STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WUESTHOFF HEALTH SERVICES, )

INC., d/b/a MERRITT CENTER )

NURSING HOME, )

)

Petitioner, )

vs. ) CASE NO. 86-2686

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

and )

)

BREVARD MEDICAL INVESTORS, INC., )

and UNICARE HEALTH FACILITIES, )

INC., d/b/a UNICARE HEALTH )

FACILITIES OF BREVARD COUNTY, )

)

Intervenors. )

) MAPLE LEAF OF BREVARD COUNTY )

HEALTH CARE, INC., )

)

Petitioner, )

vs. ) CASE NO. 86-2687

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

and )

)

BREVARD MEDICAL INVESTORS, INC., )

and UNICARE HEALTH FACILITIES, )

INC., d/b/a UNICARE HEALTH )

FACILITIES OF BREVARD COUNTY, )

)

Intervenors. )

) MAPLE LEAF OF BREVARD COUNTY )

HEALTH CARE, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 86-2688

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES and )

UNICARE HEALTH FACILITIES, INC., ) d/b/a UNICARE HEALTH FACILITIES OF ) BREVARD COUNTY, )

)

Respondents, )

and )

)

BREVARD MEDICAL INVESTORS, INC., )

)

Intervenor. )

) WUESTHOFF HEALTH SERVICES, )

INC., d/b/a MERRITT CENTER )

NURSING HOME, )

)

Petitioner, )

)

vs. ) CASE NO. 86-2690

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES )

and UNICARE HEALTH FACILITIES, )

INC., d/b/a UNICARE HEALTH )

FACILITIES OF BREVARD COUNTY, )

)

Respondents, )

and )

)

BREVARD MEDICAL INVESTORS, INC., )

)

Intervenor. )

)

RECOMMENDED ORDER

Pursuant to Notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer of the Division of Administrative Hearings, on April 27 - May 5, 1987 in Tallahassee and on May 7 and 8, 1987 in Rockledge, Florida.

Petitioner Wuesthoff Health Services, Inc., d/b/a Merritt Center Nursing Home (hereinafter "Wuesthoff") was represented by Harold F. X. Purnell and Kenneth Hoffman, Attorneys at Law, Tallahassee, Florida; Petitioner, Maple Leaf of Brevard County Health Care, Inc,, (a wholly-owned subsidiary of Health Care and Retirement Corporation of America, hereinafter "HCR") was represented by Alfred W. Clark, Attorney at Law, Tallahassee, Florida; Respondent Department of Health and Rehabilitative Services (hereinafter "HRS") was represented by Darrell White, Attorney at Law, Tallahassee, Florida; Respondent and/or Intervenor Unicare Health Facilities, Inc., d/b/a Unicare Health Facilities of Brevard County (hereinafter "Unicare") was represented by Jonathan S. Grout and Karen L. Goldsmith, Attorneys at Law, Orlando, Florida; but Intervenor Brevard Medical Investors, Inc., failed to appear and was not represented.

Brevard Meridian Limited Partnership, Meridian Nursing Centers, Inc., and Meridian, Inc., (hereinafter collectively referred to as "Meridian"), Wuesthoff, HCR, and Unicare each filed with HRS in the January, 1986, batching cycle an application for a certificate of need for a nursing home in Brevard County for the January, 1989, planning horizon. After review, HRS preliminarily approved the application of Unicare and denied the applications of the other applicants. Wuesthoff, HCR, and Meridian filed petitions contesting the preliminary approval of Unicare's application and the preliminary denial of their applications.

Unicare intervened in those proceedings in which it was not named a party respondent. Prior to the final hearing, the parties stipulated that there was a need for 195 additional community nursing home beds in Brevard County in January, 1989, and that 180 of those beds would be allocated to these applicants. On the second day of the final hearing, the parties stipulated that

60 of those beds would be awarded to Meridian, Meridian withdrew from further participation in the final hearing, and a Recommended Order was issued in DOAH Case No. 86-2697 on July 17, 1987. Accordingly, the issue for determination herein is which of the three competing applicants should be issued a certificate of need to construct a 120-bed nursing home in Brevard County.

HCR presented the testimony of Milo Bishop, Paul Sieben, Robert Wehner, Edward Meadows, Bob Sharpe, Patrick Michael Dray, Wendy Thomas, Dr. Thomas Hoffman, and by way of deposition, Carolyn Lookabill. Additionally, HCR's Exhibits numbered l - 9 were admitted in evidence.

Wuesthoff presented the testimony of Woodrin Grossman; Linda A. Kirk; Henry Leon Smith, Jr.; Michael L. Schwartz; Dennis Boo; Dale Rothenberger; Robert W. Annable, and Harold Bookbinder. Additionally, Wuesthoff's Exhibits numbered 1 -

4 were admitted in evidence.

Unicare presented the testimony of Joseph H. Wuchterl; Thomas Dinauer; Sebastian Gomez, Jr.; Peter Joseph Licari; Bruce Baldwin; Richard Rotsell; Gene Nelson, and Patrick L. Harkins. Additionally, Unicare's Exhibits numbered 1 -

13 and 19 - 22 were admitted in evidence.

HRS presented the testimony of Dennis Halfhill, and HRS' Exhibits numbered

1 - 3 were admitted in evidence.

Wuesthoff, Unicare, and HCR submitted post-hearing proposed findings of fact in the form of proposed recommended orders. Specific rulings on each proposed finding of fact can be found in the Appendix to this Recommended Order.

As noted earlier, HRS preliminarily approved the application of Unicare and preliminarily denied the applications of Wuesthoff and HCR. The attorney representing HRS during the portion of the final hearing in which HRS participated - the Tallahassee portion of the final hearing - conducted himself in accordance with HRS' preliminary determination. However, employees of HRS involved in health planning and certificate of need review testified that HCR had the superior application. After the final hearing, another attorney for HRS substituted in this proceeding for the attorney who had appeared at the final hearing but who had subsequently terminated employment with HRS. The proposed recommended order filed in support of HCR's position that it is the superior applicant in this proceeding carries the signature of HRS' substituted attorney along with the signature of HCR's attorney. On July 21, 1987 Wuesthoff filed a Motion to Strike Proposed Order, and on July 22, 1987 Unicare filed a Motion to Strike HRS' Proposed Recommended Order. HRS and HCR have filed a Joint Response to Motions to Strike HRS' Proposed Recommended Order. Essentially, these motions argue that HRS is prohibited from changing its position and that since HRS was not present at the conclusion of the final hearing when the parties stipulated that their proposed recommended orders would be filed within 30 days from the date on which the Transcript of Proceedings was filed, then HRS was required to file its proposed recommended order within 10 days after the filing of the Transcript or else HRS must file its own proposed recommended order, and under no circumstances can HRS be permitted to join in or agree with the proposed recommended order submitted by HCR. It would appear that HRS' signature on and therefore agreement with HCR's proposed recommended order is

simply HRS' statement of the agency's position based upon all of the evidence. HRS' agreement with HCR's position is not outcome determinative in this proceeding and does not change the evidence in any way. In short, no prejudice arises to any party by HRS' joinder in HCR's proposed recommended order, and the signature is certainly in accordance with the position taken by the employees of HRS who testified at the final hearing in this cause. Accordingly, both motions are denied.

FINDINGS OF FACT

1. Each applicant in this proceeding submitted its application in the January, 1986 batching cycle for the January, 1989 planning horizon, each requesting a certificate of need to build a 120-bed nursing home in Brevard County, Florida. The parties have stipulated that each applicant's letter of intent and application was timely filed, that there is a need in the January, 1989 planning horizon for additional community nursing home beds, and that 120 of those beds should be awarded to one of these applicants. They further stipulated that there are sufficient professional staff available in the Brevard County area to completely staff a new nursing home facility and that each of the applicants is able to obtain the funds necessary to construct its project.

   
   

2. Maple Leaf of Brevard County Health Care, Inc., a new corporation to be formed as a wholly-owned subsidiary of HCR proposes a 120-bed community nursing home to be located in central Brevard County in the area of Rockledge and Cocoa. In addition to traditional skilled and intermediate care, the nursing home will provide services for sub-acute patients, and a separate wing of the nursing home will be set aside for Alzheimers and related dementia disease patients (hereinafter "Alzheimers patients"). The HCR proposal includes an adult day- care unit for Alzheimers patients and respite care on a bed- availability basis.

   
   

3. At final hearing, HCR submitted an application supplement which provided updated calculations, projections and program descriptions to account for changes occurring as a result of the elapse of time between submission of the original application and the final hearing. The application supplement does not include any programmatic changes from the original application and does not add any new concepts or elements to the original HCR proposal.

