STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MARRIOTT RETIREMENT )

COMMUNITIES, INC., )

)

Petitioner, )

vs. ) CASE NO. 91-2231

) (Consolidated with Case Nos.

DEPARTMENT OF HEALTH AND ) 91-2419, 91-2832, 91-2835

REHABILITATIVE SERVICES, ) 91-2836, 91-2837)

)

Respondent, )

and )

)

HEALTH QUEST REALTY, II, )

d/b/a REGENTS PARK OF )

JACKSONVILLE, )

)

Intervenor. )

)

RECOMMENDED ORDER

The final hearing in the above-styled matter was heard pursuant to notice by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative Hearings, on July 26, 1991, in Tallahassee, Florida.

APPEARANCES

For Marriott: Eleanor A. Joseph, Esq.

HOLLAND & KNIGHT

P.O. Box 810 Tallahassee, FL 323C2

For Health Quest: Elizabeth McArthur, Esq.

AURELL, RADEY, ET AL.

P.O. Drawer 11307 Tallahassee, FL 32302

For Cypress Village: Michael Cherniga, Esq.

101 E. College Street Tallahassee, FL 32301

For Atrium: R. Terry Rigaby, Esq. 204-B S. Monroe Street Tallahassee, FL 32301

For Health Care Alfred Clark, Esq. and Retirement P.O. Box 623

Corporation: Tallahassee, FL 32302

For HRS: Richard Patterson, Esq.

Department of HRS 2727 Mahan Drive

Tallahassee, FL 32308 STATEMENT OF THE ISSUES

Which of the competing applications for nursing home beds should be approved? Whether the Respondent should have

accepted the partial application for nursing home beds filed by Health Quest.

PRELIMINARY STATEMENT

Marriott Retirement Communities, Inc. ("Marriott" or "MRCI") is an applicant for a Certificate of Need ("CON") for 30 skilled nursing home beds to be built in conjunction with an adult congregate living facility ("ACLF") in Southeast Duval County, Florida. Health Quest II, d/b/a Regents Park of Jacksonville ("Health Quest") filed an application for a CON for a 41-bed addition to Regents Park of Jacksonville (CON 6513). Health Care and Retirement corporation of America, d/b/a Heartland Health Care Center of S.E. Duval County, Florida, ("HCR") filed an application for a CON to construct a 120-bed community nursing home in Duval County, Florida (CON 6512). Cypress Village, Inc. ("CVI" or "Cypress") filed an application for a CON to add 60 nursing home beds to an ACLF (CON 6509). The Atrium Nursing Home, Inc. ("ANH" or "Atrium") filed an application for a CON to build an 84-bed community nursing home (CON 6511).

Health Quest also filed a partial application for a CON to construct a 24-bed addition (CON 6513P), and MRCI filed a partial application for a CON to construct a 24-bed addition (CON 6510P). The Department of Health and Rehabilitative Services ("HRS") comparatively reviewed the foregoing CON applications for a fixed need pool of 144 beds. HRS refused to accept MRCI's application for a partial award and did not comparatively review MRCI's partial application with the other applications. MRCI timely filed a petition for formal administrative proceeding challenging HRS' refusal to accept its application. That matter was consolidated with the instant proceeding.

HRS issued its preliminary decision to deny the applications of MRCI, Health Quest and HCR and to approve those of Cypress Village and Atrium.

MRCI, Health Quest and HCR timely filed petitions for formal administrative hearing contesting HRS' decision to deny their applications and contesting HRS' decision to approve those of Atrium and Cypress. These cases were consolidated into 91- 2231. On July 31, 1991, HCR dismissed its petition for formal administrative hearing and withdrew from the proceeding.

The parties stipulated that the following matters are not at issue: the criteria contained in Section 381.705(1)(d),(f),(j) and (k), Florida Statutes; the letters of intent of the parties were all timely filed with the right agency; the applicable need is 144 beds and there are no "not normal circumstances"; the parties are all competing for some portion of the 144 beds; none of the parties is requesting the total 144 bed allocation and the total number of beds requested by all parties is approximately 330 beds.

The remaining portions of Subsections 381.705(1) and (2), Florida Statutes, not otherwise listed above, remain at

issue, as does compliance with 381.707, Florida Statutes, and Rule 10-5.030(2), Florida Administrative Code.

All parties submitted proposed findings of fact and conclusions of law, which were read and considered. The Appendix attached hereto and made a part hereof states which findings were accepted and which were rejected and why.

EXPLANATION OF RECORD DESIGNATION

Testimony adduced at hearing will be referred to by

page number, (T. or Tr. ), and may refer to the volume of the transcript in which the reference is found. References to exhibits will identify the source of the exhibit as labeled at the hearing, the exhibit number or other label, and where it might be deemed necessary, a page or section of the exhibit.

The transcript volumes cover the following pages:

References to Prefiled Testimony may identify the

witness and page number of the prefiled testimony. (Witness, PT,

1. ) Witness initials or other designations used herein are:

   
   

   AG Alberta Granger Burcham Julie Burcham SB Susan Brockis

   ED Elizabeth Dudek DJ Donna Janesky JO Judith Baker

   KK Kevin Krishe KV Karen Vroman LW Leon Whitney

   ME Mary Anne Evans MF Mark Fall

   MG Marshall Gunn PR Peter Rumpel RB Ron Braun

   SG Sharon Gordon-Girvin TW Thomas Williams

   If the immediately preceding reference to the record

   also applies in whole or in part to subsequently recited facts or evidence, the reference for the subsequent fact or evidence may be designated as Id. A sentence without reference to the record states a factual determination based upon other stated facts.

   
   

   1. FINDINGS OF FACT

1. NATURE OF THE CONTROVERSY

   
   

   1. In response to a 144 nursing home bed need for southeast Duval County, Florida, Subdistrict 3, HRS Service District IV, several applicants filed nursing home bed certificate of need applications for the review cycle triggered by a December 5, 1990 deadline, including; CVI for a 60-bed

      addition to an existing 60-bed facility authorized by Certificate of Need No. 5602; Atrium for an 84-bed facility; Marriott for a 30-bed facility; Health Quest for a 41-bed renovation and conversion of assisted-living facility beds, or 24-bed addition to the existing nursing home.

      
      

   2. Two other applicants, Health Care and Retirement Corporation of America for a 120-bed facility and Health Care Properties of St. Augustine for a 60-bed facility, did not pursue administrative appeals of their applications.

      
      

   3. HRS found all of the applications to be complete

      and all proposals were comparatively reviewed on their merits, with the exception of the MCRI 24-bed proposal which HRS found was untimely.

      
      

   4. The Department noticed its intent to approve the applications filed by CVI and Atrium. MRCI and HQR are Petitioners contesting the HRS intent because their applications were denied. HQR also claimed standing as an alleged substantially affected existing facility; however, HQR did not present any evidence in support of its standing on these grounds.

      
      

2. THE HRS REVIEW

   
   

   1. HRS required the applicants to submit their proposals on an application form designated "HRS Form 1455, Oct.`88". [CVI Ex. 8; Tr. 2461. This application form is not a rule. [E.D. Tr. 1618].

      
      

   2. A work group consisting of HRS and nursing home industry representatives developed the application form and HRS review procedures. [S.G., Q. 14; CVI Ex. 10; ANH Ex. 8].

      
      

   3. Criteria at Section 381.705, Florida Statutes,

      form the basis for 13 goals of the HRS review process. (Id. S.G. pp. 4-15, Q. 14-39; ANH Ex. 8, p. 4). The goals are as follows:

      
      

      1. The first goal promotes the establishment of facilities to provide services when and where needed, intended to implement Sections 381.705(l) (a), (b), (d), (e), (j), (l), (2)(a), (b), (d) and (e)

      2. The second goal promotes special resident programs for special population groups, intended to implement

         Sections 381.705(1)(a), (b), (c), (f), (j), (l), (2) (a), (b) and

      3. The third goal promotes the establishment of continuing care-type communities, intended to implement Sections 381.705(1)(a), (b), (d), (e), (j), (2)(a), (b) and (d).

      4. The fourth goal promotes use of professionals in a variety of disciplines to meet resident needs, intended to implement Sections 381.705(1)(b),(c), (f), (g), (h), (j), (1) and (n).

      5. The fifth goal promotes the establishment of well-designed, comfortable facilities, intended to implement Sections 381.705(1)(b), (c), (m) and (2)(c).

      6. The sixth goal promotes residents' rights and residents' quality of life, intended to implement Sections 381.705(1)(b), (c), (f), (j), (l) and (2)(b).

      7. The seventh goal promotes a full range of social services for nursing home residents, intended to implement Sections 381.705(1)(b), (c), (f), (j), (l) and (2)(b) and (d).

      8. The eighth goal promotes provision of services to Medicaid eligible residents, intended to implement Sections 381.705(1)(a), (h), (n) and (2) (e)

      9. The ninth goal promotes the establishment of nursing homes which do not intend to secure significant profits at the expense of resid ent care programs and facility design, intended to implement Sections 381.705(1)(b), (e), (h), (i), (l), (2)(a), (c) and (e)

      10. The tenth goal promotes nursing home locations which achieve a geographic distribution of nursing home beds, intended to implement Sections 381.705(1)(a), (b), (d), (e), (h), (j), (2) (a), (b) and (d).

      11. The eleventh goal promotes proper projection of construction costs, intended to implement Sections 381.705(1)(b), (e), (i) , (l), (m) , (2)(a) and (c)

      12. The twelfth goal promotes the establishment of nursing homes which have a record of implementing superior

          resident care programs and providing superior quality of care, intended to implement Sections 38 1.705(1) (b), (c), (f), (h), (j), (l), (n) and (2) (b); and

      13. The thirteenth goal promotes nursing home charges

          consistent with industry trends and Medicaid charges which are within Medicaid upper limits, intended to implement Sections 381.705(1)(b), (e), (h), (i), (l), (m), (2)(a) and (e)

          
          

   4. The working group identified the goals as representing desirable outcomes under the statute to be attained by successful applicants if specific objectives are achieved.

      
      

   5. Eight objectives, each relating to one or more of

      the goals are then utilized, with each operationally defined by several items of information.

      
      

   6. Scoring points are divided among the various items of information solicited under each objective. [SAG. p. 3, Q. 14, p. 17, 18, Q. 45; A.G. Tr. 1330].

   7. The scoring system is not a rule; HRS utilizes it on a case-by-case basis to aid in decision-making. [A.G. Tr. 1273, 1274; S.G. Q. 43, 45, 46].

      
      

   8. An application was measured by assessing the

      responses provided in the application against the point system. [ANH Ex. 8, p. 4; S.G. Q. 43, 45, 46]. The scoring system is a means to accomplish an evaluation of information--the process of forming, qualifying, verifying, and establishing judgments.

      
      

   9. Applicants are asked to specify concrete

      procedures or steps that, when implemented, are likely to result in a clear and predictable outcome. [S.G. Q. 44; A.G. Tr. 1320, 1321]. Thus, both operational features and the implementation process for those features are sought.

      
      

   10. All of the foregoing evaluation procedures, including the goals, objectives, review protocols and scoring system were disclosed to the applicants prior to application

       preparation and filing. [S.G. Q. 14; CVI Ex. 10; ANH Ex. 8; J.B. Q. 24].

       
       

   11. Two HRS review consultants, a primary and a secondary reviewer, assigned a number to each application item which represented that consultant's assessment of how well the applicant's response addressed the particular item. [S.G. Q. 42,

       43, 45; ANH Ex. 8, p. 4]. The ultimate score was calculated by a combination of manual and computer scoring which assigned the points available for each item number. [ANH Ex. 8 p. 4; S.G. Q. 45].

       
       

   12. The scores assigned by each of the two

       consultants were then averaged. [ANH Ex. 8, p. 4; S.G. Q. 45]. A statistical reliability analysis of the consultants' assessments was then conducted before further evaluation proceeded.

       
       

   13. The work group also established protocols for evaluating the information provided by applicants. [S.G. Q. 14, 45]. The protocols utilized by the HRS provide a methodology which results in predictability, uniformity and commonality of judgment in the review of each application insofar as that is possible with subjective judgments of facts [S.G. Q. 42, 43, 45, 46].

       
       

   14. Upon completion of the scoring, a final

       assessment was conducted by HRS managers who evaluated the overall presentation of information in the application available

       to make a judgment--the application of functional aspects with program components, whether the integration of the elements was internally consistent, and the likelihood that the proposal will have the success predicted by the applicant. [S.G. Q. 43, 46]. These elements serve as verification of the reviewer's actions and reflect the decision-making that occurs when the preliminary decision is made.

       
       

   15. Under the HRS evaluation system, there is no particular "passing" score. [S.G. Q. 45, 46]. The scores

       attained were utilized as an aid to evaluating the applications. [A.G. Tr. 1273, 1274]. The goal is to attain the highest possible percentage score possible based upon a potential base score of 1500 points. A successful applicant should demonstrate a consistently high number on each of the eight rated objectives. Reviewer judgment dictates the score; the score does not dictate the judgment.

       
       

   16. A display of the scores will quickly reveal weak points and inconsistencies in the application which assist HRS in exercising its decision- making discretion in weighing and balancing the statutory criteria. [A.G. Tr. 1273, 1274].

       
       

   17. HRS prepared a "State Agency Action Report" which explained the evaluation, summarized the HRS findings, provided the scoring results, and stated HRS' intent to approve the CVI and ANH applications. [ANH Ex. 8].

