is not clear why AHCA excluded Medicaid occasions of service for children’s and rural hospitals from the unit cost calculations made after 2011. It could have been because those hospitals were excluded from cut 7 and cut 8. Cut 8 was enacted in 2012; it was for $49,078,485 and was added to the previous cuts for all but certain children’s specialty and rural hospitals, which were excluded from the additional reduction. In 2012, the Legislature specified in the GAA that budgeted occasions of service should be used in calculating the MTA reduction for inpatient hospitals. AHCA always treated inpatient and outpatient MTAs the same, and it viewed the specific legislative direction for the inpatient MTA as guidance and indicative of legislative intent that it should continue to use budgeted occasions of service for the outpatient cut 7 and should also use them for the outpatient cut 8. Again, the hospitals did not object since the result was a higher reimbursement rate. In 2014, the Florida Medicaid program began to transition Medicaid recipients from a fee-for-service model to a managed care model. Under the managed care model, AHCA pays a managed care organization (MCO) a capitation rate per patient. The MCOs negotiate contracts with hospitals to provide outpatient care at an agreed reimbursement rate per occasion of service. Since August 2014, the majority of Medicaid recipients has been receiving services through MCOs, rather than through fee-for-service. Currently, about 75 to 80 percent of Medicaid outpatient hospital occasions of service are provided through managed care In recognition of the shift to MCOs, the Legislature began to divide the Medicaid outpatient hospital reimbursement appropriation in the GAA between what AHCA reimburses directly to hospitals under the fee-for-service model and what it pays MCOs to provide those services under the MCO delivery system. This allocation of the budgets between fee-for-service and managed care necessarily accomplished a corresponding division of the recurring MTA reductions between the two delivery systems. The Legislature did not enact any statutes or GAAs requiring AHCA to change how it applies MTA reductions to determine fee-for-service outpatient reimbursement rate adjustments, or make any other changes in response to the transition to MCOs. There were no additional MTA reductions in 2015. The 2015 Outpatient Plan, which is incorporated in existing rule 59G- 6.030, applied the previous cuts as recurring reductions. The evidence was confusing as to whether cuts 7 and 8 were applied using the occasions of service in the fiscal agent’s monthly report corresponding to the hospitals’ most current unaudited cost reports, or using budgeted occasions of service. If the former, the numbers did not yet reflect much of the shift to the managed care model because of a time lag in producing cost reports, and the evidence suggested that the numbers were approximately the same as the budgeted occasions of service used previously. Whichever numbers were used, the resulting rate adjustments were incorporated in the hospitals’ reimbursement rates, effective July 1, 2015. Leading up to the 2016 legislative session, there was a legislative proposal to determine prospective Medicaid outpatient reimbursement rates using a completely new method called Enhanced Ambulatory Patient Groups (EAPGs). EAPGs would eliminate the need to depend on hospital cost reports and complicated calculations to determine the effects of MTA reductions on prospective hospital outpatient reimbursement rates, effective July 1, following the end of the legislative session each year. Hospitals, including some if not all of the Petitioners, asked the Legislature not to proceed with the proposed EAPG legislation until they had an opportunity to study it and provide input, and EAPGs were not enacted in 2016. However, section 409.905(6)(b) was amended, effective July 1, 2017, to require the switch to EAPGs. See note to § 409.905, Fla. Stat.; and ch. 2016-65, § 9, Laws of Fla. (2016). When it became apparent that EAPGs would not be in use for prospective reimbursement rates for fiscal year 2016/2017, AHCA basically repeated the 2015/2016 process, but adjusted the occasions of service used for calculating the hospitals’ rate reductions for cuts 7 and 8 by adding 14,000 occasions of service. At the end of July, AHCA published new rates effective July 1, 2016. When the new rates were published, they were challenged by some of the Petitioners under section 120.57(1), Florida Statutes. Citing section 409.908(1)(f)1., AHCA took the position that there was no jurisdiction and dismissed the petitions. That decision is on appeal to the First District Court of Appeal. The Petitioners also challenged the methodology used to calculate the new prospective reimbursement rates as a rule that was not adopted as required, and challenged the validity of existing rule 59G-6.030, which