STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HEALTH QUEST COPRORATION d/b/a ) LAKE POINTE WOODS HEALTH CARE, ) INC., )

)

Petitioner, )

)

vs. ) CASE NO. 82-2374

) OFFICE OF COMMUNITY MEDICAL ) FACILITIES, DEPARTMENT OF HEALTH ) AND REHABILITATIVE SERVICES, )

)

Respondent. )

and )

) SARASOTA HEALTH CARE CENTER OF ) JACKSON, MISSISSIPPI, )

)

Intervenor. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on July 20 and 21, 1983, in Tallahassee, Florida. The issues for determination in this proceeding are whether petitioner and intervenor are entitled to Certificates of Need to construct and operate 120-bed nursing homes in Sarasota County, Florida and, in the event only one applicant is entitled to receive a Certificate of Need, which applicant should receive it.

APPEARANCES

For Petitioner: John M. Laird, Esquire

315 West Jefferson Boulevard South Bend, Indiana 46601

For Respondent: James M. Barclay, Esquire

Assistant General Counsel

1317 Winewood Boulevard, Suite 256

Tallahassee, Florida 32301

For Intervenor: John T. C. Low and Paul L. Gunn, Esquires Law & McMullan

1530 Capital Towers Post Office Box 22966

Jackson, Mississippi 39205

INTRODUCTION

Petitioner requested a hearing pursuant to Section 120. 57(1), Florida Statutes, after the Department of Health and Rehabilitative Services issued its notice of intent to deny petitioner's application for a Certificate of Need for a 120-bed nursing home in Sarasota County and its notice of intent to grant the application of the intervenor for a similar-sized facility in Sarasota County. In support of its position, the petitioner presented the testimony of Theodore

1. Foti, petitioner's vice-President of Corporate Planning and Development, who was accepted as an expert witness in the field of health planning; Brian Siqueira, petitioner's vice-President of Real Estate Development, who was accepted as an expert witness in the area of construction and construction cost estimations; and Robert Weller, who was accepted as an expert witness in the areas of demographics and population projections. Petitioner's Exhibits 1, 3, 5 and 10 through 12 were received into evidence.

   
   

   The intervenor presented the testimony of Murray Murphey, who qualified as an expert witness in the area of health care facility management; Dr. John M. Faust and Robert M. Buchanan, Jr., two of the four owners and stockholders of Quality Health Facilities, Inc.; and, by way of deposition, Ronald McAnally, a consultant who prepared the Certificate of Need application for the intervenor. The intervenor's Exhibits 1 through 5 and 7 were received into evidence.

   
   

   The respondent presented the testimony of Thomas F. Porter, a Medical Facilities Consultant Supervisor for the Department of Health and Rehabilitative Services, who was accepted as an expert witness in the area of health planning. Respondent's Exhibit 1 was received into evidence. Subsequent to the hearing, each party submitted proposed findings of fact and proposed conclusions of law. To the extent that the facts proposed by the parties are not incorporated into 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 in dispute 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, as well as the stipulation of facts "entered into by all parties, the following relevant facts are found:

   
   

   1. Along with six other applicants, the petitioner, Health Quest Corporation, d/b/a Lake Pointe Woods Health Center, and the respondent, Quality Health Facilities, Inc., d/b/a Sarasota Health Care Center, submitted applications for a Certificate of Need to construct and operate new nursing homes in Sarasota County, In June of 1982, the respondent Department of Health and Rehabilitative Services (HRS) determined to issue the application of Sarasota Health Care Center and deny the remaining seven applications.

      
      

   2. For the purposes of this proceeding, the parties have stipulated that there is a need for at least a 120-bed skilled and intermediate care nursing home in the Sarasota, Florida area.

      
      

   3. In November, 1982, respondent HRS adopted Rule 10- 5.11(21) , Florida Administrative Code, which provides a formula methodology for determining the number of nursing home beds needed in areas throughout the State. Briefly summarizing, this formula begins with a bed to population ratio of 27 per thousand population age 65 and over, and then modifies that ratio by applying a

      poverty ratio calculated for each district. The theoretical bed need ratio established for Sarasota County by this portion of the Rule's formula is 23.2 nursing home beds per thousand elderly population projected three years into the future. The population figures to be utilized in the formula are the latest mid-range projections published by the Bureau of Economic and Business Research (BEBR) at the University of Florida. After determining the theoretical need for nursing home beds in an area, the Rule purports to determine the actual demand for beds by determining the current utilization of licensed community nursing home beds, establishing a current utilization threshold and, if this is satisfied, applying a prospective utilization test too determine the number of beds at any given time. Applying the formula methodology set forth in Rule 10- 5.11(21) to Sarasota County results in a finding that there are currently 807 excess nursing home beds in that County. The need for sheltered nursing home beds within a life care facility are considered separately in Rule 10-5.11(22), Florida Administrative Code. Generally speaking, need is determined on the basis of one nursing home bed for every four residential units in the life care facility.

