STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HOLMES/VHA LONG TERM CARE )

JOINT VENTURE, )

)

Petitioner, )

vs. ) CASE NO. 94-2393

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

) NATIONAL HEALTHCORP, L.P. d/b/a ) NHC OF MERRITT ISLAND, )

)

)

Petitioner, )

vs. ) CASE NO. 94-2976

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard by Eleanor M. Hunter, the Hearing Officer designated for the Division of Administrative Hearings, on November 9, 10, 14 and 15, 1994, in Tallahassee, Florida.

APPEARANCES

For Petitioner, Darrell White, Attorney Holmes/VHA Long Charles Stampelos, Attorney

Term Care Joint MCFARLAIN, WILEY, CASSEDY & JONES P.A.

Venture: 600 First Florida Bank Tower

215 South Monroe Street Tallahassee, Florida 32301

and

Robert M. Simmons, Attorney 5050 Poplar Avenue, 18th Floor Memphis, Tennessee 38157

For Petitioner, Gerald B. Sternstein, Attorney National Health Frank P. Rainer, Attorney

Corp d/b/a NHC Corp RUDEN, BARNETT, MCCLOSKY, ET AL.

L.P. d/b/a NHC of 215 South Monroe Street, Suite 815 Merritt Island: Tallahassee, Florida 32301

For Respondent, P. Timothy Howard, Attorney Agency For Health John F. Gilroy, Senior Attorney

Care Administration: Agency for Health Care Administration

325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131

STATEMENT OF THE ISSUES

Which of two competing applications for nursing home beds better meets the statutory and rule criteria to satisfy the numeric need for 79 additional beds in Agency for Health Care Administration District 7, Subdistrict 1, Brevard County.

PRELIMINARY STATEMENT

The Agency for Health Care Administration ("AHCA") preliminarily approved the application of National HealthCorp, L.P. ("NHC") to construct a 60-bed addition to an existing 120-bed community nursing home in Merritt Island, Brevard County, AHCA District 7, Subdistrict 1. AHCA preliminarily denied the application of Holmes/VHA to construct a 79-bed community nursing home on the campus of Palm Bay Community Hospital in Palm Bay, Florida, a suburb of Melbourne, which is also in Brevard County. When the style of the case was announced at final hearing, counsel for NHC noted an error in the style which was used in NHC's original petition. Holmes/VHA and NHC used the corrected style in their proposed recommended orders, AHCA used the original style. To avoid any confusion in the identity of the applicant, the correction suggested by NHC's counsel is treated as a Motion To Correct The Style and is granted.

The style "National Health Corporation d/b/a NHC Corp L.P. d/b/a NHC of Merritt Island" is replaced by the style used above.

Holmes/VHA presented the testimony of Jean Briggs, expert in long term care strategic planning; David Keith Tester, expert in architecture and construction of nursing homes; James H. Mullins, expert in hospital administration and strategic planning for hospitals; David K. Stewart, expert in health care finance and accounting; Gail H. Schuneman, expert in rehabilitative therapy and care; Roberta Van Dusen, expert in the provision of hospice care; William Currie, expert in hospital and nursing home administration; Beverly R. Hoffman, expert in long term care nursing and nursing administration; W. Eugene Nelson, expert in health planning; and Robert Beiseigel, expert in health care financial feasibility and financial analysis. Holmes/VHA's exhibits 1 - 7 and 9 - 24 were received in evidence.

AHCA presented the testimony of Alberta Granger, expert in CON review and administration of the CON program; Robert Garland, expert in health care facility design and construction, especially nursing homes; and Lynn H. Riley, expert in health care financial review. AHCA exhibits 1-6 and 8-10 were received in evidence.

NHC presented the testimony of William Bishop, expert in nursing home administration and operations; Leslie Williams, expert in nursing home administration; Thomas C. Morgan, expert in nursing home development; James H. Bailey, III, expert in architecture and nursing home design and construction; Laverne Bryan, expert in nursing administration, gerontology, and long term care; Bruce Duncan, expert in health care planning, gerontology, and certificates of need for community nursing home facilities; and Charles Wysocki, expert in health care accounting and finance, and Medicaid and Medicare cost reimbursements. NHC's exhibits 1 - 5, 7, and 9 - 20 were received in evidence.

On October 24, 1994, Holmes/VHA filed a Motion for Summary Recommended Order to dismiss the application of NHC for failing to include a certified board resolution in the application and for failing to include an evaluation of the impact of the proposed project on the cost of other services provided by NHC. Holmes/VHA also filed a Supplement to Motion For Summary Recommended Order Dismissing National Healthcorp L.P. on October 3, 1994. NHC filed a response to the motion on November 4, 1994.

