Baker County Medical Services, Inc. etc. v. State of Florida, Agency for Health etc.

IN THE DISTRICT COURT OF APPEAL
FIRST DISTRICT, STATE OF FLORIDA
BAKER COUNTY MEDICAL NOT FINAL UNTIL TIME EXPIRES TO
SERVICES, INC., d/b/a ED FILE MOTION FOR REHEARING AND
FRASER MEMORIAL DISPOSITION THEREOF IF FILED
HOSPITAL,
CASE NO. 1D14-4988
Appellant,
v.
STATE OF FLORIDA,
AGENCY FOR HEALTH CARE
ADMINISTRATION, and WEST
JACKSONVILLE MEDICAL
CENTER, INC., a foreign
corporation,
Appellee.
_____________________________/
Opinion filed October 15, 2015.
An appeal from the Circuit Court for Leon County.
James C. Hankinson, Judge.
Geoffrey D. Smith, Susan C. Smith, and Kara L. Gross, of Smith & Associates,
Tallahassee, for Appellant.
Tracy Cooper George, Chief Appellate Counsel, Agency for Health Care
Administration, Tallahassee; Stephen A. Ecenia, J. Stephen Menton, and R. David
Prescott, of Rutledge Ecenia, P.A., Tallahassee, for Appellee.
MAKAR, J.,
Baker County Medical Services, which operates Ed Fraser Memorial
Hospital in Macclenny, Florida, contests the legality of the duration of the term of
a certificate of need issued to West Jacksonville Medical Center, Inc., for the
construction of a new 85-bed hospital in western Duval County. The certificate,
which was issued in 2010 under the terms of a settlement agreement arising from
administrative litigation between West Jacksonville and a nearby competitor, St.
Vincent’s Hospital, would not become effective until mid-2013 with licensure to
follow no earlier than December 2016. The new hospital has not been built; indeed,
land has yet to be acquired for the project. Fraser Hospital, which was not a party
in the administrative forum, filed its legal challenge in the circuit court, which
dismissed it with prejudice as an impermissible collateral attack on the certificate’s
issuance, leading to this appeal. We must decide whether the challenge in circuit
court is permissible.
I.
Certificates of need entitle their holders to build certain types of “health-
care-related project,” such as hospitals, see § 408.036(1)(a), Fla. Stat. (“Projects
subject to review; exemptions”), the ostensible purpose being to contain health
care costs by allowing for government coordination and planning in place of what
would otherwise be a free market. See generally National Conference of State
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Legislatures, Certificate of Need: Health Laws and Programs,
http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx
(overview of certificate of need programs nationwide) (last visited August 4,
2015). Absent a certificate, a competing company may not enter the marketplace
unless it demonstrates administratively the need for a proposed facility and
receives its own certificate of need; to do otherwise is a second degree
misdemeanor. § 408.041, Fla. Stat. Incumbents are shielded partially from
economic competition for the duration of their certificates. As a result, litigation
over certificates of need can be as intense as market competition itself, resulting in
lobbying and litigation to prevent market entry to retain the competitive advantages
that incumbent certificate holders possess. See, e.g., Hosp. Bldg. Co. v. Trs. of Rex
Hosp., 425 U.S. 738, 738 (1976) (antitrust action by hospital alleging competing
hospital violated federal antitrust laws by conspiracy to block its relocation and
expansion stated claim affecting interstate commerce); Kottle v. Nw. Kidney Ctrs.,
146 F.3d 1056 (9th Cir. 1998) (lobbying efforts of competitor to prevent applicant
from receiving certificate of need protected as constitutionally-permissible
petitioning of government); St. Joseph’s Hosp., Inc. v. Hosp. Corp. of Am., 795
F.2d 948, 955 (11th Cir. 1986) (misrepresentations to state health care agency that
passes upon certificate applications actionable under antitrust laws); see generally
Patrick John McGinley, Beyond Health Care Reform: Reconsidering Certificate of
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Need Laws in a “Managed Competition” System, 23 Fla. St. U. L. Rev. 141(Summer 1995) (discussing the conflict between certificates of need and managed
competition); Scott D. Makar, Anticompetitive Actions in the Administrative
Forum: Antitrust and State Law Remedies, Fla. B.J., Feb. 1992, at 33, 37 (noting
that “persons aggrieved by anticompetitive administrative actions may consider
state administrative law remedies that provide limited remedies for ‘improper’ or
‘frivolous’ administrative actions.”).
