STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
WELLINGTON REGIONAL MEDICAL ) CENTER, INC., d/b/a WELLINGTON ) REGIONAL MEDICAL CENTER, )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE ) ADMINISTRATION and BETHESDA ) HEALTHCARE SYSTEM, INC., d/b/a ) WEST BOYNTON COMMUNITY )
HOSPITAL, )
)
Respondents. )
Case No. 03-2701CON
)
DELRAY MEDICAL CENTER, INC., )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE ) ADMINISTRATION and BETHESDA ) HEALTHCARE SYSTEM, INC., d/b/a ) WEST BOYNTON COMMUNITY )
HOSPITAL, )
)
Respondents. )
Case No. 03-2827CON
)
COLUMBIA/JFK MEDICAL CENTER ) LIMITED PARTNERSHIP, d/b/a JFK ) MEDICAL CENTER, )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE ) ADMINISTRATION and BETHESDA ) HEALTHCARE SYSTEM, INC., d/b/a ) WEST BOYNTON COMMUNITY )
HOSPITAL, )
)
Respondents, )
)
and )
) DELRAY MEDICAL CENTER, INC., ) and WELLINGTON REGIONAL MEDICAL ) CENTER, )
)
Intervenors. )
Case No. 03-2829CON
)
BETHESDA HEALTHCARE SYSTEM, ) INC., d/b/a WEST BOYNTON )
COMMUNITY HOSPITAL, )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE ) ADMINISTRATION and COLUMBIA/JFK ) MEDICAL CENTER LIMITED ) PARTNERSHIP, d/b/a JFK MEDICAL ) CENTER, )
)
Respondents. )
Case No. 03-2952CON
)
RECOMMENDED ORDER
Pursuant to notice, a final hearing was held in these consolidated cases on February 5-6, 9-13, 16-20, 23-27, and
March 4-5, 2004, in Tallahassee, Florida, before T. Kent Wetherell, II, the designated Administrative Law Judge of the Division of Administrative Hearings.
APPEARANCES
For Bethesda Health Care System, Inc. (Bethesda), d/b/a West Boynton Community Hospital:
John H. Parker, Jr., Esquire Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower
285 Peachtree Center Avenue, Northeast Atlanta, Georgia 30303
and
Karen A. Putnal, Esquire
Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200
118 North Gadsden Street Tallahassee, Florida 32301
For Columbia/JFK Medical Center Limited Partnership, d/b/a JFK Medical Center (JFK):
Stephen A. Ecenia, Esquire Stephen J. Menton, Esquire
Rutledge, Ecenia, Purnell & Hoffman, P.A.
215 South Monroe Street, Suite 420 Post Office Box 551
Tallahassee, Florida 32302-0551 For Delray Medical Center, Inc. (Delray):
C. Gary Williams, Esquire Michael J. Glazer, Esquire Ausley & McMullen
227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302
For Wellington Regional Medical Center, Inc., d/b/a Wellington Regional Medical Center (Wellington):
Robert D. Newell, Jr., Esquire David R. Terry, Esquire Newell & Terry, P.A.
817 North Gadsden Street Tallahassee, Florida 32303-6313
For the Agency for Health Care Administration (Agency): Brian T. Mulligan, Esquire
Donna Riselli, Esquire Kenneth W. Geiseking, Esquire1
Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive
Tallahassee, Florida 32308 STATEMENT OF THE ISSUE
The issue is whether the Agency should approve the Certificate of Need applications filed by Bethesda and/or JFK, each of which proposes to establish an 80-bed satellite hospital in the West Boynton area of Acute Care Subdistrict 9-5.
PRELIMINARY STATEMENT
Bethesda and JFK each filed Certificate of Need (CON) applications in the first “hospital beds and facilities” batching cycle of 2003. Bethesda’s application, CON 9659, seeks to establish an 80-bed acute care hospital to be known as West Boynton Community Hospital (hereafter "Bethesda West”) in Subdistrict 9-5 through a transfer of 80 beds from Bethesda Memorial Hospital (Bethesda Memorial), which is owned by Bethesda and is also located in Subdistrict 9-5. JFK’s
application, CON 9660, seeks to establish an 80-bed acute care hospital (hereafter "the proposed JFK satellite hospital") in Subdistrict 9-5 through the transfer of 80 beds from Columbia Medical Center (Columbia), which is owned by JFK's corporate parent and is located in Subdistrict 9-4.
The Agency published notice of its intent to approve Bethesda's application and to deny JFK's application in the June 27, 2003, volume of the Florida Administrative Weekly.
Timely petitions challenging the Agency's decision to approve Bethesda's application were filed by Wellington and Delray,2 both of which operate acute care hospitals in Subdistrict 9-5. Those petitions were referred to the Division of Administrative Hearings (Division) on July 23, 2003, and July 31, 2003, respectively, where they were assigned DOAH Case Nos. 03-2701CON and 03-2827CON.
A timely petition was filed by JFK challenging the Agency's decisions to deny its application and to approve Bethesda's application. JFK's petition was referred to the Division on July 31, 2003, where it was assigned DOAH Case No. 03-2829CON. The petitions to intervene in that case filed by Delray and Wellington were granted by Orders dated November 26, 2003, and December 9, 2003, respectively.
A timely petition was filed by Bethesda in support of the Agency's decision to deny JFK's application. That petition was
referred to the Division on August 14, 2003, where it was assigned DOAH Case No. 03-2952CON.
DOAH Case Nos. 03-2701CON, 03-2827CON, and 03-2829CON were
consolidated by Order dated August 12, 2003. DOAH Case No. 03-2952CON was added to the consolidated cases by Order dated August 27, 2003.
The final hearing commenced on February 5, 2004. The hearing was held over a period of 19 days and concluded on March 5, 2004.
At the hearing, Bethesda presented the testimony of 15 witnesses: Robert Hill, who was accepted as an expert in hospital and health care system administration; Dr. Christopher Schirmer, who was accepted as an expert in emergency medicine and emergency department administration; Ernistine Ziacik, who was accepted as an expert in nursing and nursing administration; Kieran Kilday, who was accepted as an expert in land planning and zoning; Regina Crafa, who was accepted as an expert in human resources; Michael Carroll, who was accepted as an expert in health planning and health care finance; Robert Taylor, who was accepted as an expert in health care finance; Dr. Fernando Keller; Richard Mouw, who was accepted as an expert in construction cost estimating and construction project management; Mark Wilson, who was accepted as an expert in medical equipment planning; Donald Davis, who was accepted as an
expert in health facility planning and health facility equipment planning; Shelia Elijah-Barnwell, who was accepted as an expert in health care architecture and design; Robert Rennebaum, who was accepted as an expert in traffic engineering; Jeffrey Gregg, who was accepted as an expert in health care planning; and
Dr. William Cleverley, who was accepted as an expert in health care finance. Bethesda also presented the deposition testimony of three witnesses: Kurt Eberley (Exhibit B-32),
Kenneth Lassiter (Exhibit B-55), and Dr. Sam Kaufman (Exhibit D- 46).
Bethesda offered Exhibits B-1A through B-1F, B-2, B-3II, B3-LL, B-4, B-6, B-20 through B-22, B-23A though B-23H, B-24
through B-27, B-29 through B-34, B-39 through B-41, B-43M, B-44, B-46 through B-50, B-55 through B-57, B-60 through B-63, B-66,
B-69, B-70C, B-70F, B-72, B-73, B-75 through B-77, B-81, B-91,
B-111A, B-117A, B-120-B, B-121B, B127-B, B-133D, B-200E, B-210, B-211, B-213, B-217, B-221, B-227, B-233, B-236 through B-239, B-241, B-245 through B-252, B-254 through B-257, D-46, JFK-6B,
JFK-6E, JFK-11J, W-5, and AHCA-1, all of which were received into evidence.
The Agency adopted Mr. Gregg’s testimony as its case-in- chief, and it did not present the testimony of any other witnesses. The Agency did not offer any exhibits.
JFK presented the testimony of 12 witnesses: Steve Royal, who was accepted as an expert in hospital and health care system administration; Richard Baehr, who was accepted as an expert in health care finance and planning; Steve Brecker, who was accepted as an expert in hospital construction and hospital construction budgeting; Mary Bishop, who was accepted as an expert in nursing and nursing administration; Robert Bird, who was accepted as an expert in medical equipment and medical equipment purchasing and budgeting; Robert Stewart, who was accepted as an expert in medical information systems and medical information system purchasing and budgeting; Madelyn Passarella, who was accepted as an expert in health care marketing and physician recruitment; Terance van Arkel, who was accepted as an expert in health care accounting and finance; Sharon Gordon- Girvin, who was accepted as an expert in health planning;
Beth Brill, who was accepted as an expert in health care human resources management; Phil Robinson, who was accepted as an expert in hospital administration; and Darryl Weiner, who was accepted as an expert in health care finance. JFK also presented the deposition testimony of 10 witnesses:
Valerie Jackson (Exhibit JFK-12), Sharon Reuben (Exhibit JFK- 13), Bill Greenfield (Exhibit JFK-14), Dr. Charles Posternak (Exhibit JFK-16), Stanley Kazerman (Exhibit JFK-17),
Darrell Blaylock (Exhibit JFK-18), Randel Forkum (Exhibit JFK- 20), Suzanne McCollum (Exhibit JFK-21), Debbie Duffy (Exhibit JFK-22), and Shana Sappington (Exhibit JFK-23).
JFK offered Exhibits JFK-1A through JFK-1E, JFK-2A through JFK-2D, JFK-3A, JFK-3D, JFK-4A, JFK-5A, JFK-6A, JFK-6F, JFK-7A, JFK-7B, JFK-7D, JFK-8, JFK-8.1 through JFK-8.13, JFK-9A through JFK-9C, JFK-9E, JFK-9F, JFK-10, JFK-11A, JFK-11G through JFK- 11I, JFK-11K, JFK-11P, JFK-11U, JFK-12 through JFK-14, JFK-16 through JFK-18, JFK-20 through JFK-23, JFK-36, JFK-63, JFK-72 through JFK-75, JFK-79, JFK-81, JFK-89, JFK-114 through JFK-120, JFK-122 through JFK-124, B-3GG, B-3Y, B-14, B-43B, and B-70B, B-
105A, B-105B, B-120A, and B-120C, all of which were received into evidence. Exhibits JFK-1F, JFK-1G, and JFK-121 were offered but not received.
Delray presented the testimony of five witnesses: Mitch Feldman, who was accepted as an expert in health care facility administration; John Zegeer, who was accepted as an expert in transportation engineering and planning;
Julie Hilsenbeck, who was accepted as an expert in nursing and nursing administration; Robert Greene, who was accepted as an expert in health care planning; and Patricia Greenberg, who was accepted as an expert in health care planning and finance.
Delray also presented the deposition testimony of four witnesses: William Jeffrey Davis (Exhibit D-45), Dr. Santosh
Mathen (Exhibit D-47), Charles Cole (Exhibit D-52), and Mark Bryan (Exhibit D-53).
Delray offered Exhibits D-1, D-6, D-8 through D-10, D-12 through D-15, D-17 through D-28, D-33, D-34, D-40 through D-43, D-45, D-47 through D-53, all of which were received into evidence.
Wellington presented the testimony of two witnesses: Kevin DiLallo, who was accepted as an expert in hospital administration; and Thomas Davidson, who was accepted as an expert in health care finance and planning.
Wellington offered Exhibits W-1 through W-4, and B-70D, all of which were received into evidence.
Official recognition was taken of Florida Administrative Code Rule 10D-5.11(23), as amended through June 10, 1983; Florida Administrative Code Rules 10-17.001 through 10-17.012, as amended through October 16, 1983; the current versions of Florida Administrative Code Rules 59C-1.002 and 59C-1.038; the Recommended and Final Orders in Memorial Health Care Group, Inc.
d/b/a Memorial Hospital Jacksonville v. Agency for Health Care Administration, Case Nos. 02-0447CON, 02-0882CON, 02-0943CON, and 02-0971CON (DOAH Feb. 5, 2003; AHCA Apr. 10, 2003), Orlando
Regional Healthcare System, Inc. v. Agency for Health Care
Administration, Case Nos. 02-0448CON and 02-0449CON (DOAH Nov. 18, 2002; AHCA Jan. 8, 2003), and Daytona Beach General Hospital
and Saxon General Hospital v. Department of Health and Rehabilitative Services, 6 F.A.L.R. 5450 (DOAH July 9, 1984; HRS Aug. 23, 1984); the exceptions filed with the Agency in Memorial, supra, by Memorial Healthcare Group, Inc. d/b/a Memorial Hospital Jacksonville; Central Florida Regional Hospital v. Daytona Beach General Hospital, 475 So. 2d 974 (Fla. 1st DCA 1985); and Chapter 2004-383, Laws of Florida.
The 33-volume Transcript of the hearing was filed on April 30, 2004. The parties requested and were given 60 days
from that date to file their proposed recommended orders (PROs). The deadline was subsequently extended to July 26, 2004, upon JFK’s motion, and then to July 27, 2004, upon Bethesda’s unopposed motion. The parties' PROs were timely filed and were given due consideration by the undersigned in preparing this Recommended Order.3
FINDINGS OF FACT
The Parties (1) Bethesda
Bethesda operates Bethesda Memorial, which is a 362-bed not-for-profit hospital in Boynton Beach. Bethesda also operates Bethesda Health City, which is a “medical mall” located in the West Boynton area of South Palm Beach County.
As a not-for-profit community-based health care organization, Bethesda’s mission is to provide quality health
care services to the residents of South Palm Beach County that it serves regardless of their ability to pay.
Bethesda Memorial opened in 1959 as a public hospital under the ownership of Palm Beach County’s former hospital taxing district. Bethesda Memorial was reorganized in 1984 as a private not-for-profit hospital owned by Bethesda.
Bethesda Memorial provides tertiary-level care.
Bethesda Memorial’s 362 licensed beds include 347 general medical-surgical (med-surg) acute care beds and a 15-bed Level II and Level III neonatal intensive care unit (NICU). A 28-bed comprehensive medical rehabilitation (CMR) unit will open at Bethesda Memorial in 2005, increasing the hospital’s licensed capacity to 390 beds.
Not all of Bethesda Memorial’s licensed beds are available for general patient use; 14 of the beds are leased to a hospice program and 14 of the beds are operated under contract as a special care unit (SCU).
The hospice lease and the SCU contract run through 2005.
Even though the hospice lease and SCU contract have been profitable ventures for Bethesda, several Bethesda witnesses testified that those agreements would not be renewed if Bethesda Memorial needs those 28 beds to accommodate its general patients after its capacity is reduced through the
transfer of 80 beds to its proposed satellite hospital; however, as of the date of the hearing, Bethesda had not taken any formal steps to terminate those agreements. It is unclear how the patients that are currently being served in the hospice unit and SCU would be served in the community if Bethesda terminates the agreements.
Bethesda Memorial also has a 10-bed “VIP” unit that is generally available only to patients that have contributed at least $50,000 to Bethesda’s charitable foundation and are willing to pay an up-front $750.00 per day charge for the room; however, the beds in the VIP unit can be and have been utilized by other patients when all of the other beds in the hospital are full.
