STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

UNIVERSITY COMMUNITY HOSPITAL, )

)

Petitioner, )

)

vs. ) CASE NO. 91-1510

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

)

and )

) HILLSBOROUGH COUNTY HOSPITAL ) AUTHORITY d/b/a TAMPA GENERAL ) HOSPITAL, )

)

Intervenor. )

) MANATEE SPRINGS NURSING CENTER, ) INC., (MEDIPLEX REHAB-BRADENTON), )

)

Petitioner, )

)

vs. ) CASE NO. 91-1511

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

)

and )

) HILLSBOROUGH COUNTY HOSPITAL ) AUTHORITY d/b/a TAMPA GENERAL ) HOSPITAL, )

)

Intervenor. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Mary Clark, held a formal hearing in the above- styled cases on February 5-7, 1992, in Tallahassee, Florida.

APPEARANCES

For Petitioner: University Community Hospital

Cynthia S. Tunnicliff, Esquire

W. Douglas Hall, Esquire Carlton, Fields, Ward, Emmanuel,

Smith and Cutler, P.A. Post Office Drawer 190 Tallahassee, Florida 32302

For Petitioner: Manatee Springs Nursing Ctr., Inc.

(Mediplex Rehab-Bradenton) Charles D. Hood, Jr., Esquire Monaco, Smith, Hood, Perkins,

Loucks & Stout

Post Office Box 15200

Daytona Beach, Florida 32115

Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302

For Respondent: Department of Health and

Rehabilitative Services Lesley Mendelson, Esquire Fort Knox Executive Center 2727 Mahan Drive

Tallahassee, Florida 32308

Intervenor: Hillsborough County Hospital

Authority d/b/a Tampa General Hospital

John Radey, Esquire Jeffrey L. Frehn, Esquire

Aurell, Radey, Hinkle & Thomas Post Office Drawer 11307 Tallahassee, Florida 32302

STATEMENT OF THE ISSUES

The central issue in this proceeding is whether Petitioners' applications for Certificates of Need for comprehensive medical rehabilitation beds in HRS District VI should be approved.

Facts stipulated by the parties are reflected in the findings of fact.

Ancillary issues include whether Manatee Springs Nursing Center, Inc.'s letter of intent complied with the requirements of Section 381.709(2), F.S.; and whether Manatee Springs Nursing Center, Inc.'s and University Community Hospital's applications are incomplete for failure to include a "complete listing of all capital projects", as required by Section 381.707(2), F.S.

PRELIMINARY STATEMENT

Background

In September 1990, University Community Hospital (UCH) and Manatee Springs Nursing Center, Inc. (Manatee) filed certificate of need (CON) applications with the Department of Health and Rehabilitative Services (HRS) seeking the issuance of a CON for comprehensive medical rehabilitation beds (CMR) in HRS District VI. By notice published in the Florida Administrative Weekly and its State Agency Action Report (SAAR) dated January 24, 1991, HRS indicated its intent to deny the applications.

Both applicants filed petitions for formal administrative hearings challenging HRS' preliminary decision. The petitions were forwarded to the Division of Administrative Hearings and were consolidated. Hillsborough County Hospital Authority d/b/a Tampa General Hospital (Tampa General) was allowed to intervene in the consolidated proceedings.

Pursuant to Section 120.56, F.S. UCH filed a petition seeking to invalidate Rule 10-5.039(2)(a), F.A.C. On November 20, 1991, UCH voluntarily dismissed without prejudice its rule challenge.

Prior to commencement of the formal hearing, the parties prefiled testimony of their expert witnesses. UCH prefiled testimony of Sandra Williams and Scott Hopes. Manatee prefiled the testimony of Daniel J. Sullivan, William W. Davis, Carolyn Rocchio, Jaye S. Winkler, Eugenio Alcazaren, M.D., Frederick R. Leathers, Dale S. Zaletel, John Clees and Peter Roy Kaplan, Ph.D. Tampa General prefiled the testimony of W. Eugene Nelson, Paul A. Powers and Harriet S. Gill. HRS prefiled the testimony of Alberta Granger, Roger L. Bell, Elizabeth Dudek and Elfie Stamm.

At the formal hearing, UCH presented the testimony of the following individuals, who were accepted as experts in the areas noted: Brigitte Shaw, Sandra Williams (health care finance) and Scott L. Hopes (health care planner). UCH Exhibits 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 were received into evidence.

Manatee presented the testimony of the following individuals, who were accepted as experts in the areas noted: Eugenio Alcazaren, M.D. (rehabilitation medicine), Jaye S. Winkler, Dale S. Zaletel (nursing home administration and hospital administration, including staffing), Daniel J. Sullivan (health care planning and health finance), and John Clees (rehabilitation hospital and health care design, construction methods and construction cost estimating). Manatee withdrew the prefiled testimony of William W. Davis and Frederick Leathers.

Peter Roy Kaplan, Ph.D., was qualified as an expert in rehabilitation clinical programs and his prefiled testimony was accepted into evidence. Manatee Exhibits 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 19, 20, 21, 22, 23, 24,

25, 26, 26A, 27, 28, 29, 30, 31, 34, 36 and 37 were received into evidence.

Tampa General presented the testimony of the following individual, who was accepted as an expert in the area noted: W. Eugene Nelson (health planning and the certificate of need review process). Harriet S. Gill was qualified as an expert in rehabilitation, medical rehabilitation and health planning, and her prefiled testimony accepted into evidence. Paul A. Powers was qualified as an expert in health care finance, and his prefiled testimony accepted into evidence. Tampa General Exhibits 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14,

15, 16, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35,

36, 37 and 38 were received into evidence.

HRS presented the testimony of the following individual, who was accepted as an expert in the area noted: Alberta Granger (health planning). The prefiled testimony of Roger L. Bell was accepted into evidence, and the prefiled testimony of Elizabeth Dudek and Elfie Stamm was withdrawn. HRS Exhibits 1, 2, 3, 4, 5, 6, 7 and 8 were received into evidence.

