96-001418RU Aventura Hospital And Medical Center, Columbia Regional Medical Center At Bayonet Point vs. Agency For Health Care Administration (Hccb) Status: Closed DOAH Final Order on Wednesday, October 15, 1997.

Summary: Respondent's policy changing manual interpretation is a rule which requires promulgation; further, challenged manual provisions are invalid rules.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AVENTURA HOSPITAL AND MEDICAL )

CENTER, COLUMBIA REGIONAL MEDICAL )

CENTER AT BAYONET POINT, L.W. )

BLAKE HOSPITAL, ENGLEWOOD )

COMMUNITY HOSPITAL, FAWCETT )

MEMORIAL HOSPITAL, KENDALL )

REGIONAL MEDICAL CENTER, COLUMBIA )

PARK MEDICAL CENTER, MIAMI HEART )

INSTITUTE, NEW PORT RICHEY )

HOSPITAL, OAK HILL HOSPITAL, )

OSCEOLA REGIONAL HOSPITAL, )

MEDICAL CENTER OF PORT ST. )

LUCIE, PUTNAM COMMUNITY HOSPITAL, )

and SOUTHWEST FLORIDA REGIONAL )

MEDICAL CENTER, )

)

Petitioners, )

)

and )

)

ORLANDO REGIONAL HEALTHCARE )

SYSTEM, INC., FLORIDA HOSPITAL )

ASSOCIATION, FLORIDA LEAGUE OF )

HOSPITALS, ASSOCIATION OF )

VOLUNTARY HOSPITALS OF FLORIDA, )

SHANDS TEACHING HOSPITAL AND )

CLINICS, INC., d/b/a SHANDS )

HOSPITAL AT THE UNIVERSITY OF )

FLORIDA and SHANDS TEACHING )

HOSPITAL AND CLINICS, INC., d/b/a )

SHANDS HOMECARE, )

)

Intervenors. )

)

vs. ) CASE NOS. 96-1418RU

) 96-1759RU

STATE OF FLORIDA, AGENCY FOR ) 96-1760RU

HEALTH CARE ADMINISTRATION, ) 96-1975RX

)

Respondent, )

)

and )

)

CITIZENS OF THE STATE OF FLORIDA, )

)

Intervenors. )

____________________________________)

FINAL ORDER

Pursuant to notice, the Division of Administrative Hearings,

by its designated Administrative Law Judge, Don W. Davis, conducted

a formal hearing in the above-styled case on October 29-November 6,

1996, in Tallahassee, Florida.

APPEARANCES

For Petitioners, Aventura, et al., Intervenors Shands Teaching

Hospital and Clinics, Inc., d/b/a Shands Hospital at the University

of Florida and Shands Teaching Hospital and Clinics, Inc., d/b/a

Shands Homecare, Florida Hospital Association, and Florida League

of Hospitals:

Steven T. Mindlin, Esquire

Rose, Sundstrom and Bentley

2548 Blairstone Pines Drive

Tallahassee, Florida 32301

For Petitioners, Tenet and Morton Plant:

Michael J. Glazer, Esquire

Ausley and McMullen

227 South Calhoun Street

Tallahassee, Florida 32301

For Intervenor Association of Voluntary Hospitals:

R. T erry Rigsby, Esquire

Richard A. Lotspeich, Esquire

Blank, Rigsby and Meehan

204 South Monroe Street

Tallahassee, Florida 32301

For Intervenor Orlando Regional Hospital:

James M. Barclay, Esquire

Cobb, Cole and Bell

131 North Gadsden Street

Tallahassee, Florida 32301

For Respondent Agency for Health Care Administration:

John F. Gilroy, Esquire

Mark Thomas, Esquire

Agency for Health Care Administration

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

For Intervenor Citizens of the State of Florida:

Stephen M. Presnell, Esquire

Office of Public Counsel

111 West Madison Street, Room 812

Tallahassee, Florida 32399-1400

STATEMENT OF THE ISSUES

W hether policies of the Agency For Health Care Administration

(Agency) which impose certain obligations upon hospitals with

regard to classification in Prior Year Reports of activity related

to certain home health agencies violate the requirement that those

statements, rules by definition, be adopted as rules. 1 Sections

120.54(1)(a) and 120.56(4), Fla. Stat. (1996 Supp). An additional

issue for consideration is whether certain provisions of the

Florida Hospital Uniform Reporting System (FHURS) Manual,

incorporated by reference in Rule 59E-5.102, Florida Administrative

Code, constitute invalid exercises of delegated legislative

authority as otherwise set forth in Section 120.52(8), Fla. Stat.

(1996 Supp.)

PRELIMINARY STATEMENT

This matter involves nine Petitions, including initial

petitions and petitions for intervention that were consolidated for

final hearing. The first Petition was filed March 20, 1996 and the

last was filed June 21, 1996. All of these Petitions were based on

the then-existing Sections 120.535 and 120.56, Fla. Stat., (1995).

Between the filing of the Petitions and the final hearing, there

were significant changes adopted to Florida's Administrative

Procedures Act in Chapter 120, Fla. Stat. These changes went into

effect October 1, 1996. Although there appears, with a few

significant exceptions, to have been very little difference in the

procedural laws applicable to this case in the “old” and “new”

APAs, this case is considered in accordance with the amended law

because it was heard after October 1, 1996.

At hearing, Petitioners, and intervenors aligned with

Petitioners, presented the testimony of Susanne Moran, an expert in

HHA management and operations; Michael Poland, an expert in

healthcare finance and healthcare accounting; Sarah Fitzgerald, an

expert in healthcare finance, accounting and cost containment

regulation; Phil Detweiler, a regulatory analyst employed by AHCA;

Elton Scott, Ph.D., an expert in healthcare finance and healthcare

economics; Victoria Montanaro, former Bureau Chief and former

Regulatory Analyst Supervisor at AHCA; and Glenn Hubbard, of Morton

Plant Mease Health Care. Petitioners' Exhibits 1 through 97 were

offered and admitted into evidence.

Respondents (Agency and Intervenors aligned with Agency)

presented the testimony of Chris Augsburger, an expert in

accounting, hospital budget and financial analysis and Florida

healthcare budget regulation within AHCA's regulatory system from

the agency's perspective; Lynn Riley, an expert in accounting and

Florida hospital budget and financial regulation; Liz Dudek,

current Chief of AHCA's Certificate of Need and Budget Review

Sections; and Allen Pearman, an expert in healthcare economics and

healthcare data analysis. Respondents’ Exhibits 1, 29-31, 35, 36A,

36B, 39, 43, and 67-71 were offered and admitted into evidence.

The transcript of the final hearing was filed with the

Division of Administrative Hearings on December 19, 1996, and the

parties submitted Proposed Final Orders on January 22, 1997. The

parties requested and were granted leave to file post-hearing

submissions more than 10 days after the filing of the transcript.

Based upon all of the evidence presented at final hearing,

including the demeanor and candor of the witnesses who testified,

the following Findings of Fact are made:

FINDINGS OF FACT

1. In accordance with stipulation of the parties, all parties

to this proceeding have standing in, and are parties to, each of

the consolidated cases.

I. Background

Hospital Regulatory System Overview

2. Under Florida law, hospitals are subject to a regulatory

program commonly known as the budget review or hospital cost

containment program. The cost containment program is currently

administered by the Agency.

3. Under the cost containment regulatory system, the State of

Florida regulates a hospital's gross revenues per adjusted

admission ("GRAA") and net revenues per adjusted admission

("NRAA"). GRAA is defined in statute and refers to a hospital's

average charges per case. NRAA is defined in statute and refers to

the average amount which a hospital collects per case. The Florida

regulatory system does not directly regulate hospital charges.

