STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WILLIAM CRANE GRAY INN FOR OLDER ) PEOPLE, INC., )

)

Petitioner, )

)

vs. ) Case No. 85-2758

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICE, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard by R. L. Caleen, Jr., Hearing Officer with the Division of Administrative Hearings, on November 25, 1985, in West Palm Beach, Florida. The parties were represented by counsel:

APPEARANCES

For Petitioner: Jonathan Grout, Esquire

Karen Goldsmith, Esquire Post Office Box 1980 Orlando, Florida 32802

For Respondent: Linda S. Perry Ledet, Esquire

Post Office Drawer 11300 Tallahassee, Florida 32302-3300

ISSUE

Whether Petitioner's application for a Certificate of Need ("CON") authorizing establishment of a 60-bed sheltered nursing home adjacent to a 75-unit life care residential facility in HRS Health District IX, Palm Beach County, Florida, should be granted (in whole or in part), or denied.

BACKGROUND

By notice dated June 28, 1985, Respondent, Department of Health and Rehabilitative Services ("HRS"), preliminarily denied William Crane Gray Inn for Older People, Inc.'s1 ("Petitioner") application for a CON to construct a 60-bed sheltered nursing home (in conjunction with a 75-unit continuing care retirement center) in Palm Beach County, Florida. Petitioner timely invoked Section 120.57(1) proceedings to contest the proposed denial, after which HRS transferred this case to the Division of Administrative Hearings for assignment of a hearing officer.

Hearing was thereafter set for November 15, 1985.

HRS then moved to consolidate this case with eleven other pending Section 120.57(1) proceedings involving CON applications for nursing home beds in Palm Beach County. By order of November 19, 1985, the motion was denied because the application in the instant case sought sheltered nursing home beds, and the eleven other applications sought community nursing home beds.

Because of this difference, HRS did not comparatively review Petitioner's application with the other eleven, and HRS agreed that its action in the instant case would not affect its action in the other cases.

At hearing, Petitioner presented the testimony of Donald A. MacDonald, Douglas Dougherty and Karen Goldsmith; HRS presented the testimony of Reid Jaffe. The parties also stipulated that certain CON criteria were either inapplicable or satisfied by the application at issue. Joint Exhibit No. 1, Petitioner's Exhibit Nos. 1 through 11, and Respondent's Exhibit Nos. 1 and 2 were received in evidence.

The parties filed post-hearing proposed findings of fact, and responses, by February 17, 1986. Rulings on their proposed findings are contained on in the attached Appendix.

Based on the evidence adduced at hearing and the stipulation of the parties, the following facts are determined:

FINDINGS OF FACT

I.

The Proposal

1. Petitioner is a not-for-profit Florida corporation organized to provide retirement and nursing home services to aged Episcopalians in the three Episcopal Dioceses in Florida: Central, Southwest and Southeast.

   
   

2. Since 1951, Petitioner has operated a life care facility or community, with adjacent nursing home, in Davenport, Florida. It has 71 residential (well-care) units and 60 nursing home beds, operates at nearly full capacity, and has a 3-to-5 year waiting list. There are 128 residents at the facility, 57 of whom live in the nursing home.

   
   

3. Petitioner now seeks to replicate the (Davenport) Crane Gray Inn in Lake Worth, Palm Beach County, Florida, in order to better serve the needs of older Episcopalians. The life care community, consisting of a 60-bed skilled nursing home and a 75- unit retirement facility, would be convenient to the residents of the Southeast Florida diocese, but is expected to draw residents throughout Florida.

   
   

4. The 60-bed skilled nursing home, for which a CON is required, would be a one-story building measuring 19,100 square feet. Initially estimated to cost $1,705,515, or $68.06 per square foot to construct and equip, actual bids subsequently received have reduced the expected cost to $60.00 per square foot. The total cost of the entire project, including the well- care and nursing-care facilities, is estimated to be $3,600,000.

   
   

5. Petitioner intends to obtain certification of the entire project as a continuing care facility in accordance with Chapter 651, Florida Statutes. In March, 1985, the State of Florida Department of Insurance and Treasurer issued Petitioner a provisional license to operate the proposed facility as a continuing care facility.2 Petitioner intends to comply with the reporting and escrow requirements which Chapter 651, Florida Statutes, imposes on life-care facilities.

