STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TAMPA SURGI CENTRE, INC. ) d/b/a AMBULATORY SURGERY CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 83-472

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on September 19 - 21, 1983, in Tampa, Florida. The issue for determination in this proceeding is whether Surgical Services of Tampa, Inc. is entitled to a Certificate of Need to construct and operate a new freestanding ambulatory surgery center with four operating rooms to be located in Tampa, Florida.

APPEARANCES

For Petitioner: F. Phillip Blank and

Robert A. Weiss, Esquires

241 East Virginia Street Tallahassee, Florida 32301

For Respondent: Claire D. Dryfuss, Esquire

Assistant General Counsel 1323 Winewood Boulevard

Tallahassee, Florida 32301

For Intervenor: Fred W. Baggett and

Michael J. Cherniga, Esquires

181 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32314

INTRODUCTION

Surgical Services of Tampa, Inc. (SST) applied for a Certificate of Need to construct a four operating room freestanding ambulatory surgery center in Tampa, Florida. On December 29, 1982, the Department of Health and Rehabilitative Services (HRS) gave notice of its intent to issue the Certificate. Tampa Surgi Centre, Inc. d/b/a Ambulatory Surgery Center (ASC), an existing similar facility in Tampa, requested an administrative hearing on the issuance of the Certificate of Need to SST.

In support of its application, SST presented the testimony of Randall M. Phillips; Robert Antin; Stephen Miller; Louis Spidalette, who is accepted as an expert witness in the fields of health care facility financial planning, financial feasibility, financial analysis, financial systems and reimbursement; Richard O. Moore, who is accepted as an expert in the fields of human resource management and employee compensation in health care; Wayne Deschambeau, who is accepted as an expert witness in the field of health care services marketing; Dr. Wallace Harold Ring, who is accepted as an expert in the field of the development and operation of freestanding ambulatory surgical centers; and Ann Zuvekas, who is accepted as an expert witness in the field of health planning as it relates to ambulatory surgical facilities. SST's Exhibits 1 through 8 were received into evidence.

HRS presented the testimony of Ed Carter and Thomas F. Porter, both of whom were accepted as expert witnesses in the field of health care planning.

The petitioner ASC presented the testimony of Barbara Grinnell, Isaac Mallah, Steven Winkler, Linda O'Brien, David Klein, Larry Cyment, Edward L. Perrine, and Elton Scott, who was accepted as an expert witness in the fields of health care financial analysis, health care economics, and health care reimbursement. Petitioner's Exhibits 1 through 6 were received into evidence.

A motion to reopen the hearing to allow the proffer of the expert testimony of Edward Perrine was denied on December 2, 1983. Subsequent thereto, the parties filed proposed findings of fact and proposed conclusions of law. To the extent that the parties' proposed findings of fact are not incorporated herein, they are rejected as being either not supported by competent substantial evidence adduced at the hearing, irrelevant or immaterial to the issues in dispute or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. Surgical Services of Tampa, Inc. (SST) is a wholly owned subsidiary of Surgical Services, Inc., (SSI) located in Orlando, Florida. Eighty percent of SSI is owned by American Medical International, Inc. (AMI), the third largest health care provider in the United States. The remaining twenty percent ownership of SSI is held by Randall M. Phillips, who also serves as the president of SST. AMI owns and operates some 70 acute care hospitals in the United States and abroad, a nursing home and 7 or 8 ambulatory surgery centers around the country. Two of these centers are located in Florida, one in Clearwater and one in Tallahassee, and SSI has the responsibility for these centers. SSI also holds several Certificates of Need for other free standing ambulatory surgery centers to be constructed in Florida.

   
   

2. AMI has made a commitment to provide financial support for the total development of the applicant's proposed ambulatory surgery facility in Tampa. This support includes the purchase of the land, construction of the building, equipping the facility and working capital. The financing is to be in the form of a fifty percent equity contribution and a 28-year loan at 12 percent interest to SST for the remaining funds. AMI has sufficient financial resources to fulfill its commitment to the proposed project.

   
   

3. The total projected cost for the proposed facility is $2,240,800.00. The parties have stipulated that the proposed costs associated with

   construction, equipment and land acquisition and preparation are reasonable. The parties have also stipulated that the proposed staffing pattern is adequate and that the applicant SST will have the ability to adequately staff the proposed facility.

