STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

METHODIST MEDICAL CENTER, INC., ) d/b/a METHODIST MEDICAL CENTER, )

)

Petitioner, )

)

vs. ) Case No. 99-0724

) ST. LUKE'S HOSPITAL ASSOCIATION ) and AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case on July 19 through 23, July 27, 1999, and August 3, 1999, in Tallahassee, Florida, before Eleanor M. Hunter, a duly-designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Geoffrey D. Smith, Esquire

Blank, Rigsby & Meenan, P.A.

204 South Monroe Street Tallahassee, Florida 32301

For Respondent: St. Luke's Hospital Association:

Michael J. Cherniga, Esquire Greenberg & Traurig, P.A. Post Office Drawer 1838 Tallahassee, Florida 32301

For Respondent: Agency for Health Care Administration:

Richard A. Patterson, Esquire

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

2727 Mahan Drive

Tallahassee, Florida 32308 STATEMENT OF THE ISSUES

Whether Certificate of Need application (Number 9078) for an adult kidney transplantation program, filed by St. Luke's Hospital Association, meets the statutory and rule criteria for approval.

PRELIMINARY STATEMENT

St. Luke's Hospital Association, d/b/a St. Luke's Hospital (St. Luke's) is the applicant for a Certificate of Need (CON) to establish an adult kidney transplantation program in Jacksonville, Florida, in Agency for Health Care Administration (AHCA) District 4, organ transplantation service planning area one. Methodist Medical Center, Inc., d/b/a Methodist Medical Center (Methodist) is an existing provider of adult kidney transplants in the same district and the same organ transplantation service planning area. Methodist filed a petition in opposition to AHCA's preliminary approval of the proposed program at St. Luke's.

Previously consolidated Case No. 99-0723 was closed when the Petition filed by Shands Teaching Hospital and Clinics, Inc., d/b/a Shands Hospital (Shands) was dismissed for lack of standing, as required by Subsection 408.039(5), Florida Statutes.

Shands, in Gainesville, Florida, is located in AHCA District 3, not District 4, like St. Luke's, although it is in the same organ transplantation service planning area.

AHCA published its notice of intent to issue the CON in the Florida Administrative Weekly, dated January 8, 1999. Methodist challenged AHCA's preliminary action in an Amended Petition for Formal Administrative Hearing, filed at AHCA on January 29, 1999, and transferred to the Division of Administrative Hearings (DOAH), on February 17, 1999. The twelve-volume Transcript of the final hearing was filed at DOAH on August 20, 1999.

Following Joint Motions and an Amended Motion to Extend Time for Filing Proposed Recommended Orders, the proposed recommended orders were filed on September 22, 1999.

At the final hearing, St. Luke's presented the testimony of Robert Walters, expert in hospital administration; Marilyn Pompi, expert in nursing and nursing education; Mary Anderson;

Peter Michael Fitzpatrick, M.D., expert in nephrology and internal medicine; John H. Herrell; Rick Knapp, expert in financial feasibility; Mark Richardson, expert in health planning; and Jeffrey Steers, M.D., expert in organ procurement and liver, kidney, and pancreas transplantation. St. Luke's Exhibits 1-8, 10-15, and 17-22 were received into evidence.

Methodist presented the testimony of Kevin Cuda;

Thomas Peters, M.D., expert in general surgery, transplant surgery, particularly kidney transplants and organ procurement;

Richard J. Howard, M.D., expert in transplant surgery, including kidney transplantation, organ donation, procurement and allocation, and teaching programs for organ transplantation; Alan Reed, M.D., expert in transplant surgery, including kidney and pancreas transplants; Ian Jamieson, expert in administration and management of organ transplant programs, including kidney program marketing, financial analysis, data base management and analysis; Daniel Sullivan, expert in health care planning and health care finance. Methodist's Exhibits 1-47 were received in evidence.

On November 5, 1999, St. Luke's filed a Motion to Dismiss Methodist's Petition for Lack of Standing and Mootness. The Motion is based on an apparent change in ownership of Methodist which has become Shands Jacksonville Medical Center, Inc. (Shands Jacksonville). On November 12, 1999, counsel who also represented Methodist, filed a Notice of Appearance and Shands Jacksonville Medical Center, Inc.'s Motion to Substitute Party, if necessary. The Motion concedes that Shands Jacksonville has become the license holder for the facility formerly known as Methodist at which it continues to operate a kidney transplant program. As an alternative to substitution of the Petitioner, Methodist filed a Response to Motion to Dismiss for Lack of Standing and/or Mootness. Methodist cites Subsection 408.039(5)(c), Florida Statutes, as the authority for its petition to initiate the proceeding to challenge St. Luke's CON

application and argues that its standing continues as established at the time of the final hearing. Further, a Reply from

St. Luke's, on November 19, 1999, and an Additional Response from Methodist on November 29, 1999, have been received and considered.

FINDINGS OF FACT

1. The Agency for Health Care Administration (AHCA) is the state agency authorized to administer the Certificate of Need (CON) program for health care facilities and services in Florida.

2. Pursuant to Rule 59C-1.044, Florida Administrative Code, AHCA requires applicants to obtain separate CONs for the establishment of each adult or pediatric organ transplantation program, including heart, kidney, liver, bone marrow, lung, lung and heart, pancreas and islet cells, and intestines transplantations. For purposes of determining the need for organ transplantation services, the State of Florida is divided, by rule, into four service planning areas, corresponding generally with the northern, western central, eastern central and southern regions of the state.