Bethesda Memorial has a high-volume obstetrics (OB) program and an active emergency department (ED). Bethesda Memorial also offers a number of specialized programs including a comprehensive cancer program, a pediatrics program, a diagnostic cardiac catheterization program, and a wide variety of outpatient services.
Bethesda Memorial is a well-utilized facility; its overall occupancy rate was 73.25 percent from July 2001 though June 2002.
Bethesda Memorial does not currently offer interventional cardiology services or open heart surgery, but it
has been attempting to get CON or legislative approval to offer those services for the past several years because of their profitable nature. Bethesda Memorial has designated, shelled-in space in its hospital for those services if it ever gets the necessary approvals.
The evidence was not persuasive that there are physical or other constraints that would preclude further incremental bed expansions at Bethesda Memorial or that would make such expansions cost-prohibitive.
Bethesda recently purchased property adjacent to Bethesda Memorial and was able to get that property rezoned from residential to hospital use. It is unclear how large that property is and what use, if any, Bethesda has planned for that property.
Bethesda also owns 1.4 acres of vacant property that is several blocks from Bethesda Memorial. The property is not currently zoned for hospital use, and because it is somewhat isolated from Bethesda Memorial, Bethesda intends to sell the property rather than develop it.
Bethesda Memorial is accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO).
Bethesda Health City is a 135,000 square foot “medical mall” or “hospital without beds” that opened in 1995. The facility is located in the West Boynton area at the intersection
of Hagan Ranch Road and Boynton Beach Boulevard, just east of the Florida Turnpike.
Bethesda Health City offers services such as diagnostic imaging, outpatient rehabilitation, radiation therapy, and a woman’s center. The facility has offices for approximately 20 physician groups, and it also provides community outreach services targeted to the large senior population in the West Boynton area.
Bethesda Health City was established to help Bethesda Memorial capture patients from the growing West Boynton area, and it has done so.
There is capacity to add an additional 30,000 to 40,000 square feet of space to Bethesda Health City, and Bethesda intends to expand the facility whether or not its proposed satellite hospital is approved.
Bethesda Health City provides Bethesda a significant physical presence in the West Boynton area. The facility has contributed to Bethesda Memorial’s significant and stable market share in the West Boynton area.
In addition to Bethesda Memorial and Bethesda Health City, Bethesda administers a charitable foundation whose primary purpose is to fund Bethesda Memorial’s capital acquisitions and improvements. The foundation has considerable assets and is in
the midst of a $100 million capital campaign through which it has already raised approximately $37 million.
Bethesda Memorial experienced considerable and constant growth in its admissions and patient days between 1997 and 2003; its admissions grew by 45 percent and its patients days grew by 44 percent over that period.
Bethesda Memorial is financially sound. It has substantial cash reserves and it is well-rated by the financial markets.
The evidence was not persuasive that Bethesda’s current or long-term financial situation is distressed.
Unlike other not-for-profit hospitals in District 9, Bethesda Memorial is a profitable hospital. Between 1997 and 2002, Bethesda Memorial’s operating income averaged approximately $5.5 million and in 2003, its operating income was approximately $7 million. In each of those years, the hospital also had significant non-operating revenues such that its total revenues over expenses during that period averaged approximately
$10 million.
The Bethesda system as a whole is also profitable. It had operating income of $2.4 million in 2002 and $2.1 million in 2001.
Bethesda Memorial and the Bethesda system did not perform as well financially as JFK, Delray, or Wellington
between 1997 and 2002; each of those hospitals had higher returns on assets, returns on equity, and total margin over that period than did Bethesda Memorial and Bethesda, and JFK and Delray had considerably more operating income over that period than did Bethesda Memorial.
Bethesda Memorial’s CMR unit is projected to have a positive financial impact on Bethesda starting in 2005, and if approved, Bethesda Memorial’s open heart surgery program is also projected to have a positive impact on Bethesda’s long-term financial condition.
(2) JFK
JFK is owned by HCA, Inc. (HCA). HCA is nationwide, for-profit hospital chain.
JFK is a 424-bed for-profit hospital in Atlantis, which is a small municipality in the Lake Worth area.
JFK provides tertiary-level care.
JFK is the most highly utilized hospital in District 9, and one of the most highly utilized hospitals in the state. JFK’s annual occupancy rate was 89.96 percent between July 2001 and June 2002,
JFK is one of thee HCA hospitals in Palm Beach County.
The others are Columbia and Palms West, both of which are in North Palm Beach County, Subdistrict 9-4.
JFK operated as a not-for-profit hospital for approximately 30 years until it was purchased by HCA in 1996. Approximately $120 million of the purchase price paid by HCA was used to establish a charitable foundation, the Quantum Foundation, which funds a variety of health-related projects in the South Palm Beach County area.
The services provided at JFK include orthopedics, cancer services, interventional cardiology and open heart surgery, neurologic services, and internal medicine. JFK does not offer pediatric or OB services.
HCA has made significant capital improvements at JFK since it acquired the hospital. The community image of the hospital and the morale of its employees has significantly improved since the acquisition by HCA.
JFK is accredited by JCAHO.
JFK recently received a CON to add 36 beds, which will increase its licensed capacity to 460 beds. The beds will be located in shelled-in space on the fifth floor of JFK’s south tower, but they have not yet been brought on-line.
JFK’s recently-constructed northwest tower was engineered so that an additional two floors can be added to that tower in the future, which would allow JFK to add 36 more beds.
The evidence was not persuasive that there are physical or other constraints that would preclude further
incremental bed expansions at JFK beyond the 72 beds identified above.
JFK is attempting to acquire a long-term lease for 19 acres across the street from its hospital that would be used for parking and medical office buildings. If that property is leased and developed, JFK may be able to free-up additional space for future bed expansions; however, the record does not establish the likelihood of the lease being consummated, the amount of space that might be freed-up if that property was developed, or any of the costs associated therewith.
JFK recently constructed a medical office building in the West Boynton area that includes a wound care center and a diabetes center. That facility is on Jog Road, north of Boynton Beach Boulevard.
Aside from the medical office building, JFK had not formally targeted the West Boynton area for expansion; its most recent strategic plan did not mention the prospect of locating a satellite hospital in that area.
(3) Delray
Delray is owned by Tenet Healthcare Corporation (Tenet). Tenet is a nationwide, for-profit hospital chain.
Tenet operates four hospitals in Palm Beach County in addition to Delray, including West Boca Medical Center (West
Boca) in South Palm Beach County, and Good Samaritan, St. Mary’s, and Palm Beach Gardens in North Palm Beach County.
Delray is a 372-bed for-profit hospital in Delray Beach.
Delray is located approximately 2.5 miles south of Atlantic Boulevard. Delray is in zip code 33484, but it is near the eastern boundary of zip code 33446.
Delray opened in 1982, and is accredited by JACHO.
Delray provides tertiary-level care.
Delray is located on a “campus” that includes the hospital building, a 53-bed in-patient psychiatric facility known as Fair Oaks Pavillion (Fair Oaks), and a 90-bed CMR facility known as Pinecrest Rehabilitation Hospital. There is a separately-licensed 120-bed nursing home located adjacent to the campus.
Delray’s 372 licensed beds include the 53 in-patient psychiatric beds at Fair Oaks, which is approximately 200 yards from Delray’s main hospital.
Delray has added 108 beds to its hospital since 1996.
Even with those bed additions, Delray remains a very highly utilized facility; its annual occupancy rate between July 2001 and June 2002 was 82.32 percent.
Delray shelled-in space for an additional 31 beds as part of a recent expansion of its ED and ambulatory care unit. Delray intends to put those beds into service as soon as it can.
Delray has the ability to further expand its hospital beyond the 31 beds planned for the shelled-in space. It already has local government approval for a total of 616 beds on its campus.
The services provided at Delray include general medical and surgery services, trauma, interventional cardiology, open heart surgery, in-patient psychiatric services, orthopedics, and neurosurgery, with a special focus on chronically-ill elderly patients. Delray does not provide OB services.
Delray has been the only provider of in-patient psychiatric services in South Palm Beach County since October 2001 when Bethesda Memorial discontinued its program.
Delray has been a state-designated Level II trauma center since 1991, which requires it to have a neurosurgeon, trauma surgeon, and other specialists and specialized equipment available at all times. Delray receives funding from the local health district to help offset a large portion of the costs associated with providing its trauma services.
Delray leases space in a medical office building in the West Boynton area where it provides diagnostic imaging, mammography, and laboratory services.
Delray’s service area includes zip codes 33437, 33446, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals.
Delray is currently, and historically has been a very profitable hospital. It reported a “total margin” of approximately $32.9 million on its May 2002 “Prior Year Report” filed with the Agency,4 and it reported operating income of $40.5 million in its audited financial statements for fiscal year 2003.
(4) Wellington
Wellington is owned by Universal Health System (Universal). Universal is a nationwide, for-profit hospital chain.
Wellington is a 121-bed for-profit hospital in the northwestern portion of South Palm Beach County.
Wellington is located in zip code 33414, approximately
2.5 miles south of Southern Boulevard at the intersection of State Road 7 (also known as U.S. Highway 441) and Forest Hill Boulevard.
Wellington opened in 1986 as an osteopathic hospital, and approximately 25 percent of its current medical staff is osteopathic physicians.
Wellington is accredited by JCAHO and the American Osteopathic Association.
Wellington provides tertiary-level care.
Wellington is easily accessible from Forest Hill Boulevard and State Road 7, and the hospital is served by the Palm Beach County bus system, which has a stop in Wellington’s parking lot.
Wellington has made substantial capital improvements to its hospital over the past five years. Those improvements were designed to enhance the hospital’s efficiency in serving its current patients and also to anticipate future patient demand.
Wellington owns 29 acres of property adjacent to the 26-acre site on which the hospital is located. The adjacent property is currently undeveloped and it is available for future expansions of Wellington.
Wellington’s chief executive officer (CEO) testified that Wellington has a site plan approved for its undeveloped property and that it has “vested concurrency” for the future development of that property; however, that testimony was not
corroborated (as was the case with Delray’s approved master plan) and therefore is not persuasive.
The services at Wellington include an ED, an OB program, general medical and surgical care, an orthopedic unit, a comprehensive cancer center, a wound care center, a cardiology program with a dedicated cardiovascular intensive care unit, and an outpatient diagnostic center.
Wellington’s OB program includes 18 labor rooms, 19 post-partum rooms and a 10-bed Level II NICU. Wellington delivers approximately six babies per day and has the capacity to deliver up to 15 babies per day.
Wellington’s utilization has steadily grown over the years, but it is still one of the lowest utilized facilities in South Palm Beach County; its annual occupancy rate was 64.27 percent between July 2001 and June 2002.
Wellington derives approximately 90 percent of its patients from a geographic area bounded by Military Trail on the east, the Loxahatchee National Wildlife Refuge on the west, Okeechobee Boulevard to the north, and Boynton Beach Boulevard to the south. That area includes zip codes 33414, 33437, 33463, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals.
Wellington has teaching and training programs for physician assistants and certified nurse anesthetists under
contracts with Florida International University and Florida Atlantic University. Wellington also has a family practice residency/internship teaching program for osteopathic doctors that is affiliated with Lake Erie School of Osteopathic Medicine, and a three-year dermatology teaching program.
When Wellington was established in 1986, there was very little population in the western portion of South Palm Beach County to support the hospital. As a result, the hospital was unprofitable in its early years, and by 2000, it had accumulated a deficit of $22 million.
Wellington’s financial performance has improved significantly in the past several years, but it still has a large accumulated deficit. Wellington is relying on its ability to retain or increase its market share in the growing West Boynton area in order to remain profitable and eliminate its accumulated deficit.
(5) Agency
The Agency is the state agency responsible for administering the CON program and licensing hospitals and other health care facilities.
Application Submittal and Review and Preliminary Agency Action
Bethesda and JFK each filed CON applications with the Agency in the first “hospital beds and facilities” batching
cycle of 2003. Each application sought to establish a new 80- bed satellite hospital in the West Boynton area of South Palm Beach County, Subdistrict 9-5.
The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero acute care beds in Subdistrict 9-5. There were no challenges to the published fixed need pool.
The letters of intent and CON applications filed by Bethesda and JFK for their respective satellite hospitals were timely filed and complied with all of the technical submittal requirements in the governing statutes and rules.
JFK’s letter of intent was filed within the “grace period” (see Florida Administrative Code Rule 59C-1.008(1)(d)2.) in direct response to Bethesda’s earlier-filed letter of intent. There is nothing inherently improper about a “grace period” letter of intent, and very little significance has been given to the responsive nature of JFK’s proposal in the comparative evaluation of the CON applications.
A public hearing was held on the applications by the local health council on April 24, 2003.5 Presentations were made at the public hearing in support of and in opposition to the applications. The opposition came primarily from a representative of Delray; the support came from representatives
of Bethesda and JFK and several residents of the West Boynton area.
The reasons offered by the speakers for their opposition or support of the applications were essentially the same as those presented at the hearing, and no independent significance has been given to the testimony and “evidence” presented at the public hearing.
Bethesda’s and JFK’s applications were comparatively reviewed by the Agency in accordance with the Agency’s rules and standard procedures.
On June 13, 2003, the Agency issued its State Agency Action Report (SAAR) based upon its comparative review of the applications. The SAAR recommended approval of Bethesda’s application and denial of JFK’s application.
The Agency’s published notice of intent to approve Bethesda’s application and to deny JFK’s application in the June 27, 2003, edition of the Florida Administrative Weekly as required by statute and Agency rule.
The Agency reaffirmed its preliminary decisions on the applications through the hearing testimony of Jeffrey Gregg, the Bureau Chief of the Agency’s CON program.
The petitions for administrative hearing challenging the Agency’s preliminary decisions on the CON applications at issue in this proceeding were all timely filed.
Acute Care Subdistricts 9-4 and 9-5
The Agency calculates the inventory of acute care beds on a subdistrict basis, and it considers CON applications for additional acute care beds on a subdistrict basis.
Palm Beach County is in District 9, which is divided into five subdistricts. Only two of the subdistricts, 9-4 and 9-5, are relevant in this case.
Subdistrict 9-4 is North Palm Beach County, and Subdistrict 9-5 is South Palm Beach County. The dividing line between the two subdistricts is Southern Boulevard.
There are six existing acute care hospitals in Subdistrict 9-5: Bethesda Memorial, JFK, Delray, Wellington, West Boca, and Boca Raton Community Hospital (Boca Community).
Boca Community and Bethesda are the only not-for- profit hospitals in Subdistrict 9-5; the others are for-profit hospitals.
The service area of Palms West, which is located on Southern Boulevard in Subdistrict 9-4, includes portions of Subdistrict 9-5 and the West Boynton area.
The utilization of hospital services in Subdistrict 9-
5 has historically been higher than the utilization of hospital services in Subdistrict 9-4. In calendar year 2002, for example, the average occupancy rate of the Subdistrict 9-5 hospitals was 78.2 percent as compared to 55.6 percent for the
Subdistrict 9-4 hospitals; and during the “peak season” of January through March 2002, the average occupancy rates were
88.4 percent in Subdistrict 9-5 and 62 percent in Subdistrict 9-4.
The West Boynton Area
The West Boynton area is an unincorporated area of South Palm Beach County. Its approximate boundaries are Congress avenue on the east, the Loxahatchee National Wildlife Reserve on the west, the L-30 canal (which is several miles north of Atlantic Avenue) on the south, and Hypoluxo Road on the north.
