STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTHEASTERN PALM BEACH COUNTY, ) HOSPITAL DISTRICT, )

)

Petitioner, )

)

vs. ) CASE NO. 81-1198

) STATE OF FLORIDA, DEPARTMENT ) OF HEALTH AND REHABILITATIVE ) SERVICES, )

)

Respondent. )

) NATIONAL MEDICAL ENTERPRISES, ) INC., )

)

Petitioner, )

)

vs. ) CASE NO. 81-1212

) STATE OF FLORIDA, DEPARTMENT ) OF HEALTH AND REHABILITATIVE ) SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a consolidated administrative hearing in the captioned proceedings was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on March 29 through April 2, 1982, in Boca Raton, Florida, on April 5 through April 9, 1982, and on May 24, 1982, in Tallahassee, Florida. The issues for determination this proceeding are whether there is a need for a new hospital facility in southwest Palm Beach County, and if so, which of the two applicants-petitioners can best serve that need in a cost effective manner.

APPEARANCES

For Petitioner Fred W. Baggett and District: Michael J. Cherniga

Roberts, Baggett, LaFace, Richards, and Wiser

101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302

For Petitioner C. Gary Williams

NME: Ausley, McMullen, McGehee, Carothers & Proctor

Washington Square Building

227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32303

For Respondent: Eric J. Haugdahl

Assistant General Counsel 1323 Winewood Blvd.

Building 1, Room 406

Tallahassee, Florida 32301 INTRODUCTION

Southeastern Palm Beach County Hospital District (District) and National Medical Enterprises, Inc. (NME) each filed applications with the Department of Health and Rehabilitative Services (HRS) for a Certificate of Need to construct a new hospital in southwest Palm Beach County. The Health Planning Council, Inc. for Region VII (HPC) considered the two applications as competing applications and recommended to HRS that both applications be denied. HRS denied both applications, and this consolidated, comparative hearing resulted. The first portion of the hearing was devoted to the issue of whether or not there was a need for a new hospital facility in southwest Palm Beech County.

The remaining portion of the hearing pertained to the issue of which of the two applicants could best fulfill that need, if a need is determined to exist.

At the hearing, the District presented the following witnesses: Russell T. Clayton, the Administrator of Bethesda Memorial Hospital; Kenneth Peltzie, accepted as an expert witness in the areas of health care planning for acute care hospitals and preparation of Certificates of Need; Lawrence S. Lewin, accepted as an expert witness in the area of comparative analysis of health care economics of operations and services; Jacquelin Harfst, the Director of Personnel at Bethesda; Paul Hopper, the Director of Purchasing at Bethesda; Robert Hill, the Assistant Administrator at Bethesda; Robert B. Taylor, Jr., the Assistant Administrator for Finance at Bethesda, who qualified as an expert witness in the fields of accounting and health care finance systems; William J. Brock, accepted as expert witness in the field of tax exempt financing and market feasibility; Anthony C. Krayer, accepted as an expert witness in the areas of health care financing, health care finance analysis, and health care financial feasibility; and Harold D. Vick, accepted as an expert witness in the field of traffic engineering. The District's Exhibits 1 through 17, 19, 20, and

24 through 29 were received into evidence at the hearing.

NME presented the testimony of Fran Reich, President of the West Boca Community Council; Steven R. Hoffacker, accepted as an expert witness in the areas of demographics and population planning; Victor Shulman, M. D.; Jack Bell, M.D.; Norman Gregory, Chairman of the Board of County Commissioners for Palm Beach County; Richard Siemens, a developer; Jim Sweet, a paramedic officer with the Del Trail Fire Control Tax District; Joseph Zinns, M.D.; Richard David Zemlin, M.D.; Gregory J. Zann, M.D.; Norman S. Cohen, M.D.; William Konrad, the Mayor of Boca Raton; Michael Falkowitz, M.D.; Richard Levy, the President of Oreole Homes; Harry W. Barron, the Director of the Southwest Area Recreation Association; Adelaid Snyder, the Vice President for University Relations at Florida Atlantic University; Michael H. Green, accepted as an expert witness in the area of health care planning; Patricia G. Meys, employed with NME's