   St. Luke's and Existing Providers

   
   

3. St. Luke's Hospital Association operates St. Luke's Hospital (St. Luke's), a 289-bed, non-for-profit hospital with 17 beds for skilled nursing care and 272 acute care beds. St. Luke's is located on Belfort Road in Jacksonville, Duval County, Florida, AHCA, District 4, organ transplantation service planning

   area one. Available services at St. Luke's include obstetrics, open heart surgery, neurosurgery, adult bone marrow, and adult liver transplantation. The transplant services have been added during the last six or seven years. The severity of the illnesses and diseases treated at St. Luke's is represented by its relatively high Medicare case weight of 1.7 in 1997, after the addition of relatively low intensity obstetrics services.

4. In 1998, St. Luke's applied for CONs to establish adult pancreas and islet cell, and adult kidney transplant programs. St. Luke's received the CON to establish the pancreas and islet cell transplant program. The application for a CON to establish an adult kidney transplant program is at issue in this proceeding. The parties stipulated that the letter of intent and application, for CON Number 9078, to establish the adult kidney transplant program, were timely filed.

5. Methodist Medical Center, Inc., d/b/a Methodist Medical Center (Methodist) is a 244-bed acute care hospital, serving primarily adults, with special units for diabetes, hospice, and occupational medicine programs. The services do not include either obstetrics or pediatrics. In 1989, Methodist received a CON allowing its establishment of kidney transplant services.

6. Methodist is located approximately one and a half miles north of downtown Jacksonville. Methodist's representatives contend that an additional kidney transplant program in Jacksonville, at St. Luke's, is not needed and will be

   detrimental to Methodist. St. Luke's, it was argued, will draw from a limited supply of organs and increase Methodist's financial losses. Those losses at Methodist were expected to range between $5 million and $8 million in 1999. Methodist's accountant described the hospital's financial health as poor to critical. The kidney transplant program provides a positive financial contribution at Methodist, largely due to Medicare reimbursements.

7. At the time of the final hearing, Methodist was managed by Shands-Jacksonville, an affiliate of Shands Teaching Hospital and Clinics (Shands) at the University of Florida in Gainesville, and of University Medical Center in Jacksonville (University Hospital). Shands is also located in organ transplant service area one, but Gainesville is in AHCA District 3, not in 4 like Jacksonville. University Hospital is located across the street from Methodist and serves essentially the same inner-city, lower socio-economic population.

8. St. Luke's was first established in the late 1800's. Previously located directly across the street from Methodist, St. Luke's was relocated near the intersection of J. Turner

   Butler Boulevard at Interstate 95, south of downtown Jacksonville in 1984. In 1987, St. Luke's became affiliated with the Mayo Clinic in Jacksonville (Mayo-Jacksonville). The two facilities share an administrator. St. Luke's receives approximately three- fourths of its admissions from Mayo-Jacksonville physicians.

9. The Mayo-Jacksonville clinic is located approximately 12 miles from St. Luke's at J. Turner Butler Boulevard and Highway A-1-A. The multi-specialty and multi-subspecialty clinic, is staffed by 230 full-time salaried physicians. The governing board of Mayo-Jacksonville reports to the executive committee of its sole corporate member, the Mayo Foundation for Medical Education and Research (Foundation) in Rochester, Minnesota.

10. The Foundation is the parent organization for the original Mayo Clinic in Rochester (Mayo-Rochester) and its affiliated hospitals, St. Mary's Hospital (with 1100 beds) and Methodist Hospital (with 700 to 800 beds), both in Rochester, Minnesota. In addition to the one in Jacksonville, the Foundation has also established a clinic in Scottsdale, Arizona (Mayo-Scottsdale). The Mayo-Scottsdale clinic is affiliated with a local inpatient hospital. Other related organizations include the Mayo Medical School and the Mayo Graduate School of Medicine.

    Issues Related to Need

    
    

11. St. Luke's contends that its transplant surgeons would increase the total number of kidney transplants in Florida, by using less than ideal donor organs and by expanding waiting lists to enhance the possibility of donor/recipient matches.

    St. Luke's expects to overcome some of the usual limitations on available cadaveric organs because living donors can also be used to provide kidneys. Finally, St. Luke's maintains that a need

    exists for dual transplant programs, particularity the combination of kidney and pancreas programs.

12. St. Luke's proposes to provide adult kidney transplants as an alternative to life-long dialysis or death for patients suffering from end-stage renal disease. Nationally, the number of dialysis patients increased from 123,822 in 1987 to 287,000 in 1996. The number of patients waiting for kidney transplants increased from 13,000 in 1987 to 41,000 in 1999. The mortality for patients on waiting lists also increased from over 1700 in 1996 to over 2000 in 1997. Due to the large and growing demand for organs, the federal government contracts with the United Network for Organ Sharing (UNOS) to coordinate the allocation of cadaveric organs. UNOS has designated five organ procurement organizations (OPOs) in Florida, one at the University of Florida in Gainesville (the UF OPO), and the others at centers in Orlando, Tampa, Fort Myers, and Miami.

13. When cadaveric organs become available and are retrieved by surgeons from the nearest OPO, UNOS governs the priority in offering the organs. Organs are offered first to the United States military transplant centers, second to potential recipients who are six antigen or "perfect matches," then as paybacks to OPOs who have provided "perfect matches," and finally to various categories of other high-grade matches. After the organ is offered but not taken in the mandatory UNOS sharing

    hierarchy, the organ becomes available to local programs within the procuring OPO.

14. St. Luke's will participate in the UNOS program for kidneys as it currently does for other organs, and expects to follow the medical protocols established at Mayo-Rochester, where kidney transplants have been performed for 30 years. St. Luke's has included $100,000 in start-up costs for Mayo-Rochester staff to train the St. Luke's staff. In establishing its successful liver transplant program, St. Luke's allocated $75,000 for comparable start-up costs.

