STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
MEMORIAL HEALTHCARE GROUP, INC., d/b/a MEMORIAL HOSPITAL JACKSONVILLE,
Petitioner,
vs.
AGENCY FOR HEALTH CARE ADMINISTRATION AND SHANDS JACKSONVILLE MEDICAL CENTER, INC.,
Respondents.
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) Case No. 12-0429CON
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RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, W. David Watkins, held a final hearing in the above-styled case on
June 20-22, and June 25, 2012, in Tallahassee, Florida.
APPEARANCES
For Memorial Healthcare Group, Inc., d/b/a Memorial Hospital Jacksonville:
Stephen A. Ecenia, Esquire
R. David Prescott, Esquire Rutledge, Ecenia, & Purnell, P.A.
119 South Monroe Street, Suite 202 Tallahassee, Florida 32301
For Agency for Health Care Administration:
Lorraine M. Novak, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Suite 3431
Tallahassee, Florida 32308
For Shands Jacksonville Medical Center, Inc.
Seann M. Frazier, Esquire Greenberg Traurig, P.A.
101 East College Avenue Tallahassee, Florida 32301
STATEMENT OF THE ISSUE
Whether Certificate of Need (CON) Application No. 10125, filed by Shands Jacksonville Medical Center, Inc. (Shands Jacksonville) to establish a new, 100-bed acute care hospital (Shands North) in Duval County, Agency for Health Care Administration (AHCA or Agency) acute care subdistrict 4-1, satisfies, on balance, the applicable statutory and rule review criteria.
PRELIMINARY STATEMENT
On December 22, 2011, the Agency published notice of its decision preliminarily approving Shands Jacksonville's CON Application No. 10125 to establish a new 100-bed acute care hospital in northern Duval County, which is located in AHCA subdistrict 4-1 (Nassau and Duval Counties).
On January 12, 2012, Memorial Healthcare Group, Inc. d/b/a Memorial Hospital Jacksonville (Memorial) filed a petition challenging the Agency's preliminary decision to approve the Shands Jacksonville project.
The Agency referred Memorial's petition to the Division on January 27, 2012, whereupon the undersigned was assigned to conduct a formal administrative hearing and issue a recommended
order. Pursuant to notice, the final hearing was scheduled for June 20 through 22, and June 25 through 28, 2012. Prior to the commencement of the final hearing the parties filed a Joint Pre- Hearing Stipulation. The final hearing commenced as scheduled on June 20, 2012, and concluded on June 25, 2012.
At the hearing, Shands Jacksonville presented the testimony of the following witnesses: Joseph E. Witek, Jr., who was accepted as an expert in health planning; Steven M. Blumberg; and Jeffery N. Gregg, who was accepted as an expert in health planning. Shands Jacksonville also offered the following exhibits which were received into evidence: Exhibits numbered 1 through 30; 32 through 34; and 40, including the deposition testimony of Lesli Ward and David Vukich, M.D.
The Agency, jointly with Shands Jacksonvile, offered the testimony of Jeffrey N. Gregg.
Memorial presented the testimony of Dan Sullivan, who was accepted as an expert in health planning. Memorial also offered the following exhibits which were received into evidence: Exhibits numbered 1 through 18; 20 through 33; 39; 42; 47; 48; and 50, including the deposition testimony of Steven M. Blumberg and Steven Burgess, and the rebuttal deposition testimony of Joseph E. Witek, Jr.
All parties jointly offered Joint Exhibits 1 through 5 which were received into evidence.
The five-volume Transcript of the final hearing was filed with the Division on July 6, 2012. At the request of the parties, the deadline for filing proposed recommended orders was extended three times. On August 29, 2012, the parties filed their respective Proposed Recommended Orders,1/ which have been carefully considered in the preparation of this Recommended Order.
All citations are to the 2012 version of the Florida Statutes unless otherwise noted.
FINDINGS OF FACT
The Parties
The Applicant and Related Hospitals
Shands Jacksonville is located in downtown Jacksonville, Duval County, AHCA Health Planning District 4, acute care subdistrict 1. Shands Jacksonville is licensed for 695 beds, including 548 acute care, 16 Level II NICU, 32 Level III NICU, 43 adult psychiatric, and 56 skilled nursing beds. Shands Jacksonville provides tertiary level services such as open heart surgery, and also operates a Level I trauma center. Shands Jacksonville is also an academic medical center, offering the third largest teaching hospital for residents in Florida, with more than 300 residents. Shands Jacksonville serves as a teaching campus for nurses, pharmacists and other health care professionals.
Shands Jacksonville is a sister company of Shands Teaching Hospital and Clinic, Inc., located in Gainesville, Florida. The sole member of both companies is the University of Florida (U.F.). Shands Jacksonville was previously a subsidiary of Shands Teaching Hospital and reported to leaders of that organization. Recently, the corporate organization was changed in order to allow for market nimbleness, as Shands Jacksonville operates in a more competitive, urban environment. The change also created more local ties for Shands Jacksonville, with Jacksonville community leaders added to Shands Jacksonville's governing board.
Shands Jacksonville is the primary safety net provider for all of Jacksonville and its surrounding counties. Shands Jacksonville provides far more charity and indigent care than all other hospitals in the region. Shands Jacksonville provided more than $62 million in unsponsored community benefits at cost in 2011, net of reimbursement from municipalities for indigent patients. Bad debt and charity represented 15.7 percent of Shands Jacksonville's gross revenue, which is higher than any provider or system in the district.
HCA's Memorial Hospital
Memorial Healthcare Group, Inc., d/b/a Memorial Hospital Jacksonville is a general acute care hospital located at 3625 University Boulevard South, Jacksonville, Duval County,
AHCA Health Planning District 4. Memorial is licensed for 418 beds, including 381 acute care, 27 adult psychiatric, and 10 Level II NICU beds.
AHCA
AHCA is the state health planning agency and administers the CON program pursuant to the Health Facility and Services Development Act. §§ 408.031-.0455, Fla. Stat.
Existing and Approved Area Hospitals
In addition to Shands Jacksonville and Memorial, existing general acute care hospitals in Duval County include the following: Baptist Medical Center; Baptist Medical Center- Beaches; Baptist Medical Center-South; St. Vincent's Medical Center South; Mayo Clinic; St. Vincent's Medical Center, and St. Vincent's South.
Although not located in Duval County, Orange Park Medical Center is an existing HCA-affiliated hospital located in adjacent Clay County. Baptist Medical Center-Nassau is located in adjacent Nassau County, within Subdistrict 4-1.
There are two CON-approved, but not yet operational hospitals in the greater Jacksonville area; the 85-bed West Jacksonville Medical Center was approved in western Duval County, and is expected to open in late 2016. The second approved but not yet operational hospital is the 98-bed
St. Vincent's Clay County Hospital located in northern Clay
County, proximate to the Duval County line. That facility is currently under construction and is expected to open in 2014.
The Proposal
Shands Jacksonville seeks approval to establish a new 100-bed "satellite" general acute care hospital in northern Jacksonville to be known as Shands Jacksonville Medical Center North (Shands North). The proposed hospital is intended to offer basic non-tertiary acute care and obstetric (OB) hospital services. The medical staff will be comprised of Shands Jacksonville medical staff members, which includes U.F. faculty practice and community physicians engaged in private practice.
Through establishment of the Shands North satellite, Shands Jacksonville hopes to improve its payor mix (and overall fiscal health), thereby enabling it to continue to serve as Jacksonville's safety net hospital. The new hospital would also improve patient access to health care for a segment of the Duval County population. Simultaneous with the licensure of the new satellite hospital, Shands Jacksonville will delicense 100 beds from its existing campus. Before filing its application with the Agency, Shands studied the market to make certain that the project was properly sized and would be successful.
