STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PALM BEACH-MARTIN COUNTY MEDICAL ) CENTER, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 84-2917

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

)

NME HOSPITALS, INC., d/b/a ) DELRAY REHABILITATIVE INSTITUTE, ) REHAB HOSPITAL SERVICES CORP., ) and UNIVERSITY REHABILITATION ) SERVICES, INC. )

)

Intervenors. )

)

RECOMMENDED ORDER

This case was heard by R. L. Caleen, Jr., Hearing Officer with the Division of Administrative Hearings, on October 21-23, 1985, in West Palm Beach, Florida. The parties were represented by counsel.

APPEARANCES

For Petitioner: J. Marbury Rainer, Esquire

Jack C. Basham, Jr., Esquire

133 Carnegie Way

1200 Carnegie Building

Atlanta, Georgia 30303

For Respondent: Harden King, Esquire

1323 Winewood Boulevard

Tallahassee, Florida 32301

For Intervenors: Michael J. Glazer, Esquire

Post Office Box 391 Tallahassee, Florida 32302

ISSUE

Whether Petitioner, Palm Beach-Martin County Medical Center, Inc.'s ("PBMC"), application for a certificate of need ("CON") to build a 60-bed inpatient rehabilitation hospital in Palm Beach County, Florida, should be approved, or denied (as proposed by Respondent, Department of Health and Rehabilitative Services ("HRS") in preliminary action.).

By petition filed with HRS on August 1, 1984, PBMC invoked Section 120.57(1) remedies to contest DHRS' preliminary denial of its application for a CON authorizing establishment of an inpatient rehabilitation hospital at its medical campus in Jupiter, Florida, by converting 60 existing skilled nursing beds to comprehensive medical rehabilitation inpatient beds. On August 14, 1984, HRS forwarded this case to the Division of Administrative Hearings for assignment of a hearing officer to conduct the requested proceedings.

Petitions to intervene for the purpose of contesting issuance of a CON to PBMC were subsequently filed by NME Hospitals, Inc. d/b/a Delray Rehabilitative Institute, Rehab Hospital Services Corporation, and University Rehabilitation Services, Inc. (collectively referred to a "NME"). Intervention was granted and final hearing was set for May 1-3, 1985. On PBMC's subsequent unopposed motion for continuance, hearing was reset for July 8-10, 1985; then, on Intervenor's unopposed motion, continued and reset for October 21-23, 1985.

At final hearing on October 21-23, 1985, PBMC presented (in support of its application) the testimony of Dino Cagni, Frank Griffith, Richard Chidsey, M. D., Thomas Schultz, and Woodrin Grossman. Elizabeth Dudek testified on behalf of HRS. NME presented (in opposition to PBMC's application) the testimony of Mark Rottenberg, M. D., Jerry Ingran, Tom R. Futch, and Dan Sullivan. PBMC exhibit Nos. 1 thorugh 20, HRS exhibit nos. 1, 2A, and 2B, and NME exhibit nos.

1 thorugh 9 were received in evidence.

The parties stipulated that the CON application at issue is governed by statutory criteria contained in Section 381.494(6)(c) and (d), Florida Statutes, except for Section 381.494(6)(c) and (13), which they agreed were either inapplicable or were satisfied by the PBMC application. They agreed that rule criteria in DHRS Rule 10-5.11(1)-(9), (11), (12), and (24), Florida Administrative Code, also applied.

The transcript of hearing was filed on December 2, 1985. PBMC and NME filed post-hearing memoranda and proposed findings of fact and conclusions of law (including responses) by January 20, 1985--within the time agreed on at hearing. (Explicit rulings on their proposed findings are contained in the attached Appendix.) HRS filed no proposed findings or memorandum of law.

Based on the evidence adduced at hearing, the following facts are determined.

FINDINGS OF FACT

1. Background

   
   

   1. PBMC, a nonprofit corporation organized in the early seventies to serve the health care needs of residents of northern Palm Beach County and southern Martin County, owns and operates a community not-for-profit hospital known as Jupiter Hospital. Jupiter Hospital is a 156-bed acute care hospital. It is the northernmost hospital in Palm Beach County and provides health care services to the residents of northern Palm Beach and southern Martin Counties. PBMC also owns and operates a nonprofit 120-bed nursing home known as the Jupiter Convalescence Pavilion, located in the same complex as Jupiter Hospital.

      
      

   2. PBMC is governed by an eight-member Board of Directors. Jupiter Hospital is governed by a Board consisting of 22 members: 11 are physicians and

      11 are lay persons from the community. PBMC also has a management contract with HCA Management Company. Pursuant to this contract, HCA Management Company

      provides an administrator and a finance director. All other employees are employed by PBMC. Overall policy decisions regarding the operation of Jupiter Hospital and Jupiter Convalescence Pavilion are made by the PBMC Board. The Jupiter Convalescence Pavilion, however, has a separate Board of Directors which has never voted on the CON application at issue here.

      
      

   3. On or about March 15, 1984, PBMC submitted an application for a CON to establish a 60-bed comprehensive inpatient rehabilitation facility on the PBMC campus in Jupiter. The application called for the conversion of 60 nursing home beds in the Jupiter Convalescence Pavilion to rehabilitation ("rehab") beds, and renovations and improvements to the first floor of the two-story nursing home to accommodate the new rehab facility and the services it would offer. (PBMC Exhibit Nos. 1 and 2)

      
      

   4. On or about July 2, 1984, HRS (preliminarily) denied PBMC's application. (HRS Exhibit No. 1) PBMC filed a timely petition for a hearing under Section 120.57, Florida Statutes, to challenge HRS' decision.

