Judges: K. N. AYERS
Agency: Agency for Health Care Administration
Latest Update: Jun. 19, 1985
Summary: Need for additional outpatient surgical facility not proved.
84-1151STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SURGICARE III, Sponsor of ) Surgicare Outpatient of Tampa, )
)
Petitioner, )
)
vs. ) CASE NO. 84-1151
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent. )
and )
) HUMHOSCO, INC., d/b/a HUMANA ) HOSPITAL BRANDON, )
)
Intervenor. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Services, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on March 18-19, 1985, at Tampa, Florida.
APPEARANCES
For Petitioner: R. Terry Rigsby, Esquire
Catherine Peek McEwen, Esquire
401 South Florida Avenue Tampa, Florida 33602
For Respondent: David P. Gauldin, Esquire
Assistant General Counsel Department of Health and
Rehabilitative Services 1323 Winewood Boulevard
Building 1, Suite 406
Tallahassee, Florida 32301
For Intervenor: James C. Hauser, Esquire
John Lovett, Esquire Post Office Box 1876
Tallahassee, Florida 32302
By Petition for Formal Hearing dated March 16, 1984, Surgicare III, Sponsor of Surgicare Outpatient Center of Tampa (Petitioner or Surgicare), contests the denial by the Department of Health and Rehabilitative Services (Respondent or DHRS) of its application to construct and operate a free-standing outpatient surgical center in Hillsborough County, Florida. By this application, Petitioner seeks to construct a free-standing ambulatory surgery center
containing approximately 10,000 square feet of floor space and three operating rooms equipped for surgery under local and general anesthesia at a cost of approximately 1.94 million.
At the beginning of the hearing the parties stipulated that need, financial feasibility of project, effect of proposal on cost of providing health services, and accessibility to all residents in the area are the only issues remaining in this case. All other requirements as enumerated in Section 381.494(6)(c), Florida Statutes, have been met by Petitioner or are not applicable in this case. Thereafter, Petitioner called six witnesses, Respondent called one witness, and 14 exhibits were admitted into evidence. Objection to Exhibit 3 was sustained by the Hearing Officer. Intervenors did not participate in examination of witnesses and, at the close of the testimony on March 18, 1985, withdrew as a party.
The only real issue contested in these proceedings is the need and consequent financial feasibility of the project.
Proposed findings submitted by the parties, to the extent incorporated herein, are adopted; otherwise, they are rejected as not supported by the evidence, cumulative, immaterial, or unnecessary to the conclusions reached.
FINDINGS OF FACT
Surgicare III is a Florida general partnership comprised of Surgicare Corporation, a wholly owned subsidiary of Medical International, Inc. (MCI) and Surgicare III of Jacksonville, Inc., a Florida corporation. MCI is the nation's largest provider of ambulatory surgical centers operating 34 such centers throughout the United States. MCI will manage the proposed facility under a management contract. The proposed facility will be financed 25 percent equity and 75 percent debt. Petitioner is financially capable of constructing and operating the proposed facility.
While Surgicare had not finalized its site selection at the time of the hearing, it proposes to construct the facility in or near Brandon, with the primary service area to comprise Hillsborough County east of U.S. 301. Exhibit
15 is a unilateral prehearing stipulation by Surgicare to construct the facility in the above-described service area if the requested certificate is granted.
There are many advantages of outpatient surgery in a freestanding facility over inpatient surgery and over outpatient surgery in an inpatient environment such as an acute-care hospital, of which cost is significant. Without belaboring the issue, it is accepted as a fact that many surgical procedures requiring general anesthesia and taking from a few minutes up to six hours can be performed in an outpatient setting where the patient goes home following the surgery and does not remain in the hospital overnight. Most, if not all, of these outpatient surgeries are elective and freestanding outpatient surgical centers are less costly to the patient, more convenient to the patient and to the surgeon, and provide a better environment for the patient than do most hospital outpatient facilities. Furthermore, the advent of freestanding outpatient surgical facilities has provided competition to hospitals which has resulted in lowering of hospital charges for outpatient surgery.
