STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

KENSINGTON MANOR INC., )

)

Petitioner, )

)

vs. ) CASE NO. 90-3665

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

) KENSINGTON MANOR INC., )

)

Petitioner, )

)

vs. ) CASE NO. 90-7551

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a formal hearing in the above- styled cases on February 12, 1991, at Tallahassee, Florida.

APPEARANCES

For Petitioner: Alfred W. Clark, Esquire

1725 Mahan Drive

Tallahassee, Florida 32308

For Respondent: Richard Patterson, Esquire

2727 Mahan Drive

Tallahassee, Florida 32308 STATEMENT OF THE ISSUES

Whether Petitioner should be granted Certificate of Need No. 6340 to construct a new 120 bed nursing home and renovate an existing nursing home to accommodate 87 licensed nursing home beds.

PRELIMINARY STATEMENT

In Case No. 90-3665, Kensington Manor Inc. (KMI) petitioned for a hearing to challenge the Department of Health and Rehabilitative Services' (HRS) determination in a letter dated May 8, 1990, that KMI's letter of intent to file an application for a certificate of need to construct a new 120 bed nursing

facility in Sarasota County with approved beds for the new facility transferred from an existing KMI owned facility, did not constitute a valid letter of intent.

Case No. 90-7551 involves a petition by KMI to challenge the denial by Respondent of CON No. 6340 in which KMI proposes to construct and operate a new

120 bed nursing home in Sarasota County. The proposed project will relocate 120 of KMI's existing 147 beds to a new site and renovate the existing 147 bed facility to accommodate 87 beds. These two cases were consolidated for hearing. At the commencement of the hearing, the parties agreed that the issues in Case No. 90-3665 had merged into the subsequent case and had become moot.

The parties submitted a prehearing stipulation acknowledging that the application met statutory criteria with the exception of:

Section 381.705(1)(a) to the extent Petitioner has not demonstrated compliance with local health plan;

Section 381.705(1)(b) except to the extent Petitioner has not demonstrated compliance with accessibility criteria;

Section 381.705(1)(h) except to the extent access by Medicaid residents is provided;

Section 381.705(1)(l) except to the extent HRS contends cost of project has not been justified;

Section 381.705(1)(m) except to the extent HRS contends Petitioner failed to provide adequate detail of its plan and cost for renovating existing facility; and

Section 381.705(1)(n) except to the extent HRS contends Petitioner has proposed inadequate service to Medicaid residents.

Thereafter Petitioner called three witnesses, Respondent called two witnesses and 13 exhibits were admitted into evidence.

Proposed findings have been submitted by the parties. All proposed findings are generally accepted, except to the extent discussed in the Appendix attached hereto and made a part hereof.

Proposed findings not included below or discussed in the Appendix were deemed unnecessary to the conclusions reached.

Having fully considered all evidence presented, I make the following FINDINGS OF FACT

1. Kensington Manor Inc. (KMI) is owned by Health Care and Retirement Corporation, a privately held corporation in turn a part of Owens-Illinois, also a privately held corporation. Health Care and Retirement Corporation acquired KMI in 1986-87 in conjunction with the acquisition of other nursing homes.

   
   

2. KMI is a 147 bed licensed nursing facility in Sarasota County and has maintained a superior rating for the last three years.

3. This nursing facility was built some 23 years ago before the advent of the CON process and is exempt from many of the requirements imposed upon more recent nursing homes.

   
   

4. Although there is no Medicaid condition in KMI's license, the Medicaid patients at KMI comprise approximately 68 percent of the patients.

   
   

5. In 1987 shortly after the acquisition of KMI by Health Care and Retirement Corporation, KMI applied for and was granted CON No. 5049 to add 60 beds. This CON contained a condition that 45 percent of the 60 beds (27) would be available for Medicaid patients.

   
   

6. After obtaining CON No. 5049, KMI attempted to acquire adjacent property on which to locate the separate facility to house the 60 beds, but found the price exorbitant. The corporate owners then conceived the plan to construct a new 120 bed facility and convert the existing facility to 87 beds.

