STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
MIAMI JEWISH HOME AND HOSPITAL ) FOR THE AGED, INC., )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE )
ADMINISTRATION; PROMISE ) HEALTHCARE OF FLORIDA XI, INC.; ) SELECT SPECIALTY HOSPITAL-DADE, ) INC.; and KINDRED HOSPITALS ) EAST, LLC, )
)
Respondents. )
Case No. 06-0557CON
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KINDRED HOSPITALS EAST, LLC, )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE )
ADMINISTRATION; SELECT ) SPECIALTY HOSPITAL-DADE, INC.; ) PROMISE HEALTHCARE OF FLORIDA ) XI, INC.; and MIAMI JEWISH HOME ) AND HOSPITAL FOR THE AGED, ) INC., )
)
Respondents. )
Case No. 06-0561CON
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PROMISE HEALTHCARE OF FLORIDA XI, INC.,
Petitioner,
vs.
AGENCY FOR HEALTH CARE ADMINISTRATION,
Respondent.
)
)
)
)
)
) Case No. 06-0566CON
)
)
)
)
)
)
SELECT SPECIALTY HOSPITAL-DADE, ) INC., )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE )
ADMINISTRATION, )
)
Respondent. )
Case No. 06-0569CON
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, David M. Maloney, held a final hearing in the above-styled case on
July 25 through 28, July 31 through August 4, August 7 through
11, and August 14 through 17, 2006, in Tallahassee, Florida.
APPEARANCES
For Petitioner Miami Jewish Home and Hospital for the Aged, Inc.:
W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Associates, P.A.
3051 Highland Oaks Terrace, Suite D Tallahassee, Florida 32317-5828
For Petitioner Kindred Hospitals East, LLC:
M. Christopher Bryant, Esquire
Oertel, Fernandez, Cole & Bryant, P.A.
301 South Bronough Street, Fifth Floor Tallahassee, Florida 32302-1110
For Petitioner Promise Healthcare of Florida, XI, Inc.:
F. Philip Blank, Esquire Robert Sechen, Esquire Blank & Meenan, P.A.
204 South Monroe Street Tallahassee, Florida 32301
For Petitioner Select Specialty Hospital-Dade, Inc.:
Mark Emanuele, Esquire
Panza, Maurer & Maynard, P.A.
3600 N. Federal Highway, Third Floor Fort Lauderdale, Florida 33308
For Respondent Agency for Health Care Administration: Sandra Allen, Esquire
Agency for Health Care Administration
2727 Mahan Drive
Fort Knox Building 3, Mail Stop 3 Tallahassee, Florida 32308-5403
STATEMENT OF THE ISSUES
This case concerns four Certificate of Need ("CON") applications ("CONs 9891, 9992, 9893, and 9894") that seek to establish long-term acute care hospitals ("LTCHs") in Miami-Dade County (the "County" or "Miami-Dade County"), a part of AHCA District 11 (along with Monroe County).
Promise Healthcare of Florida XI, Inc. ("Promise") in CON 9891, Select Specialty Hospital-Dade, Inc. ("Select-Dade") in CON 9892, and Kindred Hospitals East, L.L.C. ("Kindred"), in CON 9894, seek to construct and operate a 60-bed freestanding LTCH in the County.
Miami Jewish Home and Hospital for the Aged, Inc. ("MJH"), in CON 9893, seeks to establish a 30-bed hospital within a hospital ("HIH") on its existing campus in the County.
In its State Agency Action Report (the "SAAR"), AHCA concluded that all of the need methodologies presented by the applicants were unreliable. Accordingly, AHCA staff recommended denial of the four applications. The recommendation was adopted by the Agency when it issued the SAAR.
The Agency maintained throughout the final hearing that all four applications should be denied, although of the four, if any were to be granted, it professed a preference for MJH on the basis, among other reasons, of a more reliable need methodology.
Since the hearing the Agency has changed its position with regard to MJH. In its proposed recommended order, AHCA supports approval of MJH's application. MJH and Promise agree with the AHCA that there is need for the 30 LTCH beds proposed by MJH for its HIH and that MJH otherwise meets the criteria for approval of its application.
MJH seeks approval of its application only. Likewise, the Agency supports approval of only MJH's application. Promise, on the other hand, contends that there is need for a 60-bed facility as well as MJH's HIH and that between Promise, Select- Dade and Kindred, based on comparative review, its application should be approved along with MJH's application. Although Promise's need methodology supports need for more LTCH beds than would be provided by approval of its application and MJH's, its support for approval is limited to its application and that of MJH.
Like Promise's methodology, Select-Dade and Kindred's need methodologies project need for many more beds than would be provided by the 60 beds each of them seek. Unlike Promise, however, neither Select-Dade nor Kindred supports approval of MJH's application. Each proposes its application to be superior to the other applications; each advocates approval of its respective application alone.
Given the positions of the parties reflected in their proposed recommended orders, whether there is need for at least an additional 30 LTCH beds in District 11 is not at issue.
Rather, the issues are as follows. What is the extent of the need for additional LTCH beds in District 11? If the need is for at least 30 beds but less than 60 beds, does MJH meet the criteria for approval of its application? If the need is for 60 beds or more, what application or applications should be approved depends on what applications meet CON review criteria and on the number of beds needed (60 but less than 90, 90 but less than 120, 120 but less than 150, 150 but less than 180, 180 but less than 210, and 210 or more) and whether there is health- planning basis not to grant an application even if the approval would meet a bed need and all four applicants otherwise meet review criteria. Finally, based on comparative review, what is the order of approval among the applications that meet CON need criteria?
Ultimately, the issue in the case is which if any of the four applications should be approved?
PRELIMINARY STATEMENT
In September 2005, MJH, Kindred, Promise, and Select-Dade each filed a CON application to establish a long-term acute care hospital in the District. On December 30, 2005, in Volume 31,
Number 52 of the Florida Administrative Weekly, AHCA noticed its intent to deny all four applications.
Each party timely filed a petition for formal administrative hearing to contest the preliminary denial of its application. The four petitions were consolidated by order of the Division of Administrative Hearings (DOAH).
At final hearing, MJH presented the testimony of Fred Stock, an expert in the field of health facilities
administration and operation and institutional and community- based long-term care administration; Tanira B.D. Ferreira, M.D., an expert in the field of medicine with a specialized expertise in pulmonary medicine, critical care, internal medicine, and sleep disorders, pulmonary care program development, including vents and pulmonary care operations and including staff education; Luis Sousa, an expert in the field of health care architecture and project development; Darryl Weiner, an expert in the field of health care finance including financial feasibility; and Jay Cushman, an expert in the field of health care planning, with a specialization in health care methodology. By deposition, MJH also presented testimony of Myriam Ampuero- Martinez, an expert in the field of medical records review, evaluation and application of medical admissions criteria and John Williamson, the AHCA CON financial reviewer and Florida
MJH’s Exhibits numbered 1-20, 22, 24-35 were received into evidence.
Promise presented the testimony of Leigh R. Kerr, an expert in the field of land planning, including comprehensive planning and its elements, population growth patterns and transportation issues; Howard Koslow; Lawrence Leder, an expert in the field of health care financial feasibility; Michael Kornblatt;
Donovan Smith, an expert in the field of health care architectural design, construction, and building costs; Armand E. Balsano, an expert in the field of health care planning and financial feasibility; Douglas Alan Will;
William Gunlicks; Peter Baronoff; and Phillip C. Rond. By deposition, Promise also presented testimony of Rhona Campton. Promise's Exhibits numbered 1-54 and Rebuttal Exhibits numbered 1-6 were admitted into evidence.
Select-Dade presented the testimony of Kevin Smith, an expert in the field of architectural health care, architectural design construction and building costs; Patricia Greenberg, an expert in the field of health planning, health care finance, financial feasibility, LTCH planning and LTCH finance;
Naushira Pandya, M.D., chairperson of the geriatrics department at the College of Osteopathic Medicine at Nova Southeastern University (NSU), accepted as an expert in geriatrics, internal
medicine and endocrinology; Karen Grosby, Dean of the NSU Center for Psychological Studies, accepted as an expert in psychological studies; and Marsha Medlin, Vice President of Clinical Services at Select Medical Corporation and Chief Executive Officer of Select Specialty Hospital - Central Pennsylvania, accepted as an expert in nursing, LTCH Nursing, LTCH operations, LTCH administration and ICU nursing. Select- Dade filed the following deposition transcripts to support its case-in-chief: Select-Dade Ex. 3, the deposition of
Donald Kaercher, Senior Vice President of Finance, Inpatient Operations, Select Medical Corporation, accepted as an expert in health care finance with an emphasis on LTCHs and financial feasibility; Select-Dade Ex. 18, the deposition of Lisa Deziel- Evans, NSU Executive Associate Dean, College of Pharmacy; and Select-Dade Ex. 19, the deposition of Rene Gonzalez, M.D., FCCP, Florida licensed pulmonologist. Select-Dade’s Exhibits numbered 2, 11-17, 21, and 25-27 and Rebuttal Exhibit numbered 28 were admitted into evidence.
Kindred presented the testimony of James J. Novak, Executive Vice President, Kindred Healthcare, Inc.'s Hospital Division, East Group, accepted as an expert in health care administration and long-term care hospital administration; Clarence Wurdock, Director of Market Planning for Kindred
Healthcare, Inc., accepted as an expert in health care planning; John B. Caron, Regional Chief Financial Officer, South Region, Kindred Healthcare, Inc., accepted as an expert in health care finance and financial feasibility analysis; Larry Green, Director of Business Development, Kindred Healthcare, Inc., accepted as an expert in health care finance and financial feasibility analysis; and Roderick J. Cowgill, Vice President, Facility Management, Kindred Healthcare, Inc., accepted as an expert in health care facility design and construction. In addition, Kindred presented by deposition the testimony of Charles D. Doten, Chief Executive Officer of Kindred Hospitals South Florida in Coral Gables; and Sean R. Muldoon, M.D., Chief Medical Officer of Kindred Healthcare, Inc.'s Hospital Division, an expert in pulmonary disease, internal medicine, preventive medicine, and critical care medicine. Kindred's Exhibits 1 through 9 were admitted into evidence.
AHCA presented the testimony of Jeffrey Gregg, an expert in the field of health planning and certificate of need program administration. AHCA’s Exhibits numbered 1, 2, and 4-20 were admitted into evidence.
On July 21, 2006, the parties filed a Joint Pre-Hearing Stipulation. Proposed recommended orders were timely filed by all parties on November 3, 2006.
FINDINGS OF FACT
The Parties
"[D]esignated as the state health planning agency for purposes of federal law," Section 408.034(1), Florida Statutes, AHCA is responsible for the administration of the CON program and laws in Florida. See §§ 408.031, Fla. Stat., et seq. As such, it is also designated as "the single state agency to issue, revoke, or deny certificates of need . . . in accordance with present and future federal and state statutes."
§ 408.034(1), Fla. Stat.
Promise Healthcare of Florida XI, Inc. ("Promise") is a wholly-owned subsidiary of Promise Healthcare, Inc. The applicant for CON 9891, Promise proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida.
Select-Dade, the applicant for CON 9892, proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. It is a wholly-owned subsidiary of Select Medical Corporation ("SMC"). The largest operator of LTCHs in the country, SMC operates 96 LTCHs in 24 states.
The Miami Jewish Home and Hospital for the Aged is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. The applicant for CON
9893, MJH proposes the creation of a 30-bed hospital within a hospital (HIH) LTCH by the renovation of a former acute care hospital building on its existing campus in Miami-Dade County, Florida.
