STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SOUTH SARASOTA COUNTY MEMORIAL HOSPITAL ) ASSOCIATION, INC., d/b/a VENICE HOSPITAL, ) on behalf of THE PROPOSED ENGLEWOOD-NORTH ) PORT HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1660
) DEPARTMENT OF HEALTH AND REHABILITATIVE ) SERVICES, and BASIC AMERICAN MEDICAL, INC.,)
(formerly CHARLAND, INC.), d/b/a FAWCETT ) MEMORIAL HOSPITAL, )
)
Respondents. )
) SOUTH SARASOTA COUNTY MEMORIAL HOSPITAL ) ASSOCIATION, INC., d/b/a VENICE HOSPITAL, ) on behalf of THE PROPOSED ENGLEWOOD-NORTH ) PORT HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 82-1661
) DEPARTMENT OF HEALTH AND REHABILITATIVE ) SERVICES, and BASIC AMERICAN MEDICAL, INC.,)
(formerly CHARLAND, INC.), d/b/a FAWCETT ) MEMORIAL HOSPITAL, )
)
Respondents. )
)
RECOMMENDED ORDER
Pursuant to notice, R. L. Caleen, Jr., Hearing Officer with the Division of Administrative Hearings, conducted a formal hearing in these consolidated cases from January 17, 1983 through January 27, 1983, in Englewood, Florida. The purpose of the hearing was to consider two competing applications for a certificate of need to construct a hospital and recommend final agency action.
APPEARANCES
FOR DHRS: James M. Barclay, Esquire
Office of Health Planning and Development Department of Health and Rehabilitative Services 1317 Winewood Boulevard, Building 2, Suite 256
Tallahassee, Florida 32301
FOR BAMI: David W. Mernitz, Esquire
Stark, Doninger, Mernitz, West & Smith 1030 Merchants Plaza, East Tower Indianapolis, Indiana 46204
E. G. Boone, Esquire
P. Joseph Wright, Esquire
E. G. Boone, P.A. 1001 Avenida del Circo Post Office Box 1596
Venice, Florida 33595
FOR Ivan Wood, Esquire VENICE: J. Richard Cheney, Esquire
Gilbert Alvarez, Esquire Wood, Lucksinger, and Epstein
One Houston Center, Suite 1600 Houston, Texas 77010
ISSUE
BAMI and VENICE filed competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. The sole issue is which application should be granted, and which should be denied.
BACKGROUND
In December, 1981, two competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida were filed with the Department of Health and Rehabilitative Services ("DHRS"). One application was filed by Basic American Medical, Inc., owner of Charlotte Community Hospital, Inc., (formerly Charland, Inc.), d/b/a Fawcett Memorial Hospital ("BAMI"), the other by South Sarasota County Memorial Hospital Association, Inc., d/b/a Venice Hospital ("VENICE"). On April 30, 1982, DHRS issued a certificate of need to BAMI. On May 3, 1982, DHRS denied VENICE's competing proposal to construct a 100-bed acute care hospital in Englewood, Florida.
This proceeding arises from VENICE's challenge to the denial of its application and the granting of BAMI's. DHRS and BAMI contend that the BAMI application should be approved and the VENICE application denied. VENICE takes the opposite position. The parties agree that there is a need for a 100-bed acute care hospital in Englewood. The question is which of the two applicants should be allowed to satisfy that need.
STIPULATION BY THE PARTIES
The criteria against which applications for certificates of need are judged are found in Section 381.494(6)(c), Florida Statutes (Supp. 1982). The parties filed a prehearing stipulation which narrowed the criteria at issue and identified these matters which are undisputed. Under this stipulation, the parties agree:
That the construction of the hospital proposed by BAMI or VENICE to serve southern Sarasota County and northwestern Charlotte County is consistent with the need for health care facilities under the criterion prescribed in Section 381.494(6)(c)1, and that the need for such a health facility is not at issue here;
That both competing applicants can adequately staff their projects with all necessary personnel, including management, technical, nursing and medical personnel, and that staffing is not at issue here; that both competing applicants have adequate community support for their proposed hospitals, and that community support is not at issue here;
That both competing applicants will have a Medicaid contract in effect at their proposed hospitals.
The parties also stipulated that criteria contained in Section 381.494(6)(c)3, 5, 6, 9, and 10 are inapplicable to this proceeding and that a portion of Section 381.494(6)(c)7 is inapplicable. Accordingly, the relative merit of the two competing applications is determined with reference to the following criteria contained in Section 381.494(6)(c), as amended:
2. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services and hospices in the applicant's health service area.
4. Probable economies and improvement service that may be derived from operation of joint, cooperative, or shared health care resources.
7. The availability of resources, including .
. . funds for capital and operating expenditures . . . [and] the availability of alternative uses of such resources for the provision of other health services; and the extent to which the proposed services will be accessible to all residents of the service area.