   
   

4. The adult day-care unit will provide care to Alzheimers patients for four to eight hours a day and from one to five days a week, depending upon the needs of the patient and caregiver. The program will be staffed by a nurse director and an assistant. Patients will be provided with various activities of daily living in an environment developed for Alzheimers disease victims. This program provides placement for the patient who does not need inpatient care but whose caregiver needs rest or an opportunity to attend to matters outside of the home, such as employment.

   
   

5. Respite care at the HCR facility is intended to provide placement for patients on a 24-hour basis while the family or caregiver attends to needs such as vacation or hospitalization incompatible with overnight care of the patient at home. Respite care provides inpatient nursing home care for short periods of time, typically a week or two.

   
   

6. Sub-acute care is a more intensive form of skilled nursing care than typically has been provided in nursing homes. Historically, this care was provided in hospitals, but adoption of the DRG (diagnostically related group) system of acute care reimbursement has resulted in an earlier discharge from hospitals of elderly patients who continue to need an intense level of nursing

   care. Sub-acute care includes the provision of high-tech services such as ventilator care IV therapy, pulmonary aids, tube feeding, hyperalimentation and short- and long-term rehabilitation. HCR provides a wide variety of these sub- acute care services in its existing facilities.

   
   

7. Hospitals in Brevard County report difficulty in placing patients who require sub-acute care and high-tech services. Particularly difficult to place are these patients whose care is reimbursed by Medicaid.

   
   

8. The availability of sub-acute care also provides continuity of care for bedridden Alzheimers patients in the later stages of the disease when they require life support systems.

   
   

9. HCR proposes to devote a 29-bed wing of the facility to the care of Alzheimers patients. Special design features, patient activities and programs and modified staffing will be provided to meet the special needs of Alzheimers patients.

   
   

10. Alzheimers disease, a form of dementia, is a degenerative condition of the brain which results in a progressive dementia and loss of Previously- acquired intellectual functions and memory. Generally, the disease has three or four stages. In the earliest stages, the victims experience some mild memory loss, behavioral changes, loss of interest in previous hobbies, depression, anxiety and increased difficulty handling some routine day-to-day affairs. In the early stages, victims often are in reasonably good physical condition and symptoms tend to be fairly subtle. In stage two memory loss is much more apparent, and victims begin to have problems with the use of language. They may have increased difficulty with spatial relationships and become lost in familiar surroundings. These victims experience more noticeable problems with their memory in terms with dealing with their family and friends; as the disease progresses to stage three, those problems tend to worsen and become apparent even to people who are not otherwise familiar with the patient. The victims may have additional behavioral or psychiatric difficulties associated with depression or severe anxiety. A delusional stage is frequent. These victims experience disruption of their sleeping cycles and sleep during the day and wander during the night. Seizures may become a problem. In stage three, the victims usually require supervision. As the disease progresses through stage three, the victims have difficulty with personal hygiene, difficulty getting dressed and difficulty performing the simplest human task. As the disease progresses into stage four the victim becomes bedridden and requires total nursing care. There is no cure for the disease. It is terminal.

    
    

11. Nursing home care is probably appropriate for everyone in stage four of Alzheimers disease. Most patients in stage three require nursing home care. Some patients in stage two may require nursing home care, depending upon the type of care that is available at home.

    
    

12. According to some estimations, approximately 2.5 million American adults suffer from Alzheimers disease and approximately one-half of existing nursing home patients, and 15 percent of the population age 75 and over suffer from Alzheimers disease (4 - 5 percent 65 and over, 20 - 30 percent 85 and older).

13. There are eleven nursing homes in Brevard County, but there is only one nursing home in Brevard County which provides a separate unit for Alzheimers patients. This facility is located in West Melbourne in south Brevard County. There is no nursing home which provides a separate Alzheimers program in central or north Brevard County.

    
    

14. Historically, Alzheimers patients in nursing homes have been mixed with other patients. The Alzheimers patient in the nursing home has often created management problems because of wandering, incontinence, confusion, loss of cognitive and communicative capabilities, unusual sensitivity to normal environmental stress, and socially, unacceptable behavior. Because of these characteristics, nursing homes have sometimes avoided admitting Alzheimers patients. Often, when such patients were admitted, their behavior was controlled by sedation and physical restraints.

    
    

15. Nursing home patients who do not suffer from Alzheimers disease are often agitated and disrupted by the Alzheimers patient. The Alzheimers patient exhibits such unacceptable social behavior as going through other patients' belongings, sleeping in other patients' beds, violent behavior, being unresponsive to attempted communications and continually wandering. A separate unit for the Alzheimers disease victim also accommodates the needs of the non- Alzheimers patient.

    
    

16. It is medically appropriate to separate Alzheimers patients from other nursing home patients. Frequently, the Alzheimers patient is suffering from mental problems resulting in confusion and disorientation but is otherwise physically healthy and ambulatory. Other patients in the nursing home often have a variety of medical problems which require more intensive nursing care. Placing Alzheimers patients in the same area with those patients with medical problems requiring more nursing care can be disruptive to the nursing care being provided to the non- Alzheimers patient,

    
    

17. The design of the HCR facility is intended to reduce the environmental stress on Alzheimers disease victims and allow them to maintain their cognitive capabilities for as long as possible. Special wall coverings, floor coverings, labeling and color coding features are provided. Separate dining and activities areas are provided. Wandering is permitted. A fenced courtyard is provided. A monitoring system will alert the facility staff when a patient begins to wander out of the facility. Bathrooms are designed to avoid fright and confusion by automatic lighting systems, coloring and distinctly shaped fixtures and waste baskets. Safe dinnerware and tables which enhance the Alzheimers victim's ability to continue to feed himself or herself are provided. Additional staffing in the Alzheimers unit and staff training in Alzheimers care will be provided. The goal of the Alzheimers design and program is to maintain the patient's activities of daily living and assist in the retention of the patient's cognitive capabilities for as long as possible.

    
    

18. Separate, specialized Alzheimers care units are beneficial for several reasons. They are safer for the Alzheimers patient. They reduce the agitation and disruption of the Alzheimer's and non-Alzheimer's patient. They provide programs for Alzheimers patients which are within the patient's cognitive abilities. The units are smaller, and each patient receives more individual attention. Sedation and physical restraint is eliminated or reduced.

    Individual dignity is enhanced.

    
    

19. HCR confirmed the need for an Alzheimers program in Brevard County by calculations based upon nationally-accepted statistics and contact in Brevard

    County with individuals knowledgeable of the availability of care being provided to Alzheimers disease patients.

    
    

20. Special units for Alzheimers patients are a fairly new phenomenon. HCR proposes to develop Alzheimers units in other nursing homes in Florida and has submitted applications to add Alzheimers wings to existing nursing homes in Florida. HCR also proposes to convert a wing in an existing facility in Dade County to provide care for Alzheimers patients.

    
    

21. HCR will locate its nursing home in the Rockledge- Cocoa area, about thirty miles north of Melbourne and thirty miles south of Titusville, in central Brevard County.

    
    

22. All 120 nursing home beds in the HCR nursing home will be certified for Medicaid reimbursement.

    
    

23. New equipment for the HCR nursing home is projected to cost $412,079. This represents an increase in cost over the original estimate of $370,000 because of a general increase in equipment cost since the original application and an allocation of approximately $13,800 for equipment for the daycare unit, a cost which was not included in the original estimate. HCR's estimate for purchase of new equipment is reasonable.

    
    

24. Projections of payor-mix, facility utilization and revenue and expenses of a nursing home are useful to evaluate the financial feasibility of the project. All projections utilized by HCR to evaluate financial feasibility are conservative projections. The updated projections presented by HCR at final hearing are more conservative than the projections presented in HCR's original application. If the projections found in HCR's original application were realized, the facility simply would be more profitable.

    
    

25. HCR's estimate of an 11 percent interest rate for the funds to be borrowed for this project is a reasonable and conservative estimate.

    
    

26. HCR's estimate of 50 percent intermediate care patients and 50 percent skilled care patients is a reasonable estimate for the patients expected to be found in this facility and is a conservative estimate. No other applicant provided such an estimate.

    
    

27. In computing revenues and expenses, HCR assumed an inflation factor of

    3 percent for Medicare and Medicaid revenues, 5 percent for other revenues and 5 percent for expenses. These inflation factors are reasonable.

    
    

28. HCR's projections of 22 percent in year one and 25 percent in year two for payroll taxes and fringe benefits are reasonable and consistent with HCR's actual experience.

    
    

29. HCR utilized reasonable and appropriate depreciation periods of 40 years for the building and 10 years for equipment. These are the depreciation periods used by HCR in its regular course of business.

    
    

30. The patient charges projected by HCR, including Medicaid, Medicare and private room rates and ancillary charges, are reasonable projections.

