STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ARBOR HEALTH CARE COMPANY, INC., ) d/b/a HIGHLANDS HEALTH CARE, )

)

Petitioner, )

)

vs. ) CASE No. 87-0667

)

DEPARTMENT OF HEALTH AND ) (CON 4700)

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

The final hearing in this case was held on November 16 and 18, 1987 in Tallahassee, Florida, before Donald D. Conn, Hearing Officer, Division of Administrative Hearings. The parties were represented as follows:

Petitioner: Jay Adams, Esquire

215 East Virginia Street Tallahassee, Florida 32301

Respondent: Richard A. Patterson, Esquire

Department of Health and Rehabilitative Services

1323 Winewood Boulevard Building One, Suite 407

Tallahassee, Florida 32399-0700

The issue in this case is whether the Department of Health and Rehabilitative Services (Respondent) should approve an "identifiable portion" of the application of Arbor Health Care Company, Inc., d/b/a Highlands Health Care (Petitioner) for CON 4700, a nursing home project to be located in Highlands County, Florida. At hearing, Petitioner called its Vice President, John DeVaul, who was accepted as an expert in health planning and nursing home development, and Respondent called Herbert E. Straughn, a health services and facilities consultant, who was accepted as an expert in health planning and CON review.

Petitioner introduced three exhibits. The transcript of the hearing was filed on November 30, 1987, and the parties thereafter filed proposed findings of fact. The Appendix to this Recommended Order contains rulings on each proposed finding of fact.

FINDINGS OF FACT

1. On or about July 15, 1986, Petitioner filed an application with Respondent to construct a 60 bed community nursing home with a 45 bed adult congregate living facility (ACLF) in Highlands County, Florida. This application was identified as CON 4700.

2. After preliminary review, Respondent denied this application on or about December 23, 1986, and Petitioner timely filed its petition for formal administrative hearing.

   
   

3. Highlands County is in Respondent's Service District VI, Subdistrict

   IV.

   
   

4. The parties stipulated that there was a net bed need in the July, 1989

   planning horizon for Highlands County of an additional 28 community nursing home beds, based upon the bed need calculation set forth in Rule 10-5.011(1)(k), Florida Administrative Code.

   
   

5. It was further stipulated by the parties that Petitioner's original application met all statutory and rule criteria for the issuance of a CON, but for the issue of need. Since the parties did stipulate to a need for 28 community nursing home beds, Petitioner sought, at hearing, to offer evidence in support of only an "identifiable portion" of its original application. Thus, Petitioner offered no evidence in support of the application it filed with Respondent, and which was preliminarily denied on December 23, 1986. Rather, Petitioner sought consideration and approval of either 28 nursing home beds with

   32 ACLF beds, or 30 nursing home beds with 30 ACLF beds. Since the stipulation of the parties could not cover the financial feasibility of either alternative because they were presented for the first time at hearing, Petitioner offered evidence to establish the financial feasibility of these alternatives.

   
   

6. Based upon the testimony of Herbert E. Straughn, it is found that Respondent does not normally approve nursing home CON applications for less than

   60 nursing home beds. However, Respondent has approved a CON application for 30 nursing home beds in association with 30 ACLF beds or some other similar service when the need for 30 nursing home beds was shown to exist. Respondent has also approved a CON for less than 30 nursing home beds in connection with an existing

   60 bed facility when the stipulated need did not reach 30. In this case, Petitioner's original application was for 60 community nursing home and 45 ACLF beds, and it was at hearing that Petitioner sought to down-size its application to meet the stipulated need of 28 nursing home beds.

   
   

7. There are no accessibility problems with regard to special programs or services, or any other problems of accessibility, in District VI, Subdistrict IV.

   
   

8. Petitioner's request for partial consideration and approval of its application, which was presented at hearing, would not introduce any new services or construction not originally contemplated in its application, although the size of the project and number of beds sought would be reduced.

   
   

9. In its original application, Petitioner proposed a nursing home with two 30-bed units, and now seeks approval for only one 28 or 30-bed unit. From a health planning standpoint, nursing home bed units usually occur in multiples of

   60 due to staffing and equipment considerations. No evidence was offered to show why the Respondent should deviate from its usual practice in this case, other than the fact that a need for only 28 beds exists.

   
   

10. At hearing, Petitioner introduced revised pro formas for 28 and 30 nursing home beds, associated with 32 and 30 ACLF beds, respectively. These revised pro formas were based on the same ratios of patients by payor class as in the original pro forma. The equity to loan ratios in the revised pro formas to finance the project remained the same as in the original application.

