STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
VITAS HEALTHCARE CORPORATION OF ) CENTRAL FLORIDA, INC., )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE ) ADMINISTRATION AND HOSPICE OF ) THE PALM COAST, INC., )
)
Respondents. )
Case No. 04-3858CON
)
RECOMMENDED ORDER
This cause came on for formal hearing before Robert S. Cohen, Administrative Law Judge with the Division of Administrative Hearings, on January 31, and February 1, 3,
and 4, 2005, in Tallahassee, Florida.
APPEARANCES
For Petitioner Vitas Healthcare Corporation of Central Florida, Inc.,:
Geoffrey D. Smith, Esquire Susan C. Hauser, Esquire Blank, Meenan & Smith, P.A.
204 South Monroe Street Tallahassee, Florida 32301
For Respondent Agency for Health Care Administration:
Kenneth Gieseking, Esquire
Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive
Tallahassee, Florida 32308
For Respondent Hospice of the Palm Coast, Inc.,:
Thomas F. Panza, Esquire Deborah S. Platz, Esquire Panzer, Maurer & Maynard, P.A.
3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308
STATEMENT OF THE ISSUE
Whether the Certificate of Need application of Hospice of the Palm Coast to establish a new hospice program (CON Action No. 9798) in AHCA Hospice Service Area 11 (Miami-Dade and Monroe Counties) should be approved.
PRELIMINARY STATEMENT
On April 9, 2004, the State of Florida, Agency for Health Care Administration ("AHCA" or the "Agency"), published its fixed need pool ("FNP") projections for additional hospice programs for the 2004-first batching cycle. A FNP for one additional hospice program was projected and published for Hospice Service Area 11. Hospice Service Area 11 comprises Miami-Dade and Monroe Counties and currently has six existing hospice providers.
On April 26, 2004, Hospice of the Palm Coast, Inc. ("Palm Coast" or the "Applicant") timely filed a Letter of Intent ("LOI") for the establishment of a new hospice program in Hospice Service Area 11. On May 26, 2004, Palm Coast timely filed an initial Certificate of Need ("CON") Application, and on June 30, 2004, filed its omissions response for the
establishment of a new hospice program in Hospice Service Area
11. That application was assigned CON Action No. 9798.
Pursuant to the Agency's State Agency Action Report published on the AHCA website on August 27, 2004, and the subsequent notice published in the Florida Administrative Weekly on September 10, 2004, the Agency announced its intent to approve Palm Coast's application for CON No. 9798 for the establishment of an additional hospice program in Hospice Service Area 11.
On September 30, 2004, VITAS Healthcare Corporation of Florida ("VITAS"), an existing provider of hospice services in the same service area, filed a Petition for a Formal Administrative Hearing to challenge the preliminary approval of the Palm Coast CON Application. The Agency referred the Petition to the Division of Administrative Hearings for assignment to an Administrative Law Judge to conduct all proceedings required by law. The case was assigned Case
No. 04-3858CON, and Robert S. Cohen was designated as the Administrative Law Judge to conduct the proceedings.
At the final hearing, Palm Coast called the following witnesses: Deborah Ann Hoffpauir, an expert in hospice operations; Kathleen Ventre, an expert in hospice nursing and clinical affairs; Doug Cannon, an expert in health care finance; Brenda Belger, an expert in human resources; Blanca Victoria
Cathelinaud, an expert in hospice care and operation; Mark M. Richardson, an expert in health care planning; Rick Knapp, an expert in health care accounting and finance; and Robert Sarna. Palm Coast offered and had admitted into evidence, Palm Coast Exhibit Nos. 1 through 41, with the exception of Exhibit
Nos. 28, 33, and 36, which were not admitted. These exhibits included the deposition testimony of Kathy Ventre,
Brenda Belger, Doug Cannon, Deborah Hoffpauir, Rick Knapp, and Mark Richardson.
The Agency for Health Care Administration called Jeffrey N. Gregg, Bureau Chief of the Office of Certificate of Need and Financial Analysis. AHCA Exhibit Nos. 1 and 2 were offered and admitted into evidence.
VITAS called the following witnesses: Deirdre Law, an expert in hospice nursing, hospice management and operations; Sarah McKinnon, an expert in hospice education, including the psychosocial aspects of death and dying, and in bereavement services; Brian Payne, an expert in hospice management and operation with a specialization in business development for hospice; Freddie Negron, M.D., an expert in the field of medicine with specialization in hospice care; Patricia Greenberg, an expert in health care planning and health care finance with a subcomponent in hospice planning; and
John Williamson, an audit review analyst for AHCA. VITAS offered Exhibit Nos. 1 through 17, all of which were admitted into evidence.
A Transcript of the Final Hearing was filed on February 28, 2005. After the hearing, Petitioner and Respondent (jointly with AHCA) filed Proposed Findings of Fact and Conclusions of Law on May 6, 2005.
References to statutes are to Florida Statutes (2004) unless otherwise noted.
FINDINGS OF FACT
THE PARTIES
The Agency for Health Care Administration
AHCA is the single state agency responsible for administering the Certificate of Need program, and for licensing hospices and other programs and facilities pursuant to the authority of the Health Facilities and Services Development Act, Sections 408.031 - 408.045, Florida Statutes.
In performing these duties, AHCA determines, on a semi- annual basis, the net numeric need for new hospice programs. The Agency publishes such need in the Florida Administrative Weekly.
Hospice of the Palm Coast, Inc.
Hospice of the Palm Coast, Inc., is a not-for-profit Florida corporation, developed for the purpose of establishing hospice programs in Florida.
Palm Coast is a wholly-owned subsidiary of Odyssey Healthcare Corporation (Odyssey"), a for-profit and publicly traded corporation.
Odyssey is one of the largest for profit providers of hospice service in the United States, operating 74 hospice programs in 29 states. Odyssey has successfully implemented start-up hospices in other states. While Odyssey currently has no hospice operations in Florida, it is in the process of seeking licensure and certification for a new hospice program in Volusia County. The Volusia County program employed Odyssey's rapid start-up model.
Palm Coast complies with all of Florida's not-for- profit corporation laws and filing requirements and meets the definition of a "corporation not for profit" contained in Chapter 617, Florida Statutes. Palm Coast has its own Articles of Incorporation and By-Laws; has its own audited financial statements; and has its own managing board.
Palm Coast will have its own bank account into which all of its revenues and out of which all of its expenses will be paid. If Palm Coast has a positive cash flow from its
operations, those funds will stay with Palm Coast to be used for patient care and operations. Palm Coast will comply with all Florida not-for-profit laws relating to surplus funds.
Odyssey has experienced compliance issues with respect to some of its hospice programs in other states. In five of its programs, Odyssey has exceeded Medicare "cost caps" that limit the total number of eligible days that a hospice program may bill the federal government for reimbursement. In addition, several of Odyssey's programs have been found not to meet certain Medicare "conditions of participation" due to significant operational deficiencies. All of these "conditional level" deficiencies have been corrected.
Odyssey has recently received notification from the Department of Justice ("DOJ") of an investigation into the manner in which it provides hospice services. As a result, Odyssey made the required Securities and Exchange Commission ("SEC") filings to notify the public of the pending DOJ investigation as a "significant event."
A class action lawsuit is also currently pending against Odyssey by some of its shareholders and investors who allege that the company admitted hospice patients who were not eligible for Medicare, but that claims were submitted that they
were so eligible for Medicare. As a result, Odyssey's financial results were materially inflated due to its exceeding Medicare "cost caps."
Recent changes have occurred at the senior management level within Odyssey, including the resignation of its Chief Executive Officer in late 2004, and the termination of its Executive Vice President of Marketing in January 2005.
Since the announcement of the DOJ investigation and the class action lawsuit, Odyssey's stock value has fallen from about $19.00 a share to $13.00, a decline termed "material" by the company's Chief Financial Officer.
VITAS Healthcare Corporation of Florida
VITAS Healthcare Corporation, a for-profit entity, is the largest provider, in terms of patient days, in the United States. It is currently in 12 states with 32 licensed programs serving an average daily census of 9,000 nationally.
VITAS currently has two for-profit entities operating in Florida: VITAS-Florida and VITAS Healthcare Corporation of Central Florida. Collectively, these two operating entities have five licensed for-profit hospices in Florida.
VITAS is the only for profit hospice provider allowed to operate in Florida pursuant to special exemption language contained in Section 406.602(5)-(6), Florida Statutes.
VITAS currently operates hospice programs in Districts
11 (Miami-Dade and Monroe Counties), 10 (Broward County) and 9 (Palm Beach County).