On November 3, 1994, NHC filed a Motion For Summary Recommended Order to dismiss the application of Holmes/VHA for submitting with its application a photocopy of the certified board resolution and for not properly adopting the resolution. Subsequently, on November 8, NHC withdrew that portion of its Motion related to the copy of the board resolution, having found the original in AHCA's files.

Both Motions for Summary Recommended Order were taken under consideration for determination as a part of this Recommended Order. The transcript of the hearing was received on January 10, 1995. Following an order granting the parties an extension of time, proposed findings of fact and conclusions of law were filed by Holmes/VHA and NHC on March 6, 1995. AHCA filed a notice that it continues to adhere to the position which resulted in its preliminary action.

FINDINGS OF FACT

1. The Agency For Health Care Administration ("AHCA") is the single agency responsible for the administration of certificate of need ("CON") laws in Florida. AHCA published a numeric need for an additional 79 beds in District 7, Subdistrict 1, for Brevard County for the July 1996 planning horizon. There was no challenge to the numeric need determination. After reviewing the applications of Holmes/VHA Long Term Care Joint Venture ("Holmes/VHA") and National Health Corporation d/b/a NHC of Merritt Island ("NHC"), among others, AHCA published its intent to approve the application of NHC and to deny that of Holmes/VHA. The State Agency Action Report ("SAAR") issued on March 13, 1994, for the July 1996 Planning Horizon, summarizes AHCA's review of the applications and the reasons for its decision. Holmes/VHA timely challenged AHCA's preliminary approval of CON 7527 to NHC and denial of CON 7539 to Holmes/VHA.

   
   

2. In a pre-hearing stipulation, the parties agreed that the specific statutory criteria at issue, related to the contents of the letter of intent and application are subsections 408.037(2)(a), (2)(c), (4) and 408.039(2)(c), Florida Statutes. The parties also agreed that the CON review criteria at issue are subsections 408.035(1)(a), (b), (d), (e), (h), (i), (l), (m), (n) and (0), and 408.035(2)(e), Florida Statutes. The parties stipulated to the need for 79 additional community nursing home beds in the subdistrict. At the formal hearing the parties also agreed that quality of care is not at issue and that staffing schedules and proposals to fund or finance both projects are reasonable, thereby removing from consideration subsections 408.035(1)(c) and portions of (1)(h).

   
   

   HOLMES/VHA

   
   

3. Holmes/VHA, the applicant for CON 7539, is a Florida general partnership formed between Holmes Regional Enterprises, Inc. ("Holmes Enterprises"), a Florida not-for-profit corporation, in Brevard County, Florida, and Vantage Health Systems, Inc., d/b/a VHA Long Term Care ("VHA"). The partnership, Holmes/VHA, owns and operates an existing 120-bed nursing home,

   Holmes Regional Nursing Center ("Holmes Nursing Center") in Melbourne. VHA is a division of Service Master Diversified Health Services of Memphis, Tennessee, which manages 106 facilities in 30 states. Holmes Enterprises operates Holmes Regional Medical Center ("Holmes Regional"), a 528-bed acute care hospital, with open heart surgery and neonatal intensive care services and approval for 30 skilled nursing beds. Sixty of Holmes Regional's licensed beds are located at Palm Bay Community Hospital in Palm Bay, approximately 8 to 15 miles south of Holmes Regional. Although it is a separate municipality, Palm Bay was described as a suburb of and contiguous to Melbourne. The site for the Palm Bay Center, which is across the street from Palm Bay Community Hospital, is in another community known as Mallibar.

   
   

4. VHA has entered into similar partnerships with acute care hospitals in Jacksonville, Florida, and Greensboro, North Carolina, to operate nursing homes in those areas. The Service Master organization provides management and support services, including data processing, legal, personnel, dietary, and architectural and design services for nursing homes.

   
   

5. Holmes/VHA, the joint venture general partnership, has a management committee of four people, two from the hospital and two from the VHA company. The management committee, functioning like a board of directors, adopted a resolution authorizing Holmes/VHA to file the Con application. When formed, the joint venture obtained an older 60-bed facility, and then constructed a replacement facility. During the construction, it obtained a 60-bed CON from another company and combined beds to build its existing 120-bed nursing home, Holmes Nursing Center.

   
   

6. Holmes Nursing Center is rated superior and offers inpatient and outpatient rehabilitative and restorative services, including a head and spinal cord injury program. The rehabilitative services are directed by Holmes Regional, which is located a block and a half from the nursing home.

   
   

7. The original CON for Holmes Nursing Center required that 35 percent of total patient days be provided to Medicaid. The requirement was increased to 45 percent with the 60-bed addition, which Holmes Nursing Center has exceeded. The

   120 beds are divided into 20 percent Medicare certified, 50 percent Medicaid certified and 30 percent non-certified or private pay.

