Judges: K. N. AYERS
Agency: Agency for Health Care Administration
Latest Update: Mar. 25, 1981
Summary: Petitioner failed to meet burden of proof in showing its proposed hospital plan was more meritorious than the one Respondent chose.
80-1592.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
PROVINCIAL HOUSE, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 80-1592
)
DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, OFFICE ) OF COMMUNITY MEDICAL FACILITIES ) AND CARE MANAGEMENT, INC., )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice the Division of Administrative Hearings, by its duly designated Hearing Officer K. N. Ayers, held a public hearing in the above styled case on November 4-5, 1980, at Marathon, Florida.
APPEARANCES
For Petitioner: John H. French, Esquire
Post Office Box 1876 Tallahassee, Florida 32302 and
Robert Stocker, Esquire Lansing, Michigan
For Respondent
DHRS: Eric Haugdahl, Esquire Assistant General Counsel Department of HRS
1323 Winewood Boulevard
Tallahassee, Florida 32301
For Respondent
Care Management: Harry A. Schroeder, Esquire
400 Building
400 Royal Palm Way
Palm Beach, Florida 33480
By Petition filed 22 August 1980, Provincial House, Inc., Petitioner, contests the actions of the Department of Health and Rehabilitative Services (DHRS) , Respondent, in denying its application for a certificate of need to construct a 120-bed nursing home at Marathon, Florida and the granting of a similar application to Care Management, Inc., Respondent, to construct a 120-bed nursing home on Plantation Key. Petitioner contends that its application was more meritorious than the application of Care Management, Inc. and therefore, should have been approved.
At the hearing the parties submitted a prehearing stipulation in which relevant facts were stipulated and the issues to be considered were delineated. Thereafter, Petitioner called 15 witnesses, Respondents called 3 witnesses and
20 exhibits were offered into evidence. Ruling on the objection to the admissibility of Exhibit 18 on grounds of relevance was reserved at the hearing. After considering all issues in this proceeding, the objection to Exhibit 18, which is an application for a 240-bed nursing home at Cutler Ridge, Florida, is sustained.
FINDINGS OF FACT
There are no existing nursing home facilities in Monroe County although Florida Keys Memorial Hospital in Key West is presently allocating 30 beds for long-term care.
A need exists for 195 nursing home beds in Monroe County. Both Petitioner and Care Management, Inc. are qualified to construct and operate a nursing home.
Nursing homes with 120 beds and more, in increments of 60, are more efficient than nursing homes with fewer beds. Accordingly, Respondent has determined that a present need exists for two 120-bed nursing homes in Monroe County.
One of these nursing homes should be located in Key West, the place of greatest population density in Monroe County. It is the location of the second nursing home that is contested in these proceedings.
Provincial House has applied for a certificate of need to construct a 120-bed nursing home in Marathon which is located in the middle Keys some 50 miles from Key West, at a cost of $2,807,000.
Care Management, Inc. has applied for a certificate of need to construct a 120-bed nursing home near Tavernier, Florida, on Plantation Key at a cost of $1,500,000. This site is located in the upper keys approximately 35 miles northeast of Marathon and approximately 25 miles south of the Monroe-Dade County boundary.
Monroe County Planning Department has divided the Keys into four population areas comprising Key West, the lower keys, the middle keys and the upper keys. The Health Systems Agency plan has consolidated Key West and the lower keys in one service area with the middle and upper keys in the other service area for providing health care services in Monroe County.
The two applications here involved were presented to the Sub Area Council for consideration at the same time two applications for certificates of need for 120-bed nursing homes in Key West were considered. One of these applicants for a Key West nursing home was Care Management, Inc. and the other was Debes Corporation. The former application was for a 120-bed nursing home at a cost of $1,500,000 and the latter's application was for the same capacity nursing home at a cost of $4,132,767.
Both Debes and Provincial House applications provided for their own fresh water supply by including the installation of a reverse ionization plant to convert salt water to fresh. Care Management's applications did not include such a provision.
After a public hearing, the Sub Area Council recommended that certificates of need be issued to Debes Corporation and provincial House, Inc. Two of the grounds given for these recommendations were that (1) they believed better quality care would result from these applicants and (2) these applicants were more sensitive to specific issues and problems in Monroe County as indicated by their inclusion of the desalinization plants.
These recommendations were then presented to the Health Systems Agency of South Florida (HSASF) with the staff recommendation that both certificates of need be issued to Care Management. At the June 24, 1980, HSASF meeting where these applications were considered the HSASF adopted a motion to separate service areas in Monroe County into Key West and the rest of the keys. This action was taken in the light of testimony presented to the Sub Area Council, and at the instant hearing, that the residents of Big Pine Key (in the lower keys) use Marathon for health care needs and for shopping rather than Key West; and in disregard of the HSA policy that the two service areas in Monroe County are Key West/lower keys and middle keys/ upper keys. In so doing, HSASF apparently eliminated the lower keys as a designation and included the area comprising the lower keys with the middle keys to justify the finding that the population center of the area north of Key West was at Marathon.