The probable impact of the proposed project on the costs of providing health services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and service to promote quality assurance and
cost-effectiveness.
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.
In addition, Section 381.494(6)(d), is applicable:
That less costly, more efficient, or more appropriate alternatives to such [proposed] inpatient services are not available and the development of such alternatives has been studied and found not practicable.
Based on the evidence presented at hearing, the following facts are determined:
FINDINGS OF FACT I.
THE COMPETING PROPOSALS
DHRS is the state agency empowered to review, issue, deny, and revoke certificates of need for health care projects. 381.494(8), Fla. Stat. (1981).
In January, 1982, VENICE and BAMI separately applied to DHRS for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida.
When the applications were filed, Florida law required the appropriate health systems agency to initially review applications for certificates of need. On March 10, 1982, the Project Review Committee of the South Central Florida Health Systems Council, Inc.--the appropriate health systems agency--considered the competing applications, then voted to approve the proposal submitted by VENICE, and deny the proposals submitted by BAMI and a third applicant (not involved in this proceeding).
On March 27, 1982, the Board of Directors of the South Central Florida Health Systems Council, Inc. disagreed with the Project Review Committee's recommendation and voted to recommend (to DHRS) approval of the BAMI proposal and disapproval of the VENICE proposal.
DHRS then independently reviewed the two competing applications. On April 30, 1982, it issued a (free-form) certificate of need to BAMI to construct a 75,000 square foot, 100-bed acute care hospital in Englewood. Conversely, it denied VENICE's application, asserting: (1) that the interest and depreciation expense per projected patient day for the first two years of operation of the BAMI proposal was less than that projected for the VENICE proposal; (2) that the estimated labor and materials cost per square foot for the BAMI proposal was lower than the amount estimated for the VENICE proposal; (3) and that the provision for 30 semiprivate rooms in the BAMI proposal offered patients an alternative unavailable in the all-private room hospital proposed by VENICE. VENICE thereafter requested a formal hearing to contest DHRS's action, which request resulted in this proceeding.
Bami
BAMI seeks a certificate of need to construct a new 100-bed acute care hospital in Englewood, Florida, to be known as Englewood Community Hospital. BAMI proposes to relocate and merge its existing Englewood Emergency Clinic and Primary Care Center into the proposed Englewood Community Hospital.
The service area for the BAMI proposal includes the following communities in Sarasota, Charlotte, and Lee counties: Englewood, North Port, Warm Mineral Springs, El Jobean, Grove City, Rotunda West, Placida, Cape Haze, and Boca Grande. The proposed hospital contains 92 medical/surgical beds and 8 intensive care unit (ICU) beds. The 92 medical/surgical beds contain a mix of
32 private be and 60 semiprivate beds. The hospital will provide ambulatory surgical services, diagnostic and special procedures, radiology services, nuclear medicine, ultrasonography, cardio-pulmonary, emergency room, and clinical laboratory services. The following services would be shared with its affiliate, Fawcett memorial Hospital in Port St. Charlotte, Florida: business
office, medical records, data processing, materials management, personnel, education, public relations, administration, dietary, bio-medical engineering, laboratory, sterile processing, vascular laboratory, and occupational therapy. The proposed hospital will be a wholly-owned subsidiary of BAMI, and will have its own board of directors, board of trustees, and medical staff.
BAMI is an experienced health care provider. Its principals have been in the health care business since 1964, and have built and operated 25 health care facilities in the mid-western United States. BAMI owns and operates several health care facilities in Florida: the 400-bed Fort Myers Community Hospital in Fort Myers, Florida; the 254-bed Fawcett Memorial Hospital in Port Charlotte, Florida; the 120-bed Kissimmee Memorial Hospital in Kissimmee, Florida; the Englewood Emergency Clinic and Primary Care Center in Englewood, Florida; the Ambulatory Surgical Center in Tampa, Florida; and the Emergency Clinic and Primary Care Center in Bonita Springs, Florida. BAMI also owns two smaller hospitals, one in Georgia and the other in Alabama. It is experienced in building and opening new hospitals, having built both the Fort Myers Community Hospital and the Kissimmee Memorial Hospital. It also expanded Fawcett Memorial Hospital from 96 beds to 254 beds. BAMI has financial assets of approximately $63,842,400 and a net worth exceeding $13.5 million.
Venice
VENICE seeks a certificate of need to construct a 100-bed satellite acute care hospital in Englewood, to be known as the Englewood-North Port Hospital. The service area for this proposed hospital consists of Englewood, North Port, Rotunda West, Placida, Warm Mineral Springs, Boca Grande, and Cape Haze.