   
   

   22. The scoring results Primary	were: Secondary	Average	Percent of
   Reviewer	Reviewer	Score	Maximum
   Atrium 1196.9	1274.33	1235.61	82.37
   CVI 1175.28	1178.77	1177.03	78.47
   Health Care & Retirement Corp. 1113.92	1185.4	1149.66	76.64
   Health Care 1119.25 Properties of St . Augustine Marriott 1110.58	1150.90 1143.67	1135.08 1127.12	75.64 75.14
   Health Quest (41 beds) 1079.46	1109.05	1094.26	72.95
   Health Quest 1079.46 (24 beds)	1109.05	1094.26	72.95

   
   

   1. The staff consultant with primary review responsibility exercised her professional judgment in reviewing the applications. [A.G. Tr. p. 1272]. /1

      
      

   2. There was no evidence that approval of any of the four applicants would have an adverse impact on the costs of providing health services, especially in light of the numeric need and the high occupancy rates within the subdistrict.

      
      

   3. There were no alternatives within the subdistrict for the providing the type of care required except construction of additional beds or renovation of existing beds of a similar type.

      Both of these alternatives were presented by the various applicants.

      
      

3. THE CVI APPLICATION

   
   

   1. CVI is a not-for-profit Florida corporation. [CVI

      Ex. 3, iiia, iiic; J.B. Q. 28; CVI Ex. 8]. It is a local service unit of the National Benevolent Association of the Christian Church (Disciples of Christ), a Missouri not-for-profit corporation.

   2. The NBA was founded in 1887, and is one of the general administrative units of the General Assembly of the

      Christian Church (Disciples of Christ). The NBA provides care at numerous facilities to older adults, children and persons with developmental disabilities. [Id.; L.W. Q. 14]. Through local service units, (not including the CVI project), the NBA currently operates 13 nursing homes in 8 states. [Id.]

      
      

   3. CVI is developing a 65-acre adult retirement community on a site adjacent to the Mayo Clinic Jacksonville in southeast Duval County. [Id.]. Construction has been completed on all individual residential components of Phase I. [P.R. Tr.

      200, 205, 206; K.V. Tr. 53; J.B. Tr. 311, 312; J.B. Q. 19]. The

      60 bed addition will be part of Phase 11. [CVI Ex 3, PT 1, p. iiia; J.B. Q. 28].

      
      

   4. Phase I consists of independent living apartments, an adult congregate living facility ("ACLF"), a 60-bed skilled

      nursing facility specifically designed for and dedicated to the care of persons afflicted with Alzheimer's disease and related dementia, and a core service building which contains administrative and other support facilities- [P.R. Tr. 200, 205, 206; K.V. Tr. 53; J.B. Tr. 311, 312; J.B. Q 19; CVI Ex. 3, PT

      II, p. 50a, supp. after p. 72a]. These elements, as required, have already been granted CON's. Phase I also included a

      maintenance building which in turn includes a laundry to serve the campus. [Id.; J.B. Q. 78, 79; CVI Ex. 3, PT I, p. 40a].

      
      

   5. The Alzheimer's facility was authorized pursuant

      to Certificate of Need No. 5602 issued to CVI in 1989. [CVI Ex. 9; J.B. Q. 18].

      
      

   6. The Alzheimer's facility consists of a 60-bed unit connected to the core service building. The 60 beds proposed by CVI herein will be located in a new nursing unit a.ii so to be /2 connected to the core service center. [Id.; P.R.Q. 12, 13, 14; P.R. Tr. 188, 189].

      
      

   7. The Alzheimer's unit will also serve as a research center. [CVI Ex. 3, PT II, p. 71a, 71b; T.W. Q. 46, 47; K.V. Q. 17, 18]. All residents will participate in low-risk research such as diagnostic assessments, tracking the degenerative process through the collection of clinical data, behavioral observation and modification, activity-based therapy, and the use of environmental cues. [Id.; T.W. Q. 13]. Ultimately, dietary and drug therapies will also be the subject of research. [T.W. Q. 13].

      
      

   8. The Mayo Clinic Jacksonville has a special Alzheimer's disease research team which will actively participate in the CVI research. [Id.].

      
      

   9. CVI will be the only applicant licensed by HRS to operate the Alzheimer's unit. [F.D. Tr. 1565, 1566]. The Alzheimer's unit constitutes the nursing facility to which the proposed 60 nursing unit beds will be added.. [Id.].

4. CVI PROPOSED NURSING UNIT PROGRAM/QUALITY OF CARE

   
   

   1. CVI seeks a CON for a 60-bed nursing home addition to the ACLF mentioned above.

      
      

   2. The majority of the residents for the proposed nursing unit will come from the adult community developed by CVI which will be occupied by residents from within the total district. However, it is not anticipated that the adult community will be a direct source for nursing home residents for at least five years after the nursing unit is opened. [J.B. Q. 52, 103].

      
      

   3. The CVI nursing unit will provide nursing care of

      a more generalized nature compared to the Alzheimer's unit. [J.B. Q. 26; K.V. Q. 28; CVI Ex. 3, PT II, p. iiia].

      
      

   4. Consistent with CVI's plan for a continuum of care, the proposed nursing unit beds will also serve residents initially admitted to the Alzheimer's unit but whose disease has progressed to the point where the medical diagnosis becomes primary and, therefore, skilled nursing care becomes the primary need for that resident. [CVI Ex. 3, PT I, iiia; J.B. Q. 26; CVI Ex. 3, PT II, pp. 46a-46c; K.V. Q. 26, 27, 28]. However, utilizing existing Alzheimer's unit resources, these former Alzheimer's unit residents will still receive specialized care and participate in research; CVI Ex. 3, PT II, pp. 71a, 71b; T.W. Q. 46, 47].

      
      

   5. CVI defines a "program" as those services designed

      to correct a resident's problem or condition. [CVII Ex. 3, PT I, p. 46a-46c; K.V. Q. 26, 27, 28].

      
      

   6. The CVI nursing unit will offer three different specialized programs:

      (a) Alzheimer's care offering specific

      therapies for residents with Alzheimer's disease or related dementias; (b) a medically complex program offering restorative, therapeutic care for residents with acute, medically complex conditions; and (c) an inter-generational enrichment program for the purpose of stimulating nursing residents by daily interaction with children in a structured therapeutic activity. [Id.]

      
      

   7. Given the experience of the NBA at other local service units, CVI can reasonably be expected to provide excellent quality of care through the support and resources of NBA. [CVI Ex. 3, PT ii, pp. 24a-24c; T.W. Q. 29, 30; K.V. Q. 54].

      
      

5. CVI PROPOSED NURSING UNIT DESIGN SUPPORT FEATURES

1. The nursing unit will comprise 18,720 square feet

   of new construction, with 28 semiprivate rooms, 3 private rooms, and one isolation room. [CVI Ex. 3, iiia; P.R. Q. 14-16].

   
   

2. The nursing unit will include an activity room, a day room/lounge with an outside activity deck, a nourishment station, and three garden recreation areas. [Id.].

   
   

3. The quality of life and care of the CVI nursing unit resident will be enhanced by resources available in the

   adjacent core service building which include a kitchen, a large,

   dividable dining area, activity rooms, physical and occupational therapy areas, beauty and barber shops, administration areas

   offices, medical treatment rooms, and a visitor lounge. [CVI Ex. 3, PT I, p. iiia; J.B. Q. 28].

   
   

4. Construction of the core service building was completed as part of the construction for the Alzheimer's unit. [P.R. Tr. 205-208]. When HRS reviewed the feasibility of the

   certificate of need application for the Alzheimer's unit, it also reviewed plans for the core service building. [P.R. 196-203, 207, 208; HQR Ex. 44; J.B. Tr. 255, 256].

   
   

5. The Alzheimer's unit was approved as a 60-bed alternative to a 120-bed nursing home proposed in CVI's earlier application for Certificate of Need No. 5602. [Id.]. Approval of the 60-bed Alzheimer's unit did not change the design nor reduce the total space planned far the core service building. [Id.].

   
   

6. The CVI nursing unit addition will not require the conversion, through renovation or new constructions of any area within the core service building. [P.R. pp. 200-206; J.B. Tr. 311, 312].

   
   

7. After the Alzheimer's unit project construction

   was underway, HRS allocated 7741 square feet of the core service building to represent the amount of core service area space under HRS nursing home jurisdiction. [P.R. Tr. 196, 199; HQR Ex. 42]. It is unrebutted that this allocated space will be sufficient to support both the proposed nursing unit beds and the Alzheimer's unit. [J.B. Tr. 311, 312; P.R. Tr. 196-203, 205, 206].

   
   

8. The allocated core space includes an allocation for the main dining room. Use of this main dining area is

   optional for residents of the Alzheimer's unit and the proposed nursing unit, since each unit has its own adequate dining facilities. [P.R. Tr. 188-191, 229; K.V. pp. 59, 60].

   
   

9. CVI will provide child day care for employees, and these children will participate inn the inter-generational enrichment program. [CVI Ex. 3,PT II, pp. 46a, 60a, 60b; K.V.

   1. 27, 28, 33, 34]. Ultimately, the child day care center will be located within a new apartment building, but will be temporarily housed in the core service building. [K.V. Tr. 52, 58].

      
      

10. CVI will also eventually construct a chapel to be located on the campus. [CVI Ex. 3, PT II, p. 66b; K.V. Q. 43, 44]. Until then, the nursing home residents will be able to utilize a chapel area located in one of the lounge areas in the existing apartment building. [K.V. Tr. p. 56].

    
    

11. CVI's semiprivate rooms are specially designed to provide a physical separation, through the use of a dividing wall, that approaches the privacy of a single room with the economizes of a semiprivate room, while still allowing each resident to have the very important contact with another person.

    [CVI Ex. 3, PT I, p. iiia, Appendix 11(4B); P.R. Q. 14-16; P.R.

    Tr. 182-186]. Each bed will overlook an individual adjacent window. [Id.].

    
    

    1. CVI PROJECT COSTS

       
       

12. CVI reasonably projects that the nursing unit will involve a total project cost of $3,286,258 - ($301,175 land,

    $2,174,108 (including $79,880 fixed equipment) building construction, $231,525 moveable equipment, and $571,450 intangible asset and deferred) [CVI Ex. 3, PT I, 24-27c; J.B. Q. 37-39, 41; P.R. Q. 8; T.W. Q. 19-21].

    
    

13. CVI's capital budget also includes the possible development of additional ACLF units on a second floor of the nursing unit building as part of Phase II. [CVI Ex. 3, PT I, pp. 28, 28a; J.B. Q. 42; J.B. Tr. 303, 304].

    
    

14. However, the CVI nursing unit construction cost

    was conservatively projected on the basis that the nursing unit would, like the Alzheimer's unit, be a one-story building. [P.R.

    Tr. 193-195]. It thereby accounts for all construction, including the roof, necessary to build the 18,720 square foot

    nursing unit. [Id.].

    
    

15. CVI's projected construction costs for the proposed nursing unit are reasonable and conservative. [CVI Ex. 3, PT 1, p. 27a; J.B. Q. 38, 39, 40; P.R. Q. 6; P.R. Tr. 210-212;

    CVI Ex. 34]. In the application, they were premised upon the Alzheimer's unit costs as known at the time the application was submitted. [Id.]. The reasonableness of the proposed nursing unit construction cost projections was again verified by the time of hearing in August, 1991. [J.B. Q. 41].

    
    

16. For construction (labor, materials, overhead, construction management, and profit) CVI projected a cost of $1,825,144, or $97.50 per square foot [CVI Ex. 3 PT 1, p. 27a;

    J.B. Q. 38, 39, 40; P.R. Q. 6; P.R. Tr. 210-212; CVI Ex. 34].

    
    

17. CVI certified to HRS that the final construction cost for the Alzheimer's unit under Certificate of Need No. 5602,

    including fixed equipment, was $76.33 per square foot. [CVI Ex. 34]. Adding the construction management fee, the final cost was

    $81.30 per square foot. [Id.].

    
    

18. If CVI's fixed equipment costs of $79,880 were added to the $1,825,144 projected construction cost for CVI's

    nursing unit, the result would be $101.74 per square foot. If the comparable Alzheimer's unit cost of $81.30 per square foot was conservatively inflated for a two year period (to allow adequate construction commencement after final agency action, see CVI Ex. 3, PT II, p. 57; P.R. 1. 25, 26) the result of $89.63 per square foot again reveals the reasonableness of CVI's projected construction costs.

    
    

19. The CVI proposed nursing unit will occupy approximately 3 acres of the total 65 acre campus. [CVI Ex. 3, PT I, pp. iiia, 27a; J.B. Q. 28,38, 39, 46].

    CVI reasonably allocated, pursuant to generally accepted accounting principles, a portion of the land's fair market value and land improvement costs to the proposed nursing unit 60-bed project. [CVI Ex. 3, PT I, p. 27a; J.B. Q. 38, 39; J.B. Tr. 294-296].

    
    

    1. CVI's ABILITY TO FINANCE THE PROJECT

       
       

20. CVI has the ability to finance the nursing unit project. [ANH Ex. 8, p. 22].

    
    

21. Phase I, including: the Alzheimer's unit, of the CVI campus was financed through a $21,960,000 tax exempt bond issue through the Jacksonville Health Facilities Authority. [CVI

    Ex. 3, PT I, p. 28a, 1990 Audited: Financial Statement, p. 10; CVI Ex. 8; R.B. Tr. 241, 242]. CVI intends to secure the same type of financing for the proposed nursing unit. [CVI Ex. 3, PT I, pp. 30, 30a; J.B. Q. 44-46; CVI Ex. 3, Appendix 5(2.c.1); L.W. Q. 8-10; R.B. Q. 5-13; R.B. Tr. 241,: 242].

    
    

22. The Jacksonville Health Facilities Authority provided the tax exempt bond issue through the authority of Chapter 159, Part II, Florida Statutes. [CVI Ex. 8, p. 1].

    Thus, pursuant to the provisions of the statute, CVI Phase I project in its entirety (which includes the core service building and the ACLF) necessarily was found to be financially feasible.

    See Section 159.29, Florida Statutes.

    
    

23. CVI will be primarily responsible for repayment of the bond proceeds but the NBA will guarantee the bond issue, as it did for Phase I. [Id.; M.G. Q. 26].

