91-008101RP Damon Clinical Laboratories; Metpath, Inc.; National Health Laboratories, Inc.; And Smith Kline Beecham Clinical Laboratories vs. Healthcare Cost Containment Board Status: Closed DOAH Final Order on Tuesday, March 17, 1992.

Summary: Proposed rule deemed invalid.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DAMON CLINICAL LABORATORIES, )

METPATH, INC., NATIONAL HEALTH )

LABORATORIES, INC., and SMITH )

KLINE BEECHAM CLINICAL )

LABORATORIES, )

)

Petitioners, )

)

vs. ) CASE NO. 91- 8101RP

)

HEALTH CARE COST CONTAINMENT )

BOARD, )

)

Respondent. )

_________________________________)

FINAL ORDER

This matter came before the undersigned on petitioners' petition to

determine the invalidity of certain rules proposed for adoption by respondent.

The parties were represented as follows.

APPEARANCES

For Petitioners: Arthur J. England, Esquire

100 Southeast Second Street, Suite 3600

Miami, Florida 33131-2130

Charles R. Ranson, Esquire

215 South Monroe Street, Suite 804

Tallahassee, Florida 32301

For Respondent: Julia C. Pallentino, Esquire

The Atrium, Suite 301

325 John Knox Road

Tallahassee, Florida 32303

STATEMENT OF THE ISSUES

The issue is whether proposed rules 10N-6.011(1) and (8) constitute an

invalid exercise of delegated legislative authority as alleged by petitioners.

PRELIMINARY STATEMENT

This matter began on December 18, 1991, when petitioners, Damon Clinical

Laboratories, Metpath, Inc., National Health Laboratories, Inc., and Smith Cline

Beecham Clinical Laboratories, filed a petition to determine invalidity of

proposed rules wherein they contended that rules 10N-6.008 through 10N-6.024

proposed for adoption by respondent, Health Care Cost Containment Board, were

invalid on a number of grounds. After being reviewed for legal sufficiency, the

petition was assigned to the undersigned hearing officer on December 20, 1991.

Thereafter, by order dated December 23, 1991, this case was consolidated with

Case Nos. 91-8086R, 91-8100R and 91-8102R which involved challenges to all or

part of the same proposed rules and all cases were scheduled for final hearing

on January 10, 1992, in Tallahassee, Florida.

At the request of the parties, the final hearing on January 10, 1992, was

continued while the parties attempted to informally settle the dispute. As a

result of a settlement conference, voluntary dismissals were later filed in the

other three cases and the issues in this proceeding were narrowed.

By notice of hearing dated January 22, 1992, the final hearing was

rescheduled to February 5, 1992, in Tallahassee, Florida, and at petitioners'

request, was rescheduled again to February 10, 1992, at the same location.

On February 7, 1992, the parties announced that there were no issues of

fact in dispute and that they would file a stipulation of fact, affidavits,

memoranda of law, and one exhibit (a copy of form AMBFACO2-1992) in lieu of

having an evidentiary hearing. Such documents were filed by the parties on

February 12, 1992. In addition, the parties submitted proposed orders on

February 24, 1992. For purposes of rendering this order, the undersigned has

assumed the statements contained in the affidavits are not controverted.

FINDINGS OF FACT

Based upon all of the evidence, including the stipulation of fact and

affidavits, the following findings of fact are determined:

A. Background

1. On November 27, 1991, respondent, Health Care Cost Containment Board

(Board or respondent), proposed to adopt new rules 10N-6.008 through 10N-6.024

for the purpose of implementing section 177 of Chapter 91-112, Laws of Florida,

now codified as Section 395.1015, Florida Statutes (1991). That statute imposes

an annual assessment on certain health care entities for the purpose of funding

indigent care through the Public Medical Assistance Trust Fund. Petitioners,

Damon Clinical Laboratories, Metpath, Inc., National Health Laboratories, Inc.

and Smith Kline Beecham Clinical Laboratories (petitioners), have filed a

petition to determine the invalidity of the proposed rules. Petitioners are all

clinical laboratories licensed under Section 483.091, Florida Statutes (1991)

and are affected by and subject to the proposed rules. Respondent is the agency

responsible for the collection of the assessment and the administering of the

law.

2. Among other things, the proposed rules impose a 1.5 percent annual

assessment of the net operating revenues of each clinical laboratory licensed

under section 483.091. They also require the furnishing of documentation on

required forms to verify the accuracy of the assessment, prescribe and adopt

forms, provide the manner in which such forms are to be filed, provide how the

assessment shall be calculated and paid, and impose penalties for reporting and

payment deficiencies.

