95-003913RU All Children`s Hospital, Inc., And Variety Children`s Hospital, D/B/A Miami Children`s Hospital vs. Agency For Health Care Administration Status: Closed DOAH Final Order on Wednesday, January 10, 1996.

Summary: Agency statement regarding shared services agreement did not constitute a rule; petition dismissed.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ALL CHILDREN'S HOSPITAL, INC., )

)

Petitioner, )

)

vs. )

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, ) CASE NO. 95-3913RU

)

Respondent, )

)

vs. )

)

BAYFRONT MEDICAL CENTER, INC., )

)

Intervenor. )

___________________________________)

FINAL ORDER

Pursuant to notice the Division of Administrative Hearings, by its duly

designated Hearing Officer, Richard Hixson, held a formal hearing in the above-

styled case on October 3, 1995 and on October 11, 1995, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Gerald B. Sternstein, Esquire

Frank P. Rainer, Esquire

SMITH, SCHUSTER and RUSSELL, P.A.

215 South Monroe Street, Suite 815

Tallahassee, Florida 32301

For Respondent: Lesley Mendelson, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32309

For Intervenor: Stephen A. Ecenia, Esquire

Thomas A. Konrad, Esquire

ECENIA, UNDERWOOD, PURNELL and HOFFMAN

215 South Monroe Street, Suite 420

Tallahassee, Florida 32301-1841

STATEMENT OF THE ISSUES

The issues for determination in this case are whether the following

statement was made by Respondent, AGENCY FOR HEALTH CARE ADMINISTRATION; whether

the statement violates the provisions of Section 120.535, Florida Statutes;

whether the statement constitutes a declaratory statement under Section 120.565,

Florida Statutes; whether Petitioner, ALL CHILDREN'S HOSPITAL, INC., has

standing to maintain this action; and whether Petitioner is entitled to

attorney's fees and costs. The alleged agency statement which is at issue in

this case is:

The Agency for Health Care Administration takes the position that a shared

service agreement may be modified, without prior approval of the Agency, as long

as each party continues to contribute something to the program, and the shared

service contract remains consistent with the provisions of Rule 59C-1.0085(4),

Florida Administrative Code. In addition, the Agency takes the position that

modifications to a shared service agreement do not require prior review and

approval by the Agency.

PRELIMINARY STATEMENT

On August 7, 1995, Petitioner, ALL CHILDREN'S HOSPITAL, INC., filed a

Petition to Challenge Non-Rule Policy, pursuant to Section 120.535, Florida

Statutes, and a Petition for Formal Hearing, pursuant to Section 120.57(1),

Florida Statutes, with the Division of Administrative Hearings.

On August 24, 1995, BAYFRONT MEDICAL CENTER filed a Petition to Intervene

which was granted on August 29, 1995.

On August 24, 1995, Respondent, AGENCY FOR HEALTH CARE ADMINISTRATION,

filed a Motion to Strike the allegations of the Petition relating to the Section

120.57(1), Florida Statutes, claims, and a Motion to Hold the case in Abeyance

pending resolution of an action between these parties set for trial in Circuit

Court in Leon County, Florida. By Order entered September 13, 1995,

Respondent's Motion to Strike the allegations brought pursuant to Section

120.57(1), Florida Statutes, was granted, and Respondent's Motion to Hold the

case in Abeyance was denied.

In accordance with the Prehearing Stipulation filed on October 3, 1995,

Respondent and Intervenor challenge Petitioner's standing to maintain this

action. For reasons set forth below, it is determined that Petitioner has

standing to maintain this action.

Additionally, Petitioner contends that the agency statement at issue in

this proceeding constitutes a declaratory statement under Section 120.565,

Florida Statutes. For reasons set forth below, it is determined that this

proceeding is inappropriate to resolve Petitioner's claims under Section

120.565, Florida Statutes.

At hearing Petitioner presented the testimony of two witnesses, John Dennis

Sexton and Gene Nelson. Petitioner also presented eleven exhibits which were

accepted into evidence. Petitioner's Exhibit's 2-4 and 6-8 were initially

excluded, but at the conclusion of the hearing were admitted over objection of

Respondent and Intervenor.

Respondent and Intervenor presented the testimony of one witness, Elizabeth

Dudek. Respondent also presented one exhibit which was admitted into evidence.

Intervenor presented four exhibits, 1, 3, and 4, were admitted into evidence.

Ruling on Intervenor's Exhibit 2 was reserved pending submission of proposed

final orders. After review of the record, Respondent's Exhibit 2 is admitted

over objection.