    
    

24. The NBA has significant financial strength. In 1988, it had total assets of $145,493,840. [CVI Ex. 8; L.W. Q.

    16]. In 1989, the total grew to $168,507,027. [Id.]. In 1988, it realized a net income (revenue over expenditures) of

    $5,670,754. [Id.]. In 1989, the income increased to

    $11,563,778. [Id.]

    
    

25. The NBA has secured third party financing for its

    local service units on numerous other occasions. [L.W. Q. 7; R.B. pp. 241, 242]. The most recent occasion involved tax exempt

    bond financing immediately prior to the hearing, ore July 31, 1991. [L.W. Q. 7].

    
    

26. The investment banking firm which has worked on several tax exempt bond financing projects with the NBA, and which handled the financing for Phase I of CVI, has reviewed the financing proposal for the CVI nursing unit and has found it to be reasonable and achievable. [R.B. Q. 1-13].

    
    

27. Raising charitable funds has been a regular activity of the NBA and its local service units. [L.W. Q. 11, 13]. To date, CVI has raised $4,000,000. [Id.]. As of June 30, 1991, $1,327,589 in cash from donations was still available for

    the proposed nursing unit. [Id.; J.B.Q. 44-46].

28. The CVI application revealed $24 million in assets consisting primarily of bond issue proceeds. [CVI Ex. 3,

    PT I, pp. 28-28(b); J.B. Q. 42, 43].

    
    

    1. CVI STAFF AND INDEPENDENT CONTRACTORS

    
    

29. The staff proposed for CVI's nursing unit significantly exceeds minimum requirements, and would meet the criteria in Florida for a superior rating. [CVI Ex. 3, PT I, pp. 36, 37, 37a, 38, 39; K.V. Tr. 31, 32, 39, 40;

    K.V. Q. 49-53; T.W. Q. 23-26; J.B. Q. 54-63]. The superior rating indicates a higher level, and higher quality, of care. [Id.].

    
    

30. Because of the nursing intensity required for Alzheimer's and related dementia patients, the Alzheimer's units

    staff nursing to patient ratio will be 1:5 or 1:6. [K.V. Tr. 63, 66]. The CVI nursing unit will have a 1:8. The typical ratio

    for nursing homes in the Jacksonville, Florida area is 1:10. [K.V. Tr. p. 66].

    
    

31. The CVI application presented reasonable levels of anticipated salaries and fringe benefits. [CVI Ex 3, PT I, pp. 36, 37, 37a, 38, 39; K.V. Tr. 31, 32, 39, 40; K.V. Q. 49-53; T.W. Q. 23-26; J.B. Q. 54-63].

    
    

32. CVI accounted for employees, such as the administrator and director of nursing, who were full-time and on a fixed salary. (Id.]. CVI also accounted for those staff who

    are to be paid on the basis of an hourly wage, such as nurses, calculated according to the number of work hours expected (based on full-time equivalent factors). [Id.]. Under this approach, the CVI salary projections account for vacation, overtime, and sick leave. [Id.; K.V. Tr. 45,

    
    

33. CVI did not directly reflect revenues nor expenses attendant to the activities of therapists, pharmacists, dentists, podiatrists, a medical director, for other such consultants because they would serve as independent contractors. [CVI Ex. 3, PT I, pp. 40a, 46b; J.B. Q. 66,

    
    

34. Instead, CVI indirectly accounted for the independent contractors by utilizing a "net methodology" pursuant

    to which the anticipated consulting fees are included within a base rate for private pay residents along with a markup. [Id.,

    1. Tr. 312-314, 339, 340]. The markup covers the cost to provide the contractual services to Medicaid or Medicare

       reimbursed residents. [Id.]. In this regard, CV followed the customary accounting approach taken by a not-for-profit nursing

       home whereby the facility does not attempt to profit from the provision of such contractual services. [Id.]

       
       

       1. FINANCIAL FEASIBILITY OF CVI'S NURSING; UNIT

    
    

35. By the end of the second year of proposed nursing unit operations, it is reasonably anticipated that the 120-bed CVI nursing home will realize a net income of at least $275,300 at 95 percent occupancy. [CVI Ex. 3, PT I, pp. 35 35a, 47-49a (Schedule 18); J.B. Q. 77-81; J.B. Tr. 274, 275]. By the second

    year of operation, CVI's revenues per patient day will be $99.25, compared to $116.16 for HQR's 24 bed proposal, $117.45 for HQR's

    41 bed proposal, $118.15 for Atrium's proposal, and $126.03 for MRCI's proposal. [Comparison of Schedule 18 of applications]. The nursing unit is feasible on an immediate and long-term basis. [J.B. Q. 27].

    
    

36. CVI did not rely upon any non-nursing home revenues to demonstrate feasibility for the nursing unit. [Id.;

    J.B. Tr. p. 305]. CVI demonstrated nursing home feasibility as a

    stand-alone project. [Id.] Schedule 18 of the application contains space for the applicant to enter non-nursing home

    revenues and costs, such as those items associated with the operation of a co-located ACLF. Under HRS policy, the applicant has the option as to whether or not to provide these projections. [E.D. Tr. 1551-1559].

    
    

37. CVI proposes a 35 percent Medicaid utilization condition for the nursing unit which, with a 50 percent rate in the Alzheimer unit, results in a

    42.5 percent Medicaid rate for the 120 bed facility. [CVI Ex. 3, PT I, p.iv, p. 46a; H.B. Q.

    31, 33, 73-75; A.G. Tr. 1260, 1261, 1320]. Of the completing applicants, only CVI showed all it beds will be Medicaid certified. [J.B. Tr. 263, 265].

    
    

38. It is the financial feasibility of the specific certificate of need being reviewed which is assessed by HRS. [Id.]. HRS does not review the financial feasibility of any other operations of the applicant which are not part of the nursing home certificate of need application. [Id.].

    
    

    1. VALIDITY OF CVI'S AUDITED FINANCIAL STATEMENTS

       
       

39. The completeness deadline for applications was January 18, 1991. However, the completeness determination for CVI was delayed by approximately one month because, initially, HRS withdrew the CVI application from review.

    
    

40. HRS' action was based upon an audited financial statement of CVI covering the first 10 months of 1990. HRS acted upon an apparent non-rule policy that a "combined" audited financial statement would not be `accepted, and the conclusion that the 1990 10-month CVI audit was a "combined" statement.

    
    

41. No evidence was adduced at hearing to demonstrate what HRS specifically defined to be a "combined" statement, or

    specifically why the Department initially felt the 10-month 1990 audit was not an audited financial statement of Cypress Village, Inc.

    
    

42. Upon reconsideration, the HRS reinstated the CVI application, specifically finding that another audited financial statement, covering the full 1989.

    
    

43. The purpose of an audit is to fairly present, in

    all material respects, an entity's financial position, results of operations, and cash flows in conformity with generally accepted

    accounting principles (GAAP). [M.G. Q. 11; M.F. Tr. p. 1813]. This conclusion may be expressed only when the auditor has formed such an opinion on the basis of an audit performed in accordance with general accepted accounting principles which govern auditing standards. [Id.]

    
    

44. The certified public accountant has a duty to

    exercise independent professional judgment with due professional care in preparing the audit and preparing the report. [Id.; M.F., Tr. p. 1811; M.G. Q. 35].

    
    

45. Within the accounting profession, because independent judgment is to be utilized, reasonable persons can disagree on a professional basis as to whether, how, and why certain items should or should not be included in, or appear in, audited financial statements under GAAP for any particular entity. [M.F. Tr. 1918].

    
    

46. The CVI auditors found that `failure to account for all assets, regardless of legal title, exclusively utilized by CVI for its economic benefit would violate the completeness requirement. [M.G. Q. 16, 17, 33]. [M.G.Q. 26].

    
    

47. If CVI's auditors had not reflected the assets to which that liability applies, notwithstanding titled ownership,

    the audited statements would not have been complete and would not have fairly represented the financial position of CVI. [Id.].

    
    

48. Both CVI audited financial statements meet the test of fairly presenting CVI's financial position results of

    its operations, and cash flows in conformity with GAAP. [M.G. Q. 1-39].

    
    

49. The CVI auditors exercised independent professional judgment with due care. [Id.; M.G. 34, 36]. Even if reasonable persons disagreed with the results, the application's requirements were met and HRS had information presented to it upon which to base its decision.

    
    

50. The balance sheet and income statements contained in both the 1989 and 1990 CVI audited financial statements are

    based upon the "fund balance" accounting approach. [CVI Ex. 3, p. 9, 1990 audit; M.G. Q. 28, 30; Burcham Q. 11].

    
    

51. Fund balance accounting is unique to not-for-

    profit and governmental entities. [M.G. Q. 31]. The CVI audit balance sheets and income statements represent the combination of funds from two sources, both directly related to CVI operations and both of which have a material influence upon CVI's financial position, cash flows, and operational results. [M.G. Q. 26, 27, 28, 29, 32, 33, 36]. The 1990 statement is only different from the 1989 audit in terms of the form of presentation and because the passage of time resulted in updated financial information being available to reflect the more mature status of CVI in its development activities. [M.G. Tr. 1536; CVI Ex. 3 1989 & 1990 audits].

52. The characterization of the audited financial

    statement as a "combined statement" has no significance from an accounting standpoint because "combined statement" is not a term

    of art in accounting and has no precise meaning. [Id.; M.F. Tr. 1825, 1826].

    
    

53. To the extent the CVI statements may be deemed "combined", they do portray CVI as a distinct legal entity and do

    not distort the financial ability of the applicant [M.G.Q. 1-39; M.G.Q. 16, 27-29].

    
    

54. To the extent that CVI's 1990 audited financial statements make a specific reference to "combined financial statements", this reference is not a term of art and does not effect the validity of the audited financial statement. [M.G.Q. 27; Burcham Tr. 330, 331]. The financial statements account for the assets and liabilities shared with the NBA as required by GAAP. [Id.; and M.F. Tr. 1333-1334].

    
    

55. The American Institute of Certified Public Accountant's Technical Division concurs in the type of presentation utilized by CVI's auditors. [I.B.Q. 17]. The Technical Division was asked to comment on an audit for another NBA local which utilized the fund balance presentation. [Burcham Q. 5- 18]. The Division concurred that NBA's assets dedicated to that service unit's retirement program (similar to CVI's) should be included on the audit given the unit's debt and other obligations and economic benefit derived from those assets. [Id.; M.F. Tr. 1744, 1745].

    
    

    1. VALIDITY OF CVI'S LETTER OF INTENT NOTICE OF PUBLICATION

       
       

56. CVI timely published notice of its letter of intent in the Jacksonville Times Union. The contents of the publication are set forth in Rule 10-5.008(1)(i), Florida Administrative Code.

    
    

57. Due to an error which was solely the fault of the newspaper, the newspaper left a zero off the total project costs so that the publication actually said "$30,000.00" instead of

    $3,000,000. [CVI Ex. 4].

    
    

58. Prior to the application completeness deadline, CVI provided an affidavit to the HRS which revealed that the error was not due to any fault of CVI. [CVI Ex. 4; A.G. Tr.

    1266, 1267; E.D. Tr. 1569-1571]. Consistent with its existing policy, HRS found that since the publication error was not the fault of or within the control of the applicant, CVI had satisfied the legal requirements for publication. [Id.; A.G. Tr. 1269-1270].

    
    

59. The rationale for the HRS policy was that it would not be fair to punish an applicant for the `mistake of the newspaper as long as the applicant fulfilled its responsibility

    to demonstrate that it had no part in creating the error. [Id.]. At the time of the CVI application, this policy had been consistently applied by HRS for numerous other applicants who were found to be in compliance with the law as long as the publication error was not their fault. [Id.].

    1. CONFORMITY WITH THE LOCAL HEALTH PLAN

       
       

60. All four applicants conformed generally to the applicable local health plan. The applications of CVI and Atrium were determined by HRS to meet the elements of the local plan

    better than did the applications of Health Quest and MRCI. Atrium and CVI were the only applicants which provided

    specialized programs for Alzheimer's patients, a preference for applicants in the local health plan. [Atrium/Nelson PF, pp. 20- 28; Atrium Ex. 8, p. 10-11; HRS/Granger PF, pp. 6-8; ANH Ex 16;

    A.G. Tr. 1323]. Atrium and CVI had the lowest costs per bed of the applicants. [See p. 249 below].

    
    

61. MCRI failed to address the current District Health Plan (1990-91) and instead used the 1989-90 plan. [Atrium/Nelson PF, p.9]. MRCI proposes to serve the lowest percentage of Medicaid patients in proportion to the average subdistrict-wide experience of nursing homes.

    
    

62. Health Quest's existing facility, already at 120 beds, would be substantially over optimal size at 161 beds, if its proposed project is approved. Furthermore, Health Quest was not in compliance with regard to special programs and commitment to serve hard-to-place patients. [Atrium/Nelson PF, pp. 9-20; Atrium Ex. 8; HRS/Granger PF, pp.: 9-10].

    
    

63. There was no evidence that approval of any of the four applicants would have an adverse impact on the costs of providing health services, especially in light of the numeric need and high occupancy rates of the subdistrict.

    
    

    1. ATRIUM'S APPLICATION

    
    

64. The proposed Atrium 84-bed nursing home will be constructed in close proximity to The Atrium Retirement Community of Jacksonville, an existing 176 unit retirement and assisted- living community.

    
    

65. The Atrium will be a new facility constructed and developed by owners new to construction and operation of health care facilities.

    
    

66. The applicant is a "shell" corporation with assets of $50,000.00 owned by Jack and William Deinetree, two brothers,

    who have also provided financial data and letters from their bank indicating their financial ability and intent to complete this project.

    
    

67. The applicant filed an audited financial statement as required by statute although it revealed a shell corporation waiting CON approval for the infusion of dollars by the shareholders, Jack and William Demetree.