3. As a result of a settlement conference by the parties, on January 24,

1992, the Board proposed certain changes to the originally proposed rules. The

precise changes are not of record. However, as a result of that conference,

there remain only the contentions by petitioners that (a) proposed rule 10N-

6.011(1), which requires the health care entity to elect a fiscal period to

which its first and later assessments shall apply and to report that election on

a particular form, is invalid because it allegedly imposes the assessment

retroactively and thus the Board has exceeded its delegated legislative

authority and the rule is arbritrary, capricious and unconstitutional, and (b)

proposed rule 10N-6.011(8), which requires each licensee to file separate

reports, is invalid as being arbitrary and capricious.

B. Rule 10N-6.011(1)

4. Section 177(2) of Chapter 91-112, Laws of Florida, which is now

codified as subsection 395.1015(2), provides that the first assessment imposed

by the act shall be due on March 31, 1992, and that by January 1, 1992, each

licensee shall make a one-time election and choose the fiscal year on which the

first and later assessments shall be based. To implement that requirement, the

Board has proposed to adopt rule 10N-6.011(1) which reads as follows:

(1) By January 1, 1992, the health care entity shall

make a one-time election to base the assessments on net

operating revenue received in the health care entity's

latest fiscal year ending on or before December 31,

1991, or December 31, 1992, respectively, or the 12

month period ending March 31 of the year the assessment

is due. The health care entity shall report the

elected assessment period to the Board on the AMBFACi

report forms.

Except for the last sentence in the rule, the rule tracks verbatim the language

in subsection 395.1015(2)(a)1. cited above. Under the terms of the rule, a

health care entity is required to choose the fiscal period to which the first

and later assessments are based and to report that election to the Board on form

AMBFACi. Like the enabling statute, the rule provides that the first assessment

is based on the net operating revenues received by the entity during either the

twelve-month period ending December 31, 1991, or March 31, 1992, depending on

which time period the entity elects to use. Under either fiscal year, the

assessment will be based on revenues received by the entity prior to July 1,

1991. 1/ The history note to rule 10N-6.011(1) identifies section 395.1015 as

the statute being implemented.

C. Rule 10N-6.011(8)

5. Subsection 395.1015(2)(b)2. defines a "health care entity" as each

clinical laboratory licensed under chapter 483. Among other things, rule 10N-

6.011 requires each health care entity to annually file various financial

reports. To clarify its intention as to who must file those reports, given the

definition in subsection 395.1015(2)(b)2., the Board has proposed to adopt new

rule 10N-6.011(8) which reads as follows:

(8) Where more than one health care entity is operated

by the reporting organization, the information required

by this section shall be reported for each health care

entity separately.

Accordingly, under the terms of the rule, each licensed laboratory must furnish

the Board with reports of receipts and other financial information. The history

note to the rule cites section 395.1015 as the statute being implemented.

6. At least two of petitioners own and operate several major, licensed

clinical laboratories in this state. They also maintain and operate subordinate

or satellite licensed laboratory facilities within the state. The satellite

facilities include those used as patient collection stations, " STAT" laboratory

facilities (to perform limited immediate and emergency patient testing) and

remote cytology screening centers. The satellite facilities do not maintain

accounting or financial records. Rather, the major or central clinical

laboratory bills, collects, and reports for all financial purposes on an

aggregrate basis for itself and for each of the satellite laboratories.

7. The billing, collection and other financial data generated and

maintained in central laboratories is complete, on an aggregate basis, both for

that laboratory and for all of the satellite laboratories in the state and would

provide the Board, if requested, precisely the same information on an aggregate

basis which could have been obtained collectively from each of the satellite

facilities in Florida if the information were available from each facility on a

separate basis.

8. In the clinical laboratory industry, some clinical laboratories which

are requested to perform clinical and diagnostic services by physicians,

hospitals and other health care providers do not actually perform those

services. Rather, testing of materials and diagnostic services are referred to

other clinical laboratories (performing laboratories) both in and outside the

state for actual testing and clinical evaluations. Thus, the referring

laboratory may be little more than a collection point for the convenience of

health care providers in a community. It may also be a full service laboratory

which, however, refers a limited class or type of testing to another facility

where special equipment is available.

9. The parties have agreed that the performing laboratories render a bill

for their services to the referring laboratories, the referring laboratories in

turn render a bill to the hospital, physician, or other health care provider who

initiated the request for clinical or diagnostic services, and the referring

laboratories' billing to the health care provider may be for an amount larger

than the performing laboratories' charges if it includes the amounts charged by

the performing laboratory.

