94-000889RU Arbor Health Care Company vs. Agency For Health Care Administration Status: Closed DOAH Final Order on Tuesday, May 3, 1994.

Summary: Agency's application of a statute is not a rule and does not violate 120.535

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ARBOR HEALTH CARE COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 94-0889RU

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent, )

and )

)

MANOR CARE OF BOYNTON BEACH, INC., )

d/b/a MANOR CARE OF SARASOTA )

COUNTY, )

)

Intervenor. )

___________________________________)

FINAL ORDER

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

designated Hearing Officer, Claude B. Arrington, held a formal hearing in the

above-styled case on March 22, 1994, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Chris H. Bentley, Esquire

John L. Wharton, Esquire

Diane Demor, Esquire

Rose, Sundstrom & Bentley

2548 Blairstone Pines Drive

Tallahassee, Florida 32301

For Respondent: Richard A. Patterson, Esquire

Agency For Health Care Administration

325 John Knox Road, Suite 301

Tallahassee, Florida 32303-4131

For Intervenor: James C. Hauser, Esquire

Lauchlin Waldoch, Esquire

Messer, Vickers, Caparello, Madsen,

Lewis, Goldman, & Metz

215 South Monroe Street, Suite 701

Post Office Box 1876

Tallahassee, Florida 32301

STATEMENT OF THE ISSUES

Whether the challenged agency statements are unpromulgated rules, whether

Respondent (AHCA) has violated the provisions of Section 120.535(1), Florida

Statutes, by failing to adopt the challenged agency statements as rules and

whether the challenged agency statements are invalid exercises of delegated

legislative authority within the meaning of Section 120.56, Florida Statutes.

The challenged agency statements are (a) that Section 408.037(2)(a), Florida

Statutes, requires that an application for a Certificate of Need list among its

"capital projects" other Certificate of Need applications which have been

preliminarily denied by the Agency and are the subject of a petition for an

administrative hearing (denied-but-in-litigation CON applications), and (b) that

failure to list denied-but-in-litigation CON applications constitutes grounds to

summarily reject a Certificate of Need application without further review.

PRELIMINARY STATEMENT

Petitioner (Arbor Health Care) and Intervenor (Manor Care) are competing

applicants for a Certificate of Need (CON) to be issued by AHCA for a nursing

home project to be located in Sarasota, Florida. AHCA issued its notice of

intent to award the CON to Arbor Health Care and to deny all other applications,

including that of Manor Care. Manor Care challenged the proposed action and the

matter was referred to the Division of Administrative Hearings (DOAH) where it

was assigned DOAH Case No. 93-2562. The three parties to this proceeding were

also parties to DOAH Case No. 93-2562. During the course of DOAH Case No. 93-

2562, Manor Care asserted in a motion for summary recommended order that Arbor

Health Care's application for the Sarasota project should be denied because

Arbor Health Care did not include in its application information required by

Section 408.037(2)(a), Florida Statutes, pertaining to applications for three

separate projects that are unrelated to the Sarasota project. For each of these

unrelated projects, a letter of intent had been issued which notified Arbor

Health of the intent of AHCA to deny Arbor Health's application. For each of

these unrelated projects, Arbor Health administratively challenged the proposed

action by proceedings that were pending before the Division of Administrative

Hearings at the time Arbor Health submitted its application for the Sarasota

project. Manor Care asserted in DOAH Case No. 93-2562 that Arbor Health's

failure to include these three projects (referred to as denied-but-in-litigation

CON applications) in its listing of capital projects was fatal and required the

summary dismissal or administrative withdrawal of Arbor Health's application for

the Sarasota project. AHCA filed pleadings in DOAH Case No. 93-2562 by which it

adopted the rationale asserted by Manor Care and joined in its motion for

summary recommended order.

On February 19, 1994, Arbor Health Care filed its petition with the

Division of Administrative Hearings contending that the agency assertions

pertaining to denied-but-in-litigation CON applications made in DOAH Case No.