    
    

68. HRS does not limit an applicant's documentation in demonstrating how it will be able to finance its project, if approved. Atrium's letter of intent was clearly indicated as such within its application. Atrium's application was deemed

    complete. [Vol. 15, pp. 1616-17; Atrium Ex. 2, p.123; Atrium Ex. 5].

    
    

69. Personal financial statements of the Demetrees, prepared by their longtime CPA, were also included in Atrium's application. [Atrium/Schramm PF, pp. 10-11]. The Demetrees' financial statements were "compiled" statements. [Vol. 16, p. 1678]. A CPA will not even prepare a compiled statement unless he has personal knowledge of the individual involved and his business operations. [Vol. 16, p. 1678]. `The financial statements of the Demetrees were provided as supplementary material. There is no statutory or rule requirement that they be in a certain form. [Vol. 16, p. 1694]

    
    

70. After assessing their financial net worth, DHRS concluded that the Demetrees have more than sufficient liquid assets to make the equity contribution required in Atrium's application. It is a matter of the general business philosophy of the Demetrees that they put equity into all their development projects. [Atrium/Schramm PF, p. 11].

    
    

71. The nursing home application form does not require audited financial statements of stockholders in order to support their ability to make equity contributions. Neither the application Form 1455A, October 1988, nor the instructions thereto, dictate such a requirement. [Atrium Ex. 2, p. 24; Healthy Quest Ex. 9, p. 1-6; MRCI/Beiseigel PF, p. 6; Vol. 1, p. 75; Vol. 5, p. 444].

    
    

72. The ability of the Demetrees to obtain construction and permanent financing, as well as contribute substantial equity and operating capital was demonstrated by competent, substantial evidence.

    
    

73. The $100,000 note payable to owners that appears

    in Schedule 15 of Atrium's application will be a line of credit, used for working capital during the first year of operation, before the cash flow picks up. It is fairly customary in the industry to provide such financing during the initial year or so of operations. (Vol. 6, p. 569; Vol. 16, p. 1682).

    
    

74. The Atrium will have the resources available to complete the proposed project if the Demetrees provide the financing. Because the Atrium is a shell corporation in which

    the Demetrees own all the stock, it is logically assumed that they will provide the financing to the extent they are able.

    [Vol. 16, p. 1682; p. 1716; p. 1723; HRS/Granger PF, p. 13].

    Their ability to finance the project is discussed above, and no evidence was introduced to show they could not finance the project.

    
    

75. As a shell corporation, the Atrium currently has

    no other capital projects or expenditures under development or in the planning stage. Because it has very little capital and is totally dependent upon the infusion of capital by the Demetrees, existence of other project and expenditures is absolutely irrelevant. [Atrium/Schramm PF, pp. 5, 7]. Recent borrowings in amounts of from 3 to 8 million dollars by companies in which the

    Demetrees are major owners indicate their ability to obtain capital at rates from prime plus one-half to prime plus one. [Vol. 16, pp. 1680-1].

    
    

76. In its application, Atrium provided a letter of interest from First Union National Bank to finance the project, if approved. The Demetrees have a long-standing relationship with the bank, which has financed numerous large scale developments for the Demetrees through construction loans, working capital lines and permanent financing. The Demetrees have a 40-year, unblemished lender-borrower relationship with First Union (formerly Atlantic National Bank); there was no competent substantial testimony to the contrary. [Atrium/Schramm PF, pp. 8-9; Vol. 6, p. 549; Atrium Ex. 2, App.; Vol. 16, pp. 1679-81; Vol. 5, p. 445].

    
    

77. The Atrium's proposed plan is designed to develop innovative quality of life enhancements to minimize the institutional setting characteristic of some nursing homes. The plan utilizes a staggered semiprivate room design that increases residents' privacy and allows each resident to have a window to the exterior. The facility will-meet social needs of the residents, as well as their need for privacy. It is supported by a resident room design as well as a variety of activity and support spaces. (Atrium/Bhide PF, p. 3; Atrium Ex. 8, p. 18)

    
    

78. The Atrium's proposed design is both appropriate

    and reasonable in light of state and local construction standards for a freestanding nursing home. (Atrium/Bhide PF, p. 3-7)

    
    

79. The projected construction costs are based on

    Vasant Bhide's experience with designing and working on at least five (5) nursing home projects in the North Florida area in the past two years. According to Bhide, the proposed project cost estimates (construction costs, fees and equipment) are reasonable, and include almost $200,000 in contingency funds.

    Bhide's representations are disputed by other equally knowledgeable and experienced builders and architects whose costs

    estimates on similar facilities exceed Bhide's estimates. (Vol. 7, p. 644; Atrium/Bhide PF, p. 4; Atrium Ex. 3, p. 49; Atrium/Downs PF, p. 6-7)

    
    

80. The Atrium's project costs compare favorably with HRS experience, and the actual costs may be lower due to the impact of the current recession. (Vol. 5, P. 434). (Vol. 7, p.644; Atrium/Bhide PF, p. 4-7; Atrium Ex. 3, p. 4-7)

    
    

81. The total project cost of Atrium, which is just under $4 million, is deemed reasonable. (Atrium/Nelson PF, p. 29; Atrium/Downs PF, p. 6; Vol. 6, p.570, 572; Vol. 6, p. 552; Vol. 16, p. 1699-1703).

    
    

82. The Atrium's projected bed utilization for the

    first two years is both reasonable and appropriate. (Atrium/Nelson PF, p. 6; Atrium/Downs PF, p. 4)

83. The Atrium's proposed patient charges and expenses are reasonable. (Atrium/Nelson PF, p. 29, 31;

    Atrium/Mitchell PF, p. 4-6) Although acknowledging he had seen Medicare rates as high as $270 per patient day, Mark Fall challenged the Medicare rates projected by Atrium. (Vol. 18, p. 1888) If Mr. Fall's opinion were credited, Atrium's net income in year two would still exceed $260,000. (Atrium Ex. 4, Sch. 18) reasonable and conservative, based on actual recent financing of other Demetree projects. (Atrium/Schramm PF, p.12)

    
    

84. The Atrium's assumptions on Schedule 11, especially regarding fringe benefits, were shown to be

    reasonable. The total dollar amount of salaries and wages and benefits for Schedule 11 were compared to other historical operations, inflated forward, and found to be well within the reasonable range by Joseph Mitchell, Atrium's expert in Medicaid and Medicare reimbursement and nursing home accounting. (Vol. 6,

    p. 563-565) The Atrium's proforma assumptions, using fringe benefits of 22 percent, were reasonable. (Vol. 6, p. 565)

    
    

85. The Atrium's projected Medicare per diem revenues are reasonable considering this is a start up facility. One

    cannot compare a start up facility's Medicare rates with those of a long-standing facility, as Medicare imposes a limitation on Medicare rates after the first three (3) years of operation. (Vol. 6, p. 568)

    
    

86. Atrium's proposed project is feasible in both the short and long term. Mr. Mitchell tested the reasonableness of the proforma assumptions based on his experience working with 125 to 150 nursing homes on an operational basis. (Atrium/Mitchell PF, p. 9; Vol. 6, p. 578)

    
    

87. The Atrium's projected debt schedule is reasonable and conservative based upon recent financing of projects by the Demetrees. (Atrium/Schramm PF, p. 12.)

    
    

88. The Atrium's design meets all codes, including building and life safety, energy code, handicap accessibility code, etc. (Atrium/Bhide PF, p. 6)

    
    

89. HRS' architects ranked Atrium's plans first among the applicants in this hearing. (Atrium Ex. 8, p. 17-19; HRS/Granger PF, p. 14)

    
    

90. The Atrium's application notes a willingness to

    take AIDS patients and will be bringing on-line 84 beds in a high occupancy subdistrict, which will promote better geographic accessibility. [Atrium/Nelson PF, p. 31].

    
    

91. The Atrium proposes to commit to 61% Medicaid, the most of any applicant. This commitment is attainable in

    light of the actual experience in the subdistrict (62.1% average) and the overall state average (60.6%). [Atrium/Nelson PF, p. 8- 9].

92. The proposed operations and quality assurance program submitted by Atrium meet or exceed Florida regulatory standards. [Atrium/Fitzpatrick PF, p.5, 14; Atrium/Downs PF, pp. 4-6; HRS/Granger PF, p. 11].

    
    

93. The Atrium's proposed staffing levels are

    reasonable and meet or exceed Florida standards. [Atrium/Fitzpatrick PF, p. 7; Health Quest Ex. 11].

    
    

94. The Atrium will develop and implement a training/staff development/internship program, to include students residing in Duval County. [Atrium Ex. 4, p. 70 A-C].

    
    

95. The Atrium will also be associated with an existing 176-unit retirement community known as The Atrium Retirement Community of Jacksonville, through their common

    ownership. The experience gained, in the five years of operating The Atrium Retirement Community of Jacksonville will be beneficial to the Atrium nursing home project, especially in the areas of housing for elderly residents, security, housekeeping, dietary and nutritional services, activities and counseling. (Atrium Ex. 2, p. 24B)

    
    

96. Atrium will have established linkages with its sister retirement community and thereby offer a continuum of care. [Atrium Ex. 4, p. 46 A-c; 58A].

    
    

97. Atrium will have a good recruitment and career ladder programs. The Atrium's description of its patient assessment and care plan, utilization review program, quality assurance program, operations and dietary programs were comprehensive and explicit.

1. The Atrium described very good activities programs, family involvement, mental conditions of residents, restoration/normalization programs and quality of life

   enhancement programs. [Atrium Ex. 8, p. 15; HRS/Granger PF, pp. 11-12].

   
   

2. Overall, the presentation was consistent and

   thorough and stated the services to be offered by the applicant. [Atrium Ex. 8, p. 15; HRS/Granger PF, pp. 11-12]. However, Atrium has never built or operated a nursing home.

   
   

3. The Atrium's inexperience is demonstrated by its failure to properly plan for the cleaning of soiled laundry. The Atrium indicated it may send out the patients' laundry or use the laundry of a nearby retirement community. (T. 171, 549; Atrium Exhibit 4)

   
   

4. As additional evidence of its inexperience in operating nursing homes, the Atrium proposes to use a non- wheelchair accessible van for transportation of it's residents, pulling a U-Haul with the wheelchairs. (Atrium Exhibit 4) When the matter was raised at hearing, its representative indicated that Atrium would rent a wheelchair accessible van, and private medical providers might be called on to transport Medicare and

   Medicaid residents to doctors' appointments, therapy sessions, and related activities. [Atrium Ex. 4, p. 61A; Atrium/Downs PF, p. 9].

   
   

5. Atrium intends to draw upon the management skills of the American Retirement Corporation (ARC) of Nashville,

   Tennessee. ARC is a national management services company which operates 21 retirement communities in 14 states. Most of the programmatic features set forth in Atrium's application are already utilized successfully at ARC facilities around the country. (Atrium Ex. 2, p. 24 A-B)

   
   

6. For more than 10 years, ARC has employed its standard operating methods at a nursing home located at the Burcham Hills Retirement Community in East Lansing, Michigan. (Atrium Exhibit 13, p. 2; T. 520)

   
   

7. ARC has been found to be in violation of several nursing home standards at its facility at Burcham Hills, Michigan, including serious failures to provide appropriate care to residents. (Health Quest Exhibit 26, pp. 3-7)

   
   

8. The Senior Vice President of Operations for ARC plans to manage Atrium's nursing home using ARC's "`standard operating methods," to describe the programs that would be offered. (Downs PT, pp. 5-12) He asserted that ARC's lack of

   experience in managing a nursing facility of this size, type, and location is irrelevant because, among other reasons, "a patient is a patient." (T. 618)

   
   

9. The Atrium, through its proposed management

   contract with American Retirement Corporation (ARC), will attempt to provide quality care to its patients. [Atrium/Fitzpatrick PF, p. 3].

   
   

   MCRI'S APPLICATION FOR CON

   
   

10. The MRCI CON is for a 30-bed nursing home. MRCI filed a proper letter of intent and audited financial statement

    for this CON. (T. 1608, 1609, 1611, 1613). MRCI also filed a CON for a 24 bed nursing home which HRS rejected as incomplete

    and untimely. Because the completeness issue of the 24 bed CON was undecided, MRCI presented evidence that included the feasibility, etc., of the 24 bed CON. In summary, there were no significant differences between the two CONs, and both were equally feasible.

    
    

11. MRCI has developed a prototype facility called "Brighton Gardens". An MRCI Brighton Gardens facility typically includes 30 nursing home beds and 120 ACLF `beds. (Walter PT, p. 5).

    
    

12. The concept anticipates carrying for the elderly from their need for an ACLF through nursing home care with minimum disruptions due to changes in environment.

13. MRCI's research has indicated that as people get older, changes become more difficult and residents do not want to transfer back and forth between facilities. (T. 909) MRCI's project minimizes transfer trauma. The more unfamiliar the situation the more serious the transfer trauma. Transfer trauma manifests itself by despair, isolation, a change in a person's behavior and the way they deal with ordinary situations. Some states require transfer trauma plans before a resident is moved out of a facility. (T. 910, 911)

    
    

14. At a Brighton Gardens facility, when a resident moves from the ACLF to the nursing home, friends in the ACLF can

    visit the nursing home on a regular basis. This is particularly beneficial for spouses to be able to visit back and forth without the need for transportation. (T. 907, 908)

    
    

15. All of the beds are contained within the same building, although the nursing home is a self-contained unit with its own separate entrance for privacy and ease of access by residents, staff and visitors. (Walter PT, pp. 5, 6).

    
    

16. Marriott and Marriott Retirement Communities, Inc. currently own and operate ten retirement centers and manage two other. (Evans PT, p. 4) MRCI operates two Brighton Gardens in Arizona and one in Virginia Beach and one in Houston, Texas.

