STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, Charles A. Stampelos, held the final hearing in the above-styled cases on November 27-30, and December 3-5 and 10-12, 2007, in Tallahassee, Florida.
APPEARANCES
For Odyssey Healthcare of Northwest Florida, Inc.: Mark A. Emanuele, Esquire
Deborah S. Platz, Esquire Panza, Maurer, & Maynard, P.A.
Bank of America Building, Third Floor 3600 North Federal Highway
Fort Lauderdale, Florida 33308 For United Hospice of West Florida, Inc.:
Jay Adams, Esquire Broad and Cassel
215 South Monroe Street, Suite 400 Tallahassee, Florida 32301
For Regency Hospice of Northwest Florida, Inc.: Geoffrey D. Smith, Esquire
Susan C. Smith, Esquire Smith and Associates
2873 Remington Green Circle Tallahassee, Florida 32308
For Agency for Healthcare Administration: Sandra E. Allen, Senior Attorney
Agency for Health Care Administration
2727 Mahan Drive, Mail Stop 3
Tallahassee, Florida 32308
STATEMENT OF THE ISSUES
Whether the Certificate of Need (CON) applications filed by Regency Hospice of Northwest Florida, Inc. (Regency), Odyssey Healthcare of Northwest Florida, Inc. (Odyssey), and United Hospice of West Florida, Inc. (United) for a new hospice program in Agency for Health Care Administration (AHCA or the Agency) Service Area (Service Area) 1, satisfy, on balance, the applicable statutory and rule review criteria sufficiently to warrant approval and, if so, which of the three applications best meets the applicable criteria for approval.
PRELIMINARY STATEMENT
On October 6, 2006, the Agency published a fixed need for one new hospice program in Service Area 1.
In October 2006, Odyssey and United filed letters of intent (LOI) with the Agency advising that they intended to file separate CON applications for a new hospice program in Service Area 1. The filing of the LOIs triggered a grace period under Florida Administrative Code Rule 59C-1.008(d)2 and on
November 7, 2006, Regency Hospice of Northwest Florida, LLC, (Regency LLC) filed a LOI to establish a new hospice program in Service Area 1.
On November 22, 2006, Odyssey, United, and Regency LLC, each filed an initial CON application with the Agency.
Odyssey's CON application was assigned CON No. 9954; United CON
application was assigned CON No. 9955. The Agency rejected Regency LLC's application because the applicant, Regency LLC, was not a corporation as required by Section 400.601, Florida Statutes.
Regency LLC was converted to Regency Hospice of Northwest Florida, Inc.
After a settlement agreement, which was incorporated in a Final Order, was reached among representatives of the Agency, Regency LLC, and Regency, in which the Agency essentially authorized Regency to file a complete CON application, on or before December 27, 2006, Odyssey, United, and Regency filed complete applications (omissions responses). All of the complete CON applications, including Regency's, were accepted by the Agency for comparative review.
After a comparative review of the applications, on February 27, 2007, the Agency announced its intent to approve Regency's CON application and deny Odyssey's and United's CON applications.
Odyssey and United timely filed petitions to contest the denial of their own applications and the approval of Regency's application. Regency filed an approved applicant petition in support of its own application and opposition to the Odyssey and United applications.
The Agency forwarded the petitions to the Division of Administrative Hearings (DOAH) for the assignment of an administrative law judge and the conduct of a final hearing.
An existing hospice provider in Service Area 1, Covenant Hospice, Inc., filed a petition in opposition to all three of the applications, but later voluntarily dismissed its petition before hearing.
The final hearing was initially scheduled to commence on October 8, 2007, but later re-scheduled to commence on November 27, 2007.
Prior to the final hearing, Odyssey filed a motion for summary recommended order requesting dismissal of Regency's application based on its failure to be in existence on the date its LOI and shell CON application were filed. United joined in this motion. Regency, joined by the Agency, filed a response opposing the motion. On November 26, 2007, a motion hearing was conducted. After hearing argument of counsel, the motion was denied without prejudice.
On November 27, 2007, the parties filed a joint pre-hearing stipulation.
During the final hearing, Regency presented the testimony of John E. Morris, president and CEO of Regency Health Care Group, LLC, an expert in post-acute care and hospice management and administration; William Harris, Jr., CFO of Regency Health
Care Group, LLC and an expert in healthcare finance and accounting; Barry Somerville, chief development officer for Regency Health Care Group, LLC and an expert in post-acute care market development; Diane Payne, COO of Regency Health Care Group, LLC and an expert in hospice care nursing, administration, management and operations; Ryan Nash, M.D., an expert in internal medicine and hospice and palliative care medicine; Cheryl Acton, the coordinator for the volunteers for Jefferson County, which encompasses the Birmingham, Alabama area, and an expert in the management of hospice volunteers; Billy York, a chaplain for Regency/New Beacon hospices and an expert in hospice chaplaincy; Deborah K. Blodgett, Pharm. D., director of pharmacy services for Regency and an expert in pharmacology with an emphasis in hospice pharmacy services; Mary Anne Hornbuckle, a bereavement coordinator for New Beacon Hospice in Birmingham, Alabama, and an expert in hospice bereavement services; and Patricia Greenberg, an expert in healthcare planning, healthcare finance, hospice planning, hospice finance, and financial feasibility analysis.
Regency (Reg) Exhibits 1 through 68, 71, 74, 76 through 83, and 91 were admitted into evidence.
The Agency presented no witnesses and Agency (AHCA) Exhibit 1, the State Agency Action Report (SAAR) and the Agency's financial review memorandum, was admitted into evidence.
During the final hearing, Odyssey called the following witnesses: Rodney Dirk Allison, CPA, senior vice president and the CFO for Odyssey Healthcare and an expert in healthcare finance accounting and financial feasibility; Deborah Hoffpauir, regional vice president of the southeast region for Odyssey Healthcare and an expert in hospice management, hospice operation, hospice administration, and nursing home administration; Kathleen Ventre, a senior vice president of clinical and regulatory affairs for Odyssey Healthcare and an expert in nursing, hospice nursing, and palliative care;
Susan Whittington, self-employed; and Ronald Luke, an expert in healthcare planning, healthcare finance, and healthcare financial feasibility.
Odyssey (Ody) Exhibits 1 through 4, 6, 8(pp. 2-3), 10
through 12, 12a, 13 through 14, 16, 18, 38 through 43, 44(pp. 2-
3); 45(pp. 2-3), 46 through 47, 51, 54a-f, 55a-k, and 56 through
57 were admitted into evidence. Odyssey Exhibits 2 and 57 are proprietary and without objection have been sealed. Odyssey Exhibit 58 was not admitted, but is included in the record.
United called the following witnesses: Scott Schull, vice president of planning and development for United Health
Services-Pruitt Corporation and an expert in healthcare development; Juliette Simpson, the executive director of care management for United Healthcare Services-Pruitt Corporation, and an expert in hospice operations; and Katherine M. Platt, an expert in health planning.
United Exhibits 1 through 3 were admitted into evidence. After receiving several extensions of time, on March 17, 2008, the parties filed proposed recommended orders (PRO) and
Odyssey and Regency filed memoranda of law. The Agency joined in the PRO and memorandum of law filed by Regency. On March 28, 2007, Odyssey filed a reply to the memorandum of law filed by Regency, which prompted Regency to file a motion to strike.
After consideration of Odyssey's response, the motion to strike was denied, but Regency, United, and the Agency were authorized to file replies to Odyssey's two memoranda of law and Regency's memorandum of law. Regency filed a responsive memorandum of law. All post-hearing submissions have been considered in the preparation of this Recommended Order.
FINDINGS OF FACT
The Parties
AHCA
The Agency for Health Care Administration is the state agency authorized to evaluate and render final determinations on
CON applications pursuant to Section 408.034(1) Florida Statutes.1
Regency
Regency Hospice of Northwest Florida, Inc. (Regency) is a for-profit, wholly-owned subsidiary of Regency Healthcare Group, LLC (RHG).
Regency is a start-up corporation formed for the purpose of owning and operating a new hospice program in Service Area 1. (Findings relating to the creation of Regency and
Regency Hospice of Northwest Florida, LLC (Regency LLC) are set forth in section III.)
RHG was formed in 2005 for the purpose of acquiring and then owning and operating hospice operations in the southeastern United States. The company's sole business is providing hospice services.
In February 2006, RHG acquired the hospice operations of Regency Hospice with locations in Georgia and South Carolina.
In June 2006, RHG acquired New Beacon Hospice with multiple locations in Alabama.
In addition to these acquisitions, RHG opened a new Medicare licensed hospice program in Augusta, Georgia, and also opened two additional satellite offices in Gainesville, Georgia, and Gadsden, Alabama.
RHG operates under the "Regency" brand name in Georgia and South Carolina (seven hospice offices) through its wholly- owned subsidiary Regency Hospice of Georgia, LLC, and operates under the "New Beacon" brand name in Alabama (eights hospice offices) through its wholly-owned subsidiary New Beacon Healthcare Group, LLC.
Presently, RHG owns and operates ten Medicare certified hospice programs at 15 office locations: eight in Alabama, four in Georgia, and three in South Carolina. The offices are located in urban and rural settings.
If approved in Florida, RHG would operate the hospice through the wholly-owned subsidiary Regency Hospice of Northwest Florida, Inc. There is no separate corporate management of Regency at the subsidiary level.
The supervision, management, and control of all of the RHG hospice operations, whether operating under the Regency or New Beacon brand name, are centralized in the senior management team of RHG located in Birmingham, Alabama.
The mission, core values, service standards, operating practices, protocols and policies are uniform throughout the company regardless whether a hospice program is operated under the New Beacon or Regency brand name.
RHG senior management team has demonstrated a history of developing successful hospice operations.
The origin of Regency's New Beacon hospice operations in Alabama dates back approximately 25 years when the hospice was first established in Birmingham, Alabama. The Birmingham hospice was initially owned by the Baptist Health System as a department of Montclair Hospital. Over time, the Baptist Hospice expanded its operations through acquisitions and opening of new programs in locations outside of Birmingham. Eventually, Baptist-owned hospice operations merged with the hospice operations of the Catholic health system in 1997. The joint Baptist/Catholic venture was operated under the name of Unity Health Services changing its name to New Beacon in 2001.
In 2006, the Baptist and Catholic health systems decided to sell their hospice operations in Alabama. Both Odyssey and Regency submitted bids to purchase the New Beacon operations. Although Odyssey was the highest bidder, the hospice program was sold to Regency, apparently because RHG shared New Beacon's philosophy regarding providing hospice care.
The Baptist and Catholic health systems continue to have a minority ownership in Regency and share a seat on the seven-member board of directors.
RHG's hospice operations have grown in terms of patient admissions and average daily census since the acquisition of Regency and New Beacon. RHG plans to focus efforts in the southeast and expand into southern Alabama and the Florida
panhandle. RHG's present plans are to open from three to ten new hospice locations in 2008 including the three Florida panhandle locations at issue in this case if approved.
New Beacon is a recognized provider of choice in Alabama for some health care providers and its operations have been successful.
RHG's operations in Georgia and South Carolina have also been successful.
Under RHG's management and prior to its acquisition, New Beacon has afforded high quality of care to the patients its served. There are numerous examples of highly complex, difficult, and costly patients that New Beacon has accepted both before and after the acquisition. There have been no apparent changes in New Beacon's direction or philosophy since acquisition by RHG.
Some witnesses who testified on behalf of Regency, expressed a preference for New Beacon over Odyssey based on ease of referrals and complexity of care of patients New Beacon accepts.
Odyssey
Odyssey Healthcare of Northwest Florida, Inc. (Odyssey) is a for-profit, wholly-owned subsidiary of Odyssey Healthcare, Inc. (Odyssey Healthcare).