   
   

7. The existing 30,000 square feet building housing 147 beds does not meet current standards in room sizes, has some three bed wards, has inadequate dining facilities, has no therapy rooms, has archaic kitchen equipment and little space, has no separate dining rooms to separate the functional impaired from the cognitively impaired, no areas for hobbies and recreation, no reception areas and only one central bath. There is insufficient space to do the laundry of sheets and gowns for the patients. Considerable evidence was submitted describing the shortcomings of the existing physical plant and the problems and inconveniences these shortcomings caused both patients and staff. The proposed renovation will correct most, if not all, of these problems and bring this facility into compliance with the amenities and physical plant required by local and state health plans.

   
   

8. Respondent's primary reason for denying this CON is the application does not contain a commitment to allocate 45 percent of the 120 beds to be moved to Medicaid. No evidence was presented indicating that Medicaid patients in Sarasota County have any access problems. In fact, the evidence in this regard was there is no Medicaid access problem or geographical access problem in Sarasota County.

   
   

9. Once the dedication of beds to Medicaid patients becomes a condition to the issuance of a certificate, the certificate holder is subject to a monetary penalty of $1000 per day if it fails to meet this condition.

   
   

10. This application involves no new beds, only the transfer of existing beds. Of the 247 existing beds, only the still unbuilt 60 beds has this Medicaid condition of 45 percent or 27 beds. There is no existing Medicaid condition on any of the 120 beds Petitioner seeks to transfer to the new facility.

    
    

11. One CON allocation factor references nursing applicants who "dedicate at least forty-five percent of their beds to Medicaid patients." This new guideline requires applicants to provide a percentage of Medicaid days which is equal to or higher than the subdistrict-wide average. This policy is aimed at and requires new providers to provide a higher percentage of Medicaid days than many other providers in the service area (Exhibit 4). KMI is not a new provider, except with respect to the 60 beds required in CON No. 5049. For these 60 beds, KMI conditioned the application to dedicate 45 percent of these beds to Medicaid patients. Respondent is now attempting to require Petitioner to likewise condition the 120 non-conditioned beds Petitioner seeks to transfer

    from KMI as a condition to approving this application. This goes beyond the intent of the allocation factor which was intended to apply to "new" beds and not to beds heretofore free from such conditions.

    
    

12. Respondent's objection to this application not meeting the statutory criteria in Sections 381.705(1)(1),(b),(h) and (n), Florida Statutes, are all related to the provision of Medicaid dedicated beds in this application.

    
    

13. At the hearing, Petitioner presented evidence, through the testimony of expert witnesses, that the construction of a new 120 bed facility and the renovation of the existing facility is an efficient and effective use of funds to provide quality service. Respondent's primary objection, that the cost appears excessive to provide only 60 new beds, overlooks the benefits both to the provider and to patients that will result from renovating the existing facility to reduce its occupancy level from 147 to 87 beds. This would not only bring KMI into compliance with the state and local health plans and upgrade the facility, but also greatly enhance the ability to give proper care to patients. Respondent presented no factual evidence or expert opinion to rebut Petitioner's evidence in this regard. Respondent's only evidence in this regard is that the cost "seems" high for a net gain of 60 beds.

    
    

14. Respondent's objection based upon Section 381.705(1)(m), Florida Statutes, that Petitioner failed to provide adequate detail of its plan and costs for renovating the existing facility was covered at the hearing by Petitioner's detailed testimony of the changes intended to be made and the cost thereof. Further, detailed architectural drawings of such changes are normally submitted for architectural approval after the application is granted.

    
    

15. Respondent's final objection that Chapter 381, Florida Statutes, does not permit a transfer of beds such as here proposed is a legal issue and is discussed in the conclusions of law below.

    
    

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

17. In Exhibit 3, District Eight Health Plan, the Health Council made certain recommendations for the State Office of Community Health Services and Facilities to apply in CON reviews. With respect to nursing home services, this exhibit provides at p. 23:

    
    

    1. Preferences shall be given to new and existing community nursing home bed developments that are willing to dedicate at least forty-five percent of their beds to Medicaid patients.

       
       

    2. Preference shall be given to those CON applications which propose to meet community, or district-wide need for nursing home care for AIDS/HIV+ patients.

