STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HEALTH CARE AND RETIREMENT )

CORPORATION OF AMERICA, )

)

Petitioner, )

)

vs. ) CASE NO. 96-2421

)

AGENCY FOR HEALTH CARE ) ADMINISTRATION, and MANOR CARE ) BOYNTON BEACH, INC., )

)

Respondents. )

) LIFE CARE CENTERS OF AMERICA, INC. )

)

Petitioner, )

)

vs. ) CASE NO. 96-2425

)

AGENCY FOR HEALTH CARE ) ADMINISTRATION, and MANOR CARE ) BOYNTON BEACH, INC., )

)

Respondents. )

) MANOR CARE OF BOYNTON BEACH, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 96-2426

)

AGENCY FOR HEALTH CARE ) ADMINISTRATION; HEALTH CARE AND ) RETIREMENT CORPORATION OF AMERICA; ) and LIFE CARE CENTERS OF AMERICA, ) INC. )

)

Respondents. )

)

RECOMMENDED ORDER

This case was heard by Eleanor M. Hunter, Administrative Law Judge, the Division of Administrative Hearings, in Tallahassee, Florida, on October 7, 10, 11, 14, 16, 18, and 21 - 24, 1996.

APPEARANCES

For Petitioner, Alfred W. Clark, Esquire Health Care and Post Office Box 623 Retirement Corp. 117 South Gadsden, Suite 201 of America: Tallahassee, Florida 32302

For Petitioner, R. Bruce McKibben, Jr., Esquire Life Care Centers Holland and Knight

of America, Inc.: Post Office Box 810

Tallahassee, Florida 32302-0810

For Petitioner, James C. Hauser, Esquire Manor Care of Skelding, Labasky, Corry

Boynton Beach, Inc.: Eastman, Hauser and Jolly, P.A.

Post Office Box 669 Tallahassee, Florida 32302

For Respondent, Richard Patterson, Esquire

Agency For Health Agency for Health Care Administration Care Administration: 2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

STATEMENT OF THE ISSUES

Which of three competing applicants best meets the need for

114 additional community nursing home beds in Lee County, Florida.

PRELIMINARY STATEMENT

Initially, nine companies applied for certificates of need (CONs) to add beds or to construct new nursing homes to meet the fixed numeric need for 114 additional community nursing homes beds in Agency For Health Care Administration (AHCA) District 8,

Subdistrict 5 for Lee County, Florida. After voluntary dismissals were filed, the final hearing was held to compare the applications of Life Care Centers of America, Health Care and

Ted McMullan, expert in nursing home development and health planning; James S. Wiegard, expert in health care planning; Terry James Evans, expert in nursing home rehabilitation services; Carla Treggett, expert in nursing home Alzheimer's care; Ann P. Brown, R.N., expert in quality of care and subacute services; Richard Stern, expert in nursing home development and financial feasibility; Dennis Stout, expert in nursing home administration and operations; and Don R. Kirkman, expert in nursing home design and construction. Life Care's exhibits 1-3, 5, 10, 14-18, 20, 23 and 25 were received in evidence.

HCR presented the testimony of Bonnie Parker, expert in nursing and nursing home administration; Milo Bishop, expert in health planning; Sharon Gordon-Girvin, expert in health planning; Paul Sieben, expert in nursing home design and construction; and the stipulated testimony of Patricia Greenberg (HCR's substitute exhibit 8). HCR also presented the stipulated rebuttal testimony of Bonnie Parker and Nancy Vant. HCR's exhibits 1-8 were received in evidence.

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Manor Care presented the testimony of Susan Myers, expert in Alzheimer's care, services, and programs; Lisa Rosenthal; George Seiffert, expert in nursing home design and architecture; Douglas

1. Wanke; Francine Kwaitkowski, R.N., expert in clinical services; and Daniel J. Sullivan, expert in health care planning and health care finance, including financial feasibility; and Marta Meers, expert in nursing and nursing administration. Manor Care's exhibits 1-22, 25, and 26 were received in evidence.