   
   

6. The admission requirements for the proposed life care facility are the same as those which have applied to the Davenport Crane Gray Inn ("Inn"). Before admission, a resident must execute a continuing care or "Resident's Agreement" with the Inn. Under that agreement, in exchange for the future maintenance and support of the resident at the Inn for the remainder of the applicant's life, the applicant transfers all of his or her real and personal property to the Inn. The resident also agrees to execute a will to the Inn to effectuate the transfer of property then owned or later acquired. No entrance fee is charged. The Inn promises to provide the resident with a personal living unit (including all utilities); three meals a day; health care (including medicine, physician fees, dental care, and hospitalization); recreational,

   educational, social and religious programs; funeral and burial costs; a monthly allowance for personal expenses; weekly maid service and laundry facilities; and transportation for shopping trips and other activities. Either party may terminate the agreement under specified conditions. On termination, the Inn will transfer back to the resident the property previously conveyed, or a sum equal to the value thereof, without interest and deducting therefrom an amount sufficient to compensate the Inn for the resident's care and support while at the Inn. If the resident becomes eligible for social security or government assistance, such assistance is paid to the Inn for the support of the resident. If the resident dies while at the Inn, all property transferred to the Inn on admission is considered to have been earned and becomes the property of the Inn. (Joint Exhibit I)

   
   

7. There is no requirement that a prospective resident have any assets and applicants are ostensibly admitted without regard to their financial condition. (However, in the past ten years, only two Medicaid patients or indigent residents have been admitted to the Davenport Inn.) An account for each resident is maintained, to which earnings are transferred and costs of care deducted. Residents without assets are treated the same as those with assets and the account information is treated confidentially. Over time, the accounts of residents are depleted. Currently, 68% of the patients at the Davenport nursing home are Medicaid patients. The per diem rate reimbursed by Medicaid is $51.25. No resident has ever been transferred for lack of funds. However, the average resident, when admitted, transfers assets worth approximately $24,000 to the Inn.

   
   

8. Prospective residents of the proposed nursing home will ordinarily come from the adjacent well-care retirement units. The purpose of the nursing home is to serve the individuals residing in the life care community who, as their needs intensify, require skilled nursing care. Only on rare occasions will an individual be admitted directly to the nursing home without first residing in the well-care portion of the life care community. At the Davenport Inn, this has happened only once. Petitioner acknowledges that prospective nursing home patients may come from eligible Episcopalians who reside in nursing homes in the local community. Actual residence in the well-care units will not be a prerequisite to admission to the nursing home. However, no person has been, or will be, admitted to the nursing home without first executing a continuing care agreement.

9. Direct admission of nursing home patients from outside the life care center is permissible under "sheltered nursing home" rules, as construed by HRS officials. Robert E. Maryanski, Administrator of HRS' Community Medical Facilities Office of Health Planning and Development (which implements the CON licensing process) advised Petitioner's counsel on September 20, 1985, that under HRS rules, patients may--if necessary--be admitted directly to the proposed nursing home without first residing in the well-care units.

   
   

   Individuals who have paid for membership with the particular life care center, finding themselves in immediate need of nursing home care, may be directly admitted into the nursing home.

   
   

   (Petitioner's Ex. No. 11)

   If HRS rules were interpreted otherwise, perfunctory stops in well-care units "on the way to the nursing home" would be encouraged, a practice which would burden patients and serve no useful purpose.

   
   

10. Although Petitioner's CON application does not specify a minimum age for admission to the life care community, Petitioner's life care centers are oriented toward members of the Episcopal Protestant Churches who are at an advanced age and "need a place to go for their last days... [In] a lot of cases they have outlived their own children." (TR-34) The average age of the patients in the Davenport nursing home is 89; in the well-care retirement units, 82. The average overall age of members of the Davenport life care community is 84 or 85. Approximately one-half of the residents eventually need nursing care. At Davenport, the minimal age for admission is 71. (TR-

    12) According to a member of the Board of Directors of Petitioner, only patients 70 or over will be admitted to the life care community proposed for Palm Beach County. (TR-35)

    
    

11. There is already a waiting list of ninety (90) qualified persons for the proposed life care community in Palm Beach County. Out of that figure, only five people currently require nursing home services. After executing the standard continuing care agreement, these five people would be admitted directly to the nursing home facility, without first residing in a well-care unit. Waiting lists are compiled six times a year, with the most recent completed only a week prior to hearing. Petitioner does not intend to utilize all the nursing home beds, since it must keep some beds open to meet the needs of well-care

    residents. Nursing home beds at the Palm Beach facility would be filled gradually, approximately two per week, so it would take six months to reach optimum capacity.

    
    

12. The parties stipulate that all criteria for evaluating CON applications under Section 381.494(6)(c) and Rule 10-5.11, Florida Administrative Code, have been met or are inapplicable except for the following:

    
    

    1. The long-term financial feasibility of the project, the availability of operating capital, and the economic impact on other providers (Section 381.494(6) (c)8, 9, Fla. Stat.);

       
       

    2. The cost of construction (Section 381.494(6) (c)13, Fla. Stat.);

       
       

    3. The ratio of beds to residential units (Rule 10-5.11(22)(a), Fla. Admin. Code).

       
       

       II.