   
   

4. While SST had not made a firm site selection at the time of the hearing, it has plans to locate its facility somewhere near the vicinity of St. Joseph's Hospital and the Human Women's Hospital in Tampa, Florida. Its service area includes all of Hillsborough County. The center will consist of four operating rooms or surgical suites, and laboratory, x-ray and administrative areas for a total of 15,000 square feet. SST plans to handle all types of surgical procedures which can be performed on an outpatient basis. Its medical staff will be open to all doctors qualified to perform the types of surgeries that can be accomplished on an ambulatory, outpatient basis. The facility will admit any patient a surgeon schedules for surgery, and will accept Medicare and Medicaid patients. SST plans to invoke an aggressive marketing effort to inform and educate consumers, insurance companies, employers, physicians and other health care facilities in the market area as to the benefits and cost- effectiveness of using its facility to perform surgery on an outpatient basis. It has budgeted some $20,000.00 to effect such a marketing program.

   Professional accreditation with the Joint Commission on Accreditation of Hospitals will be sought after the proposed facility completes its first year of operation.

   
   

5. Based upon a 15 percent Medicare utilization or patient mix and using the lowest Medicare reimbursement level and a projected number of procedures of 2,234 and 2,681 for the first and second years of operation, SST projects that it will have a loss of $17,426 in its first year of operation and a profit of

   $22,173 in its second year of operation. Using the highest payment level in the amount of contractual allowances, SST's pro forma statement shows a net income in both years of $689 and $41,444, respectively. The projected Medicare utilization percentage of 15 percent was not demonstrated to be erroneous and approximates the Medicare mix experienced at the petitioner's ASC facility in the preceding year. The projection of 2,234 procedures to be performed in the first year of operation was derived by estimating the number of potential ambulatory surgeries in the proposed service area (approximately 30 percent of all surgeries) and subtracting therefrom the number currently being performed in hospitals (approximately 15 percent), leaving a projected unmet caseload of 2,234. The salary projections, which were adjusted for inflation under the assumption that the proposed facility would begin operations in August of 1984, appear to be reasonable and adequate.

   
   

6. In the 1981-82 reporting period, approximately 58,000 total surgical procedures were reported in Hillsborough County. Of this number, approximately

   82 percent were performed on an inpatient basis, while 18 percent were performed on an outpatient basis. The literature on the subject, as well as some other states, predicts that between 28 percent and 48 percent of all surgeries could be performed in ambulatory settings. In Salt Lake City, Utah, 38.2 percent of all surgeries are performed on an outpatient basis. A wider acceptance on the part of patients, consumers and physicians of the concept of performing surgery on an outpatient basis, as well as changes in third party reimbursement (including the new Medicare reimbursement system of payment based on diagnostic related groupings as opposed to lengths of hospital stay), should result in the performance of an increased percentage of surgeries on an outpatient basis.

   
   

7. The applicant's expert ambulatory surgical facilities health planner utilized four different methodologies to evaluate the need for additional

   ambulatory surgery facilities in Tampa. The first methodology utilized was use rate-based and took into account population and historical surgery utilization data. Using the assumption that 30 percent of all surgeries performed can be performed in an ambulatory setting, projecting the number of surgeries expected in 1984 and subtracting the number performed on an outpatient basis in the last reporting period (1981-82), it was determined that the remaining unmet need in 1984 would be 8,226 ambulatory surgeries, and the respective figures for 1985 and 1986 would he 8,596 and 8,955. A flaw in this methodology is the assumption that existing facilities will not increase their usage of outpatient surgical procedures. The second methodology is also use rate-based, but predicts an increased performance of outpatient procedures by existing facilities, said increase approximating the percentage of population growth, assumes a 30 percent to 40 percent outpatient to inpatient ratio and produces a range of unmet need in 1984 of 7,586 to 13,753, in 1985 of 7,737 to 14,028, and in 1986 of 7,885 to 14,295. The third method is a use rate and capacity-based methodology. It also uses the 30 percent to 40 percent range as the potential ambulatory surgery market and then designates a number of dedicated operating rooms which would be appropriate to fill that need. Assuming that an average capacity is 1,200 procedures per room per year and that all current ambulatory surgeries are performed in dedicated ambulatory surgery suites, and then dividing that capacity figure into the number of expected ambulatory surgeries in 1984, the required number of dedicated operating rooms ranges from 16 to 21 in 1984 and 1985 and from 17 to 22 in 1986. Assuming 9 current dedicated ambulatory surgery operating rooms, the net need is determined as a range from 7 to 12 additional dedicated rooms in 1984 and 1985 and from 8 to 13 in 1986. The fourth methodology is similar to the first, but is based on patient day utilization.