Hillsborough County comprises one service area which includes 13 hospitals and one existing ambulatory surgery center, and a certificate of need has been issued to Surgical Services of Tampa to provide additional outpatient surgical facilities. DHRS has no rule methodology to determine need for
additional ambulatory surgical facilities; however, a methodology has been established as a policy under which need for ambulatory surgery centers is determined. This policy has been in effect for an extended period of time; and, with two exceptions, is accepted by Petitioner as the proper method from a health planner's view to determine the need for additional outpatient surgical facilities. These exceptions are the percentage of surgeries expected to be performed in an outpatient setting during the second year of operation of the proposed facility and calculations of need based on a subdivided county.
This methodology takes the latest available information for hospitals in the service area as to the number of surgeries, both inpatient and outpatient, performed in each hospital during this latest available period which, in this case, was calendar year 1984. The number of surgeries performed in Hillsborough County divided by the population of Hillsborough County will result in a surgical rate. Since the year in which Petitioner is expected to pass through the break-even point and show a profit is 1989, the population is projected to 1989 and multiplied by the surgical rate to determine the number of surgeries projected for 1989. Those 13 hospitals in 1984 performed 52,482 inpatient surgical procedures and 20,152 outpatient surgical procedures (a total of 72,834) when the Hillsborough County population was 715,435. Using these figures, the surgical rate of Hillsborough County in 1984 is 72,634/715,315 x 1,000 = 101.5 procedures per 1,000 population; the outpatient surgical rate is
24.5 per 1,000; and the Ambulatory Surgery Center is 3.7 per 1,000 (Exhibit 12).
With a 1989 population projection of 757,309 in Hillsborough County, the outpatient surgeries performed in hospitals in 1989 will be 24.5 x 787,309/1,000 = 19,289 and Tampa Ambulatory Surgery Center surgeries will be 2,913 (3.7 x 787,309/1,000) or a total of 22,202 outpatient surgeries performed at existing facilities plus an additional 2,222 outpatient procedures to be performed at Surgical Services of Tampa, which will be fully operational at that time.
The disputed percentage is the expected percentage of total surgeries which will be performed on an outpatient basis in 1989. Petitioner contends this figure should be 34, while Respondent contends 30 to be the correct percentage. Both parties attempt to extrapolate outpatient surgery percentage provided by the American Hospital Association. In certificate of need hearings involving freestanding ambulatory centers in 1984, DHRS used a figure of 29 percent, which was the mean of 18 percent and 40 percent, the former being the number of outpatient surgical procedures performed in 1981 and the high figure the AMA's estimate of the ultimate percentage of surgical procedures that could be performed in an outpatient setting. Since 1981 the percentage of surgeries performed in an outpatient setting has increased. In 1984 the percentage of total surgeries in Hillsborough County that were performed in an outpatient setting was 27.74 percent.
Freestanding outpatient surgical facilities are a recent innovation in the health care provider field. Due to the lower costs associated with outpatient surgical procedures over inpatient surgical procedures, the advent of freestanding outpatient surgical centers has brought much needed competition to the health care provider field and has induced hospitals to provide for outpatient surgery and lower their charges for the use of these facilities. As a result the percentage of surgeries performed in an outpatient setting has grown rapidly in recent years, perhaps at an exponential rate. However, this growth is not unlimited and, as the percentage curves of outpatient surgeries versus total surgeries approaches this limit, the curve flattens. Today nearly all ophthalmic procedures are performed in an outpatient setting; there will be
little further percentage growth in that field. Petitioner's contention that outpatient surgeries will increase percentage-wise at the same rapid pace they have increased during the past few years and be at 34 percent in Hillsborough County in 1989 is less credible than is the figure of 30 percent used by Respondent.
A proliferation of freestanding outpatient surgical facilities will have the effect of increasing the costs to those patients whose surgery, now done in a doctor's or dentist's office, is shifted to a freestanding outpatient facility. As noted by one of Petitioner's witnesses in these proceedings, his malpractice insurance could be reduced if he performed in an outpatient surgical facility those operations he is currently performing in his office. Obviously, the patient so affected would be charged for the services of an anesthesiologist and other outpatient surgical facility services for which he is not charged when the office surgery is performed.