As summarized in the Agency's State Agency Action Report (SAAR), Shands justifies project approval based on five broad categories of need, with additional subcategories, and
what the applicant calls additional important considerations, as
follows:
-an acute care hospital is needed in northern Jacksonville and will improve access to acute care and emergency department (ED) services;
-Shands Jacksonville should receive approval to establish a northern Jacksonville satellite hospital;
-Shands North will increase access to ED services, reduce time to treatment and relieve crowding at Shands Jacksonville’s ED;
-creation of Shands North will add sorely needed jobs in the community;
-Shands North would serve as an additional evacuation center for residents of Amelia Island and other coastal areas, and
-additional important considerations, including enhancing the relationship between UF and Shands with the citizens of northeast Florida, promotion of excellence in patient care, continuation of community service and letters of support.
(SAAR, pgs. 6, 7)
The Proposed Site
As the location for its new hospital, Shands Jacksonville purchased a site off of Interstate 95 near the Jacksonville International Airport and Port of St. Johns, and adjacent to the River City Marketplace, a major retail complex. These nearby developments are relevant to the hospital's
location because employees tend to live near their place of work, and will seek hospital services there.
The distances from the Shands North site to the closest hospitals are: Shands Jacksonville 10.3 miles; Baptist downtown 12.8 miles; St. Vincent's downtown 15.6 miles; and Memorial 16.6 miles.
Northern Jacksonville is the only part of greater Jacksonville without an acute care hospital. There are no hospitals situate between downtown Jacksonville and Fernandina Beach. Shands North would be located in an area with an expected improvement in payor mix, fewer Medicaid patients, and more commercial and Medicare patients.
A Phased Campus Concept
Shands Jacksonville engaged Gresham Smith architects to examine what type of facility could be accommodated at the chosen location. Those architects initially suggested a 137-bed hospital, with room to expand to 300 acute care beds in the future. However, the plan was scaled down to 100 beds, though future expansion would remain an option.
The construction phasing plan for the site contemplates a three-phase project: Phase 1 is the development of an outpatient campus; Phase 2 is a start-up hospital of approximately 100 beds; and Phase 3 is a fully developed campus with up to 300 hospital beds.
Shands Jacksonville intends to proceed with Phase 1, the development of an outpatient campus, without regard to the timing or approval of the hospital CON application.
Contemplated services within Phase 1 include diagnostic imaging, ambulatory surgery, an urgent care center or a freestanding emergency department, and a medical office building. As of hearing, development of a freestanding emergency department at the Shands North campus remained under active consideration.
Phase 1 is intended to be completed and operational by the end of 2013. The medical office building will be approximately 60,000 square feet, and the ambulatory services center will be about 90,000 square feet. Instead of funding Phase 1 through debt or retained earnings, Shands Jacksonville is in discussions with potential third-party developers who would finance the construction and lease back the facilities to Shands Jacksonville.
The-100 bed Shands North hospital is estimated to cost between $100 and $125 million. The Shands Jacksonville Board has not yet approved funding for the construction of the Shands North hospital.
The recent economic downturn caused Shands Jacksonville to delay its plans for Shands North, as it waited for the economy to rebound. In the meantime, the area has
received the necessary infrastructure to allow for rapid development once the economy rebounds.
The Agency's Preliminary Review and Approval
Jeff Gregg oversees the Florida Center for Health Information and Policy Analysis, which includes the certificate of need program administered by the Agency. Mr. Gregg was accepted as an expert in health planning, and testified at hearing regarding the Agency's review and preliminary approval of the Shands Jacksonville application.
Mr. Gregg testified that the Agency's approval of the CON application would allow Shands Jacksonville to expand access, while simultaneously bolstering its function as one of the state's major safety net providers of indigent care:
Q. Can you describe your understanding of the Shands project?
A. I would describe this as an example of a case where a safety-net hospital is applying to add a satellite in a suburban market that they presume will provide them with a better payor mix. And in doing so it serves a two- prong purpose for them.
One is to expand the access, but also to bolster their function as one of the state’s major safety-net providers of indigent care in an inner-city location by decompressing some of its functions, diverting emergency department utilization, allowing then to create more private rooms, which are now part of the building code for new hospital construction and definitely something that I think is generally regarded as a subject of consumer preference.
So it is a combination of access improvement in an un-served suburban sector and an ability to improve a traditional indigent care function.
Mr. Gregg also noted that the site chosen for Shands North is "close to the sole remaining sector of the suburban market that surrounds urban Jacksonville that is presently unserved." The project would improve access in an unserved suburban sector while simultaneously improving traditional indigent care functions for Shands Jacksonville, according to Mr. Gregg.
In addition to the above reasons, the Agency also based its approval, in part, on the fact that Shands Jacksonville would serve as an additional evacuation center for residents of Amelia Island and other coastal areas.
Mr. Gregg testified that, essentially, if an applicant submits a reasonable CON application for a new hospital, AHCA will approve it with minimal analysis and little or no critical review. This is because applications for new hospitals are rare since access to capital is tight, and the Agency does not receive applications for new hospitals that Mr. Gregg would consider frivolous.
Physician Involvement
Ninety percent of the patients treated at Shands Jacksonville have contact with a UF faculty physician.
However, this statistic does not mean that each of those patients was referred by UF faculty physicians. In fact, currently, 86% of the admissions to the Shands downtown campus originate in the emergency department.
Agency databases capture information regarding an "attending" and an "operating" physician. An attending physician is someone who is identified during the course of the stay, or even at the end of the course of the stay as the one primarily responsible for the patient's care while they are in the hospital. There is no designation for admitting physicians, just attending and operating physicians. Thus, there is no clear database which captures which physicians "refer" a patient to a given hospital.
Primary care physicians generally do not attend hospital inpatients, largely because there is little physician reimbursement for hospital visits, and there is no reimbursement for the time spent travelling to and from the hospital. As a result, a growing trend in hospital care is to have patients' needs attended to by a "hospitalist." A hospitalist is a physician, usually a specialist in internal medicine, who cares for patients in the hospital but does not have a private outpatient practice.
Several hospitalists work with Shands Jacksonville.
Hospitalists are not part of the UF faculty practice, but rather
are community physicians that specialize in treating patients while they are in the hospital. Shands Jacksonville has contracted with Cogent, a company which employs hospitalists who work as medical staff at Shands Jacksonville and see patients that are oftentimes referred from the emergency department.
Thus, Cogent offers a continuum of care that works in conjunction with community physicians.
Cogent is making efforts to work with area community physicians to foster referrals to Shands Jacksonville. During the second quarter of 2012, 64.4% of the patients at Shands Jacksonville were treated by UF faculty doctors. However, 7.5% of the Shands Jacksonville current admissions were treated by Cogent community physicians. Another 21% either came directly from primary physicians in the community or didn't have a UF association.
As noted above, Shands Jacksonville receives a high percentage of admissions from UF-affiliated physicians. Shands North will need referrals from community physicians not currently practicing at Shands Jacksonville in order to be successful. Through Shands Jacksonville's and Cogent's ongoing efforts to foster relationships with community physicians Shands North can expect to receive some level of cooperation and referrals from community doctors within the proposed service area.2/ However, whether that level of support will be
sufficient to achieve the Shands North projected utilization has not been established in this record.
Statutory and Rule Review Criteria
In 2008, the Florida Legislature significantly modified the application and review process for CON applications for general hospitals.3/ Specifically, the amendments to section 408.035, Florida Statutes, eliminated consideration of several CON review criteria that had previously been applicable to general hospital applications. Those criteria that no longer apply to such applications are:
408.035(1):
The ability of the applicant to provide quality of care and the applicant’s record of providing quality of care.
The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation.
(f) The immediate and long-term financial feasibility of the proposal.
(h) The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction.
Following the 2008 amendments, the statutory CON review criteria that remain applicable to general hospital applications are:
The need for the health care facilities and health services being proposed.
The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant.
(e) The extent to which the proposed services will enhance access to health care for residents of the service district.