   AHCA and Manor Care jointly presented the testimony of Laura MacLafferty, expert in CON review and Elizabeth Dudek, expert in health planning. AHCA's exhibits 1, 2 and 3 were received in evidence.

   The transcript of the final hearing was filed on December 11, 1996, followed by proposed recommended orders on January 21, 1997.

   FINDINGS OF FACT

   
   

   1. The Agency For Health Care Administration (AHCA) is the state agency responsible for the administration of the certificate of need (CON) program in Florida. In October 1995, AHCA published a fixed need pool for an additional 114 community nursing home beds needed for the planning horizon beginning July 1998, in District 8, Subdistrict 5, for Lee County. AHCA also reviewed the CON applications received in response to the published need and preliminarily approved that of Manor Care of Boynton Beach, Inc. (Manor Care).

   2. Manor Care, Life Care Centers of America, Inc. (Life Care), and Health Care and Retirement Corporation of America (HCR) are the competing applicants for a CON to construct a new 114-bed nursing home in Lee County.

   3. The parties filed a Prehearing Stipulation and a Supplement to Prehearing Stipulation which included the following issues:

      
      

      LIFE CARE

      1. The letters of intent, the corporate resolutions, and the newspaper publications of each applicant in this proceeding were timely filed and legally adequate as to required content and accuracy, and are not at issue in this proceeding.

      2. The CON applications and omissions responses of each CON applicant in this proceeding were timely filed with the Agency for Health Care Administration and the District 8 Local Health Council, and meet the statutory minimum content requirements.

      3. The Audited Financial Statements contained in the CON applications at issue in this proceeding are complete and accurate.

      4. The criteria which are not applicable or not in dispute are in Subsections 408.035(1)(e), (f), (g), (h), (j), (k), and (2)(c) and (e), Florida Statutes.

      
      

   4. Life Care, founded in 1976, now operates 190 facilities, assisted living or long term nursing homes, in 28 states. It is the sixth largest and the largest privately-owned operator of long term care beds in the United States. Approximately one- third of the facilities it operates are also owned by Life Care. More than 50 nursing facilities have been built by Life Care, which has never sold a facility. Life Care owns and operates

      
      

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      seven nursing homes in Florida, most recently opening a facility in 1996, in Orange Park, near Jacksonville.

   5. If issued CON No. 8338, Life Care proposes to construct a 114-bed nursing home in southern Lee County. Life Care’s CON will be conditioned on the provision of 55 percent of total patient days to Medicaid patients. Life Care also proposes conditions to establish a 20-bed unit for patients suffering from Alzheimer's and related dementia (ARD), a minimum of 4 subacute care beds within a 31-bed Medicare certified unit, and an area to accommodate 10 adult day care clients at stabilized occupancy. Life Care plans to provide respite care, hospice services, and care to AIDS/HIV+ residents.

   6. Life Care will construct a 50,000 gross square foot building, with 102 semi-private and 12 private rooms for approximately $7.5 million. The plan includes 9 swing beds for additional ARD or hospice residents, if needed. The building will be located in the greater Fort Myers area of southern Lee County.

      HCR

      
      

   7. HCR operates nursing homes in over 16 states, 19 in Florida, including Heartland-Fort Myers, in northern Lee County, and Heartland of Boynton Beach, in which all 120 residents suffer from some form of dementia.

   8. With the approval of CON No. 8331, HCR plans to construct a 114-bed nursing home with a commitment to provide a minimum of 30 percent of total resident days for Medicaid, 57 beds for ARD residents, and respite care. HCR also plans to offer hospice, skilled nursing, subacute and rehabilitative care, and to serve AIDS/HIV+ residents.

   9. HCR proposes to construct a 56,000 gross square foot nursing home on approximately 8 acres for $8.8 million. The design connects two sides of the facility, each with 3 pods of 19 beds, to a central core of administrative offices, kitchen and dining facilities, lounges, and personal care rooms. HCR would build in an area of Lee County, that is “well-removed” from its existing facility, Heartland of Fort Myers, probably south of the Caloosahatchee River.

