STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
UNIVERSITY COMMUNITY HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 81-2976
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent, )
and )
) NORTH BROWARD HOSPITAL DISTRICT ) and SOUTH BROWARD HOSPITAL )
DISTRICT, )
)
Intervenors. )
) SOUTH BROWARD HOSPITAL DISTRICT, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1108
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent, )
and )
) GATEWAY HOSPITAL CORPORATION ) EAST, d/b/a PEMBROKE PINES ) GENERAL HOSPITAL, and LIFEMARK )
HOSPITALS, INC., a Delaware ) Corporation, and LIFEMARK ) HOSPITALS OF FLORIDA, INC., a )
Florida corporation, d/b/a )
PALMETTO GENERAL HOSPITAL, )
)
Intervenors. )
) HOSPITAL CORPORATION OF AMERICA, ) d/b/a NORTHWEST BROWARD REGIONAL ) MEDICAL CENTER, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1109
) NORTH BROWARD HOSPITAL DISTRICT ) and DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, )
)
Respondents. )
) HOSPITAL CORPORATION OF AMERICA, ) d/b/a NORTHWEST BROWARD REGIONAL ) MEDICAL CENTER, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1110
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent. )
) HUMEDICENTER, INC., d/b/a CORAL ) RIDGE GENERAL HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1192
) HOSPITAL CORPORATION OF AMERICA, ) d/b/a NORTHWEST BROWARD REGIONAL ) MEDICAL CENTER: NORTH BROWARD ) HOSPITAL DISTRICT; and DEPARTMENT) OF HEALTH AND REHABILITATIVE ) SERVICES, )
)
Respondents. )
) NORTH BROWARD HOSPITAL DISTRICT, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1193
)
DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES and ) HOSPITAL CORPORATION OF AMERICA, ) d/b/a NORTHWEST BROWARD REGIONAL ) MEDICAL CENTER, )
)
Respondents. )
) HUMANA OF FLORIDA, INC., d/b/a ) BENNETT COMMUNITY HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1194
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent. )
)
RECOMMENDED ORDER
This matter came on for hearing in Fort Lauderdale, Florida, before the Division of Administrative Hearings by its duly designated Hearing Officer, Robert T. Benton, II, on October 5, 1982. The final hearing concluded on November 9, 1982. The parties were represented by counsel:
APPEARANCES
For Hospital Corporation Jon C. Moyle, Esquire, and
of America, University Thomas A. Sheehan, III, Esquire Community Hospital and Moyle, Jones & Flanigan, P.A. Northwest Broward Post Office Box 3888
Regional Medical Center: 707 North Flagler Drive (proposed) West Palm Beach, Florida 33402
and
Peter J. Nickles, Esquire Covington & Burling
1201 Pennsylvania Avenue Post Office Box 7566 Washington, D.C. 20044
For Department of Health James M. Barclay, Esquire and Rehabilitative Building 2, Room 220 Services: 1317 Winewood Boulevard
Tallahassee, Florida 32301
For North Broward John H. Parker, Jr., Esquire and Hospital District: J. Marbury Rainer, Esquire
Parker, Hudson & Rainer
2120 Harris Tower, Suite 2120
Atlanta, Georgia 30303
and William Zei, Esquire Gibbs & Zei
224 Southeast 9th Street
Ft. Lauderdale, Florida 33316
and
E. G. Boone, Esquire and Richard L. Whitton, Esquire Post Office Box 1596 Venice, Florida 33595
For South Broward Loyd M. Starrett, Esquire, and Hospital District: Martha B. Sosman, Esquire
Foley, Hoag & Eliot One Post Office Square
Boston, Massachusetts 02109
and
Clarke Walden, Esquire Walden, Walden & McCauley
255 Dania Beach Boulevard Dania, Florida 33304
For Gateway Hospital Byron B. Mathews, Jr., Esquire Corporation East d/b/a McDermott, Will & Emery Pembroke Pines General 700 Brickell Avenue
Hospital: Miami, Florida 33131 and
Brian S. Hucker, Esquire McDermott, Will & Emery
111 West Monroe Street Chicago, Illinois 60603
For Lifemark Hospitals, John W. Puffer, III, Esquire and Inc. and Lifemark James B. Murphy, Jr., Esquire Hospitals of Florida, Shackleford, Farrior,
Inc. d/b/a Palmetto Stallings & Evans General Hospital: Post Office Box 3324
Tampa, Florida 33601
For Humedicenter, Inc.
d/b/a Coral Ridge General John H. French, Jr., Esquire and Hospital (proposed) and James C. Hauser, Esquire
Humana of Florida, Inc. Messer, Rhodes & Vickers d/b/a Bennett Community Post Office Box 1876 Hospital: Tallahassee, Florida 32302
After the Department of Health and Rehabilitative Services (HRS) proposed to deny the application for certificate of need filed by University Community Hospital (UCH) for an addition of 73 beds, UCH petitioned for formal administrative proceedings, Case No. 81-2976, in which both North Broward Hospital District (NBHD) and South Broward Hospital District (SBHD) intervened.
Among the next "batch" of applications for certificates of need 1/ for hospital beds in Broward County were proposals by SBHD to build a new 128-bed West Branch Hospital (WBH); by the Hospital Corporation of America (HCA) to build a new 250-bed hospital, to be known as Northwest Broward Regional Medical Center (NWBRMC) to replace an existing HCA-owned 150-bed hospital, Margate General Hospital (Margate) which would be closed; by Humedicenter, Inc. (Humana) to build a new 150-bed hospital to be known as Coral Ridge General Hospital (CRGH); by North Broward Hospital District (NBHD) to build a new 200-bed hospital; and by Bennett Community Hospital (Bennett) to add 64 beds. HRS proposed to deny authorization for all but one of these projects and part of another: HRS proposed to grant NBHD's application for a certificate of need to build a new 200-bed hospital; and to grant in part HCA's application to build a 250-bed hospital, i.e., HRS proposed to issue a certificate of need to HCA for a 150-bed hospital to replace Margate and to be known as NWBRMC.
After HRS proposed to deny its application, SBHD petitioned for formal administrative proceedings and Gateway Hospital Corporation East d/b/a Pembroke Pines General Hospital (Pembroke Pines) intervened in support of denial. Case No. 82-1108. At hearing, Lifemark Hospitals, Inc. and Lifemark Hospitals of Florida, Inc., d/b/a Palmetto General Hospital (Palmetto General) also intervened in support of denial.
Formal administrative proceedings on the proposed grant of the certificate of need to NBHD to build a new 200-bed hospital began with HCA/NWBRMC's petition in Case No. 82-1109. At the same time HCA/NWBRMC petitioned for formal administrative proceedings on HRS's proposed partial denial of its application for the 250-bed hospital, seeking an additional 100 beds. Case No. 82-1110.
By another petition for formal hearing, Humana sought award of a certificate of need to it for CRGH and denial of any certificate of need to NWBRMC or NBHD. Case No. 82-1192. NBHD also filed a petition for formal proceeding seeking denial of any certificate of need to NWBRMC. Case No. 82- 1193.
Bennett filed a petition for formal hearing on HRS' proposed denial of its application for a certificate of need to add 64 beds. Case No. 82-1194.
By orders entered June 4, 1982, these cases were consolidated with one another, and any party in one was deemed a party in all.
The parties' proposed recommended orders and post-hearing memoranda were filed on or about January 17, 1983. Proposed findings of fact have been considered and, in many instances, adopted, in substance. Otherwise, they have been deemed unsupported by the weight of the evidence, immaterial or subsidiary.
ISSUE
Assuming a need for additional hospital beds in Broward County by 1987, the agreed "planning horizon," the question becomes which, if any, of the six or seven proposals advanced in these proceedings would be the best means of meeting the need.
Central to the bed need issue in this case is the parties' enigmatic stipulation: 2/
that there is a need for acute care beds in Broward County in 1987, and this need should be determined on a regionalized basis.
Pembroke Pines joins in this stipulation only to the extent that a need does not exist in the proposed service area of SBHD.
Prehearing Stipulation C.8.
The parties were unable to agree on where these regional boundaries should be drawn, among other things.
FINDINGS OF FACT
There is a glut of hospital beds in Broward County. Twenty hospitals have some 6,000 licensed or authorized beds in the county exclusive of free- standing psychiatric hospitals and their beds. In 1980, when Broward County's population numbered 1,018,200, six thousand beds would have been at least a quarter again too many by accepted standards.
In 1987, Broward County's population has been projected to be between 1,137,160 and 1,276,911 by the University of Florida's Bureau of Economic and Business Research (BEBR). Other population projections for the year 1987 range all the way to 2,260,700, but it is highly unlikely that so many people will ever live in Broward County, much less by the year 1987. There is no assurance that even BEBR's high projection of 1,276,911 will be reached by 1987. If it should be, the ratio of beds to population in Broward County as a whole would only then fall within the upper reaches of arguably appropriate levels, assuming no additional beds in the interim.
CENTROID MOVES WEST
Whatever its magnitude, there is no reason to expect population growth to cluster around existing hospitals. Contrary trends have, indeed, already emerged. Population growth in western Broward County is expected to continue at a rate in excess of the rate for the county as a whole. From 1970 to 1980, the population in Broward County's western and central planning subregions (see Appendix) combined went from 140,581 to 417,461 while the population in eastern Broward County went from 479,518 to 600,736. Broward County is most densely populated in its eastern portion, but, increasingly, people have been moving into housing further west in the county.
The result has been rapidly growing occupancy at Bennett, the county's westernmost hospital; and high occupancy, often to capacity, at University, which is further north than Bennett but almost as far west. Occupancy rates at Pembroke Pines, the southwestern most hospital in the county, have also increased.
If additional hospital beds could be added in the west without affecting the efficiency of operations at other hospitals in the west, their addition would still have the effect of depressing demand for hospital beds in eastern Broward County or, at least, of slowing the rate of increase in demand. The four public hospitals along the Atlantic seaboard are operating at efficient occupancy levels and, in the case of SBHD's Memorial Hospital (Memorial), at capacity, but many hospitals in eastern Broward County are operating extremely inefficiently, including HCA's North Beach Medical Center (North Beach) with 1981 average occupancy of 37.1 percent, and Humana's Community Hospital of South Broward (Community), with 1981 average occupancy of 42.7 percent.
THE PROPOSALS
HCA, NBHD and Humana, the three organizations which together already own and operate half of the short-term hospitals in Broward County are vying for the right to build a new hospital in the northwest part of the county. In addition to its contention that a new hospital should be built in the northwest to open in 1987, HCA argues that present conditions justify expansion of University long before then, and Humana put on evidence tending to show a need for expansion at Bennett by 1987. SBHD has proposed a new hospital for southwest Broward to open at 84 beds in 1987 and go to 128 beds in 1988. Bennett's expansion is the only other proposal to meet (at least in part) the bed need alleged to exist in southwest Broward.
THE NORTHWEST
By anybody's reckoning, HCA's Margate is located in northwest Broward already. Depending on how far south the boundary of a northwest region is drawn, HCA's University can also be said to be located in northwest Broward. Humana's Cypress Community Hospital (Cypress), the closest hospital to the east, lies north of University and south of Margate; and Bennett is almost due south of University. NBHD's North Broward Hospital lies further east and considerably north of Cypress.