93-2562 are unpromulgated rules that violate the provisions of Section

120.535(1), Florida Statutes, and are invalid exercises of delegated legislative

authority within the meaning of Section 120.56, Florida Statutes.

On March 10, 1994, AHCA filed a Motion to Dismiss the Petition. Arbor

Health Care filed its response to the Motion to Dismiss on March 14, 1994, and a

Supplemental Response on March 17, 1994.

Manor Care's Petition to Intervene was filed on February 25, 1994, and was

granted by Order dated March 14, 1994. On March 18, 1994, Manor Care filed a

Motion to Dismiss the Petition. On the morning of the hearing, Arbor Health

Care filed a Motion to Strike Manor Care's Motion to Dismiss on the grounds that

it was not timely filed.

The final hearing was conducted March 22, 1994. At the commencement of the

hearing, the pending motions were denied without prejudice to the rights of the

parties to raise the same issues in their post-hearing submittals. Arbor Health

Care's Motion to Strike Manor Care's Motion to Dismiss filed on March 22, 1994,

was rendered moot by that ruling.

At the formal hearing, Arbor Health Care presented the testimony of

Elizabeth Dudek, the chief of AHCA's CON section. Arbor Health Care offered

seven exhibits, AHCA offered one exhibit and Manor Care offered four exhibits.

All exhibits, except for Arbor Health Care's Exhibit 6, were accepted into

evidence. Official recognition was taken of Chapters 120 and 408, Florida

Statutes, and of Chapters 59C-1 and 60Q-2, Florida Administrative Code.

A transcript of the proceedings has been filed. AHCA did not timely file a

post-hearing submittal, but it did file a notice on April 27, 1994, that it was

joining in the post-hearing submittal that was filed by Manor Care. Rulings on

the proposed findings of fact submitted by Arbor Health Care and by Manor Care

may be found in the Appendix to this Final Order.

FINDINGS OF FACT

1. Arbor Health Care is an owner, operator, and developer of nursing homes

with a continuing presence in the State of Florida. Arbor Health Care has been

a provider of nursing home care in Florida for over seven years and has been an

active applicant for Certificates of Need (CON) for nursing home facilities in

Florida. Arbor Health Care owns and operates seven nursing homes in the State

of Florida, and currently has under construction, or has a CON authorizing

construction of, additional nursing home facilities in the State of Florida.

Arbor Health Care currently has several applications for a CON for nursing home

beds pending before AHCA and is currently involved in administrative proceedings

before the Division of Administrative Hearings relating to the AHCA's notices of

intent to grant and/or deny various applications for a CON. Arbor Health Care

has been, and expects to continue to be, an active participant in the CON

application and review process for nursing home beds in the State of Florida.

2. AHCA is the agency of the State of Florida charged with the duty to

implement and enforce the CON program in Florida.

3. Manor Care owns and operates nursing homes and owns other health care

facilities in the State of Florida. Manor Care has filed numerous applications

for CONs related to provision of nursing home services in Florida, has several

outstanding applications, and is the recipient of notices of intent from AHCA to

approve and/or deny such applications. Manor Care has been, and expects to

continue to be, an active participant in the CON application and review process

for nursing home beds in the State of Florida.

4. In December 1992 Arbor Health Care and Manor Care, along with other

providers, submitted competing applications for a CON to construct an 81-bed

nursing facility in Sarasota, Florida (the Sarasota project). AHCA

comparatively reviewed the applications and issued its State Agency Action

Report and its notice of intent to grant the application submitted by Arbor

Health Care and to deny all other applications, including the application

submitted by Manor Care.

5. In April of 1993, Manor Care filed a formal challenge to the AHCA's

proposed denial of its application for the Sarasota project and to the proposed

intent to grant Arbor Health Care's application for that project. That

proceeding was referred to the Division of Administrative Hearings and assigned

DOAH Case No. 93-2562. Manor Care filed a motion for summary recommended order

in Case No. 93-2562 contending, in part, that Arbor Health Care's application

for the Sarasota project should be dismissed because Arbor Health Care failed to

comply with the provisions of Section 408.037(2)(a), Florida Statutes,

pertaining to the minimum content of an application for a CON.

