STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SUNCOAST NURSING HOME, LTD., )
)
Petitioner, )
)
vs. ) CASE NO. 96-2418
)
AGENCY FOR HEALTH CARE )
ADMINISTRATION, )
)
Respondent, )
)
and )
) HEALTH CARE AND RETIREMENT ) CORPORATION OF AMERICA, )
)
Intervenor. )
)
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Administrative Law Judge, William J. Kendrick, held a formal hearing in the above-styled case on March 11 and 12, 1997, in Tallahassee, Florida.
For Petitioner: Jonathan S. Grout, Esquire
Peter Lewis, Esquire Goldsmith & Grout, P.A.
307 West Park Avenue Post Office Box 1017
Tallahassee, Florida 32302-1017
For Respondent: Mark Thomas, Esquire
Agency for Health Care Administration Fort Knox Building 3, Suite 3431
2727 Mahan Drive
Tallahassee, Florida 32308-5403
For Intervenor: Alfred W. Clark, Esquire
117 South Gadsden Street, Suite 201 Post Office Box 623
Tallahassee, Florida 32302
At issue is whether petitioner's application for a certificate of need to construct a 97-bed replacement nursing home in Pinellas County, Florida, should be approved.
On or about April 24, 1996, Suncoast Nursing Home, Ltd. (petitioner) filed a petition for formal administrative hearing with the Agency for Health Care Administration (AHCA or Agency) contesting the denial of its application for a certificate of need (CON Action Number 8301) to construct a 97-bed replacement nursing home in Pinellas County, Florida (AHCA District 5, Subdistrict 2). Thereafter, on May 23, 1996, AHCA referred the matter to the Division of Administrative Hearings to conduct a formal hearing pursuant to Sections 120.569 and 120.57(1), Florida Statutes (1995 Supp.), and Health Care and Retirement Corporation of America, the owner and operator of an existing nursing home in Pinellas County, requested and was granted leave
to intervene in opposing the application, subject to proof, at hearing, demonstrating standing.
At hearing, petitioner called, as witnesses: Ashok Dalal; Earle Stanley Barnwell; Robert W. Bell, Sr.; Robert J. Schwartz, accepted as an expert in health care accounting; and Lynne M. Mulder, accepted as an expert in health planning, and certificate of need rules and regulations. Petitioner's exhibits 1A, 1B, and 2 through 5, were received into evidence.
AHCA called Mark Boehmer as a witness, but offered no exhibits. Intervenor called as witness: Milo Bishop, accepted as an expert in health planning; Pamela J. Osborne, accepted as an expert in nursing home administration; and Joseph D. Mitchell, accepted as an expert in health care accounting and Medicaid reimbursement. Intervenor's exhibits 1 through 3, 5 through 12, and 14 were received into evidence.1
The transcript of the hearing was filed April 4, 1997, and the parties were accorded, at their request, until April 30, 1997, to file proposed recommended orders. The parties elected to file such proposals, and they have been duly considered in the preparation of this recommended order.
The Suncoast proposal
Suncoast Nursing Home, Ltd. (Suncoast) has filed an application for a certificate of need (CON) to construct a 97- bed nursing home to replace two older nursing homes in Pinellas County (AHCA District 5, Subdistrict 2), Florida. When completed, the proposed facility would also include a 23-bed assisted living facility component for a total complement of 120 beds.
The nursing homes to be replaced are Suncoast Nursing Home (SNH), a 59-bed facility, and Victoria Martin Nursing Home (Victoria Martin), a 38-bed facility. Both facilities are located in south St. Petersburg, Pinellas County, Florida, and Suncoast is the current licensee for both facilities.
SNH, at 40 years of age, is one of the oldest nursing homes in the area and has problems associated with an aged facility. It has one private room, one semi-private room and fourteen 4-bed wards, none of which comply with current resident space requirements and offer limited space for residents' needs and privacy. As built, the nursing station is not strategically placed to observe and supervise residents, the shower rooms open directly into the hallway, and many residents have no toilet facilities in their room. Due to space limitations, the activity area doubles as the dining room, and resident therapy
rooms, lounge areas and visitation areas cannot be accommodated. Open space is likewise limited, and consists of an asphalt area along one side of the building, without trees or other landscaping.
In addition to the limited amenities available at the SNH facility dictated by its size and age, the character of the neighborhood around the facility has suffered a significant decline over the past few years. Currently, street crimes, including theft and drug sales, are prevalent in the area. As a result, an 8 foot chain link fence now surrounds the facility; however, thefts still occur on the property and the environment severely limits residents' outdoor access.
Victoria Martin, located about two miles west of SNH, is in a better neighborhood than SNH. Although also one of the oldest facilities in the area, Victoria Martin has more adequate space, except for activities and dining, kitchen facilities and private areas for residents and staff. Moreover, its two private rooms, eight semi-private rooms and five 4-bed wards are of adequate size. However, as with SNH, Victoria Martin's site is small and outdoor recreational opportunities for residents are limited.2
Although SNH and Victoria Martin are older facilities, both have a history of superior licensure ratings; however, SNH's most recent survey resulted in the facility receiving a
standard license. Moreover, the parties have stipulated that Suncoast provides quality care for its residents and that its qualifications in this regard are not at issue in this proceeding.
The replacement facility proposed by Suncoast will be constructed on a 4.856 acre parcel owned by the applicant and located approximately 5 miles north of the current nursing homes, just east of the intersection of I-275 and 54th Avenue North, Pinellas County, Florida. Total cost for the 120-bed facility will be approximately $5 million, with $4 million allocated to the nursing portion. The site for the project, acquired at a cost of approximately $500,000, is unencumbered.
