STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
CENTRAL FLORIDA REGIONAL ) HOSPITAL, INC., d/b/a CENTRAL ) FLORIDA REGIONAL HOSPITAL, )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE ) ADMINISTRATION and OVIEDO HMA, ) INC., )
)
Respondents. )
Case No. 05-0296CON
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, Charles A. Stampelos, held the final hearing in the above-styled case on January 10-13, 17-20, 23-25, and February 1, 2006, in Tallahassee, Florida.
APPEARANCES
For Petitioner Central Florida Regional Hospital, Inc., d/b/a Central Florida Regional Hospital:
Stephen A. Ecenia, Esquire Richard M. Ellis, Esquire
Rutledge, Ecenia, Purnell & Hoffman, P.A.
215 South Monroe Street, Suite 420 Tallahassee, Florida 32301
For Respondent Agency for Health Care Administration:
Timothy Elliott, Esquire Elizabeth Willis, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Building 3, Suite 3421
Tallahassee, Florida 32308 For Respondent Oviedo HMA, Inc.:
Geoffrey D. Smith, Esquire Susan C. Smith, Esquire Smith & Associates, P.A.
2873 Remington Green Circle Tallahassee, Florida 32308
STATEMENT OF THE ISSUE
Whether the Certificate of Need (CON) applications filed by Central Florida Regional Hospital, Inc. d/b/a Central Florida Regional Hospital (Central Florida) (CON Application No. 9805) and Oviedo HMA, Inc. (Oviedo HMA) (CON Application No. 9807P) for a new, 60-bed acute care hospital in Seminole County, Agency for Health Care Administration (Agency or AHCA) acute care subdistrict 7-4, satisfy, on balance, the applicable statutory and rule review criteria sufficiently to warrant approval; and, if so, which of the two applications best meets the applicable statutory and rule review criteria for approval.
PRELIMINARY STATEMENT
In August, 2004, Central Florida, Oviedo HMA, and Orlando Regional Healthcare System, Inc. (ORHS) each filed letters of intent with AHCA to file a CON application for a new acute care hospital in Seminole County. Thereafter, Central Florida,
Oviedo HMA, and ORHS each made an initial application submission. Central Florida's submission was assigned CON Application No. 9805; ORHS's submission was assigned CON Application No. 9806; and Oviedo HMA's submission was assigned CON Application No. 9807. Central Florida and Oviedo HMA then each filed an "omissions response" to complete their applications. (ORHS did not file an omissions response.)
Central Florida proposes to establish a new, 60-bed hospital in Oviedo, Seminole County, Florida, with the 60 acute care beds to be transferred (and delicensed) from Central Florida's existing facility in Sanford, Florida.
Oviedo HMA's omissions response included a "full" and "partial" application: CON Application No. 9807, for the establishment of a new, 100-bed hospital in Oviedo; and CON Application No. 9807P, for the establishment of a new, 60-bed hospital in Oviedo.
In December, 2004, AHCA issued its notice of intent to deny Central Florida's CON Application No. 9805, deny Oviedo HMA's CON Application No. 9807, and approve Oviedo HMA's CON Application No. 9807P. (Oviedo HMA did not challenge the denial of CON Application No. 9807.)
Central Florida timely filed a petition for formal administrative hearing to contest the preliminary denial of its
application, and the preliminary approval of Oviedo HMA's application.
On January 6, 2006, the parties filed a Joint Pre-Hearing Stipulation.1
At the final hearing, Oviedo HMA presented the testimony of Stanley McLemore, an expert in hospital finance and operations; Robert E. Farnham, an expert in health care finance and accounting; Peter Lawson, an expert in hospital management and administration; John Hillenmeyer, an expert in hospital administration; Karl Hodges, vice-president for business development for Orlando Regional Healthcare; Steven Glazier; James Anthony Barber, an expert in physician practice management and physician recruitment; Kishore Ranadive, M.D., an expert in cardiology and interventional cardiology; Stephen Margolis, M.D., an expert in medical information systems; Edgar J. Jimenez, M.D., an expert in internal medicine and critical care medicine; Richard Houston, an expert in hospital design and health care architecture; David Axel, an expert in commercial real estate sales; Hugh W. Harling, an expert in civil engineering and commercial site development; Grant Ramsay, an expert in hospital information technology systems; Peggy M. Cella, an expert in health care planning and consulting; and Armand Balsano, an expert in health care finance, financial feasibility analysis, and health care planning.
In addition, Oviedo HMA introduced deposition transcripts of Wayne Jenkins, M.D.; Dorothy Catena-Mileto; Larry Alexander, M.D.; Tanya Agard, M.D.; Wiljon W. Beltre, M.D.; Steven Brooks, M.D.; Timothy B. Bullard, M.D.; Clyde H. Climer, M.D.; Richard
Y. Feibelman, M.D.; Karen Hackler; Jeffrey N. Gregg; Todd Husty, D.O.; David Johnson; Arnold J. Lazar, M.D.; Sharon Kim Mott; Nizam Razack, M.D.; Kathy Swanson; Ashley Johnson; and William Tipton.
Oviedo HMA's Exhibits (OV) numbered 1 through 9, 11 through 76, 96 through 100, and 111 through 115 were admitted into evidence. The deposition transcripts of Dorothy Catena-Mileto, Sharon Kim Mott, and Nizam Razack, M.D., were admitted into evidence subject to limitations on hearsay, as noted in the Order dated January 27, 2006. Following the final hearing, various SAARs were admitted into evidence as Oviedo HMA's Exhibits numbered 78 through 94 and 101 through 110. See Order,
April 3, 2006.
AHCA adopted the case presented by Oviedo HMA.
Central Florida presented the testimony of Rodney Smith, its Chief Executive Officer, an expert in hospital and health care administration; Lawrence Vallario, M.D., expert in cardiovascular medicine; Daniel J. Sullivan, an expert in health care planning and health care finance; Richard L. Miller, an expert in hospital and health care architecture; Mickey Pickler,
an expert in physician recruitment (generically); Sharon Gordon- Girvin, an expert in health care planning; David A. Gierach, P.E., an expert in civil engineering and commercial site development; Darryl Weiner, an expert in health care finance; and Charles J. Hall, an expert in hospital and health system administration. In addition, Central Florida introduced the deposition transcripts of the following witnesses as exhibits: Juan L. Ravelo, M.D.; Alfred Rodriguez, M.D.; Jeremy Steinbaum, M.D.; Allan March, M.D.; Tina Calderone; Karen W. Coleman; George Viele; Bryan J. Cobb; Cordell O'Connor; Donald Kovak; and Keith Giger.
Central Florida's Exhibits (CF) numbered 1 through 9, 11
through 20, 22 through 40, 42 through 45, 47 through 63, 65 through 81, and 83 were admitted into evidence. Central Florida's Exhibit number 26 was filed under seal. Following the hearing, documents concerning Sacred Heart Hospital on the Emerald Coast, collectively marked as Central Florida's Exhibit number 84, see Order, April 3, 2006, and the deposition transcript of Linda Breum, marked as Central Florida's Exhibit number 85, were admitted into evidence.
The 17-volume Transcript (T) of the final hearing was filed with the Division of Administrative Hearings on February 10, 2006.
On March 8, 2006, without objection, official recognition was taken of the Recommended and Final Orders in Morton Plant
Hospital Association, Inc., d/b/a North Bay Hospital vs. Agency for Health Care Administration, et el., DOAH Case Nos. 02- 3232CON-02-3237CON, and 02-3515CON (AHCA May 14, 2004). Also,
on the same date, without objection, the Limited Liability Company Agreement of Osceolasc, LLC, and the Hospital Provider Managed Care Agreement were admitted into evidence. See CF 26, Exhibits A and C, filed under seal.
On June 19, 2006, the parties filed proposed recommended orders and Central Florida also filed a memorandum of law. On June 20, 2006, Oviedo HMA filed a motion requesting to file a corrected proposed recommended order, which was granted. AHCA joined in the proposed recommended order filed by Oviedo HMA. All of the post-hearing submissions have been considered in preparing this Recommended Order.
FINDINGS OF FACT
The Parties
The Agency
AHCA is the state agency authorized to evaluate and render final determinations on CON applications pursuant to Section 408.034(1), Florida Statutes.2
Oviedo HMA
Oviedo HMA, Inc. is a start-up subsidiary of Health Management Associates, Inc. (HMA), a national for-profit hospital chain, headquartered in Naples, Florida.