10. Proposed rule 10N-6.018, which has not been challenged, authorizes the

Board's executive director, with the Board's approval, to make interpretative

rulings and modifications with respect to the instructions contained in the

Board's forms to be used for reporting financial and statistical information.

CONCLUSIONS OF LAW

11. The Division of Administrative Hearings has jurisdiction over the

subject matter and parties hereto pursuant to Subsection 120.54(4), Florida

Statutes (1991).

12. Subsection 120.52(8), Florida Statutes (1991) provides that a rule is

an invalid exercise of delegated authority when:

(a) The agency has materially failed to follow the

applicable rulemaking procedures set forth in s.

120.54;

(b) The agency has exceeded its grant of rulemaking

authority, citation to which is required by s.

120.54(7);

(c) The rule enlarges, modifies, or contravenes the

specific provisions of law implemented, citation to

which is required by s. 120.54(7);

(d) The rule is vague, fails to establish adequate

standards for agency decisions, or vests unbridled

discretion in the agency; or

(e) The rule is arbitrary or capricious.

In addition, in a section 120.54(4) proceeding such as this, the courts have

allowed an affected person to raise constitutional infirmities as a ground for

invalidating a proposed rule. See, e. g., Department of Environmental

Regulation v. Leon County, 344 So.2d 297, 298 (Fla. 1st DCA 1977). Therefore,

petitioners' claims must fall within these statutory and judicial perameters.

13. The party challenging the validity of the proposed rules bears the

burden of demonstrating that the challenged rules are an invalid exercise of

delegated legislative authority. See, e. g., Agrico Chemical Company v. State,

Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978).

As alleged in their petition which initiated this action, petitioners must

accordingly prove that in proposing rule 10N-6.011(1), which petitioners contend

illegally imposes the assessment on a retroactive basis, the Board "has exceeded

its delegated legislative power" and the rule is "arbitrary and capricious, and

violate(s) petitioners' rights of due process and equal protection of the laws"

(paragraph 4(h) of petition), and proposed rule 10N-6.011(8), which imposes a

reporting requirement on each licensed laboratory, is "arbitrary and capricious"

(paragraph 4(g) of petition).

14. In defending proposed rule 10N-6.011(1), respondent asserts that the

statute expresses a clear intention that the first assessment should be based on

revenues received by clinical laboratories prior to July 1, 1991, and that the

Board had no choice except to follow the mandate of the law. To do otherwise,

it contends, would be to ignore the plain meaning of the statute. In addition,

the Board argues that in drafting the rule, the agency has simply copied the

statute verbatim, and that if petitioners have a quarrel with the manner in

which the first assessment is calculated, their remedy is challenge the validity

of the statute in another forum. 2/

15. Ordinarily, if an agency has done nothing more than propose a rule

which tracks verbatim the words of the enabling law, such an action would not

constitute an invalid exercise of delegated legislative authority since the

proposed action would not go "beyond the powers, functions, and duties delegated

by the legislature". Subsection 120.52(8), F. S. Similarly, if the proposed

rule carries out precisely what the legislature has mandated, it would not

contravene the provisions of subsection 120.52(8). However, given the

contention that the rule departs from the intent of the statute because it gives

retroactive effect to clearly prospective provisions, and thus the Board has

exceeded its delegated legislative power, consideration must be given to what

the legislature intended when it enacted section 177(2), now codified as

subsection 395.1015(2).

16. Subsection 395.1015(2) is derived from section 177 of Chapter 91-112,

Laws of Florida. In all, the chapter contains 178 substantive provisions.

Section 179 provides that "except as otherwise expressly provided in this act,

this act shall take effect July 1, 1991." At least five sections contain clear

language that expressly provides for an effective date which is different from

July 1, 1991. For example, sections 169, 173 and 174 amend certain provisions

of the law "effective January 1, 1992". Conversely, there is no specific

language in section 177 which provides an effective date different than July 1,

1991, and it would be inappropriate to imply an effective date not expressly

stated in the section. This is because in the absence of an explicit

legislative expression to the contrary, a substantive law is to be construed as

having prospective effect only. Walker & LaBerge, Inc. v. Halligan, 344 So.2d

239 (Fla. 1977). Moreover, where a statute imposes new obligations on affected

persons, as it does here, the statute "must evince an even clearer expression of

intent to be applied retroactively". St. John's Village I, Ltd. v. Department

of State, Division of Corporations, 497 So.2d 990, 992 (Fla. 5th DCA 1986).