Odyssey is a start-up corporation formed for the purpose of filing a CON application at issue in this proceeding and owning and operating a new hospice program in Service Area 1.
Odyssey Healthcare is a publicly-traded company founded in 1996 and focuses on caring for patients at end-of-life care.
Odyssey Healthcare's sole line of business is hospice services.
Since 1996, Odyssey Healthcare has started up and acquired more than 80 hospice programs in 30 states. Odyssey Healthcare presently operates approximately 76 Medicare certified hospice programs, including the operation of two hospice programs in Florida.
Odyssey Healthcare has approximately 5,000 employees through affiliated programs and serves approximately 8,000 patients per day across its 76 hospice programs and serves has approximately 34,000 admissions in a 12-month period. Last year, Odyssey Healthcare started five or six new hospice programs.
Odyssey is the only one of the three co-batched applicants with start-up and operational hospice experience in Florida - in AHCA Service Areas 4 and 11.
Since 2003, Odyssey Healthcare has started up approximately 40 new hospice programs, but over the past several
years, Odyssey Healthcare has closed or sold seven programs as underperforming or, in some cases, in light of unfavorable market conditions. Odyssey Healthcare has not sold or closed other hospice programs, such as those located in New Orleans and Baton Rouge, Louisiana, following the hurricane, or in Boston, Massachusetts, notwithstanding the loss of money in those markets or other market conditions.
Odyssey Healthcare's patient population consists of approximately 68 percent non-cancer and 32 percent cancer patients.
Odyssey Healthcare was the subject of an investigation by the United States Department of Justice (DOJ) that ultimately resulted in a settlement and the payment of $13 million to the federal government in July 2006. The settlement did not involve the admission of liability or acknowledgement of wrongdoing. As part of the settlement with the United States Department of Health and Human Services, Office of Inspector General, Odyssey Healthcare entered into a corporate integrity agreement (CIA) for five years. Ody 4 at 32. According to Odyssey Healthcare, the federal investigation allowed Odyssey Healthcare to self- audit to ensure compliance with the Medicare conditions for participation followed by an outside verification agency. The federal investigation was not related to quality of care issues.
Medicare CAP problems result from longer patient stays that are not balanced by shorter patient stays, thus leading to increased overall revenue per patient. Medicare CAP limitations have been a problem for the hospice industry at large because they place a ceiling on the overall Medicare revenue per patient that a hospice may receive.
Odyssey Healthcare's Medicare CAP liability increased from approximately 2 million dollars in 2004 to approximately 12 million dollars in 2005 to approximately 16 million dollars in 2006, but lower in 2007. Odyssey Healthcare has plans in place to reduce its Medicare CAP exposure that may have negative
short-term affects.
Odyssey Healthcare's net income declined significantly from 2004 to 2006. The decline is due in part to Medicare CAP limitations.
Regency has had one cap repayment ($670,000, T 201) and United has had none.
United
United Hospice of West Florida, Inc. (United) is a wholly-owned subsidiary of United Hospice, Inc. (UH), which, in turn, is a wholly-owned subsidiary of United Health Services, Inc. (UHS) commonly known as UHS-Pruitt.
UH is an existing provider of hospice services in Georgia, South Carolina, and North Carolina.
UHS has also established a not-for-profit foundation, which offers the public and professional community information and assistance regarding end of life care and planning.
UHS-Pruitt was founded in 1969 as a nursing home company and has expanded to become a comprehensive long-term care provider in Georgia, South Carolina, North Carolina, and Florida. UHS-Pruitt provides several services including nursing homes, hospices, assisted living facilities, pharmacy services, medical supplies, durable medical equipment, outpatient rehabilitation, adult day care, and home health services.
UHS-Pruitt currently has a 120-bed skilled nursing facility (Santa Rosa Heritage, operated by United Hospice, Inc.), pharmacy services, rehabilitation office (including therapy programs), durable medical equipment, located in Milton, Santa Rosa County, Florida.
UHS-Pruitt has approximately 8,000 employees in all of its programs.
The main focus of United Hospice, Inc. and UHS-Pruitt has been the nursing home business, with additional product lines developed as an adjunct to the delivery of nursing home services as noted herein.
United Hospice Foundation was established to educate individuals about hospice services and end-of-life decision making. The foundation provides training and educational
programs to both the professional and the lay community regarding these subjects. The foundation is operated independently from the for-profit portions of UHS-Pruitt.
UHS-Pruitt by and through United Hospice, Inc. for the most began providing hospice services in 1993 and offers hospice programs in approximately 13 to 20 locations in Georgia, North Carolina, and South Carolina, with the vast majority of the programs in Georgia. The hospice programs were start-up programs, not acquisitions.
There is evidence that approximately 40 to 42 percent of United Hospice, Inc.'s hospice patients reside in company owned nursing homes.
United Hospice, Inc. opened one or more new hospice program each year during the past several years and is internally discussing three new hospices "[t]hrough pure development, as opposed to acquisition."
Overview of Hospice Services
In Florida, a hospice program is required to provide a continuum of palliative and supportive care for terminally ill patients and their family. A terminally ill patient has a medical prognosis that his or her life expectancy is one year or less if the illness runs its normal course. §§ 400.601(3) and (8), Fla. Stat.
Under the Medicare program administered by the federal government, a terminally ill patient is a person who has a life expectancy of six months or less.
Hospice services must be available 24 hours a day, 7 days a week, and must include certain core services, such as nursing services, social work services, pastoral or counseling services, dietary counseling, and bereavement counseling services. Physician services may be provided by the hospice directly or through contract. § 400.609(1)(a), Fla. Stat.
Hospice care and services provided in a private home shall be the primary form of care. Hospice care and services may be provided by the hospice to a patient living in an assisted living facility, adult family-care home, nursing home, hospice residential unit or facility, or other non-domestic place of permanent or temporary residence.
The inpatient component of care is a short-term adjunct to hospice home care and hospice residential care and shall be used only for pain control, symptom management, or respite care. The hospice bereavement program must be a comprehensive program, under professional supervision, that provides a continuum of formal and informal support of services to the family for a minimum of one year after the patient's death. §§ 400.609(1)- (5), Fla. Stat.
The goal of hospice is to provide physical, emotional, psychological, and spiritual comfort and support to a dying patient and their family. Hospice care provides palliative care as opposed to curative care, with the focus of treatment centering on palliative care and comfort measures.
Hospice care is provided pursuant to a plan of care that is developed by an interdisciplinary team consisting of, e.g., physicians, nurses, social workers, counselors, including chaplains.
There are four levels of service of hospice care: routine home care, continuous care, general inpatient care, and respite care. Generally, hospice routine home care is the vast majority of patient days and respite care is typically a very minor percentage of days.
Continuous care is basically emergency room type or crisis care that can be provided in a home care setting or in any setting where the patient resides. Continuous care is provided for short amounts of time usually when symptoms become severe and skilled and individual interventions are needed for pain and symptom management.
The inpatient level of care provides the intensive level of care within a hospital setting, a skilled nursing unit, or in a free-standing hospice inpatient unit. Respite care is generally designed for caregiver relief.
Medicare reimburses different levels of care at different rates. Approximately 85 to 90 percent of hospice care is Medicare related.
There are certain services required by specific patients that are not necessarily covered by Medicare and/or private or commercial insurance. These services may include music therapy, pet therapy, art therapy, massage therapy, and aromatherapy. There are other more complicated and expensive non-covered services such as palliative chemotherapy and radiation that may be indicated for severe pain control and symptom control.
Each applicant proposes to provide hospice patients with the all of the core services and many of the other services mentioned above. However, there are several distinctions among the applicants which are discussed later.
Regency's LOI and CON Application
Prior to the final hearing, Odyssey and United filed separate motions requesting entry of an order dismissing Regency's petition and CON application.
Odyssey and United argue that Regency Hospice of Northwest Florida, LLC's initial LOI and shell CON application were defective because only a corporation, not a limited liability company, authorized to do business in Florida on the date these documents were filed, can be a viable applicant to
provide hospice services in Florida. As a result, the Agency should have rejected the LOI and shell CON application because Regency LLC was not an existing corporation on the date the LOI and shell CON application were filed contrary to Florida law.
The following findings of fact relate to this issue.
On November 2, 2006, Regency Hospice of Northwest Florida, LLC was formed as a Delaware limited liability company for the purpose of pursuing approval of a CON to provide for a new hospice program in Florida. (Regency LLC was 100 percent owned by RHG and did not differ in structure from Regency, except for the difference in entity status.)
On November 3, 2006, the Florida Secretary of State certified that Regency LLC was properly registered to conduct business in Florida on November 3, 2006.
In October 2006, Odyssey and United filed separate LOIs. By Agency rule, these filings created a grace period for filing additional LOIs.
During the grace period, on November 7, 2006, Regency LLC filed a LOI to establish a new hospice program in Service Area 1. On November 9, 2006, the Agency issued a letter to Regency LLC, accepting the LOI.
On November 22, 2006, Regency LLC filed its initial shell application with the Agency. The initial CON application consisted of two pages. Reg 7; T 118.
Thereafter, Odyssey advised the Agency that Regency LLC's CON application should be withdrawn from further consideration because the applicant entity, Regency LLC, was not a corporation under Florida law, but was instead a limited liability company.
On November 28, 2006, the Agency notified Regency LLC that it was withdrawing Regency LLC's CON application for consideration on the basis that Regency LLC was a limited liability company, rather than a corporation.
On November 29, 2006, a certificate of incorporation was filed on behalf of Regency Hospice of Northwest Florida, Inc., with the State of Delaware. A certificate of conversion was filed converting the limited liability company to a corporation, i.e., Regency Hospice of Northwest Florida, LLC to Regency Hospice of Northwest Florida, Inc.
On December 5, 2006, a certificate of conversion and articles of incorporation were filed on behalf of Regency Hospice of Northwest Florida, Inc. with the Florida Secretary of State. The Florida Secretary of State issued a document stating in part: "The Certificate of Conversion and Articles of Incorporation were filed December 5, 2006, with an organizational date deemed effective November 2, 2006, for REGENCY HOSPICE OF NORTHWEST FLORIDA, INC., the resulting Florida corporation."
On October 24, 2007, the Florida Secretary of State certified that Regency Hospice of Northwest Florida, Inc. "is a corporation organized under the laws of the State of Florida, filed on December 5, 2006, effective November 2, 2006." (emphasis added).
On December 11, 2006, Regency Hospice of Northwest Florida, Inc., filed a formal petition (by letter) requesting a hearing in connection with the Agency's prior notice indicating withdrawal of the CON application.
On or about December 21, 2006, a settlement agreement was reached among representatives of the Agency and Regency Hospice of Northwest Florida, LLC and "now known as" Regency Hospice of Northwest Florida, Inc. The Agency agreed to accept a timely filed and complete CON application by Regency Hospice of Northwest Florida, Inc. The Agency was persuaded that Regency was a proper applicant in light of its conversion from Regency LLC to Regency.
On or before December 27, 2006, Regency, Odyssey, and United timely filed their completed CON applications, also known as the omissions responses. In particular, the president and CEO of Regency executed the "certification by the applicant," Schedule D-1, which stated in part: "I certify that the applicant for this project will license and operate the health
services, programs, or beds described in this application." Reg
7 at Schedule D-1, p. 9.
On January 9, 2007, the Agency adopted and approved the settlement agreement by entry of a Final Order. On January 12, 2007, the Agency published its decision in the Florida Administrative Weekly to accept the Regency Hospice of Northwest Florida, Inc., CON application.
On January 16, 2007, the Agency advised Odyssey of the final Agency's decision to accept Regency's CON application.
