STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ST. JOSEPH’S HOSPITAL, INC., )

)

Petitioner, )

)

vs. ) CASE NO.: 94-6236

) STATE OF FLORIDA, AGENCY FOR ) HEALTH CARE ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Administrative Law Judge, Mary Clark, held a formal administrative hearing in the above-styled case on September 4 and 5, 1996, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Ivan Wood, Esquire

Baker & Hostetler Suite 2000

100 Louisiana Houston, Texas 77002

For Respondent: Steven A. Grigas, Esquire

Building 3

2727 Mahan Drive

Tallahassee, Florida 32308-5403

STATEMENT OF THE ISSUES

The central issue for disposition is whether Certificate of Need no. 7750, for 24 hospital-based skilled nursing unit beds should be awarded to Petitioner, St. Joseph’s Hospital, Inc. (St. Joseph’s). To resolve that issue it is necessary to resolve factual issues regarding the need for the proposed beds and a legal issue regarding the impact of Health Care and Retirement Corp. of America v. Tarpon Springs Hospital Foundation, Inc. 671 So.2d 217 (Fla 1st DCA 1996) (Tarpon Springs) on the fixed need pool published in the first nursing home batching cycle of 1994 in Hillsborough County, District 6, Subdistrict 1.

PRELIMINARY STATEMENT

After St. Josephs received notice of the agency’s intended denial of Certificate of Need application no. 7750, it filed a timely petition for formal hearing on October 12, 1994. A series of other unsuccessful applicants in the batching cycle and competing health care providers also filed petitions. The cases were consolidated for hearing in a single proceeding.

In the meantime, on August 22, 1994, James W. York, Division of Administrative Hearings Hearing Officer (now Administrative Law Judge) entered his final order in case no. 94-0958RU/94- 1165RU, invalidating rule 59C-1.036(1), Florida Administrative

Code, relating to review of applications for community nursing home CON’s.

The Final Order was appealed, and during the pendancy of the appeal the parties in the consolidated cases entered a stipulation which is described below. After the appellate court decision was entered in Tarpon Springs, the remaining parties, St. Joseph’s and AHCA, filed their status report and requested the final hearing be set.

On August 30, 1996, AHCA filed a motion in limine requesting an order prohibiting St. Joseph’s from introducing any evidence relating to a special circumstances justification for the CON application. After oral argument at the commencement of the hearing on September 4, 1996, the motion was denied, without prejudice to AHCA’s right to raise its objections throughout the proceeding.

At the hearing, St. Joseph’s presented testimony of David Rogoff, vice-president of planning and marketing; deposition testimony of Michael Wasylik, MD, chief of orthopedics; Patricia Snyder, director of rehabilitation services; Rochelle John, director of medical/surgical services; Debra McElroy, manager of socialwork; Deborah Pergoliyzi, planning and marketing coordinator; Charles Secord, director of architecture; and Tommy Inzina, director of fiscal services. St. Joseph’s exhibits no.

1. were received in evidence; exhibit no. 3 was received for the limited purpose of depicting the existing 19-bed unit.

   AHCA presented testimony of Roger Bell, audit evaluation and review analyst; Alberta Granger, Certificate of Need supervisor; Elfie Stamm, health services and consultant supervisor; and Robert Garland, architect. AHCA’s exhibits 2, and 5-12 were received in evidence.

   The transcript of the hearing was filed on October 29, 1996; by agreement, the parties filed their proposed recommended orders on December 10, 1996.

   FINDINGS OF FACT

   
   

   The Parties

   
   

   1. St. Joseph’s Hospital, Inc. (St. Joseph’s) is a not- for-profit hospital which has operated in the Tampa, Florida area for over fifty years. It is currently licensed for 883 acute- care beds; it owns John Knox Village, which includes an adult congregate living facility and medical center nursing home; and it offers other services in a continuum of health care. St. Joseph’s also has a 19-bed, in-hospital skilled nursing care unit which became operational in early 1995.

   2. The Agency for Health Care Administration (agency or AHCA) is the state agency responsible for administering and enforcing the certificate of need (CON) process described in

      
      

      
      

      sections 408.031 through 408.045, Florida Statutes (“the Health Facility and Services Development Act”).