incorporated the 2015 Outpatient Plan by reference. These challenges became DOAH cases 16-6398RX through 16-6414RX. In response to DOAH cases 16-6398RX through 16-6414RX, AHCA adopted the 2016 Outpatient Plan by reference in proposed rule 59G-6.030. The 2016 Outpatient Plan provides more detail than the 2015 version. AHCA’s position is that the additional detail was provided to clarify the 2015 version. However, it changed the occasions of service used for calculating the hospitals’ rate reductions for cuts 7 and 8, as indicated in Finding 22, as well as some other substantive changes. The 2015 Outpatient Plan addressed the unit cost cap by stating: “Effective July 1, 2011, AHCA shall establish rates at a level that ensures no increase in statewide expenditures resulting from a change in unit costs.” The 2016 Outpatient Plan elaborates and specifies the calculation AHCA has been using, as stated in Finding 14. The 2015 Outpatient Plan provided that an individual hospital’s prospective reimbursement rate may be adjusted under certain circumstances, such as when AHCA makes an error in the calculation of the hospital’s unaudited rate. It also stated: “Any rate adjustment or denial of a rate adjustment by AHCA may be appealed by the provider in accordance with Rule 28-106, F.A.C., and section 120.57(1), F.S.” The 2016 Outpatient Plan deleted the appeal rights language from the existing rule. The effect of the existing and proposed rules on the Petitioners through their effect on managed care contract rates is debatable. Those rates do not have to be the same as the fee- for-service outpatient reimbursement rates, although they are influenced by the fee-for-service rates, and it is not uncommon for them to be stated as a percentage of the fee-for-service rates. By law, managed care contract rates cannot exceed 120 percent of the fee-for-service rates unless the MCO gets permission from AHCA, as provided in section 409.975(6). Currently, rates paid by MCOs for Medicaid hospital outpatient services average about 105 percent of the fee-for-service reimbursement rates. AHCA has indicated that it would not expect or like to see the contract rates much higher than that. It is not clear whether that still is AHCA’s position. If higher rates were negotiated, the impact of fee-for-services rate adjustments on managed care rates could be reduced or even eliminated. The effect of the existing and proposed rules on the Petitioners through their effect on how fee-for-service reimbursement rates are calculated is not disputed. With the transition to managed care, the effect is greater and clearly substantial. The recurring MTA reductions enacted by the Legislature through 2014, which total $224,015,229 (after taking into account $10,656,238 that was reinstated, and $4,068,064 that was added in consideration of trauma centers), are being spread over fewer fee-for-service occasions of service, especially for cuts 7 and 8, which significantly lowers the fee-for-service outpatient reimbursement rates calculated under the proposed rule. The Petitioners’ objections to the validity of the proposed and existing rules can be summarized as follows: a lack of legislative authority for recurring (i.e., cumulative) MTA reductions; a failure to adopt a fixed methodology to calculate individual hospital outpatient reimbursement rate adjustments resulting from MTA reductions; specifically, a failure to derive the number of fee-for-service occasions of service used in calculating individual hospital outpatient reimbursement rate adjustments in the same manner every year; conversely, a failure to increase the occasions of service used to calculate individual hospital outpatient reimbursement rate adjustments resulting from cuts 1 through 4; a failure of the unit cost cap in the existing rule to specify how it is applied; a failure of the unit cost cap in the proposed rule to compare the 2011 unit cost to the current cost, calculated by dividing the total dollar amount of Medicaid payments made to all hospitals by AHCA by the number of Medicaid occasions of service for all hospitals, including in children’s and rural hospitals; and proposed rule’s deletion of the language in the existing rule stating that a rate adjustment or denial can be appealed in accordance with Florida Administrative Code Rule 28-106 and section 120.57.
The Issue Whether or not certain cost items disallowed in the Department of Health and Rehabilitative Services' audit report of Fountainhead Nursing and Convalescent Home, Respondent, for fiscal year ending June 30, 1977, were proper and, therefore, should be sustained.