On February 5, 2007, Odyssey filed a petition to challenge the Agency's decision to accept Regency's CON application.
On April 19, 2007, the Agency partially granted the Agency's own motion to dismiss "to the extent that the Petition is dismissed as moot and due to the fact that the Petitioner did not have standing to file the Petition at the time it was filed." In essence, the Agency decided that because Odyssey had already filed a petition to challenge the Agency's preliminary decision to deny its CON application and the Agency approval of Regency's application, that the filing of that petition rendered the original petition to challenge the agency's decision to allow Regency of Northwest Florida, Inc. to submit a CON application moot.2
There is no evidence that Odyssey sought appellate review of the Agency's April 19, 2007, Final Order.
On November 8, 2007, Odyssey filed a Motion for Summary Recommended Order seeking dismissal of Regency's CON application. A similar motion was filed by United on
November 9, 2007. Regency, joined by the Agency, filed a response.
On November 26, 2007, a hearing was held regarding the motions and all counsel were heard. After hearing argument of counsel, the motions were denied without prejudice.
As a matter of fact, Regency Hospice of Northwest Florida, Inc. did not exist at the time the LOI and shell CON application were filed with the Agency. The LOI and the shell CON application were filed on behalf of Regency Hospice of Northwest Florida, LLC that was not a corporation authorized to do business in the State of Florida and not eligible at that time to file a LOI or CON application to provide a new hospice program.
Whether Regency Hospice of Northwest Florida, Inc., formed after the LOI and shell CON application were filed, is a viable applicant turns on whether the "conversion" statutes apply, or if not, whether the 'forgiveness clause,' Section 408.039(5)(d), Florida Statutes, applies.
For the reasons stated in the Conclusions of Law, the issues regarding Regency's corporate status, while novel, are resolved in Regency's favor.
Fixed need pool
Pursuant to its numeric need methodology, the Agency published a fixed need pool or a numeric need for one new hospice program in Service Area 1 for the second batching cycle of 2006.
In forecasting need under the rule methodology, the Agency uses the historical average three-year death rate. It applies it against the forecasted population two years out or for a two-year planning horizon, in this case January 2008. The projected first year of operation for a new provider in this case is 2008.
Then, the Agency uses the statewide penetration rate, which is the number of hospice admissions divided by hospice deaths. The penetration rate is also considered a use rate in other health care arenas, but in hospice it is generally referred to as a penetration rate.
The statewide average penetration rate is subdivided into four categories: cancer over age 65; cancer under age 65; non-cancer over age 65; and non-cancer under age 65. The projected hospice admissions in each category are then compared to the most recent published actual admissions to determine the
number of projected un-met admissions in each category. If the total un-met admissions in all categories exceeds 350, the need for a new hospice is shown, unless there is a recently approved hospice in the service area or a new hospice provider has not been operational for less than two years.
According to the Agency's fixed need pool methodology, the net un-met need for hospice's admissions in Service Area 1 is 450 additional hospice admissions in 2008.
Among the four categories, there is a higher need projected among non-cancer patients. The percentage of non- cancer patients can vary from community to community and a hospice patient's admissions will likely reflect that local decedent population. (Historically, for RHG hospice operations, approximately 62 percent of the admissions were non-cancer diagnoses and 38 percent were cancer diagnoses, whereas Odyssey Healthcare's overall hospice experience is approximately 68 percent non-cancer and 32 percent cancer and UHS's experience is approximately 64 percent non-cancer and 36 percent cancer.)
Demographics of Service Area 1
AHCA Service Area 1 consists of four counties: Escambia, Santa Rosa, Okaloosa, and Walton Counties, located in the northwest portion of the Florida panhandle.
Geographically, the service area is large. It spans from the Florida-Alabama border on the west in Escambia County to the eastern border of Walton County over 100 miles away.
The July 2006 population estimates for Service Area 1 indicate that the total population was approximately 700,000 with the four counties having the following population:
Escambia (303,578); Santa Rosa County (140,988); Okaloosa County (193,298); and Walton County (56,900).
In the most recent calendar year, there were 5,800 deaths in the service area and 6,400 deaths per year projected in the two-year planning horizon.
The largest population center is Escambia County (and the city of Pensacola) followed by Okaloosa, Santa Rosa, and Walton Counties. Walton County is the fastest growing county, which experienced 40 percent growth in the last six years followed by Santa Rosa with approximately 20 percent growth. Overall, the service area grew approximately 11 to 12 percent. When Escambia County is excluded, the service area grew approximately 19-20 percent for the three eastern counties.
Between 2006 and 2011, Santa Rosa County is projected to grow by approximately 16 percent and Walton County by approximately 20 percent.
Service Area 1 has two major east-west arteries, with the I-10 corridor cross the central and more northern portion of
the service area, and U.S. Highway 98 running along the coastal beach communities. There are 13 hospitals, 27 nursing homes, and two existing hospice providers in Service Area 1.
The two existing hospice providers are Covenant Hospice and Hospice of the Emerald Coast. Covenant Hospice currently has its headquarters in Pensacola, Escambia County, and satellite offices in Milton, Santa Rosa County and Crestview and Niceville in Okaloosa County. It appears that Emerald Coast has its headquarters in Pensacola and a satellite office in Crestview.
The existing hospice providers do not have offices in Walton County and neither has an office in Fort Walton Beach along the coast in Okaloosa County.
Currently, Covenant Hospice provides approximately 86 percent of the hospice care in Service Area 1 followed by Emerald Coast providing approximately 14 percent of the hospice services. Emerald Coast does not serve hospice patients without primary caregivers.
Based upon the 2,000 U.S. Census, the population of the State of Florida is 65.4 percent White; 14.6 percent African-American; 16.8 percent Hispanic; and 3.2 percent in the
other category. With respect to Escambia, Santa Rosa, Okaloosa, and Walton Counties, the percentages of African-Americans, Hispanics, and others are as follows: Escambia (21.4 percent
African-American, 2.7 percent Hispanic, and 5.0 percent other; Santa Rosa (4.2 percent African-American, 2.5 percent Hispanic, and 4.2 percent other; Okaloosa (9.1 percent African-American,
4.3 percent Hispanic, and 5.6 percent other); and Walton County (7.0 percent African-American, 2.2 percent Hispanic, and 3.5 percent other).
The Hispanic population in Service Area 1 is low relative to the State of Florida, although it is projected to grow. On a percentage basis by county, the African-American population is lower than the statewide percentage, except Escambia County, which also has the largest population of the four counties in Service Area 1.
The proposals
Regency's proposal
Regency proposes to establish its new hospice program with the immediate opening of three offices at commencement of operations in Pensacola, Escambia County; along the coast in Fort Walton Beach, Okaloosa County; and along the I-10 corridor in De Funiak Springs, Walton County.
In its CON application, Regency projected the number of admissions in years one and two, 2008 and 2009, 242 and 496, respectively. With the projected average length of stay (ALOS)
60 days in year one and 80 days in year two, the overall projected patient days were 14,543 in year one and 39,686 in
year two. The ALOS projections were demonstrated to be consistent with other Florida hospice start-up operations.
The resulting total average daily census (ADC) from the proposed three office locations is 40 in year one growing to
108 in year two, with continuing growth thereafter.
The Regency projections appear to be reasonable and achievable.
Regency projects that it can open all three offices for $195,745.
Odyssey suggests that Regency has impermissibly amended its CON application by describing proposed programs and services in great detail during the final hearing that were minimally, at best, discussed in Regency's CON application, including the omissions responses. See Odyssey's PRO at 44-52.
In its CON application, Regency notes that it is a subsidiary Regency Healthcare Group, LLC, which offers hospice services in three states, Alabama, Georgia, and South Carolina. Regency described the corporate structure, including the entities operating in these states. Regency is also affiliated with two non-profit foundations, which accept donations and provide support to their hospice programs.
Regency places heavy reliance on the experience of the existing hospice programs in Alabama, Georgia, and South Carolina.
In its CON application, Regency lists several types of programs currently offered. For example, the Regency Hospice/New Beacon programs have a full-time pharmacist (Pharm. D.) on staff to assist their teams.
Regency lists the services that its staff will directly provide and provide through contractual arrangements. Reg 7 at 33-34. (Regency [and United] mention providing dietary services through contractual arrangements, but the service is required to be provide by staff. AHCA 1 at 17.) Regency mentions that it will sponsor community education programs. Id. at 16.
Regency also lists several non-reimburseable services provided by its affiliated hospice programs such as bereavement (for at last 12 months (13 months according to hearing testimony) following death of the patient) and chaplain services, the recruitment, training, and supervision of volunteers, hospice care for the medically indigent, flower and music ministries, and assistance with utility bills, food, clothing, and other necessities for needy patients. See Reg 7 at 2, 25, and 26.
On page 12 of its CON application, Regency notes that for the year ending October 31, 2006, Regency affiliated hospice programs rendered 18.4 percent of total days of care to African- Americans and that "Regency will focus on this population as an
outreach group since it is a significant part of the population of Service Area 1. This is particularly the case in Escambia County, which has the largest population, and African-Americans may be an underserved group."
Regency mentions a potentially unmet need in Walton County and commits to opening an office in De Funiak Springs to serve the rural areas of the county. Id. at 23-25. Regency commits to providing care to persons without caregivers. Id.
In several places in its CON application, Regency references continuous care generically, id. at 5-6, and based on the experience of Regency's affiliated hospice programs in other markets and expectations for the start-up of a new program, Regency projects patient days for continuous home care, routine home care, inpatient respite care, and general inpatient care. Id. at 32. On Schedule 7A, Regency has a line dedicated for continuous care as part of its revenue projections and also Schedule 8A provides for an expense for continuous care for years one and two. Id. at 27-28, 30, and 32. (Regency proposes
1.46 percent of continuous case; Odyssey, 1.33 percent; and United, a negligible amount.)
During the final hearing, Regency expounded on these services. For example, there was testimony that as part of the "flower ministry," Regency expects to offer a Christmas tree program. It appears that the flower ministry and Christmas tree
programs are local programs within the Birmingham, Alabama, area, spearheaded by a volunteer. It does not appear that Regency presently provides this service on a corporate-wide basis, although there is some intent to do so - it would depend on the leadership of their volunteers. See T 125-126, 142, 368, 537; Reg 83.
In its CON application, Regency notes at page 32 that "[t]rained volunteers will provide important services by helping families and loved ones care for patients, by raising funds to support hospice services, and by performing administrative report functions." One witness, Ms. Acton, testified that her testimony was limited to the volunteer program in Jefferson County.
Regency included letters of support in the deposition testimony of Richard Mason, Reg 79, indicating that Regency would be able to establish inpatient programs at the three Sea Crest nursing homes in Service Area 1 in Pensacola, Destin, and Crestview. (There is no affiliation between Sea Crest and RHG or its subsidiaries, except for two minority investors in Sea Crest who are also investors in RHG.)
Overall, Regency's CON application mentions, although not in elaborate detail, the programmatic aspects of its proposal that were discussed in much more detail during the final hearing.
United's proposal
United proposes to establish a new hospice program in Service Area 1 with the headquarters in Milton, Santa Rosa County, Florida. It intends to open its first satellite office in Walton County when market forces indicate that it would be more efficient to have another office.
United plans to have a dedicated hospice team located in Walton County to ensure access to services to the Walton County residences. United also proposes to have inpatient arrangements at its sister-facility in Milton as well as at nursing homes in Okaloosa and Walton Counties. United included letters of support from all three nursing homes indicating that it would be able to establish the proposed inpatient sites.
In its CON application and during the final hearing, United provided a detailed discussion of hospice services it will offer.
United is projecting project costs of $336,467.
