STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
LAKE HOSPITAL & CLINIC, INC. ) d/b/a LAKE HOSPITAL OF THE )
PALM BEACHES, )
)
Petitioner, )
)
vs. ) CASE NO. 89-1415
)
DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, and ) FIRST HOSPITAL CORPORATION OF ) FLORIDA, d/b/a FIRST HOSPITAL ) OF PALM BEACH COUNTY, )
)
Respondents, )
)
and )
)
SAVANNAS HOSPITAL LIMITED )
PARTNERSHIP, )
)
Intervenor. )
)
) COMMUNITY HOSPITAL OF THE PALM ) BEACHES, INC., d/b/a HUMANA ) HOSPITAL PALM BEACHES, )
)
Petitioner, )
)
vs. ) CASE NO. 89-1438
)
DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES and ) FIRST HOSPITAL CORPORATION OF ) FLORIDA d/b/a FIRST HOSPITAL ) OF PALM BEACH COUNTY, )
)
Respondents, )
)
and )
)
SAVANNAS HOSPITAL LIMITED )
PARTNERSHIP, )
)
Intervenor. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William J. Kendrick, held a formal hearing in the above-styled cases on January 9-12 and 16-18, 1990, in Tallahassee, Florida.
APPEARANCES
For Petitioner, Lake Michael J Glazer, Esquire Hospital & Clinic, Inc., R. Stan Peeler, Esquire d/b/a Lake Hospital Ausley, McMullen McGahee, of the Palm Beaches: Carothers & Proctor
Post office Box 391 Tallahassee, Florida 32302
and Kathleen Stratton Bonner & O'Connell
Suite 1000, 900 17th Street
Washington, D.C. 20006
For Petitioner, Community James C. Hauser, Esquire Hospital of the Palm Blank, Hauser & Amundsen Beaches, Inc., d/b/a 204-B South Monroe Street Humana Hospital Tallahassee, Florida 32301 Palm Beaches:
For Respondent, First Thomas J. Jones, Esquire Hospital Corporation Eleanor A. Joseph
of Florida, d/b/a John Alford, Esquire
First Hospital of Holland & Knight
Palm Beach County: Post Office Drawer 810
Tallahassee, Florida 32302
For Respondent, Lesley Mendelson Department of Health and Senior Attorney Rehabilitative Services: Department of Health and
Rehabilitative Services Fort Knox Executive Center 2727 Mahan Drive, Suite 103
Tallahassee, Florida 32308
For Intervenor, Savannas Charles D. Hood, Jr., Esquire Hospital Limited Monaco, Smith, Hood Partnership: & Perkins
Post Office Box 15200
444 Seabreeze Boulevard Suite 900
Daytona Beach, Florida 32115 STATEMENT OF THE ISSUES
At issue in this proceeding is whether the application of First Hospital Corporation of Florida (First Hospital) for a certificate of need to establish a 48-bed short-term adolescent psychiatric facility in Palm Beach County, Florida, should be approved.
PRELIMINARY STATEMENT
On February 3, 1989, the Department of Health and Rehabilitative Services (Department) published notice of its preliminary decision to approve First Hospital's application to establish a 48-bed short-term adolescent psychiatric facility in Palm Beach County, Florida.
Lake Hospital & Clinic, Inc., d/b/a Lake Hospital of the Palm Beaches (Lake Hospital) and Community Hospital of the Palm Beaches, Inc., d/b/a Humana Hospital Palm Beach (Humana), existing providers of psychiatric services in Palm Beach County, filed timely petitions for formal administrative hearing to contest the Department's decision. The cases were consolidated, and Savannas Hospital Limited Partnership (Savannas), a provider of psychiatric services in St. Lucie County, was granted leave to intervene.
On January 8, 1990, the day before the hearing in these consolidated cases was scheduled to commence, Florida Residential Treatment Center's Inc. (FRTC) filed a motion for leave to intervene in this proceeding. Following oral argument at the commencement of hearing on January 9, 1990, FRTC's motion was denied for failure to demonstrate standing and untimeliness. Section 381.709(5)(b), Florida Statutes, St. Joseph Hospital of Charlotte, Florida, Inc.
