STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MEMORIAL HEALTHCARE GROUP, ) INC., d/b/a MEMORIAL HOSPITAL ) JACKSONVILLE )

)

Petitioner, ) Case No. 02-0457CON

)

vs. )

)

AGENCY FOR HEALTH CARE ) ADMINISTRATION and ST. VINCENT'S ) MEDICAL CENTER, INC., )

)

Respondents. )

)

RECOMMENDED ORDER ON REMAND

This Recommended Order on Remand is entered following the decision of the First District Court of Appeal in Memorial Healthcare Group, Inc., d/b/a Memorial Hospital Jacksonville v.

State of Florida, Agency for Healthcare Administration, and St. Vincent's Medical Center, Inc., 1st DCA Case No. 1D03-1938, Op. filed August 4, 2004 (the "Opinion of the First District Court of Appeal" or the "Decision of the Court.")

The Decision of the Court reversed the final order of the Agency for Health Care Administration ("AHCA") issued in this case. The final order had dismissed for lack of standing a petition of Memorial's that had challenged AHCA's approval of a certificate of need ("CON") application submitted by

St. Vincent's. The Decision of the Court also remanded the

matter "for the ALJ to make additional findings and to hold additional evidentiary hearings, as necessary, relating to Appellant's [Memorial's] standing to challenge St. Vincent's CON 9481 application." Id., at 5.

Following the issuance of the court's mandate on August 20, 2004, "that further proceedings, if required, be had in accordance with [the opinion]," St. Vincent's promptly filed a notice of the decision and request for entry of a new recommended order (the "Notice"). In the Notice, St. Vincent's requested that a new recommended order be entered finding "[f]or the reasons stated in Respondents' Joint Proposed Recommended Order . . . that Petitioner did not prove sufficient injury in fact to have standing to challenge St. Vincent's . . . application . . . ." St. Vincent's Notice of First District

Court of Appeal's Decision and Request for Entry of New Recommended Order, filed August 23, 2004. The Notice further requested "for reasons of judicial economy" that the ALJ "consider also addressing the merits of St. Vincent's application." Id.

The Notice reported the position of St. Vincent's to be supported by AHCA. With regard to Memorial, it was reported that it was too soon after the Decision for the formulation of a firm position: "[c]ounsel for Petitioner Memorial wants to

review the matter more fully before taking a position on the relief requested in this Notice." Id.

Memorial's response to the Notice was filed September 1, 2004. In it, Memorial contended that additional evidentiary hearings were necessary to consider the impact of an amendment to the Health Facility and Services Development Act, Section

1. et seq., Florida Statutes (the "Act"), passed by the Florida Legislature in 2004 (the "Amendment to the CON Law" or the "Amendment").

   Approved by the Governor on June 28, 2004 with an effective date of July 1, 2004, see Chapter 2004-383, Section 6., Laws of Florida, the Amendment to the CON Law affects Section 408.036(1), Florida Statutes, a provision of the Act that governs, "projects subject to review." The Amendment struck from the list of such projects "neonatal intensive care units." In its response, Memorial contended,

   As a result of the [Amendment to the CON Law], an existing provider of Level II NICU services can add beds without the requirement of CON review. Pursuant to Section 408.036(5), the existing provider need merely give notification to . . . AHCA of its intent to add beds.

   
   

   Memorial's Response, paragraph 7, filed September 1, 2004. Memorial contended, therefore, that it is appropriate and necessary to consider the impact of the Amendment on this proceeding in two ways: (1) on the need for the services

   St. Vincent's intends to offer through approval of the application, and (2) on Memorial's standing.

   An Order was entered September 3, 2004, giving leave to St. Vincent's to file a reply by September 10, 2004. The reply, filed September 9, re-affirmed St. Vincent's position that there is no necessity for additional evidentiary hearings.

   On Friday, September 10, 2004, an Order was entered that denied the relief requested by Memorial in its response. The Order was followed shortly thereafter, however, by issuance of an order entitled "Order Upon Reconsideration Sua Sponte." The effect of that Order, issued Tuesday, September 14, 2004, was to withdraw the September 10 Order. The Order on Reconsideration requested the parties to answer a series of questions and brief more fully a number of points of law including the applicability of the case law in City of Palm Bay v. Department of Transportation, 588 So. 2d 624 (Fla. 1st DCA 1991), and Lavernia v. Department of Professional Regulation, Board of Medicine, 616 So. 2d 53 (Fla. 1st DCA 1993), rev. den., 624 So. 2d 267 (Fla.

   1993).

   
   

   Oral argument was scheduled for September 23, 2004. At the request of St. Vincent's, and without objection, oral argument was re-scheduled for September 30, 2004. The arguments of the parties were taken under advisement. Shortly thereafter, it was determined that additional evidentiary proceedings were not

   appropriate and therefore were not necessary. See the Conclusions of Law, below. The relief requested by Memorial in its response to the Notice therefore was denied for a second time. The order reflecting the ruling was issued October 4, 2004.

   This Recommended Order on Remand follows. Based on the record of the earlier proceedings and transmitted from the appellate court following the remand, it supplements the Recommended Order rendered in this case February 14, 2003. (That Recommended Order, in turn, had incorporated, to the extent relevant, a Recommended Order entered in four consolidated cases, the lowest DOAH case number of which was Case No. 02-0447CON.)

   APPEARANCES

   
   

   For Memorial Healthcare Group, Inc., d/b/a Memorial Hospital Jacksonville:

   
   

   Stephen A. Ecenia, Esquire

   R. David Prescott, Esquire Richard M. Ellis, Esquire

   Rutledge, Ecenia, Purnell & Hoffman, P.A.

   215 South Monroe Street, Suite 420 Post Office Box 551

   Tallahassee, Florida 32302-0551

   For Respondent St. Vincent's Medical Center, Inc.: Stephen C. Emmanuel, Esquire

   Michael J. Glazer, Esquire Ausley & McMullen

   227 South Calhoun Street Post Office Box 391

   Tallahassee, Florida 32302-0391

   
   

   For Respondent Agency for Health Care Administration:

   
   

   Kenneth W. Gieseking, Esquire

   Agency for Health Care Administration 2727 Mahan Drive

   Building Three, Suite 3431 Tallahassee, Florida 32308-5403

   
   

   SUPPLEMENTAL FINDINGS OF FACT

   
   

   1. Incorporation of Findings in First Recommended Order

      
      

      1. The findings of fact in this Recommended Order on Remand supplement the first Recommended Order in this case. The findings in the first Recommended Order stand except to the extent inconsistent with these supplemental findings.