The proposed building, a one story fire resistant precast concrete and masonry structure of approximately 47,934 square feet, will include the 97-bed skilled nursing home at issue in this proceeding, as well as 23 beds for assisted living. The nursing home portion consists of five private rooms, with 196 net square feet and full baths, and forty-six semi-private rooms, with 276 square feet and half baths. The facility includes physical, recreational and occupational therapy areas; adequate ancillary support areas and services, including dining, kitchen and laundry; and resident areas and services, including a barber/beauty shop, card room, and activity and lounge areas.
Intervenor Health Care and Retirement Corporation of America
Intervenor, Health Care and Retirement Corporation of America (HCR), is the operator of Rosedale Manor (Rosedale), a 189-bed nursing home located about or slightly less than one mile west of the proposed facility, at 3479 54th Avenue North, St. Petersburg, Pinellas County, Florida. The Rosedale facility is 31 years old, includes 4-bed wards, and currently holds a superior license.
To demonstrate that Rosedale would suffer an adverse impact through the siting of the proposed project, HCR offered the testimony of Pamela J. Osborne, the administrator of Rosedale. Essentially, Ms. Osborne was of the opinion that prospective nursing home residents, and possibly some of Rosedale's current residents, would be attracted to a new facility with modern amenities, as opposed to the 31-year old Rosedale facility, for many of the same reasons that Suncoast proposed a new replacement facility, and that such attraction would result in reduced revenues for Rosedale.
To demonstrate the impact a new facility would have on Rosedale, Ms. Osborne testified that she has observed a reduction in admissions over the last two years, with the creation of some hospital based skilled nursing unit (SNU) beds and the opening of the Arbor Nursing Home, a 120-bed facility
licensed October 10, 1995. According to Ms. Osborne, Rosedale averaged 180 admissions during calendar year 1994, 151 admissions in 1995, and "most recently" (apparently meaning 1996) 148 admissions. That drop in census, Ms. Osborne opined, translated to a 22 percent decline in revenues. Currently, however, Rosedale has apparently reversed that trend, since it presently averages 13 to 15 admissions per month.
Based on such experience, Ms. Osborne's opinion as to the impact the proposed facility would have on Rosedale's admissions was as follows:
I would think it would be dramatic, not only reducing at least by 50 percent what I myself am able to admit during a 30-day period, but I would also be fearful for the residents that reside there. To relocate them within a mile would not disturb their family's patterns as far as visiting or anything else.
Everything else being equal, the physical plant comparison of a brand-new facility compared to my 30-year-old building would be dramatic. [Tr., at page 266].
On the impact such loss of admissions would have on revenues, Ms. Osborne stated:
On the presumption that I lost half of my new admits during the month and on the same assumption that they would be Medicaid . . . [and not higher paying sources such as Medicare or private pay] it would impact probably 16 to $17,000 a month.
Ms. Osborne further observed that she didn't "believe" she could reduce expenses at Rosedale to address the reduction in revenues.
That Rosedale experienced a decline in admissions and revenues the last two years is supported by its occupancy rates. For the period of January 1995 through June 1995 Rosedale's occupancy rate was 93.96 percent; during the period of July 1995 through December 1995 its occupancy rate was 86.64 percent; and during the period of January 1996 through June 1996 its occupancy rate was 87.93 percent. However, it is doubtful that the decline in occupancy was attributable to the Arbor facility opening. In reaching such conclusion it is observed that Arbor was licensed in October 1995 and, with less than one year of operation, reported an 84 percent occupancy rate for the period of January 1996 through June 1996. During the same period, Rosedale reported an increase in occupancy rate; hardly direct proof of serious impact. As for any impact resulting from the hospital based SNU beds, the proof was simply not insightful or compelling. Notably, the location of the hospitals was not noted, the number of SNU beds was not noted, and there was no proof that the SNU beds offered services similar to Rosedale.
While it is possible that the Arbor opening, as well as the creation of hospital based SNU beds, may have had some impact on Rosedale, the proof offered in this regard was not
compelling. Rather, the more likely explanation for Rosedale's declining census is the declining utilization experienced by nursing homes in the service area between 1993 and 1996. In this regard, the proof demonstrates that in 1993 there were 542,000 patient days in the service area, but by 1996 the number had fallen to 519,000 patient days. This calculates a net loss or reduction in use equivalent to 126 beds, and is consistent with a net loss of the elderly population in the service area.
Notwithstanding the conclusion that the proof failed to support the conclusion advanced by Ms. Osborne regarding the impact of Arbor or the hospital based SNU beds, the opening of the proposed facility in such close proximity to Rosedale will certainly have some impact on its admissions. Ms. Osborne's estimate of a loss of half her admissions was not, however, shown to have any rational support and is rejected. Notably, on opening the new facility Suncoast proposes to transfer its existing residents from the old facilities, and reasonably expects an initial census of 88 residents. At fill-up, calculated at a 94.85 occupancy rate, Suncoast anticipates 92 residents, or the admission of 4 new net admissions during its first year of operation. While its residents will certainly change over time, there should be no dramatic impact to other facilities upon its opening.
In sum, it must be concluded that the record lacks any compelling or persuasive proof that would allow one to quantify, with any sense of confidence, an impact to Rosedale from the opening of the proposed facility. Moreover, and perhaps most fundamental, Rosedale failed to demonstrate that any loss of revenue it might suffer would substantially adversely affect any of its existing programs.3
Review criteria
Pertinent to this case, Section 408.035, Florida Statutes, and Rules 59C-1.030 and 59C-1.036, Florida Administrative Code, establish the criteria which must be considered in evaluating an application for a certificate of need to construct a new, albeit a replacement, nursing home. Commonly, however, there is no dispute regarding the applicant's satisfaction of, or ability to satisfy, most statutory or rule criteria. Such is the circumstance of the instant case.