Department of Health and Rehabilitative Services, 15 FLW D944 (Fla. 1st DCA 1990), and Rule 221-6.010, Florida Administrative Code
At hearing, First Hospital called as witnesses: Ronald Dozoretz; Wylie R. Cooke, Jr., accepted as an expert in architecture, construction cost estimating, and programming and conceptual design; Terry V. Aultman, accepted as an expert in health care planning; Robert C. Visco; Sidney McNeill, accepted as an expert in health care finance; Lenard J. Lexier, accepted as an expert in adolescent psychiatry, and the development and operation of psychiatric and residential treatment programs for children and adolescents; James T. Walmsley, accepted as an expert in accountancy and health care finance; Valerie Whipple, accepted as an expert in psychiatric nursing administration, including staffing, and psychiatric program development and administration; August F. Hennies, III; and, Barbara Rosado, accepted as an expert in psychiatric hospital administration.
First Hospital's exhibits 1-3, 4(a) and (b), 5, 6, 12, 30, 33, 36-41, 44, 45(a), (f), (l) and (m), 52-57, and 59-61 were received into evidence.
The Department called Elizabeth Dudex, an expert in health care planning, as a witness, and its exhibits 1-6, were received into evidence.
Lake Hospital called as witnesses: Roy M. Chernoff, accepted as an expert in psychiatric hospital administration; Irl L. Extein, accepted as an expert in psychiatry; Thomas M. Ebejer, accepted as an expert in health care facility design and construction, including design costs and construction costs; Gary Frechette; and Judith Horowitz, accepted as an expert in health care planning and health care finance (financial feasibility). Lake Hospital's exhibits 1-9, 11-19, and 21-24 were received into evidence.
Humana called as witnesses: Sharon Gordon-Girvin; Niels Vernegaard, accepted as an expert in hospital administration; Gene Nelson, accepted as an expert in health care planning; and, Daniel J. Sullivan, accepted as an expert in health care planning. Humana's exhibits 2-11 were received into evidence.
Savannas called as witnesses: John Sanders, accepted as an expert in hospital administration, and Daniel J. Sullivan, accepted as an expert in health care planning Savannas' exhibit 1 was received into evidence.
The transcript of hearing was filed February 23, 1990, and the parties were granted leave, at their' request, until April 2, 1990, to file proposed findings of fact. Consequently, the parties waived the requirement that a recommended order be rendered within thirty days after the transcript is filed. Rule 22I- 6.031, Florida Administrative Code. The Parties' proposed findings are addressed in the appendix to this recommended order.
FINDINGS OF FACT
Background
On September 28, 1988, First Hospital Corporation of Florida d/b/a First Hospital of Palm Beach County (First Hospital) filed a timely application for the July 1993 planning horizon with the Department of Health and Rehabilitative Services (Department) for a certificate of need (CON) to construct a 48- bed short-term psychiatric specialty hospital, dedicated to the care of children and adolescents, in District IX. 1/ District IX is comprised of Palm Beach, Martin, St. Lucie, Indian River, and Okeechobee Counties. On February 3, 1989, the Department published notice in the Florida Administrative Weekly of its intent to grant First Hospital's application.
Petitioners, Lake Hospital & Clinic, Inc. d/b/a Lake Hospital of the Palm Beaches (Lake Hospital), and Community Hospital of the Palm Beaches, Inc. d/b/a Humana Hospital Palm Beaches (Humana), existing providers of psychiatric services to adolescents in Palm Beach County, filed timely petitions for a formal administrative hearing to oppose the grant of the subject application. The matter was referred to the Division of Administrative Hearings for the assignment of a hearing officer to conduct a formal hearing pursuant to section 120.57(1), Florida Statutes, and Savannas Hospital Limited Partnership (Savannas), an existing provider of psychiatric services to adolescents in St. Lucie County, was granted leave to intervene. 2/
The proposed facility
At issue in this proceeding is the application of First Hospital for a CON to construct a 48-bed short-term psychiatric specialty hospital dedicated to the care of children and adolescents. This project is, however, only a portion of an 80-bed facility that First Hospital proposes to construct on a 30-acre parcel of land adjacent to Wellington Regional Memorial Hospital in western Palm Beach County. As sited, the proposed facility would be located west of the Florida Turnpike; on the west side of State Road 7 and approximately .2 miles north of Forest Hills Boulevard.