recruiting and training department; Mark Schieff, NME's corporate Vice President in the Construction and Design Department; Kenneth Burton, a cost consultant for NME; Al Davis, the Vice President for Planning for Metro-Hospital Supply, a subsidiary of NME; Berry Schochet, the NME Vice President for Operations for the Eastern Region; Edward A. Elliott, the NME Senior Vice President for Corporate Finance; Richard Arnold Ramos, accepted as an expert witness in traffic engineering and transportation planning; Frank J. Grimmelmann, accepted as an expert witness in the areas of investment banking, capital markets and health care finance; and Vincent J. Lico, NME's Vice President of Finance for the Eastern Region and accepted as an expert witness in the areas of health care financial management, health care accounting, third party reimbursement, and financial feasibility of health care projects. NME's Exhibits 1 through 8, 10,

12 through 28, 30, 31, 33 and 34 were received into evidence at the hearing.

Received into evidence on behalf of HRS were Exhibits 1, and 3 through 19. HRS presented the testimony of Edward Polloch, M.D., a radiologist and member of the Board of Directors of the HPC; Richard Warfield, the Executive Director of the Health Planning Council, accepted as an expert witness in the area of health planning; Richard Matus, with the HRS Office of Comprehensive Rehabilitation Planning, accepted as an expert witness in the areas of demography and population projections; Philip C. Rond, with the HRS Office of Comprehensive Health Planning, accepted as an expert witness in the area of health planning; and Gary Clarke, the Deputy Assistant Secretary for Health Planning and Development with HRS, accepted as an expert witness in the area of health planning.

Subsequent to the hearing, the parties submitted proposed recommended orders and/or memoranda containing their respective positions on the issues. To the extent that the parties' proposed findings of fact are not incorporated in this Recommended Order, they are rejected as being either not supported by competent, substantial evidence adduced at the hearing, irrelevant or immaterial to the issues for determination or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. Palm Beach County is located in Florida Health Service Area Region VII (HSA #7) which also includes Indian River, Martin, Okeechobee, and St. Lucie Counties. The Health Systems Plan (HSP) for Region VII breaks down bed need for Palm Beach County separately from the other four counties. The population of the southern portion of Palm Beach County is growing at a much faster rate than the population of the northern portion of the County. There is a maldistribution of hospital beds between the northern and southern portions of the County. The northern portion of the County has three times as many hospital beds as the southern portion of the County.

   
   

2. Palm Beach County presently has 2,752 hospital beds which are either licensed or approved for construction. This figure includes a new 160-bed NME facility in Delray Beach projected to open in the Fall of 1982, a 50-bed expansion at Bethesda Memorial Hospital completed in January of 1982, a 50-bed expansion at Boca Raton Community Hospital and a 48-bed expansion at John F. Kennedy Hospital presently under construction. An additional 80 beds have been approved by HRS for the new Delray facility, but this is presently in litigation and these beds can not be considered in this proceeding.

3. The two hospitals which currently serve the south Palm Beach County area are the Boca Raton Community Hospital (Boca Community) located in Boca Raton and the Bethesda Memorial Hospital (Bethesda) located in Boynton Beach and operated by the District. Both facilities are within a thirty minute driving distance for 95 percent of the population of the southwestern portion of Palm Beach County. According to patient origin studies, Boca Community draws some

   7.7 percent of its patients from the southwest portion of Palm Beach County and Bethesda draws only 1.8 percent of its patients from such area. The primary service areas of both facilities are concentrated on the coastal side of the County. Boca Community has a closed medical staff and does not offer obstetrical services. In 1981, Boca Community had an average occupancy level of

   91 percent. During the tourist season which runs from November to April of each year, Boca Community was overcrowded, at times operating at a 100 percent occupancy rate. Oftentimes, patients were either turned away or were placed in hallway or holding room beds. There were occasions during the tourist season when the Del Trail Fire Control Tax District, which provides emergency medical rescue service for the residents of southwest Palm Beach County, was advised by Boca Community that they were on a Priority 1 status only. This meant that they could only utilize that facility for the most severe cases of cardiac or respiratory arrest. The Fire Control Tax District's paramedic program anticipates that it will respond to approximately 2,250 medical rescue calls in 1982. A hospital located in the southwestern portion of Palm Beach County would reduce the response time of paramedics, enable them to make more calls and provide better medical service for members of the Fire Control District. In 1981, Bethesda operated at an average occupancy rate of 82.9 percent, with the rate exceeding 90 percent during the tourist season. The HSP utilizes a 75 percent occupancy rate as a guideline for determining the need for additional hospital beds.