Here, the parties agree the following statutory criteria are not at issue or are not relevant to the proposed project: subsections 408.035(1)(c), (e), (f), (g), (h) [Except, Rosedale contests whether the applicant has the available funds for capital and operating expenditures, and for project accomplishment and operation.], (j), (k), (m), (n), and (o), and subsection 408.035(2)(e). Moreover, except to the extent the issue may be intertwined with the criteria established by
subsections 408.035(1)(a), (b), the portion of (h) heretofore noted, and (i), and subsections 408.305(2)(a)-(d), the opponents have not contested, through question or contrary proof, the applicant's satisfaction of, or the lack of relevance of, the criteria established by subsection 408.035(1)(d) and (l), or Rules 59C-1.030 and 59C-1.036, Florida Administrative Code.
Consequently, since the applicant's proof, including its application and omissions response, persuasively demonstrates that it satisfies or has the ability to satisfy such criteria, or they are not relevant to its proposal, it is unnecessary, as no useful purpose would be served, to indulge in further fact finding regarding those statutory or rule criteria. The matters placed in issue by the parties are, however, addressed in the following pages.
Consistency with the district plan and state plan. Section 408.035(1)(a), Florida Statutes
The District 5 local plan provides the following considerations.:
Preference should be given to applicants for new or additional beds who commit to the provision of service to Medicaid patients. These numbers should approximate both the percentage of persons below 125 [percent] of the Federal Poverty Level and the average number of Medicaid residents in existing nursing homes in the county.
Preference should be given to applicants who propose specialized services (e.g. adult day care) to meet identified unmet needs.
Preference should be given to applicants who demonstrate a past practice and future intent to serve HIV infected persons.
The subject application is consistent with, and furthers the needs identified in the district plan. First, the applicant has agreed to a condition of 55.31 percent Medicaid utilization on its nursing beds. Such is consistent with the Medicaid utilization rate in the district, and the applicant's history of service to Medicaid residents renders it most likely that such rate will be achieved or exceeded. Second, the applicant has historically provided services to HIV/AIDS patients at its existing facility, and will continue to do so at the new facility. Finally, inpatient hospice services and respite care, although no adult day care, will also be provided.
The state health plan provides the following preferences relating to nursing home services:
Preference shall be given to an applicant proposing to locate a nursing home in areas within the subdistrict with occupancy rates exceeding 90 percent.
Preference shall be given to an applicant who proposes to serve some Medicaid residents in proportion to the average subdistrict-wide percentage of the nursing homes in the same subdistrict. Exceptions shall be considered for applicants who propose to exclusively serve persons with similar ethnic and cultural
backgrounds, or propose the development of multi-level care systems.
Preference shall be given to an applicant proposing to provide specialized services to special care residents including AIDS residents, Alzheimer's residents, and the mentally ill.
Preference shall be given to an applicant proposing to provide a continuum of services to community residents including, but not limited to, respite care and adult day care.
Preference shall be given to an applicant proposing to construct facilities which provide maximum resident comfort and quality of care. These special features may include, but are not limited to, larger rooms, individual room temperature controls, visitors' rooms, recreation rooms, outside landscaped recreation areas, physical therapy rooms and equipment, and staff lounges.
Preference shall be given to applicants proposing to provide innovative therapeutic programs which have been proven effective in enhancing the residents' physical and mental functional level and emphasize restorative care.
Preference shall be given to an applicant proposing charges which do not exceed the highest Medicaid per diem rate in the subdistrict. Exceptions shall be considered for facilities proposing to serve upper income residents.
Preference shall be given to an applicant with a record of providing superior resident care programs in existing facilities in Florida or other states as determined by the department. The evaluation of existing facilities shall consider, but not be limited to, current ratings of licensure facilities located in Florida.
Preference shall be given to an applicant proposing staffing levels which exceed the minimum staffing standards contained in licensure administrative rules.
Applicants proposing higher ratios of RN and LPNs to residents than other applicants shall be given preference.
Preference shall be given to an applicant who will use professionals from a variety of disciplines to meet the resident needs for social services, specialized therapies, nutrition, recreation activities, and spiritual guidance. These professionals shall include physical therapists, mental health nurses, and social workers.
Preference shall be given to an applicant who provides documentation how they will ensure residents' rights, and residents' privacy, use resident councils, and implement a well designed quality assurance and discharge planning program.
Preference shall be given to an applicant proposing lower administrative costs and higher resident care costs compared to the average nursing home in the district.
The subject application is also consistent with, and furthers the needs identified in the state health plan. In this regard, the proof demonstrates that Preference One is met because the existing nursing homes within the service area of the proposed facility reported a 6 month occupancy rate (January through June 1995) exceeding 90 percent. Preference Two is met since the applicant has committed to 55.31 percent Medicaid utilization on its nursing beds, which is consistent with the Medicaid occupancy for the subdistrict. Preference Three is met since the applicant will provide specialized services, including services to HIV/Aids residents and services to hospice patients. Preference Four is satisfied since the applicant will
be able to afford a continuum of care with the available assisted living beds. Moreover, the applicant will provide respite, although not adult day care. Preference Five is met since, as heretofore noted, the proposed facility is designed to maximize resident comfort and quality of care. Special features include large semi-private and private rooms, activity/recreation rooms, visitors' rooms, space for therapy services, and outside recreation areas. Moreover, the features proposed for the new facility are far superior to those presently available in the nursing homes to be replaced.
Preference Six is satisfied through the applicant's staff programs dealing with combative residents, social intervention, drug intervention and violent behavior, as well as its acceptance and care for the behaviorally compromised.
The proposed project also meets the standard established by Preference Seven. As of January 1, 1996, the highest Medicaid rate in District 5 was $109.04. Inflating that figure at five percent per year results in Medicaid rates of
$120.22 for the period ending December 31, 1998, and $126.23 for the period ending December 31, 1999. These rates are higher than the applicant's proposed rates of $92.08 and $109.95 for the same time periods.4 Preference Eight is met since SNH and Victoria Martin have a history of superior licenses, although SNH's most recent survey resulted in a standard license
effective February 1, 1996. Preference Nine is met since the facility staffing will exceed minimum standards contained in licensure administrative rules. Preference Ten is met since the applicant proposes a variety of disciplines, through resident staff and contract, to address the residents' therapeutic, nutritional, recreational and spiritual needs, Preference Eleven is met through the applicant's provision of a detailed resident rights and privacy policy, resident council, quality assurance program and discharge planning. Finally, Preference Twelve is met in that, at year two of operations, its resident care costs per resident per day are projected to be $70.56, compared to the district average of $68.49, and its administrative costs will be below the projected average for the district.