A transcript of the hearing was filed October 26, 1995. Pursuant to

consecutive motions for extensions of time, proposed final orders were submitted

by the parties on December 6, 1995. Rulings on the proposed findings submitted

by the parties are set forth in the Appendix attached hereto.

FINDINGS OF FACT

1. Petitioner, ALL CHILDREN'S HOSPITAL, INC. (hereinafter ALL

CHILDREN'S), is a medical facility located in St. Petersburg, Florida, which

provides pediatric hospital care.

2. Respondent, AGENCY FOR HEALTH CARE ADMINISTRATION (AHCA), is the agency

of the State of Florida vested with statutory authority to issue, revoke or deny

certificates of need in accordance with the statewide and district health plans.

3. Intervenor, BAYFRONT MEDICAL CENTER (BAYFRONT), is an acute care

hospital located in St. Petersburg, Florida.

4. ALL CHILDREN'S and BAYFRONT are located adjacent to each other and are

connected by a thirty-yard tunnel.

5. In 1969, ALL CHILDREN'S began operation of a pediatric cardiac

catheterization program. ALL CHILDREN'S pediatric cardiac catheterization

program existed prior to the statutory requirement for a certificate of need to

provide such service. Neither AHCA, nor its predecessor agency, Florida

Department of Health and Rehabilitative Services, issued a certificate of need

for ALL CHILDREN'S cardiac catheterization program.

6. Since 1969, ALL CHILDREN'S has expended at least $500,000 on upgrading

the cardiac catheterization program.

7. Since 1970, ALL CHILDREN'S has operated a pediatric open heart surgery

program. ALL CHILDREN'S open heart surgery program existed prior to the

statutory requirement for issuance of a certificate of need to perform such

service. Neither AHCA, nor its predecessor agency, Florida Department of Health

and Rehabilitative Services (HRS), issued a certificate of need for ALL

CHILDREN'S open heart surgery program. By letter dated May 13, 1974, HRS

specifically advised ALL CHILDREN'S that modifications to the ALL CHILDREN'S

open heart surgery program were not subject to agency approval.

8. In May of 1973, ALL CHILDREN'S and BAYFRONT entered into a shared

service agreement to provide adult cardiac catheterization services. In

accordance with the shared service agreement, the actual catheterizations are

performed in the physical plant of ALL CHILDREN'S and with equipment located on

the ALL CHILDREN'S campus. BAYFRONT contributed to the adult cardiac

catheterization shared service program by providing, inter alia, patients,

management, medical personnel, and pre- and postoperative care.

9. Beginning in 1975, BAYFRONT has also provided adult open heart surgery

services through a joint program with ALL CHILDREN'S with the actual surgeries

being performed at the physical plant on ALL CHILDREN'S campus. BAYFRONT

contributed to the adult open heart surgery shared service by providing, inter

alia, patients, management, medical personnel, and pre- and postoperative care.

10. The shared service agreement between ALL CHILDREN'S and BAYFRONT to

provide adult cardiac catheterization and open heart surgical services was in

existence prior to the statutory requirement for a certificate of need to

perform such services. Neither AHCA, nor its predecessor agency, Florida

Department of health and Rehabilitative Services, issued a certificate of need

to provide such services. The cardiac catheterization and open heart surgery

program operated by ALL CHILDREN'S and BAYFRONT was "grandfathered" in because

the program existed prior to the certificate of need requirement.

11. Because no certificate of need was issued to ALL CHILDREN'S and

BAYFRONT for its shared adult cardiac service program, no conditions have been

imposed by AHCA on the operation of the program. "Conditions" placed on

certificates of need are important predicates to agency approval and typically

regulate specific issues relating to the operation of the program and the

provision of the service such as access, location, and provision of the service

to Medicaid recipients.

12. The ALL CHILDREN'S and BAYFRONT cardiac shared services program is the

only "grandfathered in" shared service arrangement in Florida, and is the only

shared service arrangement operating without a certificate of need in Florida.

13. An open heart surgery program is shared by Marion Community Hospital

and Munroe Regional Medical Center in Ocala, Florida. The Marion/Munroe program

operates pursuant to a certificate of need issued by AHCA.

14. On December 22, 1995, AHCA published a notice of its intent to approve

a certificate of need for a shared pediatric cardiac catheterization program

between Baptist Hospital and University Medical Center in Duval County, Florida.

15. BAYFRONT has applied for, but has not yet been issued, a certificate

of need to perform cardiac catheterization services independent of the shared

services arrangement with ALL CHILDREN'S.