   It uses a 30 percent outpatient to inpatient ratio, and yields an unmet need, after subtracting current procedures performed at existing facilities, of 8,221 procedures in 1984, 8,591 in 1985 and 8,950 in 1986. Each of the methodologies results in a sufficient number of outpatient surgical procedures to support the applicant's proposed surgery center.

   
   

8. The respondent HRS has no promulgated rule prescribing the methodology to be utilized to determine the need for additional ambulatory surgical centers in an area. Its non-rule methodology, utilizes a use rate per 1,000 population for a given year, applies that to a projected population two and three years into the future and then multiplies that figure by 29 percent. The 29 percent represents a midrange between 18 percent and 40 percent, the range suggested by the literature as representing the percentage of total surgeries that can be performed on an ambulatory basis. Taking into account the existing outpatient use rate being experienced, the projected population and the projected number of outpatient procedures which will be provided by existing facilities, a total number of outpatient procedures that could be performed by an applicant is produced. The Department also considers the number of procedures an applicant would have to perform in order to break even financially in its second year of operation. This methodology relates need to financial feasibility, but does not consider capacity or optimum utilization factors. In this case, the use of HRS's methodology results in a total figure of 7,569 outpatient procedures that need to be provided in 1986 beyond those that would be provided by the existing outpatient facilities of the area hospitals. The HRS calculations do not consider those procedures being performed at the petitioner's ASC facility. HRS calculated that SST would have to perform 2,463 procedures by the year 1986 in order to break even financially, and therefore that there were a significant number of procedures available to support the need for an additional ambulatory surgery facility.

9. Existing hospitals in Hillsborough County currently perform surgery on an outpatient basis. As indicated above, some 18 percent of all surgeries, or 10,276 procedures, were reported as outpatient in the 1981-82 reporting period by Hillsborough County facilities, including the petitioner. With the exception of the petitioner's four dedicated operating rooms and two more at an area hospital, the remaining existing operating rooms are not used exclusively for outpatient surgeries, but are available for such surgery. Many existing hospitals are currently in the process of expanding their outpatient services. These expansion efforts generally involve new pre-admission, pre-operative and recovery room beds and reception areas for ambulatory surgical patients, and not new dedicated operating rooms for outpatients. Among those receiving recent Certificates of Need to expand their outpatient services are Tampa General Hospital, St. Joseph's Hospital, Brandon Community Hospital and Humana's Women's Hospital. University Community Hospital is also active in the performance of outpatient surgical procedures.

   
   

10. Depending upon the sufficiency and efficiency of management and staff, a freestanding ambulatory surgery center offers some advantages over outpatient surgery performed in a hospital operating room utilized for both inpatients and outpatients. The freestanding facility may have staff surgeons and anesthesiologists with specialized outpatient surgery training. Total overhead costs are likely to be less, thus resulting in reduced patient costs. Since the operating room staff effort is continually focused on outpatient surgery only, management problems may be reduced, thus making the experience more pleasant for the patient, his family and the surgeon. Patients will experience less waiting times as there will not be as many emergencies as in a hospital setting or as much "bumping" of an elective surgery outpatient in an ambulatory center. If properly and efficiently managed, there may be less danger of cross-infection in the freestanding facility.

    
    

11. The petitioner ASC is a freestanding facility built in 1979 and located adjacent to the University of South Florida in Tampa. It occupies 14,350 square feet, has four operating rooms, a special procedures room, several examination rooms, 12 recovery beds, 8 pre- and post-operative beds, waiting rooms and administrative and business office areas. Staff privileges are held by 157 surgeons from the Tampa area. At the time of the hearing, 15 more surgeons had applied for staff privileges. Its total caseload for the first eleven months of operation was 257. Cases performed in 1980 increased to 420. In 1981 and 1982, ASC performed 1,172 and 1,217 procedures, respectively. For the first seven months of 1983, 1,191 procedures were performed, for a utilization rate of approximately 25 percent. ASC has no formal, regular budgeted marketing program. It has received accreditation from the Joint Commission on Accreditation of Hospitals.