11. The revised pro formas combine revenue and expenses for nursing home and ACLF beds. However, if revenue and expenses for nursing home beds is segregated from ACLF beds, it is found that a 30 bed nursing home facility would not be financially feasible in either 1989 or 1990, and a 28 bed nursing home facility would be even less financially feasible than a 30 bed facility. When revenues and expenses for the ACLF component of the project are considered along with nursing home bed income and expenses, the project shows only a marginal profit in the second year of operation with the 30 nursing home bed-30 ACLF bed alternative. It is barely break-even in the second year under the 28 nursing home bed-32 ACLF bed alternative. Thus, under either alternative, the project is not financially feasible in 1989, and the nursing home component of this project, standing alone under either alternative presented at hearing, is not financially feasible in either 1989 or 1990. The 30 nursing home bed-30 ACLF bed alternative is more financially feasible than the 28-32 alternative since the 28-32 alternative is barely break even in the second year of operation. Specifically, under the 28-32 alternative, pretax income of less than $9000 is projected in the second year of operation with total revenues of approximately

    $1.321 million and total expenses of approximately $1.312 million.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this cause. Section 120.57(1), Florida Statutes. Petitioner, as the applicant, has the ultimate burden of demonstrating its entitlement to a CON. Florida Department of Transportation v. J. W. C. Co., Inc., 396 So.2d 778 (Fla. 1st DCA 1981).

    
    

13. Chapter 87-92, Laws of Florida, is a substantial revision of the CON law in Florida, and has enacted Sections 381.701-381.715, Florida Statutes, which took effect on October 1, 1987. It is well settled that the law in effect at the time of hearing and decision in a case must be applied. State of Florida

    v. Hospital District of Hardee County, 201 So.2d 69 (Fla. 1967); Turro v. Department of Health and Rehabilitative Services, 458 So.2d 345 (Fla. 1st DCA 1984). Thus, the provisions of Chapter 87-92, Laws of Florida, must be applied in this case.

    
    

14. Section 381.709(4)(b), Florida Statutes, authorizes Respondent to consider and approve CONs for "identifiable portion" of an application. See also former Section 381.494(8)(c), Florida Statutes. In this case, Petitioner applied for a CON for 60 community nursing home beds and 45 ACLF beds, but Respondent denied this application. After a timely request for hearing, the parties stipulated that Petitioner's application met all applicable statutory and rule criteria for a CON, except for need. This stipulation does not cover the financial feasibility of the alternatives presented at hearing since the revised pro formas were not presented to Respondent prior to hearing. They further stipulated that there is a need for 28 community nursing home beds in the applicable service district and planning horizon. Therefore, at hearing Petitioner urged that Respondent consider and approve an identifiable portion of its original application, and offered evidence in support of two alternative--28 nursing home and 32 ACLF beds, or 30 nursing home and 30 ACLF beds.

    
    

15. In the recent case of Meridian, Inc. v. Department of Health and Rehabilitative Services, et al., 9 FALR 5095, Final Order filed on September 8, 1987, Respondent allowed an applicant to "scope down" its application at hearing from 120 nursing home beds to 29 based upon the "identifiable portion" provision of former Section 381.494(8)(c), Florida Statutes, and approved that portion of

    the original application to meet the stipulated need of 29 nursing home beds in the applicable service district and planning horizon. Respondent specifically found that the 29 beds which the applicant sought at hearing was an "identifiable portion" of its original application. It is significant that in Meridian the 29 beds which were approved were for an existing 60 bed facility.

    
    

16. It is, therefore, concluded that Petitioner's alternative requests for consideration and approval of identifiable portions of its original application are properly presented in this de novo proceeding. No new services or additional construction has been proposed and the assumptions used to prepare the revised pro formas are the same as in the original application. Section 381.709(4)(b), Florida Statutes, specifically authorizes the Respondent to approve, and necessarily an applicant to seek approval for, an "identifiable portion" of an original CON application.

    
    

17. In this case the parties have stipulated that there is a need for 28 additional community nursing home beds, and petitioner has offered evidence in support of an identifiable portion of its original application consisting of 28 nursing home and 32 ACLF beds. While it is concluded that this does represent an "identifiable portion" of Petitioner's original application, approval of this alternative would be inconsistent with the usual practice of considering nursing home beds in multiples of 60 due to staffing and equipment considerations. Petitioner has cited the Meridian case, above, in support of this alternative, but that case dealt with the approval of 29 new beds for an existing 60 bed facility, and is therefore not persuasive since the facts of that case differ significantly from those in this case. The case of Brevard Meridian, Ltd. v. Department of Health and Rehabilitative Services, 9 FALR 4280, has also been cited by Petitioner, but it is also not persuasive since the partial approval of

    60 beds in that case was conditioned upon the transfer of 60 already approved beds to make a 120 bed facility.

