STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
ST. MARY'S HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 89-5115
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent, )
)
and )
)
MARTIN MEMORIAL HOSPITAL )
ASSOCIATION, INC., )
)
Intervenor. )
) AMI/PALM BEACH GARDENS )
MEDICAL CENTER, )
)
Petitioner, )
)
vs. ) CASE NO. 89-5564
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent, )
)
and )
)
MARTIN MEMORIAL HOSPITAL )
ASSOCIATION, INC., )
)
Intervenor. )
) MARTIN MEMORIAL HOSPITAL )
ASSOCIATION, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 90-1470
)
DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, and ) BOCA RATON COMMUNITY HOSPITAL, ) INC., )
)
Respondents, )
)
AMI-PALM BEACH GARDENS )
MEDICAL CENTER, )
)
Intervenor. )
) NME HOSPITALS, INC., d/b/a ) DELRAY COMMUNITY HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 90-1471
)
DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, and ) BOCA RATON COMMUNITY HOSPITAL, ) INC., )
)
Respondents. )
) ST. MARY'S HOSPITAL, Inc., )
)
Petitioner, )
)
vs. ) CASE NO. 90-1472
)
DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, and ) BOCA RATON COMMUNITY HOSPITAL, ) INC., )
)
Respondents, )
)
and )
)
JFK MEDICAL CENTER, INC., )
)
Intervenor. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William J. Kendrick, held a formal hearing in the above-styled cases during the period of August 13, 1990, through September 7, 1990, in Tallahassee, Florida.
APPEARANCES
For St. Mary's Hospital W. David Watkins, Esquire Inc.: Patricia A. Renovitch
Oertel, Hoffman, Fernandez & Cole, P.A.
2700 Blair Stone Road, Suite C Post Office Box 6507 Tallahassee, Florida 32314-6507
For AMI/Palm Beach Gardens Michael J. Cherniga, Esquire Medical Center, Ins.: David C. Ashburn, Esquire
Roberts, Baggett, LaFace & Richard
101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302
For Martin Memorial Bryon B. Mathews, Jr., Esquire Hospital Association, Inc.: John A. Camp, Esquire
McDermott, Will & Emery Miami Center, 22nd Floor
201 South Biscayne Boulevard Miami, Florida 33131-4336
For NME Hospitals, Inc. C. Gary Williams, Esquire d/b/a Delray Community Michael J. Glazer, Esquire Hospital: Ausley, McMullen, McGehee,
Carothers & Proctor Post Office Box 391
Tallahassee, Florida, 32302
For Boca Raton Community Darrell White, Esquire Hospital, Inc.: William B. Wiley, Esquire
McFarlain, Sternstein, Wiley & Cassedy, P.A.
600 First Florida Bank Building Tallahassee, Florida 32301
For JFK Medical Center, Robert A. Weiss, Esquire Inc.: John M. Knight, Esquire
Parker, Hudson, Rainer & Dobbs The Perkins House, Suite 200
118 North Gadsden Street Tallahassee, Florida 32301
For Department of Health Lesley Mendelson and Rehabilitative Senior Attorney
Services: Department of Health and Rehabilitative Services
Fort Knox Executive Center 2727 Mahan Drive, Suite 103
Tallahassee, Florida 32308
STATEMENT OF THE ISSUES
At issue in these proceedings is whether there exists a need for a new open heart surgery program in HRS District IX and, if so, whether the applications of St. Mary's Hospital, Inc. (St. Mary's), Boca Raton Community Hospital, Inc. (Boca), and Martin Memorial Hospital Association, Inc. (Martin), or any of them, for a certificate of need to establish such a program should be approved.
PRELIMINARY STATEMENT
On September 1, 1989, the Department of Health and Rehabilitative Services (Department) published a notice of correction in the Florida Administrative Weekly of the fixed need pool for open heart surgery programs at the July 1992 planning horizon. Pertinent to this case, the corrected notice established a net need for one new open heart surgery program in District IX, whereas the notice previously published on August 11, 1989, had established a net need of zero. St. Mary's challenged the Department's corrected need assessment, claiming the Department had underestimated the need in District IX (Case No. 89- 5115), and AMI/Palm Beach Gardens Medical Center, Inc. (Palm Beach Gardens), a current provider of open heart surgery services in the district, challenged the Department's corrected assessment, claiming the Department had overestimated the need in District IX (Case No. 89-5564). These two cases were consolidated and, with the parties' agreement, abated until the Department concluded its review of the applications then pending before it to establish an open heart program in the district.
On January 26, 1990, the Department published notice of its intent to approve the application of Boca Raton Community Hospital, Inc. (Boca), for a certificate of need to establish an open heart surgery program in the district, and to deny the applications of St. Mary's and Martin. St. Mary's, Martin, and NME Hospitals, Inc., d/b/a Delray Community Hospital (Delray), a current provider of open heart surgery services in the district, protested the Department's proposed action (Case Nos. 90-1470, 90-1471, and 90-1472, respectively), and JFK Medical Center, Inc. (JFK), another current provider of open heart surgery services in the district, was granted leave to intervene. By order of March 12, 1990, Case Nos. 89-5115, 89-5564, 90-1470, 90-1471, and 90-
1472 were consolidated, and by order of April 4, 1990, with the parties' agreement, each party was recognized as a participate in each of the pending cases.
At hearing, Boca called as witnesses: Michael Carroll, accepted as an expert in health care planning; Douglas N. West, Jr., accepted as an expert in hospital administration; Martha Hole; Eric Maspons, accepted as an expert in architecture; Susan McGibany, accepted as an expert in health care finance; Richard Drinkwine, accepted as an expert in medical equipment planning, cost estimating and procurement; John Barker, accepted as an expert in constructing management, with emphasis on construction costs estimating; Thomas L. Ruthaford; Rufus Harris, accepted as an expert in health care finance and accounting; Joseph Vinci, M.D., accepted as an expert in internal medicine and cardiology; and Susan Ann Bradford. Boca's exhibits 1-48, 50-57 and 60 were received into evidence.
Martin Memorial called as witnesses: Richmond M. Harman, accepted as an expert in hospital administration; Ivan Steinmeyer, accepted as an expert in hospital technical services as related to cardiovascular care; Craig Cummings; Christopher Coffey, accepted as an expert in health care planning; Judith Horowitz, accepted as an expert in health care planning and health care finance;
Howarth L. Lewis, Jr., accepted as an expert in hospital architecture, including construction cost estimating; James Whittle, M.D., accepted as an expert in invasive cardiology; Robert N. Blews, M.D.; Richard Faro, M.D., accepted as an expert in cardiac surgery; Sven Kansman, accepted as an expert in travel time engineering; and Sharon Andre, accepted as an expert in nursing. Martin Memorial's exhibits 1-25, 33 and 34 were received into evidence.
St. Mary's called as witnesses: Michael L. Schwartz, accepted as an expert in health care planning and hospital administration; Howarth L. Lewis, Jr., accepted as an expert in hospital architecture, including construction cost estimating; Richard Faro, M.D., accepted as an expert in cardiac surgery; Sister Patricia Friel, accepted as an expert in hospital administration and operations; Mitchal Mongell, accepted as an expert in nursing, professional recruitment, and personnel management; Ward Koutnik, accepted as an expert in travel time studies; Gaylord Snyder, accepted as an expert in nursing and hospital administration; Jody Springer, accepted as an expert in health care finance and financial feasibility analysis; Edward Pershing, accepted as an expert in health care finance, financial feasibility analysis, and third party reimbursement; Julia Bower, accepted as an expert in health planning; Sue S. Goldfinger, M.D., accepted as an expert in pediatrics and pediatric intensive care units; Harry Bayron, M.D., accepted as an expert in pediatric cardiology; Patrick Nummy, accepted as an expert in the administration of cardiovascular programs and hospital administration; and Doris Ausbrook, accepted as an expert in health care planning and health care administration. St. Mary's exhibits 1-4, 5A, 5B, and 6-34 were received into evidence.
The Department called Elizabeth Dudek, an expert in health planning, as a witness, but offered no exhibits.
Delray called as witnesses: Don S. Steignman, accepted as an expert in hospital administration; James R. Jude, M.D., accepted as an expert in general surgery and cardiovascular thoracic surgery; Donald Glazer, M.D., accepted an as expert in internal medicine, cardiology and invasive cardiology; Ben F. King, accepted as an expert in health care finance; Jerry Dabkowski, accepted as an expert in traffic engineering; Sue Ann Bradford, accepted as an expert in nursing and nursing administration; Steven Bernstein, accepted as an expert in hospital administration; Scott Hopes, accepted as an expert in public health, including health care planning, health care finance, hospital administration, epidemiology and biostatistics; Robert Greene, accepted as an expert in health care planning; and Roger Lee Bell. Delray's exhibits 2-46 were received into evidence.
Palm Beach Gardens called as witnesses: Linda Klein, accepted as an expert in open heart surgery administration and open heart surgery nursing, including staffing; Virginia A. Lamb, accepted as an expert in health planning; and Elizabeth Dudek. Palm Beach Gardens' exhibits 1-4 were received into evidence.
JFK called as witnesses: Richard Cascio, accepted as an expert in health care finance; Marvin Erbesfeld, M.D., accepted as an expert in cardiovascular surgery; Joyann Merriam, accepted as an expert in nursing and administration of open heart surgery programs; and Mark Richardson, accepted as a expert in health care planning. JFK's exhibits 1-8 were received into evidence.
Martin's request for official recognition was marked Hearing Officer's Exhibit 1 and received into evidence. The parties' post hearing stipulation, filed September 18, 1990, has been marked Hearing Officer Exhibit 2.
The transcript of hearing was filed October 3, 1990, and the parties were granted leave, at their request, until November 20, 1990, to file proposed findings of fact. Consequently, the parties waived the requirement that a recommended order be rendered within thirty days after the transcript is filed. Rule 22I-6.031, Florida Administrative Code. The parties' proposed findings are addressed in the appendix to this recommended order.
FINDINGS OF FACT
Case status
In September 1989, Boca Raton Community Hospital, Inc. (Boca), St. Mary's Hospital, Inc. (St. Mary's), and Martin Memorial Hospital Association, Inc. (Martin), filed timely applications with the Department of Health and Rehabilitative Services (Department or HRS) for a certificate of need (CON) to establish a new open heart surgery program in HRS District IX. That district is comprised of Palm Beach, Martin, St. Lucie, Indian River, and Okeechobee Counties.
Boca's and Martin's applications sought authorization to establish an adult open heart surgery program, whereas St. Mary's application sought authorization to establish an adult and pediatric open heart surgery program.
On January 26, 1990, the Department published notice in the Florida Administrative Weekly of its intent to grant Boca's application, and to deny the applications of St. Mary's and Martin. St. Mary's and Martin filed timely protests to the Department's proposed action, and three existing providers of open heart surgery services in the district, NME Hospitals, Inc., d/b/a Delray Community Hospital (Delray), JFK Medical Center, Inc. (JFK), and AMI/Palm Beach Gardens Medical Center, Inc. (Palm Beach Gardens), timely protested the Department's intention to grant Boca's application or intervened to oppose the approval of any new open heart surgery program in the district.
The applicants
Boca, a 394-bed not-for-profit community hospital, is the southernmost hospital in Palm Beach County and HRS District IX, being located in Boca Raton, Florida, just two miles north of the Broward County/HRS District X line. It was established in the 1960's, and is a comprehensive hospital providing adult cardiac catheterization services, as well as most services available in an acute care facility, with the exception of a designated psychiatric unit, burn unit, and neonatal intensive care. During the period of April 1988 through March 1989, Boca performed 656 adult inpatient cardiac catheterizations, and referred
192 patients for open heart surgery between July 1988 and June 1989. By its application, Boca proposes to establish an adult open heart surgery program to enhance its cardiology services.
Boca's primary service area covers a radius of approximately ten miles around the hospital, and it routinely serves patients from Boynton Beach, Palm Beach County, on the north to Pompano Beach, Broward County, on the south. Presently, three providers of open heart surgery services are located proximate to Boca: approximately 11 miles north of Boca, an average drive time of 17 minutes, is Delray, a current provider of open heart surgery services in District IX; approximately 21 miles north of Boca, an average drive time of 32 minutes, is JFK, a current provider of open heart surgery services in District IX; and approximately 15 miles south of Boca, an average drive time of 19
minutes, is North Ridge General Hospital (North Ridge), a current provider of open heart surgery services in District X and the recipient of the vast majority of referrals for open heart services from Boca.