Oviedo HMA was formed for the sole purpose of constructing, owning, and operating a hospital in the Oviedo area.
HMA traditionally develops hospitals in non-urban markets. It describes itself as a "turnaround specialist for non-urban hospitals," that "acquires and then revitalizes hospitals in growing communities with [population of] 30,000 to 400,000 that have a clear demographic need." HMA focuses on smaller-type hospitals ranging in bed size from 50 to 200 beds.
HMA's ownership of hospitals has grown from 16 in 1993 to 59 hospitals in 2005.
HMA owns and operates approximately 16 hospitals in Florida, all of which have come under HMA's ownership and operation by acquisition. HMA has not yet opened and constructed a new acute care hospital in Florida. HMA is building a new hospital in Collier County and has recently completed a replacement hospital in Brooksville, Florida. HMA anticipates acquiring an 80 percent interest in St. Cloud Hospital (owned by ORHS) in the greater Orlando area, with ORHS
retaining a 20 percent interest. This transaction had not closed as of the final hearing.
HMA owned and operated hospitals nationwide are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) and provide high quality of care to their patients.
HMA has experienced financial growth in recent years; growing from approximately $250 million in net revenue in 1993 to over $3.6 billion in 2005, and growing from approximately $12 million in net income in 1993 to approximately $350 million in 2005. Its financial strength among for-profit hospitals is strong.
For HMA, company-wide, over 15.4 percent of gross revenues were attributable to Medicaid in fiscal year (FY) 2005, with an additional 4.5 percent in charity care. In Florida, 9.7 percent of gross revenues of HMA were attributable to Medicaid (over $324 million) in 2005, with an additional 4.4 percent in charity care (over $147 million).
In the SAAR, AHCA conditioned its approval of Oviedo HMA's project with the condition that Oviedo HMA provide "[a] minimum of 7.1 percent of the total annual patient days in the 60-bed facility . . . to Medicaid patients" and "[a] minimum of
2.9 percent of the 60-bed facility's gross revenues . . . to
charity patients." OV 99 at 52. AHCA should impose these conditions if the project is approved.
Oviedo HMA has committed to provide obstetrical services.
In order to perfect its CON application, Oviedo HMA is relying heavily on Orlando Regional Healthcare System, Inc. (ORHS), a Florida not-for-profit corporation that owns and operates health care facilities in Orange, Seminole, Lake, and Osceola Counties. HMA would not pursue the project without a collaborative clinical and financial arrangement with ORHS.
Following the filing of Oviedo HMA's letter of intent, on October 20, 2004, representatives of HMA, Inc. and ORHS, Inc., signed a letter of intent "relating to the possible formation of a joint venture or other business relationship" for the construction of a new hospital in Oviedo." Thereafter, HMA and ORHS agreed in principle that if the CON application were approved and the hospital project proceeded forward, 20 percent of the stock of Oviedo HMA will be owned by ORHS or one of its affiliates. (Stated otherwise, ORHS will contribute 20 percent of the project cost.) Losses and profits will be shared in accordance with percentages of stock ownership. Any written agreement between Oviedo HMA and ORHS is expected to be modeled after the ORHS/HMA St. Cloud Hospital agreement. See Finding of
Fact 6. It is anticipated that any such agreement will contain, in part, buy-out and non-compete provisions.3
The entity that files a CON application must be the same entity that licenses and operates the CON approved project, here a hospital. OV 69 at 9-10.4 According to Mr. Gregg, "as of the [legislative] changes of 2004, if a change of ownership occurs, then that new owner acquires the certificates [sic] of need that were [sic] associated with the provider being purchased." Id. at 10. See generally § 408.036(2)(a), Fla. Stat.; Ch. 2004-383, § 6, Laws of Fla.
The proposed stock purchase by ORHS does not affect the corporate status of Oviedo HMA, Inc., the applicant/entity.5 The situation would be different if the applicant/entity changed. The persuasive evidence indicates that Oviedo HMA, Inc. will own and operate the new hospital.
ORHS has sufficient funds and is committed to expend between $15 and $20 million toward the Oviedo HMA hospital project, but is not willing to finance the entire cost of the project. This is one reason why ORHS did not pursue a CON application for a similar project as it had done in a prior batching cycle.
The ORHS hospitals/health care facilities provide high quality of care to their patients.
ORHS uses an enterprise-wide health information system which is complemented by other systems. ORHS physicians can access patient clinical information at an ORHS facility or remotely.
PACS is a picture, archiving, and communications system. PACS provides the user with the ability to view images digitally, e.g., X-rays can be transmitted electronically and can be viewed remotely. With the design and structural cabling system in place, the PACS system can be used by the Oviedo HMA hospital and OHRS. The anticipated collaboration between the entity systems will afford the ability to tie the computer systems together.
This system is available among collaborative hospitals and by credentialed staff who are given access to the system.6 Generally, physicians who do not have privileges at an ORHS facility would not be able to access the information unless given permission, which is not done on a standard basis. Hospital facilities with a "business relationship" with ORHS facilities can access the information. However, federal confidentiality requirements must be followed. Unaffiliated hospitals, such as CFRH, could be provided access to the information. See Endnote 6.
Central Florida
Central Florida Regional Hospital, Inc. (Central Florida), a for-profit corporation, is an applicant in this proceeding and will own the new hospital proposed in its CON application. If approved, the new hospital will have a separate management team charged with running the day-to-day operations of the new hospital.
Central Florida is an indirect wholly-owned subsidiary of HCA Inc. (Health Corporation of America), a national for- profit corporation with hospitals distributed throughout the United States, including the State of Florida, and abroad. HCA's health care services include physician practices, ambulatory surgical centers, community hospitals, and large tertiary referral centers.
Central Florida owns and operates Central Florida Regional Hospital (CFRH), a general acute care hospital with 226 licensed beds, consisting of 208 acute care beds and 18 skilled nursing unit beds (a separate unit within the hospital). CFRH is located at 1401 West Seminole Boulevard, Sanford, Florida, and is accredited by the JCAHO.
Osceola Regional Medical Center, in Osceola County, Florida, is also an HCA facility in District 7.
Central Florida will transfer (and delicense) 60 acute care licensed beds from CFRH to effectuate the CON application.
CFRH asserts that it can maintain an appropriate census with the remaining bed complement. If the reduced bed complement is insufficient in number, CFRH can add new acute care beds without obtaining a CON. Ch. 2004-383, § 6, Laws of Fla., amending Section 408.036(1)(a) and (d), Florida Statutes (2003).
CFRH's geographic service area is predominantly north Seminole County and west Volusia County.
CFRH provides inpatient and outpatient services, including obstetrics, and has the only adult open-heart surgery and interventional cardiology program in Seminole County. CFRH's OB department averages 80 to 100 OB deliveries a month. CFRH does not operate a Level 2 or Level 3 Neonatal Intensive Care Unit (NICU). Orlando Regional Medical Center and Florida Hospital operate these units.
CFRH has a history of providing health care services to Medicaid patient and indigent patients.
CFRH expects to implement otolaryngology services, as well as a neurosurgery program that will include state-of-the- art "cyberknife" technology, a surgical tool that can also be used in cancer and tumor treatment in areas of the body other than the brain. (CFRH has not offered neurosurgery for some time, but signed a contract with a neurosurgeon that starts March 1, 2006, and is recruiting for a second neurosurgeon.) The hospital will be offering a 64-slice CAT scanner, which is a
state-of-the-art imaging system. It is used for ruling out the necessity of a cardiac intervention procedure.
CFRH has two OB/GYN physicians in Oviedo who are employed by the hospital. One works part-time. CFRH is recruiting for additional OB physicians for CFRH.
CFRH has a reputation for providing high quality of care to its patients. This includes but is not limited to CFRH's cardiovascular and interventional programs. (For calendar year 2004, there were 300 open heart surgery discharges from CFRH. In 2004, CFRH ranked 40 out of 73 Florida hospitals with interventional cardiology programs in the number of open heart surgery discharges.)