The West Boynton area roughly corresponds to the geographic area that is included in zip codes 33436, 33437, 33463, and 33467.
The Florida Turnpike, which runs north-south, roughly bisects the West Boynton area. The Turnpike is not a geographic barrier between the east and west portions of the West Boynton area, but it served as the de facto boundary of the urban service area until approximately 10 years ago when significant amounts of development began to “jump” the Turnpike.
Boynton Beach Boulevard is the primary east-west road in the West Boynton area, although there are several other east- west arterial roads within the area including Lantana Road and Hypoluxo Road. Other major east-west roads in close proximity
to the West Boynton area are Forest Hill Boulevard, Lake Worth Road, and Atlantic Avenue.
There are several major north-south roads in the West Boynton area in addition to the Turnpike, including Jog Road, Hagen Ranch Road, and State Road 7. State Road 7 is the westernmost major north-south road in South Palm Beach County. As a result of local zoning restrictions, very little development in the West Boynton area is or will be west of State Road 7.
The 2002 population of the West Boynton area, as defined by the four zip codes identified above, was approximately 156,000. There are seasonal variations in the population, but they are not as significant as the seasonal variations in the population of the more easterly portions of Palm Beach County.
The population of the West Boynton area is projected to grow to approximately 181,000 by 2007, which corresponds to an annual growth rate of approximately 3.1 percent per year. That growth rate is higher than the annual growth rate projected over that period for the state as a whole (1.6 percent), Palm Beach County (two percent), and District 9 (1.9 percent).
Approximately 89 percent of the 2003 population of the West Boynton area was located to the east of the Turnpike.
The portion of the West Boynton area to the west of the Turnpike is projected to grow at a considerably faster rate through 2008 than the area to the east of the Turnpike, which is consistent with the extensive amount of residential development that is underway or approved in the West Boynton area west of the Turnpike.
In 2002, approximately 28.6 percent of the residents of the West Boynton area were in the age 65 and older (“65+”) age cohort. That percentage is higher than the percentages in that age cohort for the state as a whole (17.5 percent), Palm Beach County (22.5 percent), or District 9 (22.5 percent). The 65+ age cohort is projected to remain the largest segment of the West Boynton area population through 2008.
A large number of the existing residential communities and the communities under development in the West Boynton area are retirement communities that are deed-restricted to persons over the age of 55, which contributes to the higher percentage of the population in the 65+ age cohort currently and projected in the future.
The West Boynton area is more affluent than and offers a better payer-mix than the existing service areas of Bethesda Memorial and JFK. As compared to the existing service areas of those hospitals, the West Boynton area has a lower percentage of uninsured residents, a higher percentage of
Medicare and insured residents, a lower percentage of households with annual incomes below $20,000, and a higher percentage of households with annual incomes above $60,000.
There is currently healthy competition in the West Boynton area for acute care services. That competition includes each of the four hospital parties in this case as well as several other hospitals.
JFK, Bethesda, Wellington, and Delray, collectively accounted for approximately 72 percent of the discharges from the West Boynton area in calendar years 2000, 2001, and 2002. The percentage of the West Boynton area discharges attributable to each of those hospitals or, stated another way, the hospitals' market shares in the West Boynton area over that period are as follows6:
JFK | Bethesda | Delray | Wellington | |
2000 | 31.7% | 23.2% | 10.6% | 6.1% |
2001 | 30.1% | 24.0% | 11.2% | 6.9% |
2002 | 28.8% | 23.9% | 11.4% | 7.7% |
There is no credible evidence that there will be any significant changes in those relative market shares over the five-year planning horizon applicable to the applications at issue in this case if a new hospital is not approved in the West Boynton area. Stated another way, the competitive balance that currently exists in the West Boynton market is expected to
continue unless something disrupts that balance, such as the approval of a new hospital in the area. As discussed below, if either of the proposed satellite hospitals are approved, the market share of the approved hospital will increase to the detriment of the other hospitals.
There is considerable community support for a new hospital in the West Boynton area from the residents of that area, as reflected in the letters of support included in the CON applications, the testimony at the local public hearing on the applications, and the deposition testimony from area residents and the related exhibits introduced at the hearing.
The community support is not, on balance, directed to the approval of Bethesda's proposed satellite hospital over JFK’s proposed satellite hospital, or vice versa; it is simply for the expeditious approval of a hospital.
Need for OB Services in the South Palm Beach County and/or the West Boynton Area
There are currently four OB programs in Subdistrict 9-5. The programs are at Bethesda Memorial, Wellington, West Boca, and Boca Community.
The evidence is not persuasive that an additional OB program is needed in Subdistrict 9-5. Indeed, Dr. Samuel Kaufman, an OB/GYN who has practiced in the area for many years, testified credibly that the four existing OB programs in the
subdistrict are just now beginning to do enough deliveries to be efficient.
There was no persuasive evidence that there are accessibility problems at the existing OB programs because of their utilization rates. Indeed, the OB unit at Wellington has the capacity to handle up to an additional nine deliveries per
day.
Each of the existing OB programs offers Level II
and/or Level III NICU services, which is typically referred to as “NICU backup.” It is not feasible to provide NICU backup at a low-volume OB program such as the 10-bed OB unit proposed in JFK’s satellite hospital.
It is important to have NICU backup because it is not uncommon for high-risk OB patients to unexpectedly present to the hospital and, in such circumstances, it is better for the child to have NICU services at the hospital where he or she is delivered rather than having to be transferred to another hospital.
The standard of care in South Palm Beach County requires NICU backup and, based upon malpractice liability concerns, some OB/GYNs will not deliver babies at a hospital that does not have NICU backup.
OB is among the top ten discharges in the proposed service area of JFK’s satellite hospital, which is not uncommon
around the state; however, because of the lower average length of stay (ALOS) associated with an OB admission, the high number of discharges does not correlate to a large number of patient days in the service area.
The population group that is most likely to utilize OB services is females between the ages of 15 and 44 (hereafter “the Female 15-44 age cohort”).
Only 16 percent of the 2002 population of the West Boynton area was in the Female 15-44 age cohort, and that cohort is projected to grow at a slower annual rate (2.3 percent) than the population of the West Boynton area as a whole (3.1 percent) through 2007.7
The relatively small portion of the population in the Female 15-44 age cohort is consistent with the data showing the highest percentage of the population in the West Boynton area in the 65+ age cohort. It is also consistent with the testimony and evidence regarding the number of existing and planned deed- restricted retirement communities in the West Boynton area.
The logic of including an OB unit in the proposed JFK satellite hospital is undercut by the recent closure of the OB unit at Columbia. According to Columbia’s CEO, Columbia’s OB unit was closed in 2002 because it “was a small unit” with a low volume, because the service area from which Columbia was drawing its patients was predominately elderly, and because there were
several other hospitals within close proximity to Columbia that had larger OB units with NICU backup.
Based upon those factors, Columbia’s CEO concluded that “there was no real community need to do OB” and that “it just didn’t make sense” to do OB. The same factors exist in the West Boynton area and, as a result, the comments of Columbia’s CEO are equally applicable to the inclusion of an OB unit in the proposed JFK satellite hospital.
The Proposed Satellite Hospitals (1) Bethesda West
Bethesda’s application, CON 9659, proposes to establish an 80-bed satellite hospital in the West Boynton area by de-licensing 80 beds at Bethesda Memorial and then transferring those beds to the proposed satellite hospital.
The transfer of beds proposed in Bethesda’s application will not increase the inventory of acute care beds in either District 9 or Subdistrict 9-5. The 80-bed increase at Bethesda West will be offset by the 80-bed decrease at Bethesda Memorial, both of which are in Subdistrict 9-5.
The beds transferred to Bethesda West will come from double-occupancy rooms, thereby allowing Bethesda Memorial to convert those rooms to private rooms. The conversion to private rooms will create efficiencies at Bethesda Memorial by
eliminating gender-based or disease-based conflicts between patients that often arise with double-occupancy rooms.
The transfer of 80 beds to Bethesda West will reduce Bethesda Memorial’s licensed capacity to 282 beds. That figure includes the 15 NICU beds, the 14 hospice beds, and the 14-bed SCU; therefore, after the bed transfer, Bethesda Memorial will have only 239 beds available for general patient use.
Bethesda Memorial is projected to have 80,630 patient days (excluding NICU and CMR patient days) in Bethesda West’s second year of operation.8 That equates to an ADC of 221 patients and an occupancy rate of 92.4 percent for the 239 beds available for general patient use.
If the hospice lease and the SCU contract are not renewed in 2005, then Bethesda Memorial would have 267 beds available for general patient use and its occupancy rate would be 82.7 percent. The non-renewal of the hospice lease and the SCU contract would not add new acute care beds to Subdistrict 9-
5 because those beds are still considered to be acute care beds for purposes of the Agency's bed inventory for the subdistrict, even though they are currently designated for specific purposes.
With an annual occupancy rate of 92.4 percent or even
82.7 percent, there would likely be days on which Bethesda Memorial’s occupancy rate would exceed 100 percent. This is not
an uncommon occurrence at the hospitals in Subdistrict 9-5, particularly during the “peak season” of January through March.
Bethesda Memorial could operate efficiently and provide high quality care with an occupancy rate of 82.7 percent or 92.4 percent without adding new beds. Indeed, JFK and Delray each have similar occupancy rates (and even higher occupancy rates during the “peak season”), and it is undisputed that they provide high quality care.
Because the addition of new acute care beds at an existing hospital is no longer linked to the hospital’s occupancy rate, Bethesda Memorial (like any other existing hospital) is free to add new acute care beds whenever it chooses to do so; however, the evidence was not persuasive that Bethesda will, in fact, add new beds at Bethesda Memorial after the bed transfer to Bethesda West notwithstanding the resulting high utilization rate at Bethesda Memorial.9
Bethesda West will include 68 general med-surg beds,
12 critical care beds, a full service ED, and related ambulatory and outpatient services.
All of the beds at Bethesda West will be in private rooms.
Bethesda West will not offer OB services or dedicated pediatric services, and it will not include a cardiac catheterization lab.
Bethesda West will be in a new 190,130 square foot building. The space plan for Bethesda West is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of Bethesda West is also reasonable.
Bethesda West will be located at the intersection of Boynton Beach Boulevard and State Road 7, which is approximately two miles west of the Turnpike. That location is three miles from Bethesda Health City, eight to nine miles from Wellington, and ten to 11 miles from Delray, JFK, and Bethesda Memorial.
Bethesda West could not be collocated with Bethesda Health City because there is not enough property at that location to construct a satellite hospital with the necessary parking facilities.
Bethesda has contracted to purchase 54 acres of property at the intersection of Boynton Beach Boulevard and State Road 7 known as the “Amestoy Property.” The purchase price of the Amestoy Property was $110,000 per acre.
Bethesda intends to develop Bethesda West on approximately 30 acres of the Amestoy Property and then lease or sell the remainder of the property for the development of medical office buildings. A 30-acre site is adequate for the proposed 80-bed satellite hospital, although it may inhibit future expansion.
Bethesda West intends to utilize the same medical staff as Bethesda Memorial; however, Bethesda has not discussed the issue with its medical staff as a whole10 nor has it developed specific plans to implement its dual-staffing approach.
Bethesda West will share management and administrative support services with Bethesda Memorial rather than duplicating those services.
The total cost of Bethesda West is $73.8 million.
The primary service area (PSA) for Bethesda West consists of zip codes 33436, 33437, 33463, and 33467, which roughly correspond to the boundaries of the West Boynton area. The hospital’s secondary service area (SSA) includes zip codes 33414 and 33446.
There is significant overlap in the proposed service area of Bethesda West and the current service area of Bethesda Memorial; four of the six zip codes in Bethesda West’s service area are in Bethesda Memorial’s service area.
There is also significant overlap between the proposed service area of Bethesda West and the service areas of Delray, Wellington, and JFK; each of the zip codes in Bethesda West’s proposed service area is also within the service area of at least two of those hospitals.
Bethesda West is projected to have 10,430 patient days in its first year of operation and 14,570 patient days in its second year of operation. Those patient days equate to ADCs of 29 and 40, and occupancy rates of 35.7 percent and 49.9 percent in the first and second years of operations. By the fourth year of operation, Bethesda West is projected to have an ADC of 56, which equates to an occupancy rate of 65.2 percent. These occupancy rates are reasonable, as is the “ramp up” concept on which they are based.
The projected utilization at Bethesda West is based upon an ALOS of 4.6 days. That ALOS was derived from information in the Agency’s in-patient database for residents of the West Boynton area who received in-patient services of the kind that would be offered at Bethesda West. It is a reasonable ALOS.11
The projected utilization assumes that Bethesda West will have an overall market share of 7.5 percent in its service area in the first year of operation, and that Bethesda West’s overall market share will increase to 13.5 percent by its fourth year of operation. Bethesda West is not projected to have a market share of greater than 15 percent in any individual zip code until its third year of operation.
The utilization and market shares projected for Bethesda West are reasonable and attainable based upon the
demographics and projected population growth in the West Boynton area.
Bethesda West is projected to take patients from the hospitals that currently serve the West Boynton area, including Bethesda Memorial.
Bethesda's application projects that 3,040 patients from Bethesda Memorial will be “redistributed” to, or “cannibalized” by Bethesda West in Bethesda West’s first year of operation and that the number will increase to 4,530 patients in Bethesda West's second year of operation. The remainder of Bethesda West’s projected patient days – 7,390 in its first year of operation and 10,040 in its second year of operation – will come from patients who are currently being served by an existing hospital or from growth in the service area.
In addition to these projected in-patient admissions, Bethesda West is projected to have outpatient registrations ranging from 22,440 (first year of operation) to 46,310 (fourth year of operation) and ED visits ranging from 8,990 (first year of operation) to 19,720 (fourth year of operation). The projected outpatient registrations and ED visits are reasonable and attainable.
Some of the outpatient registrations at Bethesda West will come at the expense of Bethesda Health City because it is currently providing some of the same outpatient services that
are proposed for Bethesda West. There is no persuasive evidence quantifying the number of Bethesda West’s outpatient registrations that would have otherwise gone to Bethesda Health City, nor is there any persuasive evidence quantifying the financial impact of the redistribution of those outpatients.
(2) Proposed JFK Satellite Hospital
JFK’s application, CON 9660, proposes to establish an 80-bed satellite hospital in the West Boynton area by de- licensing 80 beds at Columbia and then transferring those beds to the proposed JFK satellite hospital.
Columbia is located in Subdistrict 9-4 and, like JFK, it is an HCA hospital.
The bed transfer proposed by JFK will increase the inventory of acute care beds in Subdistrict 9-5 by 80 beds, but the bed inventory in District 9 will remain the same; the 80-bed increase in Subdistrict 9-5 at JFK’s proposed satellite hospital will be offset by an 80-bed decrease in Subdistrict 9-4 at Columbia.
Columbia has 250 licensed beds, of which 150 are acute care beds, 12 are skilled nursing beds, and 88 are psychiatric beds. Columbia’s acute care beds include a 20-bed intensive care unit/critical care unit (ICU/CCU), but only 10 of those beds are currently being used. The 12-bed skilled nursing unit is not currently being used.