   
   

8. Holmes Nursing Center also operates a 24-bed subacute unit for persons qualifying under Medicare criteria for skilled nursing care. Patients in the unit receive intensive assessments on each nursing shift and services which include pain, respiratory, and wound management.

   
   

9. Holmes Regional Hospice, Inc. ("the hospice") is an affiliate of Holmes Enterprises, for which Holmes Regional holds the CON to take care of hospitalized hospice patients The current hospice census of over 200 patients includes 70 percent cancer, 9 percent AIDS, and 21 percent other terminal illnesses, such as heart disease and Alzheimers.

   
   

10. Holmes/VHA applied for a CON to construct the 79-bed Palm Bay Nursing and Rehabilitation Center ("Palm Bay Center") conditioned on the provision of 61 percent of total patient days to Medicaid and the establishment of a 12-bed sub- acute unit, one room for hospice patients, inpatient and outpatient rehabilitative therapy, and respite care. The total gross square footage is 42,691 square feet. The Holmes Enterprises affiliates propose to provide support services for the Palm Bay Center, as they do for Holmes Nursing Center.

11. The estimated total project cost for the Palm Bay Center is

    $4,732,790, of which the construction cost is $82,720,000 or $63.71 a square foot. An equity contribution of land valued at $420,000, will be provided by the hospital. Service Master will provide the funds or obtain financing for the project. The assumptions in the pro forma, including the expectation that interest may be due for a commercial loan, are reasonable. AHCA's expert's conclusion that the project is financially feasible is accepted. The financing by Service Master can be structured to avoid being treated as a related party transaction, which would adversely affect Medicaid and Medicare reimbursements.

    
    

12. Holmes/VHA listed as capital projects three other pending CON and an additional $25,000 in annual capitalized routine expenses for furniture, fixtures and equipment attributable to Holmes Regional Nursing Center. The total of the capital projects listed on Schedule 2 of the application is

    $13,256,701.

    
    

    NHC

    
    

13. National HealthCorp, L.P. ("NHC"), the applicant for CON 7527, began operations in 1986, with 14 nursing homes. Currently, NHC owns or manages 96 nursing homes primarily in the southeast United States. It manages 36 nursing homes in Florida, 6 of which are also owned by NHC.

    
    

14. NHC proposes to add 60 beds to National Healthcare Center of Merritt Island ("NHC-Merritt Island"), a superior rated, 120-bed community nursing home on a 7 acre site in Merritt Island, Brevard County. NHC-Merritt Island has a 22-bed Alzheimers' unit. NHC's regional office provides support services, including speech, occupational, and physical therapies, nursing, dietary, and administrative services to NHC-Merritt Island.

    
    

15. With the addition of 60 beds, NHC intends to provide respite care, a dedicated 20-bed subacute unit, and an additional 16-bed Alzheimers' unit. Without a subacute unit, NHC already has an average census of 9 subacute patients. NHC will triple the size of the therapy space and more than double the size of the building. The projected total capital expenditure is

    $3,891,850, with construction costs of $2,955,000, or $85.00 a square foot. To accommodate the addition, NHC has entered into a contract to purchase an additional 1.3 acres, adjacent to the current 7 acres, for a cost of $175,000.

    
    

16. For the past few years, NHC has experienced 94 to 100 percent occupancy. Fifty-four people are on NHC's waiting list and an additional 16 are on the waiting list for the Alzheimers' unit. The projected annual fill-up rates for NHC's additional beds are supported by the demand for its service and its historical experience, even though the monthly fill-up rates in the application are not adjusted to reflect the specific number of days in each month.

    
    

17. Medicaid resident days are 55 percent to 57 percent of the total at present, below the 60.31 percent average in the subdistrict and the current 60 percent CON condition. If the expansion CON is approved, NHC will commit to providing 60.31 percent Medicaid patient days and will increase the number of Medicaid certified beds from 77 to 108.

    
    

18. NHC was profitable in 1992 and 1993, by approximately $100,000 and

    $250,000, respectively, but currently is not profitable, with an approximate deficit of $8,000. The deficit is attributable to (1) a decline in the Medicaid reimbursement rate, which was initially higher due to start up costs, (2) the

    expiration of a new provider exemption from Medicare cost limits, and (3) the transfer of assets by NHC, in exchange for stock, to a newly formed subsidiary, from which NHC-Merritt Island is now leased. Lease payments are $517,000 a year whether the facility has 120 or 180 beds, and profits are returned to stockholders, including NHC. Using Medicaid rates, calculated by the state, as inflated forward, and Medicare rates in excess of routine cost limits, based on the current experience of NHC-Merritt Island, NHC reasonably projected its costs and profit margin. NHC-Merritt Island has a positive cash flow and its expenses and revenues are at the goal set by NHC. With a total of 180 beds, the projections are reasonable that NHC-Merritt Island will be profitable. As AHCA's expert opined, NHC's proposal is financially feasible.