Seven Mile Bridge divides the lower keys from the middle keys. This geographical division was adopted by Monroe County planners and by HSA for designating medical service areas due to the lower keys' isolation from the middle keys in the event traffic over this 7-mile long bridge is disrupted.
Big Pine Key is south of Seven Mile Bridge, but a large proportion of the residents of Big Pine Key come to Marathon for medical treatment and shopping.
Marathon is the site of Fisherman's Hospital which is a better equipped and staffed hospital than is Mariner's Hospital located at Tavernier. Many residents of the upper keys go to Homestead or Miami for medical treatment.
Population statistics and trends show the lower keys to be the fastest growing area in Monroe County with the upper keys a close second, the middle keys a distant third and Key West a poor fourth. Population in Monroe County in 1980 is concentrated in Key West with 36 percent, followed by the upper keys with 27 percent, lower keys with 19 percent and middle keys with 17 percent. By 1985 the population of Monroe County is projected to be 76,317 with 34 percent in Key West, 28 percent in the upper keys, 21 percent in the lower keys and 17 percent in the middle keys. (Exhibit 3)
With one nursing home at Key West, a second nursing home at Marathon would place the two nursing homes needed in Monroe County in the lower half of the keys. Joining the lower keys population with Key West to establish the service area for health provider services clearly places the center of population of the rest of Monroe County near or above Plantation Key. accessibility to those needing nursing home services would not be fairly or adequately distributed by placing the second nursing home in the lower half of Monroe County.
Both Care Management, Inc. and Provincial House, Inc. propose to provide beds available for Medicaid patients. These Medicaid patients are funded by the government at a fixed per diem which is not exceeded regardless of the actual cost to the nursing home. As a result, many nursing homes "lose money" on Medicaid patients. Nevertheless, a Medicaid population of nursing
homes runs 60 to 70 percent statewide and nationwide. Care Management proposes a 60 percent Medicaid patient to private patient mix while Provincial House proposes a 50 percent Medicaid/Medicare to private patient mix.
Nursing homes are not required to take Medicaid patients; however, their ability and willingness to do so is an important element to consider in granting a certificate of need to an applicant. One factor affecting the ability of a nursing home to take Medicaid patients is the cost of its debt service, since most nursing homes are financed largely by debt. Accordingly, Care Management if it can construct the proposed nursing home for $1,500,000 (or
$1,695,000 with recommended staff inflation figures) would be better able to provide care for Medicaid patients than would Provincial House whose facility is projected to cost $2,807,000 (or $3,284,190 if staff's inflation figures are used). Since both applicants propose to finance 80-90 percent of the cost of the project by first mortgages, it is obvious that the cost of debt service would be much higher for Provincial House than for Care Management.
Not only would lower construction costs allow greater ability to serve Medicaid patients but also would permit the nursing home to provide care to private patients at a lower cost thereby making available more economical health services.
Both applicants propose financing at terms that are not currently available. Care Management proposes to obtain long-term mortgage financing at
12 percent interest. On the other hand, unless Provincial House can obtain financing at less than 11.5 percent, their principal witness acknowledged their proposed project would not be feasible (Transcript p. 78,79). At the present time conventional financing for either project is not likely to be available at less than 14-15 percent interest.
Petitioner, at the hearing, proposed to obtain financing by inducing Monroe County to issue tax-exempt revenue bonds for the construction of the proposed nursing home. Not only was no evidence presented that Monroe County would be receptive to such a proposal and the voters would approve taking on this liability, but also no evidence was adduced that Monroe County has ever approved a revenue bond for such a project.
Petitioner's principal emphasis was directed toward showing that Care Management had grossly underestimated its construction cost. Numerous witnesses testified that, in their opinion, a nursing home could not be constructed in the keys for less than $45 to $50 per square foot. None of these witnesses had constructed a nursing home, although several were general contractors with knowledge of construction costs. In this connection it is to be noted that Care Management proposes to construct a 30,000 square foot building at a cost of
$1,500,000. This comes to $50 per square foot if all equipment is included. With the additional $195,000 inflation adjustment proposed by the HSASF staff and accepted by HSA, it would appear not beyond the realm of possibility that Care Management could construct the facility as proposed. The construction costs proposed in Care Management's application were submitted only after estimated costs had been received from general contractors who were asked to submit prices. If construction costs per square foot are equal for the two proposed nursing homes, the 38,000 square foot nursing home proposed by Petitioner would cost nearly 25 percent more than a 30,000 square foot facility proposed by Care Management. Everything else being equal, this would increase Petitioner's debt service and depreciation costs nearly 25 percent over those costs for Care Management.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.
