STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FORUM GROUP, INC., )

(Orange County), )

)

Petitioner, )

)

vs. ) CASE NO. 87-0688

) CON 4736 & 4737

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

) SKILLED HEALTH FACILITIES, LTD. ) d/b/a SKILLED CARE SERVICES OF ) ORANGE COUNTY, )

)

Petitioner, )

)

vs. ) CASE NO. 87-0689

) CON 4736 & 4737

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Final hearing in the above-styled action was held on November 9, 1987, in Tallahassee, Florida, before Mary Clark, Hearing Officer of the Division of Administrative Hearings.

The parties were represented as follows: Forum Group, Inc.: R. Terry Rigsby, Esquire

Post Office Box 11188 Tallahassee, Florida 32302

Skilled Health Facilities, Ltd.:

Chris H. Bentley, Esquire 2455 Blairstone Pines Drive Tallahassee, Florida 32301

Department of Health and Rehabilitative Services:

Richard A. Patterson, Esquire 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

BACKGROUND AND PROCEDURAL MATTERS

This proceeding results from the proposed denial by the Department of Health and Rehabilitative Services (HRS) of Petitioners' applications for certificates of need (CON) for community nursing home beds in Orange County, Florida, in the July 1986 batching cycle. Forum Group, Inc. (Forum) applied for a 60-bed new nursing home; Skilled Health Facilities, Ltd. (Skilled Health) applied for a 120-bed new nursing home. The two cases were consolidated for hearing, sua sponte, in an order dated March 10, 1987.

An Order dated March 26, 1987, denied a motion to intervene by Healthnet Services, Inc., based on Healthnet's waiver of hearing in an earlier batching cycle in Case No. 86-2695.

At the final hearing, each party presented the testimony of one expert witness. In addition, six exhibits were offered by Forum, and received; eight exhibits were offered by Skilled Health, and received; and one composite exhibit was offered by HRS, and received.

The transcript was prepared and each party submitted post-hearing proposed findings of fact and conclusions of law. The proposed findings are specifically addressed in the attached appendix.

After hearing, and during the preparation of this recommended order, it became apparent that material population data was not available in the record. The record was reopened by a sua sponte order dated February 22, 1988. The parties' responses to that order are addressed in the findings of fact below.

ISSUES

The general issue for determination is whether either of the petitioners should be granted a CON for community nursing home beds in Orange County, a subdistrict within HRS planning district VII.

In their prehearing statement filed on November 3, 1987, the parties limited the issues as follows:

As between the Petitioners and Respondent, the sole issue is whether there is a need for the proposed services; additionally, it is Respondent's position that lack of need for a project results in the projects not being financially feasible in the long term. All other statutory and rule criteria are satisfied, at least minimally, except proof of need pursuant to Rule 10- 5.011(1)(k) [formerly 10-5.11(21)(b)],

F.A.C., financial feasibility as it relates to need, and as to possible approval of a 60-bed facility, as the local health plan policy favors a minimum facility size of

120 beds. As between the applicants, it is agreed that a comparative review is appropriate to determine the best applicant, but each acknowledges for this

proceeding only that the other meets all statutory and rule criteria, at least on a minimal basis.

The determination of need in this case involves a determination of the proper application of the need methodology described in HRS Rule 10-5.011(1)(k),

1. More specifically, these three questions must be answered:

   
   

   1. Which data determines "current" and "projected" population, age 65-74 and 75+, the data available in July 1986, or the most recent data available at the time of hearing?

   2. When is the "current" population to be determined (the "base period"), January 1986, or July 1986?

   3. How is the occupancy rate ("OR") to be computed? If there is a need for additional beds, the remaining issue is how to apportion those beds between the applicants.

FINDINGS OF FACT

1. Forum and Skilled Health each filed an application for a certificate of need for community nursing home beds in Orange County, in the July, 1986, batching cycle.