    
    

    Subsection 408.035(1)(a) - need in relation to district and state health plans

    
    

19. The 1991 District 7 health plan has three preferences related to nursing homes, one favoring a section of Orange County, is inapplicable to the Brevard County applications. A second, for applicants proposing pediatric services, is inapplicable because both proposals in this batch are to provide adult services.

    
    

20. The third preference favors applicants proposing to establish units providing psychiatric or subacute services, with emphasis on treating medically complex patients and AIDS/HIV positive patients. Holmes/VHA's health planner considers the subacute care and AIDS/HIV services proposed by Holmes/VHA superior to those proposed by NHC. NHC, however, proposes to provide specialized care in designated units for both subacute and Alzheimers's patients. Although Holmes/VHA argues that Alzheimers' care is required in every nursing home and is, therefore, not a specialized program, the physical design of a separate unit for such patients was shown to enhance their comfort. No AIDS/HIV positive patient has been treated at either Holmes Nusing Center or at NHC-Merritt Island. NHC-Merritt Island has accepted AIDS/HIV positive patients who did not come to the facility.

    
    

21. The state health plan has twelve allocation factors for use in comparing nursing home applications. Both applicants comply with the factors favoring locations in a subdistrict in which occupancy levels exceed 90 percent, proposals to meet or exceed that average subdistrict Medicaid occupancy of 60.31 percent, proposals with respite care and innovative therapies, multi- disciplinary staffing, for staffing in excess of minimum state requirements, and which document means to protect residents' rights and privacy. Both Holmes/VHA and NHC also meet the preference for proposing charges that do not exceed the highest Medicaid per diem in the subdistrict.

    
    

22. NHC asserted, but failed to demonstrate that its therapy services with in-house staff are superior to those provided to Holmes/VHA by contract staff from Holmes Regional.

    
    

23. The state health plan factor number 3, for specialized services, is largely duplicative of district health plan preferences. Neither applicant meets the part of one preference for providing adult day care, or the preference for proposing lower than average administrative costs and higher than average resident care costs.

    
    

24. The fifth state allocation factor, for maximizing resident comfort and the criterion of subsection 408.035(1)(m), Florida Statutes, related to the cost and methods of construction, are at issue. NHC questions the adequacy of three acres for the building proposed by Holmes/VHA and the design of the building.

    Holmes Regional Nursing Center has 120 beds and approximately the same building area as that proposed for Palm Bay Center. The architects of the building have constructed a 163-bed facility on four acres in Jacksonville, and a 240-bed facility in Memphis, Tennessee on approximately six acres. Homes/VHA expects to construct the building in half the time required for completion of NHC's proposed addition. AHCA's architect noted, however, that Holmes/VHA has no Alzheimers unit and that its subacute area is not separated from the areas used by other patients and their families. Holmes/VHA has showers only in the 13 private rooms. By contrast, NHC has an Alzheimers unit with its own lounge and courtyard and a subacute unit at the end of a wing with a separate waiting room. NHC's rooms are larger, with larger windows. NHC's costs are higher than Holmes/VHA's, but not above the high average cost guidelines for construction used by AHCA. NHC has one nursing station for 60 beds, which meets the state requirement while Holmes/VHA is better equipped with two nurses stations for 79 beds. In general, Holmes/VHA established that its building could be built on 3 acres, and that its interior spaces exceed the requirements to be licensed. NHC established that its building and grounds will be larger, higher quality construction with more non-combustible materials, and better meet the preference for maximizing resident comfort.

    
    

25. The preference for superior resident care is met by both Holmes/VHA and NHC-Merritt Island. An NHC facility in Stuart was rated conditional for 80 days of the 36 months, prior to the filing of the application. NHC had just purchased the Stuart facility at the time of the conditional rating, and had, in total, many more months of superior operations. In addition, the parties stipulated to quality of care issues at the hearing.

    
    

    Subsection 408.035(1)(b) and (1)(d) - availability, accessibility, efficiency, extent of utilization of like and existing services; alternatives to the applicants' proposals

    
    

26. Brevard County is 80 miles long from north to south, 22 miles wide at its widest point, with 62 percent of its population in the southern area of the county. Holmes/VHA contends that its application should be approved based on the greater need for nursing home beds in southern Brevard County. Using ratios of beds in existing or approved nursing homes as compared to the population ages

    65 and older, and 75 and older, a need is shown for more beds in the southern area, including Palm Bay. In the central area, there are 31.52 beds per 1000 people over 65, as compared to 26.53 in the southern area of Brevard County.