Findings Of Fact During the course of the hearing, there was little dispute regarding the facts here involved. By letter dated March 21, 1979, Saul H. Silverman, C.P.A., requested an administrative hearing for the Fountainhead Nursing and Convalescent Home, Petitioner, provider No. 20043-0, due to certain audit adjustments based on an audit of the provider's Medicaid Cost Report for the fiscal year ending June 30, 1977. The audit in question was performed by Laventhol & Horwath, C.P.A.'s under contact with the Department of Health and Rehabilitative Services, Tallahassee, Florida. Bamberg, Superstein & Co., Certified Public Accountants, represent the Petitioner, Ni-Bud, Inc., T/A fountainhead Nursing and Convalescent Home, 390 Northeast 135th Street, North Miami, Florida, and prepared the Medicaid Cost Report for June 30, 1977. The Petitioner requested a hearing based on a disagreement with the following adjustments made by the auditors: 1. Administrator's compensation disallowed disallowed $37,162.00 2. Medical records expense disallowed 465.00 3. Oxygen income offset of expense 1,078.00 4. Method of computing Medicaid per diem cost by using cost finding methods not reflected in the instructions for preparation of the Cost Reports. During the hearing, Respondent agreed to permit the allowance for oxygen which had been previously disallowed provided Petitioner establish via documentation that the costs reflected for oxygen were, in fact, used only for emergencies. Documentation to that effect has been submitted and the oxygen income offset expense is no longer at issue herein. Additionally, based on an audit update received July 5, 1979, a review of the medical records expense, which expense was previously disallowed, was allowed during the updated audit. Therefore, the medical records expense is no longer at issue. What is remaining at issue herein are the items respecting the Administrator's compensation and the method of computing Medicaid per diem costs by using cost findings methods not reflected in the instructions for preparation of cost reports. The amount disallowed for the Administrator's compensation was an amount of $37,162. The total compensation allowed for the Administrator, Joseph Mossey, was $61,140. In the auditor's determination, a reasonable compensation for the Administrator was $23,978. Petitioner disallowed what it determined to be a "bonus" as such was not related to patient care. Kenneth Conners, Jr., an employee of Petitioner in the auditing section, appeared and testified respecting the manner in which cost adjustments are made. He testified that the cost reports submitted are primarily used for prior years and to determine interim per diem rates for the following year. He testified that cost reports result in no adjustment for Medicare rates and administrator's salary. He testified that with respect to the issues surrounding the disallowance of the Administrator's "bonus," the question centered around whether the money was in fact earned. Additionally, he testified that consideration is given to whether the "bonus" is reasonable; whether it is related to patient care and that in reaching a decision, consideration is given to allowable costs for bonuses in similar facilities in various regions of the country. Conners testified that based on figures contained in a publication issued by Commerce Clearing House, Inc. (CCH), the Administrator's bonus disallowed for this facility was proper. For example, he pointed out that in the Arkansas region the lower figure for comparable administrators is $19,500, with an upper range of $30,000. In Texas, the lower compensation is around $15,000, an upper range is $37,000 and the mean figure is $24,600. In New York, a similar figure results in compensation in the lower range of $8,100, an upper range is $32,500 and a mean compensation figure is 419,600. Conners cited a $9,000 lower range in California, an upper range of $26,00 and a median of $15,000. In Florida, the lower range for a comparable facility was $12,297, an upper range of $67,044 and a mean range of $19,588. He testified that when making its determination, Respondent utilizes a manual, HIM Section 22.01(2) and the guiding standard therein is whether or not the amounts are reasonable and related to patient care. Petitioner disagrees with Respondent's determination and points out that inasmuch as its Administrator, Joseph Mossey, is not a stockholder of the Respondent corporation, Ni-Bud, Inc., and is not related in any manner to any stockholder of the corporation, the amount that should be allowable compensation for him is not governed by the rules for owner's compensation as contained in regulation Section 405.425 and HIM-15-1, Chapter 9. Instead, he pointed out that the general rule of reasonableness, necessity, prudent buyer concept and expenses related to patient care are the pertinent considerations (Regulations 405.451 and HIM-15-1, Chapter 21) and should controlling. It is undisputed that Mr. Mossey's function as an administrator is necessary and related to patient care. The disagreement thus, centers around the reasonableness of the compensation and whether the Respondent's owners were acting as "prudent buyers" as that concept applies