   
   

4. In health care planning, it is the policy of HRS to utilize county-wide population estimates prepared by the University of Florida's Bureau of Economic and Business Research (BEBR). The most recent population figure promulgated by BEBR for Palm Beach County is a 1981 estimate of 615,165. This figure indicates an increase over its prior projections of almost 20,000. For the year 1985, the medium range population estimate for Palm Beach County is projected by the BEBR to be 707,900. This figure does not significantly differ from projections made by various planning experts who testified at the hearing. Some 99 percent of the population growth in the County is attributable to migration.

   
   

5. Among the guidelines for determining need for additional hospital beds in an area are occupancy levels of existing hospital facilities, utilization rates and a desired number of beds per thousand people in an area. The HSP for Region VII considers an occupancy rate of 75 percent to be desirable, and utilizes the formula of 4 beds per thousand population in reaching determinations on the question of need. The State Health Plan, in accordance with federal guidelines, takes into consideration the factors of age of the population and utilization, including migration in and out of an area. Persons over age 65 normally utilize hospital beds and facilities four times as much as people under 65. Some 23 percent of the residents of the southwest area of Palm Beach County were 65 years of age or older. This compares with a national average of approximately 11 percent, and a county-wide average of 20 percent. Accordingly, in computing preliminary bed need projections for 1985, the 1981 Florida State Health Plan utilizes a formula of 4.25 beds per thousand population for HSA #7 as its medium estimate and a formula of 4.61 beds per thousand population as its high estimate. Utilizing the 4/1000 formula, and assuming a 1985 population of 707,900, the bed need for Palm Beach County in

   1985 would be 2,832. A 4.25/1,000 formula produces a bed need of 3,009, and a 4.61/1,000 formula results in a bed need of 3,263. Given the exsiting licensed and approved 2,752 beds in the County as a whole, there would be a need in 1985 for an additional 80 beds using the 4.0 approach, 257 beds using the 4.25 approach, and 511 beds using the 4.61 approach.

   
   

6. Utilizing the University of Florida population figures for Palm Beach County, distributing that population to various areas within the County in accordance with the Area Planning Board estimates, and further distributing

   ,beds between the facilities in the southwest area of the County based upon anticipated market shares, the District's health care planning expert determined there would be a need for 157 new beds by 1986 in the southwest area. This projection takes into account the new Delray Hospital, the 50-bed additions at Bethesda and Boca Community and utilizes an 80 percent occupancy rate.

   
   

7. By allocating County population figures into

   subregions, NME's planning expert projected the population of the west Boca service area to be 43,598 by 1985. Utilizing two different methodologies -- occupancy levels and bed per thousand population -- NME's expert determined that there would be a minimum additional bed need of 170 to 188 in the west Boca service area in 1985 to 1986.

   
   

8. The previous HSA 1980-1984 HSP only showed a need for 40 or 50 beds in Palm Beach County. The 1981-1985 HSP, which now takes into account the recently approved 160 beds at Delray, 50 at Bethesda and 50 at Boca Community, shows a need for an additional 128 beds. John F. Kennedy Hospital, which does not serve the southwest portion of the County, has been granted approval for 48 beds.

   
   

9. The Boca Raton City Council and the Board of County Commissioners for Palm Beach County have each adopted resolutions citing the need for a new hospital in the West Boca area.

   
   

10. Many physicians practicing in the Boca Raton area are experiencing their greatest growth in numbers of patients from the West Boca area. Several physicians experienced delays in admitting patients to Boca Community in 1981, and do not believe that that facility's expansion by 50 beds will alleviate the overcrowing at that institution. There is community support for a new hospital facility located in the southwest portion of Boca Raton.

    
    

11. The approved and existing hospitals which serve residents of the southwest Boca Raton area have expansion capabilities of approximately 300 beds

    -- 50 at Boca Community, 90 at Bethesda and 160 at Delray. Expansion of an existing facility can result in lower construction and operational costs than the construction of a new facility. This would be dependent upon the existence of adequate ancillary facilities, adequate space, personnel capabilities and the desires of the existing facility to expand. Other than the 80-bed expansion at Delray which is currently in litigation, no evidence was adduced at the hearing that either Boca Community or Bethesda were seeking expansion beyond that which has previously been approved.