       
       

       Financial Feasibility

       
       

13. The historical track record of the Davenport facility over the last 13 years and projections for the proposed facility demonstrate that the proposed nursing home is financially feasible and that Petitioner has, or can obtain sufficient funds to meet its operating costs. Moreover, as a licensed Chapter 651 life care facility, the financial viability of the entire operation will be monitored by the Department of Insurance. Assets available to support the costs of operating the life care community include income and assets derived from incoming residents; estates and bequests; and a fund of 1,300,000.00, functioning as an endowment, to be placed in escrow. The cost for a resident in the well-care units is approximately $27 per day; the cost in the nursing home is approximately $54 per day. Although there is a deficit of approximately $300 per month in the well-care section of the Davenport facility, there is no deficiency in the nursing home. Medicaid payments are sufficient to cover the costs of providing nursing care. Philanthropy should not be required to sustain the operation of the proposed nursing home.

    
    

14. Petitioner has never had difficulty in obtaining financial support for its Davenport well-care units. More than

    one-half of the operating deficit for the well-care units was met by funds at work and did not depend on philanthropy. There are over 200 Episcopal Churches in the three Florida dioceses with 90-100,000 parishioners, who have been responsive to fund- raising efforts in the past.

    
    

15. Last year, Petitioner raised $693,000 from fund raising drives. It is reasonably expected that this source of financial support will also be available to support the proposed life care facility, including the nursing home. An endowment fund of $1,300,000 is also available. These funds will be made available to support the proposed life care community. In addition, each new resident contributes an average of $24,000, which is used to defray operating costs.

    
    

16. Barnett Bank will finance construction of the project at one-half percent over prime. Petitioner intends to pay off the capital debt in two or three years. The land has already been acquired and some land preparation costs have been paid. Petitioner has expended over $800,000, to date, on the proposed life care community. Petitioner has $120, 000 on hand for the project, in addition to escrowed reserves.

    
    

17. An HRS health care planner has misgivings about the financial viability of the project since Petitioner has relied on philanthropy to support its Davenport facility, and would rely on it to some extent to support the proposed facility. However, Petitioner projects that 77% of the nursing home patients at the proposed facility will be Medicaid eligible. Due to efficiencies in operation, Medicaid payments should be sufficient to cover the costs of nursing home patients at the proposed facility, just as they have been at the Davenport nursing home. The various sources of funds available to Petitioner--proven wholly adequate in the past--should be sufficient to cover the other costs of operation and ensure the continued financial viability of the nursing home, as well as the associated well-care units.

    
    

    III.

    
    

    Cost of Construction

    
    

18. HRS contends that the initial estimate of construction costs for the proposed nursing home ($68.00 per square foot) is excessive when compared to other 60-bed nursing facilities, where the cost is approximately $10.00 less per square foot. But, through various cost-cutting measures, the cost of the

    project has now been reduced to approximately $60.00 per square foot, which is reasonable and in line with the other nursing home projects.

    
    

    IV.

    
    

    Ratio of Nursing Rome Beds to Residential Units

    
    

19. Rule 10-5.11(22)(a), Florida Administrative Code, provides that HRS "will not normally approve an application for new or additional sheltered nursing home beds if approved would result in the number of sheltered nursing home beds that exceed one for every four residential units in the life care facility." The parties stipulate that, absent unusual or exceptional circumstances, this rule would preclude approval of more than 19 of Petitioner's 60 proposed nursing home beds.

    
    

20. The proposed nursing home, like the Davenport facility it duplicates, will be unique, unusual or extraordinary, when compared with other nursing homes in Florida, due to the advanced age of its patients. No one under 70 will be admitted. The average age of its patients is expected to approach 89 with the average age of well-care residents approaching 82. Approximately one-half of the well-care residents will eventually require transfer into the nursing home. People of advanced age are more likely to require nursing home care.

    Based on Petitioner's historical experience at its Davenport facility, it is likely that 60 nursing home beds will be required to meet the needs of residents of the proposed well- care units.

    
    

21. It has been shown that the proposed 60 nursing beds will be needed to serve the needs of well-care residents as they age and their health care needs intensify. That has been the case at the Davenport facility, where rarely has a patient been admitted to the nursing home who did not first reside in the well-care units. The proposed nursing home and life care center will draw patients and residents similar to those drawn by the Davenport facility--the state-wide applicant "pool" of both is expected to be the same. For this reason, the proposed nursing home should have no significant impact on the census of, or need for, community nursing homes in Palm Beach County.