    
    

31. HCR projected that private pay room charges at the nursing home would be $75 for a semi-private room and $85 for a private room in July, 1989. These updated projections are consistent with existing (1987) private pay rates in

    Brevard County, which range from $59 for a semi-private room to $90 for a private room. The HCR rates, inflated forward to 1989, are reasonable and consistent with the existing private pay charges in Brevard County.

    
    

32. Private pay room rates charged at nursing homes tend to reflect the market for private pay rates in the vicinity of the nursing home.

    
    

33. HCR's updated projection of payor-mix is consistent with the actual experience in central Brevard County and an open admissions policy for Medicaid patients.

    
    

34. HCR projects that the facility will reach 95 percent occupancy within

    12 months of operation. This projection is based upon HCR's experience subsequent to filing the original application. This projection is reasonable and more conservative than those of the other applicants.

    
    

35. HCR anticipates a loss in the first year of operation of $293,885, but a profit in the second year of Operation of $241,084. These projections reveal that the project proposed by HCR is financially feasible, and these projections are reasonable.

    
    

36. Staffing of the HCR nursing home is comprised of an administrator, a director of nursing, an assistant director of nursing, an Alzheimers program director, 8.4 FTE (full time equivalent) registered nurses, 6.3 FTE licensed practical nurses, 39.9 FTE nurse-aides, 1 full time occupational therapy aide, 1 full time recreational therapy aide, a social worker, an activities director, 10 FTE dietary personnel, 3 FTE laundry personnel, 8 FTE housekeeping personnel, a maintenance person, 2 clerical workers, and 1 medical records worker. Physical therapy, occupational therapy, recreational therapy, and speech therapy will be provided by licensed therapists on a contract basis. The updated staffing pattern represents minor changes from the staffing pattern in the original application. These changes are a direct result of HCR's experience in operating an Alzheimers wing within a nursing home. HCR's staffing level for staff who provide direct patient care (RNs, LPNs and Aides) exceeds that of Wuesthoff and Unicare.

    
    

37. Staff levels in the HCR nursing home are designed to meet the special needs of the Alzheimers patients. An Alzheimers program director will be responsible for the Alzheimers wing and will be an advisor for the day-care facility. HCR's staffing pattern assumes 15 wandering Alzheimers patients in the Alzheimers wing. Care for Alzheimers patients requires increased staffing. Higher nurse-aides staffing is required in the Alzheimers wing during the evening and night hours than in the remainder of the nursing home because Alzheimers patients tend to wander without regard to the time of day.

    
    

38. HCR estimates construction costs to be $2,200,000, not including site preparation, which is estimated to cost $275,000. Construction costs per square foot are estimated at $55 and $61.87 when site preparation is included. The estimates of construction cost and construction cost per square foot include an allocation of 2,000 square feet and $110,000 for the day-care unit. The cost per square foot projected in the updated application differs from that projected in the original application because the original application included site preparation, assumed a facility size of 36,000 square feet and was not changed when the original design was changed to add day- care in the original application supplement. The actual size is approximately 40,000 gross square feet.

39. The original HCR application submitted a blueprint which is somewhat different in shape from that which HCR currently intends to build. When HCR added day-care in its Original application supplement, a change in the shape of the building was required and a new design was submitted, but cost estimates were not changed.

    
    

40. The design which HCR will use for this facility is similar to the design being used in four ongoing HCR projects in Florida, and which, therefore, meets HRS' requirements.

    
    

41. The design relied upon by HCR at final hearing is not substantially different from the design presented to HRS in the original application supplement.

    
    

42. HCR's estimates of construction cost, construction cost per square foot, construction cost per bed, equipment cost per bed and total project costs are reasonable and adequate to accomplish the construction of the proposed facility.

    
    

43. HCR's updated construction cost estimates are based upon its construction experience in Florida, its experience in having built the design proposed and its discussions with contractors and subcontractors on the east coast of Florida.

    
    

44. HCR is currently building two facilities on the east coast of Florida. HCR does not anticipate any cost overruns on any of the facilities currently under construction. All HCR facilities under construction are being constructed within the certificate of need budgets for those facilities.

    
    

45. HCR estimates project development costs, including feasibility studies, surveys, legal and accounting fees, planning and HRS's plan review, to be $55,000, which represents an increase over the estimate in the original application due to the passage of time.

    
    

46. HCR estimates professional services required for the construction of the facility to cost $90,000. These services include architectural and engineering fees and a site survey and soil investigation report. These costs are approximate1y $5,000 less than the original estimate. This reduction in cost is a direct result of HCR's new staff of civil engineers. Previously, HCR had contracted for site survey work with outside engineers. Thus, while architectural and engineering fees increase, the costs for site surveys and soil investigation reports decrease.

    
    

47. The HCR nursing home will be located on approximately 5 acres. HCR estimates land cost for the facility to be approximately $500,000. This - represents an increase over the original land cost estimate because HCR intends to acquire a site which requires less site preparation, located near a hospital. The HCR estimates for land cost are reasonable and consistent with other applicants' estimates.

    
    

48. Site preparation costs are estimated at $275,000, a reduction from the original site preparation cost estimate of $315,000. This change is accounted for by HCR's intention to acquire a more costly site which will require less site preparation.

49. HCR intends to build and operate the nursing home proposed for Brevard County and is willing to accept a condition to that effect on any certificate of need issued.

    
    

50. HCR estimates a project completion schedule which will result in its nursing home being occupied and in use in July, 1989, and this project completion forecast is a reasonable forecast.

    
    

51. HCR has taken steps to ensure that failure to initiate construction within statutory requirements will not occur. HCR has undertaken numerous nursing home projects since 1983 and has successfully constructed or initiated construction on all of those projects. At this time HCR has approximately six projects under construction, four projects have been completed, and one project is under construction for a third party.

    
    

52. The design of the HCR facility incorporates numerous energy conservation measures and efficiencies. The HCR facility will comply with all energy code requirements.

    
    

53. HCR owns and operates seven nursing homes in Florida. Three of these facilities have superior licenses, and the remaining facilities have standard licenses.

    
    

54. HCR nursing homes adhere to extensive quality assurance standards and guidelines. These standards and guidelines regulate such areas as patients' rights, staff development and orientation, physician and nurses services, pharmacy services and medication administration, social services, patient activities, infection control, patient care planning, safety and the physical environmental, menus, diets, nutritional care and scheduling and staffing of dietary personnel, personal appearance and hygiene for dietary personnel, and food storage, preparation and sanitation. These standards and guidelines will be applicable to this proposed project. The standards and guidelines cover all areas of operations and patient care and incorporate survey tools used by the state of Florida and the Health Care and Finance Administration of the federal government for their annual licensure surveys. Additionally, administrators of HCR facilities have a financial incentive to optimize the performance and the quality of care of their facilities.

    
    

55. HCR estimates that approximately 60 percent of the patient days in the facility (53 percent of the revenue) will result from Medicaid patients. This estimate is consistent with the experience in the Rockledge-Cocoa area, where one facility has a very low percentage of Medicaid patients and the remaining facilities have very high Medicaid populations (over 60 percent). HCR's estimate also takes into account HCR's recent experience in staffing a facility which includes an Alzheimers wing. HCR will not restrict the number of Medicaid patients in the Alzheimers wing or the remainder of the home.

    
    

56. HCR's original application assumed approximately 45 percent of the patient days (42 percent of the revenues) would be accounted for by Medicaid patients. This assumption was based upon HCR's assumption at that time that, in order to cover the assumed high cost of additional staffing in the Alzheimers wing, a greater percentage of private patients (at a higher daily charge) would be required. Subsequent to submission of the original application, HCR has gained actual experience which has demonstrated that the level of staffing proposed by the original application is not necessary and that the cost of staffing can be reduced. The result is that HCR can reduce its reliance on the additional revenue generated by the private paying patient.

57. HCR's design for its Brevard County Alzheimers unit is based upon a state-of-the-art Alzheimers wing at its facility in Perrysburg, Ohio, and HCR's experience gained there. In addition, HCR operates two other facilities which have separate units for Alzheimers patients.

    
    

58. The HCR application is consistent with both state and local health plans.

    
    

59. HCR projects a charge for Medicaid patients to be $60.93 and, for Medicare patients to be $76 in July, 1989. The increase in charges between the updated projections and the original projections is due to increases in costs during the passage of time since the original estimates were made.

    
    

60. The cost of care for patients who are unable to pay is subsidized by the general revenue of the nursing home. Although HCR and Unicare have not projected a percentage of "charity" patients who will not be paying for their services, there will always be some patients who do not pay for all of their care. Patients who do not qualify for Medicaid but who cannot afford standard private pay rates are charged at lower contract rates.

    
    

61. The loan fees projected by HCR of $57,000 for the amount of the project financed by debt are reasonable projections based upon current discussions with lenders.