      
      

   4. Elderly persons 75 years of age and older utilize nursing homes to a greater extent than those persons between the ages of 65 and 74. Persons under the age of 65, particularly handicapped individuals, also utilize nursing home beds. The formula set forth in Rule 10-5.11(21) does not consider those individuals under the age of 65, and it does not provide a weighted factor for the age 75 and over population. In the past, the BEBR mid-range population projections for Sarasota County, compared with the actual census reached, have been low.

      
      

   5. Petitioner Health Quest, an Indiana corporation, currently owns and/or operates some 2,400 existing nursing home beds in approximately 13 facilities in Indiana. It holds several Certificates of Need for nursing homes in Florida and construction is under way. Petitioner owns 53 acres of land on the South Tamiami Trail in Sarasota, upon which it is constructing a 474-unit retirement center. It seeks to construct on six of the 53 acres a 120-bed nursing home adjacent to the retirement center. Of the 120 beds, it is proposed that 60 will be for intermediate care and 60 will be for skilled care. The facility will offer ancillary services in the areas of speech, hearing, physical, occupational, and recreational therapy. Thirty-five intermediate care beds would be classified as beds to be used for Medicaid recipients and the facility would be Medicare certified. Retirement center residents will have priority over nursing home beds.

      
      

   6. The total capital expenditure for the petitioner's proposed nursing home project was estimated in its application to be $3.1 million, with a cost per square foot of $46.29 and a cost per bed of approximately $26,000,00. As of the date of the hearing, the estimated capital expenditure for the petitioner's project as $3.9 million.

      
      

   7. The respondent Quality Health Facilities, Inc., d/b/a Sarasota Health Care Center (QHF), is a Mississippi corporation and owns nursing homes in Tennessee, North Carolina and Haines City, Florida, the latter site having been opened in August of 1983. It also holds three other outstanding Certificates of Need. QHF proposes to construct a 120-bed nursing home containing intermediate and skilled care beds which will be equally available to all members of the community. It is anticipated that it will have approximately 65 percent Medicaid usage and 5 percent Medicare usage. Though it has not yet selected its site, QHF plans to utilize a four-acre site near the City of Venice in Sarasota County.

   8. At the time of the application, the total capital expenditure for QHF's proposed project was estimated to be $2.3 million. Its construction costs were estimated at $1.16 million or $33.14 per square foot. QHF's recently constructed Haines City nursing home facility was completed at a construction cost of $1.22 million, or $31.00, per square foot. The Sarasota County facility will utilize the same basic design as the Haines City facility. At the current time, the cost of construction would be increased by an inflation factor of about ten percent. As of the date of the hearing, the projected capital expenditure for QHF's Sarasota County proposed facility was approximately $2.6 million or about $21,000.00 per bed. The owners of QHF are willing and able to supply the necessary working capital to make the proposed nursing home a viable operation. As depicted by the projected interest and depreciation expenses, the QHF facility will have lower operating expenses than the facility proposed by petitioner, Health Quest.

      
      

   9. In Sarasota County, there is a direct correlation between high Medicaid utilization and high facility occupancy.

      
      

   10. The long term financial feasibility of a 120-bed nursing home in Sarasota County is undisputed, as is the availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the health service area.

       
       

       CONCLUSIONS OF LAW

       
       

   11. The parties have stipulated in this proceeding that there is a need for at least a 120-bed skilled and intermediate care nursing home in Sarasota County. It is the petitioner's contention that the need for nursing home beds in Sarasota County is greater than 120 and is great enough to accommodate both its proposed facility and the facility proposed by the intervenor, Quality Health Facilities, Inc. In the alternative, petitioner urges that should only one 120-bed nursing home be justified, petitioner's proposal is better qualified to fill that need.

       
       

   12. In evaluating the need for additional health care facilities in an area, the promulgated existing rules of the Department of Health and Rehabilitative Services are controlling to the extent that they are applicable. Petitioner's contention that Rule 10-5.11(21) has no applicability to this proceeding because it was declared invalid in the case of Farmworker Rights Organization, Inc. v. Department of Health and Rehabilitative Services, 430 So.2d. 1 (Fla. 1st DCA, 198). is without merit. That case invalidated Rule 10-5.11 only to the extent that it allowed the Department to ignore access criteria mandated by federal statutes and regulations. Subsection (21) of Rule 10-5.11 was not invalidated or even addressed in the Farmworker case.