In addition to the VITAS hospice program in District 11, five other hospice programs are currently licensed in Miami- Dade and Monroe Counties. None of these five programs intervened or participated in these proceedings.
All of VITAS' hospice programs are in full compliance with Medicare conditions of participation, and none of its programs have exceeded Medicare "cost caps."
The VITAS program has been in Miami-Dade County for 28 years, and was the first VITAS program in the country, having been initiated by Hugh Westbrook, a Methodist Minister, and Ester Colliflower, a nurse with an oncology background. Both were professors at Miami-Dade Community College where they offered courses on death and dying issues, and were early pioneers in the hospice movement.
VITAS was instrumental in the development of hospice licensure standards in Florida, and in the establishment of federal Medicare benefits for hospice services.
VITAS has been a leader in hospice research and development, and has created pain management tools and hospice care manuals that are widely used among hospice providers around the nation. For example, VITAS developed the Missoula-VITAS
quality of life index, which is licensed and used by over 125 hospices nationwide. The publication "20 Common Problems in End of Life Care" was authored by VITAS employees and is considered a standard teaching textbook for delivery of hospice care.
HOSPICE CARE
Hospice care is a medically coordinated group of services that is designed for patients who are terminally ill, having a life expectancy of less than six months. The patient's and family's needs are multi-dimensional and include physical, emotional, spiritual, financial, and social care. Hospice care includes physician-directed medical care, nursing services, social work services, bereavement counseling, and other ancillary services such as community education.
Hospice care is provided by an interdisciplinary team of professionals, including physicians, nurses, social workers, home health aide services, spiritual advisors (chaplain, priest, rabbi, or other), and bereavement counselors. Palm Coast will provide an interdisciplinary team to provide care in its program that is reflective of the Miami-Dade community.
A hospice is also required, pursuant to federal and state regulations, to involve community volunteers in the delivery of hospice services. Volunteers may run errands, perform non-medical duties (such as reading or entertainment) or provide companionship to the patients and their families.
Volunteers provide an extra level of service to the patient. Palm Coast will hire a full-time volunteer coordinator who will recruit volunteers for its program.
Hospice care is both a philosophy of care and a method of care for terminally ill patients, their families, and loved ones. The philosophy behind hospice care is to provide pain and symptom management for those patients who can no longer be cured. A patient must choose hospice in order to receive its services when the goal is no longer to cure a disease, but to live as pain and symptom free as possible. Treatment for pain control is part of the regimen; treatment for cure is not.
Hospice is reimbursed by Medicare, Medicaid, CHAMPUS/Tri-Care (for the military), and some commercial insurance programs. Under the Medicare reimbursement system, hospice programs are reimbursed based on one of four identifiable levels of service: routine home care; in-patient care; continuous care; and respite care.
Routine home care is the basic level of care, and is provided as long as a hospice can care for a patient in a home- like environment including a nursing home or assisted living setting. Approximately 95 percent of the care provided by Odyssey is routine care.
The next level of care is continuous care, which provides between eight and 24 hours of nursing care per day.
Continuous care can be provided in a routine home setting, a nursing home, an assisted living setting, or in a hospital.
The third level of care is in-patient care, which a hospice can provide in a hospital, a skilled nursing unit, or in a freestanding hospice in-patient facility operated by a hospice. Typically, in-patient care is required when there is a change in the patient's condition which requires hospitalization. It can also be provided at the start of service to help the patient make the transition from a curative method of care to a palliative one. If a hospice program does not have its own in-patient facility, it will contract with a skilled nursing facility or hospital. In such cases, reimbursement is seen as a "pass through" because the amount the hospice receives for providing care is then provided to the in- patient unit of the hospital or other health care facility where the patient is being treated for the acute episode.
The final level of hospice care is respite care, which is designed for caregiver relief and is not necessarily indicated based upon a change in the patient's condition, but when the need arises for very temporary caregiver relief. Medicare reimburses the four levels of hospice care at varying rates.
Certain services are required by specific hospice patients that are not necessarily covered by Medicare and/or
private or commercial insurance. These services will be paid for by Palm Coast as part of its commitment to patient care. Some of these services include music therapy, pet therapy, art therapy, and aromatherapy. In addition, more complicated and expensive non-covered expenses, such as palliative chemotherapy and radiation may be indicated for severe pain and symptom control.
The primary reimbursement agent (approximately 90 percent) for hospice is Medicare. As a result, the government fixes the rates to eliminate opportunities to compete on pricing. Hospice cannot discount prices of its services, and rarely do patients and families pay for any services. The services are a prepaid benefit so that any competition in hospice is most simply expressed as the number of providers in a given market providing services on a non-economic basis. With multiple providers in a service area, quality of care and quantity of services rises for the patients and their families.
Most major metropolitan areas in the country have several hospice providers. For example, Atlanta has 30-35 providers; Dallas has about 30 hospice programs; and Chicago has 20-30 providers. The average number of providers in a city the size of Miami (approximately two million people) would range from 20 to 30.
The largest sources of referrals for hospice care are hospitals, nursing homes, and assisted living facilities, and physician groups.
PALM COAST'S APPLICATION
Palm Coast proposes to establish a new hospice program to serve persons in Hospice Service Area 11, which is comprised of Miami-Dade and Monroe Counties.
Palm Coast filed a timely Letter of Intent on or before April 26, 2004, followed by a timely initial CON application on or before May 26, 2004. Both the LOI and the CON application were accepted by AHCA. Palm Coast filed its omissions response, which was accepted by AHCA, on June 30, 2004.
The Agency's preliminary action was to approve Palm Coast's application for CON No. 9798, for the establishment of a hospice program in Hospice Service Area 11.
Fixed Need Pool
On April 9, 2004, AHCA published a notice in the Florida Administrative Weekly indicating a numeric need for one additional hospice program in Service Area 11.
In forecasting need, the Agency first forecasts the expected number of deaths within a Service Area, in four categories: Cancer under age 65, Cancer over age 65, Non-Cancer under age 65, and Non-Cancer over age 65. The Agency next
applies a statewide average (called a "conversion rate") to each of the four categories to forecast the expected number of hospice patients for a Service Area. The Agency takes that number and subtracts from it the number of patients who are currently being served by the existing hospice programs in the Service Area to arrive at the "net need" of patients who are expected to need hospice care in the future. If the net need exceeds 350, then numeric need for a new hospice is demonstrated.
The forecasted need for hospice patients in Service Area 11 was 2,093 patients, which greatly exceeds the need threshold of 350 identified in the fixed need pool rule. The numeric need for one additional hospice program in Service Area
11 is indicated. In fact, based upon the 350 patient threshold for numeric need, the argument could be made that, based on the numeric need formula alone, the net need for hospice programs in Service Area 11 is five. The hospice fixed need pool rule only permits need for one new program to be published. Moreover, in an attempt to give new providers sufficient time to start up their programs, the net need will be shown as zero if any hospice programs are less than two years old.
Currently, Service Area 11 has six hospice providers: The Catholic Hospice, Douglas Gardens Hospice, Hospice Care of
Southeast Florida, Hospice Care of South Florida, Hospice of the Florida Keys, and VITAS Healthcare-Dade. None of these entities challenged the fixed need pool.
The parties have a marked difference of opinion as to whether a need exists for Palm Coast's proposed hospice program. Palm Coast, through its expert, Mark Richardson, confirmed the Agency's need determination, and also performed other needs analyses to determine the market's overall need. He noted that the Agency uses a statewide average, which includes areas where the conversion ratios are much higher than the average. He states that AHCA uses an expected average of what is occurring statewide rather than an expected cap. His analysis of Service Area 11, especially the unmet need of 2,093 hospice patients, is the largest unmet need ever seen in Florida, and clearly indicates the need for four to five new hospice programs in Service Area 11.
Mr. Richardson opines that what drives the large unmet need is the local utilization below the statewide utilization in each of the four categories: Cancer over age 65, Cancer under age 65, Non-cancer over age 65, and Non-Cancer under age 65. This is unlike other service areas where potentially only one or two of the categories show underutilization.
Further, according to Mr. Richardson, a look at the continuation of historical trends reveals that significant
growth will occur within the marketplace, which will produce enough volume to support Palm Coast's program without adversely affecting the existing providers' programs. The incremental growth alone, he states, indicates the need for another hospice program, and further demonstrates that the existing programs will suffer no adverse affects.