16. The agency receives hundreds of inquiries each year requesting

information and guidance from health care providers regarding the certificate of

need application process and other requirements of the certificate of need

program. On more than one occasion ALL CHILDREN'S and BAYFRONT have inquired

either orally or in letters to the agency regarding whether certain changes in

their adult cardiac shared services program would require agency approval

through a certificate of need application.

17. In response to a 1990 written inquiry from ALL CHILDREN'S and BAYFRONT

regarding modifications to the shared services agreement, the agency (then HRS)

by letter dated September 18, 1990, stated in pertinent part that "the

alterations you propose still constitute shared services." The agency response

went on to state that it is therefore "...determined that they (the proposed

changes) have not altered the original intent."

18. On January 31, 1991, Rule 59C-1.0085(4), Florida Administrative Code,

governing shared service arrangements in project-specific certificate of need

applications was promulgated. The rule provides:

(4) Shared service arrangement: Any

application for a project involving a shared

service arrangement is subject to a batched

review where the health service being

proposed is not currently provided by any

of the applicants or an expedited review

where the health service being proposed is

currently provided by one of the applicants.

(a) The following factors are considered

when reviewing applications for shared

services where none of the applicants are

currently authorized to provide the service:

1. Each applicant jointly applying for a

new health service must be a party to a formal

written legal agreement.

2. Certificate of Need approval for the

shared service will authorize the applicants

to provide the new health service as specified

in the original application.

3. Certificate of Need approval for the

shared service shall not be construed as

entitling each applicant to independently

offer the new health service. Authority for

any party to offer the service exists only as

long as the parties participate in the

provision of the shared service.

4. Any of the parties providing a shared

service may seek to dissolve the arrangement.

This action is subject to review as a termina-

tion of service. If termination is approved

by the agency, all parties to the original

shared service give up their rights to

provide the service.

5. Parties seeking to provide the service

independently in the future must submit

applications in the next applicable review

cycle and compete for the service with all

other applicants.

6. All applicable statutory and rule

criteria are met.

(b) The following factors are considered

when reviewing applications for shared services

when one of the applicants has the service:

1. A shared services contract occurs when

two or more providers enter into a contractual

arrangement to jointly offer an existing or

approved health care service. A shared services

contract must be written and legal in nature.

These include legal partnerships, contractual

agreements, recognition of the provision of a

shared service by a governmental payor, or a

similar documented arrangement.

a. Each of the parties to the shared services

contract must contribute something to the

agreement including but not limited to

facilities, equipment, patients, management

or funding.

b. For the duration of a shared services

contract, none of the entities involved has

the right or authority to offer the service

in the absence of the contractual arrangement

except the entity which originally was

authorized to provide the service.

c. A shared services contract is not

transferable. New parties to the original

agreement constitute a new contract and

require a new Certificate of Need.

d. A shared services contract may encom-

pass any existing or approved health care

service. The following items will be evaluated

in reviewing shared services contracts:

i. The demonstrated savings in capital

equipment and related expenditures;

ii. The health system impact of sharing

services, including effects on access and

availability, continuity and quality of care; and,

iii. Other applicable statutory review criteria.

e. Dissolution of a shared services contract is

subject to review as a termination of service.

i. If termination is approved, the entity(ies)

authorized to provide the service prior to the

contract retains the right to continue the service.

ii. All other parties to the contract who seek

to provide the service in their own right must

request the service as a new health service and

are subject to full Certificate of Need review

as a new health service.

iii. All statutory and rule criteria are met.

19. By letter dated October 22, 1993, ALL CHILDREN'S and BAYFRONT inquired

again of the agency regarding modifications of the adult inpatient cardiac

shared service program. AHCA did not respond to the 1993 inquiry, and AHCA

ultimately considered the inquiry withdrawn.

20. By letter dated February 24, 1995, BAYFRONT made further inquiry of

the agency, and requested agency confirmation of the following statement:

The purpose of this letter is to confirm our

understanding that the Agency for Health Care

Administration ("Agency") takes the position

that the shared services agreement between

Bayfront and All Children's may be modified,

without prior approval of the Agency, as long

as each party continues to contribute something

to the program, and that the shared services

contract remains consistent with the provisions

of Rule 59C-1.0085(4) F.A.C.

21. By letter dated March 16, 1995, the agency made the following reply to

BAYFRONT from which this proceeding arose:

The purpose of this letter is to confirm your

understanding of this agency's position with

reference to the reviewability of a modifica-

tion of the shared services agreement between

Bayfront Medical Center and All Children's

Hospital set forth in your February 24, 1995 letter.