The 80-bed facility that First Hospital proposes to construct would consist of a central core area and three attached wings or units. Two of the wings, each containing 24 beds, will be dedicated as short-term psychiatric beds, with one wing for young adolescents (10-14 years of age) and one wing for older adolescents (14-18 years of age). The third wing, consisting of 32 beds, will be dedicated as a residential treatment center (RTC) for adolescents. The central core area would include administrative, therapy, kitchen and dining, gymnasium classroom areas and other support functions, and is essential to the operation of the psychiatric units, but will be shared with the residential treatment unit. A therapeutic preschool program, for children 3-5 years of age, as well as a partial hospitalization program for adolescents, are also proposed to be offered, and will be located in the central core area. 3/
The psychiatric program proposed by First Hospital for its 48-bed short-term psychiatric facility will address emotional and behavioral disorders that may affect adolescents, and which require admission to a short-term acute care facility for treatment. In its application, First Hospital estimates an average length of stay of 45 to 60 days.
The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing health card services in the service district
As a touchstone for assessing need within a service district, the Department has established a short-term psychiatric bed need methodology that must normally be satisfied before a favorable need determination will be found. That methodology, codified in Rule 10-5.011(1)(0)(4), Florida Administrative Code, contains two identifiable parts. The first part deals with the mathematical derivation of a net bed need for the planning horizon by assuming a gross bed need ratio of .35 beds per 1,000 population, and reducing that figure by the number of existing and approved beds. Based on the population projections of the Executive Office of the Governor, July 1988 release, application of this methodology derives a net need for 48 short-term psychiatric beds for the July 1993 planning horizon (gross bed need of 480- existing and approved beds of 432 = 48 net bed need. 4/
The second part of the Department's need methodology addresses occupancy standards for existing facilities that must be satisfied before a favorable need determination will normally be found. For short-term child and adolescent beds, the rule mandates an average annual occupancy rate of not less than 70 percent for all such existing facilities for the preceding 12- month period. Here, the proof demonstrates an average annual occupancy rate in excess of 70 percent for the 12-month period preceding the Department's need calculation, and satisfaction of the second part of the Department's need methodology.
On August 12, 1988, the Department, pursuant to Rule 10-5.008(2)(a), Florida Administrative Code, published notice of the hospital fixed need pool for the July 1993 planning horizon in the Florida Administrative Weekly. Pertinent to this case, such notice erroneously established a net need for 33 short-term psychiatric beds in District IX.
Following publication of the fixed need pool, the Department received information that its calculation of the net need for short-term psychiatric beds in District IX was erroneous. Upon review, the Department established that its initial calculation was in error, and on August 26, 1988, the Department published a notice of correction in the Florida Administrative Weekly, which correctly established a net need for 48 short-term psychiatric beds in District IX for the July 1993 planning horizon. This adjustment to the fixed need pool did not result from any intervening changes in population estimates, bed inventories, or other factors which would lead to different projections of need, but from an error in the Department's mathematical calculation. Under the circumstances, the Department's correction of the fixed need pool was appropriate and timely, and a need for 48 short-term child and adolescent psychiatric beds for the July 1993 planning horizon has been demonstrated.
Of the 432 short-term psychiatric beds approved and existing within the district on August 17, 1988, 119 beds were reported to the local health council as dedicated to short-term child and adolescent psychiatric services,
and the balance of 313 beds as dedicated to adult psychiatric services. Allocation of the 119 short-term child and adolescent beds was reported as follows: Lake Hospital 26 beds, Fair Oaks 27 beds, Humana 27 beds, Savannas 15 beds, and Lawnwood (Harbour Shores) 24 beds.
Lake Hospital is a 98-bed freestanding psychiatric specialty hospital located in Lake Worth, Palm Beach County, Florida, that treats adolescents and adults for psychiatric disorders and substance abuse. As of August 17, 1988, Lake Hospital was licensed to operate 56 short-term psychiatric beds, 26 long- term psychiatric beds, and 16 short-term substance abuse beds. Of the 56 short- term psychiatric beds, 26 beds were approved for adolescent care and 30 beds were approved for adult care.