CFRH uses an electronic medical administration record (eMAR) system, which increases patient safety. Each patient's arm band is coded and can be scanned for, in part, drug compatibility. Nurses are alerted if there are any abnormalities. This particular system is unique to HCA hospitals. CFRH also uses a PACS system to transmit images to other facilities.
Central Florida enjoys an excellent reputation as a corporate citizen in the Sanford community and Seminole County generally. Central Florida makes annual monetary contributions to a number of local organizations, including, for example, Seminole Community College for the purpose of expanding their
nursing program. ORHS and Florida Hospital also contribute to this project.
On September 7, 2004, the City of Oviedo issued a letter of support of Central Florida's application "for a 60 bed satellite facility in Oviedo, Florida."7 On November, 15, 2005, The Greater Oviedo Chamber of Commerce passed a resolution favoring Central Florida's application over Oviedo HMA's application.
Until Central Florida filed its CON application, Central Florida had not begun to aggressively consider a greater presence in the Oviedo area. Central Florida expects to recruit in the area (and build a medical office) if its CON application is approved.
CFRH has approximately 164 doctors on staff with active privileges (or active provisional) and requires its physicians to be board certified in order to be a part of the medical staff, unless the physician provides a specialty service for a limited period of time.
CFRH will support the new hospital and provide any necessary training.
CFRH expects to be the referral hospital for the new hospital, as opposed to a Florida Hospital or ORHS facility.
Health Services in Orange and Seminole Counties Within District 7
Agency health planning service District 7 consists of Brevard, Orange, Osceola, and Seminole Counties. § 408.032(5), Fla. Stat. For acute care beds, each of the four counties is treated as a separate "subdistrict" by AHCA. Fla. Admin. Code
R. 59C-2.100(3)(g). Both applications were filed to construct a new, acute care hospital in Seminole County, subdistrict 7-4. Specifically, each application proposes a new, 60-bed hospital in Oviedo, in Seminole County.
At present, Seminole County has three acute care hospitals: CFRH is located in Sanford, near the Volusia County line in north Seminole County; Florida Hospital-Altamonte, located in Altamonte Springs, in south Seminole County to the west of Oviedo; and ORHS South Seminole Hospital, also located in south Seminole County to the west of Oviedo.
For the period January, 2003, through December, 2003, CFRH reported 55.82 percent occupancy in its 208 acute care beds. By comparison, Florida Hospital-Altamonte reported 72.40 percent occupancy in its 258 acute care beds and ORHS South Seminole Hospital reported 53.80 percent occupancy in its 126 acute care beds. See CF 12 at Table 1-20.
Florida Hospital-Altamonte and ORHS South Seminole Hospital are each a part of large hospital organizations that
collectively dominate the market for hospital services in Seminole County and District 7.
Both applicants propose to address the maldistribution of existing licensed acute care beds in Seminole County, with the greater need for acute care beds in south Seminole County.
There are approximately 2,470 acute care beds in Orange County and approximately 600 acute care beds in Seminole County.
Adventist Health System/Sunbelt, Inc., owns and operates seven general acute care hospitals under the "Florida Hospital" name in the greater Orlando area: Florida Hospital- Altamonte (258 acute care beds) in Seminole County; Florida Hospital-Orlando (702 acute care beds), Florida Hospital-East Orlando (144 acute care beds), Winter Park Memorial Hospital,8 and Florida Hospital-Apopka (50 acute care beds) in Orange County; and Florida Hospital-Celebration and Florida Hospital- Kissimmee in Osceola County. See Orlando Regional Healthcare System, Inc. vs. Agency for Health Care Administration, Case Nos. 02-0448CON and 02-0449CON, 24 FALR 714, 720 (DOAH November 18, 2002; AHCA December 31, 2002).
In 2001, Florida Hospital and ORHS filed competing CON applications to build a 60-bed hospital in Oviedo, and each was preliminarily denied by AHCA. Both organizations challenged AHCA's determination, and, following an administrative hearing, AHCA awarded the CON to Florida Hospital. See Orlando Regional
Healthcare System, Inc., supra. However, Florida Hospital never implemented its proposal, and the CON lapsed.
ORHS is a large tertiary health care system in the greater Orlando area comprised of several health care facilities and one additional facility which will be opening this year, the Winnie Palmer Hospital for Women and Babies (Winnie Palmer), a 273-bed facility. It is anticipated that obstetrical and women services and infant care will relocate from the Arnold Palmer Hospital for Children and Women (Arnold Palmer) to Winnie Palmer in May 2006.
ORHS and Florida Hospital offer outstanding cardiovascular services. (For calendar year 2004, Florida Hospital-Orlando and Orlando Regional Medical Center had 1,759 and 898 open heart surgery discharges, respectively, and rank one and four, respectively, among open heart surgery providers statewide.)
ORHS owns and operates several general acute care hospitals in the greater Orlando area. South Seminole Hospital in Longwood, Seminole County, is a 206-bed hospital with approximately 126 acute care beds, and 80 psychiatric beds in a detached facility.
Several ORHS facilities are located in Orange County.
Orlando Regional Medical Center (ORMC), located in downtown Orlando, is a 600-bed general acute care hospital that provides
tertiary care services and serves as a teaching hospital. ORMC is the only Level 1 trauma center in the greater Orlando area.
M.D. Anderson Cancer Center is physically attached to ORMC and functions as the medical-surgical and radiation/oncology program for ORMC. Arnold Palmer is a 275-bed specialty hospital that provides subspecialty pediatric care, neonatology, and obstetrics. A $50 million construction project is underway. Lucerne Hospital is a 275-bed general acute care hospital, a few miles away from ORMC. Sand Lake Hospital is a 150-bed general acute care hospital (located near Disney).
ORHS previously owned St. Cloud Hospital in Osceola County, but sold an 80 percent interest in St. Cloud to HMA in November, 2005. See Findings of Fact 6 and 13.
South Lake Hospital is a smaller, 100-bed general acute care hospital located in Lake County, Florida, that is digitally linked to ORMC. ORHS owns a 50 percent interest in and manages this hospital. The South Lake Hospital District owns the remaining interest.
ORHS has approximately 40 physicians who practice or have offices within the Oviedo market. CFRH has one full-time physician practicing within the area. See Finding of Fact 30.
Approximately 1,700 physicians have privileges at ORHS facilities.
If the Oviedo HMA project is approved, ORHS expects to regain tertiary care referrals now lost to the Florida Hospital system.
Florida Hospital and ORHS healthcare facilities dominate the market for hospital services in Orange and Seminole Counties.
The Oviedo area: demographics, utilization of existing providers, and applicant service area and occupancy projections
The City of Oviedo is located in south Seminole County, east of Longwood (where South Seminole Hospital is located) and Altamonte Springs (where Florida Hospital-Altamonte is located), and approximately 10 to 15 miles from downtown Orlando.
The City of Oviedo is included within zip codes 32765 and 32766, although there are other adjacent zip codes to the northeast 32732 (Geneva) and to the west 32708 (Winter Springs). See CF 80.
The Oviedo area is growing. In 2004, the total population for the four zip codes was 106,789 and projected to increase 12.6 percent (to 120,227) by 2009. (The population is projected to increase 9.3 percent statewide and 11.2 percent in Seminole County by 2009.) The population in zip code 32765 was 49,985 in 2004, projected to grow to 57,742 in 2009, or 15.9 percent. In zip code 32766, the population was 9,068 in 2004, projected to grow to 11,302 in 2009, or 24.6 percent.
Population in the Winter Springs and Geneva areas are projected to increase 7.1 percent and 8.5 percent, respectively, by 2009.
The Oviedo area is described as "a young, family oriented suburb of Orlando" or more generally as a suburban community.
The parties have stipulated to the need for a new, 60- bed acute care hospital in Oviedo.
Oviedo HMA proposes to serve a four zip code area, i.e., zip codes 32765, 32766, 32708, and 32732 and projected that 95 percent of its utilization will come from within these zip codes. OV 27.
Oviedo HMA projects occupancy levels to be 57.9 and 75 percent for Years 1 and 2, respectively. (Central Florida's expert opined that Oviedo HMA's occupancy levels for Years 1 and
2 would be 54 and 60 percent, respectively. CF 25-15.) Oviedo HMA's projected occupancy levels for Year 2 may be optimistic for a start-up hospital, but nevertheless appear achievable, in part, in light of the collaborative arrangement.