HCA acquired Margate by acquiring or merging with Hospital Affiliates International (HAI) the for-profit hospital chain that formerly owned Margate. Even before the acquisition, planning had begun (by HAI) to replace the facility. Licensed at 150 beds, its effective capacity is significantly lower. Situated on 3.7 acres that do not provide adequate parking, Margate is, in
numerous respects, an example of how hospitals should not be built. Hospital ancillary departments were added to a physical plant originally designed as a nursing home and the result has been narrow, dead end corridors and a pathetic
400 gross square feet per bed.
There was uncontroverted testimony that the corridors amounted to "life and safety code" violations. No other such violations were specified, however, nor was any statute or regulation cited with respect to the corridors. The testimony was, in fact, that HRS has granted a variance for the corridors based on a similar variance by the Joint Commission on Accreditation. The evidence revealed no request by any licensing or other authority to renovate or to replace Margate, nor any threat to delicense so much as a single bed at Margate. HCA proposes nevertheless to close Margate down when it opens a new 250-bed hospital on 15-acres of a 21-acre site two miles to the north, at a total project cost of $33,750,577.
Alternatively, HCA argues it is statutorily entitled to build a 150- bed replacement hospital, and uncontroverted testimony put the project cost at
$25,696,403, rather than three-fifths of the 250-bed hospital cost used by HRS. Replacing Margate on its existing site, like renovating it, would not be economical, and for many of the same reasons. Whether at 150 or 250 beds, the HCA proposals include 24 intermediate care, 20 obstetric, 14 pediatric and 12 critical care beds. The proposed hospital would have Margate's medicare and medicaid provider numbers, so that it would not be a "new hospital" under TEFRA regulations. At 150 beds, 929 square feet per bed are contemplated at a cost of
$171,309 per bed. At 250 beds, 766 square feet per bed are contemplated at a cost of $135,002 per bed.
Humana proposes to build a new 150 bed hospital on a site yet to be acquired in northwest Broward at a project cost of $27,772,500. As proposed, 3/ Coral Ridge General Hospital would have 20 obstetrical beds, 20 pediatric beds, 10 critical care beds and 100 medical-surgical beds. There would be 972 square feet per bed at a cost per bed of $185,150.
Larger by a third but in many other ways comparable to Humana's proposed Coral Ridge is NBHD's proposal for a new hospital. At 200 beds, the total project cost would be $37,203,658 or $186,018 per bed and there would be some 950 square feet per bed. Twenty-four obstetric, 20 pediatric, 16 critical care and 140 medical-surgical beds are proposed. A site of approximately 20 acres has been donated, subject to CON approval of the project.
University seeks immediate authority to house 73 additional medical- surgical beds in shelled-in space now available on site. University's 209 beds had 83.2 percent average occupancy in 1981, and, at the time of hearing, when it was full to overflowing, University had experienced 87 percent average occupancy for 1982. The uncontroverted evidence was that University can add 73 beds at a total project cost in the neighborhood of $310,000, or $4,227 per bed, resulting in 576 square feet per bed at University. These figures do not reflect associated ancillary costs already or to be incurred.
SOUTH AND CENTRAL
Although Bennett has not yet reached efficient occupancy levels, a strong trend in that direction has been demonstrated. Average occupancy in 1981 was 63.5 percent, up from 58.5 percent in 1980. By CON number 1996, dated March 15, 1982, Bennett was authorized to spend $8,780,100 to build a parking garage, establish a separate day surgery and expand ancillaries. In these proceedings
it seeks authority to add 64 beds in existing shelled-in space. Of these beds
30 would be "minimal care" beds and the remainder would be medical-surgical beds. Exclusive of ancillary costs already authorized, the project cost would be $1,600,000 or $25,000 per bed.
Finally SBHD's proposed WBH would have 128 beds at a total project cost of $38,386,000 or $299,891 per bed. WBH would have 852 square feet per bed, 8 critical care beds and 120 medical-surgical beds, and would be built with a view toward expansion. It would operate as a "satellite" of Memorial.
DRAWING LINES
In order to analyze the County by regions, boundaries must be drawn. Each applicant for a certificate of need (CON) to add hospital beds in northwest Broward county defined "northwest" differently. Both Humana and NBHD saw the hospitals they proposed as serving the 1987 need each identified in its particular northwest planning area. For its purposes, Bennett defined a west central region of Broward County; and SBHD defined its proposed service area for WBH to include the southwest and part of the south central Broward County planning regions. Objections to the WBH proposal focused on southern Broward County, an aggregate of planning subregions extending east to the ocean. SBHD, HCA and Bennett all analyzed bed need on the basis of regions coterminous with the service areas of specific institutions: that of the proposed WBH, in the case of the SBHD; the combined service areas of University and Margate, in the case of HCA; and Bennett's own service area.
Defining the service area of an existing institution is a different problem than forecasting the perimeters of a hospital's service area, before the hospital is built. The key to defining historical service areas is information about where patients served by a hospital lived. Hospitals keep data on patient origin by zip code, and the South Florida Hospital Association compiled some of this information for 1979, in its Hospitalization Utilization and Patient Origin Project (HUPOP). Studies like HUPOP provide a basis for judgments about whether a particular zip code furnishes a hospital a great enough fraction of its total patients (or patient days) to be considered part of the hospital's primary or secondary service area. A lightly populated zip code might be included in a hospital's service area on the basis of the size of the share of all patients it sends to hospitals who go to that particular institution, even if the number is a small fraction of the total for the hospital.
As the parties demonstrated at great length, it is possible to attach undue significance to regional or other boundaries. They are not, after all, magical barriers through which persons seeking hospital care cannot pass. Beds available to people living within a region do not cease to exist just because they are located on the other side of some arbitrary line.
No hospital in Broward County meets the need of the whole population within its service area, or serves nobody outside its service area. There are substantial overlaps in hospital service areas. Any calculation of need must take beds already available into account. The parties' stipulation that there is a need for an unspecified number 3/ of additional beds in an unspecified northwest region does not address the question of what beds outside any such area are nevertheless available to residents of the area.
DEMOGRAPHIC PROJECTIONS
Once an area is defined, the next step is forecasting its population for the year 1987. Such forecasts begin with census counts or population estimates, which require judgment and extrapolation themselves, unless an actual count in a census block or other census division is relied on. Taking points at either end of a time interval, future projections are made using linear extrapolation, proportional growth, shift-share and other methodologies. Forecasts represent a weighted average of these projections, informed by a judgment on such things as "ultimate build out," and the likely effects of anticipated transportation improvements. Forecasts of population cohorts or components are also pertinent because child bearing women and children have special needs, and because older people are more likely to use hospital beds than younger people.
John Short and Associates, Inc., forecast a total population of 256,800 in the northwest area defined by HCA (NW-HCA) in 1987, based on medium projections by the Bureau of Economic and Business Research at the University of Florida. Urban Decision Systems, Inc. forecast a total population of 110,053 for the northwest Broward County planning subregion used by NBHD (NW-NBHD), and Dr. Ladner projected a population increase in the northwest area as defined by Humana (NW-HU) of 76,812 between 1982 and 1987. In making his only population projection for NW-HU, Dr. Ladner assumed an 8.6 percent compound annual growth rate, which the weight of the evidence showed to be unrealistically high. For that and other reasons, Dr. Ladner's population forecast has not been deemed reliable. The John Short and Urban Decisions forecasts are theoretically compatible, pertaining, as they do, to two different areas, They represent compound annual growth rates of 6.69 and 5.86 percent, respectively, and together indicate the likely order of magnitude of the growth of population in northwest Broward County by 1987.
The population in western Broward generally, and northwest Broward in particular, is younger on average than the population of the county as a whole. In the northwest planning subregion, 21.7 percent of the population was under 15, 59 percent was 15 to 64, and 19.3 percent was 65 or older in 1980. Also in 1980, women aged 15 to 44 comprised 20.1 percent of the population. Assuming the population of the northwest planning subregion ages slightly in line with the projections for the county as a whole, 19.4 percent of the population in 1987 should be under 15, 80.2 percent should be under 65 and 19.8 percent should be 65 or over. The proportion of women 15 to 44 should grow to 20.8 percent.
Dr. Ladner's 1987 projection for Bennett's service area, zip codes 33313, 33314, 33317, 33322, 33323, 33324, 33325, 33326, 33327, 33328, 33330, 33331 and 33332, reflects the same methodology he used for the northwest. Even though the part of Bennett's service area to the south and west of the hospital is not as well developed as northwest Broward, so that there is more justification for Dr. Ladner's growth rate assumption there, his projections for Bennett's service area of 252,644 5/ in 1985 and 368,050 in 1990 are probably too high. Thousands of acres of residential and other development are planned or under construction in these zip codes, however. If Arvida sells 2,680 housing units between now and 1987 in its Indian Trace development in zip code 33327 (whether it can depends on interest rates and other factors) and if household size there averages 2.7, as projected, that development alone would house 7,236 additional persons in 1987.
Some time between 1984 and 1988, construction of I-75 will be completed, and southwest Broward will become a 30-minute commute from Miami. When 1-95 was completed in south Palm Beach County, annual population growth jumped from 5,000 to 33,000. The land in Palm Beach County cost less to develop and is closer to the ocean, although further from Miami, than land in southwest Broward County. Population forecasts for the southwest and south central Broward planning regions have been made by Dr. Stanley Smith and by Urban Decisions Systems, Inc. For the two regions combined, their projections for 1987 are 183,700 and 173,800, respectively. For the WBH proposed service area, as revised, zip codes 33025, 33026, 33027, 33028, 33029, 33326, 33327, 33328, 33330, 33331 and 33332, Dr. Smith forecast a 1987 population of 69,128. This number was arrived at without reference to the projected opening of Interstate Highway 75, but Dr. Smith did not think that prospect called for an adjustment in the forecast.
For south Broward County, as a whole, i.e., the southwest, southeast and south central planning subregions combined, Dr. Smith projected a population of 380,711 in 1986, and 388,795 in 1987. Gateway's Exhibit No. 16. In 1980,
10.6 percent of the population in the revised WBH proposed service area was 65 or over, as compared to 21.7 percent in the three south regions as a whole.
NBHD FORMULAE
If facilities in an area serve only that area and nobody enters or leaves the area for hospitalization, the use rate of the population will be the sum of draw rates of the hospitals in the area. In analyzing the need for a specific institution, or assessing the likely draw of a new institution, it is necessary to assign some fraction of the whole population in its service area as its market share. Existing institutions have historical market shares which can be used where historical conditions are not predicted to change, while, for new institutions, other assumptions have to be made.
Demand-based need formulae express utilization rates as patient days per 1,000 population. Translating patient days per thousand persons per year to beds needed per thousand persons requires dividing by 365 to get an average daily census per thousand persons then multiplying by the inverse of the optimal average occupancy rate assumed.
One hundred percent occupancy of hospital beds on a regular basis would be undesirable, if achievable, because of the lack of reserve capacity to meet fluctuating demand. As a practical matter the problems of matching patients in hospital rooms with more than one bed on the basis of gender, service, smoking habits, and diagnosis prevent 100 percent utilization. For acute care medical-surgical beds, an average occupancy of 80 percent is a desideratum with which no health care planner who testified disagreed, although Dr. Schoeman spoke in terms of 80 to 85 percent average occupancy. Even lower average occupancies are recommended for certain specialty beds, including obstetric (75 percent), pediatric (65 percent) and cardiac intensive care (75 percent) beds. Eighty percent average occupancy as a health planning goal for all short-term beds taken together is supported by the weight of the evidence. (The Florida Task Force on Institutional Needs calls for a 79.4 percent weighted average occupancy).