to the Medicaid reimbursement. As stated, Mr. Mossey is not an owner of the facility and, therefore, all employment contracts and compensation arrangements must be assumed to have been negotiated at "arms length." Regulation Section 405.451(c)(2) and (3). Subsections (2) and (3) of the above regulation provide in pertinent part that: The cost of provider's services vary from one provider to another and the variations generally reflect differences in scope of services and intensity of care. The provision entitled XVIII of the act for the payment of reasonable cost of services is intended to meet the actual cost, however widely they may vary from one institution to another. This is subject to a limitation where a particular institution's costs are found to be substantially out of line with other institutions in the same area which are similar in size, scope of services, utilization and other relevant factors. The determination of reasonable costs of services must be based on costs related to the care of beneficiaries of Title XVIII of the act. Reasonable cost includes all necessary and proper expenses incurred in rendering services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans. It includes both direct and indirect costs and normal standby costs. However, where the provider's operating costs include amounts not related to patient care, specifically not reimbursable under the program, or flowing from the provision of luxury items or services, (that is, those items of services substantially in excess of or more expensive than those generally considered necessary for the provision of needed health services), such amount will not be allowable. The reasonable cost basis of reimbursement contemplates that the providers of services will be reimbursed the actual cost for providing quality care, however widely the actual costs may vary from provider to provider and from time to time for the same provider. HIM-15-Part I, Section 2103 entitled, "Prudent Buyer," states that: In those cases where an intemediary notes that a provider pays more than a going price for a supply or service, in the absence of clear justification for the premium, the intermediary will exclude excess cost in determining allowable costs under Medicare. There is no question but that Mr. Mossey's compensation is higher than the average nursing home administrator. Respondent contends that Mr. Mossey's duties, management skills and background justify this higher than normal rate of compensation. Joseph Mossey, Administrator of the subject facility since October 1970, appeared at the hearing and testified respecting his background and duties at the provider. He testified that prior to becoming an administrator for the subject facility, he had been a supervisor in nusing services for Eastman Kodak Company. Prior thereto, he had operated a nursing home in Saudi Arabia and had also served as a private duty nurse. At the outset of his employment relationship with the provider, he initially hired a more competent staff and paid better salaries to recruit, attract and retain competent employees. He testified that since becoming administrator in 1970, the facility has enjoyed an excellent rating from the Respondent, resulting in only one citation during 1977 and two citations in 1978, none of which were related to patient care. Additionally, he testified that he is on call twenty-four hours daily and that he is called upon to answer and respond to all emergency situations and make emergency policy decisions. During the first seven years of his employment as administrator, which of couse covers part of the period in question, Mossey worked seven days a week plus holidays. Mossey attends seminars and workshops on a continuous basis and keeps abreast of changing trends in nursing home care. This aids in enabling him to better provide quality care at a reasonable rate. Evidence reveals that Mr. Mossey's experience and management skills have kept the rise in the cost of providing care of the subject facility at levels far below industry averages. The following is the cost per patient day at the facility, excluding fixed expenses, since 1970. FISCAL YEAR JUNE 30, AMOUNT PERCENT OF CHANGE 1970 $10.53 -0- 1971 9.95 -5.5 1972 9.57 -3.8 1973 9.41 -1.7 1974 9.82 +4.3 1975 11.41 +16.1 1976 12.50 +9.5 1977 13.76 +10.1 1978 15.25 +10.8 Since 1970, the cost per day is up approximately 45 percent or about 5.6 percent per year on average. During the same period, evidence reveals that the coinsurance rate paid by Medicare patients, which is set up annually by the U.S. Department of Health, Education and Welfare and based on the average per diem charge in a hospital, has gone up form $5.50 to $18.00, or 177 percent. This, of course, reflects a higher rate of cost increase in the healthcare industry as a whole, then in the Respondent's case. It appears that the Respondent is thus keeping the cost of operating the nursing