      
      

   5. On September 12 and October 9, 1984, NME Hospital, Inc. d/b/a Delray Rehabilitation Institute, Rehab Hospital Services Corp., and University Rehabilitation Services, Inc., moved to intervene in this proceeding. On October 2, 1984, and January 21, 1985, these motions were granted.

      
      

   6. NME Hospitals, Inc. d/b/a Delray Rehabilitative Institute is a 60-bed for-profit comprehensive inpatient rehab hospital under construction in Delray Beach, south Palm Beach County, on the campus of Delray Medical Center. The name of the hospital was changed recently to Seacrest Hospital. Rehab Hospital Services Corp. will have operational responsibility for Seacrest Hospital-- scheduled to open in the spring of 1986.

      
      

   7. Rehab Hospital Services Corp. is a for-profit corporation that operates comprehensive rehab facilities. It also owns and will operate Treasure Coast Hospital, a 40-bed freestanding comprehensive rehabilitation hospital under construction in Vero Beach, Indian River County, Florida. This hospital, like Seacrest, is scheduled to open in the spring of 1986.

      
      

   8. NME Hospitals, Inc. d/b/a Delray Rehabilitative Institute and Rehab Hospital Services Corp., are wholly-owned subsidiaries of National Medical Enterprises. National Medical Enterprises is one of the largest for-profit chains of acute care hospitals, psychiatric hospitals, long-term facilities, and rehabilitation hospitals in the world. National Medical Enterprises acquired Rehab Hospital Services Corp. in February, 1985.

      
      

   9. PBMC proposes to convert the first floor of its two story nursing home into a comprehensive inpatient rehab facility. On the first floor, there are two wings (with 30 beds in each) that will be converted. In addition, approximately 10,000 square feet of new construction will be necessary to house some of the rehab services. (PBMC Exhibit No. 2) The second story of the building will remain in service as a 60-bed nursing home.

      
      

   10. At hearing, PBMC proposed, in the alternative, to convert only 30 of the nursing home beds to inpatient rehab beds. This alternative calls for conversion of only one wing of 30 beds on the first floor of the nursing home. New construction required to accommodate the proposed rehab services would remain the same. (PBMC Exhibit No. 2) The 30-bed proposal has been approved by a majority of the members of the PBMC Board, although the nursing home's Board has not voted on it.

2. REHAB BED NEED IN DISTRICT IX

   
   

   1. PBMC is located in Palm Beach County, which is in HRS District IX. District IX also includes the counties of Martin, St. Lucie, Okeechobee, and Indian River. (NME Exhibit No. 9)

      
      

   2. Although at the time of hearing, there were no existing, licensed inpatient rehab beds in District IX, there are 100 CON-approved beds. (PBMC Exhibit No. 10; NME Exhibit No. 9) The total CON-approved beds consist of the 60-bed Seacrest Hospital and the 40-bed Treasure Coast Hospital, both of which are owned by NME, but under the operational control of Rehab Hospital Services Corp., a corporate subsidiary.

      
      

   3. HRS measures the need for inpatient rehab beds using Rule 10-5.11(24), Florida Administrative Code. The need determination of Rule 10-5.11(24) has two components. The first part, set out at subsection (c)1., consists of a mathematical formula with which HRS initially calculates the numerical need for rehab beds. The second part of the rule enumerates the following factors that should also be considered in measuring the need for additional rehab beds:

      
      

      1. historic, current and projected incidence and prevalence of disabling conditions and chronic illness in the population in the service district by age and sex group;

      2. trends in utilization by various categories of third party payors;

      3. existing and projected inpatients in need of rehab services; and

      4. the availability of specialized staff. (Rule 10 5.11(24)(c)2., Fla. Admin. Code)

         
         

         1. Numerical Need

            
            

   4. Numerical bed-need is calculated using the mathematical formula set forth in Rule 10-5.11(24). (NME Exhibit No. 9) If applied to District IX for the year 1990, a numerical need for 83 beds is shown. HRS already has, however, already approved 100 beds in District IX. Thus, under this formula, all parties agree there is an excess of 17 rehab through 1990. (NME Exhibit No. 9)

      
      

      1. Other Indicia of Need

         
         

   5. But the fact that the mathematical formula shows no need for additional rehab beds does not require denial of an application. Need may be shown using the other factors listed in the rule, irrespective of whether the formula shows numerical need.

      
      

   6. For the purpose of demonstrating need under these additional indicia of the HRS rule, PBMC presented a methodology and need analysis developed by Richard Chidsey, M. D. (a psychiatrist on the staff of PBMC), and applied by Thomas Schultz, as health care planner. Dr. Chidsey selected various categories of diagnostically related groupings ("DRGs") which he considered to be categories of acute care patients who would be candidates for treatment in an inpatient rehabilitation hospital. Then, based on his experience, he designated a percentage in each DRG category to represent those patients who he felt would need such rehab hospitalization. Dr. Chidsey and Mr. Schultz then identified six area hospitals in Palm Beach and Martin Counties which they considered to be

      within the catchment area for PBMC's proposed rehab beds. Mr. Schultz then obtained 1984 DRG discharge data (in the categories designated by Dr. Chidsey) from each of the six hospitals. Using this information, Mr. Schult projected that those six hospitals would generate 919 referrals to the rehab beds at PBMC. Based on these projected referrals, Dr. Chidsey and Mr. Schultz concluded that the beds proposed by PBMC were needed and would attain the requisite levels of occupancy mandated by HRS rehab rule.