      2. The findings that are supplemented necessarily include the findings of fact in the Recommended Order in DOAH Case No. 02-0447CON rendered February 5, 2003, and adopted in a Final Order issued by AHCA in Rendition No. 03-0257FOFCON. (The findings in the Recommended Order in DOAH Case No. 02-0447CON, to the extent relevant, were incorporated into the first Recommended Order issued in this case, DOAH Case No. 02-0457.)

   2. Decisions of the First District Court of Appeal

      
      

      1. The Decision of the First District Court of Appeal in this case was preceded by another decision of the court: a per curiam affirmance of the final order in AHCA Rendition No. 03- 0257FOFCON. See Memorial Healthcare Group, Inc., v. Agency for

         Health Care Administration, Op. filed June 12, 2004, 1st DCA Case No. 1D03-1958.

      2. The case that led to the final order under review in 1st DCA Case No. 1D03-1958 is related to this case in that both were heard in a consolidated hearing at DOAH. The proceedings, one of comparative review of applications by St. Luke's Hospital Association, St. Vincent's Medical Center, Inc., and Southern Baptist Hospital of Florida for three separate hospitals, and this one concerning St. Vincent's application for a 10-bed Level II Neonatal Intensive Care Unit ("NICU"), culminated at DOAH, as agreed-to by the parties, however, in separate recommended orders.

      3. The Recommended Order in the comparative review proceeding recommended that all three hospital applications be approved. In its final order AHCA accepted the recommendation. The final order was affirmed per curiam by the First District Court of Appeal six weeks prior to the Decision of the Court in this case.

      4. In the Decision of the Court in this case, the court reversed AHCA's final order that Memorial did not have standing to challenge approval of St. Vincent's NICU application. The court remanded "for the ALJ to make additional findings and to hold evidentiary hearings, as necessary, relating to Appellant's

         standing to challenge St. Vincent's CON 9481 application." Decision of the Court, at 5.

   3. Standing

      
      

      1. The Opinion of the First District Court of Appeal

         
         

         1. On the issue of Memorial's standing to challenge the approval of St. Vincent's CON Application No. 9481, the court in its Opinion wrote:

            The ALJ found that, because the approval of CON 9481 would not result in any new service, and denial of the CON would not result in the termination of the existing service, Appellant [Memorial] had not demonstrated that CON 9481, whether approved or denied, would substantially affect Appellant. However, Appellant raised three distinct arguments as to injury in fact: "new" NICU services, change in payor mix, and staffing shortages. In fact, Appellant proposed findings as to the need for a new NICU unit, the change in payor mix, and the possibility of staffing losses. The ALJ addressed only the first of Appellant's three arguments in either recommended order. AHCA added no new analysis to its adoption of the ALJ's recommended order.

            
            

            ALJs are required to make specific factual findings on substantial issues as here.

            Mayes v. Department of Children and Family Servs., 801 So.2d 980, 982 (Fla. 1st DCA 2001). Here, the ALJ concluded that Appellant was not injured in a certain way, but failed to examine whether Appellant might be injured in other ways.

            Accordingly, the ALJ did not make findings sufficient to support his and AHCA's conclusion that Appellant did not have standing to challenge CON 9481.

            Decision of the Court, at 4-5. Findings are now required with regard to two ways in which Memorial claims it will be injured by the approval of CON Application No. 9481: (a) change in payor mix, and (b) possibility of staffing losses.

      2. Change in Payor Mix

         
         

         1. Inconsistent Positions

            
            

         1. The "change in payor mix" advanced by Memorial as a basis for standing concerns a change based on Medicaid volume after St. Vincent's commences operation of the NICU program now at St. Luke's if St. Vincent's application is approved.

         2. While Memorial alleges that its existing Level II NICU program will be substantially affected by the issuance of the CON applied for by St. Vincent's on the basis of a change in payor mix, it also takes a position that poses the potential for inconsistency.

         3. On the one hand, Memorial claims that "St. Vincent's aggressive conditions of 27.4% of Level II NICU patient days to Medicaid recipients and 68.9% to managed care patients will necessarily be siphoned from Memorial's existing OB and Level II NICU volume." Memorial's Proposed Recommended Order, at p. 8, para. 15. Hence, in Memorial's view, the conditions confer standing on Memorial.

         4. On the other hand, Memorial claims because of the historical performance of low percentages of Medicaid and

            charity care patients in OB and NICU services offered by St. Luke's, the present operator of the NICU that St. Vincent's hopes to operate after issuance of the CON, that "St. Vincent's condition on its application to provide 27.4% of its Level II patient days to Medicaid recipients at St. Vincent's at St.

            Luke's is highly unrealistic." Id. If St. Vincent's performance is significantly below what it has promised, the impact to Memorial becomes insubstantial.

         5. A further problem with Memorial's position is that it does not quantify the impact of a change in payor mix.

            1. St. Vincent's Commitment

               
               

         6. The level of total charity care and treatment to Medicaid recipients in the NICU proposed by St. Vincent's are even greater with the passage of time than those referred-to by Memorial. St. Vincent's commitments with regard to charity care and Medicaid patients in its second year of operation are detailed in the Agency's SAAR:

            At the second year of operation, St. Vincent's Medical Center commits to 1.9 percent of total NICU Level II patient days to charity care and 29.9 percent of total NICU Level II patient days to Medicaid recipients.

            
            

            St. Vincent's Ex. 5, p. 2.

            
            

         7. As Memorial points out, the levels of commitment St.

            
            

            Vincent's makes in its application is significantly more than

            the actual levels of Medicaid and charity care experienced in the NICU at St. Luke's. In calendar year, 2000, for example, St. Luke's provided 3.4% of its obstetrical services ("OB") to Medicaid recipients and 3.9% NICU services to Medicaid patients. During the same time period, St. Luke's provided 2.4% to charity care patients for both OB and NICU.