During calendar year 1987, Lake Hospital enjoyed an occupancy rate of
91.8 percent for its 26 short-term psychiatric beds, which were dedicated to the care of adolescents, ages 12- 17. In January 1988, Lake Hospital opened a replacement facility on its campus consisting of a two-story structure with four 18- bed units, and reported to the local health council that two of those units (36 beds) were dedicated to short-term adolescent care in January and February 1988, and that thereafter only 18 beds were dedicated to short-term adolescent care. Based on such utilization, Lake Hospital enjoyed an occupancy rate of 95 percent for the first four months of 1988 and a 93.9 percent occupancy rate for calendar year 1988 for its adolescent beds. 5/
Fair Oaks is a 102-bed free standing psychiatric specialty hospital located in Delray Beach, Palm Beach County, Florida, that treats children, adolescents, and adults for psychiatric disorders and substance abuse. As of August 17, 1988, Fair Oaks was licensed to operate 70 short-term psychiatric beds, 15 long-term psychiatric beds, and 17 short-term substance abuse beds. Of the 70 short-term psychiatric beds, 27 beds were approved for child and adolescent care and 43 beds for adult care.
During the calendar year 1987, Fair Oaks' second year of operation, it achieved an occupancy rate of 73.1 percent for its 27 short-term child and adolescent psychiatric beds. For the first four months of calendar year 1988, Fair Oaks enjoyed an occupancy rate of 99.7 percent, and for all of calendar year 1988 an occupancy rate of 91 percent. 6/
Humana is a 250-bed general hospital located in West Palm Beach,
Florida. Of its existing beds, 162 are
dedicated as medical/surgical beds, and 88 as short-term psychiatric beds.
For calendar year 1987, Humana reported to the local health council that 27 of its 88-bed complement of psychiatric beds were dedicated to short- term adolescent services, but declined or neglected to report its utilization so that an average length of stay could be calculated. In fact, Humana did not operate a short-term adolescent program for 1987, but operated a long-term program without Department approval. Pertinent to this conclusion, the proof demonstrated that Humana applied for the development of an 88-bed psychiatric pavilion in 1983. Certificate of Need No. 2647 was issued to Humana on November 17, 1983, for 80 short-term psychiatric beds consisting of 48 adult psychiatric beds, 24 geriatric beds, and 8 adult special beds; and, on January 8, 1985, Humana received CON No. 3237 for the additional 8 short-term adult psychiatric beds.
Humana opened its psychiatric pavilion in November 1986, and by January 1987 was serving adolescents, ages 13 through 18, in a 27-bed unit
notwithstanding the absence of Department approval. As to the services provided in that unit, the proof is compelling that it was dedicated to long-term adolescent psychiatric services with an average length of stay of approximately
280 days. At some point thereafter, but not earlier than July 1989, Humana also began providing short-term adolescent psychiatric services at its facility. 7/
Following the Department's investigation into Humana's operation of a long-term adolescent psychiatric program, Humana applied for a modification of its CON Nos. 2647 and 3237 to allow it to operate a district adolescent unit. On July 14, 1989, Humana received Department approval, and such CON's were modified to allow 15 short-term adolescent psychiatric beds. This modification is, however, currently the subject of an appeal to the District Court. In the interim, on December 14, 1988, Humana received CON No. 5294 for the addition of
15 short-term beds for adolescents and adults, and on February 25, 1989, Humana received CON No. 5722 for the redesignation of 15 short-term psychiatric beds to
15 long-term beds. Currently, Humana has available 30 short-term psychiatric beds for adolescent use, and 15 long-term beds, but its short-term program is in a start-up mode.
Savannas is a 70-bed freestanding psychiatric hospital located in Port St. Lucie, St. Lucie County, Florida, approximately 40 miles north of Palm Beach County, that treats adolescents and adults for psychiatric disorders and substance abuse. As of August 17, 1988, Savannas was licensed to operate 50 short-term psychiatric beds and 20 short-term substance abuse beds. Of the 50 short-term psychiatric beds, 15 beds were approved for adolescent care and dedicated to patients ages 14- 17, and 35 beds were approved for adult care.
Savannas opened its facility in October 1987, and for that calendar year reported 1,215 patient days for its short- term adolescent unit, For calendar year 1988, its first full year of operation, Savanna's adolescent unit achieved 3,589 patient days, or an occupancy rate of 65.5 percent.
Lawnwood (Harbour Shores) is a general hospital located in Fort Pierce, St. Lucie County, Florida, that, as of August 17, 1988, was licensed to operate 60 short-term psychiatric beds. Of the 60 short-term psychiatric beds,
24 beds were approved for child and adolescent care, and 36 for adult care.