    
    

12. The Southeastern Palm Beach County Hospital Taxing District was created by Special Act of the Legislature in 1953 to provide hospital services for the people in a specified geographical area. It is operated by an eight- member Board of Commissioners who are appointed by the Governor for staggered four-year terms. The District currently owns and operates a 350-bed full service hospital known as Bethesda Memorial Hospital in Boynton Beach. Its

    services include gynecological, pediatric and new born nursery services. Bethesda has the capacity to expand to 440 beds. In 1980, Bethesda received approximately $2,000,000 in ad valorem tax revenues. Without these tax revenues, Bethesda would have operated at a deficit in excess of $1,000,000.

    
    

13. The District proposes to construct and operate a new hospital to serve the residents of southwest Palm Beach County. The service area for the new hospital appears to include some areas beyond the geographical boundaries of the District. It intends to construct 138 medical/surgical beds and 12 intensive care beds, for a total bed count of 150. The new facility will not have obstetrics or pediatric services. The total estimated cost of the project is

    $34,007,000, or a cost of $226,713.33 per bed. Its cost per square foot is

    $162.12. The District did not itemize its predevelopment costs and based its equipment costs as a percentage of construction costs. It is anticipated that the new facility will share many services and be linked closely with Bethesda. The two facilities will utilize the same Directors of Personnel, Purchasing and Finance. Other shared services will be the central computer service, clinical laboratory services, anatomical-pathological services, certain pharmacy services and legal services. A pathologist will be on-site at the new facility during normal working hours and on-call during off hours to perform those pathological services which require an immediate result. Other lab tests will be performed at Bethesda. It is anticipated that the new facility will be financed through the issuance of two series of tax-exempt revenue bonds. The District anticipates that it can secure bond financing at an 11 percent projected interest rate, and that 87 percent of the project will be financed by debt with an equity contribution by the District of $2.2 million. Ad valorem revenue is not expected to be the source-of repaying the debt. The District projects a loss of some $1.9 million during the first year of operation and an income of

    $99,484 during the second year of operation of the new facility. A 21-month construction period is anticipated.

    
    

14. While the District proposes to locate its new facility on 20 acres of land at the northeast corner of Glades Road and Lyons Road, it had no formal interest in that property as of the time of the hearing. The site is presently zoned as agricultural and is owned by a savings and loan institution. Pursuant to a "gentlemen's agreement" between the institution and the Chairman of the District's Board, it is anticipated that the District can purchase this property at an estimated cost of $1,000,000. If the District is unable to purchase this property, it intends to use its power of eminent domain to acquire that site or another suitable site. The proposed District site will not require any major road improvements, though a traffic control signal may be necessary.

    
    

15. National Medical Enterprises, Inc. owns and operates about 40 hospitals and 160 nursing homes and manages another 18 hospitals and 22 nursing homes throughout the United States. Its corporate headquarters are in Los Angeles, California, and it has a regional office in Tampa, Florida. NME has total revenues exceeding $1.4 billion, net income of $70 million and stockholders' equity of $420 million. As of November 30, 1981, NME had over

    $150 million in the bank and unused commitments from lenders for $170 million. NME has sufficient cash and cash flow to fund a new project without outside financing. If financing were chosen, it would be of a long term (20 year) unsecured nature at a 15 percent interest rate which would cover 65 percent of the project cost. The balance would come from NME's equity contribution.

16. NME proposes to construct and operate a 175-bed hospital to serve the southwest area of Palm Beach County. There are to be 151 medical/surgical beds,

    16 intensive care beds and 8 beds for obstetrics, for a total project cost of

    $30,688,290 or $175,361.65 per bed. The cost per-square foot is $127.00. The new facility will be operated by a local governing board composed of physicians and lay persons originally appointed by NME. The Administrator of the new facility will be appointed by and report to NME's regional office. Hospitals owned and managed by NME share common support services from both the corporate and regional offices. NME employs specialists and experts in the areas of nursing (recruitment and training), energy conservation, administration, communications, architectural and design matters, financial and legal matters, planning and development, management engineering, and purchasing. These professionals are available to NME facilities. National contracts for the procurement of equipment and supplies are available to NME hospitals. NME proposes an opening date of October or November, 1984 and estimates that it will have a net income of $615,000 after its first year of operation and a net income of $917,000 after the second full year of operation.