4. Florida hospitals must annually submit a budget to the

Agency for its review. The statute creates a process for the

detailed review of those budgets for hospitals which are requesting

a rate of increase in GRAA or NRAA greater than the "maximum

allowable rate of increase" as defined in statute. The maximum

allowable rate of increase ("MARI") is different for various

hospitals, based upon hospital-specific inputs of data as

delineated in statute. Hospitals which exceed the MARI are subject

to administrative fines and/or penalties. As part of the review

process for hospital budgets or budget amendments, the Agency

groups hospitals to attempt to compare like hospitals to like

hospitals for analysis purposes.

5. The Agency's cost containment regulatory process and

actual report review process applies only to hospitals. Section

408.07, et al., Fla. Stat. "Hospital" is defined as an entity

which holds a license to operate a hospital in the State of

Florida. Section 408.07(33), Fla. Stat.

6. A hospital must be licensed to operate in the State of

Florida. Hospital licenses in Florida are issued by the Agency

under Chapter 395, Fla. Stat. 2 A hospital license does not permit

a hospital to offer home health services.

7. A hospital is not a HHA. Hospitals and HHAs are licensed

by the State to provide different types of services in different

locations. A HHA is required to operate under a separate license

from a hospital license. A hospital cannot bill for home health

services.

Home Health Agencies

8. A HHA is an agency that is licensed by the State of

Florida under Chapter 400, Fla Stat., to provide home health

services. The State of Florida has various rules and regulations

governing the operation of HHAs. The budget review and penalty

system which applies to Florida hospitals is not applicable to

HHAs. The HHA license does not permit a HHA to offer hospital

services.

9. There are three types of HHAs operating in the State of

Florida: stand alone agencies, hospital affiliated agencies, and

chain-affiliated home health agencies. Stand alone agencies are

those with no affiliation with another entity. All three types of

agencies are licensed by the State, and are authorized to provide

similar services.

10. There is great competition among HHAs for the provision

of those services. Marketplace changes have resulted in more

patients receiving more treatment in the home. The rise of managed

care has also resulted in an increase in home care in Florida and

throughout the nation.

Medicare

11. The Medicare program is a federal program designed to pay

for the cost of services provided to the elderly by healthcare

providers.

12. The Medicare program covers home health services

provided to Medicare-eligible patients. For a provider to

participate in the Medicare program, it must be certified by

Medicare under applicable federal statutes and regulations. Every

Medicare provider is issued a provider number by the Health Care

Financing Administration (HCFA), the federal agency which

administers the Medicare program. Medicare-certified home health

agencies have separate Medicare provider numbers from hospitals.

13. The three types of HHAs op erating in Florida can be

designated by HCFA as Medicare-certified. Only Medicare-certified

HHAs are able to provide services to Medicare patients, bill

Medicare recipients, and receive payment from the federal

government for the provision of services to Medicare-eligible

patients.

14. In addition, hospital-based home health agency (HBHHA) is

a federal Medicare reimbursement term. A HBHHA is not a defined

term under Florida Statutes or regulations.

15. The Medicare reimbursement system for home hea lth care is

a cost reimbursed system. The federal government reimburses home

care providers based upon their allowable costs, up to a certain

cost cap. The Medicare program utilizes a cost allocation process

to allocate costs by comparison to costs incurred by similar

organizations that provide home health services. There are similar

cost allocation processes applied to HBHHAs and Medicare-certified

chain affiliated HHAs. These costs are subject to audit, and

providers must submit an annual Medicare Cost Report pursuant to

applicable federal regulations. The Medicare program then subjects

allowable costs to a cost limit, which is the maximum payment which

will be made by the federal government for home health visits.

16. It takes only a few seconds to determine if a Medicare

Cost Report includes the activity of a Medicare-certified HBHHA.

17. It is HCFA's decision whether or not to certify a given

HHA as being a HBHHA. The applicable federal regulations governing

certification of home health agencies as hospital-based are found

in the 1980 Federal Register. As applied, HCFA has certified

agencies as HBHHAs if these agencies have common control and

ownership with the affiliated hospital. 3

18. HHAs bill for Medicare services on HCFA Form 1500.

Hospitals bill on form UB-92. HHA charges do not appear on a

hospital bill.

AHCA Hospital Prior Year Reports

19. In addition to filing budgets or budget letters,

hospitals are required under statute to file with the Agency an

annual report known as the Prior Year Report. Section 408.061,

Fla. Stat. A hospital Prior Year Report is made up of three

distinct parts: 1) the hospital's prior year actual report, which

consists of a standardized set of forms; 2) the hospital's audited

financial statements; and 3) the hospital's Medicare Cost Report.

The prior year actual reporting forms are found in the FHURS

Manual. The Agency began collecting the Medicare Cost Report as

part of the Prior Year Report in approximately 1988.

20. The FHURS Manual, a unifo rm reporting system utilized by

the Agency governing the filing of Prior Year Reports, was

developed in approximately 1980. The FHURS Manual contains the

prior year actual report forms which hospitals file with the

Agency. In all material respects, the current version of the FHURS

Manual is substantially similar to its predecessors.

21. If the hospital prior year actual reporting forms do not

tie to the audited financial statements, the hospital must provide

a reconciliation. The hospital prior year reporting forms contain

Worksheet X-4, which is a blank form to be utilized for detailed

explanations including any reconciliation’s between the prior year

actual report forms and the audited financial statements. There is

no statute or rule requiring the prior year actual reporting forms

to be reconciled to the Medicare Cost Report.

22. The statute governing reporting for Prior Year Reports

defines hospitals and HHAs as two separate types of health care

facilities. Sections 408.061(3), 407.07(27), (31), (33), Fla.

Stat. The Agency does not require HHAs to file Prior Year Reports.

23. The Agency has the responsibility to review hospital

Prior Year Reports, and to determine that the Prior Year Report has

been filed in compliance with applicable rules and regulations.

The Agency is required to determine that a hospital's Prior Year

Report has been "accepted." Accepted is a defined term in Florida

Statutes. 4 After a hospital's Prior Year Report has been

"accepted" by the Agency, the Agency then calculates penalties,

administrative fines and Public Medical Assistance Trust Fund

(PMATF) and Health Care Cost Containment Trust Fund (HCCCTF) taxes

based upon the Prior Year Report.

24. The regulatory system governing hospital Prior Year

Report review is not a voluntary system. Although it is the

hospital that decides how to classify items on its Prior Year

Report for filing, it is the sole responsibility of the Agency to

determine whether or not the report is to be "accepted." As part

of its review process, the Agency typically asks hospitals a series

of detailed questions that are provided to the hospital in a form

known as a Notice of Violation.

25. The Agency sends a Notice of Violation on virtually every

hospital Prior Year Report. If a hospital does not respond to a

Notice of Violation, the hospital can be subject to administrative

fines.

Audited Financial Statements

26. The audited financial statements included as part of the

hospital's Prior Year Report submission must, by law, be examined

by an independent certified public accountant. In preparing

audited financial statements, auditors opine on the financial

statements of management, and issue what is known as a "clean

opinion" if, in the auditor's opinion, management's financial

statements do not materially misstate the financial position of the

entity being audited and if the statements are prepared in

accordance with generally accepted accounting principles.

27. Financial statements can be issued for a division of an

overall corporation, provided that appropriate disclosures are made

in the footnotes to the financial statements. The standard place

for a footnote disclosing the organization being audited and

related organizations is in footnote 1 to the audited financial

statements.

28. Generally accepted accounting principles allow management

the discretion to determine what are the principal and central

ongoing operations of the entity being audited.

PMATF and HCCTF

29. The PMATF was established in 1984 to fund certain

expansions to Florida's Medicaid program. Chapter 84-35, Laws of

Florida. Under Section 395.701, Fla Stat., hospitals are taxed 1.5

percent of their annual net operating revenue, with the assessments

to be based upon the hospital's Prior Year Report filed with the

Agency. The HCCTF tax was established to fund certain data

collection functions of the Agency. Section 408.20, Fla. Stat.