VITAS opposes Palm Coast's analysis of numeric need by noting that the "critical factor" in the Agency's determination of a net numeric need for one hospice program in Service Area 11 is the use of the statewide average utilization or "penetration rate" in the numeric need formula. VITAS contends that the use of the local hospice utilization rate and current hospice admissions for Service Area 11 will yield a net numeric need of only 46 patients.
VITAS concludes that no numeric need for an additional hospice exists in Service Area 11 first by noting that, while the statewide utilization rate for hospice is 48 percent, the Service Area 11 utilization rate is only 38 percent, a full 10 points below the statewide average.
VITAS offers, as proof of why the utilization rate is so much lower in Service Area 11 than in Florida as a whole, that Miami-Dade County is unique due to its multicultural, particularly Hispanic, population.
Palm Coast's expert, Deborah Hoffpauir, testified that the addition of more hospice providers to an area, tends to increase the utilization rate within the area. VITAS' expert, Deirdre Lawe, testified that Miami-Dade County has six providers, yet has a utilization rate far lower than the statewide rate. Six of nine Florida Hospice Service Areas with high utilization rates, however, have only one provider.
In some states, where CON regulation does not exist, metropolitan areas may have as many as 30 hospice providers. These areas, however, do not experience as high a penetration rate as CON-regulated Florida.
The low utilization rate in Service Area 11, according to VITAS, is explained by Miami-Dade County's 57 percent Hispanic population. Nationally, the Hispanic population utilizes hospice at a lower rate than the non-Hispanic population. A study published in 2000, by the National Hospice and Palliative Care Organization shows that Hispanics accounted for 4.5 percent of national deaths, but accounted for only 2 percent of hospice patients. More recent data indicate that that the hospice penetration rate for Hispanics is 26 percent at the national level, significantly less than the penetration rate for Miami-Dade County's Hispanics of 34 percent.
The hospice penetration rate in Miami-Dade County in 2003, was 34 percent compared with 45 percent for the non- Hispanic population.
Palm Coast's expert, Mark Richardson, conceded that cultural differences can account for variation in the rates at which a population will use a health care service. He did not factor the high percentage of Hispanics in Miami-Dade County into his calculations, but relied upon AHCA's fixed need pool projection of need for one additional hospice program.
Patricia Greenberg, VITAS' health planning expert, testified that the fixed need pool overstates the need for hospice care in Miami-Dade County due to the lower utilization rate for hospice services among the Hispanic population. To arrive at this conclusion, she examined the differences between the Hispanic and non-Hispanic populations to determine why the latter utilizes hospice services at a significantly greater rate.
Looking at the three adjoining southeast Florida counties (Miami-Dade, Broward, and Palm Beach), Ms. Greenberg found an inverse relationship between the percentage of Hispanic deaths in the county, and the hospice penetration rate: the higher the percentage of Hispanic deaths, the lower the hospice penetration rate.
Testimony from additional witnesses at hearing pointed to the reasons that fewer Hispanics seek hospice care than in the non-Hispanic population. A strong sense of family responsibility; religious values of a largely Catholic population; fear of authorities by illegal aliens and their family members; and reluctance to discuss death and dying were identified as cultural norms among the Hispanic population.
Ms. Greenberg, in challenging the results of the fixed need pool calculation of need for one additional hospice program, re-calculated the need using the Miami-Dade utilization rate, rather than the statewide rate. This resulted in no need for another hospice program in Service Area 11 since the calculation results in a net number of patients to be served of 46, far below the Agency's standard of 350.
In arriving at her net need, however, Ms. Greenberg erred by not utilizing the data for the same period throughout her calculation of need. She used the 2003, number of hospital admissions and the 2003, number of hospice deaths for Service Area 11 in the four hospice categories to determine what the specific Service Area 11 penetration rates for these categories would be. She then applied this Service Area specific penetration rate to the 2005, projected deaths. This calculation provided Ms. Greenberg with the total number of forecasted admissions of 7,733 (versus 9,401 projected patients
using the statewide methodology). Then, rather than subtracting the 2003, admissions of 7,308 (used by Ms. Greenberg to determine the applicable penetration rate), she instead substituted a different data set, the 2003-2004, admission number. By using the 2003-2004, admissions rather than the 2003 admissions, the results of the calculation were flawed.
Had Ms. Greenberg used the 2003, admissions number in her Service Area 11 specific need calculation, she would have subtracted 7,308 admissions from the total number of 2005, projected admissions of 7,733 to arrive at a projected need of
425 which, using the Agency's baseline of 350 admissions, thus demonstrating the need for a new program. The testimony was unclear as to why Ms. Greenberg used one incorrect set of data to demonstrate no numeric need for an additional hospice program, but the application of the correct data, even using her Service Area specific (not, as sanctioned by the Agency, the statewide methodology) shows numeric need for a new hospice program.
Financial Feasibility and Underlying Assumptions
Palm Coast performed a detailed evaluation of the proposed project on the cost of other services provided by it and its affiliate, Odyssey HealthCare, Inc. ("Odyssey"). This evaluation considered the magnitude of the proposed project; the expected benefit the project will generate for Palm Coast; and
the expected patient charge increase levels anticipated during the first two years after the proposed project comes on line.
Although Palm Coast is a newly formed corporation, a review of the financial strength of its management affiliate, Odyssey, clearly demonstrates the financial resources necessary to develop and operate the proposed project. With $39 million in cash and investments, and a $31 million operating income during fiscal year 2003, Odyssey has the resources necessary to ensure that Palm Coast is developed as a strong community provider, and has all the resources necessary to operate as a full service hospice provider in both the short and long term.
The proposed project will provide a significant amount of income to Palm Coast by the second year of operations, and will accomplish this with a modest increase in patient charges of 2 percent in the second year of operations.
Palm Coast intends to fund the initial capital required of $487,125 from the proceeds of an inter-company loan from Odyssey. Palm Coast shows a strong performance in both the first and second year of operations.
The proposed project is financially feasible in both the short and long term. The start-up costs are budgeted at
$380,000, which is $250,000 more than what is typically seen in
other hospice applications. This additional money provides the foundation for what Palm Coast calls a "rapid start up" of the proposed project.
Under a rapid start-up, as proposed by Palm Coast, and employed by Odyssey in other new operations around the country, including Volusia County, Florida, the program will begin to admit patients once licensure is achieved, but even before Medicare certification is attained. This rapid start-up was taken into account by Palm Coast's health care planners in generating the patient days figures used for Palm Coast's financial projections. A rapid start-up program will cost Palm Coast money that it will not be able to recoup from Medicare since it will be for services provided pre-certification.
Palm Coast's parent corporation, Odyssey, has agreed to provide the funds necessary for this project. With $179.6 million in assets, $144.7 million in shareholder's equity,
$274.3 million in revenues, and $27.6 million in cash flows from operating activities, Odyssey has the strength to provide the necessary funding for this project. Palm Coast's application fully complies with the requirements of Schedules 1 and 3 of the CON application.
Schedule 2 sets out a complete listing of all projected and proposed capital projects planned by Palm Coast.
This Schedule completely and accurately depicts all capital projects that are approved or underway.
Schedule 4 is not applicable to this project.
The utilization and patient day projections set out in Schedule 5 are reasonable and appropriate.
The staffing forecasts set out in Schedule 6A reflect the staffing necessary for the patient volume and levels of services expected for the proposed program. The projections are consistent with the experience of Palm Coast's management affiliate, Odyssey's prior start-up experience, and is based upon a reliable model used by Odyssey to staff its operations and administration. This staffing model meets the guidelines established by the National Hospice and Palliative Care Organization ("NHPCO"). The salaries depicted in Schedule 6A are reasonable and reflect salary rates commensurate with the local area, and trended forward approximately 3 percent annually.
The proposed project is financially feasible in the long term as reflected on Schedules 7A and 8A. In developing the financial portion of the CON application, Palm Coast's expert health care planners began with a baseline template model provided by Odyssey.
This template served as the model for the categories of net revenues and expenses that Odyssey expected Palm Coast to
experience at its Service Area 11 program. The model was not used for or intended to serve as the basis for any volume projections.
The projected volumes needed to project patient days were provided by Mr. Richardson. Since projected revenues are driven by patient days, the projected admissions for Year 1 and Year 2 must be translated into a patient day forecast. Accordingly, the projected admissions for Year 1 and Year 2 were multiplied by a 70-day length of stay.
The 70-day length of stay is reasonable when compared with Odyssey's national average length of stay and when comparing it with the average length of stay in Service Area 11. Accordingly, Palm Coast forecasted Year 1 volume of 26,320 patient days and Year 2 volume of 33,250 patient days. Mr. Richardson than provided Year 1 and Year 2 volume forecasts to Palm Coast's financial expert, Rick Knapp, to assign a dollar amount to the volume to include in the CON Application financial schedules.