   
   

   Forum's application proposes a retirement living facility consisting of apartment units for independent living, an adult congregate living facility (ACLF) and 60 nursing home beds certified for skilled and intermediate care.

   
   

   Skilled Health's application proposes to build a 120-bed nursing home. At the final hearing, Skilled Health indicated a willingness to accept approval for

   60 or 90 beds, with the balance to be built as ACLF beds.

   
   

2. Forum is a health services company based in Indianapolis. Forum owns fourteen retirement living centers throughout the United States and approximately twenty freestanding nursing homes.

   
   

3. Skilled Health is a partnership principally owned by Stewart and Joseph Yachnowitz, a father and son. Since 1981-82, the Yachnowitz' have owned and operated three 120-bed nursing homes and one 129-bed nursing home in Missouri.

   
   

4. In its preliminary review of Petitioners' applications, HRS denied the certificates of need primarily due to lack of need for additional community nursing home beds in Orange County. HRS found a surplus of 50 community nursing home beds in Orange County.

   
   

   Forum's health planner found a need for 96.5 beds, and Skilled Health's consultant found a need for 161 beds.

   
   

5. In reaching their respective conclusions, each party applied the methodology of Rule 10-5.011(1)(k)2., F.A.C. (the rule) in a slightly different manner.

   The rule provides in pertinent part as follows:

   
   

   1. Need Methodology. In addition to other relevant statutory and rule criteria to be used in considering the allocation of new or additional community nursing home beds, the Department will determine if there is a projected need for new or additional beds 3 years into the future according to the methodology specified under Sub- subparagraphs a. through j. This methodology provides for adjustments to current community nursing home bed rates based upon expected changes in the proportion of district residents age 75+ and the current utilization of community nursing home beds in the subdistricts designated by local health councils. In districts with a high proportion of elderly residents living in poverty, the methodology specifies a minimum bed rate.

      1. A (POPA X BA) + (POPB X BB) Where:

         
         

         A is the district's age- adjusted number of community nursing home beds for the review cycle for which a projection is being made.

         POPA is the population age 65-74 years in the relevant departmental district projected three years into the future.

         POPB is the population age

         75 years and older in the relevant depart- mental district projected three years into the future.

         BA is the estimated current bed rate for the population age 65-74 years in the relevant district.

         BB is the estimated current bed rate for the population age 75 years and over in the relevant district.

      2. BA LB/(POPC + (6 X POPD)) Where:

         
         

         LB is the number of licensed community nursing home beds in the relevant district.

         POPC is the current

         population age 65-74 years.

         POPD is the current

         population age 75 years and over.

         
         

      3. BB + 6 X BA

         
         

      4. SA = A X (LBD/LB) X (OR/.90) Where:

         
         

         SA is the preliminary sub- district allocation of community nursing home beds.

         LBD is the number of

         licensed community nursing home beds-in the relevant subdistrict.

         OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district.

         Review of applications submitted for the July batching cycle shall be based upon occupancy rate data for the months of October through March preceding that cycle; applications submitted for the January batch- ing cycle shall be based upon occupancy rate data for the months of April through September preceding that cycle. For the purposes of this rule, the occupancy date to be considered shall be that collected by the Department's Office of Health Planning and

         Development or a contractor assigned to collect the data.

         * * *

         
         

6. In applying the methodology, the parties agreed to the following:

   
   

   1. The application date is July 1986.

   2. The horizon date is July 1989.

   3. 4801 is the correct number of licensed beds in the district (LB).

   4. 2327 is the correct number of licensed beds in the subdistrict, Orange County (LBD).

   5. 460 is the correct number of approved beds.

   
   

   POPULATION DATA RELEASE DATES

   
   

7. For determination of the population factors, POPA, POPB, POBC and POPD, the parties utilized the official estimates and projections adopted by the Office of the Governor. That data is updated periodically by the Office of the Governor and the rule does not prescribe the applicable release date for those projections and estimates.