15. Rule 59C-1.044(8)(d), Florida Administrative Code, provides for the determination of the need for new programs, in part, based on the number of transplants performed at existing providers, which must exceed 30. An applicant must also provide a reasonable projection of volume, in excess of 15 a year by the second year of the proposed new program.

16. Currently, two adult kidney transplant programs are approved or operational in each of the four service planning areas of Florida: at Shands in Gainesville and Methodist in Jacksonville in the north, which is service planning area one and coincides with the UF OPO; at Southwest Florida Regional in

    Fort Myers and Tampa General in western central Florida, which is service planning area two; at Florida Hospital in Orlando and Bert Fish Memorial in Volusia County in eastern central Florida, in service planning area three; and at the Cleveland Clinic

    Florida in Broward County and Jackson Memorial in Miami in the south, in service planning area four.

17. At the time of this hearing, Bert Fish Memorial and the Cleveland Clinic were approved but not operational. The six operational Florida programs increased in volume from 442 transplants in 1994 to 641 in 1997, or an average increase of 13.2% a year. However, recent growth has been less dramatic. Using one year longer to establish a trend, from 1994 to 1998 data, the average annual increase was 9% a year. Kidney transplant volumes ranged, in 1997, from a low of 45 at Southwest Florida to highs of 150 at Jackson Memorial and 162 at Tampa General.

18. From 1994 to 1997, the volume of kidney transplants within service planning area one increased from 35 to 52 at Methodist, and from 106 to 127 at Shands. As the parties stipulated, that volume exceeds the required minimum of 30 transplants at each provider in the service planning area. As also required by rule and stipulated by the parties, there are no new approved but not yet operational providers within service planning area one. Methodist notes that St. Luke's would be the first Florida program approved in a city which already has an existing kidney transplant service.

19. The United States Renal Disease System (USRDS) is a national organization which collects and reports statistics on patients with end-stage renal disease (ESRD). USRDS is divided

    into regional networks, including Network Seven which is the ESRD Network of Florida, Inc. The Board of Directors of Network Seven adopted the following motion:

    The Network Seven Board of Directors reviewed the report of the Network's task force regarding the need for additional renal transplant resources for Service Area 1.

    After a lengthy discussion, the Board unanimously agreed that the Standardized Transplantation Ratio for Florida's Service Area 1 would not justify the establishment of a new stand-alone renal transplant program in this area. However, it agreed that the availability of a multi-organ transplant service (ie: pancreas and kidney) would be beneficial to those ESRD patients in residing [sic] Service Area 1.

20. Two dual organ kidney and pancreas transplant programs are currently located in Florida, at Shands in Gainesville and at Jackson Memorial in Miami. Methodist notes that both are associated with medical schools at teaching hospitals, and are geographically well-suited to serve north and south Florida. Methodist's transplant surgeon who is the medical director of its program, and served on the Network 7 task force, agreed that a kidney/pancreas program is desirable. Apparently, most pancreas transplants are also done with kidneys but not vice versa. Relatively, few kidney/pancreas transplants are performed, although the number has doubled nationally since 1991. In 1997, there were 3 kidney/pancreas transplants at Shands, 3 at Mayo- Rochester and 33 at Jackson Memorial. The low volume of the dual transplant procedures reflected both medical skepticism and the absence of insurance reimbursement for the procedure when it was

    considered experimental. Having performed six dual transplants for no charge in 1998, Shands has been able to convince a majority of its third-party payors in Florida to pay for the procedure. The federal government, through the Medicare program, also changed its policy and now reimburses for kidney/pancreas transplants. As a result, the number of dual transplants is reasonably expected to increase. No CON is issued, under the Florida system, to authorize the dual kidney/pancreas program only. As Methodist noted, St. Luke's did not offer to condition its CON by limiting itself to a dual transplant program.

21. The standardized transplantation ratio (STR), on which the Network Seven Board relied, is the ratio of first kidney transplants to the expected number based on the estimated national rate adjusted for age. For the four Florida organ transplant service planning areas, the STRs reported by Network Seven are as follows:

    Region 1 (North) 1.00

    Region 2 (West Central) 1.35

    Region 3 (East Central) 1.19

    Region 4 (South) .66

    
    

    A STR of 1.0 indicates generally, that a region is performing transplants as expected based on the national average.

    Therefore, the suggestion that the performance is mediocre is rejected.

22. Methodist supports its argument that no need exists for an additional kidney transplant program at St. Luke's, based on Network Seven's finding that the STR for the region is roughly

    what should be expected. St. Luke's, however, asserted that the STR could be raised to the level of region two with the approval of a new program. In fact, the approval of a program at the Cleveland Clinic in Broward County, in region four, was supported by Methodist's expert health planner, among others, in part, by the desire to raise the STR. That situation can be distinguished based on geography and the failure in region four to meet expectations, while a better performance than the national average is not to be expected necessarily from the approval of another program in the same city in region one.