Those revenues and expenses which appear on the hospital's Prior

Year Report as "operating" are subject to PMATF and HCCTF tax.

Those revenues or expenses which appear as "non-operating" or are

excluded from a hospital Prior Year Report are not subject to PMATF

and HCCTF tax.

30. In 1991, the Florida Legislature expanded the PMATF tax

base to include certain other specified health care providers.

These specified providers included clinical laboratories,

ambulatory surgery centers, and diagnostic imaging centers. See ,

Section 395.7015, Fla. Stat. HHAs were not included in the list of

expanded taxable entities by the Legislature. HHAs do not pay

PMATF or HCCTF tax.

Hospital-Home Health Agency Relationships

31. As the healthcare marketplace has evolved, hospitals have

increasingly established relationships with HHAs. The operational

and structural relationship between hospitals and HHAs varies from

hospital to hospital and agency to agency. Corporate

organizational structure and operational relationships between the

hospitals and affiliated HHAs will vary. A variety of corporate

structures can be employed, including separating the HHA and the

hospital into separate corporations, parent/subsidiary

relationships, sibling corporations, or one corporation with more

than one operating division.

32. Some hospitals have affiliations with both a Medicare-

certified and a non-Medicare certified HHA. Not every hospital

affiliated HHA is designated as a Medicare-certified HBHHA. A

hospital can have the same operational relationship with two home

health agencies, with one being a certified agency and one being

non-certified.

33. Not every relationship between a hospital and related HHA

results in increased reimbursement or a dollar benefit to the

hospital.

34. While the Agency has never adopted a uniform reporting

system for HHAs, uniform reporting systems covering the four types

of health care facilities that were included in the increased PMATF

assessment beginning in 1991, have been adopted by the Agency.

35. A hospital does not always control which HHA will treat a

patient after discharge from the hospital. HBHHA’s compete with

other HHAs for patients. Some HBHHAs are located far from the

affiliated hospital, and serve virtually none of the patients who

were patients of the hospital. 5

36. There are several HHAs in Florida which have been

certified as HBHHAs to hospitals which are located outside the

State of Florida. Memorial Hospital Savannah has in the past been

affiliated with numerous HHAs in Florida. Flowers Hospital in

Dothan, Alabama has also maintained an affiliation with a HHA

located in Florida.

Separate Reporting for Separately Licensed Facilities

37. Under Florida law, separately licensed health care

facilities must separately report financial data to the Agency.

Section 408.061(3), Fla. Stat. The definition of "health care

facility" applicable to this reporting requirement was changed in

1992, and now specifically refers to "hospitals" and "home health

agencies" as two separate types of health care facilities. 6

II. The Way We Were -- Agency Prior Action

38. The Agency has reviewed and "accep ted" the Prior Year

Reports of Florida hospitals for more than a decade. The Agency

reviews between 320 and 325 Prior Year Reports every year.

39. The applicable definition of an "accepted" report is one

that is determined by the Agency to have been filed in a manner

conforming with applicable rules and the FHURS Manual in force at

the time of filing the report.

40. The Agency has accepted hospital Prior Year Reports which

classified HHA activity as "operating" activity of the hospital,

has accepted hospital Prior Year Reports in which home health

activity was reported as "non-operating" activity of the hospital,

and has accepted reports where HHA activity was excluded entirely

from the report. In all such cases, the hospital made disclosure

to the Agency that the hospital was related in some fashion to a

HHA.

41. The Agency has accepted reports presented in a variety of

manners, and has interpreted its applicable rules and the FHURS

Manual to allow all such filings. The "accepted" reports have all

been used by the Agency for regulatory purposes including the

calculation of hospital MARIs, the review of hospital budgets and

budget amendments, the formation of hospital peer groups for budget

review, and the calculation of penalties for hospitals potentially

exceeding allowable levels of GRAA and NRAA. All of the accepted

reports have also been utilized for the purposes of taxing

hospitals under the PMATF assessment and the HCCCTF assessment.

Hospitals have reasonably relied upon the acceptance of these

reports as evidencing that the reports were filed in a manner

conforming to Agency rules.

42. The Petitioners presented extremely extensive

documentation, all drawn from public records, to establish the

Agency's prior actions regarding the classification of HHA activity

on Agency accepted hospital Prior Year Reports. This documentation

included more than 40 notebooks which were accepted into evidence. 7

Although detailed findings of fact could be made regarding each of

the items in each of the books, this would result in unnecessary

cumulative findings of fact. In place of such findings, the

following summary findings are made:

Acceptance of Hospital-Only Reports

43. The Agency accepted the Prior Year Reports of numerous

hospitals in numerous years in which the prior year actual report

forms were prepared on a hospital-only basis, excluding all HHA

activity.

44. Many hospitals excluded HHA activity from the hospitals'

audited financial statements, but provided disclosure of the

existence of a related HHA. 8 These hospitals submitted prior year

actual report forms which excluded HHA activity from the report.

The following hospital Prior Year Reports were accepted by the

Agency prepared in the above-described manner: Morton Plant

Hospital, FY 1986 - FY 1994 (Pet. Ex. 35); Sarasota Memorial

Hospital, FY 1986 - FY 1994 (Pet. Ex. 36); Winter Haven Hospital,

FY 1989 - 1994 (Pet. Ex. 37); Manatee Memorial Hospital, FY 1989 -

FY 1994 (Pet. Ex. 38); Cedars Medical Center, FY 1991 - FY 1993

(Pet. Ex. 23, 47); Memorial Hospital of Hollywood, FY 1993 - FY

1995 (Pet. Ex. 39); Orlando Regional Medical Center, FY 1990 - FY

1994 (Petitioners Ex. 40); Leesburg Regional, FY 1989, FY 1990, FY

1993, FY 1994 (Pet. Ex. 41); St. Joseph's Hospital Tampa, FY 1991 -

FY 1995 (Pet. Ex. 42); Mt. Sinai Medical Center, FY 1993, FY 1994

(Pet. Ex. 43).

45. The accepted hospital reports referenced above were all

"hospital only" reports, and all provided disclosure to the Agency

of the existence of a HHA that was related in some fashion to the

hospital. 9

46. In addition to the reports accepted as described above,

the Agency has also accepted "hospital only" reports in which the

audited financial statements included the activity of a HHA as

operating activity of the entity being audited, and in which the

audited financial statements included what is known as "other

financial information" or "OFI" which separated out the HHA, the

hospital, and other activities. However, the prior year actual

reports of the hospitals excluded the home health activity from

hospital "operating" activity, and provided a reconciliation to the

audited financial statements on Worksheet X-4. The following

hospital reports were accepted by the Agency prepared in the above-

described manner: Morton Plant Hospital, FY 1984 - FY 1985 (Pet.

Ex. 35); Mease Hospital, FY 1994 (Pet. Ex. 51); Lee Memorial

Hospital, FY 1990 - FY 1994 (Pet. Ex. 44); Hialeah Hospital, FY

1989 - FY 1994 (Pet. Ex. 45); Mt. Sinai Hospital, FY 1992 (Pet. Ex.

23, 43); Suncoast Hospital, FY 1990 - FY 1994 (Pet. Ex. 46); Cedars

Medical Center, FY 1990 (Pet. Ex. 47, 23); Leesburg Regional, FY

1991 - FY 1992 (Pet. Ex. 41).