VENICE's proposed hospital contains 96 medical/surgical beds and four ICU beds. No semiprivate rooms will be available. All of the 96 medical/surgical beds will be placed in private rooms. The proposed satellite hospital will share the following services with VENICE's existing 300-bed "mother" hospital in Venice, Florida: specialized laboratory services, physical therapy, nuclear medicine, pulmonary functions, and specialized radiology services. For specialized and more sophisticated services, patients will be transported from the Englewood hospital to the larger hospital in Venice. The following support services will also be shared with the "mother" hospital: purchasing, bulk storage, laundry, dietary management, data processing, financial management, personnel recruitment, and educational services. In order to share these services, the existing Venice Hospital will be required to operate a transportation system.
For many years, VENICE has owned and operated Venice Hospital, a fully licensed and accredited 300-bed general acute care hospital at 540 The Rialto, Venice, Florida. Venice neither owns nor operates any other hospital, although it has applied for a certificate of need to construct a 50-bed psychiatric hospital. The present management of Venice Hospital is inexperienced in the construction and opening of new hospitals.
II.
COSTS AND METHODS OF CONSTRUCTION
Construction costs for the competing BAMI and VENICE proposals are broken down into categories and depicted in the following table:
COMPARATIVE CONSTRUCTION COSTS
CATEGORY BAMI VENICE
Total Project Cost $13,355,000 $18,170,000
Total Project Per Bed | Cost | 135,500 | 181,700 |
Total Direct Construction Equipment | Cost for and Fixed | 11,670,190 | 13,874,516 |
Gross Square | Feet | 75,327 | 75,000 |
Construction | Costs | 155 | 173 |
Per Square Foot
Number of Stories One Two Expansion Potential 100 additional 200 additional
EQUIPMENT
Movable 3,500,000 2,272,444
Bami
Construction of the BAMI hospital can begin by September 1, 1983, and be completed by December 31, 1984. The new hospital can be opened by January 1, 1985.
The BAMI hospital will be a one-story building, a design which is efficient for a hospital of this size. It will consist of a steel structure with curtain walls. The building is functional and economical, and can be expanded horizontally to 200 beds with minimum disruption to existing services and staff.
The design of this hospital is similar to the 120-bed Kissimmee Memorial Hospital built by BAMI in 1979. BAMI's cost estimates are based on the actual costs of constructing the Kissimmee Memorial Hospital.
BAMI proposes to construct the hospital by using an affiliate, F & E Community Developers of Florida, Inc. The use of an in-house contractor will allow BAMI to build the hospital in a short time period, at less cost and with higher quality.
BAMI's proposal contains both active and passive energy conservation elements. The passive elements include overhangs, shaded glass, and movable windows. Active elements include the selection of quality equipment and a computerized control system for the electric reheat heating/ventilation/air
conditioning ("HVAC") system. The architectural and construction plans for BAMI's proposed hospital are virtually complete. Schematic drawings were submitted and approved by DHRS in August, 1981. Preliminary plans have also been approved by DHRS. DHRS approval entailed a review of architectural, electrical, and mechanical preliminary drawings.
Venice
If the VENICE proposal is approved, construction could begin between April and July, 1984. The hospital could open for occupancy on January 1, 1986, a year later than BAMI's proposal.
VENICE's architectural and construction plans are at an early stage, consisting only of a program summary and block design. Architectural, electrical, and mechanical preliminary drawings have not yet been submitted to DHRS and approved. The construction cost estimates submitted by VENICE are less reliable than those submitted by BAMI, since they were derived from less developed plans and were based on assumptions presented by persons who did not testify at hearing.
VENICE's proposed hospital consists of a reinforced concrete structure with a modular precast concrete exterior. Although it will consist of two stories, the building will be stressed for the subsequent addition of two stories. When and if it is expanded to four stories, it would be a 300-bed hospital. The planned vertical expansion increases the initial cost of the building by approximately ten percent. Because of the extensive sharing of medical and support services between the proposed satellite hospital and the "mother" hospital in Venice, the ancillary medical and support facilities of the satellite have been down-sized. The VENICE proposal will also require horizontal expansion in the future. Areas such as radiology, laboratory, and emergency rooms will require immediate expansion as beds are added to the facility. It has not been shown at what point, in the planned expansion, VENICE's proposed hospital would become a free-standing hospital--when it would no longer be required to rely on its "mother" hospital in Venice.
VENICE proposes an energy efficient facility. The multiple-story design minimizes site use and roof coverage. The relatively narrow wings provide for optimum use of daylight.
VENICE contends that its HVAC system is more cost effective than the system proposed by BAMI. This contention is not substantiated by convincing evidence. The VENICE witness who testified on this question was an architect, not a mechanical engineer. He was unfamiliar with the computerized energy control system proposed by BAMI and used assumptions made by others who did not testify at the hearing.