      
      

      
      

      The Process

      
      

   3. The fixed need pool published by AHCA in vol. 20, number 15, April 15, 1994, Florida Administrative Weekly, projected a need for 94 additional nursing home beds in Hillsborough County, District 6, Subdistrict 1, for the January 1997 planning horizon. There is no evidence that this fixed need pool was challenged.

   4. Approximately eleven health care providers, including St. Joseph’s, responded to the fixed need pool notice with applications for CON’s ranging from 10 to 94 beds. Some of those applicants, like St. Joseph’s, were hospitals seeking hospital- based skilled nursing beds.

   5. After comparative review of the applications, AHCA issued its state agency action report (SAAR) on September 16, 1994, denying some and granting others, and explaining the basis for its intended actions. Some of the beds were awarded for a hospital-based skilled nursing unit; St. Joseph’s application for

      24 in-hospital beds was denied in the comparative review that determined St. Joseph’s application was inferior to others in meeting statutory and rule criteria.

   6. The applicants’ petitions for formal hearing were forwarded to the Division of Administrative Hearings by AHCA and

      
      

      
      

      were consolidated in a single proceeding relating to the 94 beds in District 6, Subdistrict 1.

   7. On October 19, 1995, during the pendancy of appeal of the DOAH Final Order in Tarpon Springs, all of the parties in the consolidated cases executed and filed a stipulation which disposes of 93 out of the 94 available beds in the fixed need pool. The stipulation provides that all of the applicants, except St. Joseph’s, withdrew their petitions for formal hearing. As to St. Joseph’s, the stipulation provides:

      St. Joseph’s has previously withdrawn its opposition to the applications of all other parties to this proceeding by its Notice of Voluntary Dismissal of Petitions for Administrative Hearing and Notice of Lack of Opposition, dated September 13, 1995. St.

      Joseph’s and AHCA stipulate that Case No.

      94-6236, wherein St. Joseph’s challenged the denial of its application for certificate of need 7750 to add 24 skilled nursing unit beds, should be held in abeyance pending the final judicial determination of Tarpon Springs Hospital Foundation, et al. v. Agency for Health Care Administration, et al. (Proceeding below DOAH Case Nos. 94-0958RU and 94-1165RU, reported at 16 FALR 3420, presently on appeal before the First District Court of Appeal). St. Joseph’s acknowledges that the terms of this settlement will deplete the fixed bed need pool determined to be available for this application cycle, assents to the same, and maintains its position that its application should be approved notwithstanding the lack of availability of community nursing home beds within the fixed bed need pool. All other parties to this agreement except for AHCA

      
      

      
      

      hereby withdraw their petitions filed in this proceeding in opposition to the application of St. Joseph’s for certificate of need 7750 and waive any challenge or protest that they may have to the issuance of certificate of need 7750. St. Joseph’s hereby agrees not to oppose the transfer of up to seven (7) beds from this application cycle to TGH.

      
      

   8. After remand of all of the consolidated cases except St. Joseph’s (DOAH no. 94-6236), AHCA entered its final order on December 13, 1995, awarding CON’s for 93 beds to various of the applicants. Some of those 93 beds were awarded for hospital- based skilled nursing units. This final order depleted the fixed need pool of all but one bed.

   9. In their prehearing stipulation filed on August 29, 1996, AHCA and St. Joseph’s admitted these relevant facts:

      1. The appropriate planning area is Hillsborough County;

      2. The appropriate planning horizon for the application is January 1997.

      3. Rule 59C-1.036, Florida Administrative Code was appropriately used in determining the bed need for Hillsborough County, District 6, Subdistrict 1, for the first nursing home batching cycle of 1994; and

         
         

         
         

      4. The numbers used to derive the project pool of 94 beds in Hillsborough County, District 6, Subdistrict 1 for the January 1997 planning horizon were accurate and appropriate.

   10. At the hearing and in its proposed recommended order, St. Joseph’s concedes that it did not apply for beds under “not normal” circumstances.

       The Project

       
       

   11. St. Joseph’s proposes to establish a 24 bed, hospital- based skilled nursing unit in an area of its main hospital building by converting 24 acute care beds to this use. The project involves 19,600 square feet of renovation at a total project cost of $684,731, including conversion costs of $331,940. Actual out-of-pocket costs for the project are $352.791.