Mr. Knapp then projected the gross and net revenues based upon the projected volumes, and for Year 2 concluded that the program would generate a pre-tax income of $688,000, thereby supporting his conclusion that the project is financially feasible.
To confirm the financial feasibility of the project, Mr. Knapp also performed reasonableness tests. First, he determined whether the information provided by Odyssey "offended his sensibilities." He considered the fact that Odyssey is experienced in operating hospices, so it is reasonable to assume that it would not start up a program it did not believe would succeed. This is supported by the fact that Odyssey has not had any of its 29 start-up projects fail.
Mr. Knapp then examined the most recent 10K filing by Odyssey with the Securities and Exchange Commission, and noted that the ratio of expenses to net revenues was approximately 81 percent. This compared favorably with the pro forma projections by Palm Coast of 88 percent.
Mr. Knapp reviewed the budget provided by Odyssey and found it to be a credible document. He made changes to this document giving effect to Mr. Richardson's final projected volume and final projected patient class mix. This became the basis for Schedule 7A for net revenues and Schedule 8A for projected expenses.
VITAS challenged Palm Coast's patient day and patient mix projections, opining that the patient volume projections were overstated by Palm Coast and that the patient mix projections are unreasonable based upon VITAS' experience in Florida and Service Area 11.
VITAS believes that the volume projections of Palm Coast are unreasonable based upon the Odyssey model provided to Palm Coast's health care experts and VITAS' experience. VITAS points to a more gradual "ramp up" of patient volume than that projected by Palm Coast. VITAS believes that Palm Coast's projections are far too aggressive for a start-up program.
VITAS further points to its own national average length of stay of approximately 50 days and the overall hospice national length of stay of 47 days as more reasonable projections of what Palm Coast should expect, even though Palm Coast's national length of stay averages 75-80 days.
Additionally, VITAS opines that the 70-day average length of stay proposed by Palm Coast is unreasonable in light of its proposed patient mix which includes 9 percent of its patient days as being in-patient, which is generally a much shorter, acute length of stay than the other forms of hospice care provided.
The level of service mix in a hospice program has a direct impact on projected average length of stay, patient admissions, patient days, staffing requirements, revenues, and expenses.
Medicare reimbursement for the different levels of service is significantly different. Medicare reimbursement for in-patient days is projected to be $538.80, while reimbursements
for routine home care days is projected at $121.34, for continuous care days is projected at $708.22, and for respite care days is projected at $124.81.
In its CON Application, Palm Coast projects the following level of service mix by the percentage of patient days in each category: routine home care--89 percent; in-patient
care--9 percent; continuous care--1 percent; and respite care--1 percent.
At hearing, Palm Coast's witnesses conceded that the projected level of service mix in the CON Application was a mistake, and is not the level of service mix that is actually expected for the proposed hospice program. The mistake occurred when Mr. Richardson relied upon Odyssey's 10K filings showing the level of service breakdown as a percentage of revenues, but then used these figures to project the percentage of patient days.
Mr. Knapp, the Palm Coast financial expert, who prepared the financial pro formas, conceded that, because of the error in level of service mix, the projection of revenues on Schedule 7A of the CON Application is not correct, and that, viewing this financial schedule alone, there is a material difference between the actual expected revenues and the projection of revenues on Schedule 7A. For example, the in- patient component as set forth in the CON Application, accounts
for nearly 30 percent of projected revenues, when in reality it is expected that only 9 percent of the revenues would come from this source.
Mr. Knapp conceded that the mistake in level of service mix also has a material impact on the projected income and expenses shown on Schedule 8A.
Although the errors in service mix have a material affect on the projections contained in Schedules 7A and 8A,
Mr. Knapp opined that, since in-patient revenues are essentially a "pass through" since the hospice pays the money received from Medicare directly to the in-patient facility, the effect on the bottom line for the Palm Coast program would not only be immaterial, but it would improve the profitability of the proposed program.
Every scenario proposed by Mr. Knapp in redistributing the service mix leads to an enhancement of Palm Coast's bottom line for the project. The most likely redistribution of the patient mix would be 98 percent routine home care; 1 percent continuous care; and 1 percent respite care.
John Williamson, the Agency's financial reviewer for the Palm Coast CON Application, testified that he was not aware of the errors in service mix when he reviewed the Palm Coast application. While he opined that he believed the service mix errors would not have an adverse impact on the bottom line of
the proposed program since in-patient revenues are essentially a pass through, he could not give a firm opinion without personally "crunching" the new numbers.
Ms. Greenberg, VITAS' health planning expert, testified that the change in service mix was critical to understanding the proposed hospice program, and that any material change to the service mix would have to be modeled and reviewed to determine the feasibility of the proposed program. Ms. Greenberg concluded that the error in service mix would result in a significant decrease in revenues ($1.6 million) and result in a smaller payment to Odyssey, the managing affiliate to Palm Coast ($112,000 based upon a 7 percent management fee). This, she states, along with the failure of Palm Coast to accurately reflect all of its expenses in its financial pro formas would result in a deficit to Odyssey and might, she implies, call into question whether this is a worthwhile project for Odyssey.
Ms. Greenberg further testified that Palm Coast failed to account for various expense items in its financial pro formas that would significantly reduce, or even eliminate, its projected net profits of $450,167 in Year 1 and $687,560 in Year
Specifically, she noted that the missing expense items were:
federal income taxes, employee fringe benefits, property taxes, the "unified rate" shortfall for nursing home residents, insurance, and palliative chemotherapy and radiation.
Mr. Knapp conceded that the federal income taxes, property taxes, and the unified rate shortfall were not included in the pro formas. With respect to federal income taxes,
Mr. Knapp noted that the payment of any income taxes due would never take a project from a profitable status to an unprofitable status since they are paid only on the profit margin. The property taxes not reflected on the pro formas amount to $2,000, which Mr. Knapp deemed immaterial. The unified rate shortfall should have been included on the pro formas, but amounts to only
1 percent of the net revenues of the project, not 2 percent as suggested by Ms. Greenberg.
The other expenses that VITAS testified were omitted by Palm Coast were "embedded" in the management fee Palm Coast proposes to pay its affiliate Odyssey. Odyssey's Chief Financial Officer testified that the insurance expense is included within the management fee. Mr. Knapp testified that the fringe benefits of 20 percent were included in the financial schedules as well as within the management fee (9.1 percent was reflected as payroll-related such as Medicare and FICA, the remainder such as health insurance within the fee).
Ms. Greenberg's opinion that an additional 17 percent should be added to the fringe benefits category is not in keeping with Odyssey's experience as a national provider of hospice care.
Ms. Greenberg noted that the pro formas did not include $107,000 for a satellite office in Monroe County. Since the satellite office was made a condition on the CON by the Agency, Palm Coast could not have anticipated this at the time of its submittal of the CON Application. Although this will have an effect on the expense side of the pro formas, Palm Coast has the ability to fund this condition. Further, the expected revenues of $139,000 from the satellite office will more than offset any start-up costs.
Finally, Ms. Greenberg noted that Palm Coast failed to provide for palliative chemotherapy or radiation in its pro formas. Since the number of patients requiring such care cannot be estimated, and since this is a non-reimbursable expense, Palm Coast did not budget for this type of care. Palm Coast is committed to providing this care when necessary.
After concluding that Palm Coast understated its expenses and that its service mix was flawed, Ms. Greenberg recast the Palm Coast financials in six possible scenarios. None of the six showed financial feasibility for the proposed hospice program. Ms. Greenberg attempted to achieve her goal of
demonstrating the Palm Coast project will not be financially feasible in the short term (her analysis does not extend beyond two years) by not accepting Palm Coasts 70-day average length of stay projections; by not accepting Palm Coast's rapid start-up program because it was not accounted for in the financials; that the overstatement of the in-patient days renders the project not financially feasible; and that the omission of significant expense items significantly reduces or even eliminates the projected profits in the first two years of the project.
Palm Coast responded to the six scenarios raised by VITAS' expert by demonstrating that the re-cast financials have significant calculation errors and that conservatism was built into the financial pro formas (e.g., depreciation expenses that were amortized in accordance with GAAP which would have a significant positive effect on the bottom line if not amortized) which VITAS overlooked in analyzing them; VITAS refuses to acknowledge that the rapid start-up program was considered by the Palm Coast Health care planners when developing the CON Application (as evidenced by the higher number of patient days forecasted than is typical for a hospice application); VITAS refuses to acknowledge Odyssey's national average length of stay data; VITAS refuses to accept the inclusion of fringe benefits and other items in the management fee to be paid by Palm Coast to Odyssey; and VITAS refuses to admit that the in-patient days
error, when corrected, can only have a positive impact on the bottom line for Palm Coast.