Bami
III. HOSPITAL EQUIPMENT
BAMI's proposed movable hospital equipment will cost approximately
$3,500,000. Included are three radiology rooms: one general radiographic room, one standard R and F room, and one R and F room with angiographic capability.
Also included are 8 ICU beds, four operating "rooms--two major and two minor-- nuclear medicine, and ultrasound capability.
Venice
The equipment cost for the VENICE proposal is $2,272,444. Included are 3 operating rooms, one with cystographic capability; four ICU beds and two radiology rooms--one R and F, and one general radiographic. More sophisticated diagnostic procedures, such as nuclear medicine and specialized radiology, will be provided at the "mother" hospital in Venice, not at the proposed Englewood satellite. To utilize these procedures, patients will be transported from Englewood to Venice.
VENICE acknowledges that its proposed hospital will utilize less sophisticated diagnostic equipment than BAMI's. VENICE's equipment cost would have to be increased approximately $700,000 if it were to provide eight ICU beds and specialized radiology and nuclear-medicine to match BAMI's proposal. The equipment cost differential indicates the different levels of care proposed by the two hospitals. The VENICE proposal requires the development of a transportation "shuttle" system between the "mother" hospital in Venice and the satellite in Englewood. The system would consist of two trucks in addition to vans or ambulances.
The plans for this essential transportation system are, however, not fully developed. The need for van or ambulance transportation between the two facilities has not been fully considered. Further, the transportation plan estimates a 25-minute one-way driving time between Englewood and Venice year- round. During the busy winter months, it is likely that the driving time will increase. Although VENICE proposes to lease the necessary trucks, neither the leasing costs nor associated costs have been fully taken into account.
IV.
FUNDS FOR OPERATING AND CAPITAL EXPENDITURES
Bami
BAMI will finance the $13,555,000 required to open its proposed
hospital with bond proceeds, an equipment lease, and an equity contribution.
It will obtain $7,905,000 from taxable bonds with a maturity of 25 years, and an interest rate of 12.5 percent. There will be a 2-year holiday on principal payments.
BAMI will finance the $3,500,000 equipment cost pursuant to a lease agreement with Financial and Insurance Services, Inc., with an eight-year term and an interest rate of 15 percent.
BAMI will make an equity contribution of $2,150,000. This will be in the nature of a contribution of capital from a parent corporation to a subsidiary corporation. As of September 30, 1982, BAMI had a net worth exceeding $13,500,000.
BAMI will provide up to $1,000,000 in operating capital to cover initial start-up costs of the proposed hospital. In addition, BAMI has obtained a $5,000,000 line of credit which will be available to cover any potential cash shortages occurring during the start-up phase of the hospital.
Venice
VENICE will obtain the $18,170,000 required for its proposal from tax- free bond financing and an equity contribution. The bonds, which will have a maturity of 30 years and an interest rate of 10.52 percent, will be an obligation of the Venice Hospital. A debt service reserve fund of $1,900,750 will be required in order for the bonds to obtain an "A" rating.
In unrelated applications, VENICE has proposed a major renovation of its existing hospital and the construction of a new free-standing 50-bed psychiatric hospital. These projects, if undertaken, will require additional equity contributions of $1,221,000 and additional bond financing in the amount of $10,370,000. To obtain the bond financing, VENICE will be required to maintain a one-to-one historical debt coverage ratio. VENICE has not convincingly established that it will be able to carry out all three projects and still maintain the required one-to-one debt coverage ratio.
VENICE proposes to locate its proposed hospital on 15 acres of land costing $135,000. But the land sales contract provides only for the sale of 250 acres at a cost of $2,250,000. (The present owners wish to sell the entire 250- acre parcel and not lesser amounts.)
The source of the $2,250,000 needed to acquire the property has not been identified. The bond proceeds could not be used. To purchase the 250 acres and fund the equity for its three proposed health care projects, VENICE will require $4,311,000. The source of these funds has not been identified. VENICE contends that one possible source would be Board Designated Funds. However, VENICE's audited financial statements for the period ending September 30, 1982, suggest otherwise.
PROPOSED SITES
Bami
BAMI, through a subsidiary, has contracted to purchase approximately
12 acres as a site for its proposed Englewood hospital. The 12-acre site is part of a 60-acre parcel of land that is zoned OPI, a zoning classification which will permit the construction of a hospital.
The 12-acre site is located on Morningside Drive, an access road to Pine Street. Although Morningside Drive is a dirt road, it will be paved. Under the contract, the current owner will pay all paving costs in excess of
$65,000. The initial $65,000 in paving costs will be borne by BAMI and has been included in BAMI's estimated construction costs. Pine Street, a major north- south transportation artery in the Englewood area, is currently being resurfaced in both Sarasota and Charlotte counties. A second access to Pine Street has been acquired by the current owner.
