STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MANATEE EYE CLINIC, OPTHALMIC ) OPHTHALMIC SURGICAL CENTER, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 84-1899

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing officer, K. N. Ayers, held a public hearing in the above- styled case September 19 and 20, 1984, at Palmetto, Florida.

APPEARANCES

For Petitioner: George N. Meros, Jr., Esquire

Post Office Drawer 190 Tallahassee, Florida 32302

For Respondent: Theodore E. Mack, Esquire

Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32301

By Petition for Formal Administrative Hearing filed May 2, 1984, Manatee Eye Clinic, Outpatient Ophthalmic Surgical Center, Inc. (MEC), Petitioner, requested a hearing to contest the Department of Health and Rehabilitative Services', Respondent, denial of its application for a certificate of need to construct a freestanding ambulatory surgery center for ophthalmic surgery in Bradenton, Florida. The application was denied by Respondent on grounds no need for the facility was shown.

At the commencement of the hearing the parties presented a prehearing stipulation, later entered into evidence as Exhibit 1, from which Findings 1 through 4 below were taken verbatim. In this stipulation the parties agreed that only subsections 1, 2, 4 and 12 of Section 381.494(6)(c), Florida Statutes, are applicable to this hearing. Thereafter, Petitioner called six witnesses, Respondent called one witness, and 25 exhibits were offered into evidence. All were admitted except Exhibit 25, the objection to which was sustained.

Near the beginning of the testimony of Petitioner's final witness, Petitioner requested these proceedings be stayed to allow time for additional negotiations between the parties. This motion was denied. Following the

hearing and, in accordance with the request contained in Petitioner's letter of October 12, 1984, action in preparing this Recommended Order was stayed for an additional 30 days to allow the parties more time for settlement negotiations.

Proposed findings submitted by the parties, to the extent incorporated herein, are adopted; otherwise, they are rejected as unsupported by the evidence, immaterial to the conclusions reached, or merely a recitation of testimony presented.

FINDINGS OF FACT

1. Manatee Eye Clinic owns land adjacent to its existing offices and in close proximity to Manatee Memorial Hospital, on which it proposes to construct a freestanding ambulatory surgery center for ophthalmic surgery. On December 13, 1983, Manatee Eye Clinic filed an application for a certificate of need with the Department of Health and Rehabilitative Services (HRS) for approval of a capital expenditure in the amount of $627,640 for construction of a freestanding ambulatory surgery center for ophthalmic surgery. On April 27, 1984, Petitioner received written notice that the Department had denied the application.

   
   

2. Manatee Eye Clinic consists of five practicing ophthalmologists in Manatee County, each of whom are [sic] duly licensed and provide quality ophthalmic care in the area.

   
   

3. Manatee Eye Clinic, and the members thereof, have available sufficient resources, including health manpower, management personnel, as well as funds for the capital and operating expenditures for the project. Petitioner's proposed medical facility would be constructed in a sufficiently cost-effective manner and makes adequate provision for conservation of energy resources and incorporates efficient and effective methods of construction.

   
   

4. Should this certificate of need be granted, Manatee Eye Clinic will accept Medicaid, Medicare, third-party pay, private pay, and charity care.

   
   

5. The relevant service area for the proposed facility is Manatee County.

   
   

6. The five ophthalmologists at MEC perform approximately 1,200 eye surgeries per year involving cataract removal and lens implant. At present all of these surgeries are performed at Manatee Memorial Hospital. The founder of MEC, Dr. Robert E. King, has twice served as chief of surgery at Manatee Memorial. He is presently a director on the board of directors of the company that recently purchased Manatee Memorial Hospital and removed it from its former status of a not-for-profit hospital to its current status as a for-profit hospital. If this application is granted, Manatee Memorial Hospital will lose all of these patients. Cataract eye surgery, as it is performed today, is ideally performed in an outpatient surgery setting.

   
   

7. The five ophthalmologists currently perform an additional 600 outpatient surgical procedures per year in the existing clinic. These procedures would be performed in the freestanding surgery facility if this application is approved.