      MANOR CARE

      
      

   10. Manor Care is a subsidiary of Manor Health Care Corporation, a wholly owned subsidiary of Manor Care, Inc., which is publicly traded and is the third largest nursing home company in the United States. In Florida, the parent corporation owns and operates 12 nursing homes and 6 assisted living facilities, having opened its most recent nursing home in West Palm Beach in 1996. Two more Florida facilities are under construction, one of those in Sarasota, which is also in AHCA District 8. The parent also owns and operates nursing homes in Collier and Sarasota Counties, both in District 8. The applicant subsidiary, Manor

       
       

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       Care owns and operates two nursing homes in Florida, one in Naples and one in Boynton Beach.

   11. If its application for CON No. 8335 is approved, Manor Care proposes to construct a 114-bed nursing home in southern Lee County, conditioned on providing annually a minimum of 49 percent of total resident days to Medicaid, a minimum of 5 percent to hospice patients, a minimum of 3 percent to HIV positive patients, and a minimum of 1100 resident days of respite care. Manor Care’s proposed CON conditions also include the establishment of a 30-bed Alzheimer's unit, a 20-bed Medicare subacute unit, and an adult day care program for a minimum of 2 persons for one-half day each.

   12. Manor Care's total project cost is estimated to be approximately $7.5 million for 49,000 gross square feet. Comparisons Of Applications Using Review Criteria

       Subsection 408.035(1)(a) - The need for the health care facilities and services and hospices being proposed in relation to the applicable district plan and state health plan, except in emergency circumstances which pose a threat to the public health.

       
       

   13. The 1994 Certificate of Need Allocation Factors Report for District 8 is the applicable local health plan which includes the preferences for determining the need for nursing home services.

   14. Factor one favors applicants willing to dedicate 55 percent of total resident days to Medicaid residents, based on the District average occupancy rate of 55.85 percent from July

       through December 1993. Life Care meets the preference by proposing 55 percent Medicaid, in contrast to HCR's proposed 30 percent Medicaid and Manor Care's proposed 49 percent Medicaid.

   15. Life Care presented testimony demonstrating that the Medicaid weighted average for Manor Care’s Florida facilities is

       33.4 percent in nursing homes located in subdistricts in which the weighted averages are 50 percent or over, including some subdistricts with higher average Medicaid utilizations than Lee County. Manor Care, in each of its facilities, however, has met the Con Medicaid conditions. See, also subsection 408.035(1)(n).

   16. HCR noted that the demographics of southern Lee County are different from those of the district as a whole, with a wealthier population in some areas in the south. Life Care’s proposed location is south of Daniels Parkway and southeast of MacGregor Boulevard. The two existing nursing homes in the area, the Pavilion at Shell Point Village and Health Park, which is on the same site as Lee Memorial Hospital, serve zero and 34 percent Medicaid, respectively.

   17. Factor two favors applicants proposing to meet community or district need for nursing home care for AID/HIV+ patients. Life Care and HCR made no specific quantitative commitment to serve AIDS/HIV+ residents, although Life Care has experience with AIDS/HIV+ care at its Orange Grove (California) Rehabilitation Hospital. Manor Care’s commitment of 3 percent of

       
       

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       total resident days is preferred. The commitment also indicates Manor Care’s willingness to serve AIDS/HIV+ residents in the proposed facility.

   18. Life Care asserted that the need for additional AIDS/HIV+ services is not significant in Lee County, due to the effectiveness of the County AIDS Task Force referral system. The task force rotates referrals so that the fifteen nursing homes in the county share the responsibility for care to AIDS/HIV+ patients. At the time the CON applications were filed, ten AIDs patients were in the fifteen County nursing homes. Consequently, while Manor Care’s willingness to serve AIDS/HIV+ residents is preferred, its commitment of 3 percent is an overstatement of need.