A watermain is available at the BAMI site. The current owner of the property will construct a sewage treatment plant and provide sewer service to the proposed hospital at prevailing rates. The sewage treatment plant will be located on a 7.5-acre portion of the 48 contiguous acres retained by the current owner.
The BAMI site is located in an A-11 flood zone with an elevation of ten feet. Fill dirt will be used to raise it to an acceptable elevation of twelve feet.
A current owner of the BAMI site envisions the entire 60 acres as an Englewood medical center. If necessary he will allow BAMI to purchase an additional 12 acres contiguous to the site. BAMI has not yet, however, obtained a legally enforceable right to purchase additional property adjoining its 12- acre site. Although the 12-ace site will permit the planned 100-bed future expansion, the site would be crowded with little space remaining for future improvements.
Venice
The VENICE site is an undesignated 15-acre portion of a 250-acre parcel of land located off State Road 777, also known as South River Road. It is uncertain whether the hospital will have one or two access roads to State Road 777.
A watermain is available at the VENICE site. Sewage treatment will be provided by a nearby privately owned sewage treatment plant until the hospital, eventually, constructs its own.
The zoning classification of the VENICE site will not permit construction of a hospital. Before the hospital could be built, Sarasota County would be required to rezone the property to OPI. Use of the property for a hospital is also inconsistent with Sarasota County's comprehensive land use plan, adopted October 31, 1981.
Such a rezoning process would take a minimum of three or four months, and perhaps longer. Approximately 100 individual steps are involved. Hearings would be held by the Sarasota Planning Commission and the Sarasota County Commission. VENICE has not yet filed an application to rezone either the 15 acres or the entire 250-acre parcel. Neither has it shown that it is likely to succeed in having the property rezoned to a classification permitting hospital use.
Bami
VI.
EFFICIENT AND ALTERNATIVE USES OF HEALTH CARE RESOURCES
As part of its application, BAMI proposes to merge its existing
Englewood Emergency Clinic and Primary Care Center into its proposed Englewood hospital. If the BAMI application is denied and VENICE's granted, BAMI will continue to operate the Emergency Clinic and Primary Care Center. As a result, the Emergency Clinic and VENICE's Englewood hospital would be providing duplicative emergency services. The costs resulting from this duplication would be approximately $894,800 in 1985; $975,300 in 1986; and $1,063,100 in 1987.
For cost effectiveness, BAMI's proposed hospital will share some ancillary and support services with Fawcett Memorial Hospital in nearby Port Charlotte. Fawcett Memorial will also provide tertiary level services, such as renal dialysis and CAT scans to patients of the proposed Englewood hospital.
BAMI operates a multi-hospital system, with subsidiaries which provide ancillary and specialized support services. These services include physical therapy, inhalation therapy, cardiopulmonary function, speech therapy, data processing, and collection services. Corporate level expertise in accounting, property management, pharmacy management, personnel, and marketing, is also
available. The multi-hospital system allows BAMI to obtain favorable purchasing contracts and capital for future expansion.
Venice
Venice Hospital, the only hospital in south Sarasota County, has a high rate of occupancy. Although presently a 300-bed facility, it has an ultimate capacity of 400 beds. It recently applied for a certificate of need to add 24 ICU/PCU beds and additional beds, beyond that, are needed. It has a shelled-in fourth floor that will accommodate an additional 45-bed nursing unit. Completing the fourth floor at Venice Hospital would be a more cost-effective alternative way to add beds than constructing a new hospital in Englewood.
As already mentioned, the "mother" hospital in Venice will share numerous ancillary and support services with the proposed satellite hospital in Englewood.
VENICE proposes to share, among other things, its present laboratory with the proposed Englewood satellite. As a result, the laboratory in the satellite hospital has been reduced to a minimal size. It has not been convincingly established that the Venice Hospital laboratory, even if expanded as proposed, can process the additional laboratory work-load arising from an Englewood satellite. The laboratory at the existing Venice Hospital presently operates 24-hours per day, seven days a week. Even if its application to expand its laboratory is granted, the total area of the laboratory would be less than the accepted space guidelines required for a 324-bed hospital.
VII. AVAILABILITY, APPROPRIATENESS, AND
ACCESSIBILITY OF PROPOSED HEALTH CARE SERVICES
Scope of Services
Although both proposed hospitals would share services with affiliated hospitals, BAMI proposes more of an autonomous, full-service and free-standing hospital than that proposed by VENICE. BAMI will equip its hospital with a more complete and sophisticated range of diagnostic services and, unlike VENICE, has not down-sized its ancillary and support services. For the VENICE proposal to become a free-standing facility comparable to BAMI's, the space devoted to ancillary medical services and support services would have to be expanded by 30 percent and 50 percent, respectively. The costs of such an expansion have not been determined.