         8. In contrast to St. Luke's, St. Vincent's has historically provided much greater levels of total charity care and treatment of Medicaid patients in its OB and NICU programs. For calendar year 2000, for example, St. Vincent's at its facility across the river from St. Luke's provided 24% of its OB volume and 27.5% of its NICU volume to Medicaid recipients. During the same time period, St. Vincent's provided 2.8% of its OB volume and 3.0% of its NICU volume to charity care patients.

         9. St. Vincent's, without abandoning its argument that Memorial does not have standing, contends that it would likely meet the conditions in its application with regard to total NICU Level II patient days provided to charity care patients and Medicaid recipients. In other words, St. Vincent's agrees with one part of Memorial's inconsistent argument: the half that Memorial uses as a base for standing.

            1. Resolution of Memorial's Inconsistency

               
               

         10. The inconsistency in Memorial's positions is resolved in favor of St. Vincent's position. Because of St. Vincent's

             historical record, it is reasonable to believe that St. Vincent's will attract and treat substantially more Medicaid and charity babies in its Level II NICU at St. Luke's than are currently served by Mayo at St. Luke's. The testimony and evidence in the proceeding, moreover, establish that it is reasonable to project that St. Vincent's will achieve the percentages provided for in the charity care and Medicaid conditions in the application.

             1. Memorial's Experience and Future Demand

                
                

         11. Memorial's NICU occupancy rate was 55.86% in the period from July 1, 2000 to June 30, 2001. The 10-bed Level II NICU at St. Luke's opened in August of 2000. Although Memorial's Level II NICU experienced a decline in patient days from 1999 to 2000 because of the initiation of OB and NICU services at Baptist Medical Center, Level II NICU patient days at Memorial have increased in the wake of the opening of St. Luke's unit. Patient days at Memorial in 2001 were higher than in 2000. There are numerous months, moreover, in which Memorial's census was higher in 2001 than comparable months in the prior year.

         12. Further, there have been numerous days in 2002 in which the daily census in the Memorial NICU has not only exceeded 80%, it has exceeded 100%. In fact, the census in Memorial's 10-bed Level II NICU has been as high as 18 in 2002

             despite the existence of St. Luke's Level II NICU. Moreover, with continued growth in population, demand for Level II NICU services in the Memorial and St. Vincent's service areas is likely to increase, which will contribute to utilization of Memorial's NICU.

             1. Likely Loss of Medicaid Patients

             
             

         13. Despite the future increase in demand overall, it is likely that Memorial will lose Medicaid patients to St. Vincent's if CON 9481 is approved and St. Vincent's becomes operational. In other words, with approval of St. Vincent's application, it is reasonable to project that there will be a substantial change in Memorial's payor mix.

         14. Memorial did not present evidence that quantified in terms of lost census or financial loss the impact of approval of St. Vincent's application, and it is reasonable to project that population growth will make up for a substantial part of loss of Medicaid patients. These two factors do not assist Memorial's case for standing. Still, the likelihood is strong that Memorial's payor mix will be changed substantially with approval of the application. In sum, Memorial will likely lose a substantial number of Medicaid patients if St. Vincent's achieves the Medicaid conditions it proposes so that its payor mix will be changed substantially.

      3. Possibility of Staffing Losses

      
      

      1. With regard to the possibility of staffing losses, Memorial makes only one reference in one sentence in its PRO. The reference occurs in a proposed findings of fact: "Conversely, Memorial is likely to loose [sic] nursing staff and patients to St. Vincent's should its application be approved." Memorial's Proposed Recommended Order, p. 15, para. 8. There is no reference to the possibility of staffing losses in the proposed conclusions of law in Memorial's PRO.

      2. Memorial competes mainly with Baptist and St. Luke's for recruitment and retention of staff in women's services, which includes a mother/baby unit and the NICU. In the year prior to final hearing, Memorial lost several staff members to St. Luke's with the opening of the NICU at St. Luke's. There was no credible evidence, however, that Memorial will continue to lose staff to St. Luke's if the NICU at St. Luke's continues under the operation of St. Vincent's.

   4. Need

1. District-wide Factors Including No Fixed Need Pool

   
   

   1. Memorial's case that there is no need for the NICU applied-for by St. Vincent's is based on several factors that have a district-wide base. First, the calculation of fixed need under the Agency's rule yielded need for no new Level II NICU beds within District 4 during the applicable planning horizon.

      Put another way, the fixed-need pool for the horizon is zero. Second, Memorial asserts there is currently modest to low utilization among existing District 4 Level II NICU providers.

   2. The second conclusion is supported by Memorial Exhibit 22, at p. 115. The exhibit shows that in the period from

      July 1, 2000 through June 30, 2001, utilization ranged from a low of 37.47% to a high of 67.90% among the seven Level II NICU providers in the district. (Only Orange Park Medical Center had a utilization below 50%.)

2. Enhanced Experience at Memorial

   
   

   1. Memorial also provided evidence that a higher NICU census at Memorial's Level II NICU will enhance the experience of both nursing and support staff as well as the overall efficiency of the Level II NICU at Memorial.

3. Missing the Mark

   
   

   1. A zero fixed-need pool, moderate district-wide utilization of NICU services and the likely enhancement of the experience at Memorial's NICU if St. Vincent's application is denied do not carry much weight in this case, particularly since St. Vincent's application is for the continuation of St. Luke's existing program. Of far more import is the fundamental nature of Level II NICUs and the quality of care and access to care provided to both mother and baby by a Level II NICU in the

      hospital where the baby is born when the baby requires such a service.

   2. Need analysis for continuation of the Level II NICU program at St. Luke's after St. Vincent's begins operation there begins with findings related to St. Luke's existing OB and NICU programs.

      1. St. Luke's Existing OB and NICU Program

         
         

   3. St. Luke's currently has an existing 17-bed Labor- Delivery-Recovery-Postpartum ("LDRP") unit with 10 antipartum beds and two C-section rooms. The OB program at St. Luke's is known as The Family Birth Place. It has a separate entrance and uses a strong LDRP concept. The Family Birth Place was not part of the original hospital construction but was added in 1998 to accommodate the new OB service.