The date Lawnwood commenced operations does not appear of record; however, during calendar year 1987, it achieved a 62 percent occupancy rate for its 24-bed adolescent unit. For calendar year 1988, Lawnwood maintained a similar occupancy rate even though Savannas was drawing patients from the same service area to its new facility.
Considering the availability, accessibility, extent of utilization and adequacy of short-term child and adolescent beds in the service district at all times pertinent to this case, there exists a need for the 48 beds requested by First Hospital, and such beds should be located in Palm Beach County consistent with the local health plan, discussed infra.
The need for the proposed facility in relation to the district plan and state health plan
Applicable to this case is the 1985-87 state health plan, which contains the following goals and objectives pertinent to short-term inpatient psychiatric beds:
GOAL 1: ENSURE THE AVAILABILITY OF MENTAL HEALTH AND SUBSTANCE ABUSE SERVICES TO ALL FLORIDA RESIDENTS IN A LEAST RESTRICTIVE SETTING.
OBJECTIVE 1.1: The ratio of short term inpatient hospital psychiatric beds to Florida's population should not exceed
.35 beds per 1000 population thru 1987. RECOMMENDED ACTIONS:
a: Restrain increases in the supply of short term inpatient hospital psychiatric beds to no more than .35 beds per 1000 population.
OBJECTIVE 1.2: Through 1987, additional short term inpatient hospital psychiatric beds should not normally be approved unless the average annual occupancy rate for all existing and approved adult short term inpatient psychiatric beds in the service district is at least 75% and average annual occupancy for existing and approved adolescent and children beds is at least 70%.
RECOMMENDED ACTIONS:
a. Restrict approval of additional short term inpatient psychiatric beds to these service districts which have an average annual occupancy of 75% for existing and approved adult beds and 70% for existing and approved adolescent and children beds.
GOAL 2.: PROMOTE THE DEVELOPMENT OF A CONTINUUM OF HIGH QUALITY, COST EFFECTIVE PRIVATE SECTOR MENTAL HEALTH AND SUBSTANCE ABUSE TREATMENT AND PREVENTIVE SERVICES.
OBJECTIVE 2.1: Define, develop and implement policy regarding the appropriate treatment settings and the role of each setting in the delivery of mental health and substance abuse services by 1987.
GOAL 3: DEVELOP A COMPLETE RANGE OF ESSENTIAL PUBLIC MENTAL HEALTH SERVICES IN EACH HRS DISTRICT.
First Hospital's application is consistent with the goals and objectives of the state health plan. Here, First Hospital proposes to provide a 24-hour-a-day therapeutic milieu, with an average length of stay of 60 days or less, for children and adolescents suffering from mental health problems which are so severe and acute that they need intensive, full-time care. As such, First Hospital will offer care for those individuals for whom short-term inpatient psychiatric care is the least restrictive setting appropriate, and which care, consistent with the Department's need methodologies, will complement the range of mental health services needed in the district.
Also applicable to this case, is the 1988 District IX local health plan. Pertinent to this case, the local health plan divides District IX into two subdistricts when planning for short-term psychiatric beds. Subdistrict one consists of Indian River, Martin, St. Lucie and Okeechobee Counties, and subdistrict two consists of Palm Beach County. In allocating short-term psychiatric beds between subdistricts, the local plan provides:
When bed need is shown in District IX for either short-term psychiatric services or substance abuse services in accordance with Chapter 10-5.11 of the Florida Administrative Code, the method for allocating beds among subdistricts shall be based upon projected subdistrict occupancy figures as determined by use-rates during the most recent calendar year in combination with projected subdistrict population figures.
New beds shall be allocated to the subdistrict showing the highest projected percent occupancy, to the extent that the projected percent occupancy equal that of the other subdistrict. When projected occupancy figures show parity, any remaining beds shall be allocated based upon each subdistrict's percentage of projected patient days for District IX.
All projections shall be five years into the future to correspond with the planning horizon governing the addition of psychiatric and substance abuse beds as set forth in state rule.
Applying the local plan's methodology to the facts of this case demonstrates that the beds identified by the Department's need methodology should be allocated to subdistrict two, Palm Beach County, which is the county within which First Hospital proposes to locate.