The goal of 80 percent occupancy underlies the national standard of 4 beds per 1,000 persons. This average also reflects the age distribution of the national population and other nationally average conditions. In 1980, 11.3 percent of the population in the United States was 65 or over, while the 65 and
older age group made up 22 percent of Broward County's population. In Broward County, where the population is older on average than the population of the country as a whole and where there is significant seasonal variation in population (so that greater reserve capacity is desirable), the consensus is that 4.5 beds per 1,000 persons is a more appropriate rule of thumb.
Based on historical demand in Broward County, Mr. Baehr of Amherst Associates, Inc. made an "area specific" analysis. In 1981, 752.1 patient days in Broward County hospitals were attributed on average to every 1,000 persons in Broward County under 65, while 3,442.8 patient days were attributed on average to every 1,000 Broward County residents 65 and older. Mr. Baehr also calculated service specific use rates and, on that basis, the need for, obstetric and pediatric beds. These specialized use rates are reflected in the aggregate use rates for the under 65 age cohort, but breaking them out separately permits the use of service specific occupancy rates. Mr. Baehr's 1981 Broward County use rates correspond to 2.58 beds per 1,000 persons under 65 (at 80 percent occupancy for all services) and 11.79 beds per 1,000 persons 65 and older.
Free-standing psychiatric facilities were excluded from the calculations.
To the extent the number of people leaving Broward County for hospitalization exceeds the number entering Broward County for that purpose, these utilization rates understate demand. A net outflow of this kind can be inferred from Medpar data reflecting such movement by medicare patients.
Dr. Schoeman adjusted Broward County use rates for out-migration and concluded that county-wide use rates were 810.2 patient days per 1,000 population under age 65 and 3623.8 patient days per 1,000 population 65 and over. Dr. Schoeman's 1981 Broward County use rates correspond to 2.7747 beds per 1,000 under 65 (at 80 percent occupancy for all services) and 12.41 beds per 1,000 persons 65 and older (at 80 percent occupancy). The Health Systems Plan, which lacks any legal significance, but purportedly reflects local conditions, uses 861.8 patient days per 1,000 population under 65 and 3204.6 patient days per 1,000 population 65 and over. These numbers correspond to 2.95 and 10.97 beds per 1,000, respectively.
At least in the absence of area-specific utilization rates, other utilization rates are used by health care planners. Dr. Kennedy calculated use rates specific to five zip codes in South Broward County for the year 1979 for each of four age cohorts, but testified that the most reasonable utilization rates to use in South Broward were those developed by the Florida Task Force on Institutional Need (TFIN), viz.:
Medical-Surgical | Patient | Days per 1,000 Persons |
0-64 | 565.9 | |
65 and over | 2982.2 | |
ICC and CCU 0-64 | 43.1 | |
65 and over | 321.1 | |
Psychiatric 0-64 | 44.9 | |
65 and over | 44.6 |
Obstetrics
Females 15-44 186.3
Pediatrics
0-14 149.2
Gateway's Exhibit No. 12, Table 2, page 4.
These figures supposedly represent the experience in Florida statewide. Finally, in the southern United States in 1980, utilization rates calculated from the National Hospital Discharge Survey (NHDS) were 348.2 patient days per 1,000 population under 15, 796.5 patient days per 1,000 population aged 15 to
44, 1,554.9 patient days per 1,000 population aged 45 to 64 and 3,994.2 patient days per 1,000 population 65 or over.
The choice of appropriate utilization rates is complicated by the fact that there is no guarantee that historic rates will persist. Advances in medical science may make hospitalization for some conditions obsolete. Aging of the population over 65 on account of continued disproportionately elderly in- migration may result in greater utilization rates. Aging of the 15 to 64 age cohort would presumably result in greater utilization of certain services but might result in less utilization of obstetric beds, and so forth. The 1981 Broward County use rates adjusted for out-migration may prove an unreliable guide to future hospital utilization rates but no other use rates were shown by the evidence to be more reliable. Assuming these rates and applying the average occupancy rate of 80 percent, bed need in Broward County can appropriately be predicted by a weighted average of 2.7747 beds per 1,000 population under age 65, and 12.41 beds per 1,000 population 65 and older.
FINANCIAL FEASIBILITY
The two-tined "immediate and long-term" financial feasibility criterion was described by HRS' Mr. Konrad as a "go-no go gauge." With respect to each application, the questions are 1) whether financing for start-up costs is available and 2) whether the facility will have enough revenue to support operations, on a long-term basis.
GO
It is clear from the evidence that HCA and Humana each have access to massive amounts of capital, much more than needed to accomplish any or all of their respective expansion and construction proposals in Broward County. HCA proposes to use 100 percent equity for each of its projects. Humana plans 22.3 percent equity and 77.7 percent debt for the new hospital; and 86 percent equity and 14 percent debt for its expansion project at Bennett.
Issue was not joined as to their contentions, amply supported by expert opinion, that operations at proposed facilities would quickly become profitable. Although HCA's showing in this regard as to the proposed 150-bed version of NWBRMC was fairly broad brush, nothing in the evidence raised any doubt but that, with substantial occupancy assured (by Margate's closing) almost from the start, NWBRMC would be profitable at 150 beds.
NBHD is a legislatively created tax district charged with serving the hospital needs of residents of the district. NBHD has ad valorem taxing authority and also has a healthy operating margin, partly because it charges indigent care against tax revenues, not at cost, but at full charges. In addition, it has accumulated, in a funded depreciation account, all the equity
it plans to use to build a new 200-bed hospital in northwest Broward. NBHD had originally planned to issue bonds for the total project cost but changed its plans for fear medicare and medicaid reimbursement for the additional interest expense might be jeopardized, because the additional borrowing might be deemed unnecessary.
In the past, NBHD has expended five or six million dollars annually for routine equipment and other capital costs. At the time of the hearing, NBHD had CONs authorizing work (to be done over periods of time not specified in the record) at a cost of at least $58,000,000, including expenditures for revenue- generating extra beds at its North Broward Hospital. NBHD's debt capacity is on the order of $100,000,000, in the event it becomes necessary to issue bonds in an amount greater than the $16,815,000 now contemplated. NBHD also has a line of bank credit ($35,000,000 at half of prime) that should give it some flexibility in timing going to market for its permanent financing, even though, under its charter, NBHD's short-term borrowing is limited to no more than 15 percent of its assets for no more than one year.
HCA sought to show that NBHD's proposal was not financially feasible by trying to show that NBHD could not muster the capital necessary to build a new 200 bed hospital, sustain the loss anticipated during the initial year of operations, and meet its other commitments, but these efforts fell short of the mark. There was no attempt to discredit the revenue projections for the 200-bed hospital or to prove that it would not become profitable in the second year of operations, if built.
NO GO
The evidence showed that WBH is not financially feasible as far as financing construction, unless planned renovations at SBHD's Memorial are scaled down to levels significantly below those contemplated in an outstanding CON, or delayed past completion times contemplated when the outstanding renovation CON was applied for. At the time of the hearing, no amendment of the renovation CON had been obtained, nor, as far as the evidence showed, had any been applied for.
SBHD filed its application for a CON for the modernization of Memorial at or about the time (in the same batching cycle) as it filed its application for a CON for WBH. In the Memorial modernization application it sought, and it has since received, authorization to make capital improvements to Memorial costing $95,419,000 to be completed in November of 1985. Gateway's Exhibit No.
In order to accomplish this, it planned to borrow $75,245,000 by issuing tax-exempt bonds. In order to build WBH, which it planned to open (at 84 beds) in January of 1987, SBHD planned to issue tax-exempt bonds in the amount of
$31,930,000. Arthur R. Guastella, a municipal investment banker retained by SBHD, testified that SBHD was not in a position to incur additional indebtedness of more that $80,000,000, in May of 1981. (Vol. 36, 37)
Because of tax revenues, SBHD's revenues have exceeded expenses in the last few years despite operating losses at Memorial and the walk-in center SBHD operates near Pembroke Pines. SBHD has nevertheless been able to put aside only
$1,000,000 for WBH. Management conceded that building WBH was incompatible with renovating Memorial on schedule. In short, SBHD is in the posture of seeking authority for projects which, taken together, it lacks the financial wherewithal to accomplish.
SBHD failed to demonstrate financial feasibility in another important respect, counsel's heroic efforts notwithstanding. The basic assumptions of average annual occupancy at WBH in the beginning years, which underlie the Price, Waterhouse projections, were not established as reasonable by competent evidence. These assumptions were first predicated on an analysis, prepared by Herman Smith Associates, of demand in the service area originally proposed by WBH; but faulty population projections came to light and the work of Herman Smith Associates was not relied on at hearing. Instead, a much larger service area was drawn, including some zip codes closer to other hospitals than to the site proposed for WBH, and various problematic assumptions were made (e.g., a
100 percent draw rate from several zip codes). This work was done by a certified public accountant with an admitted lack of expertise in projecting bed need, and no health care planner or other qualified expert testified that the utilization or occupancy rates projected for WBH were reasonable.
Detailed information about the population of south Broward County and its likely growth was put on by SBHD and other parties. The record is replete with competent evidence of various methods of projecting a population's bed need, based on the number, age and sex of the population. It is thus possible to calculate bed need for southern Broward County, each of the three planning subregions there, and the service areas proposed for WBH. Even when reduced by the number of beds already available in an area, bed need does not automatically translate into demand for beds at a particular institution, however; and SBHD failed to prove the reasonableness of its demand or utilization assumptions for WBH.
SBHD has argued that Gateway's expert, Dr. Kennedy, supplied this omission with his Newtonian "spatial interaction model," but the record does not support this contention. For one thing, the model was shown to be a highly unreliable predictor of real world phenomena. For another, time unrelated to population change is not a variable in the model, nor is a lag in utilization at a new hospital otherwise taken into account, so that the 46 percent occupancy figure for WBH in 1987 on which SBHD seeks to rely is, according to Dr. Kennedy, unrealistically high for an initial operating year. Even if WBH opened in 1986, Dr. Kennedy predicted something like 33 percent average occupancy for 1987. Gateway's Exhibit No. 12, p. 28. For 1989, the Price, Waterhouse compilation that SBHD offered in an effort to prove WBH's financial feasibility, SBHD Exhibit No. 184, assumes 39,274 patient days at WBH, which represents an average daily census of 107.6 or average occupancy for 1989 of 84 percent. Without the "start-up curve" adjustment, Dr. Kennedy's model predicts less than 50 percent occupancy on average for 1989 at WBH. With the adjustment, the figure is lower.
SBHD has also argued that evidence of record of utilization projections at other proposed hospitals should be looked to in order to show the reasonableness of its utilization assumptions for WBH. For the first two years, occupancy levels projected at WBH do closely parallel similar projections for, e.g., the new 200 bed hospital proposed by NBHD, but this in no way shows the reliability of the utilization assumptions used for the projections at WBH. Assuming some bed need arguendo, WBH's draw rate and so its utilization and occupancy levels would depend on, among other things, its location vis-a-vis physicians' offices, other hospitals, patients' residences and so forth, factors that differ in south Broward from conditions in northwest Broward. As proposed, WBH would be smaller, have fewer services and a different medical staff than the hospital proposed by NBHD. Among the consequences of the opening of Interstate
75 may be a dramatic shift to utilization of Dade County hospitals by the population of southwest Broward County.
Lifemark, who owns and operates Palmetto General located in North Dade County on I-75, did not prove, however, that any such shift can be counted on to occur. Palmetto is currently operating at efficient levels and management is contemplating expansion based on the prospect of population growth in Dade County alone, although no letter of intent to apply for a CON has yet been filed. While Palmetto serves about four percent of the need for patient days attributable to southwest Broward's population, this represents something under one percent of Palmetto's total patient days.