   4. The LDRP rooms are spacious and well decorated. Each is a private room.

   5. There are both Mayo and community obstetricians on staff delivering babies at St. Luke's.

   6. Since opening, the number of deliveries at St. Luke's has increased from approximately 500 in the first year to 1,500 to 1,800 annually in recent years.

   7. In August 2000, a 10-bed Level II NICU was opened as part of The Family Birth Place.

   8. The CON for the unit at St. Luke's was approved without opposition from Memorial. There is little evidence that the opening of the unit at St. Luke's has adversely affected Memorial's Level II NICU.

   9. The Level II NICU at St. Luke's is fully staffed and fully equipped.

   10. The St. Luke's NICU has maintained the requisite staff-to-baby ratios.

   11. When babies are in need of Level III NICU services, they are typically transferred to Baptist Medical Center and sometimes to Shands Jacksonville.

   12. There are no significant differences between the NICU programs at St. Vincent's and St. Luke's.

   13. The neonatalogists are Medicaid providers and treat Medicaid and charity babies at both St. Vincent's and

       St. Luke's.

       
       

   14. As found above, because of St. Vincent's historical track record, it is reasonable to believe that St. Vincent's will attract and treat more Medicaid and charity babies in its Level II NICU at St. Luke's than are currently served by Mayo.

       b. Mayo's Plans for Obstetrical and NICU Services

       
       

   15. St. Vincent's and Mayo have entered into an agreement whereby Mayo will sell St. Luke's Hospital to St. Vincent's, and use the proceeds from that sale to help finance the building of

       a replacement hospital for the Mayo physicians to be located on the campus of the Mayo Clinic. Under the agreement, St.

       Vincent's will in essence be providing the majority of the funding for the building of the Mayo replacement hospital, and the community will be getting the "new" St. Luke's Hospital for free. Barring further judicial review, the agreement, contingent upon final approval of the St. Vincent's and Mayo's CON applications 9484P and 9483, is no longer dependent upon the contingency. The AHCA final order approving the applications has been affirmed by the First District Court of Appeal.

   16. Mayo does not plan to take the obstetrical and Level II NICU programs to its replacement hospital. As such, neither the Mayo obstetricians nor community obstetricians will deliver babies in the replacement hospital.

   17. The offices of the Mayo obstetricians are located across the street from St. Luke's and not on the Mayo Clinic campus.

   18. It is reasonably expected that the Mayo obstetricians will maintain their practices at St. Luke's. In fact, obstetrics is an important part of Mayo's teaching mission and Mayo will continue to utilize St. Luke's obstetrical services. Mayo is already educating its staff regarding the possible transition. It is likely that the Mayo nurses that want to transition out of OB and NICU services in order to stay with

       Mayo will do so well in advance of the change of ownership. It is also reasonable to expect that the nurses and other staff that want to continue to treat OB and NICU patients (should St. Vincent's application be approved) will make the decision to transfer to the employ of St. Vincent's at St. Luke's, thereby making for a seamless transition from one owner to the next.

4. Level II NICUs

   
   

   1. Florida Administrative Code Rule 59C-1.042, Florida Administrative Code (the "Rule"), governs "Neonatal Intensive Care Services." "Level II Neonatal Intensive Care Services" are defined in the Rule as:

      Services which include the provision of ventilator service, and at least 6 hours of nursing care per day, shall be defined as Level II neonatal intensive care services. Level II services shall be restricted to neonates of 1000 grams birth weight and over with the following exception.

      
      

      [The exception relates to neonates of less than 1000 grams birth weight awaiting transfer to a facility that provides Level III neonatal intensive care services and to neonates who weigh more than the threshold weight who are refused transfer to a Level III program.]

      
      

      Fla. Admin. Code R. 59C-1.042(2)(g)2.

      
      

   2. Subsection (6) of the Rule provides a minimum birth volume requirement for NICUs. In the case of Level II NICUs, the Rule states:

      Hospitals applying for Level II neonatal intensive care services shall not normally be approved unless the hospital had a minimum service volume of 1,000 live births for the most recent 12-month period ending 6 months prior to the beginning date of the quarter of the publication of the fixed bed need pool.

      
      

      Fla. Admin. Code R. 59C-1.042(6).

      
      

   3. Testimony in this case established that once a hospital exceeds by 200 live births the threshold provided in Subsection (6) of the Rule for the applicable 12-month period, a Level II NICU is required for the hospital to meet the standard of care for newborns. Furthermore, in the opinion of St. Vincent's expert neo-anthologist, merely meeting the threshold established by the Rule requires a Level II NICU if the standard of care is to be achieved at a hospital with an obstetrics program. Dr. Vaughn, on staff at both St. Vincent's and St. Luke's, testified as follows:

      Having a level 2 NICU is really standard of care once you get past a certain number of deliveries. Personally, I would feel that any hospital that has more than a thousand deliveries should have level 2 NICU associated with it; certainly if you are up at 1,200 [or] 1,500 you should.

      
      

      (Tr. 980). The number of live births at St. Luke's for the applicable period meets the Rule's threshold. In fact, it has substantially exceeded the threshold recently; there have been approximately 1,600 births per year at St. Luke's for the past

      several years. It is reasonable to believe that the same or an even slightly higher level will occur under St. Vincent's ownership.

   4. If St. Vincent's maintains the same number of births, it will exceed the highest number opined by Dr. Vaughn (1,500) as a number at which not having a Level II NICU will render the hospital as providing neonatal services below the standard of care. It is reasonable to expect St. Vincent's to exceed 1,500 live births at St. Luke's once its obstetrics program commences operation there for the foreseeable future.

   5. Dr. Vaughn went on to explain why it is necessary to have a Level II NICU at a hospital with the number of births experienced by St. Luke's. His testimony is particularly critical to "need" analysis since the historical St. Luke's experience of live births in excess of the necessary number is likely to be continued by St. Vincent's when it begins operation under the CON issued by AHCA in the final order affirmed earlier this year on appeal:

      [A]lmost every delivery service in Florida

      . . . that has that many deliveries [has a Level II NICU], and it's for a very good reason: The care to babies is better, you have a better availability to stabilize babies.

      
      

      Level three you can sort of anticipate when that child may need a level three center.

      You can usually transfer the mother ahead of time [before the birth]. . . and transfer of

      [the] mother [ahead of time] is a better way to go than transferring the baby after birth.