      
      

   7. For several reasons, this methodological is rejected as lacking in credibility. Dr. Chidsey, a staff psychologist at PBMC, has not had an inpatient rehab practice since the mid 1970s. His practice in Palm Beach County does not involve inpatient rehab services and only a small portion of his practice involves patients needing rehabilitation for major disabilities. In opposition to the DRG analysis made by Dr. Chidsey and Mr. Schultz, NME presented the testimony of Mark Rottenberg, M.D., and Dan Sullivan, an expert in health care planning and finance. Dr. Rottenberg is a pyschiatrist who lives in Detroit, Michigan, and maintains an active inpatient rehab practice. Dr. Rottenberg was critical of the DRG categories and referral percentages chosen by Dr. Chidsey, and testified that Dr. Chidsey's analysis significantly overstates the number of patients needing inpatient rehabilitation in many of the categories chosen. Dr. Chidsey's methodology is one which is not generally used or accepted by health care planners, and has not been subject to verification.

      
      

   8. This methodology, admittedly an institution specific methodology for looking at bed need and utilization, if applied to District IX as a whole, would predict the need for approximately 800 inpatient rehab beds or ten times the number predicted by the HRS rule. This is a gross overstatement of need, one which even PBMC does not defend.

      
      

   9. The weight to be given Dr. Chidsey's opinion on the need for the proposed hospital is also affected by his obvious personal stake in the outcome. If approved, the proposed rehab hospital would, in all likelihood, be under his direction and control. He has worked to establish such a rehab hospital for many year, yet he opposed earlier applications for rehab beds in Palm Beach County because they would have competed with outpatient units with which he worked.

      
      

   10. Dr. Rottenberg testified in a more detached manner and his recent inpatient rehab experience is more extensive than Dr. Chidsey's. His criticism of Dr. Chidsey's analysis is persuasive and Dr. Chidsey's methodology, as applied by Mr. Schultz, is rejected as lacing in credibility.

       
       

   11. The lack of need for additional rehab beds in District IX reflected by the mathematical formula is corroborated by the fact that Dr. Chidsey refers only a very small number of his patients to existing and available inpatient beds in Broward or Dade County. These counties are close enough so that if the need for beds is as pressing as PBMC suggests it is reasonable to expect that Dr. Chidsey would be referring more patients for inpatient rehab care.

       
       

   12. Another factor supporting a finding that the proposed rehab inpatient beds are not needed is the absence of any existing utilization data relating to the 100 approved (but not yet operational) beds in District IX. Since the district is already overbedded (according to the numerical formula), prudent health care planning would suggest that the two proposed facilities be allowed to open and their actual utilization determined before further rehab beds are added.

   13. PBMC correctly points out that, as a group, elderly people have a greater need for inpatient rehab services than younger people, and that Palm Beach County has a higher percentage of elderly people than the state as a whole. But the elderly nature of the population is a factor which has already been taken into account in the acute care discharge portion of the rehab methodology.

       
       

   14. The availability of ample outpatient rehab facilities has a tendency to reduce the average length of stay of patients at inpatient rehab facilities. There are numerous outpatient rehab facilities available in Palm Beach County. There is a comprehensive outpatient rehabilitation facility ("CORF") in West Palm Beach and another CORF has recently been approved at Palm Beach Gardens Medical Center, a short distance from PBMC. Also, most of the acute care hospitals and home health care agencies in the area provide outpatient rehab services. Both Seacrest and Treasure Coast Hospitals will offer outpatient rehab services. The existence of these services can reduce the length of stay of patients in a rehab hospital, thereby reducing the number of beds needed to serve the area. It has not been proven, however, that the availability of these outpatient facilities would reduce the average length of stay ("ALOS") at inpatient rehab facilities in Palm Beach County below the 28-day ALOS standard HRS now uses in its bed-need methodology.

       
       

   15. There has been an increasing trend toward recognition of rehab services by third-party payors, although recognition by private pay insurers (such as Blue Cross, Aetna and Prudential) is still fairly limited. The advent of the Medicare prospective payment system and DRGs, has also increased the demand for rehab services. Prior to implementation of the DRG system, Medicare reimbursed hospitals on a cost basis; patients could remain in hospitals long enough to receive needed rehab services and hospitals would be reimbursed for services. In contrast, the DRG system pays hospitals a fixed amount per admission based on diagnosis--this encourages hospitals to discharge patients earlier, sometimes before needed rehab services are provided. One effect of these financial incentives has been to increase the demand for inpatient rehab beds. The extent and likely duration of that increased demand has not, however, been shown.