EXPANSION PROPOSALS COMPARED
University hospital, at the time of the hearing, had occupancy rates which interfered with its efficient operation and required frequent emergency room to emergency room and other transfers. The parties stipulated:
that University has experienced an occupancy level for the past year of approximately 87 percent including an occupancy level in excess of 90 percent during certain winter months.
The parties further stipulate that in the case of University such occupancy levels have resulted in an adverse impact on certain aspects of patient care. Specifically, there have been problems in treating emergency room patients because of the emergency room being used as a holding area for patients that are waiting for beds to be available. There is difficulty in assuring continuity of care as patients have had to receive hospital care at facilities for which their regular physician does not have staff privileges, and a new physician had to be involved. There have been significant problems and inconveniences to patients as a result of the unavailability of beds. Furthermore, there have been difficulties encountered in spouses, relatives, and friends being able to visit patients when such patients have had to receive their care
at other hospitals because of transportation difficulties (which is particularly a problem for the elderly).
The demand for University's services has been convincingly demonstrated by real people seeking hospital care there.
Beginning with a 1987 population forecast (extrapolated linearly from Dr. Ladner's 1985 and 1990 projections) that was probably too high for the area within zip codes 33313, 33314, 33317, 33322, 33323, 33324, 33325, 33326, 33327, 33328, 33330, 33331, and 33332 (Bennett's service area), Mr. Richardson multiplied by a use rate that was probably too low and assumed an 80 percent occupancy rate to calculate a 1987 bed need for the area of 1,291 beds. The understated use rate tends to compensate for the overstated population projection, and the end result is not unreasonable. From 1,291, beds already available at Bennett (204), Florida Medical Center (400), Plantation General
(262) and Doctors General (202) were subtracted and a net bed need of 221 was forecast for Bennett's service area. Proceeding in the same manner with reference to Bennett's primary service area only (the same area except for zip codes 33317, 33330, 33331 and 33332), a net bed need of 145 was forecast there for 1987.
Finally, applying the same utilization rate to the increment by which the population of Bennett's service area is projected (extrapolation from Ladner) to increase between 1982 and 1987 yields a prediction that the incremental population alone will use 323 beds a day on average. Allotting 177 of these full beds (average daily census) among Bennett and the other hospitals in the service area would bring each of them to 80 percent average occupancy and still leave an average daily census of 146, which, again assuming 80 percent occupancy, is a prediction of bed need in Bennett's service area of 183 for 1987. These predictions assume that the hospitals in Bennett's service area will draw no more patient days from outside the service area in 1987 than they do in 1982, but also unrealistically assume that the hospitals in the service area will have a combined 100 percent draw of patients in the service area.
Bennett's primary service area overlaps University's secondary service area. No allowance has been made for any increase in University's draw that might result from expansion at University, nor has the historical draw of hospitals outside the service area been taken into account. Due east of Bennett is the largest aggregation of underutilized hospital beds in the county. In the east central planning subregion, the ratio of beds to population is 7.1 per 1,000.
Among the 64 beds Bennett proposes to add are 30 "minimal care" beds. At least by that name, there are no such hospital beds in Florida, and only 52 in the United States. The room charge for a "minimal care" bed is expected to be 25 or 30 percent less than the comparable charge for a medical-surgical bed, reflecting lower nurse to bed ratios for "minimal care" beds than for ordinary medical-surgical beds.
A condominium medical office complex adjacent to Bennett is expected to be finished by the fall of this year. The complex' 55,000 square feet are expected to provide office space for 41 physicians who together already account for 34 percent of Bennett's admissions. These condominium offices are already sold even though construction has not been completed.
NEW HOSPITAL PROPOSALS FOR NORTHWEST COMPARED
HCA contends that 73 new beds are needed in NW-HCA now and an additional 100 by 1987, for a total of 173; HRS and NBHD contend that 200 new beds are needed in NW-NBHD in 1987; and Humana contends that 223 beds are needed in NW-HU, plus 64 beds at Bennett, for a total of 287 by 1987.
In making its case for the low number, HCA unilaterally assumed it should have the same market share it now enjoys in NW-HCA in 1987, and ignoring the increased attractiveness of a new 250 bed facility, as compared to Margate, put on evidence tending to show that, if all 173 beds were allotted to HCA, population increase in NW-HCA would assure their efficient utilization in 1987 without increasing the proportion of patient days from NW-HCA at University and the proposed 250-bed NWBRMC combined over the proportion now received by Margate and University combined. The evidence showed that adding 173 beds in NW-HCA would still leave a bed NBHD of 76 assuming 80 percent average occupancy, to be met by hospital beds outside of NW-HCA.
NBHD put on evidence tending to show that the 1987 population in NW- NBHD could efficiently use 471 hospital beds. Assuming Margate or a hospital replacing Margate supplied 150 beds, 321 beds would still be needed in 1987 to serve the residents of NW-NBHD, NBHD contends. These forecasts ate based on the most conservative population and utilization predictions for northwest Broward County.
Humana tried to prove that 254 additional beds will be needed in NW-HU by 1987, of which an expansion at University would supply 73, leaving 181. The
181 figure should be reduced by 34, Humana contends, because "since Margate experienced an average occupancy of 57.5 percent in 1981, it must be allocated an additional 34 patients per bed [sic] to raise it to the 80 percent occupancy level," Proposed Findings of Fact, Conclusions of Law and Recommended Order of Petitioners, Humedicenter, Inc. d/b/a Coral Ridge General Hospital and Humana of Florida, Inc. d/b/a Bennett County Hospital, p. 72, leaving 147 beds needed which Humana's proposed 150 bed hospital would supply. This argument is difficult to follow, but Humana's incremental analysis (with low use rates tending to compensate for exaggerated population projections) does suggest that opening 250 or so beds in NW-HU in 1987 would not depress patient flows to hospitals outside NW-HU below current levels.
Unlike HCA, neither Humana nor NBHD has a hospital in northwest Broward County (NW-NBHD, NW-HU or NW-HCA). Competition would be enhanced there by building a new non-HCA hospital in the area, although it is true that most people presently leave the area to go to non-HCA hospitals. It is possible to overstate the advantage of competition in this context, moreover, inasmuch as people generally go to the hospital a physician recommends or, in emergencies, to the closest hospital. Competition may only foster better amenities for the medical staff rather than lower charges to the patients, but efforts by physicians or others to improve quality of care for patients would presumably have more chance of success in a competitive environment.
Miami-Dade puts on continuing education programs for nurses at Humana's five south Florida hospitals and a new Humana hospital in northwest Broward would presumably also make space available for them. HCA and NBHD also have various training programs at their Broward County facilities. There was no showing that facilities for training in Broward County were limited. Humana publishes pamphlets about new medical technology for physicians on staff at its hospitals.
With respect to expansion and new hospital proposals alike, the parties stipulated:
The applicants and HRS agree that each applicant can adequately staff its project with all necessary personnel, including technical, nursing, and-medical personnel, and that this is not a comparative issue in this proceeding. Pembroke Pines does not join in this stipulation.
The applicants and HRS agree that each applicant has adequate community support for its proposed project, and that this is not a comparative issue in this proceeding. Pembroke Pines does not join in this stipulation.
11. The parties agree that a new hospital in the northwest Broward area would attract a large number of physicians presently
practicing in that area to join the medical staff of the new hospital. The need to cover this hospital, in addition to hospitals currently being covered, will result in physician inconvenience and more travel time.
The most important comparative issues joined by the parties involved financial projections.
FINANCIAL COMPARISONS
The parties' proposed construction costs are not strictly comparable. The incremental costs per bed stated by Bennett, University and for the "additional" 100 beds at the proposed 250 bed version of NWBRMC do not reflect all of the costs that are properly associated with making a hospital bed available for occupancy. But it is true that construction costs for expansion are less than those for new construction when there is excess ancillary capacity and ordinarily even where there is not. Even among the non-incremental projections for new hospitals, there have been different assumptions about, among other things, inflation rates for different items and the dates operations would begin. Under one view, the site donated to NBHD, and any other gifts to NBHD for a new hospital, should be counted as costs of the new hospital. The parties have stipulated that projected construction costs are reasonable, and the costs of constructing a hospital are only the beginning, in any event. Once occupancies projected for the second or third year of operations are reached, any of the three new hospitals proposed for the northwest will have gross revenues every year well in excess of the "total project costs" expected to be incurred to build the hospital in the first place.
CHARGE COMPARISONS
Since people are hospitalized for a whole range of maladies, and receive different kinds and combinations of diagnostic and therapeutic services while in hospital, it is difficult to compare the charges for or cost of care at one hospital with the charges for or cost of care at another. It will not do to look at room charges only as a sort of gauge, because the medicare program has created pressure to keep room charges down, and hospitals have responded to the pressure by increasing charges for ancillary services. To take the most recent increases into account, therefore, ancillaries have to be included, even though they vary from patient to patient.
NBHD's Exhibit 55 reflects one approach to comparing hospital charges. There charges for the 30 services most frequently "sold" by hospitals are listed for three of the four HCA Broward County hospitals, two of Humana's three Broward County hospitals and all three of NBHD's hospitals, for fiscal years ended in 1982. One difficulty with this approach is that at least one service listed on this exhibit (as "chemical profile"), evidently means one thing to one hospital laboratory and something else to another.
Affecting all the comparisons on the chart is the difference among fiscal year ends for NBHD (June 30), Humana (August 31), and HCA (December 31). With hospital charges in Broward County escalating at annual rates on the order of 14 or 15 percent, a half year's difference in fiscal year ends can make essentially identical charge structures appear to differ significantly. HCA
complains, in addition, that there is no justification for including one (Margate) but not the other (North Beach) of the Broward County hospitals it acquired from HAI. Humana's Community Hospital of South Broward was also omitted. Both Community and North Beach have extremely low occupancy rates, however, well below what anybody is projecting for a new hospital in northwest Broward County. Even making a rough adjustment for inflation, NBHD's charges were lower, on average, in more categories than the two Broward Humana Hospitals' average charges, than vice versa; and the same is true as between NBHD's average charges and the three Broward HCA hospitals' average charges.
Invoking formulas developed by the Health Care Cost Containment Board, the parties made various comparisons using "gross revenue per adjusted patient day, gross revenue per admission," "total net revenue per adjusted patient day," and "total net revenue per adjusted admission." See NBHD Exhibit No. 71. The for-profit hospitals, but not NBHD's hospitals, subtract income taxes in arriving at "total net revenue." Using the same HCA and Humana Broward County hospitals whose charges were compared to all of NBHD's hospitals in NBHD Exhibit No. 55, average gross revenues were computed for fiscal years ended 1981 and stated per adjusted patient day ($340.60 for NBHD, $475.72 for HCA and $476.38 for Humana) and per adjusted admission ($2,870.70 for NBHD $3,154.67 for HCA, and $3,365.70 for Humana). NBHD Exhibit No. 56. On average, HCA's Florida hospitals' total net revenue per adjusted patient day is about five percent lower than the average for Humana's hospitals in Florida in 1980. HCA Exhibit No. 20. In 1980, the average total net revenue per adjusted patient day for HCA's Plantation General and University Community was $291.50 as compared to the
$252.80 average for the two smaller of the three NBHD hospitals. HCA Exhibit No. 18. On the other hand, the 1980 average total net revenue per adjusted admission for the same two HCA hospitals was $1,842.60, as opposed to $2,363.60 for the same two NBHD hospitals. HCA Exhibit No. 18. Since indigent patients have longer average stays than other hospital patients, and NBHD treats significantly more indigent patients than HCA's University, Margate and Plantation, or Humana's Bennett and Cypress, the NBHD "adjusted admission" in charge or cost per adjusted admission comparisons represents more patient days.