Kindred is the applicant for CON 9894 and proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Kindred is a wholly-owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 85 LTCHs in the country, eight of which are in the State of Florida. One of the eight is in Miami-Dade County. Twenty-three of Kindred Healthcare's LTCHs are operated by Kindred as well as seven of the eight Florida LTCHs. Kindred has also received CON approval for another LTCH in Florida. It is to be located in Palm Beach County in LTCH
District 9.
The District and its LTCHs
Miami-Dade and Monroe Counties comprise AHCA District
The population of Monroe County is 80,000 and of Miami-Dade County, 2.4 million. As to be expected from the population's distribution in the District, the vast majority of the District's health services are located in Miami-Dade County.
The greater part of the County's population is in the eastern portion of Miami-Dade County, with population densities
there 3-4 times higher than in the western portion of the County. But there is little to no space remaining for development in the eastern portion of the County.
Miami-Dade County has an urban development boundary that shields the Everglades from development in the western portion of the County. Still, the bulk of population growth that has occurred recently is in the west and that trend is expected to continue.
While the growth rate on a percentage basis is higher in the more-recently developed western areas of the County, the great majority of the population is and will continue to be within five miles of the sea coast on the County's eastern edge.
At the time of hearing, there were three LTCHs operating in the District with a total of 122 beds: Kindred- Coral Gables, Select-Miami, and Sister Emmanuel. All three are clustered within a radius of six miles of each other in or not far from downtown Miami.
The three existing LTCHs in the District are utilized at high occupancy levels.
Kindred's 53-bed facility receives most of its referrals from a within a 10 mile radius. It has operated for the 11-year period beginning in 1995 with an occupancy level from a low of 82.08 percent to a high of 92.86 percent. The
occupancy levels for 2004 (82.08 percent) and 2005 (84.90 percent) show occupancy recently at a relatively stable level within the range of optimal functional capacity which tends to be between 80 and 85 percent when facilities are equipped with semi-private rooms. With gender and infection issues in a facility with semi-private rooms, admissions to those facilities are usually restricted above 85 percent.
Select operates a 40-bed LTCH on one floor of a health care service condominium building in downtown Miami. It began operation in 2003 as part of legislatively-created special Medicaid demonstration project. Its occupancy levels for the two calendar years of 2004 and 2005 were 83.39 percent and 95.10 percent.
Sister Emmanuel Hospital for Continuing Care ("Sister Emmanuel") is a 29-bed HIH located at Mercy Hospital in Miami. It became operational in 2004 with an occupancy level of 82.64 percent, and attained an occupancy level of 85.46 percent in
2005.
Kindred's Broward County LTCHs
Kindred operates two LTCHs in Broward County (outside of District 11); one is in Ft. Lauderdale, the other in Hollywood.
From 1995 to 2003, Kindred-Hollywood's occupancy rate ranged from a low of 65.17 percent to a high of 72.73 percent, generally lower than the state-wide occupancy rate. For the same period, Kindred-Ft. Lauderdale's rate was significantly higher, between 83.69 percent and 91.65 percent. Both LTCHs have experienced occupancy rates significantly lower than the state-wide rates in 2004 and 2005. Kindred-Ft. Lauderdale's occupancy in 2004 fell substantially from earlier years to 66.41 percent and then even farther in 2005 to 57.73 percent.
Kindred-Hollywood's rates for these two years were also well below the state's at 59.74 percent and 58.04 percent, respectively.
Historically used by residents of District 11, the Hollywood facility served 4,292 patients from Miami-Dade County in the eleven year period from 1995 through 2005. For the same period, the Ft. Lauderdale facility served 275 Miami-Dade residents.
Kindred assigns its clinical liaisons to hospitals in a territorial manner to minimize competition for referrals between its two facilities in Broward County and Kindred-Coral Gables.
LTCHs
A "Long-term care hospital" means a general hospital licensed under Chapter 395, which meets the requirements of 42
C.F.R. Section 412.23(e) and seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services. § 408.032(13), Fla. Stat. (2005), and Fla. Admin. Code R. 59C-1.002(28). Under federal rules, an LTCH must have an average Medicare length of stay (LOS) greater than 25 days.
LTCHs typically furnish extended medical and rehabilitation care for patients who are clinically complex and have multiple acute or chronic conditions. Patients appropriate for LTCH services represent a small but discrete sub-set of all patients. They are differentiated from other hospital patients in that, by definition, they have multiple co-morbidities that require concurrent treatment.
Patients appropriate for LTCH services tend to be elderly, frail, and medically complex and are usually regarded as catastrophically ill although some are young, typically victims of severe trauma. Approximately 85 percent of LTCH patients qualify for Medicare. Generally, Medicare patients admitted to LTCHs have been transferred from general acute care hospitals and receive a range of services at LTCHs, including cardiac monitoring, ventilator support and wound care. In 2004,
statewide, 92 percent of LTCH patients were transferred from short-term acute care hospitals. That figure was 98 percent for District 11 during the same period of time.
The single most common factor associated with the use of long-term care hospitals are patients who have pulmonary and respiratory conditions such as tracheotomies, and require the use of ventilators. There are three other general categories of LTCH patients as explained by Dr. Muldoon in his deposition:
The second group is wound care where patients who are at the extreme end of complexity in wound care would come to [an] LTCH if their wounds cannot be managed by nurses in skilled nursing facilities or by home health care. The third category would be cardiovascular diseases where patients compromise[d by] injury or illness related to the circulatory system would come [to an LTCH.] And the fourth is the severe end of the rehabilitation group where, in addition to rehabilitation needs, there's a background of multiple medical conditions that also require active management.
(Kindred Ex. 8 at 10-11).
Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services ("CMS") established a new prospective payment system for long term care hospital providers. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by short-term acute care hospitals and by
other post acute care providers, such as Skilled Nursing Facilities ("SNFs") and Comprehensive Rehabilitation Hospitals ("CMRs").
The implementation by CMS of categories of payment designed specifically for LTCHs, the "LTC-DRG," indicates that CMS and the federal government recognize the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Under the LTCH reimbursement system, each patient is assigned a Diagnosis Related Group or "DRG" with a corresponding payment rate that is weighted based upon the patient's diagnosis. The LTCH is reimbursed the predetermined payment rate for that DRG, regardless of the costs of care. These rates are higher than what CMS provides for other traditional post-acute care providers.
Since the establishment of the prospective pay system for LTCHs, concerns about the high reimbursement rate for LTCHs, as well as about the appropriateness of the patients treated in LTCHs, have been raised by the Medicare Payment Advisory Committee ("MedPAC") and the Centers for Medicaid and Medicare Services.
CMS administers the Medicare payment program for LTCHs, as well as the reimbursement programs for acute care
hospitals, SNFs, and CMRs. MedPAC's role is to help formulate federal policy on Medicare regarding services provided to Medicare beneficiaries (patients) and the appropriate reimbursement rates to be paid to health care providers.
The 2006 MedPAC report reported that LTCHs were making a good margin or profit, and recommended against an annual increase in the Medicare reimbursement rate for the upcoming fiscal year. In 2006, CMS adopted a reimbursement rate rule for LTCHs for 2007 that did not raise the base rate, and made other changes that reflect the ongoing concerns of CMS regarding LTCHs. 42 C.F.R. Part 412, May 12, 2006. In that rule, CMS found that approximately 37 percent of LTCH discharges are paid under the short-stay outliers, raising concerns that inappropriate patients may be being admitted to LTCHs. CMS made other changes to the reimbursement system which, taken as a whole, actually reduced the reimbursement that LTCHs will receive for 2007.
Even with the concerns raised by MedPAC and CMS and recent changes in federal fiscal policy related to LTCHs, the distinction between general hospitals and LTCHs and the legitimate place for LTCHs in the continuum of care continues to be recognized by the federal government.
One way of looking at recent developments at the federal level was articulated at hearing by Mr. Kornblat. Federal regulatory changes will reduce the reimbursement LTCHs receive when treating short-term patients (short-term outliers). "On the other end of the spectrum, there are patients who stay significantly longer than would be expected on average, long- stay outliers, and the reimbursement for those patients was also modified." Tr. 163. There have been other changes with regard to LTCH patients who require surgery the LTCHs cannot provide and patients with a primary psychiatric diagnosis or a primary rehab diagnosis. Requiring the LTCH to "foot the bill" for surgery that it cannot provide for its patients and the elimination from LTCHs of patients with a primary psychiatric or rehab diagnosis send a strong signal to the LTCH industry specifically and those who interact with it: LTCHs should admit only the medically complex and severely acutely ill patient who can be appropriately treated at an LTCH.
Despite recent changes at the federal level and the clear recognition by the federal government that LTCHs have a place in the continuum of health care services, AHCA remains concerned about LTCHs in Florida.
AHCA's Concerns Regarding LTCHs
In deciding on whether to approve or deny new health care facilities, the Agency is responsible for the "coordinated planning of health care services in the state." § 408.033(3)(a), Fla. Stat. In carrying out this responsibility, AHCA looks to federal rules and reports to assist in making health care planning decisions for the state. Regarding LTCHs, MedPAC has reported, and CMS has noted that, nationwide, there has been a recent, rapid increase in the number of LTCHs: "It [LTCHs] represents a growth industry of the last ten years." Nationwide there has also been a huge increase in Medicare spending for LTCH care from $398 million in 1993 to $3.3 billion in 2004.
AHCA has also become concerned about the recent rapid increase in LTCH applications in Florida. From 1997 through 2001 there were 8 LTCHs in the state. Starting in 2002, there was a marked increase in the number of applications for LTCHs and the number of approved LTCHs rose quickly to the current 14 in 2006. In addition, 9 new LTCHs have been approved and are expected to be licensed in the next 1-3 years. When all of the approved hospitals are licensed the number of available beds will rise from 876 to 1,351 (adding the approved 475 beds), over a 50 percent increase in LTCH beds statewide.
In addition, AHCA is concerned that the occupancy level of LTCHs over the entire state appears to be falling over the last 11 years.
In response to the rise in LTCH applications over the last several years, and given the decrease in occupancy of the current LTCHs, the Agency has consistently voiced concerns about lack of identification of the patients that appropriately comprise the LTCH patient population. Because of a lack of specific data from applicants with regard to the composition and acuity level of LTCH patient populations, AHCA is not convinced that there is a need for additional LTCHs in the state or in District 11.
There are several reasons for this concern. First, AHCA believes, like MedPAC, that there may be an overlap between the LTCH patient populations and the population of patients served in other health care settings, such as SNFs and CMRs. Kindred's expert, Dr. Muldoon, noted that length of stay in the general acute care hospital has been shortened over the last few years because there are new more effective medical treatments, and because the "post-acute sector has emerged as the place to carry out the treatment plan that 20 years ago may been provided in its entirety in the short-term hospital." (Kindred Ex. 8 at 23).
To AHCA, what patients enter what facilities in this "post-acute sector" is unclear. In the absence of the applicants better identifying the acuity of the LTCH patient population, AHCA has reached the conclusion that there may be other options available to those patients targeted by the LTCH applicants. In support of this view, AHCA presented a chart showing SNFs in District 11 that offer to treat patients who need dialysis, tracheotomy or ventilator care. These conditions are typically treated in LTCHs.
In addition, AHCA believes that some long-stay patients can be appropriately served in the short-stay acute care hospitals, rather than requiring LTCH care. The length of stay in 2005 for the typical acute care hospital for most patients is five to six days. (Kindred Ex. 8, Dr. Muldoon Depo, at 23). Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients. Thus, patients who may need LTCH services often have lengths of stay in the acute care hospitals that exceed the typical stay. AHCA believes that these long-stay patients can be as appropriately served in the short stay acute care hospitals as in LTCHs.