   12. The skilled nursing beds within the hospital facility are intended to contribute to St. Joseph’s goal of providing a full continuum of care for its patients, with services provided at different levels for a medically-appropriate and cost- effective outcome. St. Joseph’s anticipates that the patient using the skilled nursing (also called “subacute care”) unit would be one coming from the acute care setting and requiring

       
       

       
       

       less-acute care, but a more intensive level of care and a shorter length of stay than generally offered in a typical nursing home.

   13. All ancillary services and therapies will be available at the hospital seven days a week. Rehabilitative services, which are critical to the patient likely to use the skilled nursing beds, include physical therapy, occupational therapy, speech and language therapy, and recreation therapy.

       Need Analysis/Impact on Existing Programs

       
       

   14. Virtually all of the referrals to the proposed new beds will come from within St. Joseph’s. This is the experience of the new 19 bed unit. The hospital’s doctors and their patients prefer to not transfer to an outside facility and they plan in advance, as part of their treatment goals, that the subacute rehabilitative phase of treatment will be in St. Joseph’s own skilled nursing unit. The multi-discipline health care team evaluates and identifies patients who will benefit from such treatment; patients are not automatically shifted down to the unit.

   15. The existing unit enjoys a near-100 percent occupancy rate and has a waiting list for patients. Sometimes patients are held in an acute care bed while awaiting transfer to a vacant bed in the skilled nursing unit. This is an inappropriate use of the acute care bed.

       
       

       
       

   16. Few, if any patients would come from other hospitals. Since many hospitals now have their own skilled nursing units, there is little exchange of patients. In the experience of St. Joseph’s staff, other hospitals generally fill their own units from within in their own “continuum of care” system.

   17. John Knox Village is not an alternative for patients who need to “step-down” from acute to subacute care. John Knox is eleven miles from St. Joseph’s and does not provide the intensity of care that is offered in the hospital-based skilled nursing unit.

   18. There are subacute care, or skilled nursing care, beds in Hillsborough County in free-standing, not hospital-based units. These alternative facilities are not all fully occupied and some offer similar services and treat patients comparable to those treated in the hospital-based units.

   19. Evidence that the free-standing skilled nursing facilities are not appropriate alternatives to St. Joseph’s new beds was largely anecdotal. Although Dr. Wasylik, St. Joseph’s chief of orthopedics, is generally familiar with facilities in which he has patients, his observation that transfer of patients from St. Joseph’s would not be appropriate is based on his concern that the “continuity of care” would be disrupted. In other words, even before surgery and admission to an acute care

       
       

       
       

       bed, a “critical pathway” in the patient’s rehabilitation is developed. Another facility might have a different pathway that would disrupt the rehabilitative process. Better continuity of care, in Wasylik’s view, translates into quicker, and thereby more cost-effective, recovery.

       Financial Considerations

       
       

   20. Although the agency found some inconsistencies in the financial data included in St. Joseph’s application, those inconsistencies affected only the scoring of the application in a competitive batching cycle. The agency witness who provided financial review of the application conceded there was no problem with funding the project, and due to the small size of the project in relation to the size of St. Joseph’s, the project would not have a significant impact on the cost of other services provided by St. Joseph’s.

   21. The proposed project would generate a positive financial return for St. Joseph’s. In the proforma financial statement included with the application, the hospital used an occupancy rate of 74%; the actual occupancy rate experienced in the new 19 bed unit is higher.

   22. Some of the problems the agency found when reviewing St. Joseph’s application were adequately explained at hearing. For example, the actual cost of the project is less than what the

       
       

       
       

       agency found in the financial projections in the application. Also, if, as the agency contends, St. Joseph’s has over-stated its projection of Medicaid patients, a lower Medicaid utilization rate will actually inure to the benefit of St. Joseph’s, since the Medicaid reimbursement rate is lower than for other payor sources.

   23. While not obvious on the face of the application, the financial assumptions provided by St. Joseph’s were sufficient to extrapolate valid projected salary expenses in the second year of operation.

   24. In summary, a CON application, by necessity, includes estimates and projections of expenses and revenue generated by the proposed project. St. Joseph’s now has the experience, which it did not have when the application was prepared, of the actual expenses and revenue from its 19 bed unit. That actual experience helps validate its prediction of financial feasibility for the proposed 24 beds.