    
    

62. HCR estimates that interest during construction will cost $225,000. This amount represents the interest expense paid during the period of construction. This estimate is reasonable.

    
    

63. HCR estimates $50,000 will be required for preopening expenses - those incurred in preparing the facility for the opening day. These expenses include marketing and the hiring of an administrator, a director of nursing, and other employees prior to opening. $50,000 is an adequate amount to cover the pre- opening expenses for the proposed facility.

    
    

64. HCR's pro forma assumptions, proposed patient charges, projections of revenue and expense, staffing and projections of salaries are reasonable.

    
    

65. Each HCR nursing home provides individual patient care plans for each patient, a statement of patients' rights and a resident council (which is a unit of individuals selected by the patients to afford an opportunity to have a formalized, direct method to state preferences, grievances and other opinions related to the operation of the nursing home), and each HCR nursing home has transfer agreements with local-hospitals.

    
    

66. The planning director of the Local Health Council responsible for Brevard County performed an analysis of the need for nursing home beds in Brevard County. The results of the study demonstrate that the central part of Brevard County has a lower number of nursing home beds per thousand population over 65 than the remainder of Brevard County. If additional nursing home beds are to be approved for Brevard County, the beds should be located in the central part of the county because the need for nursing home beds in Brevard County is greatest in central Brevard.

    
    

67. The HCR architectural design best accommodates the needs of the nursing home patient.

68. Wuesthoff Health Services, Inc., is a non-profit corporation affiliated with Wuesthoff Hospital, Inc., a 305-bed non-profit hospital serving Brevard County, through a common parent Wuesthoff Health Systems, Inc. Wuesthoff Hospital provides some indigent medical care in central Brevard County, and the Wuesthoff nursing home certificate of need application commits to providing some indigent care at the proposed nursing home facility.

    
    

69. Wuesthoff, through its affiliated non-profit companies, operates within Brevard County a home health agency, a hospice, four family practice clinics, Life Line for the elderly or disabled who live alone, and Brevard Medical Transport, a no- cost transportation service for the elderly. It also operates a retail pharmacy through a for-profit affiliated corporation. The hospital has for several years maintained a senior citizens' advisory council which concerns itself with the needs of the elderly in Brevard County. It also intends to compete with other businesses in operating Brevard County's Meals On Wheels due to a recent expansion of the size of the Hospital's kitchen.

    
    

70. The proposed nursing home will be located on a tract of land owned by Wuesthoff Hospital which will make the property available to Wuesthoff Health Services, Inc., at either the nominal rental of $1 per year for the useful life of the nursing home or by outright contribution if required by HRS. The land has been owned for several years by Wuesthoff Hospital, but Wuesthoff included

    $48,000 for land costs in its original certificate of need application.

    
    

71. The site for the Wuesthoff nursing home is part of a large tract of land which already has located thereon a 20,000 square feet ambulatory care center, diagnostic testing center, family practice physician, dental facility, and retail pharmacy, all of which are owned by one of the Wuesthoff corporations. The ambulatory care center includes laboratory services, physical therapy services, radiology services, two out-patient surgery suites, and 24- hour physician coverage. The nursing home will be connected to the ambulatory care center by an air conditioned, enclosed corridor through which the nursing home patients will be transported to receive any therapies or services which they require. The farthest distance from any patient room in the nursing home to the ambulatory care center, including physical therapy rooms, is approximately 400 feet.

    
    

72. Wuesthoff's nursing home would be located in the area which the Local Health Council recognizes as having the greatest need for nursing home beds, i.e., central Brevard County in the Cocoa/Rockledge area.

    
    

73. According to Wuesthoff's updated application the total project cost for its 120-bed nursing home would be $2,901,213, and the facility will consist of 37,500 square feet. The project size actually includes 1,000 square feet for the corridor which connects the nursing home to the ambulatory care center. Therefore, the facility itself consists of only 36,500 square feet. It is unclear whether that figure should be further reduced since Wuesthoff decreased the size of its kitchen in its amended application so that the nursing home would no longer have a full-service kitchen. Similarly, the total project cost was substantially higher in Wuesthoff's original application wherein the total project cost was given as $4,417,884.

    
    

74. Wuesthoff made changes from its original to its updated application either because the applications were prepared by different persons or because decisions were made to change Wuesthoff's application, as follows:

    1. The original application included a full-service kitchen, while the updated application contemplates meals will be prepared at Wuesthoff Hospital and transported seven miles to the nursing home. The removal of the kitchen affects the square footage of the facility along with equipment costs, staffing costs and other costs associated with the operation of the proposed nursing home, such as the increased costs associated with transporting the food to the nursing home.

       
       

    2. In its original application, one individual was listed as both the nursing home administrator and director of nursing. In its updated application, Wuesthoff treated these as separate positions.

       
       

    3. Wuesthoff proposed $376,000 for equipment costs in its original application and projected $187,400 for equipment costs in its updated application.

       
       

    4. Wuesthoff projected 45 percent Medicaid and 15 percent Medicare in its original application and 50 percent Medicaid and 2 percent Medicare in its updated application without any evidence that the needs in the community had changed.

       
       

    5. Wuesthoff removed the debt service, in its updated application, thus reducing the financing costs.

       
       

    6. The underwriter's fees between the original and updated application were reduced based upon a dimunition of the bond size as a result of reduction of square footage in the facility and the elimination of the debt service.

       
       

    7. Wuesthoff reduced land cost from $48,000 in its original application to no cost in its updated application despite the fact that the land was owned by Wuesthoff at the time the original application was filed.

       
       

    8. Wuesthoff changed the equity contribution between its original and updated applications without any testimony of extrinsic factors while evidence showed that the funds were available to make the equity contribution at the time of the submittal of the Original certificate of need application.

       
       

75. Although Wuesthoff's application' represents that approximately 3 percent of the revenues from private pay patients would be devoted to indigent or charity patients, the 3 percent actually applies to both charity and bad debt. Wuesthoff failed to demonstrate how much of its revenues, if any, would be allocated to charity care alone.

    
    

76. Wuesthoff projected charges of $65 for a semi- private room for a private paying patient and $73 for a private room for a private paying patient. These charges, projected for mid-1989, are below existing (1987) charges at nursing homes in Brevard County.

    
    

77. The projections of financial feasibility and the pro formas for the Wuesthoff facility are based upon the assumption that the Wuesthoff nursing home will be owned and operated by Wuesthoff Health Services, Inc. The only financial statements provided by Wuesthoff in support of its application are those relating to Wuesthoff Memorial Hospital. Wuesthoff Memorial Hospital is a corporation separate and distinct from Wuesthoff Health Services, Inc. Further, the financial statements of Wuesthoff Memorial Hospital provided by Wuesthoff do not include the "notes" normally appended to those statements. The "notes" to

    the audited financial statements are typically included in any complete financial statements and are required for a full understanding of the financial statements.

    
    

78. The pro formas of Wuesthoff assume that 15 percent of salaries would be allocated to fringe benefits. This assumption is based upon the assumption that the employees of the nursing home will not be unionized and, therefore, their fringe benefits will not be as high as those for unionized employees. The nurses at Wuesthoff Memorial Hospital are unionized and have higher benefits than proposed for the nursing home. Unionization is a decision made by employees and not by management.

    
    

79. Wuesthoff's assumptions for fringe benefits do not assume any increase in the fringe benefits from year to year. Wuesthoff agrees that there are required increases in fringe benefits, such as increases in required contributions to social security programs over the next few years. Thus, the amount for fringe benefits assumed by Wuesthoff understates the amount likely to be paid.

    
    

80. A participant in the Medicaid reimbursement system is entitled to reimbursement on the basis of fair rental value of the nursing home. Although the fair rental value aspect of the reimbursement plan includes consideration of the value of land upon which a nursing home is situated, and although Wuesthoff assumes that it would receive reimbursement under this element of the plan, Wuesthoff does not include in that reimbursement any value for land value. Wuesthoff would be entitled to that form of reimbursement, but Wuesthoff was unable to specify "how that's going to be done."

    
    

81. The Medicaid reimbursement system incorporates certain caps on reimbursement, including caps for patient care costs, operating costs and property costs. Wuesthoff is unable to specify which Medicaid reimbursement caps it utilized when calculating its Medicaid charges.

    
    

82. It is not possible to calculate Wuesthoff's Medicaid reimbursement and Medicaid charges based upon the exhibits presented by Wuesthoff, including its applications.

    
    

83. The Wuesthoff application does not contain any description of patient care costs or costs of operation of the Wuesthoff facility upon which Medicaid charges can be determined.