home lower than the norm and, of course, a derivative benefit to the State Medicaid/Medicare Program through a lower reimbursement rate. Industry surveys indicate that from 1972 through 1976 nursing home costs increased 45.56 percent. The Respondent's costs for the same period increased by 25.6 percent. Since July 1, 1974, when Medicaid initiated their cost related reimbursement rates, the Respondent has consistently been under the maximum cost reimbursement cap set by the Medicaid program. The following examples are illustrative: YEAR REIMBURSEMENT RATE CAP 1974 $493.00 $550.00 1975 527.00 600.00 1976 575.00 630.00 1977 615.00 680.00 1978 600.00 2/ 778.00 The State cap, which represents the level at which approximately 60 percent of Florida nursing homes being run efficiently would be fully reimbursed for their costs, has risen 41.5 percent. Contrawise, the Respondent's rate has risen only 21.8 percent. Mr. Mossey has thus kept his costs lower than the industry average. This cost savings of approximately $3.18 per patient day more than compensates for the $.71 per day cost of Mr. Mossey's higher than average compensation. Therefore, it appears that the Respondent was justified in paying a higher than normal compensation to its Administrator under the prudent buyer and reasonableness concepts. I shall so recommend. The final item of contention is the cost finding method used by the auditors to determine Medicaid's share of the Respondent's operating costs. The auditors used a two-step method of allocation. First, the auditors determine allowable costs for the entire nursing home. Next, the auditors remove the patient days and costs of services for Medicare patients. It should be noted, that the entire facility is Medicaid certified. Using the remaining patient days and costs, the auditors calculated the per diem amount to be used to allocate operating costs to Medicaid patients. The Medicare costs and patient days removed were determined from the facility's Medicare Cost Report filed with that program. Medicare, however, uses a more sophisticated method of allocating costs than Medicaid. Medicaid is a full coverage program but all services, for example, physical therapy, speech therapy and drugs, are not covered by Medicaid. It is the Medicaid payments that are here involved and which Petitioner contends are computed after deductions and operating costs are made for those costs associated with Medicare. Based on the July 5, 1979, audit update report, a revision adding back a net effect for recomputing the Medicare adjustment based on audited Medicare cost reports resulted in an overpayment figure of $24,887 to the provider. Respondent contends that making the adjustments here involved resulted in removing costs which affect the average cost per patient day. It is also contended that the majority of those deductions come from the full-care patients which have the highest per diem cost and this results in lower payments to the provider. Responder urges that by isolating Medicare costs and removing them from the remaining costs for the nursing home prior to calculating the per diem cost of operation, the auditors have violated the Medicaid principles of reimbursement. Finally, Respondent contends that based on cost report instructions and instructions received from the Medicare program which is based on that program's more sophisticated cost reimbursement formula, the auditors should not enter into the calculation, the nursing home's determination of costs allocated to the Medicaid program. The Social Security Health Insurance Act in 42. U.S. COde 1395(x)(v)(i)(a), is the guiding standard for determining cost payments for the Medicaid/medicare program reimbursement formulas. That section provides in pertinent part that: The reasonable costs of any services shall be the costs actually incurred, excluding therefrom any part of the incurred costs found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included . . . such regulations shall (i) take into account both direct and indirect cost of providers of services (excluding therefrom any such costs, including standby costs, which are determined in accordance with regulations to be unnecessary in the efficient delivery of services covered by the insurance programs established under this title) in order that, under the methods of determining costs, the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this title would not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance program. . . . Regulations promulgated in accordance with the above statute are contained in 42 CFR 405.451(b)(l) which provides in pertinent part that: The objective is that in determining costs, the costs with respect to individuals covered by the program will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by the program. Considertion of the above-quoted provisions require that all costs relating to Medicare patients be separated out in