STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SOUTHEASTERN MEDICAL CENTER ) and AMERICAN MEDICAL INTER- ) NATIONAL, INC., )
)
Petitioners, )
)
v. ) CASE NO. 84-2941
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent )
and )
)
HUMANA INC. d/b/a HUMANA ) HOSPITAL BISCAYNE, CEDARS ) MEDICAL CENTER and MT. SINAI ) MEDICAL CENTER, )
)
Intervenors. )
)
RECOMMENDED ORDER
This case was heard on March 19 through 21, 1986, by R. L. Caleen, Jr., Hearing Officer with the Division of Administrative Hearings. The parties were represented by counsel.
APPEARANCES
For Petitioner: Robert S. Cohen Esquire
Post Office Box 669 Tallahassee Florida 32302
For Respondent: David P. Gauldin, Esquire 1/
1323 Winewood Boulevard
Building 1, Room 407
Tallahassee Florida 32301
For Intervenors:
Humanana Inc. d/b/a James C. Hauser, Esquire Humana Hospital Post Office Box 1876 Biscayne Tallahassee, Florida 32302
St. Francis Paul T. Dee, Esquire
Hospital 4500 Southeast Financial Center
200 South Biscayne Boulevard Miami, Florida 33131-2387
Cedars Medical Center Howard Hochman Esquire
3700 Southeast Financial Center
200 South Biscayne Boulevard Miami, Florida 33131-2359
Mt. Sinai Medical Bryon B. Mathews Jr., Esquire Center Michael T. Roumell, Esquire
Monroe Park Tower, Suite 1090
101 North Monroe Street Tallahassee, Florida 32301
ISSUE
Whether Petitioners, Southeastern Medical Center and American Medical International, Inc., are entitled to a Certificate of Need to establish a cardiac catheterization laboratory at their osteopathic hospital in Dade County, Florida.
INTRODUCTION
On August 9, 1984, Petitioners, Southeastern Medical Center ("Southeastern") and American Medical International, Inc. ("American"), filed a petition for hearing with Respondent, Department of Health and Rehabilitative Services ("DHRS"), challenging the preliminary denial of their application for a Certiticate of Need ("CON"). Petitioners sought authorization to establish a cardiac catheterization laboratory and an "open heart" surgery program in North Miami Beach, Florida. DHRS timely referred this case to the Division of Administrative Hearings for assignment of a hearing officer.
Hearing was initially set for February 5 and 6, 1985, continued several times without opposition, and ultimately reset for March 19 through 21, 1986, in Miami, Florida.
At the outset of hearing; St. Francis Hospital voluntarily dismissed its petition and withdrew as a party.
Prior to hearing, four parties intervened in opposition to Petitioners' CON application and in support of DHRS' preliminary denial: Humana, Inc. d/b/a Humana Hospital Biscayne (Humana"), St. Francis Hospital ("St. Francis"), Cedars Medical Center ("Cedars"), and Mt. Sinai Medical Center ("Mt. Sina i"). St.
Francis subsequently voluntarily dismissed its petition and was dropped as a party.
At hearing, Southeastern presented the testimony of Arnold Melnick, Neal Natkow, Jeffrey Rosenberg, and Vincent McKee; Humana, the testimony of Neils Vernegaard, Richard A. Baehr and Larry Hudson; DHRS, the testimony of Herbert E. Straughn; Cedars, the testimony of William R. Harris; and Mt. Sinai, the testimony of Frank J. Hildner, James M. Campbell, David Spivack and Stephen Smith. Petitioners' Exhibit Nos. 1 through 7, Humana's Exhibit Nos. 1 through 9, Mt. Sinai's Exhibit Nos. 1 through 8, Cedars' Exhibit No. 1, and DHRS' Exhibit Nos. 1 through 3, together with a Prehearing Stipulation were received in evidence. 3/
By order entered April 7, 1986, Mt. Sinai was awarded attorneys' fees and other expenses (totaling $286.27) incurred in obtaining a prior order compelling discovery against Southeastern.
The transcript of hearing was filed on April 15, l966. 4/ The parties, as agreed filed proposed findings of fact, conclusions of law, and replies, by July 18, 1986. Rulings on the proposed findings are contained in the attached Appendix.
Based on the evidence adduced at hearing, the following facts are determined:
FINDINGS OF FACT
Background
In March 1984, Southeastern submitted to DHRS an application for a CON to establish a cardiac catheterization laboratory ("cath lab") and an "open- heart" or cardiac surgical program at its osteopathic hospital in North Miami Beach, Dade County, Florida. DHRS preliminarily denied the applications following which Southeastern initiated this proceeding.
During the discovery phase of this proceeding and at the hearing, Southeastern announced that it no longer sought a CON for a cardiac surgical program, as originally requested, but rather sought only a cardiac cath lab. However, Southeastern never formally revised its CON application to request only a cardiac cath lab, nor did it ever submit an application to DHRS for a determination solely on the issue of the need for a cardiac cath lab. (Stip.para.A)
Southeastern is a 224-bed acute care osteopathic hospital located in North Miami Beach, Florida. Its medical staff is composed of both osteopathic and allopathic physicians. (Mt. Sinai Ex.8, Stip.para.E(I))
Intervenor Humana is a 458-bed general acute care medical center located in northeast Dade County which provides cardiac cath services. Intervenor Cedars also provides cardiac cath services at its acute care hospital in Miami. Intervenor Mt. Sinai is a 669-bed teaching hospital in Miami Beach, which has been providing cardiac cath services since 1955.