23. While the STR is helpful in an analysis of need, Rule 59C-1.044(8)(d), Florida Administrative Code, requires consideration of the projected transplant volume based on the number of end-stage renal disease patients. Basically, these are patients whose kidneys have ceased to function. From June to December 1998, Network Seven estimated that the number of patients with kidney failure in service planning area one increased from approximately 2800 to 3000. Using expected population growth only, not the historical growth rate, St. Luke's conservatively estimated in its CON that number of patients would reach approximately 2900 by the end of the year 2000. Because some patients are not medically appropriate transplant candidates or will, for other reasons, never receive the service, St. Luke's used a ratio of patients to project transplant cases. Using only 20% of patients between ages 14 and

    65, St. Luke's reasonably projects a need for over 300 kidney transplant surgeries in service planning area one in the year 2000. Using population increase and the lower historical growth rate of 9.5%, St. Luke's established a need for up to 450 kidney transplants in 2000 in service planning area one. Either number is sufficient to document St. Luke's ability to perform at least

    15 kidney transplants by the end of the second year of operation, as required by rule. Methodist's expert further reduced by 40% the number of potential transplant patients to get what the projected to be the actual number of surgeries. This number is intended to take into consideration the limited number of cadaveric organs. The result is, however, unrealistically lower numbers, in the range of the actual number of surgeries currently performed in area one and is, therefore, rejected. In fact, despite the limitations on cadaveric organs, the number of kidney transplants has continued to increase.

24. St. Luke's experience with liver transplants is also evidence of its ability to exceed the minimum number of 15 kidney transplants in the second year of operation. Specifically, St. Luke's expects to perform 15 kidney transplants in the first year, and 30 in the second year. More than double the projected number of Florida residents received liver transplants, 25 or 26 as compared to 12 or 13 cases in the first seven months of that program at St. Luke's. Compared to projections of 15 liver transplants in year one, 30 in year two, St. Luke's transplant

    surgeons actually performed 113 after 18 months. Significantly, the volume at Shands has also increased based on the annualized volume for the first quarter of 1999. St. Luke's also demonstrated that it is successfully transplanting livers which were rejected by other Florida programs. Currently, the same team of transplant surgeons harvests all abdominal organs, livers, kidneys, and pancreases, but can use only the livers at St. Luke's. The surgeons who perform the liver transplants at St. Luke's will also perform kidney transplants. As a result of the team's aggressive use of organs and recent changes in federal government requirements for notice of potential donors and reimbursement policies, St. Luke's is reasonably expected to assist in expanding the available supply of cadaveric organs and in increasing the number of transplant surgeries.

    Subsection 408.035(1)(a) - need in relation to district plan

    
    

25. The District 4 health plan, developed by the Health Planning Council of Northeast Florida, Inc., includes preferences applicable to the evaluation of St. Luke's application.

26. Preference one applies to applicants who will meet identified needs with acceptable quality in an economical manner. St. Luke's expert conceded that its proposal will be more costly and require longer average lengths of stay when compared to that at Methodist but not as compared to other Florida programs.

    St. Luke's projected an average length of stay of 7.6 days at

    
    

    $50,123 per case, but the Florida average is 10.5 days at

    $81,048. No construction is required for implementation of the project which has a total cost of $238,450. Therefore,

    St. Luke's proposal generally meets the requirements of preference one.

27. Preference two, for applicants who will alleviate a geographic access problem, is not met by St. Luke's. One argument advanced by St. Luke's and rejected is that the existing providers are not using organs at the appropriate rate. Considering 1997 data, Shands and Methodist appear not to accept and use kidneys at the expected rate, as calculated and assigned by UNOS. The reported expected acceptance rate for Methodist is 30.7% in contrast to an actual rate of 11.5%. Shand's assigned expected rate is reported to be 53.8% but its actual rate of acceptance is shown as 37.4%. Corrected UNOS data shows the opposite result, that acceptance rates are higher than expected. UNOS data is inconsistent and inconclusive. In general, the data is so unreliable as to have no significant probative value.

28. St. Luke's meets preference three by caring for HIV positive patients.

29. St. Luke's also demonstrated its access to adequate staff for a kidney transplant program, meeting the requirement of preference four. Methodist questioned St. Luke's failure to list a certified transplant nephrologist on its staff, but physician services are provided by salaried employees of Mayo-Jacksonville.

30. Preference five favors applicants who demonstrate that a new service will not have a significant negative impact on similar facilities. Even though there may be sufficient numbers of kidney disease patients who qualify for and have access to transplants in service area one, the geographic overlap of the programs is an issue of concern related to impact. Methodist primarily serves transplant service area one patients.

    St. Luke's draws 50% of its patients from Duval and the five surrounding counties, 35% from other areas of Florida, and 15% from elsewhere, primarily Georgia and the southeastern United States, but that also includes 3% of international origin. It is reasonable to expect St. Luke's to maintain approximately the same patient origin mix in a kidney program. This mix will require St. Luke's to perform only 8 kidney transplants on patients from service area one in order to reach the minimum volume requirement of 15 in the second year, which is actually projected for the first year. Currently, 16 Mayo-Jacksonville patients who are on the waiting list for kidney transplants at Methodist would likely receive transplants at St. Luke's if it had a program. Taking into consideration growth and applying a traditional impact analysis, Methodist will lose two to four cases, and Shands will lose nine cases in the first year of a competing program at St. Luke's. With that level of impact, both programs remain substantially above the minimum required by AHCA rule. One expert equated the loss of ten cases from Methodist,

    to a financial loss of $100,000, after reimbursement deductions and reduced expenses. The overall magnitude of Methodist's financial losses is so great that the loss of the contribution from the kidney transplant program is insufficient to affect the hospital's profitability. Similarly, the loss of nine cases from Shands leaves volume significantly above the minimum required.

31. Methodist and St. Luke's differ in their reliance on cadaveric and living donors, which also should help alleviate any impact of competition for cadaveric organs on the existing program at Methodist. While Methodist uses 50% living donors, St. Luke's projects a more traditional mix of 30% living. It is reasonable to expect that the growth in transplants, and the differences in patient and organ origins will allow Methodist to avoid any detrimental effect from the establishment of a program at St. Luke's.