determining the costs for which reimbursements will be made under Medicaid. The Medicare adjustments here presented are for the purpose of accomplishing this objective and/or adjustments that the Respondent is required to make. From the foregoing, it is concluded that the revised update audit report dated July 2, 1979, properly gives consideration to the requirements of the above-quoted provisions. It is, therefore, RECOMMENDED that Fountainhead Nursing Convalescent Home be required to remit the overpayments as reflected in the July 2, 1979, audit update, or in lieu thereof, that these overpayments be deducted from future Medicaid payments to Respondent. Additionally, it is recommended that the Petitioner credit the Respondent with the amount of $37,162 for fiscal year ending June 30, 1977, which amount represents the amount previously disallowed for the Administrator's compensation. RECOMMENDED this 30th day of August 1979, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
Findings Of Fact Friendly Village of Brevard, Inc. d/b/a Washington Square (herein, Washington Square) is an intermediate care facility for the mentally retarded (ICF/MR), located at 2055 North U.S. 1, in Titusville, Florida. Friendly Village of Orange, Inc., d/b/a Lake View Court (herein, Lake View Court), is also an ICF/MR located at 920 W. Kennedy Boulevard, in Eatonville, Florida. Howell Branch Court is the same type of facility, located at 3664 Howell Branch Road, Winter Park, Florida. All three facilities are operated by Developmental Services, Inc. All are certified ICF/MR's participating in the Florida Medicaid Program. The Department of Health and Rehabilitative Services (HRS) is the state agency responsible for overseeing the ICF/MR Medicaid Program. Howell Branch entered the Florida Medicaid Program in July 1982; Washington Square entered the program on January 19, 1983; and Lake View Court entered the program on February 13, 1983. Prior to beginning operations, medicaid providers were requested to submit a budgeted cost report, a projection of what the provider anticipated spending during the coming year for services to its residents. HRS received those reports and established a per diem rate based on the costs and number of patients and arrived at a per patient, per day rate. Each month as services were provided, the ICF/MR billed the state Medicaid program for the number of patient days times the per diem. During the period in question, cost settlement would occur at the conclusion of the budgeted period. The provider would file his cost report detailing what was actually spent in Medicaid-allowable costs to provide the services, HRS would compare that amount with the amount budgeted and would settle with the provider. Prior to the July 1, 1984 ICF/MR Medicaid Reimbursement Plan, if a provider were under reimbursed (incurred allowable costs in excess of reimbursement) the provider would not receive additional reimbursement in the settlement. However, if the provider received reimbursement in excess of its allowed costs, the excess had to be paid back to HRS. This is called "one-way" cost settlement. Representatives of HRS and Florida's ICF/MR industry began negotiations on a new state reimbursement plan in 1982 and 1983. The participants in the negotiations sought to remove certain cost limitations and to insure that individual facilities would receive fair reimbursement of their Medicaid- allowable costs. The negotiations resulted in the Title XIX ICF/MR Reimbursement Plan dated July 1, 1984 (the 1984 Plan). The 1984 Plan was adopted as a rule by incorporation, in Rule 10C- 7.49(4)(a)2. Florida Administrative Code. The 1984 Plan contains a two-way cost settlement method to replace the one-way settlement method described above. This means that under the 1984 Plan, providers could receive additional reimbursement during settlement if their actual allowable costs exceeded reimbursement under the per diem rate. Washington Square and Lake View Court filed budgeted cost reports for the fiscal year ending February 19, 1984. HRS performed audits of these reports in 1985. The audits were issued in April and May 1988. The audits did not apply the two-way cost settlement method described in the 1984 Plan. Petitioners claim that a proper interpretation of the 1984 Plan is that two-way cost settlement is retroactive to January 1983 for new providers entering the program after January 1, 1983. That claim is based on the following language in the 1984 Plan and subsequent 1985 Plan: For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12 month period submitted by the provider. (Petitioner's Exhibit 2, the 1984 Plan, pp 29-30. For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12-month period submitted by the provider. Overpayment as a result of the difference between the approved budgeted interim rate and actual costs of the budgeted item shall be refunded to HRS. Underpayment as