United Hospice of West Florida, Inc.'s parent is UHS- Pruitt, whose principle business appears to be the nursing home business. UHS-Pruitt also has a number of operating subsidiaries that appear to supply or enhance those nursing homes with physical therapy or pharmacy services. In its CON application, United focuses on minority outreach to the Hispanic population in the service area. As noted herein, the population
of Hispanics in the service area is quite low compared to the statewide average.
In its CON application, United projected that it would achieve 264 admissions in year one and 454 admissions in year
two.
United applied a median length of stay of 27 days to
arrive at its projection of 7,185 patient days in year one and 12,061 patient days in year two. United's admissions and average daily census ramp up through the end of year one and then remain flat showing no growth throughout the second year of operation.
United's projections appear to be reasonable and achievable.
Odyssey's proposal
Odyssey proposes to initiate hospice services by opening an office in Pensacola, Escambia County. In the final quarter of year two, Odyssey proposes to open a second office in Okaloosa County, and an office in Walton County in year three. Within six months following the opening of the Walton County office, Odyssey plans to open a fourth office in Santa Rosa County.
Odyssey projected 270 admissions in year one and 411 admissions in year two. Odyssey projected in its CON application that it would have an ALOS of 25 in year one and 50
in year two, resulting in total patient days of 6,750 in year one and 20,550 in year two.
Odyssey's projections for routine care for year two are similar to the percentages proposed by United and Regency. Odyssey proposes less cancer, but more respite and non-cancer care than United and Regency. United proposes more inpatient care than Regency and Odyssey.
Odyssey's projections appear to be reasonable and achievable.
Odyssey anticipates that it will cost $464,720 to start its Escambia office.
Odyssey Healthcare, through its not-for-profit affiliate, Hospice of the Palm Coast, currently operates two start-up hospice programs in Florida, Volusia County, with a satellite office in Flagler County, Florida, and one in Dade County, Florida, with a satellite office in Monroe County. Both programs are licensed and Medicare/Medicaid certified.
Odyssey will benefit from the clinical experience, expertise, management resources, and financial strength of Odyssey Healthcare in implementing its program within Service Area 1.
Odyssey start-up team has a group of experts located in Odyssey's Dallas support center. The team consists of designated experts from several departments including billing,
human resources, clinical compliance, and IT. The team meets weekly and is responsible to support the start-up hospice programs.
For Odyssey Healthcare, hospice care is delivered via an interdisciplinary team of caregivers who specialize in end- death-of-life care, including nurse care managers, physician, nurses, spiritual advises, bereavement coordinators, social workers, home health aides, and members of the patient's family.
The manager of the team is an RN who addresses the needs of the patient and family and develops a specific plan of care with the physician.
The RN case managers coordinate care with other team members while the patient's physician works with the Odyssey medical director and other team members to assure that all symptoms are controlled, pain managed, and the patient and family informed.
Other members of the interdisciplinary team include a chaplain, home healthcare aide, social worker, trained volunteers, bereavement coordinator, on-call nursing team, and other specialists.
The interdisciplinary team delivers these services in a context of Odyssey Healthcare's 14 service standards by focusing on admissions within three hours of a physician admission order.
Odyssey Healthcare offers certain educational tools which will be implemented by Odyssey to furnish healthcare providers with information about non-cancer and cancer diagnoses of all types.
Odyssey commits to spending $25,000 in its first year of operation for community outreach and marketing.
Odyssey identified the African-American community as an underserved population in Service Area 1.
Odyssey Healthcare operates in numerous locales where there are culturally diverse areas such as Miami/Dade County and El Paso, Texas, with high percentages of Hispanic population.
Other Odyssey Healthcare hospice programs have also reached out to African-American communities in Memphis, Tennessee, and Charleston, North Carolina.
Odyssey's interdisciplinary teams are often made up of Hispanic or African-American medical directors, home health aides, social workers, priest, ministers, and nurses.
Odyssey Healthcare has recreated a developmental model called community education representatives (CERs) to educate the community as to the benefits of hospice services and the services that are provided by Odyssey. These CERs are used to establish and develop referral sources in part.
Odyssey Healthcare programs offer extensive bereavement programs (for 13 months after the death of the patient) as part of the core Medicare services it provides.
Odyssey Healthcare operates hospice programs in Birmingham, Montgomery, and Mobile, Alabama. The Mobile program is in Baldwin County, which is contiguous to the Pensacola, Escambia County, an area Odyssey proposes to serve.
Odyssey Healthcare's Mobile, Alabama, hospice program has an inpatient agreement with Providence Hospital in Mobile, Alabama, which has a related facility, Sacred Heart Hospital, in Pensacola, Florida, which has the same parent organization.
Odyssey will benefit from Odyssey Healthcare's resources and experience with respect to start-ups as well as centralized services such as accounting, centralized billing, and training. All other benefits include the size of Odyssey Healthcare, comprehensive scope of hospice services, service standards, staff education including palliative care center vocation, commitment to education, and investment and technology.
Odyssey Healthcare has internally developed an in- house pharmaceutical system called Hospice Pharmaceutical Services (HPS). HPS is a separate company and not a wholly- owned subsidiary of Odyssey Healthcare.
HPS provides services 24 hours a day, 7 days a week, including pre-admission consultations on referrals. HPS hotline is housed in the Dallas Odyssey Healthcare corporate office and is staffed by a Pharm. D., a pharmacist, and seven hospice certified RNs and at least two on-call nurses who cover the pharmacy system 24/7.
The HPS staff is available to the attending physician and to the local hospice nursing staff when needed.
Odyssey included several letters of support in its CON Application.
Statutory and Rule Review Criteria Rule Preferences
The Agency is required to give preference to an applicant meeting one or more of the criteria specified in Florida Administrative Code Rule 59C-1.0355(4)(e)1.-5.
The first preference is for an applicant who has a commitment to service populations with unmet needs. Each of the applicants identified population groups they believe to have unmet needs.
Hospice patients can be viewed as consisting of four basic categories: cancer patients under age 65; cancer patients age 65 and older; non-cancer patients under age 65; and non- cancer patients age 65 and older. (This is the breakdown of hospice patients used by the Agency in its need methodology.)
It appears that the largest underserved group of these four is the under age 65 non-cancer patients, followed by the non-cancer patients age 65 and older and cancer patients age 65 and older. The only over-served group was the cancer patients under the age 65.
All applicants stated a commitment to serve non-cancer patients. However, only Odyssey and United identified this group as an underserved group and provided evidence concerning how they would meet the needs of this group.
Historically, RHG hospice programs have provided approximately 62 percent of its patient care to non-cancer patients; whereas UHS has provided approximately 64 percent, followed by Odyssey Healthcare at approximately 68 percent. One witness suggested that a range of 35 to 50 percent was reasonable, although there are factors that affect the range such as age of the program.
Regency and Odyssey identified African-Americans as a traditionally underserved group. However, while it is possible to extract the percent of the population by race group in the service area, neither applicant presented any concrete data to show that existing providers in the service area are failing to meet the demands of the African-American population or that this population group is underserved by the existing providers.
The percentage of African-Americans in Escambia County according to 2000 Census information was 21.4 percent; 4.2 percent in Santa Rosa County; 9.1 percent in Okaloosa County; and 7.0 percent in Walton County. Regency stated that it "will focus on this population as an outreach group since it is a significant part of the population of Service Area 1." Reg 7 at
Odyssey stated that African-Americans in the service area would benefit from Odyssey's experience. See Ody 1 at (bates stamp) 46, 59 and 74. United does not discriminate against individuals based upon ethnicity or for any other reason and it historically provides care to minorities.
Both of the existing providers have offices in Escambia County and Regency and Odyssey both propose offices in this county.
Odyssey presented data claiming that RHG hospice programs did a below average job in outreach and service to the African-American communities in areas served by RHG. The analysis was flawed in part because it compares the statewide experiences of RHG and Odyssey Healthcare based upon the operations in different local communities (e.g. rural versus urban) that can have different demographic compositions.
Overall, the evidence indicates that RHG and Odyssey Healthcare have demonstrated a record of doing a credible job of outreach and service to the African-American community.
All applicants agreed that providing continuous care services is an important level of service for hospice patients.
In Service Area 1, continuous care accounts for only
0.6 percent of patient days; whereas the national and Florida averages are four and two percent, respectively. As noted herein, Regency and Odyssey propose a specific percent of continuous care, 1.46 and 1.33 percent, respectively, and United projects a negligible amount, see United 1 at Schedule 7A, although United proposes to provide the service.
United identified patients without caregivers as an underserved population because Hospice of the Emerald Coast does not accept these patients. All three applicants will serve this population.
United identified Hispanics as a population with unmet needs. Service Area 1 has the lowest percent of total population that is Hispanic of all of AHCA's service areas, although there is projected growth. In calendar year 2006, there were 59 Hispanic deaths out of 5,821 deaths in Service Area 1 or approximately one percent. In Santa Rosa County, where United plans to initially open its sole office, there were approximately seven Hispanic deaths in 2006. It was estimated that a little more than 20 Hispanics would use hospice services in the service area per year.
Regency and Odyssey deserve preference under this subsection and United to a lesser degree.
The second preference shall be given to an applicant who proposes to provide the inpatient care component of the hospice program through contractual arrangements with existing health care facilities, unless the applicant demonstrates a more cost-effective alternative. Each of the applicants proposes to serve inpatients through contractual arrangements. No applicant is proposing a freestanding inpatient unit.
Through its related skilled nursing facility in Santa Rosa County, United has an existing relationship with a health care facility that will be used to provide inpatient care. United did not include all of the room and board expenses for Medicaid nursing home patients in its financial projections.
United provided unauthenticated letters of support to demonstrate that it will be able to offer inpatient services in Santa Rosa, Okaloosa, and Walton Counties.
United expects to offer only one office (primary headquarters) in Santa Rosa County that would serve the four- county service area. United expects to establish working teams in the other counties.
Regency does not have any directly affiliated inpatient providers. However, Regency has commitments to enter inpatient contracts with, among other facilities, three nursing
homes operated by Sea Crest Management through mutual investors. These nursing homes are located in Destin and Crestview in Okaloosa County, and Pensacola in Escambia County. Regency also has a commitment from Healthmark Hospital in De Funiak Springs, Walton County.
Although Odyssey did not include any letters of support from any potential inpatient service locations in its original CON application, it stated that it will contract with acute care providers and skilled nursing home facilities in the service area. (Odyssey's CON applications have general letters of support of its application.) At hearing, Odyssey provided letters of support from area nursing homes, including a memorandum of understanding from the administrator of Southern Oaks Nursing Home in Pensacola, a 210-bed facility, indicating a willingness to provide inpatient services for Odyssey patients.
Each applicant can be expected to contract for inpatient services and satisfy this preference.
The third preference shall be given to an applicant who has a commitment to service patients who do not have primary caregivers at home; the homeless; and patients with AIDS.
Each of the applicants presented evidence demonstrating a history and commitment to serve such patients and have in place programs and policies to ensure that such services are provided.
The fourth preference provides: "In the case of proposals for a hospice service area comprised of three or more counties, preference shall be given to an applicant who has a commitment to establish a physical presence in an underserved county or counties."
The two Service Area 1 existing hospice providers have their headquarter offices in Escambia County and there are currently satellite offices in Santa Rosa and Okaloosa Counties. There are no offices in Walton County, which is the smallest county of the four by population, 56,900 or approximately eight percent in 2006, but with the highest projected growth, 16,299, by percent, approximately 40 percent.
Regency plans to open an office in Escambia and Walton Counties and an additional office in Fort Walton Beach along the Okaloosa County coastal area where neither existing providers have a current office location. Regency proposes the widest geographic coverage of offices of the three applicants, although the Escambia County office would add little. Its Walton County office would make it the only service provider with an office in that county.