Oviedo HMA excluded from its market area, zip code 32773 because of its proximity to CFRH and zip code 32792 because of its proximity to Florida Hospital-Winter Park Memorial Hospital in Orange County. The southernmost zip codes, 32817, 32826, and 32820 (east of zip code 32792) were excluded because of current patient travel patterns.
At present, the Oviedo area is served almost exclusively by either Florida Hospital or ORHS. Oviedo area residents are out-migrating to Orange County for obstetrical and emergency room services. (For calendar year 2003, approximately
44 percent of Seminole County residents received acute care services outside of Seminole County.) Florida Hospital and ORHS serve the majority of the out-migrating residents.
In 2004, for the four zip codes of Oviedo HMA's proposed service area (32765, 32766, 32708, and 32732), Florida Hospital facilities had a combined 61.7 percent non-tertiary market share, and ORHS facilities had a combined 30.9 percent non-tertiary market share. Winter Park Memorial Hospital provided the most non-tertiary discharges (1,771 or 20.7 percent), followed by Florida Hospital-Orlando (1,647 or 19.2 percent), Florida Hospital-Altamonte (1,335 or 15.6 percent), and South Seminole Hospital (1,183 or 13.8 percent). CFRH accounted for 309 or 3.6 percent of the discharges. CF 25-6 and 25-9.
In 2004, Florida Hospital facilities had a combined 18,701 or 54.1 percent of the "non-tertiary" discharges of patients residing in Seminole County, and ORHS facilities had a combined 9,473 or 27.4 percent of such discharges. By comparison, CFRH had 5,131 or 14.8 percent of such discharges. CFRH 25-2 and 25-3.
Central Florida proposes to serve a ten zip code service area.
Central Florida's primary service area consists of four zip codes in Seminole County, 32765 (Oviedo), 32766 (Oviedo), 32708 (Winter Springs), 32773, just south of CFRH and northeast of ORHS South Seminole Hospital, and zip code 32792 in Orange County. (Other cases from Seminole County are also included.) OV 23 and 26; CF 12, Table 1-15, at 1-25.
Central Florida's secondary service area consists of two Seminole County zip codes 32707, south of zip code 32708 and just east of Florida Hospital-Altamonte, and zip code 32732 (Geneva and in the northeastern portion of Seminole County, and Orange County (bordering Seminole County to the north) zip codes 32817, 32826, and 32820, running west to east from zip code 32792. (Other cases from Orange County are also included.) Id.
In five zip codes (out of ten) of Central Florida's proposed primary service area (32708, 32765, 32766, 32773, and 32792, which includes Winter Park Memorial Hospital on the western edge), see OV 27 and CF 12 at 1-28, in 2004, Florida Hospital facilities had a combined 63.9 percent non-tertiary market share and ORHS facilities had a combined 25.0 percent non-tertiary market share. Winter Park provided the most non- tertiary discharges (4,037 or 26.7 percent), followed by Florida Hospital-Orlando (2,961 or 19.6 percent), Florida Hospital-
Altamonte (1,938 or 12.8 percent), and ORHS South Seminole Hospital (1,619 or 10.7 percent). CFRH's market share was 9.2 percent or 1,389 discharges. CF 25-7, 25-8, and 25-11.
For Years 1 (2008) and 2 (2009), Central Florida projects that it will receive approximately 83 percent of its total cases from its primary service area, including cases from other Seminole County zip codes, of which approximately 75 percent are expected from the five zip codes, and approximately
17 percent from its secondary service area. CF 12 at Table 1- 15.
Central Florida's projected occupancy levels for Years
1 and 2 were approximately 60 and 63 percent, respectively, and approximately 75 percent by Year 5 (2012). CF 12, Tables 1-15 and 1-16 at 1-25, 1-26, and 1-28; CF 42. Central Florida also provided adjusted numbers (downward) for Years 1 and 2 to account for the start-up phases of opening the new hospital, which yielded projected occupancy levels of approximately 45 and
55 percent, respectively. Central Florida's revenue projections were based on these adjusted occupancy levels. Central Florida also projected 66.4 percent occupancy for Year 3. Id. See also CF 12, Schedules 5 and 7A and CF 42. (Oviedo HMA's expert projected 61 percent occupancy for Year 5 for Central Florida.)
Central Florida's projected occupancy levels for Year 5 appear reasonable.
If Oviedo HMA's CON application is approved, the market share for Oviedo HMA's primary service area for the new Oviedo HMA hospital, in conjunction with ORHS facilities for 2009 (Year 2), is projected to be approximately 50 to 54 percent, with Florida Hospital facilities market share reduced to approximately 41 to 45 percent.9
For 2009 (Year 2), if Central Florida's CON application is approved and the five zip codes are used to determine market share, the market shares for Florida Hospital, ORHS, CFRH, Central Florida/Oviedo, and other facilities are projected to be
55.5 percent, 21.4 percent, 6.6 percent, 13.5 percent, and 3.0 percent, respectively. CF 25-13.
The Proposals and applicants' commitment Central Florida's proposal
Central Florida proposes to build a new, 60-bed hospital in Oviedo (on a purchased site) through the transfer (and delicensure) of 60 acute care beds from its existing hospital. The proposed hospital is modeled after and is an enlarged version of West Marion Community Hospital, a licensed and operational HCA facility in Ocala, Florida.
The proposed hospital is made up of 173,335 gross square feet, with a projected construction cost of $36,400,350 or $210 per gross square foot. The total project cost is
$93,630,559. The licensed bed complement includes 48 general
medical-surgical beds and 12 Intensive Care Unit (ICU) beds. An obstetrics unit comprised of six labor-delivery-recovery (LDR) rooms will be located on the second floor (LDRs are not licensed beds). The twelve medical-surgical beds adjacent to the LDR rooms are "swing" beds that may be used for either general medical-surgical patients or as post-partum beds, as the need may require. All patient rooms in Central Florida's proposed hospital will be private rooms.
In addition to general medical services and obstetrics, the services to be provided by the hospital will include emergency services, imaging, diagnostic cardiac catheterization, mammography, radiology, ultrasound, nuclear medicine, bone density imaging, surgery (including general and orthopedic surgery), and endoscopy. The design accommodates horizontal expansion of departments on the first floor by using "soft space," and the addition of 12 beds on both the second and third floors. The hospital can also be expanded vertically. A medical office building is planned to be phased in during construction.
As a condition of its CON, Central Florida agreed to provide 7.8 percent of total patient days to Medicaid patients and 1.74 percent of total patient days to charity patients.
Central Florida intends to provide OB services, but not as a condition of approval.
Central Florida's proposal has the support of its parent organization, HCA Inc. The project involves a capital expenditure of greater than $10 million and is subject to formal approval by HCA following the award of the CON. However, Chuck Hall, President of HCA's North Florida Division, stated that HCA's senior management understands the Central Florida proposal, and Central Florida can be confident of approval.
Oviedo HMA contends that Central Florida did not address in its CON application the impacts (loss of cases or cannibalization) to CFRH if Central Florida's CON application is approved. There is evidence that the loss of 60 beds could require CFRH to add back beds or run in excess of capacity and that the loss of cases, such as OB cases, could have an impact on CFRH. During the hearing, Central Florida persuasively proved that, if its CON application is approved, the overall impact on CFRH would be minimal.10
Oviedo HMA's proposal
Oviedo HMA proposes to build a new, 60-bed acute care hospital in Oviedo. The project involves 133,081 square feet at a construction cost of $26,616,200, or $200 per gross square foot. The total project cost is $62,734,334. HMA is committed to fund the project, even if it is as high as $82 million, so long as ORHS provides its financial and collaborative commitment as reflected herein.
Oviedo HMA proposes to offer a full range of primary and secondary non-tertiary hospital services, such as medical- surgical care, emergency room case, ambulatory surgical care, cardiac catheterization laboratory services, outpatient services, etc., and expressly agrees to "provide Obstetrical Services."
The floor plan for the hospital is taken from the replacement facility for Heart of Florida Regional Medical Center in Haines City, Florida, which HMA constructed in 1997.