Southeastern and all intervening parties are located in Dade County, Florida, which is designated as DHRS Service District XI. (Stip.para.E)
The term "cardiac catheterization" refers to the "insertion of a catheter (a long, narrow, flexible tube) through a blood vessal into the heart. This technique makes it possible to explore within the heart to find out precisely how well the heart and coronary arteries are working, and even, in some cases, to treat disease." (Mt. Sinai Ex.4) Catheterization allows a test known as coronary angiography which by injecting a substance through the tube, displays coronary arteries on X-rays. It also allows a therapeutic procedure known as coronary angio-plasty by which coronary arteries are widened, and blood flow to the heart improved, using a balloon-tipped catbeterobviating the need for bypass surgery. (Tr.420; Mt. Sinai Ex.4, 5)
Cath labs have become highly specialized in recent years, dealing only with intensive, invasive diagnostic and therapeutic procedures. Minor procedures such as temporary pacemakers are no longer performed in most cath labs. (Tr.424)
Need for Cardiac Cath Lab
There are 13 approved and existing adult cardiac cath labs located in
10 hospitals in District XI. Under the need formula contained in Rule 10- 5.11(15), Florida Administrative Coded there is a need for only 11 adult cardiac cath labs in District XI for the year 1988. No need for an additional adult cardiac cath lab is indicated by the need formula; a surplus of two cath labs is shown for the year 1988. (Tr.357-358; Humana Ex.3, Stip.para.E)
Under the formula, no additional adult cardiac cath lab should be established in District XI unless and until the average number of cath procedures by existing labs is greater than 600. (Rule 10-5.11(15)(0), F.A.C.)
Approval of the new cath lab sought by Southeastern would create an annual average of 451 procedures per unit, or 25 percent below the standard of 600. Even with 13 existing units, the projected volume per unit for 1988 is 485 procedures or 20 percent below the standard.
Ninety percent of the population in District XI is within two hours driving time of a cardiac cath lab, and no geographic accessibility problem for District XI residents to cardiac cath services has been shown. (Tr.359; Humana Ex.3)
A stated objective of the 1985-86 Florida Health Plan is to maintain an average of 600 cath procedures per lab in each district through 1990. Establishment of a new cath lab at Southeastern would be inconsistent with this state objective. (The District XI Local Health Plan does not address criteria for new cardiac cath programs.)(Tr.360; Humana Ex.3)
Under the need formula contained in Rule 10-5.11(15), as conceded by Southeastern, an additional cardiac cath lab in District XI is not needed.
Staffing/Utilization of Cath Lab
Southeastern's medical staff consists of approximately 110 osteopathic and from 50 to 60 allopathic physicians. (Tr.87-88; Mt. Sinai Ex. 8)
Dr. Kenneth McGrath is the only "osteopathic" physician on the medical staff of Southeastern, and in Dade County, with training in cardiac cath procedures. He does not, however, currently perform cardiac cath procedures. The only other staff member at Southeastern trained in the procedure is an allopathic physician. (Tr.98, 109, Southeastern Ex.5)
All but two of the seven or eight cardiologists on staff at Southeastern are allopathic physicians. (Tr.I17)
Although Dr. McGrath attended an osteopathic medical school, he is board certified by the Allopathic American College of Cardiology, and is licensed as an M.D. pursuant to Chapter 458, Florida Statutes, rather than as a
D.O. under Chapter 459, Florida Statutes. (Southeastern Ex.5, Tr. 119)
The financial viability of the proposed cardiac cath lab and the quality of care provided will depend, to a large extent, on Dr. McGrath, as Southeastern does not intend to recruit any new staff members. (Tr. 172, 228)
Dr. McGrath does not intend to alter his current practice in order to perform cardiac caths and in any event, he would need additional training before performing them. (Southeastern Ex.6)
Neal Natkow, Southeastern's medical director, has no knowledge of how many caths could be performed by Dr. McGrath on an annual basis or whether he would even be granted privileges at Southeastern to perform the procedures. (Tr.112-113)
Southeastern has formulated no credentialing process to accept or reject physicians for performing cardiac caths at its proposed facility. (Tr.112-113)
Southeastern proposes to staff the proposed cardiac cath lab with a medical director and two full-time equivalent ("FTE's") employees. (An FTE is a person who works eight hours a day, 40 hours a week.)(Tr.145-146, 210)
However a minimum of three FTE's are necessary to assist a physician performing catb procedures. Ordinarily, there are at least three people in the room during the procedure. (Tr.428, 519, Southeastern Ex.5)
Cath procedures are performed in a sterile environment, similar to an operating room. By use of a fluoroscope, catheters are placed into the patient's circulatory system to record the heart and blood vessel functions. Pressures and resistances are obtained and recorded by measurement techniques utilizing various tubes. Blood is withdrawn and dye is injected into the patient. Angiography displays blood vessels and heart chambers on X-ray film. To record an image of the arteries in the heart a procedure referred to as "Cine angiography" is utilized. A registered nurse, an x-ray technologist, and a cardiovascular technologist are required to assist the physician in administering these procedures. (Tr.425-427)
Southeastern currently does not have the personnel necessary to staff a cath lab and recruitment outside the hospital would be necessary if the lab were approved. (Mt.Sinai Ex.3)
If, as proposed, the cardiac cath lab is placed in the radiology department of Southeastern it is unlikely that a radiology tech could perform in the cath lab without first obtaining specialized knowledge and training. In the experience of Mt. Sinai's cardiac cath expert, radiology techs tend to resist cross-training in other disciplines. (Tr.454)
It is difficult to retain cardiac cath personnel and offer competitive salaries because competition for cath services is so great. Recruitment of
part-time technicians trained in cardiac cathis even more difficult because most are looking for full-time work. (Tr.398, 513)
In comparison with other hospitals offering cardiac cath seryyces in District XI, Southeastern's proposed cath lab would be understaffed. For examples the cath lab at Cedars is staffed with a chief technologist, three registered nurses, five cardiac cath technicians and two aides. (Tr.397)