       
       

   16. PBMC asserts that less weight should be accorded the calculation of bed-need by the numerical formula contained in Rule 10-5.11(24), because it fails to reflect these recent changes in health care delivery. As proof of the rule's asserted understatement of need for rehab beds, PBMC applied the formula to actual utilization in Broward County, District X, which has three rehab facilities. When the rule's 85 percent occupancy standard is applied, there is a need shown for 127 rehab beds in 1990--46 more than the 891 shown by the numerical formula. But the formula's apparent understatement of need in District X does not translate to understatement of need in District IX. This is because factors which affect rehab bed utilization in the two districts are not the same. While the two districts are contiguous, and the size and characteristics of their population are similar, the location of the populations and the concentrations of physicians (both of which can affect demand for rehab persons) are different.

       
       

       1. Accessibility

       
       

   17. Rule 10-5.11(24) also requires that at least 90 percent of the target population of a proposed facility reside within two hours driving time. Ninety percent of PBMC's target population is located within 30 minutes driving time of the proposed facility.

   18. Both Seacrest and Treasure Coast Hospitals will, however, provide available and accessible alternatives to the proposed PBMC facility. The average automobile travel time on the major north/south highways between Seacrest and Treasurer Coast Hospitals is approximately two hours. Since the proposed PBMC facility would be located between these two hospitals, and the main population concentration of District IX is located along the coast, the two hospitals should be within two hours travel time (under average traffic conditions) for most of the residents of the District.

       
       

3. AVAILABILITY, QUALITY OF CARE, AND EFFICIENCY OF LIKE AND EXISTING HEALTH CARE SERVICES

   
   

   1. As reflected by the rule methodology and other developments in delivery of health care, there is a clear demand for inpatient rehab services in District IX. Although there are no existing inpatient rehab facilities in the District, it is likely that Seacrest and Treasure Coast Hospitals--at the southern and northern ends of the district--will adequately satisfy that demand until at least 1990.

      
      

   2. Seacrest Hospital is approximately 50 minutes driving time south of the proposed PBMC facility, while Treasure Coast Hospital is approximately 1.3 hours driving time north of the facility. When completed, both hospitals will offer services similar to and at least as intensive as those proposed by PBMC.

      
      

   3. Because of the travel times and distances involved, PBMC maintains that Seacrest Hospital (to the south) and Treasure Coast Hospital (to the north) will not be reasonably accessible to the patients in its proposed service area. Regular involvement of a patient's family in rehab therapy is an important factor and many rehab patients are elderly. A round trip to either of these NME facilities from the PBMC service area is estimated to take at least 1.5 hours--

      45 minutes each way. Because family involvement in a patient's therapy requires three to five visits a week, PBMC asserts that a one-way driving time of more than one-half hour is unreasonably burdensome to family members. With less family participation, the quality of care declines. PBMC's contention that one- way travel times from one half hour to 45 minutes are unreasonable is, however, rejected as not substantiated by the weight of the evidence. Dr. Rottenberg's testimony to the contrary is accepted as persuasive. Moreover, HRS Rule 10- 5.11(24)(c)3.c, contains an accessibility standard for rehab inpatient services. By requiring applicants to demonstrate that at least 90 percent of the target population resides within two-hours driving time of the proposed facility, the rule implies that driving time of up to two hours are acceptable and not unreasonably burdensome. HRS' interpretation--that this rule encompasses a two- hour driving time accessibility standard--is a reasonable one. Although it is possible that one-way travel times of from one-half hour to 45 minutes may affect the frequency of visits by family members and he patient's primary care physician, the extent which any reduced visitation rate may affect the quality of care provided is open to conjecture and has not been meaningfully established.

      
      

   4. PBMC proposes an average charge of $335 per day during the first year of operation of its rehab hospital, and $358 per day the second year. While these charges are significantly lower than the $465 per day charge proposed for both Seacrest and Treasure Coast Hospital, PBMC has seriously underestimated the number of registered nurses (with specialized rehab training) it would be required to employ. A 60-day hospital offering intensive and quality rehab services normally requires between 25 and 30 registered nurse FTEs; yet PBMC

      projects only four for its entire facility. If PBMC was required to hire additional registered nurses, its projected charges per day would increase significantly but--due to the cost savings derived from converting an existing structure--it is reasonably expected that the charges would still be less than, or comparable to, those of Seacrest and Treasure Coast Hospital.

      
      

   5. In summary, while there are no existing rehab inpatient facilities in District IX reasonably available to serve the patients in PBMC's proposed service area, there soon will be. Seacrest and Treasure Coast Hospitals, opening in the spring of 1986, will offer quality rehab services at least as intensive as those proposed by PBMC; their charges will be comparable to or somewhat more than those proposed by PBMC.

      
      

4. QUALITY OF CARE

   
   

   1. The proposed PBMC rehab hospital will meet the standards published by the Commission on Accreditation of Rehabilitation Facilities ("CARF") and deliver quality medical care to its patients. PBMC is committed to this objective and will hire the staff and purchase any equipment necessary to achieve it. The medical program will be run by a qualified psychiatrist. Physicians with staff privileges will be allowed to admit patients to the facility, but a psychiatrist will be assigned to co-manage each patient.

      
      

   2. There are two features of PBMC's proposal which, while adequate, are less than optimum. One--the understatement of the number of registered nurses needed to provide quality services has already been mentioned. This problem would, in all likelihood, be remedied by the hiring of additional staff. The other shortcoming is PBMC's plan to serve two of the patients' daily meals in their bedrooms, rather than in a central dining area. It is important that patients with disabilities be able to practice their social skills and interact with others in preparation for their return to the community. Dining together in a congregate setting facilitates this kind positive socialization experience. Since PBMC patients would dine together only once a day, their exposure to this socialization experience would be limited.