   
   

8. HRS utilizes the data available at the time of the application review (July 1986). HRS presented no testimony supporting this practice; its witness, Dennis Halfhill, was specifically not offered for health planning expertise. (Transcript, p. 119)

   
   

9. Donald I. Craig, Forum's witness, was qualified, without objection, as an expert in health care planning and nursing home development. (Transcript, p.

   12) Dr. Elton Scott, Skilled Health's witness, was qualified, without objection, as an expert in health care economics, utilization and need analysis, and health care finance and reimbursement. (Transcript, p. 51).

   
   

   Both witnesses testified convincingly that the more recently released data is more accurate and, therefore, more appropriate. At the time of hearing, the official estimates and projections from July 1987 were the most recent available data.

   
   

   THE "BASE PERIOD" - CURRENT POPULATION

   
   

10. The current population comprising the factors POPD and POPD in the rule is the population at the time of the application, July 1986, according to HRS' utilization of the methodology.

    
    

    Forum, however, selected January 1986 as the base period because it is a midpoint date for the period for which occupancy data is considered. Forum also argues that January 1986 is the base utilized by HRS' Office of Health Planning and Development in its semiannual nursing home census report and bed need allocations for the July 1986 review cycle. (HRS composite exhibit #1)

    
    

11. No testimony or evidence was produced by HRS to explain why its Office of Health Planning and Development uses a different base for "current" population than its CON review office. However, a plain reading of the rule governing CON review supports the establishment of July 1986 as the base period. The rule uses the term, "current population," for the factors POBC and POPD. At the time of the application, "current" is July 1986. "Current" could be

    theoretically a later period at various relevant points in the process, i.e., date of the state agency action report or date of the hearing, but nothing in the text of the rule suggests that "current" really means a date earlier than the application batching cycle date.

    
    

    Moreover, the establishment of a base period six months prior to the application date violates the 3-year horizon concept inherent in the need methodology. The effect of the establishment of a January 1986 base period is to create a 3 1/2 year planning horizon.

    
    

12. After rejecting Forum's proposed January 1986 base period, and accepting Forum's July 1987 release date, I found that the record of the proceeding did not include July 1987 data for July 1986 population.

    
    

    For that reason, the record was reopened for the limited purpose of receiving the data. HRS responded to the order reopening the record with the requested data and with an objection to its admissibility based on relevance, arguing, as it did at hearing, that the relevant release date for July 1986 population is July 1986. Both Forum and Skilled Health responded with stipulations that the data provided by HRS was, in fact, the requested data. However, Forum also objected to the admission of the data, as there was no testimony at final hearing supporting its use. There was, as found in paragraph 9, above, testimony supporting the use of July 1987 data.

    
    

    THE CALCULATION OF OCCUPANCY RATE

    
    

13. The relevant occupancy period is October 1985, through March 1986. See Rule 10-5.011(i)(k)2.d., F.A.C., paragraph 5, above.

    
    

14. HRS, in its calculation of need according to the rule methodology, used an occupancy rate of 86.6 percent, a slightly higher rate than the 86.2 percent used in its state agency action report. The higher rate was explained by HRS' witness as based upon the inclusion of beds of three nursing homes that had previously been considered sheltered nursing homes.

    
    

15. The applicants, Forum and Skilled Health, in their proposed recommended orders, suggest the appropriate rate should be 90.03 percent. Both of their witnesses testified that the HRS rate was artificially depressed due to the opening of a new nursing home, Quality Health of Orange County, in October 1985. Initially, as expected, its occupancy was low, but by November 1986, the home was over 90 percent.

    
    

    Both applicants advocate assigning Quality Health an occupancy of 90 percent for the relevant period because if it had been only approved, but not opened, the methodology would have considered it to have an occupancy rate of 90 percent. See Rule 10-5.011(1)(k)2.i, Florida Administrative Code. The parties also argue that the home's rapid fill to over 90 percent also justifies ascribing a 90 percent rate for the October through March period.