The parties have filed proposed recommended orders containing proposed findings of fact. The findings of fact proposed by HRS and Tampa General are substantially adopted herein. Rulings on the proposed findings of fact by UCH and Manatee are found in the attached appendix.

FINDINGS OF FACT

Stipulated Facts

1. In their prehearing stipulation filed on 1/17/92, the parties admitted the following:

   
   

   1. The calculation of the mathematical formula contained in Rule 10-5.039(2)(a), F.A.C., re- sults in no numeric need for rehabilitation beds in District VI in the applicable planning horizon;

   2. Tampa General is an existing provider of rehabilitation services in District VI;

   3. Manatee is a superior rated licensed 120 bed nursing home facility located in Bradenton, Florida;

   4. There is no dispute regarding the existing quality of care at either Manatee or Tampa General;

   5. Manatee is not a teaching hospital;

   6. The primary purpose of Manatee's proposal is neither research nor physician education;

   7. Manatee is not proposing a joint venture; and

   8. Manatee's proposal is not related to a health maintenance organization or the needs and circumstances of a health maintenance organization.

      
      

2. During the hearing the parties stipulated that Manatee, through its parent, the Mediplex Group, Inc. (Mediplex), has the ability to finance the project costs, and the estimated project costs reflected in its application, Table 25, sub-paragraphs (a) and (f)3., are reasonable.

   
   

   The Parties

   
   

3. The applicant, UCH, is an existing acute care hospital in Hillsborough County, Florida, in HRS District VI. Its primary service area is North Hillsborough County and East Pasco County.

   
   

   Previously during the 1980's, UCH operated an 18-bed rehabilitation unit on its sixth floor, south wing. After renovation, the unit satisfied Commission on

   Accreditation of Rehabilitation Facilities (CARF) standards, and was certified by the Joint Commission on Accreditation of Health Organizations (JCAHO). The unit was abandoned after an HRS Final Order held that the unit could not be "grandfathered" as a CMR unit and that there was no need for additional beds in District VI (University Community Hospital v. Department of Health and Rehabilitative Services, 11 FALR 1150 (HRS final order entered 2/13/89).

   
   

4. Manatee is a wholly-owned subsidiary of Mediplex, a for-profit corporation. Located in Bradenton, Manatee County, Manatee holds the License for a superior rated 120-bed skilled nursing home facility (SNF).

   
   

   Although licensed as a SNF, Manatee has specialized in providing rehabilitation and medical services to traumatically brain injured (TBI) and neurologically impaired patients since its opening in 1985.

   
   

5. Manatee has never had more than 70 of its 120 licensed beds in operation and, at the time of hearing, was operating only 65 beds, because of the spatial requirements of its very intensive and extensive rehabilitation program.

   
   

   Manatee is currently accredited by JCAHO and by CARF.

   
   

6. Tampa General is a 971-bed hospital located in Hillsborough County, HRS District VI. It is owned and operated by the Hillsborough County Hospital Authority, a public agency.

   
   

   Tampa General provides the normal range of services found in acute care hospitals, but also provides such tertiary level services as organ transplantation and CMR. It is the teaching hospital of the University of South Florida.

   
   

7. HRS is designated by statute as the single state agency to administer the CON program.

   
   

   The Applications The Proposals

8. UCH proposes to convert 20 medical/surgical beds to 20 CMR beds at a proposed cost of approximately $617,674.00, a sum which is the converted book value of its space on the 6th floor of the facility plus legal and consulting fees.

   
   

   The space intended for the program now includes 30 medical/surgical beds and it is unclear what will happen to the excess 10 beds.

   
   

9. The UCH proposal is directed to stroke and orthopedic patients in its existing limited service area.

   
   

10. Manatee's CON application is for 70 CMR beds. It proposes to delicense its 120 SNF beds. Its project cost is estimated at $859,235.00, including facility modifications and related fees. Manatee's application agrees to have its approval conditioned on limiting the CMR services to TBI and neurologically disabled patients.

    Capital Projects

    
    

11. UCH prepared a capital equipment budget for 1990-91, which was finally approved by the Executive Committee of the Board of Trustees at UCH prior to August 1990.

    
    

    The UCH capital budget itemized planned capital equipment expenditures for the fiscal year beginning October 1, 1990 and ending September 30, 1991, so that the capital budget items were pending capital projects at the time that UCH filed its application in September 1990.

    
    

12. Once the Executive Committee approved the 1990-91 capital budget, the hospital was authorized to purchase any capital budget item costing $25,000 or less without any additional review or approval by the Executive Committee.

    
    

    While the Executive Committee required an additional review of individual budget items costing more than $25,000 prior to actually being purchased, these purchases were nonetheless planned, and thus pending, at the time that UCH filed its application by virtue of being included in final UCH budget, the hospital's planning document. The fact that a budget item might ultimately be abandoned after additional review merely emphasizes that the expenditure is planned, rather than actual, and is characteristic of any pending project.

    
    

13. UCH's capital equipment budget for fiscal year 1990-91 totalled $6.2 million, with budget items costing $25,000 or less totaling $1,936,350.

    
    

    UCH did not disclose in its application the capital budget items reflected in its 1990-91 capital equipment budget.

    
    

14. UCH also failed to disclose in its application its proposed expansion of the hospital's child care center. This project was finally approved by UCH on April 25, 1990, with an estimated cost of $330,000, and was still pending when the application was filed.

    
    

15. UCH erroneously distinguished "projects" from its capital "budget", and included in an omissions response to HRS only the $40,994,689 it determined were "projects".

    
    

16. In 1988 Manatee began planning for additional therapy and administrative space. The approximately $2 million expansion plan was approved by HRS prior to filing the application at issue here.