       Architectural Issues

       
       

   25. At hearing, St. Joseph’s clarified its intent to not delicense nor relocate acute care beds to make room for the proposed 24 bed skilled nursing unit. Nor does it intend to “phase in” the skilled nursing beds, if approved. Neither of these intentions is clear from the face of the application and

       
       

       
       

       the architectural review by the agency raised questions on these issues.

   26. The questions affected St. Joseph’s overall standing in a competitive review process, but are not serious enough to foreclose approval if the application is considered on its own merit. The application states that the new beds would be co- located with the existing 19 beds. But if there is not sufficient room, as long as St. Joseph’s can accomplish the project at or below the approved project cost, and as long as St. Joseph’s obtains agency approval for placing the beds elsewhere (which approval is routinely granted), the precise location of the beds within St. Joseph’s facility is not a problem. The beds may not, nor are they intended to be, co-mingled with acute care beds in the hospital.

   27. Upon construction, the 24 beds will meet all of the licensure, building code and other regulations applicable to a skilled nursing unit within an acute care hospital.

       Balancing the Criteria and Summary of Findings

       
       

   28. There is little dispute that St. Joseph’s has the financial resources to complete the approved project and to operate it successfully. Nor is quality of care, either in the existing facility and projected in the future, an issue of

       
       

       
       

       dispute. The questions raised in the financial review and architectural review are not impediments to approval.

   29. There are two significant problems with St. Joseph’s proposal. St. Joseph’s serves the entire planning district, and the impact of new beds must be considered in that district-wide health-planning perspective. St. Joseph’s generates enough patients from within its own hospital to fill the beds close to capacity. Other facilities providing similar services in the district are not at full capacity. The possibility of those existing facilities serving as an alternative to new beds was not adequately explored by St. Joseph’s, but was rejected out of an abundance of pride in its own fine services, or physician and patient loyalty. Patient and physician preference does impact “real world” utilization of health care facilities but cannot drive the health planning decisions that are made in the CON process.

   30. The second, and most significant impediment to St. Joseph’s application is that only one bed remains in the fixed need pool established for the relevant planning horizon. As discussed below, Tarpon Springs did not invalidate that fixed need pool. St. Joseph’s application does not reflect a willingness to accept any fewer than the requested beds, much

       
       

       
       

       less an award of only one single bed. (See, Respondent’s Exhibit 12, CON application, p. 34)

       CONCLUSIONS OF LAW

       
       

   31. The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to Sections 120.57(1), Florida Statutes and 408.039(5), Florida Statutes.

   32. As applicant, St. Joseph’s has the burden to establish, by competent substantial evidence, its entitlement to the CON which it seeks. Florida Dept. of Transportation v. J.W.C, Inc.,

       396 So.2d 778 (Fla. 1st DCA 1981). Specifically, it must prove it meets the criteria in section 408.035, Florida Statutes and rule 59C-1.030, Florida Administrative Code based on a balanced consideration of all criteria contained therein. NME Hospitals, Inc. v. Dept. of Health and Rehabilitative Services, 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). With a couple of critical exceptions, those criteria have been met.

   33. Section 408.035, Florida Statutes includes several criteria related to the availability and appropriateness of alternatives to the applicant’s proposed new services. Those alternatives exist in the relevant planning district and St. Joseph’s did not sufficiently explain why they were not

       
       

       
       

       appropriate. Tarpon Springs acknowledges that some skilled nursing units in free-standing facilities may be alternatives for patients who do not require access to immediate emergency care.

   34. The disposition of this case, however, turns primarily on a legal interpretation of the decisions in Tarpon Springs. Contrary to St. Joseph’s claim, that case did not invalidate the fixed need pool that was established for the planning horizon at issue.

   35. Citing liberally from James W. York’s final order in DOAH case nos. 94-0958RU/94-1165RU, the appellate court in Tarpon Springs affirmed his determination of the invalidity of rule 59C- 1.036(1), Florida Administrative Code, because it requires comparative review of applications for hospital-based skilled nursing beds and other nursing home beds in a single batching cycle for a planning district.

   36. The Division of Administrative Hearings’ final order and the appellate opinion reference only rule 59C-1.306(1), Florida Administrative Code, which describes the “agency goal” and summarizes the process for review of community nursing home bed applications. This subsection, now invalid, specifically states that hospital-based skilled nursing beds are included among the community nursing home beds that are subject to the entire rule 59C-1.036, Florida Administrative Code, including

       
       

       
       

       obviously, the detailed need methodology described in subsection (2).