St. Mary's, a 378-bed not-for-profit community hospital located in West Palm Beach, Florida, is owned by the Franciscian Sisters of Allegheny, and has served the community for more than 50 years. In addition to the full range of medical surgical services, St. Mary's offers obstetrics, a Regional Perinatal Intensive Care Center (RPICC) -- levels II and III, blood bank, dialysis center, substance abuse center, hospice center, free-standing cancer clinic, adult inpatient cardiac catheterization laboratory, and children's medical services clinic. Upon the opening of its 40-bed psychiatric center, which is currently under construction, St. Mary's will be the largest hospital in District IX. During the period of April 1988 through March 1989, St. Mary's performed 254 adult inpatient cardiac catheterziations. By its application, St. Mary's proposes to enhance its existing services by establishing an adult and pediatric open heart surgery program.
Currently, there are no pediatric open heart surgery programs in District IX. There are, however, two current providers of adult open heart surgery services located in Palm Beach County and proximate to St. Mary's: approximately 6 miles north of St. Mary's is Palm Beach Gardens, and approximately 11 miles south of St. Mary's is JFK.
Martin, a 336-bed not-for-profit community hospital established in 1939, is located in Stuart, Martin County, Florida. As with the other applicants, Martin offers a full range of acute care services, as well as adult inpatient cardiac catheterization services, a non-invasive cardiology laboratory, and cardiac rehabilitation and support services for cardiac patients and their families. No significant data is, however, available on Martin's adult inpatient cardiac catheterization program since it is a new service. By its application, Martin proposes to establish an adult open heart surgery program.
Currently, there are no open heart surgery programs located in the four northern counties of District IX (Martin, St. Lucie, Indian River, and Okeechobee Counties), and Martin is currently the only hospital located in those four counties that provides in-patient cardiac catheterization services. Accordingly, to access open heart surgery services within the district, residents of the northern four counties must avail themselves of the current programs existent in Palm Beach County.
The protestants
As heretofore noted, open heart surgery services are currently available at three facilities within District IX; Delray, JFK and Palm Beach Gardens, each of which is located in Palm Beach County.
Delray is a 211-bed acute care hospital, sited in the southern portion of Palm Beach County, and located in Delray Beach, Florida. It is a comprehensive hospital providing all services normally available in an acute care facility, with the exception of obstetrics, pediatrics and radiation ontology, and is part of a larger medical campus, operated by the same parent company, that includes a 60-bed inpatient rehabilitation hospital that is physically attached to Delray, a 120-bed psychiatric hospital, and a 120-bed skilled nursing facility. In addition to its other services, Delray provides inpatient cardiac catheterization services and has, since 1986, provided adult
open heart surgery services. With a recent addition, Delray has two dedicated open heart operating rooms (ORs) and one back up, as well as three separate intensive care units for coronary care, medical intensive care and surgical intensive care. For calendar year 1989 Delray reported to the local health counsel that it performed 338 open heart cases.
Delray is located approximately 11 miles north of Boca, an average drive time of approximately 17 minutes. Between Delray and Boca, there is more than a 50 percent overlap in the medical staffs of the two hospitals, and almost
70 percent overlap in the areas of cardiology and internal medicine.
Considering the overlap in the facilities' service areas, it is reasonable to conclude that if Boca's application is approved Delray would lose 122 open heart and 84 angioplasty cares in Boca's first year of operation and 130 open heart and 93 angioplasty cases in Boca's second year of operation. Such losses would translate into a after-tax income loss to Delray of approximately $645,000 in the first year of operation alone. Such loss of revenue and patients could adversely impact Delray's existing program.
JFK is a 369-bed community hospital located in Atlantis, Florida; a small town just south of West Palm Beach. It provides a full range of medical- surgical services, with the exception of OB-GYN and nursery services, including cardiac, cancer, orthopedic, and medical/surgical intensive care and coronary care. It established its inpatient cardiac catheterization and open heart surgery program in February 1987, and currently has ten operating rooms, two of which are devoted exclusively to open heart surgery, and a 16-bed cardiac care unit (CCU), 10 beds of which are dedicated to open heart patients. For calendar year 1989, JFK reported to the local health council that it performed 262 open heart cases.
As sited, JFK is located just south of West Palm Beach and within 10 miles of St. Mary's. Currently, there is an 83 percent overlap in the MDC-5 service areas (the service area closest to the open heart surgery program) of St. Mary's and JFK, and a substantial overlap between cardiologists on the staffs of both facilities.
During the period of January 1988 - May 1990, 43 percent of the patients St. Mary's referred for open heart and angioplasty services were referred to JFK. Assuming St. Mary's could achieve the volumes it projected in its application, it is reasonable to assume that JFK would lose 75 open heart and 83 angioplasty cases in St. Mary's first year of operation, and 91 open heart and 100 angioplasty cases in St. Mary's second year of operation. Such lose in the first year of St. Mary's operation would translate into a net reduction of $1,200,000 in JFK's income. Such loss of revenue and patients could adversely impact JFK's existing program.
Palm Beach Gardens is a 205-bed acute care hospital sited in north Palm Beach County. It provides inpatient cardiac catheterization services and has, since 1983, provided open heart surgery services. Currently, Palm Beach Gardens maintains two operating rooms dedicated to open heart surgery, and has a third operating room available for open heart surgery should the demand arise. For calendar year 1989, Palm Beach Gardens was the largest provider of open heart surgery services in the district, having reported to the local health council that it performed 491 open heart cases.
Palm Beach Gardens is located approximately 10 miles south of the Palm Beach County/Martin County line or a straight line distance of approximately 25 miles south of Martin and approximately 10 miles north of St. Mary's. During
the period of July 1988 - June 1989, 229 residents of St. Mary's primary service area had open heart surgery at Palm Beach Gardens, and 142 residents of Martin's primary service area obtained such services at that facility. If Martin's proposal is approved and its utilization projections realized, Palm Beach Gardens would lose approximately 84 cases in year one of Martin's operation and
101 cases in year two. Such losses in year two would translate into a
$1,400,000 pretax reduction in Palm Beach Gardens' net revenues. Such reduction in revenues and patients was not, however, considering Palm Beach Garden's financial condition and open heart surgery volume, shown to have any significant adverse impact to Palm Beach Gardens, or any identifiable program within its facility. Likewise, should St. Mary's application be approved, volumes at Palm Beach Gardens would not be reduced below optimal levels, and it would not suffer any significant adverse impact to existing programs.
The parties' stipulation
The parties have agreed that the following facts are admitted:
Boca, St. Mary's, and Martin Memorial timely filed their Letters of Intent and CON applications at issue in this proceeding. Further, the parties stipulate that the Letter of Intent complied with all statutory and rule requirements.
The construction costs of $100,000 as set forth in Table 25 of St. Mary's application is a reasonable construction costs estimate for the renovation of one special procedures room to perform open heart surgery as proposed in St. Mary's schematic plans.
The parties admit that adult open heart surgery services are currently available within a maximum automobile travel time of two hours under average travel conditions for at least 90 percent of HRS Service District IX's population. This stipulation is not meant to preclude other relevant evidence regarding travel times within or without District IX.
All existing providers of open heart surgery in District IX are JCAHO accredited; all applicants in this proceeding are JCAHO accredited.
Each of the applicants, if approved, have the ability to implement and apply circulatory assist devices such as intra-aortic balloon assist and prolonged cardiopulmonary partial bypass for adult open heart surgery.
Each of the applicants, if approved, will be capable of fulfilling the requirements of an adult open heart surgery program to provide the following services: medicine, for example, cardiology, hematology, nephrology, pulmonary medicine and infectious diseases; pathology, for example, anatomical, clinical, blood bank and coagulation lab; anesthesiology, including respiratory therapy; radiology, for example, diagnostic nuclear medicine lab; neurology; adult cardiac catheterization laboratory services; non-invasive cardiographics lab, for example, electrocardiography including cardiographics lab, for example, electrocardiography including exercise stress testing, and echocardiography; intensive care; and emergency care available 24 hours per day for cardiac emergencies. This stipulation relates only to the provision of medical services, not that the applicants have sufficient capacity to provide those services in connection with an open heart surgery program.
The redesignation of acute care beds from medical/surgical beds to any type of critical care unit beds, except for neonatal intensive care beds, does not require a certificate of need unless the hospital incurs a capital expenditure in excess of the capital expenditure threshold in accomplishing this redesignation.
The Department's open heart surgery and methodology and the "fixed need" pool.
On August 11, 1989, the Department, pursuant to Rule 10-5.008(2)(a), Florida Administrative Code, published notice of the fixed need pool for open heart surgery programs for the July 1992 planning horizon in the Florida Administrative Weekly. Pertinent to this case, such notice established a net need for zero new adult open heart surgery programs in District IX. There was, however, no publication of any fixed need pool for pediatric open heart surgery.
Following publication of the fixed need pool, the Department received protests contending that its calculation of net need was erroneous. Upon review, the Department concluded that its initial calculation was in error, and on September 1, 1989, the Department published a notice of correction in the Florida Administrative Weekly, and established a new net need for one open heart surgery program in District IX.
On September 5, 1989, St. Mary's challenged the Department's corrected need assessment, claiming the Department had underestimated the need in District IX for adult open heart surgery services, and on September 8, 1989, Palm Beach Gardens challenged the Department's assessment, claiming the Department had overestimated the need for open heart services in the district. These challenges were forwarded by the Department to the Division of Administrative Hearings, along with a request for the assignment of a hearing officer to conduct all necessary proceedings required under law.
Pertinent to the derivation of the fixed need pool, the Department has established by rule an adult and pediatric open heart surgery methodology that must normally be satisfied before any new open heart surgery programs will be approved. That methodology, codified in Rule 10-5.011(1)(f), Florida Administrative Code, forms the premise for the Department's calculation of net need in the instant case.
Pertinent to this case, Rule 10-5.011(1)(f), Florida Administrative Code, provides:
2. Departmental Goal. The Department will consider applications for open heart surgery programs in context with applicable statutory and rule criteria. The Department will not normally approve applications for new open heart surgery programs in any service area unless the conditions of Sub-paragraphs 8. and 11., below are met.
* * *
8. Need Determination. The need for open heart surgery programs in a service area shall be determined by computing the pro- jected number of open heart surgical pro- cedures in the service area. The following formula shall be used in this determination:
Nx = Uc X Px
Where:
Nx = Number of open heart procedures projected for year X;
Uc = Actual use rate (number of procedures per hundred thousand popu- lation) in the service area for the 12 month period beginning 14 months prior to the Letter of Intent deadline for the batching cycle;
Px = Projected population in the service area in Year X; and
Year X = The year in which the proposed open heart surgery program would initiate service, but not more than two years into the future.
* * *
11.a. There shall be no additional open heart surgery programs established unless:
the service volume of each existing and approved open heart surgery program within the service area is operating at and is expected to continue to operate at a minimum of 350 adult open heart surgery cases per year or 130 pediatric heart cases per year; and,
the conditions specified in Sub-paragraph 5.d., above, will be met by the proposed program.
No additional open heart surgery programs shall be approved which would reduce the volume of existing open heart surgery facilities below 350 open heart procedures annually for adults and 130 pediatric heart procedures annually, 75 of which are open heart.
Sub-subparagraph 5d, referenced in subparagraph 11a(II), provides:
Minimum Service Volume. There shall be a minimum of 200 adult open heart procedures performed annually, within 3 years after initiation of service, in any institution in which open heart surgery is performed for adults. There shall be a minimum of 100 pediatric heart operations annually, within 3 years of initiation of service, in any insti-
tution in which pediatric open heart surgery is performed, of which at least 50 shall be open heart surgery.
Essentially, the subject methodology contemplates that three conditions must be satisfied before an application for a new adult open heart surgery program in the district would normally be approved: (1) a calculated net numeric need under the Department's mathematical methodology; (2) a determination that "the service volume of each existing and approved open heart surgery program within the service area is operating at and is expected to continue to operate at a minimum of 350 open heart surgery cases per year"; and
(3) a demonstration that the applicant could perform "a minimum of 200 open heart procedures (cases) annually within 3 years after service is initiated." The first two conditions are utilized by the Department to initially establish the fixed need pool for open heart surgery services. The third condition is, by rule, related to an applicant's ability to provide quality care, and will be discussed infra.