47. The Agency accepted the Prior Year Reports of numerous

hospitals in numerous years in which the audited financial

statements included HHA activity as operating activity of the

entity being audited without OFI, but in which the prior year

actual report forms excluded HHA activity, with a reconciliation on

Worksheet X-4. The following reports were accepted by the Agency

that were presented in this manner: Cedars Medical Center,

12/31/93 Partial Prior Year Report (Pet. Ex. 23, 47); University-

Tamarac, FY 1993 and FY 1994 (Pet. Ex. 48); Doctors Hospital of

Sarasota, FY 1993 and original 5/31/94 Partial Year Report (Pet.

Ex. 49); Florida Hospital, Revised FY 1993 Report, FY 1994 Report

(Pet. Ex. 50); Mease Hospital, Revised FY 1993 Report (Pet. Ex.

51); Palms of Pasadena Hospital, FY 1994 Report (Pet. Ex. 52);

Shands Teaching Hospital, FY 1994 Report (Pet. Ex. 53; Resp. Ex. 71

at p. 32).

48. Prior to accepting the above-referenced reports, the

Agency would have had to reconcile the prior year actual report

which excluded HHA activity to the audited financial statements

which included HHA activity as operating with or without OFI. To

perform this reconciliation, the Agency analyst would have reviewed

Worksheet X-4, and would have been aware of the hospital's

disclosure of a relationship to a HHA.

49. The Agency has accepted "hospital only" reports in

contexts other than those involving HHAs. The Agency has

instructed numerous Community Mental Health Centers ("CMHCs") to

exclude certain activity not provided in hospital-licensed beds

from the Prior Year Reports submitted to the Agency. The Agency

instructed CMHCs to exclude certain outpatient revenues from the

hospital Prior Year Report, even though this activity was included

in the entity's Medicare Cost Report. The Agency has instructed at

least one of these facilities that it should also have its own

audit for the hospital only (Pet. Ex. 74, p. 248). 10

50. Victoria Montanaro served as the Bureau Chief and

Regulatory Analyst Supervisor for the Agency for a two-year period

covering May 1993 through June 1995. In these roles, Ms. Montanaro

was the senior person responsible for the review and acceptance of

hospital Prior Year Reports. Ms. Montanaro was aware that the

Agency had accepted hospital Prior Year Reports prepared on a

hospital-only basis, with HHA activity excluded.

51. The Agency does not know how many hospital Prior Year

Reports it accepted in which home health activity was excluded.

There is no electronic data base which currently captures this

information.

Acceptance of Hospital Prior Year

Reports as Non-Operating

52. The Agency has accepted the reports of numerous hospitals

in which hospitals submitted their prior year actual report forms

with HHA activity reported as non-operating activity. The Agency

accepted the following hospital reports in which HHA activity was

included as operating activity on the audited financial statements,

but in which HHA activity was reported as non-operating on the

prior year actual report forms, with a reconciliation provided on

Worksheet X-4: Westside Hospital, FY 1994 (Pet. Ex. 54); Largo

Medical Center, FY 1994 (Pet. Ex. 55); St. Petersburg General

Hospital, FY 1994 (Pet. Ex. 56); Columbia Hospital Palm Beaches, FY

1994 (Pet. Ex. 57); Northwest Regional, FY 1994 (Pet. Ex. 58);

Doctors Hospital of Sarasota, 6/1/94 - 12/31/94 Partial Prior Year

Report (Pet. Ex. 49); Winter Park Memorial Hospital, FY 1994 (Pet.

Ex. 59); Lake City Medical Center, FY 1994 (Pet. Ex. 62);

Clearwater Community Hospital, FY 1994 (Pet. Ex. 63); South Bay

Medical Center, FY 1994 (Pet. Ex. 64); Bay Medical Center, FY 1994

(Pet. Ex. 65); South Miami Hospital, Revised FY 1994 (Pet. Ex. 66);

Palmetto, Revised FY 1994 (Pet. Ex. 67); Mercy Hospital, Revised FY

1993 and FY 1994 (Pet. Ex. 68); Cedars, FY 1994 (Pet. Ex. 47).

53. For the Agency to accept the above-referenced hospitals'

Prior Year Reports, the Agency would have reconciled the prior year

actual report to the audited financial statements, and in so doing

would have been aware of the existence of the HHA. 11

54. The Agency does not know how many hospital Prior Year

Reports it accepted in which HHA activity was included as non-

operating activity. There is no current data base from which the

Agency can determine how many hospitals had their reports accepted

in this fashion.

55. The Agency has in at least one case not involving ho me

health revenues, directed a hospital to record certain non-hospital

activity in non-operating revenues. The Agency instructed The

Willough at Naples to include those activities which were not

related to hospital activities, but rather related to separately-

licensed activities, as hospital non-operating activity in its

Prior Year Reports (Pet. Ex. 69).

Acceptance of Hospital Reports as Operating

56. The Agency has also accepted the reports of numerous

hospitals in which home health activity was classified as operating

in both the audited financial statements and prior year actual

report forms. The Agency is able to capture a complete list of

reports that were accepted in this fashion, based upon existing

data bases. The Agency presented a summary table of this

information which was admitted into evidence as Respondents'

Exhibit 1. Respondents' Ex. 1 lists all of the hospital Prior Year

Reports which were accepted in which HHA activity was reported as

operating from 1982 through the present. 12

Agency-Industry Communications Regarding

Home Health Agency Reporting

57. Prior to filing the FY 1993 short period Prior Year

Report for Cedars Medical Center, healthcare consultant Sarah

Fitzgerald met with Victoria Montanaro, who at that time was the

Agency Chief in charge of the review of hospital Prior Year

Reports. At that meeting, the issue regarding how Cedars Medical

Center would report HHA activity was discussed, as well as similar

reporting for University Hospital-Tamarac. Ms. Fitzgerald was told

by Ms. Montanaro that reporting as non-operating would be

acceptable and was preferred ( See Pet. Ex. 21). The Cedars and

University-Tamarac reports were accepted by the Agency (Pet. Ex.

47, 48).

58. Mills Smith, a healthcare consultant, also inquired of

Ms. Montanaro regarding the classification of HHA activity on

hospital Prior Year Reports (Pet. Ex. 20). Ms. Montanaro informed

Mr. Smith by letter dated March 2, 1994, that hospitals should not

include HHA activity as hospital operating activity in the hospital

Prior Year Report (Pet. Ex. 20).

59. Prior to her leaving the Agency, Ms. Montanaro prepared

an internal memorandum to Diane Berryhill, who was at the time

employed by the Agency as a regulatory analyst reviewing hospital

Prior Year Reports (Pet. Ex. 21). This memorandum reflected Ms.

Montanaro's understanding of the Agency's position regarding HHA

reporting as of the date of the memo. At the time that Ms.

Montanaro wrote her memorandum, she had purview over the acceptance

of Prior Year Reports, had the authority to accept reports, and had

the authority to respond to questions from hospitals regarding how

to fill out Prior Year Reports. The memo, a copy of which was sent

by Ms. Montanaro to Ms. Fitzgerald, stated that the Agency's

position was not to require that HHA activity be reported as

hospital operating activity. The memorandum also states that a

legal opinion was going to be sought by the Agency, and that prior

to any changes in policy, a work plan would be implemented. The

legal opinion was requested by Ms. Montanaro because she was

concerned about whether reporting HHA activity as "hospital

operating" activity was even an option after the 1992 statutory

changes.

60. The legal opinion referenced in Ms. Montanaro's

memorandum was never provided. The work plan referenced in Ms.

Montanaro's memorandum was never implemented.

Acceptance of Hospital Revised Prior Year Reports

61. Florida Hospital revised its FY 1993 report to exclude

HHA activity. This report was accepted by the Agency (Pet. Ex. 50,

pp. 65, 90, 109). Mease Hospital also revised its FY 1993 report,

and highlighted the changes in the revised report (Pet. Ex. 51; p.

78). In each of these cases, the Agency was aware of changes in

the reporting, and accepted the reports as filed.