COST COMPARISONS
In Broward County historically, average net operating expense per adjusted patient day and per adjusted admission at HCA's Plantation and University exceeded the NBHD averages in 1981. HCA Exhibit No. 25. For fiscal years ended 1981, HCA (Margate, University and Plantation) Humana (Cypress and Bennett) and NBHD incurred average costs per adjusted patient day of, respectively, $311.29, $289.79 and $262.27. NBHD Exhibit No. 56. NBHD's average cost per adjusted admission was higher than the others, on account of longer average stays. Because of the differing assumptions underlying the various pro forma financial statements, expenses stated there are not strictly comparable, although HCA produced a witness who made arithmetic adjustments purportedly simulating uniform inflation assumptions for comparative purposes, with reference to the proposed 250 bed NWBRMC.
Hospitals have variable operating costs, fixed operating costs and fixed capital costs (which are related to construction costs and reflect financing costs). It is because fixed costs are so high (60 percent on average in the industry) that occupancy levels are crucial to a hospital's financial viability. In general, hospitals with 200 to 400 beds are more efficient than larger or smaller hospitals. Satellite hospitals like the proposed WBH enjoy
certain economies by sharing administration, purchasing and the like with another established hospital. Both HCA and Humana buy hospital equipment and supplies at substantial discounts, comparable to those available through shared purchasing organizations to which NBHD (which has 1,304 approved beds itself as well as the possibility of discounts on account of governmental status) belongs.
Private patients and insurers pay charges but hospitals are reimbursed through the medicare and medicaid programs in amounts fixed by a cost-based formula. (This amount comes to less than charges, and the difference is known as the medicaid or medicare "contractual.") Changes in the reimbursement formula have been dictated by the Tax Equity and Fiscal Responsibility Act of 1981 (TEFRA), but not yet fully implemented. The consensus is that new TEFRA regulations will slow the rate of growth in reimbursement rates. These new regulations designate a base year for existing institutions by which to measure cost increases, but exempt new hospitals from certain reimbursement caps.
HCA showed that it makes better economic sense to start over and build a new hospital than to renovate Margate, but did not show it was under legal compulsion to do either. Taking replacement of Margate as a given, HCA argues that the cost of adding 100 beds in northwest Broward County should be viewed as the difference between the cost of building NWBRMC at 250 beds and the cost of building it at 150 beds. In projecting both of these costs, HCA ignored the cost of closing Margate, 6/ but the cost of closing Margate would be the same whether it was replaced by a 150-bed or a 250-bed hospital, so the difference between the replacement costs would be unaffected. The incremental cost per bed is less meaningful than the relative per-bed costs for the whole institution at
150 as opposed to 250 beds. Any savings in construction costs inures first to the benefit of HCA. Such savings benefit the public directly only to the extent they may affect costs for medicaid or medicare reimbursement purposes. With respect to the proposed Margate replacement, the question of medicare and medicaid reimbursement is complicated by the change proposed in the ratio of debt to equity. Assuming optimal occupancies, however, operating a hospital with 200 to 400 beds would be less costly per bed than operating a 150-bed hospital, and these economies should be reflected in lower medicaid and medicare reimbursement.
INDIGENT CARE
Not all hospitals seek to serve the poor. Those that do receive medicaid reimbursement for services rendered to some, but not all, of their patients who are otherwise uninsured and unable to pay. Humana's Cypress did not have a medicaid provider number at the time of hearing. HCA's University had no medicaid contract until September of 1982 and has had less than one percent medicaid utilization since then. At its three hospitals, on average, NBHD has six to eight percent medicaid utilization.
While NBHD hospitals are reimbursed for services to indigent persons ineligible for medicaid benefits at full charges, paid from NBHD's ad valorem tax revenues, HCA and Humana's hospitals in Broward County receive nothing for services rendered to medically indigent persons who are medicaid-ineligible. 7/ In addition, some patients with the ability to pay for hospital services fail to do so. Their charges are cumulated under the heading "bad debts." For want of complete information, some charges for indigent care may end up in this category. In the fiscal year ending August 31, 1982, Cypress' bad debts amounted to 3.3 percent of total revenues as compared to NBHD's 11 or 12 percent in recent years.
NBHD has deposit requirements, but does not enforce them in every case at its hospitals. Some 27 to 30 percent of NBHD's hospitals' services are provided to persons unable to make full payment. Nobody is denied medical care for inability to pay at NBHD's existing hospitals. This policy would apply at the proposed 200 bed hospital in the northwest, as well. The sole exception to this policy has been NBHD's refusal to accept "economic transfers." Attempts by for-profit hospitals to transfer patients whose resources have been exhausted or whose inability to pay has become clear, in order to free beds for paying patients, have been resisted by NBHD, although medically indigent patients are accepted for transfer to NBHD hospitals whenever they need services that are unavailable at the transferring hospital. The HCA and Humana hospitals in Broward County do not turn emergencies away for inability of patients to pay, but do not, as a general rule, accept non-emergent cases when there is no assurance they will be paid. There are exceptions: On occasion medical staff admit non-emergent, indigent patients.
Northwest Broward County is attractive to HCA, Humana and NBHD just because of the low numbers of indigent persons there, perhaps three or four percent of the population. In its second year of operation, a new hospital in northwest Broward County can expect less than one admission of an indigent patient per day. Medicare utilization should also be significantly lower than elsewhere in the county, where 56.4 percent of total patient days are attributable to medicare patients on average.
TAXES AND SUBSIDIES
Under current regulations, for-profit hospitals like HCA's and Humana's, but not nonprofit hospitals like NBHD's receive a return on equity component in medicare and medicaid reimbursement. (The rate is a healthy 150 percent of an average interest rate on certain government securities.) All other things being equal, an HCA or Humana hospital in northwest Broward would, if financed even in part by equity, receive more governmental reimbursement for rendering the same medicare or medicaid services than a hospital owned and run by NBHD, how much more depending on the debt-equity mix. HCA proposes to use
100 percent equity, in replacing Margate.
On the other hand, HCA and Humana pay federal income and other taxes which NBHD does not pay. For comparative purposes, it is appropriate to assess the net fiscal impact of each proposal on government, but, with consolidated tax accounting and the number and diverse financial circumstances of HCA and Humana hospitals, setting medicare and medicaid payments off against federal income taxes can be viewed in more than one way. Federal tax liability that would otherwise arise from profits from operations at one HCA or Humana hospital can be offset by losses from operations at another hospital.
NBHD not only pays no taxes, it also levies a tax, on real property within District boundaries. About four fifths of these revenues, on the order of $28,000,000 or $29,000,000 annually, are allocated to charges for "indigent care." There would be no NBHD for a tax increase to finance a new hospital, however. The "funded depreciation" account from which the equity contribution is to come does not, moreover, contain past tax receipts, except to the extent the fraction of NBHD's operating margin attributable to indigent care made its way into "funded depreciation." Similarly, tax revenues would not be used to operate the proposed hospital, except to the extent tax revenues were used to pay charges for the care of indigent patients.
The terms "cost-shifting" or "charge shifting" describe the fact that some payers subsidize other payers. In the case of for-profit hospitals, private pay patients and third party payors other than the government pay rates that are set high enough to cover expenses incurred in treating patients whose bills go unpaid and to make up for the medicaid and medicare contractuals. With respect to NBHD hospitals, tax revenues are looked to to pay the full cost of the care of medically indigent persons, but bad debts are still reflected in the NBHD charge structures. To the extent for-profit hospitals provide services to medically indigent persons, the cost of those services is shifted to uninsured private pay patients, persons who pay premiums for hospital insurance, and the medicare and medicaid programs. On the other hand, all owners of taxable real property within the North Broward Hospital District bear the expense of the treatment of medically indigent persons at NBHD hospitals.
Aside from expanding by building new hospitals, a course on which HCA, Humana, and NBHD alike seem to have embarked, these organizations have different uses for profits or any positive operating margin which a new hospital in the northwest might generate. Humana uses such money for corporate overhead, including shareholders' dividends, and to finance things like the work of Dr. Rollo who, in conjunction with researchers at Vanderbilt University and elsewhere, evaluates new medical technology as it becomes available. Humana also designates some of its hospitals "centers of excellence" in certain fields, encouraging research and specialized treatment of particular afflictions. HCA uses money from operations of its hospitals for overhead and other corporate purposes. Money from the NBHD hospitals' operations is used to finance specialized services in Broward County, principally at Broward General, which has, among other costly and unprofitable services, a substantial neonatology unit.
LESS EXPENSIVE FOR WHOM
For people who pay no taxes, have no hospitalization insurance, and are unable to pay hospital bills, the cost of each of the proposals for the northwest would be the same: nothing. (These people might not have access to services at a for-profit institution, however.) Private insurers, those that pay their premiums, federal taxpayers who finance the medicaid and medicare programs, taxpayers in the North Broward Hospital District and patients themselves all will bear part of the cost of any new hospital in northwest Broward. Private pay patients and their insurers will supply almost half of the total patient revenue. Historically, charges, which are the basis for these patients' payment, have been lower at NBHD hospitals than at HCA's or Humana's Broward County hospitals, on average, as reflected most clearly by the gross revenue per adjusted patient day comparisons. It is little consolation to private payers that Humana and HCA pay taxes while NBHD does not.
But, in forecasting the relative costs to cost-based payors, projected federal income taxes should be subtracted from reimbursement for equity projected to be received by Humana and HCA through the medicare and medicaid programs. Even after income taxes are netted, HCA or Humana would receive compensation for equity that NBHD would not receive. Especially in light of evidence that shows that NBHD's expenses per patient day have been lower in the past than such expenses at the for-profit hospitals, the weight of the evidence established that cost-based reimbursement at a new northwest Broward hospital
would, in all probability, be less if the hospital were operated by NBHD than if it were operated by HCA or Humana. Because of the medicare and medicaid rules allowing a return on equity component in reimbursement of providers, an NBHD hospital would receive less medicare and medicaid reimbursement even if the NBHD hospital had the same operating costs.
The taxpayers of the District pay for the care of the medically indigent at NBHD hospitals, but not for the care of these persons at Broward County's Humana and HCA hospitals. There is no provision, presently, for using NBHD tax revenues to pay for the care at HCA or Humane hospitals in Broward County of medically indigent persons who are not eligible for medicare or medicaid. On the other hand, to the extent medically indigent persons are cared for by HCA and Humana, the costs of that care are "shifted" to, among others, private pay patients which, if persons paying for hospital insurance are included, constitute a group within the North Broward Hospital District that presumably overlaps substantially with taxpayers in the District.
OBSTETRICS AND PEDIATRICS
The parties stipulated that 20 to 24 obstetric beds were needed in northwest Broward County. Each proposal for a new hospital in northwest Broward County contemplates an obstetric service of this magnitude. Eighteen obstetric beds and 24 pediatric beds will be needed in 1987 to serve the population of NW- NBHD alone. There is presently a shortage of obstetric beds in Broward County as a whole.
The site proposed for the new NBHD hospital in northwest Broward County is considerably further from other obstetric beds in the county than the site proposed for NWBRMC, although NWBRMC is mere central to the northern part of the county where there is a dearth of obstetric beds. In general, traffic in Broward County moves better north and south than east and west. Humana is not so committed to any particular site, that it could not build a hospital even further away. 8/
At NBHD's Broward General a training program for physicians wishing to specialize in obstetrics is already in place. Broward General has an intensity of pediatric and obstetric services that make it a desirable location for such a program for residents. A community hospital serving a population with a significant child bearing cohort, like that proposed for the northwest, would be an appropriate complement to the existing program.