6. Section 408.037(2)(a), Florida Statutes, provides, in pertinent part,

that an application for a CON shall include the following:

(2) A statement of the financial resources

needed by and available to the applicant to

accomplish the proposed project. This

statement shall include:

(a) A complete listing of all capital

projects, including new health facility

development projects and health facility

acquisitions applied for, pending, approved,

or underway in any state at the time of the

application, regardless of whether or not

that state has a certificate-of-need program

or a capital expenditure review program

pursuant to section 112 of the Social Security

Act. The department may, by rule, require

less-detailed (sic) information from major

health care providers. The listing shall

include the applicant's actual or proposed

financial commitment to those projects and

an assessment of their impact on the

applicant's ability to provide the proposed

project.

7. Manor Care argued in Case No. 93-2562 that Arbor Health Care's

application for the Sarasota project was deficient because it failed to include

three projects, referred to as denied-but-in-litigation CON applications, within

its listings of its capital projects. For each of these projects, Arbor Health

Care's application for a CON had been preliminarily denied by AHCA. As to each

project, Arbor Health Care had administratively challenged the denial in

proceedings that were pending and still in litigation before the Division of

Administrative Hearings at the time of Arbor Health Care's application for the

Sarasota project. Consequently, no final order had been entered as to any of

these three projects and whether Arbor Health Care would be issued a CON for one

or more of these three projects had not been resolved.

8. On July 30, 1994, AHCA filed in DOAH Case No. 93-2562 a pleading

agreeing with and adopting that portion of Manor Care's motion to dismiss

grounded on Arbor Health Care's failure to include the three denied-but-in-

litigation CON applications within its capital projects listing.

9. AHCA interprets the provisions of Section 408.037(2)(a), Florida

Statutes, as requiring that denied-but-in-litigation CON applications be

included within the applicant's capital projects listing. The position of AHCA

is that any application that fails to contain the minimum information required

by Section 408.037(2)(a), Florida Statutes, should be summarily dismissed or

administratively withdrawn. AHCA has maintained this interpretation of Section

408.037(2)(a), Florida Statutes, and has applied this interpretation to all

applications for a CON since the statute became effective in 1987.

10. AHCA's statement that denied-but-in-litigation CON applications must

be included within an applicant's capital projects listing has never been

adopted as a rule.

11. The term "capital project" is not defined in Chapter 408, Florida

Statutes. AHCA adopted what is now codified as Rule 59C-1.002(9), Florida

Administrative Code, effective January 31, 1991. That rule defines the term

"capital project" as follows:

"Capital project" means a project involving

one or more expenditures which has received

final approval via authorization to execute

for which capitalization will be required

under generally accepted accounting principles.

For the purpose of this definition, final

approval includes letters of intent to issue

a certificate of need issued by the agency.

12. Also effective January 31, 1991, AHCA adopted what is now codified as

Rule 58C-1.008(5)(h), Florida Administrative Code, which requires that an

application for a CON contain listing of all capital projects ". . . as defined

in rule 59C-1.002(9)."

13. Section 408.037(4), Florida Statutes, requires that a resolution from

the applicant's governing authority accompany each application for a CON for new

nursing home facilities in Florida. This resolution must contain certain

representations and commitments to the project for which application is made and

constitutes "authorization to execute" within the meaning of Rule 59C-1.002(9),

Florida Administrative Code. Section 408.037(4), Florida Statutes, provides as

follows:

(4) A certified copy of a resolution by the

board of directors of the applicant, or other

governing authority if not a corporation,

authorizing the filing of the application;

authorizing the applicant to incur the

expenditures necessary to accomplish the

proposed project; certifying that if issued a

certificate, the applicant shall accomplish

the proposed project within the time allowed

by law and at or below the cost contained in

the application; and certifying that the

applicant shall license and operate the facility.