      
      

      Level 2 situations are much less easy to predict. Many of our babies are 35, 36, 37 [weeks of gestation] and even full-term babies. If you don't have that capability you can't provide a good stabilization and keep the mother and baby together. And many of them are very short term in terms of their needs for ventilation or CPAP [continuous positive airway pressure] and not being able to take care of them can put the baby at medical risk.

      
      

      (Tr. 981).

      
      

   6. Dr. Vaughn's testimony underscores the importance of the St. Vincent's application from the standpoints of quality of care and access to care. A baby in need of Level II NICU services often requires them immediately. The baby should be provided the services in a setting as close to the mother as possible. A setting close to the mother has reciprocal benefits for the mother. Oftentimes, if the baby does not receive Level II NICU services (such as CPAP) rapidly, the baby will be at risk and remain so until a transfer can take place to a facility with Level II NICU services and the commencement of the service at the new facility.

   7. In sum, it would be beneath the standard of care for a hospital like St. Vincent's at St. Luke's, with the number of live births that are likely to occur annually there, to not have a Level II NICU program. St. Vincent's application, therefore,

      presents the opportunity to continue quality of care for newborns at St. Luke's after St. Vincent's begins operating there. To deny the application, moreover, would be to deny a substantial number of newborns prompt access to much-needed services.

5. Other Need Criteria

1. Availability of Manpower

   
   

1. St. Vincent's has reasonably projected the staffing needs and salaries for its NICU at St. Luke's. St. Vincent's will gain efficiencies by using its Patient Care Coordinator and Charge Nurse for hands-on nursing care.

2. Given St. Vincent's experience and track record, St.

   
   

   Vincent's is reasonably expected to satisfy all of the staffing projections.

3. St. Vincent's has also demonstrated its ability to staff the NICU once it assumes operations of St. Luke's. As noted above, by the time St. Vincent's assumes ownership, the staff will already be in place and will consist largely of former Mayo employees. Further, St. Vincent's has an excellent track record of recruiting and maintaining NICU staff.

4. As conceded by Memorial, recruiting nurses for women's services is easier than other nursing positions, and Memorial has fewer vacancies in this area than the rest of its hospital.

5. Memorial's criticisms of the staffing mix showed a lack of understanding of St. Vincent's projections. Those criticisms are not credible.

   b. Stipulations

   
   

6. The parties entered a Prehearing Stipulation that included items quoted below.

7. St. Vincent's letter of intent and CON application 9481 was timely filed, complete, and satisfies the provisions of Sections 408.037 and 408.039, Florida Statutes.

8. St. Vincent's and Memorial each have a history of providing high quality of care for inpatient hospital services, and have the continued capability of providing high quality of care. Accordingly, the quality of care provided by these parties is not at issue in this proceeding. Additionally, the parties agree that St. Vincent's would be able to provide quality Level II NICU care at St. Luke's Hospital if its application No. 9481 is approved. St. Vincent's CON application No. 9481 satisfies the criterion contained in Section 408.035(3), Florida Statutes.

9. The parties agree that St. Vincent's has available management personnel and funds for capital and operating expenditures and therefore satisfies those relevant portions of Section 408.035(6), Florida Statutes.

10. Although Memorial does not agree that St. Vincent's can meet the levels of Medicaid and charity care proposed in CON application No. 9481, the parties agree that St. Vincent's has a history of providing health care services to Medicaid patients and the medically indigent at its currently licensed hospital (§ 408.035(11), Fla. Stat.).

11. So long as St. Vincent's can generate the patient days projected in its application, the proposed Level II NICU demonstrates immediate and long-term financial feasibility as set forth in Section 408.035(8), Florida Statutes.

12. Section 408.035(12), Florida Statutes, is not at issue.

13. The projections contained in Schedule 1 of St.

    
    

    Vincent's application are reasonable and require no further proof.

14. There was no need-fixed pool published for Level II NICU beds in the batching cycle in which St. Vincent's CON application No. 9481 was filed.

15. That portion of Florida Administrative Code Rule 59C- 1.042, relating to Level III NICU beds is not applicable.

16. Approval of St. Vincent's application No. 9481 is consistent with the following rule criteria and further proof regarding such criteria is not required. Fla. Admin. Code R.

    59C-1.042(4)(b), (5), (8)(a)1., (8)(c), (8)(e) through (j),

    
    

    (9)(b) and (c), (12), (13)(a) and (b).

    
    

17. As to Florida Administrative Code Rule 59C-1.042(7), the parties agree that St. Vincent's proposed Level II NICU services would be available within two hours ground travel time under normal traffic conditions for 90% of the population of the service district. However, Memorial contends that such services are already adequately available in the service district.

    The Statutory Criteria

    
    

18. Section 408.035, Florida Statutes, provides the review criteria for CON applications.

19. To the extent certain criteria were stipulated to be either partially or fully satisfied, they are not in dispute.

20. Section 408.035(1), Florida Statutes, concerns whether the proposed project is supported by and consistent with the applicable district health plan (the "Plan").

21. The Plan provides preference to applicants that demonstrate they will meet identified needs by providing services which must meet commonly accepted quality standards in a most economical manner in terms of capital and operating expenditures.

22. St. Vincent's has clearly demonstrated its ability to provide quality care and that fact was stipulated by the parties. In addition, by becoming part of a two-hospital system

    located in reasonable proximity to each other, there are various operational efficiencies that will be realized through the sharing of senior staff, educational programs, nursing staff and other operational systems.

23. The Plan provides a preference for applicants that demonstrate they can alleviate a current or potential geographic access problem. In this instance, the termination of the existing Level II NICU program at St. Luke's would create an access problem that can be alleviated through the continuation of the program under St. Vincent's operation as proposed in CON application No. 9481.

24. The Plan provides a preference to applicants that demonstrate that the proposed service has access to an adequate supply of appropriate health manpower. As noted above,

    St. Vincent's application No. 9481 conforms to this preference.

    
    

25. The Plan provides a preference to applicants that demonstrate that new or expanded bed capacity and/or service will not have a significant negative impact on similar adjacent health care facilities. Because application No. 9481 does not involve new or expanded bed capacity, the preference is not applicable.