The acute care beds at Columbia are not well- utilized. In calendar year 2002, the utilization rate for Columbia’s 150 acute care beds was only 40 percent and during the “peak season” in 2002, the utilization rate of those beds was only 47.6 percent.
The proposed bed transfer would enable Columbia to convert its existing semi-private rooms to private rooms, but according to Columbia’s CEO, to do so Columbia would also need to convert its 12 skilled nursing beds to acute care beds. JFK’s CON application did not make reference to that necessary bed conversion.
The conversion of the 12 skilled nursing beds to acute care beds may require Agency approval, which Columbia had not requested as of the date of the hearing.
If the bed conversions described by Columbia’s CEO did not occur, the utilization rate of the 70 remaining acute care beds at Columbia after the transfer will likely exceed 80 percent on an annual basis and, during the “peak season,” the occupancy rate will likely exceed 100 percent. Indeed, applying the number of patient days at Columbia in calendar year 2002 to
70 beds results in an annual occupancy rate of 85.7 percent and an occupancy rate of 102 percent in the “peak season.”
Under the pre-2004 law, those occupancy rates would allow Columbia to add beds without CON review, and Columbia’s
CEO testified that she would take steps to add beds at Columbia if necessary based upon the facility’s occupancy rates after the bed transfer.
There is no credible evidence that JFK planned to construct a satellite hospital in the West Boynton area prior to February 2003. The proposal was not included in any of JFK’s strategic or business plans prior to that date.
There is also no credible evidence that the Columbia planned to de-license any beds at its facility prior to the CON application at issue in this proceeding; Columbia’s long-term business plan includes the beds that are being transferred to JFK’s proposed satellite hospital. The decision to de-license and transfer 80 beds from Columbia was made by HCA officials, not Columbia’s management team.
The proposed JFK satellite hospital will include 60 general med-surg beds, a 10-bed OB unit, a 10-bed ICU/CCU, a full-service ED, and surgical suites. The hospital will provide radiation oncology services, diagnostic cardiac catheterization services, and outpatient psychiatric services, and all of its beds will be in private rooms.
In addition to the 80 beds described above, the proposed JFK satellite hospital will have a 12 “observation” beds in private rooms. The observation beds will be sized and equipped in the same manner as the general med-surg beds. As a
result, the proposed JFK satellite hospital will effectively have 92 beds even though it will only be licensed for 80 beds.
The proposed JFK satellite hospital will be in a new 195,195 square foot building. The space plan for the hospital is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of the hospital is also reasonable.
The proposed JFK satellite hospital will be located at the intersection of Boynton Beach Boulevard and the Turnpike on a 50-plus acre site known as the “Mazzoni Property.” That location is eight to nine miles from Delray and Bethesda Memorial, and 11 to 12 miles from Wellington and JFK.
JFK has offered to purchase the Mazzoni Property for
$130,000 per acre, but as of the date of the hearing, it had not entered into a contract to purchase the property.
Bethesda had been in negotiations for the purchase of the Mazzoni Property at a similar price before it settled on, and entered into a contract to purchase the Amestoy Property.
Like Bethesda, JFK intends to develop medical office buildings on its site in addition to the proposed satellite hospital. The size of the Mazzoni Property is adequate for those purposes.
JFK intends to utilize its medical staff to cover the proposed satellite hospital; however, there is no credible
evidence in the record detailing how the dual-staffing would work.
The proposed JFK satellite hospital will share some of its management and administrative support services with JFK, but not to the same extent as those services are shared between Bethesda West and Bethesda Memorial. Indeed, the proposed JFK satellite hospital was planned and staffed as a “stand alone economic entity.”
The total cost of the proposed JFK satellite hospital is approximately $109.8 million.
The service area of JFK’s proposed satellite hospital is considerably larger than the service are of Bethesda West. The PSA consists of zip codes 33437, 33467, 33446, and 33484; the SSA consists of zip codes 33436, 33463, 33414, 33413, 33445, 33496, and 33498.
There is significant overlap between the service area of the proposed JFK satellite hospital and the existing service areas of Bethesda, Delray, Wellington, and JFK; each of the zip codes in the proposed service area is within the service area of at least two of those hospitals.
Zip codes 33437 and 33467 are expected to generate over 92 percent of the patients for the proposed JFK satellite hospital. The inordinately high number of patients that these two zip codes are expected to generate calls into question the
reasonableness of service area defined by JFK, or at least the relevance of the SSA.
The proposed JFK satellite hospital is projected to have 20,851 patient days in its first year of operation and 21,576 patient days in its second year of operation, which equate to ADCs of 57 and 59 and occupancy rates of 71.4 percent and 73.7 percent. By the fifth year of operation, the proposed JFK satellite hospital is projected to have an occupancy rate of
percent.
The projected utilization of the proposed JFK satellite hospital was based on an ALOS of 3.9 days. That figure is reasonable. See Endnote 11.
To achieve the projected utilization, the proposed JFK satellite hospital will have to immediately achieve inordinately high market shares in its two primary zip codes, 33437 and 33467. Indeed, the CON application projects that the proposed JFK satellite hospital will have a 27 percent market share in zip code 33437 and a 24 percent market share in zip code 33467.
It is unreasonable to expect that a new, start-up hospital will be able achieve the market share or utilization rates projected by JFK for its proposed satellite hospital even though it will be affiliated with JFK, which has an established market reputation in the area. Instead, similar to other new
hospitals, the proposed JFK satellite hospital will likely have a “ramp up” period before it achieves its target market penetration and/or utilization.
The 10-bed OB unit at the proposed JFK satellite hospital is projected to have an ADC of 6 in each of the first two years of operation, and approximately one half of the admissions are projected to come from zip code 33467. That zip code has fewer residents in the Female 15-44 age cohort than does zip code 33463, which is in the West Boynton area but is in the SSA of the proposed JFK satellite hospital.
The utilization of the OB unit assumes market shares of 65 percent in zip code 33437, which is the zip code where the proposed JFK satellite hospital will be located (i.e., its “home zip code”), and 60 percent in the adjacent zip code 33467.
Those market shares are not inherently unreasonable for OB services since OB patients are more likely to utilize a facility closer to their home; however, the market shares are materially higher than the market shares that the established programs at Palms West (45 percent) and Wellington (41 percent) have in their home zip codes. The market shares proposed for the other zip codes in the proposed JFK satellite hospital’s service area are also somewhat higher than would be expected, particularly for a start-up OB program, but they are not inherently unreasonable.
Even though the OB market shares assumed by JFK are not inherently unreasonable, they are unrealistic under the circumstances of this case because the OB unit at the proposed JFK satellite hospital will not have NICU backup, which is the standard of care in South Palm Beach County, and it is unlikely that obstetricians will refer their patients to the proposed satellite hospital when other hospitals with NICU backup (e.g., Wellington and Bethesda Memorial) are available in close proximity to the West Boynton area.
The patient days for the OB unit were projected based upon a population-based use rate rather than based upon a fertility rate applied to the Female 15-44 age cohort. Because the Female 15-44 age cohort is growing at a slower rate than the population as a whole, JFK’s methodology had the effect of overstating the OB patient days and the ADC of the OB unit.
The fertility rate methodology is a more reasonable approach under the circumstances of this case. That methodology results in an ADC of only two to four patients in the OB unit at the proposed JFK satellite hospital, which is a more reasonable projection and is more consistent with the largely elderly demographic of the West Boynton area.
In sum, the projected utilization of the proposed JFK satellite hospital is overstated, particularly in the first two years of operation, as a result of the unrealistic market shares
projected for the hospital’s two primary zip codes and the overstated projection of OB patient days in the West Boynton area.
The proposed JFK satellite hospital is projected to take patients from the hospitals that currently serve the West Boynton area, including JFK. JFK projects that approximately 40 percent of its patients will be “cannibalized” by the proposed JFK satellite hospital, which is a materially higher percentage than that projected for Bethesda West in its first (29.1 percent) and second (31.1 percent) years of operation.
The remainder of the proposed JFK satellite hospital’s admissions will come from patients who are currently being served by an existing hospital or from growth in the service area.
In addition to the projected in-patient admissions discussed above, the proposed JFK satellite hospital is expected to have outpatient registrations and ED visits; however, the number of registrations and visits is not expressly projected in the application. Accordingly, it cannot be determined whether those projections are reasonable or not.12
Institution-specific Justifications for the Proposed Satellite Hospitals
Other than the prospect of enhancing access to acute care services for residents of the West Boynton area (see Part
I(1)(b) below), the primary justifications offered by Bethesda and JFK for their respective satellite hospitals were institution-specific.
The primary justification offered by Bethesda for the establishment of Bethesda West was its need to maintain or increase its market share of the favorable payer-mix in the West Boynton area in order to ensure its long-term financial viability. Although the evidence establishes that the West Boynton area has a more favorable payer-mix than Bethesda Memorial’s current service area, the evidence was not persuasive that Bethesda’s long-term financial viability is at risk or that it is at risk of losing market share in the West Boynton area if it is not allowed to construct Bethesda West.
Bethesda also presented evidence regarding its inability to add new beds at Bethesda Memorial because of physical and/or cost constraints, but that evidence was not persuasive.
The primary justification offered by JFK for the establishment of its proposed satellite hospital was its inability to expand its current facility to accommodate patients coming from the West Boynton area or elsewhere; however, the preponderance of the evidence fails to support that claim because, as of the date of the hearing, JFK still had the
ability to add at least 72 more beds to its existing facility, including 36 beds without any additional construction.
Impact of the Proposed Satellite Hospitals on the Existing Hospitals in Subdistrict 9-5
The evidence is not persuasive that Bethesda West or the proposed JFK satellite hospital can achieve their in-patient utilization projections through population growth in their projected service areas alone.
Instead, the evidence establishes that the proposed satellite hospitals will achieve their projected utilization primarily by taking patients who are currently being served by, or would otherwise be served by one of the existing hospitals in Subdistrict 9-5.
Bethesda West and the proposed JFK satellite hospital are each projected to “cannibalize” patients from Bethesda Memorial and JFK, respectively; however, they will also take patients “out of the hide” of Delray, Wellington, and each other.
The projected growth in the West Boynton area will result in the existing hospitals having more patient days in the future than they currently have, whether or not either of the satellite hospitals is approved; however, the approval of either of the proposed satellite hospitals will result in the existing
hospitals losing some of the growth-related admissions that they would have otherwise captured.
It is appropriate to consider the loss of those growth-related admissions as part of the impact analysis because the market shares in the West Boynton area and the service areas of the proposed satellite hospitals have been relatively stable over the past several years, and it is reasonable to expect that absent a significant change of circumstances (such as the approval of a satellite hospital in the area) the existing hospitals would continue to maintain their respective market shares into the future.13
The most persuasive analysis of the impact on the existing providers of the approval of the proposed satellite hospitals is that prepared by Wellington’s health planner, Thomas Davidson (Exhibit W-4).
Based upon Mr. Davidson’s analysis, the number of admissions that the existing providers would lose because of Bethesda West in its first two years of operation are as
follows:
Year 1 Year 2
Delray 377 512
Wellington 138 187
JFK 554 752
Based upon Mr. Davidson’s analysis, the number of patient days that the existing providers would lose because of the proposed JFK satellite hospital in its first two years of operation are as follows:
Year 1 Year 2
Delray 1,035 663
Wellington 735 615
Bethesda 1,638 1,178
These lost admissions and patient days constitute a substantial adverse impact on the existing hospitals, as does the loss of income resulting from the lost admissions and patient days. The proposed JFK satellite hospital will have a slightly greater adverse financial impact on Wellington than will Bethesda West, primarily because of the OB program and larger service proposed for the JFK satellite hospital; the proposed JFK satellite hospital and Bethesda West will have materially similar adverse financial impacts on Delray.
The overall effect of the lost admissions, patient days, and the resulting loss of income is greater on Wellington than it is on any of the other hospitals because Wellington has historically been less profitable than the other hospitals.
There are other adverse impacts on the existing providers, including the increases in costs and/or potential impacts to quality of care resulting from the exacerbation of
the emergency room (ER) call shortage of specialty physicians discussed below; however, there is no persuasive evidence quantifying those impacts.
Comparative Evaluation of the CON Applications Based Upon the Applicable Statutory and Rule Criteria
There is no credible evidence to justify the approval of two 80-bed hospitals in the West Boynton area. As a result, if either of the proposed satellite hospitals is to be approved, it should be the one that best satisfies the applicable statutory and rule criteria.
Statutory Criteria – Section 408.035,
Florida Statutes (2003)14
Subsection (1): Need in Relation to the District Health Plan15
The applicable provisions of the Local Health Plan for District 9 are as follows:
Priority shall be given to area hospitals, which can show a commitment to, or historical record of service to Medicaid/indigent, handicapped and underserved population groups.
Priority shall be given to applicants who can document cost containment practices in their facilities. Cost containment practices, such as sharing services with other area hospitals, enhances efficient resource utilization and assists in avoiding duplication of services.
Priority shall be given to an applicant who proposes to use existing space rather than new construction, including space created by previous voluntary de-
licensure of underutilized or unused beds and/or through transfer of beds within a subdistrict.
As more fully discussed below in connection with Section 408.035(11), Florida Statutes, the first preference weighs in favor of Bethesda based upon its historical record of service to Medicaid and charity patients, which is marginally better than JFK’s record, and its commitment to provide five percent of the patient days at Bethesda West to Medicaid and charity patients, which is more realistic than JFK’s 10 percent commitment; however, the weight associated with this preference is minimal in light of the demographics of the West Boynton area, which is generally more wealthy and, hence, less likely to generate significant Medicaid or charity care patient days.
As to the second preference, the record does not “document” any material cost containment practices at JFK or Bethesda Memorial. JFK and Bethesda each intend to use their existing medical staffs to cover their proposed satellite hospitals as a cost-containment effort; however, Bethesda has proposed a greater degree of integration (and, hence, less duplication) in the administrative functions at Bethesda West and Bethesda Memorial than did JFK at is proposed satellite hospital. Thus, the second preference also marginally weighs in favor of Bethesda.
As to the third preference, both applicants are proposing new construction rather than the use of existing space. Although JFK is proposing the de-licensure of underutilized beds at Columbia, it is not using the space created by those beds for its proposed satellite hospital as the rule preference contemplates. The beds that Bethesda is transferring to Bethesda West are not underutilized and they are being transferred to a new to-be-constructed facility rather than to existing space.
In sum, the local health plan preferences marginally weigh in favor of the approval of Bethesda’s application over JFK’s application.
Subsections (2) and (7): Availability, Quality of Care, etc.
of Existing Facilities and Enhancing Access
The primary justification offered by the applicants for their respective proposed satellite hospitals (other than the hospital-specific issues discussed above) is that the facility will "enhance access" to acute care services for residents of the West Boynton area.
More specifically, the applicants contend that the establishment of a new hospital in the West Boynton area will address an “access” problem that exists or soon will exist in the area. As discussed below, this contention is not supported by the preponderance of the evidence.
In the CON context, “access” is typically evaluated from the vantage points of programmatic, financial, cultural, and geographic access.
“Programmatic access” refers to the adequacy of the programs and services provided at existing facilities in relation to the specific health care needs of the persons served by those facilities. Programmatic access concerns arise when specific programs or services are not available for patients that need them, or when the quality of care provided in the existing programs is inadequate.