AHCA'S Denial of the Four Applications and Change of Position with regard to MJH
On December 15, 2005, the Agency issued its SAAR after review of the applications. The SAAR recommended denial of all four applications based primarily on the Agency's determination that none had adequately demonstrated need for its proposed LTCH in District 11.
In denying the four applications, AHCA relied in part on reports issued the Congress annually by MedPAC that discuss the placement of Medicare patients in appropriate post-acute settings.
Appropriate use of long term care hospital services is an underlying concern that we [AHCA] have and had the federal government has as evidenced by their MedPAC reports and the CMS information in its most recent proposed rule on the subject.
(Tr. 2486).
The June 2004 MedPAC report states the following about LTCHs:
Using qualitative and quantitative methods, we find the LTCH's role is to provide post- acute care to a small number of medically complex patients. We also find that the supply of LTCHs is a strong predictor of their use and those acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative
settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable.
Given these concerns, AHCA looked to the four applicants to prove need through a needs methodology that provides sufficient information on the patient severity criteria to better define the patients that would mostly likely be appropriate candidates for LTCHs. AHCA found the need methodologies of three of the four applicants (Kindred, Promise, and Select) "incomplete" because they lacked specific information on the severity level of the patients the applicants plans to admit, and therefore they "overstate need." AHCA pointed to a former LTCH provider that did provide detailed useful information on the acuity level of its patients, and the acuity level of its patients in reference to similar patients in SNFs.
Other then MJH, the applicants presented approaches to projecting need that are based, in one way or another, on long- stay patients in existing acute care hospitals. In the Agency's view these methods "significantly overstate need." The method creates a "candidate pool" for the future long-term care hospital users. But it does not include enough information on severity of illness of the patients, in AHCA's view, to give a sense of who might be expected to appropriately use the service.
Further, the Agency sees no reason to believe that all long-stay patients in acute care short-stay hospitals are appropriate candidates for long-term hospital services.
Lastly, AHCA believes that LTCH applicants should develop an "acuity coefficient or an acuity factor," tr. 2627, to be considered as part of an LTCH need methodology.
The need methodology employed by MJH differed substantially from the methodologies of the other three applicants. Because it is more conservative and yields a need "approximately a tenth of what the other three propose," tr. 2500, at the time of hearing AHCA was much more comfortable with MJH's need methodology.
By the time AHCA filed its PRO, its comfort with MJH's need methodology had solidified and improved to the point that AHCA changed its position with regard to MJH. Describing MJH's "use rate model" as conservative, see Agency for Health Care
Administration Proposed Recommended Order, at 24, AHCA proposed the following finding of fact in support of its conclusion that MJH's application be approved: "Miami Jewish Home projected a reasonably reliable bed need using approved, conservative, but detailed and supportable, need methodologies." Id. at 25.
MJH
MJH, is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. As recited in the Omissions Response to CON 9893:
[MJH's] mission is to be the premier multi- component, not-for-profit charitable health care system in South Florida, guided by traditional Jewish values, dedicated to effectively and efficiently serving a non- sectarian population of elderly, mentally ill, disabled, and chronically ill people with a broad range of the highest quality institutionally-based, community-based and ambulatory care services.
MJH Ex. 1. Originally founded in 1945 to provide residential care for Jewish persons unable to access services elsewhere, MJH is now in its 62nd year of operation. MJH enjoys a good reputation within its community.
MJH is located at Northeast Second Avenue and 2nd Street in north-central Miami in one of the most densely populated areas of the County. Known as “Little Haiti,” the surrounding community is primarily low income, and is a federally designated “medically underserved area.”
A “safety net” provider of health care services, MJH's SNF is the largest provider of Medicaid skilled nursing services in the State of Florida. MJH assists its patients/residents in filing Medicaid applications, and also assists individuals in
applying for Medicaid for community-based services. This same kind of assistance will also be provided to patients of the MJH LTCH.
A 2004 study conducted by the Center on Aging at Florida International University identified unmet needs among elders living within the zip codes surrounding MJH. The study notes that the greatest predictors of need for home and community-based services are poverty, disability, living alone, and old age. Several of the zip codes within the MJH PSA were found to have relatively large numbers of at risk elders due to poverty and dramatic community changes. The study has assisted MJH in identifying service gaps within the community, and in focusing its efforts to serve this at-risk population.
Following its most recent JCAHO accreditation survey, both MJH’s hospital and SNF received a three-year “accreditation without condition,” which is the highest certification awarded by JCAHO.
MJH is a national leader in the provision of comprehensive long-term care services. MJH has been recognized on numerous occasions for its innovative long-term and post- acute care programs. The awards and recognitions include the Gold Seal Award for Excellence in Long Term Care, the "Best
Nursing Home" Award from Florida Medical Business and "Decade of Excellence Award" from Florida Health Care Association.
An indicator of quality of care, AHCA’s “Gold Seal” designation is especially significant. Of the 780 nursing homes in Florida, only 13, including MJH, have met the criteria to be designated as Gold Seal facilities.
MJH operates Florida's only Teaching Nursing Home Program. Medical students, interns, and other health professionals rotate through the service program in the nursing home and hospital on a regular basis. Specifically, MJH serves as a student and resident training site for the University of Miami and Nova Southeastern University Medical Schools, and the Barry University, FIU, and University of Miami nursing schools. The LTCH would enhance these capabilities and give physicians in training additional opportunities. Not only will this enhance their education, but also will contribute to the high quality of care to be provided in the MJH LTCH.
MJH has been the site and sponsor of many studies to enhance the delivery of social and health services to elderly and disabled persons. Most recently, MJH was awarded a grant to do research on fall prevention in the nursing home. MJH is committed to continue research on the most effective means of delivering rehabilitative and long-term care services to a
growing dependent population. The development of an LTCH at MJH will enhance the opportunities for this research.
MJH operates Florida’s first and only PACE Center (Program of All-inclusive Care for the Elderly) located on the main Douglas Gardens campus. The program provides comprehensive care (preventive, primary, acute and long-term) to nursing home eligible seniors with chronic care needs while enabling them to continue to reside in their own home as long as possible. MJH was recently approved by the Governor and Legislature to open a second PACE site, to be located in Hialeah. The proposed 30-bed LTCH will be located on MJH’s Douglas Gardens Campus. The Douglas Gardens Campus is the site of a broad array of health and social services that span the continuum of care. These programs include community outreach services, independent and assisted living facilities, nursing home diversion services, chronic illness services, outpatient health services, acute care hospital services, rehabilitation, post-acute services, Alzheimer’s disease services, pain management, skilled nursing and hospice. LTCH services, however, are not currently available at MJH.
Fred Stock, the Chief Operating Officer of MJH is responsible for the day-to-day operation of the MJH nursing home and hospital and has 24 years experience in the administration
of long-term care facilities. An example of Mr. Stock’s leadership is that when he came to MJH, its hospice program had management issues. He assessed the situation and then made a management change which has resulted in a successful turnaround of the program.
There are now 462 skilled nursing beds licensed and operated by MJH at the Douglas Garden’s Campus. All of these beds are certified by Medicare. Community hospitals have come to rely on these skilled nursing beds as a placement alternative for their sickest and most difficult-to-place, post-acute patients. The discharges of post-acute patients in the SNF at Douglas Gardens more than doubled from 350 in FY 2002 to 769 in FY 2005.
Dr. Tanira Ferreira is the Medical Director of the MJH ventilator unit. Dr. Ferreira is board-certified in the specialties of Internal Medicine, Pulmonary Diseases, Critical Care Medicine, and Sleep Disorders. Dr. Ferreira will be the Medical Director of the MJH LTCH. In addition to Dr. Ferreira, MJH has five other pulmonologists on its staff.
MJH also employs: a full-time Medical Director (Dr. Michael Silverman); three full-time physicians whose
practices are restricted to MJH hospital and SNF patients; and four full-time nurse practitioners whose practices are
restricted to residents of the SNF. MJH employs two full-time psychiatrists, two full-time psychologists, and seven full-time Master’s level social workers. The MJH medical staff also includes many specialist physicians such as cardiologists, surgeons, orthopedists, nephrologists and opthamologists, and other specialists are called for a consultation as needed.
A number of the MJH patients/residents are non-English speakers. However, many of the MJH employees, including all of its medical staff, are bilingual. Among the languages spoken by MJH staff are Haitian, Spanish, Russian, Yiddish, French, and Portuguese. This multi-language capability greatly enhances patient/resident communication and enhances MJH’s ability to provide supportive services.
The proposed project is the development of a 30-bed LTCH in Miami-Dade County. The LTCH will be located in renovated space in an existing facility and will conform to all the physical plant and operating standards for a general hospital in Florida. The estimated project cost is $5,315,672. The first patient is expected to be admitted by July 1, 2007.
The LTCH will be considered an HIH under Federal regulations 42 CFR Section 412.22(e). The LTCH will comply with these requirements including a separate governing body, separate chief medical officer, separate medical staff, and chief
executive officer. The LTCH will perform the hospital functions required in the Medicare Conditions of Participation set forth at 42 CFR Section 482. In addition, fewer than 25 percent of the admissions to the LTCH will originate from the MJH acute care hospital, and less than 15 percent of the LTCH operating expenses will be through contracted services with any other MJH affiliate, including the acute care hospital. The separate LTCH governing body will be legally responsible for the conduct of the LTCH as an institution and will not be under the control of the MJH acute care hospital. Finally, less than five percent of the annual MJH LTCH admissions will be re-admissions of patients who are referred from the MJH SNF or the MJH hospital.
Each referral to the LTCH will be carefully assessed using the InterQual level-of-care criteria to ensure that the most appropriate setting is chosen. MJH is also a member of the ECIN (Extended Care Information Network) system. As a member of this system, MJH is able to make referrals and place patients who may not be appropriate for its own programs. Only those patients who are medically and functionally appropriate for the LTCH will be admitted to the LTCH program.
Many patients admitted to the MJH LTCH will have complex medical conditions and/or multiple-system diagnoses in one or more of the following categories:
Respiratory disorders care (including mechanical ventilation or tracheostomy care)
Surgical wound or skin ulcer care Cardiac Care
Renal disease care Cancer care
Infectious diseases care Stroke care
The patient and family will be the focus of the interdisciplinary care provided by the MJH LTCH. The interdisciplinary care team will include the following disciplines: physicians, nurses, social workers, psychologists, spiritual counselors, respiratory therapists, physical therapists, speech therapists, occupational therapists, pharmacists, and dietitians.
MJH uses a collaborative care model that will be replicated in the LTCH and will enhance the effectiveness of the interdisciplinary team. The direct care professionals in the LTCH will maintain an integrated medical record, so that each member of the care team will have ready access to all the information and assessments from the other disciplines. Nursing staff will provide at least nine hours of nursing care per patient per day. Seventy-five percent of the nursing staff hours will be RN and LPN hours. Therapists (respiratory, physical, speech and occupational) will provide at least three hours of care per patient day.
The MJH medical staff includes a wide array of specialty consultants that will be available to LTCH patients. The specialties of pulmonology, internal medicine, geriatrics and psychiatry will be available to each patient on a daily basis. A complete listing of all of the medical specialties available to MJH patients was included with its application.
The interdisciplinary team will meet at least once per week to assess the care plan for each patient. The care plan will emphasize rehabilitation and education to enable the patient to progress to a less restrictive setting. The care team will help the patient and family learn how to manage disabilities and functional impairments to facilitate community re-entry.
Approval of the LTCH will allow the MJH to "round out" the continuum of care it can offer the community by placing patients with clinically complex conditions in the most appropriate care setting possible. This is particularly true of persons who would otherwise have difficulty in accessing LTCH services.