Patient Care, Community Education, and Community Support
Palm Coast will provide each patient with a "Circle of Care," an interdisciplinary team of Palm Coast employees, volunteers, and the patients' physician dedicated to providing a high level of care and assistance to patients and their families. This interdisciplinary team specializes in end of life care and uses experts in pain and symptom management.
The manager of the team is the registered nurse who assesses the needs of the patient and family and develops a specific plan of care with the physician. The case manager (all are registered nurses) coordinates care with others on the team while the patient's physician works with Palm Coast's medical director and other team members to ensure that the symptoms are controlled, the pain is managed, and the patient and family are informed. In addition to the nurse case manager, the patient's attending physician and the medical director, Palm Coast's interdisciplinary team includes:
A chaplain who addresses the spiritual concerns of patients and family members within each patient's individual belief system, as well as addressing concerns of a more generalized spiritual nature;
A home healthcare aide who is specially trained to work with the terminally ill and who will provide direct patient care;
A social worker who helps with a wide variety of psycho-social needs of patients and families ranging from financial considerations to dealing with grief and the loss of a loved one, as well as providing access to community agencies for support programs;
Trained volunteers who provide companionship and non-medical services for the patient, respite time for the family, and support at the time of death and during bereavement;
A bereavement coordinator who provides support groups, newsletters, and referrals to community services. The bereavement coordinator also provides pre-bereavement assessment and counseling, and can provide individual counseling as well. The bereavement coordinator provides support to family members and significant others for up to 13 months following a patient's death;
An on-call nursing team is always available after hours and on weekends for visits and phone consultation. Other specialists, such as nutritionists and physical, speech, or occupational therapists, are part of Odyssey's care services, and are added to a patient's team as needed.
Palm Coast's team will continue to care for the family even after the patient's death. Palm Coast will have a variety of options to help families through their difficult time, including the following: one-on-one counseling; grief support groups; written correspondence related to bereavement, loss, and grief; written materials, articles, and resources; bereavement letters; memorial services; holiday bereavement programs; and referral to community agencies as needed.
These bereavement services begin with the initial assessment of the patient into the program, even though most do not occur until after the patient's death.
A significant component of Palm Coast's proposed hospice program will be its ability to provide community education and outreach to a culturally diverse market like Miami-Dade County. Palm Coast, through its affiliation with Odyssey, will bring a wealth of experience in working in culturally diverse markets with different ethnic groups.
Palm Coast currently offers services in numerous locales in culturally diverse areas. Of specific relevance to the large Hispanic population of Miami-Dade County, Odyssey has significant experience in working in Hispanic areas. For example, Odyssey provides services in El Paso, Texas, a 90 percent Hispanic area, and employs staff, 100 percent of whom are bi-lingual, to serve this group. Additionally, Odyssey has programs in other parts of Texas, such as San Antonio, Conroy, Brownsville, and Houston, that have large Hispanic populations.
In order to assure that appropriate services are provided in culturally sensitive areas, Odyssey identifies and hires staff that is fluent in the culture's first language, understands the particular culture, and is familiar with the geographic location. Odyssey has dedicated interdisciplinary
teams that are comprised of Hispanic medical directors, home health aides, social workers, Catholic priests, ministers, and nurses.
Palm Coast will have access to all of Odyssey's resources that have been developed for use in culturally diverse areas, like Miami-Dade, through its management agreement with Odyssey. While the Miami-Dade Hispanic community is predominantly Cuban, not Mexican as in Texas, the techniques and methods developed by Odyssey for entrance into a culturally diverse community are the same, and Palm Coast will employ those techniques in Service Area 11.
Referrals are most important to the success of a hospice program. The major sources of referrals for hospice patients are physician groups, nursing homes, assisted living facilities, and hospitals. Prior to submitting its CON Application, Odyssey sent staff to Miami-Dade County to speak with local area health care providers and to solicit letters of support. Although they visited physician groups, nursing homes, assisted living facilities ("ALFs"), and hospitals, Odyssey was unable to secure any letters of support from those organizations. Odyssey did receive four letters of support from Medicaid independent support coordinators which were submitted with its CON Application.
VITAS is well entrenched in the local health care community. VITAS has contracts with nearly every hospital provider in Miami-Dade County, and has established hospital in- patient units at four hospitals, including at Hialeah Hospital, located in the midst of the Cuban-American community. Two additional in-patient units are expected to open in the near future, including one at Kendall Regional, considered to be a largely Hispanic hospital. In addition to its contracts with hospitals, VITAS is well-established with contacts among the local physician community, receiving referrals from specialists in numerous areas. VITAS has contracts with over 90 percent of the nursing homes in the county and with multiple ALFs in the community.
In addition to VITAS' established relationships in the health care provider community, the other hospice providers, while significantly smaller than VITAS, are well-established. Recently, the Miami Jewish Home and Hospital also established a hospice program in Service Area 11. Many of these other hospice providers in Service Area 11 cater to specific patient populations and referrals such as the Catholic and Jewish communities and individual nursing homes. While it is likely that each of the existing programs can serve more patients than
they currently do, none of these other providers participated in the hearing or provided testimony as to why their numbers of patients are not greater.
Palm Coast is not the only provider who engages in extensive community education and outreach in those communities it serves. VITAS has invested great resources to develop strong and successful community education resources. Such materials include separate sets of educational materials targeted to hospitals, physician groups, nursing homes, ALFs, and to patients and their families. These materials are available in English, Spanish, Creole, and other languages. One set of multi-lingual materials is known as "WINKS," an acronym for "What I Need to Know," which describes the problems encountered by health care professionals or patient families in working with a dying patient, as well as appropriate responses to common problems.
Brian Payne, VITAS' General Manager for the Miami- Dade program, testified about the dedication of 10 full-time community outreach representatives who target hospital discharge planners, physician groups, nursing homes, ALFs, and other community groups for education and outreach programs.
VITAS has also partnered with local educational institutions, including Miami-Dade Community College, and the two statutory teaching hospitals (Jackson Memorial and Mount
Sinai) to ensure adequate education of the health care professional community. VITAS has also developed a specific program on hospice benefits that is incorporated as a required part of the licensure process for applicants seeking licensure as an administrator of an ALF.
In addition to VITAS, other hospices reach out to the community and participate in community education. Although none of these programs testified or offered evidence at hearing, it is fair to assume that they do not provide community education or outreach on a scale approaching VITAS', what Odyssey has done in other communities, or what Palm Coast proposes here.
VITAS does not believe that the addition of Palm Coast will have a significant positive impact on community education and outreach concerning hospice services.
Palm Coast believes that the more education that can be brought to an area about hospice, the greater the penetration rate of hospice patients will be.
CONFORMANCE WITH DISTRICT HEALTH PLAN PREFERENCES
Palm Coast's application conforms with the applicable district health plan. The District 11 Allocation Factors Report contains generic preferences relevant to certificates of need for all types of services, including hospice services, and also contains specific preferences related to hospice services.
Palm Coast has recruitment and retention programs in place to develop staff. Recruitment efforts focus on the one- to-one nursing that hospice offers, the role of the nurse as the case manager, and the education benefits Palm Coast will offer through its management agreement with Odyssey. Additionally, Palm Coast will offer incentives to staff to attain the next level of professional development within their careers.
Palm Coast will reflect the cultural diversity of the area in its staff and will also provide staff with access to translators 24 hours a day, seven days a week.
Upon admission, Palm Coast's patients will be assessed as to their needs and the resources available to them with regard to disasters or emergency. A plan for such contingencies will be contained in the patient's admissions documents and covers fire safety, home care safety, and symptom control.
When a Palm Coast patient is admitted, staff will assist in the completion of forms and will document the patient's understanding of his or her rights and responsibilities.
Palm Coast has the ability to admit patients 24 hours a day, seven days a week, and will ensure that patients are admitted as soon as possible. Palm Coast (or Odyssey) sent representatives to meet with local providers, including
facilities staff and Medicaid-independent support coordinators to identify the local characteristics of Service Area 11. These support coordinators provide advocacy services by helping patients find needed services. These support coordinators indicated that service has not always been timely received and they supported the Palm Coast application.