62. In FY 1993, Mercy Hospital filed its Prior Year Report

and included revenues and expenses associated with a HBHHA as

hospital operating revenues (Pet. Ex. 68). The Agency accepted

this report. The Hospital then filed with the Agency a revision to

its FY 1993 Prior Year Report, moving the HHA activity from

operating to non-operating. The Agency accepted the revised

report. After the revised FY 1993 report was accepted, Mercy

Hospital asked the Agency for a refund of PMATF assessments which

had been calculated and paid based upon the inclusion of HHA

activity as hospital operating activity in the original accepted FY

1993 Prior Year Report (Pet. Ex. 68, p. 128). The Agency issued a

refund check to Mercy Hospital to reimburse it for the PMATF

assessment which it had paid based upon HHA activity.

III. This is Now--New AHCA Policy and Actions

AHCA's Statements and Actions Evidencing

New Policy or Rule Interpretation

63. Beginning with the FY 1994 Prior Year Reports of 14

hospitals owned by Columbia/HCA who are Petitioners in this case,

the Agency changed its practice regarding the acceptance of Prior

Year Reports. Where in the past the Agency accepted Prior Year

Reports classifying home health activities in the numerous ways

described above, the Agency determined that it would only accept

hospital Prior Year Reports that include HHA activity as "hospital

operating" activity. Beginning with the 14 Columbia hospital FY

1994 Prior Year Reports, the Agency has sent out numerous notices

of violation involving hospital Prior Year Reports which were filed

with the Agency and which classified HHA activity as non-operating

or which excluded HHA activity from the Prior Year Report with

disclosure of the existence of a hospital-related HHA (Pet. Ex.

53). This change in practice has not been accompanied by any

change in statute or the FHURS Manual.

64. Prior to the review of these fourteen FY 1994 Prior Year

Reports, the Agency never told a hospital that it had to report HHA

activity as operating in order to have its Prior Year Report

accepted.

65. By requiring hospitals to include HHA activity as

hospital operating activity in Prior Year Reports, the Agency is

also requiring that hospitals pay PMATF and HCCTF taxes on HHA

activity. The Agency has admitted that its new practice is a

statement of general applicability (Pet. Ex. 8, Tabs A, B, C,

Requests 2, 3, 7, 8, 9 and 10).

Dudek April 5 and 9 Letters

66. On April 5 and April 9, 1996, the Agency sent letters to

every Florida hospital concerning the reporting of HHA activity in

FY 1995 Prior Year Reports. These letters were signed by Liz

Dudek, AHCA Chief of Certificate of Need and Budget Review (Pet.

Ex. 15, 16). The letters state that if a hospital includes the

activity of a HHA on its Medicare Cost Report, it must be included

as operating activity in the Hospital's FY 1995 Prior Year Report

submitted to the Agency. The April 9 letter does not refer to any

factors to be considered aside from the Medicare Cost Report.

The Agency's New Practice As Applied

67. The Agency's new practice is to require that every

hospital that includes a HBHHA on its Medicare Cost Report must

report to the AHCA the activity of home health agencies as

"operating" activity on the hospital Prior Year Report (Pet. Ex.

15, 16, 35, 41, 45, 46). The Agency's reliance upon the Medicare

Cost Report as the basis for requiring such reporting with the

Agency is a new practice.

68. The Medicare Cost Report is a document submitted to the

federal government for review by HCFA. The Medicare Cost Report

itself has not been adopted as a rule in the State of Florida.

69. Phil Detweiler, a regulatory analyst whose primary duty

at the Agency is to review Prior Year Reports, testified that the

Agency now looks for evidence that HHAs have a relationship to the

hospital, but that this was not an area of inquiry before the fall

of 1995. Mr. Detweiler was told by his supervisor in late December

1995 or early January 1996 to send notices of violations to all

hospitals if a HBHHA is included in its Medicare Cost Report and

HHA activity was classified as other than operating activity in the

hospitals' Prior Year Report. Mr. Detweiler testified that he did

not need to know anything about the operational relationship

between a hospital and a HHA in order to send out a Notice of

Violation requiring that a hospital reclassify HHA activity to

operating activity.

70. In determining that the FY 1995 budget amendment of

Osceola Regional Hospital was incorrect in its classification of

HHA activity as non-operating, the sole factor relied upon by Chris

Augsburger, who was reviewing this report for the Agency, was the

inclusion in the Medicare Cost Report of a HBHHA. Mr. Augsburger

testified that he considered the inclusion on the Medicare Cost

Report to be conclusive evidence of the relationship such as to

require reporting as hospital "operating," and that he did not ask

any additional questions of the hospital regarding the relationship

of the hospital to the HHA, or rely upon other information which

could relate to that relationship. Mr. Augsburger stated that the

determinative factor for reporting is whether the HBHHA is included

on the Medicare Cost Report, not whether the hospital "operates" a

HHA. 13

Hospital "Operation" of Home Health Agencies

71. There is no definition in Florida law of what it means

for a hospital to "operate" a HHA. The Agency never attempted to

define the term "operated by" or "operated as a part of" a

hospital. Nothing in the FHURS Manual offers any test or guidance

to determine what it means for a hospital to operate a HHA, or to

describe any factors which would be utilized in determining whether

any given relationship between a hospital and a HHA meets this

supposed test.

72. Although the Agency mai ntained through some of its

witnesses that in addition to the Medicare Cost Report, hospitals

must report on HHAs if the hospital "operates" a HHA, the Agency

has no formalized set of factors by rule to provide any standards

regarding how this test would be applied.

73. The Agency has never made inquiry of a hospital, outside

of this proceeding, regarding the nature of the operational

relationship between a hospital and any HHAs. In addition, the

Agency has never asked any hospital, in the course of the review of

a hospital Prior Year Report, whether a HHA was operated as a

department of the hospital.

74. Not all HHAs related to a hospital are Medicare-

certified. Non-Medicare-certified HHAs will not appear on any

hospital's Medicare Cost Report. For non-certified HHAs, the

Agency maintains that such agencies are required to be reported as

"operating" on a Prior Year Report, if there is a close enough

operational relationship between the hospital and the HHA. There

is, however, nothing in rule to provide any guidance as to how such

a requirement would be implemented, and there is nothing from the

factors delineated by Agency witnesses in this case which would

provide the answer of whether reporting is required in a given

instance or not.

Rulemaking is Feasible and Practicable

75. The new Agency practice described above has not been

promulgated as a rule.

76. The Agency has been receiving and reviewing hospital

Prior Year Reports for over a decade. The Agency has accepted

reports, and was made aware through disclosure of the existence of

relationships between hospitals and home health agencies, for more

than a decade.

77. The Agency's new practice is distinguishable from its old

practice only in the result of whether a given report is to be

accepted, not in the information required by the Agency to make

that decision. The Agency's witnesses testified that the Agency

could have "discovered the inconsistency" between Medicare cost

reporting and AHCA prior year reporting earlier than it did.

7 8. When the FHURS Manual was created, the Agency was

required to go through a process prior to adopting the Manual which

included obtaining the input of Hospital personnel and industry

representatives in the promulgation of the Manual, as required by

Section 408.061 (2), Fla Stat. The Agency went through the

required process. Based upon the 1992 change in the legislation,

the Agency is required to go through a similar process if it wishes

to collect data from other types of health care facilities,

including HHAs. The Agency has chosen not to go through the

process required by statute.

79. The Agency presented the testimony of Chris Augsburger

that the Agency had not discovered any problem with HHA activity

reporting earlier because the disclosure by hospitals in Prior Year

Reports was "too subtle to get anyone's attention." This

contention regarding disclosure is specifically found to be not

credible, given the overwhelming weight of evidence presented by

Petitioners to the contrary.

80. Rulemaki ng in this matter would be feasible and

practicable.

