STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ORMOND BEACH MEMORIAL HOSPITAL, ) INC., )

)

Petitioner, )

)

vs. ) CASE NO. 83-338

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

and )

) SURGICAL SERVICES OF DAYTONA ) BEACH, INC., )

)

Intervenor. )

) HALIFAX HOSPITAL MEDICAL CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 83-339

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

and )

) SURGICAL SERVICES OF DAYTONA ) BEACH, INC., )

)

Intervenor. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal administrative hearing was conducted in these consolidated matters on September 28, 29, and 30, 1983, in Daytona Beach, Florida. The following appearances were entered: Fred Baggett and Michael J. Cherniga, Tallahassee, Florida, appeared on behalf of the applicant, Surgical Services of Daytona Beach, Inc.; Jay Adams, Tallahassee, Florida, appeared on behalf of the Respondent, Florida Department of Health and Rehabilitative Services; Richard B. Orfinger, Daytona Beach, Florida, appeared on behalf of the Petitioner, Ormond Beach Memorial Hospital, Inc.; and Harold C. Hubka, Daytona Beach, Florida, appeared on behalf of the Petitioner, Halifax Hospital Medical Center.

During September, 1982, the applicant, Surgical Services of Daytona Beach, Inc. ("SSDB" hereafter), filed an Application for Certificate of Need with the

Department of Health and Rehabilitative Services to construct a freestanding ambulatory surgery center in Volusia County, Florida. The application was granted by the Department on December 29, 1982, and a Certificate of Need was issued. Ormond Beach Memorial Hospital, Inc. ("OBMH" hereafter), and Halifax Hospital Medical Center ("HHMC" hereafter) filed Petitions for Formal Administrative Proceedings, contesting the issuance of the Certificate of Need. The Department forwarded the matter to the office of the Division of Administrative Hearings for the assignment of a Hearing Officer and the scheduling of a hearing on January 31, 1983. Hearings were originally scheduled to be conducted on June 2 and 3, 1983. SSDB filed motions to intervene, to consolidate the proceedings, and to continue the hearing. The motions were granted by Order entered March 30, 1983, and the hearing was rescheduled to be conducted commencing on September 28, 1983. A Motion for Continuance filed jointly by OBMH and HHMC was denied.

The following witnesses testified on behalf of SSDB: Randall L. Phillips, the President of SSDB; Andy Whitehead, a vice president and Director of Finance of American Medical International; Wayne Deschambeau, the Vice President of Surgical Services, Inc.; Pat Dulaney, an equipment coordinator employed by American Medical international; Fred Huerkamp, the Executive director of the Health Planning Council of northeast Florida, Inc.; John F. Costello, a hospital construction contractor; Richard O. Moore, a vice president of Surgical Services, Inc.; Lou Spidalette, the Director of Finance and a manager of strategic planning or Friesen International, Inc., a health care consulting company; and Ann Zuvekas, a manager of strategic planning for Friesen International, Inc.

OBMH and HHMC called the following witnesses: Glenn Hopson, the assistant administrator in charge of finance at OBMH; Ron Rees, the Administrator of HHMC; James M. Fogle, an assistant director at HHMC; Stella Ann Hock, the Nursing Administrator at Daytona Community Hospital; Mary Gooch, the Director of the operating rooms at OBMH; Terry Hilker, an associate administrator at OBMH; Francisco Herrero, M.D., a plastic surgeon in practice in Daytona Beach, Florida; Terry D. Huckle the Director of Surgical Services at OBMH; Lilian Roth, the Director of the Department of Surgery at West Volusia Memorial Hospital; Carol Solomon, an assistant administrator at Daytona Beach General Hospital; Carolyn Carlisle, the Director of the operating rooms at Fish Memorial Hospital; Lois R. Walker, the Director of Nursing Services at Fish Memorial Hospital; Seth H. Luwell, M.D., a physician specializing in head and neck surgery practicing in Volusia County; Sherry Hoover, the Director of Planning at HHMC; Charles R. Simpson, an administrator of the Florida Health Care Plan, a health maintenance organization in Daytona Beach, Florida; Dale Abbott, the Assistant Director of Finance at HHMC; and Michael Lee Schwartz, a hospital and health care administrative consultant.

The Department of Health and Rehabilitative Services called Thomas F. Porter, the Department's Medical Facilities Consultant Supervisor, as its only witness. Porter did not appear at the hearing, and his testimony was taken at a deposition subsequent to the hearing. A transcription of the deposition has been received in evidence as Hearing Officer's Exhibit 2.