While it is true that Palm Coast did not submit a large number of letters of support from the community for its proposed hospice program, since this is a case where numeric need had been demonstrated, letters of support are not as important as in a no need or not normal circumstances case.
Palm Coast intends to implement a community education plan utilizing three or more dedicated community education representatives who will establish referral sources and educate medical providers regarding hospice care. VITAS admits that it is not the only hospice provider in the area and that there is nothing to prevent any of the area's health care providers from contracting with Palm Coast. The determining factor in establishing a relationship with a referral source is the ability to provide quality of care.
Clergy are included in the interdisciplinary team that will be in place at Palm Coast. These staff will participate in a specific program that encompasses classical and
contemporary theories on death, including: Grief; Myths about Grief and Mourning; the Kubler-Ross Stages; and Myths, Death, and Dying.
Palm Coast, through its affiliation with Odyssey, will provide educational services to the medical community regarding the benefits of hospice care, especially to those patients with a non-cancer diagnosis since many people believe that hospice is only for cancer sufferers. Palm Coast will also utilize the hospice case studies developed by Odyssey for the physician audience in order to inform/educate referral sources concerning the indicators of hospice appropriateness for specific non-traditional hospice patients' diagnoses. Another tool that Palm Coast will utilize is a "Slim Jim," a quick reference guide with clinical information to educate physicians on when hospice may be appropriate.
Palm Coast, through its affiliation with Odyssey, will have access to the extensive educational materials and protocols that Odyssey has developed for each disease process. Conceptually, these materials are similar to those developed and used by VITAS.
The information and techniques acquired and applied from different locations around the country allow Odyssey and its affiliates, including Palm Coast, to continuously improve.
These improved techniques and protocols, much like those brought to the area by VITAS, will permeate the system and will cause competitors to improve.
As a start-up program, Odyssey will provide Palm Coast with a designated clinical team that will provide all the resources and support necessary to initiate the program. This team will provide education and training to the new office to ensure that everything is set up on a clinical basis and that all of the necessary pieces are in place.
Palm Coast's affiliate, Odyssey, has a comprehensive volunteer program that will be implemented at this location. All volunteers will receive special training and will be under a staff member who is responsible for the volunteer program. Palm Coast intends to maintain a volunteer program that, at a minimum, equals 5 percent of the total patient care hours of all paid hospice employees and contract staff.
CONFORMANCE WITH AGENCY RULE CRITERIA
The application submitted by Palm Coast conforms with the preferences set forth in Florida Administrative Code Rule 59C-1.0355(4)(e). Palm Coast evidences a commitment to serve populations with unmet needs and has established the existence of such populations in Service Area 11. This conforms with Preference 1.
Palm Coast's application conforms with Preference 2 in that it proposes to provide the in-patient component of its proposed hospice program through contractual arrangements with existing health care facilities.
Palm Coast's application conforms with Preference 3 since it has demonstrated a commitment to serve patients who do not have primary caregivers at home, the homeless, and patients with AIDS.
Palm Coast's application conforms with Preference 5 since it will provide services not covered by private insurance, Medicaid, or Medicare. These services include pet, music, massage and aroma therapies, dialysis, palliative radiation, and palliative chemotherapy treatments. Palm Coast will provide 2 percent charity care, in addition to serving all patients who present for care, regardless of their ability to pay. Accordingly, Palm Coast's application conforms with Florida Administrative Code Rule 59C-1.3055(5), and the District 11 Health Plan Criteria.
Palm Coast's application conforms with Florida Administrative Code Rule 59C-1.0355(6), since its proposal contains a detailed program description including staffing and use of volunteers, expected sources of patient referrals, and
projected number of admissions, by payer type, for the first two years of operation. The sources of patient referrals are reasonable and appropriate.
The projected utilization for the proposed hospice program, including the number of admissions and payer mix, is reasonable and achievable utilizing Odyssey's rapid startup program. The Palm Coast start-up is reasonable based upon Odyssey's experience in start-up and operation of hospice programs around the country.
Based upon the reasonableness of the utilization projections, the projected increase in admissions for Service Area 11, and Odyssey's experience in other start-up and ongoing hospice programs, Palm Coast should achieve a 5 percent market share by the second year of operations.
The increase in overall utilization will, in part, be a result of the education and outreach efforts of Palm Coast. Palm Coast's projections are reasonable based upon the national experience, much of which has been in areas with large Hispanic populations, of Odyssey. Much as VITAS has experienced substantial growth over the years based upon its outstanding education and outreach, as well as its excellent standard of care, a sophisticated provider like Palm Coast, working with its management affiliate Odyssey should increase the market
penetration of hospice services in Service Area 11. High level competition between providers such as VITAS and Palm Coast will increase utilization for both providers of hospice services.
CONFORMANCE WITH APPLICABLE STATUTORY CRITERIA
Palm Coast's application conforms with Section 408.035(1),(2), and (7), Florida Statutes. Need for an additional hospice program is evidenced by the availability, accessibility, and extent of utilization of like and existing health care facilities and health services in the service area, as well as the published need for one additional hospice program in Service Area 11.
Palm Coast, through its affiliation with Odyssey, will have the necessary resources to fill current service gaps in Service Area 11. In each area where it currently provides service, Odyssey has implemented a community education plan specific to the needs of the area, including those areas with culturally diverse populations.
Palm Coast will implement an appropriate program for the community in Service Area 11. While, clearly, VITAS does an excellent job in the community it serves, its own witnesses admitted that more can be done. Even with the 72 percent market share commanded by VITAS, the published fixed need pool projects 2,093 un-served patients. What was left unexplained at hearing is why the other five hospice providers have not picked up the
excess of patients. Perhaps it is because these other providers have not devoted as many resources to education and outreach as has VITAS. Perhaps these other providers are seeking to serve only a specialized population of patients. The evidence at hearing did not provide answers to these questions. Further, while VITAS makes a compelling case for why market penetration is suppressed in the Hispanic population, they offered no specific data or studies to prove that the Hispanic (or in this case Cuban-American) population, given the proper education, will not better utilize hospice programs. Odyssey has proven its ability to respond to the needs of the Hispanic community in other parts of the country with large concentrations of Hispanic persons. It is clear that Palm Coast has the resources available and is committed to devoting them to Service Area 11. Palm Coast appears poised to achieve a strong share of the new admissions projected by the Agency.
Palm Coast's application conforms with Section 408.035(3) and (12), Florida Statutes. Although Palm Coast does not have a licensure history in Florida, its parent corporation, Odyssey, has a history of providing quality hospice care and is a member of the National Hospice and Palliative Care Organization. At the time Palm Coast filed this application, Odyssey had 69 Medicare certified hospice programs in 29 states.
Palm Coast, through its management contract with Odyssey, intends to adhere to all of Odyssey's policies and procedures, including policies related to access to care, admissions, and patient/family rights, patient services, infection control, and continuous quality improvement.
Section 408.035(5), Florida Statutes, does not apply since the proposed program will not be located in a research or teaching hospital. The establishment of the program, however, will enhance the clinical needs of health professional training programs due to Odyssey's numerous educational affiliations.
Palm Coast's application conforms with Section 408.035(6), Florida Statutes. Palm Coast, through its affiliation with Odyssey, will have the tools to effectively recruit and retain the necessary staff for this program. Odyssey has effective recruitment and retention policies that have allowed it to successfully staff and operate its 69 Medicare-certified hospice programs in 29 states, serving an average of 7,300 patients a day.
Odyssey uses all the traditional methods of recruiting staff, such as newsprint and website postings, as well as working with headhunters and providing referral bonuses. The company's transfer policy and internal posting program provides the opportunity for employees to transfer to other Odyssey locations. Odyssey offers competitive pay and benefits,
as well as flexible work schedules. It also provides bonuses for its employees who receive certifications from NHPCO. Accordingly, Odyssey and Palm Coast do not anticipate facing recruitment and retention problems since they have faced similar issues in other areas with diverse cultural populations.
Palm Coast's application conforms with Section 408.035(9), Florida Statutes, as the project will foster competition and promote quality care and cost effectiveness. Patients are better served when multiple providers exist in a market. Odyssey has operated in similar sized markets with 20-
30 hospice providers, and has achieved strong average lengths of stay, quality of care, and financial performance.
A new hospice in the service area does not provide price competition because the rates are primarily fixed by Medicare and Medicaid. The addition of new programs, therefore, allows the providers to compete based upon the types and quality of services they provide. This "non-price" competition raises the bar on the services provided by programs in the service area.