    
    

16. The plain language of the rule does not allow for such creative manipulation of the formula. OR is the average occupancy rate for all licensed community nursing homes within the subdistrict, for the relevant period, based on data from HRS' Office of Health Planning or its contractor. That data provides an average occupancy rate of 30.83 percent for Quality Health from October 1985 through March 1986.

    FINDINGS SUMMARIZED IN AN APPLICATION OF THE RULE METHODOLOGY

    
    

17. The findings described above result in the following: Nursing Home Bed Need for District 7, Orange County

Application Date: July 1986

Horizon Date: July 1989

Current population: July 1986 Office of Governor, Official

population estimates and

projections: July 1987 Occupancy Rate, October 1985

through March 1986: 86.6 percent

BA = LB/(POPC + (6xPOPD))

= 4801/(106976 + (6x65450))

= 4801/499676 = .0096082

BB = 6xBA = .0576492

Allocation = (POPA x BA) + (POPB x BB)

= 126200 x .0096082

+

80951 x .0576492

= 1212.55 + 4666.76 5879.31

Subdistrict Allocation:

A x (LBD/LB) x (OR/.9)

= 5879.31 x (2327/4801) x (.866/.9)

= 5879.31 x .484690 x .962222

= 2741.99 or 2742

poverty adjustment ratio in Rule 10-5.011(1)(k)2.3., Florida Administrative Code. Nor did the applicants present any evidence of special circumstances justifying the approval of beds as provided in Rule 10-5.011(1)(k)2.j., Florida Administrative Code.

1. There being insufficient need for additional nursing homes in Orange County, it is unnecessary to determine an apportionment of beds between the applicants.

   CONCLUSIONS OF LAW

   
   

2. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this proceeding pursuant to Sections 120.57(1) and 381.709(5), Florida Statutes.

   
   

3. The issues in this proceeding were narrowly focused on applications of the need methodology found in Rule 10-5.011(1)(k)2., Florida Administrative Code.

   
   

4. The rule is silent on the question as to which version of the Governor's Office estimates and projections should control the population factors in the methodology. The applicants convincingly argued, and presented competent testimony, that the later-released version is more accurate and, therefore, more appropriate. HRS presented no testimony to support its use of the data available at the time of the application. However slavishly HRS may adhere to its current practice of using only population data available at the time of the application, it freely utilizes more current data when determining the value of other factors in the methodology. In this case, HRS revised upward its data on licensed beds after the state agency action report was issued. See Finding of Fact 14, above. The practice is, therefore, neither consistent nor justifiable in the absence of explication. McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977).

   
   

5. In its objection in response to the order reopening the record in this case, HRS cites two cases as authority for its position that the July 1987 data is irrelevant: Broward Healthcare, Ltd. v. HRS, 9 FALR 1973 (March 31, 1987), aff. So.2d (Fla. 1st DCA, Case #BT-258, opinion filed January 21, 1988); and Florida Health Facilities Corp. v. HRS, 9 FALR 2708 (May 26, 1987), aff. So.2d (Fla. 1st DCA Case #87-503, opinion filed January 20, 1988). In both cases the agency rejected the Hearing Officers' acceptance of the later data. The appellate decision in each case affirmed the agency without an opinion. These cases, therefore, have no precedential value and will not bind the appellate court in another case to accept the conclusions of law on which the agency's final order was based. Goldberg v. Graser, 365 So.2d 770 (Fla. App. 1st DCA 1978).

   
   

6. In contrast to the release date issue, the rule effectively precludes the interpretations advanced by the applicants with regard to "current" population and the computation of occupancy rate. No amount of testimony and evidence can justify the retrogression of "current" to a point in time six months prior to the application date.

   
   

7. No amount of argument that the result is unfair or unrealistic can negate the language of the rule providing a relevant period for the occupancy rate data and prescribing the source of that data.