   19. Allocation Factor three is given to applicants offering a continuum of care including, but not limited to respite and adult day care. Life Care’s proposal to serve respite and 10 adult day care clients is superior to HCR's application, which fails to propose adult day care, and to Manor Care’s measurable, but limited commitment to two half-day clients. However, Manor Care’s commitment to 1100 annual days of respite care is superior to the proposals of Life Care and HCR, both of which would also provide respite care, if and when beds are available. It is the nature of respite care to give short-term relief to a care-giver by temporarily housing a resident. A measurable commitment to a level of respite care provides assurance that a bed will be

       available for a short term in an otherwise long term care setting. Manor Care included a condition to serve hospice patients, which Life Care and HCR will also do. HCR’s Heartland

       - Fort Myers contracts with Hope Hospice and, on average, has a census of three hospice patients at any one time. See, also, subsection 408.035(1)(f).

   20. Factor four favors applicants constructing at least 60- bed facilities. Preference five favors expansion of existing facilities to 120 beds. All of the applicants meet preference four, and preference five is inapplicable given the fixed numeric need for 114 beds.

   21. Allocation factor six gives preference to providers of high technology nursing services for higher acuity patients, such as those needing ventilator services. Manor Care is committed to serve all examples of high technology services listed in the factor, except pediatric patients in a 20-bed Medicare subacute unit, as compared to the 4-bed minimum proposed by Life Care, and limited subacute services and therapies proposed by HCR.

   22. In general, allocation factors in the District 8 health plan favor the applications of Manor Care, then Life Care, but not that of HCR.

   23. The 1993 State Health Plan preferences are also applicable to determining the need for nursing home services.

   24. The first preference favors applicants locating in areas of a subdistrict with existing nursing homes exceeding 90

       
       

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       percent occupancy. Life Care, Manor Care, and HCR generally propose locations in southern Lee County and meet the preference. In southern Lee County, occupancy rates exceed 94 percent. Two of the existing 15 nursing homes in the county are located in the southern area, generally identified as south of Daniels Parkway.

   25. The second state health plan preference is given to applicants offering Medicaid service in proportion to the subdistrict average. The Lee County subdistrict average is 49 percent. Both Manor Care and Life Care meet the state health plan preference for Medicaid service, but HCR does not. HCR notes that both the district and county Medicaid averages declined to 48.01 and 46.81, respectively, for the first six months of 1996. Manor Care and Life Care include some wealthier areas of Lee County within their proposed locations. HCR raised the probability that a nursing home built in the more affluent areas, is reasonably expected to attract fewer Medicaid and more private pay residents. See, also, subsection 408.035(1)(n).

   26. The third state health plan preference is given for service to special care residents, including those with AIDS, ARD, and the mentally ill. The fourth state health plan preference favors a continuum of care. The state health plan preferences are the same as allocation factors two and three of the local health plan, except for the additional consideration of services for persons with ARD and the mentally ill. Although there was varying expert testimony about the ideal size of an ARD

       unit, the more persuasive testimony, that of HCR’s expert, is that the appropriateness of a unit’s size has to be determined by design and staffing. HCR, by proposing to devote 57 beds to ARD residents, with the related design, programs, and fourteen-hour- a-day activities for seven days a week, best responds to the need for ARD care. Manor Care also has substantial experience in care for ARD residents, from operating over 115 ARD units in its long- term care facilities. On balance, when ARD is considered in conjunction with the needs of other special care residents and the need for a continuum of care, Manor Care best meets the preference by proposing a broader range of special care services. These include more ARD services than Life Care, but less than HCR, measurable respite care, and more adult day care than HCR, but less than Life Care. See, also, Subsection 408.035(1)(o).

   27. The fifth state preference applies to construction of facilities providing maximum resident-like comfort and amenities. Life Care’s expert in nursing home design criticized the Manor Care plan as functional, but outdated and stereotyped, particularly in a group bathing area and in not totally meeting ADA standards in every room. The Manor Care prototype has been in use over ten years and is essentially linear, but complies with the ADA and state licensure requirements. Corridor lengths are limited by rule to 120 feet. The longest Manor Care corridor is 80 to 90 feet. Modifications to the prototype include enlarged therapy spaces to accommodate subacute care. Other

       
       

       13

       features include skylights, a mini-lounge, and an exit to the Alzheimer’s courtyard at the end of the longest corridor. Manor Care has a “heritage wing” in which finishes are upgraded and, carpeting, drapes, and a television armoire are provided in private rooms, for residents who can afford to pay for them.