    (Evans PT, p. 6) Five retirements communities are currently under construction and are all scheduled to open within 18 months

    (Evans PT, p. 4).

    
    

17. MRCI already operates one facility in Florida which is a full service retirement community and has a superior rating. (Walter PT, p. 18)

    
    

18. MRCI has demonstrated that it has the ability to provide superior care at its Brighton Garden facility.

    
    

19. MRCI has demonstrated that it can provide the quality and types of programs equal to or exceeding any of the other applicants.

    
    

20. MRCI has demonstrated that it can improve the

    quality of care in existing institutions and successfully operate nursing homes. For example, MRCI began managing a property in Canton, Ohio in June, 1988, when occupancy was less than 50%.

    When it discontinued management in early 1991, occupancy was approximately 90%. The net loss in income for the property had been reduced substantially from $2.3 million in 1988 to $900,000 in 1990. Reduction in cash loss was even more significant. (T. 874-875)

    
    

21. MRCI managed property known as Towne Center, beginning in June, 1988, and discontinued management in early 1991. When MRCI began managing the property occupancy was approximately 55%. Occupancy had increased to over 90% by the time MRCI discontinued management. Efforts to discredit Marriott's management were unsuccessful and rebutted by its representatives.

22. The design of MRCI's proposed project lends

    itself to quality of care because residents will not be expected to transfer from one entity to another as their needs change and because the small size of the unit allows for more individualized care. (Evans PT, pp. 28, 29; T. 1315)

    
    

23. MRCI's proposal provides sufficient staff to

    provide top quality care. (Evans PT, p. 6) MRCI is proposing to provide 3.0 nursing hours per patient day for the 30-bed project.

    This does not include direct nursing hours which could be provided by the director of nursing. If you include those hours, direct nursing hours increased to 3.21 nursing hours per patient day. For the 24-bed project, if you include direct nursing hours

    provided by the director of nursing, 3.25 nursing hours per nursing hours per patient day will be provided. (T. 922-923, 954)

    
    

24. There will be a full time administrator on the property of Brighton Gardens of Jacksonville. (T. 872) The administrator will be responsible, for the entire property. (T. 872)

    
    

25. MRCI's proposed staffing exceeds the regulations of the State of Florida. In fact, MRCI proposes to provide four licensed nurses five days per week. By regulation, MRCI is

    required to provide only three licensed nurses. (Evans PT, p. 7)

    
    

26. MRCI has an excellent recruitment plan and has designed a variety of enhancement programs for its employees. Some of these programs include a profit sharing program, the employee stock ownership plan, and a benefit trade system. MRCI offers an employee credit union, employee discounts at Marriott Hotels, continuing education, as well as additional training for employees to advance in their areas. MRCI has a working family life program, offers family life-counseling programs and has a guaranteed right to fair treatment policy within the company. MRCI recruitment efforts have been very successful. (Evans PT, p. 10)

    
    

27. MRCI has developed a superb quality assurance program which exceeds the federal OBRA requirements and exceeds

    state requirements for quality assurance committees. (Evans PT, pp. 11, 12, 13-19)

    
    

28. The wage assumptions and salary assumptions of both MRCI applications are reasonable projections. (Huber PT,

    p. 11) The staffing assumptions in both Schedules 11 are reasonable assumptions. The proposed Medicaid rate is reasonable and consistent with the Medicaid requirement in Florida. (Huber PT, p. 13)

    
    

29. MRCI has demonstrated that its proposed 30-bed

    project is a financially feasible project. (Huber PT, p. 6) The proposed capital expenditure is $1,901,507 and first year

    operating expenses are projected-to be $1,065,108.

30. MRCI has demonstrated that its Jacksonville Brighton Gardens project will be profitable in Year 2 of

    operation. This is true for the 30-bed application and for the 24-bed application. (Huber PT, pp. 14, 15)

    
    

31. The ACLF revenues are a reasonable estimate of revenues for the Duval project. (Huber PT, p. 17)

    
    

32. MRCI's land cost is based upon an option contract it entered into in 1989. The land cost for the project is

    reasonable and based upon a reasonable allocation of cost to the nursing home. (T. 1237, 1238, 12 41)

    
    

33. MRCI intends to develop the entire Brighton

    Gardens of Jacksonville, which includes the ACLF and the nursing home. (T. 800) In conjunction with this type of facility, a nursing home this size is a viable alternative to "optimal sized" facilities because the small complement of beds is offset as part of the larger facility. The data provided attest to the

    financial feasibility of such a concept. MIRCI does not intend to build a stand-alone 30-bed nursing home. They will only be built in conjunction with the ACLF. (T. 861)

    
    

34. The costs of construction for the MRCI proposals are reasonable and are allocated appropriately between the nursing facility and the ACLF. (McPhail PT, p. 20, 21, 22)

    
    

35. MRCI allocated the costs of construction of the 30-bed project between the nursing home portions and the ACLF portions.

    
    

36. This allocation was performed by determining the cost of the entire Brighton Gardens and conducting an allocation of those costs directly related to the nursing home portion of the building, including construction costs, fixed and movable

    equipment. Shared area costs, such as those associated with the kitchen, laundry, circulation, beauty-barber, and administrative areas, were allocated on a proportional basis. The kitchen was allocated on a proportion of meals served to the nursing center

    residents. The construction, site development costs and equipment costs of other shared areas were estimated by function,

    and these costs were then allocated on the basis of a square footage ratio of the nursing center to the ACLF portion of the building. (McPhail PT, pp. 20, 21)

    
    

37. MRCI has three other Brighton Gardens projects which have been constructed. Those projects have been

    constructed at a cost within 1% of the original cost assumptions prepared at Marriott. (McPhail PT, p. 9)

    
    

38. The Brighton Gardens design and schematic plans

    are consistent with the requirements contained in Chapter 10D-29 and local building codes for the 30-bed project and the 24-bed project. (McDowell PT, p. 5)

    
    

39. Marriott has developed a bi-axial room which is

    one of the best semiprivate rooms available. The residents are

    situated so that they each have a privacy curtain and each resident still has a window. Semiprivate rooms are more affordable than a private room. Private rooms often lead to a resident feeling isolated, thereby leading to depression. (T. 915, 916, 1012)

    
    

40. MRCI's design provides certain advantages for residents of both the ACLF and the nursing components. The bi- axial semiprivate rooms are quite large; there is significant amount of storage space; all resident's bathrooms are handicapped accessible. Residents will be able to take advantage of some of the ACLF common spaces at will, and MRCI's project will have a courtyard which will allow residents to do some secure wandering. The buildings are residential in nature, both in the exterior and interior architecture. (McDowell PT, p. 7)

    
    

41. MRCI anticipated that the duration of construction for the Brighton Gardens of Jacksonville will be 12 months. This is a reasonable estimate. (McPhail PT, p. 22)

    
    

42. The Brighton Gardens project in Southeast Duval

    County will be located on an 11 acre parcel on San Jose Boulevard which has ready access to public transportation and is convenient to the elderly population in the service area. (Walter PT, p.

    19).

    
    

43. MRCI will accept the following conditions on its certificate of need: MRCI will make at least 30% of its patient days available to Medicaid eligible patients, will donate 20 prepared meals per day to a local Meals-on-Wheels program for distribution to elderly residents and will provide respite care at both the nursing home and ACLF levels of care. MRCI will implement its special Homeward Bound Program. (Walter PT, pp. 16, 17, 30; Evans PT, pp. 22, 23,).

    
    

44. MRCI has a history of providing nursing care

    services to Medicaid eligible residents. For example, although MRCI's Calusa Harbour facility carries no Medicaid, condition,

    approximately 31% of its community patient days were provided to Medicaid residents in 1990. (Walter PT, p. 18).

    
    

45. MRCI will provide' services to ACLF residents

    requiring AIDS care or Alzheimer's care. (Walter PT, p. 19, T 915).

    
    

46. MRCI filed an audited financial statement as required by the statute. Nationwide, Marriott has designated approximately $90 million for the development of retirement

    projects for 1991 and has designated $70 to $80 million for 1992. (T. 1020). Marriott has the resources to fund Brighton Gardens. [Handlon, p. 2].

    
    

47. Schedules 2A and 2B of MRCI's CON application contain a list of other planned capital projects of MRCI. This list of projects changes on a regular basis as projects are either added or rejected from the development process. This list includes projects in the very preliminary stages of planning. (Handlon PT, p. 3). No project has been dropped from Schedule 2

    for financial feasibility problem's. (T. 1246). Typically,

    projects are deleted because of difficulty obtaining suitable property or problems with zoning or other regulatory hurdles. (T. 1253).

    
    

48. Furthermore, certain projects listed on the capital project list in Schedule 2 identify expenditures which will occur as late as, or later than, 1998. (T. 798).

    
    

49. An omission by MCI of approximately $7 million

    relating to a Boynton Beach project will have no effect on Marriott's ability to finance these projects. The amount omitted

    is inconsequential when considering Marriott's total development plans. Furthermore, MRCI has included projects on Schedule 2

    which will be financed beyond the' next five years, well after the proposed project is operational and has demonstrated financial feasibility. (Handlon PT, p. 3; T. 1040, 1042).

    
    

50. No MRCI or Marriott retirement housing project

    under construction has been slowed down or stopped for economic

    reasons. (T. 893). No retirement housing project which has been presented to the Executive Committee of Marriott has been denied or delayed. No project will be delayed once a CON has been issued or if another government timetable requires construction

    by a particular time. (T. 1223).

    
    

51. MRCI is a subsidiary of Marriott Corporation, and the board of MRCI filed a proper letter of intent. Marriott has proven that it is committed to constructing, licensing and operating the project at issue iii this proceeding.

    
    

52. MRCI operates five facilities that have had deficiency-free surveys under the new Omnibus Budget Reconciliation Act ("OBRA") guidelines. It is unusual to have no deficiencies found by the survey-team. Under the OBRA guidelines there are 710 elements in the program and surveyors evaluate compliance with the regulations by looking at each item. For each of these facilities, surveyors found that all 710 elements were in compliance with the guidelines and there were no deficiencies. (T. 905, 906).

    
    

    HQR'S APPLICATION

    
    

53. Health Quest Realty II, Ltd. ("HQR II") is an Indiana limited partnership, first created prior to March 30,

    1987 and authorized to transact business in the State of Florida on July 11, 1991. (HQR II Exhibit 7). HQR II is the authorized licensee of Regents Park of Jacksonville, a 120-bed community nursing home located in Duval County, Florida. HQR II has been the licensee of this facility since it first opened in 1986.

    
    

54. HQR II's CON proposes to convert a portion of Regents Woods of Jacksonville, and existing Adult Congregate

    Living Facility, and thereby add nursing beds to an existing and co-located 120-bed nursing facility licensed as Regents Park of Jacksonville by HQR II.

55. Alternatively, HQR II's CON proposed a 24 beds addition to Regents Park of Jacksonville.

    
    

56. The 41-bed addition proposed by HQR II would involve 16,025 gross square feet at an estimated total project

    cost of approximately $2.6 million. The 24-bed partial request would involve 10,405 gross square feet at an estimated total project cost of $1.76 million. (HQR II App.)

    
    

57. Health Quest Management Corporation IV ("HQMC IV") is an Indiana corporation, which filed, on October 3, 1984, a notice of doing business in Jacksonville as Regents Park in compliance with the fictitious name law.

    
    

58. On February 12, 1986, HQR II filed a notice under Florida's "fictitious name" law, Section 865.09, Florida

    Statutes, in the public records of Duval County, Florida, giving notice of doing business as "Regents Park" in Jacksonville. CVI

    33 (exhibit indicates document recorded at Duval County Official Records Vol. 6084, Pg. 1948).

    
    

59. According to filings in the official records of

    Duval County, Florida, on September 25, 1987, the persons having an interest in HQR II were Lawrence H. Garatoni, holding a 90% interest, and Judith A. Garatoni,, holding a 10% interest. HQ 41 (exhibit indicates document recorded at Duval County Public Records Vol. 6402, Pg. 1466). An affidavit was filed in the official records of Duval County, Florida, that identified Lawrence H. Garatoni as owning a 190% interest in HQR IV, an Indiana corporation. HQ 40 (exhibit indicates document recorded at Duval County Official Records: Vol. 5860, Pg. 1904).

    
    

60. Regents Park of Jacksonville actually is owned by Health Quest Realty XXII, another Indiana general partnership ("HQR XXII") (Krisher 7).

    
    

61. The construction of Regents Park was financed by industrial revenue bonds issued by the City of Jacksonville on November 1, 1984. CVI 210. HQR XXII leased the property to HQR IV, which operates the facility. As part of the bond transaction, HQR XXII gave the City of Jacksonville a collateral assignment of its rights as lessor in its lease of the property to HQMC IV.

    
    

62. All the Health Quest entities are controlled by one man, Lawrence Garatoni. Mr. Garatoni is the sole general partner of HQR II and owns 90% in that partnership, T. 1908

    (Fall); HQ 41. Mr. Garatoni also owns 90% of the stock of HQMC

    IV, HQ 40, and owns 95% of HQR XXII partnership. T. 1780 (Fall). CVI 32, p. 7.

    
    

63. The original CON for Regents Park was issued to HQR II. T. 1381.

    
    

64. When Regents Park was first licensed in February of 1986, the license was issued to HQR II. T. 1382 (Krisher).

    
    

65. In the process of obtaining renewal of the

    license for Regents Park in January of 1987 Mr. Krisher realized

    that the licensee, HQR II, in facet held no interest in the facility; HQR XXII was the owner of the property and HQMC IV the lessee/operator. Mr. Krisher brought this to the attention of Bruce Henderson of the HRS Office of Licensure and Certification ("OLC"). In an attempt to rectify the problem, HQR XXII entered

    an agreement to retain HQR II, the licensee to provide management services for the facility operated by HQR IV. CVI 23; T. 1382. This agreement was not rescinded.