    
    

17. NME proposes to locate its new facility adjacent to the corner of U.S. Highway 441 and Glades Road. It has an option to purchase 20 acres of land at

    $30,000 per acre. It intends to use 10 of the 20 acres for the hospital site and use the remaining 10 acres for medical office buildings. Site development costs are designated as $800,000. Its total cost of $30,688,290 is broken down into predevelopment costs of $120,000, building and construction costs of

    $22,646,490 and equipment costs of $7,921,800. NME's projected equipment costs were based upon a room-by-room analysis. The proposed site is presently zoned for agricultural use. Some major roadway improvements would be required, and the cost for these improvements have not been specifically determined or included in NME's projected project costs, other than the $800,000 designated for site development.

    
    

18. NME's proposal includes an 8-bed obstetrical unit. Approximately 500 deliveries are expected during the first year of operation. The recognized health planning standard for determining need for an obstetrical unit in an urban area with a population in excess of 100,000 is whether the facility would perform 1,500 births per year. In Florida, some 105 licensed hospitals have obstetrical beds. 74 of those hospitals recorded less than 1,500 births per year. Population statistics broken down by age do not illustrate a significant need for additional obstetrical beds in the southwest area of the County. Obstetrics and pediatrics are currently available at Bethesda. Bethesda recently closed down 9 of its 24 pediatric beds, and, in February of 1982, that unit had a 42 percent occupancy level. Bethesda's nursery had an occupancy rate of 52 percent in 1981, and the 18 post-partum beds had an occupancy rate of 79 percent in 1981. If needed, Bethesda can convert some of its medical/surgical beds to postpartum beds. The Boca Raton Community Hospital has an 11-bed pediatrics unit.

    
    

19. Both the District and NME demonstrated that they would have no difficulty in staffing their proposed facilities. Each has vigorous and innovative recruiting program.

    
    

20. By comparing data from Bethesda and Palms of Pasadena in St. Petersburg, a facility owned and operated by NME, the District attempted to illustrate that a not-for-profit tax district hospital is able to render services in a more cost-effective manner and at less cost to the patient or charge payors than an investor-owned or proprietary hospital. However, the analysis performed by the District's witness did not include the ad valorem tax

    income which the District receives and did not consider or compare the types or intensity of services offered or performed by the two different hospitals. It is impossible to infer the cost-effectiveness of a hospital without knowledge of the volume, intensity and mix of services provided.

    
    

21. NME's application for a Certificate of Need included a CT scanner at its new proposed facility. No evidence was adduced at the hearing concerning the need for an additional CT scanner in the Palm Beach County area.

    
    

    CONCLUSIONS OF LAW

    
    

22. In reaching a determination of the need for additional hospital beds in an area, it is incumbent upon HRS to consider the relationship of the services being proposed to both the applicable Health Systems Plan and the State Health Plan. Section 381.494(4) and (6), Florida Statutes, Rule 10-5.11(1), Florida Administrative Code. Here, the HSP for Region VII includes the criteria of a 75 percent occupancy rate and 4 beds per thousand population among the items it considers in determining the need for additional hospital beds. The evidence in this case illustrates that the two existing hospitals which serve the western portion of Boca Raton far exceed the 75 percent occupancy rate deemed desirable by the HSP. The addition of 50 new beds at Boca Community is not expected to greatly reduce the overcrowded conditions at that facility, at least during the tourist season. Since neither Bethesda nor Boca Community draw a significant portion of their patients from the western portion of Boca Raton, it should not be expected that the opening of the new Del ray facility will alleviate the high occupancy levels of those institutions. It must also be noted that the 1980-1984 HSP underestimated future bed need in Palm Beach County by over 300 beds.