As a threshold for calculating need, and the fixed need pool, the Department's mathematical need methodology contains the formula for deriving the gross number of open heart surgical cases anticipated two years into the future. This methodology is based on the actual use rate in the district for the 12- month period beginning 14 months prior to the letter of intent deadline for the batching cycle. The number of cases is then divided by 350, which is consistent with the minimum service volume mandates of subparagraph 11 of the rule, to derive an actual gross need for open heart surgery programs at the horizon year. Existing and approved programs are then substracted to determine if there is a net need for a new open heart surgery program.
While there was some dispute among the parties as to what the appropriate underlying data was to drive the Department's numerical need methodology, the parties agreed and the proof demonstrated a fractional need greater than .5, under the formula. 1/
The second step in establishing a need for open heart surgery programs, and the fixed need pool, is a determination, as required by subparagraph 11(2)I of the rule, of whether "each existing and approved open heart surgery program within the service areas is operating at and is expected to continue to operate at 350 adult open heart surgery cases per year." Here, based on the data available to the Department when it established the fixed need pool, the three existing providers had operated at the following case levels for the preceding year: Palm Beach Gardens - 494 cases; Delray - 328 cases; and JFK
- 275 cases. Consequently two of the three existing providers were not operating at 350 cases per year. 2/
Based on the foregoing data, the Department initially published a net need for zero new open heart surgery programs in District IX. However, following the receipt of protests to the fixed need pool it had established, the Department, based on the same data, concluded its initial decision was erroneous, and published a notice of correction which established a net need for one new open heart surgery program in the district. This decision was timely challenged.
The Department's ultimate decision to publish a need for one new program was based on two factors. First, the Department had historically rounded the numerical need up where fractional need, as calculated by its methodology, was .5 or higher. Second, although of questionable validity at the
time, the Department had for several years "interpreted" the 350 case level, referred to in subparagraph (11) of the rule, to require that the average of the existing programs be at 350 before a new program would be approved, as opposed to the literal rule requirement that "each existing and approved open heart surgery program ... [be] ... operating at ... a minimum of 350 adult open heart surgery cases per year." Accordingly, with differing views then pending in the Department, it elected to recalculate the utilization level by applying the averaging approach, as opposed to applying the rule as written which it had done in initially determining zero need, and therefore published a corrected need for one new program.
On January 23, 1990, the Department issued final orders in three cases, each of which involved CON applications for open heart surgery services filed in the September 1988 batching cycle, Hillsborough County Hospital Authority v. Department of Health and Rehabilitative Services, 12 FALR 785 (1990), Humana of Florida, Inc. v. Department of Health and Rehabilitative Services, 12 FALR 823 (1990), and Mease Health Care v. Department of Health and Rehabilitative Services, 12 FALR 853 (1990). In each final order the Department's Secretary stated, with regard to the Department's averaging interpretation, that:
I conclude that the rule should be applied as written and that numeric need should be found only where each existing and approved open heart surgery program within the service district is operating at a minimum level of
350 open heart cases per year ....
I am not unmindful that the conclusion reached here departs from an established practice of interpreting subparagraph 11 of the need rule by averaging the number of cases done by the existing providers and finding subparagraph 11 to be satisfied if the average was 350 cases or more. As previously stated, I am now satisfied that application of the rule as written is more consistent with sound health planning ....
Consequently, the averaging practice that resulted in the Department's corrected notice of need for the September 1989 batching cycle at issue in this case was specifically rejected by the Department as being contrary to the rule as written before it published its notice of intent to grant Boca's application.
Even though the corrected need published by the Department was erroneous, as being derived contrary to the express language of the rule methodology, the Department and the applicants contend that such error is not subject to correction in this case because of the Department's fixed need pool rule and the Department's incipient policy regarding when it will correct errors in a fixed need pool that has already been published. Such contentions are, however, unpersuasive as a matter of law, discussed infra, and as not supported by any compelling proof.
The Department's fixed need pool rule, codified at Rule 10- 5.008(2)(a), Florida Administrative Code, provides:
Publication of Fixed Need Pools. The depart- ment shall publish in the Florida Administra- tive Weekly, at least 15 days prior to the letter of intent deadline for a particular batching cycle the fixed need pools for the applicable planning horizon specified for each service ... These batching cycle specific fixed need pools shall not be changed or adjusted in the future regardless of any future changes in need methodologies, popu- lation estimates, bed inventories, or other factors which would lead to different projections of need, if retroactively applied.
In this case there has been no change in the Department's need methodology that leads to a different projection of need, as proscribed by the fixed need pool, but, rather, an identified failure of the Department to properly apply its rule when it assessed need. While the Department may have consistently misapplied its rule in the past, such consistency does not cloth it past action with any propriety where, as here, such action is properly challenged or, stated differently, because the rule was misapplied in the past does not lead to the conclusion that its proper application constitutes a change in need methodologies. Accordingly, it is found that the fixed need pool rule does not, under the circumstances of this case, preclude correction of the need established through the Department's publication of its notice of correction. 3/
The Department and the applicants also contend that the Department's policy on how it will treat corrections to a fixed need pool that has already been published, and errors in a published fixed need pool which are discovered after the cycle has begun, precludes any correction of the need published for this batching cycle. Pertinent to this point, the Department points to its policy, which was published in the Florida Administrative Weekly contemporaneously with its initial assessment of zero need, that provides:
Any person who identifies any error in the fixed need pool numbers must advise the agency of the error within ten (10) days of publica- tion of the number. If the agency concurs in the error, the fixed need pool number will be adjusted prior to or during the grace period for this cycle. Failure to notify the agency of the error during this ten day period will result in no adjustment to the fixed need
pool number for this cycle and a waiver of the person's right to raise the error at
subsequent proceedings. Any other adjustments will be made in the first cycle subsequent to identification of the error including those errors identified through administrative hearings or final judicial review.
Any person whose substantial interest is affected by this action and who timely advised the agency of any error in the action has a
right to request an administrative hearing pursuant to Section 120.57, Florida Statutes. In order to request a proceeding under Section 120.57, Florida Statutes, your request for an administrative hearing must state with specifi- city which issues of material fact or law are in dispute. All requests for hearings shall
be made to the Department of Health and Rehab- ilitative Services and must be filed with the agency clerk at 1323 Winewood Blvd. Building 1, Room 407, Tallahassee, Florida 32301. All requests for hearings must be filed with the agency clerk within 30 days of this publication or the right to a hearing is waived.
According to the Department, its policy is to correct computational errors in the fixed need pool only if they are brought to its attention during the grace period which is triggered by the filing of a letter of intent, and if there is sufficient time to publish a corrected fixed need pool prior to the CON application deadline so that all potential competing providers will have notice of the changes. Errors brought to the Department's attention after the grace period will only be considered in the development of the subsequent batching cycle's fixed need pool, regardless of the nature or magnitude of the error. Errors brought to the Department's attention during the grace period, but not reviewed by the Department until after the grace period would only be corrected for subsequent batches. Errors identified in administrative hearings or upon judicial review, even though predicated upon a timely notice of error to the Department, would be corrected in subsequent batches, but not for the batch in which the error occurred.
The Department's enunciated rational for the foregoing policy is to instill "predictability" in the CON process, which it suggests promotes competition and affords the Department an opportunity to select from a broader field the best qualified applicants to "meet the need." Such rationale lacks, however, any reasonable basis in fact where, as here, there is no need to be met, and affronts sound health planning principles.
The 350 minimum procedure level established for existing providers, before a new program can be approved, is an important threshold bearing on quality of care. In this regard, it has been demonstrated that there is a direct relationship between volume of procedures and mortality, with better results being obtained at facilities operating at a minimum level of 200-350 procedures annually. Accordingly, precision in assessing the need for new open heart surgery programs is crucial to assure that any new program could reasonably be expected to achieve a sufficient level of service, and to assure that the level of service provided by existing facilities would not fall below the optimum threshold. The Department's policy ignores this relationship, would recognize a need where none exists and thereby adversely impact existing programs, and would impinge on future planning horizons. As importantly, the Department's policy would supplant its own rule methodology for calculating need, and render illusory any decision based on a balanced review of statutory criteria. Accordingly, it is concluded that the Department has failed to explicate its policy choice in the instant case, and that numeric need under the Department's methodology is a viable issue in these proceedings.
The need for the services being proposed in relationship to the district plan and state health plan.
Applicable to this case is the 1989 Florida State Health Plan, which contains the following preferences to be considered in comparing applications for open heart surgery programs:
Preference shall be given to applicants estab- lishing new open heart surgery programs in larger counties in which the percentage of elderly is higher than the statewide average and the total population exceeds 100,000.
Preference for new open heart surgery programs shall be given to applicants clearly demonstra- ting an ability to perform more than 350 adult procedures annually within three years of initiating the program. Quality of care has been demonstrated to be directly related to volume; thus, facilities are expected to perform a minimum of 350 adult procedures annually.
Preference shall be given to applicants who will improve access to open heart surgery for persons who are currently seeking the service outside of their HRS district. This will improve accessibility and reduce travel time for the residents in the district.
Preference shall be given to an applicant with a history of providing a disproportionate share of charity care and Medicaid patient days in the respective acute care subdistrict. Qualifying hospitals shall meet Medicaid disproportionate share hospital criteria. Priority should be given to an applicant who provides services to all persons, regardless of their ability to pay.
Preference shall be given to an applicant that can offer a service at the least expense yet maintain high quality of care standards. The physical plant of larger facilities can usually accommodate the required operating and recovery room specifications with lower capital expendi- tures than smaller facilities. Larger facilities also have a greater pool of the specialized personnel needed for open heart surgical procedures.
Preference shall be given to an applicant that performs percutaneous transluminal angioplasty, streptokinase, or other innovative techniques
as alternatives to surgery for low-risk patients.
The applicant shall include in its application a protocol regarding the selection of patients for surgery or alternative non-surgical therapeutic cardiac procedures.
All three applications are reasonably consistent with the state health plan's preference for establishing open heart surgery programs in counties in which the percentage of elderly is higher than the statewide average and the total population exceeds 100,000. In 1989, Palm Beach County had a population of 873,347, 23.4 percent of which were age 65 and over, which was higher than the statewide average of 17.9 percent. The next most populous counties in the district fell within Martin's primary service area, and were St. Lucie County, with a population of 142,440, 18.3 percent of which were age 65 and over, and Martin County, with a population of 96,336, 25.1 percent of which were age 65 and over. In all, the northern four counties had a population of 360,644, 21.2 percent of which were age 65 and over.
The state health plan also accords a preference to applicants who clearly demonstrate an ability to perform more than 350 adult procedures within three years of initiating the program. Of the three applicants, Boca is in the best position to achieve the preference based on the number of diagnostic cardiac caths performed at this facility, and the number of patients it has referred for open heart surgery. Comparatively, Martin and St. Mary's are unlikely to achieve such level of service within three years of initiating a program.
The third objective of the state health plan accords a preference for the applicant that will more clearly improve access to open heart surgery for persons who are currently seeking the service outside the district. Currently, while there is no access problem in the district, it is apparent that many district residents leave the district for open heart surgery.
During the period of July 1988 - June 1989, open heart procedures were performed on 782 people residing in Boca's primary service area. Of those, 316 received treatment in a District IX facility, 383 received treatment in a District X (Broward County) facility, and the balance received treatment elsewhere, but predominately in Dade County (District XI). While there was a substantial outmigration from Boca's primary service area for open heart services, the vast majority of such outmigration, 325 people, was serviced at North Ridge, a mere fifteen mile/nineteen minute trip from the Boca area.
With regard to St. Mary's primary service area, the proof demonstrated that during the same period 566 people sought open heart services, with 455 of those people receiving treatment within District IX. Of the 111 who sought service outside the district, 41 received treatment in Broward County and 61 received treatment in Dade County.
Finally, with regard to Martin's primary service area, 316 people sought open heart services, with 148 of those people receiving treatment within the district. Of the 168 who sought service outside the district, 90 received treatment in Broward County, 29 in District VII hospitals, and 39 in Dade County.