CONCLUSIONS OF LAW

22. The Division of Administrative Hearings has jurisdiction over the

parties and subject matter of this cause pursuant to Section 120.535, Florida

Statutes.

23. Section 120.535(1), Florida Statutes provides:

120.535 Rulemaking required.-

(1) Rulemaking is not a matter of agency

discretion. Each agency statement defined

as a rule under s. 120.52(16) shall be adopted

by s. 120.54 as soon as feasible and practicable.

Rulemaking shall be presumed feasible and

practicable to the extent provided by this

subsection unless one of the factors provided

by this subsection is applicable.

(a) Rulemaking shall be presumed feasible

unless the agency proves that:

1. The agency has not had sufficient time

to acquire the knowledge and experience

reasonably necessary to address a statement

by rulemaking; or

2. Related matters are not sufficiently

resolved to enable the agency to address a

statement by rulemaking; or

3. The agency is currently using the

rulemaking procedure expeditiously and in good

faith to adopt rules which address the statement.

(b) Rulemaking shall be presumed practicable

to the extent necessary to provide fair notice

to affected persons of relevant agency

procedures and applicable principles, criteria,

or standards for agency decisions unless the

agency proves that:

1. Detail or precision in the establishment

of principles, criteria, or standards for

agency decisions is not reasonable under the

circumstances; or

2. The particular questions addressed are

of such a narrow scope that more specific

resolution of the matter is impractical out-

side of an adjudication to determine the sub-

stantial interests of a party based on indivi-

dual circumstances.

24. Petitioner ALL CHILDREN'S is substantially affected by the statement

made by the agency for purposes of establishing standing under Section

120.535(2)(a), Florida Statutes. The evidence demonstrates that Petitioner has

a substantial economic interest invested in the adult inpatient cardiac shared

service arrangement with BAYFRONT. The agency's statement of its position with

regard to modifications of the adult inpatient cardiac shared service

arrangement with BAYFRONT affects those substantial economic interests of ALL

CHILDREN'S and is sufficient to establish standing in this proceeding. Florida

Medical Center v. Department of Health and Rehabilitative Services, 484 So. 2d

1292 (Fla. 1st DCA 1986).

25. The initial burden of proof in this proceeding is on the Petitioner to

establish by a preponderance of the evidence that the agency statements violate

the provisions of Section 120.535, Florida Statutes. Agrico Chemical Co. v.

State Department of Environmental Regulation, 365 So. 2d 759, 762 (Fla. 1st DCA

1978); Dravo Basic Material Co. v. State Department of Transportation, 602 So.

2d 632 (Fla. 2d DCA 1992).

26. The threshold issue in this case is whether the agency made the

statement alleged in the Petition to Challenge Non-Rule Policy. As set forth

above, the Petition alleged that the following agency statement violated the

provisions of Section 120.535, Florida Statutes:

The Agency for Health Care Administration

takes the position that a shared service

agreement may be modified, without prior

approval of the Agency, as long as each party

continues to contribute something to the

program, and the shared service contract

remains consistent with the provisions of

Rule 59C-1.0085(4), Florida Administrative

Code. In addition, the Agency takes the

position that modifications to a shared

service agreement do not require prior review

and approval by the Agency.

27. The evidence fails to establish that the agency made the statement

alleged in the Petition. As evidenced in Paragraph 21 above, the statement made

by the agency is substantially different from the statement alleged in the

Petition, and the actual agency statement is narrowly limited in its

application.

28. The actual statement made by the agency does not constitute a rule for

purposes of establishing a violation of Section 120.535, Florida Statutes.

Section 120.52(16), Florida Statutes in pertinent part defines "rule" to mean:

(16) "Rule" means each agency statement of

general applicability that implements,

interprets, or prescribes law or policy or

describes the organization, procedure, or

practice requirements of an agency and

includes any form which imposes any require-

ment or solicits any information not specifi-

cally required by statute or by an existing rule.

29. The actual statement made by the agency is not a statement of general

application. The evidence establishes that the agency statement has no

application to any shared service arrangement other than the unique

"grandfathered in" shared service arrangement between ALL CHILDREN'S and

BAYFRONT. An agency statement which is limited to one set of circumstances

should not be considered a rule. Florida League of Cities v. Administration

Commission, 586 So. 2d 397 (Fla. 1st DCA 1991).