    
    

    CONCLUSIONS OF LAW

    
    

12. The criteria applicable to and determinative of Surgical Services of Tampa's application for a Certificate of Need are set forth in Section 381.494(6)(c), Florida Statutes, and Rule 10-5.11, Florida Administrative Code. The prime criteria in dispute in this proceeding are the actual need for an ambulatory surgical center in Hillsborough County; the availability, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing health care services in the service area and the financial feasibility of the proposed project.

    
    

13. An applicant for a Certificate of Need has the burden of demonstrating that it meets each of the applicable criteria for issuance of a Certificate or,

    at least, that special circumstances exist to justify an exception therefrom. Here, the applicant has illustrated that there will be a sufficient number of outpatient surgeries performed in Hillsborough County to justify an additional facility which will provide the capability to perform ambulatory surgery.

    Whether the methodology utilized to determine the potential market for outpatient surgery includes a 40 percent, 30 percent, 29 percent or even an 18 percent ratio of outpatient to inpatient surgeries, there will be a need in the next two years for additional ambulatory surgical services in Hillsborough County. Whether or not the existing hospitals in the area are able and willing to fill that need was not established in this proceeding. With the exception of St. Joseph's Hospital, none of the remaining hospitals have, nor are they presently seeking to have, operating rooms dedicated exclusively to ambulatory surgical patients. While many of the existing facilities are expanding and increasing their outpatient services and capabilities in other manners, none of those institutions formally opposed SST's application nor was any evidence produced to the effect that their facilities were capable of handling the potential unmet need for ambulatory surgery.

    
    

14. The only challenger to the new proposed facility was the existing ASC which, during the first seven months of 1983, was operating at approximately 25 percent of its present capacity. Assuming that the unmet need in 1986 is between 7,569, as calculated by HRS, and 8,955, as calculated by the SST, ASC would be unable to absorb that need at its present facility. ASC offered no methodology of its own to predict future need. It simply speculates that, whatever that future need may be, it, along with the existing hospitals in the area, will be able to fill that need.

    
    

15. The applicant has demonstrated that a freestanding ambulatory surgery center is an alternative, less costly and often more effective method of providing one-day or outpatient surgery as compared to a hospital-based surgical suite which serves both inpatients and outpatients. It has been shown that SST has the capability to provide quality care in a financially feasible manner. Even if the proposed facility is able to fulfill only 20 percent or 25 percent of the projected need in the county, it is capable of breaking even financially by the end of its second year of operation.

    
    

16. In summary, it is concluded that the applicant has adequately demonstrated its ability to fulfill the applicable criteria for a Certificate of Need to construct and operate a new ambulatory surgery center in Hillsborough County. Having met this initial burden, the burden then shifted to the petitioner ASC to demonstrate a lack of compliance with the statutory or regulatory criteria on the part of the applicant. Petitioner failed to sustain this burden. In fact, its own experience is demonstrative of the fact that a freestanding facility is capable of capturing a large percentage, in relationship to its potential capacity, of the market share of ambulatory surgical procedures, thereby lending support to the projections of the applicant.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that HRS issue a Certificate of Need to Surgical Services of Tampa, Inc. to construct and operate a freestanding, four operating room ambulatory surgery center in Hillsborough County.

Respectfully submitted and entered this 22nd day of March, 1984, in Tallahassee, Florida.

DIANE D. TREMOR, 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 22nd day of March, 1984.

COPIES FURNISHED:

F. Phillip Blank and

Robert A. Weiss, Esquires

241 East Virginia Street Tallahassee, Florida 32301

Claire D. Dryfuss, Esquire Assistant General Counsel 1323 Winewood Blvd.

Tallahassee, Florida 32301

Fred W. Baggett and

Michael J. Cherniga, Esquires

101 East College Avenue

P.O. Drawer 1838 Tallahassee, Florida 32301

David Pingree Secretary

Department of Health

and Rehabilitative Services 1323 Winewood Blvd.

Tallahassee, Florida 32301

Docket for Case No: 83-000472

Orders for Case No: 83-000472