    For the population over 75, the ratios are 82.53 in the central and 68.47 in the southern area. The over 75 population is also projected to increase by a greater percentage in the southern as contrasted to the central areas of the county. AHCA claims to reject the use of any "sub-subdistrict" analysis of need, other than the test for geographically underserved areas, as defined by Rule 59C-1.036, Florida Administrative Code. That test which applies to proposed sites more than 20 miles from a nursing home, is not met by Holmes/VHA or NHC. However, AHCA has, in at least one other case, considered geographic accessibility within the planning area in determining which applicant should be approved, without the applicants having to demonstrate that the proposed sites are geographically underserved areas.

    
    

27. NHC takes issue with Holmes/VHA's data on bed availability in the southern and central portions of the county. NHC maintains that its central location better serves the entire county. NHC's expert also criticized the methodology used by Holmes/VHA for demonstrating need in the southern area. The comparison of existing beds to population, shows a lack of county-wide parity, but not necessarily need. Other factors related to the need for nursing homes

    were not presented, such as poverty, migration, mortality and occupancy rates. In addition, NHC's expert questioned Holmes/VHA's experts calculations of bed- to-population ratios. The ratios arguably were skewed by using beds for Wuesthoff Hospital Progressive Care in the central area data, but including the population of the zip code in which Wuesthoff is located in the southern area. Holmes/VHA noted that the majority of the population in the zip code is in the southern area.

    
    

    Subsection 408.035(1)(n) - past and proposed Medicaid/indigent care

    
    

28. Holmes/VHA's expert criticized NHC because two of its facilities, Merritt Island and Stuart, have been below the subdistrict average for Medicaid occupancy. For 3 six month periods during the last 4 years, they also were below their CON Medicaid commitments. One other NHC facility, in Hudson, has been below the subdistrict average, but significantly above its CON condition. NHC claims that it treats its Medicaid condition as a minimum, while Holmes/VHA uses its conditions as an artificial ceiling or maximum.

    
    

    Subsection 408.035(1)(e),(1)(o) - cooperative or shared health care resources; continuum of care

    
    

29. Holmes/VHA has established linkages to its various related companies to provide cooperative care and shared resources. Palm Bay Nursing Center would enhance the multi-level care provided by the Holmes Enterprises group and provide another integral step in the continuum, particularly in rehabilitative therapies. NHC, however, as an existing provider, is part of a well-established network of health care providers in the community. NHC has also purchased land to build an adult congregate living facility near or adjacent to NHC-Merritt Island.

    
    

    Subsections 408.039(2)(a), (2)(c) and 408.037(4), and Rule 59C-1.008, Florida Administrative Code - capital projects list; board resolutions; and impacts on costs

    
    

30. AHCA interprets the requirements for the submission of a board resolution to allow an original resolution accompanying the letter of intent to be treated as a part of the complete application. A board resolution with an application, which the statute requires "if applicable," applies to expedited applications for which a letter of intent would not have been received, according to AHCA. NHC submitted an original board resolution with its letter of intent, and a copy of that resolution with its application for CON 7527.

    
    

31. The authority of Holmes/VHA's management committee to authorize the construction of a new nursing home, and the authority to operate a nursing home outside the city of Melbourne was questioned. The testimony that the joint venture agreement authorizes the management committee to adopt a resolution authorizing the filing of CON 7539 was not refuted. In addition, the testimony that operations are restricted to the "Melbourne area" as opposed to some more specifically defined geographic area was not refuted. Repeatedly, witnesses described Palm Bay, although a separate municipal corporation, as a suburb of Melbourne.

    
    

32. Holmes/VHA claims that NHC failed to disclose certain capital equipment leases from its schedule 2 list of capital projects and failed to evaluate the impact on costs, as required by subsection 408.037, Florida Statutes. In NHC's annual reports, the costs of capital equipment leases were

    $204,000 in 1991, $43,000 in 1992, and $88,000 in 1993. In fact, the NHC

    witness who prepared schedule 2 included a total of $21,653,468 for the category "Renovations (Including Furnishings and Equipment) 1994", taken from the capital expenditure budget of each NHC facility. The listing is consistent with the footnote indicating the budget items "are subject to final approval and cash reserves availability." In addition, $100,000 is also listed under "Other Capitalization" for equipment, for which a footnote explains "[a]mount included in an abundance of caution to cover any items unknown at the time of filing." NHC, according to Holmes/VHA, also failed to provide a detailed evaluation of the impact of the proposed project on the cost of other services it provides, as required by subsection 408.037(2)(c), Florida Statutes. NHC merely states that the impact is "nominal" and "negligible." NHC satisfied the impact analysis requirement in the notes to schedule 2 and in schedules 11, 13 and 14 of the application. The incremental pro forma analysis of the effect on costs with or without the proposed project, and projected financial ratios and costs, give detail support for the statements in the application.