As heretofore noted, access is not a problem within District IX. However, to the extent this preference seeks to address the issue of outmigration, the proof demonstrates that Martin is the superior applicant. Clearly, the 15 mile/19 minute trip from the Boca area to North Ridge is not a barrier to access, and the number of people from St. Mary's primary service area seeking services outside the district are small in comparison to the other applicants. The residents of Martin's primary service area who seek treatment
outside the district are, however, disproportionately large when one considers the aggregate travel time they incur when accessing services in the Orlando or Melbourn areas, or Dade and Broward Counties.
The fourth objective of the state health plan accords a preference for the applicant with a history of providing a disproportionate share of charity care and Medicaid patient days in the district. Among the applicants, St. Mary's is the only disproportionate share provider and provides the largest number of Medicaid patient days in the district. As between Boca and Martin, the proof demonstrates that Martin is more committed to, and has historically been a greater provider of, care to the medically indigent.
The fifth objective of the state health plan accords a preference to the applicant that can offer a service at the least expense yet maintain high quality of care standards. Here, each of the applicants are large facilities, with demonstrated commitments to maintaining high quality of care standards. Martin has, however, demonstrated that it can offer the proposed service at the least expense. 4/
The last objective of the state health plan accords a preference to the applicant that will perform percutaneous transluminal angioplasty, strepokinase, or other innovative techniques as alternatives to surgery. Here, all applicants propose to offer such services.
District IX's 1988 Health Plan was in effect at the time the CON applications were at issue in this case were filed; however, that plan had not been adopted as a rule. Accordingly, such plan is not pertinent to this proceeding. Venice Hospital, Inc. v. Department of Health and Rehabilitative Services, Case Nos. 90-2383R, et seg., (DOAH 1990).
The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services in the district.
Open heart surgery is a specialized, tertiary health care service. A tertiary health service is defined by Section 381.702(20), Florida Statutes, as:
... a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost-effectiveness of such service....
As a tertiary service, planning for open heart surgery services is done on a regional basis and concentrated in a limited number of hospitals to insure the quality, availability and cost effectiveness of the program. Essentially, the concept of regionalization creates a distinction between hospitals; some hospitals offer routine acute care services, while special high risk services are concentrated in a limited number of hospitals. Encompassed within such concept is the expectation that patients will be transferred from one facility to another to obtain tertiary care services.
As a touchstone for assessing need within a service district, the Department has adopted the open heart surgery need methodology, discussed supra, that must normally be satisfied before a new open heart surgery program will be
approved. Under that methodology, further need for adult open heart surgery programs is determined based on the projected increase in the number of open heart surgery procedures two years into the future and the open heart surgery volume of existing providers. The rule provides that, regardless of the projected growth in the number of open heart procedures, no additional adult open heart programs are granted unless each existing adult open heart program performs a minimum of 350 procedures annually.
Application of the rule methodology to the facts of this case projects a growth in the projected number of open heart procedures sufficient to support a fractional need greater than .5, which the Department reasonably rounded to 1. However, two of the existing three providers were not performing a minimum of
350 procedures annually. Therefore, there is no need under the Department's methodology for a new open heart surgery program in District IX.
While no need under the Department's methodology, the applicants have advanced several factors which they contend reflect negatively on the availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization or adequacy of existing open heart programs in the district, and which they suggest warrant a finding of need based on special or not normal circumstances.
Foremost among the factors pressed by the applicants as indicitive of an abnormal circumstance is the high number of District IX residents who seek open heart surgery services outside the district; referred to in this case as outmigration. Outmigration is, however, simply an observation of patient flow patterns and does not, in and of itself, constitute an abnormal circumstance that would demonstrate need in the district. Rather, to demonstrate a not normal circumstance, such outmigration must be demonstrated to be a consequence of some failing of existing programs, i.e., accessibility or quality of care, to be pertinent to any abnormal need assessment. 5/ In this case, there is no such failing in the existing programs.
The three existing adult open heart surgery programs in the district are currently available to 90 percent of the population of the district within a maximum automobile travel time of two hours. Under such circumstances there is no geographic access problem within the district. Moreover, only Martin would actually enhance accessibility, were it a problem, because the residents of the four northern counties it proposes to serve must currently travel to Palm Beach County to access services within the district. In contrast, Boca is within approximately 30 minutes travel time of two existing providers in the district and an additional provider in District X. Likewise, St. Mary's is located less than 10 miles from two of the existing providers in the district.
As with geographic access, there is likewise no economic access problem in the district. While the Medicaid use rate within the district for calendar year 1989 was .1 percent, well below the statewide average of approximately 2 percent, such raw statistic does not demonstrate that there is a Medicaid access problem in the district. To persuasively demonstrate such fact from use statistics would require a demonstration that Palm Beach County's use rate was significantly lower than counties with similar demographics. Here, there was no such showing. Moreover, St. Mary's, the largest provider of Medicaid services in the district, was only shown to have transferred three Medicaid patients for open heart or angioplasty services from January 1988, through May 1990. Finally, each of the existing providers have contracted with the Palm Beach County Health Care District to provide care to indigent patients,
and have not refused service to anyone regardless of their ability to pay. Accordingly, it is concluded that there is no economic access problem within the district.
With two of the three existing providers operating below 350 procedures when this cycle commenced, there is clearly excess capacity within the district when one considers the fact that a single operating room has the capacity to handle at least 500 cases annually. In reaching this conclusion, the applicants' assertion that delays may have been encountered in gaining admission to some facilities during the season because of a lack of critical care beds has not been overlooked. However, any such delays were not reasonably quantified in terms of number or duration, and were not shown to be significant. As importantly, existing facilities have increased their critical care bed capacity, and can increase it further by merely redesignating acute care beds from medical/surgical beds to any type of critical care beds needed as the exigency arises.
Although two of the three existing providers offer relatively new programs, the proof is compelling that each provides a quality surgical and post surgical open heart surgery program, appropriately staffed, and that there is no want of quality care within the district. The use of agency nurses, as suggested by one applicant, was not persuasively demonstrated to reflect adversely on quality of care. Succinctly, simply because one is an agency nurse does not suggest substandard performance, and the use of agency nurses, as needed, to staff a facility does not, of itself, aversely impact patient care. Here, the staffs of existing facilities are appropriately trained and supervised, and offer their patients a quality program.
While there is certainly a significant outmigration from the district for open heart surgery services, such outmigration was not shown to be related to any infirmity in existing programs. Rather, such outmigration is most reasonably attributable to physicians' established referral patterns or patient preference. 6/
Finally, regarding special circumstances, St. Mary's suggests that its designation as a trauma center and the lack of pediatric open heart services to
90 percent of the population within a maximum automobile travel time of two hours warrant approval of its application. Such suggestions are, however, not supported by compelling proof.
While it is true that St. Mary's has been selected by the Palm Beach County Health Care District, along with Delray, for designation as a Level II trauma center, such designation has not been contractually finalized and St. Mary's has not applied for such designation with the Department. As importantly, on October 1, 1990, a new law regarding trauma centers became effective which will reopen the county trauma center designation process, and require facilities to be designated by the state as trauma centers. Under such circumstances, it is speculative whether St. Mary's will become a trauma center, and until such event actually occurs such factor is not significant to these proceedings.
St. Mary's quest for a pediatric open heart surgery program is premised on special circumstances, not numeric need, and finds it basis on the fact that no pediatric open heart surgery program exists in the district and that such pediatric services are not available to 90 percent of the population within two hours travel time. While such may be the case, St. Mary's application, on balance, fails to support such an award for a number of reasons.
First, St. Mary's application projects that it will perform 10 pediatric open heart surgery cases in its first year of operation, and 20 in its second year of operation. It contains no projection for the third year of operation, but St. Mary's consultant, Michael Schwartz, opined that St. Mary's would perform 50 pediatric open heart surgery cases by the third year based on his belief that St. Mary's would capture 80 to 100 percent of the potential pediatric referrals from District IX and the northern portion of District X.
Mr. Schwartz's opinions are not, however, credible.
During the period July 1, 1988 to June 30, 1989, there were 40 pediatric open heart surgery cases performed on patients residing throughout District IX, with 22 receiving treatment at Jackson Memorial (Dade County), 14 at Miami Children's Hospital, and 4 at Shands in Gainesville. During the same period, there were 24 open heart pediatric patients in northern District X, an area equi-distant in travel time from the Miami facilities and St. Mary's, with
15 receiving treatment at Jackson Memorial, 8 at Miami Children's Hospital and 1 at Shands. Each of these facilities are either teaching hospitals or specialty pediatric hospitals, are among the top four facilities in the state that perform over 100 pediatric open heart surgery cases each year, and each enjoys an excellent reputation for providing quality pediatric care.
Given existent referral patterns and the quality of existing pediatric programs, it is improbable that St. Mary's could reach its projected utilization for years one and two, much less attain a level of 50 pediatric open heart surgery cases during its third year of operation. In 1994, the third year of St. Mary's program, there would be approximately 53 pediatric open heart surgery cases performed on patients residing throughout District IX. To attain a level of 50 cases in its third year, St. Mary's would have to attract almost 100 percent of all cases arising within the district, an improbable occurrence. Equally improbable is St. Mary's ability to penetrate the pediatric open heart surgery market in northern Broward County, an area defined by Mr. Schwartz as being equi-distant in travel time from the Miami facilities and St. Mary's, given existent referral patterns and physicians' satisfaction with existing programs. In sum, the proof demonstrates that St. Mary's could not reasonably be expected to perform 50 pediatric open heart surgery cases within three years of initiating service.
In addition to its inability to generate sufficient volume to maintain service quality in a pediatric open heart surgery program, St. Mary's also lacks a pediatric cardiac cath program which is required of any facility proposing pediatric open heart surgery services. Notably, with regard to pediatric cardiac services, Rule 10-5.011(1)(e), which relates to cardiac catheterization services, and Rule 10-5.011(1)(f), which relates to open heart services, are mutually dependent.
The cardiac catheterization rule, as it relates to pediatrics, provides:
6. Coordination of Services.
* * *
Pediatric cardiac catheterization programs must be located in a hospital in which pediatric open heart surgery is being performed.
* * *
8. Need Determination.
* * *
f. Pediatric cardiac catheterization programs shall be established on a regional basis. A new pediatric cardiac catheterization program shall not normally be approved unless the numbers of live births in the service planning area, minus the number of existing and approved programs multiplied by 30,000, is at or exceeds 30,000. (Emphasis added)
Also pertinent to this issue, the open heart surgery rule provides:
3. Service Availability.
* * *
c. The following services must be provided in the health care facility within which the open heart surgery program is located and
must be capable of fulfilling the requirements of an open heart surgery program:
* * *
(VI) Cardiac catheterization laboratory....
The Department reasonably interprets the foregoing provisions as mandating that a pediatric cardiac catheterization program or pediatric open heart surgery program may not be approved independent of the other but, rather, they must coexist. Since the proof is clear that St. Mary's only operates and is only approved by the Department to operate an adult cardiac cath program, and it has not applied for a pediatric cardiac cath program, its proposal is deficient. 7/
In view of the foregoing, it is concluded that, while pediatric open heart services are not currently available within District IX and are not available to 90 percent of the population within two hours travel time, that St. Mary's application to initiate such services should be denied. It is further found that the provisions of the open heart surgery rule relating to the two- hour access standard, which does not specifically state whether such standard applies to adult, pediatric or both, is not applicable to pediatrics. Rather, the Department interprets such rule provision to apply only to adult programs, because such standard is not necessarily pertinent to pediatric open heart surgery since it is more specialized or tertiary in nature than adult open heart surgery programs. Given the close relationship between the cardiac cath rule and the open heart surgery rule, the Department's position is reasonable. In this regard, the cardiac cath rule establishes a travel standard for adult programs, but not pediatric. Rather, it provides for establishment of such programs on a "regional basis," and provides that a new pediatric cardiac cath program should not normally be approved unless the number of live births exceeds 30,000. Here, there were only 16,500 live births in District IX in 1988, a number that is insufficient to warrant a pediatric cardiac cath program. Given such fact, and the relationship between the two rules, the Department's interpretation is reasonable and the two-hour travel time standard does not apply to pediatric open heart surgery. Finally, as to adult open heart surgery services, it is concluded that there exist no special circumstances within the district that would warrant approval of a new open heart surgery program, and that existing facilities are providing appropriate quality care that is accessible to all residents of the district regardless of their ability to pay.