Hearing Officer's Exhibits 1 and 2, Applicant's Exhibits 1 through 13, OBMH Exhibits 1 through 7, and HHMC Exhibits 1 through 23 were offered into evidence and received. Objections were made to the introduction of OBMH Exhibits 3 through 7 and HHMC Exhibit 2. Ruling upon the objections was deferred at the hearing. The objections will be overruled, and the exhibits are hereby received.

The parties have submitted posthearing legal memoranda which include proposed findings of fact and conclusions of law. The proposed findings and conclusions have been adopted only to the extent that they are expressly set out in the Findings of Fact and Conclusions of Law which follow. They have been otherwise rejected as not supported by the evidence, contrary to the better weight of the evidence, irrelevant to the issues, or legally erroneous.

ISSUE

The ultimate issue to be resolved in this proceeding is whether the SSDB's proposal to construct a freestanding ambulatory surgery center in Volusia County, Florida, should be approved or denied. SSDB and the Department contend that the proposal meets statutory criteria and comports with the Department's rules. SSDB and the Department contend that there is a need for the facility and that SSDB is fully competent to construct and operate the facility. OBMH and HHMC contend that there is no need for the proposed facility, that the facility is not likely to be an economically viable venture, that the facility would injure existing businesses, and that the application should be denied because SSDB did not file a letter of intent with the local health council in a timely manner.

FINDINGS OF FACT

1. SSDB is a corporation that is a wholly owned subsidiary of Surgical Inc. Eighty percent of the stock of Surgical Services, Inc., is owned by American Medical International, Inc., a large, multinational health care corporation which owns and operates hospitals and other health care services. American Medical International is the third largest health care provider in the United States. The remaining 20 percent of Surgical Services, Inc., stock is owned by Randall L. Phillips, the company's president.

   
   

2. SSDB is proposing to construct and operate a freestanding ambulatory surgery center in Daytona Beach, Volusia County, Florida. The service area for the proposed facility would be Volusia County. This facility would house four operating rooms and would be designed to handle all types of surgical procedures that can be performed on an outpatient basis.

   
   

3. SSDB has entered into a contract to purchase land that provides a suitable site for the facility. It is located at the intersection of Clyde Morris Boulevard and Mason Avenue in Daytona Beach. The contract price for the property is $270,000. In addition to the cost of land acquisition, the preopening costs of the project would total $2,080,000. That amount would cover legal and accounting fees, architectural and engineering fees, a site survey, consulting fees, construction costs, movable equipment costs, and other engineering expenses. The preopening cost estimates are less than the

   $2,500,000 estimated in the original Certificate of Need application. The reduction is attributable to cost efficiencies primarily in selection and purchase of equipment. The costs estimated by SSDB are adequate to cover all preopening expenses and to provide an adequate facility.

   
   

4. Financial support for the facility will be provided by American Medical International. This will include an equity contribution, a loan, and all necessary working capital. American Medical International has committed to provide financing adequate to construct and operate the facility. American Medical International has the financial resources to fulfill this commitment.

5. The facility proposed by SSDB would be 15,500 square feet in size. The design is adequate for the proposed use and satisfies applicable health care facility standards and state and federal laws. The equipment proposed for the facility is sufficient to allow the handling of anticipated types of procedures. The facility will be open to all physicians qualified to perform the types of surgery that can be tone within an ambulatory setting. The facility will accept Medicare patients. The facility will admit any patient scheduled by surgeons, and ability to pay will not be a criterion for admission. SSDB has developed a marketing program to attract physicians and patients to the facility. SSDB has proposed adequate staffing for its facility and will be able to fulfill its staff requirements. SSDB is fully competent, given its backing by American Medical International, to construct and operate the proposed facility.

   
   

6. OBMH is a Florida nonprofit corporation. It operates a 205-bed hospital in Volusia County, Florida, and renders medical services to residents of Volusia County and surrounding areas. OBMH presently renders ambulatory surgical services on an outpatient basis in connection with its surgery department.

   
   

7. MEMO is a special taxing district. It operates a 345-bed hospital in Volusia County, Florida, and services residents of Volusia County and surrounding areas. HEM has a same-day surgery program and renders ambulatory surgical services through this procam on an outpatient basis.