    
    

22. It appears that the rationale behind the four-to-one (residential units to nursing home beds) ratio of the HRS rule is that, under normal or ordinary conditions, only one nursing

    home bed will be required to serve the residents of four well- care units. In the instant case, actual experience has shown this assumption to be patently erroneous. If only 19 nursing home beds were allowed Petitioner--because of the ratio cast in HRS rules--it is likely that many well-care residents at the proposed life care center would be forced to find nursing care outside of the center. Displaced, placed in nursing homes distant from the life care community, such patients would lose close contact with spouses and friends. The HRS rule, embracing a numerical ratio for the norm, allows flexibility in particular situations which are shown to be abnormal. The circumstances of the instant case show it to be an abnormal situation, fully justifying approval of 60-beds sought, rather than the 19 otherwise permitted by the HRS rule.

    
    

    CONCLUSIONS OF LAW

    
    

23. The Division of Administrative Hearings has juris- diction over the parties and subject matter of this proceeding. Section 120.57(1), Florida Statutes. (1985).

    
    

24. An applicant for a CON must prove it meets the statutory and rule criterion for issuance found in Section 481.494(6)(c), Florida Statutes and Rule 10-5.1, Florida Administrative Code. See, Boca Raton Artificial Kidney Center v. HRS, 475 So.2d 260 (Fla. 1st DCA 1985). The parties have stipulated that all criteria for issuance have either been met or are inapplicable except for three: (i.) Section 381.494(6)(c) 8.9., Florida Statutes (long-term financial feasibility of the project, availability of operating capital, and economic impact on other providers); (ii.) Section 381.494(6)(c)13, Florida Statutes (cost of construction): and (iii.) Rule 10-5.11(22)(a), Florida Administrative Code (ratio of nursing home beds to residential units).

    
    

25. Petitioner has shown, by a preponderance of evidence, that the proposed 60-bed nursing home--an integral part of the life care community it plans to construct in Palm Beach County-- satisfies the financial feasibility and cost of construction components of the statute. It has also convincingly demonstrated that its application is exceptional and falls outside the (4-to-1 ratio) norm of Rule 10-5.11(22)(a), Florida Administrative Code, which provides:

    
    

    (22) A sheltered nursing home bed is a nursing home bed within a life care facility

    certified under Chapter 651, Florida Statutes.

    
    

    (a) Need Methodology. In addition to the relevant statutory criteria and other applicable rule criteria, the Department will not normally approve an application for new or additional sheltered nursing home beds if approval of the application would result in the number of sheltered nursing home beds that exceed one for every four residential units in the life care facility. (e.s.)

    
    

    The "not normally approved" language of the rule does not rigidly control the granting or withholding of approval. The applicant must have the opportunity to demonstrate need by providing information to illustrate that the circumstances surrounding its application are not "normal." See, Humana v. Hits, 469 So.2d 889 (Fla. 1st DCA 1985). Here, the applicant has done so.

    
    

26. Approval of the 60-skilled nursing home beds is both justified and necessary to avoid disrupting the lives of aging well-care residents in the life care community. Actual experience with the Davenport nursing home has demonstrated that the proposed 60-nursing beds will be needed to serve the residents of the well-care units.

RECOMMENDATION

Accordingly, based on the foregoing, it is RECOMMENDED:

That Petitioner's application for a CON authorizing establishment of a 60-bed nursing home in Palm Beach County be GRANTED; and that the CON, on its face, state that issuance is predicated on Petitioner's statement of intent (during Section 120.57(1) licensing proceedings) that (i.) no one under 70 years of age will be admitted to the life care community (including both well-care and nursing-care sections) and (ii.) that, only in relatively rare and unusual cases, will patients be directly admitted to the nursing home without first residing in the well- care residential units of the life care communities.3 See, Section 381.494(8)(g), Florida Statutes (1985).

DONE and ORDERED this 14th day of March, 1986, in Tallahassee, Florida.

R. L. CALEEN, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 1986.

ENDNOTES

1/ The style of this case has been corrected to reflect Petitioner's true name.

2/ Before such a license is issued, an applicant must present, among other things, a market feasibility study and evidence that it can meet its financial responsibilities, Section 651.022, Florida Statutes.

3/ This restriction is consistent with the Petitioner's assertion, accepted as credible, that the 60-nursing home beds are necessary to serve well-care residents of the life care community, not individuals residing outside of the community.

COPIES FURNISHED:

Jonathan Grout, Esquire Karen Goldsmith, Esquire

605 E. Robinson Road, Suite 500

Orlando, Florida 32802

Linda S. P. Ledet, Esquire

P. O. Drawer 11300

Tallahassee, Florida 32302-3300

1

2

3

Docket for Case No: 85-002758

Orders for Case No: 85-002758