Using this stringent standard, it is concluded that the legislature intended for

section 177 (s. 393.1015) to operative prospectively and for the first

assessment to be based on revenues received after July 1, 1991. This conclusion

is consonant with the concept of "realization" as used in the Florida income tax

and federal tax codes, 3/ which makes it impermissible to tax revenues

"realized" by the taxpayer prior to the effective date of the law imposing the

tax. See Department of Revenue v. Leadership Housing, Inc., 343 So.2d 611 (Fla.

1977) and its progeny. Because the rule departs from the intent of the law by

basing the first year's assessment on revenues received prior to the law's

effective date, the Board has exceeded its grant of rulemaking authority and

thus the rule is declared to be invalid. In light of this conclusion, it is

unnecessary to reach the constitutional issues.

17. Petitioners next contend that proposed rule 10N-6.011(8) is arbitrary

and capricious because it requires separate reports from each licensed

laboratory in the state. Petitioners argue that the proposed rule would cause

substantial, nationwide expense for some of petitioners because many of their

small satellite laboratories, although licensed, do not maintain records

necessary for complying with the reporting requirements. To sustain this

argument, petitioners must show "by a preponderance of the evidence that the

rule is not supported by fact or logic, was adopted without thought or reason or

is otherwise not based on competent, substantial evidence". Humana, Inc. v.

Department of Health and Rehabilitative Services, 469 So.2d 889, 890 (Fla. 1st

DCA 1985). See also Agrico, supra at 763. Here the agency has merely imposed a

reporting requirement that is consistent with the enabling law. In other words,

the general law (s. 395.1015(2)(b)1.) defines a health care entity as each

clinical laboratory licensed under subsection 483.041(7). Further, the same law

imposes an annual assessment against each health care entity and requires

"appropriate reports" to be filed with such assessments to insure that such

reported assessments are correct. Accordingly, the contention that the rule is

"not supported by fact or logic" or was adopted "without thought or reason" is

deemed to be unavailing. While it is true that the rule may impose a financial

burden on those affected laboratories who utilize consolidated financial reports

and maintain no financial records at their smaller satellite laboratories, and

such an impact would obviously grant those persons standing to challenge the

rule, the imposition of a "financial burden" is not a statutory ground for

invalidating a rule. 4/ Therefore, as to this proposed rule, the petition

should be denied.

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

ORDERED that proposed rule 10-6.011(1) is determined to be an invalid

exercise of delegated legislative authority. The petition to determine the

invalidity of proposed rule 10N-6.011(8) is hereby DENIED.

DONE AND ORDERED this __17th__ day of March, 1992, in Tallahassee, Leon

County, Florida.

___________________________________

DONALD R. ALEXANDER

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 __17th__

day of March, 1992.

ENDNOTES

1/ For the year ending December 31, 1991, the assessment would be made on

revenues received during the period January 1, 1991, through June 30, 1991. For

the year ending March 31, 1992, the assessment would be made on revenues

received during the period April 1, 1991, through June 30, 1991.

2/ Compare Diaz v. Fla. Dept. of Corrections, 9 FALR 2263 ( DOAH, March 26,

1987), where a hearing officer denied a petition to declare rule 33-6.006(1)

invalid reasoning that since the rule tracked the statute verbatim, the rule did

not depart in any way from the statutory mandate. On appeal, the court declared

the statute unconstitutional and remanded the proceeding to the hearing officer

for further consideration. Diaz v. Fla. Dept. of Corrections, 519 So.2d 41

(Fla. 1st DCA 1988). The rule was thereafter declared invalid by the hearing

officer. Diaz v. Fla. Dept. of Corrections, 10 FALR 5241 ( DOAH, September 1,

1988).

3/ For purposes of this proceeding, the undersigned finds no distinction

between an "assessment" and a "tax" since both impose an obligation on affected

persons.

4/ Parenthetically, it is noted that proposed rule 10N-6.018 provides that

the Board's executive director, with the Board's approval, may authorize

deviation from the reporting requirements if good cause is shown.

COPIES FURNISHED:

Arthur J. England, Esquire

Suite 3600

100 Southeast Second Street

Miami, FL 33131-2130

Charles R. Ranson, Esquire

215 South Monroe Street, Suite 804

Tallahassee, Florida 32301

Julia C. Pallentino, Esquire

The Atrium, Suite 301

325 John Knox Road

Tallahassee, Florida 32303

V. Carroll Webb, Director

Joint Administrative Procedures Committee

Room 120, Holland Building

Tallahassee, Florida 32399-1300

Liz Cloud, Chief

Bureau of Laws and Administrative Code

Room 1802, The Capitol

Tallahassee, Florida 32399-0250

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.