Mt. Sinai has 11 full time equivalents operating two cath labs. Each lab has three technicians (a registered nurse, a technical assistant, and a chief technologist) and a secretary. There are four full-time equivalents working in each lab. (Tr.513, 515)
In projecting utilization for the proposed cath labs Southeastern relies on the 1982 "Friesen Study" (a strategic plan update developed for Southeastern) and an informal "polling" of Southeastern physicians to estimate the number of cardiac cath patients they refer to other hospitals annually, including hospitals in Broward County. The number of referrals determined from such "polling" did not match the number of procedures projected by the "Friesen Study." (Tr. 174, 193, 195, 222-223, Humana Ex.2)
The Friesen study projects 100, 230, and 270 cath procedures in years one, two and three, respectively; it does not project 300 procedures until the fourth year of operation. However, Southeastern's CON application and its revised pro forma projects 100 procedures in year one, 230 in year two and 300 in year three. This discrepancy was not adequately explained. (Southeastern Ex. 1 and 3; Tr.261-262)
Southeastern's health care administration expert does not know whether certain cardiac catb procedures would be performed at Southeastern, including therapeutic cardiac caths, balloon angioplasties, and streptokinase. (Tr.175- 177)
Southeastern is a community hospital as opposed to a regional referral center. (Tr.217)
Southeastern's medical director has no firsthand knowledge of where Southeastern's osteopathic physicians refer their patients for cardiac caths or the number of referrals on an annual basis. (Tr.93-96)
Mt. Sinai has received only four or five cath referrals from Southeastern physicians over the past two or three years. (Tr.518)
Open Heart Surgical Back-Up
Life-threatening emergencies can occur before and during cardiac cath procedures. A patient may experience an acute myocardial infraction or heart attack. Immediate open heart surgery may be required. (Tr.440)
Life-threatening problems are more likely to occur in connection with angioplasty than diagnostic catheterization. It is the accepted norm in the United States and abroad never to perform an angioplasty unless back-up surgical procedures are available in the same hospital. Angioplasty is normally not performed if back-up surgery is not available. (Tr.443-445)
Angioplasties, a cost-effective method for treating coronary disease, are a valuable function of a catbeterization lab and are performed regularly. For example, Mt. Sinai performed at least 150 in 1985. (Tr.444-448)
Southeastern has no written referral agreement with any hospital providing open heart surgery as a back-up for its proposed cath lab and did not provide DHRS with a written referral agreement at the time of it filed CON application. (Tr.149)
As of the date of hearings Southeastern was in the process of negotiating such a referral agreement with North Ridge Hospitals in Broward County. However, even under optimum conditions, it could require at least an hour to obtain an ambulance and complete a transfer between the two facilities. Such a delay could endanger the lives of patients. (Tr.441-42)
At Mt. Sinai and other facilities which operate both cardia cath labs and open heart surgery facilities, patients can be transferred and emergency open heart surgery performed within approximately one-half hour. (Tr.442)
A cath lab with back-up surgical capabilities "under the same roof" offers the maximum in patient care. National health care standards state that no cath lab should be approved without open heart surgery capabilities at the same institution. DHRS CON rules also require that the availability of open heart back-up be taken into account in reviewing applications for cardiac cath labs. Without an open heart surgery program at Southeastern certain types of cath procedures could not be administered safely. (TR.534-535; see, e.g., Rule 10-5.11(15)(i)(5), F.A.C., Southeastern Ex.5)
Costs and Financial Feasibility
Project construction costs for the facility have varied. At hearing, Southeastern proposed to locate the lab in its radiology department at a renovation cost of approximately $76,000. Its original CON application projected construction costs for both the cath lab and an open heart facility at approximately $85,000. Its subsequent "omission response Ietter" to DHRS projected renovation costs of $30,888.00. (Southeastern Ex.1, 2; Table 6; Tr.143-44, 209, 210)
Southeastern also changed cost projections for equipment from its original CON application. (Tr.206-208 Southeastern Ex. 1,4)
Southeastern's CON application projected $765,000 for implementation of a catheterization lab and an open heart surgical facility, with a staff of 16 full-time equivalents. At hearings Southeastern projected over $1,000,000 for only the cardiac cath lab with a staff of two full-time equivalents. (Southeastern Ex.1; Tr.213)
The difference variation between the cost projections in the application and those offered at hearing were substantial and not adequately explained. Further, Southeastern never amended its CON application to reflect the substantial revisions in the scope and cost of its proposed project.
In determining the net revenue for Southeastern's revised pro formal Southeastern calculated a "contractual allowance based on the Medicare reimbursement levels for DRG 124 and 125 at North Ridge Hospitals but failed to take into account other DRGs involving cardiovascular disease. (TR.246-247, 253, Southeastern Ex. 3)
A "DRG" or "diagnostic related group" is a term used to identify certain illnesses or groups of diseases. DRGs are categorized with a numerical identification. There are 12 to 13 major DRGs for cardiovascular disease. DRG
124 is a cardiac disorder with a complex diagnosis including catheterization procedures. DRG 125 is similar, but does not include a complex diagnosis. (Tr.479 252-253)
Hospitals in Dade County do not receive the same reimbursement rate for the same DRGs. More costly medical facilities have a higher contractual allowance. (TR.303)
In its CON application, Southeastern assumed no contractual allowance. (Tr.202; Southeastern Ex.1)
Southeastern's reliance on a historical percentage for the Medicare contractual allowance to project future income for the proposed cath lab was unreasonable because of certain limitations in the payment rate as a result of the Gramm Rudman Acts and a gradual elimination of the "capital cost passthrough." Because of these factors, it is likely that Medicare payment rates in future years will decrease.