IV. Affect of Changed Policy/Rule Interpretation

81. The Agency's requirement regarding the filing of HHA

activity as "operating" activity on hospital Prior Year Reports

will substantially affect hospitals and HHAs in the State of

Florida. Among the impacts of the Agency's new practice are

increased penalties, administrative fines, and taxes on hospitals

which are required to report HHA activity as "operating" activity.

There are additional regulatory impacts regarding the budget

review process, as found in greater detail below.

Penalties

82. The Agency annually calculates regulatory penalties and

administrative fines based upon whether a hospital has generated

"excess" GRAA and NRAA in a given fiscal year, based upon Prior

Year Reports accepted by the Agency. The inclusion of HHA activity

in hospital's operating activity could increase or create a

penalty, when the Agency reviews a hospital Prior Year Report.

83. Petitioners gave two examples of the potential penalty

impact on specific hospitals. In the case of Southwest Florida

Regional Medical Center, the effect of including HHA activity in

both the FY 1995 and the FY 1994 Prior Year Report would be to

create a $2,000,000 penalty, where none existed based upon a

comparison of the reports without home health activity (Pet. Ex.

28). If the Agency were to compare the 1995 report for Southwest

Florida Regional Medical Center including home health activity to

the accepted FY 1994 Prior Year Report of Southwest Florida

Regional Medical Center which did not include such activity as

operating, the penalty increases from $2,000,000 to $9,000,000.

84. The potential penalty impact on Morton Plant Hospital

should the Agency require Morton Plant to report HHA activity as

operating in 1995 would exceed $12,500,000. This penalty would

have a substantial and adverse impact on Morton Plant, and would

result in a permanent reduction to Morton Plant.

85. Morton Plant Hospital has had its Prior Year Report s

accepted by the Agency for more than 10 years in a manner which

excluded HHA activity from the Prior Year Report, with disclosure.

Morton Plant Hospital is not in a penalty situation if its 1995

Prior Year Report is compared to its FY 1994 Prior Year Report,

with both reports excluding HHA activity, as has been accepted by

the Agency for more than 10 years.

86. Southwest Florida Regional Medical Center and Morton

Plant Hospital are only two examples of the potential penalty

impact of an Agency requirement that HHA activity be reported as

"operating" -- many more hospitals would be affected. Ms. Dudek

was not aware of the potential penalty impact involving Morton

Plant, and stated that the amount of the fine or penalty was

"beyond her control."

Administrative Fines Relating to Filing

87. In addition to the penalties described above, the Agency

has notified hospitals that, if it prevails in this litigation,

hospitals would be subject to fines up to $1,000 per day for

failing to file FY 1995 Prior Year Reports including HHA activity

as "operating" (Pet. Ex. 33). Ms. Dudek sent such a letter to

Morton Plant, although she was not aware of how Morton Plant had

reported HHA activity in the past.

Regulatory Impact on Budget Review

88. In addition to the penalty and fine implications

described above, including HHA activity as "hospital operating"

activity would also have an impact on the regulatory program

through which hospital budgets are reviewed by the Agency. The

inclusion of HHA activity for certain hospitals could increase

those hospitals' NRAA and cost per adjusted admission, and could

result in those hospitals artificially appearing less cost

efficient as compared to other hospitals in their peer group. The

finding of inefficiency would affect the budget review process for

the hospitals in question. In addition to increasing the NRAA and

cost per adjusted admission of those hospitals with HHA

relationships, the comparability of hospital to hospital upon which

the peer group system is based would be impacted, as HHA activity

is not a variable utilized in the creation of hospital groups.

Increased PMATF and HCCTF Taxes

89. Under Florida Law, the Agency imposes a 1.5 percent PMATF

tax on the operating revenues reported to the Agency by hospitals

(Section 395.701, Fla. Stat.). This tax, which is not assessed

against stand alone or chain-related HHAs, is based upon the

operating revenues of hospitals reported in their Prior Year

Reports. If hospitals are forced to include HHA activity as

operating revenue on their Prior Year Reports, the PMATF tax would

be increased.

90. The Agency also imposes the HCCTF tax on hospital

operating expenses as reported to the Agency. If HHA activity is

required to be included in operating expenses, this would result in

increased HCCTF taxes for hospitals so reporting.

91. Imposing PMATF assessments on HHA activity would raise

the costs to those home health agencies by 1.5 percent.

92. For Morton Plant Hospital alone, the additional PMATF tax

would be approximately $750,000 in additional taxes annually. The

overall increased taxes as a result of this classification change

would be approximately $10,000,000 to $20,000,000 annually.

Retrospective Application of New Practice

93. In the past, when the Agency has made changes in rules or

policy, these changes have been applied prospectively. The Agency

knows how to make prospective changes in rules, and has done so in

other cases.

94. The Agency has recently decided to change how it would

require Community Mental Health Centers to report in hospital Prior

Year Reports, and has notified affected providers that this change

in policy or practice would be applied prospectively only. The

prospective application of rules is especially important in a case

such as this where a hospital cannot take corrective action to

avoid penalties or fines after the close of a given fiscal period.

95. In this instance, the Agency has rejected the FY 1995

actual reports of numerous hospitals which were filed in the same

manner as accepted 1994 reports. The Agency has notified numerous

hospitals of the change in practice after the conclusion of the

hospital's fiscal year 1995. The Agency did not notify these

hospitals of the requested change in time for the facilities to

file a FY 1995 budget amendment. The Agency did not notify these

hospitals early enough to enable the hospitals to lower charges to

remove or lower any potential penalty caused by the Agency's change

in practice.

V. Anti-Competitive Effect

96. The market place for HHA services is very competitive.

Imposing PMATF assessments on certain HHAs would raise costs to

those agencies by 1.5 percent of net operating revenues. The tax

would negatively impact competition, as it would impair the taxed

HHAs' ability to compete against other HHAs not subject to tax. In

the current marketplace, the additional 1.5 percent tax could be

the difference between HHAs obtaining or not being able to fairly

compete for managed care contracts.

97. In addition to the inequity of taxing only certain HHAs

based upon whether they are related to a hospital, the Agency's

proposal is anti-competitive in that there are HHAs which are

associated with hospitals that are not located in the State of

Florida. The Agency does not have authority to impose PMATF taxes

on hospitals located outside of the State of Florida. It would be

a competitive disadvantage to HHAs having to pay the tax to compete

against other hospital-based HHAs which do not have to pay the tax

simply because the hospital to which the HHA is related is located

out of state.

VI. New Agency Practice Reviews The Same Information

And Reaches A Result Different Than That In The Past.

98. The Agency has accepted Prior Year Reports filed by

numerous hospitals for more than a decade with HHA activity

reported in ways other than as "hospital operating" activity. The

Agency is now taking the same information, and without promulgating

a rule, changing its interpretation to require that all hospitals

report as operating.

The Agency's Actions in this Case are not "Mistakes"

99. Over the course of more than 10 years of accepting

hospital reports in manners classifying home health agencies as

other than "operating," a number of AHCA staffers have been

involved in the review and acceptance of these reports. The

acceptance of these reports has spanned many administrations at the

Agency. In the case of Leesburg Regional Hospital, at least twelve

different analysts, supervisors, or bureau chiefs reviewed

Leesburg's Prior Year Reports, all of which were accepted for 1988-

1994, with no questions asked regarding the classification of HHA

activity until 1995. Ms. Montanaro, the former Bureau Chief and

Regulatory Analyst Supervisor responsible for the acceptance of

reports, testified that the Agency accepted reports in three

separate manners, and that the Agency did not require that any

individual hospital with a HBHHA relationship identified in its

Medicare Cost Report report HHA activity as "operating" on the

hospital's Prior Year Report.

10 0. Agency witnesses characterized the acceptance of Prior

Year Reports in a manner other than "operating" as being a mistake.