    
    

84. Wuesthoff represented that certain services would be provided to the Wuesthoff nursing home by Wuesthoff Health Services or Wuesthoff Memorial Hospital at no charge to the nursing home. The exact nature of the services and their value are unspecified. Although Wuesthoff contends fewer staff will be needed at the nursing home, Wuesthoff has not determined how many additional staff would be required at the hospital and has not calculated the cost of transporting food to the nursing home. Ordinarily, a related entity providing services to a nursing home is entitled to reimbursement for the cost of those services under the Medicaid reimbursement system. Wuesthoff has not determined whether the Medicaid statutes and regulations will allow a related entity to waive its entitlement to such reimbursement.

    
    

85. Wuesthoff's parent company, Wuesthoff Health Systems, and Wuesthoff Memorial Hospital will incur costs for providing those services to Wuesthoff which Wuesthoff represents will not be reimbursed. These entities' budgets and Medicaid reimbursement are regulated and audited by HRS and the Hospital Cost

    Containment Board. By providing services to the nursing home and no longer allocating 100 percent of costs to operation of the hospital, the hospital's reimbursement and budget will have to be adjusted. These required adjustments have not been taken into consideration by Wuesthoff. In preparing its budget to be submitted to the Hospital Cost Containment Board, the hospital will be required to allocate a certain amount of time for those persons providing services to the nursing home. The hospital will not be reimbursed for those services by Medicaid or Medicare.

    
    

86. The total cost of providing care to nursing home residents must be reported by the nursing home in its Medicaid cost report. If a nursing home does not include allowable Medicaid costs in its cost report, HRS will include those costs when HRS audits the cost report. When those additional costs are included, the nursing home's reimbursement (Medicaid charge) will increase. It is not a generally accepted accounting principle to exclude allowable costs in a Medicaid cost report. By not including certain costs, expenses are understated and profit is overstated.

    
    

87. Wuesthoff attempted to present evidence that a hospital-based nursing home facility maintains lower costs which can be passed on to its patients, because of an absence of taxation and the presence of group purchasing. However, this evidence also revealed that the hospital-based nursing home to which Wuesthoff sought comparison had patient care and operating costs which exceed the caps for Medicaid reimbursement. Additionally, Wuesthoff's Medicaid costs are higher than those of HCR.

    
    

88. Wuesthoff proposes an architectural plan for its nursing home which has never been built in Florida.

    
    

89. Wuesthoff is the only applicant which proposes three nurses' stations for 120 beds. The 120-bed nursing home with two nurses' stations is more efficient to operate than a 120-bed nursing home with three nurses' stations. Three nurses' stations result in a higher cost per patient day than two nurses' stations.

    
    

90. Wuesthoff's architect was unable to estimate the cost of site preparation and was unable to specify the exact nature of site preparation required. However, site preparation will be required.

    
    

91. There is confusion concerning the cost of equipment for the Wuesthoff project, particularly with regard to food service equipment. Although the Wuesthoff architect testified that Wuesthoff originally had consulted with him concerning the cost of equipment, the witness was unable to identify the equipment costs listed in the application.

    
    

92. The equipment list relied upon by Wuesthoff and the list of used equipment and food service equipment was not prepared until the first week of the final hearing.

    
    

93. Wuesthoff's projection of construction cost ($57 per square foot) was not prepared by Wuesthoff's architect and the source of the projection is unspecified. The project is not based upon any actual experience of nursing home construction in Florida. The original estimate was provided by the architect to Wuesthoff several years earlier and was lower than $57 per square foot.

94. Wuesthoff proposes to connect its nursing home to a nearby ambulatory surgical center by a corridor. There are no physical therapy or Occupational therapy rooms provided at the nursing home. Although recreational therapy and speech therapy must be provided at the nursing home, only small meeting rooms are available for these purposes.

    
    

95. A nursing home patient transported from a nursing home to a location outside the nursing home for therapies must remain in the care of nursing home staff. This mode of operation requires more staff than one in which all therapies are provided within the physical confines of the nursing home.

    
    

96. Wuesthoff did not include in its estimate of project development cost any estimate for attorney's fees or consulting fees of the planners and financial consultants retained for the purpose of obtaining a certificate of need.

    
    

97. The shared services referred to by Wuesthoff are not free services, and no evidence was offered to show that the sharing of those services would be cost efficient.

    
    

98. The corridor between the ambulatory surgical center and the nursing home is estimated by Wuesthoff to be 1,000 square feet. The cost for the corridor is -included in the costs projected for the nursing home, and the corridor is included in the total size (37,500 square feet) of the nursing home.

    
    

99. Wuesthoff proposes to equip the nursing home with used equipment and furniture. The used hospital beds which Wuesthoff proposes to use at the nursing home are eight to twelve years old.

    
    

100. Although Wuesthoff proposes to provide therapy through professional staff from Wuesthoff Memorial Hospital, Wuesthoff could not estimate how many additional therapists must be hired by the hospital in order to provide therapy for the nursing home patients.

     
     

101. Wuesthoff contends that it will provide a high level of charity care in its nursing home at the same level that is provided at the hospital. However, when calculating the percentage of charity care at the hospital,

     Wuesthoff included care provided within programs where some form of governmental funding was available to pay for care. For instance, Brevard County contributes funding toward the care of patients who are not eligible for Medicaid or Medicare reimbursement. There is also a state fund for indigent care and Wuesthoff expects to receive revenues from that fund. The total allowance for bad debt and charity care proposed by Wuesthoff is 1.1 percent of gross patient revenues. Wuesthoff will require financial screening of patients prior to admission.

     
     

102. Unicare proposes as total project cost in both its original and updated applications the amount of $3,360,000. The project cost cannot be relied upon, however, since it will be necessary for Unicare to modify its design. As further set forth below, Unicare's projected revenues and expenses are suspect.

     
     

103. Unicare has never constructed a new nursing home in Florida or built the design proposed.

     
     

104. When filing a cost report and determining Medicaid reimbursement for a new nursing home, all costs incurred throughout the process of developing and

     constructing the project, including feasibility studies, attorney's fees, accounting fees, consulting fees and certificate of need fees must be included. Unicare failed to include all project development costs in its application.

     
     

105. The pro formas and projections of revenues and expenses for Unicare were prepared solely by Unicare's certificate of need consultants, based upon the consultants' experience in their own nursing homes and not upon any information (other than home office costs) concerning the operation of Unicare nursing homes. Unicare's in-house financial expert agreed that it is difficult to project revenues and expenses for operation of the proposed Unicare nursing home without having knowledge of what Unicare's general costs and expenses are.

     
     

106. Two Unicare homes have failed to comply with the isolation room requirements of Rule 10D-29, Florida Administrative Code, which governs the licensure of nursing homes.

     
     

107. The Unicare design does not provide any single, licensed isolation room as required by HRS licensure regulations.

     
     

108. The Unicare architectural design provides only one toilet room between two patient rooms to meet the needs of four nursing home patients.

     
     

109. The company which designed and expects to construct the Unicare facility has not performed any nursing home construction work in Florida since 1983 or 1984 when the company remodeled a nursing home. The last nursing home which this company completed for Unicare was prior to 1985. This company did not prepare the construction cost estimates relied upon by Unicare.

     
     

110. Calculation of the size of the Unicare facility did not include a reduction of 9 square feet for each indented, V-shaped window in the facility. There are 23 such windows proposed for the Unicare facility. Accordingly, the Unicare facility is 207 square feet smaller than represented in the application.

     
     

111. Licensure regulations require an unobstructed view (vista) of 20 feet from the window of a nursing home resident's room. At least four Unicare patient rooms have an unobstructed view of less than 20 feet. Therefore, the design presented by Unicare at final hearing does not comply with the rules for licensure of a new nursing home, pursuant to Chapter 10D-29, Florida Administrative Code.

     
     

112. The Unicare design has never been built, although it was prepared more than five years ago. The design was intended for patient programs not now proposed by Unicare. The original facility design accommodated residents who require a degree of care below and can participate in activities above typical nursing home residents, such as residents found in adult congregate living facilities.

     
     

113. The design and location of the sinks in the Unicare patient rooms do not allow sufficient space for a patient in a wheelchair to have access to the sink at the same time that the door to the toilet room is open.

     
     

114. Unicare proposes to locate its facility in the Titusville area in north Brevard County. The local health plan shows the greatest need for additional nursing home beds to be in central, not north, Brevard County.

     
     

115. Unicare's selection of Titusville as the area for location of its nursing home was not based upon any demographic analysis or determination of

     need for additional nursing home beds in the Titusville area. Rather, the selection of Titusville would avoid competition with another of Unicare's facilities located in the Rockledge/Cocoa area.

     
     

116. In determining equipment needs, Unicare's certificate of need consultants did not refer to the design of the Unicare nursing home.

     
     

117. Unicare projects that its facility will reach 97 percent occupancy in the first nine months of operation. However, the last nursing home to open in the Titusville area, Vista Manor, did not reach 97 percent occupancy until after the first year of operation.