14. An application for a CON for a project involving capital expenditures

that contains the resolution required by Section 408.037(4), Florida Statutes,

"has received final approval via authorization to execute" within the meaning of

Rule 59C-1.002(9), Florida Administrative Code, and meets the definition of a

"capital project" contained in the first sentence of that rule.

15. On March 11, 1994, AHCA caused to be published in the Florida

Administrative Weekly, Volume 20, Number 10, at pages 1434-35, a Notice of

Proposed Rule. The proposed rule would amend AHCA's existing Rule 59C-1.002(9),

Florida Administrative Code, to read:

(9) "Capital project" means a project

involving a capital expenditure, as defined

in subsection (8) of this rule, which the

applicant has approved via authorization to

execute. For projects subject to certificate

of need review, capital project also means a

project involving a capital expenditure for

which a letter of intent to grant a

certificate of need has been issued; or a

project involving a capital expenditure for

which a letter of intent to deny a

of need is in litigation, or could still be

certificate litigated within any remaining

part of the 21-day period provided by

s. 408.039(5)(a), F.S.

16. The proposed rule incorporates the agency statement that denied-but-

in-litigation CON applications must be listed in the applicant's capital

projects listings and removes any doubt that applied-but-in-litigation CON

applications must be included in an applicant's capital projects listing.

17. AHCA's position that Section 408.37(2)(a), Florida Statutes, requires

that denied-but-in-litigation CON applications be included in the capital

projects listing is merely an application of the plain language of the statute.

Each of the three applications for CONs referred to as denied-but-in-litigation

CON applications contains the commitment required by Section 408.037(4), Florida

Statutes. These three applications are clearly for CONs that have been applied

for and are pending within the meaning of Section 408.037(2)(a), Florida

Statutes.

18. If an applicant fails to list denied-but-in-litigation CON

applications in its capital projects listings, it has failed to provide

information required by Section 408.037(2)(a), Florida Statutes.

19. If an application for a CON is deemed incomplete and administratively

withdrawn prior to comparative review, the applicant no longer has that

application pending and cannot obtain a CON based on that application.

CONCLUSIONS OF LAW

20. The Division of Administrative Hearings has jurisdiction over the

parties to and the subject matter of this proceeding. Sections 120.535 and

120.56, Florida Statutes.

21. As an owner, operator, and developer of existing and proposed nursing

home facilities in the State of Florida, Arbor Health Care is substantially

affected by AHCA's statements pertaining to the required contents of

applications for CONs. Consequently, Arbor Health Care has the requisite

standing to bring this proceeding. Manor Care's assertion that Arbor Health

Care lacks standing because it has not as of yet suffered any adverse action as

a result of the challenged statements is rejected as being without merit. See,

Professional Firefighters of Florida, Inc. v. Department of Health and

Rehabilitative Services 396 So.2d 1194 (Fla. 1st DCA 1981). Likewise without

merit is Arbor Health Care's assertion that Manor Care lacks standing to

intervene in the challenge brought pursuant to Section 120.535, Florida

Statutes.

22. As the challenger, the burden is upon the petitioner to demonstrate,

by a preponderance of the evidence, that the challenged agency assertions

constitute rules as defined by Section 120.52(16), Florida Statutes. See,

Section 120.535, Florida Statutes, Humana, Inc. v. Department of Health and

Rehabilitative Services, 469 So.2d 889 (Fla. 1st DCA 1985), and Agrico Chemical

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

1978).

23. Section 120.52(16), Florida Statutes, defines the term "rule" as

follows:

(16) "Rule" means each agency statement of

general applicability that implements,

interprets, or prescribes law or policy or

describes the organization, procedure, or

practice requirements of an agency and

includes any form which imposes any

requirement or solicits information not

specifically required by statute or by an

existing rule. The term also includes the

amendment or repeal of a rule. . . .