(g) The extent to which the proposal will foster competition that promotes quality and cost-effectiveness.
(i) The applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent.
Chapter 2008-29, Laws of Florida, also amended section 408.037, which specifies the required CON application content. The new section 408.037(2) is exclusively directed to applications for new general hospitals:
(2) An application for a certificate of need for a general hospital must contain a detailed description of the proposed general hospital project and a statement of its purpose and the needs it will meet. The proposed project’s location, as well as its primary and secondary service areas, must be identified by zip code. Primary service area is defined as the zip codes from which the applicant projects that it will draw 75 percent of its discharges. Secondary service area is defined as the zip codes from which the applicant projects that it will draw its remaining discharges. If, subsequent to issuance of a final order approving the certificate of need, the proposed location of the general hospital
changes or the primary service area materially changes, the agency shall revoke the certificate of need. However, if the agency determines that such changes are deemed to enhance access to hospital services in the service district, the agency may permit such changes to occur. A party participating in the administrative hearing regarding the issuance of the certificate of need for a general hospital has standing to participate in any subsequent proceeding regarding the revocation of the certificate of need for a hospital for which the location has changed or for which the primary service area has materially changed. In addition, the application for the certificate of need for a general hospital must include a statement of intent that, if approved by final order of the agency, the applicant shall within 120 days after issuance of the final order or, if there is an appeal of the final order, within 120 days after the issuance of the court’s mandate on appeal, furnish satisfactory proof of the applicant’s financial ability to operate. The agency shall establish documentation requirements, to be completed by each applicant, which show anticipated provider revenues and expenditures, the basis for financing the anticipated cash- flow requirements of the provider, and an applicant’s access to contingency financing. A party participating in the administrative hearing regarding the issuance of the certificate of need for a general hospital may provide written comments concerning the adequacy of the financial information provided, but such party does not have standing to participate in an administrative proceeding regarding proof of the applicant’s financial ability to operate.
The agency may require a licensee to provide proof of financial ability to operate at any time if there is evidence of financial instability, including, but not limited to, unpaid expenses necessary for the basic operations of the provider.
Section 408.035(1)(a): The need for the health care facilities and health services being proposed.
Section 408.035(1)(b): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant.
The Agency does not have a need methodology for acute care hospitals or acute care beds. The former rule was repealed in 2005, following the Legislature's general deregulation of acute care bed additions in 2004. In general, existing acute care hospitals can add acute care beds without CON review after notification to the Agency.
In light of the lack of a need methodology,
the applicant is responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory and rule criteria:
Population demographics and dynamics;
Availability, utilization and quality of like services in the district, subdistrict or both;
Medical treatment trends; and
Market conditions.
Fla. Admin. Code R. 59C-1.008(2)(e)2.a.-d. In addition to the criteria set forth in section 408.035, Florida Statutes, Florida Administrative Code Rule 59C-1.030 identifies the criteria to be
used in evaluating CON applications, including "health care access criteria":
For a new general hospital as defined in section 395.002, F.S. and subparagraphs 59A-3.252(1)(a)1. and 3., F.A.C., the criteria for evaluation are those found in sections 408.035(2) and 408.037(2), F.S.
Health Care Access Criteria.
The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services.
The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care.
The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority.
In determining the extent to which a proposed service will be accessible, the following will be considered:
The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved;
The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant;
The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and
The extent to which the applicant offers a range of means by which a person will have access to its services.
In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria.
In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings.
The Service District and Subdistrict
AHCA health planning District 4 consists of Baker, Nassau, Duval, Clay, St. Johns, Flagler, and Volusia Counties. For acute care beds, District 4 is further subdivided into five separate subdistricts. Acute care subdistricts are defined as "[a] group of counties, a county, or a portion of a county which forms a subdivision of a district." Fla. Admin. Code R. 59C- 2.100(1)(d).
Shands Jacksonville intends to locate its new hospital within Subdistrict 4-1, which consists of Nassau County, and the northern portion of Duval County lying within ZIP codes 32202, 32206, 32208, 32209, 32218, 32219, 32220, 32226, and 32254.
Fla. Admin. Code R. 59C-2.100(3)(g).
There are currently two acute care hospitals located in Subdistrict 4-1; Shands Jacksonville, and Baptist Medical Center-Nassau. In CY 2010, these two facilities had a combined complement of 602 acute care beds, and operated at 64.99% and 58.75% occupancy, respectively.
Projected Service Area
The Shands North proposed primary service area ("PSA") consists of three residential zip codes: 32097 (Yulee); 32218 (Jacksonville); and 32226 (Jacksonville) and two zip codes that are post office boxes: 32041 and 32229. The Shands North PSA is expected to account for 75% of the admissions to the new
hospital. The proposed secondary service area ("SSA") consists of three full zip codes: 32011 (Callahan); 32208 (Jacksonville); 32219 (Jacksonville); and, census tract 503.03 within zip code 32034 (Fernandina Beach -- this area is west of the Amelia River and excludes Amelia Island). The SSA is projected to produce the remaining 25% of the new hospital's admissions.
Shands Jacksonville's expert in health planning testified that in identifying its service area Shands Jacksonville considered the location of roadways, travel patterns, distances from other providers and geographic features that might hinder transportation.
Service Area Population
Shands Jacksonville examined population statistics to determine demand for new services in the proposed location. When the application was written, Shands Jacksonville used 2011 Nielson-Claritas population estimates. This report estimated 2011 population, and predicted 2016 populations. Claritas predicted a 7.5% growth in population between 2011 and 2016 for the service area, while the rest of Duval and Nassau was only expected to grow by 5.2%.
As of hearing, the Nielson-Claritas population estimates had been revised to reflect the results of the 2010 census. The new Claritas data restated 2012 population and created new 2017 estimates. In its application, Shands
Jacksonville anticipated the PSA population to be 67,548 persons in 2017, the third year of the project. After the Claritas rebasing, the projections have increased to 75,189 adults, a growth rate of 11.3%. However, over the same period of time the secondary service area showed a reduction of approximately 1,000 adults (from 51,681 to 50,688) a decline of 1.9%.
The portions of Duval and Nassau counties outside the Shands North PSA or SSA are not experiencing significant population growth. From 2012 to 2017 the adult population of those areas is only expected to increase by 2.2% (from 601,834 to 615,161), while the female population is actually expected to decline by 3.6% (from 173,004 to 166,811).
Anticipated population growth within the Shands North PSA and SSA, in and of itself, will not have a major impact on the need for the proposed hospital.
Most of the population in the Shands North PSA is concentrated in zip code 32218. The other two zip codes within the PSA are sparsely populated or closer to other facilities. Given those factors, it is unlikely that Shands North will be able to penetrate deeply into the smaller zip codes, 32097 and 32226 in order to obtain patients.
The Shands North SSA also includes sparsely populated zip codes, with the exception of zip code 32208, which is very close to existing Shands Jacksonville.
The residential development most proximate to the Shands North site is River City Marketplace, to the south, which is a mature development. There are large tracts of marshland to the east and north of the site, including Timucuan Preserve, which cannot be developed. With regard to the residential development east of I-95 that Shands North seeks to serve, Baptist-Nassau is more proximate to service area residents.
In total, the population base within Shands North's proposed service area is relatively small, and scattered.
Projected Utilization and Market Share
The Shands Jacksonville application projects that in the third year of operation (2017) Shands North will capture a 45% market share of adult non-tertiary discharges in the proposed PSA, and 15% in the SSA. The application also projects that in the third year of operation Shands North will capture 45% of the OB discharges in the PSA, and 15% in the SSA. If Shands North is able to achieve its projected market shares it would represent a significant redistribution of patients from existing hospitals to the proposed new hospital, as discussed in greater detail below.