       
       

18. These same provisions were contained in a proposed rule (Exhibit 10) which was withdrawn before being adopted.

19. The word "preference" connotes competing applicants. Thus, when two or more applicants are competing for a CON, preference will be given to the applicant willing to dedicate at least 45 percent of its beds to Medicaid patients and/or proposed to provide services to AIDS patients.

    
    

20. Although one ground for denying the instant application was that Petitioner made no commitment to provide nursing services to AIDS patients, no evidence was submitted that there is a need for nursing home beds for AIDS patients in Sarasota County.

    
    

21. The fact that this "preference" is not a rule but incipient agency policy, means that the agency must prove the validity and need for such a policy. Barker v. Department of Professional Regulation, Board of Medicine, 428 So.2d 720, 722 (Fla. 1st DCA 1983). Little evidence in this regard was submitted; however, it is accepted as a reasonable policy to favor applicants who will dedicate beds to Medicaid patients over those who do not. This is particular applicable where new beds are being added to the bed inventory. That is not the situation here. Here we have 147 licensed nursing home beds without a Medicaid condition. Respondent is attempting to impose a Medicaid condition on 120 of these beds as a condition for granting a CON to construct a 120 bed facility to house those nursing home beds. While this willingness to dedicate

    45 percent of applied-for beds to Medicaid patients may appropriately constitute a factor to be considered in granting a CON to competing applicants, it is not a factor, standing alone, that can justify denial of an otherwise valid application for a CON. The same reasoning applies to the preference given to applicants that propose to meet the need for nursing home care for AIDS patients.

    
    

22. In this regard, it should be noted that some 68 percent of KMI's patients at the existing facility are Medicaid patients, and KMI proposes in the pro forma portion of the application to have 44 percent of the patients at the new 120 bed facility to be Medicaid patients. In view of the past history of KMI and Medicaid patients, there is no reason to believe that KMI will not meet the desired Medicaid population at the new facility without a condition dedicating this number of beds for Medicaid patients.

    
    

23. With respect to the objection by Respondent to the incomplete showing of costs for the renovation of the existing facility, it is noted that the cost of the approved CON No. 5049 is $1.9 million to provide for the 60 bed addition there approved, and the evidence presented at this hearing is that the cost of the renovation will be $1.75 million. Thus, the cost of the renovation where these 60 beds will be housed is less than the approved project cost in CON No. 5049. Minor changes in the renovation to meet the architect's objection in Exhibit 12 can be made, and Petitioner agreed to do so at the hearing.

    
    

24. Respondent finally contends there is no authority under Chapter 400, Florida Statutes, to relocate licensed beds from one facility to another. Section 400.062(2), Florida Statutes, provides that separate licenses shall be required for facilities maintained in separate premises, even though operated under the same management, but are not required for separate buildings on the same grounds. Petitioner does not contest the requirement that the proposed 120 bed facility will require a separate license. Respondent, on the other hand, contends that had the Legislature intended for beds to be transferred from one facility to another, it would have specifically authorized such a transfer as it did with respect to hospitals in Section 395.003(e). This section states the department shall, at the request of the licensee, issue a single license to a licensee for facilities located on separate premises.

25. These statutory provisions cannot be read in para materia because they are specifically at odds. Chapter 400 requires a separate license for each nursing home, unless located on the same premises while, Chapter 395 specifically authorizes the issuance of one license for hospital facilities on separate premises. Chapter 400 contains no provision precluding the transfer of beds from one facility to another, only that a CON is required to do so.

    
    

26. Although Beverly Enterprises-Florida Inc. v. DHRS, 15 F.L.W. D 3041 (Fla. 1st DCA 1990), involved in expedited review of Beverly's application to transfer nursing home beds to another facility rather than a full batched comparative review, the following comments of the court at p. D 3042 are pertinent here.

    
    

    Beverly's CON was approved based on the need in the district, not on a facility-specific need; and as argued by Beverly this need will be equally satisfied by the addition of 60 beds to Surrey Place. DHRS offers no valid reason why this is not true, but simply urges that batched comparative review is preferable

    to permitting expedited review in this instance.