   
   

8. Manatee Memorial Hospital is located one city block from MEC. L. W. Blake Memorial Hospital, some seven miles from MEC, has five operating rooms

   available for outpatient surgery but is not currently used by any of the doctors at MEC. Additionally, Ambulatory Surgical Center/Bradenton was licensed in December, 1982. This facility has not been used by MEC doctors. During the latest reporting period, 1983/1984, Manatee County and the Ambulatory Surgery Center performed the following procedures;

   
   

   Hospital Inpatient Outpatient Total

   
   

   L. W. Blake Memorial Hospital 8,800	2,752	11,552
   Manatee Memorial Hospital 6,766	1,654	8,420
   Ambulatory Surgery Center --	1,525	1,525
   TOTALS 15,566	5,931	21,497

   (Exhibit 19)

   
   

9. There is no shortage of operating rooms in Manatee County available for outpatient surgery. Petitioner's primary argument against using the operating rooms at Manatee Memorial Hospital are: operating room nurses are rotated and this results in nurses not being as well qualified as they would be if their duties were limited to ophthalmic surgery; eye surgery is generally elective and such surgery may be bumped from a scheduled operation by emergency general surgery; the patients are generally older than 65 and are less comfortable in hospital surroundings than they would be at an outpatient surgical facility; access to the ambulatory surgical center would be easier for these elderly patients than is access to the existing hospitals for the same outpatient surgery; the hospital charges for the outpatient surgery are approximately twice the charges proposed by Petitioner; and Medicare will pay 100 percent of the charges in a freestanding surgical facility (up to a maximum) but only pays 80 percent in a hospital setting, thereby making the use of a freestanding facility cheaper for the patient and for Medicare.

   
   

10. MEC doctors currently use their own scrub nurses during eye surgeries performed at Manatee Memorial Hospital leaving only the circulating nurse to be provided by the hospital. No incident was cited wherein one of Petitioner's patients was "bumped" from a scheduled operation. The complication rate for cataract surgery has dropped from 10 percent to 0.1 percent in recent years as surgical procedures have improved.

    
    

11. As proposed, the partnership owning MEC will erect and own the surgery center, will lease the equipment, most of which is presently owned by MEC, to the Petitioner; and the rent for the building will be a fixed amount per month plus 50 percent of the net operating profits of Petitioner. Proposed charges by the freestanding surgery center will be $904 per patient (for cataract removal and lens implant) This does not include the surgeon's fee.

    
    

12. There are no methodology rules to determine need for a freestanding outpatient surgery facility. DHRS has consistently determined need for ambulatory surgery centers by taking the most recent number of surgical procedures performed in all inpatient and outpatient facilities in the county and dividing it by the county's base population for the latest year, here 1983. This gives the rate of surgeries per 1,000 population for the latest year for which statistics are available and is projected forward to the second year of operation (here 1987). The same is done for outpatient surgeries. DHRS uses the figure of 29 as the percentage of surgeries that can be performed in an outpatient setting to determine the need for outpatient surgery facilities in 1987. From this is subtracted the number expected to be performed in existing hospital and freestanding outpatient facilities to determine net need through 1987 for freestanding outpatient facilities. Applying this procedure, to which

    Petitioner generally concurs, except for the 29 percent factor, the following need is shown. The 1983 population of Manatee County is 162,997. 21,497 surgeries performed in 1983 x 1000 4 162,997 131.9 surgeries per 1000 population. The 1987 projected population of Manatee County is 182, 120.

    Multiplying this population by 131.9 per 1000 equals 24,061 surgeries expected to be performed in Manatee County in 1987. HRS estimates that 29 percent of these surgeries could be performed in an outpatient setting in 1987.

    Multiplying 24,051 by .29 equals 6,978 outpatient procedures possible. In 1983 there were 4,406 outpatient surgeries performed in a hospital setting in Manatee for a rate per thousand of 27. Multiplying this rate by the projected population for 1987 yields 4,931 outpatient surgeries that can be performed in a hospital setting in 1987. Subtracting from this number the projected outpatient surgeries to be performed in a hospital setting in 1987 (6,978 - 4,931) shows 2,047 to be performed in a freestanding facility. Ambulatory Surgery Center performed 1,525 procedures from June, 1983, to May, 1984. When this is projected to 1987, Ambulatory Surgery Center is expected to perform 1,715 surgical procedures. Substracting this from 2,047 leaves 332 procedures as a net need through 1987. This is below the pro forma break-even point of Petitioner and indicates the project is not financially possible.