   28. Life Care’s plan is better designed than Manor Care’s for the services proposed. For example, Life Care has separate entrance for adult day care clients.

   29. Life Care criticized HCR’s pod design for limited visibility from the nurses’ station, and for encouraging residents to cluster in the atrium of each pod. However, HCR plans to use a call light panel system installed at the nurse’s stations which identifies the room number of residents calling for assistance. The system will compensate, in part, for the loss of some visual monitoring. The HCR plan also has activity rooms, day rooms, and quiet rooms, for use as alternatives to residents congregating in the pod atrium. HCR’s pod design is less typical, more creative, and more residential than those of Life Care or Manor Care, although it is more costly. See, also, Subsection 408.035(1)(m).

   30. The sixth state preference favors programs using innovative therapeutic programs and restorative care. All of the applicants propose to provide some therapeutic and restorative services, but Manor Care will treat more medically complex residents.

   31. Preference seven is given for applicants proposing charges not exceeding the highest Medicaid per diem rate in the subdistrict. The highest subdistrict Medicaid rate, inflated forward at five percent to 1999, is $132.94 Projected rates at the end of the second year are $90.354 for HCR, $105.33 for Manor Care, and $115.80 for Life Care. However, charges for semiprivate rooms will exceed the highest Medicaid rate at HCR, but not Life Care. In the applicants’ existing District 8 nursing home, Life Care has the lowest Medicaid per diem rate, which is $82.41 at Life Care Center of Punta Gorda as compared to

       $92.82 at HCR’s Heartland-Fort Myers, and $95.61 at Manor Care of Sarasota. The preference fails to adequately distinguish between applicants.

   32. The parties stipulated that the three companies involved meet the preference given for a history of operating superior facilities. See, also, Subsection 408.035(1)(c).

   33. Life Care meets preference nine by proposing a nursing staff to resident ratio which exceeds the minimum required and those proposed by the other applicants. Life Care nurses per patient day ratio is 1.24, Manor Care’s is 1.11, and HCR’s is

       .83. The staffing differences reflect, in large part, the differences in proposed programs. The parties stipulated that each applicant’s staffing requirements could be met at the projected salaries.

   34. Preference ten, for the use of multi-disciplinary

       
       

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       health care professionals, and preference eleven, for ensuring residents’ rights and privacy are met by all of the applicants.

   35. Preference twelve favors the nursing home with the lowest administrative cost and highest resident care cost compared to the average in the district. Using the historical inflation rate of 7.3 percent, patient-care costs will be $78.75 in 1999. The historical inflation rate for administrative costs,

       6.5 percent, yields 1999 District average administrative cost of

       
       

       $36.39. Life Care proposes lower resident care costs, $73.88, and lower administrative costs $26.16, than the projected district averages, as inflated. Manor Care’s resident care costs ($61) and administrative costs ($33.84) are lower than the average. HCR projected lower resident care costs ($57) and lower administrative costs ($19) than the average. In comparing the two, Life Care is preferred for having higher resident care costs and lower administrative costs than Manor Care. Costs reflect programs, including higher costs to care for subacute than for ARD residents. Costs are also affected by projected average occupancy levels for the second year, which vary from 88 percent for Manor Care, to 93 percent for Life Care, and 80 percent for HCR.

   36. In general, Life Care is the preferred applicant based on state health preferences related to Medicaid commitment, staffing ratios, and resident care costs. Life Care is also the second applicant preferred considering the scope of special care

       services proposed and its physical plant design. HCR is preferable considering design and administrative costs. Manor Care is superior based on special care services, therapeutic services, equal on the state Medicaid preference, and second considering staffing ratios, and resident care costs. The District 8 plan supports the approval of the applications of Life Care and Manor Care, but not HCR.