    
    

18. Additionally, the pro forma for this alternative which was offered by Petitioner, and admitted at hearing, calls into serious question the financial feasibility of this 28-32 alternative. If only the nursing home bed component is considered, the project is clearly not financially feasible; when nursing home and ACLF beds are considered together, the project barely breaks-even in the second year of operation. Specifically, pretax income of less then $9000 is projected in the second year of operation with total revenues of approximately

    $1.321 million and total expenses of approximately $1.312 million. This is not a sufficient margin from which it can be concluded that Petitioner has sustained its burden regarding the financial feasibility of this alternative.

    
    

19. The parties did stipulate that Petitioner's original application for

    60 nursing home and 45 ACLF beds was financially feasible, but evidence offered at hearing does not establish the financial feasibility of this "identifiable portion" of Petitioner's application consisting of 28 nursing home and 32 ACLF beds. Petitioner has not met its burden to show that a portion of its original application which it chose to present and pursue at hearing for the first time, in order to meet a stipulated need, would be financially feasible. In fact, evidence offered by the applicant calls this alternative directly into question.

    
    

20. The 30 nursing home, 30 ACLF bed alternative cannot be approved because there is a stipulated need for 28, not 30, nursing home beds. Competent substantial evidence was not offered by Petitioner to establish that a stipulated need of 28 nursing home beds should allow for approval of 30 beds. Thus, although the revised pro forma for the 30-30 alternative indicates that this would be slightly more financially feasible than the 28-32 alternative, we

    cannot reach the issue of financial feasibility on this alternative since it is premised on a need for 30 nursing home beds which does not exist. Although, there is precedent for Respondent's approval of a CON for a new nursing home with 30 nursing home and 30 ACLF beds in Hillhaven Convalescent Center, et al.

    v. Department of Health and Rehabilitative Services, DOAH Case No. 86-0132 et seq., Final Order filed October 30, 1987, such approval was premised on the existence of a need for 30 nursing home beds. Therefore, this case relied upon by Petitioner is significantly distinguishable from the facts in this case.

    
    

21. While Petitioner has presented two alternations in this case which do represent "identifiable portions" of its original CON application, the 28-32 alternative has not been shown to be financially feasible, and the 30-30 alternative exceeds the stipulated need for 28 nursing home beds. Additionally, no basis has been established under the facts of this case to deviate from the Respondent's usual practice of considering and approving nursing home beds, particularly for new facilities, in multiples of 60. Accordingly, Petitioner's CON application 4700 should be denied.

RECOMMENDATION

Based upon the foregoing, it is recommended that Respondent enter a Final Order denying Petitioner's application for CON 4700.

DONE AND ENTERED this 7th day of January, 1988, in Tallahassee, Florida.

DONALD D. CONN

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 7th day of January, 1988.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-0667

Rulings on Petitioner's Proposed Findings of Fact:

1. Adopted in Findings of Fact 1, 2.

2. Adopted in Finding of Fact 2.

3. Rejected as unnecessary.

4. Adopted in Finding of Fact 4.

5. Adopted in Findings of Fact 5, 6.

6. Adopted in Finding of Fact 8.

7. Adopted in Findings of Fact 5, 6, 9. 8-10 Adopted in Finding of Fact 10.

1. Rejected as simply a statement of position and not a proposed finding of fact.

2. Adopted in Finding of Fact 6.

13-16 Rejected as conclusions of law and not proposed findings of fact; this legal argument has been

considered in the preparation of conclusions of law contained in this Recommended Order.

1. Adopted in part in Findings of Fact 8, 9, 10. However the last sentence in the proposed finding of fact is rejected as unclear.

2. Rejected as unnecessary.

3. Rejected as not based on competent substantial evidence, although from a health planning viewpoint

   a 30 nursing home bed unit is more functional and cost effective than a 28; it is also more financially feasible in this case.

4. Adopted in Finding of Fact 11.

5. Adopted and Rejected in part in Findings of Fact 9, 11, and otherwise rejected as unnecessary and cumulative.

6. Rejected as not based on competent substantial evidence, although adopted in part in Findings of Fact 9, 11.

Jay Adams, Esquire

215 East Virginia Street Tallahassee, Florida 32301

Richard A. Patterson, Esquire Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Gregory L. Coler, Secretary Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

John Miller, Acting General Counsel

Department of Health and Rehabilitative Services

1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Sam Power, Clerk Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Docket for Case No: 87-000667

Orders for Case No: 87-000667