Economic Access
Both parties will enter Medicaid contracts covering their proposed hospitals. BAMI projects that .1 percent of its patients will be Medicaid; VENICE projects .2 percent.
BAMI hospitals treat all emergency patients, regardless of ability to pay. Third party payment is accepted. On elective admissions, self-pay patients are requested to make reasonable deposits and sign promissory notes. In specific instances, patients can be admitted without making financial arrangements in advance. Patients are not referred to other hospitals because of inability to pay.
If an indigent is defined as "one who cannot pay," Fawcett Memorial Hospital provided between $600,000 and $700,000 in indigent care during 1982. This figure represents approximately 3.9 percent of gross revenue.
Similarly, Venice Hospital treats emergency patients regardless of their ability to pay. Promissory notes are obtained from self-pay patients if necessary. The credit policies of Venice Hospital are similar to BAMI's. Venice Hospital had a bad debt or charity to gross receipts ratio of between 2.5 percent and 3.0 percent in 1982.
Venice Hospital also has a Hill-Burton requirement to provide indigent care in the amount of approximately $125,000 per year. This requirement stems from a federal grant awarded in 1970.
Access to Osteopathic Physicians
BAMI's proposed hospital will have an open medical staff, including licensed medical doctors and osteopathic physicians.
BAMI has a practice of allowing osteopathic physicians on its medical staff. For several years, osteopathic physicians have been included on the staff of all BAMI hospitals. Fort Myers Community Hospital, a BAMI hospital, is one of two hospitals in the Fort Myers area with osteopathic physicians on its staff. Kissimmee Memorial Hospital, also owned by BAMI, has the only two osteopathic physicians in Kissimmee on its staff. Fawcett Memorial Hospital has the only osteopathic physician in Port Charlotte on its staff.
In contrast, VENICE has not added osteopathic physicians to its staff with similar enthusiasm. It granted staff privileges to its first osteopathic physician six to nine months prior to hearing. Two months before the hearing, staff privileges were granted to a second. Venice Hospital has, however, changed its bylaws to comply with the law prohibiting discrimination against osteopathic physicians.
Geographic Access
The geographic locations of the sites for the two proposed hospitals, as described above, provide equal access to the service area. The BAMI site is closest to the existing population concentrations of the Englewood area, while the VENICE site is closer to Interstate 75. Both sites will require the paving of an access road to major traffic arteries. No significant advantage in access is afforded to either.
VIII. COMPETITION
The existing Venice Hospital currently serves the hospital needs of approximately 64 percent of the people in the greater Englewood area. These patients comprise approximately 26.8 percent of Venice Hospital's total patient days.
BAMI's existing Fawcett Memorial Hospital in Port Charlotte currently serves between ten and twelve percent of the hospital needs of the people in the greater Englewood area. These patients account for approximately 11.3 percent of Fawcett Memorial's total patient load. In addition, BAMI's Englewood
Emergency Clinic and Primary Care Center has treated over 20,000 patients since it opened in February, 1980.
The existing Venice Hospital holds a dominant market share in the greater Englewood area. It is only twelve miles north of Englewood and is the only hospital in south Sarasota County. The closest competitor in Sarasota County is Sarasota Memorial Hospital, approximately 20 miles north of the Venice Hospital. Venice Hospital has been in operation for approximately 30 years. In contrast, Fawcett Memorial Hospital is approximately 21 miles east of Englewood. In the mid-1970s, it was converted from a nursing home to a 96-bed hospital, and in 1976, it was expanded to 254 beds.
Approval of BAMI's proposal will enhance competition among hospitals serving the greater Englewood area. The competition will not, however, adversely affect Venice Hospital's long-term viability.
The construction of either hospital in the Englewood area will change existing hospital utilization and physician referral patterns. New referral patterns will form and an increasingly autonomous group of physicians will develop.
Local physicians will utilize the Englewood hospital, whether it is owned by BAMI or VENICE.
Bami
IX.
PROJECTED COSTS OF PROVIDING HEALTH CARE SERVICES
BAMI forecasts an occupancy rate of 60 percent at its proposed
Englewood hospital in 1985; 75 percent in 1986; and 80 percent in 1987, with an average length of stay of 8.5 days. These figures are credible in view of the population growth in the Englewood area, the undisputed need for a new hospital, and the elderly population.
To project total cost and gross revenue per patient day, various calculations are made. BAMI's employee salary expenses are based on its experience at nearby Fawcett Memorial Hospital, adjusted by an inflation factor. Non-salary expenses are derived from its experience at Kissimmee Memorial Hospital, a hospital of similar size with a utilization rate similar to that projected for the Englewood hospital. Depreciation of plant and equipment is calculated using the straight-line method. Revenue projections are derived using the American Hospital Association's Monitrend median inpatient revenue, inflated at 9 percent per year. An indigent/bad debt deduction of four percent of total patient revenue is used. These assumptions provide a credible basis from which total cost and gross revenue per patient day can be calculated.