    
    

    In neither its original application nor its response to an omissions letter did Manatee include the $2 million expansion project, even though other parent corporation expenditures were included, for example, the cost of the conversion project at issue here.

    
    

    The Letter of Intent

    
    

17. Manatee filed three Letters of Intent: one letter requested a conversion of 60 nursing home beds to 60 CMR beds, and the delicensure of 30 nursing home beds with a proposed bed complement of 60 CMR beds and 30 nursing home beds; another requested a conversion of 90 nursing home beds to 60 CMR beds, with a proposed bed complement of 60 CMR beds and 30 nursing home beds; and one requested the conversion of 120 nursing home beds to 90 CMR beds. These letters were dated August 23, 1990, and were authorized by three separate resolutions enacted on August 24, 1990. The resolutions were attested to on

    August 24, 1990 by Jeffrey Bernfeld as Secretary of Manatee Springs Nursing Center, Inc. On August 22, 1990, Mr. Bernfeld had resigned all his positions with Mediplex Group, Inc., and its subsidiaries, including Manatee Springs Nursing Center, Inc. This resignation did not have an effective date; however, the entire Board of Directors of Manatee Springs Nursing Center, Inc. was removed on August 24, 1990 when Avon, the owner of Mediplex, closed its sale of Mediplex, including Manatee. A new Board of Directors consisting of Steven W. Garfinkle, Jaye Winkler and David Hines was appointed. Mr. Robert Eustis was appointed the Secretary of Manatee Springs Nursing Center, Inc. on August 24, 1990.

    
    

18. One Board of directors resigned on August 24, 1990 and a new Board of Directors was appointed. The new Board of Directors enacted the resolutions authorizing the CON application; however, those resolutions were attested to by the Secretary for the resigned Board.

    
    

19. The Board that was appointed on August 24, 1990 did not know which project Manatee Springs was going to pursue when it enacted the resolutions.

    The third Board of Directors that came in after August 24, 1990 decided which of the three alternatives would be submitted. The third Board enacted a resolution on September 21, 1990 which authorized the filing of the CON application which is the subject of this proceeding.

    
    

    Statutory Review Criteria the Health Plans

    (Section 381.705(1)(a), F.S.)

    
    

20. The 1989 Florida State Health Plan is the state plan applicable to this proceeding. This plan contains five preferences applicable to CMR programs.

    
    

21. The first State Health Plan relates to applicants proposing the conversion of excess acute care hospital beds to establish a distinct rehabilitation unit within a hospital. Only the UCH application is consistent with this preference.

    
    

    The second preference favors applicants proposing specialty inpatient or outpatient rehabilitation services not currently offered in the district. Neither the Manatee nor the UCH application is consistent with this preference. Manatee will offer the same services it now provides. UCH will focus on the elderly, a population already served in the district.

    
    

    The third preference indicates a preference for teaching hospitals. Neither UCH nor Manatee is a teaching hospital.

    
    

    The fourth preference states a preference for Medicaid and charity care disproportionate share providers. Neither application meets this preference.

    
    

    The fifth State Health Plan preference confers preference on an applicant with an existing comprehensive outpatient rehabilitation facility which proposes to provide outpatient follow-up rehabilitation services. Although both applicants provide some outpatient services, neither proved that it provides comprehensive outpatient rehabilitation, and therefore did not show compliance with this preference.

22. The 1990 District Health Plan of the Health Council of West Central Florida, Inc., CON Allocation Factors Report (local plan) is the District Health Plan applicable to this proceeding, and also includes preferences.

    
    

    The local plan does not propose health service areas for CMR below the district level because of the highly specialized and nonemergency nature of the service. UCH's application violates this principle.

    
    

23. The first preference, as in the state plan, favors disproportionate share providers, and neither applicant is entitled to this preference.

    
    

24. Applicants who propose to convert existing medical/surgical beds is entitled to the second preference. UCH meets this; Manatee cannot, as it is not a hospital.

    
    

25. Neither applicant has documented that existing providers who concentrate in the treatment of rehabilitation patients are not currently meeting the needs of the community, in order to be entitled to the third preference.

    
    

26. The fourth preference targets applicants who are existing providers if the net bed need is 20 beds or less. There is no net bed need; since neither applicant currently provides CMR services under a CMR certificate of need, and neither is an "existing provider".

    
    

    Like and Existing Services in the Service District (section 381.705(1)(b)), F.S.

    and Availability of Alternatives (section 381.705(1)(d), F.S.

    
    

27. CMR is a tertiary health service which should be offered on a regional, not community, basis. There is no credible evidence that individuals who seek CMR services are unable to access care in District VI.

    
    

    There are empty CMR beds at existing District CMR facilities. In calendar year 1989, Tampa General experienced 83.58 percent occupancy, and L. W. Blake Memorial Hospital experienced 70.80 percent occupancy. Even Manatee admits that it is becoming more difficult to maintain its census because of the proliferation of rehabilitation providers throughout the state. There are twelve other CARF accredited brain injury inpatient facilities in the State of Florida, two of which are in District VI, at Tampa General and Blake Memorial Hospital.

    
    

28. All acute care hospitals provide some level of rehabilitation care. Most communities of any size have an outpatient rehabilitation center, and CMR can be found in freestanding units and in designated units of acute care hospitals, as well as in skilled nursing settings.

    
    

29. The rehabilitation services currently offered at Manatee are different from such services provided in a hospital, but are not atypical of post acute SNF levels of care.

    
    

    Intensive or comprehensive rehabilitation in a hospital setting is generally brief. When patient progress is no longer served by intense and comprehensive rehabilitation in a hospital, patients are frequently referred to a provider of less intense and normally longer services. This is frequently the level found in a SNF, which facility would have fewer doctors and nurses than a CMR facility.