Florida’s Agency for Health Care Administration, universally known as
AHCA, administers the State’s certificate of need program. Almost all trial-level
litigation involving certificates of need occurs in the administrative forum before
an administrative law judge whose orders are subject to AHCA’s approval. This
case is different because Fraser Hospital did not participate in the administrative
proceedings that ultimately resulted in AHCA’s issuance of the certificate of need
at issue. Rather, Fraser Hospital initiated a circuit court proceeding in December
2013 without having participated or intervened in the administrative process that
terminated three years earlier. Because dismissal of Fraser Hospital’s amended
complaint is the focus of our inquiry, we recite its relevant allegations.
In 2009, West Jacksonville sought a certificate of need for construction of a
new hospital within the sub-district encompassing a number of existing hospitals,
including Fraser Hospital. Litigation ensued, initiated by St. Vincent’s Hospital
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which protested the need for the certificate. Within the year, West Jacksonville and
St. Vincent’s entered into a settlement agreement in November 2010, which was
presented to and approved by AHCA, resulting in the issuance of a certificate of
need that included the requirement that its “validity period shall not commence to
run until June 1, 2013.” Existing statutory law provided that the validity period for
a certificate of need expired 18 months after issuance, and could be extended only
in limited circumstances such as when litigation or construction results in delays
(discussed later). In addition, the certificate at issue specified that “[n]either
[AHCA] nor West Jacksonville will license the hospital . . . prior to December 1,
2016.” In effect, a six-year period from certificate issuance to hospital licensure
was established administratively pursuant to the terms of the settlement agreement.
Fraser Hospital asserted that AHCA had no statutory authority to delay the
validity period of the certificate, and that none of the statutory grounds for
extensions had been sought. Rather, the economic upturn that made the new
hospital appear viable was followed by a severe economic downturn that made it
economically infeasible unless it invaded the markets of neighboring hospitals,
such as Fraser Memorial (and St. Vincent’s).
In its initial complaint, Fraser Hospital sought a declaratory judgment that
the certificate at issue, by the terms of the applicable statute, must terminate after
18 months and thereby expired on or about June 7, 2012. It also claimed that
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AHCA lacked the statutory authority to extend or delay the start of the validity
period of the certificate. Rather than extend or delay the start of the validity period,
Frasier Hospital contended that the only appropriate process would be for West
Jacksonville to initiate a new request for a certificate of need. Its amended
complaint was identical to the first except for the allegations that AHCA’s
authority was statutorily limited and that the validity period of a certificate of need
set by statute could not be extended by agreement or stipulation of the parties in an
administrative proceeding.
Both West Jacksonville and AHCA moved to dismiss the amended
complaint, pointing out that Fraser Hospital failed to participate in the
administrative proceedings thereby waiving its only opportunity to contest the
lawfulness of the certificate’s duration; dismissal was also appropriate because the
judicial relief sought in the circuit court was an inappropriate vehicle to challenge
an administratively-issued certificate of need. Whatever claim Fraser Hospital
made about the validity of the certificate’s duration had to be asserted in the
administrative forum, making a declaratory judgment action an improper collateral
attack on AHCA’s final order. The trial court, agreeing with West Jacksonville and
AHCA, held in relevant part that a “declaratory judgment is an unauthorized
collateral attack on final agency action. [AHCA] acted in accordance with its
statutory authority in entering the Final Order and Settlement Agreement granting
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[the certificate] and extending the validity period of [the certificate]. See
§ 408.040(2)(c), Fla. Stat. [AHCA] did not act without colorable statutory
authority in issuing the Final Order.” This appeal ensued.
II.