       Subsections 408.035(1)(b) - The 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

       . . .; (1)(d) - The availability and adequacy of . . . alternatives . . .; (2)(b) - That existing inpatient facilities . . . are being used in an appropriate and efficient manner; and (2)(d) - That patients will experience serious problems in obtaining inpatient care .

       . . in the absence of the proposed new service.

   37. There is no evidence of quality of care, efficiency, or access problems in existing nursing homes. The undisputed numeric need for 114 more community nursing home beds in July 1998, is the basis for a determination that accessibility and availability will be problems if the supply is not increased. The applications of Manor Care, Life Care, and HCR are primarily distinguishable by the differences in the proposed services. Each attempted to support its proposal as offering the type and quantity of services which it contends will be needed to supplement existing nursing home services in the District.

       
       

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   38. Financial access is best enhanced by Life Care’s 55 percent Medicaid commitment, followed by Manor Care’s 49 percent Medicaid commitment, and least enhanced by HCR’s 30 percent Medicaid proposal. Accessibility for Medicaid residents is also enhanced by the proposed southern Lee County location, in which the two existing nursing homes in the area provided only 5,000 of the total of 145,000 Medicaid patient days in Lee County in the six months before the applications were filed. In general, relatively high occupancy rates result in more difficulty for Medicaid residents seeking nursing home beds.

   39. Manor Care offers the broadest range of services. Life Care notes, however, that Manor Care will be underutilized to the extent that it understates existing inventory, overstates bed need, and conditions its CON on beds designated for services which are not needed. For example, Manor Care’s AIDS/HIV+ commitment of three percent at a time when there are ten AIDS/HIV+ patients in the fifteen nursing homes is overstated.

   40. HCR contends that the need for subacute care is also overstated, particularly by Manor Care. Subsequent to the needs analysis for subacute beds, included in the Manor Care application, a subacute care unit was approved at a new Beverly facility in the district. Within the area in which Life Care and Manor Care propose to locate, Doctor’s Hospital, sometimes called Gulf Coast Hospital, has received a CON to operate a 10-bed skilled nursing unit. In addition, East Point Hospital and

       Southwest Regional Hospital, both in Lee County, have hospital- based skilled nursing units. There is no established definition of subacute services and no separately licensed category of beds from which existing inventory can be determined. In a survey of fourteen of the existing nineteen nursing homes in the County, HCR’s expert determined that one-half provide tube feeding, gastrointestinal feeding, and wound care, which are generally understood to be subacute services.

   41. Most, but not all, subacute services are provided in Medicare-certified beds. Using Medicare days reported as a proxy for subacute days, which are not reported, Manor Care confirmed statistically a growing use of nursing home beds in Lee County to provide Medicare services. From 1992 to 1996, the proportion of Medicare nursing home days increased from 10 to 16 percent. From 1994 to 1995, the number of Medicare beds increased from 350 to 500, which reflects rising demand, since nursing homes can designate Medicare beds without prior regulatory approval.

   42. Another measure of the need for subacute care is the percentage of persons with major or extreme categories of illnesses in certain diagnostic related groups (DRGs) which typically require additional nursing care after hospitalization. However, that approach cannot be solely relied upon, because the post-hospital care can be provided in settings other than the nursing homes. Life Care’s expert expects twenty-five percent of its Medicare and private pay admissions to require subacute care.

       
       

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       By contrast, statewide, fifty-six percent of admissions are major or extreme DRGs, as compared to sixty-six percent in Lee County. In 1993, the average daily census for Medicare residents in Lee County nursing homes was 13.6 residents. The average daily Medicare census projected by Manor Care, 13.5, is reasonable. Therefore, the demand in Lee County, as reflected by Medicare utilization and the higher than statewide subacute DRGs, indicates that Manor Care’s 20-bed subacute unit does not overstate need. Life Care’s 4-bed minimum understates the need for subacute care, but is not a serious detriment to its proposal given its ability to expand the unit.