The term "capital cost pass-through" refers to the current Medicare procedure for reimbursing hospitals for interest and depreciation attributable to their capital expenditures. This reimbursement for capital cost is in addition to the DRG reimbursement and is computed by taking a percentage of the hospital's total capital expenditures which represents the ratio of Medicare revenue compared to total revenue. In the future, however, Medicare proposes to eliminate the capital cost passthrough. Hospitals would be reimbursed for capital cost based on the ratio of capital costs to operational costs according to the average experience of hospitals throughout the nation. This change in capital cost reimbursement would have the effect of increasing the Medicare contractual allowance and decreasing the net income for Southeastern's proposed cath lab. (Tr.556)
Southeastern's pro formas assume no contractual allowances for HMO patients or Blue Cross/Blue Shield and preferred patient care program. The pro formas also do not reflect the hospital's current 3.4 percent overall deduction from gross revenue for courtesy and policy discounts. (Tr.281)
Southeastern's health care administration expert testified that Medicaid patients account for 4 to 4.5 percent of South- eastern's payor mix. However, the payor mix for years 1983 through 1985 establish that Medicaid gross revenues were at 3.2 percent in 1983 and decreased to 2.9 percent in 1985. (Tr.155, 169; Humana Ex. 1)
Southeastern is unable to project the number of cardiac cath patients, if any, which would result from a proposed Medicaid contract with the State of Florida. (Tr.158)
Southeastern's revised pro forma understates uncollectible receivables or "bad debt" as 1 percent of gross revenue based on what Southeastern's financial expert deemed to be the "actual experience" of the hospital. Southeastern's amended 1986 budget filing with the Hospital Cost Containment Board ("HCCB") reported bad debt for the hospital overall at 4 percent of gross revenue. (Tr.263-264; Tr.263, 547, Southeastern Ex.3)
Southeastern's revised pro forma estimated net revenue for the cath lab alone by subtracting 24 percent from gross revenue, representing contractual allowances bad debt and policy discounts. The hospital's overall experience, however, has been that these deductions are approximately 35 percent of gross revenue. (Southeastern Ex.3 Tr.265-266)
Southeastern's original pro forma projects depreciation on equipment for the cath lab over 10 years with no calculation for depreciation of building renovation costs. Southeastern's revised pro forma depreciates equipment over 7 years and renovation costs over 10 years. (Mt. Sinai Ex.2 Southeastern Ex.3, Tr.269-270)
Southeastern's original pro forma estimates the interest expense on equipment as $64,740 in years one, two and three. However, Southeastern's revised pro forma reduces interest expenses over the three year period from
$60,919 in the first year to $44,000 in year three. (Mt. Sinai Ex.2; Southeastern Ex.3 Tr.270-271)
Southeastern's original pro forma calculated fixed expenses for "utility maintenance, etc." at $37,000 in year one, $38,480 in year two, and
$40,019 in year three. Southeastern's revised pro forma now shows these expenses to be between $6,300 and $6,800 for each year, effectively increasing net revenue in far comparison to original projections. (Mt. Sinai Ex.2; Southeastern Ex.3; Tr.272-273)
The full impact of maintenance costs would occur in the second and third year of a cath lab's operation because most items are under warranty in the first year. (Tr. 554)
Mt. Sinai's revised projections of fixed expenses for "utilities, maintenance, etc." are understated on the revised pro forma. A maintenance contract for cath lab equipment or an inhouse maintenance department would cost substantially more than the amount stated in Southeastern's revised pro forma. the figures contained in Southeastern's original pro formal estimating from
$37,000 to $40,000 per year in maintenance and supply expenses, are more reasonable. (Tr.552; Mt. Sinai Ex.2)
Southeastern's revised pro forma also underestimates costs for supplies. The original pro forma, application, estimated supplies and film costs of $500 per procedure, based upon AMI's actual experience. The revised pro forma estimates $400 per procedure for supply costs. If the original amount of $500 had been used in the revised pro formal the result would be an increase in expenses and decrease in net revenue of approxi mately $10,OOO in the first year, escalating at $100 per procedure during the ensuing two years. (Tr.552- 553, Southeastern Ex. 1)
Salary expenses are also significantly understated in Southeastern's revised pro forma because they are based on only two full time equivalents. The minimum acceptable staffing level for a cardiac cath lab is four full time equivalents. Because salaries are understated Southeastern's estimated fringe benefits (e.g., vacation, sick and holiday expense) calculated as a percentage of salaries are also understated. Such understatements would increase the total direct expenses and decrease the net income, increasing total actual losses for the cath lab. (Tr.550-551, 212-213, 267; Southeastern Ex.3)
Southeastern's revised pro forma fails to include expenses for cath lab staff recruiting, personnel turnover rates or training of new personnel. Training expenses can be significant. For example, Cedars spends approximately
$6,000 to $7,000 over a three or four month period to properly train cardiac cath personnel. (Tr.305, 398-399)
Southeastern normally estimates such variable costs for the hospital overall at approximately 50 percent of total costs. However Southeastern's revised pro formal without adequate explanations estimates variable costs at only about 31 percent of total cost.
Southeastern's pro forma also does not account for all direct expenses that should be allocable to the projected 100 cath patients in the first year of operation. Additional supply and variable costs generated by the hospital dietary department, bouseeping additional diagnostic tests, and other support services which would be required to care for the patient, are not reflected.
Southeastern's revised pro forma shows an unusually large profit margin on operations, when compared to other hospitals in the industry. Fixed expenses for hospital operations alone are not shown and direct or variable expenses are low. In year one, there is a margin before taxes in excess of
$500,000 ($681,159 minus $166,217). Thus, the profit margin on operations, for the hospital is in excess of 75 percent. (Southeastern Ex.3, Tr.364-365)
Southeastern's revised pro forma understates indigent care tax. The indigent care tax is 1.5 percent of "net patient revenue," not income before taxes which is net patient revenue minus operational expenses. The Florida indigent tax is calculated by multiplying 1.5 percent times net patient service revenue (i.e., gross revenue minus contractual al1owance bad debts and other revenue deductions). This 1.5 percent is computed before operational expenses are subtracted from net patient service revenue. If the tax were properly calculated Southeastern's revised pro forma would show a greater loss. (Southeastern Ex.3, Tr.553, 560)
Southeastern's projection of "spin-off revenue" for the hospital as a whole is not reliable. Net revenue for the hospital does not reflect the specific treatment profile of a cardiac cath patient. If an estimated 100 patients were to stay at Southeastern for cardiac cath, there would be no additional revenue for initial diagnostic work or the first few days of stay in the hospital. The only incremental revenue would be the cath procedure itself, any related tests, and an additional few days of post-operative stay at the facility. Consequently, Southeastern's revised pro forma substantially overstates the spin off revenue to the hospital as a whole particularly in the first year of operation of the cath lab. (Tr.557-559)
Moreover spin-off revenue from cath procedures was calculated on the assumption that such procedures would be performed on "new" patients. However because Southeastern currently treats patients with cardiovascular disease but transfers them to other facilities for catheterizations, the proposed cath lab would service existing patients as well as "new" patients. Southeastern's incremental analysis of the hospital's "spin-off revenue" is inaccurate because it overlooks this fact. (Tr.274-275, 307)
Southeastern's original pro forma submitted with its CON application estimated spin-off revenue to be approximately $195,000. Southeastern's revised pro forma estimates spin off revenue to be over $514,000, a figure which has not been shown to be reliable. (Southeastern Ex.1, 3, Tr.289)
Additionally, Southeastern experienced sharply declining utilizations between 1981 and 1984. Admissions declined by at least 2 percent and patient days declined approximately 15 percent during that period. (Tr. 133,360, Humana Ex.3)
Southeastern's 1986 budget filed with the HCCB projected total operating expenses per 100 admissions at $526,000. However, Southeastern's revised pro forma estimates total hospital operating expenses per 100 admissions to be $166,217. This discrepancy was not adequately explained. (Southeastern Ex.3; Tr.300-301)
The HCCB is a state agency created in 1979 to monitor and control hospital operations. Its primary function is to collect and disseminate information to the public concerning hospitals in the state and regu1ate within parameters, their financial performance.