30. Subacute medical rehabilitation tends to be of two types: short stay, serving patients in need of less intense level of care than CMR -- typically, patients with minimal disability following orthopedic surgery; and long stay for those patients no longer in need of a hospital level of care but requiring various levels of therapeutic intervention. Head injuries generally fall in the latter category. Payment sources are generally commercial because there is minimal funding for Medicare and Medicaid patients in these programs. Manatee provides subacute medical rehabilitation.

    
    

31. Manatee serves patients on all levels of the Rancho Los Amigos Scale, which describes specific levels of functioning by patients recovering from head injury. Hospital based head injury programs usually admit patients at the Rancho Level III when the patient is out of coma enough to respond to the environment, and they discharge patients when they are at the Level VI designation, when there is no additional medical reason for continued stay. At level VI, the patient is usually ready for a less intense, more supervisory level of institutional care with therapeutic intervention aimed at daily living and vocational skills. Manatee is now serving patients who would not be served in a hospital CMR unit.

    
    

    Manatee is currently serving patients effectively and at a lower cost than a hospital. The audited financial statements filed by Manatee in its certificate of need application demonstrate a profitable operation with a very healthy operating margin and strong cash flow to assets. The care it is providing, which Manatee does not propose to change, is appropriate for its nursing home license. Manatee is staffed and equipped to provide long-term care to the patients they serve.

    
    

    The average length of stay experienced by Manatee is consistent with, and appropriate for a nursing home, but not for a tertiary hospital such as a CMR facility. If its CON application for CMR is denied, Manatee will continue to offer the services it presently offers.

    
    

32. The best alternative to Manatee's proposal is its own 65 bed program operated at its existing SNF, which currently provides, at nursing home prices, the same superior care it proposes to provide.

    
    

    Manatee is providing a needed service which would no longer be available should the application be granted. While there may be a need to delicense the beds not in use, there is no need shown to delicense the 65 nursing home beds presently operating.

    
    

    Applicant's Record and Ability to Provide Quality Care (Section 381.705.(1)(c), F.S.)

    
    

33. Both applicants have a record of good quality care and this factor is not in serious contention.

    
    

    Probable economies and improvements derived from operation of joint cooperative or shared health care

    resources (Section 381.705(1)(e), F.S.)

    
    

34. Manatee is not proposing a joint venture. Neither project offers economies and improvements in service derived from the operation of joint ventures, cooperative or shared health care resources.

    Need in District VI for special services not reasonably and economically accessible in adjoining areas

    (Section 381.705(1)(f), F.S.)

    
    

35. Manatee argues that approval of its application will facilitate the provision of services to children, but it already provides some pediatric services, and other programs are available. The Rehabilitation Institute of Sarasota, which is located about 25-35 minutes away from Manatee, has a specialty rehabilitation pediatric program.

    
    

    The need for research and educational facilities (Section 381.705(1)(g), F.S.)

    
    

36. Neither Manatee nor UCH are teaching hospitals. Neither proposal has as its primary purpose research or physician education, although Manatee proposes a condition requiring it to plan, organize and promote an annual symposium on rehabilitation services for the neurologically impaired patient.

    
    

    Availability of Resources for Project Accomplishment and Operation; Effect and Extent of Accessibility of the Project

    on Clinical Needs of Health Professional Training Programs; and the Extent to which the Proposed Services

    will be Available to all Residents of the Service District (Section 381.705(1)(h), F.S.)

    
    

37. Neither projects' need is predicated upon meeting the clinical needs of health professional training programs in the service area. Financial feasibility, availability of staffing resources and accessibility to district residents are discussed below.

    
    

    Financial Feasibility (Section 381.705(1)(i), F.S.)

    
    

38. The financial feasibility of any health care facility is predicated upon utilization of the facility. In its application, Manatee projected an average length of stay (ALOS) of 160 days, based upon its historical ALOS of 180 days.

    
    

    Its pro forma is predicated upon the ALOS Manatee has historically experienced for brain injury patients, 160 days. However, Manatee's ALOS has decreased dramatically, and even its own planner does not believe it is reasonable to project a 160 day ALOS now.

    
    

39. The pro forma is predicated on unreasonable utilization, ALOS and staffing projections and therefore does not evidence the feasibility of the project. The sole Manatee witness supporting financial feasibility had nothing to do with the pro forma analysis in the application, and specifically tied his opinion as to project feasibility to Manatee's continuing its historical ALOS, to retaining its present patients, and to getting more referrals from the same referral sources. These assumptions are unreliable.

    
    

40. UCH demonstrated that it has $617,674 available to pay the costs of establishing its proposed CMR program, which sum is its estimate of the costs involved.

    
    

    The projected costs, however, are predicated on an unproven assumption that the space intended to house the CMR unit has already been renovated for rehabilitation services and that no additional dollars are required to be spent.

    Because UCH did not demonstrate that the space, as currently designed, is adequate to accommodate a 20-bed CMR unit, UCH has not shown that its projected costs are reasonable. UCH may have to redesign its CMR unit to comply with CARF standards, thereby incurring additional, unanticipated costs.

    
    

41. UCH's projected costs are also unreasonable because UCH failed to account for the costs it will incur to relocate the 10 medical/surgical beds from the space intended to house the new unit.

    
    

    Having failed to demonstrate that its projected costs are reasonable, UCH has not proven that it will have the funds available to accomplish the proposed project.

    
    

    Impact on the cost of providing CMR services, considering the effects of competition and improvements or innovations in financing and delivery which foster

    competition and promote quality assurance and cost- effectiveness. (Section 381.705(1)(1), F.S.)

    
    

42. Neither of the proposed projects will enhance competition beneficial to patients.

    
    

    The additional capital necessary to convert Manatee from a nursing home to a comprehensive medical rehabilitation hospital will have an impact on its cost of providing CMR services.

    
    

    Medicare reimbursement for the same service is greater in a hospital setting than in a nursing home setting. A hospital's cost structure is higher than that of a nursing home. Manatee's present Medicaid cap is around $94 per day. This cap would be much higher if Manatee were a licensed CMR hospital.