The design includes 47 medical-surgical beds, eight ICU beds, and five dedicated post-partum beds. The hospital will also have four LDR beds. The project includes 12 emergency treatment rooms and two non-licensed observation beds. All patient rooms will be private rooms. The hospital is designed to be expanded horizontally (for example, expanding the Emergency Department), and to be expanded vertically from three to five floors.
While disputed by Central Florida, the proposed hospital, with surface parking, can be constructed on 15 to 20 acres, which can also accommodate future expansion. Additional acreage may be needed to accommodate a full build-out of a five- story hospital and additional surface parking. There are currently no plans for a medical office building on-site and additional acreage would be needed.
Oviedo HMA did not propose a specific provision of health care services to Medicaid patients and the medically indigent. Rather, Oviedo HMA "commits to accept all Medicaid and Indigent [sic] patients that are clinically appropriate for services offered by Oviedo HMA, Inc."
Oviedo HMA's proposal does not enjoy the unconditional support of its parent organization. Rather, the proposal is contingent upon a collaborative effort between Oviedo HMA and ORHS, whereby ORHS has agreed to contribute 20 percent of the project cost of Oviedo HMA's proposal and, in turn, receives 20 percent of the profits of the proposed hospital. HMA formed the belief that the Oviedo market cannot be penetrated by a hospital provider not affiliated with either Florida Hospital or ORHS, and HMA would not attempt to enter the Oviedo market on its own.
Each applicant's experts found flaws with the competing applicant's plans for their respective hospitals. Each of the flaws can be remedied prior to construction.
Land for the proposals
Central Florida
In June 2005, Central Florida purchased approximately
27 acres for its proposed hospital, at a cost of $7,864,439, within the $8.2 million budgeted for land in its CON application. The site comprises seven contiguous parcels centrally located in the Oviedo area (within zip code 32765),
situated between State Road 417 and State Road 426 and between Red Bug Lake Road and Oviedo Marketplace Boulevard (south-to- north). Four of the seven parcels are currently within the City of Oviedo and Central Florida has requested the City of Oviedo to annex the remaining parcels.
The proposed site is approximately ten miles from CFRH.
While the subject of some criticism by Oviedo HMA, the site does not pose any significant road access issues which can not be reasonably cured.
An amendment to the City of Oviedo's comprehensive plan is required before the site can be developed for hospital use. Central Florida filed its application in October, 2005, and a decision is expected in August or September, 2006.
Having a hospital on the site proposed by Central Florida would provide the residents of the Oviedo area with a centrally located hospital site.
Central Florida's budget for land costs and site preparation are reasonable.
Oveido HMA
Oviedo HMA budgeted $5.5 million for the acquisition of the hospital site in the Oviedo area. $3.4 million has been allocated for site development.
Oviedo HMA does not anticipate purchasing any land for the project unless its CON application is approved.
Oviedo HMA's experts reviewed several sites, which may be potentially suitable for the hospital. See OV 17A and 17-1 through 17-10. Mr. Harling, an expert in civil engineering and commercial site development, and Mr. Axel, an expert in commercial real estate sales, were quite familiar with the real estate market and development potential (for the proposed Oviedo HMA hospital) of several parcels in the Oviedo area. They did not perform a formal feasibility study or an estimate of the probable cost of site development for the sites.
Mr. Harling was aware of the nature of the project, a 60-bed hospital, and some details regarding the parcels he examined, such as the existence of utilities and drainage outfall systems, but was not aware of the square footage of the proposed hospital and had not reviewed a site or floor plan. Despite challenges for the development of specific sites, such as the existence of wetland areas, and challenges in purchasing a site within the budgeted amount, based upon his review of the sites and assumptions regarding, in part, the amount of impervious coverage required, he opined that one or more of the parcels was suitable for the planned hospital and that $170,000 per acre for 20 acres was reasonable.
The uncertainty regarding the location of the hospital site raises some concerns given Oviedo HMA's primary service
area. A new hospital centrally located within the Oviedo area would be optimal to meet the needs of those residents.
There was persuasive evidence that Oviedo HMA will be able to purchase a suitable hospital site at the cost reflected in the CON application. However, there are reasonable concerns whether a 15 to 20-acre site can accommodate a fully-expanded hospital with five floors, a medical office building, and any required additional parking. (Oviedo HMA does not have plans to build a medical office building on the 15 to 20-acre site. Such a building would require additional acreage.)
Central Florida's proposal receives an edge here because it has already purchased a site which is centrally located for a hospital to serve the Oviedo area.
Section 408.035(1), Florida Statutes - The need for the health services being proposed
The parties stipulated to the need for a new, 60-bed acute care hospital in Oviedo, Seminole County, Florida, AHCA District 7, subdistrict 7-4.
Section 408.035(2), Florida Statutes - The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the district of the applicant
Quality health care services proposed by the applicants are available to the residents of District 7, Seminole County, and in particular, the Oviedo area. As noted herein, the health care market in Orange and Seminole Counties
is dominated by Florida Hospital and ORHS. The utilization of existing facilities in Seminole County is acceptable notwithstanding the maldistribution of acute care beds in Seminole County. Seminole County residents will continue to outmigrate from Seminole County to Orange County for tertiary care services if Oviedo HMA's project is approved. This outmigration may continue even if Central Florida's project is approved, although some curtailment would be expected in time.
Neither applicant is favored by this criterion.
Section 408.035(3), Florida Statutes - The ability of the applicant to provide quality of care and the applicant's record of providing quality of care
Central Florida (specifically CFRH) has a history of providing high quality of care to its patients. CFRH has received awards for its health care services. Central Florida has the ability to provide quality of care should its project be approved.
HMA hospitals have also been honored with several awards and recognitions for quality of care. Oviedo HMA, by virtue of its affiliation with HMA-affiliated hospitals and collaboration with ORHS, has the ability to provide high quality of care should its project be approved.
Oviedo HMA proposes to develop its hospital through a clinical and financial collaborative effort with ORHS using ORHS
as a tertiary care referral partner and incorporating ORHS' resources in developing a quality program.
Both applicants expect that any patients needing tertiary care will be sent to ORHS (for Oviedo HMA hospital patients) or to CFRH (for Central Florida patients). It is anticipated that if certain tertiary care services are not offered at CFRH, Central Florida hospital patients would be referred to Florida Hospital or ORHS.
The Oviedo HMA/ORHS collaborative effort offers advantages over the Central Florida/CFRH (or elsewhere) referral network. There is some evidence that hospital transfers within affiliated systems may be quicker and easier than from competing systems. Another advantage is the ability of using an integrated IT system among ORHS affiliated hospitals. It is often cumbersome for non-affiliated hospitals to exchange patient data electronically.
Conversely, the transfer of patient information to and from CFRH and the new Central Florida hospital, if approved, will facilitate patient care between these hospitals.
Certain tertiary services offered by and through ORHS may afford Oviedo residents a greater range of services than those offered by CFRH.
This criterion favors Oviedo HMA in light of its collaborative arrangement with ORHS.
Section 408.935(4), Florida Statutes - The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation
The parties stipulated that the applicants have sufficient funds available for capital and operating expenses, for project accomplishment and operation. Central Florida questioned the reasonableness of Oviedo HMA's land cost projection.
The parties also stipulated that the applicants' proposed staffing is adequate and that the proposed average annual salaries are reasonable for their respective hospitals.
Oviedo HMA questions whether Central Florida's CON application failed to include the appropriate Schedule 6, whereas Central Florida reserved the right to question whether Oviedo HMA accurately reflected proposed staffing expenses in Schedule 8A. The ability of each applicant to attract the necessary medical and clinical staff necessary to implement their respective hospitals is also is dispute.
Both applicants have the ability to recruit and retain nursing and other related medical personnel, including physicians. Oviedo HMA has an edge in recruitment of physicians and nurses by virtue of its collaboration with ORHS and given existing physician referral patterns. Central Florida has identified a need to recruit additional physicians in several
practice areas, although they appear to have been recently successful in recruiting physicians for specialty services such as neurosurgery.
Both applicants can appropriately manage and operate their respective hospitals. Central Florida's proposed hospital will have its own management team and will be administered separate and apart from CFRH. Oviedo HMA will also operate the proposed hospital notwithstanding the intended collaboration with ORHS.
Oviedo HMA's projected land cost is reasonable. Also, Central Florida's Schedule 6 and Oviedo HMA's Schedule 8A are appropriate.