A new competitor organization offers physicians and patients a choice. This is especially true for hospice, because hospice utilization is strongly related to awareness and education. Competition creates an environment in which hospices must do more to educate the community. New disease process
protocols, admissions within three hours of initial contact, and other benefits will occur when a new competitor enters the market. New incremental patients will utilize the service because of increased awareness in the benefits of hospice.
Palm Coast's application conforms with Section 408.035(11), Florida Statutes. Although Palm Coast does not have a licensure history in Florida, its parent corporation, Odyssey, has a history of providing care to all patients without regard to gender, origin, race, creed, sexual orientation, disability, age, place of residence, or ability to pay. Odyssey's policies and procedures, which will be the basis for Palm Coast's policies and procedures, confirm this.
IMPACT ON EXISTING PROVIDERS
VITAS suggests that the establishment of a new hospice program in Service Area 11 would have an impact on existing providers of hospice services. If Palm Coast's utilization projections are to be believed, opines VITAS, existing providers will experience a substantial adverse impact.
The nature of the impact to VITAS, it argues, will be twofold. First, VITAS will experience even greater problems in the recruitment and retention of professional staff than it currently experiences. VITAS currently has difficulty in recruiting a sufficient number of nurses who are both bilingual and willing to work in hospice care. Further, VITAS has lost
staff in the past when Odyssey has entered a market where they are providing services. In such cases, VITAS has lost staff to Odyssey, which has had a negative impact on VITAS, because it had paid to recruit and train these employees.
VITAS further claims that it will lose market share if Palm Coast's projections of patient days in its pro formas are accurate. VITAS bases its loss of market share on an allocation of 72 percent of Palm Coast's projected patient days coming directly from VITAS. This would equate to a loss of $1.5 million (on revenues of $18,851,604). VITAS' analysis does not take into account the underserved market of 2,093 patients identified by the Agency in its unchallenged fixed need pool methodology. This does not even take into account VITAS' own expert's acknowledgment that at least 425 patients remain underserved based on her calculation of need.
VITAS claims that it will be substantially and adversely affected by the addition of the Palm Coast program in terms of both lost revenues and inability to recruit and retain staff, yet VITAS has experienced large growth during the past four years and projects a "rosy" future as described by the Miami program's General Manager and by VITAS' parent company Chemed.
None of the five other hospice providers in Service Area 11 intervened in the proceeding, appeared at hearing, or
offered evidence of any adverse impact the approval of Palm Coast as a new provider might have on them. VITAS was unable to provide much evidence, other than the fact that some of these providers have experienced low utilization, to demonstrate any adverse impact by the entry of Palm Coast into the Service Area
11 market.
HOSPICE MUST BE NOT-FOR-PROFIT CORPORATION
Odyssey is a for-profit company, publicly traded on the NASDAQ. Palm Coast is a wholly-owned subsidiary of Odyssey.
Palm Coast is registered as a corporation not-for- profit pursuant to Chapter 617, Florida Statutes.
Under generally accepted accounting principles ("GAAP"), which apply to health care companies as well as other companies, the income of a wholly-owned subsidiary is reflected as the income of the parent. Here, the income of Palm Coast is the income of Odyssey, according to GAAP.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. §§ 120.569, 120.57(1), and 408.039(5), Fla. Stat.
As the applicant, Palm Coast has the burden of establishing the need for a new hospice program in Service Area
Boca Raton Artificial Kidney Center, Inc., v. Dept. of Health and Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA
1985). The award of a CON must be based on a balanced consideration of all applicable statutory and rule criteria. Humana, Inc. v. Dept. of Health and Rehabilitative Services, 469 So. 2d 889 (Fla. 1st DCA 1985), citing Dept. of Health and Rehabilitative Services v. Johnson & Johnson Home Health Care, Inc., 447 So. 2d 361, 363 (Fla. 1st DCA 1984). The appropriate weight accorded each individual criterion contained in the statute regarding CON applications is not fixed, but depends on the facts and circumstances of each case. Collier Medical Center, Inc. v. Dept. of Health and Rehabilitative Services, 462 So. 2d 83 (Fla. 1st DCA 1985).
The CON review criteria set forth in Sections 408.035(1), (2), (3), (5), (6), (7), (8), (9), and (11), Florida Statutes, are applicable to this project. The review criteria set forth in Sections 408.035(4), (10), and (12), Florida Statutes, are not applicable.
The rule criteria and requirements contained in Florida Administrative Code Rules 59C-1.030 and 59C-1.0355, are applicable to this project. The criteria contained in Florida Administrative Code Rule 59C-1.0355(7), (8), (9), and (10), are either not applicable or are not relevant to consideration of this application.
The CON submission and process requirements set forth in Sections 408.039(2)(a), (c), and (3)(a), Florida Statutes,
and Florida Administrative Code Rule 59C-1.008, are applicable. The parties stipulated that Palm Coast's Letter of Intent and CON Application met the Agency's rules regarding minimum content and timely submission requirements.
AHCA published a fixed need pool determination indicating the need for an additional hospice program in Service Area 11. Section 408.043(2), Florida Statutes states that "[t]he formula on which the certificate of need is based shall discourage regional monopolies and promote competition." That formula, or need methodology, is implemented by Florida Administrative Code Rule 59C-1.0355, which sets out, in paragraph (4), the "Criteria for Determination of Need for a New Hospice Program," and in (4)(a), the methodology for determining the numeric need for an additional hospice program. The need methodology for hospice compares the existing number of patients electing a hospice service planning area with the number that would elect hospice care based upon statewide use rates for hospice service. If the result of the comparison "gap" is 350 hospice admissions or greater, the formula establishes a need for an additional hospice program. When the methodology was run for Service Area 11, the "gap" was 2,093 admissions, therefore demonstrating a clear numeric need for an additional hospice program in Service Area 11. Existence of a numeric need pursuant to the rule creates a rebuttable presumption of need
for an additional hospice program in Service Area 11. See Martin Memorial Medical Center, Inc. v. Agency for Health Care
Administration, 17 F.A.L.R. 1631-32 (1995).
The "Notice of Hospice Program Fixed Need Pool" was published in the Florida Administrative Weekly on April 9, 2004 (Vol. 30, No. 15). The notice provides any person the opportunity to advise the Agency of any errors or to petition for a hearing pursuant to Section 120.57, Florida Statutes, if the person has been substantially affected by the Notice of Fixed Need Pool. Failure to so request a hearing within 30 days of the publication constitutes a waiver of the right to challenge the fixed need pool. VITAS did not challenge the April 9, 2004, publication of the fixed need pool. Therefore, VITAS has waived its right to challenge the net need number and must accept and overcome the fact that a numeric need for an additional hospice program exists in Service Area 11.
While a fixed need pool establishes a presumption of need, it serves only as the starting point of an analysis of need. Columbia Hospital Corporation of South Broward d/b/a Westside Regional Medical Center v. Agency for Health Care Administration, DOAH Case Nos. 94-1020 and 94-1021 (AHCA 1996). Situations exist where a proposal for a new provider should be denied where the actual circumstances in the community do not demonstrate a true need for additional service providers, even
though the numeric need methodology indicates need. Id. For example, in Columbia Hospital Corporation of South Broward d/b/a
Westside Regional Medical Center, DOAH Case No. 94-4801 (AHCA 1997), two competing applications for open heart surgery programs were both denied, even though a fixed need pool was published indicating the need for an additional open heart surgery provider in Broward County. In that case, the CON Applications were denied for two main reasons: a) the four existing providers demonstrated that they would be substantially adversely affected by the opening of a new program either financially or through a reduction in quality of care; and b) the applicants were unable to demonstrate that their proposals would be financially feasible in the long term, since they could not prove they would generate sufficient procedures to maintain quality programs.
Palm Coast demonstrated the need for an additional program in Service Area 11 pursuant to the applicable statutory and rule criteria. With the significant increase in hospice patients projected, the need exists numerically for an additional program. Moreover, the evidence proved that VITAS operates a thriving hospice program that continues to grow despite the addition of new hospice providers that have entered the market. The evidence did not explain why the other hospice providers in Service Area 11 have been unable to match VITAS'
success. A logical conclusion is that none of the other hospice providers engage in the full-scale marketing, community education and outreach on as sophisticated a level as that performed by VITAS. The reasons for this are purely speculative since no explanatory evidence was produced, but these other providers may be targeting a specific population and are not interested in extensive community outreach; or they may not have the resources to engage in the type of education and outreach performed by VITAS. The evidence does show that Palm Coast is the type of provider that appears poised to operate in the same manner as VITAS: networking extensively in the community in an attempt to break down some of the barriers that VITAS believes have suppressed utilization in the Hispanic community. VITAS had made great inroads into increasing this utilization, and a provider like Palm Coast appears ready to continue in that regard.