MJH has committed to providing a minimum of 4.2 percent of its patient discharges to Medicaid and charity patients. However, Mr. Stock anticipates that the actual
percentage will be higher. If approved, MJH has committed to licensing and operating its proposed LTCH.
MJH already has a number of the key personnel that will be required to implement its LTCH, including the Medical Director and other senior staff. In addition, MJH has extensive experience gleaned from both its acute care hospital and SNF in caring for very sick patients. In short, MJH has the clinical, administrative, and financial infrastructure that will be required to successfully implement its proposed LTCH.
Approval of the MJH LTCH will dramatically reduce the number of persons who are now leaving the MJH PSA to access LTCH services. The hospitals in close proximity to MJH have LTCH use rates that are very low in comparison to other hospitals that are closer to existing LTCHs. Thus, it is likely that there are patients being discharged from the hospitals close to MJH that could benefit from LTCH services, but are not getting them because of access issues or because the existing LTCHs are perceived to be too far away. A number of hospitals located close to MJH are now referring ventilator-dependent patients to MJH, and would also likely refer patients to the MJH LTCH.
Because the majority of the infrastructure required is already in place, the MJH HIH can be implemented much more quickly and efficiently than can a new freestanding LTCH. For
example, ancillary functions such as billing, accounting, human resources, housekeeping and administration already exist, and the LTCH can be efficiently integrated into those existing operations on campus. MJH will be able to appropriately staff its LTCH through a combination of its current employees and recruitment of new staff as necessary. In addition, MJH will be establishing an in-house pharmacy and laboratory within the next six months, which will also provide services to LTCH patients.
On-site radiology services are already available to MJH patients.
MJH has an excellent track record of successfully implementing new programs and services. There is no reason to believe that MJH will not succeed in implementing a high quality LTCH if its application is approved.
MJH's Ventilator Unit
By the time ventilator-dependent and other clinically complex patients are admitted to a nursing home they have often exhausted their 100 days of Medicare coverage, and have converted to Medicaid. Since Medicaid reimbursement is less than the cost of providing such care, most nursing homes are unwilling to admit these types of patients. Thus, it is very difficult to place ventilator patients in SNFs statewide. The
problem is further exacerbated in District 11 by the lack of any hospital-based skilled nursing units.
With the recent closure of two SNF-based vent units (Claridge House and Greynolds Park) there are now only three
SNF-based vent units remaining in District 11. They are located at MJH, Hampton Court (10 beds), and Victoria Nursing Home.
MJH instituted a ventilator program in its SNF in early 2004. Many of the patients admitted into the ventilator program fall into the SE3 RUG Code. On July 1, 2005, there were
24 patients in the SE3 RUG code in MJH. Only one other SNF in District 11 has more than four SE3 RUG patients in its census on an average day.
Over 60 percent of the Medicare post-acute census at the MJH SNF falls into the RUG categories associated with extensive, special care or clinically complex services. This mix of complex cases is about three times higher than average for District 11 SNFs.
Although some of the patients now admitted to the MJH SNF vent unit would qualify for admission to an LTCH, there are also a number of patients who are not admitted because MJH cannot provide the LTCH level of care required. SNF admissions are required to be initiated following a STACH admission. MJH has actively marketed its vent unit to STACHs. Similarly most
LTCH admissions come from STACHs and, like MJH’s efforts, LTCHs also market themselves to STACHs. Hospitals providing tertiary services and trauma care will generate the greater number of LTCH referrals, with approximately half of all LTCH patients being transferred from an ICU.
The implementation of the MJH ventilator unit required the development of protocols, infrastructure, clinical capabilities and internal resources beyond those found in most SNFs. Dr. Ferreira conducted pre-opening comprehensive staff education. These capabilities will serve as a precursor to the development of the next stage of service delivery at MJH: the LTCH.
MJH’s vent unit provides care for trauma victims, and recently received a Department of Health research grant to develop a program for long-term ventilator rehab for victims of trauma. Jackson Memorial Hospital is experiencing difficulty in placing "certain" medically complex patients, who at discharge, have continuing comprehensive medical needs. MJH is the only facility in Dade County that has accepted Medicaid ventilator patients from Jackson. Mt. Sinai Medical Center also has difficulty placing medically complex patients, particularly those requiring ventilator support, wound care, dialysis and/or
other acute support services. Mt. Sinai is a major referral source to MJH and supports its LTCH application.
MJH has received statewide referrals, including from the Governor's Office and from AHCA, of difficult to place vent patients. Most of these referrals are Medicaid patients. Ten of the MJH vent beds are typically utilized by Medicaid patients. Although MJH would like to accommodate more such referrals, there are financial limitations on the number of Medicaid patients that MJH can accept at one time.
Promise
Promise owns and operates approximately 718 LTCH beds outside of Florida and employs an estimated 2,000 persons.
Promise proposes to develop and LTCH facility in the western portion of the County made up of 59,970 gross square feet, 60 private beds including an 8-bed ICU, and various ancillary and support areas. The projected costs to construct its freestanding LTCH is $11,094,500, with a total project cost of $26,370,885.
As a condition of its CON if its application is approved, Promise agrees to provide three percent of projected patient days to Medicaid and charity patients.
Select
Select-Dade proposes to locate its 60-bed, freestanding LTCH in the western portion of Miami-Dade County. The Agency denied Select-Dade's application because of its failure to prove need. Otherwise, the application meets the CON review criteria and qualifies for comparative review with the other three applicants.
Select-Dade proposes to serve the entire District, but it has targeted the entire west central portion of the County that includes Hialeah, Hialeah Gardens, Doral, Sweetwater, Kendall, and portions of unincorporated Miami. This area is west of State Road 826 (the "Palmetto Expressway"), south of the County line with Broward County, north of Killian Parkway and east of the Everglades ("Select's Target Service Area").
To be located west of the Palmetto Expressway, east of the Florida Turnpike, north of Miller Drive and south of State Road 836, the site for the LTCH will be generally in the center of Select's Target Service Area.
Approximately 700,000 people (about 30 percent of the County's population) reside within Select-Dade's Target Service Area. This population of the area is expected to grow almost ten percent in the next five years. The rest of the County is expected to grow about five and one-half percent.
Kindred
Kindred proposes to construct a 60-bed LTCH in the County. It will consist of 30 private rooms, 20 beds in 10
semi-private rooms, and 10 ICU beds. The facility would include the necessary ancillary service, including two operating rooms, a radiology suite, and a pharmacy.
Kindred utilizes a screening process before admission of a patient to assure that the patient needs LTCH level care that includes the set of criteria known as InterQual. InterQual categorizes patients according to their severity of illness and the intensity of services they require. Every patient admitted to a Kindred hospital must be capable of improving and the desire to undergo those interventions aimed at improvement.
Kindred does not provide hospice or custodial care.
In addition, through its reimbursement process, the federal government provides strong disincentives toward LTCH admission of inappropriate patients.
Furthermore, every Kindred hospital has a utilization review (UR) plan to assure that patients do not receive unnecessary, unwanted or harmful care. In addition to the UR plan, the patient's condition is frequently reviewed by nursing staff, respiratory staff and by a multi-disciplinary team.
Kindred had not selected a location at the time it submitted its application. Kindred anticipates, however, that its facility if approved would be located in the western portion
of the County.
Stipulated Facts
As stated by Kindred in its Proposed Recommended Order, the parties stipulated to the following facts (as well as a few other related to identification of the parties):
Each applicant timely filed the appropriate letter of intent, and each such letter contained the information required by AHCA.
Each CON application was timely filed with AHCA.
Following its initial review, AHCA issued a State Agency Action Report ("SAAR") which indicated its intent to deny each of the applications.
Each applicant timely filed the appropriate petition with AHCA, seeking a formal hearing pursuant to Sections 120.569 and 120.57, Fla. Stat.
In the CON batch cycle that is the subject of this proceeding, Promise XI proposed to construct a 59,970 square foot building at a total project cost of
$26,370,885.00, conditioned upon providing 3 percent of its patient days to Medicaid and charity patients. Select proposes to construct a 62,865 square foot building at a total project cost of $22,304,791.00, conditioned upon providing 2.8 percent of its patient days to Medicaid and charity
patients. MJHHA proposes to renovate 17,683 square feet of space at a total project cost of $5,315,672.00, conditioned upon providing
4.2 percent of its patient days to Medicaid and charity patients. Kindred proposes to construct a 69,706 square foot building at a total project cost of $26,538,458.00, conditioned upon providing 2.2 percent of its patient days to Medicaid and charity patients.
Long term hospitals meeting the provisions of AHCA Rule 59A-3.065(27), Fla. Admin. Code, are one of the four classes of facilities licensed as Class I hospitals by AHCA.
The length of stay in an acute care hospital for most patients is three to five days. Some hospital patients, however, are in need of acute care services on a long- term basis. A long-term basis is 25 to 34 days of additional acute are service after the typical three to five day stay in a short-term hospital. Although some of those patients are "custodial" in nature and not in need of LTCH services, many of these
long-term patients are better served in a LTCH than in a traditional acute care hospital.
Within the continuum of care, the federal government's Medicare program recognizes LTCHs as distinct providers of services to patients with high levels of acuity. The federal government treats LTCH care as a discrete form of care, and treats the level of service provider by LTCHs as distinct, with its own Medicare payment system of DRGs and case mix reimbursement that provides Medicare payments at rates different from what the Medicare prospective payment system ("PPS") provides for other traditional post-acute care providers.
The implementation by the Centers for Medicare and Medicaid Services ("CMS") of categories of payment design specifically for LTCHs, the "LTC-DRG," is a sign of the recognition by CMS and the federal government of the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery.
Joint Pre-hearing Stipulation at 4, 6-7, 9-10.
Applicable Statutory and Rule Criteria
The parties stipulated that the review criteria in Subsections (1) through (9) of Section 408.035, Florida Statutes (the "CON Review Criteria Statute"), apply to the applications in this proceeding.
Subsection (10) of the CON Review Criteria Statute, relates to the applicant's designation as a Gold Seal Program Nursing facility. Subsection (10) is applicable only "when the applicant is requesting additional nursing home beds at that facility." None of the applicants are making such a request. MJH's designation as a Gold Seal Program is not irrelevant in this proceeding, however, since it substantiates MJH's "record of providing quality of care," a criterion in Subsection (3) of the CON Review Criteria Statute.
The Agency does not have a need methodology for LTCHs.
Nor has it provided any of the applicants in this proceeding
with a policy upon which to determine need for the proposed LTCH beds. The applicants, therefore, are responsible for demonstrating need through a needs assessment methodology of their own. Topics that must be included in the methodology are listed Florida Administrative Code Rule 59C-1.008(2)(e)2., a.
through d.
Subsection (1)
of the CON Review Criteria: Need
Not only does AHCA not have an LTCH need methodology in rule or a policy upon which to determine need for the proposed LTCH beds, it did not offer a methodology for consideration at hearing. This is the typical approach AHCA takes in LTCH cases; demonstration of LTCH need through a needs assessment methodology is left to the parties, a responsibility placed upon them in situations of this kind by Florida Administrative Code Rule 59C-1.008(2)(e)2.
MJH's Need Methodology
Unlike the other three applicants, all of whom used one form or another of STACH long-stay methodologies, MJH utilized a use-rate analysis which projects LTCH utilization forward from District 11's recent history of increased utilization. A use-rate methodology is one of the most commonly used health care methodologies.
The MJH use-rate methodology projected need based upon all of District 11. The methodology projected need for 42 LTCH beds in 2008, with that number growing incrementally to 55 beds by 2012.