The evidence was not persuasive that there are any programmatic access problems in Subdistrict 9-5 and, in any event, neither of the proposed satellite hospitals would enhance programmatic access in the subdistrict because they will not offer any programs or services that are not already offered at one or more of the tertiary hospitals in the subdistrict that currently serve the West Boynton area.
Indeed, the proposed satellite hospitals will offer a more narrow range of services than the existing tertiary hospitals presently serving the area. This is significant because the elderly, who make of a large portion of the West Boynton area and who are more likely to have co-morbidities or more complex medical needs, are generally better served in a hospital offering tertiary services and more complete care.
Similarly, it is reasonable to expect that many physicians will continue to admit their patients to the larger tertiary hospitals rather than shifting those patients to a satellite hospital that provides a more narrow range of services.
“Financial access” refers to the extent to which persons have access to health care services without regard to their ability to pay.
The evidence was not persuasive that there are any financial access problems in Subdistrict 9-5 or the West Boynton area that the proposed satellite hospitals will address. None of the existing hospitals that serve the West Boynton area have policies or practices that discourage indigent patients from seeking care at their facilities and, in any event, the low- income population makes up a relatively small portion of the West Boynton area.
Cultural access” refers to the extent to which certain persons cannot or do not access the existing facilities due to cultural factors such as race, ethnicity, and national origin. Cultural access was not advanced by Bethesda or JFK as a basis for the approval or their respective applications.
“Geographic access” refers to the physical accessibility of the existing facilities or services in a subdistrict taking into account population density, distance and time of travel, and geographic barriers or other impediments to
access. Geographic access has been referred to as a “foundation of health planning.”
Bethesda and JFK focus primarily on the projected growth of the West Boynton area and the road congestion that comes with that growth as the basis for their contention that there is, or soon will be a access problem for residents of the West Boynton area; Bethesda states in its PRO (at page 29) that "[g]eographic access is at the heart of [its] proposal."
A reasonable geographic access standard for persons living in an urban area is a drive time of 30 to 40 minutes to an acute care hospital.
Under that standard, there is currently no geographic access problem for residents of the West Boynton area. Indeed, there are as many as 12 hospitals within a 30-minute drive of the West Boynton area, and a “fair number” of residents have access to four hospitals -– Bethesda, JFK, Wellington, and Delray -- within a 15 to 20-minute drive time.16 All of the hospitals within the 30-minute drive time offer tertiary-level care, and a number of them offer OB services.
There are no physical geographic barriers that limit access to the existing hospitals by residents of the West Boynton area. Indeed, there are a number of different major north-south and east-west roads that residents have to chose
from when accessing the existing hospitals, and most of those roads have at least four lanes.
The major roads in the West Boynton area have expanded along with growth of the population in the area, and they are expected to continue to do so. The infrastructure plan adopted by Palm Beach County includes continued road expansions and improvements over the planning horizon applicable to this case, and developers are often required to widen or otherwise improve the roads as a condition of the approval of new development.
There is insufficient evidence that the current travel times are significantly different for the elderly population in the area. The anecdotal testimony offered by various Bethesda witnesses was not persuasive.
The evidence was not persuasive that the travel times will be materially higher over the applicable five-year planning horizon. The analysis and opinion presented by Bethesda’s traffic engineer on this issue was not persuasive.17
The concurrency analysis performed by Bethesda’s traffic engineer only assessed Boynton Beach Boulevard; it did not assess any of the other major roads between the West Boynton area and the existing hospitals. Moreover, the analysis focused on the level of service (LOS) on various segments of Boynton Beach Boulevard, as measured by the projected number of trips on
those segments in 2007; it did not quantify the increase in travel time along that road, if any, resulting from the reduction in the LOS which the analysis showed.
The hospitals in Subdistrict 9-5 are some of the most highly-utilized hospitals in the state; however, the evidence was not persuasive that the high utilization at these hospitals has caused any access problems for residents of the West Boynton area, either for general acute care services or for OB services.
The existing hospitals in Subdistrict 9-5 have been able to meet the needs of the subdistrict by incrementally expanding their facilities when the need arises.
An additional 67 beds can be added to the bed inventory of Subdistrict 9-5 without any additional construction; JFK has shelled-in space for 36 new beds and Delray has shelled-in space for 31 new beds.
Additionally, Delray has a master plan that has been approved by Palm Beach County that will allow it to add as many as 123 more beds on its current campus as needed, and Wellington also has plenty of space on the undeveloped property adjacent to its hospital to add more beds as needed.
Having a hospital in the West Boynton area might be more convenient for residents of that area west of the Turnpike, at least in those instances where the patient is able to receive all of the necessary care at that hospital; however, convenience
alone is not valid basis for the approval of a new hospital, particularly where there are as many as 12 tertiary-level hospitals within a 30-minute drive of the West Boynton area.
In sum and on balance, the criteria in Subsections 408.035(2) and (7), Florida Statutes, weigh strongly against approval of either application. Indeed, despite the relatively high utilization rates at the existing hospitals in Subdistrict 9-5, the preponderance of the evidence fails to establish that there currently are, or that over the applicable planning horizon there will be any material deficiencies in the availability, quality of care, or accessibility of the existing hospitals in the subdistrict that would warrant the approval of a new hospital in the West Boynton area at this time.
Subsection (3): Ability of Applicant to Provide Quality of Care
The parties do not dispute the quality of care provided at any of the existing hospitals in Subdistrict 9-5, and the evidence affirmatively demonstrates that a high quality of care is currently provided at Bethesda Memorial, JFK, Delray, and Wellington.
Bethesda and JFK each intend to rely on their existing medical staff, at least in part, to staff their respective satellite hospitals. As a result, the quality of
care provided at the satellite hospitals will also be good, but it will be less than ideal in several respects.
First, neither satellite hospital will offer interventional cardiology services, which is, or is becoming the standard of care for treating heart attack patients that present to the hospital’s ED. Second, JFK’s proposed satellite will offer OB services without NICU backup, which is below the standard of care in South Palm Beach County.
Accordingly, the criterion in Section 408.035(3), Florida Statutes, weighs against the approval of either application.
Subsection (4): Special Health Care Services
The parties stipulated that this criterion is inapplicable, and in any event, the criterion was deleted by Chapter 2004-383, Laws of Florida, effective July 1, 2004.
Subsection (5): Educational Facilities and Training Programs18
Neither JFK nor Bethesda Memorial is a teaching hospital, and neither is proposing educational or training programs at its proposed satellite hospital.
The evidence was not persuasive that Wellington’s teaching programs will be adversely affected by the approval of either of the proposed satellite hospitals.
The criterion in Section 408.035(5), Florida Statutes, does not materially weigh in favor of or against the approval of either of the applications.
Subsection (6): Availability of Resources and Personnel for Operations
The parties stipulated that Bethesda and JFK each have the ability to fund the capital and operating expenditures for their proposed satellite hospitals. The reasonableness of the financing-related costs proposed by Bethesda and JFK in their respective applications is also not in dispute.
Delray and Wellington argue that neither Bethesda nor JFK will be able to adequately staff their proposed satellite hospitals due to physician and nurse shortages in South Palm Beach County and/or that the staffing of the proposed satellite hospitals will make it more difficult and costly for the existing hospitals in Subdistrict 9-5 to staff certain programs. Bethesda and JFK challenge the adequacy of each other’s staffing projections.
As more fully discussed below, the evidence is not persuasive that the staffing projected for either of the proposed satellite programs is inadequate; however, the evidence establishes that the approval of either program would exacerbate physician shortages in Subdistrict 9-5 in certain specialties.
Bethesda West’s staffing projections include 242.8 full-time equivalents (FTEs) in the first year of operation and
294.5 FTEs in the second year of operation. The staffing projections for the proposed JFK satellite hospital include
FTEs in the first year of operation and 448.5 FTEs in the second year of operation.
The disparity in the staffing levels primarily results from the higher occupancy rate projected at the proposed JFK satellite hospital, which is projected to be 71.4 percent in the first year of operation. By contrast, the occupancy rate at Bethesda West is projected be 35.7 percent in the first year of operation and then “ramp up” to approximately 69 percent by the fourth year of operation.
The staffing levels at each of the proposed satellite hospitals are reasonable based upon the ADCs projected and the services to be provided at each hospital. Indeed, the staffing levels are comparable when viewed as a ratio of staff to projected ADC; the ratios at Bethesda West are 8.37 and 7.36 in the first two years of operation, and the ratios at the proposed JFK satellite hospital for its first two years of operation are
7.74 and 7.60.
The evidence is not persuasive that Bethesda West’s staffing projections are understated or that they fail to include nursing and other positions necessary to ensure high
quality care is provided. Nor is the evidence persuasive that the salaries projected for Bethesda West’s staff are understated.
The evidence is not persuasive that the staffing projections for the proposed JFK satellite hospital are inherently unreliable based upon the manner in which they were prepared or as a result of the proxy that was used as a basis of the projections.
There is a nursing shortage statewide and in South Palm Beach County, but it is not as severe as it has been in the past. Indeed, it is significant that despite the large number of beds added over the past five years at the various hospitals in South Palm Beach County, those beds have been adequately staffed with nurses and ancillary clinical personnel.
JFK and Bethesda Memorial have each been successful in recruiting nursing staff despite the nursing shortage. They each have implemented innovative programs to aid in their recruiting efforts and to reduce their turnover and vacancy rates, and those programs are expected to be utilized at the proposed satellite hospitals.
JFK and Bethesda Memorial each use “traveler” and per-diem nurses to supplement their full time nursing staffs, which is not uncommon in South Palm Beach County.
Typically, a physician who has privileges at a hospital is required to be on ER call on a rotational basis. Many physicians have privileges at more than one hospital in South Palm Beach County, which means that they are responsible for providing ER call coverage at more than one hospital.
Because of malpractice and other concerns, it is becoming increasingly difficult for hospitals to attract physicians who are willing to take ER calls. The Palm Beach County Medical Society and the CEOs of the existing hospitals in the county met as recently as December 2003 to discuss the problems related to ER call coverage; however, as of the date of the hearing, the problem still existed and was severe.
It is possible for a physician to be providing ER calls to more than one hospital at the same time. This can become a serious problem if the physician is attending to a patient at one hospital when he or she is called to the ER at another hospital.
The problem of ER call coverage is most significant in specialties such as neurosurgery, hand surgery, urology, OB, and ear/nose/throat. Several of the hospitals in South Palm Beach County, including Wellington and Delray, have begun to pay physicians, and particularly specialty physicians to take ER call.
Adding a new hospital in South Palm Beach County will exacerbate this problem in several respects. First, it will add another hospital to the ER call rotations of the physicians who chose to obtain privileges at the satellite hospitals, thereby increasing the prospect of a physician being on call at more than one hospital at the same time. Second, it will make it even more difficult or costly for existing hospitals to obtain call coverage by the specialty physicians that are already in short supply.
It is unlikely that OB/GYNs will admit their patients to the small OB unit at the proposed JFK satellite hospital. OB/GYNs typically try to keep all of their patients in one hospital because it makes it easier on them to do rounds and to respond quickly to emergency situations, and because the OB unit at the proposed JFK satellite hospital will not have NICU backup, it is unlikely that many OB/GYNs will choose that hospital as the one where they admit the bulk of their patients.
In sum, the staffing levels for each of the proposed satellite hospitals are reasonable and appropriate for the services being offered at the hospitals, the projected staffing costs at each of the proposed satellite hospitals are also reasonable and appropriate, and JFK and Bethesda will be able to staff their respective satellite hospitals at the levels projected; however, the proposed satellite hospitals will
exacerbate the shortage of specialty physicians in South Palm Beach County and will make it more difficult for the existing hospitals to get specialty physicians for ER call coverage.
Accordingly, the criterion in Section 408.035(6), Florida Statutes, weighs against the approval of either application, and between the competing applications, this criterion does not materially weigh in favor of either application over the other.
Subsection (8): Financial Feasibility
The parties did not seriously contest the short-term financial feasibility of either of the proposed satellite hospitals, and the preponderance of the evidence establishes that both of the proposed satellite hospitals are financially feasible in the short-term; both applicants have the ability to fund the construction and initial capital needs of their respective projects in conjunction with the other capital projects listed on Schedule 2 of their respective CON applications.
The long-term financial feasibility of each of the proposed satellite hospitals is in dispute.
The general rule for assessing the long-term financial feasibility of a CON project is if the project will at least break even by the end of the second year of operation, then the project is financially feasible in the long-term; if,
however, the project continues to show a loss in the second year of operations and it is not demonstrated that the project will reach a break-even point within a reasonable period of time, then the project is not financially feasible in the long-term.
As more fully discussed below, Bethesda West is financially feasible in the long-term, but the proposed JFK satellite hospital is not. Accordingly, the criterion in Section 408.035(8), Florida Statutes, weighs in favor of approval of Bethesda’s application over JFK’s application.
Bethesda West
Schedule 8A of Bethesda's application projects that Bethesda West will generate a net loss of $3.7 million in its first year of operation and a net profit of $1.7 million in its second year of operation.
The financial projections for Bethesda West were based upon conservative utilization projections, which leads a reasonable projection of operating income.
The financial projections for Bethesda West are not defective based upon an overstatement of the “other operating revenue” or an understatement of the depreciation expense projected by Bethesda. The testimony of Bethesda’s expert financial witnesses is accepted over the testimony of the other financial experts on these issues.
The financial projections for Bethesda West are not defective based upon understatements in land costs, construction costs, equipment costs of staffing projections. The testimony of Bethesda’s experts related to these issues is accepted over the testimony of the other experts.
As discussed above, Bethesda West will “cannibalize” 3,040 and 4,530 patient days from Bethesda Memorial in its first and second years of operation. The financial impact of this “cannibalization” on Bethesda Memorial is a loss of $1.4 million and $2.1 million in the first and second years of Bethesda West’s operation.
The income loss from “cannibalization” is not accounted for on Schedule 8A. Although the patient days used to calculate the “per patient day” figures in the middle two columns of that schedule take into account the “cannibalized” patient days, the dollar amounts shown in those columns do not. On this issue, the testimony of Delray’s financial expert is more logical and persuasive than the testimony of Bethesda’s financial expert.
When the losses from “cannibalization” are taken into account, the approval of Bethesda West will have a negative impact on the Bethesda system of $5.1 million in its first year of operation and $400,000 in its second year of operation, which are consistent with the figures shown in Exhibit B-2 (pages 48
and 54). Even so, the system will show a net income of $300,000 and $5.6 million in the first two years of Bethesda West’s operation.
The impact of the “cannibalization” on Bethesda Memorial is projected to decrease as Bethesda West becomes more established. At the same time, the profitability of Bethesda West is projected to increase as its census grows. Thus, by the third year of its operation, Bethesda West is projected to have a positive impact on the Bethesda system of $2.2 million (i.e.,
$4.1 million in net income at Bethesda West less $1.9 million in “cannibalization” from Bethesda Memorial).
Bethesda West will not have a negative impact on Bethesda’s cash flow after its first year of operation. On this issue, the testimony of Bethesda’s expert is more persuasive than the testimony of the other financial experts.
Accordingly, Bethesda West is financially feasible in the long-term.