Odyssey plans to initially open an office in Escambia County and open an additional office in Okaloosa County starting toward the end of the second year of operation. Odyssey plans to open an office in Walton County in its third year of
operation and a fourth office in Santa Rosa County six months thereafter.
United proposes to open an office initially in Milton, Santa Rosa County. United proposes to have a dedicated hospice team in Walton County.
No persuasive evidence was presented that residents of Walton County (or any other county in the service area) do not have access to hospice services or are actually underserved.
The fifth and final preference provides: "Preference shall be given to an applicant who proposes to provide services that are not specifically covered by private insurance, Medicaid, or Medicare."
All of the applicants meet this preference.
Odyssey identifies several proposed services such as bereavement, pet, message, aroma, and music therapy, dialysis, palliative radiation, and palliative chemotherapy.
United identifies similar services, although United provides bereavement coordination through either a social worker or chaplains. United does not allocate a specific position exclusively for bereavement.
Regency identifies similar services such as bereavement following death, chaplain services, recruitment and training of volunteers, flower and music ministries, and assistance with utility bills, food, clothing, and other
necessities. (The bereavement services offered, as well as policies and procedures used by RHG's hospice programs, are similar.)
Bereavement and volunteer services are not specifically reimbursed by Medicare, but they are conditions of participation.
The State of Florida requires all hospice providers to serve indigent patients and the applicants agree to provide hospice services to all regardless of their ability to pay.
§ 400.6095(1), Fla. Stat.
The applicants have established charitable foundations to provide assistance to the medically needy for services that Medicare does not reimburse.
Consistency with Plans; Letters of Support
Florida Administrative Code Rule 59C-1.0355(5) requires consideration of the applications in light of the local and state health plans. The local health council plans are no longer a factor in this proceeding.
Each applicant provided letters of support ranging from three for Regency; approximately 20 for Odyssey; and 161 for United.
Statutory Review Criteria
Section 408.035(2), Florida Statutes - availability, quality of care, accessibility, and extent of Utilization
The Agency published a fixed need for one additional hospice in the service area. See § 408.035(1), Fla. Stat. There is no persuasive evidence to rebut the presumption of need and all parties concur there is a need for one new hospice.
The service area is served by two hospice providers: Hospice of the Emerald Coast with a market share of 14 percent and Covenant Hospice with a market share of 86 percent.
The extent of utilization of the two providers results in the projection for unmet need of 450 hospice admissions in 2008 growing to an unmet need of 507 admissions in 2009.
Regency, United, and Odyssey projected the following admissions for their respective second year or operation (2009): 496, 454, and 411.
Each applicant can reasonably meet the projected need in conjunction with the existing providers.
Neither of the current providers has offices located in Walton County or in the Fort Walton Beach coastal communities. Regency plans to locate offices in these areas, which may improve accessibility. Odyssey proposes to serve Walton County from its Pensacola office until it opens a Walton County office. United proposes to meet the needs in Walton
County by establishing a dedicated hospice team there and by establishing an inpatient treatment center at an existing nursing home.
Aside from the numeric need projections, there is no persuasive evidence that any geographic portion of the service area or any discreet population category, such as African- Americans, Hispanic, or by age and cancer versus non-cancer groups, needing hospice services are truly underserved, although there is evidence that there are some gaps in services for the existing hospice providers when compared to statewide numbers of hospice use.
Section 408.035(3), Florida Statutes - ability to provide quality of care and record of providing quality of care
Each applicant has a history of providing quality hospice services.
Each applicant has reported overall good responses on patient and family satisfaction surveys.
Each applicant proposes to provide a broad array of hospice services to all persons regardless of their ability to pay. It is expected that each applicant will continue to provide quality of hospice services as they have in their existing programs.
Each applicant will staff its hospice programs according to national guidelines. Regency proposes to staff its
program with nurses on a ratio of one nurse for every ten patients as opposed to the ratio of one nurse for every 12 patients (the National Hospice and Palliative Care Organization [NHPCO] standard) proposed by Odyssey and United.
Regency proposes more home visits per week (five-to- six hours per week) and more direct care hours as a percent of total staff hours than Odyssey and United. (The national average is four visits per week.)
Regency and Odyssey have developed service standards.
All of the applicants propose to offer similar hospice services that are discussed herein.
There is evidence that Regency, in its Birmingham program, accepts medically complex patients when other providers may not.
There is no evidence that any Regency or United hospice program has been cited for conditional level deficiencies, whereas Odyssey has been cited in approximately three programs, although the specifics and severity of each deficiency is unclear. It appears the deficiencies have been cleared. T 1244-1252. Odyssey also operates under a CIA, unrelated to any quality of care concerns.
RHG has a Doctor of Pharmacy (Pharm. D.) on staff who is experienced in hospice and palliative care pharmacy issues. Dr. Blodgett makes regular visits to the offices in Alabama and
at least quarterly visits to each of RHG hospice programs in Georgia and South Carolina; participates in IDT meetings, quarterly in South Carolina and Georgia and on a regular basis in Alabama; and is available for consultations on a regular basis. Dr. Blodgett averages between four to five home visits while working for New Beacon in Alabama. She has not made house calls yet in Georgia and South Carolina, although she consults with nurses in those areas and provides training for the hospice staff.
Having a Pharm. D. on staff is advantageous for a hospice program.
Dr. Blodgett recounted several representative events when she was able to directly assist a patient in dire straits.
Dr. Blodgett currently oversees all of Regency's local hospice operations in Alabama, Georgia, and South Carolina with a combined average daily census of 900 to 1,000 patients, roughly 600 at New Beacon and 350 at Regency Hospice.
RHG contracts for pharmacy services when Dr. Blodgett is unavailable.
Odyssey provides pharmacy services through a consulting contract arrangement with a specialized pharmacy that is co-located with odyssey at its Dallas, Texas, headquarters. The consulting pharmacy has a Pharm. D. and a pharmacist on
staff to provide consulting services to Odyssey's programs. The Pharm D. does not provide home visits.
UHS-Pruitt has a subsidiary company, United Pharmacy Services, headed by a Pharm. D., which provides pharmacy services to the company's long term nursing home facilities, including its affiliated nursing home in Santa Rosa County. Fifty percent of United Pharmacy Services business is unrelated to UHS. The Pharm. D. is not responsible for oversight of the hospice operations. There are two licensed pharmacists who are not Pharm. D.'s within United Pharmacy Services who provide training for hospice staff and provide consulting services as needed 24/7. As a normal practice, they do not provide medications for hospice patients who at home. They consult on every hospice admission.
Odyssey Healthcare has operational experience in Florida with two hospice programs, beginning in 2004. No confirmed complaints have been reported by the Agency. (Regency and United do not operate hospice programs in Florida.)
Odyssey also has contiguous hospice program across Perdido Bay in Alabama.
Odyssey Healthcare operates 76 Medicare certified hospice programs (or seeking certification) in 30 states. Odyssey will adopt Odyssey Healthcare's quality and improvement plans and its operational policies and procedures.
United has an existing relationships with related party providers, particularly its Milton nursing home in Service Area 1. The United family of health companies located there includes a skilled nursing home, pharmacy, durable medical equipment provider, and a therapy provider. These shared resources may increase efficiency for United's hospice program. It also provides United with local contacts with physicians, hospitals, and nursing homes. Of course, in time, it is reasonable that Regency and Odyssey would develop similar relationships, although having existing relationships is a plus for United.
An issue was raised regarding the applicant's commitment to provide continuous care. For the second year of operation, Regency proposes 1.46 percent; Odyssey, 1.33 percent; and United, a negligible amount, although United expects to provide continuous care days as needed by its patients.
Given its existing nursing home as a component of its corporate family, United naturally provides more services to patients in its nursing homes and nursing homes owned by others.
Section 408.035(4), Florida Statutes - availability of resources, including health personnel, management personnel, and funds for project accomplishment and operation
Each of the applicants is a start-up company, relying on its parent organizations for financial and management strength.
Each applicant has demonstrated sufficient resources to fund the start-up of a new hospice program.
Controversies arose regarding when Regency and Odyssey would actually start-up operations following issuance of a CON and the amount each applicant allocated for start-up costs.
Odyssey provided a start-up timeline in its application. The timeline assumes approximately six months from CON approval until Medicare certification. The timeline provides for approximately 60 days between licensure and Medicare certification. The timing of licensure and Medicare certification is imprecise at best.
A provider is not entitled to reimbursement from Medicare until after certification. Operational expenses for treatment of patients between state licensure and Medicare certification would generally fall under start-up costs.
Approximately three months prior to state licensure, Odyssey intends to hires a general manager who begins interviewing and hiring key staff. Other staff including the admission coordinator, RN, home health aide, dietician, social worker, and chaplain are hired in the third month.
Odyssey projected its total project cost of $464,720 and total start-up costs of $350,000, with $240,000 allocated for salaries/benefits/taxes, over the six-month period from
licensure approval until Medicare certification. (Odyssey exhibit 39 projects start-up expenses of $343,191.)
Regency projected on Schedule 1 that its total project costs would be $195,745, with pre-opening staffing and recruitment costs of $36,500. Total start-up costs are projected at $60,000 for three offices. Mr. Morris joined RHG in February 2006. He is currently CEO for RHG and has experience with hospice programs. Subsequent to RHG's acquisitions, RHG started three hospice programs, one of which is a Medicare certified program in Augusta, Georgia, and two satellite offices. T 47, 50, 59-60, 62, 95-96.
United projected on Schedule 1 that its total project costs would be $336,467, with total start-up costs at $57,257.
According to Dr. Luke, if Odyssey's start-up model and time line is applied to Regency, i.e., month one is actual Medicare certification rather than licensure, Regency would need
$543,408 in pre-opening expenses for the three offices it plans to open instead of $60,000 listed by Regency on Schedule 1.
Odyssey also criticized United's projected start-up costs as too low based on Odyssey's six month start-up time line. United proposed it would hire most of its staff 30 days prior to licensure. United's vice president in charge of development who has started 15 to 20 hospice operations stated
that it is a reasonable approach to hire, orient, and train staff one month prior to licensure.
According to Dr. Luke, if Odyssey's start-up model and time line is applied to United, United would need $201,482 rather than $57,257 projected by United on Schedule 1. If month one is the month when United achieves licensure, then the start- up expenses would be $115,846 according to Dr. Luke.
The persuasive evidence shows that Regency and United do not use the Odyssey start-up model and time line. Regency's pre-opening costs on Schedule 1 include only the pre-opening salaries prior to initial state licensure of the hospice rather than Odyssey's approach. The salary and wage expenses for Regency after initial licensure are included on its Schedule 8A projection of expenses, whereas it appears Odyssey started its Schedule 8A expenses on the date of Medicare certification.
Dr. Luke agreed that this difference in approach would reduce his estimate of pre-opening expenses from $543,408 to $297,792. In other words, if Regency's month one, year one is licensure not certification, according to Dr. Luke, Regency's start-up expenses would be $297,792.
Unlike Odyssey, Regency proposes to hire its local executive director one month prior to licensure. All of the additional patient care staff necessary to care for the low initial patient census in the first month of operation would
also be hired and undergo training 30 days prior to licensure. Additional staff would be hired and start on day one of licensure and undergo training during the first month of operation while the patient census is in the ramp up stage.
While Odyssey and Regency propose differing start-up models and time lines with differing hiring schedules and Regency's time line appears to be quite concentrated, both applicants have sophisticated parent company's who have experience with hospice operations, albeit that Odyssey has more experience than Regency or United with start-up hospice programs, especially in Florida where Regency and United have no experience and Odyssey has experience with two start-up hospice programs. (Regency has not done any start-up hospice programs in a state where either Regency or New Beacon had no presence, although it was noted by a witness that the markets were similar except for the CON process in Florida.)