Because statewide LTCH utilization data is not reliable when looking at any particular district, MJH developed a District 11 use-rate, by age cohort, to yield a projection of LTCH beds needed. The use-rate is derived from the number of STACH admissions compared to the number of LTCH admissions, by age cohort. Projected demographic growth by age cohort was applied to determine the number of projected LTCH admissions. The historic average LTCH LOS in District 11 was applied to projected admissions and then divided by 365 to arrive at an ADC. That ADC was then adjusted for an occupancy standard of 85 percent, which is consistent with District 11.
A number of states have formally adopted need methodologies that use an approach similar to MJH's in this case. Kindred has used a shortcut method of the use rate model in other states for analyzing proposed LTCHs "when there is not much data to work with." Tr. 1744. The methodology used by MJH was developed by its expert health planner, Jay Cushman. The methodology developed by Mr. Cushman was described by Kindred's health planner as "a couple of steps beyond" Kindred's
occasionally-used shortcut method. Kindred's health planner described Mr. Cushman's efforts with regard to the MJH need methodology as "a very nice job." Tr. 1745.
Mr. Cushman created a use-rate by examining the relationship between STACH admissions and LTCH admissions. The use-rate actually grows as it is segmented by age group, and thus the growth in the elderly population incrementally increases the utilization rate.
MJH’s application demonstrated how LTCH utilization has varied greatly statewide, and how the District 11 market has a significant history of utilizing LTCH services. For planning purposes the history of District 11 is a significant factor, and the MJH methodology is premised upon that history, unlike the other methodologies. MJH demonstrated a strong correlation between STACH and LTCH utilization in District 11, where 98 percent of LTCH admissions are referred from STACHs.
MJH also demonstrated that the south and western portions of Miami-Dade have overlapping service areas from the three existing LTCHs, while northeastern Miami-Dade has only one provider with a similar service area, Kindred Hollywood in neighboring District 10. This peculiarity explains why the LTCH out-migration trend is much stronger in northeastern portions of the District. The area most proximate to MJH would enjoy
enhanced access to LTCH services, including both geographic and financial access, if its program is approved. In short, as AHCA, now agrees, MJH demonstrated need for its project through a thorough and conservative analysis.
All parties agree that the number of LTCH beds yielded by MJH's methodology are indeed needed. Whether more are needed is the point of disagreement. For example,
Mr. Balsano plugged the 2003 use rate into MJH's methodology instead of the 2004 used by MJH. Employment of the 2003 use rate in the calculation has the advantage that actual 2004 and 2005 data can serve as a basis of comparison. Mr. Balsano explained the result: "The number of filled beds in 2005 in District 11 would exceed by 33 beds what the use rate approach would project as needed in 2005." Tr. 370. The reason, as Mr. Balsano went on to explain, is that the use-rate changed dramatically between 2002, 2003, and 2004.
Thus MJH's methodology, while yielding a number of beds that are surely needed in the District, may yield a number that is understated. This is precisely the opposite problem of the need assessment methodologies of the other three applicants, all of which overstated LTCH bed need in the District.
The Need Methodologies of the Other Three Applicants
The need methodologies presented by the other applicants vary to some degree. All three, however, are based on STACH long-stay data. Long-stay STACH analyses rely upon a number of assumptions, but fundamentally they project need forward from historic utilization of STACHs. The methodologies used by each of these three applicants identify patients in STACHs whose stays exceeded the geometric mean of length of stay plus fifteen days (the "GMLOS+15 Methodologies"), although the extent of the patients so identified varied depending on the number of DRGs from which the patients were drawn.
Each of the proponent’s projects would serve only a relatively small fraction of the District 11 patients purported by the GMLOS+15 Methodologies to be in need of LTCH services.
The lowest projected need of the three was produced by Promise: 393 beds in 2010. Promise's methodology is more conservative than that of Kindred and Select. Unlike the latter two, Promise reduced the number of potential projected admissions to be used in its calculation. The reduction, in the amount of 25 percent of the projection of 500 beds, was made because of several factors. Among them were anticipation that MedPAC's suggestions for ensuring that patients were appropriate
for LTCH admission, which was expected to reduce the number of LTCH admissions, would be adopted.
The methodologies proposed by Kindred and Select-Dade did not include the Promise methodology's reduction potentially posed by the impact of new federal regulation.
Kindred's methodology projected need for 509 new LTCH beds in District 11; Select-Dade's methodology projected need for 556 beds.
One way of looking at the substantial bed need produced by the GMLOS+15 Methodologies used by Promise, Select and Kindred was expressed by Kindred. As an applicant proposing a new hospital of 60 beds, when its need methodology yielded a need in the District for more than 500 beds, Kindred found the methodology to provide assurance that its project is needed.
On the other hand, if the methodology was reliable then the utilization levels of the two Kindred hospitals in Broward County in relative proximity to a populated area of District 11 would have been much higher in 2004 and 2005, given the substantial out-migration to those facilities from District 11.
The Kindred and Select methodologies are not reliable. Their flaws were outlined at hearing by Mr. Cushman, MJH's expert health planner who qualified as an expert with a specialization in health care methodology. Mr. Cushman
attributed the flaws to Promise's methodology as well but as explained below, Promise's methodology is found to be reliable.
Comparison of the projections produced by MJH's use rate methodology with the projections produced by the other three methodologies results in "a tremendous disconnect," tr. 1233, between experiences in District 11 upon which MJH's methodology is based and the GMLOS+15 Methodologies' bed need yield "that are three or four or five times as high as have actually been expressed in the existing system." Id.
One reason in Mr. Cushman's view for the disconnect is that the GMLOS+15 Methodologies identify all long-stay patients in STACHs as candidates for LTCH admission when "there are many reasons that patients might stay for a long time in an acute care facility that are not related to their clinical needs." Tr. 1234. This criticism overlooks the limited number of long-stay patients in STACHs used by the Promise methodology but is generally applicable to the Select and Kindred methodologies.
Mr. Cushman performed detailed analysis of the patients used by Kindred in its projection to reach conclusions applicable to all three GMLOS+15 Methodologies. Mr. Cushman's analysis, therefore, related to actual patients. They are based on payor mix, discharge status, and case mix. The analysis
showed that the GMLOS+15 Methodologies are "disconnected from the fundamental facts on the ground," tr. 1240, in that the methodologies produce tremendous unmet need not reconcilable with actual utilization experience.
Some of the gaps based on additional case mix testing were closed by Kindred's expert health planner. The additional Kindred test, however, did not completely close the gap between projected unmet need and actual utilization experience.
Mr. Cushman summed up his basis for concluding that the GMLOS+15 Methodologies employed by Kindred, Select-Dade and Promise are unreliable:
[W]e have an untested method that's disconnected from actual utilization experience on the ground. And it provides projections of need that are way in excess of what the experience would indicate and way in excess of what the applicants are willing to propose and support [for their projects.] So for those reasons, I considered [the GMLOS+15 method used by Kindred, Select-Dade and Promise] to be an unreliable method for projecting the need for LTCH beds.
Tr. 1243-44.
The criticism is not completely on point with regard to the Promise methodology as explained below. Furthermore, at hearing, Mr. Balsano made adjustments to the Promise GMLOS+15 Methodology ("Promise's Revised Methodology"). Although not
sanctioned by the Agency, the adjustments were ones that made the Agency more comfortable with the numeric need they produced similar to the Agency's comments at hearing about MJH's methodology. For example, if the number of needed beds were reduced by 50 percent (instead of 25 percent as done in Promise's methodology) to account for the effect of federal policies and alternative providers and if an 85 percent occupancy rate were assumed instead of an 80 percent occupancy rate, the result would be reduce the LTCH bed need yielded by Promise's methodology to 200.
These adjustments make Promise's Revised Methodology more conservative than Select's and Kindred's. In addition, Promise's methodology commenced with a much fewer number of STACH patients because Promise based on its inquiry into the patient population that is "using LTCHs in Florida right now." Tr. 351. Examination of AHCA's database led to Promise's identification of patients in 169 DRGs currently served in Florida LTCHs. In contrast, Select-Dade and Kindred, used 483 and 390 DRGs respectively.
Substantially the same methodology was used by Promise in Promise Healthcare of Florida III, Inc. v. AHCA, Case No. 06-0568CON (DOAH April 10, 2007). The methodology, prior to
the 25 percent reduction to take into account the effects of new federal regulations, was described there as:
Long-stay discharges were defined using the following criteria: age of patient was 18 years or older; the discharge DRG was consistent with the discharge DRGs from a Florida LTCH; and the ALOS in the acute care hospital was at the GMLOS for the specific DRG plus 15 days or more. Applying these criteria reduced the number of DRGs used and the potential patient pool.
Id. at 19 (emphasis supplied.) The methodology in this case produced a number that was then reduced by 25 percent, just as Promise did in its application in this case. The methodology was found by the ALJ to be reliable. If the methodology there were reliable then Promise's Revised Methodology (an even more conservative methodology) must be reliable as well as the numeric need for District 11 LTCH beds it yields: 200.
Such a number (200) would support approval of MJH's application and two of the others and denial of the remaining application or denial of MJH's application and approval of the three other applications. Neither of these scenarios should take place. However high a number of beds that might have been projected by a reasonable methodology, no more than two of the applications should be granted when one takes into consideration the ability of the market to absorb new providers all at once. Tr. 518-520.
Nonetheless, such a revised methodology would allow approval of MJH and one other of the applicants. Furthermore, there are indications of bed need greater than the need produced by MJH's methodology.
Market Conditions, Population and History
The large majority of patients admitted to LTCHs are elderly, Medicare beneficiaries. Typically, elderly persons seek health care services close to their homes. This is often because the elderly spouse or other family members of the patient cannot drive to visit the patient. This contributes to the compressed service areas observed in District 11.
Historic patient migration patterns show that for STACH services, there is nine percent in-migration to Miami- Dade, and only five percent out-migration from Miami-Dade, a normal balance. Most recent data for LTCH service, however, shows an abnormal balance: three percent in-migration and 22 percent out-migration.
The current utilization of existing LTCHs in District
11 and the high out-migration indicates that additional LTCH beds are needed. Notably, of the 400 District 11 residents who accessed LTCH care in Broward County in 2004, 114 (over 25 percent) lived in the 15 zip codes closest to MJH. MJH’s
location will allow its LTCH to best impact and reduce out- migration from District 11 for LTCH services.
Neither Kindred nor Promise has a location selected, and while Select-Dade has a “target area,” its actual location is unknown. None of the existing LTCHs in District 11 or in District 10 have PSAs that overlap with the area around MJH.
For example, the Agency had indicated that there was no need in the case which led to approval of the Sister Emmanuel LTCH at Mercy Hospital. It was licensed in July of 2002, barely half a year after the Select-Miami facility was licensed. Both facilities were operating at or near optimal functional capacity less than two years from licensure without adverse impact to Kindred-Coral Gables.
The utilization to capacity of new LTCH beds in the District indicate a repressed demand for LTCH services. The demand for new beds, however, is not limited to the eastern portion of the County. The demand exists in the western portion as well where there are no like and existing facilities.
Medicare patients who remain in STACHs in excess of the mean DRG LOS become a financial burden on the facility. The positive impact on them of an LTCH with available beds is an incentive for them to refer LTCH appropriate patients for whom costs of care exceeds reimbursement.
There were a total of 1,231 adult discharges from within Select-Dade's targeted service area with LOS of 24 or more days in calendar year 2004.
Medical Treatment Trends in Post-Acute Service
The number of LTCHs in Florida has increased substantially in recent years. The increase is due, in part to the better treatment the medically complex, catastrophically ill, LTCH appropriate patient will usually receive at an LTCH than in traditional post acute settings (SNFs, HBSNUs, CMR, and home health care).