   
   

8. Using the methodology found in Rule 10-5.011(1)(k), Florida Administrative Code, there is insufficient need for additional nursing home beds in Orange County in the July 1989 planning horizon. Therefore, the Petitioners have failed to meet their burden of proof regarding the central issue in this case.

RECOMMENDATION

Based on the foregoing, it is

RECOMMENDED that the applications for certificates of need by Forum Group, Inc. and Skilled Health Facilities, Ltd., be DENIED.

DONE AND RECOMMENDED this 11th day of March, 1988, in Tallahassee, Leon County, Florida.

MARY CLARK

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 11th day of March, 1988.

APPENDIX TO RECOMMENDED ORDER, CASE NOS. 87-0688, 87-0689

The following constitute my specific rulings on the findings of fact proposed by the parties:

Petitioner, Forum Groups

1. Adopted in paragraph 2.

3. Adopted in paragraph 1.

4.-9. Rejected as unnecessary. 10.-11. Adopted in paragraph 3.

1. Rejected as unnecessary.

2. Adopted in paragraph 1.

14.-15. Rejected as unnecessary.

16. Adopted in paragraph 1.

17.-18. Adopted in paragraph 5.

1. Adopted in paragraph 6.

2. Adopted in paragraph 4.

3. Adopted in paragraph 6.

4. Adopted in part in paragraph 7. The method of calculating occupancy is defined.

5. Rejected as inconsistent with the rule. Those figures relate to population as of January 1986.

6. Adopted in paragraph 17.

7. Adopted in paragraph 9.

8. The characterization of the testimony is adopted in paragraph 10. The conclusion IS rejected, see paragraph 23, above.

9. Adopted in paragraph 15.

10. Rejected as contrary to the rule. See paragraph 16.

11. Rejected as unnecessary.

12. Adopted in paragraph 8.

13. Rejected as unnecessary and contrary to the evidence. See paragraph 14.

14. Rejected as contrary to the rule and to the evidence in this case.

33.-52. Rejected as unnecessary.

Petitioner, Skilled Health Facilities, Ltd.

1. Adopted in paragraph 1.

2. Adopted in statement of issues.

3. Adopted in paragraph 5.

4. Adopted in part in paragraph 7. The finding with regard to OR is rejected as contrary to the rule.

5. Adopted in paragraph 6.

6. Rejected as unnecessary.

7. Rejected as contrary to the rule and to the evidence.

8. Adopted in substance in paragraph 14.

9.-11. Adopted in part in paragraph 15 (as to the position of the parties), otherwise rejected as argument and as contrary to the rule.

1. Adopted in substance in paragraphs 7. and 9.

2. Adopted in substance in paragraph 8.

3. Adopted in paragraph 9.

4. Rejected as argument.

5. Rejected as contrary to the rule. While not expressly stated, the values proposed for POBC and POPD are "current" population as of January 1986. This is the wrong base. See paragraphs 10.-12.

6. Rejected as to the occupancy rate, otherwise adopted in paragraph 7.

18.-21. Rejected as an inappropriate application of the methodology.

22.-24. Rejected as unnecessary.

Respondent, HRS

1. Adopted in paragraph 1, and the background statement.

2. Adopted in the statement of issue.

3. Adopted in paragraph 5.

4. Adopted in the statement of issue.

5. Rejected as an inappropriate application of the methodology.

6. Adopted in paragraph 6 and paragraph 14.

7. Rejected as unsupported by the evidence, except as to the description of HRS' application of the methodology.

8. Adopted in substance in paragraph 6.

9. Adopted in substance in paragraph's 14 and 16. 10.-11. Adopted in paragraph 18.

12.-13. Rejected as unnecessary.