Since the parties have stipulated that a need exists for only one 120- bed nursing home to be located on the upper and middle Keys, these applications are mutually exclusive and the hearing conducted is a comparative hearing to ascertain which applicant is better qualified to provide the health care services needed. This comparative hearing is a de novo hearing in which each applicant has the burden of proving its application for a certificate of need, if granted, would best serve the public interest. It is this public interest in containing the cost of health services which is the determining factor in deciding which application should be granted. Bio-Medical Applications of Clearwater, Inc. v. Department of Health and Rehabilitative Services, et al.,
370 So.2d 19 (Fla. 2nd DCA 1979) Here both applicants are fully qualified to provide the health care proposed and that which was stipulated to be needed.
Rule 5-10.11, Florida Administrative Code, lists the criteria under which certificate of need applications and capital spending proposals are judged. These criteria here most pertinent include:
The relationship of health services being proposed to the applicable Health Systems Plan, Annual Implementation Plan, and 1977 State Medical Facilities Plan adopted pursuant to section 1513(b)(2), 1513(b)(3) and 1603 respectively of the Act.
* * *
The immediate or long-term financial feasibility of the proposal.
The relationship of the proposed health services to ancillary and support services.
* * *
In the case of a construction project:
The costs and methods of the proposed construction including the costs and methods of energy provision and
The probable impact of the construction project proposed on the costs of providing health services by the person proposing the project.
Little evidence was presented regarding the immediate or long-term financial feasibility of the project, largely because of the current high interest rates and uncertainty that relief is in sight. However, this factor faces both applicants equally and is not relevant to a determination of which should be issued the certificate of need being contested.
From the evidence presented it is concluded that the ancillary facilities, viz, other medical support facilities, at Marathon are better than are those at Plantation Key and if this were the sole factor to be considered the certificate of need should be awarded to provincial House, Inc. On the other hand, the site at Plantation Key is geographically more suitable from the standpoint of the availability to the greatest number of prospective patients than is the Marathon site. Also, the health services plan for Monroe County provides that the two service areas for Monroe County comprise the upper/middle
keys and Key West/lower keys with the greatest population growth predicted for the upper/middle keys. Accordingly the plantation Key site is more consistent with this plan than is the Marathon site.
An equally, if not more, important factor in the determination here to be made is the cost effectiveness of the two applications. Care Management proposes a smaller facility at a substantially lower capital expenditure than the facility proposed by Provincial House. No credible evidence was presented that either could get better financing terms than the other and both applicants propose 80-90 percent financing of the facility. Simply because Care Management proposes a 30,000 square foot facility and Provincial House proposes a 38,000 square foot facility, if both finance the same percentage of the costs at the same interest rate and incur the same construction costs per square foot, Provincial House's cost of debt service and depreciation will be nearly 25 percent higher than the same costs for Care Management. Accordingly, Care Management will be able to render services at a lower cost and be better able to serve a higher percentage of Medicaid patients than will provincial House.
Petitioner's contention that granting the certificate of need to Care Management will be contrary to the policy of promoting competition among health care providers since Care Management has also been recommended for a certificate of need in Key West, is without merit. Not only is the Care Management application for a certificate of need in Key West being challenged but also the competition which the policy contemplates is between different types of health services and not between similar facilities. The competition which will lower the costs of providing health care is that between different types of facilities such as hospitals, nursing homes, and home health agencies and not between nursing homes in adjacent areas. One management operating two or more nursing homes leads to economies in purchasing supplies and equipment, in providing specialized personnel whose time may not be fully justified for one nursing home, and in providing administrative services.
From the foregoing it is concluded that Care Management, Inc.`s application for a certificate of need to construct a nursing home on Plantation Key should be approved because it can provide more efficient health services and is better able to provide services to more Medicaid patients than is the application of Provincial House for a certificate of need to construct a nursing home at Marathon. It is also concluded that geographically the proposed nursing home at Plantation Key is better situated to serve the population of the service area than would be one at Marathon. It is therefore
RECOMMENDED that Care Management's application for a certificate of need to construct and operate a nursing home at Plantation Key, Florida, be approved and Provincial House's application for a certificate of need to construct and operate a nursing home at Marathon, Florida be denied.
Entered this 14th day of January, 1981.
K. N. AYERS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301
(904) 488-9675
COPIES FURNISHED:
Mr. Alvin J. Taylor Secretary
Department of Health and Rehabilitative Services
1323 Winewood Boulevard
Tallahassee, Florida 32301
John H. French, Esquire Post Office Box 1876 Tallahassee, Florida 32302
Robert W. Stocker, II, Esquire Fraser, Trebilcock, Davis and
Foster, P.C.
Tenth Floor, Michigan National Tower Lansing, Michigan 48933
Eric Haugdahl, Esquire Assistant General Counsel Department of HRS
1323 Winewood Boulevard
Tallahassee, Florida 32301
Harry A. Schroeder, Esquire
400 Building
400 Royal Palm Way
Palm Beach, Florida 33480
Docket for Case No: 80-001592
Orders for Case No: 80-001592
| Issue Date |
Document |
Summary |
|
Mar. 20, 1981 |
Agency Final Order
|
|
|
Jan. 14, 1981 |
Recommended Order
|
Petitioner failed to meet burden of proof in showing its proposed hospital plan was more meritorious than the one Respondent chose.
|