The clinical needs and acuity levels of LTCH- appropriate patients require more intense services from both nursing staff and physicians that are available in an LTCH but not typically available in the other post acute settings. LTCH patients require between eight to 12 nursing hours per day and daily physician visits. CMS reimbursement at the Medicare per diem rate would not enable a SNF to treat a person requiring eight to 12 hours of nursing care per day.
CMR units and hospitals are inappropriate for long- term acute care patients who are unable to tolerate the minimum three hours of physical therapy associated with comprehensive medical rehabilitation. The primary focus of an LTCH is to provide continued acute care and treatment. Patients in a CMR
are medically stable; the primary focus is on restoration of functional capabilities.
Subsection (2): Availability, Quality of Care, Accessibility, Extent of Utilization of Existing Facilities
There are 27 acute care hospitals dispersed throughout the County. Only three are LTCHs.
The three existing LTCHs, all in the eastern portion of the County, are not as readily accessible to the population located in the western portion as would be an LTCH in the west. Approval of an application that will lead to an LTCH in the western portion of the County will enhance access to LTCH services or as Ms. Greenberg put it hearing, "if only one facility is going to be built, the western part of the county is where that needs to go." Tr. 2101. See discussion re: Subsection (5), below. In confirmation of this opinion,
Dr. Gonzalez pointed out several occasions when he was not able to place a patient at one of the existing LTCHs due to family member reluctance to place their loved one in a facility that would force the family to travel a long distance for visits.
LTCH appropriate patients are currently remaining in the acute care setting with Palmetto General and Hialeah Hospital among the busiest of the STACHs in the County. Both are within Select-Dade's targeted service area.
From 2002 to 2005 the number of LTCH beds in the District increased from 53 to 122.
During the same period, the number of patient days increased from 18,825 to 37,993.
Recently established LTCH facilities in District 11 have consistently reached high occupancy levels, approaching 90 percent at the time of hearing.
From 2001 to 2004, the use rate for LTCH services grew from 3.07 per 1,000 to 6.51 per 1,000. The increase in use rate for those aged 65 and over was even more significant; from 19.32 per 1,000 to 41.67 per 1,000.
Kindred's Miami-Dade facility is licensed at 53 beds; of those seven are in private rooms; the facility has 23 semi- private rooms.
As far back as 2001, the facility has operated at occupancy rates in excess of 85 percent; in 1998 and 1999 its occupancy rate exceeded 92 percent and 93 percent, respectively.
More recently, it has operated at an ADC of 53 patients; 100 percent capacity.
Several physicians and case managers provided support to Kindred's application by way of form letters, indicating patients would benefit from transfers to LTCHs and "an ever growing need for (these) services."
Kindred's daily census has averaged 50 or more patients since 2004. Unlike an acute care hospital, Kindred has not experienced any seasonal fluctuations in its census, running at or above a reasonable functional capacity throughout the year.
Taking various factors into consideration, including the number of semi-private beds, the facility is operating at an efficient occupancy level.
Looking ahead five years, the capacity at Kindred's facility cannot be increased in order to absorb more patients.
As designed, the facility cannot operate more efficiently than it has at 85 percent occupancy.
Select's facility, located in a medical arts building, houses 34 private and six semi-private beds.
In 2005, Select's facility operated at an average occupancy of almost 88 percent.
Unlike Kindred, Select can add at least seven more beds to its facility by converting offices.
As a hospital within a hospital, Sister Emmanuel's 29-bed facility is subject to limits on the percentage of admissions it can receive from "host" Mercy Hospital; even with such restrictions, its 2005 occupancy rate was 84.6 percent.
Because of gender mix and infection opportunities, among other reasons, it is difficult to utilize semi-private beds.
Only three District facilities offer ventilator care: MJHHA, HMA Hampton Court, and Victoria Nursing Home.
Other health care facility settings do not serve as reasonable alternatives to the LTCH services proposed here.
In 2004, roughly one quarter of District 11 residents, (nearly 400 patients), requiring LTCH services traveled to District 10 facilities.
In 2005 that number fell to 369, or about 22 percent.
Although there is a correlation between inpatient acute care services and LTCH services, the out-migration of patients requiring LTCH services indicated above differs markedly from the out-migration numbers generated by acute care patients.
The primary north-south road configurations in the county are A1A, U.S. 1 and I-95 on the east and the Palmetto Expressway on the west.
The primary east-west road configurations are composed of the Palmetto Expressway extension, S.R. 112; the Airport Expressway feeding into the Miami International Airport
area and downtown Miami, S.R. 836 to Florida's Turnpike, and the Don Shula Expressway in the southwest.
Assuming no delays, a trip by mass transit, used by the elderly and the poor, from various areas in Miami-Dade to the nearest LTCH outside District 11 (Kindred Hollywood) runs two to four hours one way.
These travel times pose a special hardship to the elderly traveling to a facility to receive care or visit loved ones.
While improvements in the system are planned over the next five years, they will not measurably change the existing travel times.
These factors, along with high occupancy levels in District 11 LTCHs, indicate the demand for LTCH services in the District exceeds the existing bed supply.
The three existing LTCHs have recently operated at optimal functional capacity or above it. On December 31, 2005, Select Specialty Hospital-Miami was operating with 95 percent occupancy.
Subsection (3):
Ability of the Applicant to Provide Quality of Care and the Applicant's Record of Providing Quality of Care
As discussed above, MJH has the ability to provide high quality of care to its LTCH patients and an outstanding record of providing quality of care.
Select-Dade has the ability to provide quality of care to its LTCH patients and a record providing quality of care. In treating and caring for LTCH patients, Select-Dade will use an interdisciplinary team of physicians, dieticians, respiratory therapists, physical therapists, occupational therapists, speech therapists, nurses, case managers and pharmacists. Each will discipline will play an integral part in assuring the appropriate discharge of the patient in a timely manner.
The Joint Commission on Accreditation of Hospital Organizations (JCAHO) has accredited all Select facilities that have been in existence long enough to qualify for JCAHO accreditation.
Both Select and Promise use various tools, including Interqual Criteria, to assure patients who need LTCH services are appropriately evaluated for admission.
All Promise facilities are accredited by JCAHO. Promise has developed and implemented a company-wide compliance
program, as well as pre-admission screening instruments, standards of performance and a code of conduct for its employees. Its record of providing quality of care was shown at hearing with regard to data related to its ventilator program weaning rate and wound healing rates.
None of the parties presented evidence or argument that any of the other applicants was unable to provide adequate quality of care.
The Agency adopted its statements from the SAAR at pages 43 through 45. The SAAR noted the existence of certain confirmed complaints at the two existing LTCH providers in Florida Select and Kindred. The number of confirmed complaints is relatively few. Kindred, for example, had 12 confirmed complaints with the State Department of Health at its seven facilities during a three-year period, less than one complaint per Kindred hospital every two years.
Each applicant satisfies this criterion.
Subsection (4): Availability of Resources, Health and Management Personnel, Funds for Capital and
Operating Expenditures, Project Accomplishment and Operation
The parties stipulated that all applicants have access to health care and management personnel.
Select-Dade, Kindred and MJH all have funds for capital and operating expenditures and project accomplishment
and operation. In turn, each of these three contends that Promise did not demonstrate the availability of funds for its project. This issue is dealt with below under the part of this order that discusses Subsection (6) of the Statutory CON Review Criteria.
Subsection (5): Access Enhancement
The applicants stipulated that "each of the applicants' projects will enhance access to LTCH services for residents of the district to some degree." All four applicants get some credit under this subsection because approval of their application will enhance access by meeting need that all of the parties now agree exists.
Select-Dade and Promise propose to locate their projects in the western portion of the County. Kindred did not indicate a location. Location of an LTCH in the western portion of the County will enhance geographic access.
MJH's location is in an area that has reasonable geographic access to LTCH services. But approval of its application, given the unique nature of its operation, chiefly its charitable mission, will enhance access to charity and Medicaid recipients.
Approval of Select-Dade's application will also enhance cultural access to the Latin population in Hialeah. A substandard public transportation system for this population makes traveling to visit hospitalized loved ones an insurmountable task in some situations. Select-Dade has achieved a competent cultural atmosphere in its LTCH opened in the County in 2003. It has in excess of 100 multi-lingual employees, many of whom communicate in Spanish. The staff effectively communicates with patients with a variety of racial, cultural and ethnic backgrounds.
Every new LTCH must undergo a qualifying period to establish itself as an LTCH for Medicare reimbursement. Specifically, the average LOS for all Medicare patients must meet or exceed 25 days. During the qualifying period the LTCH is reimbursed by Medicare under the regular STACH PPS, that is paid on a DRG basis as if the patient were in an ordinary general acute care hospital with its lower reimbursement.
Upon initiation of their LTCH services, Promise, Kindred and Select all intend to restrict or suppress admissions to ensure longer LOS to meet the Medicare 25 day average LOS requirement, and to “minimize the costs” of obtaining LTCH certification and reimbursement. MJH will not be artificially restricting its LTCH admissions during the initial 6 month
Medicare qualification period, even though the cost of providing services during this period will likely exceed the STACH Medicare reimbursement. MJH’s opening without suppressing admissions (as in the case of Sister Emmanuel), will enhance access by patients in need of these services during the initial
qualification period.
Subsection (6):
Immediate and Long-term Financial Feasibility a. Short-Term Financial Feasibility
Short-term financial feasibility is the ability of an applicant to fund the project. None of the parties took the position that the MJH project was not financially feasible in the short term.
MJH's current assets are equal to current liabilities, a short-term position found by AHCA to be weak but acceptable. The financial performance of MJH, however, has been improving in the past three years. Expansion of existing services, improved utilization of services, and the development of new programs have all contributed to a significant increase in operational revenue and total revenue during that period.
MJH has a history of receiving substantial charitable gifts (ranging from $6.2 million to $13.2 million annually during the past three years) and can reasonably expect to receive financial
gifts annually of between $4-5 million in the coming years. However, MJH is moving away from reliance on charitable giving, and toward increasing self-sufficiency from operations.
Approval of the LTCH will play a major role in achieving that goal. In addition, MJH has total assets, including land and buildings, of approximately $150 million.
The cost to implement the proposed MJH LTCH is
$5,319,647. The projected cost is extremely conservative in the sense of overestimating any potential contingency costs that could be incurred. MJH has the resources available to fund the project through endowments and investments (currently $41 million) as well as from operating cash flow and cash on hand.
Select-Dade has an adequate short-term position and Kindred a good short-term position. None of the parties contest the short-term financial feasibility of either Select-Dade or Kindred.
In contrast, both Select-Dade and Kindred contested the short-term financial feasibility of Promise. In accord is MJH's position expressed in its proposed recommended order: "Promise did not demonstrate the availability of funds for its project." Miami Jewish Home & Hospital For the Aged, Inc.'s
Proposed Recommended Order, at 37.
Promise's case for short-term financial feasibility rests on the historical relationship between the principals of Promise, Sun Capital Healthcare, Inc., and Mr. William Gunlicks of Founding Partners Capital Management Company ("Founding Partners.") The relationship has led to great success financially over many years. For example, through the efforts of Mr. Gunlicks, Sun Capital has generated over $2 billion in receivable financing.
Founding Partners is an investment advisor registered with the Security Exchange Commission, the Commodity Futures Trading Commission, the National Futures Association and the State of Florida. As a general partner, it manages two private investment funds: Founding Partners Stable Value Fund and Founding Partners Equity Fund. Founding Partners also manages an International Fund for non-U.S. investors. Its base is composed of approximately 130 individuals with high net worth and access to capital.