The ability of the applicant to provide quality of care and the applicant's record of providing quality of care.
Each of the applicants in this case has established an excellent record for providing quality care to their patients, and would be generally expected to provide high quality care for open heart surgery patients notwithstanding some failings in their applications.
During the course of the proceeding, some protestants contended that because an applicant failed to detail some particular item of equipment essential to an open heart program, that such failing reflected adversely on their ability to provide quality care. While such could be the case in the abstract, it does not, where, as here, the applicants have sound records, with a demonstrated ability to attract quality personnel to staff their programs. Such failings are, however, germane to the feasibility of the applicant's proposals, discussed infra.
Other failings pointed to by the protestants, included: St. Mary's proposal to utilize a call team composed of nurses who customarily assist at thoracic surgery and to recover its open heart patients in a mixed intensive care unit; St. Mary's inability to achieve a 200 and 350 case level per year; Martin's inability to achieve a 350 case level per year; and Martin's failure to document in its application the manner in which it could rapidly mobilize an open heart surgery team 24-hours a day, or how it would treat emergency patients within a two-hour period. Again, considering the quality of the applicants, and the quality personnel they will attract, as well as the parties' stipulation, these failings are minor and do not reflect adversely on their proposals with but one exception. 8/
The only significant factor presented that could bear on an applicant's ability to provide quality care is its ability to achieve optimal utilization levels. In this regard, it has been demonstrated that a relationship exists between the volume of open heart surgical procedures performed at a hospital and the quality of care rendered at those facilities, as measured by patient outcomes. Overall, facilities performing more than 350 cases per year experienced the lowest in-hospital death rate, with those performing more than 200 cases per year being next in line.
Pertinent to this issue, the Department has adopted Rule 10-5.011(f)5, Florida Administrative Code, which addresses service quality for open heart surgery programs. That rule, as heretofore noted under the findings related to the Department's need methodology, requires that a minimum of 200 adult open heart surgery cases be performed annually within 3 years of initiating the service, and that at least 50 pediatric open heart surgery cases be performed within 3 years of initiating such service. Here, St. Mary's has failed to demonstrate that it can achieve such level of utilization, and its ability to offer a quality program is therefore suspect. As importantly, Rule 10- 5.011(f)11.a.(II) precludes the approval of St. Mary's application under such circumstances. Boca and Martin could reasonably expect to perform at least 200 cases within 3 years.
The need in the service district of the applicant for special equipment and services which are not reasonably and economically accessible in adjoining areas, and the needs and circumstances of those entities which provide a substantial portion of their services or resources to individuals not residing in the service district in which the entities are located.
As heretofore noted, North Ridge is located in northern Broward County, a mere 15 mile/19 minute drive time from Boca.
North Ridge is a 395-bed hospital that provides all services with the exception of obstetric and radiation therapy, and has for 15 years provided open heart surgery services. It currently has two cardiac catheterization laboratories, and two dedicated and two backup open heart operating rooms. At an average of 750 cases per year, over the last few years, North Ridge has additional capacity, and could comfortably accommodate 1,000 cases per year.
North Ridge's primary service area is, and has been for sometime, northern Broward County and southern Palm Beach County, although prior to the initiation of other services in Palm Beach County it serviced the entire area. North Ridge markets extensively in southern Palm Beach County, has follow-up activities for its Palm Beach County residents, and has strong ties with the physician community in southern Palm Beach County. Accordingly, North Ridge has an established presence in southern Palm Beach County, with approximately 30-40 percent of its patients coming from that area.
North Ridge's mortality statistics, along with its utilization and reputation, mark it as an excellent facility with a quality open heart surgery program. Moreover, its charges for open heart surgery services are significantly below those of Palm Beach County facilities, as well as those proposed by Boca.
North Ridge's location makes it easily accessible to the patients of southern Palm Beach County, and physicians have not experienced any significant problems gaining access to that facility. Moreover, Boca's patients have been accorded first priority at North Ridge. With new technology and the development of various drug therapies, it is extremely rare for a patient to have such an urgent need for open heart surgery that transportation becomes a significant issue. When urgently needed, North Ridge, as well as Delray, can adequately serve the needs of southern Palm Beach County.
In sum, there is a viable alternative for residents of southern Palm Beach County to Boca's application, and that is their continued referral to North Ridge. That program is easily accessible, reasonably priced, and historically sound. On the other hand, to approve Boca's application would significantly adversely impact North Ridge, since their service areas in southern Palm Beach County and northern Broward County overlap in most material respects.
The availability of resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operations.
Each applicant has demonstrated that it either has or can obtain all resources, including health manpower, management personnel and funds for capital and operating expenditures. Boca and Martin each have the funds on hand for project accomplishment, and St. Mary's has demonstrated its ability to acquire such funds through donations, as needed, for project accomplishment. Each applicant is a quality provider of acute care services, and has demonstrated through its existing programs its ability to attract and retain appropriate management and health manpower for project accomplishment, notwithstanding the current nursing shortage being experienced locally and nationally. Accordingly, while the cost of skilled personnel to staff their open heart surgery programs may exceed their initial estimates in some cases, any of the applicants should be able to appropriately staff their program through the use of existing staff, national or local recruitment, or a combination thereof.
While each applicant has adequate resources, the viability of Boca's application has been challenged based on its failure to provide a complete list of all capital projects in its application, as required by Section 381.707(2)(a), Florida Statutes. In this regard, the proof demonstrates that the only item listed in its application was for an "expansion/upgrade" of the physical plant at a proposed cost of $6.2 million. That information was an accurate financial description of that project at the time, but did not include other items relating to other construction and equipment purchases to which Boca was committed. In this regard, as of September 1989, Boca had committed itself to an additional $1,261,400 for projects relating to its 1989 fiscal year and
$1,380,039 for projects relating to its 1990 fiscal year, for a total of
$2,641,439. All of these items will be capitalized by Boca, and it could have provided a list or summary of such projects at the time of filing its application in September 1989. Boca's failure to do so, failed to comply with section 381.707(2)(a), and prevented the Department from having a complete picture of Boca's financial resources to complete the project.
The extent to which the proposed services will be accessible to all residents of the service district, and the applicant's past and proposed provision of health care service to Medicaid patients and the medically indigent.
Of the proposed programs, only those advanced by St. Mary's and Martin would be reasonably accessible to all residents of the service district. In this regard, the geography and population densities of the district demonstrate that Palm Beach County, at 1,993 square miles, is the single most populous county in the district, with a 1989 population of 873,347. The northern four counties are geographically larger than Palm Beach County, at 2,404 square miles, and contained a 1989 population of 360,664, nearly one-third of the total population of the district. The most dense population in the northern four counties is the Martin County/Port St. Lucie area. The district itself measures
100 miles in length, north to south, in a straight line. Martin is located approximately 60 miles from the southern boarder of the district, St. Mary's is approximately 30 miles, and Boca is 2.1 miles
Considering Boca's geographic location, it would not be readily accessible to all residents of the district. Martin and St. Mary's are, on the other hand, sited such that they could, geographically, address the needs of the district as a whole. However, St. Mary's, like Boca, is proximate to a number of open heart surgery providers and would not improve geographic accessibility within the district, as would Martin.
Further bearing on the issue of accessibility, is the applicants' commitment to service Medicaid and the medically indigent. In this regard, the proof demonstrates that Boca has not been an historic provider of Medicaid or indigent care, and for its fiscal 1989 dedicated less than 1 percent of its total admissions to Medicaid and indigent care. On the other hand, St. Mary's patient mix has included 15 percent Medicaid and 5 percent indigent, and it is the highest Medicaid provider in the district. Martin has, although to a lesser degree than St. Mary's, also demonstrated a commitment to the underserved by historically serving 5 1/2 percent Medicaid and indigent patients.
In its application, Boca "committed" to provide at least 2 percent of gross revenue generated by the open heart surgery program for the provision of charity or indigent care on an annual basis. Considering Boca's nominal historic commitment to indigent care, its location in an affluent area of Palm
Beach County, and its closed staff, Boca could not reasonably achieve such level of care, and would not increase accessibility for underserved groups.
Comparatively, St. Mary's and, to a lesser extent, Martin, would increase accessibility for underserved groups should the need exist. Here, St. Mary's has projected that 7 percent of its total patient days will be devoted to Medicaid patients and 3 percent to indigent patients, and Martin has projected 5 percent Medicaid and indigent.
The costs and methods of the proposed construction.
In its application, Boca estimated a total project cost of $7,499,856 to construct and equip a new addition to house its open heart surgery program. That figure included a $6,147,900 construction fund and $783,056 for equipment costs to complete the two operating suites, recovery areas and ten-bed surgical intensive care unit proposed. Its estimates were, however, deficient.
Boca's equipment budget, as it appeared in its application, was prepared by an individual who had no expertise in this area, and was deficient in terms of the actual equipment listed and its cost. To properly equip and furnish the two operating room suites, recovery room areas and a ten-bed surgical intensive care unit proposed by Boca would require an expenditure in excess of $1,690,000. Adding necessary instrumentation and a backup pump could add an additional $50-60,000.
At hearing, Boca sought to minimize the significance of its underestimation by offering the testimony of an expert in medical equipment planning, cost estimating and procurement. That expert, Richard Drinkwine, was most credible and found, upon review of the Boca proposal that it was wanting in both equipment and cost. In his opinion a more reasonable cost to purchase moverable equipment would be $1,027,267, and a reasonable estimate for the furniture needs of Boca would be $92,257. This estimate was based on the assumption that Boca would not initially equip its second operating room, exam rooms or recovery rooms. To do so, would add an additional cost of $411,329 (movable and fixed equipment) for the second operating room and $160,000 to equip the recovery areas. Adding needed instrumentation and a back up pump would bring Boca's equipment costs to over $1,740,000. 9/
While Boca underestimated its equipment costs, the proof demonstrates that its construction estimate of $6,147,900 was overstated. The major factor which accounts for the overstatement by Boca in its application was an over estimate of the cost to construct the first floor of its addition, which is a covered parking area. In fact, Boca will be able to construct its proposed addition for approximately $5,226,397, or $921,503 less than it estimated in its application.
Although Boca could realize a significant savings on construction costs, and those savings would be adequate to almost offset the deficiencies in its equipment budget, the restructuring of its application at this time is not appropriate under the Department's Rule 10-5.010(2)(b). Notably, while the total cost figures might be the same, the additional equipment that is needed to equip Boca's program, and that was omitted from its application, is significant.
In addition to Boca's failure to demonstrate the reasonableness of its cost proposal, it is also found that Boca's proposal is oversized and overpriced to meet any demands Boca could reasonably expect to fulfill at any time in the foreseeable future. First, each of the two operating rooms proposed by Boca are
over 1,100 square feet in size. Such size is more than twice the size reasonably needed to accommodate open heart surgery. Second, areas in the central core and lounges are also larger then needed. More significantly, Boca is proposing a four-bed recovery area and ten dedicated SICU beds. Even assuming there is a need for an additional open heart surgery program in the district, Boca could never reasonably expect to capture sufficient market share to justify the capital expenditure necessary to warrant a 10-bed SICU. Ten SICU beds could handle between 900 and 1400 open heart patients in a year. There are no programs anywhere in South Florida, no matter how mature or well respected, that have achieved utilization close to that level, and it is not reasonable for Boca to expect to achieve such volumes.
Significantly, a portion of the capital cost for Boca's project would, under the present system, be passed along to the federal government by the capital cost pass through. By this mechanism, over $3,500,000 of Boca's project would ultimately be reimbursed to the hospital in the form of Medicare payments.
Compared to Boca's cost proposal, St. Mary's is modest. Here, the schematics submitted by St. Mary's with its application and omissions response depict the existing surgical suites at St. Mary's and the minor renovations necessary to convert an existing room into the proposed open heart surgery suite. As proposed, St. Mary's program would have a dedicated open heart surgery suite, as well as a backup operating room. Recovery would be accommodated in its existing 16-bed ICU.