The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services in the service district.
Section 408.035(1)(b), Florida Statutes.
As a touchstone for assessing need within a service district, the agency has established a bed-need methodology that must normally be satisfied before a favorable need determination will be found. That need methodology is codified at Rule 59C- 1.036, Florida Administrative Code.
Here, the applicant is currently filling part of the need in the subdistrict, and does not seek any beds in excess of
those currently authorized. Consequently, there being no net change in the licensed bed capacity of the subdistrict and, given the applicant's vested right to operate its existing beds, numeric need as calculated by the Agency's rule methodology is not a relevant consideration in assessing the merits of the pending application. Rather, the pertinent inquiry is whether the replacement of the aged facilities currently operated by the applicant with a new facility, as proposed, will have a positive impact on availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of nursing beds in the subdistrict.
In addressing these considerations, the applicant offered proof, which is credited, that the age, physical limitations and location of the current facilities, as heretofore noted, detract from the desirability or demand for those beds and, consequently, negatively impact the considerations contemplated by this criterion. The replacement of the aged facilities, with a new facility meeting current licensure requirements, would have a positive influence on the provision of health care services. Moreover, the combined facility would offer certain efficiencies in scale, which would permit savings in supervisory staff, heating and cooling costs, and duplicative kitchen and laundry functions.5 Finally, by meeting current licensure requirements, the new facility, with
its modern resident rooms, dining rooms, recreation areas, therapy areas, outdoor areas, and kitchen and laundry facilities, could only serve to increase the quality of life or appropriateness of resident care.
Contrasted with the proof offered by the applicant, HCR offered proof through its health planner that, based on census experience and projected population changes in the service area (defined by a five mile radius around the proposed site) there was no need for a new facility or, apparently, the beds provided by the applicant's existing nursing homes, and that the existing facilities in the service area have sufficient capacity to address resident needs.
In this regard, HCR's proof demonstrated that from 1993 through 1996, patient days in the area decreased from 542,000 to 519,000. This calculated a net loss or reduction in use equivalent to 126 beds, and is consistent with decreasing occupancy rates, which for calendar year 1995 were 87.54 percent in the service area. Moreover, the census data within the area for 1995 through 2000, projects a loss of 1,655 people age 65 through 74, and 390 people over age 75, and, therefore, a reasonable expectation of decreased utilization or need in the future.
According to HCR's planner, the retirement area for the elderly is shifting to north Pinellas County, and the five
mile service area of the proposed facility is undergoing a transition from an elderly population to a younger population. Therefore, he concludes that the northern area would be better suited demographically for the proposed beds and that if located there, apparently, they would benefit availability, access, adequacy and utilization of nursing home beds in the subdistrict.
The proof offered on behalf of both the applicant and HCR was insightful; however, given the circumstances of this case, that offered by the applicant was most compelling. In so concluding, it must not be overlooked that among the beds currently existing in the service area are those presently operated by the applicant at two aged nursing homes. Clearly, their replacement with a modern facility would have a positive impact on availability, quality of care, efficiency, appropriateness, accessibility, utilization and adequacy, when measured against the present inventory in the service area. Moreover, the demographics relied on by HRC's expert did not consider the special needs of those under age 65 in the subdistrict and which are served by SNH and Victoria Martin. According to the proof, approximately one-third of their current residents are under age 65. Finally, it is observed that the criterion provides for an assessment of "[t]he availability, quality of care, efficiency, appropriateness, accessibility,
extent of utilization, and adequacy of like and existing health care services and hospices in the service district of the applicant," not a service area. [Emphasis added.] Section 408.035(1)(b), Florida Statutes. Here, the "district" is District 5 (Pasco and Pinellas Counties) and, for purposes of determining need, the "subdistrict" is Subdistrict 2 (Pinellas County). Section 408.032(5), Florida Statutes, and Rule 59C- 2.200, Florida Administrative Code. Consequently, the
discussion regarding service area may not be wholly relevant to this proposal. Notwithstanding, a positive impact in the more narrowly defined service area has been demonstrated, as well as a positive benefit to the inventory of the subdistrict, as contemplated by the statute and the rule.
The availability of funds for capital and operating expenditures, for project accomplishment and operation, and the immediate and long-term financial feasibility of
the proposal. Section 408.035(1)(h) and(i), Florida Statutes.
The applicant, Suncoast Nursing Home, Ltd., is a wholly owned subsidiary of NewCare Health Corporation. NewCare currently operates ten nursing homes, one assisted living facility, and one retirement complex in the states of Georgia and Florida.
NewCare has committed to fund the equity contribution necessary to secure FHA financing for the proposed project, which is estimated at $500,000 to $700,000. To date, NewCare
has already advanced Suncoast over $600,000, which was used to purchase the 4.856 acre project site and to pay off a Medicaid recapture debt with AHCA for prior periods. Moreover, NewCare has on hand and unencumbered approximately $400,000 in additional funds for equity contribution.
Health Properties Capital Group, LLC, has committed to provide the construction and permanent financing for the project. The total would be approximately $5 million for the 120-bed project, with approximately $4 million for the nursing home segment, with permanent financing at 8 to 8 1/4 percent for
40 years. Health Properties has also committed to advance startup expenses, as necessary.
Here, assuming positive cash flow,6 the proof demonstrates that Suncoast has the available resources for capital and operating expenditures, as well as for project accomplishment and operation. The only significant issue raised is the long term financial feasibility of the project.