CONCLUSIONS OF LAW
When a licensing agency like HRS has "set forth in writing the grounds or basis for [proposed] denial of a license," Rule 28-6.08(2), Florida Administrative Code; see Section 120.60(2), Florida Statutes (1983), "unless otherwise provided by law the applicant shall have the burden of establishing entitlement," Rule 28-6.08(3), Florida Administrative Code, by "establish[ing] the invalidity of the grounds or basis asserted by the licensing agency as the reason for denial." G. Pfeiffer and R. Benton, Administrative Adjudication, in Florida Administrative Practice, 4.16, at 158 (2d Ed. 1981). See Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Zemour, Inc., v. State Division of Beverage, 347 So.2d 1102 (Fla. 1st DCA 1977) (lack of good moral character found "from evidence submitted by the applicant" at 1103); see generally Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977).
GROUNDS STATED
In denying University's application insofar as it sought CON authority to add beds, HRS explained:
Consistent with the local Health Planning Agency recommendation, the bed-to-population ratio within the service area, the percent occupancy of the six hospitals in the service area, and the number of existing beds in the service area do not support the proposal to add 73 beds to the facility.
An acceptable alternative to the bed addition would be to increase utilization of existing unused bed capacity in the service area.
HRS Exhibit No. 6.
HRS' Mr. Konrad wrote Dr. Korman that
In comparison with the other applicants proposing additional beds, [Bennett's] proposal to add beds was not deemed to be the most desirable based on a comparison of actual average charges per patient day.
In denying Bennett's application insofar as it sought CON authority to add beds, HCA's application to build NWBRMC at 250 beds, and the SBHD and Humana applications to build new hospitals (while granting NBHD's application to build a new 200 bed hospital and authorizing HCA to build NWBRMC at 150 beds, to replace Margate), HRS stated:
A need to add acute care hospital beds to Broward County as a whole does not exist at the present time. However, if need is viewed from a sub-HSA perspective, there is a need in northwest Broward County based on [future bed need in northwest Broward County and lower current cost of construction].
The HSA should place the highest priority on developing a sub-regional bed need plan.
All of the proposed projects represent some degree of financial feasibility. Existing operations show that charges at District hospitals are significantly lower than at proprietary hospitals in Broward County.
Margate General Hospital should be allowed to relocate to improve the quality of care and to establish obstetrical service from 20 existing beds. The physical plant to Margate was never designed for a hospital but as a nursing home.
The space is totally inadequate for services rendered. Obstetrical services do not exist in the north section of Broward County and should be established to improve accessibility and availability. HRS Exhibit No. 1.
These statements, as amplified in the state agency action reports, together with the disappointed applicants' petitions for hearing, serve to frame the issues as between HRS and each applicant HRS turned down, and the parties so stipulated.
9/
As between HRS and NBHD, and as between HRS and HCA as regards HCA's entitlement to build NWBRMC at 150 beds, therefore, no issues remain to be litigated, even though HRS has yet to take final agency action, on account of timely petitions objecting to issuance of the certificates, but, because of the comparative posture of the parties' applications, each party has the burden to show de novo not only that its application conforms to the minimum criteria for licensing but also that its proposal is the best way to meet bed need in the health service area. E.g., Bio-Medical Applications of Ocala, Inc. v. Office of Community Medical Facilities, Department of Health and Rehabilitative Services,
374 So.2d 88 (Fla. 1st DCA 1979). HRS' stated intentions to grant certificates of need in the present case to NBHD and to HCA for a 150-bed NWBRMC is analogous to the notice of intent in the J.W.C. Co. case, of which the court said:
[O]nce a formal hearing is requested, there is no "presumption of correctness" in the mere fact that in preliminary proceedings the Department has issued its "notice of intent" to issue the permit that would relieve the applicant of carrying the "ultimate burden of persuasion." [Citations omitted] Florida Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778, 789 (Fla. 1st DCA 1981).
Each "applicant for a license or permit carries the 'ultimate burden of persuasion' of entitlement through all proceedings, of whatever nature, until such time as final action has been taken by the agency. Florida Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778, 784 (Fla. 1st DCA 1981).
Third party objectors have their own burden of proof in proceedings like these, as explained by the J.W.C. Co. court:
Not every request for a formal Section 120.57
(1) hearing may properly be granted, for it is clear that the petitioner must first demonstrate by appropriate pleading that there are disputed issues of fact requiring such a hearing. Blanchette v. School Board of Leon County, 378 So.2d 68 (Fla. 1st DCA 1979), United States Service Industries--Florida v. Department of Health and Rehabilitative Services, 383 So.2d 728 (Fla. 1st DCA 1980). We totally agree with the sentiments expressed by amicus curiae Agrico that no third party, "merely by filing a petition," should be permitted to require the applicant to "completely prove anew" all items in a permit application down to the last detail. The
petitioner must identify the areas of controversy and allege a factual basis for the contention that the facts relied upon by the applicant fall short of carrying the "reasonable assurances" burden cast upon the applicant. The "burden of proof" is upon the petitioner to go forward with evidence to prove the truth of the facts asserted in his petition. If the petitioner fails to present evidence, or fails to carry the burden of proof as to the controverted facts asserted-- assuming that the applicant's preliminary showing before the hearing officer warrants a finding of "reasonable assurances" then the permit must be approved. In making this preliminary showing of "reasonable assurances before the hearing officer, the applicant is required to provide credible and credited evidence of his entitlement to the permit.
This having been done, the hearing officer would not be authorized to deny the permit unless contrary evidence of equivalent quality is presented by the opponent of the permit.
Florida Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778, 789 (Fla. 1st DCA
1981). (Footnote omitted)
It is also incumbent on a third party objector to plead and prove facts that demonstrate party status or standing. Agrico Chemical Co. v. Department of Environmental Regulation, 406 Sb.2d 478, 482 (Fla. 2d DCA 1981). With respect to every other applicant, each applicant can be viewed as a third party objector and as having standing or party status on that account as well as on account of seeking the grant of a CON to itself. HRS, Lifemark and Gateway are the only parties who do not also have applications for CONs at issue in these proceedings.
LIFEMARK LACKS PARTY STATUS
Lifemark was allowed to intervene at hearing, after counsel for SBHD represented that WBH's proposed service area would dip 10 miles into Dade County, which lies in another health service area, but the evidence SBHD in fact adduced assumed a service area for WBH wholly within Broward County, which is coterminous with the health service area. The evidence did not show that WBH would draw patients from Palmetto General's service area. Whether it would, in fact, is a matter of speculation.
Although a recent order on a motion to intervene stated that "[t]o the extent that unnecessary duplication and underutilization would result in injury to the economic health of an existing hospital, such interest is recognized as within the zone of interests regulated by the Health Facilities and Health Services Planning Act, 381.493, 381.494, 381.495, 381.498 and 381.499, F.S.," University Community Hospital v. Department of Health and Rehabilitative Services, No. 83-161 (DOAH; March 25, 1983), the party seeking intervention in that case was located in the same health service area as the applicant.
Because of the speculative nature of the economic injury claimed by Lifemark, and because economic injury to a health care facility outside the health service area for which a new facility is proposed falls without the zone of interest of the Health Facilities and Health Services Planning Act, Sections
381.493 et seq, Florida Statutes (1981), but see Section 381.494(6)(c)(10), Florida Statutes (1981) , Lifemark has failed to show that it is substantially interested within the meaning of Section 120.52(10)(a), Florida Statutes (1981). ASI, Inc. v. Public Service Commission, 334 So.2d 594 (Fla. 1976); Agrico Chemical Co. v. Department of Environmental Regulation, 406 So.2d 478 (Fla. 2d DCA 1981); Florida Department of Offender Rehabilitative Services v. Jerry, 353 So.2d 1230 (Fla. 1st DCA 1978).
Even on the assumption that a health care facility might in some circumstances be deemed a substantially affected party in proceedings on a proposal in another health service area, those circumstances did not exist here. Lifemark's Palmetto General, the evidence showed, is operating efficiently and draws less than one percent of its patient days from the area WBH was proposed to serve. Lifemark was not shown to be substantially interested within the meaning of Sections 120.52(10)(a) and 120.57, Florida Statutes (1981).
Lifemark would nevertheless be entitled to participate, if HRS' own rules so provided. Section 120.52(10)(b). See Gadsden State Hank v. Lewis, 348 So.2d 343 (Fla. 1st DCA 1977). Rule 10-5.12(1), Florida Administrative Code, embraces a concept of substantial interest ("aggrieved. . .substantially affected persons") no more expansive than the Administrative Procedure Act itself which, the cases teach, looks to the zone of interest defined by the substantive law. 10/
Lifemark, which has never formally indicated any intention to expand, does not fall within the definition of "affected person" set forth in Rule 10- 5.02(20), Florida Administrative Code, which specifies:
"Affected person" means the person whose application/proposal is being reviewed, members of the public who are to be served by the person proposing the project, health care facilities and health maintenance organizations located in the health service area in which the service is proposed to be offered or developed which provide services similar to the proposed services under review, and health care facilities and health maintenance organizations which, prior to receipt by the agency of the proposal being reviewed, have formally indicated an intention
to provide such similar services in the future.
Rule 10-5.12(4), Florida Administrative Code, authorizes participation by "interested parties," but interpretation of this phrase likewise requires reference o the substantive law. Shared Services, Inc. v. Department of Health and Rehabilitative Services, 426 So.2d 56 (Fla. 1st DCA 1983).
BATCHES IMMATERIAL
In order to facilitate comparative staff analysis of mutually exclusive proposals, HRS has established by rule cycles for review of applications for CONs for hospitals and other new health care facilities. Rule
10-5.08, Florida Administrative Code. Each competing application duly filed within a given cycle is evaluated on its merits relative to each other competing application filed within that cycle, before HRS "free form" procedures culminate in a proposed decision granting or denying one or more applications in whole or in part. Nothing in Rule 10-5.08, Florida Administrative Code precludes comparative consideration at a de nova hearing of competing applications, regardless of when they were filed or how they were treated by HRS staff.
In the present case, University applied for a CON to add beds on the last day of the cycle next preceding that in which every other application under consideration here was filed. After HRS proposed to deny its application, University instituted de novo proceedings by filing a petition for formal administrative hearing, which HRS referred to the Division of Administrative Hearings, pursuant to Section 120.57, Florida Statutes (1981), and SBHD and NBHD intervened. At this point all parties except HRS are intervenors with respect to any application other than their own.
At all pertinent times, SBHD, NBHD, Margate and Bennett "provide[d] services similar to the. . . services," Rule 10-5.02(20), Florida Administrative Code, proposed by University and did so in the same health service area. Humedicenter, Inc. is a subsidiary of Humana whose Community, Cypress, and Bennett hospitals are all located in Broward County. The competing applicants with hospital facilities already established in the health service area, are, for that reason, "affected persons," Rule 10-5.02(20), Florida Administrative Code, without regard to when their letters of intent were filed, and could have initiated proceedings on University's application, if HRS had proposed to grant it. In fact, of course, HRS proposed to deny University's application. University was clearly entitled to initiate review proceedings, pursuant to Rule 10-5.12(1), Florida Administrative Code. Once such proceedings have begun, "other interested parties. . .shall be permitted to [participate]." Rule 10.5.12(4), Florida Administrative Code. Gateway and the competing applicants are unquestionably "interested parties."