    
    

27. Like here, Beverly involved no new beds; only the transfer of beds from one facility to another. The only real difference is that the 60 beds transferred in Beverly was in one CON, while the 120 beds proposed for transfer here had never before been issued a CON.

    
    

28. From the foregoing, it is concluded that KMI meets all the requirements of Section 381.705, Florida Statutes, for the issuance of a CON, the "preference" for an applicant who dedicates 45 percent of its beds to Medicaid patients is a factor to be considered in awarding new beds, but is not a condition precedent to such approval, the cost of the renovations of the existing facility is reasonable, the cost of the entire project is reasonable and is an efficient use of health care resources, and approving this application will improve the quality of service to the residents of Sarasota County.

RECOMMENDATION

It is recommended that a Final Order be entered granting Kensington Manor Inc. CON No. 6430 to construct a 120 bed nursing home and to rehabilitate the existing 147 bed nursing home to an 87 bed nursing home in Sarasota County.

RECOMMENDED this 14th day of March, 1991, in Tallahassee, Florida.

K. N. AYERS Hearing Officer

Division of Administrative Hearings The Desoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 1991.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-3665

Petitioner's proposed findings are accepted, except #5. Sentence stating "There are no laundry facilities in the nursing home." is rejected as inconsistent with proposed finding #7.

Respondent's proposed findings are also accepted. Most of the defects in the application which Respondent finds to be not in compliance with the statutory requirements were corrected by the testimony at this hearing.

COPIES FURNISHED:

Alfred W. Clark, Esquire 1725 Mahan Drive

Tallahassee, FL 32308

Richard Patterson, Esquire 2727 Mahan Drive

Tallahassee, FL 32308

Sam Power Clerk

Department of Health and Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, FL 32399-0700

Linda Harris General Counsel

Department of Health and Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, FL 32399-0700

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

AGENCY FINAL ORDER

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

STATE OF FLORIDA

DEPARMENT OF HEALTH AND REHABILITATIVE SERVICES

KENSINGTON MANOR, INC., )

)

Petitioner, )

) CASE NO.: 90-3665

vs. ) LOI NO.: H9004042

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

) KENSINGTON MANOR, INC., )

)

Petitioner, )

) CASE NO.: 90-7551

vs . ) CON NO.: 6340

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

FINAL ORDER

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

RULING ON EXCEPTIONS FILED BY THE DEPARTMENT

Counsel excepts to the Hearing Officer's suggestion on page nine (9) that lack of a Medicaid commitment is by itself an insufficient basis for denial of a CON application. The weight given to each of the CON review criteria will vary depending on the facts of each case. Collier Medical Center vs. Department of Health and Rehabilitative Services, 462 So2d 83 (Fla. 1st DCA 1985). Thus, lack of a Medicaid commitment could, under the appropriate circumstances, justify denial of a CON application.

FINDINGS OF FACT

The department hereby adopts and incorporates by reference the findings of fact set forth in the Recommended Order.

CONCLUSIONS OF LAW

The department hereby adopts and incorporates by reference the conclusions of law set forth in the Recommended Order except where inconsistent with the ruling on the exceptions.

Based upon the foregoing, it is

ADJUDGED, that the application of Kensington Manor, Inc. for CON 6430 to construct a 120 bed nursing home in Sarasota County and to rehabilitate its existing facility be APPROVED.

DONE and ORDERED this 17th day of April, 1991, in Tallahassee, Florida.

Robert B. Williams Acting Secretary Department of Health and

Rehabilitative Services

by Acting Deputy Secretary for Program

COPIES FURNISHED:

Alfred W. Clark, Esquire 1725 Mahan Drive, Suite 300 Post Office Box 623 Tallahassee, FL 32308

Richard Patterson, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 2727 Mahan Drive

Fort Knox Executive Center Tallahassee, FL 32308

K. N. Ayers Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550 PDDR (Legal)

Wayne McDaniel (PDRFM) Susan Lincicome (PDRHD)

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a copy of the foregoing was sent to the above-named people by U.S. Mail this 19th day of April, 1991.

R. S. Power, Agency Clerk Assistant General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700 904/488-2381

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

Docket for Case No: 90-003665

Orders for Case No: 90-003665