   43. The parties disagree over the magnitude of the need for ARD residents’ care in separate or secured units. As demonstrated by Life Care and Manor Care, fewer than half of nursing home residents need to be in a special ARD unit. The severity of ARD is measured, ranging from 1 to 7 on the Reisburg Scale. Life Care and Manor Care would have 20 and 30 bed units, respectively. Life Care’s ARD unit is designed to serve early and middle stages (stages 1-4) of the disease, when residents are ambulatory. An outdoor wandering space with a seven-foot high fence, color and picture cues to rooms and activity areas are incorporated in the plans. Life Care also expects some clients with ARD to use its adult day care.

   44. HCR proposes to designate half of its nursing home for ARD residents and the other half for general long-term care,

       based on its determination of the need for ARD services. Nationally, half of all nursing home patients suffer from some degree of dementia. HCR has substantial experience with ARD, and operates Heartland of Boynton Beach, a 120-bed all dementia facility. HCR’s pod design is especially suited to allowing ARD residents to wander inside the facility and in adjacent courtyards with locked gates. HCR uses a wander-guard alarm system rather than locked doors and non-confrontational sight and sound cues to direct residents’ movements and behavior. In northern Lee County, Heartland-Fort Myers has a 20-bed ARD unit. Residents with early and late (non-ambulatory) stages of ARD are appropriate for placement in long-term beds outside an ARD unit. ARD residents, who have a loss of cognition, but who are still ambulatory in stages 5-7, are appropriate for placement in separate units, as proposed by HCR and Manor Care.

   45. Manor Care’s analysis of overall need for a separate ARD unit, fewer than half of the total beds, and its analysis of the ARD stages appropriate for placement in a separate unit (stages 5-7) was best documented and most persuasive.

   46. Considering financial and geographic access, and programmatic needs for subacute patients and ARD residents, Manor Care’s proposal best supplements existing nursing home services in Lee County. Manor Care’s AIDS/HIV+ commitment, however, may result in up to three underutilized beds.

       
       

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       1. The immediate and long-term financial feasibility of the proposal.

          
          

   47. The parties stipulated to the immediate or short term financial feasibility of the proposals.

   48. Manor Care’s proposal is financially feasible in the long term, based on a reasonable projection of net income of

       $473,300 at the end of the second year of operation. Similarly HCR’s proposal is financially feasible and reasonable, with projected net income in year two of $441,873.

   49. Life Care’s proposal overestimates utilization by projecting 93 percent occupancy at the end of the first and second years. The subdistrict average is 91 percent, although the other two nursing homes in southern Lee County exceed the subdistrict average with 94 percent occupancy. Life Care agrees that its fill-up rate is aggressive. The rate is unreasonable, when comparing mature nursing homes to the experience of other new providers in Lee County.

   50. The projection of an average daily census of 17 Medicare and HMO/Insurance patients, with a 31-bed designated subacute case unit is also inconsistent with achieving 93 percent overall occupancy. While the exact correlation between Medicare and HMO/Insurance patients to subacute care beds cannot be established, those payor categories are the best indicators of subacute care utilization. Considering projected utilization levels by payor, occupancy at Life Care cannot mathematically reach 93 percent, even if the remaining 83 beds are full.

   51. In forecasting revenues, Life Care used 5 percent, the maximum possible inflation for Medicaid rates. The ceiling set by the State for south Florida nursing homes over 100 beds has increased an average 4.8 percent. Manor Care’s use of 3.8 percent inflation, representing only the patient care not the property component of Medicaid is not justified. Nevertheless, Life Care’s use of 5 percent for financial forecasting is not fiscally conservative and results in an overstatement of Medicaid revenue.

   52. As a result of the overstatement of utilization and the reliance on overstated Medicaid revenues for 55 percent of total occupancy at stabilized occupancy, Life Care failed to demonstrate that its proposal is financially feasible in the long term.

       
       

       (l) The probable impact . . . on the costs of providing health services . . . , which foster competition . . ., promote quality assurance and cost-effectiveness.