Like, Odyssey, United has start-up experience and given its time-line, its projected start-up costs are reasonable.
The start-up costs and expenses projected by the applicants are reasonable, although it would appear the Regency's projected start-up costs may be overly optimistic. In any event, the parent organizations have sufficient funds to cover projected start-up costs and expenses.
All of the applicants demonstrated they can recruit staff to adequately provide hospice services.
Section 408.035(5), Florida Statutes - extent to which proposed services will enhance access to health care for residents of the service district
There is a projected need for one additional hospice program in the service area. Approval of any of the applicants would enhance access to some degree and it is difficult to predict which applicant would enhance access the best.
Regency proposes to open three offices immediately in Escambia, Okaloosa, and Walton Counties. Regency would have the only office offering hospice services located in Walton County.
Covenant has an office in Niceville in Okaloosa County and not far from Fort Walton Beach, also a site proposed for a Regency office.
The existing providers have their headquarters in Escambia County, also the location of Odyssey's headquarters and initial office. Thereafter, Odyssey plans to open offices in Okaloosa, Walton, and Santa Rosa Counties in this order.
United plans to open its initial office in Santa Rosa County where its related nursing home is located. United plans to have dedicated hospice team in Walton County and perhaps a second office located there in the future.
Of the three applicants, United would enhance access the least. The proposed office locations for Regency and to a
lesser extent Odyssey would probably favor Regency rather than Odyssey, although it is one of degree. Some of the factors that favor Regency and Odyssey over United are: Regency and Odyssey expect to provide a specific percent of continuous care, 1.46 and 1.33, respectively; both project to serve more patients (by patient census) than United; both will focus efforts more on a service area wide basis than related nursing home patients in the case of United; and both will devote more FTEs for community hospice/education representatives and information materials than United.
Section 408.035(6), Florida Statutes - immediate and long-term financial feasibility
Short-term financial feasibility is considered to be the ability of an applicant to finance the start-up of operations. Each of the parent entities of the applicants has sufficient funds to finance the start-up of operations and, as a result, each applicant demonstrated immediate or short-term financial feasibility.
Each of the financial projections relating to long- term financial feasibility submitted by the applicants has problems.
There is no rule or statute that expressly defines long-term financial feasibility, notwithstanding the requirement that an applicant provide the Agency with detailed financial
projections, including a statement of the projected revenues and expenses for the first two years of operation after completion of the proposed project. § 408.037(1)(b)3., Fla. Stat.
The applicants provided financial projections for two years of operation. Thus, as identified by the applicants, long-term financial feasibility relates to whether an applicant
has the ability to break even or show a profit by the end of the second year of operations. See generally T 1412, 1533.
Regency's errors including typographical errors, admittedly small (the inclusion of Medicare revenue that would not be received for the first 45 days to two months of operation while the hospice program would not yet have Medicare certification), would not affect the projected long-term financial feasibility of its project. The errors affect the year one projections only and resulted in a projected write-off of approximately $31,000 or an increase to the projected loss of approximately $31,000. Regency shows a profit in year two.
Also, regardless of whether Regency's projection of pre-opening expenses is reasonable or not, which it appears to be, Regency has adequate cash on hand to open its three proposed offices and the pre-opening expense if greater than projected is not likely to affect long-term financial feasibility.
United's financial schedules contained an error by omitting the room and board expenses for Medicaid nursing home
residents who receive hospice care. This failure to include the full cost of inpatient care would result in a shortfall in the pro forma of between $50,000 to $150,000 and potentially
$373,000 in year two of operation.
United also explained that it used a conservative number of patient days on its financial schedules. It is likely that if United had used a mean average length of stay rather than a median length of stay, the projected revenues would likely have increased although offset by increasing expenses.
In other words, it would have increased the average daily census and thereby increased the revenues.
Mr. Shull testified that he expected that the United proposal would be financially feasible in the long-term based on the experience in its other hospice programs.
Odyssey's financial projections were the subject of focus by the applicants. See, e.g., Odyssey's PRO at paragraphs 53-55; Regency's PRO at paragraphs 203-210; and United's PRO at 43-45.
On Schedule 6, an applicant sets forth its projected staffing for the project. When reporting full time equivalents (FTEs) for staffing, the Agency does not proscribe the specific format to be used.
On its original Schedule 6 contained in the application, Odyssey set forth the number of year-end FTEs as opposed to using a weighted average of FTEs for the year.
Regency suggested that, as a result of Odyssey's portrayal of staffing information, there was no link between Odyssey's Schedule 6A FTEs and salaries and the expense for staff's salaries and wages on Schedule 8A. Regency also contended that Odyssey did not account for staffing expenses associated with the provision of respite care and continuous care. Further, although Odyssey proposes to spend $25,000 in community outreach and marketing programs in its first two years of operation, that expense was not included in its pro forma projections.
Odyssey prepared numerous exhibits, including revisions, that deal with these areas and various witnesses explained and offered rebuttal in response.
Regarding the continuous care/respite issue, if appropriate revisions are made to Odyssey's pro forma, on paper, there is likely to be a projected net loss in year two of approximately $100,000.
Odyssey proposes changing the 13.5 percent management fee that was included in the application to a seven percent management fee.
Odyssey Healthcare's two not-for-profit Florida hospice entities are charged a seven percent management fee, similar to the fee it charges to other not-for-profit subsidiaries.
Odyssey's proposed seven percent management fee is in line with the management fees proposed by Regency (7.2 percent) and United (6.3 percent).
It appears reasonable to charge not-for-profit entities a lower fee because these entities would not be charged with the home office costs associated with various regulatory filings associated with being a publicly traded company. On the other hand, other than perhaps being a mistake, Odyssey's rationale for charging a different management fee for the applicant, a for-profit entity, T 1039, than other related for- profit entities is a departure from the norm.
Changing the management fee and accounting for all of the adjustments to its financial schedules would result in Odyssey showing a year two profit of approximately $80,000.
Section 408.035(7), Florida Statutes - extent to which proposal will foster competition that promotes quality and cost- effectiveness
Approval of any of the applicants is likely to foster competition, thereby improving quality and cost-effectiveness in the service area, although there is no evidence that the current
providers do not provide quality of care or are not cost- effective.
Hospice services are not price competitive because Medicare pays a flat per diem rate to all providers in a given area and the vast majority of hospice patients are Medicare patients.
Each provider has the ability to increase community awareness of available hospice services thus increasing the opportunity for increasing market penetration of all providers.
United has existing linkages in the community that it serves through its related nursing home and other related companies. United's prospects of achieving cost-efficiencies and economies of scale are increased because of these relationships.
Regency and Odyssey can also achieve similar efficiencies through their existing relationships with related entities.
Having an office in a particular county such as Walton County, would most likely establish and promote a presence in the area that would be beneficial given its rural setting.
However, it was not persuasively proven that opening more versus fewer offices in the short-term is more beneficial to the potential hospice patient pool from the standpoint of actually promoting cost-effectiveness and quality of care,
although it does increase the physical presence of a hospice provider and give potential patients more choices.
Section 408.035(8), Florida Statutes - costs and methods of construction, etc.
None of the applicants are proposing construction as part of their hospice programs, thus, this criterion is not applicable. (Section 408.035(10), Florida Statutes, is also not applicable.)
Section 408.035(9), Florida Statutes - the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent
All of the applicants propose to serve all eligible patients without regard to ability to pay and have a history of providing patient care to the medically indigent. All of the applicants have allocated patient days to serving, e.g., Medicaid patients.
Regency offered to provide 2.5 percent of patient days to the medically indigent as a condition on the CON. Odyssey and United did not offer a similar condition. However, the Agency states in the SAAR that "[b]ecause hospice programs are required to provide services to anyone seeking them, CON conditions are not necessary to ensure such care is given."
AHCA 1 at 6.
Ultimate findings of fact
The Agency determined that there is a numeric need for one additional hospice program in the service area.
On balance, each of the applicants satisfies the applicable statutory and rule criteria, although the projected long-term financial feasibility by year two on paper of United's proposal was not proven.
This proceeding involves a close question. The Agency preliminarily approved Regency's application. The only evidence of the Agency's rationale for its position is stated in the SAAR, which does not include consideration of the facts presented in this de novo hearing.
Each of the applicant's related entities has experience starting-up, owning, and operating hospice programs with Odyssey related entities operating two programs in Florida unlike Regency and United.
Each applicant's related hospice entities provide a broad array of hospice services to all persons regardless of their ability to pay, race, severity of illness, or setting where hospice services need to be provided. Each applicant demonstrated a history of service, by related entities, to Medicaid and medically indigent patients. The residents of the service area would benefit regardless of which applicant is approved.
The applicants are committed to community outreach and can be expected to heavily market their services.
All of the applicants demonstrated that they will actively recruit needed personnel. United's presence in the service area may give United an edge with regard to recruitment, but if so, the edge is slight.
Consistent with NHPCO standards, Odyssey and United propose a ratio of one nurse for every twelve patients. Regency proposes a better ratio: one nurse for every ten patients.
Regency's Pharm. D., although spread thin given the number of hospice programs served by Regency's related entities in three states, is a positive feature.
Despite correcting errors in its financial projections, Regency demonstrated financial feasibility in year two of operations and should receive a comparative advantage.
Odyssey and United had problems with proving long-term financial feasibility. Odyssey, after revisions to its financial schedules and reducing the proposed management fee, demonstrated financial feasibility by year two. United can expect to have a loss in year 2, but like Odyssey, its parent organization has a strong financial position and is committed to the project such that it is likely to be financially feasible beyond year two.
Regency expects to initially open three offices and, in particular, one in rural Walton County. Odyssey plans to open an office in each county within the service area, although staggered. United plans to open one office initially and takes a wait and see approach regarding opening other offices. The approach of United and to a much lesser extent Odyssey, require less overhead expense but is not necessarily appropriate given the need for an additional hospice services over a four-county area, although the need projection does not indicate which portion or portions of the service area need the additional program the most or where underserved persons may be located, although there are gaps in service.
Regency should receive a slight advantage for proposing to offer slightly more continuous care than Odyssey and a greater advantage over United, which expects to provide the service, but did not allocate a specific percentage of care.
United receives an edge given its established relationships in the service area by and through its related service providers. The United family includes a nursing home, pharmacy, durable medical equipment provider, and a therapy provider. It gives United the opportunity to share resources among programs to increase efficiency.
Odyssey receives a plus given current operations in Florida and contiguous operations across Perdido Bay in Alabama.
Odyssey Healthcare's prior problems with the federal government, Medicare cap issues, and unfavorable surveys detract from the overall positive features of Odyssey's proposal. Regency has had one Medicare cap issue. United does not share these problems.
Overall, and in a tight comparative review hearing, the persuasive evidence favors Regency followed by Odyssey with United closely behind Odyssey.
CONCLUSIONS OF LAW
Jurisdiction
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. §§ 120.569 and 120.57(1), Fla. Stat.
Burden of Proof
As applicants, Regency, Odyssey, and United each has the burden of proving, by the preponderance of the evidence, entitlement to a CON. Boca Raton Artificial Kidney Center, Inc. v. Department of Health & Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA 1985); § 120.57(1)(j), Fla. Stat.
The award of a CON must be based on a
balanced consideration of all applicable and statutory rule criteria. Balsam v. Department of Health & Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1986). "[T]he appropriate weight to be given to each individual criterion is
not fixed, but rather must vary on a case-by-case basis, depending upon the facts of each case." Collier Medical Center, Inc. v. Department of Health & Rehabilitative Services, 462 So. 2d 83, 84 (Fla. 1st DCA 1985).