26. The preference regarding services to rural county residents is not applicable.

27. The specific preferences in the Plan relating to NICUs do not apply because the application No. 9481 do not add to or alter the existing capacity, but the application actually satisfies these preferences.

28. The preference regarding applications that propose or convert existing licensed unused beds is not applicable.

29. The preference regarding a program in Volusia County is not applicable.

30. St. Vincent's satisfies the preference regarding applicants that formally commit to a program of Medicaid and/or charity inpatient care and specify the amount of such care they will provide in their CON application. The conditions for charity care and Medicaid patients proposed for the second year of operation not only satisfy the preference, but they also represent a substantial increase in access to the charity and Medicaid segment of the population over that which is currently provided at St. Luke's.

31. St. Vincent's provides very specific programs to the poor and others that have more limited access to health services of the nature that are proposed. This is consistent with the preference relating to transfer agreements with the county health department for maternal and child health services.

32. The preference relating to approval of beds based on area-wide need and not solely on high occupancy at an individual

    hospital is not applicable given that, in reality, no new beds are proposed in application No. 9481. Further, existing programs in the area, including St. Luke's, are well utilized with the exception of the small unit at Orange Park Medical Center, which is discussed below.

33. St. Vincent's application satisfies the preference regarding participation in the greater Jacksonville area neonatal intensive care network. St. Vincent's provided a transfer agreement with Shands Jacksonville.

34. For the reasons previously discussed, St. Vincent's application satisfies the health care access criteria contained in Florida Administrative Code Rule 59C-1.030(2). Specifically, the mission and historical experience of St. Vincent's clearly demonstrates that its operation of St. Luke's, including its OB and NICU programs, will enhance access to the charity and Medicaid patients in Duval County.

35. Section 408.035(2) and (7), Florida Statutes, deals with issues such as availability, quality of care, accessibility and utilization of services. There is no problem with quality of care in the district although one may exist if services are restricted by the closure of the Level II NICU at St. Luke's. Under the unique circumstances of this case, the relevant question is what happens to the availability and accessibility of these services if the St. Luke's program closes. Clearly the

    closure would create an availability and accessibility problem that is best addressed by approval of this application and maintenance of the existing resources.

36. The criterion relating to research and teaching programs is satisfied by the St. Vincent's application. Mayo will continue to use St. Luke's for the training of its residents rotating through OB programs at Mayo.

37. The criterion contained in Section 408.035(6), Florida Statutes, relating to the availability of resources has been satisfied for the reasons described above.

38. The parties stipulated that so long as St. Vincent's can generate the patient days projected in its application, the application demonstrates immediate and long-term financial feasibility as required by Section 408.035(8), Florida Statutes. Based on the current and growing demand for services, the continued presence of both the community and Mayo obstetricians, and St. Vincent's strong reputation, including its long history of care to the underserved, St. Vincent's can reasonably expect to generate the patient days projected.

39. Section 408.035(9), Florida Statutes, relates to the extent to which the proposal will foster competition that promotes quality and cost effectiveness. Clearly there is competition for women's services in the area that will be diminished if the Level II NICU at St. Luke's is discontinued.

    For example, a witness for Memorial described the upgrading that was done to the facilities at Memorial for women's services in order to stay competitive in the marketplace. The beneficiaries of these upgrades are the patients.

40. Having a more complete program, including the Level II NICU, will keep St. Luke's more competitive not only for those services but for OB services as well. The physical resources for the Level II NICU are already in place at St. Luke's and would be wasted if this application is denied. Also, approval of application No. 9481 maintains choices for physicians, patients, and payors in the southern Duval County market; preserves existing referral, treatment and patient flow patterns; and provides choice to all, including Medicaid and charity patients.

41. Section 408.035(10), Florida Statutes, relates to the cost and methods of the proposed construction. This criterion is not applicable given that there is no new construction involved. In addition, as noted above, St. Luke's has and will continue to maintain a fully functional Level II NICU program in a relatively new portion of the hospital.

42. Section 408.035(11), Florida Statutes, relates to the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. As previously described, St. Vincent's has an excellent track record in this

    regard, and care to the underserved is part of the mission of the institution. Further, St. Vincent's is far more likely to provide higher levels of care to this segment of the population than were provided by St. Luke's prior to St. Vincent's arrival, thereby increasing access to this historically underserved population group.

43. St. Vincent's historical track-record as well as its willingness and ability to serve more Medicaid babies was a significant and important factor in AHCA's decision to approve application No. 9481.

    CONCLUSIONS OF LAW

    
    

    1. Jurisdiction, Burden of Proof

       
       

44. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. §§ 120.569, 120.57(1) and 408.039(5), Fla. Stat.

45. Memorial has the burden to prove by a preponderance of the evidence that it meets the standing requirement imposed by the Act: "[e]xisting health care facilities may initiate . . . an administrative proceeding upon a showing that an established program will be substantially affected by the issuance of [a] certificate of need . . . to a competing proposed facility . . . within the same district." § 408.039(5)(c), Fla. Stat.

    St. Vincent's has the burden to prove by a preponderance of the evidence that its CON application should be approved. See,

    e.g., Boca Raton Artificial Kidney Center, Inc., v. Dept. of Health & Rehabilitative Services, 475 So. 2d 260, 263 (Fla. 1st DCA 1985); § 120.57(1)(j), Fla. Stat.

    1. 2004 CON Legislation

       
       

46. As stated above, the Act was amended by the 2004 Florida Legislature. In light of the 2004 Amendment NICUs are no longer "projects subject to review" under the CON Law. See Chapter 2004-383, § 6, Laws of Fla.

47. Memorial contended in its Response to a Notice of the Decision of the Court filed by St. Vincent's that:

    As a result of the amendment to Section 408.036(1), an existing provider of Level II NICU services can add beds without the requirement of CON review. Pursuant to Section 408.036(5), the existing provider need merely give notification to the Agency for Health Care Administration (AHCA) of its intent to add beds.

    
    

    Memorial' Response, paragraph 7., September 1, 2004.

    
    

48. Memorial further contended that it is appropriate and necessary to consider the impact of the 2004 Amendment to the CON Law on this proceeding in two ways: first, as to the effect it will have on Memorial's Level II NICU program so as to confer standing on Memorial; and second, as to the need for the service St. Vincent's intends to offer. Memorial, therefore, requested that an evidentiary hearing be conducted to determine the impact of the Amendment.