Shands Jacksonville projected the same market shares for both non-tertiary and OB discharges in the PSA as follows: 2015 -- 22.5%; 2016 -- 33.7%; and 2017 -- 45%. Application of those market shares to Shands North's projected average length
of stay (ALOS) results in the following non-tertiary Shands North PSA utilization projections for 2017: 3,841 discharges, and 19,589 patient days. The 2017 Shands North PSA OB utilization projection is 584 discharges and 1,635 patient days.
Shands Jacksonville's 2017 SSA projected non-tertiary discharges based on a 15% market share are 1,280 discharges and 6,784 patient days. The 2017 SSA OB projection based on a 15% market share is 128 discharges with 358 patient days.
The projected total service area utilization for Shands North in the third year of operation (2017) is: non- tertiary -- 5,121 discharges, 26,373 patient days, and average daily census (ADC) of 72.3 patients; and for OB -- 712 discharges, 1,993 patient days, and 5.4 ADC.
Shands Jacksonville used an 80% occupancy standard to calculate a need for 90 acute care beds; and used a 70% occupancy standard to calculate a need for 8 OB beds, resulting in a projected need for 98 total hospital beds.
All analysis and market share projections in the Shands Jacksonville application were presented at the PSA and SSA level. Therefore, Shands Jacksonville's historical market share and projected market share by zip code cannot be discerned from the CON application.
During CY 2010, Shands Jacksonville's adult non- tertiary market share for the entirety of the Shands North PSA
was 26.9%. During the same year, Shands Jacksonville's market share in the SSA was 29%, for a combined service area market share of 28.1%.
Memorial's health planner, Dan Sullivan, examined historic market share in the proposed service area on a zip code basis. In 2010, Shands Jacksonville's market share in PSA zip code 32097 was 9%. The other PSA zip code 2010 market shares were: 32218 -- 32.4%; 32226 23.0%; 32041 -- 10.1%; and 32229 -- 33.3% (a P.O. Box with only 3 total discharges during CY
2010). Shands Jacksonville's 2010 zip code level market shares in the proposed SSA were: 32208 -- 42.5%; 32219 -- 31.6%; 32011
-- 21.2%; and 32034 -- 5.6%.
On a zip code basis, Mr. Sullivan also examined the market shares of other hospitals drawing patients from the Shands North service area. The 2010 PSA market shares of other hospitals by zip code included: 32218 -- Baptist 24.8%,
St. Vincent's 19.8%, Memorial 11.5%; 32226 -- Baptist 19.4%,
St. Vincent's 18.4%, Memorial 16.9%; 32097 -- Baptist 22.6%, Baptist-Nassau 45.5% (Baptist combined 68.1%), St. Vincent's 9.1%, Memorial 5.2%.
The 2010 market shares of other hospitals in the Shands North SSA included: 32208 -- Baptist 18.3%, St. Vincent's 23.5%, Memorial 9.5%; 32219 -- Baptist 19.6%, St. Vincent's 32.5%, Memorial 8.5%; 32011 -- Baptist 31.8%, Baptist-Nassau
9.6% (Baptist combined 41.4%), St. Vincent's 23.1 %, Memorial
4.5%.
A zip code level review of 2010 OB market shares in the Shands North PSA and SSA reveals that Shands Jacksonville's current OB market shares are 25.6% for the total PSA and 27.6% for the total SSA. Existing hospital total PSA OB market shares are: Baptist 21.5% and Baptist-Nassau 11.6% (33.1% combined); St. Vincent's 15%; and Memorial 10.5%. The total SSA market shares are: Baptist 19.1% and Baptist-Nassau 16% (35.1% combined); St. Vincent's 14.1%; and Memorial 10.3%.
The Shands Jacksonville application states that utilization for the proposed facility was based on existing Shands Jacksonville market share and market presence in the service area, as well as the absence of an acute care facility in the service area.
Shands Jacksonville projects unreasonably large combined market shares for Shands Jacksonville and Shands North. In PSA zip code 32218, Shands Jacksonville has a 32.4% market share and projects a combined 50% market share for both hospitals by 2017. Shands North was projected to experience an absolute growth of 17.6% non-tertiary market share in zip code 32218 due to the redirection of patients from SJMC. There was no persuasive evidence presented at hearing to support these projections.
In PSA zip code 32226, Shands Jacksonville has a 23% market share and projects a combined Shands Jacksonville/Shands North market share of 50% by 2017, even though 77% of the patients within 32226 are currently going to other hospitals.
In PSA zip code 32097, Shands Jacksonville has only a 9% market share, yet projects a combined Shands Jacksonville/Shands North market share of 50% by 2017.
Within the Shands North SSA, the market share assumption for zip code 32208 is reasonable, but the assumptions for zip codes 32219, 32011, and 32034 are not. Shands Jacksonville has 31.6% of the SSA zip code 32219 market, 21.2% in zip code 32011, and only 5.6% in zip code 32034.
Although Shands Jacksonville currently has the largest composite market share in the PSA (26.9%) and the SSA (29%), it has not established itself as a dominant provider in the service area. Rather, in many of these zip codes, Shands Jacksonville is the closest hospital, yet many residents are still choosing to seek hospital services elsewhere.
Shands Jacksonville's historic market share in the Shands North service area does not support the reasonableness of the projected 45% market share of adult non-tertiary discharges in the proposed PSA, or the projected 15% market share in the SSA.
Geographic Access
The Shands Jacksonville application asserts that approval of the proposed hospital in northern Jacksonville will improve access to needed health care services in the only portion of the greater Jacksonville area without those services. Specifically, the applicant asserts that access will be improved through the closer proximity and shorter travel times for service area residents comparable to access improvements for other facilities approved over the past decade.4/ (Joint Ex. 1,
p. 4)
While the CON application did include an estimate of mileage between existing area hospitals, it did not include a travel time study or other analysis to determine whether or to what extent residents of the proposed service area would realize any improvement in geographic access as a result of the new hospital. Nor did Shands Jacksonville offer evidence that residents of the service area could not access existing hospital services within a reasonable travel time.
Memorial's health planner, Dan Sullivan, examined average drive times from the major population centers located within each PSA and SSA zip code. This data revealed that 11 minutes is the maximum improvement in average driving time any PSA resident would gain by accessing Shands North.
For residents of the most distant PSA town, Yulee (zip code 32097), the Shands North site would be only three minutes closer than Baptist-Nassau. Nearly all of the population within zip code 32097 is contained in two census tracts, with approximately 60% of the zip code's population concentrated in a single census tract, the town of Yulee. Those residents are at least as close to Baptist-Nassau as to the Shands North proposed site.
In PSA zip codes 32218 and 32226, there is an 11- minute travel time improvement to Shands North over Shands Jacksonville. The southern part of PSA zip code 32218, where Shands North would be located, is as close to Shands Jacksonville as it is to the proposed new hospital,
While the proposed Shands North location would offer minor improvement in drive times for residents of PSA zip code 32218, the residents of that zip code, in comparison to the other PSA zip codes, currently have the best access to existing hospitals. The southern portion of this zip code is approximately equidistant between Shands Jacksonville and the Shands North site. Therefore, those residents would not experience any significant reduction in travel times.
PSA zip code 32226 is located east of the proposed hospital site and not along the 1-95 corridor. The majority of these residents currently access hospitals in Jacksonville,
including Baptist, St. Vincent's, and Memorial, because these facilities are easily reached by existing road systems. Thus, it is unlikely that a significant number of these residents would alter their historical service patterns to seek care at the new hospital.
There is no travel time improvement for SSA zip code 32011. In SSA zip code 32034, it would be much quicker for service area residents to go to Baptist-Nassau than to Shands North. Census tract 503.03 (in zip code 32034) is located only a short distance across the Amelia River from Baptist-Nassau.
SSA zip code 32011 is located primarily north and west of the proposed Shands North site. There are no major roads that would facilitate travel for residents of 32011 to Shands North. US Highway 1 runs north to south across the middle of the zip code, and, as reflected in historical market share data, the majority of residents travel south to Jacksonville to receive services at one of the downtown hospitals.