    
    

43. Manatee is presently operating a very profitable facility. By its own admission, Manatee is presently a cost effective provider primarily because of the fact that it is licensed as a nursing home and not as a CMR hospital.

    
    

    Manatee could be an even more cost effective provider. Cost effectiveness is a goal of the CON legislation. According to Health Care Cost Containment Board (HCCCB) data, 31 percent of Manatee's total expenses go to administration and owner's compensation, compared to the district average of approximately 12 percent which is consistent with statewide experience of 8 to 12 percent administrative and owners' compensation expenses.

    
    

    These elevated administrative costs are not primarily attributable to the unique program at Manatee.

    
    

44. There is no justification for changing Manatee's licensure status and reversing a practice which is endorsed by the health care system: placing patients requiring highly skilled care in the least expensive setting in which they can receive appropriate care.

    
    

45. Tampa General is a tertiary hospital, having many speciality programs, including organ transplantation, speciality burn units, neonatal intensive care units, CMR and sophisticated heart laboratories and programs.

    
    

46. Tampa General provides not only tertiary services, but also a full spectrum of normal hospital services. Those services are provided to a disproportionate number of indigent patients and thus a significant financial

    aspect of Tampa General is a payor mix with more indigent patients and fewer insured and paying patients. Tampa General does more indigent care than any other hospital in the district.

    
    

    Tampa General generates revenue from its tertiary services to cross-subsidize the costs of services provided to those who do not and cannot pay.

    
    

    The Tampa General Rehabilitation Center contributes income to the rest of the hospital and helps Tampa General carry the financial consequences of its services to indigent patients.

    
    

47. Tampa General presented credible evidence that a CMR program at UCH would take 107 patients from Tampa General in its first year of operation alone, assuming UCH attains its projected occupancy, resulting in a loss to Tampa General of nearly $1.8 million.

    
    

48. Once Manatee converts to a CMR hospital, it is reasonable to expect that Tampa General will lose at least 50 patients to Manatee in the first year, especially if Manatee must somehow double its projected admissions to overcome its declining ALOS and shrinking service area. The result would be a loss of more than $800,000 to Tampa General.

    
    

49. Manatee maintains that the impact on existing providers of approving its application will be minimal because it will be serving the same patients in a hospital that it is serving now. However, if Manatee were to become a hospital it would be restricted in its ability to receive from hospital CMR programs referrals of patients in need of low intensity programs. Manatee will have to compete directly with Tampa General for patients that have not yet been admitted to a hospital program in order to compensate for the loss of this patient base.

    
    

50. The testimony by Manatee's consultant that there would be no impact on Tampa General because Manatee would only treat brain injury patients is contrary to the weight of the evidence. About 50 percent of Manatee's patient population is brain injured. Tampa General has a brain injury program which currently refers patients to Manatee, as a SNF. These referrals will no longer be possible if Manatee is a hospital, with the result being that Manatee will direct its vigorous marketing efforts to getting such patients prior to admission to Tampa General's brain injury program.

    
    

51. CMR specialized staff are in short supply. The proposed CMR programs, if granted, would increase demand and drive up costs for such personnel while making it more difficult for existing providers like Tampa General to efficiently use and retain specialized staff.

    
    

    Costs and Methods of Proposed Construction, and the availability of alternative, less costly, or more

    effective methods of construction (Section 381.705(1)(m), F.S.)

    
    

52. The proposed costs and methods of construction contained in Manatee's application are reasonable; however, Manatee is currently undertaking a $2 million expansion which was approved by HRS prior to the filing of the instant CON application, but was not included in the application for evaluation. Neither were the original facility construction costs, plus improvements minus depreciation, included so that an objective cost evaluation of conversion could be made.

53. The space proposed by Manatee is not appropriate. Currently operating as a nursing home, Manatee has the physical capacity to operate only 65 beds. Less than 1,000 square feet per bed is inadequate to meet patient needs.

    
    

54. UCH has failed to show that the space proposed for its CMR unit is sufficient and in compliance with CARF. UCH maintains that its space was already designed to house a rehabilitation unit, so that no significant changes were required. However, UCH presented no evidence that the space proposed for the new unit, as it now exists, meets specific CARF standards.

    
    

    The applicant's Past and Proposed Provision of Health Care Services to Medicaid patients and the Medically

    indigent (Section 381.705(1)(n), F.S.)

    
    

55. By its own admission, Manatee has a very low charity care and Medicaid level. It runs, according to HCCCB data, around 9 percent for each. If approved, its Medicaid and Medicare levels would be even lower than it is now, as it projects about 5-6 percent for each, according to Table 7 in its application (Manatee Ex. #1).

    
    

    Availability of Less Costly, More Efficient, or More Appropriate Alternatives (Section 381.705(2)(a), F.S.)

    
    

56. A less costly, more efficient and more appropriate alternative is the existing health care system, including the services and programs presently offered by the applicants. There is no lack of access or availability to existing beds, which are presently underutilized.

    
    

    Appropriateness and Efficiency of existing facilities providing similar services (Section 381.705(2)(b), F.S.)

    
    

57. Existing facilities providing similar services, including the 65 beds utilized at Manatee, are being appropriately utilized; however, none are operating yet at 85% occupancy which is the desired occupancy set forth in the relevant HRS rule.

    
    

    Probability of Serious Access Problems in the Absence of Proposed Services (Section 381.705(2)(d), F.S.)

    
    

58. Manatee states in its application that access is being denied to prospective patients because of its licensure as a nursing home and therefore there is a need to approve its application. Even if this is true, need cannot be established when a tertiary health service is involved merely by showing that patients cannot access the facility of their choice, when other appropriate alternatives are available. The question is whether, looking at the spectrum of health care delivery, patients can obtain somewhere the services they need. Manatee cannot reasonably expect to serve all patients; just as nursing home patients are not properly served at hospitals, so also are hospital patients not served in nursing homes. This has nothing to do with need for CMR beds in District VI.