32. Methodist suggested that the approved program in Volusia County, and to a lesser extent, that in Broward County will also be unable to achieve minimum volumes if a program is established at St. Luke's. Methodist's support for the Volusia County program, however, lends credence to St. Luke's assertion that the geographic overlap is minimal. St. Luke's demonstrated that the number of projected transplants, taking into consideration the approved programs, is considerably lower than the expected numerical increase in surgeries. Projections of 30 at St. Luke's, six at the Cleveland Clinic, and 25 at Bert Fish

    during the year 2000 are achievable from the projected growth in kidney transplants. The data also indicates that the Florida waiting lists for transplant candidates could and should be expanded. Separate transplant provider lists are coordinated into the organ sharing list maintained by UNOS. Nationally, 150 people for every one million are on waiting lists for kidney transplants. That number, even adjusted to exclude older patients, is double the ratio for the Florida waiting list. Some expansion is reasonably expected as a result of the establishment of a new Florida program. The numbers needed and projected at each program, the differences in projected patient origins, the ability to expand the waiting list and the absence of an adverse impact from the establishment of the liver transplant program at St. Luke's provide some assurance that a kidney transplant program will not be detrimental to the existing providers.

33. Preference six, for applicants who will maximize services to rural county residents, is met by St. Luke's service to surrounding rural areas.

34. In addition to the general health plan preferences for CON applicants, the District 4 health plan includes specific preferences for transplant services.

35. The parties stipulated that preferences one and five for applicants in major population areas (over 250,000) and for pediatric services are not at issue.

36. Specific preference two applies to applicants with relationships with a broad spectrum of other health care providers, including agreements for patient transfers and organ procurement. In response, St. Luke's refers to its active participation in the UF OPO. As Methodist notes, however, a continuation of the existing relationship, with Mayo physicians performing kidney transplants at Methodist, is the most cost- effective and non-duplicative alternative. St. Luke's transplant surgeons will continue to provide coverage for the surgeons at Methodist.

37. Transplant-specific preference three favors applicants who have a significant role in regional and national research efforts, including by government contracts or research grants. Methodist insists that a distinction be made between the well- known work of the Mayo Foundation and that of St. Luke's. The Mayo Foundation divides its services into three major segments - medical care, medical research, and medical education. Research is supported by over $100 million from government agencies and

    $80 million from the Foundation. Over a thousand residents and fellows are enrolled in Mayo educational programs. Over 75 transplant-specific research projects within the Mayo system are coordinated by a single institutional review board.

38. Admittedly, a non-university facility, St. Luke's does participate in Mayo educational and research activities. Over 60 Mayo-Rochester physicians, residents, and fellows were rotating

    through Mayo-Jacksonville and practicing at St. Luke's at the time the CON application was filed. St. Luke's separate budget for basic science research also exceeded $10 million for over 200 active research protocols. The medical research building at

    Mayo-Jacksonville exceeds 80,000 square feet in size. For these reasons, St. Luke's demonstrated that its participation in educational and research activities satisfies the preference.

39. Transplant preference four favors applicants with a specific commitment to provide charity care. In its application, St. Luke's commits to providing 6% of total kidney transplants to Medicaid or charity patients. One expert witness noted that

    St. Luke's commitment exceeds the statewide volume of 4% Medicaid/charity kidney transplant patients, which was the condition for approval of the Bert Fish CON. Most patients with end-stage renal disease are covered by Medicare.

40. In calendar years 1996-1998, Shands provided over 30% Medicaid and from 4 to 8% charity care. Methodist provided from

    9 to 11% Medicaid and approximately 2% charity care. By contrast, St. Luke's provided from .7% to 1.2% Medicaid and just over 2% charity case. St. Luke's meets the preferences by specifying a reasonable commitment for the kidney transplant program, although it has historically provided comparatively insignificant Medicaid and charity care.

41. Since organ transplant service area one includes Districts 1, 2, and 3, as well as 4, St. Luke's and AHCA also

    considered the local health plans for those districts. Both noted that District 3 has a preference for organ transplant applicants which are teaching hospitals, as defined by Florida Statutes. St. Luke's does not meet that preference. It is not a statutory teaching hospital.

42. On balance, St. Luke's does meet the intent of local health plans preferences and, therefore, the requirements of Subsection 408.035(1)(a), Florida Statutes.

    Subsection 408.035(1)(b) - increase/improve availability, access, quality of care, efficiency, utilization,

    and adequacy of like and existing facilities in the district

    
    

43. In its application, St. Luke's illustrated the concern for renal patients as follows:

    End-stage renal disease is a large and growing problem in Florida and north Florida. with 14,168 ESRD patients in Florida and 2,822 ESRD patients in service planning area one during 1998, with 787 Florida residents added to the kidney waiting list during 1997, and with Florida resident deaths due to diabetes growing to 3,828 deaths by 1997, the magnitude of the ESRD problem is evident.

    St. Luke's Exhibit 1 at p. 96.

    
    

    St. Luke's plans to serve an increasing pool of patients within the District and the service planning area.

44. With its aggressive use of organs, St. Luke's can also increase available cadaveric organs, thus increasing numerically, the accessibility, availability and utilization of kidney transplant services in the district. The efficiency of all providers is also reasonably expected to be enhanced due to the

    introduction of competition into the market. Currently, the relationship between Methodist and Shands is not competitive.

    Subsection 408.035(1)(c) - quality of care

    
    

45. Modeled after that of the Mayo Clinic Rochester,

    
    

    St. Luke's kidney transplant program will be emulating a program with the nation's best survival rates despite its use of organs which have been rejected by others.