      
      

5. AVAILABILITY AND ADEQUACY OF OTHER HEALTH CARE FACILITIES AND SERVICES

   
   

   1. As already mentioned, there are numerous home health agencies, nursing homes, and acute care hospitals which offer outpatient rehab services in District IX. Although these services are not a substitute for comprehensive inpatient rehab services (which offer more intense services to patients with more severe disabilities or ambulatory difficulties), the existence of such outpatient services may allow patients to be discharged earlier than otherwise and lessen demand for inpatient beds.

      
      

   2. Although there are no existing comprehensive rehab inpatient facilities in District IX which provide an alternative to the PBMC proposal, these soon will be in the form of Seacrest and Treasure Coast Hospitals.

      
      

6. ECONOMIC AND SHARED SERVICES

   
   

   1. PBMC intends to enter into referral agreements with acute care hospitals, nursing homes, and home health agencies in the service area of its proposed rehab hospital.

   2. The proposed hospital will benefit from being located close to Jupiter Hospital. Rehab inpatient services can complement the other medical services offered on the PBMC campus. The location of the rehab facility on the first floor of the nursing home will ease the transfer of patients to the nursing home on the second floor.

      
      

   3. The proposed rehab hospital would purchase ancillary services from, and share engineering and support services with, Jupiter Hospital. This would obviate the need to duplicate equipment and services already available in Jupiter Hospital and will allow for more efficient use of existing equipment and services.

      
      

   4. The rehab facility would also share services with the nursing home, such as dietary, maintenance, purchasing, housekeeping, and laundry.

      
      

   5. The existing outpatient rehab services at Jupiter Hospital would be relocated in the new rehab hospital. Integration of the inpatient and outpatient services will improve the efficiency and quality of rehab services.

      
      

   6. By sharing services with Jupiter Hospital and the connecting nursing home, the proposed rehab facility would achieve economies of scale and improve the overall quality of service.

      
      

7. NEED FOR RESEARCH AND EDUCATION FACILITIES

   
   

   1. Currently, there are no existing acute care of rehab facilities in District IX that have training programs for physicians interested in rehab medicine. If granted a CON, PBMC will attempt to establish a training program in affiliation with the University of Miami Medical School and the Veterans Administration Hospital in Miami.

      
      

   2. PBMC also proposes to establish a residency program in rehab medicine at its new facility, in cooperation with medical schools at the University of Miami and Temple University. Such a residency program would provide further opportunities for training health care practitioners.

      
      

8. AVAILABILITY OF RESOURCES AND ACCESSIBILITY TO PATIENTS

   
   

   1. PBMC has sufficient funds to undertake and complete the project. At the time of hearing, PBMC had 10 million dollars in reserves which could be used to construct and operate the proposed rehab hospital, and cover any shortfall. The projected construction costs for this facility are only 1.2 million dollars. The PBMC Board is committed to this project, although the separate Board of the nursing home has not voted on it.

      
      

   2. It is reasonably anticipated that there would be enough qualified physicians and personnel available to staff and operate the proposed facility. Dr. Chidsey, a board certified psychiatrist with 20 years of experience in rehab medicine, is the architect of the proposed program and will be one of the principal admitting physicians. Other qualified psychiatrists have expressed an interest in the proposed facility and would be recruited if PBMC's application is approved.

      
      

   3. PBMC expects to hire new employees to staff the proposed rehab hospital. It plans to hire a total of 68.4 FTEs for the facility's first year of operation, which includes six registered nurses, 22.6 nurse's aides, 3.4 occupational therapists, and 7.1 physical therapists. (PBMC Exhibit No. 13) As

      already mentioned, the projection of six registered nurses appears to be an understatement of expected actual needs. PBMC should be able to recruit enough qualified nurses, nurse's aids, and technicians to administer its proposed program. Jupiter Hospital has been offering rehab services to inpatients and outpatients, so PBMC has experience in hiring rehab personnel. It has received applications for employment from rehab nurses in the last few months. Should a problem arise, PBMC can use the recruiting resources of Hospital Corporation of America, which operates and/or manages over 400 hospitals. A number of acute care hospitals in the area have been forced to lay off personnel as patient utilization and census have dropped, resulting in an increase in the number of available qualified health care personnel.

      
      

   4. In addition, PBMC has trained personnel at its disposal who have been providing rehab services to patients in Jupiter Hospital and in Jupiter Convalescence Pavilion. Also, PBMC has numerous volunteer workers who could be trained to assist in administering the rehab program.

      
      

   5. PBMC's location near several major traffic arteries make it more accessible to its target population. The same population, however, has reasonable access to Seacrest and Treasure Coast Hospitals.