In assessing the viability of Fraser Hospital’s action in circuit court, the trial
court recognized the heavy burden to be overcome to allow a collateral attack
against final agency action; policy considerations—such as the finality of
judgments—strongly disfavor such actions absent a showing that an agency’s
challenged action is so lacking in statutory authority that an exception should be
made. Dep’t. of Envtl. Reg. v. Falls Chase Special Taxing Dist., 424 So. 2d 787,
794 (Fla. 1st DCA 1982) (“Only in exceptional cases may the courts assume
jurisdiction to render declaratory and/or injunctive relief without requiring
exhaustion of administrative remedies. A challenge to agency jurisdiction on
persuasive grounds is a widely recognized exception to the exhaustion doctrine.”)
(citation and footnote omitted); Dep’t of Health v. Curry, 722 So. 2d 874, 878 (Fla.
1st DCA 1998) (“The doctrine which requires the exhaustion of administrative
remedies is based upon considerations of policy, rather than of jurisdiction.”)
(citation omitted). This judicially-created exception provides that it is permissible
to pursue declaratory relief in a circuit court—without first pursuing and
exhausting administrative remedies—if “an agency acts without colorable statutory
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authority that is clearly in excess of its delegated powers.” Dep’t of Agric. &
Consumer Servs., 792 So. 2d 539, 546 (Fla. 4th DCA 2001); e.g., Curry, 722 So.
2d at 878 (outlining the basis for the exception, providing that when “an agency
acts without the benefit of any rule, and in a manner clearly in excess of its
statutory authorization, the action is invalid . . . .”); Falls Chase, 424 So. 2d at 796
(applying exception where DEP had no jurisdiction to regulate dredge and fill
activities on land in question, and affirming declaratory action granted in favor of
plaintiffs).
Our task here is to determine whether AHCA’s actions, as alleged in Fraser
Hospital’s amended complaint, are clearly beyond the statutory boundaries the
Legislature has established for the regulation of certificates of need, thereby
allowing direct resort to the circuit court. See Falls Chase, 424 So. 2d at 794-95
(“judicial intervention with administrative action is justified only in those instances
where the invalidity of the administrative act is not subject to reasonable
differences of opinion.”) (quoting Odham v. Foremost Dairies, Inc., 128 So. 2d
586, 592-93 (Fla. 1961)). The starting point is the statutory framework that
establishes the duration of certificates of need and any exceptions that give AHCA
room to delay their issuance or extend them beyond their termination date.
No one disputes that the certificate at issue is subject to the statute providing
that “[u]nless the applicant has commenced construction . . . a certificate of need
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shall terminate 18 months after the date of issuance . . . .” § 408.040(2)(a), Fla.
Stat. (2010) (emphasis added). Fraser Hospital points to this definitive statutory
termination date as its first building block, the second being that AHCA cannot
point to a statute that gives it “colorable” authority to delay or extend this 18
month period. AHCA and West Jacksonville counter that sections 408.040(2)(c),
408.015(2)-(3), and 120.57(4), Florida Statutes, collectively provide authority for
AHCA’s actions. Turning to the trial court’s order, we first address whether
AHCA had the statutory authority to extend the time for when the certificate’s
validity period commenced under section 408.040(2)(c), which states:
(c) The certificate-of-need validity period for a project shall be extended
by the agency, to the extent that the applicant demonstrates to the
satisfaction of the agency that good-faith commencement of the project
is being delayed by litigation or by governmental action or inaction with
respect to regulations or permitting precluding commencement of the
project.
§ 408.040(2)(c), Fla. Stat. (emphasis added). This two-fold exception, which the
italicized verb suggests is mandatory, applies if litigation or governmental
action/inaction has delayed the commencement of a project. See, e.g., Health Quest
Corp. IV v. Dep’t of HRS, 593 So. 2d 533, 535 (Fla. 1st DCA 1992) (applying
litigation exception).
As to the former, the only litigation that could have formed the basis for
delaying the “commencement of the project” was the administrative litigation
between West Jacksonville and St. Vincent’s. But that dispute was resolved prior
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to, and formed the basis of, the settlement agreement upon which the certificate
was ultimately issued. Because that proceeding was complete before the certificate
issued, it could not form the basis for a subsequent delay in commencement of the
hospital project. And the current litigation, which post-dated the certificate’s
issuance by three years, could not be the basis for the initial lengthy duration
established in the certificate. Simply because the private parties’ settlement arose
out of litigation doesn’t give the agency license to invoke this statutory exception;
even if it was applicable, AHCA’s rules only permit up to a 60-day extension of
the validity period per request, reflecting that legitimate extensions for litigation or
government action/inaction must be supportable and of limited duration. See Fla.