46. St. Luke's is licensed by the AHCA, certified to participate in the Medicare and Medicaid programs, accredited by the Joint Commission on the Accreditation of Health Care Organizations (JCAHO), and certified by UNOS to perform transplants. The parties stipulated that St. Luke's has a history of providing a high quality of care. The evidence also supported a finding that St. Luke's will also provide the same high quality of care in kidney transplantation services, using the same physical spaces, by essentially the same staff.

    St. Luke's staff will require only specialized kidney transplant training and equipment.

    Subsection 408.035(1)(d) - available and adequate alternatives

    
    

47. An alternative to a new kidney transplant provider is the expansion of the volume of cases performed at existing providers. There are no physical constraints to the alternative, only the need for additional staff and supplies. Methodist and Shands can absorb the projected increase in kidney transplant surgeries in the service planning area.

48. Given that lack of constraint, the minimum volume established for existing providers by rule, gives the guidance to determine whether it is appropriate to expand volumes at existing providers or to introduce a new provider. Because there is no competition in the service area in which the existing providers are well above the minimum volume, and the projected volumes for the new programs are exceeded by the projected additional transplants, the establishment of an additional program is appropriate.

    Subsection 408.035(1)(e) - economies and improvements from joint operative or shared resources

    
    

49. The advantages of developing a kidney transplant program at St. Luke's include:

    the ability to utilize the existing infrastructure which supports the liver and bone marrow transplant programs; and

    the ability to adopt Mayo Rochester's treatment protocols, standards, and training resources, and to participate in its research projects.

    
    

50. The only clearly identified disadvantage is the risk of undermining the cooperation of Mayo-Jacksonville transplant surgeons with Methodist and the loss of some transplant surgeries from Methodist and Shands.

51. On balance, the introduction of a kidney program in Florida, emulating the Mayo-Rochester program, offers a valuable sharing of Mayo resources.

    Subsection 408.035(1)(f) - need for equipment or services not accessible in adjoining areas

    
    

52. St. Luke's proposal will not result in the introduction of any special equipment or services which are not reasonably or economically accessible in adjoining areas.

    Subsection 408.035(1)(g) - need for research

    and educational facilities; (1)(h) - needs of training programs and schools for health professionals

    
    

53. Mayo-Jacksonville has active research, medical residency, and fellowship training programs in Jacksonville.

    Most of the inpatient care associated with the research and educational programs is provided at St. Luke's. A new program at St. Luke's offers new educational opportunities for Mayo- Jacksonville physicians.

    Subsection 408.035(1)(h) - availability of personnel for project accomplishment (see also Rule 59C-1.044)

    
    

54. While the statutory criteria generally, considers whether CON proposals include plans to employ the necessary personnel, the organ transplant rule gives much greater detail. As required by rule, St. Luke's has the staff needed to care for the transplant patients. It offers 24-hour on-site dialysis, and is staffed by renal care and dialysis nurses, nutritionists, respiratory therapists, social workers, psychologists, dialysis laboratory workers and administrators. Physicians include board and UNOS certified transplant surgeons, anesthesiologists, pathologists, psychiatrists, nephrologists, endocrinologists, and immunologists and infectious disease specialists.

55. In addition to the health care professionals needed for operation of a kidney transplant program, St. Luke's has significant experience with the data collection process necessary to evaluate adequately a transplant program. Among the requirements of the Rule are a 24-hour shared call system for organ procurement, and clinical review committees, which already exist. St. Luke's operates a 17-bed intensive care transplant unit capable of prolonged reverse isolation, if required. Equipment is available and in operation for cooling, flushing, and transporting organs, as are an on-site tissue typing laboratory and an in-house blood bank, as the parties stipulated.

    Subsection 408.035(1)(h) - availability of funds for project accomplishment and

    Subsection 408.035(1)(i) - immediate and long-term financial feasibility

    
    

56. The total project cost is $238,450, which covers filing fees, staff training, and equipment. No renovation or construction costs are anticipated because St. Luke's has adequate capacity to implement the kidney program in existing spaces.

57. Methodist's expert testified that the financial feasibility of the project cannot be determined due to errors on Schedule 2 of the CON application and the lack of reliable utilization projections. As previously determined, the utilization projections are supported by the projected number of area one patients with kidney failure who ultimately have transplant surgeries.

58. Schedule 2 of the CON application lists the capital project commitments of the applicant. St. Luke's listed projects which total $35.9 million taken from a "1998 Capital Budget Request Summary." The total, in excess of $35 million, represents the budget request summary of just over 34 million, minus approximately $4 million that had already been spent, plus a little over $5 million for the two pending CONs and expansion of an intensive care unit (ICU). The ICU expansion cost of

    $500,000, was understated by $766,000. At the hearing, however, St. Luke's expert testified that he mistakenly listed St. Luke's "wish list," when he used $34 million, which exceeded "approved" projects by $17 to $18 million. That total would have been approximately $16,974,000. The available cash and investments for St. Luke's, approximately $80 million, is sufficient to cover the project costs and other capital projects at either $35 million or $16 million, or $21 million if, as asserted at hearing, the $16 million is understated by $5 million. The proposal is financially feasible in the short-term, even considering the decline in available cash and investments to $65 million at the time of the final hearing.

59. In terms of long-term financial feasibility, the experts considered profits or losses from operations. St. Luke's experienced losses from operations of $4.5 million, $4 million, and $12.9 million in the years 1996, 1997, and 1998, respectively. When investment income is considered, however,

    St. Luke's had a positive income figure of $5.2 million in 1997 and losses reduced to $.7 million in 1998. St. Luke's explained the losses as temporary due to the initiation of costly new services, the enhancement of information systems, and an increase in charity care.