By stipulation, the applicants have the ability to fund their respective projects and their construction and equipment costs are reasonable.
This criterion is neutral except for Central Florida's purchase of a centrally located site. See Finding of Fact 173.
Section 408.035(5), Florida Statutes - The extent to which the proposed services will enhance access to health care for residents of the service district
The parties stipulated that the hospitals proposed by the applicants will enhance health care for residents of the Oviedo area. At issue was which hospital project will better enhance such access.
Both applicants proposed similar health care services, which are needed in the Oviedo community.
As noted elsewhere in this Recommended Order, approval of the Central Florida proposal would afford patients and physicians with another choice of health care provider. It is expected that patients receiving health care services at a Central Florida hospital in Oviedo will be able to access certain tertiary care services (such as open heart surgery) at CFRH, and other tertiary care facilities.
On the other hand, the Oviedo HMA proposal does not afford another choice to patients and physicians in the area in any meaningful way, given the current market share of ORHS in the Oviedo area and the expected collaborative effort. This negative is out-weighed by the prospect that patients accessing an Oviedo HMA hospital would be expected to access a full array of tertiary care services at ORHS facilities given the collaborative nature of the relationship.
Both proposals would enhance access to health care for residents of the Oviedo area. But the Oviedo HMA project has a significant comparative edge, and it is this edge which ultimately favors approval of the Oviedo HMA project when all statutory and rule criteria are considered.
Section 408.035(6), Florida Statutes - The immediate and long-term financial feasibility of the proposals
Immediate or Short-term financial feasibility
129. Generally, immediate or short-term financial feasibility refers to the ability of the applicants to fund construction and start up of the proposed project. Each applicant has this ability.
Long-term financial feasibility
Long-term financial feasibility refers to the ability of the project to break even or show a profit within a reasonable period in the future.
There is no AHCA rule that states profitability must be shown within a specific period of years. Generally, applicants project financial feasibility within two years of operation. This may be due, in part, because AHCA requires detailed financial projections, including a statement of the projected revenue and expenses for the first two years of operation after completion of the proposed project.
See § 408.037(1)(b)3., Fla. Stat. CON applicants define their financial projections within these general parameters.
Where there are two or more competing applicants and one demonstrates financial feasibility within two years and the others do not demonstrate financial feasibility until subsequent years, the competitive advantage often goes to the applicant
showing a profit in year two, although AHCA has approved CON applications which projected profitability in later years. OV 69 at 34; CF 84 at 25.
The financial projections of each applicant were based upon the hospital utilization projections discussed previously. To the extent the utilization projections were overstated, this would of course effect the financial projections.
Each applicant presented evidence to demonstrate the reasonableness of their own financial projections, and offered criticism of the financial projections of the other applicant. A. Oviedo HMA Projections
Oviedo HMA projects that it will achieve a net profit in Year 1 of operation of $82,000 (after taxes) and a net profit in Year 2 of $2.4 million (after taxes).
The payor mix assumptions in Schedule 7A were derived from existing (historical) discharges generated from the zip codes in the primary service area.
Oviedo HMA used three HMA hospitals in Florida, i.e., Brooksville Regional Hospital, Pasco Regional Medical Center (120-bed, excluding newborn nursery, hospital), and Sebastian Hospital, as proxy or target hospitals for the basis of the expense projections in the financial pro formas. (Brooksville and Spring Hill report on a consolidated basis.) Fiscal year 2003 financial data on these proxy hospitals was taken from AHCA
Prior Year Actual Reports. See Ov 38. This was the most recent data available to Oviedo HMA's expert at the time the financial portions of the CON application were prepared. These reports are a detailed source of data submitted to AHCA and certified as accurate.11
Each of the three hospitals was profitable for the reporting fiscal year.
A hospital's occupancy refers to the average head county divided by the number of days. Average daily census refers to the average number of patients in the facility over the year on average, generally a year.
The projected occupancy for the Oviedo facility is
57.9 percent in Year 1 (2008) and 75.1 percent in Year 2 (2009).
The average occupancy for the three proxy hospitals was between
55 and 59 percent. Central Florida's expert estimated occupancy levels (for the Oviedo HMA project) of 54 and 69 percent for Years 1 and 2. Compare OV 12, Schedule 5 - Projected Utilization Assumptions with CFRH 25-15. (In Year 2, the occupancy for the Oviedo HMA hospital is projected to be higher than the three proxy hospitals.)12
Central Florida criticized the use of the three proxy hospitals as not appropriate, in part, because one of the hospitals did not include a cardiac catheterization lab, and
another did not have an OB program, which are services that will be available at the Oviedo HMA hospital.
However, the evidence demonstrates that the three proxy hospitals were reasonable, as these hospitals included one hospital (Pasco Regional Medical Center) which was at the highest end of HMA's cost experience, and two hospitals that were in the middle of HMA's overall cost experience. It does not appear that HMA attempted to choose hospitals with lower- cost experience in an effort to overstate the expected profits.
Use of "proxy hospitals" for cost experience is a common methodology, and the hospitals selected appear reasonable.
Central Florida also claimed that Oviedo HMA's projected costs were understated because there was not a specific allocation for "fringe benefits" (estimated at 22 percent of salaries) added to the salary costs extrapolated from the FTE and salary projections in Schedule 6.13
Oviedo HMA's financial planner agreed that the financial model he utilized did not make a "straight line" mapping of the Schedule 6 FTEs and salary projections into Schedule 8A statement of expenses. However, an accounting of all salary and wages, as well as fringe benefits, was included in Oviedo HMA's Schedule 8A, based on the actual experience of
the three proxy hospitals as reflected in the Prior Year Actual Reports.
Each of the proxy hospitals is required to report all of its hospital costs, including salaries and fringe benefits, in the Prior Year Actual Reports, and all costs from these proxy hospitals were included in Oviedo HMA's financial model. Although the Prior Year Actual Reports do not have a specific "fringe benefits" line item, these expenses are included in the reports either under the columns for "salary and wages" or for "other" expenses. All of the costs were carried over into the financial model.
The applicant also conducted a reasonableness test when the financial model and Schedule 8A were prepared, by comparing the total salaries and wages from the three proxy hospitals ($15.7 million) versus the extrapolation of total salary and wages from Schedule 6 ($15 million). The amount allocated in the model and placed on Schedule 8A for salaries and wages was more than sufficient to cover all salaries and wages on Schedule 6. Additional allocation for fringe benefits was included within the "other" cost centers in the Prior Year Actual Reports which also carried over to Schedule 8A.
Oviedo HMA's expert also conducted a series of other "sensitivity analysis" verifying that the costs included on
Schedule 8A for salaries and wages and fringe benefits, and other expenses were reasonable.
Central Florida criticized the "sensitivity analysis" claiming one year of inflation for expenses was omitted in the analysis. However, even if accepted as true, applying an inflation adjustment of 3.5 percent for one additional year of expenses, does not materially change any of the sensitivity analysis, because revenues would also have to be inflated forward for the additional year.
Further, Oviedo HMA's Schedule 8A included $15.7 million for salary and wage expenses, and included additional costs for fringe benefits in other line items.
Central Florida also criticized Oviedo HMA for not including any interest expense to account for financing the proposed project. However, no interest is anticipated, as the project will be funded by the parent company through cash on hand and operating cash flow without borrowing; the company does not charge interest to its affiliates (even though for tax accounting and external audit reports it may impute interest to the affiliates). Moreover, to the extent any interest would be hypothetically imputed to the project as overall corporate overhead, it is captured in the financial pro formas through the management fee which was allocated as an expense in the pro formas.
Moreover, even if Central Florida's claims of over $1 million in omitted expenses are accepted as valid, the project is likely to show a profit in the second year of operation.
In sum, the financial model utilized by Oviedo HMA was a reasonable approach to financial forecasting. Given the Oviedo HMA's occupancy projections, the hospital is likely to be financially feasible in the long-term and likely show a profit by the second year of operation.
B. Central Florida's Projections
The revenues and expenses projected for the proposed hospital are based on the experience of CFRH's existing facility, with adjustments made to reflect the service lines and payor mix of the proposed hospital.
Based on this record, in the past, it appears that CON applicants for a new hospital generally have projected financial feasibility by the first two or three years of operation. This does not necessarily mean that they have been successful at achieving these projections, only that the projections have been made.