   
   

8. Ambulatory surgical services can be performed either in a hospital- based setting such as operated by OBMH and HHMC, or in a freestanding facility such as proposed by SSDB. HHMC presently has 12 general-purpose operating rooms. The HHMC same-day surgery program utilizes these rooms, but has a separate admitting area and waiting room that is utilized for inpatient surgery cases. OBMH has four general-purpose operating rooms. Outpatient or ambulatory surgeries are regularly performed in these rooms. There are presently 41 general-purpose operating rooms in Volusia County's eight hospitals. Outpatient or ambulatory surgical procedures are performed in these rooms. The Florida Health Care Plan is a health maintenance organization located in Volusia County. It has three operating rooms here inpatient or ambulatory surgery procedures are performed for members of the organization. The Neuman Dye Institute is a freestanding ambulatory surgical center licensed by the Department. It is located in DeLand, Volusia County, Florida. It has two operating rooms which are used for treatment of eye disorders.

   
   

9. Approximately 15 percent of the surgeries performed in hospitals in Volusia County during the year August 1, 1982, through July 31, 1983, were done on an outpatient basis. The total number of surgical procedures performed in Volusia County has increased only slightly during the past three years. The number of impatient procedures has decreased, while the number of outpatient procedures has increased rather dramatically. This increase reflects a national trend which increasingly favors ambulatory or outpatient surgeries. It is likely that the number of outpatient cases as a percentage of total surgeries will continue to increase in Volusia County.

   
   

10. The 15 percent figure for outpatient surgeries relates only to those procedures conducted in a hospital setting. It does not include procedures performed at the health maintenance organization, the Neuman Eye Institute, or in physicians offices. One major source of patients for ambulatory surgery programs is elective plastic surgery procedures. Two of the plastic surgeons who practice in Volusia County have their own operating rooms where ambulatory surgical procedures can be conducted. These physicians are not likely to use a

    separate, freestanding facility. The remaining plastic surgeons in Volusia County have utilized the same-day surgery facility at HHMC and have expressed satisfaction with that program.

    
    

11. Existing facilities in Volusia County are adequate to accommodate the anticipated growth and the number of outpatient or ambulatory surgeries that will be performed during the next three years in Volusia County. Hospital surgical facilities in Volusia County are significantly underutilized at present. Existing facilities have the capacity to accommodate a more dramatic increase in total surgical procedures and in outpatient surgical procedures than is anticipated over the next three years. Given the existence of the hospital facilities, the Neuman Eye Institute, the health maintenance organization, and operating rooms located in physicians' offices, adequate facilities exist to accommodate the increased demand for outpatient surgeries that is anticipated in Volusia County.

    
    

12. SSDB is proposing to offer its services to the public during the first year of operation for an average charge of $490 per procedure. The cost would increase to $540 for the second year. The average per-case cost for outpatient surgeries at HHMC is $393. The average per-case cost at OBMH is $439. Given the fact that one case can Involve multiple procedures, it is evident that existing facilities in Volusia County are charging less for ambulatory surgical services than SSDB proposes to charge. While some increases in present charges are likely, given general trends, it is not likely that HHMC or OBMH will charge as much for outpatient surgical procedures as SSDB proposes to charge. It has been asserted that HHMC's charges for outpatient surgeries are inadequate to cover HHMC's costs and that the charges are being kept low artificially. The evidence is to the contrary. HHMC's charges for outpatient surgeries are adequate to meet the facility's expenses. The facility proposed by SSDB does not present any cost savings to patients. Services at the proposed facility would be more expensive than the same services at existing facilities in Volusia County.

    
    

13. Freestanding surgical centers have generally presented some advantages to physicians no consumers. In many places, outpatient surgeries are difficult to schedule in a hospital setting because they are susceptible of being bumped by surgeries that are considered more urgent. Furthermore, in many locations, physicians have had difficulty scheduling their outpatient surgeries in blocks of cases so that they can perform them more efficiently. Those problems have not occurred in Volusia County. Physicians who regularly perform outpatient surgeries in hospitals in Volusia County have been able to schedule their cases in blocks and have experienced no difficulties with bumping.