Admin. Code R. 59C-1.018(3)(a) (2015).
What’s more, the recitals in the settlement agreement, signed by the private
parties and AHCA, make clear that it was not the litigation itself, which lasted less
than a year, that created concern for the commencement of the project; instead, it
was “the current condition of the economy, and the time required for planning,
permitting, and construction of a general hospital” that ostensibly made it
necessary for West Jacksonville to “schedule the opening [of its hospital]
approximately six years into the future . . . .” In other words, the economic
downturn spawned by the Great Recession was the precipitating event—not
litigation or some identifiable governmental action/inaction—that raised the
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specter of potentially delayed construction for which market entry six years down
the road was deemed appropriate.
In the midst of the financial crisis and its effects on health-care-related
projects, the Legislature in its 2009 session amended section 408.040(2)(a) to
provide that certificates of need “issued on or before April 1, 2009, shall terminate
36 months after the date of issuance.” § 408.040(2)(a), Fla. Stat. See Ch. 2009-223,
Laws of Fla., § 14 (amending section 408.040, Fla. Stat. (2009)).1 Stated
differently, the Legislature provided relief for those holding certificates issued
before April 1, 2009—who presumably had the economic rug pulled out from
under them—by statutorily giving them 18 additional months for their validity
periods. This statutory accommodation, however, was not extended to those
entities, such as West Jacksonville, who obtained certificates after April 1, 2009.
The Legislature’s grant of a specific statutory exemption to one class of certificate
holders strongly suggests that no statutory authority exists for all others, else
AHCA could simply delay or alter the terms of any certificate, whenever issued
and for whatever length, for economic reasons. See, e.g., Fla. Virtual Sch. v. K12,
Inc., 148 So. 3d 97, 99-100 (Fla. 2014) (“An agency created by statute does not
1
For a very brief time, from May 19, 2009 to June 30, 2009, the Legislature
extended the validity period for certificates of need to 36 months without
qualification. See Ch. 2009-45, Laws of Florida, § 1 (amending section 409.040,
Fla. Stat. (2009)). Chapter 2009-223 changed that effective July 1, 2009, to apply
to only pre-April 1, 2009 certificates.
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possess any inherent powers. Rather, the agency is limited to the powers that have
been granted, either expressly or by necessary implication, by the statute that
created the agency.”); see also Dialysis Solution, LLC v. Mississippi State Dep’t.
of Health, 31 So. 3d 1204, 1213-14 (Miss. 2010) (statute limiting duration of
certificates of need “indicates that the Legislature wanted to control through statute
the time period for which a CON could be outstanding. Presumably, the
Legislature would not have enacted [the statute] if it had intended CONs to remain
valid indefinitely or until the [agency] chose to revoke them.”).
West Jacksonville and AHCA point to the breadth of the agency’s powers,
which include the authority to enter into “contracts and execute all instruments
necessary or convenient for carrying out its business” and “agreements with any
. . . private individual, partnership, firm, corporation, association, or other entity.”
§§ 408.15(2) & (3), Fla. Stat.; see also § 120.57(4), Fla. Stat. (“Informal
disposition.--Unless precluded by law, informal disposition may be made of any
proceeding by stipulation, agreed settlement, or consent order.”). Indeed, though
unmentioned in the briefs, AHCA may “[e]xercise all other powers which are
reasonably necessary or essential to carry out the expressed intent, objects, and
purposes of this chapter, unless specifically prohibited in this chapter.” Id.