60. The charges for kidney transplants at St. Luke's are expected to equal $57,200 a case, or $1.7 million in gross revenue for 30 cases at the end of the second year of operations. The expected charges are reasonable when compared to charges, in 1996, of $50,000 at Mayo-Rochester, $42,000 at Shands, $38,000 at Methodist, and a Florida average of $81,000. Kidney transplants continue to receive cost-based reimbursements from Medicare.

    From the $1.7 million in gross revenue, St. Luke's expert projected an incremental profit of approximately $100,000. In addition, the audited financial statements of the Foundation were submitted with St. Luke's CON, with a statement of the Foundation's willingness to fund the project. With over $1 billion in cash and investments and, for 1997, net income over

    $31 million, the Foundation is able to assure the short and long- term financial feasibility of the kidney transplant program at St. Luke's.

    Subsection 408.035(1)(j) - needs of a health maintenance organization (HMO)

    
    

61. Although the Mayo organization includes a licensed Florida HMO, the proposal is not intended to serve its needs any more than those of any other potential patients. Mayo-

    Jacksonville and St. Luke's have contracts to provide services to a number of other HMOs.

    Subsection 408.035(1)(k) - substantial services

    to non-resident of the district or adjacent districts

    
    

62. Currently, St. Luke's attracts 51% of its patients from Duval County, another 21% from the other counties in District 4, 16% from the rest of Florida, and the remaining 12% from outside of Florida. The patient origin for Mayo-Jacksonville is even more geographically dispersed than that of St. Luke's, with 22% of from outside of Florida. By comparison, nearly 99% of Methodist's patients come from North Florida. St. Luke's patient origin data indicates the reasonableness of its expectation that 15% of kidney transplant patients will come from outside Florida. St. Luke's, therefore, meets the criterion for substantial service to non-residents.

    Subsection 408.035(1)(l) - impact on costs, effects of competition on improvements or innovations in financing and delivering services with quality assurance and cost-effectiveness

    
    

63. St. Luke's expects expanded transplant services to reduce its overall fixed cost per transplant. The introduction of a Mayo-affiliated medical program is reasonably expected to introduce beneficial competition to the market which currently has no competition. The fact that competition will come from a nationally-known, very successful program is expected to have a positive impact on existing programs.

    Subsection 408.035(1)(m) - costs and methods of construction

    
    

64. Methodist contends that St. Luke's omission of architectural drawings or floor plans in the CON makes it impossible to consider the statutory criteria related to construction. While St. Luke's failed to include any architectural drawings, it did include descriptions of the existing spaces and in-house services which will support the program. Schedule 1 and 9 of the application show that no costs are associated with construction, expansion, remodeling or demolition. Architectural drawings were not submitted and not required by AHCA for CONs filed by the Cleveland Clinic (kidney transplant), Tampa General (lung transplant), and University Medical Center (heart transplant). In each instance, the facility proposed using existing spaces for the new programs. Based on AHCA's past practices in comparable circumstances,

    St. Luke's application is not flawed due to the absence of architectural plans.

    Subsection 408.035(1)(n) - history of and proposed services to Medicaid and medically indigent patients

    
    

65. St. Luke's has historically provided limited Medicaid and charity care. See Findings of Fact 39 and 40. St. Luke's proposal to perform 3% Medicaid and 3% charity kidney transplants in the second year of operation is the equivalent of one Medicaid and one charity case. That commitment, however, exceeds the Florida average and the commitment AHCA required of Bert Fish

    program. The commitment made by St. Luke's is adequate for kidney transplant services.

    Subsection 408.035(1)(o) - past and proposed continuum of care in multi-level system

    
    

66. St. Luke's affiliation with Mayo physicians' practices and the Mayo-Jacksonville clinic allow it to incorporate kidney transplant services into a multi-level system which includes home health and outpatient care.

    Subsection 408.035(2)(a) - capital expenditures proposals (a) less costly alternatives; (b) utilization

    of similar services; (c) alternatives to new construction; and (d) serious access problems

    
    

67. Subsection 408.032(2), Florida Statutes, defines capital expenditures as follows:

    "Capital expenditure" means an expenditure including an expenditure for a construction project undertaken by a health care facility as its own contractor, which, under generally accepted accounting principles, is not properly chargeable as an expense of operation and maintenance, which is made to change the bed capacity of the facility, or substantially change the services or service area of the health care facility, health service provider, or hospice, and which includes the cost of the studies, surveys, designs, plans, working drawings, specifications, initial financing costs, and other activities essential to acquisition, improvement, expansion, or replacement of the plant and equipment.

68. In this project, St. Luke's proposes to incur the cost for kidney transplant equipment to establish the new service. The least costly alternative is enhanced Mayo participation in the program at Methodist. Methodist is, however, sufficiently

    utilized, well in excess of the rule minimum. No new construction is required at St. Luke's to implement the kidney transplant service. Patients will not, however, experience serious problems with access to kidney transplant services if St. Luke's is not approved. There are no physical constraints on the expansion of services at Shands or Methodist.

69. In the absence of physical constraints at existing providers, but in consideration of their volumes which are well in excess of that required, the introduction of competition of the Mayo quality at such low cost is, on balance, desirable for the health care system.