Petitioner further supports the need for this facility by proposing to serve the eastern half of Hillsborough County, which will comprise its service area. Of the 13 hospitals in Hillsborough County, only three are located east of U.S. 301 and none of these has dedicated outpatient operating rooms. There are no official census figures or projections therefrom showing the population of the eastern portion of Hillsborough County in 1984 and DHRS does not so divide Hillsborough County for health care planning purposes. The county is one service area and Petitioner's attempt to subdivide the eastern portion into a sub-area is inconsistent with statewide procedures.
Multiplying the surgical rate in Hillsborough County of 101.5 per 1,000 population by the 1989 projected population of 787,309 equals 79,912 surgeries to be performed in 1989. If 30 percent of these are performed in an outpatient setting, the outpatient surgeries will be 23,974. The Hillsborough County hospital outpatient surgeries projected to 1989 are 19,289 and those outpatient surgeries to be performed at Tampa Ambulatory Surgery Center are 2,913. Adding these latter figures results in 22,202 outpatient surgical procedures to be performed in existing facilities. Altogether 2,222 outpatient surgical procedures are projected to be performed at Surgical Services of Tampa. Thus, by 1989 existing and approved facilities will perform 24,424 outpatient procedures and the projected need is 23,974. This results in an excess capacity or negative need of 450 outpatient surgical procedures in Hillsborough County for 1989.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and subject matter of, these proceedings.
Those criteria which the parties stipulated to be relevant to this proceeding, as referenced in the State Agency Action Report (Exhibit 1), are items C.1.c., C.1.i.(4), C.1.j.(1), C.1.j.(2), C.1.m., and C.1.p. These criteria are:
C.1.c. The need that the population served, or to served, has for the health or hospice ser- vices proposed to be offered or changed, and
the extent to which all residents of the district, and in particular low income persons, other underserved groups and the elderly, are likely to have access to these services. (Rule 10-5.11(3)(a), Florida Administrative Code.)
C.1.i.(4). The extent to which the proposed services will be accessible to all residents of the service district.
(Section 381.494(6)(c)8, Florida Statutes.)
C.1.j.(1). The immediate and long-term financial feasi- bility of the proposal.
(Section 381.494(6)(c)9, Florida Statutes.)
C.1.j.(2). The probable effect of the proposal on the costs of and charges for providing health services by the person proposing the service. (Section 381.494(6)(c)12, Florida Statutes.)
C.1.m. 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 serve to promote quality assurance and cost effectiveness.
(Section 381.494(6)(c)12, Florida Statutes.)
C.1.p. The availability of less costly or more effective alternative methods of providing the services to be offered, expanded, reduced, relocated or eliminated.
(Section 351.494(6)(c)4, Florida Statutes.)
Applying the above facts to these criteria, the ultimate conclusion must be that there is no demonstrated need for the proposed facility. If no need exists, it follows that the proposed facility is not economically feasible and, if it is operated, would have an adverse economic impact on existing providers. The advantage of accessibility to be gained by those living in the service area is not sufficient to overcome the adverse effect approval would have on existing providers and overall costs. This is especially so since most outpatient surgeries are elective procedures for which time and travel distances are not factors considered as they are for access to acute-care hospital beds.
From the foregoing it is concluded that Petitioner has failed to establish a need for the proposed facility or to show that the figure of 30 percent of those surgeries performed in 1989 will be performed in an outpatient setting is not a reasonable expectation. It is
RECOMMENDED that the application of Surgicare III to establish a freestanding outpatient surgical facility in Hillsborough County be denied.
ENTERED this 26th day of April, 1985, at Tallahassee, Florida.
K.N. AYERS 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 26th day of April, 1985.
COPIES FURNISHED:
Ryland Terry Rigsby, Esquire Catherine Peek McEwen, Esquire
401 South Florida Avenue Tampa, Florida 33602
David P. Gauldin, Esquire Department of Health and
Rehabilitative Services 1323 Winewood Boulevard
Building 1, Suite 406
Tallahassee, Florida 32301
James C. Hauser, Esquire John Lovett, Esquire Post Office Box 1876
Tallahassee, Florida 32302
David H. Pingree, Secretary Department of Health and
Rehabilitative Services 1321 Winewood Boulevard
Tallahassee, Florida 32301
Docket for Case No: 84-001151
Orders for Case No: 84-001151