    
    

14. SSDB has projected that its proposed facility would experience an acceptable loss during its first year of operation, but that it would show a net profit during its second and third years of operation. These estimates are based upon projections that 2,160 procedures would be performed at the facility at an average rate per procedure of $490 during the first year and 2,640 procedures at an average rate of $540 during the second year. These projections are unrealistic. The projections contemplate that approximately one-third of all outpatient surgeries in Volusia County would be performed at the proposed facility. The projections also contemplate a very dramatic increase in the number of outpatient surgeries and that more than 60 percent of the increased outpatient procedures would be done at the proposed facility. While it is likely that the number of outpatient surgeries performed in Volusia County and elsewhere will continue to increase as a percentage of total surgeries and that eventually as much as 30 percent of all surgeries performed in Volusia County

    will be done on an outpatient basis, the increase is not-likely to occur in a single year. Even if It did, it is unlikely that local physicians and consumers cold so dramatically reject present facilities as SSDB projects. Indeed, there is no evidence from which it could be concluded that there is any dissatisfaction on the part of physicians or consumers in Volusia County with present facilities. The evidence is to the contrary. A second reason why the projections are inaccurate is that in making the projections SSDB ignored the existence of the Neuman Eye Institute, the health maintenance organization, and operating rooms that have been established in physicians' offices. A third reason is that SSDB proposes to provide services at a higher cost than at existing facilities. A fourth reason is that SSDB has underestimated the proportion of Medicaid and Medicare cases that are likely to be performed at the facility at a cost that is less than the average cost per procedure proposed by SSDB. It is unlikely that SSDB could operate at a profit during its first three years of operation.

    
    

15. At the time that SSDB filed its letter of intent and application with the Department of Health and Rehabilitative Services, there was no local health council in existence Volusia County, Florida. SSDB did not file a copy of its letter of intent or application with the local health council and would have had no place to file it if it attempted to do so.

    
    

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding. Sections 120.57(1), 120.60, Florida Statutes.

    
    

17. The criteria to be weighed in considering whether to issue a Certificate of Need are set cut at Sections 351.494(6)(c), Florida Statutes, and Rule 10-5.11, Florida Administrative Code. The criteria to be considered include the need for the proposed facilities and service, the availability of existing services, probable economies and improvements in service that might be derived from the proposed service, and the immediate and long-term financial feasibility of the proposal. The evidence establishes that there are existing facilities in Volusia County that provide the same services that SSDB proposes to provide and that these facilities have ample capacity to meet increased demand for outpatient surgeries. The evidence does not establish that there is any demand in Volusia County for an additional facility for conducting outpatient surgeries. The evidence does not establish that the proposed facility would offer any improvement over existing facilities. The evidence does not establish that the proposed facility would result in any cost savings to anyone.

    
    

18. During the course of the hearing, OBMH and HHMC offered summaries of records from various hospitals in Volusia County into evidence. The summaries were offered as OBMH Exhibits 3 through 7 and HHMC Exhibit 2. SSDB and the Department objected. Ruling upon the admissibility of the summaries was deferred. It appears that the documents are summaries of records that were available for inspection by SSDB and the Department. To the extent that the documents were not referenced in the prehearing stimulation exhibit lists, it does not appear that any party was prejudiced by the omission. The objections to the documents are hereby overruled, and the exhibits are hereby received.

    
    

19. OBMH and HHMC have contended that the Application for Certificate of Need should be denied because SSDB did not provide copies of its notice of intent materials to the appropriate local health council. The evidence

    establishes that there was no such council in existence for Volusia County when SSDB's application was filed. To the extent that failure to provide copies of materials to a nonexistent entity could be considered a procedural defect, it has not been shown that the fairness of the proceeding has been in any way affected by it. The failure, if it was a failure, does not constitute grounds for denying the SSDB application.

    
    

20. The Certificate of Need application filed by SSDB should be denied.

RECOMMENDED ORDER

Based upon the foregoing Findings of Fact and Conclusions of Thaw, it is, hereby

RECOMMENDATION

That a final order be entered by the Department of Health and Rehabilitative Services denying the Application for Certificate of Need filed by Surgical Services of Daytona Beach, Inc.

RECOMMENDED this 31st day of October, 1983, in Tallahassee, Florida

G. STEVEN PFEIFFER Assistant Director

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:

Fred Baggett, Esq. Michael J. Cherniga, Esq. Post Office Drawer 1838

Tallahassee, Florida 32302

Jay Adams, Esquire Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

Richard B. Orfinger, Esq. 619 North Grandview Avenue

Daytona Beach, Florida 32018

Harold C Hubka, Esq. Post Office Box 5488

Daytona Beach, Florida 32018

Mr. David Pingree, Secretary

Department of Health and Rehabilitative Services Winewood Boulevard Tallahassee, Florida 32301

Docket for Case No: 83-000338

Orders for Case No: 83-000338