       
       

   53. HCR currently operates a nursing home in Lee County, and its proposed capital cost for a new facility is higher than those for Manor Care or Life Care. Manor Care and Life Care have facilities in District 8, but not in Lee County. Unlike Life Care, Manor Care and HCR will not have any debt as a result of their proposed construction. Without debt, property costs and Medicare reimbursements per patient day for the property component will be lower. Capital costs are also built into the

       
       

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       Medicaid per diem rate. Therefore, Medicare and Medicaid reimbursements, all other things being equal, will be higher for Life Care. Manor Care will foster competition with greater cost effectiveness.

       CONCLUSIONS OF LAW

       
       

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

   55. The applicants have the burden of proving entitlement to a CON, based on a balanced consideration of the applicable criteria. Florida Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Department of Health and Rehabilitative Services v. Johnson & Johnson Home Health Care, 447 So.2d 361 (Fla. 1st DCA 1984).

   56. Subsection 408.035(1)(a) is met by the proposals of Manor Care and Life Care, but not that of HCR.

57. Subsection 408.035(1)(b),(d), (2)(a),(b) and (d), all relate to assessing alternatives to the proposals. In light of the undisputed need to build a new 114-bed community nursing, there is no evidence of alternatives to a new nursing home to meet that need. Programmatic needs are most comprehensively met by the mix and quantity of services proposed by Manor Care, followed by Life Care, and least by HCR.

1. Subsection 408.035(1)(i), immediate financial

   feasibility requirements, are met by Manor Care, Life Care and HCR. The long term financial feasibility requirements, are met by Manor Care and HCR. The long term financial feasibility of Life Care’s proposal was not supported by the evidence. Failure to prove financial feasibility is fatal to a CON application. Suburban Medical Hospital, Inc. v. Department of Health and Rehabilitative Services, 600 So.2d 1195 (Fla. 3rd DCA 1992).

2. Subsection 408.035(1)(l) is applicable to cost- effectiveness and competition, and supports the application of Manor Care as a new provider in Lee County with the lowest proposed capital costs.

3. Subsection 408.035(1)(m) criteria favoring less costly, more effective methods of construction is best met by Manor Care.

4. Subsection 408.035(1)(n), a consideration of the applicants’ past and proposed service to Medicaid, is met by the applications of Life Care, Manor Care and HCR, in that order.

5. Subsection 408.035(1)(o) criterion related to a continuum of care, is promoted in all of the applications to some extent. All would provide respite, hospice, and subacute services. Life Care is superior in its proposal for adult day care. Manor Care is superior overall for quantifying its commitments to hospice and respite.

6. On balance, the statutory criteria support the issuance of a CON to Manor Care.

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RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that the Agency For Health Care Administration issue Certificate of Need No. 8335 to Manor Care of Boynton Beach to construct a 114-bed community nursing home conditioned on the provision of services to (1) a minimum of 49 percent of total annual resident days to Medicaid residents, (2) a minimum of 5 percent of total annual resident days to hospice patients, (3) a minimum of 2 adult day care clients, (4) a minimum of 1100 total annual resident days to respite, (5) participation in the Lee County AIDS Task Force referral process, (6) the establishment of a 30-bed Alzheimer’s unit and (7) the establishment of a 20-bed subacute care unit.

DONE AND ENTERED this 5th day of March, 1997, in Tallahassee, Leon County, Florida.

ELEANOR M. HUNTER

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 5th day of March, 1997.

COPIES FURNISHED:

Richard Patterson, Esquire

Agency for Health Care Administration 2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

James C. Hauser, Esquire Skelding, Labasky, Corry

Eastman, Hauser and Jolly, P.A. Post Office Box 669

Tallahassee, Florida 32302

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

R. Bruce McKibben, Jr., Esquire Holland and Knight

Post Office Box 810

Tallahassee, Florida 32302-0810

R. S. Power, Agency Clerk

Agency for Health Care Administration 2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

Jerome W. Hoffman, General Counsel Agency For Health Care Administration 2727 Mahan Drive

Fort Knox Building 3, Suite 3431

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 should be filed with the agency that will issue the final order in this case.

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Docket for Case No: 96-002421CON

Orders for Case No: 96-002421CON