Florida hospitals are required to file a prospective budget no more than 90 days in advance of the beginning of their fiscal year. The budget is reviewed by the HCCB for ultimate approval. Each hospital is placed into one of ten acute care groups based on hospital characteristics such as geographic index case mix index number of Medicare patients served and average daily census. (Tr.465)
Gross revenue per adjusted admission is determined for all hospitals within a particular group for comparison. If a hospital is in the lower 50th percentile of its group, its budget is approved automatically by statute. If the hospital gross revenue per adjusted admission is between the 50th and 80th percentile it is viewed within the maximum percentage, but still approved automatically. However, if a hospital is in the upper 20th percentile its budget is subject to a mandatory detailed review. (Tr.466)
The "case mix index" is an index to determine the level of services a hospital provides. A hospital with a numeric designation of 1 is "average" in terms of the mix of services provided. If a number below 1 is assigned, then the level of service is below average. (Tr.466)
Southeastern's 1986 HCCB budget establishes that it is in the upper 20 percent of its peer group in four out of five categories. Southeastern was determined by the HCCB to be the most expensive hospital in the State of Florida. (Tr.468-470, 472; Humana Ex.4)
Comparing Southeastern to other hospitals which perform cardiac cath procedures in District XI including Mt. Sinai, Humana and Cedars, Southeastern has the second highest gross revenue per adjusted admission in Dade County. (Tr.474; Humana Ex.6, 6)
Miami Heart is more expensive than Southeastern only because Miami Heart's case mix index is high for 1986. Southeastern on the other hands has the lowest case mix index of the group. Gross revenues per adjusted admissions are not adjusted for case mix index. If an adjustment is made for case mix, Southeastern is the most expensive hospital in the group, not Miami Heart.
All hospitals in Floride are required to submit DRG information in summary form to the HCCB. DRGs 121, 122, 127 and 140 cover cardiovascular disease with treatment which does not include cardiac cath or open heart surgery. When Southeastern's revenue is compared to revenue of other hospitals in Dade County which provide similar cardiovascular services (excluding open heart or cardiac cath) Southeastern had the highest average charge per case for each DRG. (Tr.480-482; Humana Ex.7)
DRGs 124 and 125 involve cardiac cath procedures. Southeastern's projected gross revenue for DRG 124 in fiscal year 1986-87, reflects that it would have the highest average charge per case of all other hospitals in Dade County performing such procedures. Similarly, Southeastern's projected gross revenue rate for DRG 125 for fiscal year 1986-87 (estimated to be $8,219) would be the most expensive. (Humana Ex.8, Tr.483-484)
Hospital budgets filed with the HCCB are reasonable indicators of financial operation and performance. Penalties are imposed if a hospital files inaccurate information. (Tr.549)
Southeastern's revised pro forma establishes that the proposed cath lab would generate a net loss of $106,093 in year one; $48,846 in year two; and
$26,103 in year three. Before taxes, this loss would be $184,765 in year one,
$79,252 in year two, and $36,434 in year three. However there is reasonable likelihood that Southeastern's loss from the prooosed cath lab over a three year period will be substantially greater than shown on the revised pro forma. (Tr.273, 244, 546-547, Southeastern Ex. 3)
Southeastern's revised pro forma is incomplete and inaccurate. It substantially overestimates net income, and is not a reliable indicator of the financial feasibility of the proposed cath lab. The financial feasibility of the proposal both short and long term, has not been demonstrated.
Education and Training for Osteopathic Students
Notwithstanding the absence of need based on applicable state and federal rule criteria, Southeastern asserts that the cath lab should be approved because it will advance the training and education of osteopathic medical students. (Tr. 10; Stip.para.B(1))
Southeastern currently permits students from the nearby Southeastern College of Osteopathic Medicine ("SECDM" ) with which it is affiliated to rotate through certain hospital departments. However Southeastern has no written agreement with SECDM for the training or education of SECOM medical students. There was no evidence that SECOM and Southeastern have a written or even verbal agreement to train or "expose" SECOM students to catheterization should the lab be approved.
SECOM students are currently assigned to rotations at several allopathic facilities including Parkway Hospital and Mt. Sinai. At Mt. Sinai, students are assigned to rotations in obstetrics and pediatrics. SECOM has approximately 30 rotation contracts with various allopathic and osteopathic hospitals (Tr.42-43, 35)
SECOM students are enrolled in a four-year program culminating in a degree of doctor of osteopathy. Students spend the first 2 1/2 years in the classroom, and the next 17 months in clinical settings. The first 5 months of clinical training, known to as "core rotations," involve the basic sciences (e.g., medicines surgery, general practice, psychiatry and pediatrics) The next
12 months of rotations include internal medicines obstetrics and geriatrics. SECOM's dean expects that "exposure" to catheterizations would occur when students were placed on an internal medicine rotation. (Tr.18, 63, 64)
SECOM's dean expects that (if the cath lab is approved) his students would merely learn "something about the procedure itself without minute detail because they are not going to engage in doing that" and they would not be required to interpret any tests associated with cath procedures. He does not expect his students to be trained in cardiac catheterization nor does he expect them to be handling catheters. (Tr.29, 65-66)
Specifically, Southeastern asserts that the cath lab is needed to promote "well rounded" physicians and to allow students to observe a patient's "pain" during the procedure. (Tr.27, 65)
However there is little educational value in observing a cardiac cath to establish the degree of pain to the patient. Pain is not a major consideration; in fact, there is no significant pain to the patient during a cath procedure. The procedure is totally painless after the skin is numbed for cath insertion. (Tr.445-446)
Ninety percent of all allopathic physicians have never witnessed an actual cath procedure. Current medical training normally does not expose students or residents in internal medicine to invasive procedures such as cardiac cath. Although students must learn about catheterizations during medical school, such information is supplied in classroom lectures and in textbooks. Actual observation of cath procedures has not been shown to be necessary. (Tr.450, 438-439)
The current education received by students at SECOM is not considered by its dean to be incomplete "in any way whatsoever." (Tr.67)
SECOM's dean does not know how much time an osteopathic medical student would actually spend in a cath lab at Southeastern. For example, if there are no cath patients during a student's clinical rotation, the student would observe no catheterizations. In contrast, 40 cath patients would be "too heavy" of an exposure for a one month rotation and under such circumstances, he would not even place students because "it's too much emphasis on that." (Tr.59, 60)
If a cardiac cath lab were approved, Southeastern would not design any curriculum or program for osteopathic students to study cardiac caths and the lab would not be used to teach substantive procedural skills. Postgraduate interns would not focus on cath procedures. (Tr.118, 104-105)