Using these assumptions, total costs per patient day is forecast to be
$482.00 in 1975; $479.60 in 1986, and $510.32 in 1987. Gross revenue per patient day is forecast to be $552.00 in 1985; $601.68 in 1986; and $655.83 in 1987. These forecasts are credible and accepted as reasonably reliable.
Venice
VENICE's primary contention is that its proposed hospital, although costing more to build, will--in the long run--result in lower costs to patients and increased savings to the community. This contention was not substantiated
by convincing evidence. In forecasting its costs and revenues, VENICE projected an occupancy rate of 65 percent in 1986; 80 percent in 1987; and 80 percent in 1988. The 1986 projection is unreasonably high; it envisions a 70.4 percent utilization rate during the opening month.
VENICE's projected salary expenses are derived from its current experience at Venice Hospital, adjusted for inflation. Although this figure is reliable, the projected non-salary expense per patient day is not. The nonsalary expense is not based on Venice Hospital's most recent 1982 expenses, and is not adjusted by the requisite inflation factor.
The depreciation schedule and assumptions used by VENICE in forecasting its revenues and costs are also questionable. Discrepancies went unexplained. The testimony of Deborah Kolb, Ph.D., an expert in health care financial and need analysis, is considered more credible. She concluded that VENICE understated 1986 depreciation expense for its proposed hospital by approximately $300,000, an error which would have increased its projected patient costs per day by $13.70.
VENICE also projects room charges at its proposed hospital which are significantly lower than those projected for its "mother" hospital in Venice. This difference in room charges was not adequately explained or justified. Although VENICE's controller attributed the difference to cost savings resulting from the satellite hospital concept, these savings were not meaningfully itemized or identified in VENICE's revenue and cost projections.
VENICE also failed to identify, and reflect in its projections, increased costs resulting from use of its satellite concept. For example, in 1986, 532 Englewood patient are projected as requiring sophisticated nuclear medicine tests at the "mother" hospital in Venice; 141 Englewood patient are projected as requiring special radiology tests at Venice Hospital. When asked who would absorb the costs of transporting patients between the satellite hospital in Englewood and the "mother" hospital in Venice, VENICE's controller responded that Venice Hospital would. However, those costs have not been quantified. Moreover Venice Hospital does not currently pay for ambulance transportation of its patients and does not have vans which transport patients on 24-mile round trips. This amounts to a significant and additional cost of operation, which has not been fully considered in the financial forecasts.
Moreover, VENICE utilized cost per patient day based on Venice Hospital's 1981 costs rather than the higher 1982 costs. (Revenue per patient day increased 23.8 percent, in 1982.) In addition, projected revenues at VENICE's proposed Englewood satellite were not adjusted downward to take into account the less-sophisticated medical services which would be provided. As a result, VENICE's projected revenues per patient day are questionable and lack credibility.
Venice Hospital received funds from three philanthropic organizations: Venice Hospital Blood Bank, Venice Hospital Auxiliary Volunteers, and Venice Health Facilities Foundation. Without the infusion of these funds, charges to Venice Hospital's patients would be higher. Venice Hospital's own fund raising literature states that patient charges, alone, do not cover the full costs of providing medical services. These community-raised funds, then, pay part of the costs of providing medical care. But in calculating cost savings to the community from its proposed Englewood hospital, VENICE has not identified or taken into account these additional funds raised from the community.
VENICE's comparison of its projected patient charges with those of BAMI's is, accorded little weight. The two proposed hospitals are significantly different, one providing more extensive and sophisticated medical care than the other. This difference was not adequately taken into account in the financial comparison. Additional costs to Venice Hospital resulting from the Englewood satellite hospital were not fully considered. Comparisons based on historical charges by Venice Hospital and Fawcett Memorial Hospital are also misleading since these hospitals are different in size and occupancy rate--and the proposed Englewood hospital will duplicate neither. Moreover, Venice Hospital historical room rates used for the comparison were selectively chosen. VENICE also relies on projected HVAC life cycle savings, which, as already mentioned, were not convincingly established. Finally, the costs of acquiring VENICE's site-- necessitating a 250-acre purchase--were not fully reflected in the comparison.
X QUALITY OF CARE
The parties stipulated that both proposals will provide high quality medical care. The only question is whether bed-configuration will affect the quality of care provided. BAMI proposes a mix of 32 private and 60 semiprivate medical/surgical beds, with an additional 8 ICU beds. In contrast, VENICE proposes 96 private medical/surgical beds and 4 ICU beds.