In its application, St. Mary's estimated a maximum project cost of
$850,000 to remodel its existing facility and equip its proposed open heart surgery program. That figure included up to $100,000 for remodeling costs, and up to $700,000 for equipment costs. St. Mary's estimates are reasonable and cost effective whether its program is dedicated to adult and pediatric open heart surgery service or simply adult services. Significantly, the equipment needed to perform open heart surgery on adults and pediatrics is the same except for some special instruments. That cost, at less than $25,000, is nominal and does not affect the reasonableness of St. Mary's estimates.
As proposed in its application, Martin would construct 2,800 square feet of new space at its facility for the purpose of implementing an open heart surgery program. The location of the project is the hospital's first floor adjacent to both the cardiac catheterization laboratory and the existing surgical suites. This location will provide rapid access for cardiac catheterization emergencies requiring open heart intervention and will share common areas with the existing surgical suites, minimizing additional construction and project cost. It is also proximate to a 9-bed surgical intensive care unit. Of the eight existing operating rooms at Martin, two are large enough to serve as backup open heart operating rooms in the event of an emergency, but Martin has not proposed to establish, or budgeted the necessary equipment to establish, a backup operating room.
Martin, like St. Mary's, proposes a modest expenditure, compared to Boca, for the initiation of its open heart surgery program. In this regard, Martin's application estimates its total project cost at $1,239,029. That figure includes a total construction cost budget of $796,669, and an equipment budget at $375,360.
Martin's costs and methods of proposed construction are reasonable. While the proof demonstrates that approximately $411,000 is a reasonable cost to equip an open heart surgery suite, it also demonstrated that Martin currently
has on hand some necessary equipment, such as cell-savers and heating-cooling machines. Under such circumstances, Martin could reasonably equip its program within its $375,360 budget. It could not, however, equip a backup operating room within such budget, and without a backup operating room could not reasonably expect to be able to handle 500 open heart cases a year, as required by rule 10-5.011(f)3d, given the need to back up its cardiac cath program.
The immediate and long-term financial feasibility of the proposal.
To assess the financial feasibility of the project, Boca's pro forma of income and expense, contained within its application, projects 192 patients during the first year of operation of its open heart surgery program and 211 patients during the second year. Projected charges for both years are based on
$55,430 for DRG 104 and $41,942 for DRG 106 with an average length of stay of 10 days. Payor class mix is estimated to be as follows: Medicare 70 percent, Medicaid 0 percent (nominal), insurance 25 percent, other 3 percent, and indigent 2 percent. Net revenue over expenses for year one is projected to be
$1,303,312, and for year two to be $1,597,959. Boca's proposed charges, utilization levels, and payor mix are reasonable. However, its pro forma contained unreasonable assumptions regarding average length of stay, total deductions and expenses. 10/
At hearing, Boca made no effort to defend the unreasonable assumptions it had presented to the Department through the pro forma contained in its application. Rather, conceding the unreasonableness of its assumptions, it sought to minimize their import through the testimony of Rufus Harris, an expert in health care finance and accounting. Such objective was not, however, attained.
Mr. Harris, employed during the course of these proceedings, actually prepared a completely new pro forma for the Boca program. That pro forma significantly changed Boca's average length of stay from 10 to 16 days; significantly reduced the number of full time equivalents (FTEs) in open heart surgery, recovery and the surgical intensive care unit (SIC) from 39.3 to 24.1; increased the number of support FTEs from 25 to 30 or 32; increased the cost per FTE in the open heart surgery program by $800; increased the cost for each support FTE by $14,000; included the indigent care assessment ($68,000), utility cost ($108,000) and malpractice insurance cost ($17,000) that had been omitted from the application; increased the supply cost by $618,000; and reduced deductions from revenue by $186,000.
But for the charges, utilization levels, and payor mix, Mr. Harris' pro forma is a complete revision of Boca's application pro forma, and demonstrates that such pro forma was not based on reasonable assumptions. Although not based on reasonable assumptions, Mr. Harris opined that such failing is not material since Boca's pro forma, like his pro forma, calculated a profit. Mr. Harris' opinion is rejected. The bottom line profit he derived was based on a substantial change in Boca's proposed program. Such slight of hand does not address the financial feasibility of the program Boca proposed in its application.
Boca's proposal, developed through the testimony of its construction, equipment and financial experts, bears little resemblance to its initial application, and must be rejected as an impermissible amendment. Boca's application proposed two operating rooms. As such, Boca could facially handle at least 500 open heart surgery cases per year. As amended, with one operating room, Boca could not reasonably expect to attain such level of operations, given
the need to back up its cardiac catheterization program, contrary to Rule 10- 5.011(1)(f)3d. As proposed, Boca's open heart surgery program would include recovery areas and a 10-bed SICU, fully staffed. As amended, the SICU would be staffed with one FTE and other staffing substantially reduced.
Through downsizing, Boca would presume to significantly alter its proposal, and thereby demonstrate the reasonableness of its cost and financial feasibility projections. Such was not, however, the proposal submitted to the Department for review, and it cannot be permitted, at this stage of the proceedings, to amend its proposal in such material respects. Accordingly, based on the record, Boca has failed to demonstrate the financial feasibility of its proposal. 11/
St. Mary's pro forma of income and expenses projects 200 adult and 10 pediatric open heart surgery cases during its first year of operation, and 240 adult and 20 pediatric during its second year of operation. Separate pro formas describe the adult and pediatric parts of St. Mary's proposal. Actual charges proposed by St. Mary's will vary by DRG, as will average length of stay. The weighted average charges are, however, projected to be $38,000 for adult services and $43,025 for pediatric services during its first year of operation, and $39,900 for adult services and $45,176 for pediatric services during its second year of operation, based on a 10 day average length of stay. Payor class mix for adults is estimated as follows: Medicare 50 percent, Medicaid 7 percent, self pay/commercial 40 percent, and indigent 3 percent. Payor class mix for pediatrics is estimated to be as follows: Medicare 0 percent, Medicaid
50 percent, self pay/commercial 40 percent, and indigent 10 percent. Net revenue over expenses for its adult program is projected, on an incremental cost basis, to be $2,297,566 for year one, and $2,885,102 for year two. Net revenue for its pediatric program is projected, on an incremental cost basis, to be
$62,326 for year one, and $224,797 for year two. St. Mary's proposed charges, average length of stay, utilization levels, payor mix, as well as its assumptions regarding total deductions and expenses are not reasonable.
St. Mary's proposed charges were not shown to be reasonably achievable. Rather, where, as here, a facility's charge structure is based on consumption of services, the increased costs associated with an open heart program, discussed infra, would translate into significantly higher charges than those proposed by St. Mary's.
St. Mary's application contains no data to reasonably support its conclusions that it will achieve 200 adult cases in year one and 240 adult cases in year two, nor did the proof it offered at hearing demonstrate such potential. Rather, the persuasive proof demonstrated that St. Mary's could not reasonably expect to attract more than 80 adult open heart cases in its first year of operation, and that it would not even be able to attract 200 open heart cases during its third year of operation. Notably, the area St. Mary's proposes to serve is currently adequately served by two open heart surgery programs.
St. Mary's pro forma contains several other serious flaws. First, its gross patient revenues are driven by an average length of stay of 10 days. Such assumption is unreasonable, and St. Mary's could more reasonably expect an average length of stay of 15-17 days, with significantly higher expenses associated with the greater consumption of resources occasioned by such increased length of stay. Second, St. Mary's payor mix is significantly understated for Medicare. Here, the proof demonstrates that St. Mary's could reasonably expect to achieve a 68-70 percent Medicare utilization rate, as opposed to the 50 percent it projected. Such increase would significantly
reduce its self pay/commercial, assuming its Medicaid and indigent utilization levels are to be accorded any credence, and significantly increase its deductions from revenue. Third, St. Mary's pro forma significantly understated expenses, primarily with regard to supplies and FTEs. Had St. Mary's reasonably calculated its average length of stay at 15-17 days, its expenses for supplies and FTEs would have been substantially higher. Additionally, St. Mary's application only addresses the need to tap incremental FTEs in the nursing area, whereas initation of an open heart program would have a tremendous impact on all services in the hospital, such as lab, pharmacy and social services, with attendant higher costs. Based on the opinion of Richard Cascio, an expert in health care finance, which is credited, St. Mary's proposal is not financially feasible in the long term. 12/
Regarding St. Mary's pediatric open heart program, the proof, as heretofore found, fails to support is utilization projection of 10 cases in year one and 20 cases in year two. Therefore, St. Mary's has failed to demonstrate the long term financial feasibility of that program operated, as proposed, concurrently with an adult program. As a stand alone program, neither St. Mary's application nor the proof at hearing reasonably address such a prospect. However, since the pediatric program was not shown to be financially feasible with the adult program bearing a significant portion of operating expenses, it must also be concluded that the pediatric program would not be financially feasible were it to carry all operating expenses.
Martin's pro forma of income and expenses is predicated upon 148 adult open heart surgery cases during its first year of operation, and 195 cases during its second year of operation. Actual charges proposed by Martin will vary by DRG, as will average length of stay. Projected average charges are, however, projected to be $41,000 during its first year of operation and $43,080 during its second year of operation, based on a 15.7 day average length of stay. Payor class mix is estimated as follows: Medicare 63.0 percent, Medicaid 2.5 percent, private pay/commercial insurance 32.5 percent, and free care 2 percent. Net revenue over expenses is projected to be $260,000 for year one and $337,000 for year two. Martin's utilization levels, proposed charges, payor mix, and average length of stay are reasonable. Martin's pro forma did, however, contain some unreasonable assumptions regarding expenses, primarily staffing costs. 13/
Martin's pro forma estimates staffing costs based on the manpower requirements (FTEs) and salaries set forth in Table 11 of its application. It further calculates fringe benefits at 20 percent of salaries. Notably, however, the number of people needed to staff a program at a given FTE level is significantly higher than the raw FTE number. Accordingly, since Martin projected its salary expense and fringe benefits based on FTE's, its expenses associated with those items are understated. Further, the salaries Martin proposed in Table 11 for its operating room nurses are entry level salaries and Martin could not reasonably expect to recruit experienced open heart surgery personnel at such rates. Nor is its projected salary for a perfusionist, at
$59,551 reasonable. A more reasonable figure would be in excess of $75,000.
Even though the proof offered in opposition to Martin's application did demonstrate that Martin's assumptions regarding salary expenses were understated, it failed to demonstrate that Martin could not meet current market demands and still be profitable. Rather, Martin's proposal, while generating a lower bottom line, will still be profitable if such increased expenses are considered, and it is financially feasible in the long term.
While each of the applicant's have demonstrated the immediate financial feasibility of their projects, by demonstrating the availability of funds for project accomplishment and operation, only Martin has demonstrated the long term financial feasibility of its proposal.
Other criteria bearing on capital expenditure proposals for the provision of new health services to inpatients.
In cases of capital expenditure proposals for the provision of new health services to inpatients, Section 381.705(2), Florida Statutes, requires that the Department reference each of the following in its findings of fact:
That less costly, more efficient, or more appropriate alternatives to such inpatient services are not available and the development of such alternatives has been studied and found not practicable.
That existing inpatient facilities pro- viding inpatient services similar to those proposed are being used in an appropriate and efficient manner.
In the case of new construction, that alternatives to new construction, for example, modernization or sharing arrangements, have been considered and have been implemented to the maximum extent practicable.
That patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new service.
In the instant case, none of the foregoing criteria can be answered in the affirmative. Rather, the proof demonstrates that less costly, more efficient or more appropriate alternatives currently exist through increased utilization of existing facilities. It further demonstrates that two of the existing three providers have not yet attained a 350 case per year level of operation, and that their services are therefore not yet being used at an appropriate level. Existing utilization levels and capacity further demonstrate that patients will not experience any serious problems in accessing such services. Finally, the applicants further failed to demonstrate that they had considered alternatives to new construction and had implemented them to the maximum extent possible. In the case of all applicants' there is no proof of any effort to initiate sharing arrangements. On the matter of Boca's complaints regarding delays experienced in effecting patient transfers by ambulance, as well as the inadequacy of such ambulances and their breakdowns, it offered no proof that it had investigated other ambulance services or its ability to operate its own service and found them impractable. Notably, such services are an item over which Boca has significant control, and its failure to investigate alternatives in this regard evidences the insignificance of any such problem.
The criteria on balance.