49. During oral argument on Memorial's request, the parties agreed that the appellate court was not notified about the 2004 Amendment to the CON Law. There is, moreover, no factual basis for a conclusion that the court was aware of the Amendment. Reference to the Amendment was not made in any of the briefs or other papers filed by the parties. The existence of the Amendment was not made known to the court at oral argument in the appeal. Memorial did not at any time ask the court to remand in light of the Amendment. Memorial did not supplement the file of the appellate court with notice of the Amendment after the effective date of the 2004 Amendment,

    July 1, 2004, more than a month before rendition of the opinion. There is nothing in the Opinion of the Court that suggests it was aware of the 2004 Amendment to the CON Law.

50. Memorial's request at DOAH to consider the impact of the Amendment was denied based on principles of law followed by the First District Court of Appeal in City of Palm Bay v. Department of Transportation, 588 So. 2d 624 (Fla. 1st DCA 1991), and Lavernia v. Department of Professional Regulation, Board of Medicine, 616 So. 2d 53 (Fla. 1st DCA 1993).

51. In City of Palm Bay, the court held that "[a] remand phrased in language which limits the issues for determination will preclude consideration of new matters affecting the cause." In doing so, it cited to Spitz v. Prudential-Bache Securities,

    Inc., 549 So. 2d 777, 778 (Fla. 4th DCA 1989) and Modine Manufacturing Co. v. ABC Radiator, Inc., 367 So. 2d 232, 236 (Fla. 3d DCA 1979).

52. The pertinent language in the Opinion of the Court in this case is as follows:

    Appellant raised three distinct arguments as to injury in fact: "new" NICU services, change in payor mix, and staffing shortages. In fact, Appellant proposed findings as to the need for an new NICU unit, the change in payor mix, and the possibility of staffing losses. The ALJ addressed only the first of Appellant's three arguments in either recommended order.

    
    

    ALJs are required to make specific factual findings on substantial issues as here.

    Mayes v. Department of Children and Family Servs., 801 So.2d 980, 982 (Fla. 1st DCA 2001). Here the ALJ concluded that Appellant was not injured in a certain way, but failed to examine whether Appellant might be injured in other ways.

    Accordingly, the ALJ did not make findings sufficient to support his and AHCA's conclusion that Appellant did not have standing to challenge CON 4891.

    
    

    Accordingly, we . . . REMAND for the ALJ to make additional findings and to hold additional evidentiary hearings, as necessary, relating to Appellant's standing to challenge St. Vincent's CON 9481 application.

    
    

    Memorial Healthcare Group, Inc., d/b/a Memorial Hospital Jacksonville v. Agency for Health Care Administration, 879 So. 2d 72, 74-75 (Fla. 1st DCA 2004).

53. It is ultimately concluded that the specificity of the court's remand makes it a limited remand.

54. Although the remand was for the ALJ to make additional findings "and to hold additional hearings, as necessary relating to Appellant's standing" (e.s.), it is concluded that no additional hearings are necessary. Had the court been aware of the 2004 Amendment to the CON Law, the underscored language could arguably be interpreted to mean that additional hearings are necessary to consider the impact of the 2004 Amendment on Memorial's standing. But that is not the case.

55. The remand by the court is specific: it requires that facts be found that relate to "change in payor mix" and "possible staffing losses" as they relate to standing. Consideration of new or additional issues, therefore, would normally be precluded under City of Palm Bay. City of Palm Bay also recognized, however, "the general rule that the law to be observed on remand of a case is the law as it stands at the time of retrial [or the proceedings upon remand], as to the issues raised." City of Palm Bay, 588 So. 2d at 628, (e.s.), (the "General Rule"). While this observation includes the qualifying language "as to the issues raised," which, in and of itself, could be interpreted to limit the issues considered on remand, it is prudent to inquire into applicability of the General Rule.

56. The leading case in administrative law on the General Rule is Lavernia, supra. There, the court wrote:

    Florida follows the general rule that a change in a licensure statute that occurs during the pendency of an application for licensure is operative as to the application, so that the law as changed, rather than as it existed at the time the application was filed determines whether the license should be granted.

    
    

    616 So. 2d at 53-54. Lavernia applies to CON cases. Agency for Health Care Administration v. Mt. Sinai Medical Center of Greater Miami, 690 So. 2d 689, 692-93 (Fla. 1st DCA 1997).

57. Lavernia recognizes valid exceptions to the General

    
    

    Rule:

    
    

    In Goldstein v. Sweeny, 42 So.2d 367 (Fla. 1949), the Board repeatedly denied Goldstein's application for a reciprocal CPA certificate. Then the law changed. Under those circumstances, the court ruled that the applicant was entitled to have his rights adjudicated under the laws that existed when he first applied. Similarly, in Attwood v. State ex rel. Buchert, 53 So.2d 101 (Fla. 1951), Buchert applied for his certificate more than one year before the amended law became effective but the Board delayed acting on his application until after the effective date of the new law. Given those circumstances, the agency's unreasonable delay in acting upon the application precluded the agency from being entitled to judge the application by the amended law. In Department of Health and Rehabilitative Services v. Petty-Eifert,

    443 So.2d 266 (Fla. 1st DCA 1983), HRS had chosen to apply the statute as of the time the application was filed rather than the statute as amended, but then on appeal

    sought to apply the amended statute. Understandably, this court rejected this attempt, probably on fairness grounds.

    
    

    616 So. 2d at 54 (e.s.).

    
    

58. If the application of City of Palm Bay does not preclude consideration on remand of the issue of the impact of the Amendment to the CON Law because of the court's reference to the General Rule then consideration must be given to whether this case presents an exception.

59. St. Vincent's NICU application was filed in 2001.

    
    

    The hearing took place in the spring of 2002. The Recommended Order was issued in February of 2003. The Final Order of AHCA was issued on April 8, 2003. The Amendment to the CON Law was signed into law more than a year later, on June 28, 2004, with an effective date of July 1, 2004.