Central Florida projected that the proposed hospital, before taxes, will have net income losses before taxes of:
$8,978,068 in Year 1; $6,641,454 in Year 2; $3,318,963 in Year 3; and $1,140,062 in Year 4 of operation. In Year 5, Central Florida projects a profit (net income before taxes) of
$1,970,340 and a profit (net income after taxes) of $1,162,501 at 75 percent occupancy. CF 12 at Table 8A-2. (Central Florida projected profitable years (Years 1 through 5) on an EBDITA (earnings before depreciation, interest, taxes, and amortization) basis. Id.)
Despite the projected losses for the first four years of operation of the project, HCA, by its representatives, considers the project to be financially feasible in the long- term and is committed to the project.
The assumptions made for the revenue and expense projections are reasonable, notwithstanding criticisms by Oviedo HMA which have been considered. It is concluded that Central Florida's proposed hospital is likely to be financially feasible in the long-term and by Year 5.14
This criterion is neutral.
Section 408.035(7), Florida Statutes - The extent that the proposal will foster competition that promotes quality and cost- effectiveness
The greater Orlando area is a competitive market.
Nevertheless, Mr. Gregg, for AHCA, stated that he would want to see more diversity in the greater Orlando market.
ORHS and Florida Hospital are large health care provider systems. Notwithstanding the potential improvement of the delivery of health care services to the residents of the
Oviedo area, the net impact of a 60-bed acute care hospital is going to be minimal when compared to these systems.
Currently ORHS, Florida Hospital, and to a much lesser extent CFRH compete for patients from the Oviedo area. ORHS and Florida Hospital are the dominant providers.
If Oviedo HMA were sponsoring the project alone, it could be said that approval of its project would bring a new provider to the market. However, this is not the case.
Notwithstanding the day-to-day management of the new hospital by Oviedo HMA, the expected collaborative arrangement between Oviedo HMA and ORHS, discussed in Oviedo HMA's CON application and presented as a significant feature at the final hearing, negates the suggestion that Oviedo HMA will be a new provider. This is especially so given the expected referrals to ORHS.
Central Florida argues that its proposal would release the strangle-hold of Florida Hospital and ORHS on the greater Orlando area, including the Oviedo area. The presence of Central Florida would give the Oviedo area residents (and physicians) another choice for acute care related health care services and, in time, could be expected to cause a re-direction of patients needing certain tertiary care services away from ORHS and Florida Hospital, to CFRH.
Nevertheless, the applicable statutory review criteria specifically states that it applies to competition that promotes "quality" and "cost effectiveness."
ORHS and Florida Hospital provide high quality of care. No persuasive evidence was presented that either Oviedo HMA's or Central Florida's proposal will foster competition that will promote quality of care to any significant degree.
As to cost-effectiveness, while there is an argument that having additional choices will enhance cost-effectiveness, it was not demonstrated by either applicant in this case. There was no persuasive analysis offered of the current costs of healthcare in the Oviedo area and what impact, if any, the addition of Oviedo HMA or Central Florida would have on those costs.
The best that can be said about enhancement in competition is that another provider might have some impact on managed care rates. Without specific detailed analysis, this evidence can be given very little weight. Also, there is insufficient evidence to say which applicant would more likely impact managed care rates.
In light of the statutory criterion, Central Florida and Oviedo HMA did not demonstrate that their proposals should be given any advantage under this criterion.
Section 408.035(8), Florida Statutes - The costs and methods of proposed construction, including the costs and construction of energy provision and the availability of alternative, less costly, or more effective methods of construction
The parties stipulated that each party meets this criterion and that costs are not in dispute in this proceeding. However, each party reserved the right to argue their design was better and the impact of cost on financial feasibility. Central Florida also reserved the right to argue that its proposal should be more favorably reviewed comparatively because it has purchased land in the Oviedo area and because Oviedo HMA cannot purchase enough land in the Oviedo area at the price reflected in the CON Application.
Both applicants project reasonable costs and methods of construction and satisfy this criterion.
Regarding this criterion, despite some criticism, Central Florida should receive an edge because it has purchased a desirable site, which is centrally located in the Oviedo area.
Section 408.035(9), Florida Statutes: Applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent
The parties stipulated that HMA's Florida hospitals and Central Florida have historically provided significant health care services to Medicaid patients and the medically indigent.
Central Florida proposes to provide 7.8 percent of total patient days to Medicaid patients and 1.74 percent of total patient days to charity patients, as a condition of its CON. By comparison, Oviedo HMA did not propose a specific percentage of patient days dedicated to Medicaid or charity patients. Rather, Oviedo HMA commits to accept all Medicaid and indigent patients that are clinically appropriate for services offered by Oviedo HMA.
Central Florida should receive a comparative edge regarding this criterion.
Section 408.035(10), Florida Statutes - The applicant's designation as a Gold Seal Program nursing facility pursuant to Section 400.235, Florida Statutes, when the applicant is requesting additional nursing home beds at that facility
The parties stipulated that this criterion is not applicable.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and subject matter of this proceeding pursuant to Sections 120.569, 120.57(1), and 408.039(5), Florida Statutes.
As the applicants, Central Florida and Oviedo HMA have the burden of proving, by the preponderance of the evidence, entitlement to a CON. Boca Raton Artificial Kidney
Center, Inc. v. Department of Health & Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA 1985); § 120.57(1)(j), Fla. Stat.
The award of a CON must be based on a balanced consideration of all applicable and statutory rule criteria. Balsam v. Department of Health & Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1986). "[T]he appropriate weight to be given to each individual criterion is not fixed, but rather must vary on a case-by-case basis, depending upon the facts of each case." Collier Medical Center, Inc. v. Department of Health & Rehabilitative Services, 462 So. 2d 83, 84 (Fla. 1st DCA 1985).
The parties stipulated that there is a need for a new 60-bed acute care hospital in Seminole County, a subdistrict of AHCA District 7, and specifically in the Oviedo area.
CFRH (and HCA) and HMA Inc. (the parent of Oviedo HMA, Inc.) have a record of providing high quality of care and have the ability to provide high quality of care in a 60-bed acute care facility as proposed by the applicants.
Both applicants demonstrated that they have the available resources, including health personnel, management personnel, and funds for capital and operating expenditures to accomplish the projects and operation.
Approval of either project will improve access for residents of Seminole County, and in particular, the Oviedo area, to acute care services.
Both projects are financially feasible in the immediate or short-term. Although the subject of much discussion during the hearing, on balance, both projects are likely to be financially feasible in the long-term (as projected). As new hospitals, both Oviedo HMA and Central Florida are likely to face a difficult start-up period. Oviedo HMA's start-up period is likely to ease somewhat because of its relationship with an existing provider, ORHS. Central Florida faces greater obstacles due in large measure to the presence of market giants, ORHS and Florida Hospital, limited past market presence and share in the Oviedo area, and existing patient and physician referral patterns. Under the circumstances, it was not unreasonable for Central Florida to project financial profitability by Year 5.
In the long run, approval of the Central Florida's project is likely to foster competition among the existing providers of health care services in Seminole County, particularly with respect to ORHS and Florida Hospital. However, it was not persuasively shown that approval of the Central Florida project will necessarily promote quality and cost-effectiveness as the existing competitors of Central
Florida, OHRS and Florida Hospital, provide high quality health care services, including tertiary health care services, to the residents of Seminole County.
The parties stipulated that the cost and methods of the proposed construction are reasonable.
Central Florida (and its parent HCA Inc.) and HMA Inc. have a history of providing health care services to Medicaid patients and the medically indigent.
On balance, Oviedo HMA's project best meets the current and future health care needs of the residents of the Oviedo area. This conclusion is reached mainly because of Oviedo HMA's collaborative arrangement with ORHS. But for this arrangement, on balance, the edge would be given to Central Florida. Central Florida can meet the need for a new hospital in the Oviedo area.15
If it is determined by AHCA or a reviewing court that Oviedo HMA's CON application is deficient because, e.g., the original applicant (Oviedo HMA) has changed in light of the financial arrangement between ORHS and Oviedo HMA, then it is recommended that Central Florida's CON application be approved because both applications satisfy, on balance, the relevant statutory and rule criteria.