    
    

66. HRS advised that it would not issue a license to

    HQR II based on HQR II being a management agent because only the owner or lessee of a nursing home was eligible to be licensed.

    T. 1383.

    
    

67. HQR II then approached HRS about obtaining approval for HQR IV to be the licensee of tie facility.

    
    

68. HRS indicated to Mr. Krisher that to have the

    license issued to HQR IV would require a change of ownership. T. 1383.

    
    

69. Mr. Garatoni did not want to go through a "change

    of ownership" since a new licensee could not retain the superior license, which Regents Park had received in December of 1986. T. 1384 (Krisher).

    
    

70. In order to enable HQR II to obtain renewal of

    the license, HQR IV assigned its leasehold to HQR II. T. 1383. However, all profits and losses of Regents Park were recorded in the books of HQR IV because Mr. Garatoni did not wish to change the internal accounting structure of the Jacksonville operation. CVI 32, Wright deposition, p. 25.

    
    

71. Conversely, there is only one set of books and records for HQR II, and they related only to the facility located in Merrillville, Indiana. T. 1861 (Fall).

    
    

72. Disclosure of all material transactions and circumstances affecting the entity being audited is a key requirement (i.e., "completeness") in order to properly present an audited financial statement under GAAP. (Vol. 14, p. 1534; Vol. 17, p. 1840; Vol. 18, p. 1920).

    
    

73. Since the Regents Park began operation in 1986,

    HQR IV has had and continues to have full operational and financial responsibility for the nursing home. (CVI Ex. 22; Vol. 13, p. 1394; Vol. 14, p. 1455; Vol. 18, p. 1883-4). HQR IV took

    the benefit of all profits and the risk of all losses from the operation of a nursing home licensed to HQR II and owned by Health Quest Realty XXII. (CVI Ex. 21a, 21b, 21c; Vol. 13, p. 1384, 1407-11; Vol. 14, p. 1430)

    
    

74. HQR II claims these circumstances relieved its auditors from any responsibility to even mention, much less adequately disclose, financial data or other disclosure information pertaining to Regents Park. (Vol. 17, p. 1830-1).

75. Neither the 1988 nor 1989 audited financial statements submitted by HQR II with its CON fairly present, in all material respects, the financial position, cash flow and results of operations of Regents Park of Jacksonville under GAAP. To the contrary, both financial statements were the result of a "special audit" of property located in Merrillville, Indiana, which is owned by HQR II and leased to a third party for a

    retirement community. (HQR II App,.; Vol. 17 p. 1824; Vol. 13, p. 1404-5)

    
    

76. Although an audit of the applicant and licensee, HQR II, was presented, the operation of the nursing home upon which determinations of financial feasibility would be based

    never occurred. When each audit was conducted, HQR II's auditors

    had no knowledge of the Jacksonville operation. (Vol. 14, p. 1445-46; Vol. 18, p. 1877).

    
    

77. The purpose of requiring audited financial statements is to provide HRS with reasonable assurances that an appropriate audit, with all necessary field work, was conducted. (Vol. 15, p. 1563; Vol. 15, p. 1619-22). HQR II did not provide financial statements which reasonably represented and presented the financial status of the applicant because HQR II did not tell

    the auditors about its Jacksonville operations.

    
    

78. If complete field work and independent evaluation by the auditors had been performed, the auditors would have

    discovered the relationship between Health Quest Realty XXII, HQR II and HQR IV. In considering disclosure of related party

    transactions, the auditors would have had to reconcile the relationships between the various entities, and present a

    accurate picture of the finances of the applicant.

    
    

79. The Health Quest nursing home has not made a

    profit in its five years of existence. (Vol. 17, p. 1798, 1799;

    Vol. 14, p. 1444, 1445) For example, in 1989 it suffered a net

    loss of $114,000. (Vol. 17, p. 1)98) In 1990, it suffered a net loss of

    $107,000. (Id.)

    
    

80. Health Quest's past history of consistent losses was not disclosed anywhere in its application. (Vol. 14, p. 1444, 1445) Such information is relevant to the financial feasibility of a CON, and is revealed in a proper audited

    financial statement. (Vol. 12, p. 1324, 1325; Vol. 15, p. 1560-

    61)

    
    

81. Health Quest projects a profit for its bed addition alternatives. (Health Quest App. Sch. 18) Given the past history of losses, Health Quest did not provide any

    explanation as to how a profit should now be expected. (Health Quest App.)

    
    

82. Health Quest is a foreign limited partnership which did not register to conducts business in the State of

    Florida until July 11, 1991. (Health Quest Ex. 7) Its petitions for formal administrative proceedings were filed in March and April of this year.

83. Some scores in HRS' s system are objective, i.e., based on specific facts. Other scores in HRS's system are subjective, i.e., based on the reviewer's opinion. On the

    objective items, Health Quest received 480.3 points, 80% of the possible 602; Atrium received 47911 (80%). MRCI 397.3,7 (66%), and CVI 374.55 (62%). At. 8.

    On the subjective items, Health

    Quest received 442.94 points, 68%, of the possible 654; Atrium received 575.61 (88%); MRCI 566.7:5 (87%); and CVI 621.47 (95%).

    At. 8.

    
    

84. Health Quest finished highest among the applicants on the items scored objectively add lowest among the applicants (by a gap of 19% of the maximum s1core available) on the items scored subjectively.

    
    

85. Health Quest's is the only nursing home in Duval County that has had a "superior" licensure rating since 1986. Krisher 8. Only about a third of Florida's nursing homes have superior licenses. Brockish 4; HQ 2.

    
    

86. Health Quest's facility is considered excellent by local physicians, hospital discharge planners, and home health agencies. HQ 38.

    
    

87. The chairman of the District IV Long-Term Care Ombudsman Council described Regent's Park as having a "solid reputation," and as having been identified by the University of Northern Florida as "a model facility and primary site for its newly developed Administrator-in-training program."' 6513, PT 2, Item 3M (1/14/91 letter).

    
    

88. A high level of staffing, measured by the ratio of full-time equivalent ("FTE") staff to patients, generally correlates to high quality care. T. 40, 42 (Vroman).

    
    

89. Health Quest's existing total direct care staffing pattern, at 3.49 hours per patient day, exceeds the levels proposed by the other applicants.

    
    

90. Health Quest's proposed staffing, measured by licensed staff (i.e., RNs & LPNs) or by total direct care staff

    (i.e., including nursing aides), is higher than that of any other applicant except MRCI's 24-bed proposal. HQ 11.

    
    

91. Health Quest provides a broader range of services than most nursing homes, including subacute care such as intravenous antibiotics, respiratory care and tracheostomy care.

    T. 757, 59 (Janesky).

    
    

92. Regents Park provides more physical therapy ("PT") than most nursing homes. Provision of PT is related to Medicare

    utilization because Medicare residents are the primary recipients of PT in nursing homes. 6513, PT 2,

    
    

93. Only one other facility in Duval County provides

    the type of subacute care which Regents Park provides, and that facility is not an applicant for beds in this cycle, [T. 775

    (Janesky), H31] although CVI states that it too will serve high acuity patients. Vroman 6-7.

    
    

94. Although the CON application form asks for a description of "specialized programs," HRS has not defined "specialized program" in the application instructions. T. 394 (Gordon-Girvin). HRS gave Health Quest no credit for providing subacute care because subacute care was not considered a "specialized program" although HRS had considered subacute care a specialized program in the past. T. 1286-87 (Granger).

    
    

95. The Office of Licensure and Certification, which licenses and monitors nursing homes, recognizes 11 categories of

    "special care." Regents Park provides all of them. Although Health Quest referred to this in `,its application, HRS gave Health Quest zero points in this category. At. 8 (Ex. B, p. 22).

    
    

96. HRS gives the same weight to its consideration of

    a proposal to provide a particular service and type of care that it gives to actually providing the service or care. The application evaluation process does not differentiate between the promise to perform by a entity which has never engaged in the nursing home business and actual performance by an existing provider with an excellent track record. T. 1295 (Granger).

    
    

97. The success of Regents Park in restoring residents to health is objectively demonstrated by the high ratio of patients discharged from Regents Park rather than remaining as residents until death. As reflected in HCCCB reports for 7/89-

    6/90, Regents Park discharged 179 patients, i.e., 1.49 times its licensed beds, which was more than twice the rate for all other District IV facilities. 6513, PT 2, p. 43E

    
    

98. Health Quest's actual resident care cost per

    resident day is the highest in the Southeast Duval County, which is considered a favorable factor under State Health Plan Preference #12. Nursing care cost for resident day for Regents Park for fiscal year 1989, per HCCCB reports, at $30.64 was higher than that for any of the other nine Southeast Duval County facilities reporting. 6513, PT 2, p. 45F. Similarly, Regents Park's dietary cost per patient day, at $8.69, exceeded any of the other nine facilities. 6513, PT 2, p. 48C.

    
    

99. Health Quest proposes that all but four of its new

    beds are to be in private rooms. There would be two rooms, each with two beds, sharing an entrance to the hallway but otherwise

    private. T. 1155.

    
    

100. CVI, MRCI and Atrium each plan to provide four to twelve beds in private rooms. HQ 10.

     
     

101. Health Quest agreed to condition an approval on the following:

     
     

     1. The proposed site would be 7130 Southside Boulevard, Jacksonville, Florida.

     2. A minimum of 50% of patient days will be devoted to Medicaid patients for the proposed new unit.

     3. The facility will continue to use only certified nursing aides ("CNA's"). (Health Quest App.)

        
        

102. The conditions, above, to which Health Quest committed are largely redundant. As an existing provider, Health Quest is limited to expansion at its existing site, 7130 Southside Boulevard, and it must use trained personnel.

     
     

103. Health Quest listed as special care restraint reduction, and weight maintenance. HRS found that the these programs constitute services which every nursing home must provide, or should provide, as standard care. (Atrium Ex. 8, p. 17; Vol. 8, p. 753-63)

     
     

104. Health Quest did not characterize its services to Alzheimer's residents as a special program within its application. (Vol. 12, p. 1288) The care for Alzheimer's patients becomes a special program when it is offered in a discrete unit or when some other unique feature is present, such

     as a facility design, which specifically takes into account and benefits the needs of residents with Alzheimer's. (Vol. 12, p.

     1319, 1323) Health Quest's application did not present any such unique features.

     
     

105. Health Quest's willingness to accept hard-to-place patients is reflected its practice of accepting Medicaid residents requiring skilled rather than intermediate care. Per 1989 HCCCB data, the proportion of Medicaid patients receiving skilled care at Regents Park (31.5%) was more than twice the average (11.6%) for other reporting Southeast Duval County facilities. 6513, PT 2, p. 45F. However, the percentage of Medicaid utilization to which Health Quest is committed is ambiguous because its application states:

     
     

     It should be noted that Medicaid residents are to be placed in the facility according to the wishes of the residents themselves, their attending physicians, and the staff. The Agreement on page 6 should not be misconstrued as evidencing an intention to operate the new unit at 50% Medicaid occupancy [sic]. (Health Quest App., Sch.

     17, Footnote #16)

     
     

106. The reference to "page 6" is the application page wherein the applicant can expressly agree to a particular Medicaid utilization condition.

     
     

107. Given its proposal to convert ACLF space, the remoteness of the proposed Health Quest unit from its existing skilled nursing facility will not lend itself to optimal efficiency in utilizing existing nursing home support areas. (Atrium Ex. 8, p. 19)

     
     

108. Almost all of the proposed Health Quest beds will

     be located in private rooms. (Vol. 9, p. 915) The isolation of the elderly in a private room can cause problems with depression.

     (Id.)

     
     

109. Health Quest was deficient in describing how it would measure the outcomes for its programs. (Atrium Ex. 8, p.

     21) Health Quest description of its residential quality assurance program was weak. [ANH Ex. 8, pp. 16, 17].

     
     

110. Health Quest was the only applicant proposing renovation rather than new construction.

     
     

111. The instructions to the CON application form state:

     If currently owned land is going to be converted from some other use to be used for this project, the land's original cost plus past improvements made must be included. If the purchase price of the land was previously approved in CON review by this department, it must be excluded when calculating the application fee.

     * * *

     The same treatment applies to donated and converted buildings (including partial bed conversion) as apply to donated and converted land, except that cost less accumulated depreciation must be used.

     
     

112. Health Quest followed the instructions and included the depreciated cost of the existing ACLF area to be converted to nursing beds. 6513, 6513-P, Sch. 1.

     
     

113. HRS in its cost comparisons used the "total cost" figures given by the applicants. Using those figures, the cost per bed were as follows:

     
     

     CON Total Cost Cost Per Bed

     
     

     HQ 41-bed	$2,608,646	$63,625
     HQ 24-bed	$1,765,482	$73,562
     CVI	$3,286,258	$54,771
     Atrium	$3,944,324	$46,956
     MRCI 30-bed	$1,891,507	$63,050

     
     

     See State Agency Action Report, At. 8, pp. 2-3.

     
     

     CONCLUSIONS OF LAW

     
     

114. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter, and this

     order is entered pursuant to Section 120.57, Florida Statutes.

     
     

115. Each applicant for certificate of need bears the burden of establishing by competent substantial evidence its entitlement to the CON for which it applied. Florida Department of Transportation v. JWC Company, Inc., 396 So.2d 778 (Fla. 1st

     DCA 1981); Rainbow Community Hospital v. Department of Health and Rehabilitative Services, 453 So.2d 1200 (Fla. 1st DCA 1984).

     Specifically, it must meet the criteria set forth in Section

     381.701, FIa. Stat., and Rule 10D-5.011(n), Florida Administrative Code, based on a balanced consideration of all matters enumerated therein. Humana, Inc. v.

     Department of Health

     and Rehabilitative Services, 469 So.2d 889 (FIa. 1st DCA 1985); Department of Health and Rehabilitative Services v Johnson and Johnson, 447 So.2d 361, 363 (Fla. 1st DCA 1984).