Proposed JFK Satellite Hospital
Schedule 8A of JFK's application projects that its proposed satellite hospital would generate a net loss of $1.2 million in its first year of operation and a net loss of
$392,000 in its second year of operation. Over the next three years, however, JFK projects its satellite hospital to generate
net income from operations of $509,000, $1.5 million, and $2.5 million.
The financial projections in JFK’s application were based upon overly-aggressive occupancy rates, both in the facility as a whole and in the small OB unit without NICU backup. As a result, the resulting financial projections are not reasonable.
JFK’s application does not include any analysis of the financial impact on Columbia of the transfer of 80 beds to the satellite hospital, nor does it include any analysis of the impact of the “cannibalization” of JFK’s patient days that would necessarily occur if JFK’s proposed satellite was approved. As a result, the financial impact of JFK’s proposed satellite hospital, in the words of one of JFK’s financial experts, is “probably incomplete.”
As a result of the unreasonable utilization projections and the incomplete presentation of the financial impact of the “cannibalization” of JFK’s patient days, JFK failed to establish that its proposed satellite hospital is financially feasible in the long-term.
Subsection (9): Fostering Competition that Promotes Cost-effectiveness
Neither of the proposed satellite hospitals will foster competition that proposes cost-effectiveness.
The West Boynton market currently has healthy competition for the acute services proposed for the satellite hospitals, and there is no dominant provider of those services.
Locating a new hospital in the West Boynton area will have the long-term effect of increasing the market share of the provider that operates the new hospital to the detriment of the other providers that are currently competing in that market. In this regard, the approval of a new hospital in the West Boynton area would adversely affect the competitive balance that currently exists in that area and which is projected to continue over the planning horizon.
The approval of either of the proposed satellite hospitals would also adversely affect cost-effectiveness by exacerbating the shortage of specialty physicians and other qualified staff in the subdistrict, which in turn would require existing hospitals to raise salaries, benefits and other expenses in order to remain competitive.
The approval of Bethesda West would have less of an adverse impact on competition and cost-effectiveness than would the approval of JFK’s proposed satellite hospital for several reasons. First, Bethesda West does not duplicate as many administrative services as does JFK’s proposed satellite hospital. Second, JFK currently has a higher market share in the West Boynton area than does Bethesda or any other hospital,
which means that the competitive balance would be tipped to a greater extent if JFK’s satellite hospital was approved. Third, the approval of the JFK satellite would give HCA four hospitals in Palm Beach County and increase its leverage in physician and staff recruitment and the negotiation of HMO contracts.
Accordingly, the criterion in Section 408.035(9), Florida Statutes, weights against the approval of either application; however, on balance between the two applications, this criterion favor’s Bethesda’s application over JFK’s application.
Subsection (10): Costs and Methods of Construction
The costs and methods of energy provision at the proposed satellite hospitals is not in dispute.
Although the proposed satellite hospitals are similar in size, the total project costs included in the CON applications are significantly different.
The $73.8 million total project cost for Bethesda West equates to a cost of $922,700 per bed. The $109.8 million total project cost for JFK’s proposed satellite hospital equates to a cost of $1.37 million per bed.
The portion of the total project costs for each of the proposed satellite hospitals attributable directly to “construction” is materially similar. Bethesda West’s construction costs are approximately $34.2 million, or $180 per
square foot; the construction costs for the proposed JFK satellite hospital are $40.9 million, or $210 per square foot.
The estimated construction costs for each of the proposed satellite hospitals are within the range of reasonableness that can be gleaned from the testimony of the various hospital construction experts. JFK’s cost is towards the higher end of the range, and Bethesda’s cost is towards the lower end of the range.
The primary differences in the total project costs are in the land purchase prices, the site preparation costs, and the equipment costs.
The land purchase price included in Bethesda’s application was $4.2 million, which was based upon a 30 to 40- acre site. The land purchase price included in JFK’s application was $8 million, which was based upon a 50-acre site.
Bethesda acquired the 54-acre Amestoy Property for
$110,000 per acre. At $110,000 per acre, the $4.2 million attributed by Bethesda to land purchase price would be sufficient to acquire 38.2 acres, which is more than adequate for the 80-bed Bethesda West facility.
Consistent with the estimate in the CON application, JFK has made an offer to purchase the 50-plus acre Mazzoni Property for $130,000 per acre.
The total land purchase price in each application, and the actual cost-per-acre of the Amestoy and Mazzoni Properties are reasonable.
The site development costs included in Bethesda’s application were $3.75 million, or $125,000 per acre for the 30 acres on which Bethesda West will be located. The site development costs included in JFK’s application were $6.5 million, or $150,000 per acre for the 50 acres on which JFK’s proposed satellite hospital will be located.
The site development costs for each project include on-site and off-site utility (e.g., water and sewer) and roadway work, geotechnical and environmental remediation costs, stormwater retention, landscaping, and concurrency impact fees. Each of the proposed sites is relatively flat and was formerly agricultural property and, as a result, there are not expected to be any unusual costs associated with the development of either site.
Bethesda West will be located further west than the proposed JFK satellite hospital and, as a result, its “radius of influence” includes fewer congested roadway links than does the proposed JFK satellite hospital; but, the Amestoy Property where Bethesda West will be located is farther away from the existing utility lines than the Mazzoni Property where the proposed JFK satellite hospital will be located. Thus, even though the cost
of running utilities to Bethesda West will likely be higher than the cost of running utilities to the proposed JFK satellite hospital, the currency impact fees for Bethesda West will likely be lower than the currency impact fees for the proposed JFK satellite hospital; and, on balance, the overall per-acre and total site development costs included in each of the applications are reasonable.
Bethesda’s application included equipment costs of approximately $16 million, all of which was attributable to movable equipment. The cost of fixed equipment was included in the estimated construction costs as part of the building contract.
JFK’s application included total equipment costs of approximately $34.2 million. That amount was broken into fixed equipment not in the building contract ($13.9 million), movable equipment ($17.8 million), and information systems ($2.4 million).
Some, but not all of the difference between the equipment cost estimates are attributable to the additional services –- e.g., OB and diagnostic cardiac catheterization –- that will be provided at the proposed JFK satellite hospital but not at Bethesda West. Additionally, some of the difference are attributable to the 12 "observation" rooms at the proposed JFK
satellite hospital that are being equipped in the same manner as the hospital’s general med-surg beds.
When compared on an “apples to apples” basis, the total equipment costs for Bethesda West are not materially different than the total equipment costs for the proposed JFK satellite hospital.
JFK is proposing to provide more specialized equipment than Bethesda in areas such as the surgical suites and the ICU/CCU and more information technology (IT) equipment; however, the evidence is not persuasive that such specialized equipment or the IT equipment is necessary to provide high quality care or that the absence of such equipment will adversely affect the quality of care at Bethesda West.
The $16 million in equipment costs at Bethesda West, which equates to approximately $200,700 per bed, is reasonable for the level and type of services that will be provided at Bethesda West.
The evidence is not persuasive that Bethesda’s equipment costs are understated even though its costs are considerably less than the equipment costs proposed by JFK. If anything, JFK has over-equipped its proposed satellite hospital with specialized equipment resulting in the higher equipment costs included in JFK’s CON application.19
Although the more expensive proposed JFK satellite hospital offers some benefits, such as a larger site to facilitate future expansions and more specialized equipment in some areas, those benefits are outweighed by the additional $35 million costs associated with that facility as compared to Bethesda West. This cost saving is particularly significant since each of the proposed facilities is supposed to be a satellite of a larger, tertiary hospital rather than a stand- alone community hospital.
The evidence was not persuasive that Bethesda Memorial and JFK have physical constraints that will limit their ability to add beds at their existing facilities in a cost- efficient manner. Even if the construction of a satellite hospital were the most cost-efficient way for Bethesda Memorial and JFK to add beds, the evidence was not persuasive that it is the most cost-efficient way to add beds from the perspective of the entire health care system of Subdistrict 9-5.
Indeed, there are less costly methods of adding new beds to the subdistrict than the construction of a new 80-bed hospital for $73.8 million or $109.8 million. For example, 36 additional beds can be added at JFK and 31 additional beds can be added at Delray in shelled-in space that has already been constructed.
The incremental cost of constructing space for additional bed expansions at Delray and Wellington would also be less than the construction costs of the proposed satellite hospitals.
In sum, because there are less costly ways to add beds to the subdistrict than the construction of a new hospital, the criterion in Section 408.035(10), Florida Statutes, weighs against the approval of either application; however, between the two applications, this criterion weighs in favor of the approval of Bethesda’s application over JFK’s application since its proposed satellite hospital will cost approximately $35 million less and will provide effectively the same services in similar physical space.
Subsection (11): Medicaid and Indigent Care
Bethesda characterizes itself as a “safety net” hospital because its Medicaid and charity care percentages typically exceed the averages for Subdistrict 9-5 and District 9 as a whole, and because Bethesda Memorial provides the largest percentage of the Medicaid and charity care provided by all of the hospitals in Subdistrict 9-5.
There is no statutory or rule provision that would support Bethesda’s designation of itself as a “safety net” provider. Moreover, the significance of Bethesda’s characterization of itself as a “safety net” hospital is
diminished by the fact that the Palm Beach County Health Care District (District) reimburses all hospitals in the county through an indigent care subsidy for care provided to patients that meet the District’s indigency standards. The subsidy helps to ensure that indigent patients are able to receive medical care from any hospital in the county and, to that end, provides a county-wide “safety net” for such patients.
The subsidies paid by the District do not cover the full cost of indigent care provided by the hospital, nor does the total amount of subsidies received by a hospital directly correlate to the total amount of indigent care provided by the hospital. Thus, it is not dispositive that JFK received the largest amount of subsidies from the District over the past several years or that JFK received approximately $1.6 million more in subsidies from the District in 2003 than did Bethesda.
JFK recently qualified as a “disproportionate share provider,” which means that at least 15 percent of its patient days are attributed to Medicaid or supplemental security income patients. As a disproportionate share provider, JFK receives incrementally larger reimbursements from Medicaid for the provision of indigent care. Bethesda is not currently a disproportionate share provider although it has been in the past.
None of the hospitals in South Palm Beach County have policies or practices that discourage Medicaid or uninsured patients. Bethesda Memorial, JFK, Wellington, and Delray each accept patients without regard to their ability to pay.
Bethesda and JFK conditioned the approval of their respective CON applications on the provision of a specified percentage of patient days to Medicaid and charity patients. The percentage committed to by JFK (10 percent) is higher than the percentage committed to by Bethesda (five percent).
The percentages of Medicaid and charity care committed to by the applicants may be difficult to achieve as a result of the demographics of the West Boynton area. Indeed, the more favorable payer-mix in the West Boynton area was a significant factor, and in Bethesda’s case it was the primary motivating factor for the establishment a new hospital in that area.
Bethesda Memorial and JFK each have a history of providing significant levels of Medicaid and charity care at their existing hospitals. The hospitals are each located in areas with large indigent populations, which significantly contribute to the high level of indigent care that they provide.
Bethesda Memorial has historically provided a larger amount of Medicaid care than has JFK in terms of a percentage of patient days, e.g., 16.1 percent verses 7.3 percent in 2001.
Those percentages each exceed the Subdistrict 9-5 average of 6.3 percent.
Bethesda Memorial has also historically provided a larger amount of charity care than has JFK in terms of dollars (e.g., $16.2 million verses $5.2 million in 2002) and in terms of a percentage of charges (e.g., 3.7 percent verses 0.4 percent in 2001 and 2.9 percent verses 0.6 percent in 2002). The Subdistrict 9-5 average for 2001 was 1.4 percent.
These comparisons are somewhat skewed because a large portion of Bethesda’s indigent care is attributable to Bethesda Memorial’s high-volume, well-established OB and neonatal programs which tend to be “magnets” for uninsured patients. When only like-services are considered, the utilization of JFK and Bethesda Memorial by Medicaid and indigent patients is similar.
JFK provides a significant amount of care to “self- pay” patients (e.g., $43.5 million in 2002), which JFK attempted to equate to charity care. Although there is often overlap between self-pay and charity care patients, the evidence was not persuasive that there is a direct correlation urged by JFK in this case. For example, JFK’s internal definitions of self-pay and charity care patients are markedly different and considerably more liberal than the Agency’s definition of charity care patients for reporting purposes.
Bethesda makes a $1 million per year “contribution” to the District to help fund the District’s indigent care program. That contribution was required as part of the settlement of litigation arising out of Bethesda’s conversion from a public hospital to a private not-for-profit hospital and, as a result, it cannot be fairly characterized as additional evidence of Bethesda’s commitment to serving indigent patients.
Even though both applicants demonstrated a history of and commitment to serving Medicaid and indigent patients, the criterion in Section 408.035(11), Florida Statutes, weighs in favor of Bethesda because the level of Medicaid and charity care historically provided by Bethesda Memorial is higher than that provided by JFK.
On balance with the other statutory and rule criteria, the criterion in Section 408.035(11), Florida Statutes, is not given significant weight because Bethesda has committed to providing a lower percentage of Medicaid and charity care patient days at Bethesda West than JFK committed to at its proposed satellite hospital, and because the demographics of the West Boynton area make it unlikely that a significant level of indigent care will be provided at either of the proposed satellite hospitals.
Subsection (12): Designation as a Gold Seal Nursing Facility
The parties stipulated that this criterion is inapplicable because neither applicant is proposing additional nursing home beds.
(2) Rule Criteria – Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038(6)
The criteria in Florida Administrative Code Rule 59C- 1.030(2) are subsumed in the statutory criteria discussed above related to the accessibility (or not) of existing acute care services in Subdistrict 9-5 and the need (or not) for new acute care beds in the West Boynton area. For the same reasons that the CON applications do not satisfy those statutory criteria, they do not satisfy the related criteria in Florida Administrative Code Rule 59C-1.030(2).
Under Florida Administrative Code Rule 59C- 1.038(6)(a), priority is given to applicants with “a documented history of providing services to medically indigent patients or a commitment to do so.” This priority weighs in favor of Bethesda for the reasons discussed above in connection with Section 408.035(11), Florida Statutes.
Under Florida Administrative Code Rule 59C- 1.038(6)(b), priority is given to applications that “meet the need for additional acute care beds in a particular service through the conversion of existing underutilized beds.” This
priority does not materially weigh in favor either application over the other; the underutilized beds at Columbia that JFK proposes to transfer to its satellite hospital are in a different subdistrict, and the beds that Bethesda proposes to transfer from Bethesda Memorial to its proposed satellite hospital are not underutilized beds in light of the historical occupancy rate at Bethesda Memorial.
CONCLUSIONS OF LAW
Jurisdiction, Burden of Proof, and Standing
The Division has jurisdiction over the parties to and the subject matter of this proceeding pursuant to Sections 120.569, 120.57(1), and 408.039(5), Florida Statutes.
JFK and Bethesda have the burden to prove by a preponderance of the evidence that their respective CON applications should be approved. See, e.g., Boca Raton Artificial Kidney Center, Inc. v. Dept. of Health & Rehabilitative Servs., 475 So. 2d 260, 263 (Fla. 1st DCA 1985);
§ 120.57(1)(j), Fla. Stat.