    CONCLUSIONS OF LAW

    
    

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

71. The applicant, St. Luke's, bears the burden of establishing, by a preponderance of the evidence, its entitlement to a certificate of need (CON) to establish a new kidney transplant program in service planning area one, given a balanced consideration of the applicable statutory and rule criteria must be made. 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., Inc., 396 So. 2d 778 (Fla. 1st DCA 1981).

72. Methodist established its standing pursuant to Subsection 408.039(5)(b), Florida Statutes, to initiate and maintain its challenge to the preliminary decision to approve St. Luke's CON. As an existing licensed provider of kidney

    transplant services in the same district as St. Luke's, Methodist would treat patients who will go to a program at St. Luke's.

    Methodist is also in dire need of every patient for whose case it received positive financial contribution, which includes kidney transplant patients. Methodist did not and was not required to show that the loss of the kidney program is, in and of itself determinative of its solvency. Methodist established its standing, nevertheless, as liberally construed by AHCA in Paracelsus Peninsula Medical Center, Inc. v. Agency for Health Care Administration, DOAH Case No. 92-5100 (F.O. 6/6/94). The Motion to Dismiss Methodist for Lack of Standing is denied. The Motion to Substitute Party is granted.

73. By a preponderance of the evidence, St. Luke's established that its CON application on balance, meets the requirements of the district health plan, as required by Subsection 408.035(1)(a). St. Luke's program will introduce a cost-efficient, high quality competitor to the market, although it will not alleviate the geographic access problem. St. Luke's program is not likely to have a detrimental impact on the programs at Methodist, Bert Fish, or Shands. The effect is minimal in light of existing volumes and projected increases in

    the number of transplant patients. St. Luke's serves patients with HIV, patients from rural areas, and included in its proposal an adequate and appropriate commitment to serve Medicaid and charity kidney transplant patients, in compliance with the health plans and Subsection 408.035(1)(a), Florida Statutes.

74. St. Luke's, the parties stipulated, is in a large metropolitan area and will not take pediatric kidney transplant patients. Although not a teaching hospital as required by one preference, St. Luke's has major educational and research components.

75. St. Luke's, based on its experience with liver transplants, is expected to increase the utilization of cadaveric kidneys and to enhance efficiency by introducing competition to the market. See Subsection 408.035(1)(b), Florida Statutes.

76. The quality of care at St. Luke's is and, in the kidney transplant program, is expected to be excellent. See Subsection 408.035(1)(c), Florida Statutes.

77. There are no viable alternatives to impatient kidney transplants for end-stage renal disease patients, although existing inpatient facilities could absorb the expected increase in patients if capacity were the sole consideration. See Subsection 408.035(1)(d), Florida Statutes.

78. St. Luke's ability to share Mayo-coordinated protocols and research is a benefit to the local service planning area,

    which will not affect the coverage provided by Mayo physicians at Methodist. See Subsection 408.035(1)(e).

79. St. Luke's will not introduce special equipment or services which are not accessible in adjoining areas. See Subsection 408.035(1)(f).

80. The kidney program at St. Luke's will be part of a research, educational, and training facility. See Subsections 408.035(1)(g) and (h).

81. Whether provided by St. Luke's or the Mayo Foundation, St. Luke's demonstrated that it has the staff and funds to establish the kidney transplant program, despite its failure to clearly support any one of two different scenarios related to Schedule 2. St. Luke's also showed a positive financial contribution for the establishment of the proposal. The project is financially feasible in the short and long term. See Subsections 408.035(1)(h) and (i), Florida Statutes.

82. St. Luke's project will not meet the needs of an HMO. See Subsection 408.035(1)(j), Florida Statutes.

83. Over one-fourth of St. Luke's patients originate outside the district, approximately half of them from outside the state. See Subsection 408.035(1)(k), Florida Statutes.

84. The expected decline in overall cost per implant at St. Luke's and positive effect on competition comply with the statutory criterion. See Subsection 408.035(1)(l), Florida Statutes.

85. No construction costs are required and, therefore, no construction plans needed, given the description of the existing spaces in which transplant services are provided. See Subsection 408.035(1)(m), Florida Statutes.

86. St. Luke's history of providing Medicaid and charity care is not impressive, but its commitment for the kidney transplant program is adequate. See Subsection 408.035(1)(n), Florida Statutes.

87. St. Luke's provides a continuum of services in a multi- level health care system. See Subsection 408.035(l)(o), Florida Statutes.

88. St. Luke's is the least costly alternative for the establishment of a new program with no construction, although capacity exists at current providers. There is no evidence that patients will experience serious problems in gaining access to kidney transplants without issuance of St. Luke's CON. In general, St. Luke's could not be approved based on the criterion in Subsection 408.035(2)(a)-(d), Florida Statutes.

89. Taking a balanced consideration of the criteria,

St. Luke's, in large part, based on the strength of its Mayo relationships and the success of its liver transplant program, meets the statutory and rule criteria for approval of a CON to establish kidney transplant services

RECOMMENDATION

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

That a final order be entered issuing CON 9078 to establish a new adult kidney transplant program at St. Luke's Hospital in Jacksonville.

DONE AND ENTERED this 17th day of February, 2000, 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

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 17th day of February, 2000.

COPIES FURNISHED:

Sam Power, Agency Clerk

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

2727 Mahan Drive

Tallahassee, Florida 32308

Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

Richard A. Patterson, Esquire

Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308

F. Philip Blank, Esquire

R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A.

204 South Monroe Street Tallahassee, Florida 32301

Michael J. Cherniga, Esquire Seann M. Frazier, Esquire Greenberg Traurig, P.A.

Post Office Drawer 1838 Tallahassee, Florida 32302

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.

Docket for Case No: 99-000724CON

Orders for Case No: 99-000724CON