The cases establish that simultaneous, mutually exclusive applications must be considered comparatively, as a matter of due process. South Broward Hospital District v. Department of Health and Rehabilitative Services, 385 So.2d 1094 (Fla. 4th DCA 1980), Bio-Medical Center, Inc. v. Office of Community Medical Facilities, Department of Health and Rehabilitative Services, 374 So.2d
88 (Fla. 1st DCA 1979); Bio-Medical Applications of Clearwater v. Department of Health and Rehabilitative Services, Office of Community Medical Facilities, 370 So.2d 19 (Fla. 2nd DCA 1979) Even if succeeding cycles are not defined as "near simultaneous," see South Broward Hospital District v. Department of Health and Rehabilitative Services, 355 So.2d at 1095, sound public policy militates in favor of comprehensive, comparative consideration of all proposals to meet the need for hospital beds in Broward County five years hence. The cases do not disallow comparative consideration of mutually exclusive applications that are not precisely simultaneous.
THE WBH PROPOSAL
Since Pembroke Pines did plead and prove not only that it would suffer substantial adverse financial effect, if WBH were built, but also that it now offers "like. . .health care services . . .in the applicant's health care service area," Section 381.494(6)(c) Florida Statutes (1982 Supp.), Pembroke Pines does have standing or party status in these proceedings. By pleading that
the WBH proposal was not financially feasible, Pembroke Pines properly raised this issue, even though HRS had earlier conceded WBH's financial feasibility; and the "south parties" stipulated on the record at the hearing that WBH's financial feasibility was at issue. Accordingly, SBHD had the "ultimate burden of passion" to show that WBH would be financially feasible.
In order to meet this burden, SBHD had to show that it could finance construction of WBH, and that it could absorb losses there until operations at WBH generated enough revenues to make WBH financially viable. Since NBHD has ad valorem tax revenues, proof that all or part of those revenues would have been available to finance construction or support operations at WBH might have helped SBHD meet its burden on this issue, but the proof showed that these revenues will be needed for other purposes, notably the renovation planned for Memorial. SBHD did not show that it could muster the capital necessary to build WBH. SBHD did not prove any reliable basis for predicting what revenues WBH would realize from operations. SBHD did not adequately explain where money would come from to subsidize initial operating deficits, and did not prove by competent evidence the likely magnitude or duration of these deficits.
HOSPITAL REPLACEMENT
HCA contends that it is entitled to build a new 158-bed hospital in northwest Broward County to replace Margate without regard to how the merits of this course of action compare with the merits of competing proposals, citing this language:
In the case of an application for a health care facility to eliminate or prevent safety hazards as defined by federal, state, or local codes or rules; to comply with state licensure standards; or to comply with accreditation standards, which compliance is required for reimbursements under Title XVI II or Title XIX of the Social Security Act, the department shall issue a certificate of need unless the department determines, during the application review process, that the health care facility or the capital expenditure is not needed, based on criteria established in the state health plan and by rules promulgated by the department; except that a certificate of need issued under this provision shall only approve capital expenditure to the extent necessary to eliminate or prevent the defined safety hazards or to comply with licensure of
accreditation standards. Section 381.494(8)(c) Florida Statutes (1982 Supp.).
See also Rule 10-5.09(5)(9), Florida Administrative Code. Bed need is a necessary element of HCA's replacement theory just as it is an essential component of each competing proposal.
Evidence on the other elements of proof on the need for replacement was uncontroverted. No other party sought to show that the narrow, dead end corridors at Margate do not constitute a safety hazard as defined by code. No
evidence showed that Margate could be renovated to correct the corridor deficiencies for less than building a new hospital would cost. Nothing in the evidence indicated that any other site than the one proposed was cheaper or closer to the existing hospital.
NEW BEDS
Applications for certificates of need are to be evaluated against the criteria listed in Section 381.494(6)(c), Florida Statutes, (1982 Supp.).
Except for provisions which the parties agree do not apply in these proceedings, those criteria are:
The need for the health care facilities and services and hospices being proposed in relation to the applicable district plan, annual implementation plan, and state health plan adopted pursuant to Title XV of the Public Health Service Act, except in emergency circumstances which pose a threat to the public health.
The availability, quality of care efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services and hospices in the applicant's health service area.
Probable economies and improvements in service that may be derived from operation of joint, cooperative, or shared health care resources.
The need in the applicant's health service area for special equipment and services which are not reasonably and economically accessible in adjoining areas.
The need for research and educational facilities, including, but not limited to, institutional training programs and community training programs for health care practitioners and for doctors of osteopathy and medicine at the student, internship, and residency training levels.
The availability of resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation; the effects the project will have on clinical needs of health professional training programs in the service area, the extent to which the services will be accessible to schools for health professions in the service area for training purposes if such services are available in a limited number of facilities; the availability of alternative uses of such resources for the provision of other health services; and the extent to which the proposed services will be accessible to all residents of the service area.
The immediate and long-term financial
feasibility of the proposal.
The probable impact of the proposed project on the costs of providing health services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and service to promote quality assurance and
cost-effectiveness.
The costs and methods of the proposed construction, including. . . the availability of alternative, less costly, or more effective methods of construction.
Many of these criteria may also be found in Rule 10-5.11, Florida Administrative Code. All applications for CONs for additional beds in northwest Broward County were shown to be financially feasible. Considered separately, all proposals for adding beds to the northwest meet the minimum requirements.
SLIPPERY VARIABLES
As far as the evidence revealed, nobody now in Broward County or likely to reside there by 1987 is or would be more than 30 minutes' driving time from a hospital. In the absence of the parties' stipulation of a need for more beds in 1987 "on a regionalized basis," every application under consideration in these proceedings for a CON to add beds should properly be denied because of the large number of beds already licensed or authorized in Broward County, even though, on an "institution-specific" basis, University has demonstrated a need for more beds.
The same factors now causing seasonal overcrowding at University explain the parties' stipulation that a regional need for beds will exist in 1987. The evidence showed that, considering various regions separately, some would then have more population than hospital beds already authorized in the region could be expected to serve, while others would have more hospital beds than projected population could utilize efficiently. A policy that allocated additional beds to each region with a foreseeable 1987 "regional need," without regard to unused capacity in adjacent regions, could result (depending on where lines are drawn) in the addition of more than 700 hospital beds in parts of Broward County by 1987, while other parts of Broward County would together have an equal or greater number of unneeded beds in 1987.
No party has explicitly advocated such a profligate approach. Each has suggested that some allowance be made for patients who live in underserved regions, who seek hospital care in adjacent overbedded regions, or elsewhere outside the region. In northwest Broward County, HCA's thesis is that adding
173 beds in NW-HCA would not result in the retention in NW-HCA of any greater proportion of patient days attributable to the population of NW-HCA in 1987 than the 36.3 percent presently retained. HCA's evidence showed that the proportion would shrink, i.e. a greater percentage of the population of NW-HCA would leave NW-HCA for hospital care in 1987 than at present, if less than 213 beds were added. Humana put on proof tending to show that the increment by which population in NW-HU is expected to grow between the present and 1987 could by itself use a 254 bed hospital efficiently, and proposed essentially that the
same absolute number of patient days now generated by residents of NW-HU but served at hospitals outside of NW-HU continue to be served outside NW-HU in 1987. NBHD assumed the new 200-bed hospital it proposes would draw 32 percent of the patient days attributable to residents of NW-NBHD, from which it may be inferred that an efficient Margate or other 150-bed HCA hospital would draw 24 percent (150 is to 200 as 24 is to 32), and that hospitals outside NW-NBHD would draw 44 percent.
Unlike the parties' disagreement on population forecasts and hospital utilization rates, which are largely factual questions, the disagreement over what proportion of a population's patient days should be served where is a fundamental policy question on which the evidence shed very little light. On October 7, 1982, a few days before the hearing in the present case began, HRS addressed the issue of regionalization in the final order it entered in consolidated cases arising in Palm Beach County immediately to the north, Southeastern Palm Beach County Hospital District v. State of Florida Department of Health and Rehabilitative Services, No. 81-1198, and National Medical Enterprises, Inc. v. State of Florida Department of Health and Rehabilitative Services, No. 81-1212, in which it stated:
The Exception to the Recommended Order submitted by Respondent, Department of Health and Rehabilitative Services, is that the conclusions of law should be changed to reflect that need is to be determined on a countywide basis and the county is the proper health care service area. The health system agencies which are responsible for review of applications for certificates of need are statutorily required to determine need on the basis of health service area. Section 381.49 (6)(c)1, 2, 3, 5, 10, Florida Statutes (1981). Health service area is defined in Rule 10-5.02
(24) to be "the specific geographic region (single or multiple counties) within the state for which a Health Systems Agency is designated pursuant to P.L. 93-641." Based on the foregoing Respondent's exception is meritorious. The conclusions of law in the Recommended Order which subdivide the county into smaller regions in order to determine need are rejected. The findings of fact do support the legal conclusions that the countywide need justifies the granting of a certificate of need.
This position may appear straightforward, even if irreconcilable with HRS' position in the present case. But, since Palm Beach County is only one of five counties in its health service area, see, e.g., Attachment 10 to Rule 10-5.17, Florida Administrative Code, the final order in the consolidated Palm Beach County cases simultaneously adopts a finding of need on a subregional basis and eschews the use of any region smaller than the health service area.
BINDING STIPULATION
If some statute precluded consideration of bed need on a subregional basis, HRS could not by stipulation with the other parties to these proceedings, relieve itself of the duty to comply with the statute. Respondent and all other "[a]dministrative agencies are creatures of statute and have only such powers as statutes confer." Fiat Motors of North America, Inc. v. Calvin, 356 So.2d 908, 909 (Fla. 1st DCA 1978). See Edgerton v. International Co., 89 So.2d 488 (Fla. 1956) ("If there is a reasonable doubt as to the lawful existence of the particular power that is being exercised, the further exercise of the power should be arrested." At 490). "There must be some basis in a statute for the exercise of jurisdiction and power involved in the making of an order by an administrative agency." State ex rel. Greenberg v. Florida State Board of Dentistry, 397 So.2d 628, 635 (Fla. 1st DCA 1974) cert. dismissed 300 So.2d 900 (Fla. 1974). Neither is it within HRS' power to vary its own rules case by case, by stipulation with the parties or otherwise. Hulmes v. Division of Retirement, Department of Administration, 418 So.2d 269 (Fla. 1st DCA); Gadsden State Bank v. Lewis, 348 So.2d 343 (Fla. 1st DCA 1977). But see E.M. Watkins & Co. v. Board of Regents, 414 So.2d 583 (Fla. 1st DCA 1982). But there is no rule or statutory prohibition against considering the need for hospital beds in an area smaller than a health service area, nor did the final order in the consolidated Palm Beach County cases establish such a policy. The largest health service area in Florida comprises 14 counties, and there is nothing in the Health Facilities and Health Services Planning Act that prevents the common- sense approach of considering bed need in geographic areas less expansive than the entire health service area. Rule 10-5.08(1)(d) provides, with respect to the now defunct health systems agencies:
Each HSA, at its option, may subdivide its entire area into smaller, distinct health service areas that have a reasonable relation to the actual use of health and medical services on a geographic basis.
In the Palm Beach County cases themselves need was found on the basis of such a subregion.