a result of the difference between the budgeted interim rate and actual allowable costs shall be refunded to the provider. The basis for calculating prospective rates will be the first year settled cost report. (Petitioner's Exhibit 3, the 1985 Plan, p. 31.) Neither the above, nor any other language in the plans indicate that the 1984 Plan would become effective for any providers prior to July 1, 1984. HRS intended that the plan be prospectively applied. Francis "Skip" Martin was employed in HRS' Medicaid Cost Reimbursement Planning and Analysis Unit and was involved in negotiating and drafting the 1984 plan for the agency. He remembers no discussions of retroactive application of the plan. Nor could Petitioners' witnesses expressly recall that the negotiations included retroactive application of the "two- way" settlement method. Instead, they were aware that the department was working with them to establish a more acceptable reimbursement plan and they assumed that retroactivity was part of the plan. (transcript pp 95-98, 126.) Skip Martin explained that the January 1, 1983 date was arrived at by working backwards from July 1, 1984, the date of the plan. The intent was to establish a cutoff point for providers entering the program as to whether they would be considered under prospective rates or be given an interim rate and still be considered a new provider when the plan was implemented. The January 1, 1983, cutoff allowed for a year's worth of reporting history plus sufficient time for the provider to compile his cost report and submit it to the department, and time for the department to have received the cost report and have it included in the calculations that would be used on July 1, 1984. ICF/MR's entering the program after January 1, 1983, would not have had sufficient cost history for rate setting, and as "new providers" would come under a separate rate setting provisions in the plan. Carlton Dyke Snipes has worked in HRS' Medicaid Cost Reimbursement Analysis Section since 1983, and in November 1985, he became the section Administrator. He explained that the language cited above from page 31 of the 1985 Plan was a clarification of the intent that the two-way cost settlement implemented on July 1, 1984, apply to new providers, as well as existing providers. The method had not been expressly addressed in the July 1, 1984 plan in that section relating to new providers. As an alternative to retroactive application of the two-way cost settlement provision in the July 1, 1984 Plan, Petitioners contend that they should be allowed a waiver of class ceilings as provided in the plan in effect in 1983. This issue was raised in this proceeding for the first time at the final hearing. The 1983 ICF/MR Medicaid Reimbursement Plan includes this provision regarding waivers: The class ceiling under paragraph c above may be exceeded provided; the period of the limits shall not exceed six (6) months. The HCFA Regional Office will be notified in writing at least 10 days in advance in all situations to which this exception is to be applied and will be advised of the rationale for the decision, the financial impact, including the proposed rate and the number of facilities and patients involved. (Petitioners' Exhibit #7, p. 15) In one case discussed at hearing, HRS granted an exemption under this provision. The facility was an ICF/MR cluster facility, Sunrise Cape Coral. The application by the facility was cleared in advance by the federal agency, Health Care Financing Administration (HCFA). The 1983 Plan is no longer in effect and was superceded by the July 1, 1984 Plan. Petitioners did not apply for a waiver when the 1983 Plan was in effect. Instead, they claim that they did not know such an opportunity existed until discovery for this proceeding uncovered the Sunrise case. The issue with regard to Petitioner's Howell Branch facility differs from the audit issues affecting Washington Square and Lake View Court addressed above. HRS' audit of Howell Branch in 1988 includes an overpayment to the facility of approximately $115,000.00. Petitioners claim that Howell Branch should not have to reimburse those funds because during a portion of the eighteen-month cost reporting period Howell Branch was underpaid for an amount which should more than offset the overpayment. According to the provisions of the reimbursement plan which was in effect during the relevant period, July 1982 (when Howell Branch opened) through December 1983, HRS cost settled based on the lesser of: class ceilings in effect during the period, actual costs, or the budgeted interim rate. Class ceilings are established by HRS for various levels of care required by ICF/MR residents. These ceilings are based on cost reports received by HRS as of each June 30 and go into effect on October 1st of each year. Howell Branch, therefore, experienced three class ceilings during its July 1982 through December 1982 reporting