    
    

33. Assuming, arguendo, that Holmes/VHA omitted $50,000 in capital costs from schedule 2, the omission is not material or fatal to consideration of the application on the merits. Holmes/VHA's financial expert testified that $50,000 is less than on-half of one percent of the total project expenditures listed on schedule 2 and is, therefore, immaterial.

    
    

34. As AHCA concedes, Holmes/VHA and NHC have the resources to establish their projects and to provide the services described in their applications. On balance, the demand for additional beds, the enhancement of a superior, existing physical plant and the expansion of specialized services at NHC outweigh the community linkages demonstrated by Holmes/VHA and the desirability of county- wide parity in the distribution of nursing homes beds, at this time.

    
    

    CONCLUSIONS OF LAW

    
    

35. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this case, pursuant to subsections 408.039(5) and 120.57(1), Florida Statutes.

    
    

36. The applicants have the burden of proving entitlement to the issuance of a CON. Florida Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981); and Department of Health and Rehabilitative Services v. Johnson and Johnson Home Health Care, 447 So.2d 361 (Fla. 1st DCA 1984).

    
    

37. Subsection 408.037(4), Florida Statutes, requires CON applications to include a certified copy of the resolution by the applicant's governing board authorizing the applicant to file the CON application. Subsections 408.039(2)(c) also requires the filing of the same resolution with a letter of intent, which is filed to notify AHCA and the local health council that a CON application will be filed. Letters of intent are not required for certain expedited projects, as determined by AHCA rule, pursuant to subsection 408.039(2)(a).

    
    

38. AHCA has enacted Rule 59C-1.008(5), which provides, in relevant part:

    
    

    (5) Certificate of Need Application Contents.

    An application for Certificate of Need shall contain the following items:

    1. All requirements set forth in Section 408.037, F.S.;

    2. With respect to Section 408.037(4),

    F.S., which requires a certified copy of a resolution of the board of directors or other governing authority if not a corporation, the resolution shall contain verbatim, the requirements specified in paragraph 408.039(2)( c), F.S.

    * * *

    (d) A valid letter of intent, if applicable.

    
    

39. By rule, AHCA has determined that the letter of intent and its contents, including the board resolution, are a part of the application. AHCA does not consider NHC's application defective for failing to submit a certified resolution with the application, after having submitted one with the letter of intent. As AHCA notes, its rule provides for the letter of intent, "if applicable." When the letter of intent requirement is not applicable, for expedited projects, then the statutory requirement for the resolution to accompany the application controls. AHCA's interpretation of its own rules is reasonable and valid. Humhosco, Inc. v. Department of Health and Rehabilitative Services, 476 So.2d 258 (Fla. 1st DCA 1985).

    
    

40. Based on AHCA's reasonable interpretation of its rule and the consistency of the rule with subsections 408.037(4) and 408.039(2)(a) and (2)(c), NHC's application is not defective for including a certified board resolution with the letter of intent but failing to include a second resolution with its application omissions response.

    
    

41. As a matter of fact, Holmes/VHA's assertions that NHC omitted capital equipment leases and a detailed evaluation of the impact of the project on its costs are rejected. Competent, substantial evidence demonstrates the completeness of NHC's schedule 2 listing of capital projects and evaluation of impact over costs in several financial schedules and analyses.

    
    

42. Similarly, NHC's claim that Holmes/VHA's management committee lacked the authority to adopt the resolution authorizing the proposed project due to its location or because of limitations on its activities is contrary to unrefuted factual testimony. The testimony is competent substantial evidence requiring a factual determination that the management committee had the authority to authorize the filing of the Holmes/VHA CON application to construct the Palm Bay Center, even though the joint venture agreement was not received into evidence.

    
    

43. Subsection 408.037(2)(a), Florida Statutes, requires that CON applications contain:

    
    

    1. A complete listing of all capital projects, including new health facility development projects and health facility acquisitions applied for, pending, approved, or underway in any state at the time of application, regardless of whether or not that state has a certificate-of-need program or a capital expenditure review program pursuant to section 1122 of the Social Security Act. The department may, by rule, require less-detailed information from major

       health care providers. This listing shall include the applicant's actual or proposed financial commitment to those projects and

       an assessment of their impact on the applicant's ability to provide the proposed project.