Founding Partners provided Promise with a "letter of interest" dated October 12, 2005, which indicated its interest in providing the "construction, permanent, and working capital financing for the development of a 60 bed long-term acute care hospital to be located in Dade County, Florida." Promise Ex. 3, Exhibit Promise XI, Gunlicks 4, 6-27-06. The letter makes
clear, however, that it is not a commitment to finance the project: "The actual terms and conditions of this loan will be determined at the time of your loan request is approved. Please recognize this letter represents our interest in this project and is not a commitment for financing." Id.
Testimony at hearing demonstrated a likelihood that Promise would be able to fund the project should it's application be approved. Mr. Balsano opined that this is sufficient to meet short-term financial feasibility:
"[I]t's not required at this point that firm funding be in place. . . . [W]e have an appropriate letter from Mr. Gunlicks' organization that they're interested and willing to fund the project.
It kind of goes to the second issue, which is, well, what if there were some issue in that regard? Would this project be financed. And I guess I would just have to say bluntly that in doing regulatory work for the last 20-some years, that if an applicant has a certificate of need for a given service, most lending institutions view that as a validation that the project is needed and can be supported. My experience has been that I have never personally witnessed a project that was approved that could not get financing.
Tr. 392. Other expert health planners with considerable experience in the CON regulatory arena conceded that they were not aware of a CON-approved hospital project in the state that could not get financing.
Despite the proof of a likelihood that Promise's project would be funded if approved, however, Promise failed to demonstrate as MJH, Select-Dade and Kindred continue to maintain, that funds are, indeed, available to fund the project.
In sum, Promise failed to demonstrate the short-term financial feasibility of the project. The projects of MJH, Select-Dade and Kindred are all financially feasible in the
short-term.
b. Long-Term Financial Feasibility
Long-term financial feasibility refers to the ability of a proposed project to generate a positive net revenue or profit at the end of the second full year of operation.
MJH’s projected patient volumes are both reasonable and appropriate, given its current position in the community, the services it currently provides, and the need for LTCH services in the community. MJH’s projected payor mix was largely based upon the historical experience of the three existing LTCHs in the District, with the exception of the greater commitment to charity and Medicaid patients. The higher commitment to Medicaid/charity is consistent with MJH’s historical experience and status as a safety net provider.
Sister Emmanuel is a 29-bed LTCH located within Mercy Hospital. As a similarly-sized HIH, a not-for-profit provider,
and an entity with the same kind of commitment to Medicaid/charity patients, Sister Emmanuel is the best proxy for comparison of the financial projections contained in the MJH application. MJH projected its gross revenues based upon Sister Emmanuel’s general charge structure, adjusted for payor mix and inflated at 4 percent per year.
The staffing positions, FTEs and salaries contained on Schedule 6 of each of the applications were stipulated to represent reasonable projections.
MJH’s Medicaid net revenues were calculated by determining a specific Medicaid per diem rate using the Dade County operating cost ceiling and 80 percent of the capital costs. Given that many LTCH patients exhaust their allowable days of Medicaid coverage, 70 percent of the revenue associated with MJH’s Medicaid patient days were “written off” in total. Similarly, patient days associated with charity care and bad debt reflected no net revenue.
MJH's Medicare net revenues were determined using the specific diagnosis (DRG) of each projected patient. For the first six months of operation it was assumed that MJH would receive the short-stay DRG reimbursement, and in the second 6 months and second year of operation would receive the LTCH DRG
payment. Net revenues for the remaining payor categories were based upon the historical contractual adjustments of MJH.
MJH’s projected gross and net revenues for its proposed LTCH are conservative, reasonable and achievable. However, if MJH has in fact understated the net revenues that it will actually achieve, the impact will be an improved financial performance and improved likelihood of long-term financial feasibility.
MJH’s staffing expense projections were derived from its Schedule 6 projections (which were stipulated to be reasonable) with a 28 percent benefit package added. Non- ancillary expense costs were based upon MJH’s historical costs, while ancillary expenses (lab, pharmacy, medical supplies, etc.) were based upon the Sister Emmanuel proxy. Capitalized project costs, depreciation and amortization were derived from Schedule
1 and the historical experience of MJH, as were the non- operating expenses such as G&A, plant maintenance, utilities, insurance and other non-labor expenses.
MJH’s income and expense projections are reasonable and appropriate, and demonstrate the long-term financial feasibility of MJH’s proposed LTCH.
John Williamson is an Audit Evaluation and Review Analyst for AHCA. He holds a B.S. in accounting and is a
Florida CPA. Mr. Williamson conducted a review of the financial schedules contained in each of the four applications at issue.
In conducting his review, Mr. Williamson compared the applicants’ financial projections with the “peer group” of existing Florida LTCHs. With regard to the MJH projections, Mr. Williamson noted:
Projected cost per patient day (CPD) of
$1,087 in year two is at the group lowest value of $1,087. Projected CPD is considered efficient when compared to the peer group with CPD falling at the lowest level. The apparent reason for costs at this level are the low overhead costs associated with operating a hospital-within- a-hospital.
MJH Ex.34, depo Ex. 4, Page 3 of 5.
Mr. Williamson further concluded that MJH presented an efficient LTCH project, which is likely to be more cost- effective and efficient than the other three proposals.
In its application, Kindred projected a profit of
$16,747 at the end of year two of operation. Schedule 8A listed interest expense "as a way of making a sound business decision." Tr. 1458. Interest expense, however, is not really applicable because Kindred funds new projects out of operation cash flows. If the interest expense is omitted, profit before taxes would roughly $1.5 million. Taking taxes into consideration, the
profit at the end of year two of operation would be roughly $1 million.
Promise's projections the facility will be financially feasible in the long term are contained in its Exhibit 2, Schedules 5, 6, 7 and 8A and related assumptions.
The parties agreed the information contained in Promise's Schedule 5, and the supporting assumptions, were reasonable.
Schedule 5 indicates Promise projects an occupancy rate in Year 2 of 76.1 percent, based on 16,660 patient days and an ADC of 45.6 patients.
To reach projected occupancy rates, Promise would have to capture roughly 15-17 percent of the LTCH market in Year 2.
AHCA concluded Promise's project would be financially feasible in the long term.
Only Select questioned Promise's projected long term financial feasibility. The attack, evidenced by Select Exhibits
12 and 14, was composed of a numbered of arguments, considered below:
The estimated Medicare revenue per patient projected by Promise was high, and among other factors, erroneously assumed Medicare would increase reimbursement by an average of 3 percent per year.
In determining a project's long-term financial feasibility, AHCA looks to the facility's second full year of operation, and, assuming reasonable projections, determines if there is a net positive profit.
The analysis AHCA uses to determine the reasonableness of an applicant's projections in Schedules 7A and 8A begins with a comparison of those figures against a standardized grouping developed over the years and consistently applied by the agency as a policy.
In this instance, the grouping consisted of all LTCHs operating in Florida in 2004; a total of 11 facilities; eight operated by Kindred and three operated by Select.
The analysis is based on Revenue Per Patient Day (RPPD).
Promise estimated it would generate an average RPPD of $1,492 in Year 2, and a net profit for the same period of
$2,521.327.
Using the above process, AHCA concluded that Promise's projected net income per patient day appeared reasonable.
At the time of hearing, other Promise facilities were receiving an average RPPD higher than $1,400; compared to the projected "somewhat over" $1,500 it would expect to receive in Year 2 of its Miami-Dade facility.
Approximately half of the existing Promise facilities (including West Valley and San Antonio) received Medicare RPPDs in excess of $1,500.
As opposed to total revenue per patient, revenue on a per patient day is the one figure associated with the expenses generated to treat a patient on a given day.
A comparison of net RPPDs projected by Promise with those of other applicants and the state median indicate Promise's revenue projections are reasonable.
While Medicare recently opted not to increase the rate of LTCH reimbursement for the 2006-07 fiscal year, it is the first year in four that the program has done so.
Compared to Promise's assumption that Medicare reimbursement would increase yearly by 3 percent on average, Select assumed a rate of 2.4 percent.
The ALOS projected by Promise was too long.
In projecting need, Select projected an ALOS similar to Promise's projection.
Compared with the statewide ALOS of 35 days, Select's is about 28 days.
This is the result of a combination of managing patients and their acuity.
Assuming Promise's ability to manage patients in a manner similar to Select and achieve a like ALOS, Promise would have room available to admit more patients.
There is no reason to assume Promise could not attain a similar ALOS with a similar population than that served by Select; others have done so.
Like other segments of the health care industry, LTCH providers will manage patient care to the reimbursement received from payors.
The CMI projected by Promise was too high.
The prospective payment system is based to a great extent on how patients' diagnoses and illnesses are "coded," or identified, because the information is translated into a DRG, which, in turn, translates directly into the amount of reimbursement received.
Each DRG has a "weight." By obtaining the DRG weight for each patient treated in a hospital, one can obtain the average weight, which will correspond to the average cost of care for the hospital's patients.
The term for this average is Case Mix Index (CMI).
Each year Medicare determines the rate it will pay for treatment of patients in LTCHs, adjusted for each market in the U.S. to account for variations in labor costs.
Mr. Balsano assumed the new facility would experience an average CMI of 1.55 and that Medicare would reimburse the facility based on existing rates with an annual inflation of 3.0 percent. Mr. Balsano then reduced the estimated Medicare RPPD generated by those assumptions by 15 percent.
While Select's expert criticized Promise's projected CMI adjusted reimbursement rate for Medicare patients (approximately $50,000) as to high, Select's own Exhibit 12, p. 8, indicates a projected reimbursement of $41,120.44 based on an average CMI of 1.0.
However, at hearing it was verified that Select's Miami facility operated at an average CMI of 1.23.
Applying a CMI of 1.23 generates an average projected Medicare reimbursement of $50,618 per patient, a number similar to that projected by Mr. Balsano.
Select Ex. 14, pages 9-16, contains data on, among other things, the CMI of 161 DRGs used by Promise's expert. The data was taken from each of the existing LTCHs in Florida.
In 2004, the statewide average CMI was 1.231.
Also in 2004, four of 11 LTCHs in Florida experienced an average CMI of 1.4 or higher.
Other Florida facilities have experienced an average CMI at or above 1.59.
Indeed, other Florida facilities have experienced average CMIs and ALOS similar to that of the Select facility.
While Promises operates no facility with an average CMI of 1.55, it has several with average CMIs of 1.3 or 1.4.
Promise expects Medicare will take future steps to restrict the admission of patients with lower CMIs' the effect being more complex patients will access LTCHs than currently do, increasing the average CMI in LTCHs.
Reducing the number of lower acuity patients admitted to LTCHs in future years will likely increase the CMI of those admitted.
There is a direct correlation between CMI and ALOS.
If, in fact, the CMI experienced by Promise's facility is less than 1.55, it will in turn generate a lower ALOS.
Applying the reduction in reimbursement advanced by Promise's witness (15 percent) would in turn reduce the projected CMI in Promise's facility from 1.55 to 1.05.
Because reimbursement coincides with acuity and ALOS, a representation that reducing one of the three does not likewise affects the others is not realistic.
Whatever the CMI and ALOS for LTCHs will be in the future will be governed to a great extent by the policies established by the federal government.
The federal government's reimbursement system will drive the delivery of patient services and the efficiencies the system provides, so that, in fact, the providers of care manage patients to the reimbursement provided.
Whether the average CMI at Promise's facility reaches
1.55 in the future is subject to debate; however, it is reasonable that the status quo will not likely continue; thus, regardless of a facility's current CMI, more complex patients will access the facility in the future.