The Agency’s preliminary decisions on the CON applications and its findings in the SAAR are not entitled to a presumption of correctness in this de novo proceeding. See generally Dept. of Transportation v. J.W.C. Co., Inc., 396 So. 2d 778, 787 (Fla. 1st DCA 1981). However, the Agency’s construction of its rules and the statutes that it is charged to
implement is entitled to deference. See, e.g., State Contracting & Engineering Corp. v. Dept. of Transportation, 709 So. 2d 607, 610 (Fla. 1st DCA 1998); § 120.57(1)(l), Fla. Stat.
When comparatively evaluating CON applications, a balanced consideration of the applicable statutory and rule criteria must be made; the appropriate weight to be given to each criterion is not fixed, but rather varies based upon the facts of the case. See, e.g., Morton F. Plant Hospital Ass’n, Inc. v. Dept. of Health & Rehabilitative Servs., 491 So. 2d 586,
589 (Fla. 1st DCA 1986) (quoting North Ridge General Hospital,
Inc. v. NME Hospitals, Inc., 478 So. 2d 1138, 1139 (Fla. 1st DCA 1985)).
Each of the parties has the requisite standing to participate in this proceeding pursuant to Section 408.039(5)(c), Florida Statutes. Bethesda and JFK are co- batched applicants whose CON applications were comparatively reviewed by the Agency, and they also operate existing hospitals in Subdistrict 9-5 whose established programs would be substantially affected by the approval of the other’s proposed satellite hospital. Delray and Wellington operate existing hospitals in Subdistrict 9-5 whose established programs would be substantially affected by the approval of either of the proposed satellite hospitals.
2004 CON Legislation
The Legislature made significant changes to the CON law in the 2004 Session, after the final hearing in this case was completed. See Ch. 2004-382 and 2004-383, Laws of Fla. (collectively “the 2004 CON Amendments”). Those changes became effective on July 1, 2004. See Ch. 2004-382, § 3, Laws of Fla.; Ch. 2004-383, § 15, Laws of Fla.
As explained in Lavernia v. Department of Business and Professional Regulation, 616 So. 2d 53 (Fla. 1st DCA 1993):
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.
Id. at 53-54. See also Agency for Health Care Admin. v. Mt.
Sinai Medical Center, 690 So. 2d 689, 692-93 (Fla. 1st DCA 1997) (applying Lavernia in a CON case). Accordingly, the 2004 CON Amendments apply to the applications at issue in this proceeding.
The case cited by Bethesda for the proposition that the general rule quoted above is inapplicable to CON applications - Bethesda Healthcare System, Inc. v. Agency for Health Care Administration, Case Nos. 00-0461CON, 00-0462CON,
and 00-0463CON (DOAH Nov. 21, 2002; AHCA July 22, 2003)
(reported at 2002 WL 31668865) – is distinguishable.
The issue in that case was whether the open heart surgery rule in effect at the time the CON applications were filed applied, or whether a subsequently amended version of the rule applied. See Bethesda, 2002 WL 31668865, at *3. Although not specifically stated in the Recommended or Final Orders in Bethesda, the amended rule presumably imposed different or additional criteria that were not imposed by the rule in effect at the time the CON applications were filed. The Administrative Law Judge (ALJ) in Bethesda concluded that the rule in effect at the time the applications were filed applied because “[t]he imposition of new criteria without allowing an amendment places an applicant in the untenable position of not being allowed to offer proof that its proposal meets the [new] criteria.” Id. at
**25-26.
The 2004 CON Amendments do not have a similar effect on the applicants in this case. They do not impose new criteria which the applicants must meet for their CON applications to be approved; in fact, several of the statutory review criteria are deleted. See Ch. 2004-383, § 4, Laws of Fla. (deleting Subsections (4) and (5) and a portion of Subsection (1) of Section 408.035, Florida Statutes).
The aspect of Chapter 2004-383, Laws of Florida, that the parties primarily focused on in their PROs is the act’s “deregulation” of acute care bed additions at existing hospitals. That change has no direct impact on this proceeding although, as discussed below, it weighed into the undersigned’s consideration of the legal issue of whether Bethesda is required to establish “not normal” circumstances for its application to be approved.20
JFK argues that the practical effect of the “deregulation” of acute care bed additions by the 2004 CON Amendments is that the Agency’s subdistrict bed inventories will become irrelevant. While that may be true, until the Agency amends it need methodology rules to account for the statutory change,21 the rules continue to apply and the subdistrict bed inventories and, as discussed below, the different legal impacts of intra- and inter-subdistrict transfers on those inventories continue to have significance.
JFK’s corollary argument that the amendment to Section 408.035(1), Florida Statutes, requires both applicants in this case to establish “need” for their proposed satellite hospitals through a showing of “not normal” circumstances is rejected based upon the plain language of Florida Administrative Code Rule 59C-1.038(4) and the precedent of Memorial Health care Group, Inc. d/b/a Memorial Hospital Jacksonville v. Agency for
Health Care Administration, Case Nos. 02-0447CON, 02-0882CON, and 02-0971CON (DOAH Feb. 5, 2003, AHCA Apr. 10, 2003), per
curiam aff'd, Case No. 1D03-1958 (Fla. 1st DCA June 16, 2004). Instead, it is concluded that the amended version of Section 408.035(1), Florida Statutes, simply confirms the general proposition that “need” is the polestar of CON law. Pending any changes to the Agency’s rules (see Endnote 21), the ultimate determination of “need” will continue to be based upon a balanced consideration of the other statutory criteria and any applicable rule criteria.
In the end (and in this case), this may be a distinction without a difference because the other statutory criteria effectively encompass the same issues that are typically evaluated in determining whether “not normal” circumstances exist. See, e.g., § 408.035(2) and (7), Fla. Stat. (2004) (requiring consideration of the availability, accessibility, and extent of utilization of existing facilities, as well as the potential for enhancing access through the approval of the proposed facility).
“Not Normal” Circumstances
There is a presumption in this case that there is no need for additional acute care beds in Subdistrict 9-5 as a result of the Agency’s publication of a zero fixed need pool for the subdistrict. See Naples Community Hospital v. Agency for
Health Care Admin., Case No. 92-1510CON, 1993 WL 944132, at *15
n.1 (DOAH March 19, 1993; AHCA June 6, 1993) (“A lack of numeric need under the rule formula establishes a rebuttable presumption of no need.”) (citing Humhosco v. Dept. of Health & Rehabilitative Servs., 476 So. 2d 258, 261 (Fla. 1st DCA 1985)).
The presumption can be rebutted based upon a showing of “not normal” circumstances that would justify the approval of additional beds. See, e.g., Humana, Inc. v. Dept. of Health & Rehabilitative Servs., 469 So. 2d 889, 891 (Fla. 1st DCA 1985).
The parties disagree as to whether JFK, Bethesda, or both must establish “not normal” circumstances in order for their applications to be approved. Thus, the first issue that must be determined is whether, as a matter of law, either applicant must establish “not normal” circumstances to overcome the presumption created by the zero fixed need pool published by the Agency. If so, the next issue to be determined is whether, as a matter of fact and law, “not normal” circumstances exist in this case.
Does Either Applicant Have to Establish “Not Normal” Circumstances?
JFK
Delray, Bethesda, and the Agency argue that JFK is required to demonstrate “not normal” circumstances for its application to be approved because approval will cause the bed
inventory of Subdistrict 9-5 to be increased by 80 beds. In response, JFK argues that it is not required to demonstrate “not normal” circumstances because the approval of its application will not result in any new or additional beds in District 9 because the 80-bed increase in Subdistrict 9-5 is offset by an 80-bed decrease at Columbia in Subdistrict 9-4. These same arguments were addressed in Memorial, supra.
Memorial involved three hospitals – St. Luke’s, Baptist, and St. Vincent’s – which each sought to establish a new or replacement hospital through a transfer of beds from their existing facilities. Each of the new hospitals was to be located in Subdistrict 4-3. See Memorial Recommended Order, at
The existing facilities from which St. Luke’s and Baptist proposed to transfer beds were also located in Subdistrict 4-3; the existing facility from which St. Vincent’s proposed to transfer beds was located in Subdistrict 4-2. Id. Thus, none of the proposed transfers would increase the bed inventory in District 4, and only St. Vincent’s proposal would increase the bed inventory in Subdistrict 4-3. Id. at 139-40.
The ALJ in Memorial concluded as a matter of law that St. Luke’s and Baptist were not required to demonstrate “not normal” circumstances for approval of their CON applications because “they will not increase the inventory of beds in Sub- district 4-3.” Id. at 139. This conclusion was based primarily
upon the text of Florida Administrative Code Rule 59C- 1.038(4)(a)22 which, as the ALJ noted, “is tied to an occupancy rate in the subdistrict not the district.” Id.
With respect to St. Vincent’s, the ALJ concluded that “[w]hether required to demonstrate ‘not normal’ circumstances for its application to be approved or not, St. Vincent’s did so.” Id. at 142. Thus, Memorial does not establish precedent one way or the other on the issue of whether an applicant is required to establish “not normal” circumstances where its proposal increases the bed inventory of the subdistrict, but not the district.
As the ALJ noted in Memorial and as JFK argues in its PRO, there is case law that appears to support the proposition that an intra-district transfer of beds across subdistrict lines does not implicate the bed need methodology because the transferred beds are not “new or additional beds.” That case, Central Florida Regional Hospital v. Daytona Beach General Hospital, 475 So. 2d 974 (Fla. 1st DCA 1985), involved a transfer of 100 beds from Subdistrict 4-4 to Subdistrict 4-5 and the delicensure of an additional 50 beds in Subdistrict 4-4. Id. at 975. As a result, the bed inventory of Subdistrict 4-5 increased by 100 beds, the bed inventory of Subdistrict 4-4 decreased by 150 beds, and the bed inventory of District 4 as a whole decreased by 50 beds. Id.
In holding that the bed need methodology did not apply, the court stated:
The futility of applying bed need methodology by rule when transferring beds is apparent. If there are 100 licensed beds in a subdistrict which are moved to another subdistrict, the total number of beds remain the same; there are no “new or additional beds.”
Id.
The rule at issue in Central Florida Hospital was not
part of the record in Memorial and, as a result, the ALJ in that case was unable to determine whether the rule was “tied to subdistricts or was tied to the district as a whole.” Memorial Recommended Order at 141. On this issue, the ALJ simply noted that:
Id.
If [the rule was] tied to subdistricts, then Central Florida Hospital controls and St.
Vincent’s need not demonstrate “not normal” circumstances in support of its application. If [the rule was] tied to the district rather than the subdistrict, then St.
Vincent’s must demonstrate “not normal” circumstances.
Consistent with those comments, if the rule at issue in Central Florida Hospital was tied to subdistricts (as is the current Florida Administrative Code Rule 59C-1.038(4)(a)), then that case controls in this case and JFK is not required to demonstrate “not normal” circumstances for its application to be
approved. If, however, the rule at issue in Central Florida Hospital was tied to the district as a whole rather than to subdistricts, then that case is distinguishable and, based upon the plain language of the current rule, JFK is required to demonstrate “not normal” circumstances for its application to be approved because its proposal will add “new or additional beds” to Subdistrict 9-5.
The rule at issue in Central Florida Hospital was Florida Administrative Code Rule 10-5.11(23)(b), which was officially recognized in this case. The rule provided in pertinent part that:
The Department will not normally approve applications for new or additional acute care hospital beds in any departmental service district if approval of an application would cause the number of beds in that district to exceed the number of beds calculated to be needed according to the methodology included in paragraph (f),
(g) and (h) below.
Fla. Admin. Code R. 10-5.11(23)(b) (emphasis supplied).
Paragraphs (f), (g) and (h) referenced in Florida Administrative Code Rule 10-5.11(23)(b) established the methodologies for computing bed need, and those paragraphs also referred to districts rather than subdistricts. See Fla. Admin. Code R. 10-5.11(23)(f)-(h). See also Fla. Admin. Code. R. 10- 17.001(2)(a) (defining “bed need” as “the total projected bed need for a district”) (emphasis supplied).
Although the district-wide bed need was allocated across the subdistricts by Florida Administrative Code Rule 10- 17.005, that provision has to be read in pari materia with Florida Administrative Code Rule 10-5.11(23)(b). To that end, Florida Administrative Code Rule 10-17.001(3)(a) stated:
. . . . Subdistrict bed need allocations in this rule shall be used in conjunction with subsections 10-5.11(23)(b) and (i). The Department will not normally approve applications for new or additional acute care hospital beds in a departmental service district unless the district as a whole shows a net need for new beds. If the subdistrict bed need allocation substantially exceeds the number of existing and approved beds in the subdistrict or if geographic accessibility criteria [in Florida Administrative Code Rule 10- 5.11(23)(i)] are not satisfied, the Department shall consider the need for additional beds on a subdistrict basis in conjunction with the need for beds on the basis of the district as a whole and may approve such beds consistent with the provisions of subsection 10-5.11(23)(b), Florida Administrative Code.
Because the rules at issue in Central Florida Hospital calculated bed need on a district basis rather than a subdistrict basis, that case is distinguishable and JFK is required to demonstrate “not normal” circumstances in order for its application to be approved. See Fla. Admin. Code R. 59C- 1.038(4)(a); Memorial Recommended Order, at 141.
In reaching this conclusion, the undersigned has not overlooked the fact that in the Final Order in Memorial, the
Agency rejected exceptions that included virtually the same analysis of Central Florida Hospital and Florida Administrative Code Rule 10-5.11(23)(b) as set forth above.23 The Agency’s rejection of those exceptions is not construed to mean that the Agency implicitly concluded in the Final Order that “not normal” circumstances need not be shown where there is an transfer of beds across subdistrict lines that does not increase the bed inventory in the district because, like the ALJ, it was unnecessary for the Agency to resolve that issue since it also rejected the exceptions to the ALJ’s ultimate conclusion that St. Vincent’s established “not normal” circumstances whether it was required to do so or not.
(b) Bethesda
Delray, Wellington, and JFK argue that Bethesda is required to establish “not normal” circumstances for its application to be approved. Bethesda, joined by the Agency, argues that Bethesda is not required to establish “not normal” circumstances because its proposed intra-subdistrict transfer will not add any new acute care beds to Subdistrict 9-5.
In essence, Delray, Wellington, and JFK argue that that it is foreseeable that Bethesda Memorial will add new acute care beds after the bed transfer to Bethesda West based upon the extraordinarily high utilization rate of Bethesda Memorial’s remaining beds; that the future bed additions will increase the
bed inventory of Subdistrict 9-5; and that the future increase in the subdistrict’s bed inventory should be viewed as part of the same transaction as the bed transfer to Bethesda West. This argument is rejected.
First, the preponderance of the evidence fails to establish that Bethesda Memorial will, in fact, add new beds after the bed transfer to Bethesda West despite the high utilization rate of its remaining beds. The argument that future bed additions at Bethesda Memorial is “foreseeable” is speculative and contrary to the credible testimony of Bethesda’s witnesses.
Second, Memorial clearly held that beds transferred within a subdistrict are not new or additional beds and that an applicant proposing an intra-subdistrict bed transfer is not required to establish “not normal” circumstances for its application to be approved. See Memorial Recommended Order, at
139. The Agency apparently construes Memorial in this same manner based upon its joinder in Bethesda’s PRO and, on this issue, the Agency’s interpretation is entitled to deference. See State Contracting & Engineering Corp., supra.