To assess the financial feasibility of the project, the applicant assumes that it will achieve 33,400 patient days in its first year of operation and 33,580 patient days in its second year of operation, with a patient mix as follows: private pay-private (.49 percent), private pay-semiprivate (4.51 percent), Medicaid (81 percent), Medicare (12.00 percent), and hospice (2.00 percent). Such assumptions are reasonable.
For the first year of operation, the applicant projects routine revenues, based on charge rates discussed infra, and ancillary revenues for the nursing home to generate
$3,998,550 which, reduced by nursing home costs of $4,212,940, would generate a net loss of $214,390. For the second year of operation, the applicant projects gross revenues for the nursing home to generate $4,582,580 which, reduced by nursing home costs of $4,424,910, would generate a net income of $157,670.
The routine revenue for the nursing home included in its gross revenue is based on the projected patient days in proportion to the patient mix. The daily charge rates used to calculate that revenue for year one are as follows: private pay at $104.76, semi-private pay at $84.83, Medicaid at $92.08, Medicare at $323.88, and hospice at $92.05. For year two, the daily charge rates were as follows: private pay at $107.89, semi-private at $88.08, Medicaid at $109.95, Medicare at
$338.43, and hospice at $110.00.
Here, as previously noted, the applicant's assumed patient mix and patient days were found reasonable and, but for its Medicaid rate, there is either no dispute or no persuasive dispute regarding its projected revenues and expenses. With regard to the applicant's proposed Medicaid reimbursement rate (charge rate), HCR contends it was erroneously calculated and therefore impermissibly high. Properly calculated, and applied
to the projected Medicaid census7 would, according to HCR, substantially reduce projected revenues and demonstrate that the project is not financially feasible.
Medicaid reimbursement rates are calculated under the Title XIX Long Term Care Reimbursement Plan (Plan), which provides significant distinctions between "new providers" and "existing providers." The Plan is silent, or does not specifically address, the treatment of facilities, such as the proposed project, where two existing providers are replaced by a new facility.
The reimbursement rate for an "existing provider," an existing nursing home with a cost history, are typically set on a perspective basis which, simply stated, means the rate is based on the prior year cost (as reflected in the cost report filed with the Medicaid agency) compounded by an inflation factor. The new rate is, however, subject to what is known as a "target limitation," which restricts the amount of increase in reimbursement from one period to the next. The limitation typically ranges from one to two percent on a semiannual basis.
Conversely, a "new provider,” one who has no cost history, is initially reimbursed based upon budgets (a budgeted rate) submitted for the new facility, and the initial period (rate) is ultimately settled (adjusted) based on the actual cost incurred for the initial period. Because they have no
reimbursement history, "new providers" are not subject to the "target limitation," but are subject to "new provider ceilings," which limit the maximum reimbursement a "new provider" can receive at the outset of its operations.
Here, the proof demonstrated that Suncoast projected its Medicaid reimbursement rate for its first year of operation as if it were an "existing provider," based on the prior cost of the 59-bed SNH, and applied the "target limitation." For the second year of operation, Suncoast calculated a reimbursement rate based on the actual operation of the 97-bed facility, and applied the "new provider ceiling," essentially treating the combined facility as a "new facility."
As to the proper treatment of Suncoast (as a "new provider," "existing provider," or some combination thereof) under the Plan, the proof is somewhat conflicting. Mr. Schwartz, the applicant's health care accountant, related a conversation he had with John Owens, administrator of the reimbursement section of AHCA at the time, who Mr. Schwartz testified suggested the approach he adopted in projecting the proposed reimbursement rates. Due to the lack of clear guidance in the Plan, Mr. Schwartz accepted the approach, as reasonable. Mr. Hughes, currently administrator of AHCA's reimbursement section, testified by deposition that by bringing two providers together, Suncoast would not be considered a "new provider"
under the Plan and would continue to be reimbursed as an "existing provider."
Considering the proof, it is most likely that Suncoast would be treated as an "existing provider" and subject to the "target limitations" of the Plan. It is simply not logical to treat it as an "existing provider" for its first year of operation, subject to the "target limitations," and as a "new provider" its second year of operation, subject to the "new provider ceiling" and not the "target limitations." In sum, Suncoast is either an "existing provider" or a "new provider" at its inception.
While it has been concluded that Suncoast's Medicaid reimbursement rate should be calculated as an existing provider, it does not, for reasons discussed infra, affect the ultimate conclusions drawn regarding the financial feasibility of the project.
To address the impact on financial feasibility, occasioned by treatment as an existing provider, the applicant recalculated its Medicaid reimbursement rates based on a weighted average of the target limitation from SNH and Victoria Martin. Suncoast then compared the new rates with the rates used in the application to access any change the recalculation would have on revenues. As calculated by Suncoast, the new rates would increase income for year one by $199,082, and
decrease income for year two by $88,988.8
While the methodology employed by Suncoast to compute the target limitations is sound, the actual rate that would be paid would be the lower of the target limitation or the inflated per diem rate indicated in the application. Here, that would be the target limitation, and had the correct limitation been applied revenues for the second year of operation would have been reduced by $176,000, resulting in a net loss for the nursing home operation of $18,330. For the complete facility, including the 23-bed ALF, such revenue loss would reduce the projected net income of $182,320 to a net income of $6,320.
The Reimbursement Plan also contains a "usual and customary charge limitation" (UCC limitation) which provides that Medicaid will not pay a per diem reimbursement rate which would exceed the per diem revenues for non-Medicaid and non- Medicare patients. This limitation applies to new and existing providers, although the methodology for computing the limitation is different for the two.