An administrative hearing involving disputed issues of material fact is a de novo proceeding in which the administrative law judge independently evaluates the evidence presented. Florida Department of Transportation v. J.W.C. Co., Inc., 396 So. 2d 778, 787 (Fla. 1st DCA 1981); § 120.57(1), Fla. Stat. The Agency's preliminary decisions on CON applications, including its findings in the SAAR, are not entitled to a presumption of correctness. Id.
Pursuant to the Agency's hospice rule need methodology, the Agency determined that there is a projected need for one new hospice program in Service Area 1 for the applicable planning horizon.
The existence of a numeric need pursuant to the rule creates a rebuttable presumption of need for an additional hospice program in the service area. Vitas Healthcare Corp. of Central Florida, Inc. v. Agency for Health Care Administration, Case No. 04-3858CON, 2005 Fla. Div. Admin. Hear. LEXIS 881, *61-
62 (DOAH June 14, 2005; AHCA July 7, 2005)(citation omitted).3
There is no persuasive evidence to rebut the presumption of need.
Whether the Agency Should Reject Regency's CON Application4
Odyssey and United contend that Regency's CON application should be rejected because Regency was not in existence at the time the LOI and CON application were filed.
It is not disputed that the LOI and shell CON application were filed on behalf of Regency LLC, which was formed as a limited liability company and not a corporation.
Hospice means in part "a centrally administered corporation." § 400.601(3), Fla. Stat.
The Agency sets forth general CON procedures by rule.
Fla. Admin. Code R. 59C-1.008.
LOIs and applications subject to comparative review are accepted in two batching cycles. For certain programs such as hospice, the Agency publishes a fixed need pool prior to the LOI deadline for a particular batching cycle.
In this case, the Agency published a need for one additional hospice program in Service Area 1. Thereafter, Odyssey and United filed timely LOIs and during the grace period, a timely LOI was filed on behalf of Regency LLC.
A LOI is required to be filed by the applicant. "Letters of intent must describe the proposal; specify the number of beds sought, if any; identify the services to be provided and the specific subdistrict location; and identify the applicant. § 408.039(2)(a) and (c), Fla. Stat.(emphasis added).5
"If the proposal is for a project which will result in licensure of a new health care facility or hospice, the applicant seeking the certificate of need must be in existence at the time the letter of intent is submitted. If the applicant is a corporation, Limited Partnership, or otherwise organized, it must have filed an application with the Florida Department of State authorizing the applicant to conduct business in Florida." Fla. Admin. Code R. 59C-1.008(1)(c)1.b.(emphasis added).
"Failure to comply with the applicable provisions of subsection (1) of [Rule 59C-1.008] will result in the agency's rejecting the submitted document as a letter of intent. If rejected by the agency, the submitted document may not be amended or corrected but a new proposed letter of intent may be submitted if time allows. An application will not be accepted for review in a batching cycle for which a letter of intent has not been accepted by the agency." Fla. Admin. Code R. 59C- 1.008(1)(e).
The Agency did not reject Regency LLC's LOI. Rather, on November 9, 2006, the Agency issued a letter to Regency LLC accepting the LOI.
On or before November 22, 2006, CON applications were timely filed on behalf of Odyssey, United, and Regency LLC.6
"The applicant for a project shall not change from the time a letter of intent is filed. . .through the time of the
actual issuance of a Certificate of Need. Properly executed corporate mergers or changes in the corporate name are not a change in the applicant." Fla. Admin. Code R. 59C-1.008(1)(i).7
After Odyssey advised the Agency of the problem with Regency LLC's entity status, on November 28, 2006, the Agency advised Regency LLC that it was withdrawing Regency LLC's CON application because Regency LLC was not a corporation.
Thereafter, Regency LLC was converted to Regency.
The Florida Secretary of State has certified that Regency Hospice of Northwest Florida, Inc. "is a corporation organized under the laws of the state of Florida, filed on December 5, 2006, effective November 2, 2006."(emphasis added).8
Florida and Delaware authorize the conversion of other business entities, including a limited liability company, to a domestic corporation. Compare § 607.1115, Fla. Stat. with
8 Del. C. § 265 (2007).
Subsections 607.1115(4)-(7), Florida Statutes, provide:
Upon the filing with the Department of State of the certificate of conversion and the articles of incorporation, or upon the delayed effective date or time of the certificate of conversion and the articles of incorporation, the other business entity shall be converted into a domestic corporation and the corporation shall thereafter be subject to all of the provisions of this chapter, except notwithstanding s. 607.0123, the existence
of the corporation shall be deemed to have commenced when the other business entity commenced its existence in the jurisdiction in which the other business entity was first organized.
The conversion of any other business entity into a domestic corporation shall not affect any obligations or liabilities of the other business entity incurred prior to its conversion to a domestic corporation or the personal liability of any person incurred prior to such conversion.
When any conversion becomes effective under this section, for all purposes of the laws of this state, all of the rights, privileges, and powers of the other business entity that has been converted, and all property, real, personal, and mixed, and all debts due to such other business entity, as well as all other things and causes of action belonging to such other business entity, shall be vested in the domestic corporation into which it was converted and shall thereafter be the property of the domestic corporation as they were of the other business entity. Without deed or otherwise in such other business entity at the time of conversion shall remain vested in the converted entity without reversion or impairment by operation of this chapter. All rights of creditors and all liens upon any property of such other business entity shall be preserved unimpaired, and all debts, liabilities, and duties of such other business entity shall thenceforth attach to the domestic corporation into which it was converted and may be enforced against the domestic corporation to the same extent as if said debts, liabilities, and duties had been incurred or contracted by the domestic corporation.
Unless otherwise agreed, or as required under applicable laws of states other than this state, the converting entity shall not
be required to wind up its affairs or pay its liabilities and distribute its assets and the conversion shall not constitute a dissolution of such entity and shall constitute a continuation of the existence of the converting entity in the form of a domestic corporation.
(emphasis added).9
Under Delaware law, "[u]pon the effective time of the certificate of conversion to corporation and the certificate of incorporation, the other entity shall be converted to a corporation of this State and the corporation shall thereafter be subject to all of the provisions of this title, except notwithstanding § 106 of this title, the existence of the corporation shall be deemed to have commenced on the date the other entity commenced its existence in the jurisdiction in which the other entity was first created, formed, incorporated or otherwise came into being." 8 Del. C. § 265(d)(2007).
Further, "[w]hen an other entity has been converted to a corporation of this State pursuant to this section, the corporation of this State shall, for all purposes of the laws of the State of Delaware, be deemed to be the same entity as the converting other entity. . . . When any conversion shall become effective under this section, for all purposes of the laws of the State of Delaware, all of the rights, privileges and powers of the other entity that has been converted . . . shall remain
vested in the domestic corporation to which such other entity has converted. . . ." 8 Del. C. § 265(f)(2007)(emphasis added).
"Unless otherwise agreed for all purposes of the laws of the State of Delaware or as required under applicable non- Delaware law, the converting other entity shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion shall not be deemed to constitute a dissolution of such other entity and shall constitute a continuation of the existence of the converting other entity in the form of a corporation of this State." 8 Del. C. § 265(g) (2007). See also 6 Del. C. § 18-216(c)(2007), relating to "approval of conversion of a limited liability company."
In summary, when the conversion is effective, the other business entity will be converted into a domestic corporation and the corporation will thereafter be subject to all Florida laws governing domestic corporations. The corporation's existence will be deemed to have commenced when the other business entity commenced its existence in the jurisdiction in which the other entity was first organized. The conversion does not constitute a dissolution of the converting entity; rather it constitutes a continuation of the entity's existence in the form of a domestic corporation.
It is apparent that Section 607.1115, Florida Statutes, and its Delaware counterpart, 8 Del. C. Section 265,
evidence "an intent to facilitate seamless transition" between the converting limited liability company and the converted corporation. See C & J Builders and Remodelers, LLC v.
Geisenheimer, 733 A.2d 193,196-197 (Conn. 1999)(interpreting Connecticut's statute that governs the effect of the conversion of a general or a limited partnership to a limited liability company).
While lacking precedential value except to the taxpayer, see Section 213.22(1), Florida Statutes, in Technical Assistance Advisement No. 00A-049, 2000 Fla. Tax LEXIS 126 (DOR September 14, 2000), an issue arose regarding the taxability of transfers of aircraft, boast, and motor vehicles pursuant to a conversion of a Delaware corporation to a Delaware limited liability company. (Any transfer of title of tangible personal property for consideration is a sale.) By rule, the Department of Revenue provides that the transfer of title from one corporation to the surviving corporation by reason of a corporate consolidation or merger in accordance with Florida law or a reorganization under the Internal Revenue Code solely in exchange for stock, is not subject to sales tax as there is no transfer in ownership and no sale occurs. From the facts presented, the Department's senior tax specialist opined that the conversion "is similar to a corporate reorganization" which is exempt from taxation as provided by rule. Compare Technical
Assistance Advisement No. 06A-020, 2006 Fla. Tax LEXIS 37 (DOR July 24, 2006). Based upon a reading of Delaware law, i.e., after conversion "the limited liability company shall, for all purposes of the laws of the State of Delaware, be deemed to be the same entity as the converting other entity," it was opined that "the provisions appear to be consistent with the department's treatment of a corporate reorganization or merger." Id. at *4.
The above TAA analogizes a conversion to a merger or reorganization and is somewhat instructive the application of the Delaware conversion statute. The conversion discussed herein involving Regency and Regency LLC is not a merger as a matter of law, see Sections 607.1101, 607.1108-607.1110, Florida Statutes, even though it was a change in form only. See generally Vulcan Materials Company v. United States, 446 F.2d 690, 694 (5th Cir. 1971)(discussing the characteristics of a merger), cert. denied, 404 U.S. 942 (1971).10
The cited authorities assist somewhat in understanding the nature of a conversion. However, they are not directly on point.
Pursuant to the plain and ordinary meaning of the Florida and Delaware conversion statutes and application thereof, the existence of Regency is deemed to have commenced when Regency LLC commenced its existence in the State of
Delaware on November 2, 2006, and by operation of law, Regency had all of the rights, privileges, and powers "as well as all other things" that may have existed on November 2, 2006, the date of its existence.
When these concepts are considered together, Regency, as a corporation, being deemed to be in existence on November 2, 2006, had the right to file the LOI, followed by the CON application.
Odyssey provides a different interpretation of the Delaware and Florida conversion statutes. Odyssey argues that although Regency LLC was properly converted to Regency, Regency only succeeded to the rights, privileges, and powers "as well as all other things" possessed by Regency LLC on November 2, 2006, which did not include the right, privilege, or power (or thing possessed) to file a LOI and a shell CON application as a hospice applicant.11
The parties did not cite to any controlling case law on this point and it does not appear that Subsections 607.1115(4)-(7) were meant to serve as a limitation of this kind on the scope and effect of the statute's relation-back provisions.
It is concluded that a more reasonable interpretation of the Delaware and Florida conversion statutes is that Regency was an appropriate applicant at the time the LOI and shell CON
application were filed because Regency was in existence (by operation of law) prior to the time it filed the LOI and shell CON application.
Notwithstanding, Regency also contends that Section 408.039(5)(d), Florida Statutes, characterized as the 'forgiveness clause,' applies here. This subsection states: "The applicant's failure to strictly comply with the requirements of s. 408.037(1) or paragraph (2)(c) is not cause for dismissal of the application, unless the failure to comply impairs the fairness of the proceeding or affects the correctness of the action taken by the agency."
As noted herein, a potential hospice applicant is required to file a LOI. § 408.039(2)(a), Fla. Stat. "Letters of intent must describe the proposal; specify the number of beds sought, if any; identify the services to be provided and the specific subdistrict location; and identify the applicant.