Third, as a result of Chapter 2004-383, Laws of Florida, Bethesda Memorial (like any other hospital) may now add acute care beds without CON review, whether or not its proposed satellite hospital is approved. Therefore, it would not be
reasonable to view any future bed additions at Bethesda Memorial as part of the same transaction as the bed transfer to Bethesda West absent direct evidence of the interrelationship.
Accordingly, Bethesda is not required to establish “not normal” circumstances for its application to be approved.
(2) Do “Not Normal” Circumstances Exist in this Case?
Having determined that JFK is required to establish “not normal” circumstances to overcome the presumption created by the zero fixed need pool, it becomes necessary to determine whether any “not normal” circumstances have been established in this case.
In order to establish “not normal” circumstances,
an applicant must demonstrate and there must be some finding of fact that, without the requested [service], the existing facilities are (or will be) unavailable or inaccessible, or the quality of care is (or will be) suffering from overutilization, or other evidence of that nature.
Humana, Inc. v. Dept. of Health & Rehabilitative Servs., 492 So. 2d 388, 392 (Fla. 4th DCA 1986). See also Humana, 469 So. 2d at
891.
There is not a list of enumerated “not normal”
circumstances; however, “not normal” circumstances traditionally involve “issues related to financial, geographic, or programmatic access to the proposed service by potential patients, and not facility specific concerns.” See West Florida
Regional Medical Center, Inc. v. Agency for Health Care Admin., Case No. 93-4886CON, 1994 WL 1027902, at *14 (DOAH Nov. 18, 1994; ACHA Apr. 18, 1995). Accord Bethesda, 2002 WL 31668865,
at *28 (“Institution-specific criteria alone have not constituted not normal circumstances in the past.”).
JFK failed to demonstrate any “not normal” circumstances that would justify approval of its proposed satellite hospital. The evidence fails to establish that the existing hospitals in Subdistrict 9-5 are geographically, programmatically, or economically inaccessible to residents of the subdistrict and/or those residents of the subdistrict in the West Boynton area, or that the existing hospitals are overutilized to such an extent that a new hospital is needed in the West Boynton area in the foreseeable future. Moreover, the institution-specific concerns at JFK regarding its limited ability to expand at its current location do not constitute “not normal” circumstances and were not supported by the preponderance of the evidence.24
In sum, JFK’s application should be denied because JFK failed to demonstrate any “not normal” circumstances to justify the approval of the application.
Balancing of the Statutory and Rule Criteria
On balance, Bethesda’s CON application fails to satisfy the applicable statutory and rule criteria.
Specifically, Bethesda failed to demonstrate that access to acute care services will be materially improved based upon the approval of Bethesda West (§ 408.035(2) and (7), Fla. Stat.), and any marginal improvement in access that residents of the West Boynton area would achieve through the approval of Bethesda West is outweighed by Bethesda West's exacerbation of the shortage of specialty physicians for ER call coverage (§ 408.035(6), Fla. Stat.), the negative impact on of Bethesda West on the competitive balance in the West Boynton market (§ 408.035(9), Fla. Stat.), and the costs associated with the construction of the facility (§ 408.035(10), Fla. Stat.).
On balance, JFK’s CON application also fails to satisfies the applicable statutory and rule criteria.25 In addition to the reasons set forth in the prior paragraph, JFK’s failure to establish the long-term financial feasibility of its proposed satellite hospital (§ 408.035(8), Fla. Stat.) also weighs against approval of its application.
Because, on balance, neither of the CON applications satisfy the applicable statutory and rule criteria, both should be denied.
Between the two CON applications at issue in this proceeding, Bethesda’s proposal better satisfies the applicable statutory and rule criteria than does JFK’s proposal. Accordingly, if the Agency or an appellate court rejects the
conclusion (and the underlying findings upon which it is based) that both applications should be denied, then only Bethesda’s application should be approved. The most significant factors weighing in favor of the approval of Bethesda’s application over JFK’s application are its more reasonable utilization projections, its financial feasibility, its lower costs of construction, its greater integration of administrative services between the satellite and main hospitals, and its more realistic and attainable Medicaid and charity care commitment.
Based upon the foregoing findings of fact and conclusions of law, it is
RECOMMENDED that the Agency issue a final order denying Bethesda’s CON application No. 9659 and also denying JFK’s CON application No. 9660.
DONE AND ENTERED this 29th day of September, 2004, in Tallahassee, Leon County, Florida.
S
T. KENT WETHERELL, II 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 29th day of September, 2004.
ENDNOTES
1/ Mr. Gieseking filed a Notice of Appearance and Substitution of Counsel on July 16, 2004. Mr. Mulligan and Ms. Riselli represented the Agency at the final hearing.
2/ Delray's petition was filed by Tenet HealthSystem Hospital, Inc. d/b/a Delray Medical Center, which is Delray's corporate predecessor. By Order dated January 12, 2004, Delray was substituted as the real party in interest and the case style was modified to reflect that change.
3/ The Agency did not file a separate PRO. It adopted and joined Bethesda’s PRO in all respects except that it took “no position as to the relative advantages, disadvantages, merits, benefits, and/or detriments associated with the reinvestment/use of earnings, investor expectations, rates of return on equity, charges, and overall pricing structures of for-profit hospitals and national hospital corporations, as compared to local nonprofit community hospitals” discussed at pages 19 and 20 of Bethesda’s PRO.
4/ See Exhibit JFK-89, at page B04073. For sake of comparison, the “total margins” reported by the other hospital parties in this case on their December 2002 “Prior Year Reports” were $17.5 million (JFK), $6.4 million (Bethesda), and $2 million (Wellington). Id. at pages B04113, B04150, B04179.
5/ Another CON application, No. 9664, was also discussed at the public hearing. That application is not at issue in this proceeding and, as a result, those portions of the record of the public hearing (Exhibit B-1E) relating to that application have been disregarded as irrelevant.
6/ These percentages were calculated from the discharge data presented in Exhibit JFK-8.11 for the zip codes 33436, 33437, 33463, and 33467. The percentages shown in that exhibit for Bethesda West’s entire service area are proportionately similar.
7/ Except for the annual growth rate of the West Boynton area as a whole, which was derived from Exhibit B-2 (page 4), these percentages were derived from Exhibit D-41 (Tab 19). The
percentages are based only upon the zip codes that make up the West Boynton area, i.e., 33436, 33437, 33463 and 33467.
8/ In making this finding, the undersigned has not overlooked Delray’s argument that the number of patient days at Bethesda Memorial would be materially higher than 80,630 if Bethesda’s open heart surgery program is approved and/or if Bethesda Memorial captures a larger percentage of the growth in the West Boynton area; however, the evidence supporting that argument is speculative and/or not persuasive.
9/ In making this finding, the undersigned has not overlooked the testimony of Mr. Gregg and the other health planners regarding the likelihood that a hospital whose occupancy rate exceeds 80 percent will seek to add beds by way of the exemption in Florida Administrative Code Rule 59C-1.038(5); however, that exemption is no longer relevant as a result of the 2004 CON Amendments, which deregulated acute care bed additions at existing hospitals and Bethesda's witnesses credibly testified that they do not intend to add any new beds at Bethesda Memorial, particularly if the hospice lease and the SCU contract are not renewed.
10/ In making this finding, the undersigned has not overlooked the resolution adopted by Medical Executive Committee of Bethesda Memorial (Exhibit B-46) or the related testimony of Dr. Fernando Keller, who is the president of the Medical Executive Committee. Although the resolution states that the “physicians who serve on the medical staff of Bethesda Memorial Hospital are committed to supporting [Bethesda West] and will provide all physician services necessary to support the delivery of health care at the new satellite facility,” Dr. Keller testified that the resolution was not presented to the full medical staff for its approval and, moreover, the circumstances surrounding the preparation of the resolution are such that it is not entitled to great weight.
11/ In making this finding, the undersigned has not overlooked the argument that the ALOS used by Bethesda exceeds the 3.9 ALOS of “Peer Group 3” hospitals. On this issue, the undersigned finds persuasive the testimony that “peer grouping” is used to compare financial performance of hospitals, that the grouping process does not incorporate or take into account the ALOS of patients in the grouped hospitals, and that there are differences in the case mix and size of those hospitals that makes a comparison of the ALOS at those hospitals to the expected ALOS at Bethesda West inappropriate.
12/ In making this finding, the undersigned has not overlooked the testimony of JFK’s financial expert, Darryl Weiner, regarding the methodology that he used to project the outpatient revenues for Schedule 8. That methodology used the ratio of inpatient revenues to outpatient revenues at Palms West Hospital as a proxy for to project outpatient revenues at the proposed JFK satellite hospital based upon the satellite hospital’s projected inpatient revenues. That methodology is reasonable for projecting outpatient revenues, but it provides no insight as to the number of outpatient and ED visits that the proposed JFK satellite hospital will have.
13/ On this issue, the undersigned rejects the argument that an existing hospital that gets a “smaller piece of a larger pie” after the approval of a new hospital suffers no adverse impact so long as the overall amount of “pie” that it is getting in the future is greater than the “larger piece of the smaller pie” that it is currently getting.
14/ All statutory references are to the 2003 version of the Florida Statutes unless otherwise indicated.
15/ The reference to the local district health plan in Section 408.035(1), Florida Statutes, was deleted by Chapter 2004-383, Laws of Florida, effective July 1, 2004. The applications’ satisfaction (or not) of the District 9 Local Health Plan is addressed herein in an abundance of caution in the event that the Agency or an appellate court rejects the undersigned’s conclusion that the 2004 amendments apply in this proceeding.
See Conclusions of Law, Part B. The applications’ satisfaction (or not) of the amended version of Section 408.035(1), Florida Statutes, is subsumed in the discussion of the other statutory criteria. See id. (Conclusion of Law Nos. 346-348).
16/ In making these findings, the undersigned has not overlooked Bethesda’s criticisms of the travel-time study presented by Delray’s traffic engineer. See Bethesda PRO, at
35. Although those criticisms are not entirely without merit, the reliability and reasonableness of the travel-time study is supported by the testimony of other witnesses regarding the length of time that it takes to drive from the West Boynton area to the existing hospitals. See, e.g., Exhibit B-55, at 36, 39- 40; Transcript, at 3713; Exhibit JFK-13, at 32-34; Exhibit JFK- 16, at 9-10; Exhibit JFK-17, at 8.
17/ The analysis and opinion presented by Delray’s traffic engineer was not persuasive either. His concurrency analysis, which utilized the Florida Department of Transportation’s ARTPLAN software, analyzed the major roads between the West Boynton area and the existing hospitals and calculated the 2008 LOS on those roads in terms of speed, which better equates to time than does the LOS calculated by Bethesda. The variables used to calculate the 2008 LOS, such as the number of signals per mile, were shown to be unreasonably low, which in turn, had the effect of overstating the travel speeds and LOS shown by the analysis in 2008; however, there is insufficient evidence to establish the degree of that overstatement.
18/ This subsection was deleted by Chapter 2004-383, Laws of Florida, effective July 1, 2004. It is addressed herein in an abundance of caution in the event that the Agency or an appellate court rejects the undersigned’s conclusion that the 2004 amendments apply in this proceeding. See Conclusions of Law, Part B.
19/ Even if the undersigned were persuaded that Bethesda’s equipment costs were understated in the respects identified by JFK’s equipment expert and summarized in JFK’s PRO at pages 71- 78, those understatements would account for only a portion of the $18 million difference between JFK’s estimated equipment costs and Bethesda’s estimated equipment costs.
20/ Other provisions of the 2004 CON Amendments, such as the exemption from CON review for the establishment of certain open heart programs, the exemption from CON review for the establishment of NICUs, and the de-coupling of interventional cardiology services from open heart services, have the potential to impact the parties (both the applicants and the existing providers) to varying degrees; however, there is no factual basis in the record to evaluate or quantify that impact and none of the parties requested that the record be reopened to consider those impacts.
21/ The 2004 CON Amendments require the Agency to appoint a workgroup to assess “the appropriateness of current certificate- of-need methodologies and other criteria for evaluating proposals for new hospitals and transfers of beds to new sites.” See Ch. 2004-382, § 2, Laws of Fla. (creating Section 408.0361(6)(a), Florida Statutes); Ch. 2004-383, § 7, Laws of Fla. (creating Section 408.0361(10)(a), Florida Statutes). The workgroup is required to submit a report of its findings to the
Legislature and the Secretary of the Agency by January 1, 2005. Id.
22/ Florida Administrative Code Rule 59C-1.038(4)(a) stated at the time, and currently states that:
The agency shall not normally approve applications for new or additional acute care hospital beds in any acute care subdistrict . . . unless the average occupancy rate for all existing acute care hospital beds in the subdistrict is at or exceeds 75 percent . . . .
(Emphasis supplied). See also Fla. Admin. Code R. 59C- 1.038(4)(b) (providing the formula for calculating the acute care bed need and basing that calculation on the existing bed inventory and other factors in the subdistrict).
23/ See Memorial’s Exceptions to Recommended Order in DOAH Case Nos. 02-447CON, 02-882CON, 02-943CON, and 02-971CON, at 2-8
(filed with the Agency on February 27, 2003, and officially recognized in this case), rejected in Memorial Healthcare Group, Inc. d/b/a Memorial Hospital of Jacksonville v. Agency for Health Care Admin., Order No. AHCA-03-0257-FOF-CON, at 4 (AHCA April 8, 2003).
24/ This conclusion would equally apply to Bethesda in the event that the Agency or an appellate court concludes that Bethesda is required to establish “not normal” circumstances in order for its application to be approved. Moreover, even if the evidence had established that Bethesda West was necessary to ensure the long-term financial viability of Bethesda by ensuring Bethesda a higher percentage of the better payer-mix patients in the West Boynton area, that institution-specific concern would not be a “not normal” circumstance.
25/ In light of the conclusion above that JFK is required to, but did not establish “not normal” circumstances for its application to be approved, it is not necessary to reach this issue. However, the issue will be addressed in an abundance of caution in the event that the Agency or an appellate court rejects the conclusion that the JFK is required to establish “not normal” circumstances.
COPIES FURNISHED:
Charlene Thompson, Acting Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3
Tallahassee, Florida 32308-5403
Valda Clark Christian, Acting General Counsel Agency for Health Care Administration
2727 Mahan Drive, Mail Station 3
Tallahassee, Florida 32308-5403
Robert D. Newell, Jr., Esquire Newell & Terry, P.A.
817 North Gadsden Street Tallahassee, Florida 32303-6313
Karen A. Putnal, Esquire
Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200
118 North Gadsden Street Tallahassee, Florida 32301
John H. Parker, Jr., Esquire Parker, Hudson, Rainer & Dobbs 1500 Marquis Two Tower
285 Peachtree Center Avenue, Northeast Atlanta, Georgia 30303
C. Gary Williams, Esquire Ausley & McMullen
227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302
Stephen A. Ecenia, Esquire
Rutledge, Ecenia, Purnell & Hoffman, P.A.
215 South Monroe Street, Suite 420 Post Office Box 551
Tallahassee, Florida 32302-0551
Kenneth W. Gieseking, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3
Tallahassee, Florida 32308-5403
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 07, 2005 | Agency Final Order | |
| Sep. 29, 2004 | Recommended Order | The Agency for Health Care Administration should deny both certificate of need applications that wanted to establish a satellite hospital in the West Boynton area of South Palm Beach County. The applicants failed to show a need for a new hospital. |