Southeastern also has no plans to implement a fellowship in cardiology, which includes cardiac cath training. A fellowship program in cardiology would be prerequisite to an osteopathic physician having sufficient training and education to perform cardiac caths. A high volume of procedures is necessary for proper training. (Tr.106-107, 120-121)
There are no residency programs in cardiac cath in the medical profession. Physicians must apply for a cardiology "fellowship" in cardiac catheterization after completion of a residency and internship. A medical school graduate who aspires to become proficient in cardiac catheterization would have to complete a one-year internship program, a residency in internal medicine, a residency in cardiology, and a fellowship in cardiac cath. This educational process requires an additional five or six years of study after graduation from medical school. (Tr.37 38, 50, 52, 417)
Medical procedures for performing cardiac caths are the same regardless of whether they are performed by a medical doctor or a doctor of osteopathy. (Tr.54; Southeastern Ex.5, 6)
Cardiac cath procedures are considered to be "allopathic" rather than "osteopathic" medical procedures because they do not involve manipulative therapy of the musculoskeletal system or principles associated with osteopathic medicine. (Tr.72)
"Manipulative therapy" is a diagnostic approach emphasizing the muscles bones and joints. It is performed with the osteopathic physician's
hands and no special equipment or apparatus is necessary. In fact, the therapy can be performed on an outpatient or inpatient basis and a hospital setting is not even required. (Southeastern Ex.5)
Mt. Sinai and SECOM have a written agreement for the training of SECOM students in pediatrics obstetrics and emergency room services. Mt. Sinai would be willing to allow SECDM students to observe cardiac cath procedures performed at Mt. Sinai. SECOM need only ask. (Tr.439, 533, 534, 537, Mt. Sinai Ex.7)
SECOM could also pursue affiliations with other hospitals in the community to meet its perceived need to expose students to cardiac cath services. For examp1e SECOM, medical students currently do a rotation in pediatrics at Miami Children's Hospitals where pediatric catheterizations are currently being performed. (Tr.77-78 449, 534)
SECOM has also never contacted any personnel from Humana to request that SECOM students be permitted to observe cath procedures performed at that facility. (Tr.337-338)
Southeastern's medical director (who is also the director of education) did not request that Southeastern file a CON application for a cath lab for "educational" purposes. In fact, at hearing he was unaware that the major intent of the CON application was for the training of medical students. (Tr.122, 103)
Southeastern budgeted no funds for research educational expenses, or tuition revenues in its amended 1986 budget filed with the HCCB. (Tr.504; Humana Ex.8)
The HCCB has designated only five hospitals in Florida as teaching hospitals; Southeastern is not one of them. (Tr.489)
. Impact on Intervenors
The establishment of a cath lab at Southeastern will have an adverse impact on existing facilities providing cath services in District XI. (Humana Ex.3, Tr.361)
An additional cath lab would not increase the number of people seeking the procedure in Dade County. (Southeastern Ex.5)
Existing facilities providing cath services in District XI are currently not operating at designated utilization levels and their volume of procedures would be diminished if Southeastern's cath lab were approved.
For example, Humana's cath lab opened in October, 1985, performing only 75 catheterizations in a five month period or an average of 180 procedures per year. Humana does not yet approach the level of 600 cardiac cath procedures per year. (Tr.334, 335)
Osteopathic physicians currently refer cardiac cath patients to Humana, including referrals from Dr. Kenneth McGrath, the cardiologist on staff at Southeastern. If a cardiac cath lab was established at Southeastern, Humana would lose a number of these referrals. (Tr.336)
If a cath lab is opened at Southeastern, several allopathic physicians may begin performing cath procedures at that facility, further decreasing the number of referrals and cath procedures at Humana. (Tr.336, 349- 350)
The opening of a cath lab at Southeastern would adversely affect Humane financially and make it more difficult for Humane to achieve the optimum level of 600 cath procedures per year. (Tr.365)
Approximately 35 percent of Cedars' cath patients originate from Dade County. Cedars would be competing with Southeastern for catheterization services if the proposed lab is approved. Currently Cedars' cath lab is underutilized and could handle an additional 40 to 60 cath procedures per month. (Tr.401, 402)
There are approximately 100 to 150 physicians who refer patients to Mt. Sinai's cath lab. The primary referral area is Dade County. (Tr.435, 449)
Mt. Sinai has two cath labs with a maximum capacity of six cases per day per labs totaling 3,000 cases per year. There will be a decrease in cath procedures at Mt. Sinai in 1986 because additional labs have opened in Broward County decreasing the number of referrals from that area. (Tr.511)
The approval of Southeastern's proposed cath lab would negatively impact Mt. Sinai in that it would reduce the number of cath procedures performed at that hospital, which may adversely affect the quality of those procedures. (Tr.528-529)
The cath labs at Mt. Sinai, currently functioning at one half capacity, should be able to handle at least an additional 100 procedures in 1987, 230 in 1988, and 300 in 1989. (Tr.535)
A decrease in the number of cath procedures at Mt. Sinai would increase costs per procedure and impede cost efficiency. The higher the volume of cath procedures, the lower the costs per procedures creating a more cost effective cath lab. For example, the actual figures for Mt. Sinai's cath labs in 1983, 1984 and 1985 were as follows:
Expenses | #Procedures | Costs Per Procedure | |
1983 | $ 923,147 | 1,143 | $808.00 |
1984 | 1,084,160 | 1,376 | 788.00 |
1985 | 1,090,387 | 1,420 | 668.00 |
A reduction in the number of cath procedures at Mt. Sinai also may negatively impact the quality of the procedures and the training of physicians. It is generally accepted that a minimum number of cath procedures are needed to maintain a physician's skills. In order to maintain proficiency a physician should perform at least 150 catheterizations per year. (Tr.430-433)
Additionally, a prerequisite to membership and fellowship in the Society for Cardiac Angiography is that the physician (1) must have spent greater than 50 percent of his working time (for at least five years after training) in the performance of cardiac catheterization and cardiac angiography; and (2) must have been independently or primarily responsible for performing at least 1,000 procedures after having completed his basic training. (Tr.433-434, Mt. Sinai Ex.6)
H. Other AMI Hospitals
AMI Southeastern's parent corporation, owns four hospitals in Dade County, including Kendall Regional, Parkway, Palmetto General and Southeastern. Kendall Regional has a cath lab. (Tr.122, 529)
In the hospital industry, affiliated hospitals commonly develop referral patterns with one another and interchange services. It is reasonable to expect that if Southeastern opens a cardiac cath lab it would be used by other AMI hospitals. (Tr.541)
The "Friesen Study" relied upon by Southeastern in its CON applications recommended that Southeastern "develop new specialist services and improve specialty referrals-cardiac catheterizations with Parkway (or alone if
D.O. referral base develops in future)." The study also recommended a "jointly sponsored" cardiac cath service between Parkway and Southeastern. (Humana Ex.)