24. In St. Francis Hospital, Inc. v. Department of Health and

Rehabilitative Services, 553 So.2d 1351 (Fla. 1st DCA 1989), at page 1354, the

court stated:

We recognize that an agency interpretation of

a statute which simply reiterates the

legislature's statutory mandate and does not

place upon the statute an interpretation that

is not readily apparent from its literal

reading, nor in and of itself purport to

create rights, or require compliance, or to

otherwise have the direct and consistent

effect of the law, is not an unpromulgated

rule, and actions based upon such an

interpretation are permissible without

requiring an agency to go through rulemaking.

25. The agency statement challenged in this proceeding that denied-but-in-

litigation CON applications must be included in the capital projects listing of

an application for a CON is not a rule as the term rule is defined by Section

120.52(16), Florida Statutes. The Petitioner has failed to establish that the

agency has asserted any requirement that is not apparent from an application or

reading of the statute. The proof is compelling that the agency's assertion in

the underlying case that instigated this petition was predicated on existing

statute and did not impose any requirement not contained within the existing

statute.

26. Section 120.535, Florida Statutes, provides, in pertinent part, as

follows:

(1) Rulemaking is not a matter of agency

discretion. Each agency statement defined as

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

by the rulemaking procedure provided by s.

120.54 as soon as feasible and practicable to

the extent provided by this subsection . . .

* * *

(a) Rulemaking shall be presumed feasible

unless the agency proves that:

* * *

3. The agency is currently using the

rulemaking procedure expeditiously and in

good faith to adopt rules which address the

statement.

* * *

(2)(a) Any person substantially affected by

an agency statement may seek an administrative

determination that the statement violates

subsection (1). . . .

* * *

(4) When a hearing officer determines that

all or part of an agency statement violates

subsection (1), the agency shall immediately

discontinue all reliance upon the statement

or any substantially similar statement as a

basis for agency action.

(5) Subsequent to a determination that an

agency statement violates subsection (1), if

an agency publishes, pursuant to s. 120.54(1),

proposed rules which address the statement and

proceeds expeditiously and in good faith to

adopt rules which address the statement, the

agency shall be permitted to rely upon the

statement or a substantially similar statement

as a basis for agency action. . . .

27. Even if it were determined that the challenged statement is an

unpromulgated rule, AHCA established that it is currently using the rulemaking

process expeditiously and in good faith to adopt rules that incorporate the

challenged agency statement, which is all that is required by Section 120.535,

Florida Statutes.

28. Section 120.56(1), Florida Statutes, provides as follows:

(1) Any person substantially affected by a

rule may seek an administrative determination

of the invalidity of the rule on the ground

that the rule is an invalid exercise of

delegated legislative authority.

29. Section 120.52(8), Florida Statutes, defines the term "invalid

exercise of delegated legislative authority" as follows:

(8) "Invalid exercise of delegated legislative

authority" means action which goes beyond the

powers, functions, and duties delegated by the

Legislature. A proposed or existing rule is an

invalid exercise of delegated legislative

authority if any one or more of the following

apply:

(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

vest unbridled discretion in the agency; or

(e) The rule is arbitrary or capricious.

30. The challenge to the agency statement that denied-but-in-litigation

CON applications must be contained in an applicant's capital projects listing is

not a rule. Consequently, the challenge pursuant to Section 120.56, Florida

Statutes, must be denied. Even if the challenged statement were considered an

unpromulgated rule, any challenge thereto would be limited to the provisions of

Section 120.535, Florida Statutes, and not subject to challenge under Section

120.56, Florida Statutes, until promulgated as a rule. This is not to suggest

that the propriety of an agency's "unpromulgated rule" could not be tested in a

Section 120.57 hearing. See, Section 120.57(1)(b)15, Florida Statutes.

31. AHCA, as the agency responsible for the administration of the CON

program in Florida, has the authority to administratively withdraw or to

otherwise reject an application for a CON that fails to provide information

required by statute. AHCA's assertion in DOAH Case No. 93-2562 that Arbor

Health Care's application for the CON for the Sarasota project should be

administratively withdrawn is not a rule as defined by Section 120.52(16),

Florida Statutes, and is not subject to challenge in this proceeding pursuant to

Section 120.535 or Section 120.56, Florida Statutes.