For the residents of SSA zip codes 32208 and 32219 it would be quicker to go to Shands Jacksonville or Baptist Medical Center than to Shands North. SSA zip code 32208 borders the zip code where Shands Jacksonville is located and is much closer to the other downtown hospitals than it is to the Shands North location. SSA zip code 32219 is also located closer to Shands Jacksonville's existing campus than to the proposed Shands North
location. It is unlikely that patients would travel north from Shands Jacksonville for less comprehensive services at Shands North.
Given the location of population centers within the service area of the proposed hospital, and the locations of existing area hospitals, Shands North would offer only minimal, if any, improvements in travel time for the majority of the residents in the service area.
Access to Emergency Services
Shands Jacksonville's downtown campus has a large and very busy emergency department. It served 87,312 emergency patients in 2010.
Shands Jacksonville is designated a Level 1 trauma center. The trauma area within the emergency department has been renovated and expanded but the non-trauma areas are difficult to renovate.
According to Dr. David Vukich, Chief Medical Officer of Shands Jacksonville, the emergency department at Shands Jacksonville has both capacity and flow rate issues. Patients could be seen on a timelier basis if the proposed Shands North facility was available. Currently, average throughput of emergency department patients (from time of arrival until departure) is four to four and a-half hours. If the patient's condition is serious enough to warrant admission to the
hospital, it may take 10 to 11 hours from presentation until an inpatient bed is available. While emergency department capacity problems have existed at Shands Jacksonville for a number of years, they are particularly pronounced during the winter with a seasonal influx of flu cases.
Shands Jacksonville contends that service to emergency patients would be enhanced through approval of the new hospital. Specifically, Shands North would allow a redirection of many ER cases that otherwise come to Shands Jacksonville, thereby "decompressing" the downtown emergency department, and reducing waiting times.
There were 75,670 total emergency visits by Shands North service area residents in 2010. 26.8% of those patients accessed those emergency services at Shands Jacksonville.
The vast majority of the Shands North service area residents who accessed emergency services (86%) were not transported by EMS vehicle.
In CY 2010, EMS transports for emergency services from the Shands North PSA totaled 5,540.5/ Of those, 2,807 (50.7%) were transported to Shands Jacksonville. During the same period, 75% of the Shands North residents who sought emergency department services at Shands Jacksonville travelled there via means other than EMS transport.
Based upon its 45% PSA and 15% SSA market share assumptions and the historical use rate within the proposed service area, Shands Jacksonville projects that 25,006 Shands North emergency department visits will originate from the combined PSA and SSA in 2017. Of that number, Shands Jacksonville projects that the Shands North ED will redirect 11,889 emergency visits from Shands Jacksonville, thereby reducing the Shands Jacksonville emergency visit volume by 13.6%.
Although Shands Jacksonville argues that decompression of its downtown emergency department strongly mitigates for CON approval, it failed to persuasively establish a need to expand its current capacity. No persuasive evidence was presented that ED patients were experiencing unreasonable wait times prior to being seen by an ED physician, or that patients at Shands Jacksonville were not timely receiving needed emergency services. For example, there was no evidence presented that the Shands Jacksonville emergency department has been placed on “Diversion Status” because it was at maximum capacity. And even had it been established that the "compressed" emergency department at Shands Jacksonville was inadequate to meet patient needs, there was no persuasive evidence that Shands Jacksonville could not expand capacity at the current downtown location.
In addition, the contemplated development of outpatient services at the Shands North site, including an urgent care center or freestanding emergency department, would also serve to decompress the downtown location.6/ Such outpatient alternatives could treat many of the less intensive emergency patients that otherwise would have gone to Shands Jacksonville. Moreover, to whatever extent a Shands North emergency department would enhance access for area residents to emergency services; a freestanding emergency department could accomplish this objective.
There is no credible evidence in this record that persons requiring emergency services in the proposed service area are not currently accessing those services in a timely manner. Rather, residents of the proposed service area have access to existing hospitals within reasonable geographic proximity. That circumstance is not likely to change in the foreseeable future, given the relatively modest projections of population growth within the service area.
Economic Access
Shands Jacksonville treats all patients regardless of their ability to pay, and is the provider of choice for indigent populations in the greater Jacksonville area. Shands Jacksonville is one of the largest safety net hospitals in the state. In 2010, Shands Jacksonville provided 24.6% of all bad
debt and charity care and 25.3% of Medicaid services received by residents of District 4.
There are limited options for those who cannot afford traditional insurance and do not qualify for Medicare. While the Medicaid Program provides funding for qualifying patients, Medicaid reimbursement to hospitals typically does not cover the full cost of providing care. Shands Jacksonville has faced seven decreases to its Medicaid funding in the last five years. In its most recent fiscal year, Shands Jacksonville's reimbursement was reduced by $10 million.
The Medicaid program makes Low Income Pool (LIP) payments available for hospitals that provide a disproportionate share of their services to indigent patients. However, the amount of money that Shands Jacksonville receives from LIP funding has decreased over time.
Shands Jacksonville also contracts with the City of Jacksonville to provide services to patients that have no other funding source. In 2012, the contract requires Shands Jacksonville to care for over 11,000 patients. Shands Jacksonville receives $23.7 million per year to care for these patients.
The number of patients that Shands Jacksonville treats pursuant to the City of Jacksonville (City) contract has increased steadily, while the amount paid by the City has not
increased in 10 years. Funding under the City contract falls far short of covering the cost of caring for all 11,000 patients who will be treated pursuant to the contract. Though Shands Jacksonville receives $23.7 million annually from the City, the costs of caring for covered patients ranges from $40 to 60 million per year.
Reductions in reimbursement under Medicaid and the LIP program, coupled with inadequate funding under the City contract, have made it increasingly challenging for Shands Jacksonville to continue its mission as the area safety net provider.
Many hospitals are able to offset losses incurred from treating Medicaid and indigent populations by attracting patients with better insurance, such as commercial insurance, managed care, or Medicare. However, Shands Jacksonville is not able to successfully cover losses on indigent patients by subsidizing that underfunded care with better reimbursement from traditional payors. There simply are not enough of those better paying funding sources to cover the losses incurred when treating so many uninsured and Medicaid patients.
For Shands Jacksonville, location is also an issue.
Shands Jacksonville is located in downtown Jacksonville, an area home to the highest concentration of indigent in Duval County.
So long as Shands Jacksonville maintains all of its hospital
beds and services in its current downtown location, it will continue to be fiscally challenged as the region's safety net provider.
Shands Jacksonville's financial travails are not the result of inefficient operations. To the contrary, Shands Jacksonville is already operating as one of the most efficient hospitals in the country. University Healthcare Consortium recently ranked Shands Jacksonville as the fifth most efficient academic hospital in the nation for supply costs, and a top ten most efficient provider overall.
With Shands Jacksonville already operating in a very efficient manner, the hospital must look elsewhere for solutions to its funding concerns. Shands Jacksonville could reduce the level of service it provides to those who are unable to pay, or alternatively, enhance its revenues by improving its payor mix. It is the latter solution Shands Jacksonville hopes to achieve by filing the Shands North application to expand into an area of the District with a more attractive payor mix.
In its application, Shands Jacksonville did not project a payor mix and did not offer to condition the CON on a specific payor mix due to the uncertainties surrounding health care reform and the Medicaid payment system. However, in its response to Memorial's opposition letter, Shands Jacksonville projected that at Shands North, Medicaid would represent 18%,
and self-pay and non-payment would represent 10.2% of total discharges in Year 3 of operation. The Shands North projections are slightly higher than the current levels of Medicaid (16.2%) and self-pay/no-pay (9.5%) discharges for residents of the service area.