   37. Whatever the impact of invalidating subsection (1) might have prospectively on subsection (2), it is too late for St. Joseph’s to complain of the methodology used in establishing the fixed need pool published on April 15, 1994.

   38. “Fixed need pool” is described in rule 59C-1.002(21), Florida Administrative Code as follows:

       (21) “Fixed Need Pool” means the identified numerical need, as published in the Florida Administrative Weekly, for new beds or services for the applicable planning horizon established by the agency in accordance with need methodologies which are in effect by rule at the time of publication of the fixed need pools for the applicable batching cycle. (emphasis added)

   39. Publication of the fixed need pool is addressed, in pertinent part, in rule 59C-1.008(2), Florida Administrative Code as follows:

       1. Fixed Need Pools.

          1. Publication of Fixed Need Pools.

       1. The agency shall publish in the Florida Administrative Weekly at least 15 days prior to the letter of intent deadline for a particular batching cycle the fixed need pools for the applicable planning horizon specified for each service in applicable agency rules contained in 59C- 1.031 to 59C-1.044, F.A.C.

       2. Any person who identifies an error in the fixed need pool numbers must advise the agency of the error within 10 days of

          
          

          
          

          publication of the number. If the agency concurs in the error, the fixed need pool number will be adjusted and republished in the first available edition of the Florida Administrative Weekly. Failure to notify the agency of the error during this time period will result in no adjustment to the fixed need pool number for that batching cycle.

          Any other adjustments will be made in the first cycle subsequent to identification of an error, including those errors identified through administrative hearings or final judicial review.

       3. Except as provided in subparagraph

       2. above, the batching cycle specific fixed need pools shall not be changed or adjusted in the future regardless of any future changes in need methodologies, population estimates, bed inventories, or other factors which would lead to different projections of need, if retroactively applied. (emphasis added)

   40. Persons are thus given an opportunity to challenge the published need in a given subdistrict at the time of the publication. St. Joseph’s did not take that opportunity. Now, in the unique circumstances of this case, the only common-sense conclusion is that Tarpon Springs affected how the bed pool pie is sliced, but not the size of the pie. By waiting until the other competing applicants had withdrawn, St. Joseph’s effectively avoided review with other non-hospital-based nursing home bed applicants, and St. Joseph’s appropriately presented a de novo application based on statutory and other regulatory criteria. But when St. Joseph’s joined the stipulation which

       
       

       
       

       carved the bed pool pie, it also concurred in a process which left nothing for itself.

   41. In spite of Tarpon Springs, the integrity of the prior published and unchallenged fixed need pool is preserved as mandated by Gulf Court Nursing Center v. Department of Health,

483 So.2d 700 (Fla. 1st DCA 1985), and Gulf Court’s prolix off- spring. See, for example, Central Florida Regional Hospital v. Dept. of Health and Rehabilitative Services, 582 So.2d 1193 (Fla. 5th DCA 1991) which requires that the agency consistently apply the same methodology for all applicants in a batching cycle, even when some were awarded beds through settlement and even though the methodology was based, in part, on an interpretation that was later invalidated as an unpromulgated rule.

RECOMMENDATION

Based on the foregoing, it is hereby, RECOMMENDED:

that the Agency for Health Care Administration enter its final order denying CON number 7750 to St. Joseph’s Hospital, Inc.

DONE and ENTERED in Tallahassee, Leon County, Florida, this 23rd day of January 1997.

MARY CLARK

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 23rd day of January, 1997.

COPIES FURNISHED:

Ivan Wood, Esquire Baker & Hostetler Suite 2000

100 Louisiana Houston, Texas 77002

Steven A. Grigas, Esquire

Agency for Health Care Administration Building 3

2727 Mahan Drive

Tallahassee, Florida 32308-5403

Sam Power, Agency Clerk

Agency for Health Care Administration Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308-5403

Jerome W. Hoffman, Esquire General Counsel

2727 Mahan Drive

Tallahassee, Florida 32308-5403

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this recommended order. Any exceptions to this recommended order must be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-006236CON

Orders for Case No: 94-006236CON