Beverly Enterprises-Florida, Inc. v. Department of Health and Rehabilitative Services

• Decision Date: 14 December 1990
• Docket Number: ENTERPRISES-FLORID,INC,No. 89-1569,89-1569
• Citation: 573 So.2d 19
• Parties: 15 Fla. L. Weekly D3041 BEVERLY, d/b/a Beverly-Gulf Coast Florida, Inc., Appellant, v. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, Appellee.
• Court: Florida District Court of Appeals

Page 19

573 So.2d 19

15 Fla. L. Weekly D3041

BEVERLY ENTERPRISES-FLORIDA, INC., d/b/a Beverly-Gulf Coast Florida, Inc., Appellant, v. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, Appellee.

No. 89-1569.

District Court of Appeal of Florida First District.

Dec. 14, 1990.

Stephen K. Boone of Boone, Boone, Klingbeil, Boone & Roberts, P.A., Venice, for appellant.

Lesley Mendelson, Sr. Atty. for Dept. of Health and Rehabilitative Services, Tallahassee, for appellee.

SMITH, Judge.

Beverly Enterprises-Florida, Inc. (Beverly) was awarded Certificate of Need (CON) number 3746 to construct a 60-bed addition to its existing facility, Suwannee Health Care Center, in Live Oak, Florida. Thereafter, Beverly filed an application for expedited review of its proposal to transfer the 60 beds authorized by CON 3746 to Florida Land Trust Number Seven, to be constructed as a 60-bed addition to the Land Trust's nursing home, Surrey Place Nursing Center of Live Oak, also located in Live Oak. The Department of Health and Rehabilitative Services (HRS) determined that this proposal was not merely a transfer of a CON which could be accomplished by expedited review, but was instead an addition of beds to an existing facility, which requires a full batched comparative review. We reverse.

Section 381.706(1), Florida Statutes (Supp.1988), lists all the health-care-related projects which are subject to review and includes among them in paragraphs (a) and (e), those projects that add beds by new construction or alteration, or make any change in licensed bed capacity. Section 381.706(2) provides for expedited review of those projects involving, among other things, a transfer of a CON or a combination within one nursing home facility of the beds or services authorized by two or more CONs issued in the same planning subdistrict. § 381.706(2)(g) and (j), Fla.Stat. (Supp.1988). Section 381.705(3) provides that for any application authorized by section 381.706(2)(j) or (k) involving an approved facility based upon a CON application filed prior to December 31, 1984, HRS shall approve such application unless (1) the proposed consolidation or division would result in a facility or facilities not meeting the criterion of financial feasibility or (2) unless the consolidation or division would result in beds or services being moved more than 15 miles from their original certificated location. ¹ The review criteria of section 381.705(3) is very abbreviated compared to the review criteria set forth in section 381.705(1) applying to other CON projects. Surrey Place's application for a CON was filed on July 16, 1984.

According to findings made by the hearing officer, which are not challenged on appeal, sections 381.705(3) and 381.706(2)(j) and (k) were added to the statutes by the 1988 Legislature in response to lobbying efforts by Health Quest Corporation. See Ch. 88-294, §§ 20 and 21, Laws of Fla. According to the findings, Health Quest sought the amendment because it had a CON for a 180-bed nursing home to be built in Sarasota County, and it desired expedited review of its application to divide the 180 bed CON into a 120-bed freestanding facility and a 60-bed addition to an existing facility in Sarasota County. Ultimately, HRS agreed that under these amendments, Health Quest would be entitled to expedited review of applications, not only to divide or combine CONs, but to do both at the same time; thus, Health Quest could divide its 120-bed CON and take 60 beds and add them to an existing facility operated by Health Quest.

Similarly, it was Beverly's contention that its proposal was subject to expedited review because its project was a "transfer" and/or "combination" as those terms are used in section 381.706(2)(g) and (j). When HRS disagreed, Beverly requested a formal administrative hearing, arguing that its application meets the applicable criteria and should be granted. Beverly further contended that HRS arbitrarily and capriciously denied its application while granting others which are substantially similar to Beverly's proposal.