    
    

13. The 29 percent factor was obtained from American Hospital Association report of 1981. In 1981, 18 percent of the total surgeries were done on an outpatient basis while it was estimated that 20 to 40 percent of all surgeries could be performed on an outpatient basis. DHRS averaged the 18 percent and the maximum of 40 percent to arrive a mean of 29 percent to project need for outpatient surgery facilities. The latest figures from the American Hospital Association report is for 1982 and this shows the latest percentage of surgeries performed on an outpatient basis to be 20.8 percent. If this figure is averaged with 40 percent, the mean would rise to 30.4 percent. This is the percentage Petitioner contends should be used. Using this figure, the outpatient surgeries possible in 1987 would rise to 7,315 and a need for 669 procedures would exist in 1987. This would meet the higher break-even number presented by Respondent of 556 procedures for the second year of operation. It is noted that the experts' estimated surgical procedures that could be performed in an outpatient setting varied from 20 to 40 percent. In arriving at the 29 percent used DHRS averaged the latest actual percentages available in 1981 with 40 percent to obtain an arbitrary figure of 29 percent to use in calculating need for outpatient facilities. It is further noted that between June of 1983 and May Of 1984 Manatee Memorial Hospital performed 1,654 outpatient surgery procedures and 6,766 inpatient surgery procedures (Exhibit 14) and Blake Memorial Hospital performed 2,752 outpatient surgery procedures and 8,800 inpatient surgery procedures (Exhibit 15). Accordingly, 23.8 percent of Blake's surgery procedures are done as outpatient surgery and 19.6 percent of the surgeries performed at Manatee Memorial Hospital are done as outpatient surgeries. If the 1,200 outpatient surgeries per year performed at Manatee Memorial Hospital by MEC had been removed during this period, the percentage of outpatient surgery would have been reduced to 6.3 percent for Manatee Memorial Hospital.

    
    

14. No evidence was presented regarding the number of ophthalmic surgeries that were performed at Blake Memorial Hospital during this period. Regardless of the potential loss of outpatient surgery cases at Blake if this application is granted, the percentage of outpatient surgeries performed in a hospital setting in Manatee County is, according to the latest data available, 22.1 percent (combining Blake and Manatee Memorial). Using 29 percent of the total surgeries projected for 1987 in Manatee County to obtain an estimate of the outpatient surgery that can be expected to be performed in a hospital setting in 1987 results in a much higher figure than the current growth rate in outpatient

    surgeries would suggest. Accordingly, I find a 29 percent factor more credible than a higher percentage would be in forecasting need for outpatient surgical facilities in 1987.

    
    

15. This conclusion is further supported by the fact that most ophthalmic surgery today is performed in an outpatient setting. This was not true only a few years ago. Accordingly, there can be little additional growth resulting from ophthalmic surgery procedures going from inpatient to outpatient procedures. As a consequence, future growth in outpatient surgery must come from other surgical procedures.

    
    

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

17. The parties stipulated that Section 381.494(6)(c) 1, 2, 4 and 12, Florida Statutes, is the only statutory criteria applicable to this application. Section 381.494 (6)(c) provides in part that applications for certificates of need shall be reviewed in context with the following criteria:

    
    

    1. The need for the health care facilities and services and hospices being proposed in relation to the appli- cable district plan and state health plan adopted pursuant to Title XV of the Public Health Service Act, except in emergency circumstances which pose a threat to the public health.

    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 service district of the applicant.

       * * *

       4. The availability and adequacy of other health care facilities and services and hospices in the service district of the applicant, such as outpatient care

       and ambulatory or home care services, which may serve as alternatives for the health care facilities and services to be pro- vided by the applicant.