Palm Coast's application conforms with the applicable district health plan and with Sections 408.035(1) and 408.037(1), Florida Statutes, and Florida Administrative Code Rule 59C-1.0355(5). Further, Palm Coast's application conforms with the Agency preferences set forth in Florida Administrative Code Rule 59C-1.0355. Finally, the Palm Coast application conforms with the applicable statutory review criteria contained in Section 408.035, Florida Statutes.
Odyssey has a history of providing quality care in its hospice programs. Accordingly, Palm Coast, through its management affiliation with Odyssey, has the ability to provide quality hospice care as proposed in its application. Odyssey has a history of providing care to Medicaid recipients and the medically indigent; Palm Coast will likewise provide such care. Palm Coast will also provide non-reimbursable services such as palliative chemotherapy and radiation therapy to those patients who require such services.
Palm Coast, through its management affiliation with Odyssey, has the necessary resources for project accomplishment and operation, and will be able to recruit and retain the necessary clinical and administrative staff necessary for the implementation and operation of its hospice program.
Palm Coast's project is financially feasible in the short term and the long term.
Palm Coast's proposed hospice program will foster competition with other hospice programs in Service Area 11.
Palm Coast, through its affiliation with Odyssey, will have the necessary recruitment and retention programs in place to develop staff. Palm Coast's staff will reflect the cultural diversity of its patient population.
Palm Coast, through its affiliation with Odyssey, will provide educational services for the community and will
implement a community education plan that utilizes at least three community education representatives.
Similar to Odyssey's volunteer program, Palm Coast will implement a comprehensive program for its volunteers.
While the applicant must prove its entitlement to the CON, an existing provider who challenges the Agency's preliminary approval of a CON must demonstrate that it has standing. Section 408.039(5)(c), Florida Statutes, sets forth the test for standing:
Existing health care facilities may initiate or intervene in an administrative hearing upon a showing that an established program will be substantially affected by the issuance of any certificate of need . . . to a competing proposed facility or program within the same district.
VITAS seeks to have standing conferred upon it on two bases: a) that the significant nursing shortage, especially in South Florida and for bilingual nurses, will be exacerbated by the entry of a large provider like Palm Coast into the market; and b) that VITAS projects that it will lose $1.5 million on revenues of over $18 million once Palm Coast claims its market share. Prior decisions have supported VITAS' positions that the challenger need not demonstrate that its program will be financially imperiled to establish significant impact for standing, St. Mary's Hospital, Inc. v. Agency for Health Care Administration, 17 F.A.L.R. 457, 458 (AHCA 1995); and that
impact through competition for staff among hospice providers may confer standing, Hospice by the Sea, Inc. v. Agency for Health
Administration, DOAH Case No. 00-3222 (AHCA 2001)(other case numbers omitted).
While VITAS has pointed out what has generally become common knowledge--the shortage of nurses in Florida (and the country as a whole)--it has failed to demonstrate just how severe the impact of Palm Coast's entry into the market would be on its ability to recruit and retain nurses. VITAS spoke of the cost of recruiting and training nurses and other staff, yet did not quantify the cost. VITAS testified to the "struggle" to find Spanish-speaking nurses, but made no claims that it would not be able to recruit such nurses and maintain its programs in the future. Clearly, all providers must compete for staff, and those who provide the better working environment, salary, and benefit packages will have an easier job of recruiting and retaining employees than those who provide less. VITAS did not prove that its ability to recruit and retain staff would suffer a substantial adverse impact if Palm Coast's application is approved. Therefore, VITAS has not proved it has standing to challenge the Palm Coast application on these grounds.
VITAS' expert testified that the company would lose
$1.5 million by virtue of Palm Coast's coming online as a hospice provider in Service Area 11. While in dollar terms
taken in a vacuum, this sounds like a great deal of money, it represents about 8 percent of VITAS' projected revenues in a one-year period. This analysis, admittedly, does not take into account any increase in utilization that VITAS expects to experience. It is merely a simple calculation of what would happen in a vacuum if Palm Coast takes a portion of VITAS patients and the associated revenues. Since both the fixed need pool and VITAS' own expert calculate an additional 2,093 or 425 hospice patients, depending on whether the Agency's or
Ms. Greenberg's projection is accepted, any analysis of financial impact must take into account the additional patients expected to utilize hospice. With a 72 percent current market share, VITAS can expect to garner a large share of these new patients which will significantly reduce, if not completely eliminate, any perceived adverse financial impact. Since VITAS did not consider the increase in hospice patients in determining the adverse financial impact of Palm Coast entering the market, it has failed to prove its standing as an existing provider who has suffered an adverse financial impact.
VITAS also challenged the Palm Coast CON Application as flawed due to an improper amendment to the application. The nature of the claimed amendment was the error pointed out at hearing in the patient mix used by Palm Coast's expert in developing the financial pro formas. Palm Coast's expert
incorrectly inserted the figure nine percent as the number of in-patient days when that figure actually represented the percentage of in-patient revenues. In the context of hospice, in-patient "revenues" are almost a misnomer since in-patient care is merely a pass through of reimbursement (primarily Medicare) to the hospital or other in-patient facility in the same amount as received by the hospice. The insertion of the wrong in-patient number actually made the pro formas appear less financially feasible than they would have been with the appropriate number inserted. The staffing and expense numbers were not changed as a result of the singular error in the percentage of in-patient days, since the model employed by Palm Coast to prepare the application used expense numbers based on
100 percent routine care. Since the impact of using the nine percent in-patient days figure is de minimus, it is not an improper amendment to Palm Coast's CON Application pursuant to Florida Administrative Code Rule 59C-1.010(3)(b).
The final issue raised by VITAS in opposition to Palm Coast's CON Application is whether the applicant is not a not for-profit corporation by virtue of its being a wholly-owned subsidiary of Odyssey. Section 400.601(3), Florida Statutes, provides as follows:
"Hospice" means a centrally administered corporation not for profit, as defined in chapter 617, providing a continuum of
palliative and supportive care for the terminally ill patient and his or her family.
Section 617.0141(5), Florida Statutes, defines a "corporation not for profit" as "a corporation no part of the income or profit of which is distributable to its members, directors, or officers." VITAS did not demonstrate at hearing that any income or profits of Palm Coast would be distributed to the members, directors or officers of Palm Coast, the Florida corporation not-for-profit. Further, VITAS did not demonstrate that Palm Coast would in any way violate Chapter 617, Florida Statutes, which is the relevant corporations law, for purposes of hospice licensure pursuant to Sections 400.6005 - 400.611, Florida Statutes. Palm Coast has demonstrated that it meets the definition of a corporation not-for-profit so as to qualify its application for approval.
Palm Coast has demonstrated a need for its proposed hospice program. Palm Coast's program will enhance the delivery of hospice services to the underserved community in Service Area
11. On balance, Palm Coast's CON Application satisfies all applicable statutory and rule criteria.
Based upon the Findings of Fact and Conclusions of Law, it is
RECOMMENDED that the application of Hospice of the Palm Coast, Inc., for CON No. 9798, be APPROVED.
DONE AND ENTERED this 14th day of June, 2005, in Tallahassee, Leon County, Florida.
S
ROBERT S. COHEN
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 14th day of June, 2005.
COPIES FURNISHED:
Kenneth W. Gieseking, Esquire
Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive
Tallahassee, Florida 32308
Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A.
204 South Monroe Street Tallahassee, Florida 32302-3068
Thomas E. Panza, Esquire Deborah S. Platz, Esquire Panza, Maurer & Maynard, P.A.
Bank of America Building, 3rd Floor 3600 North Federal Highway
Fort Lauderdale, Florida 33308-6225
Richard Shoop, Agency Clerk
Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive
Tallahassee, Florida 32308
William Roberts, Acting General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431
2727 Mahan Drive
Tallahassee, Florida 32308
Alan Levine, Secretary
Agency for Health Care Administration Fort Knox Building, Suite 3116
2727 Mahan Drive
Tallahassee, Florida 32308
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 |
|---|---|---|
| Jul. 07, 2005 | Agency Final Order | |
| Jun. 14, 2005 | Recommended Order | Hospice of the Palm Coast, Inc.`s Certificate of Need application satisfies all applicable statutory and rule criteria and will enhance delivery of hospice services to the Agency for Health Care`s Service Area 11. Recommend the application be approved. |