      
      

   6. At Jupiter Hospital, PBMC treats all patients regardless of their ability to pay. It is against PBMC policy to deny medical care based on inability to pay, and there is no evidence that it has ever done so. PBMC's nursing home has a Medicaid contract, and twenty per cent of its patients are Medicaid patients. Jupiter Hospital does not have a Medicaid contract, but has treated Medicaid patients regularly and simply "written off" the costs of care. Because the volume of Medicaid patients has steadily increased, Jupiter Hospital has now applied for a Medicaid contract and is awaiting approval. Presently about one percent of its patient population is Medicaid patients. It also has a contract with Palm Beach County to provide ambulatory surgery to indigents. Approximately fifty per cent of the admissions at Jupiter Hospital in 1985 were Medicare patients. (NME Exhibit No. 13)

      
      

   7. PBMC's proposed rehab facility would also accept Medicare, Medicaid, and indigent patients. A patient mix of ten percent Medicaid, sixty percent Medicare, two percent indigent, and four percent bad debt is projected.

      Approval of PBMC's proposal would enhance access to comprehensive rehab services for medically underserved groups, as well as other residents in the catchment area, although it has not been shown that such services will not be reasonably available at Seacrest and Treasure Coast Hospitals.

      
      

9. FINANCIAL FEASIBILITY

   
   

   1. Since PBMC has not shown need for its proposed rehab hospital or demonstrated that it will meet occupancy levels needed to become self- sustaining, it cannot be concluded that the hospital is financially feasible in the short-term (without a continuing subsidy) or the long-term. The pro formas provide little assurance of the hospital's financial feasibility. They simply assume occupancy levels of seventy per cent in the first year and eight five percent in the second year--then test financial feasibility against those levels. The underlying assumptions were not shown to be reasonable or based on reliable or verifiable data.

   2. The pro forma projections are also deficient because they reflect an understatement of the number of registered nurses needed to staff the facility, thereby underestimating salary and benefit expenses by as much as $600,000. (This is the approximate cost of increasing the number of registered nurse FTE's from 4 to 25.)

      
      

   3. The pro formas assume a combined level of seventy per cent Medicare and Medicaid utilization. In order to qualify for Medicare reimbursement--on which the proposed hospital would financially depend--there must be 24-hour coverage by registered nurses with specialized rehab training or experience. It is unlikely that the staffing levels reflected in the pro formas would be adequate to meet the Medicare standard, thus placing a major financial assumption of the project in question.

      
      

10. IMPACT ON COSTS OF HEALTH CARE AND COMPETITION

    
    

    1. PBMC projects an average daily charge significantly lower than NME's projected charges of its two facilities in District IX (Seacrest and Treasure Coast Hospitals), and the actual charge of its existing facility in Sunrise, Florida. However, PBMC's projected charges depend on it achieving occupancy rates which have not been substantiated by the evidence. Consequently, projected cost savings for patients in District IX are speculative and uncertain.

       
       

    2. At the present time, both of the approved inpatient rehab facilities (Seacrest and Treasure Coast Hospitals) in District IX are owned by NME. In addition, NME owns and operates a 108-bed rehab hospital in Sunrise, Broward County, Florida, which is approximately 45 minutes driving time south of the Seacrest Hospital site. NME also owns and will operate a new 60 bed rehab hospital in Melbourne, Florida. Melbourne is in Brevard County, immediately to the north of Indian River County. The Melbourne facility is about 45 minutes driving time north from the Treasure Coast Hospital site. Approval of PBMC's application will increase competition among providers of inpatient rehab services to residents of District IX. Increased competition may contribute to a lowering of health care costs for District IX. It is also likely that PBMC would draw a significant number of admissions and patient days which would otherwise accrue to Seacrest and Treasure Coast Hospitals, thereby causing them substantial financial injury.

       
       

    3. The approval of PBMC's application would also enhance the bargaining position of HMOs and PPOs, which negotiate with health care providers for discounts or lower costs. In the absence of the proposed PBMC hospital, NME--as the only provider of inpatient rehab services in District IX--would have less incentive to negotiate with HMOs and PPOs, or reduce its charges.

       
       

11. ALTERNATIVES

    
    

    1. Both parties admit that instead of converting the 60 nursing home beds into comprehensive rehab beds, PBMC could convert acute care beds at the adjacent 156-bed Jupiter Hospital. Since 1982, the nursing home has experienced an occupancy level exceeding ninety percent. In contrast, the hospital has experienced a sharp decline in utilization. The average patient census in 1983 was 70.5 percent; by 1985, it had dropped to 50.3 percent. In terms of serving

       the needy, 20-30 percent of the nursing home residents are Medicaid patients, compared to only one percent of the hospital's patients. Citing these figures, NME contends that conversion of "needed" beds in the nursing home to rehab beds-

       -when "un-needed" hospital beds abound next door is an inappropriate choice by PBMC.

       
       

    2. PBMC responds that there is an excess of nursing homes in District IX; that a new 120-bed nursing home is opening up nearby; and that the configuration and layout of the nursing home made the conversion and construction of additional areas for rehab therapy relatively inexpensive. These assertions were not refuted by NME. Moreover, the record does not contain a cost comparison between the two alternative sources of rehab beds. NME has failed, therefore, to prove that PBMC's decision to convert nursing homes rather than hospital beds was inappropriate.

       
       

12. ALTERNATIVES TO NEW CONSTRUCTION

    
    

    1. PBMC's proposal calls for a limited amount of new construction. To a significant extent, the new rehab facility will utilize existing space on the first floor of the nursing home. The nursing home was constructed in accordance with standards and specifications suitable for an inpatient rehab facility. The additional areas that need to be constructed are relatively minor and of minimal cost.