60. The remand is for findings to be made on the basis of the record that existed when the original Recommended Order was entered approximately a year and a half prior to the effective date of the Amendment to the CON Law. St. Vincent's did not invite the error found by the court. It presented evidence in opposition to Memorial's claim of standing on the two bases the court has ordered there to be findings of fact. St. Vincent's addressed those two bases in its proposed recommended order. It presented findings related to the merits of its application despite its position that Memorial did not have standing. It is

    not unusual for a recommended order following a full hearing to address the merits of an application when an opponent is determined not to have standing.

61. In sum, it would be unfair at this point in the proceeding, given its history, to open the case to an evidentiary proceeding to determine the impact of the 2004 Amendment to the CON Law on St. Vincent's application. The facts of this case constitute a basis for applying the "fairness" exception to the General Rule of Lavernia. See Lavernia, 616 So. 2d at 54.

    1. Standing

       
       

62. Memorial did not quantify the impact on its NICU program of the change in payor mix that it will experience if application No. 9481 is approved. Nonetheless, it is likely that Memorial's payor mix will be changed substantially if St. Vincent's is approved to continue operating the Level II NICU at St. Luke's. Memorial, as an existing provider of an established Level II NICU program in the same health-planning district, has made a showing that it will be substantially affected by the issuance of the CON applied for by St. Vincent's. Memorial has standing to initiate this proceeding.

    1. Not Normal Circumstances

       
       

63. Memorial contends that St. Vincent's must prove the existence of "not normal circumstances" under Florida Administrative Code Rule 59C-1.042(3)(d).

64. St. Vincent's and the Agency contend otherwise because St. Vincent's does not propose to add any new Level II NICU beds to the district. They cite Central Florida Regional Hospital v. Daytona Beach General Hospital, 475 So. 2d 974 (Fla. 1st DCA 1985), and St. Joseph's Hospital v. Department of Health and Rehabilitative Services, 536 So. 2d 346 (Fla. 1st DCA 1988) in support of the contention.

65. This dispute need not be resolved. This case clearly presents "not normal" circumstances. There is a need to continue the existing Level II NICU program at St. Luke's which has exceeded the minimum number of live births under AHCA's NICU Rule for a Level II NICU. St. Luke's has exceeded the number of live births in the past and is likely to experience an increase upon the take-over by St. Vincent's. When the standard of care is considered for newborns, the need for the continuity of the program constitutes "not normal circumstances" of the highest order. Furthermore, as St. Vincent's and AHCA wrote in their proposed recommended order:

    The only thing that would be "not normal" would be if St. Vincent's were to open at St. Luke's without the existing Level II

    NICU. Since the unit already exists, this would be a colossal waste of valuable resources. More importantly from a health planning perspective, there would be an unnecessary restriction on the availability and accessibility of a needed community service if the St. Luke's NICU is closed.

    Approval of this application will also enhance access to Medicaid and charity patients given St. Vincent's mission and historical commitment to these underserved population groups.

    
    

    Joint Proposed Recommended Order by St. Vincent's and Agency for Health Care Administration, at 23-24. The not normal circumstances that exist in this case weigh heavily in favor of the approval of St. Vincent's application No. 9481.

    1. Need

    
    

66. The award of a CON must be based on a balanced consideration of the applicable statutory and rule criteria. Dept. of Health and Rehabilitative Services v. Johnson and

    Johnson Home Health Care, Inc., 447 So. 2d 261 (Fla. 1st DCA 1984); Balsam v. Dept. of Health and Rehabilitative Services,

    486 So. 2d 1341 (Fla. 1st DCA 1988). The weight to be given to each criterion is not fixed but depends on the facts and circumstances of each case. Collier Medical Center, Inc. v. Dept. of Health and Rehabilitative Services, 462 So. 2d 83 (Fla. 1st DCA 1985).

67. A balanced consideration of statutory and rule criteria leads clearly to the conclusion that St. Vincent's CON application No. 9481 should be approved.

68. The criteria of "availability" and "extent of utilization" of existing health care facilities, as advanced by Memorial, listed in Subsection (2) 408.035, Florida Statutes, favor denial. They are outweighed, however, by the single criteria of "[t]he extent to which the proposed services will enhance access to health care for residents of the service district," Section 408.035(7) Florida Statutes, those being newborns at St. Vincent's at St. Luke's in need of Level II NICU services for whom it would be below the standard of care to be transferred to a Level II NICU elsewhere in the district. As Memorial points out, utilization of other Level II NICU services is moderate in the district so that the services are available in the district to newborns at the St. Luke's facility. But if the program is terminated at St. Luke's because St. Vincent's application is unsuccessful, these services will not be available in a timely manner for some of the newborns who need them. In other words, quality of care of these newborns will suffer; in some case, the quality of care provided these newborns will suffer significantly.

69. Other criteria also weigh in favor of the application. Among the most important is St. Vincent's "past

    and proposed provision of health care services to Medicaid patients and the medically indigent." § 408.035(11), Fla. Stat.

70. St. Vincent's application for a Level II NICU at its new hospital in Jacksonville should be approved.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 9481 to St. Vincent's Hospital for the operation of a Level II NICU at St. Luke's.

DONE AND ENTERED this 20th day of October, 2004, in Tallahassee, Leon County, Florida.

S

DAVID M. MALONEY

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 20th day of October, 2004.

COPIES FURNISHED:

Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive

Building Three, Suite 3431 Tallahassee, Florida 32308-5403

Charlene Peterson, Acting Agency Clerk Agency for Health Care Administration 2727 Mahan Drive

Building Three, Suite 3431 Tallahassee, Florida 32308-5403

Kenneth W. Gieseking, Esquire

Agency for Health Care Administration 2727 Mahan Drive

Building Three, Suite 3431 Tallahassee, Florida 32308-5403

Stephen A. Ecenia, Esquire

R. David Prescott, Esquire Richard M. Ellis, Esquire

Rutledge, Ecenia, Purnell & Hoffman, P.A.

215 South Monroe Street, Suite 420 Post Office Box 551

Tallahassee, Florida 32302-0551

Stephen C. Emmanuel, Esquire Michael J. Glazer, Esquire Ausley & McMullen

227 South Calhoun Street Post Office Box 391

Tallahassee, Florida 32302-0391

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 on Remand. 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: 02-000457CON

Orders for Case No: 02-000457CON