     
     

118. Unicare will staff at skilled levels. Its proposed staff salaries are reasonable.

     
     

119. Unicare has not yet settled on any site in the Titusville area although it has narrowed its search down to four sites which vary between four and seven acres with prices ranging from $25,000 to $90,000 per acre. Its current total project cost of $3,360,000 computes to a project cost per bed of exactly $28,000. Unicare's parent, United Health, Inc., is the entity that must fund this project and has, by resolution, committed to such funding "provided that said expenditure shall not exceed $28,000 per bed." Consequently, it is highly likely that the proposed design, which has never been built anywhere, which must be redone to comply with HRS codes, and which will be built on land that is yet to be acquired but which will likely require a zoning variance, will cost more than $28,000 per bed.

     
     

120. The HCR nursing home is larger and provides more area for patient care than the facilities proposed by Wuesthoff and Unicare. The HCR facility will provide more gross square feet per bed and a larger nursing unit area (which includes patient rooms, the nursing support unit and corridor areas). The entire facility proposed by HCR will be 40,000 square feet, 2,000 of which is allocated to day-care; the day-care area will be available to nursing home residents during those hours in which the day-care area is not in use by day- care residents. The Wuesthoff facility is said to be 37,500 square feet, but

     1,000 square feet consists of an outside corridor; thus, the net usable space at the Wuesthoff nursing home is only 36,5' 00 square feet. The smallest proposed facility is the Unicare facility, said to be 34,121.5 square feet, but actually less than 34,000 feet when accurately measured. The nursing homes proposed by Wuesthoff and Unicare are at or below the low gross square foot average determined by HRS. Larger patient care areas are desirable.

     
     

121. It is not desirable to place only one toilet room between two patient rooms to accommodate four patients, as proposed by Unicare.

     
     

122. It is a generally accepted standard for nursing home skilled nursing units to be organized in groups of 60 beds. Units of this size offer the best efficiencies of operation in terms of economics and quality of care.

     
     

123. Each nursing unit must include, in addition to patient bedrooms, toilet rooms and bathing facilities, one nurses' station, a clean utility room, a soiled utility room, a medication preparation room, a nourishment room, a janitors closet, an equipment storage room, a stretcher and wheel chair alcove, a clean linen closet and a nurses' toilet and lavatory. By providing three nursing units, Wuesthoff must devote more space to meet these requirements than would be required for two nursing units.

     CONCLUSIONS OF LAW

     
     

124. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these consolidated proceedings. Section 120.57(1), Florida Statutes.

     
     

125. These proceedings are governed by the provisions of Section 381.494, Florida Statutes. Section 381.494(4) describes the content required in an application for a certificate of need, and Section 381.494(6)(c) and (d) describe the criteria against which applications must be reviewed.

     
     

126. HCR and Unicare were the only applicants to provide required statements of financial condition "of the applicant" and a detailed pro forma. Section 381.494(4)(c) and (e). Wuesthoff supplied no statement of financial condition of Wuesthoff Health Services, Inc. and provided no balance sheet or profit and loss statement of the previous fiscal year's operation of Wuesthoff Health Services, Inc. Wuesthoff also failed to supply a "detailed" statement of financial feasibility of the project on a pro forma basis. While both HCR and Unicare provided detailed statements of revenues and expenses broken down into the various accounting categories for the operation of a nursing home, Wuesthoff only supplied a summary statement of projected revenues and expenses and did not provide details sufficient for verification of the project's expected financial feasibility.

     
     

127. Section 381.494(6)(c)1. requires review of the need for the health care facilities proposed in relation to district and state health plans. The parties have stipulated that there is available to these applicants a sufficient number of beds for the approval of only one 120-bed nursing home. Thus, the applications of HCR, Wuesthoff, and Unicare are mutually exclusive and must be comparatively reviewed.

     
     

128. Each application is consistent with the State Health Plan in that the state nursing home bed need methodology identifies a need for beds for Brevard County in the applicable planning horizon. Although each of the applicants minimally meets the policies and priorities of the Local Health Plan, Unicare does not propose to place its facility in Brevard County in the area of greatest need. Geographic accessibility to nursing home beds is most limited in the central part of the county. Therefore, the greatest need for additional nursing home beds is in the central part of the county. Both Wuesthoff and HCR propose to place their nursing homes in central Brevard County. Therefore, the Wuesthoff and HCR applications are superior to Unicare's in this regard.

     
     

129. The Local Health Plan also establishes certain policies which: require consideration of an applicant's commitment to provide services to under- served client groups and Medicaid and medically indigent patients; encourage approval of applications which demonstrate a commitment to provide all levels of nursing home care, including sub-acute care; and encourage approval of applicants who demonstrate a commitment to quality of care and continuity and comprehensiveness of care and services. See Local Health Plan, page D16.

     
     

130. Each applicant professed a commitment to serve Medicaid patients but HCR was the only applicant which tailored its commitment to serve Medicaid patients to the geographic area in which its nursing home would be located. Also, HCR was the only applicant which proposed to provide all levels of care to all client groups identified by the parties to be under-served: patients requiring specialized care as a result of the effects of Alzheimers disease; patients requiring high-tech, or sub-acute care; and Medicaid patients. HCR has

     demonstrated a leadership role in providing state-of-the-art care to Alzheimers patients, and existing HCR nursing homes provide a wide range of services classified as sub-acute care.

     
     

131. Wuesthoff sought to justify approval of its application by demonstrating a commitment to "charity care". The definition of charity care is somewhat nebulous. The cost of care for the poorest patients, with incomes below certain levels, is reimbursed by Medicaid. Patients with sufficient ability to pay for their own care are categorized as private pay patients. Some patients are not poor enough to qualify for Medicaid but do not have sufficient resources to pay as private patients. Apparently, it is these patients for whom Wuesthoff intends its "charity care". The evidence reveals that nursing homes often provide care to these patients through special arrangements known as "contract rates".

     
     

132. Wuesthoff's proposal for "charity care" was confusing and contradictory and the need for such care was never quantified. At most, Wuesthoff testified that it would commit to a charity care level of 1.11 percent of gross patient revenues. However, Wuesthoff's application and the testimony of Wuesthoff's witnesses reveal that this so-called charity care also includes "bad debt and doubtful accounts". The Local Health Plan specifically cautions against including charity care as a contractual adjustment or a category of care determined after failure to receive payment. See Local Health Plan page D16. The evidence in this proceeding does not document or establish how much of the proffered 1.11 percent Wuesthoff intends to devote to "charity care". In the absence of such evidence, it is not possible to evaluate Wuesthoff's commitment.

     
     

133. With regard to continuity and comprehensiveness of care and quality of care encouraged by the Local Health Plan, HCR proposes the most comprehensive range of services, from adult day-care through the highest level of nursing home care. All of HCR's nursing homes in Florida are rated as either standard or superior. Wuesthoff has no previous history of providing nursing home care, and Wuesthoff proposes a project which includes nothing more than traditional nursing home care. Unicare, while having some superior rated facilities, also has several facilities which carry or have very recently carried the lowest ranking, conditional.

     
     

134. Section 381.494(6)(c)2. requires a review of the availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing health care services in the service district of the applicant. Existing nursing homes in Brevard County are experiencing very high Occupancy and do not meet the need for placement of sub- acute, Alzheimers and Medicaid patients. Nursing home care is the least accessible in central Brevard County. A discrete program for Alzheimers care is available only in south Brevard County, and this program is insufficient to meet the needs of the entire county.

     
     

135. Of course, approval of any of these applications will enhance the availability or accessibility of nursing home care in Brevard County. However, HCR is the only applicant whose proposal will enhance the availability of care to Medicaid, sub- acute and Alzheimers patients, provide appropriate care for Alzheimers patients and enhance the -geographic accessibility of nursing home care.

     
     

136. Section 381.494(6)(c)3. requires consideration of the applicants' ability to provide quality of care. HCR's quality assurance standards are extensive, the quality of care provided in the HCR nursing homes is directly

     related to the remuneration of the administrators of the nursing homes, and existing HCR facilities are rated either standard or superior. Wuesthoff has no experience in providing nursing home care and provided no documentation of its quality assurance standards. Unicare has several superior facilities, but also has several conditional facilities and has experienced past licensure problems despite its extensive quality assurance program. HCR will provide the highest level of staffing for personnel who provide direct patient care.