       
       

    2. By converting space in the nursing home, rather than building an entirely new facility, PBMC has adopted an appropriate and cost-effective alternative to constructing an entirely new facility, assuming that the rehab hospital is needed in the first place.

       
       

13. STATE AND LOCAL HEALTH PLANS

    
    

    1. PBMC's application exceeds the 3.9/1000 ratio of rehab beds to projected acute care admissions set forth in the State Health Plan. If PBMC's application was approved, there would be an excess of 7 rehab beds in District IX in 1990.

       
       

    2. In addition, the District IX Local Health Plan states that "comprehensive medical rehabilitation services should be available to all residents of the district." When Seacrest and Treasure Coast Hospitals open in the spring of 1986, this requirement will be satisfied.

       
       

14. 30-BED PROPOSAL

1. As an alternative to its 60-bed application, PBMC proposes to convert only 30 of its nursing home beds. The same findings as to need, geographic and financial accessibility, availability and adequacy of alternatives, quality of care, economies and shared services, need for educational facilities, availability of resources, short-term financial feasibility, impact on health care costs, alternatives to new construction, and consistency with the State and Local Health Plans, apply to this alternative proposal.

   
   

2. HRS Rule 10-5.11(24)(c)3.a., expressly requires new and separate rehabilitation facilities, such as proposed by PBMC, to have at least 40 beds. PBMCs 30-bed proposal does not satisfy this requirement.

   CONCLUSIONS OF LAW

   
   

3. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. NME has demonstrated standing to contest issuance of a CON to PBMC. See, Sections 120.52(11)(b), 120.57, Fla. Stat. (1985); Collier Medical Center, Inc. v. Department of Health and Rehabilitative Services, 462 So.2d 83 (Fla. 1st DCA 1985).

   
   

4. This Section 120.57(1) proceeding is de novo in nature and intended to help formulate final action by HRS--not to review its prior action or action taken preliminarily. McDonald v. Department of Banking and Finance, 346 So.2d

   569 (Fla. 1st DCA 1977). PBMC, as the applicant, has the burden of proving that it meets the statutory and rule criteria for issuance of a CON. See, Florida Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services, 475, So. 2d (Fla. 1st DCA 1985).

   
   

5. Measured by this standard, it is concluded that PBMC has failed to demonstrate entitlement to a CON under Section 381.494(6)(c) and (d), Florida Statutes and HRS Rule 10-5.11(24), Florida Administrative Code. Action on a CON application is determined by a "balanced consideration" of the statutory and rule criteria: no one criteria may be rigidly applied, nor may some be ignored, or others unduly emphasized. Department of Health and Rehabilitative Services

v. Johnson and Johnson, 447 So.2d 361, 363 (Fla. 1st DCA 1984). HRS' numerical bed-need methodology shows no need for the proposed rehab hospital through 1990; the alternative methodology, purporting to utilize other factors in the rule, was not credible. Approval of the proposed hospital would also exceed the numerical standard contained in the State Health Plan. The other two rehab hospitals scheduled to open soon in District IX are reasonably accessible to the patients within PBMC's projected target area. These two hospitals will provide intensive, quality rehab inpatient services, and it has not been shown that they cannot adequately accommodate the need for such services in the district through 1990. When the numerical formula shows excess rehab beds through 1990, it is reasonable to allow these two new hospitals to open and generate utilization data before allowing construction of a third rehab hospital. The proposed PBMC Hospital has the advantage of cost-effective construction (due to conversion of existing nursing home beds) and shared service arrangements with the other facilities on the PBMC campus. It will provide an opportunity for physician training programs, and its location will make comprehensive inpatient rehab services more accessible and convenient to the residents of its proposed service area. Its entry into the market would also enhance competition among providers of rehab services in the District IX. However, its financial feasibility in the short and long term has not been demonstrated. The number of registered nurses was understated, and financial feasibility depends, in large part, on meeting projected occupancy levels. PBMC has not, however, convincingly shown that it would attain the occupancy levels on which its pro formas are based. Weighing these factors in a balanced fashion supports a conclusion that PBMC's application for a CON authorizing a 60-bed (or 30-bed) comprehensive rehabilitation hospital in Jupiter, Florida, should be denied.

RECOMMENDATION

Accordingly, based on the foregoing, it is RECOMMENDED:

That PBMC's application for a CON be DENIED.

DONE AND ORDERED this 19th day of February, 1986, 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 19th day of February, 1986.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 84-2917

1. RULINGS ON PBMC'S PROPOSED FINDINGS OF FACT

   
   

   1. Approved.

   2. Approved, with clarification that nursing home Board has not voted on the application at issue.

      3-15. Approved in substance.

      1. Approved, but these cases are distinguished from the instant case.

      2. Rejected as irrelevant since the quality of evidence presented at the de novo hearing is at issue, not the propriety of preliminary agency action.

      18-22. Rejected as not supported by the greater weight of the evidence. The Chidsey-Schultz analysis was not shown to be reasonable or reliable, and overstated actual need.

      23. Approved, but an adequate supply of rehab beds will be made reasonably available to residents of District IX within the next couple of months.

      24.-25. Rejected for the reasons stated in 18-22, infra.

      1. Approved except for conclusion, not proven, that the numerical formula understates need for rehab beds.

      2. Approved, except the elderly nature of the population is a factor in the acute care discharge portion of the methodology and quality outpatient programs can reduce demand for rehab inpatient beds.