Mr. Augsburger testified that he did not know why certain reports

had been accepted that he reviewed in prior years. The contention

by current Agency staffers that all past actions of the Agency

regarding the acceptance of these reports were "mistakes" is not

credible, given the overwhelming weight of evidence presented by

Petitioners in this case. In accepting hospital Prior Year Reports

in these manners for over 10 years, the Agency has declared that

such reports were conforming to applicable rules including the

FHURS Manual. Section 408.07(1), Fla. Stat. The Agency's actions

demonstrate that the Agency now seeks to consciously change its

practice regarding the acceptance of hospital Prior Year Reports.

101. The Agency's requirement that HHA activity be classified

as hospital operating activity is not found in existing rules, and

is a new policy which has the effect of rule.

102. It is extremely easy to determine, from the Medicare

Cost Report, whether a HBHHA is included in the cost report. The

existence of a HBHHA is disclosed on pages 1 and 2 of a typical

cost report. The information available to the Agency regarding

hospital relationships with HHAs has not changed. The Agency has

been collecting Medicare Cost Reports since 1988, and not until

1995 has it sought to equate the filing of the Medicare Cost Report

with a requirement to classify activity as "hospital operating" in

the Prior Year Reports filed with the Agency.

FHURS Manual Provisions

103. The FHURS Manual has been in place since 1980, and is

incorporated by reference in Rule 59E-5.102, Florida Administrative

Code. The Manual has not been changed significantly regarding

references to HHA activity. The FHURS Manual does not clearly

describe the circumstances under which hospitals must report HHA

activity as "operating activity." The FHURS Manual contains

numerous lines and spaces that are never used by the Agency. The

FHURS Manual is, on its face, a hospital manual, and not a manual

which was designed to capture information from or about HHAs.

104. The present statutory definition of “[h]ealth care

facility” includes HHAs. Section 408.07(27), Fla. Stat. The

definition in the FHURS Manual is more restrictive, providing only

that a health care facility is “[a] hospital, skilled nursing

facility, or intermediate care facility.” The Manual does not

define hospital department nor does it define operations of a

hospital. The definition of ambulatory services is unclear under

the FHURS Manual as it relates to HHA activity. 14 The FHURS Manual

is a hospital manual and covers services that are provided by

hospitals. The FHURS Manual does not use or define the terms

"controlled by a hospital" or "integral and subordinate part of a

hospital." There is nothing in the FHURS Manual that offers

factors to instruct a reader as to what it means for a hospital to

"provide" services. The terms "hospital-based HHA," "operated by a

hospital," "component of a hospital," and "department of a

hospital" are not defined in the FHURS Manual. Referenced federal

regulations involving the filing of Medicare Cost Reports have not

been promulgated as rules in the State of Florida, although

specific provisions for adoption of federal standards are set forth

in Section 120.54(6), Fla. Stat. (1996 Supp).

105. The Agency has presented numerous factors which it

states that it could utilize in determining whether the operational

relationship between a hospital and a HHA is close enough so that

reporting as “operating” would be required. None of these factors

are contained in current rule or in the current FHURS Manual. In

addition, none of these factors have ever been utilized by the

Agency in its review of a Prior Year Report, nor was it explained

how these factors would be applied to reach a final decision. 15

CONCLUSIONS OF LAW

106. The Division of Administrative Hearings has jurisdiction

over the parties and the subject matter. Sections 120.54 and

120.56, Fla. Stat.

107. The Petitioners have demonstrated, through an

overwhelming preponderance of the evidence, that the Agency has

changed its practice regarding the acceptance of hospital Prior

Year Reports involving hospital-related HHA activity. Reports

which had for years been accepted by the Agency under its rules,

including the FHURS Manual, are now being rejected, based upon no

change in circumstances or receipt of additional information and by

using new approaches without amending the existing rules.

108. In accordance with Section 120.56(4), Fla. Stat. (Supp.

1996), Petitioners have established that the Agency's new practice

constitutes a statement of general applicability that implements,

interprets, or prescribes law or policy and which substantially

affects the rights of regulated parties including Petitioners.

This new practice has not been and should be promulgated as a rule.

Here it is feasible and practicable to adopt the practice as a

rule. Section 120.54(1)(a), Fla. Stat. (Supp. 1996).

109. Under the Administrative Procedures Act, 16 once

Petitioners demonstrated that a non-rule policy, utilized by the

Agency, met the definition of a rule, the burden shifted to the

Agency to prove that rulemaking was not feasible or practicable.

Tarpon Springs Hospital Foundation v. AHCA , 16 FALR 3421, 3436.

110. In this instance, the Agency has failed to rebut the

statutory presumption. It is therefore determined that rulemaking

in this matter is feasible and practicable. Section 120.54(1)(a),

Fla. Stat. (Supp. 1996).

111. To the extent that the Agency claims that the FHURS

Manual covers its new policy, such a claim cannot be sustained,

based both upon the Agency's 10 years of interpreting the FHURS

Manual in a different manner, and based upon the FHURS Manual's

language itself which is contrary to the new practice. 17

112. An agency cannot change a longstanding rule

interpretation, without first going through rulemaking. Cleveland

Clinic Florida Hospital v. Agency for Health Care Administration ,

So.2d , 21 Fla. L. Weekly D2002, D2003-4 (Fla. 1st DCA

1996); Price Wise Buying Group v. Nuzum , 343 So.2d 115, 116 (Fla.

1st DCA 1977) See also, Section 120.52(15), Fla. Stat. (Supp.

1996)

113. The Agency has not yet promulgated a rule incorporating

any of the criteria utilized by HCFA to determine HBHHA

certification. In order to apply the Medicare Cost Report or any

of its parts as a statement of general applicability, the Agency

must first go through the rule promulgation process. 18

114. Notably, the FHURS Manual, at page 1.1, states that it

is a reporting system which operates "regardless of third party

reimbursement policies." For this reason, on its face the Manual

cannot be equated, by reference and without rulemaking, to a

federal Medicare Cost Report, which is utilized solely for third

party reimbursement purposes. The Agency's attempt to utilize

federal regulations cannot substitute for rule-making requirements

under Florida law.

115. Concerni ng challenges to the existing provisions of the

FHURS Manual as invalid exercises of delegated legislative

authority, the term is defined as a rule which: 1) enlarges,

modifies, or contravenes the specific provisions of law implemented

2) fails to establish adequate standards for agency decisions 3)

vests unbridled discretion in the agency 4) is vague, or 5) is

arbitrary and capricious. Section 120.52(8), Fla. Stat (Supp.

1996). The Petitioners have demonstrated that the challenged

portions of the FHURS manual are invalid exercises of delegated

legislative authority.

116. The challenged provisions of the FHURS Manual are vague,

lacking in adequate standards and vest unbridled discretion in the

Agency. Section 120.52(8)(d), Fla. Stat.; See , Barrow v. Holland ,

125 So. 2d 749, 752 (Fla. 1960). The Manual in those sections

simply does not provide adequate standards to inform parties when

and under what circumstances a hospital must report activity of a

related HHA as hospital operating activity on its Prior Year

Report.

ORDER

BASED upon the foregoing, it is hereby ORDERED THAT:

(i.) The Agency has utilized non-rule policy

in determining that hospitals must report HHA

activity as hospital operating activity on

prior year reports and has failed to comply

with applicable rule making requirements of

Chapter 120, Florida Statutes;

(ii.) Challenged provisions of the FHURS

Manual, incorporated by reference in Rule 59E-

5.102, Florida Administrative Code, constitute

invalid exercises of delegated legislative

authority as otherwise set forth in Section

120.52(8), Fla. Stat. (1996 Supp). (iii.)

Petitioners are entitled to attorney fees and

costs per Section 120.595, Fla. Stat.