In evaluating the applications at issue in this proceeding, none of the criteria established by Section 381.705, Florida Statutes, or Rule 10- 5.011(1)(f), Florida Administrative Code, has been overlooked. The applicants' failure to demonstrate need, either numeric or not normal circumstances, as well as their failure to demonstrate compliance with Section 381.705(2), Florida
Statutes, is, however, dispositive of their applications, and such failure is not outweighed by any other or combination of any other criteria. Further, even were the fixed need pool accorded the deference suggested by the Department, the other indicators of need subsumed within other criteria would dispel such illusion, and again compel the conclusion that there is no need in this case.
Had numeric need been demonstrated, and the need requirements encompassed within section 381.705(2) satisfied, the proof would still fail to support an award to Boca or St. Mary's. Rather, among the competing applicants, Martin was shown to best satisfy the pertinent review criteria on balance and would, under such circumstances, be the favored applicant.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings. Sections 381.709(5) and 120.57(1), Florida Statutes.
At issue in these proceedings is whether the Department correctly calculated a need for one new open heart surgery program in District IX; whether, if incorrectly calculated, such miscalculation can be corrected in the course of these proceedings; and, whether the applications of St. Mary's, Boca, and Martin, or any of them, for a certificate of need to establish an open heart surgery program should be approved.
As the applicants, St. Mary's, Boca and Martin have the burden of demonstrating their entitlement to a certificate of need. Boca Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative Services, 475 So.2d 260 (Fla. 1st DCA 1985), and Florida Department of Transportation v.
J.W.C. Co., 396 So.2d 788 (Fla. 1st DCA 1981). 14/
Pertinent to an evaluation of the pending applications, Section 381.705, Florida Statutes, and Rule 10-5.011, Florida Administrative Code, establish the criteria which must be considered in evaluating an application for a certificate of need. Balsam v. Department of Health and Rehabilitative Services, 486 So.2d 1341 (Fla. 1st DCA 1986), and Department of Health and Rehabilitative Services v. Johnson and Johnson Home Health Care, Inc., 447 So.2d
361 (Fla. 1st DCA 1984). The weight to be accorded each criterion and the consequent balancing of the criteria will vary, however, depending on the facts and circumstances of each case. Collier Medical Center, Inc. v. Department of Health and Rehabilitative Services, 462 So.2d 83 (Fla. 1st DCA 1985). See also: Graham v. Estuary Properties, Inc., 399 So.2d 1374 (Fla. 1918).
Among the criteria that must be considered in evaluating an application for a certificate of need is the need for the proposed services. Pertinent to this criteria, the Department has established by rule an open heart surgery methodology that must normally be satisfied before any new open heart surgery programs will be approved. That methodology, codified in Rule 10- 5.011(1)(f), Florida Administrative Code, specifically provides with regard to adult services:
11.a. There shall be no additional open heart surgery programs established unless:
(I) the service volume of each existing and approved open heart surgery program within the service area is operating at and is expected to continue operating at and is
expected to continue to operate at a minimum of 350 adult open heart surgery cases per year....
Here, the proof demonstrates that, when this cycle commenced, two of the existing three providers within the district were operating below the 350 case minimum. Accordingly, there is no need under the Department's methodology.
Although clearly no need under the Department's rule methodology, the Department and the applicants would have these proceedings bound by the erroneous publication of a need pool for one new open heart surgery program during this cycle. To this end, such parties contend that the Department's fixed need pool rule, as well as the Department's incipient policy regarding when errors in the fixed need pool will be corrected, preclude a recognition of error in this case. For the reasons set forth in the findings of fact such contention is rejected. Summarily, the Department's fixed need pool rule does not prevent the correction of an erroneous calculation of need where, as here, such error was occasioned by a misapplication of the Department's rule. Rather, the Department is charged by law with the duty to apply its rules as written and it cannot, when timely challenged, refuse to address its failure to do so. See: Boca Raton Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative Services, 493 So.2d 1055 (Fla. 1st DCA 1986), and Kearse v. Department of Health and Rehabilitative Services, 474 So.2d 819 (Fla. 1st DCA 1985). As importantly, when an agency seeks to apply incipient policy in a section 120.57(1) proceeding, as the Department has done here with regard to its policy regarding when errors in the fixed need pool will be corrected, it must explicate such policy with competent, substantial evidence. St. Francis Hospital, Inc. v. Department of Health and Rehabilitative Services, 553 So.2d 1351 (Fla. 1st DCA 1989). Here, the Department failed to demonstrate the reasonableness of its policy regarding when such errors will be corrected. Rather, the proof demonstrates that it would be unreasonable not to address such errors at the time they occur.
Under the facts and circumstances of this case, as heretofore found, the applicants have failed to demonstrate their entitlement to a certificate of need since they have failed to demonstrate need under the Department's methodology or by not normal circumstances, as well as the need criteria encompassed within Section 381.705(2), Florida Statutes. Even were the fixed need pool to be accorded the deference suggested by the Department in this case, the other indicators of need encompassed within other review criteria would put the lie to such illusion, and again compel the conclusion that that there is no need for the proposed service.
Were need not dispositive of the applicant's quest in this case, the proof would demonstrate, as heretofore found, that among the applicants Martin has the superior proposal. Boca and St. Mary's have not, under any circumstance, demonstrated their entitlement to a certificate of need based on the statutory and rule criteria. Moreover, St. Mary's application must fail, with respect to its proposed pediatric open heart surgery program, because it has no pediatric catheterization program, and Boca's application must fail because it failed to supply a complete list of capital projects with its application, as required by Section 381.707, Florida Statutes. 15/
Based on the foregoing findings of fact and conclusions of law, it is recommended that a final order be entered denying the applications of Boca, St.
Mary's and Martin for a certificate of need to establish an open heart surgery program in District IX.
RECOMMENDED in Tallahassee, Leon County, Florida, this 15th day of March 1991.
WILLIAM J. KENDRICK
Hearing Officer
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 15th day of March 1991.
ENDNOTES
1/ When the Department calculated need under the formula, the data available to it was for the period of April 1988 through March 1989. The rule mandates, however, that data for the period of July 1988 through June 1989 be used under the circumstances of this case. There is not, however, any significant difference in the result reached using either data base. The base used by the Department calculates a net need for .56 new programs, and the base mandated by the rule calculates a net need for .57 new programs.
2/ As with the Department's calculation of need under the formula, the data available to it when it assessed the service volume of existing providers was for the period of April 1988 through March 1989. Had the Department used the period of July 1988 through June 1989 to assess service volume, it would have found that the three existing providers had operated at the following case levels for the preceding year: Palm Beach Gardens - 512 cases; Delray - 348 cases; and JFK - 277 cases. Therefore, based on either data base, two out of the three existing open heart providers were operating at below 350 cases per year.
3/ Notably, the position of the Department and the applicants, that proper application of the rule methodology for calculating need in this case is barred by the fixed need pool rule because it constitutes a change in methodology, is a two-edged sword. Here, the first fixed need published under the rule methodology was correctly calculated to be zero. The corrected need of one established thereafter was derived using a different, albeit an erroneous interpretation, of the methodology. Applied literally, the Department's and the applicants' position would compel the conclusion that the corrected need resulted from a change in need methodologies and was therefore improper under the fixed need pool rule. More importantly, acceptance of the parties' premise would prevent the Department from conforming it conduct to accepted law. In this regard, it cannot be gainsaid that the Department is charged by law with applying its rules as written. See Boca Raton Artificial Kidney Center, Inc. v.
Department of Health and Rehabilitative Services, 493 So.2d 1055 (Fla. 1st DCA 1986), Kearse v. Department of Health and Rehabilitative Services, 474 So.2d 819 (Fla. 1st DCA 1985), and Gadsden State Bank v. Lewis, 348 So.2d 343 (Fla. 1st DCA 1977).
4/ Of the three applicants, Boca projects the highest charges for years one and two, and the highest capital expenditure to initiate the program. St. Mary's offers the lowest charges of the three applicants as well as the least capital expenditure; however, St. Mary's proposed charges, based on historical data, are unreasonable, as hereinafter discussed. Martin's proposed charges are reasonable, as is its proposed capital expenditure.
5/ The open heart surgery need methodology does not ignore outmigration, and recognizes that patients, for various reasons, will seek open heart surgery services outside their district. For example, patients from Palm Beach County that seek services in Broward or Dade County are counted for purposes of determining the use rate when calculating the need for services in those districts. To utilize outmigration alone as a factor for approving additional programs would result in an oversupply of such services since the patients who chose to outmigrate would, in effect, be double counted.
6/ In the case of Boca, the huge success of its cardiac cath program, and the resulting high referral rate for open heart surgery services may be premised on a more basic motive. Here the proof demonstrates that approximately 30 percent of those patients who undergo cardiac cath will ultimately require open heart surgery or angioplasty. It further shows that a direct relationship exists between cardiac cath volume and open heart surgery volume at facilities that offer both services. Where cardiac cath alone is offered it is not, however, a reliable indication of the open heart volume a prospective provider could achieve because there are a significant number of patients who, because the physician feels will need open heart surgery and who he does not want to put through an admission to two facilities, would not be admitted to a facility that did not also provide open heart services. Boca's cardiac cath statistics and open heart volume projections are, however, consistent with a facility that offered both programs. This is not an anomaly, but is directly related to a peculiar arrangement existing at Boca.
Boca's staff is closed. At Boca, a group known as Boca Raton Invasive Cardiology (BRIC) has an inclusive contract with the facility to provide cardiac cath services. Dr. Guzman is the only professional employee of BRIC, and performs all invasive cardiology at Boca. BRIC is owned by the seven cardiologists on staff at Boca, and is an extremely profitable venture. The seven owners split 35 percent of its profits, and Dr. Guzman receives 65 percent of its profits. In the past year, each owner's share of 5 percent earned them approximately $50,000, without performing any professional services.
Accordingly, there is a high motivation for Boca's cardiologists to refer cardiac cath patients to Boca, and not other District IX facilities. There is likewise a high motivation on their part to transfer patients out of the district to retain their profit basis.
7/ At hearing, St. Mary's contended that its certificate of need, issued September 26, 1984 to provide cardiac catheterization services was not restricted to adult procedures, and that it is, therefore, authorized to provide pediatric cardiac cath services. The proof does not, however, support St.
Mary's contention.
Here, the proof demonstrates that in 1984 St. Mary's filed an application with the Department for a CON to initiate open heart surgery and cardiac cath services. In response to the Department's request for additional information and clarification, St. Mary's, in response to the Department's question "Will the proposed services be for adults, children or both?", responded: "The proposed programs are intended for adults." St. Mary's then proceeded to provide additional information designed to demonstrate compliance with existing rules related to adult services only.
St. Mary's application for an open heart surgery program was denied, but its application for a cardiac cath program was approved. That CON described the program as the "addition of a cardiac catheterization program," and was conditioned on St. Mary's securing a written referral agreement with an area hospital providing open heart surgery. Subsequently, St. Mary's initiated an adult cardiac cath program, and has never presumed to undertake pediatric cardiac cath services.
Pertinent to this case, the cardiac cath rule then in effect provided, not unlike the current rule, that:
Minimum Service Volume. In order to assure quality of service, there shall be a minimum of 300 cardiac catheterizations per- formed annually in any adult cardiac catheter-
ization laboratory within three years following its initiation of service. In order to assure quality of service, there shall be a minimum
of 150 pediatric cardiac catheterizations performed annually in any laboratory performing pediatric cardiac catheterizations, within
three years following its initiation of service. Applicants for either of these services must document that proposed laboratories can meet these minimum volume requirements.
Coordination of Services.
a. Cardiac catheterization laboratories proposed in a facility not performing open heart surgery must submit, at the time of certificate of need application, a written referral agreement with a facility providing open heart surgery services which is within
30 minutes' travel time by emergency vehicle under average travel conditions.
* * *
c. Pediatric cardiac catheterization labora- tories must be located in a hospital in which pediatric open heart surgery is being performed or for which a currently valid certificate of need has been issued for the establishment of such service, whereever possible.
Here, the proof is compelling that St. Mary's did not apply for a pediatric cardiac cath program (or a pediatric open heart program for that matter); that, as a consequence, the Department did not review St. Mary's application for compliance with rule criteria relating to pediatric cardiac cath; and that the rule as it existed then and today would preclude such approval absent the
concurrent provision of pediatric open heart surgery services. In sum, St. Mary's contention that its existing CON authorizes it to provide pediatric cardiac cath services is not supported by the proof.