In response, HRS argued that it had a policy that a "transfer" occurs only when a new owner agrees to take over the project and build the facility as intended by the original CON applicant. HRS interpreted section 381.706 to mean that if a project is listed in subsection (1) of that section, the project is subject to full batched review and cannot be given expedited review as provided for in section 381.706(2). Since additions of beds and changes in licensed bed capacity are projects listed in subsection (1) then HRS interpreted a "transfer" or "combination" to be projects other than those which add beds to an existing facility. Also, HRS interpreted the provisions of section 381.706(2)(j), as allowing only for the combination of CONs whose validity period has not expired. It was HRS's policy that a CON ceased to exist when a facility is built and licensed. Thus, reasoned HRS, Beverly's proposal was not a "combination" because since Surrey Place's CON ceased to exist when Surrey Place was opened in 1988 only CON 3746 was valid.

The hearing officer rejected HRS's interpretation of the applicable statutes, commenting that there is no support for HRS's contention that subsections (1), (2) and (3) of section 381.706 are mutually exclusive, and that inclusion in one subsection means automatic exclusion from the other subsections. Instead, concluded the hearing officer, subsection (1) lists all the projects which are subject to review, and subsections (2) and (3) list which of the projects set forth in subsection (1) are subject to expedited review or are exempt from review. This conclusion is supported by the fact that although section 381.706(1) specifically includes a transfer of a CON in paragraph (n), this paragraph clearly provides that expedited review--as opposed to full batched comparative review--shall be conducted of a transfer of a certificate of need. Moreover, the hearing officer concluded that HRS's two announced policies--that a "transfer" is a mere change of ownership, and that a CON ceases to exist when a facility is built and licensed--had no record support. Finally, the hearing officer noted that HRS's position in this case is contrary to the position taken by HRS in previous cases, most notably, the Health Quest application already discussed, and that HRS had offered no competent evidence to show why Beverly should be treated differently than Health Quest. Finding that Beverly's application sought a "transfer" and/or a "combination" subject to expedited review, and that Beverly's proposal met the review criteria, the hearing officer recommended that HRS issue a final order approving the application.

Nevertheless, contrary to the hearing officer's recommended order, HRS entered a final order concluding that Beverly's proposal to transfer its 60-bed CON to Surrey Place, was subject to batched comparative review rather than expedited review. We find this was error.

As this court recently stated in St. Francis Hospital, Inc. v. Department of Health and Rehabilitative Services, 553 So.2d 1351, 1354 (Fla. 1st DCA 1989):

When an agency seeks to validate agency action based upon a policy that is not recorded in rules or discoverable precedents, that policy must be established by expert testimony, documentary opinions, or other evidence appropriate to the nature of the issues involved and the agency must expose and elucidate its reasons for its discretionary action. E.M. Watkins & Co. v. Board of Regents, 414 So.2d 583, 588 (Fla. 1st DCA 1982), citing Florida Cities Water Co. v. Public Service Company, 384 So.2d 1280 (Fla.1980), Anheuser-Busch, Inc. v. Department of Business Regulations, 393 So.2d 1177 (Fla. 1st DCA 1981), and McDonald v. Department of Banking & Finance, 346 So.2d 569 (Fla. 1st DCA 1977). Compare Meridian, Inc. v. Department of Health and Rehabilitative Services, 548 So.2d 1169 (Fla. 1st DCA 1989) (policy recorded in discoverable precedents). The agency may apply incipient or developing policy in a section 120.57 administrative hearing, provided the agency explicates, supports and defends such policy with competent, substantial evidence on the record in such proceedings. Gulf Coast Home Health Services v. Department of Health and Rehabilitative Services, 513 So.2d 704 (Fla. 1st DCA 1987).

....

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. However, in this case, HRS's policy does not simply reiterate a legislative mandate and is not readily apparent from a literal reading of the statutes involved and thus, HRS was required to show the reasonableness and factual accuracy of its policy....

In this case, HRS changed its interpretation of the controlling statutes without offering a sufficient record predicate or otherwise offering a reasonable...