    
    

    Manatee did not show that patients are not able to obtain appropriate services elsewhere. Manatee is currently well utilized, and even those patients who considered using Manatee, but allegedly could not because of licensing issues were, as shown by Manatee, placed at other facilities, some of which were hospitals, and others not.

59. UCH argues that Tampa General's rehabilitation facility is not accessible to those who cannot pay, but UCH does not specify how its application approval would remedy any accessibility problems for Medicaid or indigent patients, as it proposes to serve each type at only 2% of its total patient days.

    
    

    Geographical accessibility by elderly stroke patients, the population UCH seeks to serve, was not proven to be a substantial problem, even though the elderly may prefer a briefer drive time.

    
    

    CMR Rule Methodology

    
    

60. Rule 10-5.039(2)(a), F.A.C. establishes the numeric formula for calculating need for CMR beds in the applicable HRS service district. As stipulated by all parties, this formula shows zero need.

    
    

    Subparagraph (2)(b), Incidence and Prevalence of Disabling conditions and chronic illness in the District

    
    

61. Neither applicant addressed unique incidence and prevalence in the district as required by Subparagraph (2)(b) 1 of the rule. Instead, UCH used national incidence rates and applied them to the population of District VI.

    
    

62. Given the tertiary nature of CMR, it would be inappropriate to approve UCH based upon an institution specific analysis. UCH's methodology is effectively impeached by the fact that it provides that 122 additional beds were needed in District VI for 1989, when the existing 112 CMR beds in the district experienced only an 72% occupancy in 1989.

    
    

63. In its case presentation, Manatee used statewide incidence rates to project need, along with methodologies utilized by other states. Manatee used these same rates and methodologies, along with its own historical ALOS, to project a need for brain injury/neurological beds in District VI.

    
    

    Manatee's District VI CMR bed methodology is problematic and unacceptable. First, the base year population estimate relied on to project the district population is approximately 35,000 more than was actually counted under the recent U.S. Census for District VI. Second, the ALOS used to project patient days is different from the recent actual experience in the district. And third, the result of this need methodology, showing a need for 112 additional beds, more than double the current inventory, is counterintuitive given current utilization rates for CMR.

    
    

64. The ALOS used by Manatee in its need projections was longer than the statewide ALOS for head injury. There is no CMR hospital in the State of Florida with an average length of stay higher than 75 days. The average length of stay for the last three months of 1991 at Manatee was 57.2 days.

    
    

65. Manatee will not increase access to patients with commercial insurance nor will admissions increase if approved. Manatee fully expects that it will continue to negotiate with various payor sources even if it becomes a licensed CMR hospital.

    
    

    Blue Cross/Blue Shield of Florida defines a rehabilitation hospital as any facility accredited by the CARF. Most commercial insurers precertify admissions and are extremely stringent with regard to both admission and continuation of

    stay at the hospital level of care. Many of the patients denied hospital level of care are those most appropriate for the level of care currently provided by Manatee.

    
    

    Additionally, insurance companies are generally flexible in providing coverage at the least intense appropriate level of care.

    
    

66. Converting Manatee from a nursing home to a hospital will actually decrease, rather than increase the number of patients able to access an appropriate level of rehabilitation. The Medicare criteria for admission to a CMR hospital are much more stringent than those to a skilled nursing home facility. Medicare patients who might otherwise qualify for admission to a skilled nursing facility would find it much harder to qualify for a CMR hospital.

    
    

67. Approval of the Manatee Springs application will not increase access to either Medicaid or Medicare patients, including children, who, by Manatee's own admission, are paid for by the Medicaid program. As found above, if awarded a CON for CMR, Manatee will provide fewer, not more, Medicaid patient days as a percent of total patient days.

    
    

    Additional Rule Criteria

    
    

68. There is a shortage in central Florida of specialized personnel needed for rehabilitation both in skilled nursing and in a hospital. There is competition between Tampa General and Manatee Springs for staff.

    
    

    If granted, the proposals would increase demand for specialized staff and increase the cost for staff, while making it more difficult for existing providers to efficiently use and retain their current staff.

    
    

69. New rehabilitation facilities must be able to project a minimum of 65 percent occupancy during the first year of operation based upon the formula in the rule.

    
    

    Although Manatee projected utilization levels exceeding the rule requirements, Manatee did not prove that it will be able to attain its projected occupancies.

    
    

    It is also unlikely that UCH will attain the occupancy levels required by the rule. UCH itself projects an occupancy rate below the 65% minimum standard for the first year of operation. For the second year UCH projects that patient days will increase by 1,460, a 30% increase from the first year. Such a dramatic increase is doubtful when the population is expected to grow at a rate well below 30%, and the increase is inconsistent with actual districtwide experience in which CMR patient days increased by only 947 from 1989 to 1990.

    
    

70. A proposal to establish a new rehabilitation unit will not normally be approved unless the average annual occupancy rate for all existing CMR units within the service district exceeds 85 percent occupancy for the most recent 12 month period available to the Department three weeks prior to the publication of the fixed need pool. The average occupancy rate in the district for this period was 72.49 percent.

    
    

71. According to subparagraph (c) of the rule, applicants for comprehensive rehabilitation services should demonstrate that at least 90% of the target population resides within two hours driving time under average traffic conditions of the location of the proposed facility.

    Manatee's primary service area includes HRS District V, VI and VIII. Its secondary service area includes all of Florida, and parts of Georgia and Louisiana. This target population cannot drive to the Manatee facility in two hours under average traffic conditions.

    
    

    UCH's proposed localized service area is well within the two hour limit.

    
    

72. Each applicant proposes to participate in the Medicare and Medicaid programs.

    
    

    Each applicant proposes to provide the minimum scope of rehabilitation services required by Subparagraph (c) 4. of the rule.