While the Shands North projections do not reflect significant increases in the levels of service to Medicaid and indigent patients in the proposed service area, they do reflect a more favorable payor mix as compared to the Shands Jacksonville downtown location. For example, the Shands North projected Medicaid volume is 18%, while the downtown hospital is projected to be 29.4%. Similarly, the Shands North location is expected to have a significantly higher mix of commercial insurance, at 22.6%, than the downtown hospital, at 9%. The levels of Medicare and "all other payors" are projected to be virtually identical at the two Shands Jacksonville locations.
There was no persuasive evidence in this record that traditionally underserved patients (Medicaid and indigent) residing in the proposed service area are not currently able to access needed hospital services. Similarly, there was no evidence adduced at hearing that existing providers are denying access to hospital services based upon financial criteria.
Section 408.035(1)(e): The extent to which the proposed services will enhance access to health care for residents of the service district.
In addition to its arguments relating to enhancement of geographic, emergency and economic access, Shands Jacksonville contends that in order to maintain its' long-term viability as the safety net hospital in District 4, it needs an acute care presence beyond downtown Jacksonville. As previously noted, the downtown hospital has a relatively high percentage of indigent patients and governmental payors. Shands Jacksonville asserts that the approval of Shands North, with a higher mix of managed care, commercial, and Medicare patients would diversify and improve the overall payor mix of the organization.
However, Shands Jacksonville's application did not include pro forma financial projections, or otherwise quantify the extent to which the improved payor mix would bolster the organization’s bottom-line financial performance or overall financial condition.7/ Nor was such testimony offered at the final hearing.
As noted, in its written response to Memorial’s letter of opposition, Shands Jacksonville projected that 18% of Shands North’s discharges would be Medicaid, and 10.2% would be self-pay or no-pay. However, no financial information or schedules were included to demonstrate that with these relatively high levels of low-pay or no-pay patients the new
facility would generate revenues in excess of expenses, and therefore make a positive contribution to Shands Jacksonville’s overall financial health.8/ In the absence of such evidence, there is no basis to determine the extent to which approval of the Shands North hospital would contribute to Shands Jacksonville's long term financial viability, if at all.
Accordingly, this criterion does not weigh in favor of approval.
Section 408.035(1)(g): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness.
There are a total of eight existing general acute care hospitals located in Duval County. In addition, Baptist Medical Center-Nassau is located in adjacent Nassau County, within Subdistrict 4-1. There are also two CON-approved, but not yet operational hospitals in the greater Jacksonville area.
107 As previously noted, for adult non-tertiary discharges in CY 2010, Shands Jacksonville had the highest reported market share (26.9%) from the PSA among other area hospitals, followed by Baptist Medical Center (23.6%); St. Vincents (17.8%); Memorial (11.2%); and Baptist-Nassau (8.9%). The remaining area hospitals each accounted for less than 4% of the PSA discharges.
There is a competitive market for hospital services in the proposed service area. There is no persuasive evidence that approval of the project would likely make any significant inroads into the already competitive market in the greater
Jacksonville area, and the proposed service area in particular, with Shands Jacksonville, Baptist, and St. Vincents being the dominant providers.
Aside from offering a minor improvement in drive times for residents of PSA zip code 32218 to receive non- tertiary and OB services and some cost-savings, e.g., travel- related costs and time, there is no persuasive evidence that the project is likely to foster competition that promotes quality and cost-effectiveness. This criterion does not weigh in favor of application approval.
Section 408.035(1)(i): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent.
There is no question that Shands Jacksonville plays an important role as a safety net provider in the greater Jacksonville area. Shands Jacksonville provides more care to Medicaid and medically indigent patients than any other acute care hospital or hospital system in District 4. Shands Jacksonville provided 47.4% of its total patient days to Medicaid, Medicaid HMO and charity patients in CY 2010. By comparison, the other District 4 facilities provided on average only 18.6% of their patient days to those payor classes during CY 2010.
Memorial challenged Shands Jacksonville's commitment to Medicaid and indigent patients within the proposed service
area because the application did not offer specific conditions relating to the provision of services to those payor classes. However, given Shands Jacksonville's historic commitment to these populations, and its projected payor mix within the service area, Memorial's argument in this regard is rejected. The applicant complies with this criterion.
Other Arguments for Approval
Shands North as Evacuation Center
As an additional basis for approval, Shands Jacksonville points out that Shands North would be located in a low priority evacuation zone, on high ground. As such, Shands North would serve as an additional evacuation center for residents of Amelia Island and other coastal areas. In addition, Shands North would be a valuable asset in the evacuation of inpatients from Baptist-Nassau and for special needs residents, such as persons dependent on electrical medical equipment.
However, Shands did not offer documentation or evidence that demonstrated that coastal community residents had experienced any prior natural disasters or evacuation orders, or that there are currently inadequate accommodations for evacuees. More importantly, a hospital applicant's proposed service as an evacuation center is not contemplated by any of the CON review criteria, and therefore is not relevant.
Job Creation
Shands Jacksonville contends that another basis for approval is that the new Shands North hospital will create jobs during the construction phase and, once operational, long-term employment at the hospital.
Although temporary construction jobs may occur during new hospital construction to some unknown extent, the same would be true of any health-care related or other building construction. Further, any new jobs associated with hospital operations would be very limited because Shands North patients would have been redirected from other existing hospitals and ostensibly some personnel at other hospitals, such as Memorial, would simply shift their employment to Shands North. Again, this argument for approval is not contemplated by any of the CON review criteria, and therefore is not entitled to any weight in the ultimate determination.
Adverse Impact
Impact from Lost Cases
Memorial's planning expert analyzed the expected adverse impact on Memorial and other hospitals likely to result from development of Shands North under three different scenarios. The first approach utilized the patient shift from Shands Jacksonville to Shands North as assumed in the CON application. If realized, that scenario would result in a 2017
loss of 2,115 patients by Shands Jacksonville, 1,138 by Baptist, 953 by St. Vincent's, 491 by Memorial, and 589 by Baptist- Nassau.
The second approach assumed that the impact on existing providers would be in proportion to the historical market shares of those providers in 2010. This appears to be the most realistic and likely of the three scenarios. This scenario results in a lesser impact on Shands Jacksonville and a somewhat greater impact on the other providers.
The third scenario assumed that 75% of Shands Jacksonville's discharges from Scenario 2 shift to Shands North. This scenario would result in less impact on Shands Jacksonville and greater impact on the other providers. This is the least likely of the three scenarios.
The following chart summarizes the potential impact on area hospitals (in lost discharges) under the three scenarios:
Projected Adverse Impacts Scenario 1 | of Shands North Scenario 2 | in 2017 Scenario 3 |
Shands Jacksonville (2,115) | (1,593) | (865) |
Baptist (1,138) | (1,320) | (1,536) |
St. Vincent's (953) | (1,057) | (1,250) |
Memorial (491) | (592) | (681) |
Baptist-Nassau (589) | (616) | (745) |
(Memorial Exhibits 31-33) |
Scenario 1 would result in a $3.5 million annual contribution margin loss to Memorial: $2 million from OB and non-tertiary services; $1 million from outpatient services; and
$430,000 from ED services. Scenario 2 would result in a $4.3 million annual total contribution margin loss, and Scenario 3 would result in a $4.9 million annual total contribution margin loss.
As noted above, Scenario 2 is the most likely projection of lost volume at Memorial, but in any event, the range of potential lost contribution margin impacting Memorial is between $3.5 million and $4.9 million annually. In 2010, Memorial had an after-tax total margin of $50,191,932. Thus, a recurring financial loss within this projected range would represent a loss of between 7% and 10% of Memorial's net profit, and would constitute a material adverse financial impact.
Adverse Impact on Staffing
With the opening of three new hospitals, competition for nurses and other health professionals in the Jacksonville area is likely to increase significantly. Specifically, approval of three new hospitals in the market (the previously approved St. Vincent's Clay and HCA West Jacksonville, and the proposed Shands North), even with staggered openings, will create increased competition for nurses and other trained clinical staff. As a result, it will become increasingly
difficult for both existing and new providers to attract and retain staff.