       * * *

       12. The probable impact of the pro- posed project on the costs of providing health services proposed by the applicant, upon consideration of factors includ-

       ing, but not limited to, the effect of competition on the supply of health services being proposed and the improve- ments or innovation in the financing

       and delivery of health services which foster competition and service to promote quality assurance and costeffectiveness.

18. The only real criterion involved in this application is whether a need exists far the proposed service. The burden of proof is on Petitioner to establish, by a preponderance of the evidence, a need for the ambulatory surgery center proposed. Balino v. Department of Health and Rehabilitative Services, 348 So.2d 347 (Fla. 1st DCA 1977)

    
    

19. The evidence is uncontradicted that the operating rooms at existing facilities such as Manatee Memorial Hospital and Blake Memorial Hospital are available and adequate for the proposed service. Also available for at least some of the surgeries performed by MEC is the recently opened Ambulatory Surgery Center. Petitioner's witnesses testified that this center is used extensively for burn and shock victims; that with burn victims there is a risk of infection which, if communicated to an eye patient, could cause loss of sight; that only certain hours per week are available at this facility; but this facility has never been used by MEC. Further, MEC presently performs all of its cataract surgery at Manatee Memorial Hospital, presumably because of its proximity to MEC. Although Petitioner contends that use of rotating operating room nurses at Manatee Memorial Hospital is inimical to the best interests of the patients, the MEC doctors use their own scrub nurses and the scrub nurse is the nurse directly assisting the doctor. Despite the chief nurse's policy of rotating nurses, the complication rate for eye surgery has dropped dramatically.

    
    

20. The primary factor supporting this application is that it will reduce costs for cataract removal and lens implant patients. The costs for such surgery both to Medicare and to the patient would be reduced if this application is granted. This factor would also lead to more competition for outpatient surgery patients and reduce the costs of outpatient surgery. On the other hand, granting this application would result in the loss by Manatee Memorial Hospital of a substantial sum it is currently receiving from ophthalmic outpatient procedures performed in its operating rooms.

    
    

21. No evidence was submitted on the effect the loss of this revenue would have on this hospital; but, it is not difficult to conclude that a loss of revenue in the neighborhood of $2.5 million per year (1200 patients x

    $2,000/patient) could seriously impinge on the costs of providing services to other patients.

    
    

22. MEC currently performs approximately 600 surgical procedures in the examining rooms at MEC. Facility charges for these procedures are not paid by Medicare. However, if these procedures are performed at an ambulatory surgery facility, presumably Medicare could properly be billed, and would pay, for the facilities utilized. This would increase the cost to Medicare for those surgeries currently performed as office procedures.

    
    

23. The organizational setup here proposed, with the five ophthalmology partners of MEC owning the building and equipment which is to be leased to an operating company owned by the same individuals, is not an arm's length transaction and could provide a much greater benefit to the owners than to the patients or to the public. So long as they have patients coming to MEC, those patients will be operated on at the facility Petitioner owned regardless of the fact that better or less costly facilities may be available elsewhere. The charges proposed by Petitioner, while cheaper than those currently charged by existing hospitals for the use of their facilities, are approximately the same as those charged by Ambulatory Surgery Center/Bradenton. If cost effectiveness is desired by MEC, use of the Ambulatory Surgery facility is indicated.

24. From the foregoing it is concluded that Petitioner has failed to prove, by a preponderance of the evidence, that a need exists for a freestanding ophthalmic surgery facility at Bradenton, Florida. It is

RECOMMENDED that a Final Order be entered denying the application for Manatee Eye Clinic, Outpatient Ophthalmic Surgical Center, Inc. for a certificate of need to construct a freestanding ambulatory surgical center in Manatee County, Florida.

ENTERED this 13th day of December, 1984, at Tallahassee, Florida.

K. N. AYERS, 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 13th day of December, 1984.

COPIES FURNISHED:

George N. Meros, Jr., Esquire Post Office Drawer 190 Tallahassee, Florida 32302

Theodore E. Mack, Esquire Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32301

David H. Pingree, Secretary Department of Health and

Rehabilitative Services 1321 Winewood Boulevard

Tallahassee, Florida 32301

Docket for Case No: 84-001899

Orders for Case No: 84-001899