    
    

    Each applicant proposes to meet CARF standards for hospital based rehabilitation services as required by subparagraph (c) 5. of the rule; however, neither demonstrated its proposal meets CARF standards.

    
    

    Each applicant proposes to make the services contained in Subparagraph (d) of the rule available through affiliation or contractual agreement.

    
    

73. In summary, the applicants meet very few of the factors, standards and criteria of Rule 10-5.039, F.A.C. Those few factors do not demonstrate a need for additional CMR beds in District VI.

    
    

    CONCLUSIONS OF LAW

    
    

74. The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to Sections 120.57(1), F.S. and 381.709(5), F.S.

    
    

75. As applicants, the Petitioners have the burden of proving their entitlement to the CONs they are seeking. Florida Dept. of Transportation v.

    J.W.C. Co., 396 So.2d 778 (Fla. 1st DCA 1981). Specifically, the applicants must establish compliance with the criteria in Section 381.707 and 381.709, F.S., addressing the L0I and application content requirements, and with the CON review criteria in Section 381.705, F.S. and Rule 10-5.039, F.A.C.

    
    

76. A balanced consideration of all the criteria is required, but the appropriate weight to be given each criterion will vary depending upon the facts of the case. Balsam v. Dept. of HRS, 486 So.2d 1341 (Fla. 1st DCA 1986).

    
    

77. Tampa General is an existing provider of CMR services in HRS District VI and proved that its established program would be substantially affected by the issuance of CONs to these applicants. Tampa General, therefore, has standing in this proceeding pursuant to Section 381.709(5)(b), F.S.

    
    

78. The statutory requirements relating to the content of LOIs and applications are mandatory and cannot be waived by HRS. Although HRS by necessity must have some discretion in balancing the review criteria under Section 381.705, "[c]ompliance with the minimum content requirements is essential, and the Legislature has vested in [HRS] little discretion in administering the minimum content requirements . . . ." Central Florida Regional Hospital, Inc. v. HRS, 13 FALR 350, 363 (HRS Final Order, December 28, 1990). Exact compliance with the minimum content requirements is therefore a condition precedent to consideration of the merits of an application. See, e.q., Humhosco, Inc. v. HRS, 561 So.2d 388 (Fla. 1st DCA 1990) (rejecting CON application because of improper LOI resolution and financial statements);

    University Community Hospital, Inc. v. HRS, 13 FALR 2362 (HRS Final Order, May 30, 1991) (rejecting UCH's CON application because the capital projects list was incomplete and the LOI resolution was defective).

    
    

79. Section 381.709(2)(c), F.S., requires that the Board of Directors or other governing body of the applicant enact a resolution authorizing the filing of the application. This resolution must be included with the Letter of Intent. None of the Letters of Intent or resolutions passed by Manatee Springs' interim Board of Directors on August 24, 1990 authorized the filing of the application that was filed. The application that was filed was for a conversion of 120 nursing home beds to 70 CMR beds. This project and application were not authorized until September 21, 1990 when the new Board of Directors adopted a resolution to proceed with the application. "The importance of action by the Board of Directors of the applicant formally authorizing the filing of the CON application and the expenditure necessary to accomplish the proposed project is self evident", Humhosco, supra, at 391.

    
    

80. The confusion surrounding the changes in the Boards of Directors and the adoption of the three resolutions, leads to a conclusion that at the time the application was approved there was no clear understanding of which project would ultimately be submitted to HRS and indeed, none of the projects authorized in the resolutions form the basis of the application that was filed.

    
    

81. Section 381.707(2)(a) requires that a CON application contain a "complete listing of all capital projects" that were "applied for, pending, approved, or underway in any state at the time of application . . . ." HRS defines a "capital project" as "a single capital expenditure or group of capital expenditures." Central Florida, 13 FALR, at 362. A capital project is "underway" when it is in the planning stage. Id. at 362, 364.

    
    

82. The importance of requiring a complete capital projects list was considered in Central Florida, 13 FALR at 364-65, in which HRS and the Hearing Officer concluded:

    
    

    A financially healthy corporation is capable of pursuing a capital-expansion program that results, in the short-term or long-term, in overwhelming financial burdens. Without a list of capital projects at varying stages of planning or implementation, [HRS] is deprived of vital information to determine whether an applicant's capital-expansion program may be disproportionate to its net worth and net income, even when these figures are consider- able.

    The purpose of the minimum content requirement concerning capital projects is to allow [HRS]

    . . . to determine, in light of the applicant's overall capital-expansion program, whether the financial commitment required by a proposed project may be excessive. The failure to pro- vide all of the information required by statute for making this determination has a ripple effect. By failing to supply required data, the applicant reduces the reliability of the criteria-weighing

    process by rendering it less precise.

    The law requires that an application list all capital projects . . . [emphasis added].

    
    

83. UCH did not comply with this requirement because it did not disclose all its capital projects in its application, having failed to disclose its child care renovation project and the individual capital equipment budget items that were planned, and thus pending, at the time the application was filed.

    
    

84. UCH's argument that the term "capital project" does not encompass its capital budget is unpersuasive. HRS determined with respect to a prior UCH application that the capital budget items within the UCH capital budget are capital projects that must be disclosed in accordance with 381.707(2)(a). University Community Hospital, 13 FALR, at 2372.

    
    

85. The statute has been interpreted by HRS in Rule 10-5.008(5)(h), F.A.C., which provides:

    
    

    To comply with Section 381.707(2)(a), F.S., requiring a listing of all capital projects as defined in Rule 10-5.002(9), F.A.C., the applicant shall, consistent with the appli- cant's capitalization policies, provide the total approximate amount of capital projects approved via authorization to execute or underway at the time of the letter of intent

    deadline or state there are none. An itemized list or grouping of capital projects is not required, however, an applicant may choose to itemize or indicate the actual or proposed financial commitment to finance those projects, and include an assessment of the impact of those projects on the applicant's ability to provide the proposed project".