§ 408.039(2)(c), Fla. Stat.(emphasis added).12 Section 408.039(2), Florida Statutes, is implemented by Florida Administrative Code Rule 59C-1.008(1)(a)-(e).13
The quoted provisions, including Florida Administrative Code Rule 59C-1.008(1)(i), implement Section 408.039(2), Florida Statutes, and specifically Section 408.039(2)(c), Florida Statutes.
Aside from Florida Administrative Code Rule 59C- 1.008(1)(i), there are no other mechanisms to consider changes in the applicant itself within the CON law. Galen, at paragraphs 18-20. In order to implement Section 408.039(2), it is necessary for the Agency to know who the applicant is at the time of review. Galen, at paragraph 20. This finding of fact remains accurate today, although the LOI content requirements are different.
In 1997, the Legislature reduced the information that was required to be set forth in the LOI and much of what was said in Galen regarding the LOI and other requirements has been deleted. See Ch. 97-270, § 5 at 4978, Laws of Fla. (The Legislature also added Subsection 408.039(5)(d), which has remained unchanged. Id. at § 5, 4980.)14
The current law retains the substance of requiring a statement of the identity of the applicant. But it no longer requires the LOI to include, among other things, the names of those with a controlling interest in the applicant and a certified copy of a resolution by the board of directors or other governing authority if not a corporation, authorizing the filing of the application described in the LOI. The CON application is required to contain detailed content.
§§ 408.037(1)-(2), Fla. Stat.
In its LOI and shell CON application, Regency LLC was identified as the entity/applicant, an entity that as a matter of law, could not apply for a new hospice program.
The cited statutory and rule requirements that arguably snare Regency pertain to a defective LOI that was remedied prior to the timely submission of the omissions responses and prior to the application being deemed complete by the Agency.
Unlike the facts in Galen, the original defect in Regency LLC's LOI and shell CON application did not deprive the Agency (or any other applicant or prospective applicant) of the opportunity to know who the applicant was at the time of its review of a completed CON application. No party claims it was misled by Regency's LOI or shell CON application. (The LOI indicated that Regency LLC is a subsidiary of Regency Healthcare Group, LLC, of Birmingham, Alabama.)
Aside from stating Regency LLC as the entity name, there is no argument that any other portion of the LOI or shell CON application was defective.
Also, there is no persuasive evidence that the Agency or any party/applicant in this proceeding was misled, lacked any material information (about Regency or its parent) required by statute or rule or was otherwise prejudiced, aside from having
another co-batched applicant, as a result of the initial defect in the LOI and the shell application.
Based upon the foregoing, the Agency should not reject Regency's CON application.
Impermissible Amendments to CON Applications
The parties make several claims that other parties impermissibly amended their respective CON applications. For example, Odyssey claims that Regency offered evidence of several hospice services it intends to offer that were either not mentioned in the application or casually mentioned. Regency claims Odyssey impermissibly amended its financial schedules.
The alleged amendments do not materially change the respective applications or change the proposed program. The evidence presented by Odyssey and Regency is the type of evidence routinely presented to compare co-batched applicants and to respond to criticisms by a co-batched applicant and are not impermissible amendments. See generally Big Bend Hospice, Inc. v. Agency for Health Care Administration, Case Nos. 01- 445CON and 02-0880CON, 2002 Fla. Div. Hear. LEXIS 1314 (DOAH November 7, 2002, at paragraphs 210-216; AHCA March 18, 2003, at 3), aff'd, 904 So. 2d 610 (Fla. 1st DCA 2005).
Consideration of the Statutory and Rule Criteria
All of the applicants are well qualified to meet the projected need for an additional hospice program in the service area.
Based upon the totality of the circumstances and for all of the reasons stated in the Findings of Fact, on balance, the advantage goes to Regency over Odyssey and United.
If the Agency or an appellate court decides that Regency's CON application should have been rejected, it is recommended that the Agency award the CON to Odyssey, in part, because Odyssey's related entities have more hospice experience than United's related entities and Odyssey's proposed staggered opening of offices can be expected to create a greater presence than United thus potentially enhancing access in light of the need shown.
Based on the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that a final order be entered approving of Regency's CON No. 9971 and denying United's CON No. 9955 and Odyssey's CON No. 9954.
DONE AND ENTERED this 30th day of April, 2008, in Tallahassee, Leon County, Florida.
S
CHARLES A. STAMPELOS
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 30th day of April, 2008.
ENDNOTES
1/ All citations are to the 2007 version of the Florida Statutes unless otherwise indicated.
2/ On March 22, 2007, Odyssey filed a petition challenging the Agency's preliminary denial of Odyssey's CON application and the Agency's preliminary intent to approve Regency's CON application. One issue raised by Odyssey was whether Regency, at the time it filed its LOI and CON application, met the requirements of Florida law pursuant to Section 400.601, Florida Statutes, and whether the Agency properly rejected the CON application. United raised a similar issue in its petition.
3/ "While a fixed need pool establishes a presumption of need, it serves only as the starting point of an analysis of need." Id. at *63(citations omitted). A positive numeric need shown under a formula or methodology is a beginning point for determining need. Balsam v. Department of Health & Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1986).
4/ Regency contends that Odyssey and United filed untimely motions raising this issue. In its petitions filed with the Agency, Odyssey and United timely raised issues regarding Regency's status at the time the LOI and initial CON application
were filed. See endnote 2. The issue was not required to be disposed by a motion to dismiss. Rather, it was proper to resolve the issue either by relinquishing jurisdiction pursuant to Section 120.57(1)(i), Florida Statutes, on proper motion, or by resolving the issue in a recommended order after a final hearing. The latter method was chosen because of the timing of the motions in relation to the start of the final hearing and the complex legal issue presented that required further briefing.
5/ "'Applicant' means any individual, partnership, corporation, or governmental entity which has filed an application for a certificate of need with the agency." Fla. Admin. Code R. 59C- 1.002(2). "Identification of the applicant means the legal name, mailing address, and telephone of the applicant." Fla.
Admin. Code R. 59C-1.008(1)(c)1.
6/ The CON application must contain a detailed description of the project, a statement of financial resources, a complete listing of capital projects and capital expenditures, detailed financial projections, and an audited financial statement of the applicant. "The applicant must certify that it will license and operate the health care facility [including hospice]."
§§ 408.037(1) and (2), Fla. Stat.
7/ The invalidity of this rule was rejected in Galen of Florida, Inc. v. Agency for Health Care Administration, Case No. 94- 0404RX, 1994 Fla. Div. Adm. Hear. LEXIS 5666 (DOAH June 9,
1994)(Galen).
8/ Regency LLC was formed on November 2, 2006, and on November 3, 2006, the Florida Secretary of State certified that Regency LLC was properly registered to conduct business in Florida.
9/ In 2005, effective January 2006, the Legislature created multiple sections of the Florida Statutes related to domestic companies, to incorporate organizational and administrative reforms implemented in the Florida Revised Uniform Limited Partnership Act of 2005, as developed by the National Conference of Commissioners on Uniform State Laws and modified by The Florida Bar. See CS/SB 1056, Senate Staff Analysis and Economic Impact Statement, April 15, 2005 at 1 and 3.
10/ The rule provision stating that "[p]roperly executed corporate mergers or changes in the corporate name are not a change in the applicant" does not apply here. See Fla. Admin. Code R. 59C-1.008(1)(i). See also North Shore Medical Center,
Inc. v. Agency for Health Care Administration, Case Nos. 92- 4992-92-4993, at "Motions Subsequent to Formal Hearing" and AHCA ruling on exceptions (DOAH September 9, 1993; AHCA November 8, 1993).
11/ Odyssey also argues that if Regency's position is adopted, any co-batched applicant could proceed through the LOI process until the Agency's initial decision and beyond, even during a Section 120.57(1) proceeding, before realizing the inappropriateness of the applicant as an LLC and then successfully convert and be considered a proper applicant. See Odyssey Memorandum of Law re Regency as an invalid entity at 11-
12. Odyssey overlooks the provision stating that "[s]ubsequent to an application being deemed complete or withdrawn by the agency, no further application information or amendment will be accepted by the agency." Fla. Admin. Code R. 59C-1.010(3)(b). It appears that any entity/applicant changes that occur, other than those authorized such as a corporate merger or a corporate name change after the completeness deadline, would violate this provision and not be accepted. See, e.g., Galen of Florida, Inc. v. Agency for Health Care Administration, Case Nos. 93- 4880-93-4881, at paragraph 40, 1994 Fla. Div. Adm. Hear. LEXIS 6026 (DOAH May 11, 1994; AHCA June 29, 1994). See also Hospice of North Central Florida, Inc. v. Agency for Health Care Administration, Case No. 97-3029, 1997 Fla. Div. Admin. Hear. LEXIS 5662 (DOAH November 18, 1997; AHCA December 10, 1997)(request for exemption from CON review denied where for- profit corporation, at that time, could not be licensed as a hospice provider).
12/ A LOI "means a written communication respecting the development of a certificate of need proposal, submitted to the agency in accordance with the provisions in Rule 59C-1.008,
F.A.C. and subsection 408.039(2), F.S." Fla. Admin. Code R. 59C-1.002(25).
13/ Odyssey contends that Regency did not comply with the first sentence in Subsection 408.037(2) which provides: "The applicant must certify that it will license and operate the health care facility. . . ." Regency's representative executed the required certification, which appears as Schedule D-1 in the CON application (omissions responses) filed by Regency.
14/ The 1997 legislative changes may have been prompted by the determinations made in a series of administrative and appellate cases that the applicable statutes and agency rules, e.g., LOI content, demanded strict compliance. See, e.g., Brookwood-
Jackson County Convalescent Center v. Department of Health & Rehabilitative Services, 591 SO. 2d 1085 (Fla. 1st DCA 1992); Humhosco, Inc. v. Department of Health & Rehabilitative Services, 561 So. 2d 388 (Fla. 1st DCA 1990); Naples Community Hospital v. Agency for Health Care Administration, Case No. 92- 1510, 1993 Fla. Div. Adm. Hear. LEXIS 3034 (DOAH March 19,
1993); AHCA June 6, 1993); Galen of Florida, Inc v. Agency for Health Care Administration, Case No. 93-4880-93-4881, 1994 Fla. Div. Adm. Hear. LEXIS 6026 (DOAH May 11, 1994; AHCA June 29,
1994); but see Martin Memorial Hospital Association v. Department of Health & Rehabilitative Services, 584 So. 2d 39 (Fla. 1st DCA 1991).
COPIES FURNISHED:
Holly Benson, Secretary
Agency for Health Care Administration Fort Knox Building, Suite 3116
2727 Mahan Drive
Tallahassee, Florida 32308
Richard J. Shoop, Agency Clerk
Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3
Tallahassee, Florida 32308
Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431
2727 Mahan Drive, Mail Stop 3
Tallahassee, Florida 32308
Mark A. Emanuele, Esquire Panza, Maurer, & Maynard, P.A.
Bank of America Building, Third Floor 3600 North Federal Highway
Fort Lauderdale, Florida 33308
Jay Adams, Esquire Broad and Cassel
Post Office Box 11300 Tallahassee, Florida 32302
Geoffrey D. Smith, Esquire Smith and Associates
2873 Remington Green Circle Tallahassee, Florida 32308
Sandra E. Allen, Senior Attorney Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3
Tallahassee, Florida 32308
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 14, 2008 | Agency Final Order | |
| Apr. 30, 2008 | Recommended Order | On balance and in this comparative review hearing, Regency proved that its proposed hospice program in AHCA Service Area 1 should be approved over the other two applicants. |