Consistently hard to fill positions include experienced RNs, who are sought for all hospital departments, not just medical/surgical units. It is particularly difficult to find experienced nurses for high-intensity hospital services, such as critical care and the emergency department. Currently, Memorial has 51 RN vacancies, and Memorial's 12-month average vacancy rate for RNs is about 6.5%. Like Memorial, Shands Jacksonville also has openings for experienced RNs.
The Shands Jacksonville application did not project the number of nurses or other personnel that would need to be hired to staff the new hospital. Memorial's witness on staffing issues, Steven Burgess, estimated that between 45-60% of new hospital positions are typically filled by RNs. According to Mr. Burgess, this equates to an estimated need for Shands North to hire between 150-170 new RNs. However, Mr. Burgess' estimate did not account for the fact that upon licensure of Shands North, 100 acute care beds at Shands Jacksonville would be de- licensed, and some of the nurses employed at the downtown location would likely be transferred to the new facility.
Whatever the ultimate number of nurses and other personnel required to staff Shands North, because a significant number of Memorial's RNs and other staff live closer to Shands
North, Memorial is likely to lose staff to the new hospital, and as a result, incur additional personnel costs. About 225 Memorial employees (15% of the total), including 75 RNs (11%), live closer to the proposed Shands North site than to Memorial. These individuals are most at risk of being lost to Shands North, since many would be attracted to a new hospital closer to their homes.
Although it is not possible to quantify a specific dollar impact, Shands North recruiting efforts will likely drive up labor costs for Memorial and the other area hospitals, including increased retention bonuses, increased recruiting bonuses, hiring contract labor, and additional overtime. These costs will likely be compounded by the additional competition resulting from the opening of the two previously approved hospitals in the Jacksonville market.
CONCLUSIONS OF LAW
Jurisdiction
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. §§ 120.569, 120.57(1), and 408.039(5)(b), Fla. Stat.
Standing
In order for an existing health care facility to have standing to intervene in a CON proceeding, it must show that it
will be "substantially affected" by approval of the certificate of need application at issue. § 408.039(5), Fla. Stat.9/
Memorial proved by a preponderance of the evidence that it has standing to participate as a party in this proceeding. Memorial's existing hospital, located in the same district and 16.6 miles from the new hospital site, is likely to suffer annual losses of contribution margin ranging between $3.5 million and $4.9 million. This financial impact from lost patient revenues, coupled with the potential impact on staffing and its attendant costs, is substantial enough to establish Memorial's standing.
Burden of Proof
Shands Jacksonville, as the applicant, has the burden of proving, by the preponderance of the evidence, entitlement to a CON. Boca Raton Artificial Kidney Center, Inc. v. Dep't of
HRS, 475 So. 2d 260 (Fla. 1st DCA 1985); § 120.57(1)(j), Fla.
Stat.
The award of a CON must be based on a balanced consideration of all applicable statutory and rule criteria. Balsam v. Dep't of HRS, 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. Dep't of HRS, 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. Fla. Dep't of Transp. 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 a CON application, including its findings in the SAAR, are not entitled to a presumption of correctness. Id.
Balancing the Applicable Statutory and Rule Criteria
As noted previously, the 2008 amendments to the CON law significantly modified the application and review process for CON applications for general hospitals, including the criteria to be considered in determining to approve or deny such applications. The undersigned is unaware of any Recommended or Final Orders having been issued on a general hospital application filed subsequent to the 2008 amendments, nor have any of the parties cited such authority.
The 2008 changes to the CON law were designed to streamline the application and review process for new hospital projects. Specifically, the Legislature appears to have been concerned about administrative challenges intended to prolong or delay the final decision on such applications. To address this
concern, the amendments included provisions requiring administrative hearings to commence within six months after an administrative law judge has been assigned, limiting continuances (section 408.039(5)(b)), and providing for the assessment of attorneys fees and costs of up to $1 million for the unsuccessful appeal of a Final Order approving a general hospital CON (408.039(6)(d)).
In addition to attempting to streamline the final decisions on new hospital applications, the Legislature also eliminated several previously applicable CON review criteria, including, among others, quality of care and financial feasibility. Most significantly, however, the Legislature did not remove "need" (as codified at section 408.035(1)(a) and (b)) as a review criterion.
It has been stated that "[n]ot every city, town or hamlet can or should have its own hospital." Columbia Hosp.
Corp. of South Broward v. Ag. for Health Care Admin., Case Nos. 01-2891CON and 01-2892CON (Fla. DOAH July 3, 2002, at FOF 62;
Fla. AHCA Sept. 30, 2002) (application to establish a new 100- bed hospital in Broward County), aff'd, 883 So. 2d 283 (Fla. 1st DCA 2004); see also Manatee Memorial Hosp., L.P. v. Ag. for
Health Care Admin., Case Nos. 04-2723CON, 04-3027CON, and 04- 3147CON (Fla. DOAH Dec. 1, 2005, at FOF 104; Fla. AHCA Apr. 11,
2006) (application to establish a new acute care hospital in
Sarasota County) ("A community's desire for a new hospital does not mean there is a 'need' for a new hospital. Under the CON program, the determination of need for a new hospital must be based upon sound health planning principles, not the desires of a particular local government or its citizens.") (cited in Osceolasc, LLC, d/b/a St. Cloud Reg'l Med. Ctr. v. Ag. for Health Care Admin. and Osceola Reg'l Hosp., Inc., d/b/a Osceola
Reg'l Med. Ctr., Case No. 08-0612CON (Fla. DOAH Dec. 31, 2008, at COL 275; Fla. AHCA Mar. 3, 2009)).
Just as the desires of local government or citizens may not dictate the approval of a new hospital, neither should the motivations of a particular health system, no matter how noble, trump the statutory requirement that “need” for the proposal be demonstrated.
The Agency’s deferential attitude toward applications for new hospitals, as articulated by Mr. Gregg, is not supported by the current statutory review scheme.10/ An applicant for a new hospital must still prove that, on balance, approval of the application is consistent with the statutory and rule review criteria. While it appears that the Agency has increasingly favored satellite hospitals, including recent approvals in District 4, these actions do not necessarily mean that satellite hospitals undergo less scrutiny under the CON review criteria.
The Agency was persuaded to approve Shands North primarily because it would improve access in an unserved suburban sector, while simultaneously improving traditional indigent care functions for Shands Jacksonville, according to Mr. Gregg.
The evidence of record established that Shands North's proposed service area residents are currently well served by easily accessible existing hospitals. That circumstance is not likely to change since the population is not projected to significantly increase in the foreseeable future. Indeed, Shands Jacksonville failed to establish the existence of typical indicators of "need," such as barriers to programmatic, financial, or geographic access to the types of basic community hospital services proposed. Existing hospitals have available capacity, and on any given day have more than adequate available unoccupied beds, to serve the current population and the projected population growth.
The Agency does not have a travel-time standard rule with respect to access to acute care services. See generally
Wellington Reg. Med. Ctr., Inc., d/b/a Wellington Reg. Med. Ctr. v. Ag. for Health Care Admin., Case Nos. 05-2352CON,
05-2594CON, and 05-2753CON (Fla. DOAH Apr. 5, 2007, at FOF 110 and 354-58; Fla. AHCA Aug. 9, 2007, at 27, 34-35), aff'd, 5 So.
3d 26 (Fla. 4th DCA 2009). (On the same day, the court affirmed
the two companion cases arising from this administrative proceeding. Wellington Reg. Med. Ctr., Inc. v. Ag. for Health Care Admin., 4 So. 3d 21 (Fla. 4th DCA 2009) and JFK Med. Ctr.
Ltd. P'ship, v. Ag. for Health Care Admin., 4 So. 3d 1245 (Fla. 4th DCA 2009)).