HRS was not precluded, therefore, from entering into a prehearing stipulation in which it conceded a need in 1987 for hospital beds in Broward County to "be determined on a regional basis," and HRS is bound by this stipulation like any other party. In addition, HRS explicitly conceded in the state action report, that the northwest region needed beds, and put the number at at least 200 by implication, in proposing to grant a CON to NBHD for a new hospital with 200 beds. The evidence showed that, viewing each Broward County land use planning region in isolation, the northwest region (NW-NBHD) would have the greatest need for beds of any of the Broward County land use planning regions, almost half again mere than the south central land use region. No party put on evidence tending to show that the need for beds in the northwest region was less than 200 beds, not even HCA whose experts testified that adding only 200 beds to NW-HCA (HCA proposes to add 173) would require that a greater fraction of patient days attributable to NW-HCA be served outside NW-HCA in 1987 than at present.
NO MORE BEDS
Because Broward County as a whole has so many hospital beds already authorized, including hundreds of unused beds in close proximity to the northwest part of the county, the evidence does not support the conclusion that there is a need for more than 200 beds in northwest Broward County. The largest cluster of these empty beds yawns like a caducean black hole due east of Bennett, closer to the projected population center of Bennett's self-described west central region than to any 1987 northwest centroid. Bennett's case has proceeded on the premise that Bennett lies outside of any northwest region. Its application must fail for failure of proof that a need for hospital beds to serve residents of its service area will exist in 1987 which cannot be met by underused beds nearby.
With its provision for "minimal care" beds, the Bennett proposal would meet a need the other proposals would not meet, a need which, however, was not proven to exist. With 30 "minimal care" hospital beds, Broward County would have 37 percent of the national supply and only a fraction of one percent of the national population. Bennett failed to prove either that Broward County needed
30 "minimal care" hospital beds or that there was any impediment to staffing some of its existing idle beds on that basis.
COMPARATIVE MERIT
The Health Facilities and Health Services Planning Act, Section
381.494 et seq., Florida Statutes (1982 Supp.) has been characterized as creating a regulatory mechanism designed "to contain the high and rising cost of health care." Bio-Medical Applications of Clearwater, Inc. v. Department of Health and Rehabilitative Services, Office of Community Medical Facilities, 370 So.2d 19, 20 (Fla. 2d DCA 1979)(reh. den.). The two principal criteria set forth in Section 381.494(6)(c)(11), Florida Statutes (1982 Supp.) relate to the costs of providing health services and to enhancement of competition. HCA now has a monopoly on hospital services available within NW-HCA. Apart from the beneficial effects of competition generally, there have been threats of antitrust litigation in the event HCA adds still more beds in the area.
As to "costs and methods of the proposed construction," Section 381.494(6)(c)(12), Florida Statutes (1982 Supp.), the proposals to add beds in northwest Broward rank from lowest cost per bed to highest, as follows: University expansion, NWBRMC at 250 beds, Humana's proposed CRGH and NBHD's proposed hospital. The difference in construction cost per bed between the new hospital proposals put forward by Humana and NBHD is less than one percent, while the NWBRMC construction costs per bed would be significantly lower. The proposed expansions would entail dramatically lower construction costs per bed, which accounts in part for HRS' policy favoring expansion of existing facilities over building new hospitals, in the absence of other overriding factors. Here, such other factors do exist.
If the need for additional beds in northwest Broward County in 1987 were only 173, the expansion of University by 73 beds and the building of NWBRMC at 250 beds might be cost effective. But 200 more beds are needed. In order to meet that need, a new non-replacement hospital must be built. Per bed construction costs for CRGH would be essentially identical to those projected for a new hospital built by NBHD but, because NBHD can pay for construction, in part, with the proceeds of tax exempt bonds and on account of the other factors set out above, the highly "probable impact. . .on the costs of providing health services," Section 381.494(6)(c)(11), Florida Statutes (1982 Supp.), would be
that hospital care would be significantly more expensive at CRGH than at a new NBHD hospital. In addition, 50 beds would have to be added to HCA's University or NWBRMC. Historically, hospital care at HCA's Broward facilities has also been more expensive than at NBHD hospitals.
Although all proposals for new hospitals in northwest Broward County contemplate obstetrical services, only NBHD showed that it would be able to incorporate an obstetric service into an ongoing program for training physicians to be obstetricians. A community hospital in a suburban setting could complement the exposure that a big downtown hospital with its neonatology unit affords. Two separate obstetric services in northwest Broward County would constitute unnecessary duplication.
With the exception of the NBHD program for training physicians in obstetrics, none of the proposals were significantly better than the others, judged against the criteria set forth in Section 381.494(6)(c)(4), (5), (6) and
(7) Florida Statutes (1982 Supp.) and in light of the parties' stipulations. The criteria set forth in Section 381.494(6)(c)(1), (2) and (8), Florida Statutes (1982 Supp.) set out minimum requirements of need and financial
feasibility for any proposal, and do not lend themselves to determining which of the competing proposals should be selected, except that the hospital proposed by NBHD would be more "economically accessible."
University showed a need for expansion on an "institution-specific" basis, but this does not amount to a showing of entitlement to a CON. It is one thing to look at regions within a health service area separately, but quite another to look at existing institutions and proposals for new institutions within the same geographic area as if they were unrelated. This would be antithetical to the whole purpose of the CON law. University did not prove "emergency circumstances which pose a threat to the public's health." Section 381.494(6)(c)(1), Florida Statutes (1982 Supp.). If HCA's proposals for meeting the need for hospital beds in northwest Broward County in 1987 should be implemented, substantially more people would have to leave NW-HCA then for hospital care than do so now. HCA can hardly be heard to say, therefore, that the present situation amounts to an emergency. There is every reason to believe that the administration at University is committed to the public health and safety, and will advise medical staff of occupancy levels to the end that seasonal overcrowding can be avoided by the same expedient HCA proposes for 1987: Diverting residents of NW-HCA to underused beds nearby, including those at Margate, also owned by HCA.
HCA produced an employee who testified that good public policy requires that government be the "provider of last resort" of hospital care, but nothing in Chapter 381, Florida Statutes (1981and 1982 Supp.) evinces any such policy; and the special law establishing the NBHD definitively enunciates a public policy that the NBHD devote its tax revenues to the provision of hospital care for residents of the District.
It is accordingly, RECOMMENDED:
That HRS dismiss Lifemark as a party to these proceedings.
That HRS grant NBHD's application for a CON to build a 200-bed hospital, in its entirety.
That HRS grant HCA's application to build NWBRMC but only at 150 beds and without an obstetric service; and that HCA be authorized to expend to that end $25,969,403.00, less an appropriate adjustment for the lack of an obstetric service.
That HRS deny the application for a CON to build a new hospital filed by South Broward Hospital District in its entirety.
That HRS deny the application for a CON to build a new hospital filed by Humedicenter, Inc. d/b/a Coral Ridge General Hospital in its entirety.
That HRS deny University Community Hospital's application for a CON to add beds there in its entirety.
That HRS deny the application for a CON to add beds filed by Humana of Florida, Inc. d/b/a Bennett Community Hospital, in its entirety.
DONE and RECOMMENDED this 12th day of April, 1983, in Tallahassee, Florida.
ROBERT T. BENTON II
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 12th day of April, 1983.
ENDNOTES
1/ See Rule 10-5.08, Florida Administrative Code.
2/ Lifemark intervened after the prehearing stipulation was entered into but has been deemed bound by the prehearing stipulation.
3/ As a condition of a CON for this new hospital, Humana is willing to delicense 75 beds at it's Community Hospital in southeastern Broward County. Unlike closing down Margate, however, delicensing 75 beds at Community was not shown to be likely to reduce either hospital expenses or hospital revenue.
Delicensure (and possibly relicensure in the future) might mean more, not less, expense in the form of legal and other fees.
4/ The parties agreed that 20 to 24 obstetric beds are needed in the northwest. 5/ There is an error in arithmetic in the chart at HRS Exhibit No. 1, p. 34.
6/ There was much discussion about the amount of indebtedness incurred by HCA in acquiring HAI that should be allocated to Margate but the cost of closing Margate, i.e. the difference between Margate's value and what could be generated by disposing of it, is the pertinent figure, as far as "total project cost" is concerned.
7/ In the course of the hearing, HCA and Humana offered to provide for indigents even in "non-emergent" circumstances, if their hospitals would be reimbursed at charges, putting them on an equal footing with NBHD financially, as regards indigent care.
8/ The parties stipulated:
The applicants and HRS Thy agree that the proposed new sites for NWBRMC, NBHD, and SBHD are appropriate and that the selection of these sites is not a comparative issue in this proceeding. The applicants and HRS may agree that Humana has the ability to acquire an appropriate site in the proposed service area for its Coral Ridge project. Such agreement has not yet been reached.
Pembroke Pines does not join in this stipulation.
9/ The stipulation stated: The position of HRS as to all projects is that position reflected in the State Agency Action Report and the grants and denials contained therein.
10/ Agency rules can confer party status on persons who might not qualify as "substantially interested," Section 120.52(10)(b), Florida Statutes (1981), but cannot, consistently with Section 120.52(10)(a), Florida Statutes (1981), exclude substantially interested persons as parties. See also Section 120.54(10), Florida Statutes (1981) and Rules 28-5.111(1), 28-5.201(3)(a) and 28-5.207, Florida Administrative Code.
COPIES FURNISHED:
Jon C. Moyle, Esquire and Thomas A. Sheehan, III, Esquire Moyle, Jones & Flanigan, P.A. Post Office Box 3888
707 North Flagler Drive
West Palm Beach, Florida 33402
Peter J. Nickles, Esquire Covington & Hurling
1201 Pennsylvania Avenue Post Office Box 7566 Washington, D.C. 20044
James M. Barclay, Esquire Department of HRS Building 2, Room 220
1317 Winewood Boulevard
Tallahassee, Florida 32301
John E. Parker, Jr., Esquire and
J. Marbury Rainer, Esquire Parker, Hudson & Rainer
2120 Harris Tower, Suite 2120
Atlanta, Georgia 30303
William Zei, Esquire Gibbs & Zei
224 Southeast 9th Street
Ft. Lauderdale, Florida 33316
E. G. Boone, Esquire and Richard L. Whitton, Esquire Post Office Box 1596 Venice, Florida 33595
Loyd M. Starrett, Esquire and Martha B. Sosman, Esquire Foley, Hoag & Eliot
One Post Office Square Boston, Massachusetts 02109
Clarke Walden, Esquire Walden, Walden & McCauley
255 Dania Beach Boulevard Dania, Florida 33304
Byron B. Mathews, Jr., Esquire McDermott, Will & Emery
700 Brickell Avenue
Miami, Florida 33131
Brian S. Hucker, Esquire McDermott, Will & Emery
111 West Monroe Street Chicago, Illinois 60603
John W. Puffer, III, Esquire, and James B. Murphy, Jr., Esquire
Shackleford, Farrior, Stallings & Evans Post Office Box 3324
Tampa, Florida 33601
John H. French, Jr., Esquire and James C. Hauser, Esquire
Messer, Rhodes & Vickers Post Office Box 1876 Tallahassee, Florida 32302
Alicia Jacobs, Esquire Department of HRS
1323 Winewood Boulevard
Tallahassee, Florida 32301
David Pingree, Secretary Department of HRS
1323 Winewood Boulevard
Tallahassee, Florida 32301
| Issue Date | Proceedings |
|---|---|
| May 31, 1983 | Final Order filed. |
| Apr. 12, 1983 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| May 27, 1983 | Agency Final Order | |
| Apr. 12, 1983 | Recommended Order | Competing health care providers vie for Certificates of Need (CONs) in an already overbuilt county. Recommended Order: grant some CONs, but not all, based on projected need in Broward County. |