    
    

23. The State Health Plan, which takes into account the factors of age and migration of patients, concludes that the bed need for HSA #7 is in excess of 4 beds per 1,000 population. Given the high percentage of population over age 65 in Palm Beach County and the fact that the increases in population are due almost entirely to migration, it appears more rational to utilize a greater number than 4 beds per thousand population for the southwest area of Palm Beach County. Using the State Health Plan's medium estimate of 4.25 beds per thousand population, there is a 1985 need for 257 new hospital beds in Palm Beach County. The evidence clearly indicates that the southern portion of the County is growing at a much faster rate than the northern portion of the County, and that the northern portion of the County already has three times as many hospital beds as the southern portion. By allocating countywide population estimates into subregions, experts in health planning for both petitioners determined a need for between 157 and 188 new hospital beds by the year 1985. These estimates appear reasonable in light of the State Health Plan's usage of 4.25 beds per thousand population, the rapidly increasing growth of the southwest area of Palm Beach County, the maldistribution of beds between the northern and southern portions of the County, and the high occupancy rates presently being experienced at the two facilities which now serve the area. It is concluded that the petitioners have clearly illustrated that there is a need for either 150 or 175 hospital beds in the southwest portion of Palm Beach County by the year 1985. While the local HSA and HRS would prefer to see the existing facilities expand to meet future bed needs, the fact remains that they have not chosen to do so. This fact can not be ignored.

24. The evidence adduced at the hearing does not illustrate a need for eight additional obstetrical beds in the southwest area of Palm Beech County. Bethesda Memorial Hospital, which is located within 30 minutes driving time for

    95 percent of the population, does have an obstetrics service with 18 post- partum beds, along with adjoining beds which can be utilized if post-partum beds become unavailable. The population statistics do not justify additional obstetric services and there has been no demonstration that Bethesda cannot adequately handle the obstetrics needs of the southwest area. Birth rate does not appear to be a significant factor in the population growth of the area.

    
    

25. Neither of the applicants would have any significant difficulty in staffing a new hospital. Each entity has an innovative and vigorous recruiting program. Both NME and the District appear to have cost-effective purchasing resources available to meet their supply needs.

    
    

26. NME's total project cost for a 175-bed facility is $30,668,290. The District's total project cost for a 150-bed facility is $34,006,405. The NME facility's cost per bed is $175,362, and the District's cost per bed is

    $226,709. This is a $51,347 difference in bed costs. The District proposal exceeds the NME proposal by $35.00 per square foot. Also, the fact that the District did not include any predevelopment costs in its project costs was not adequately explained.

    
    

27. The District has no written agreement concerning the purchase of its proposed site for a new hospital, and the only evidence adduced at the hearing with regard to the purchase price of its proposed site was uncorroborated hearsay. While the District would have the authority to exercise its power of eminent domain to obtain a suitable site for a new hospital, there was no evidence to illustrate how the exercise of that power may affect its project costs.

    
    

28. NME has demonstrated a clear ability to finance the proposed facility. It has sufficient financial resources to finance the project without obtaining any further borrowing. Long-term financing is also available, if needed. NME's pro forma statement of income and expense for the first and second years of operation illustrates that sufficient profits will be generated to support the investment. Sufficient cash flow is projected to ensure the financial viability of the proposed hospital.

    
    

29. The financial projections of the District include an equity contribution of $2.2 million from Bethesda Memorial Hospital. Given the fact that Bethesda was required to utilize ad valorem tax revenues to overcome its operating deficit, the ability of that hospital to generate equity funds to contribute to a new hospital is questionable. The District's pro forma statement shows a substantial loss in its first year of operation and a minimal profit in its second year of operation. While a sharing of services, equipment and personnel among facilities is desirable, there is some cost involved in such a sharing arrangement. The District has not sufficiently demonstrated how the costs of such support services will be allocated between Bethesda and the proposed new facility.

    
    

30. In summary, based upon all the evidence adduced at the hearing, it is concluded that, as between the two pending applications to construct a new hospital in southwest Palm Beach County, NME has demonstrated that it can best construct, equip, finance and operate the hospital in the most cost-effective manner. NME has not, however, demonstrated a need in the area for either additional obstetrical beds or a CT scanner.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited above, it is RECOMMENDED that a final order be entered by HRS determining that a need for a least a 170-bed hospital exists in the southwest area of Palm Beach County and that NME's application to construct such a hospital be approved, with the exception of that portion which proposes eight obstetrical beds and a CT scanner. It is further recommended that the application of the District to construct a 150-bed hospital be DENIED.