period. HRS applied those three cost ceiling periods to Howell Branch, rather than monthly periods, as contended by Petitioners. As described by Carlton Dyke Snipes, MRS took the average cost determined by an audit report and every rate than had been in effect during that cost reporting period and, for every period that rate was in effect, applied the lesser of the average audited cost or the budgeted rate that was paid or the ceiling that was in effect and reprocessed the claims that had been made. This resulted in the $115,000.00 overpayment. If MRS had used average costs and average rates for the entire eighteen- month period, as advocated by Petitioners, the result would have been that ceilings would be exceeded during a portion of the eighteen month period.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order denying the petitions of Washington Square, Lake View Court and Howell Branch. DONE and ENTERED this 14th day of June, 1989 in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of June, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-2939 The following constitute specific rulings on the findings of fact proposed by the parties: Petitioners' Proposed Findings of Fact 1 and 2. Included in Preliminary Statement. 3 through 6. Adopted in Paragraph 1. 7. Adopted in Paragraph 2. 8 through 10. Adopted in Paragraph 3. 11 and 12. Adopted in Paragraph 5. 13 and 14. Adopted in Paragraph 6. Adopted in Paragraph 7. Rejected as unnecessary. 17 and 18. Adopted in Paragraphs 8 and 9, except for the implication that two- way reimbursement applied retroactively to January 1, 1983. Adopted in part in Paragraph 9, but the retroactive application of the methodology is rejected as inconsistent with the evidence. Adopted in Paragraph 11. Adopted in part in Paragraph 10, the statement of entitlement to two-way settlement is rejected as inconsistent with the evidence. Adopted in Paragraph 15. Rejected as argument. Adopted in part in Paragraph 16, otherwise rejected as argument. Rejected as inconsistent with the evidence. Rejected as contrary to the evidence. HAS' method of cost settlement was not inappropriate. Adopted in substances in Paragraph 19. Rejected as unnecessary 29 and 30. Rejected as argument and unnecessary. Respondent's Proposed Findings of Fact Adopted in Paragraph 1. Adopted in Paragraphs 2 and 3 Adopted in Paragraph 8. 4 and 5. Adopted in Paragraphs 4 and 5. Adopted in Paragraph 6. Adopted in Paragraph 10. Adopted in Paragraphs 10 and 11. Adopted in Paragraph 17. COPIES FURNISHED: Michael Bittman, and Karen L. Goldsmith P.O. Box 1980 Orlando, Florida 32802 Carl Bruce Morstadt and Kenneth Muszynski 1323 Winewood Boulevard, Bldg. One Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 R.S. Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Findings Of Fact At all times material hereto, Petitioner was a duly licensed nursing home facility participating in the Medicaid Program administered and funded by Respondent. As a Medicaid Program participant, Petitioner is required annually to file a cost report with Respondent. From this cost report, Respondent establishes a per diem rate for the provider reimbursement effective the first day of the month following the month in which the cost report is received. Respondent provides each participating facility with forms to be used in submitting the annual cost report. These forms are sent to the participants by mail and are accompanied by instructions. Petitioner's cost report for the fiscal year ending October 31, 1980, was prepared by an independent accounting firm which, on November 26, 1980, mailed the report by Express mail to the following address: Department of Health and Rehabilitative Services, Reimbursement Supervisor, Medicaid Desk Review, Post Office Box 2050, Jacksonville, Florida 32203. Express mail guarantees next-day delivery. On November 27, 1980, a legal holiday under Section 683.01, Florida Statutes, petitioner's cost report was placed in Respondent's post office box in Jacksonville, Florida. Because of the holiday on November 27, 1980, Respondent's offices were closed. Respondent's offices were also closed on November 29, 1980, which is also a state holiday as observed by all state branches and agencies pursuant to Section 110.117, Florida Statutes. November 29 and 30, 1980, were Saturday and Sunday, respectively, on which days Respondent's offices were also closed. Petitioner's annual cost report was picked up from the post office by employees of Respondent on December 1, 1980, and delivered on that day to Respondent's Medicaid Review Desk. Because the cost report was received on December 1, 1980, Respondent assigned January 1, 1981, as the effective date of Petitioner's new rates, rather than the December 1, 1980, date which Petitioner contends is the correct effective date of its new rates because of its report having been placed in Respondent's post office box prior to December 1, 1980.