Various sensitivity analyses generated to test the reliability of Select's criticisms in this area do not indicate any material change in the projected Medicare reimbursement.
The interest rate on the loaned funds was 9 percent, rather than 7 percent.
The estimated expenses did not include sufficient funds to pay the following:
the necessary ad valorem taxes
the required PMATF assessment
the premiums to obtain premises insurance
physician fees housekeeping expenses in Year 1
Using the same standardized "grouping" analysis, AHCA calculated Promise's projected costs per patient day and found them reasonable.
Because the projected increase in ad valorem taxes and the PMATF assessment will not be payable until 2010, it is not necessary to borrow additional funds to meet these obligations.
Select's expert concluded that, depending on a number of scenarios, the result of the appropriate calculations would produce a loss to Promise's project of between $624,636 and
$902,361 of year 2.
Assuming they represented sensitivity analyses which included various assumptions based on criticisms from Select.
The impact of Select's suggested adjustments, reduced by overstated costs in Promise's application Schedule 8A, increased Promise's projected Year 2 net income from the initial estimate of $2,521,327 to $2,597.453.
Even if the 15 percent reduction previously included in Mr. Balsano's assumptions on Medicare reimbursement were not considered, and assuming a lower CMI consistent with the
existing statewide average (1.43 vs. 1.23), or that Promise's experience in District 11 will be similar to Select's, Promise's facility would still be financially feasible.
Select's witness conceded that if Promise's facility experienced a lower ALOS, the demand for additional LTCH services is high enough to allow the facility to admit additional patients ("backfill").
While assuming a lower reimbursement due to lower acuity patients admitted to Promise's facility, Select's witness did not similarly assume any reduction in expenses associated with treatment of such lower acuity patients.
In reality, if revenues are less than expected a facility reduces expenses to generate profits.
Select's witness also conceded that Promise could reduce the management fee to reduce costs and generate a profit.
The testimony of Promise's Chairman, Mr. Baronoff, established the company would take measures to reduce expenses to assure the profitability, including reducing the facility's corporate allocation. Such a reduction by itself would reduce expenses by between $1 million and $1.5 million.
Reduction in corporate allocation has occurred before to maintain the profitability of a Promise facility.
With regard to Select-Dade, its forecasted expenses, as detailed on Schedules 7A and 8A of its application are consistent with Select-Miami's historical experience in Miami.
Evaluation of the revenues and expenses detailed in Select-Dade's Schedules 7A and 8A (and drawing comparison with SMC's 96 other hospitals, with particular attention paid to the Select-Miami facility), its profitability after year one indicates that Select-Dade's project will be financially feasible in the long term.
In sum, all four applicants demonstrated long-term financial feasibility.
Subsection (7): Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost-effectiveness
Competition benefits the market. It stimulates providers to offer more programs and to be more innovative. It benefits quality of care generally. Competition to promote quality and cost-effectiveness is generally driven by the best combination of high quality and fair price. The introduction of a new LTCH providers to the market would press Sister Emmanuel, Kindred-Coral Gables and Select-Miami to focus on quality, responsiveness to patients and would drive innovations.
Approval of any of the applications, therefore, as the Agency recognizes, see Agency for Health Care Administration Proposed
Recommended Order, at 36, will foster competition that promotes quality and cost-effectiveness.
Competition that promotes quality and cost- effectiveness will best be fostered by introduction to the market of a new competitor: either MJH or Promise. Between the two, Promise's application for 60 rather than 30 beds proposed by MJH, if approved, would capture a larger market share and promote more competition. On the other hand, MJH's because of its long-standing status as a well-respected community provider, particularly in the arenas of cost-effectiveness and quality of care, would be very effective in fostering competition that would promote both quality and cost-effectiveness.
Kindred and Select dominate LTCH services in Florida with control over 86 percent of the licensed and approved beds: Kindred has eight existing LTCHs and one approved LTCH yet to be licensed; Select has three existing LTCHs and six approved projects in various stages of pre-licensure development.
In 2005 the District 11 LTCH market shares were: Kindred-Coral Gables: 42 percent; Select-Miami: 35 percent; and Sister Emmanuel: 23 percent. Approval of Promise would only slightly diminish Select-Miami’s market share and would reduce Sister Emmanuel to a 16 percent share. A Select-Dade approval would give the two Select facilities a combined 54 percent of
the market. A Kindred approval would give its two Miami-Dade facilities a combined 57 percent market share. An MJH approval would give it about 16 percent of the market, Sister Emmanuel would decline to 19 percent and Select-Miami and Kindred-Coral Gables would both have market shares above 30 percent.
MJH's application is most favored under Subsection
(7) of the Statutory Review Criteria.
Subsection (8):
Costs and Methods of Proposed Construction
The parties stipulated to the reasonableness of a number of the project costs identified in Schedule 1, as well as the Schedule 9 project costs. All parties stipulated to the reasonableness of the proposed construction schedule on Schedule
10 of the application. Those additional costs items on Schedule
1 of the respective applications that were not stipulated to were adequately addressed through evidence adduced at final hearing.
Given the conceptual-only level of detail required in the schematic drawings submitted as part of a CON application, and based on the evidence, it is concluded that each of the applicants presented a proposed construction design that is reasonable as to cost, method, and construction time.
Each applicant demonstrated the reasonableness of its cost and method of construction. Accordingly each gets credit under Subsection (8) of the CON Statutory Review Criteria. But under the subsection, MJH's application is superior to the other three applications. The subsection includes consideration of "the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction." § 408.035(8), Fla. Stat. As an application proposing an HIH rather than a free-standing facility, not only can MJH coordinate its operations with other types of service settings at expected energy savings, its application involves less construction and substantially less cost that the other three applications.
Subsection (9): Past and Proposed
Provision of Services to Medicaid and Indigent Patients
A provider's history of accepting the medically indigent, Medicaid and charity patients, influences patients and referral sources. Success with a provider encourages these patients on their own or through referrals to again seek access at that provider.
As a safety net provider, MJH has a history of accepting financially challenged patients, many of whom are
medically complex. Its application is superior to the others under Subsection (9) of the Statutory Review Criteria.
Promise does not have a history of providing care in Florida. It has a history of providing health care services to Medicaid and the medically indigent at some of its facilities elsewhere in the country. As examples, its facility in Shreveport, Louisiana, provides approximately 7 percent of its care to Medicaid patients and a facility in California provides about 20 percent of its service to Medicaid patients.
MJH committed to the highest percentage of patient days to Medicaid: 4.2 percent. Promise proposes a 3.0 percent commitment; Select-Dade and Kindred, 2.8 percent and 2.2 percent, respectively.
Select-Dade's proposed condition is structured so as to allow it to include Medicaid days from a patient who later qualifies as a charity patient, thus accruing days toward the condition without expanding the number of patients served. Select-Dade's targeted service area, moreover, has fewer proportionate Medicaid beneficiaries identified (13 percent) as potential LTCH patients than identified by the methodologies used by the applicants (21 percent), indicating that Select's targeted area is generally more affluent than the rest of the County.
Kindred does not have a favorable history of providing care to Medicaid and charity patients. For example, during FY 2004, Sister Emmanuel provided 6.1 percent of its services to Medicaid and charity patients. During this same period, Kindred-Coral Gables provided only 1.08 percent of its services to Medicaid and charity patients. Of all four applicants, Kindred proposes the lowest percentage of service to such patients: 2.2 percent. It has not committed to achieving the percentage upon its initiation of services. Its proposed condition and poor history of Medicaid and indigent care merit considerably less weight than the other applicants and reflects poorly on its application in a process that includes comparative review.
MJH's proposed condition, although the highest in terms of percentage, is not the highest in terms of patient days because the facility it proposes will have only half as many beds as the facilities proposed by the other three applicants. Nonetheless, the proposal coupled with its past provision of health care services to Medicaid patients and the medically indigent, which is exceptional, makes MJH the superior applicant under Subsection (9) of the Statutory Review Criteria.
Subsection (10) Designation as a Gold Seal Program
None of the applicants are requesting additional nursing home beds. The subsection is inapplicable to this proceeding.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding pursuant to Sections 120.569, 120.57(1) and 408.039(5), Florida Statutes.
The applicants each have the burden of proving by a preponderance of the evidence that their CON applications should be approved. Boca Raton Artificial Kidney Ctr., Inc. v. Dept.
of HRS, 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 statutory and rule criteria, and the weight accorded each criterion depends on the circumstances of the case. Balsam v. Department of Health and Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1988); Collier Medical
Center, Inc. v. Department of Health and Rehabilitative
Services, 462 So. 2d 83 (Fla. 1st DCA 1985).
Florida Administrative Code Rule 59C-1.008(2)(e) governs these applications.
The methodology employed by MJH indisputably establishes need for MJH's HIH LTCH to be composed of 30 beds. Promise's Revised Methodology is also reliable and establishes that there is a need for 200 LTCH beds in District 11.
Comparative review based on conformance with applicable statutory criteria results in an ordering of the four applicants as follows: MJH is the superior applicant followed by Select-Dade, Kindred and then Promise.
Promise is superior to Select-Dade and Kindred under a number of the criteria but it is ranked last among the four applicants because it did not demonstrate the availability of funds for the project. It failed to prove that is project is financially feasible in the short term.
MJH is clearly the superior applicant based on the findings of fact in this order and, to the extent consistent with those findings, the grounds advanced by Mr. Weiner in MJH Ex. 20.
Approval of MJH's 30 beds leaves a numeric need of
170. This need would allow approval of both Select-Dade and Kindred's projects. But it would not be good health planning to
allow more than two new LTCHs to become operational in relatively the same time period.
296. Between Select-Dade and Kindred, Select-Dade is the
superior applicant.
Based on the foregoing Findings of Fact and Conclusion of Law it is
RECOMMENDED that the Agency for Health Care Administration issue a final order that: approves Miami Jewish Home and Hospital for the Aged, Inc.'s CON Application No. 9893; approves Select Specialty Hospital-Dade, Inc.'s CON Application No. 9892; denies Promise Healthcare of Florida XI, Inc.'s CON Application No. 9891; and, denies Kindred Hospitals East LLC's CON Application No. 9894.
DONE AND ENTERED this 17th day of May, 2007, in Tallahassee, Leon County, Florida.
S
DAVID M. MALONEY
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 17th day of May, 2007.
COPIES FURNISHED:
Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration Fort Knox Building III, Suite 3116 2727 Mahan Drive
Tallahassee, Florida 32308
Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive
Tallahassee, Florida 32308
Richard Shoop, Agency Clerk
Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive
Tallahassee, Florida 32308
W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Associates, P.A.
3051 Highland Oaks Terrace, Suite D Tallahassee, Florida 32317-5828
Sandra E. Allen, Esquire
Agency for Health Care Administration Fort Knox Building 3, Mail Stop 3 2727 Mahan Drive
Tallahassee, Florida 32308-5403
F. Philip Blank, Esquire Robert Sechen, Esquire Blank & Meenan, P.A.
204 South Monroe Street Tallahassee, Florida 32301
Mark A. Emanuele, Esquire Panza, Maurer & Maynard, P.A.
3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308
M. Christopher Bryant, Esquire
Oertel, Fernandez, Cole & Bryant, P.A.
301 South Bronough Street, Fifth Floor Tallahassee, Florida 32302-1110
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. 11, 2007 | Mandate | |
| Jun. 29, 2007 | Agency Final Order | |
| May 17, 2007 | Recommended Order | Of four applications for a long-term acute care hospital in Miami-Dade County two should be approved: Miami Jewish Home`s and Select-Dade`s. |
| Apr. 27, 2007 | Opinion |