    (emphasis added)

    
    

86. This rule was not in effect at the time that the applications were filed. It still would not have helped UCH, nor excused Manatee's failure to include its approximately $2 million expansion project, an amount far exceeding the included items. Both UCH's and Manatee's omissions are substantial enough to result in a violation of the rule requirement that the included projects be a total approximate amount.

    
    

87. Manatee is presently providing a needed service in 65 of its 120 licensed nursing home beds. It is operating the beds appropriately, efficiently, and profitably. Delicensure of these beds would be contrary to sound health planning principles. No need has been demonstrated to convert these beds to hospital licensure. In fact, the weight of the evidence points to the likelihood of a decline in the present program, as well as service delivery in the district, should its CON be awarded. Fewer Medicaid and Medicare patient days, as a percent of total patient days, will be provided, thereby decreasing, not increasing, access to these groups. Because long-term care to children is generally funded by Medicaid, access to these patients will decrease with the decrease in Medicaid patient days. Although adequate for a 65 bed nursing home, the physical proposal is inadequate as proposed for a 70 bed CMR facility. Financial feasibility has not been demonstrated. Manatee cannot expect to maintain its ALOS as a nursing home if it becomes a hospital. Third party

    payors will not pay hospital reimbursement for nursing home lengths of stay. Furthermore, Manatee has not taken into consideration its $2 million expansion in its pro forma. Since this amount will more than triple the proposed cost, it must have an impact which has not been disclosed.

    
    

88. UCH has not demonstrated that approval of its proposal will add anything positive to the health care delivery system. UCH is proposing a unit which will essentially serve its own acute patients. This proposal is inconsistent with the offering of a tertiary service, defined in Section 381.707(20), F.S., as follows:

    
    

    Tertiary health service means 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. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehen-

    sive rehabilitation, and medical or surgical services which are experimental or develop- mental in nature to the extent that the provision of such services is not yet contem- plated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. The department shall establish by rule a list of all tertiary health services.

    
    

89. Rule 10-5.002 (65), F.A.C. provides the required list, including CMR.

    
    

90. Most important, neither applicant has demonstrated a need for its proposal. There is no need under the rule methodology, and the remaining rule and statutory criteria, as found above, balance heavily against approval of these applications. The applicants have failed to meet their burdens of proof.

RECOMMENDATION

Based on the foregoing, it is hereby, recommended that the Department of Health and Rehabilitative Services enter its Final Order denying the University Community Hospital and Manatee Springs Nursing Center, Inc., certificates of need for comprehensive medical rehabilitation beds in District VI.

RECOMMENDED this 19th day of March, 1992, in Tallahassee, Leon County, Florida.

MARY CLARK

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 19th day of March, 1992.

APPENDIX TO RECOMMENDED ORDER, CASE NOS. 91-1510 AND 91-1511

The following constitute disposition of the findings of fact proposed by the Petitioners.

University Community Hospital

1. These findings have been adopted in full or in substantial part in the recommended order submitted herewith: 1 (except for the statement that the unit currently satisfies CARF, which was unproven), 2-8, 9a. and b., 10a., 11, 21, 27 (except for the conclusion that the projects list was complete), 29-32, 34-41, and 43.

2. These findings are rejected as contrary to or unsupported by the weight of evidence: 1 (as to CARF accreditation now), 9.c., 10.b., 13, 14, 18, 20 (as to no additional money needed), 22, 26, 27 (as to the conclusion regarding completeness), 28, 44 and 45.

3. These findings are rejected as cumulative, unnecessary or irrelevant: 12, 15-17, 19, 23-25, 33, and 42.

Manatee Springs Nursing Center, Inc.

1. These findings have been adopted in full or in substantial part in the recommended order submitted herewith: 1, 2, 3a., 3b., 3j., 3l., 3n., 3o., 3p., 3q., 3s., 3u., 3x.3, 4a., 4b., 8a., 10, 11, 15, 19, 22d., 23b., 27, 30, 35, 37, 40, 41, 47 and 48.

2. These findings are rejected as contrary to or unsupported by the weight of evidence: 3w., 8c.3, 8c.4, 13, 14, 16, 17, 18, 20, 21, 22 (as to conclusion regarding the preference), 23 (as to the conclusion regarding meeting the preference), 24 (as to the conclusion), 31, 32, 34, 36, 42, and 43.

3. These findings are rejected as cumulative, unnecessary or irrelevant: 3c., 3d., 3e., 3f., 3g., 3h., 3i., 3k., 3m., 3r., 3t., 3v., 3x1, 3x2, 3x4, 3x5, 3x6, 3x7, 4c., 4d., 4e., 4f., 4g., 4h., 4i., 5, 6, 7a.-d., 8a. 1-3, 8b.1, and

8c.1 & 2, 9, 11, 12, 15, 23a & c, 25, 26, 28, 29, 33, 38, 39, 44, 45, 46, and

47.

COPIES FURNISHED:

Cynthia S. Tunnicliff, Esquire Martha Harrell Hall, Esquire

W. Douglas Hall, Esquire

P. O. Drawer 190 Tallahassee, FL 32302

John Radey, Esquire Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire

101 N. Monroe St., #1000 Tallahassee, FL 32308

Alfred W. Clark, Esquire

P.O. Box 623 Tallahassee, FL 32308

Charles D. Hood, Jr., Esquire

P.O. Box 15200

Daytona Beach, FL 32115

Lesley Mendelson, Esquire Dept. of Health and

Rehabilitative Services 2727 Mahan Drive

Tallahassee, FL 32308

R. S. Power, Agency Clerk Dept. of Health and

Rehabilitative Services 1323 Winewood Blvd.

Tallahassee, FL 32399-0700

John Slye, General Counsel Dept. of Health and

Rehabilitative Services 1323 Winewood Blvd.

Tallahassee, FL 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.

Docket for Case No: 91-001510

Orders for Case No: 91-001510