     
     

137. Section 381.494(6)(c)5. requires consideration of "economies and improvements in service" that may be derived from operation of joint, cooperative or shared health care resources. Each applicant here is a member of a large corporation and has available to it the bulk purchasing advantages of such an entity. While Wuesthoff professed to be superior because of proposed shared service arrangements between the nursing home and Wuesthoff Memorial Hospital, Wuesthoff presented no evidence, calculations or data which demonstrate that such shared services will result in any "economies of operation or improvements in service". Many if not all of the services which will be "shared" by the hospital and the nursing home actually will be sold to the nursing home for a fee or contract price. Wuesthoff failed to describe what these fees or contract prices would be and failed to establish whether fees for services rendered by the hospital would be any lower than the costs of similar services at the proposed HCR or Unicare nursing homes. In fact, the evidence reveals that Wuesthoff will have higher operational costs, higher food costs and higher Medicaid rates than either HCR or Unicare. The statute requires evidence that - shared services will result in economies and improvements; Wuesthoff provided no such evidence.

     
     

138. Section 381.494(6)(c)6. requires consideration of the need in the service district for special services which are not reasonably and economically accessible in adjoining areas. HCR is the only applicant which proposes special services, Alzheimers care. Although such services are available in one nursing home in south Brevard County, such services are not available in central or northern Brevard County and are not generally available throughout the state. HCR is the only applicant which has demonstrated that it will meet a need for special services which are not reasonably and economically accessible in adjoining areas.

     
     

139. Section 381.494(6)(c)9. requires review of the immediate and long term financial feasibility of the projects. Each applicant calculated a profit in the second year of operation of the facility and testified that the nursing home was financially feasible. However, HCR was the only applicant which based financial projections upon the income and expense experience of its own nursing home operations, and HCR was the only applicant which tailored its projection of revenues from private paying patients to a study of private pay rates in the Rockledge/Cocoa area and an accurate, verifiable calculation of its Medicaid reimbursement. Both Unicare and Wuesthoff projected private pay charges which are lower than existing charges in Brevard County; these projections are unreliable because the evidence demonstrates that private pay charges are typically based upon the local market. Wuesthoff presented no data or documentation from which one could compute Wuesthoff's Medicaid reimbursement, and the source of Wuesthoff's summary projection of expenses is unexplained and lacking in detail. Unicare's projections of expenses and revenues are not based upon Unicare's operational experience, in spite of the fact that Unicare operates numerous nursing homes in Florida. HCR's projections, tailored to Brevard County and based upon its own experiences, are the most accurate, reasonable and verifiable estimates presented and confirm the financial feasibility of HCR's proposal.

140. Section 381.494(6)(c)12. requires review of the probable impact of the proposed project on the cost of providing health services proposed by the applicant, consideration of the effects of competition on the supply of health services being proposed and consideration of proposed improvements or innovations in financing and delivery of health services which foster competition and promote quality assurance and cost effectiveness. Wuesthoff and Unicare propose traditional nursing homes. Because there is a need in the community for additional nursing home beds, it is unlikely that the approval of either Wuesthoff or Unicare would have any impact whatsoever on competition or quality or have any recognizable impact on the cost of nursing home care. Wuesthoff and Unicare would simply admit patients who were unable to get into existing facilities because of high occupancy. HCR, on the other hand, proposes the widest array of health services, including respite care, day- care, traditional nursing home care, sub-acute care and Alzheimers care. The HCR proposal is the only one which will provide any opportunity whatsoever for competition or innovations in the delivery of health services.

     
     

141. Section 381.494(6)(c)13. requires review of the costs and methods of the proposed construction, including the costs and methods of energy conservation and the availability of less costly and more effective forms of construction. Compliance with energy codes is required in the construction of any nursing home. However, HCR was the only applicant which presented a detailed description of the energy conservation measures and efficiencies which would be incorporated into the HCR design. The HCR design best accommodates nursing home patient needs and provides the largest amount of space available to the nursing home patient. The cost of the construction of the HCR facility most closely approximates the average cost for construction of nursing homes which have been reviewed by HRS. This is not surprising, since HCR based its estimates of construction costs on its ongoing experience in Florida.

     
     

142. The design which HCR proposes here is similar to other nursing homes which HCR has constructed and licensed in Florida. The design of the HCR nursing home provides the greatest efficiency of operation of any of the competing designs and accommodates a wider range of patient needs. Neither Wuesthoff's nor Unicare's estimates of construction costs were based upon any recent experience in Florida in constructing nursing homes. Wuesthoff performed no estimate of site preparation needs at its selected site; significantly, Wuesthoff experienced substantial site problems when it recently renovated and enlarged Wuesthoff Memorial Hospital. Unicare has had no construction experience in Florida in recent years.

     
     

143. The nursing homes proposed by Wuesthoff and Unicare are substantially smaller than the home proposed by HCR. Both the Unicare and Wuesthoff proposals fall within the lowest range of nursing home sizes reviewed by HRS. Both the Wuesthoff and Unicare designs will require correction prior to being eligible for licensure. Unicare admitted that its design did not meet state licensure standards. The Wuesthoff proposal is unusual in that it has three nursing units, devotes a substantial amount of space to a connecting corridor between the home and a nearby ambulatory care center where some patient therapy will be provided, and does not make space available in the nursing home for all patient therapies. Three nursing units at Wuesthoff will be more costly to operate than the normal two. Experienced administrators expressed concern over the need to transport patients from the Wuesthoff nursing home to the ambulatory care center, particularly in view of the potential for such an arrangement to require a higher level of staffing and be disruptive to the elderly patient. Wuesthoff presented no evidence whatsoever that its design was efficient or that the

     therapies provided by such an arrangement could be provided in an appropriate matter. The furnishing of the Wuesthoff nursing home with used furniture eight to twelve years old seems to imply a second class status for the patients of the nursing home.

     
     

144. Section 381.494(6)(d)1. requires a determination that less costly, more efficient or more appropriate alternatives to such inpatient services are not available and the development of such alternatives has been studied and found not practical. HCR proposes the most efficient alternative and the nursing home which will provide the most appropriate care for all levels of patients. The need for additional nursing home beds and services in Brevard County, together with the recognition that inpatient care can be appropriately provided only in a nursing home, compels the conclusion that there are no less costly, more efficient, or more appropriate alternatives to inpatient care than that being proposed by HCR. Additionally, HCR proposes alternatives which might reduce the need for inpatient nursing home care in the future. By incorporating adult day-care and respite care into its proposal, HCR will make available temporary care for families and caregivers who find it impossible to provide care 24 hours a day, 365 days a year, but whose loved ones do not require inpatient care.

     
     

145. Section 381.494(6)(d)2. requires review of whether existing inpatient facilities providing services similar to those proposed are being used in an appropriate and efficient manner. The evidence conclusively demonstrates that existing nursing homes in Brevard County are all experiencing very high occupancies, but do not meet the needs of Medicaid patients, Alzheimers patients or sub-acute patients.

     
     

146. Section 381.494(6)(d)4. requires a review of whether patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new services. In view of the need for additional nursing home beds in Brevard County and the existing high occupancy in Brevard County, it is clear that nursing home patients will experience serious problems in the absence of the approval of additional nursing home beds. The HCR proposal is the only proposal which will alleviate the problems of all categories of patients requiring inpatient care, in view of the fact that HCR proposes to provide the widest range of nursing home services of any of the applicants and will locate its facility in the area of greatest need.

     
     

147. Section 381.494(6)d)5. requires determination that the proposal for additional beds for nursing home care will be consistent with other agencies of the state responsible for the provision and financing of long term care, including home health services. HRS determined that each application was consistent with this criteria, in view of the fact that each applicant proposed participation in the Medicaid reimbursement program.

     
     

148. Throughout this proceeding, objections were made to consideration of information relevant to an application which had not been presented in the original application review process. To the extent that an applicant attempted to introduce documents or data which had not been presented in the original application and which had not been disclosed to the other parties in accordance with the prehearing order, objections to such documents and data were sustained.

149. Although each applicant submitted information, documents, and data at final hearing which had not been submitted during the original application review process, no applicant changed the essential substance of its proposal, the number of nursing home beds sought or the nature of the programs to be provided by the applicant.

     
     

150. Wuesthoff and Unicare objected to consideration of HCR's proposal for adult day-care and respite care which was not found in HCR's application filed in January, 1986, but these objections were overruled in view of the fact that HCR did submit supplementary information containing these proposals in March, 1986, prior to the date that HCR's application was deemed complete by HRS and prior to HRS' review and initial decision. Applicants are prohibited from submitting additional application information only after the applications have been deemed complete. Rule 10-5.008(3), Florida Administrative Code. Furthermore, the adult day-care aspect of HCR's proposal is not subject to certificate of need review. Section 381.494(1), Florida Statutes.

     
     

151. There is no HRS rule or policy and no statute or court opinion which establishes the extent to which an applicant for a certificate of need may change its application at final hearing. Although the parties have objected to "substantial" changes, no party has provided evidence of what constitutes a "substantial" change or addresses why changes should be rejected.

     
     

152. This is a de novo proceeding. Logically, in view of the lapse of time between initial application submission and final hearing, changes having some bearing on projections and analyses will occur. The initial review process at HRS lasts six months. The hearing in this case occurred almost a year and a half after original application submission.