       
       

44. In Marriott Retirement Communities, Inc. v. Department of Health and Rehabilitative Services, 14 FALR 2673 (F.O. 5/6/92), the hearing officer determined that an omission of $7 million of a total of $1.1 billion in capital projects was not substantial, and that the applicant had technically complied with the statute. Applying the notion of technical or substantial compliance, an omission by Holmes/VHA of $50,000 from the total capital costs of over $13 million is not substantial and cannot be the basis for determing that Holmes/VHA has not complied with the statutory requirement.

    
    

45. On the merits of the applications, AHCA found and the evidence supports its finding that both Holmes/VHA and NHC could develop and operate their proposed projects.

    
    

46. Holmes/VHA's evidence that community nursing home beds are needed in southern areas of the county in order to achieve parity, without more substantial evidence of need, does not outweigh the need demonstrated at NHC by the existing demand, as illustrated, in part, by its waiting list. HCA West Florida Regional Medical Center v. DHRS, et al., HRS (F.O. 5/23/89).

    
    

47. Both applicants meet the basic statutory criteria. Holmes/VHA, by virtue of its relationship with Holmes Regional Hospital, Palm Bay Community Hospital and the other Holmes Enterprises entities is a better example of the multilevel health care system capable of offering a continuum of care, as described in subsection 408.035(1)(0). Holmes/VHA would also meet the total numeric need for 79 beds. NHC is establishing, but does not yet have in place a multilevel system of a different type, combining a nursing home with adult congregate living facilities, which also is consistent with the description in the statute.

    
    

48. According to competent substantial expert testimony and exhibits, the criteria which most distinguishes the proposals are those which require consideration of specialized services, resident comfort, and the design and construction of a nursing home. Based on the evidence that NHC's facility is larger, safer, and better arranged to enhance the activities and comfort of residents in the various units, NHC's proposal better complies with the requirements of subsection 408.035(1)(m), the third district health plan preference, the third state health plan allocation factor, and the fifth state health plan allocation factor.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency For Health Care Administration issue a Final

Order approving CON No. 7527 for the construction of an additional 60 community nursing home beds by National Healthcorp, L.P., conditioned on the provision of

60.31 percent of total patient days to Medicaid patients.

DONE AND ENTERED this 17th day of April, 1995, in Tallahassee, Leon County, Florida.

ELEANOR M. HUNTER

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 17th day of April, 1995.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-2393

To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact:

Petitioner NHC's Proposed Findings of Fact.

1. Accepted in Findings of Fact 13.

2. Accepted in Findings of Fact 3.

3. Accepted in or subordinate to Findings of Fact 14-18.

4. Accepted in or subordinate to Findings of Fact 14-18, except last phrase.

5. Accepted in or subordinate to Findings of Fact 6 and 10. 6-17. Accepted in or subordinate to Findings of Fact 30 and

conclusions of law.

18-21. Accepted in Findings of Fact 32.

22. Accepted in Findings of Fact 3.

23-30. Accepted in or subordinate to Findings of Fact 5 and 31.

1. Rejected in Findings of Fact 6 and 31.

2. Accepted in Findings of Fact 33.

3. Rejected in Findings of Fact 33.

4. Accepted in preliminary statement and Finding of Fact 1.

35-36. Accepted in part and rejected in part in Findings of Fact 21-25.

37-38. Accepted in Findings of Fact 21.

39. Rejected conclusion in Findings of Fact 20, 23 and 34.

1. Accepted in Findings of Fact 21.

2. Accepted in Findings of Fact 23.

3. Accepted in Findings of Fact 19. 56-57. Accepted in Findings of Fact 20.

1. Accepted in Findings of Fact 34.

2. Accepted in Findings of Fact 27 and 28.

3. Accepted in Findings of Fact 26 and 27.

4. Rejected in Findings of Fact 26 and 27.

5. Accepted in or subordinate to Findings of Fact 26 and 27.

6. Accepted in Findings of Fact 19.

7. Accepted in Findings of Fact 19, 26 and 27.

8. Rejected in Findings of Fact 26-27 and conclusions of law.

9. Rejected in Findings of Fact 26-27 and conclusions of law.

10. Accepted in Findings of Fact 2.

68-77. Accepted in part and rejected in part in Findings of Fact 27.

1. Accepted in Findings of Fact 20.

2. Rejected in or subordinate to Findings of Fact 26.

3. Accepted in Findings of Fact 22.

4. Accepted in or subordinate to Findings of Fact 9 and 10.

5. Accepted in or subordinate to Findings of Fact 9,

   10 and 20.