30. Even if the agency statement were construed as being applicable to the

Marion/Munroe shared services arrangement which operates under a certificate of

need, or to the recently approved shared service certificate of need in Duval

County, the statement at issue merely restates the agency's existing position

that modifications to the shared service arrangement are governed by, and must

remain consistent with Rule 59C-1.0085(4), Florida Administrative Code. The

agency statement does not alter an existing rule, nor does the statement purport

to authorize unilateral modifications of the shared service arrangement by

BAYFRONT. The statement does not impair any obligations of contract that

currently exist between ALL CHILDREN'S and BAYFRONT with regard to the agreement

entered into by the parties, and which are the subject of the circuit court

action. For purposes of Section 120.535, Florida Statutes, the agency statement

does not purport to create rights or adversely affect rights of the parties to

the shared service arrangement, and should not be considered a rule. Balsam v.

Department of Health and Rehabilitative Services, 452 So. 2d 976 (Fla. 1st DCA

1984).

31. ALL CHILDREN'S contention that the statement constitutes an improper

declaratory statement was not established by the evidence presented and is not

appropriately raised in this proceeding under Section 120.535, Florida Statutes.

See Christo v. Department of Banking and Finance, 649 So. 2d 318 (Fla. 1st DCA

1995).

FINAL ORDER

Based on the foregoing findings of fact and conclusions of law, it is

ORDERED

That the Petition to Challenge Non-Rule Policy Pursuant to Section 120.535,

Florida Statutes, filed in the above-styled case is hereby DISMISSED.

DONE and ENTERED this 10th day of January, 1996, in Tallahassee, Leon

County, Florida.

___________________________________

Richard Hixson, Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 10th day of January, 1996.

APPENDIX

As to Petitioner's Proposed Findings:

1. Accepted, except that the adult inpatient cardiac

catheterization program is a shared service with

Intervenor.

2. Accepted and incorporated.

3. Accepted, except that the adult inpatient open heart

program is a shared service with the Intervenor.

4. Accepted, except as indicated in Finding 3.

5. Accepted, except as indicated in Finding 1.

6 - 9. Accepted and incorporated.

10-11. Rejected as to agency's recognition of independence of

cardiac program.

12. Accepted to the extent that Petitioner has standing.

13-17. Accepted to the extent that Petitioner and Intervenor

have sought prior modification of the agreement.

18-19. Accepted to the extent that Intervenor made seperate

inquiry of the agency.

20. Rejected; agency statement is more limited.

21. Rejected.

22-23. Accepted to the extent that the agency determined

modifications to the agreement not subject to

approval.

24-25. Rejected.

26. Accepted and incorporated.

27-29. Rejected.

30-32. Accepted and incorporated.

33-34. Rejected.

35-36. Accepted and incorporated.

37. Rejected as not deceptive of agency response.

38. Accepted as not relevant.

39-40. Accepted, except that Marion/Munroe is governed by a

CON.

41-44. Accepted, except that the agency has addressed the

general application of its policy on shared service

arrangements by rule.

45. Rejected.

46-47. Rejected as not relevant.

As to Respondent's Proposed Findings:

1 - 14. Accepted and incorporated.

15. Rejected as not relevant.

16 - 21. Accepted and incorporated.

As to Intervenor's Proposed Findings:

1 - 13. Accepted and Incorporated.

14. Rejected as not relevant.

15. Accepted and incorporated.

COPIES FURNISHED:

Gerald B. Sternstein, Esquire

Frank P. Rainer, Esquire

Smith Schuster and Russell, P.A.

215 South Monroe Street, Suite 815

Tallahassee, Florida 32301

Jerome W. Hoffman, General Counsel

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32309

Carroll Webb, Executive Director

Administrative Procedures Committee

Holland Building, Room 120

Tallahassee, Florida 32399-1300

Lesley Mendelson, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32309

Stephen A. Ecenia, Esquire

Thomas A. Konrad, Esquire

ECENIA, UNDERWOOD, PURNELL and HOFFMAN

215 South Monroe Street, Suite 420

Tallahassee, Florida 32301-1841

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is entitled to Judicial

Review pursuant to Section 120.68, Florida Statutes. Review proceedings are

governed by the Florida Rules of Appellate Procedure. Such proceedings are

commenced by filing one copy of a Notice of Appeal with the Agency Clerk of the

Division of Administrative Hearings, and a second copy accompanied by filing

fees prescribed by law with the District Court of Appeal, First District, or

with the District Court of Appeal in the appellate district where the party

resides. The Notice of Appeal must be filed within 30 days of rendition of the

order to be reviewed.