       
       

   13. The Department of Health and Rehabilitative Services has promulgated a specific rule which governs the method for determining the number of additional nursing home beds needed in an area. That rule is applicable to this proceeding to the extent that it is not counterbalanced by other applicable rules and to the extent that the stipulation of the parties in this case as to bed need is not covered. Here, petitioner offered no evidence that other existing criteria for approving Certificate of Need applications outweigh or counterbalance the application of the bed need formula methodology set forth in Rule 10-5.11(21) Florida Administrative Code. The stipulation of the parties regarding bed need

       ,onlye extended to the number 120. If there is a need beyond 120 beds, that need must be established by the Department's rule on the subject or by a clear

       demonstration that that rule is either not applicable or is counterbalanced by other circumstances and established criteria. Petitioner has failed to clearly demonstrate that there is a need for additional nursing home beds in Sarasota County, Florida. While petitioner did present evidence that there are considerations which are not taken into account in the Rule's methodology for determining nursing home bed need, and that there may be other reasonable methodologies which could be followed, those considerations are not proper in this proceeding. Petitioner has not properly challenged the validity of Rule 10-5.11(21) in a proceeding brought pursuant to Section 120.56, Florida Statutes. Absent a successful challenge to that Rule, its provisions are controlling in this proceeding. According to the methodology established by Rule 10-5.11(21) , Sarasota County currently has an excess of some 807 nursing home beds.

       
       

   14. Petitioner has also failed to demonstrate that it is the better qualified applicant to fill the stipulated need for 120 nursing home beds in Sarasota County. As between the petitioner, Health Quest, and the respondent, Quality Health, it has been demonstrated that Quality Health can construct and operate a nursing home at a lower cost and can better serve the 120 community nursing home bed need. The total capital expenditure for the Quality Health proposal is $2.6 million, as compared with $3.9 million for Health Quest. Quality Health is able to construct a 120-bed facility at $33.14 per square foot and $21,000.00 per bed, as compared with Health Quest costs of $46.29 per square foot and $26,000.00 per bed. Quality Health will serve a larger percentage of Medicaid and Medicare recipients than Health Quest, and experience has indicated that there is a direct correlation between high Medicaid utilization and high facility occupancy rates. In addition, the stipulated need in the area is at least 120 nursing home beds for the entire community of Sarasota County. Health Quest intends to give bed priority to the residents of its retirement center. Thus, to the extent that the retirement center residents occupy petitioner's nursing home beds, such beds would not be available to members of the Sarasota County community at large. In summary, the proposed project of Quality Health, compared with that of Health Quest, is lower in project costs, would serve a greater number of Medicaid/Medicare recipients, would be lower in operating expenses, will better serve the community-wide need and is thus the better qualified applicant to serve the stipulated need for 120 additional nursing home beds in Sarasota County.

       
       

   15. The undersigned has considered the petitioner's contentions with regard to the selection of a site for the intervenor's facility and the submission of audited financial statements to HRS by the intervenor. Finding no specific requirement in the Certificate of Need law for site-specific information or the submission of audited financial statements on the part of an applicant for a Certificate of Need, it is concluded that these contentions are without merit.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of Health Quest Corporation d/b/a Lake Pointe Woods Health Care, Inc. for a Certificate of Need to construct a 120-bed nursing home in Sarasota County be DENIED. It is further RECOMMENDED that the application of Quality Health Facilities Inc. d/b/a Sarasota Health Care Center for a Certificate of Need to construct a 120-bed nursing home facility in Sarasota County be GRANTED.

Respectfully submitted and entered this 31st Day of October, 1983, 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 31st day of October, 1983.

COPIES FURNISHED:

John M. Laird, Esquire

315 West Jefferson Blvd. South Bend, Indiana 46601

John T. C. Low, Esquire Paul L. Gunn, Esquire Low & McMullan

1530 Capital Towers Post Office Box 22966

Jackson, Mississippi 39205

James M. Barclay, Esquire Assistant General Counsel 1317 Winewood Blvd.

Suite 256

Tallahassee, Florida 32301

David Pingree, Secretary Department of Health &

Rehabilitative Services 1323 Winewood Blvd.

Tallahassee, Florida 32301

Docket for Case No: 82-002374

Orders for Case No: 82-002374