It is evident from a review of the projected calendar year 1998 and calendar year 1999 revenues contained on Schedule
7 of the Suncoast response to admissions [Petitioner's exhibit 1B), that Suncoast's projected Medicaid per diem rate exceeds the per diem received from non-Medicaid and non-Medicare sources. If calculated for calendar year 1998, the UCC
limitation would be $89.85, while the projected Medicaid per diem is $92.08. For calendar year 1999, the UCC limitation would be $106.39, while the projected Medicaid per diem is
$109.95.9
Inflating the UCC limitation calculated for calendar year 1998, as a limitation on the Medicaid reimbursement rate for calendar year 1999, would result in a decrease in Medicaid revenues of $424,366. Such reduction in Medicaid revenues for year two would result in a net loss of $266,696 for nursing home operations, as opposed to the net income of $157,670 stated in the application. For the project as a whole, the net loss would be $242,046, as opposed to the net income of $182,320 stated in the application.10
Notwithstanding that Suncoast projected its revenues and expenses in its pro formas based on a calendar year, it contended at hearing that, if it is to be considered an "existing provider," any calculation of a UCC limitation must take into account the fact that its Medicaid cost report, upon which reimbursement is based, is not filed on a calendar year basis, but on a basis with a fiscal year ending August 31. However, Suncoast offered no calculation or projection, and did not explain or demonstrate how the use of a 12-month period from September 1997 through August 1998 would cause a substantial difference in the UCC limitation, compared to the use of the 12-
month period from January through December 1998, such that a positive income would be expected for the second year of operation. Indeed, considering the assumptions on which the non-Medicare and non-Medicaid rates are based in the Suncoast pro forma (current rates inflated to January 1, 1998) it is likely (since the non-Medicare and non-Medicaid rates would be lower in the last four months of 1997) that a UCC limitation calculated as suggested by Suncoast would result in a greater loss than that calculated on a UCC limitation for calendar year 1998, as heretofore discussed.11
Since the UCC limitation, as opposed to the target limitation, results in the lower Medicaid reimbursement rate, it would be the primary limitation imposed in this case. Consequently, the proof demonstrates that, as proposed, the 97- bed nursing portion of the proposed facility would have, at a minimum, a net loss of $266,696 for its second year of operation, and that the complete facility would, at a minimum, have a net loss of $242,046.
Consideration of subsection 408.035(2)(a)-(d) criteria for projects involving a capital expenditure for the provision of new health services to inpatients.
Subsection 408.035(2)(a) requires a consideration "[t]hat less costly, more efficient, or more appropriate alternatives to such inpatient services are not available and the development of such alternatives has been studied and found
not practicable," and subsection 408.035(2)(c) requires "[i]n the case of new construction, that alternatives to new construction, for example, modernization or sharing arrangements, have been considered and have been implemented to the maximum extent practicable."
In large measure, the requirements of these criteria have been previously addressed, and the Suncoast proposal found to be consistent with such requirements. In sum, however, it may be observed that neither the SNH nor Victoria Martin site is conducive to expansion, and the Suncoast site is, because of current demographics, not appropriate for a nursing home. Moreover, the aged facilities do not meet current construction and life safety code requirements for new skilled nursing facilities and, if remodeling were started, the facilities would require extensive and costly renovation. The alternative, to delicense both facilities, is not in the applicant's best interest or the population it serves. Both SNH and Victoria Martin have resident populations which are not readily accepted by other nursing homes. Over one-third of Suncoast's residents are behaviorally compromised. At any time, approximately five residents are HIV/Aids infected. To delicense the facilities would displace these residents. The only practicable alternative is to build a new facility within the service area which would provide adequate food preparation and laundry areas,
adequate room size and storage, appropriate recreation and therapy areas, and the myriad of other amenities that may be accommodated in a modern facility, with sufficient area, to meet the needs of the residents.
Subsection 408.035(2)(b), requires a consideration or conclusion "[t]hat existing impatient facilities providing inpatient services similar to those proposed are being used in an appropriate and efficient manner." Utilization has been previously addressed, and the applicant has been found, on balance, to satisfy this criterion.
Finally, subsection 408.035(2)(d) requires a consideration or observation "[t]hat patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new services." Considering the nature of the residents served by Suncoast, it satisfies this criterion.
The criteria on balance
In evaluating the application at issue in this proceeding, none of the criteria established by Section 408.035, Florida Statutes, and Rules 59C-1.030 and 59C-1.036, Florida Administrative Code, have been overlooked. However, given the facts and circumstances of this case it must be concluded that Suncoast's failure to demonstrate the long-term financial feasibility of its project is dispositive of its application,
and such failure is not outweighed by any other, or combination of any other, criterion.12
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of these proceedings. Section 408.039(5), Florida Statutes.
At issue in this proceeding is whether the application of Suncoast to construct a replacement 97-bed nursing facility in Pinellas County, Florida, should be approved. As the applicant, Suncoast has the burden of demonstrating its entitlement to a certificate of need. Boca Raton Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative
Services, 475 So.2d 260 (Fla. 1st DCA 1985), and Florida Department of Transportation v. J.W.C. Co., 396 So.2d 788 (Fla. 1st DCA 1981). Preliminarily, however, Suncoast has challenged the standing of Intervenor HCR to oppose its application.
Accordingly, a threshold issue in these proceedings is whether HCR has demonstrated standing to oppose Suncoast's application.
Pertinent to the issue of standing, Section 408.039(5)(b), Florida Statutes, provides:
. . . In administrative proceedings challenging the issuance or denial of a certificate of need, only applicants considered by the department in the same batching cycle are entitled to a comparative hearing on their applications. Existing health care facilities may initiate or
intervene in such administrative hearing upon a showing that an established program will be substantially affected by the issuance of a certificate of need to a competing proposed facility or program within the same district. . . .
Here, for the reasons set forth in the findings of fact, HCR failed to demonstrate that "an existing program will be substantially affected" by approval of Suncoast's application. Consequently, HCR has failed to demonstrate its standing to intervene in these proceedings.