8/ Under normal circumstances St. Mary's use of a call team composed of thoracic surgery nurses and a mixed ICU would not be ideal. Here, however, St. Mary's currently has 10 nurses on staff with open heart operating room experience and 13 critical care nurses trained in open heart intensive care.
Given such staffing, and St. Mary's proposal to cross train, it could provide quality care with such an arrangement.
9/ Boca employed Mr. Drinkwine in June 1990 in preparation for hearing. Normally, such experts are employed at the early planning stages of projects such as this to establish reasonable estimates. At hearing, Boca presented Mr. Drinkwine's estimates to "test" the accuracy of its application, and not as an application amendment. As presented, such testimony demonstrated that Boca's application was deficient.
10/ During the period of July 1988 through June 1989, 192 cardiac patients who were hospitalized at Boca were referred to other facilities for open heart surgery under DRGs 104 or 106. This is a conservative estimate upon which to project the financial feasibility of Boca's program given the relationship between cardiac cath and open heart volumes, as well as the physician support Boca has for its program. It is likewise conservative, being based only on DRGs
104 and 106. Boca could, likewise, expect admissions, although to what extent was not shown of record, based on other open heart DRGs over and above those estimated which would increase its gross income.
11/ At hearing, Boca professed to offer the opinions and analysis of its experts in construction, equipment and finance to "test" the reasonableness of its assumptions and not as an application amendment. Essentially, Boca suggested that such testimony would demonstrate that any discrepancies in its initial proposal were minor. That testimony demonstrated, however, that Boca's original application was based on unreasonable assumptions regarding capital costs, equipment costs, average length of stay, staffing levels, staffing salaries, supplies and other expenses, that bear significantly on its proposal. It further demonstrated that the only manner in which its proposal could be rendered reasonable would be to materially change each of these factors. Since such amendment would be impermissible, Boca has failed to demonstrate the financial feasibility of its proposal.
12/ Mr. Cascio's conclusions were drawn based on the assumption that St. Mary's could achieve 100 adult cases in its first year of operation and 120 adult cases in its second year of operation. Given St. Mary's inability to even achieve those levels of operation, its losses would be even greater.
13/ While Martin's utilization projections are reasonable, it should be noted that its success will occur by diverting patients from existing District IX providers, primarily Palm Beach Gardens. Further, although it may reasonably reach 200 cases during its third year of operation, there is no persuasive proof as to when, if ever, Martin will achieve 350 cases.
14/ Here, the applicants have challenged the standing of the existing providers (Delray, JFK, and Palm Beach Gardens) to participate in these proceedings.
While such challenge might, under other circumstances, be considered a threshold issue, it is of no import to the ultimate resolution of these cases since the competing applicants and the Department have joined issue with each other.
Delray and JFK have, however, demonstrated standing by establishing that an established program will be substantially affected by the issuance of a certificate of need to a competing proposed facility in the district. Palm Beach Gardens has not so established. Section 381.709(5)(b), Florida Statutes.
15/ The protestants also contended that St. Mary's application for an adult program must fail because it was so intimately tied to its pediatric program as not to be separately identifiable. Such is not, however, found to be the case.
APPENDIX TO RECOMMENDED ORDER, CASE NOS. 89-5115, 89-5574, 90-1470, 90-1471, and 91-1472
Boca's proposed findings of fact are addressed as follows:
1-5. To the extent necessary, addressed in paragraph 4; otherwise not necessary to the result reached.
Addressed in paragraphs 1-3.
To the extent pertinent, addressed in paragraphs 89 and 91. 8-14. Addressed in paragraphs 19-37.
15-26. Addressed in paragraphs 41-45, and 50-60. Further, the evidence referenced in paragraphs 25 and 26 was not found to be reliable or persuasive. 27-38. Addressed in paragraphs 38-49, 86-88, and footnotes 4 and 6.
39-45. Addressed in paragraphs 58, 59, and 76-81.
46-54. To the extent necessary, addressed in paragraphs 71, 72, 89-95, and
101-107.
55. Addressed in paragraphs 58-60, 76-81 and 117.
56-60. To the extent necessary, addressed in paragraphs 50, 51, 76-81, 116 and
117. Further, any loss in continuity of care was not shown to be a significant problem, nor was patient convenience. As to patient safety, see paragraph 117 and footnote 6.
61-66. To the extent pertinent, addressed in paragraph 82. 67-75. Addressed in paragraphs 83, and 101-107.
Not necessary to result reached.
Rejected as contrary to the proof. See also paragraph 79.
Rejected as not shown to be significant and, further, the cost Boca proposes for its program is so significantly higher than that charged by North Ridge, that any such ambulance charges are insignificant.
Addressed in paragraph 12.
80-86. Addressed in paragraphs 89-95.
87. Addressed in paragraphs 86-88.
St. Mary's proposed findings of fact are addressed as follows:
Addressed in paragraphs 19-21.
Addressed in paragraph 3.
3 and 4. Rejected as not a finding of fact.
5-7. To the extent pertinent and supported by the proof, addressed in paragraphs 6, 46, and 67-79.
8 and 9. Addressed in paragraphs 61-70.
Addressed in paragraphs 41-45, 84 and 85.
Addressed in paragraphs 46 and 86-88.
Addressed in footnote 6.
Addressed in paragraph 82.
14-27. Addressed in paragraphs 63-70, 81, 82, 96, 97, and 107-111, and
footnote 8.
28 and 29. Addressed in paragraphs 57, and 63-70. Otherwise not persuasive or supported by the proof.
To the extent pertinent, addressed in paragraphs 42-44, 55, and footnote 5.
Not pertinent. See paragraph 62.
To the extent pertinent, addressed in paragraphs 42-44.
34. Addressed in paragraphs 54-70.
35-41. Addressed in paragraphs 8, 9, 39, 46, 71, 72, 86, 88, 98-100, and 112-
115.
42-49. Addressed in paragraphs 4, 5, 42, 46, 71, 72, 76-81, 86-88, 89-95, 101-
106, and footnote 6.
50-52. Addressed in paragraphs 11 and 12.
53 and 54. Addressed in paragraphs 16, 17, and 57, to the extent shown to be pertinent.
55-59. To the extent pertinent or necessary, addressed in paragraphs 13-15, and 57.
60-67. Addressed in paragraphs 38-49.
68 and 69. Addressed in paragraphs 50-70. 70-73. Addressed in paragraphs 71-75.
Addressed in paragraphs 76-81.
Addressed in paragraph 82.
76-80. Addressed in paragraphs 89-115.
81 and 82. Rejected as not supported by the proof. See paragraphs 107 and 108.
Addressed in paragraphs 89-100.
Addressed in paragraphs 86-88.
85. 86 and | 87. | Addressed in paragraphs 116 and Addressed in paragraphs 61-70. | 117. | |
88-90. | Addressed in paragraphs 91, 96, | and 98. | ||
91. | Addressed in paragraphs 63-70. | |||
92. | Addressed in paragraphs 18, 40, | 66, 75, | 82, 96, 97, and 109. | |
93. | Addressed in paragraphs 107 and | 108. | ||
94. | Addressed in paragraphs 38-49. |
Martin's proposed findings of fact are addressed as follows: 1-3. Addressed in paragraphs 1, 10, 39, 42-44, and 84.
4-11. Addressed in paragraphs 4-17.
12-25. Addressed in paragraphs 82, 83, and 89-115.
26. Addressed in paragraph 18.
27-34. Addressed in paragraphs 19-37.
35-38. Addressed in paragraphs 37, 40 and 71-75; likewise rejected as comment on the evidence.
39-45. Addressed in paragraphs 42-45, 64-70, 107 and 109.
46-57. Addressed in paragraphs 101-115.
58-63. Addressed in paragraphs 39, 41-45, 57 and 84-88.
64-67. Addressed in paragraphs 10-17.
68-76. Addressed in paragraphs 38-49.
The Department's proposed findings of fact are addressed as follows:
1-19. To the extent pertinent or necessary to the result reached, addressed in paragraphs 4-9, and 18.
20-33. To the extent pertinent or necessary to the result reached, addressed in paragraphs 19-37, and 83.
34-45. Addressed in paragraphs 38-49.
46-66. Addressed in paragraphs 19-37, 50-70, 118, 119, and footnote 15.
67-75. Addressed in paragraphs 37, 71-72, 101-115, and footnote 6.
75. Not shown to be significant.
76 and 77. Addressed in paragraph 82.
78-80. Addressed in paragraphs 89-95, and 101-107.
81 and 82. To the extent pertinent, addressed in paragraph 101.
83 and 84. Addressed in paragraphs 94 and 95.
85 and 86. Addressed in paragraphs 86-88.
Delray's proposed findings of fact are addressed as follows:
1-6. Addressed in paragraphs 4-9, otherwise addressed when raised in pertinent paragraphs of Delray's proposal.
7. Addressed in paragraphs 1-3, 19 and 20. 8-10. Addressed in paragraphs 10-17.
11-40. Addressed in paragraphs 38-49.
41-54. Addressed in paragraphs 19-37.
55-94. Addressed in paragraphs 50-70.
95-111. Addressed in paragraphs 76-81, and footnote 5.
112-121. Addressed in paragraphs 116 and 117, and footnote 6.
122-123. Addressed in paragraphs 71-75.
124-147. Addressed in paragraphs 101-115.
148-160. Addressed in paragraphs 89-100.
161 and 162. Addressed in paragraphs 86-88. 163-170. Addressed in paragraphs 11 and 12. 171-182. Addressed in paragraph 83.
JFK's proposed findings of fact are addressed as follows: 1-3. Addressed in paragraphs 1, 6, and 13.
4-8. Addressed in paragraphs 50-51.
9-16. Addressed in paragraphs 56-58.
17-20. Addressed in paragraphs 59 and 60.
21-26. Addressed in paragraph 55.
27-33. Addressed in paragraph 62.
34-46. Addressed in paragraph 109.
47-58. Addressed in paragraphs 64-66.
59-64. Addressed in paragraphs 107-111.
65-71. To the extent shown to be pertinent, addressed in paragraphs 14 and 15.
72-80. To the extent pertinent, addressed by paragraph 58. 81-90. Addressed in paragraphs 71-75.
91-101. Addressed in paragraphs 63-70, and footnote 15.
Palm Beach Gardens's proposed findings of fact are addressed as follows: 1-3. Rejected as not findings of fact.
4-17. To the extent necessary, addressed in paragraphs 1-17, and 19-21.
18. Addressed in paragraph 18.
19-42. Addressed in paragraphs 12, 15, and 19-37.
43-79. Addressed in paragraphs 45, 50-60, 84-88, and 112.
80-84. Addressed in paragraphs 38-49.
85-104. Addressed in paragraphs 71-75.
105-111. Addressed in paragraphs 112-115.
COPIES FURNISHED:
W. David Watkins, Esquire Patricia A. Renovitch Post Office Box 6507
Tallahassee, Florida 32314-6507
Michael J. Cherniga, Esquire David C. Ashburn, Esquire Post Office Drawer 1838 Tallahassee, Florida 32302
Bryon B. Mathews, Jr., Esquire John A. Camp, Esquire
Miami Center, 22nd Floor
201 South Biscayne Boulevard Miami, Florida 33131-4336
C. Gary Williams, Esquire Michael J. Glazer, Esquire Post Office Box 391 Tallahassee, Florida, 32302
Darrell White, Esquire William B. Wiley, Esquire
600 First Florida Bank Building Tallahassee, Florida 32301
Robert A. Weiss, Esquire John M. Knight, Esquire
The Perkins House, Suite 200
118 North Gadsden Street Tallahassee, Florida 32301
Lesley Mendelson Senior Attorney
Department of Health and Rehabilitative Services
Fort Knox Executive Center 2727 Mahan Drive, Suite 103
Tallahassee, Florida 32308
Sam Power, Clerk Department of Health and
Rehabilitative Services 1323 Winewood Boulevard
Tallahassee, Florida 32399-0700
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS:
All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
| Issue Date | Proceedings |
|---|---|
| Mar. 15, 1991 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 15, 1991 | Recommended Order | Challenge to published need for open heart services-incipient policy rejected-fixed need pool to be corrected in current cycle. |