     
     

153. At a minimum, the de novo concept requires consideration of evidence of changed circumstances occurring between the time of initial application submission and final hearing. Other changes may or may not be appropriate, but this does not determine whether an applicant is prohibited from presenting at final hearing information and documents which further describe and refine concepts and programs proposed in the original application.

     
     

154. It would be unreasonable to expect an applicant to file an original application which contained detailed descriptions of and support for all aspects of the applicant's compliance with each of the numerous certificate of need criteria. There is no mechanism for an applicant to determine, at the time of filing, whether or to what extent competing applicants will question criteria compliance. There would be no limit to the size and volume of applications, if an applicant was required to submit evidence of superior compliance with all criteria in a manner which would eliminate for all time any issue which could be raised by any competitor.

     
     

155. In this proceeding, both Unicare and HCR presented additional detail relating to their original applications and carefully described the differences between the original applications and the new information (so-called supplemental or updated applications) presented and relied upon at final hearing. In each instance, changed information, documents, and data presented by Unicare and HCR at final hearing resulted from actual, documented changes in circumstances occurring after original application submission.

     
     

156. On the other hand, while Wuesthoff was able to explain some of the changes in its application, a number of the changes were completely unexplained because Wuesthoff witnesses were unfamiliar with the basis for the original

     application. Some changes in Wuesthoff's application (elimination of land cost, elimination of certain food service spaces and equipment, substitution of used for new equipment and changes in staffing and expense items) result directly from Wuesthoff's unilateral decision to change its application and not because of changes in circumstances or experiences gained since January, 1986.

     
     

157. Updates presented by HCR result directly from HCR's experience gained in the operation of Alzheimers care units and the simple passage of time. It would be unwise and illogical to require an applicant to ignore practical, useful experience gained after submission of its original application. When HCR originally submitted its application (which includes a proposal for an Alzheimers care unit), HCR had only recently begun operation of the Alzheimers program which is the prototype for the Alzheimers unit proposed here. By the time of final hearing, HCR had gained valuable experience in the operation of an Alzheimers program. Further, HCR's updated application does not change its application, the scope of its application, or the programs contained in its application although it does contain supplemental and supportive information regarding the programmatic content of HCR's original application.

     
     

158. To the extent that any applicant proposes changes in an application which are objected to by competing applicants, the applicant proposing such changes should be required to explain and justify such changes. In this case, only Unicare and HCR were able to explain and justify all changes in their applications.

     
     

159. There have been some policy changes at HRS which have been incorporated in this Recommended Order. At the time that these applications were submitted, HRS placed great emphasis on approving applications offering to serve the greatest number of Medicaid patients. Since that time but prior to the final hearing in this cause, HRS' policy as testified to by its employees recognizes that Medicaid patients are not indigent patients but rather are insured patients, and a nursing home accepting only Medicaid patients can operate at a profit. Therefore, the emphasis placed on that accessibility criterion does not exist any longer in the review afforded to applications for certificates of need. Rather, the number of Medicaid patients to be served is simply considered one of the numerous criteria against which an application for a certificate of need must be weighed and evaluated. There was testimony that HRS' policy in place at the time of the de novo final hearing in this case is that of all the criteria to be evaluated the one upon which most emphasis is to be placed is the quality of care to be afforded to the patients in the nursing home and that a distinct preference is to be given to applicants who propose a separate Alzheimers unit. HCR is the only applicant in this cause proposing a separate Alzheimers unit. Unicare and Wuesthoff chose to propose no changes in their applications to conform with HRS' current policy, a change in circumstance external to the applicants. There was further testimony that HRS places emphasis on those applicants proposing to offer a range of services. As set forth in the Findings of Fact section of this Recommended Order, Wuesthoff and Unicare propose traditional nursing homes. Only HCR offers a range of services. Accordingly, HCR is the only applicant which complies with HRS' policies in effect at the time of the final hearing.

     
     

160. There was also some testimony introduced in this cause, and greatly emphasized by Unicare, that HRS allows changes in the design of a facility after a certificate of need has been awarded. Unicare argues, therefore, the immateriality of the fact that its proposed facility fails to meet HRS requirements and suggests that a certificate of need could still be awarded to it. If it is true that a design may be modified after the award of a

     certificate of need, it is suggested that such latitude may be afforded to an applicant who obtains a certificate of need without the necessity of an administrative hearing but that once an administrative hearing is required which is participated in by substantially affected persons objecting to the issuance of that certificate of need and more especially when the administrative hearing is a comparative one engaged in by competing applicants whose applications are mutually exclusive, there is no latitude afforded to an applicant to redesign its project after a final order is entered since a redesigned project would not be that same project which was the subject of the administrative hearing and would not be the project which was comparatively reviewed. Accordingly, Unicare's failure to meet minimum standards in its facility as proposed is dispositive of the question of whether Unicare could be the superior applicant in this proceeding.

     
     

161. Brevard Medical Investors, Inc., having failed to appear and having failed to participate in the final hearing, its Petition to Intervene in this cause should be dismissed.

SUMMARY

Section 381.494 and related case law require a balanced review of competing applications and a weighing of the various criteria as they apply to the services being proposed. HCR's application most clearly meets the intent and substance of the certificate of need statute. HCR proposes the widest array of services, proposes the most efficient and appropriate means of providing those services and proposes to place the services in the area of Brevard County where the need is the greatest. HCR's nursing home design will provide the most efficient and appropriate physical surroundings for the nursing home patient and will make specific accommodation for the Alzheimers patient. HCR's staffing level exceeds that of the other applicants. HCR proposes to construct the largest nursing home of any of the applicants and provide the most space to the nursing home's patients. HCR's projections of revenues, expenses and construction and development costs are reasonable and verifiable and are the only projections which have been tailored to describe the actual experience of the applicant and the actual patient charges expected to be found-in the applicant's location. HCR is the only applicant to describe in its projections all costs which actually will be incurred in the development, construction and operation of its nursing home.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that HRS enter a Final Order:

1. Granting HCR's application for a certificate of need;

   
   

2. Denying Unicare's application for a certificate of need;

   
   

3. Denying Wuesthoff's application for a certificate of need; and

   
   

4. Dismissing the Petition to Intervene of Brevard Medical Investors, Inc.

DONE and RECOMMENDED this 30th day of July, 1987, in Tallahassee, Florida.

LINDA M. RIGOT

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 30th day of July, 1987.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-2686, 86-2687, 86-2688 and 86-2690

Unicare's proposed findings of fact numbered 14, 22, and 25 have been adopted either verbatim or in substance in this Recommended Order. The remainder of Unicare's proposed findings of fact have been rejected as follows: 1, 3, 8, 10, 11, and 13 as being contrary to the evidence in this cause; 2, 4-7,

12, 15-17, 19-21, 23, 24, and 26 as not being supported by the weight of the evidence in this cause; 9 and 18 as being subordinate to the issues in this cause; and 27 as not constituting a finding of fact but rather as constituting argument of counsel or a conclusion of law.

Wuesthoff's proposed findings of fact numbered 2-6, 36, 39, and 40 have been adopted either verbatim or in substance in this Recommended Order. The remainder of Wuesthoff's proposed findings of fact have been rejected as follows: 31 as being contrary to the evidence in this cause; 1, 7-18, 22-30, 32, 34, and 41 as not being supported by the weight of the evidence in this cause; 19-21, 33, 35, 37 and 38 as being subordinate to the issues in this cause; and 42 - 43 as not constituting a finding of fact but rather as constituting argument of counsel or a conclusion of law.

HCR's and HRS' proposed findings of fact numbered 1-66, 68, 70-81, 83, 85- 92, 94, 96-104, and 106-123 have been adopted either verbatim or in substance in this Recommended Order. The remainder of HCR's and HRS' proposed findings of fact have been rejected as follows: 67 as being subordinate to the issues in this cause; 69 as being cumulative; 82 and 95 as being irrelevant; 84 as being unnecessary; 93 as not constituting a finding of fact but rather as constituting argument of counsel or a conclusion of law; and 105 as being not supported by the weight of the evidence in this cause.

COPIES FURNISHED:

Harold F. X. Purnell, Esquire Kenneth Hoffman, Esquire Post Office Box 6507

Tallahassee, Florida 32314-6507

Richard Patterson, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302

Frank J. Santry, Esquire Post Office Box 14129 Tallahassee, Florida 3231

Jonathan S. Grout, Esquire Karen L. Goldsmith, Esquire Dempsey & Goldsmith, P.A. Post Office Box 1980 Orlando, Florida 32802

Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

John Miller, Acting General Counsel Department of Health and Rehabilitative Services

1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700

Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Docket for Case No: 86-002686

Orders for Case No: 86-002686