Pertinent to an evaluation of Suncoast's application, Section 408.035, Florida Statutes, and Rules 59C-1.030 and 59C- 1.036, Florida Administrative Code, establish the criteria which must be considered in evaluating an application for a certificate of need. Balsam v. Department of Health and
Rehabilitative Services, 486 So.2d 1341 (Fla. 1st DCA 1986), and Department of Health and Rehabilitative Services v. Johnson and Johnson Home Health Care, Inc., 447 So.2d 361 (Fla. 1st DCA 1984). The weight to be accorded each criterion and the consequent balancing of the criteria will vary, however, depending on the facts and circumstances of each case. Collier Medical Center, Inc. v. Department of Health and Rehabilitative
Services, 462 So.2d 83 (Fla. 1st DCA 1985). See, also, Graham v. Estuary Properties, Inc., 399 So.2d 1374 (Fla. 1981). Under the facts and circumstances of this case, as heretofore found,
Suncoast has failed to demonstrate its entitlement to a
certificate of need.
Based on the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that a final order be rendered which:
Dismisses the petition for leave to intervene filed by Health Care and Retirement Corporation of America; and
Denies the application of Suncoast Nursing Home, Ltd., for a certificate of Need, CON Number 8301, to construct a replacement community nursing home facility of 97 beds through the combination of Suncoast Nursing Home, with 59 beds, and Victoria Martin Nursing Home, with 38 beds.
DONE AND ENTERED this 4th day of June, 1997, in Tallahassee, Leon County, Florida.
WILLIAM J. KENDRICK
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32301-3060
(904) 488-9675 SUNCOM 278-9675
Fax Filing (904) 921-6847
Filed with the Clerk of the Division of Administrative Hearings this 4th day of June, 1997.
1/ Intervenor's exhibit 4 was withdrawn. Petitioner objected to the admission into evidence of intervenor's exhibit 13 (the deposition of Frank Hughes) on the grounds of hearsay, and its admission was taken under advisement. Upon reflection, intervenor's exhibit 13 is received into evidence consistent with the provisions of Section 120.57(1)(c), Florida Statutes, and Rule 1.330(a), Florida Rules of Civil Procedure.
2/ If the Suncoast application is approved, Victoria Martin will most likely be renovated and used as an assisted living facility.
3/ In reaching such conclusion, Rosedale's contention that because Suncoast proposes to pay higher salaries than Rosedale, Rosedale would experience additional difficulty recruiting staff or would have to raise its salaries, thus increasing its expenses of operation, has not been overlooked. Such additional cost was not, however, quantified and was not shown, either singularly or in combination with any other factor, to substantially adversely affect any of Rosedale's existing programs.
4/ Obviously, the same conclusion would be drawn if the applicant's rates were reduced, as discussed, infra.
5/ By concluding that certain efficiencies will be gained does not suggest that, through the costs associated with new construction, certain patient care and operational costs of the new facility will not increase.
6/ Health Properties' commitment to finance the project is based on cash flow and whether the project can support the debt. It is not particularly concerned with whether the project shows a net income and, therefore, the project's failure to demonstrate a positive net income would most likely not affect its commitment. [Tr., page 28.] However, absent positive cash flow, Health Properties' commitment is doubtful, as well as the immediate financial feasibility of the project.
7/ The projected Medicaid census is 27,055 patient days in the first year of operation, and 27,201 patient days in the second year of operation.
8/ The recalculated rates include incentives which were not included in the calculations used in Suncoast's application. If those incentives were removed from the rate calculation, the
income Suncoast calculated for year one would be reduced and the income for year two would be further decreased.
9/ The UCC limitation of $89.95 for calendar year 1998, as well as the limitation of $106.39 for calendar year 1999, were the applicant's expert's calculations. [Tr., pages 155-157.] HCR's expert calculated a weighted average UCC rate for calendar year 1988 of $88.30, and for calendar year 1999 of $95.73. [HRC exhibit 12.] If HCR's estimate is accurate, the net loss calculated in paragraph 50 would be significantly greater. AHCA and HCR have, however, apparently accepted the applicant's figures. See, AHCA's and HCR's Joint Recommended Order at paragraph 26. Consequently, for purposes of this order, the applicant's figures have been accepted, without resolving which calculation is the more accurate, and present a best case scenario.
10/ The methodology employed to derive the decrease in Medicaid revenues was the same as that employed by HCR's expert, Mr.
Mitchell, which is credited. See, HCR exhibit 12.
11/ HCR's expert provided a computation for the UCC limitation using the fiscal year ending August 31. To derive that calculation, he used data contained on schedule 7, page 1, for the construction period to derive a weighed average UCC rate for September 1, 1997, through December 31, 1997, (4 months) and data from schedule 7, page 2, to derive a weighed average UCC rate for January 1, 1998, through August 31, 1998. [HCR exhibit 12.] Use of that methodology calculated a reduction of revenues of
$273,650 for the second year of operation, and a net loss for nursing home operations of $115,980 and for the facility as a whole of $91,330. The data contained on schedule 7, page 1, for the construction period is, however, flawed, and the results based on that data to reflect the results of any UCC limitation on revenues are unreliable. In this regard, it is observed that the non-Medicare and non-Medicaid rates on the construction schedule bear no reasonable relationship to the rates projected for years one and two, or the assumptions on which those rates are based. Indeed, by using the rates for the construction period resulted in an inflated UCC limitation and therefore underestimated the loss of Medicaid revenues.
Suncoast sought to diminish the impact of the UCC limitation by suggesting that any such problem could be "fixed" by simply raising its private pay rates. There being no showing that the
market would bear such an increase or, stated differently, that any such increase would be reasonable, Suncoast's suggestion and proof is rejected as unpersuasive.
12/ For example, while it has been found that, when evaluated in isolation, the Suncoast proposal is consistent with the district plan and the state plan, as well as the provisions of subsection 408.035(1)(b) (availability, efficiency, appropriateness, accessibility, extent of utilization), such conclusion cannot persist when long term financial feasibility has not been demonstrated or, stated differently, there is no sense of confidence the facility could survive to provide the proposed services.