6. Accepted in or subordinate to Findings of Fact 20. 84-88. Accepted in or subordinate to Findings of Fact 10,

1. and 20.

   89-95. Accepted in or subordinate to Findings of Fact 15,

2. and 20.

96-97. Accepted in Findings of Fact 10, 15, and 21. 98-100. Accepted in Findings of Fact 21-22.

1. Accepted in or subordinate to Findings of Fact 15, 16 and 20.

2. Accepted in or subordinate to Findings of Fact 16.

3. Accepted in or subordinate to Findings of Fact 8 and 15.

104-108. Accepted in or subordinate to Findings of Fact 13 and 14.

109-110. Accepted in or subordinate to Findings of Fact 34.

1. Subordinate to Finding of Fact 4.

2. Accepted in or subordinate to Findings of Fact 34. 113-117. Accepted in Findings of Fact 21.

1. Accepted in Findings of Fact 34.

2. Accepted in Findings of Fact 11, 18 and 34.

subordinate to Findings of Fact 29.

177. Accepted.

Petitioner Holmes/VHA's Proposed Findings of Fact.

22. Accepted, except last sentence, in Findings of Fact 27. 23-24. Accepted in or subordinate to Findings of Fact 26

and 27.

25. Conclusions cannot be reached in Findings of Fact 26 and 27.

26-29. Accepted in or subordinate to Findings of Fact 11. 30-36. Accepted in Findings of Fact 11, 12, 33 and 34.

1. Rejected in Findings of Fact 18 and 34.

2. Rejected in or subordinate to Finding of Fact 32.

3. Accepted in or subordinate to Findings of Fact 16.

4. Accepted in Findings of Fact 40.

5. Rejected in Findings of Fact 16.

6. Rejected conclusion in Findings of Fact 18. 43-44. Rejected in Findings of Fact 18.

45-48. Rejected conclusion in Findings of Fact 18.

49-51. Accepted in or subordinate to Findings of Fact 3-10 and 29.

1. Accepted in Findings of Fact 24.

2. Accepted in or subordinate to Findings of Fact 7 and 8.

3. Accepted in Findings of Fact 20.

4. Accepted in or subordinate to Findings of Fact 3.

5. Accepted in or subordinate to Findings of Fact 3 and 24.

6. Accepted in Findings of Fact 29.

58-59. Accepted in or subordinate to Findings of Fact 9 and 10.

1. Accepted in Findings of Fact 29.

2. Accepted in Findings of Fact 19.

3. Accepted in Findings of Fact 20.

63-65. Accepted in or subordinate to Findings of Fact 21.

1. Accepted, except conclusion, in Findings of Fact 21 and 28.

2. Rejected conclusions in Findings of Fact 20.

3. Accepted in Findings of Fact 21 and 22.

4. Accepted in Findings of Fact 24. 70-71. Accepted in Findings of Fact 21.

72. Accepted as corrected in Findings of Fact 25. 73-74. Accepted in Findings of Fact 21.

1. Accepted in Findings of Fact 23.

2. Accepted in Findings of Fact 10 and 21.

77-78. Accepted in or subordinate to Findings of Fact 28.

1. Rejected conclusion in Findings of Fact 28.

2. Accepted in Findings of Fact 28.

81-89. Accepted in or subordinate to Findings of Fact 10,

21 and 29.

21 and 25.

113-115. Accepted in or subordinate to Findings of Fact 21. 116-118. Accepted in or subordinate to Findings of Fact 20. 119-136. Accepted in or subordinate to Findings of Fact 24.

137. Accepted in Findings of Fact 10.

138-143. Accepted in or subordinate to Findings of Fact 11 and 24.

COPIES FURNISHED:

P. Timothy Howard, Esquire John F. Gilroy, Esquire Senior Attorney

Agency for Health Care Administration

325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131

Darrell White, Esquire Charles Stampelos, Esquire MCFARLAIN, WILEY, CASSEDY

& JONES, P.A.

600 First Florida Bank Tower

215 South Monroe Street Tallahassee, Florida 32301

Robert M. Simmons, Esquire 5050 Poplar Avenue

18th Floor

Memphis, Tennessee 38157

Gerald B. Sternstein, Esquire Frank P. Rainer, Esquire

Ruden, Barnett, McClosky, et al. Monroe-Park Tower, Suite 815

215 South Monroe Street Tallahassee, Florida 32301

R. S. Power, Agency Clerk

Agency for Health Care Administration Atrium Building, Suite 301

325 John Knox Road Tallahassee, Florida 32303

Jerome W. Hoffman General Counsel

Agency For Health Care Administration

325 John Knox Road, Suite 301 Tallahassee, Florida 32303

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 ten days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-002393CON

Orders for Case No: 94-002393CON