      3. Substantially approved, except statements about ALOS other than 28 days are conjectual.

      4. Approved.

      5. Approved, but modified to reflect that inpatient rehab coverage is still limited.

      6. Rejected as unsupported by the evidence. The comparison of District IX to District X is inappropriate.

      7. Rejected as unsupported by the evidence. The methodology takes age into account.

      8. Rejected as unsupported by the evidence. See, para. 16-32, infra.

      9. Approved.

      10. Approved, but these cases are distinguishable.

      11. Approved, but modified to reflect that Seacrest and Treasure Coast Hospitals will adequately satisfy this need through 1990.

      37.-40. Approved.

      41.-43. Covered in finding nos. 29-31.

      1. Approved, but PBMC's projected charges are uncertain due to understatement of number of registered nurses needed and failure to demonstrate need for the facility.

      2. Rejected as unsupported by the weight of the evidence.

      46.-47. Approved, except the number of registered nurses needed is understated.

      1. Approved.

      2. Approved, except the availability of outpatient rehab service tends to decrease need for inpatient services.

      3. Rejected as speculative.

      4. Rejected as unsupported by the greater weight of the evidence.

      5. Approved, except for the second sentence, which was not proven.

      53.-61. Approved in substance.

      1. Rejected as unsupported by the greater weight of the evidence.

      2. Approved.

      3. Approved, except the number of needed registered nurses is overstated.

      65.-71. Approved in substance.

      72. Approved, but short run financial feasibility (without a continuing subsidy by PBMC) is in doubt because need has not been shown.

      73.-75. Rejected as unsupported by the greater weight of the evidence. Neither need nor short and long term financial feasibility has been shown.

      76. Approved, except for the last sentence which is rejected as not supported by the greater weight of the evidence.

      77.-80. Substantially approved, but the charges are uncertain due to understatement of nursing need and failure to demonstrate need for the proposed facility. Financial feasibility is in doubt.

      1. Approved, but the extent to which it would still underprice the charges of Seacrest and Treasure Coast Hospitals is uncertain.

      2. Substantially approved, with caveat that inadequate nursing staff would place Medicare funding in jeopardy.

      3. Rejected as nursing staff costs are understated. 84.-85. Rejected, since without a showing of need, the

      financial feasibility is in doubt.

      1. Approved.

      2. Covered in finding no. 56.

      3. Approved.

      4. Covered in finding no. 57.

      5. Covered in finding no. 58.

      6. Covered in finding no. 57.

      7. Rejected as the extent to which costs may be lowered, and the likelihood, were not shown.

      8. Approved.

      9. Covered in finding nos. 59-60.

      10. Approved.

      11. Approved.

      12. First sentence, approved; second sentence rejected as speculative.

      13. Approved.

      14. Covered in finding no. 62. 100-102. Approved.

      1. First sentence, approved; second sentence, rejected as not proven by the greater weight of the evidence.

      2. First sentence, approval; second sentence, rejected as not proven.

      3. Rejected, as approval would not be consistent with the State Health Plan.

      4. Approved.

      5. Rejected as not proven since nursing needs were understated and need for the rehab beds was not demonstrated.

      6. Approved, except that the 30-bed facility would not satisfy the requirement of Rule 10-5.11(24)(c)3.a.

2. RULINGS ON NME'S PROPOSED FINDINGS OF FACT 1-2. Approved.

1. Approved, with clarification that the numerical formula

   shows excess beds in 1990.

2. Approved, except for statement in the second sentence alluding to NME's ostensible "recognition" that Treasure Coast Hospital would be marginally successful at 60 beds, which is not proven.

3. Approved.

4. Approved, except for the fist sentence, which is argumentative.

7.-8. Approved.

9. Approved, except for the reference in the second sentence to what HRS consistently "recognized" in the past. Non-rule policy, no matter how often applied in the past, must be proved, anew, at each Section 120.57(1) proceeding. The generic impropriety of institution specific health care planning was not demonstrated in the instant case.

10.-11. Approved.

12. Approved, except for last sentence, which is not supported by the greater weight of the evidence.

13-16. Approved.

1. Approved, except for the first sentence, which is not supported by the greater weight of the evidence.

2. Approved, except for the first sentence, which is not supported by a preponderance of the evidence.

3. Approved.

20.-21. Rejected, as unsupported by a preponderance of the evidence.

1. Approved and clarified to reflect that PBMC has not demonstrated that the proposed hospital will be financially feasible.

2. Approved.

3. Approved.

4. Rejected as unsupported by a preponderance of the evidence.

5. Approved.

6. Approved, except it has not been shown that the services of Treasure Coast and Seacrest Hospitals will be more comprehensicve than those proposed by PBMC, or that the approval of the PBMC Hospital will adversely affect the ability of Treasure Coast and Seacrest to attract and maintain staff.

COPIES FURNISHED:

J. Marbury Rainer, Esquire Jack C. Basham, Jr., Esquire

133 Carnegie Way

1200 Carnegie Building

Atlanta, Georgia 30303

Harden King, Esquire 1323 Winewood Boulevard

Tallahassee, Florida 32301

Michael J. Glazer, Esquire

P. O. Box 391

Tallahassee, Florida 323029

Docket for Case No: 84-002917

Orders for Case No: 84-002917