     
     

116. The weight to be given to each criteria is not fixed but varies depending upon the facts of each case. Northridge

     General Hospital v. NME Hospitals, 478 So.2d 1138 (Fla. 1st DCA 1985); Collier Medical Center, Inc. v. Department of Health and

     Rehabilitative Services, 462 So.2d 83 (Fla. 1st DCA 1985)

     
     

117. Section 120.57(1) proceedings are de novo proceedings intended to formulate final agency action, not to review prior or preliminary agency action. Each applicant has the burden of proving entitlement to a certificate of need and there is no presumption of correctness of the preliminary agency decision. Florida Department of Transportation v. JWC Company, Inc., 396 So.2d 178 (Fla. 1st DCA 1981).

     
     

118. CVI proved that it filed a complete application, and met all the basic criteria to obtain a CON for the 60 requested beds. The primary controversy surrounding CVI's CON was its financial statement which was alleged to have been defective because it was "combined."

     
     

119. The term "combined financial statement" is not a term of art in the accounting profession. The treatment in the audited financial statement submitted by CVR of certain assets belonging to CVI and NBA and utilized at the existing facility was in the opinion of the accountants appropriate and was addressed in the notes to the statement. The financial statements met the statutory requirements, and were properly considered by HRS. The financial statements accurately reflected the financial operations of the applicant and its financial status. The financial statements were adequate proof the feasibility of the project and the applicant's financial ability to undertake the project.

     
     

120. CVI is currently operating successfully a 60 bed nursing home focusing on the special needs of Alzheimer's patients. Granting a CON for another 60 beds will bring this facility up to the optimum size level and meets all the planning criteria. CVI demonstrated by substantial and competent evidence its qualification to be granted a CON for 60 beds. Based upon the foregoing, a final order confirming that decision should be entered.

     
     

121. Health Quest Realty II failed to demonstrate that it will be adversely affected by approval of any of the other applications for CONs. However, Heath Quest has standing as one of the competing CON applicant's.

122. Health Quest II, as licensee, was the only one of the Health Quest entities which could file for a CON. See Brookwood- Jackson County Convalescent Center, et al. v. DHRS and Sandestin Health Care, DCA I, Case # 90-1061, 90-1062, and 90-1854, Opinion filed January 2, 1992; Mandate is1sued on February 4, 1992. Health Quest II's audited financial statements are incomplete in that they demonstrate no activity of the licensed facility, and, therefore, were not prepared in accordance with GAAP. The applicant knew the audited financial statements which it submitted were incomplete and did not accurately reflect the financial operations of HQR II, and the nursing home located in Florida which was applying for the CON. Although the statement filed was audited, Mr. Garatoni, Health Quest II, or its agents failed to tell the auditors about the Jacksonville operation. As

     the notes of an audited statement reflect, the auditors are dependent upon the representations of the parties being audited

     although the auditors endeavor to check and probe the accuracy of the data provided.

     
     

123. In the case of Humhosco, Inc. v. Department of Health and Rehabilitative Services, 561 So.2d 388 (Fla. 1st DCA 1990), the court held that an applicant for a CON had to file its own audited financial statement, and that the statutorily mandated requirement cannot be waived. The court discusses the importance of these statements is assessing the applicant's financial strength. Although the applicant technically filed an "audited" statement, the applicant knew that the audit was inaccurate and did not address the operation of Regent's Park of Jacksonville. Health Quest's application should be rejected on the grounds discussed in Humhosco, supra. However, even if it were determined that HQR II's financial statements met the statutory requirement, HQR II did not present enough evidence of sufficient quality to prove that it was financially able to undertake the proposed project. HQR II's should be denied without comparative review because its application was incomplete, or, in the alternative, denied because it failed to show financial feasibility.

     
     

124. Atrium proved that it filed a complete application and met all the basic criteria to obtain a CON for 84 beds. The primary controversies involving the Atrium application was its financial qualification and its experience.

     
     

125. Atrium filed an audited financial statement which

     reflected a "shell" corporation with minimal funding which had not engaged in any business prior to it application for this CON.

     The principal stockholders, Jack and William Demetree, filed with the application additional evidence of the financial status of the applicant. This evidence included financial statements for each of the applicant's stockholders and a letters from their bank commenting on their financial condition and the bank's willingness to provide financing for their projects.

     
     

126. The audited financial statement met the statutory requirement, and the additional information provided by the applicant was the basis for a very positive determination of the financial standing of the corporation's stockholders and the

     feasibility of the project by DHRS.

     
     

127. The applicant is a new entrant into the health care service business. It was evident that the applicant had not researched and considered some details of the complex task of building and operating an 84 bed nursing home which is subject to regulation by an equally complex bureaucracy. Atrium's prudent response to this lack of experience was to hire a management firm to operate the activity; however, if this firm, which has had

     quality of care problems in another jurisdiction, has not operated a facility in Florida before, and did not participate in

     the filing of the application. This resulted in apparent gaps and glitches which were pointed out by the completing applicants. Fortunately for the applicant, none of these omissions were serious enough to require denial of the CON.

     
     

128. Based upon its review of Atrium's application and comparison of it with the other applications, HRS found that Atrium's application was the best of the applications filed.

     Clearly, costs per bed and percentage of medicaid service were the key criteria in the selection process which is not absolutely objective. This lack of objectivity is apparent when the financial status of Marriott Corporation is called into question, and the personal, unaudited financial statements of two stockholders are accepted as proof a shell corporation's financial status; and the application of a shell corporation whose stockholders have never built or managed a nursing home is rated more highly that any of the several competing providers who are actively engaged in this complex business. Although the quality of the proof which DHRS accepts is a matter of its policy, one cannot accept the Department's representation that the review process is an objective one.

     
     

129. MRCI proved that it filed a complete application and met all the basic criteria to obtain a CON for 30 beds. The evidence presented also supported the feasibility of a 24 bed CON, although the application for the 24 bed CON was properly rejected as untimely. The competing applicants raised three issues in opposition to MRCI's CON which merit discussion: the adequacy of the letter of intent, the company's financial position, and the erroneous omission of a pending project from the application's Schedule 2. HRS denied the 30 bed CON because it did not score as highly as the other two applications which were granted in the comparative review.

     
     

130. The MRCI is a corporate subsidiary of Marriott

     Corporation. The letter of intent reflects action by the board of the subsidiary, MRCI. This meets the statutory requirement.

     Further, the applicant has already allocated funds to development of this multiphase retirement community, of which the proposed nursing home is but one part. MRCI has demonstrated that MRCI and Marriott Corporation are absolutely committed to constructing and operating Brighton Gardens in Jacksonville.

     
     

131. The current financial ability of the company to undertake this project was called into question. MRCI filed a complete audited financial statement in compliance with the

     statutes. MRCI proved at hearing the underlying basis for the financial data contained in that financial statement. Detail provided at hearing does not constitute an amendment to the application. An applicant is note required to set forth in its application every piece of evidence or testimony upon which it may rely if it proceeds to hearing on this matter. Sarasota County Public Hospital d/b/a Memorial Hospital, Sarasota and Adventist Health System/Sunbelt, Inc. d/b/a Medical Center Hospital v. Department of Health and Rehabilitative Services and Venice Hospital, Inc., II FALR 6248 (DOAH Case Nos 89-1412, 89- 1413). The data initially included in the application together with the information presented at the hearing show that MRCI has the financial ability to execute this project if its CON is approved.

     
     

132. MRCI inadvertently omitted a project from Schedule 2 of its capital project's list. Although the omitted Boynton Beach project costs $7,000,000, its omission from a list of

     capital projects costing $1.1 billion does not substantially affect the determination of whether Marriott can undertake the

     project because MRCI included projects to be brought on line more than two year's from now after this project is completed. The projects listed on Schedule 2 demonstrate that MRCI substantially complied with the purpose and intent 381.707(2)(a). Flagler Hospital, Inc. v. Department of Health and Rehabilitative Services, 13 FALR 1032 (Final Order 2/26/91). Having technically complied, the issue is the comparative financial strength of the pending applications. Subjectively, MRCI has at least as much financial strength as Atrium, notwithstanding MRCI inadvertently omitting one of its projects from its list of capital projects.

     
     

133. MRCI demonstrated the financial feasibility of the entire Brighton Gardens concept. At the time MRCI's application for certificate of need was filed, the Department required minimal financial information with regard to the affiliated or co-located ACLF operated by MRCI. MRCI was not required to submit a CON application for the ACLF portion of its facility, but did so to demonstrate the financial feasibility of the project. MRCI, therefore, satisfied the requirements of First Hospital Corporation of Florida v. Department of Health and Rehabilitative Services, et al., 16 FLW 2239 (Fla. 1st DCA August 21, 1991).

     
     

134. As indicated above, CVI, Atrium, and MRCI filed complete applications for financially feasible projects which meet the basic requirements. The statute requires a comparative review of the various qualified applicants. As pointed out by

     Health Quest, the review process is not objective, and places undue emphasis upon the applicants' promises to do. Those

     applicants already engaged in operations, such as "MRCI, must present their reality, while an inexperienced applicant, such as Atrium, may present their dream. HRS rated Atrium higher than any of the applicants, even CVI, using its point system, notwithstanding Atrium has never built or operated a nursing home.

135. Atrium is a new player, in the health care delivery business. The inexperience of the applicant is apparent in its application. The applicant has attempted to address this inexperience by hiring good management; however, ARC is new to Florida and has had some problems with maintaining quality of care in another jurisdiction. Its primary merits are its promise to take 61% Medicaid patients, and the lowest per bed costs.

     
     

136. MRCI is a well-known name in this field, and the company has experience in this state, and in the local market. The Brighton Gardens facility is innovative, and implements beautifully the Department's goal of establishing a continuing care community. MRCI showed it is financially feasible to operate a 24 or 30 beds nursing home in conjunction with an ACLF in a senior oriented community. MRCI received minimal points for meetings these goals, and no credit for its considerable experience in the field.

     
     

137. Although MRCI's costs per bed were higher, this is a natural result of being a smaller facility. The higher costs of construction should be balanced against the benefits of the

     smaller facility in a senior community where a patient's spouse and friends will be close at hand. The small size of the

     facility also limits its capacity to handle Medicaid patients; however, MRCI has offered to provide some offsetting services to make up for its inability to fully meet this goal.

     
     

138. In sum, DHRS did not weigh equally all the merits and detriments of the applicants' proposals. DHRS made its decision based upon the more limited criteria of costs and Medicaid participation. This resulted in awarding the highest number of points to an applicant which is a shell corporation that has never built or operated a health care facility. Further, it is noted that:

     
     

     1. Award of 24 to 30 beds to MRCI would spread the number of beds among the qualifying applicants (42.6%, 42.6%, and 16.6%), and avoid awarding over 58% of the 144 beds to an inexperienced applicant, and

     2. The physical piant of the Atrium facility could be easily modified to eliminate 24 to 30 beds by the elimination

        of the patient wings on the lower left-hand side of the plan, and

     3. The Atrium's cost per bed is $7,815 less than the next nearest competitor, CVI, which is operating 60 beds.

     
     

139. While the Department's initial determination in this case does not seem to be the most prudent to the hearing officer, the policies upon which it is based are entitled to deference, and the hearing officer may not re-interpret the facts to conclude that a CON of 60 beds to The Atrium is feasible. A reconsideration by the Department appears warranted and is within

the Department's authority because of its putative expertise in weighing economic issues. In the absence of reconsideration by

the Department or evidence disqualifying Atrium, the Department's initial determination is entitled to deference given the evidence originally accepted by the Department concerning Atrium's qualifications

RECOMMENDATION

Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is therefore,

RECOMMENDED, in the absence of reconsideration by the Department, that:

1. The application of Health Quest be denied for failure to file a properly audited financial statement and establish its financial feasibility;

   
   

2. The CON of Cypress Village be approved for 60 beds;

   
   

3. The CON of Atrium be approved for 84 beds; and

   
   

4. The beds sought by MRCI should be denied.

DONE AND ENTERED this 11 day of February, 1992, in Tallahassee, Leon County, Florida.

STEPHEN F. DEAN

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 11 day of February, 1992.

ENDNOTES

1/ HQR and MRCI did not call the secondary reviewer for testimony and did not suggest that the secondary reviewer acted differently

than the primary consultant

2/ Hereinafter, the 60-bed Alzheimer's component will be referred to as the "Alzheimer's unit" and CVI's proposed 60-bed addition will be referred to as the "nursing unit".

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 91-2231

Atrium's Proposed Findings of Fact 1-7. Adopted.

8-10. Rejected-repetitive.

11-13. Adopted.

14-17. Rejected-repetitive.

18-20. Adopted.

21-25. Rejected-repetitive.

26-41. Adopted.

42-43. Summarized.

44-51. Adopted.

1. Irrelevant to comparative analysis. All would improve access.

2. Rejected-conjecture.

3. Irrelevant.

55-59. Adopted.

60-62. Irrelevant.

63-75. Adopted.

76-77. Irrelevant.

78-88. Adopted.

89-90. Irrelevant.

91. Contrary to fact.

92-99. Irrelevant.

100-109. Adopted summarized.

110. 30% adopted.

110-III. What MRCI does in another area is irrelevant.

112. Rejected as contrary to fact. 113-115. Adopted.

1. Rejected as contrary to fact.

2. Conclusion of law.

3. Rejected as contrary to fact. 119-126. Adopted.

127. True, but part of subjective assessment. 128-129. Contrary to fact.

130. Preferences discussed elsewhere. 131-137. Adopted.

1. True, but not relevant.

2. Health Quest's argument rejected.

3. Irrelevant.

4. Irrelevant.

142-165. Adopted summarized. 166-167. Conclusion of law.