Respectfully submitted and entered this 23rd day of August, 1982, in Tallahassee, Florida.

DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 23rd day of August, 1982.

COPIES FURNISHED:

Fred W. Baggett, Esquire and Michael J. Cherniga, Esquire Roberts, Baggett, LaFace,

Richards and Wiser

101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302

C. Gary Williams, Esquire Ausley, McMullen, McGehee,

Carothers & Proctor Washington Square Building

227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32303

Eric J. Haugdahl, Esquire Assistant General Counsel Department of HRS

1323 Winewood Blvd.

Building 1, Room 406

Tallahassee, Florida 32301

David Pingree Secretary

Department of Health and Rehabilitative Services

1323 Winewood Blvd.

Tallahassee, Florida 32301

Gary Clarke

Deputy Assistant Secretary Health Planning & Development 1323 Winewood Blvd.

Tallahassee, Florida 32301

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTHEASTERN PALM BEACH COUNTY HOSPITAL DISTRICT,

Petitioner,

vs. CASE NO. 81-1198

STATE OF FLORIDA, DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,

Respondent.

/ NATIONAL MEDICAL ENTERPRISES, INC.,

Petitioner,

vs. CASE NO. 81-1212

STATE OF FLORIDA, DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,

Respondent.

/

FINAL ORDER

The Department of Health and Rehabilitative Services having received a Recommended Order from Hearing Officer, Diane D. Tremor, dated August 23, 1982, and Exceptions to the Recommended Order, having been filed by Petitioner, Southeastern Palm Beach County Hospital District, and Respondent, Department of Health and Rehabilitative Services, and being otherwise well advised in the premises decides as follows:

1. The Exceptions to the Recommended Order submitted by Southeastern Palm Beach County Hospital District are addressed as follows:

   
   

   1. The first exception to the finding that without $2 million in ad valorem tax revenues Bethesda Hospital would have operated at a deficit in excess of $1 million is without merit in that the Hearing Officer's finding of fact is supported by substantial, competent evidence.

      
      

   2. The second exception to the finding that the District did not itemize its predevelopment costs is without merit in that the Hearing Officer's finding of fact is supported by substantial competent evidence. The second part of this exception is meritorious in that the record does not reflect competent, substantial evidence to indicate that the District based its equipment cost on a percentage of its construction cost.

      
      

   3. The third exception to the finding that NME has sufficient cash and cash flow to fund a new project without outside financing is without merit in that the Hearing Officer's finding of fact is supported by competent, substantial evidence.

      
      

   4. The fourth exception to the finding that NME proposes a total project cost of $30,688,298, that NME estimates it will have a net income of

      $615,000 after its first year of operations and a net income of $917,000 after the second full year of operations is without merit in that the Hearing Officer's finding of fact is supported by competent, substantial evidence.

      
      

   5. The fifth exception to the finding that NME has an option to purchase 20 acres of land at $30,000 per acre is a mixed question of fact and law. There is competent, substantial evidence to support a finding of fact that there is an agreement entitled, Option to Purchase, the subject of this agreement being 20 acres of land priced at $30,000 an acre. However, this agreement is not a valid option to purchase land in that it is not supported by consideration. This legal conclusion, however, is not addressed in the Hearing Officer's conclusions of law so it does not effect the Recommended Order.

      
      

   6. The sixth exception regarding the comparison of the cost effectiveness of the two hospitals is without merit in that the Hearing Officer's finding is supported by competent, substantial evidence.

      
      

   7. Petitioner, Southeastern Palm Beach County Hospital District, has set forth in its argument further exceptions to the Hearing Officer's order.

      The first such exception labeled (A) is to the effect that the District Hospital would be able to render health care services in a more cost effective manner than the hospital operated by NME. The Hearing Officer's conclusion of law and/or ultimate finding of fact on this issue is supported by competent, substantial evidence. Furthermore, the Hearing Officer is in the best position to judge the credibility of the witnesses and decide the weight of the evidence presented. Based on the underlying findings of fact, the Hearing Officer's

      conclusion of law as to the overall cost effectiveness of the two hospitals is accepted by the Department.

      
      

   8. The exception (B) to the finding that NME's total project cost is substantially understated is without merit in that the Hearing Officer's findings of fact as to NME's total project cost is supported by competent, substantial evidence, especially since the Hearing Officer is in the best position to judge the credibility of witnesses and the weight to give to the testimony presented.