Parkway's CON application for a CON authorizing a cardiac cath lab was denied approximately four years ago. (Tr. 333-335)
AMI is currently marketing a health insurance program in Dade County called Amicare. Such a program would attract patients who will be served by affiliated institutions within the Amicare plan. Preference would be given to AMI hospitals which have the particular service required. (Tr.542, 543)
Mt. Sinai currently receives a significant number of patient referrals from Parkway physicians and a large number of referrals for catheterizations from other hospitals in the northeastern quadrant of Dade County including Southeastern. These referrals would decrease if the proposed cath lab were approved. (Tr.531)
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. Section 120.57(1), Fla. Stat. (1985).
Standing of Intervenors
Mt. Sinai, Cedars and Humana have standing in that they would be substantially affected by the granting of a CON to Southeastern. The proposed cath lab would be in direct competition with them for patients and referrals within District XI, and would draw patients who would otherwise have their procedures performed at one of the three intervening hospitals. These hospitals would suffer an adverse economic impact if the CON were approved. See, Section 381.494, Fla. Stat. (1985); Community Psychiatric Centers, Inc. v. Department of Health and Rehabilitative Services, 474 So.2d 87? (Fla. 1st DCA 1985); NME Hospitals, Inc. v. Department of Health and Rehabilitative Services, So.2d
(Fla. 1st DCA August 20, 1985); Florida Medical Center v. Department of Health and Rehabilitative Services, 484 So.2d 1292, 1294 (Fla. 1st DCA 1986)("Indeed, our opinions have recognized that competing health care facilities within the same service area have the right to intervene as third par- ties.")
Revised Application
At hearings subsequent to its application being deemed complete and initially denied by DHRS, Southeastern submitted numerous and substantial changes. These changes involved project costs, utilization projections, and-- more importantly--the deletion of that part of the application which sought approval for an open heart surgical facility. There is no evidence that these changes were ever submitted to DHRS or subjected to the public notice and free- form review required by Ch. 381, Florida Statutes, and Rule 10-5.08, Florida Administrative Code.
Application fails to Satisfy Criteria for Issuance
An applicant must carry the burden of proving it meets the statutory and rule criteria for issuance of and is entitled to, a CON. Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services,
475 So.2d 260 (Fla. 1st DCA 1985). No single criterion is necessarily determinative. The purpose behind Section 381.493, Florida Statutes (1985), is to provide for a "balanced consideration of all relevant criteria." North Ridge General Hospital, Inc. v. NME Hospitals Inc.a 478 So.2d 1138 (Fla. 1st DCA 1985).
The appropriate weight to be given to each individual criterion contained in the statute regarding CON applications is not fixed, but rather must vary on a case-by-case basis, depending on the facts in each case.
Id. at 1139. Accord, Department of Health and Rehabilitative Services v. Johnson and Johnson Home Health Cared Inc., 447 So.2d 361 (Fla. 1st DCA 1984). CON applications for osteopathic facilities are subject to the same myriad of requirements pertaining to other facilities. Gulf Coast Hospital, Inc. v.
Department of Health and Rehabilitative Services, 424 So.2d 86, 91 (Fla. 1st DCA 1982).
When Southeastern's application is measured against all relevant criteria for issuance, it is concluded that entitlement to the issuance of a CON has not been shown. The application must, therefore, be denied.
There is no need for the proposed cath lab based on the formula contained in Rule 10-5.11(15), Florida Administrative Code.
Rule 10-5.11(15)(i)(5)(a), is not met since Southeastern has not submitted a referral agreement with a facility providing open heart surgery services within 30 minutes travel time. This is a serious omission since it deprives HRS and Intervenors of the opportunity to evaluate the agreement and assure that adequate back-up heart surgery services are available.
Both Rule 10-5.11(15)(i)(4) and federal requirements found in 42
C.F.R. Section 121.208, require that a heart cath lab perform a minimum of 300 procedures within three years of opening to assure economic use of services and quality of service. Southeastern failed to convincingly demonstrate the proposed lab would meet this standard.
Southeastern failed to show the proposed cath lab is needed as part of a training program for osteopathic students or physicians. See, Rule 10-5.11(11), Florida Administrative Code. The need to "expose" SECOM students
to a cath lab, where allopathic--not osteopathic procedures--are performed, was not shown. To the extent such exposure would be beneficial, it can be obtained at cath labs already existing in District XI.
The application is inconsistent with the State Health Plan. See, Section 381.494(6)(c)1., Fla.Stat. (1985).
While Southeastern and AMI may be financially able to construct, equip, and operate the proposed cath lab--and sustain substantial losses--in the short-term, financial feasibility has not been shown. Southeastern's financial pro formas contain errors, unexplained inconsistencies, and questionable assumptions. Section 381.494(6)(c),9., Fla.Stat. (1985).
The proposed lab would adversely impact the cost of providing cardiac cath services in District XI. By drawing procedures away from existing, underutilized cath labs, it is likely that the cost per procedure at those facilities will increase, or not decrease to the extent it would if the proposed lab is denied. Section 381.494(6)(c)12., Fla.Stat. (1985).