Based on the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that the Agency for Health Care Administration enter a final order approving Oviedo HMA, Inc.'s CON application No. 9807P and denying Central Florida Regional Hospital, Inc. d/b/a Central Florida Regional Hospital's CON application No.
9805.
DONE AND ENTERED this 23rd day of August, 2006, in Tallahassee, Leon County, Florida.
S
CHARLES A. STAMPELOS
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 23rd day of August, 2006.
ENDNOTES
1/ The parties entered into the following pre-hearing stipulations, with the following reservations:
There is a need for a new, 60-bed acute care hospital in Oviedo, Seminole County, Florida. (There is a "zero" fixed need pool for the batching cycle.)
The applicants have funds available for capital and operating expenses, for project accomplishment and operation. Central Florida's position is that the land costs in Schedule 1 of Oviedo HMA's CON application are underestimated, an issue which concerns financial feasibility rather than availability of funds.
The proposed staffing for each project is adequate for their respective proposed hospitals, and the proposed average annual staffing salaries are reasonable. Central Florida's position is that the expenses of Oviedo HMA's proposed staffing are not accurately reflected in Oviedo HMA's Schedule 8A; and Oviedo HMA's position is that Central Florida's application failed to include the required form and information for Schedule
6 adopted by AHCA rule. The ability of each applicant to recruit medical and clinical staff is also in dispute.
The hospitals proposed by the applicants will enhance access to health care for residents of the Oviedo area.
The applicants' proposed construction and equipment costs are reasonable for the size of their respective proposed hospitals. Issues remain regarding which design and inter- hospital communication systems are best.
Central Florida and Oviedo HMA's Florida hospitals have historically provided significant health care services to Medicaid patients and the medically indigent. The proposed provision of these services is in dispute.
Section 408.035(10), Florida Statutes, is not applicable to this case.
The applicants' letters of intent and CON applications were timely filed.
The construction schedules for the applicants' proposed hospitals are reasonable. Central Florida asserts that it can commence and complete construction of a new hospital in Oviedo sooner than Oviedo HMA.
Central Florida's position is that its application should be approved and that Oviedo HMA's application should be administratively withdrawn by AHCA based upon an alleged violation of Florida Administrative Code Rule 59C-1.008(1)(i), i.e., the applicant has changed. Alternatively, Central
Florida's position is that its application should be approved and Oviedo HMA's application denied. Oviedo HMA's position is that no violation of this rule has occurred.
2/ All citations are to the 2003 version of the Florida Statutes unless otherwise indicated.
3/ The financial arrangement is not mentioned in the State Agency Action Report (SAAR). See, e.g., OV 99 at 30 ("Funding of the project will come exclusively from the parent [HMA].") See also id. at 3-4, 50. Oviedo HMA is characterized as "partnering with [OHRS]." Id. at 26. Mr. Gregg was aware of the proposed collaborative nature of the relationship between ORHS and Oviedo HMA, but was not aware of the legal or financial relationship. OV 69 at 34.
4/ "'Applicant' means any individual, partnership, corporation, or governmental entity which has filed an application for a certificate of need with the agency." Fla. Admin. Code R. 59C- 1.002(1). "[T]he applicant seeking the certificate of need must be in existence at the time the letter of intent is submitted." Fla. Admin. Code R. 59C-1.008(1)(c)1.b. "The applicant for a project shall not change from the time a letter of intent is filed . . . through the time of the actual issuance of a Certificate of Need. Properly executed corporate mergers or changes in the corporate name are not a change in the applicant." Fla. Admin. Code R. 59C-1.008(1)(i). "As provided in Section 408.037(2) and 408.034(2), F.S., an applicant for a certificate of need must certify that it will license and operate the health care facility or service authorized by the certificate of need; and the agency will not issue a license to any health care facility . . . which fails to receive a required certificate of need." Fla. Admin. Code R. 59C-1.0085(1).
Specific procedures govern the transfer of a certificate of need. Fla. Admin. Code R. 59C-1.0085(1)(a)-(h).
5/ "Unlike partnerships, a corporate entity is not dissolved by a change of ownership. . . .In fact, a foundation of corporate law is that, unlike a partnership or a sole proprietorship, the existence of a corporate entity is not affected by changes in its ownership or changes in management." Corporate Express Office Products, Inc. v. Phillips, 847 So. 2d 406, 411 (Fla.
2003)(citations omitted).
6/ For example, the PACS system would not be available to digitally transfer a patient's x-rays from ORHS to a Florida Hospital facility if the patient were transferred from the
former to the latter entity unless the facilities had an appropriate arrangement to transfer the information. ORHS would have to send a hard copy of the medical records or send digital images on a CD with that patient. On the other hand, Oviedo HMA would have the ability to access the information via PACS from ORHS.
7/ In the SAAR, it is suggested that Central Florida refers to its project as "a new satellite hospital." OV 99 at 47; see also OV 59.
8/ Winter Park Hospital is a 272-bed acute care hospital located in the northern-central portion of Orange County, just south of the Seminole County line to the north.
9/ During rebuttal, Oviedo HMA' s expert opined that for 2009, if Oviedo HMA's CON application is approved, the projected market shares would be 44.3 percent (Florida Hospital facilities), 16.8 percent (ORHS), 33 percent for Oviedo HMA, 2.4 percent for CFRH, and 3.5 percent for other facilities. T 2386- 2387; OV 115.
10/ AHCA stated in the SAAR that prior to the July 2004 changes in the CON law, projected occupancy in the remaining beds at CFRH would have been examined. "However, because [CFRH] can add an unlimited number of acute beds at the hospital by notifying the agency without CON review, this is not an issue." OV 99 at 22.
11/ HMA acquired Lehigh Regional Medical Center (Lehigh) (an 88- bed facility, excluding new born beds) in December 2001.
Filings with AHCA indicate an approximate $1.6 million operating loss and a negative total margin for the period December 1, 2001, to December 31, 2002. The operating losses continued in the subsequent year. Oviedo HMA did not use Lehigh as a proxy hospital because it was "a hospital in a turnaround situation.
It was losing money that loss went up to over $2 million and in the most recent year, it's kind of getting close to a breakeven." Also, Lehigh operates at an occupancy rate of 25 percent. Oviedo HMA does not expect the Oviedo project to have a similar average daily census (considerably less than expected at the Oviedo facility) as in the case of Lehigh. Even though its bed complement is similar to that of both projects (88 versus 60 beds), Lehigh would not be an appropriate proxy for use by Oviedo HMA or HCA, a former owner.
12/ Several recently operational new hospitals in Florida have reported lower occupancy levels by Year 2 than projected by Oviedo HMA. See, e.g., CF 25-20 through 25-25.
13/ The parties stipulated that the parties salary and FTE projections on Schedule 6 are reasonable.
14/ As noted herein, the financial projections of Central Florida did not include an analysis of the impact of the proposed hospital on existing operations at CFRH. However, the persuasive evidence indicates that this omission does not materially affect the ability to conduct a proper evaluation of the proposal.
15/ Mr. Gregg stated that this case presented a "close call" for the Agency. OV 69 at 15. The Agency believed that Oviedo HMA had a primary advantage based on the intent to use ORHS as a referral source for tertiary services and other complicated services. Id.
COPIES FURNISHED:
Richard Shoop, Agency Clerk
Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3
Tallahassee, Florida 32308
William Roberts, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431
2727 Mahan Drive, Mail Stop 3
Tallahassee, Florida 32308
Christa Calamas, Secretary
Agency for Health Care Administration Fort Knox Building, Suite 3116
2727 Mahan Drive
Tallahassee, Florida 32308
Stephen A. Ecenia, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell &
Hoffman, P.A.
215 South Monroe Street, Suite 420 Post Office Box 551
Tallahassee, Florida 32302-0551
Geoffrey D. Smith, Esquire Susan C. Smith, Esquire Smith and Associates
2873 Remington Green Circle Tallahassee, Florida 32308
Elizabeth W. Willis, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3
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 |
|---|---|---|
| Jan. 04, 2007 | Agency Final Order | |
| Aug. 23, 2006 | Recommended Order | Oviedo HMA, Inc., proved that, on balance, its Certificate of Need (CON) application for 60-bed acute care hospital met the applicable statutory and rule criteria and should be approved, rather than the CON application submitted by Petitioner. |