ORDER

Based on the foregoing Findings of Fact and Conclusions of Law, it is

ORDERED that Arbor Health Care's challenges pursuant to Section 120.535 and

120.56, Florida Statutes as set forth in its petition be, and the same hereby

are, DENIED.

DONE AND ORDERED this 3rd day of May, 1994, in Tallahassee, Leon County,

Florida.

___________________________________

CLAUDE B. ARRINGTON

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 3rd day of May, 1994.

APPENDIX TO FINAL ORDER, CASE NO. 94-0889RU

The following rulings are made as to the proposed findings of fact submitted by

Petitioner, Arbor Health Care Company.

1. The proposed findings of fact in paragraphs 1, 2, 3, 4, 5, 6,

8, and 12 are adopted in material part by the Final Order.

2. The proposed findings of fact in paragraph 7 are adopted in

part by the Final Order, but are rejected to the extent they

are contrary to the findings made and to the conclusions

reached.

3. The proposed findings of fact in paragraph 9 are adopted in

part by the Final Order, but are rejected to the extent they

are unnecessary to the conclusions reached.

4. The proposed findings of fact in paragraph 10 are rejected as

being unnecessary to the conclusions reached since it is

found that denied-but-in-litigation CON applications meet the

definition contained in the first sentence of the rule.

5. The proposed findings of fact in paragraphs 11 and 16 are

rejected as being unnecessary to the conclusions reached.

6. The proposed findings of fact in paragraphs 13 and 14 are

adopted in part by the Final Order or are subordinate to the

findings made.

7. The proposed findings of fact in Paragraph 15 are rejected

for failure to comply with Rule 60Q-2.031(3), Florida

Administrative Code, and because the proposed findings are

unnecessary to the conclusions reached.

The following rulings are made on the proposed findings of fact submitted by

Intervenor, Manor Care of Boynton Beach, Inc., d/b/a Manor Care of Sarasota

County.

1. The proposed findings of fact in paragraphs 1, 2, 3, 4, 5, 6,

17, 21, and 22 are adopted in material part by the

Recommended Order.

2. The proposed findings of fact in paragraphs 7, 8, 9, 10, and

24 are rejected as being unnecessary to the conclusions

reached.

3. The proposed findings of fact in paragraphs 11, 12, 13, 14,

15, and 16 are treated as preliminary matters, but are

rejected as findings of fact because they are unnecessary to

the conclusions reached.

4. The proposed findings of fact in paragraph 23, 25, 26, 27,

28, 29, 30, 31, 32, 33, 34, 35, 36, and 37 are legal

arguments that are rejected as findings of fact, but they are

subordinate to the conclusions of law contained in the Final

Order.

COPIES FURNISHED:

Chris H. Bentley, Esquire

John L. Wharton, Esquire

Diane Demor, Esquire

Rose, Sundstrom & Bentley

2548 Blairstone Pines Drive

Tallahassee, Florida 32301

Richard A. Patterson, Esquire

Agency For Health Care Administration

325 John Knox Road, Suite 301

Tallahassee, Florida 32303-4131

James C. Hauser, Esquire

Lauchlin Waldoch, Esquire

Messer, Vickers, Caparello, Madsen,

Lewis, Goldman, & Metz

215 South Monroe Street, Suite 701

Post Office Box 1876

Tallahassee, Florida 32301

Liz Cloud, Chief

Bureau of Administrative Code

The Elliot Building

Tallahassee, Florida 32399-0250

Carroll Webb, Executive Director

Administrative Procedures Committee

Holland Building, Room 120

Tallahassee, Florida 32399-1300

Sam Power, Agency Clerk

Agency for Health Care Administration

The Atrium, Suite 301

325 John Knox Road

Tallahassee, Florida 32303

Harold D. Lewis, General Counsel

Agency for Health Care Administration

The Atrium, Suite 301

325 John Knox Road

Tallahassee, Florida 32303

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.