BAMI's mix of private and semiprivate rooms will allow consumers a choice and is preferable to VENICE's all private-room proposal. Private and semiprivate rooms confer various benefits. BAMI's proposed 32 private rooms will be adequate to serve those patients requiring private rooms while, at the same time, affording patients a choice between private and semiprivate. The VENICE proposal will not allow such a choice. It has not been shown, however, that bed configuration will affect the quality of medical care rendered patients.
XI.
COMPARISON: BAMI'S PROPOSED HOSPITAL IS PREFERABLE TO VENICE'S
Both proposed hospitals would provide necessary and quality medical care to people in the Englewood area. On balance, however, BAMI's proposal is preferable. BAMI's free-standing hospital will provide more complete and sophisticated medical care, with less need to transport patients between "mother" and satellite hospitals. VENICE's satellite hospital will require extensive transporting of patients, food, linens, equipment, lab samples, and medications between the "mother" hospital in Venice and the satellite hospital in Englewood. BAMI, a multi-hospital system, is more experienced in constructing and operating new hospitals. The BAMI proposal will cost approximately $2,000,000 less to build, yet be of comparable quality and equipped with more sophisticated diagnostic equipment. While VENICE's construction plans are preliminary, BAMI's are detailed and virtually complete. VENICE's site requires rezoning, BAMI's does not. If BAMI's application is approved, its hospital could be opened by January 1, 1985,a year earlier than VENICE's. BAMI is financially able to begin construction immediately while VENICE--because of other projects simultaneously undertaken--may not be. Apart from zoning, both hospital sites are equally acceptable, although BAMI's 12-acre site is minimally sufficient for the anticipated future expansion to 200 beds. BAMI's financial ability to purchase is assured, while VENICE's is not. BAMI's proposal would avoid a duplication of emergency medical services in Englewood, while VENICE's would cause it. For patients preferring osteopathic physicians,
BAMI's hospital would, most likely, be preferable. For patients preferring semiprivate rooms, BAMI's proposal would be preferable. Competition between hospitals serving the Englewood area would be enhanced with the BAMI proposal and decreased with VENICE's. Although VENICE argued that the costs to its patients would, over the long run, be less than BAMI's, this proposition was not convincingly proved.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. Section 120.57(1), Florida Statutes (1981).
A comparative review of the two competing applications for certificates of need to construct a 100-bed acute care hospital in Englewood, Florida, supports the conclusion that BAMI's application is preferable and superior to VENICE's, when judged against the applicable criteria of Sections 381.494(6)(c) and (d) Florida Statutes (Supp.1982). The BAMI hospital will provide quality medical care currently unavailable and inadequate in the Englewood area. This medical care will be cost-effective, efficient and geographically accessible. Competition among hospital-based health care providers will be enhanced. Moreover, the BAMI hospital can be built at a cost significantly less than VENICE's, and a year earlier.
It necessarily follows that the BAMI application should be granted, and the competing, mutually exclusive VENICE application should be denied.
The parties filed post-hearing proposed findings of fact and conclusions of law. Those proposed findings which are incorporated in this Recommended Order are adopted; otherwise they are rejected as unsupported by the evidence, or unnecessary to resolution of the issues.
Based on the foregoing, it is RECOMMENDED:
That the Department of Health and Rehabilitative Services enter a Final Order granting BAMI's and denying VENICE's application to construct a 100-bed acute care hospital in Englewood, Florida.
DONE and ENTERED this 8th day of July, 1983, in Tallahassee, Florida.
R.L. CALEEN, JR. 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 8th day of July, 1983.
COPIES FURNISHED:
James M. Barclay, Esquire Office of Health Planning and
Development
Department of Health and Rehabilitative Services
1317 Winewood Boulevard
Building 2, Suite 256
Tallahassee, Florida 32301
David W. Mernitz, Esquire Stark, Doninger, Mernitz,
West & Smith
1030 Merchants Plaza, East Tower
Indianapolis, Indiana 46204
E. G. Boone, Esquire
P. Joseph Wright, Esquire
E. G. Boone, P.A. 1001 Avenida del Circo Post Office Box 1596
Venice, Florida 33595
Ivan Wood, Esquire
J. Richard Cheney, Esquire Gilbert Alvarez, Esquire Wood, Lucksinger, and Epstein
One Houston Center, Suite 1600 Houston, Texas 77010
David Pingree, Secretary Department of Health and
Rehabilitative Services 1323 Winewood Boulevard
Tallahassee, Florida 32301
| Issue Date | Proceedings |
|---|---|
| Aug. 24, 1983 | Final Order filed. |
| Jul. 08, 1983 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 23, 1983 | Agency Final Order | |
| Jul. 08, 1983 | Recommended Order | Basic American Medical Inc.'s application for Certificate of Need (CON) should issue as being the most cost effective and providing for community needs the best. |