1. Adopted, but restated.

2. Adopted.

3. Irrelevant.

Health Quest's Proposed Findings of Fact AI-4. Adopted.

A5-10. Contrary to more believable facts. BI-34. Contrary to more believable facts. C1. Adopted.

C2-26. Contrary to more believable facts. DI-7. Adopted.

D8. Not fact.

D9. Irrelevant. D10-28. Irrelevant.

D29. Rejected as contrary to best evidence. D30. Adopted generally.

D31-32. Irrelevant. D33. Irrelevant.

D34. Adopted.

D35-39. Contrary to best evidence. D40. Adopted.

D41-43. Contrary to best evidence. EI-4. Adopted-summarized.

E5. Irrelevant.

FI-4. Adopted.

F5-10. Irrelevant.

G1-2. Irrelevant.

HI-59. These findings were adopted and summarized. H60-62. Rejected as contrary to facts.

H63-68. Adopted generally and summarized.

HRS' Proposed Findings of Fact 1-4. Adopted.

5. Irrelevant.

6-19. Adopted.

1. While true, the Hearing Officer found that the financial statement filed by HQ was so impaired that it failed to meet statutory requirements or show feasibility. Therefore, compliance with preferences was not discussed.

2. Marriott did fail to meet the medicaid preference, almost an impossible task with the 24-30 bed size; however, this is part of a different approach to providing care to the elderly which has its own merits outside providing medicaid service and "special programs".

3. Adopted.

CVI's Proposed Findings of Fact

1-3. CVI's findings started with paragraph 4. 4-80. Adopted.

81-86. Irrelevant.

87-97. Adopted.

98-99. Duplicates other findings.

100. Adopted. 101-102. Irrelevant.

103-104. Adopted in part; summarized.

105. Irrelevant. 106-113. Adopted. 114-115. Irrelevant. 116-118. Adopted.

119. Conclusion of law. 120-124. Adopted in summary.

125. Irrelevant as it is de novo proceeding. 126-130. Adopted.

1. Irrelevant.

2. Adopted. 133-136. Adopted. 137-140. Irrelevant.

1. Contrary to more credible evidence.

2. Adopted.

1. Adopted; discussed in Conclusions of Law.

2. Adopted.

COPIES FURNISHED:

Sam Power, Clerk Department of HRS

1323 Winewood Boulevard

Tallahassee, FL 32399-0700

John Slye, Esq. General Counsel Department of HRS

1323 Winewood Boulevard

Tallahassee, FL 32399-0700

Eleanor A. Joseph, Esq. HOLLAND & KNIGHT

P.O. Box 810 Tallahassee, FL 32302

Elizabeth McArthur, Esq. AURELL, RADEY, ET AL.

P.O. Drawer 11307 Tallahassee, FL 32302

Michael Cherniga, Esq.

101 E. College Street Tallahassee, FL 32301

R. Terry Rigsby, Esq. 204-B S. Monroe Street Tallahassee, FL 32301

Alfred Clark, Esq.

P.O. Box 623 Tallahassee, FL 32302

Richard Patterson , Esq. Department of HRS

2727 Mahan Drive

Tallahassee, FL 32308

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.

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

AGENCY FINAL ORDER

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

STATE OF FLORIDA

DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES

MARRIOTT RETIREMENT COMMUNITIES, INC.,

RENDITION NO.: HRS-92-113-FOF-CON

Petitioner, CASE NO.: 91-2231 (Consolidated with

vs. Case Nos. 91-2419

91-2832, 91-2835,

DEPARTMENT OF HEALTH AND 91-2836, 91-2837)

REHABILITATIVE SERVICES, CON NOs: 6509, 6510

6511, 6513 & 6513P

Respondent,

and

HEALTH QUEST REALTY, II, d/b/a REGENTS PARK OF JACKSONVILLE,

Intervenor.

/

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 the Recommended Order is attached hereto

RULING ON EXCEPTIONS FILED BY ATRIUM

Atrium requests that certain findings of fact be further elaborated or explained. The findings of fact are paragraphs 2 on page 31, paragraphs 3 and 4 on page 31, paragraph 37 on page 38, paragraph 38 on page 38, paragraph 41 on page 39, and paragraph 42 on page 39. When considered in the context of the whole Recommended Order, further elaboration is not needed. Additionally, at this level of review, the department lacks the authority to make supplemental findings of fact, Friends of Children vs. Department of Health and Rehabilitative Services, 504 So.2d 1345 (Fla. 1st DCA 1987). The request is denied.

Atrium excepts to the Hearing Officer's conclusion that after the issuance of a Recommended Order, the department has the authority to reconsider the initial, free-form decisions. Basically decision making by an executive agency of state government fits into one of two modes. First, is the free-form, bureaucratic mode. Second is the formal - legal mode under Chapter 120, the Administrative Procedure Act ("APA"). Capeletti vs. State,

362 So.2d 346 (Fla. 1st DCA 1978). If the APA (specifically Section 120.57) is not invoked, the initial decision becomes the final decision by operation of law. John McCoy vs. Department of Health and Rehabilitative Services, 589 So2d

351 (Fla. 1st DCA 1991). If the APA is invoked, then the final decision must be expressed in an order conforming to Section 120.59, Florida Statutes (1991). There is no authority for the Hearing Officer's suggestion that the decision making process can revert back to the free-form, bureaucratic mode after the APA has been invoked. The Hearing Officer's suggestion, if accepted, would greatly increase the length and expense of the decision making process. Presumably, decisions reconsidered in the first mode would again be subject to the second mode if the APA were invoked by a substantially affected party. The suggestion is rejected and the exception is approved.

RULING ON EXCEPTIONS FILED BY MARRIOTT

Marriott maintains the Hearing Officer improperly deferred to the department's free form decisions to approve the CON applications of Cypress Village, Inc. ("CVI") and Atrium. There is ample support in the record of this proceeding for the Hearing Officer's recommendation to approve the applications of Cypress Village and Atrium. The error, if any, is harmless. Additionally, it is noted that none of the parties herein requested remand to the Division of Administrative Hearings for further fact finding or clarification of the Hearing Officer's findings of fact. Inverness Convalescent Center vs. Department of Health and Rehabilitative Services. 512 So2d 1011, 1015 (Fla. 1st DCA 1987)

In its exceptions Marriott relies heavily on the Hearing Officer's remark at page 66 that the initial review process is not objective. This remark is inconsistent with finding 13 on page 10 where the Hearing Officer commented favorably on the scoring process. The finding reads as follows:

The work group also established protocols for evaluating the information provided by applicants. The protocols utilized by HRS provide a methodology which results in predictability, uniformity, and commonality of judgment in the review of each application insofar as that is possible with subjective judgments of facts.

The scoring process discussed at length by the Hearing Officer is an effort to enhance the objectivity of evaluating the competing proposals.

Obviously, human judgment is a factor, otherwise applications could be evaluated solely by a computer.

Marriott excepts to various adverse rulings of the Hearing Officer on its proposed findings of fact. The rulings of the Hearing Officer are accepted and the exceptions denied.

RULING ON EXCEPTIONS FILED BY HEALTH QUEST

In summary Health Quest challenges, first, the Hearing Officer's findings that the audited financial statements submitted by CVI satisfied the statutory requirement that the applicant submit an audited financial statement. Next, Health Quest maintains that the Hearing Officer erred in failing to find that CVI understated its costs. Finally, Health Quest challenges the Hearing Officer's findings that Health Quest's audited financial statements were so inaccurate as to constitute a total failure to comply with the statutory requirement. See Section 381.707(3), Florida Statutes (1991). The latter exceptions will be addressed first because the issue is dispositive of Health Quest's application.

The relevant law is Section 381.707(3), Florida statutes (1991), which requires that an applicant for a CON provide "an audited financial statement of the applicant." In Humhosco vs. Department of Health and Rehabilitative Services, 561 So2d 388 (Fla. 1st DCA 1990) the Court emphasized the significance of this requirement by holding that it cannot be waived.

The Court discussed the importance of the requirement in assessing the applicant's financial strength.

The statements submitted by Health Quest were based on an audit of a property located in Indiana, not Regents Park of Jacksonville, which is the facility Health Quest seeks a CON for. Thus, the history of losses at Regents Park was not disclosed in its application. Obviously, such information is crucial to an evaluation of - the proposal's financial feasibility. On page 64 of his conclusions of law, the Hearing Officer found that Health Quest knowingly submitted financial statements that were inaccurate. The Hearing Officer concluded that its application should be rejected for the reasons set forth in Humhosco vs. Department of Health and Rehabilitative Services, 561 So2d 388 (Fla. 1st DCA 1990). I concur. Health Quest's exceptions are denied.

Moving on, Health Quest excepts to the Hearing Officer's conclusion that the financial statements submitted by CVI satisfied the requirement for an audited financial statement. See Section 381.707(3), Florida Statutes.

Health Quest maintains that CVI submitted "combined" statements which included itself and The National Benevolent Association of the Christian Church.

Florida Administrative Code, Section 10- 5.008(5)(g), declares "combined" audited financial statements to be unacceptable in terms of meeting the requirements of Section 381.707(3). However, this rule is inapplicable to this proceeding because the rule, which did not become effective until January 31, 1991, was not in effect at the time the applications were filed.

None of the parties adduced evidence to satisfy the Hearing Officer that CVI statements were "combined" statements nor did any party explicate a non-rule policy prohibiting combined statements at the time the application was filed.

The relevant law is Section 381.707(3), Florida Statutes (1991) which requires that an application contain "an audited financial statement of the applicant". The Hearing Officer found that Cypress Village's auditors correctly exercised their independent professional judgment. They reasonably found it necessary to include all of the various assets and liabilities shown on the Cypress Village audited financial statements in order to fairly present and fully disclose the financial position of Cypress Village in conformity with generally accepted accounting principles.

At this stage of the proceeding the question is whether the Hearing Officer's findings of fact are supported in the record by competent, substantial evidence. See Section 120.57(1)(b)10, Florida Statutes (1991). There is ample evidence in the record to support the Hearing Officer's conclusions that Cypress Village's audited financial statements represented

appropriate audits of the applicant. At this level of review the department has no authority to reweigh the evidence; therefore, the exceptions are denied.

Health Quest excepts to the Hearing Officer's conclusion that "combined financial statements" is not a term of art in the accounting profession. There was conflicting evidence on this point. The finding is supported by competent, substantial evidence; therefore, the exception is denied.

For the first time in this proceeding, Health Quest maintains that CVI deceived HRS and committed an ex parte violation. According to Health Quest, under these circumstances approval "would be contrary to due process of law". See paragraph 23 of Health Quest's exceptions.

Under Section 10-5.010(6), Florida Administrative Code, any communication between Cypress Village and HRS which occurred after HRS had withdrawn the Cypress Village application from review, and prior to the time when the Cypress Village application was declared complete and eligible for comparative review, did not violate the provisions of the Rule. The Rule does not prohibit communications exclusively between an applicant and HRS until that applicant's application is declared complete. In essence, under the Rule each applicant has a right to communicate alone with the department until deemed eligible for comparative review.

Health Quest's allegation of an ex parte violation is without foundation.

Health Quest also alleges that Cypress Village "deceived" HRS regarding the issue of whether Cypress Village met its obligation to submit "an audited financial statement of the applicant". This allegation is unsupported by the record. If Health Quest were correct, then it would follow that Cypress Village managed to also deceive the independent Hearing Officer in the

120.57 proceeding where full discovery and due process rights were available to all parties. The allegation is rejected.

Health Quest excepts to the Hearing Officer's conclusion that Cypress Village did not understate its costs. Health Quest raised this issue for the first time in its proposed findings of fact and conclusions of law. This argument is predicated upon allegations that Cypress Village did not properly allocate a portion of the core building already existing on the Cypress Village campus to project costs.

Health Quest's exceptions on this issue simply reiterate its proposed findings of fact. Health Quest's exceptions do not demonstrate that the Hearing Officer's findings of fact on this issue are not supported by competent, substantial evidence. The exceptions are denied.

Health Quest's exceptions to the Hearing Officer's rulings on its proposed findings of fact are rejected.

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 as modified in the ruling on the exceptions.

Based upon the foregoing, it is

ADJUDGED, that the applications of Atrium Nursing Home, Inc. for CON 6511 and Cypress Village, Inc. for CON 6509 are APPROVED. The applications of Marriott Retirement Communities, Inc. for CON 6510 and Health Quest Realty II for CON 6513 and 6513P are DENIED.

DONE and ORDERED this 6th Florida.

day of May , 1992, in Tallahassee,

Robert B. Williams, Secretary Department of Health and

Rehabilitative Services

by Deputy Secretary for Human Services

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

Copies furnished to:

Eleanore A. Joseph, Esquire HOLLAND & KNIGHT

Post Office Box 810 Tallahassee, FL 32302

Elizabeth McArthur, Esquire AURELL, RADEY, HINKLE & THOMAS

101 North Monroe Street Suite 100

Post Office Drawer 11307 Tallahassee, FL 32302

Michael Cherniga, Esquire GREENBERG, TRAURIG, HOFFMAN, LIPOFF ROSEN & QUENTEL, P. A.

101 East College Avenue Tallahassee, FL 32302

Stephen F. Dean Hearing Officer

DOAH, The DeSoto Building 1230 Apalachee Parkway

Tallahassee, FL 32399-1550

R. Terry Rigsby, Esquire 204-B South Monroe Street Tallahassee, FL 32301

Alfred W. Clark, Esquire Post Office box 623 Tallahassee, FL 32308

Richard Patterson, Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive, Suite 103 Fort Knox Executive Center Tallahassee, FL 32308

Wayne McDaniel (PDRFM) CON Legal

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a copy of the foregoing was sent to the above named people by U. S. Mail this 7th day of May , 1992.

R. S. Power, Agency Clerk Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, FL 32399-0700 (904)488-2381

Docket for Case No: 91-002231

Orders for Case No: 91-002231