COPIES FURNISHED:
Mark Thomas, Esquire
Agency for Health Care Administration Fort Knox Building 3, Suite 3431
2727 Mahan Drive
Tallahassee, Florida 32308-5403
Jonathan S. Grout, Esquire Goldsmith & Grout, P.A. Post Office Box 1017
Tallahassee, Florida 32302-1017
Alfred W. Clark, Esquire Post Office Box 623
117 South Gadsden, Suite 201 Tallahassee, Florida 32302
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, General Counsel Agency for Health Care Administration 2727 Mahan Drive
Tallahassee, Florida 32308-5403
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 should be filed with the agency that will issue the final order in this case.
| Issue Date | Proceedings |
|---|---|
| Nov. 14, 1997 | Final Order filed. |
| Jun. 04, 1997 | Recommended Order sent out. CASE CLOSED. Hearing held 03/11 & 12/97. |
| Apr. 30, 1997 | Agency for Health Care Administration`s and Health Care and Retirement Corporation of America`s Joint Proposed Recommended Order filed. |
| Apr. 30, 1997 | Petitioner`s Proposed Recommended Order filed. |
| Apr. 24, 1997 | Order sent out. (Intervenor`s Motion is Granted; PRO`s due 4/30/97) |
| Apr. 23, 1997 | (Intervenor) Agreed Motion for Extension of Time (filed via facsimile). |
| Apr. 04, 1997 | (3 Volumes) Transcript filed. |
| Mar. 11, 1997 | Hearing Held; applicable time frames have been entered into the CTS calendaring system. |
| Feb. 24, 1997 | (HCR) Notice of Taking Deposition Duces Tecum filed. |
| Feb. 11, 1997 | (From M. Thomas) Notice of Appearance and Substitution of Counsel filed. |
| Jan. 10, 1997 | Notice of Hearing sent out. (hearing set for March 11-12, 1997; 10:00am; Tallahassee) |
| Jan. 10, 1997 | (Petitioner) Supplement to Status Report (filed via facsimile). |
| Jan. 09, 1997 | (Petitioner) Status Report (filed via facsimile). |
| Jan. 09, 1997 | (Petitioner) Status Report (filed via facsimile). |
| Dec. 30, 1996 | Suncoast Nursing Home, LTD.'s Rsponse and Objection to Health Care and Retirement Corporation of America's First Request for Production of Documents (filed via facsimile). |
| Dec. 23, 1996 | (Petitioner) Status Report (filed via facsimile). |
| Dec. 06, 1996 | Order of Abeyance sent out. (Petitioner to respond in 15 days) |
| Dec. 04, 1996 | (Petitioner) Emergency Motion for Continuance filed. |
| Nov. 27, 1996 | Health Care and Retirement Corporation of America`s Motion to Compel; Notice of Taking Deposition Duces Tecum filed. |
| Nov. 27, 1996 | (Petitioner) Notice of Hearing filed. |
| Nov. 15, 1996 | Notice of Hearing sent out. (hearing set for Dec. 9-10, 1996; 10:00am; Tallahassee) |
| Nov. 14, 1996 | Health Care and Retirement Corporation of America`s Response to Suncoast Nursing Home, Ltd.`s Motion for Summary Judgment filed. |
| Nov. 13, 1996 | (Petitioner) Amended Notice of Hearing (filed via facsimile). |
| Nov. 13, 1996 | (Petitioner) Notice of Hearing (filed via facsimile). |
| Nov. 12, 1996 | (Petitioner) Motion for Summary Judgment on Intervenor`s Standing filed. |
| Nov. 08, 1996 | Order of Abeyance sent out. (hearing cancelled; case in abeyance for 20 days) |
| Nov. 05, 1996 | (HCR) Agreed Motion for Continuance (filed via facsimile). |
| Oct. 10, 1996 | (Petitioner) Notice of Taking Deposition Duces Tecum (filed via facsimile). |
| Oct. 10, 1996 | (Petitioner) Notice of Taking Deposition Duces Tecum (filed via facsimile). |
| Oct. 08, 1996 | Notice of Service (Petitioner`s First Set of Interrogatories to AHCA); Notice of Service (Petitioner`s First Set of Interrogatories to the Health Care and Retirement Corporation) filed. |
| Oct. 03, 1996 | (Petitioner) Notice of Service of Interrogatories; Health Care and Retirement Corporation of America`s First Request for Production of Documents to suncoast Nursing Home, LTD. filed. |
| Aug. 01, 1996 | Order Continuing and Rescheduling Formal Hearing sent out. (hearing reset for Nov. 12-13, 1996; 10:00am; Tallahassee) |
| Jul. 26, 1996 | (Petitioner) Motion for Continuance (filed via facsimile). |
| Jul. 05, 1996 | Order Granting Petition to Intervene Subject to Proof at Hearing sent out. (by: Health Care & Retirement Corp. of America) |
| Jul. 05, 1996 | Order Granting Motion for Severance and Notice of Rescheduling Hearing sent out. (Case No/s: 96-1983 & 96-2418 are unconsolidated; Hearing for 96-1983 is set for Aug. 28-29, 1996; 10:00am; Tallahassee; Hearing for 96-2418 is set for Aug. 29-30, 1996; 1:0 |
| May 30, 1996 | Order of Consolidation sent out. (Consolidated cases are: 96-1983 & 96-2418) |
| May 29, 1996 | Notification card sent out. |
| May 23, 1996 | Notice; Petition for Formal Administrative Hearing filed. |
| Issue Date | Document | Summary |
|---|---|---|
| Nov. 14, 1997 | Agency Final Order | |
| Jun. 04, 1997 | Recommended Order | Applicant for Certificate of Need (CON) to construct nursing home failed to demonstrate long-term financial feasibility. Application denied. |