§ 408.15(10). We have no disagreement that AHCA’s powers, express and
implied, are bountiful; after all, its mission is to oversee one of the nation’s largest
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health care marketplaces. Yet we find no principle of law allowing an agency, even
one with the gravity of AHCA’s charge, to exceed its delegated statutory authority
simply because private parties to a settlement agreement deem it mutually
beneficial. This point is particularly important because agreements of competing
health care companies raise antitrust concerns, making it important that a state’s
regulatory actions—including issuance of certificates of need—are pursuant to
clearly articulated and affirmatively expressed legislative directives. Given the
“fundamental national values of free enterprise and economic competition that are
embodied in the federal antitrust law,” F.T.C. v. Phoebe Putney Health Sys., Inc.,
133 S. Ct. 1003, 1010 (2013), “[w]hen a State empowers a group of active market
participants to decide who can participate in its market, and on what terms, the
need for supervision is manifest.” N. Carolina State Bd. of Dental Exam’rs v.
F.T.C., 135 S. Ct. 1101, 1114 (2015); see generally Scott D. Makar, Antitrust
Immunity Under Florida’s Certificate of Need Program, 19 Fla. St. U. L. Rev. 149,
150 (1991) (discussing contours of immunity under Florida’s then-existing
certificate of need program). Informal disposition of proceedings via settlement
agreements are permissible, if not encouraged for efficiency’s sake, provided they
are within the lawful authority of the agency. § 120.57(4), Fla. Stat.
We have searched for the existence of colorable statutory authority for
AHCA’s action in this case, but found none. Frasier Hospital’s claim falls into the
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limited category of cases allowing for direct resort to a circuit court without
exhaustion of remedies. The trial court, which had jurisdiction over the claim,
should not have dismissed the action with prejudice. Under ordinary
circumstances, the certificate of need at issue would have expired after 18 months,
on June 7, 2012, but was extended well beyond that date by the agency’s action;
indeed, the validity period did not commence until a year later on June 1, 2013.
Even then, AHCA agreed not to license the hospital prior to December 1, 2016.
Whatever authority AHCA has, colorable or apparent, is not so elastic as to allow
an effective quadrupling of the statutorily set validity period. To do so would allow
the “banking” of certificates well-beyond their legislatively-set duration, which
runs contrary to the statutory framework allowing for applications (and
reapplications) in biennial review/batching cycles so that health care projects can
be proposed, compared, and authorized expeditiously by AHCA in response to the
dynamics of the often-shifting health care marketplace. See § 408.039, Fla. Stat.
(“The agency by rule shall provide for applications to be submitted on a timetable
or cycle basis; provide for review on a timely basis; and provide for all completed
applications pertaining to similar types of services or facilities affecting the same
service district to be considered in relation to each other no less often than
annually.”); Rule 59C-1.008(1), Fla. Admin. Code (2015) (providing for “two
batching cycles annually” for comparative review). The Legislature could grant the
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agency the power to delay the issuance of certificates (even indefinitely as Fraser
Hospital posits), or to extend their durations for reasons other than the statutory
grounds of litigation or governmental action/inaction; but it has not done so, and
we find no reasonable extrapolation of the agency’s existing authority to support
the actions alleged in Fraser Hospital’s amended complaint.
All this said, we point out that our decision allows Fraser Hospital’s foot in
the circuit court’s door; it does not mean, however, that the hospital prevails. Both
West Jacksonville and AHCA may raise affirmative defenses, such as whether
Fraser Hospital knew or was on notice of the certificate’s issuance (or purported
termination date of June 7, 2012), but failed to take timely action to protect its
interest thereby constituting a waiver. Fraser Hospital says it wasn’t notified,
couldn’t have anticipated the lengthy duration of the certificate at issue, and
justifiably assumed that the validity period of the certificate would terminate no
more than 18 months from its issuance; but these are factual matters to be fleshed
out in the proceedings. We also note the uniqueness of the facts presented: an
elongated postponement of the validity period for a proposed hospital that
currently lacks even a location, no land having yet been acquired. Were the
footings of the hospital dug and construction well underway, the equities of
challenging the legality of this extended period might be different.
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III.
The dismissal of Fraser Hospital’s amended complaint, seeking a declaration
that the issuance of West Jacksonville’s certificate of need exceeded AHCA’s
statutory authority, is reversed.
REVERSED
RAY, and SWANSON, JJ., CONCUR.
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