      
      

   9. The exception (C) to the finding that the NME project will be totally funded by debt funds is without merit in that the Hearing Officer's finding of fact that the NME project would be funded by 65 percent debt and the balance would come from NME's equity contribution is supported by competent, substantial evidence.

      
      

   10. The exception (D) to the finding that there was competent evidence that leads to the conclusion of law that the District's proposal is financially feasible and it is the most cost effective alternative is without merit. The Hearing Officer's finding of fact which support her conclusion of law that as between the two pending applications, NME has demonstrated that it can best construct, equip, finance, and operate the hospital in the most cost effective manner is supported by competent, substantial evidence.

       
       

   11. The exception (E) to the finding that the Hearing Officer erred in finding that Bethesda Memorial Hospital would have operated on $1 million deficit in 1980 without the benefit of ad valorem tax revenues is without merit in that the Hearing Officer's finding of fact is supported by competent, substantial evidence in the record.

       
       

   12. The exception (F) that the District demonstrated by competent evidence the cost savings recognized by sharing of services between Bethesda Memorial Hospital and the new facility is without merit in that the conclusion of law drawn by the Hearing Officer that NME can best construct, equip, finance and operate the hospital in the most cost efficient manner is drawn from findings of fact which are supported by competent and substantial evidence.

       
       

   13. The exception (G) that NME does not have a formal, legally enforceable claim to its proposed site and that it has a gentleman's agreement in the same manner as the District is meritorious in that the agreement to purchase entered into by NME is not supported by consideration and therefore is not an option contract. However, since this merely puts NME and the District on the same footing, this finding in no way affects the Hearing Officer's conclusion of law, especially in light of the fact that Petitioner recognizes that neither section 381.494, Florida Statutes, 1951, nor the Florida Administrative Code, Chapter 10-5, require that a certificate of need applicant have an actual ownership interest in the site proposed for the health care facility.

       
       

   14. The exception (H) that the District's purchase price for its site is supported by competent, substantial evidence is without merit in that the only evidence produced at the hearing with regard to the purchase price was uncorroborated hearsay which is insufficient to support a finding of fact. Rule 28-5.304(3), F.A.C.

2. The Exception to the Recommended Order submitted by Respondent, Department of Health and Rehabilitative Services, is that the conclusions of law should be changed to reflect that need is to be determined on a countywide basis and the county is the proper health care service area. The health systems agencies which are responsible for review of applications for certificates of need are statutorily required to determine need on the basis of health service area. Section 351.494(6)(c)1, 2, 3, 5, 10, Florida Statutes, (1951) . Health service area is defined in Rule 10-5.02(24) to be "the specific geographic region (single or multiple counties) within the state for which a Health Systems Agency is designated pursuant to P.L. 93-641." Based on the foregoing, Respondent's exception is meritorious. The conclusions of law in the Recommended Order which subdivide the county into smaller regions in order to determine need are rejected. The findings of fact do support the legal conclusion that the countywide need justifies the granting of a certificate of need.

   
   

3. The findings of fact and conclusions of law of the Recommended Order submitted on August 23, 1982 by Hearing Officer, Diane D. Tremor, are correct and are specifically adopted and incorporated herein as a part of this Final Order, except as modified in the above paragraphs.

DONE AND ORDERED this 7th day of October, 1982, in Tallahassee, Florida.

DAVID H. PENGREE

Secretary

COPIES FURNISHED:

Fred W. Baggett, Esquire and Marjorie Turnbull

Michael J. Cherniga, Esquire Deputy Assistant Secretary Roberts, Baggett, LaFace, Health Planning and

Richards and Wiser Development

101 East College Avenue 1323 Winewood Boulevard

Post Office Drawer 1838 Tallahassee, Florida 32301 Tallahassee, Florida 32302

C. Gary Williams, Esquire Ausley, McMullen, McGehee,

Carothers & Proctor Washington Square Building

227 South Calhoun Street

P.O. Box 391

Tallahassee, Florida 32301

Eric J. Haugdahl, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Blvd., Ste. 406

Tallahassee, Florida 32301

Docket for Case No: 81-001198

Orders for Case No: 81-001198