The quality of care to be offered by the proposed cath lab has not been shown to be commensurate with the level of care provided by existing cath labs in District XI. See, Section 381.494(6)(c)2., 3., Fla.Stat. (1985). The staffing level would be inadequate, utilization would be less than optimum, and surgery back-up would not be available under the "same roof." Nor has it been shown that it would be available within 30 minutes driving time from Southeastern.
Existing health cath labs within District X1 have not been shown to be unavailable or inaccessible, inadequate, or of low quality. Section 381.494(6)(c)2., Fla.Stat. (1985). The only identified problem is underutilization, a condition which an additional cath lab could only exacerbate.
Based on the foregoing, it is RECOMMENDED:
That Southeastern's application for a cardiac catheterization lab be DENIED.
DONE and ORDERED this 30th day of July 1986, in Tallahassee Florida.
R. L. CALEEN, JR. 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 30th day of July, 1986.
ENDNOTES
1/ HRS is now represented by substitute counsel Lesley Mendelson, with the same address.
2/ At the outset of hearing, St. Francis Hospital voluntarily dismissed its petition and withdrew as a party.
3/ Exhibits will be referred to as "Ex.No. ", preceded by the parties' abbreviated name. References to the Prehearing Stipulations will be designated as "Stip.para. ".
4/ Pages in the transcript will be referred to as "Tr. ".
APPENDEX TO RECOMMENDED ORDER, CASE NO. 84-2941
RULINGS ON SOUTHEASTERN'S PROPOSED FINDINGS OF FACT 1-11. Approved in substance.
12. Rejected for vagueness. 13-14. Adopted.
Modified to reflect that this is the intent of SECOM.
First sentence, rejected as unsupported by the evidence. SECOM has not shown that it has tried to obtain exposure" for its students at existing cath labs. Second sentence, approved.
Approved.
First sentence, approved. Second sentence, rejected as unsupported by a preponderance of the evidence. The need for clinical exposure has not been shown. SECOM's apparent failure to seek exposure at existing heart cath labs belies the asserted
need.
19-22. Approved.
First two sentences, approved but the significance or value of cardiac cath procedures being performed in an osteopathic setting has not been shown, except that it would enhance convenience for some patients since transfer to area allopathic hospitals would no longer be necessary. If this by itself justified a CON, virtually ever acute care hospital would be entitled to its own cath lab. Third sentence, rejected since the importance of such "exposure" and inability to obtain it at existing hospitals has not been shown.
Approved.
Rejected as the reliability of this figure was not shown.
Approved except for the first seven words which were not established by the evidence.
Approved.
Rejected as unproven and speculative.
Rejected as irrelevant and speculative. Neither a transfer agreement with Northridge Hospital nor a
medicaid agreement with DHRS has yet been executed.
Approved but projections of future Medicaid patients are uncertain.
Rejected as unsupported by the evidence. Mr. Rosenberg testified only that Southeastern does not haven and has never had plans to transfer the cardiac cath lab, if approved. (Tr.158)
First sentence, rejected as unsupported by the evidence. A discernible pattern of discrimination against osteopathic cardiologists has not been shown. Second sentence, approved, but his inability to acquire privileges has not been shown to be attributable to his status as an osteopathic physician.
Approved but neither the adequacy of this staffing level nor the feasibility of obtaining assistance from other personnel in the radiology department has been shown.
Rejected as this figure was not shown to be reliable. 35-36. Rejected as simple recitation of testimony. The
projected procedures and net revenues were not established by credible testimony. The pro formas contained errors and mistaken assumptions.
37. Rejected as unsupported by the evidence. The net income figures were based on an incomplete analysis.
38-39. Approved.
40. Rejected as simple recitation of testimony. The number of cardiac cath referrals by the medical staff of Southeastern was based on hearsay and an informal poll lecking in precision.
41-43. Approved.
First sentence, rejected as recitation of testimony. Second sentence, approved to the extent that the exact number of admissions lost and the precise financial impact on Humana were not established.
Rejected as recitation of testimony.
Approved to the extent that Mt. Sinai did not establish the number of procedures lost or the financial impact with exactitude.
Rejected as simple recitation of testimony.
Rejected supra.
Approved insofar as specific evidence on these matters was not presented.
Approved but modified to reflect that only 3 of 500 physicians in its medical staff are doctors of osteopathy and it has not been requested to initiate any training programs for osteopathic students.
RULINGS ON DHRS' PROPOSED FINDINGS OF FACT 1-25. Approved in substance.
26. Modified to reflect a little less than 1200 heart cath procedures could be expected to be reimbursed by Medicaid, annually for the whole State of Florida. DHRS Ex. 2, pg. 12.
27-30. Approved in substance.
PROPOSED FINDINGS OF FACT FILED BY HUMANA INC.
1-87. Adopted in substance.
88. First sentence, rejected as speculative and unproven.
Second sentence, adopted.
89-102. Adopted in substance.
PROPOSED FINDINGS OF FACT FILED BY CEDARS MEDICAL CENTER 1-38. Adopted in substance.
PROPOSED FINDINGS OF FACT FILED BY MT. SINAI 1-164. Adopted in substance.
COPIES FURNISHED:
Byron B. Mathews, Esquire Michael T. Roumell, Esquire
101 N. Monroe St.
Suite 1090, Monroe-Park Tower Tallahassee, Florida 32301
Lesley Mendelson, Esquire Bldg. One, Suite 406
1323 Winewood Blvd.
Tallahassee, Florida 32302
James C. Hauser, Esquire
P. O. Box 1876 Tallahassee, Florida 32302
Robert S. Cohen, Esquire
P. O. Box 669
Tallahassee, Florida 32302
Paul T. Deed, Esquire
4500 Southeast Financial Center
200 S. Biscayne Blvd. Miami, Florida 33131-2387
Howard Hochman Esquire
3700 Southeast Financial Center
200 S. Biscayne Blvd. Miami, Florida 33131-2359
| Issue Date | Proceedings |
|---|---|
| Jul. 30, 1986 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Oct. 06, 1986 | Agency Final Order | |
| Jul. 30, 1986 | Recommended Order | Certificate Of Need denied. Failed to show cardiac catheter lab located within 30 minutes from open heart facility and adequate care levels. Adverse impact on competitors. |