Jurisdiction is retained to determine

“reasonable amounts” of such fees and costs

upon initiation of that proceeding by

Petitioners.

DONE AND ORDERED this 4 th day of March, 1997, in Tallahassee,

Leon County, Florida.

___________________________________

DON W. DAVIS

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings th

this 4 day of March, 1997.

ENDNOTES

1 / Although Petitioners seek to have Respondent’s unpromulgated

policies addressed on grounds of facial invalidity in addition to

alleged failure to comply with rule-making requirements of

Chapter 120, Florida Statutes, authority for such disposition is

not found. Federation Of Mobile Home Owners Of Florida, Inc.,

and Department Of Business And Professional Regulation, Division

Of Florida Land Sales, Condominiums And Mobile Homes v. Florida

Manufactured Housing Association, Inc. st , 21 Fla. L. Weekly D2447

(Fla. 1 DCA 1996), and Christo v. Florida Dep’t of Banking and st

Finance , 649 So.2d 318 (Fla. 1 DCA), review dismissed mem. , 660

So. 2d 712 (Fla. 1995).

2 / The Agency for Health Care Administration prepares hospital

licenses, based upon license applications provided to the Agency.

Hospital licensure information is maintained by the Agency, and is

readily available to Agency personnel.

3 / There is a current attempt by HCFA to change how it applies

Medicare regulations as regards the certification of HBHHAs. HCFA

is apparently looking at applying some new criteria for the

certification of HBHHAs. (Respondent’s Ex. 70) These new criteria

would actually result in fewer HHAs being considered hospital-

based. The new criteria are to be applied prospectively. These new

criteria constitute a major change to prior HCFA practice.

4 / The definition is: “Accepted” means that the board has found

that a report or data submitted by a health care facility or a

health care provider contains all schedules and data required by

the board and has been prepared in the format specified by the

board, and otherwise conforms to applicable rule or Florida

Hospital Uniform Reporting System manual requirements regarding

reports in effect at the time such report was submitted, and the

data are mathematically reasonable and accurate. Section

408.07(1), Fla. Stat.

5 / For example, Shands Home Care operates approximately 32

licensed HHAs in the State of Florida. Shands HHAs are spread out

throughout the State, including locations in Pensacola, Miami and

Jacksonville. Of the 32 Shands HHAs, 29 are Medicare-certified

HBHHAs. Approximately 10 percent of Shands Home Care patients come

from Shands Hospital. This percentage varies depending upon the

geographic location of the Shands Home Care agency, with some

agencies having less than 1 percent of patients being discharged

from Shands Hospital.

6 / The Agency has relied upon the new language contained in

Section 408.061(3) to attempt to require hospitals to file two

separate reports where two distinct hospital campuses are

maintained under a single Chapter 395 hospital license.

Inexplicably, the same statute is being relied upon by the Agency

to require a hospital to include HHA activity on the hospital’s

Prior Year Report, even through the hospital and the HHA operate

under separate licenses.

7 / Petitioners’ evidence was extensive but not exhaustive. Due to

limitations in the data base, the Agency is able to identify all

hospitals that have reported home health revenue as operating.

However, the evidence from Petitioners probable does not cover

every hospital that has excluded home health activity.

8 / The disclosure was made by hospitals in various ways, including

both letters to the Agency and inclusion in an organizational

footnote.

9 / It must be remembered that, beginning with FY 1988, a Medicare

Cost Report was filed with the Agency that disclosed the existence

of a HBHHA to anyone who bothered to look.

10 / In this instance, the Agency informed the facility that it

should report hospital only, even though the entity in question had

relationships involving the provision of not only non-hospital

community mental health services, but also with a HHA (Petitioners’

Ex. 74).

11 / The Worksheet X-4 reconciliation provided by numerous hospitals

included a specific disclosure that the home health agency services

which were excluded from the Hospital’s Prior Year Report were

services that were provided off-site by a separately-licensed

entity (See Petitioners’ Ex. 63, 64, 65).

12 / This Exhibit does list fourteen Petitioner hospitals, which in

FY 1994 submitted two reports pursuant to a Settlement Agreement,

one of which included hospital HHA activity as operating, and one

of which included HHA activity as non-operating. (Respondent’s Ex.

1, Petitioners’ Ex. 77, pp. 6-10)

13 / Mr. Augsburger stated that his reasoning was that the affidavit

on the front of the Medicare Cost Report says that it is prepared

to comply with applicable rules and regulations. The rules and

regulations referenced by Mr. Augsburger are federal requirements

which have not been promulgated or incorporated as rules in the

State of Florida. To “reinforce” his decision regarding HHA

reporting, Mr. Augusburger also relied upon a chart of accounts,

which has also not been promulgated as a rule in the State of

Florida.

14 / Accounts 3990 and 6990 of the FHURS Manual place home health

services within a category of services called “ambulatory”

services. According to the definition of ambulatory services in

the FHURS Manual, an essential characteristic of ambulatory

services is that the patient comes to or is brought to the hospital

for care. By definition, home health services are provided in a

patient’s home. Section 400.462(6), Fla. Stat. This inclusion of

home health services within ambulatory services renders these

provisions of the FHURS Manual vague.

15 / The Agency did not, in making any determinations regarding the

review of Prior Year Reports, rely upon the Internet, phone books,

advertisements, Specialty Care and Referral Reports filed with the

Agency, or Joint Venture Survey Responses filed with the Agency.

16 / The recent amendments to the Administrative Procedure Act are

applicable in this case. See, Ch. 96-159, Laws of Florida; Life

Care Centers of America, Inc. v. Sawgrass Care Center, Inc. st , ___

So. 2d ___. 21, Fla. L. Weekly D2487 (Fla. 1 DCA 1996).

17 / AHCA’s reinterpretation of the FHURS Manual is also an invalid

exercise of delegated legislative authority because the agency has

materially failed to follow the applicable rulemaking procedures in

Section 120.54, Fla. Stat. Section 120.52(8)a), Fla. Stat.

Material that is incorporated by reference in a promulgated rule

may not be amended without a simultaneous amendment to the rule

that incorporates this material. Section 120.54(1)(i), Fla. Stat.

AHCA has materially failed to follow the procedures described in

Section 120.54(1)(i), by attempting to change the FHURS Manual

without amending the rule that incorporates the FHURS Manual (Rule

59E-5.102, Florida Administrative Code). The agency’s change in

its interpretation of the FHURS Manual has the effect of amending

the provisions of the Manual, and such a change has no effect

unless Rule 59E-5.102 is amended to incorporate those changes.

Section 120.54(1)(i), Fla. Stat.

18 / See , Section 120.54(6), Fla. Stat. (1996 Supp).

COPIES FURNISHED:

Stephen M. Presnell, Esquire

Office of Public Counsel

111 West Madison Street, Room 812

Tallahassee, Florida 32399-1400

John Gilroy, Esquire

Agency for Health Care Admin.

Fort Knox Executive Center

2728 Mahan Drive, Room 3403 A and B

Tallahassee, Florida 32308

Michael J. Glazer, Esquire

Ausley and McMullen

Post Office Box 391

Tallahassee, Florida 32302

R. Terry Rigsby, Esquire

Richard A. Lotspeich, Esquire

Blank, Rigsby and Meenan

204 South Monroe Street

Tallahassee, Florida 32301

Steven R. Bechtel, Esquire

Mateer and Harbert

Post Office Box 2854

Orlando, Florida 32802

James M. Barclay, Esquire

Cobb, Cole and Bell

131 North Gadsden Street

Tallahassee, Florida 32301

Douglas M. Cook, Director

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

Jerome W. Hoffman, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

R. Sam Power, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

Carroll Webb, Executive Director

Administrative Procedure Committee

120 Holland Building

Tallahassee, FL 32399-1300

NOTICE OF RIGHT TO APPEAL

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

the 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.