In Osceolasc, supra, it was found that "20 to 30 minutes is a reasonable travel time standard for accessing general acute care hospital services, with 30 minutes being the outside range." Osceolasc, RO at FOF 171.
With very limited exceptions, approval of Shands North would not significantly improve geographic access to hospital services by the residents of the service area. There is no evidence in this record that all residents of the proposed service area are not currently within a reasonable driving time to an existing hospital. Specifically, there was no evidence that any significant population within the proposed service area was more than 30 minutes distant to an existing hospital.
Similarly, the record evidence does not indicate the existence of barriers to emergency services within the proposed service area. Rather, the evidence established that significant numbers of service area residents are currently accessing emergency services at Shands Jacksonville, and elsewhere, and there was no evidence to suggest that delays in emergency access were occurring. And while the Shands downtown emergency
department occasionally experiences “crowding”, there was no persuasive evidence presented that such crowding threatened the timely delivery of emergency services.
Moreover, approval of the new hospital is not needed to decompress Shands Jacksonville's existing emergency department since the same goal could be accomplished through the development of a freestanding ED at the Shands North site.
Shands Jacksonville contends that the project will provide a more favorable payor mix that, in turn, will enhance its ability to continue to fulfill its historic commitment to provision of care to Medicaid and indigent patients in the greater Jacksonville area. AHCA has recognized that if proven, such a finding would weigh in favor of approving a project proposed by an applicant. Columbia Hosp. Corp. of S. Broward,
d/b/a Westside Reg’l Med. Center v. AHCA and S. Broward Hosp. Dist., d/b/a Mem’l Hosp. Miramar, DOAH Case Nos. 01-2891 et al.
(Fla. DOAH July 3, 2002, at FOF 184; Fla. AHCA Sept. 30, 2002).
Had the applicant persuasively established that Shands North would make a positive financial contribution to the Shands Jacksonville financial operations, thereby helping to ensure Shands continuing viability as the area's safety net provider, such fact would have weighed heavily toward approval. However, the applicant failed to establish this fact.
The Agency also based its approval, in part, on the fact that Shands Jacksonville would serve as an additional evacuation center for residents of Amelia Island and other coastal areas. While perhaps true, this fact is not cognizable under either statutory or rule criteria, and is therefore entitled to no weight.
Whether the Shands North application is approved or not, competition for nurses and other hospital personnel will soon increase in the area because of the addition of the two new hospitals already approved. However, approval of Shands North would exacerbate this competition, potentially driving up personnel costs for all providers in the area.
Under the facts found in this proceeding no significant weight is given to any improved access due to drive time improvement in the future. The modest improvements in geographic access, including access to emergency services for some residents of the service area, are not sufficient enough to warrant approval of the proposed hospital.
While the impact on Memorial is substantial enough to establish standing, it is not significant enough to mitigate for denial of the application had need for the hospital been established.
Shands Jacksonville failed to persuasively establish need for its proposed satellite hospital. Any improvements in
geographic access, including access to emergency services, would be modest at best. On the other hand, the approval of yet a third new hospital, in an already competitive market, would further heighten the competition for both patients and hospital personnel, potentially driving up the costs for hospital services. Finally, and most importantly, the uncertainty surrounding the financial performance of the proposed hospital and whether it would have a beneficial or detrimental effect on the overall financial condition of Shands Jacksonville, mitigates for denial of the application.
Based upon the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that the Agency for Health Care Administration enter a final order denying CON Application No. 10125.
DONE AND ENTERED this 7th day of December, 2012, in Tallahassee, Leon County, Florida.
S
W. DAVID WATKINS Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 7th day of December, 2012.
ENDNOTES
1/ Shands Jacksonville and the Agency filed a Joint Proposed Recommended Order.
2/ Seventeen (17) of the 19 PSA physician letters of support came from zip code 32218, the Shands North home zip code. Only one physician letter was received from each of PSA zip codes 32097 and 32226. However, application of Shands Jacksonville's use rates to its zip code specific population estimates reveals that Shands Jacksonville is predicting that Shands North would obtain 15.4% and 12.7% of their total PSA patients respectively from those two zip codes.
3/ See Ch. 2008-29, Laws of Florida.
4/ At hearing, Shands Jacksonville's health planner, Joseph Witek, Jr., testified that the approval of the Shands North hospital would be geographically consistent with other approvals in the Jacksonville metropolitan area over the past 10 to 15 years. Examples given by Mr. Witek were the approval of the Mayo Clinic, which was 4.8 miles from Baptist Beaches; St.
Vincent's Memorial Medical Center in Clay County, which was 7.6 miles from Orange Park Medical Center; Baptist South, which was
10.1 miles from St. Luke's; and HCA's West Jacksonville, which was 11.4 miles from St. Vincent's Medical Center.
5/ There is no evidence in this record that the EMS system serving residents of the proposed service area is inadequate, or has otherwise been unable to effect timely transport of emergency patients to area hospitals.
6/ CON approval is not required for the establishment of these outpatient services.
7/ Chapter 2008-29, Laws of Florida, eliminated consideration of the immediate and long-term financial feasibility of the proposal as a review criterion for new hospitals. As such, the Agency no longer requires schedules of expected financial performance to be included with the CON application. However, detailed financial projections, including anticipated revenues and expenditures, the basis for financing the anticipated cash-
flow requirements, and access to contingency funding, must be submitted to the Agency within 120 days of the CON becoming final. § 408.037(2), Fla. Stat.
8/ Table 3, included with Shands Jacksonville's response to Memorial's statement of opposition, sets forth projected 2017 service area total adult non-tertiary and obstetric discharge payor mixes by provider. For combined non-tertiary and OB discharges, Shands North is projected to have a combined Medicaid/self pay/no pay mix of 28.2%. This is in comparison to 18.8% for all other providers in the service area, exclusive of Shands' downtown. Additionally, Shands North is anticipated to have a commercial payor mix of 22.6%, compared to all other hospitals’ mix of 29%. Again, absent a projection of hospital financial performance it is impossible to determine whether the anticipated payor mix at Shands North would result in operating profits or losses, and therefore whether it would have a positive or negative impact on the overall financial viability of the Shands system.
9/ In addition to establishing that an existing program will be substantially affected by issuance of a CON, a challenger to a new hospital project must have submitted a detailed written statement of opposition to the Agency and to the applicant within 21 days of the application being deemed complete. No party contends that Memorial did not perfect its standing in this regard, and its Statement of Opposition, dated November 2, 2011, was received in evidence as Joint Exhibit 2.
10/ On cross-examination, Mr. Gregg agreed with counsel for Memorial that "as a practical matter, essentially you [the Agency] accept an applicant's representations for need at face value, you don't really analyze or critically review those, and if somebody presents what you view as a reasonable proposal, you will approve the application . . . ." Mr. Gregg explained this was "because the applications [for new hospitals] have become so rare, because access to capital is so tight, we don't see what I would consider frivolous applications." (Final hearing transcript, pgs. 396-397)
COPIES FURNISHED:
Stephen A. Ecenia, Esquire Rutledge, Ecenia and Purnell, P.A.
119 South Monroe Street, Suite 202 Post Office Box 551
Tallahassee, Florida 32302-0551
Lorraine M. Novak, Esquire
Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431
Tallahassee, Florida 32308
Seann M. Frazier, Esquire Greenberg Traurig, P.A.
101 East College Avenue Tallahassee, Florida 32302-7742
Richard J. Shoop, Agency Clerk
Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431
Tallahassee, Florida 32308
Stuart Williams, General Counsel Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431
Tallahassee, Florida 32308
Elizabeth Dudek, Secretary
Agency for Health Care Administration Fort Knox Building III, Mail Stop 1 2727 Mahan Drive, Suite 3431
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 |
|---|---|---|
| Apr. 10, 2013 | Agency Final Order | |
| Dec. 07, 2012 | Recommended Order | Applicant failed to demonstrate need for its proposed 100-bed satellite hospital. |
