vs. ) Case No. 97-1181
Respondent. )
Pursuant to notice, a formal hearing was held in this case on October 21-23, 1997, and November 4, 1997, in Tallahassee, Florida, before Eleanor M. Hunter, a duly designated Administrative Law Judge of the Division of Administrative Hearings.
For Petitioner: R. Terry Rigsby, Esquire
Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A.
Vencor Hospitals South, Inc. (Vencor), applied for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Agency for Health Care Administration (AHCA) District 8, in Fort Myers, Lee County, Florida.
District 8 includes Sarasota, DeSoto, Charlotte, Lee, Glades, Hendry, and Collier Counties. Vencor filed a Petition for Formal Administrative Hearing challenging AHCA's preliminary agency action denying CON 8614. Vencor also filed a Petition to Determine Invalidity of an Agency Statement Pursuant to
Section 120.56(4), Florida Statutes, alleging that AHCA impermissibly relied upon an invalid, unpromulgated rule in denying Vencor's CON application. The cases were consolidated for formal hearing. Ruling on Vencor's Petition, filed pursuant to Section 120.56(4), is made by separate Final Order issued contemporaneously with this Recommended Order.
At the final hearing, Vencor presented the testimony of James Novak, expert in long term care hospital administration and
operations; Douglas Ivan Thompson, expert in outcomes management and outcomes measurement; R. Daniel Lacy, expert in health care finance; W. Eugene Nelson, expert in health planning; and Elfie Stamm, Chief of the CON Office for the Agency for Health Care Administration (AHCA). Vencor's Exhibits 1-15 were received in evidence.
AHCA presented the testimony of Elfie Stamm, an expert in health planning; and Karen Rivera, a health services and facilities consultant with AHCA. AHCA's Exhibits 1-4 were received in evidence.
The transcript of the formal hearing was filed on November 10, 1997. Proposed recommended and final orders were filed on December 23, 1997.
On December 31, 1997, Vencor filed a Motion to Strike AHCA's proposed finding of fact 20, as an uncorroborated hearsay statement taken from the state agency action report. AHCA filed no response to the Motion, which is Granted.
Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida.
The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency
Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County.
Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities.
In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and
40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale.
Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that:
On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8;
Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida
Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published;
Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996;
Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes;
Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council.
During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate.
In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that:
"Long term care hospital" means a hospital licensed under Chapter 395, Part 1, F.S., which meets the requirements of Part 412, Subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services.
Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no
rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application.
Numeric Need
In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) provides in pertinent part:
If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria:
Population demographics and dynamics;
Availability, utilization and quality of like services in the district, subdistrict, or both;
Medical treatment trends; and
Market conditions.
Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future
population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules.
W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients.
Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8.
By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU.
Statutory Review Criteria
Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute.
(1)(a) need in relation to state and district health plans.
The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific
preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care.
(1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district.
Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units.
AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined.
AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives.
Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too
sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions.
Vencor also distinguished its patients, who require
7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to
3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units.
Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week.
Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population.
In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes.
(1)(c) ability and record of providing quality of care.
The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c).
(1)(e) probable economics of joint or shared resources;
(1)(g) need for research and educational facilities; and
(1)(j) needs of health maintenance organizations.
The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue.
(f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas.
Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient
is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home.
(h) resources and funds, including personnel to accomplish project.
Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million.
At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable.
(i) immediate and long term financial feasibility of the proposal.
Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal.
needs of entities serving residents outside the district.
Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8.
probable impact on costs of providing health services; effects of competition.
There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8.
costs and methods of proposed construction; and
(2)((a)-(c) less costly alternatives to proposed capital expenditure.
The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area.
past and proposed service to Medicaid patients and the medically indigent.
Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare.
services which promote a continuum of care in a multilevel health care system.
While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8.
(2)(d) that patients will experience serious problems obtaining the inpatient care proposed.
Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor.
Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding pursuant to Subsection 408.039(5) and 120.57(1), Florida Statutes.
Vencor has the burden of establishing its entitlement to CON 8614 to develop a 60-bed long term care hospital in Lee County, District 8, based on a balanced consideration of applicable statutory and rule criteria. Boca Raton Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative Services, 475. So. 2d 260 (Fla. 1st DCA 1985); Humana, Inc. v. Department of Health and Rehabilitative Services, 469 So. 2d 889 (Fla. 1st DCA 1985).
By competent, substantial, and unrefuted evidence, Vencor established the numeric need for its proposal, consistent with AHCA's prior interpretation of Rule 59C-1.008(e)2.
As Judge David M. Maloney determined in Hospital Corporation of Lake Worth d/b/a Palm Beach Regional Hospital v. AHCA, et al., DOAH Case No. 96-0514 R.O. 3/24/97), the state health plan is inapplicable having been written before there were any CON requirements for long term care beds. In this case, as well, the state and district plans have no mention of long term care beds. Therefore, Subsection 408.035(1)(a) does not apply.
The parties stipulated that Vencor's application satisfied the statutory application content requirements, and the statutory review criteria related to quality of care, funding for this proposal and all other capital projects, staffing and salaries, and construction costs and design. See Subsections
408.037 and 408.035(1)(c),(h),and (m), Florida Statutes.
Further, the parties stipulated that the statutory review criteria set forth in Subsections 408.035(1)(e), (g), and (j) are not at issue in this case.
Vencor presented substantial, competent evidence of the absence of facilities in District 8 to serve the medically complex, ventilator-dependent, and multi-systems failure patients which it serves in its other facilities and proposes to serve in District 8. AHCA offered no evidence to the contrary, and its reliance on its unpromulgated rule that the same types of
patients are served in hospital based skilled nursing units, nursing home subacute units, and CMR facilities, or appropriately in acute care hospital beds is held invalid, for the reasons set forth in the contemporaneously issued Final Order. Therefore, Vencor's proposal complies with the requirements of Subsection 408.035(1)(b), (d), and (f), and (2)(d).
The evidence also shows that the proposal is financially feasible with an acceptable Medicaid/indigent commitment, and without adverse impacts on health care costs or competitors with whom there is an insignificant overlap of patient population groups. Subsections 408.035(1)(i), (l), and (n).
Vencor does not meet the criteria related to service to patients residing beyond District 8, or to enhancing the continuum of care in a multi-level health system. Subsections 408.035(1)(k) and (o).
AHCA introduced into evidence and relies on the Recommended Order in Hospital Corporation of Lake Worth d/b/a Palm Beach Regional Hospital v. AHCA, et al., supra, as support for the denial of Vencor's application. The cases are factually distinguishable. The applicant in the District 9 case modeled its CON application on an existing long term facility with an average length of stay less than 30 days. By contrast, Vencor's average length of stay is over 60 days, an obvious single indicator of distinctly different patient populations.
Vencor met its burden of proof by establishing a need for the proposed facility, as well as demonstrating a lack of available and appropriate alternatives in District 8. With this, the burden of proof shifted to and was not met with any evidence to the contrary by AHCA. On balance, Vencor's application satisfies the applicable criteria and should, accordingly, be approved.
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8.
DONE AND ENTERED this 3rd day of March, 1998, in Tallahassee, Leon County, Florida.
ELEANOR M. HUNTER
Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998.
Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3
Kim A. Kellum, Esquire
R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A.
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.