COPIES FURNISHED:

R. Terry Rigsby, Esquire Post Office Box 11188 Tallahassee, Florida 32302

Chris H. Bentley, Esquire 2455 Blairstone Pines Drive Tallahassee, Florida 32301

Richard A. Patterson, Esquire 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Gregory L. Coler, Secretary Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

1. S. Power, Esquire Agency Clerk

   Department of Health and Rehabilitative Services

   1323 Winewood Boulevard Building One, Room 407

   Tallahassee, Florida 32399-0700

   
   

   =================================================================

   AGENCY FINAL ORDER

   =================================================================

   
   

   STATE OF FLORIDA

   DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES

   
   

   
   

   FORUM GROUP, INC.,

   (Orange County),

   
   

   Petitioner,

   CASE NO. : 87-0688

   vs. CON NO. : 4736

   4737

   DEPARTMENTS OF HEALTH AND REHABILITATIVE SERVICES,

   
   

   Respondent.

   / SKILLED HEALTH FACILITIES, LTD., d/b/a SKILLED CARE SERVICES OF ORANGE COUNTY,

   
   

   Petitioner,

   CASE NO.: 87-0689

   vs. CON NO. : 4736

   4737

   DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,

   Respondent.

   /

   
   

   FINAL ORDER

   
   

   This cause came on before me for the purpose of issuing a final agency order. The Hearing Officer assigned by the Division of Administrative Hearings (DOAH) in the above- styled case submitted a Recommended Order to the Department of Health and Rehabilitative Services (HRS). A copy of that Recommended Order is attached hereto.

   
   

   RULING ON EXCEPTIONS FILED BY HRS

   
   

   1. HRS takes exception to those portions of paragraphs 9, 12, and 17 of the findings of fact wherein the Hearing Officer found as "fact" that Fla. Admin. Code Rule 10- 5.011(1)(k) requires the most recent available population estimates available at the time of the Section 120.57, Florida Statutes (1987), hearing. Section 120.57(1)(b)10, Florida Statutes (1987) provides that an agency may reject a Hearing Officer's interpretation of a rule. The findings are conclusions of law and are rejected. Exception number one (1) is granted.

      
      

   2. HRS takes exception to that portion of paragraph 2 of the conclusions of law which would invalidate the department's rule interpretation that the appropriate population estimates to be utilized at the final hearing are those available at the time of the initial review. The Hearing Officer's conclusion of law is contrary to numerous Final Orders of the department and recent decisions of the Florida First District Court of Appeal. In Broward Healthcare, Ltd. vs. HRS, 9 FALR 1573 (March 31, 1987), affirmed, So2d (Fla. 1st DCA Case No. BT-258, op. filed January 21, 1988), and Florida Health Facilities Corporation vs. HRS, 9 FALR 2708 (May 26, 1987), affirmed, So2d (Fla. 1st DCA Case No. 87-503 op. filed January 20, 1988, rehearing denied, February 25, 1988), the issue of whether to use the population estimates available at the time of final hearing, or to use only those estimates available at the time of initial review, was specifically addressed. Further, varying population estimates based on the date of an applicant's final DOAH hearing could result in expand fixed pools contrary to Court Nursing Center., vs. HRS, 483 So2d 700 (Fla. 1st DCA 1985), and Boca Raton AKC vs. HRS, 493 So2d 1055 (Fla. 1st DCA

FINDINGS OF FACT

The Department hereby adopts and incorporates by reference the findings of fact set forth in the Recommended Order except where conclusions of law are stated which are inconsistent with the rulings on the exceptions.

CONCLUSIONS OF LAW

The Department hereby adopts and incorporates by reference the conclusions of law set forth in the Recommended Order except where inconsistent with the rulings on the exceptions. There is no numeric need for either of the Petitioners' proposals.

Based on a balanced weighing of all applicable criteria, it is ADJUDGED, that the petitioners' applications for Certificates of need

numbers 4736 and 4737 be DENIED.

DONE and ORDERED this 2nd day of May, 1988, in Tallahassee, Florida.

Gregory L. Coler Secretary

Department of Health and Rehabilitative Services

BY:

Assistant Secretary for Programs

PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF HRS, AND A SECOND COPY, ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED

Docket for Case No: 87-000688

Orders for Case No: 87-000688