The local plan also requires an examination of an applicant's commitment or record of service to medicaid/indigent and underserved population groups. The First Hospital facility will be a specialty hospital and therefore not eligible to provide medicaid services; however, First Hospital has
committed to dedicate 8 percent of its patient days to indigent care. Under such circumstances, First Hospital's application is, on balance, consistent with the local plan.
The ability of the applicant to provide quality of care and the applicant's record of providing quality of care
First Hospital is a wholly owned subsidiary of First Hospital Corporation, an established provider of psychiatric services to children and adolescents since 1983. As of this date, First Hospital Corporation owns and operates 15 hospitals nationally, and has demonstrated the commitment and ability to provide quality care to its patients.
Here, First Hospital's staffing is reasonable, and while the program proposed by First Hospital is generic in nature, and similar to that offered by other short-term providers of such services, it will assure, in light of demonstrated need, that patients needing acute short-term psychiatric services in the district will continue to receive quality care. To the extent that the needs of the district may subsequently evidence the need for more specialized programs, First Hospital has demonstrated its ability to address such needs, and to provide quality programs and services.
The availability and adequacy of other health care facilities and services in the service area which may serve as
alternatives for the health care facilities and services proposed by the applicant
The Department's short-term psychiatric bed rule addresses the need for psychiatric facilities that will treat emotional and behavioral disorders which require admission to a short-term acute care facility for treatment. Where such short- term psychiatric care is indicated, any other type of placement would not be appropriate under existing rules (not long-term, residential treatment, group home, or out-patient care), and there are no alternatives for the services proposed by First Hospital.
The availability of resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation
First Hospital has demonstrated that it either has or can obtain all resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. As heretofore noted, First Hospital Corporation, the parent of the applicant, has provided psychiatric services to children and adolescents since 1983, and currently owns and operates 15 hospitals nationally. It has never experienced any serious difficulty in financing its operations, either start-up or operational, and has in place an existing program for the recruitment and training of medical, administrative, clerical and other personnel that might be needed for the proposed facility. First Hospital Corporation has no other new projects pending at this time, and has committed itself to the project proposed by its subsidiary. Additionally, Dr. Ronald Dozoretz, who is president, chairman of the board, and the principal stockholder of First Hospital
Corporation, has the available resources to finance the subject project, and has also committed to do so if necessary. 8/
The extent to which the proposed services will be accessible to all residents of the service district, and the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent
As a freestanding psychiatric facility, First Hospital is not eligible to receive Medicaid funds for the treatment of psychiatric disorders; however, it has committed to provide 8 percent of its patient days to the care of patients who qualify as indigent, and has agreed that its CON be so conditioned. In view of this commitment, as well as the demonstrated need within the district for the proposed services, approval of First Hospital's application will increase accessibility to all residents of the district.
The probable impact of the proposed project on the costs of providing health services proposed by the applicant.
The proof demonstrates that existent facilities in Palm Beach County are operating near capacity, and that to meet expected demand at the planning horizon an additional 48 short- term psychiatric beds are needed. Under such circumstances, approval of First Hospital's application will stimulate competition and promote quality assurance and cost-effectiveness.
While the proof establishes the need for 48 additional beds at the horizon year, the protestants to First Hospital's application contend that, due to the finite number of qualified professionals within the area to staff the facility and the finite number of patients requiring such care, they will be adversely impacted if the application is approved. Succinctly, they contend that they may lose staff or be compelled to pay higher salaries, and that they may lose patients and therefore revenue, if the facility is approved.
The protestants' proof regarding potential impact to their existing staff or competition for staff was unpersuasive. In light of the number of existing facilities that already offer mental health type services within the district, and therefore currently compete for the same professionals, First Hospital's entry into the market should not significantly impact existing competition. As importantly, the protestants failed to quantify any such impact or otherwise persuasively demonstrate that, assuming they were compelled to pay more to retain or attract competent staff, such increased expense would adversely affect their operation.
With regard to the protestants' concerns regarding lost patient days and revenue, the demonstrated need for the additional 48 beds at the horizon year mitigates the potential for any adverse impact to existent providers in the long term. However, this does suggest that First Hospital's application, as proposed, does not demonstrate a potential to significantly adversely affect existent providers in the short term. To the contrary, should First Hospital achieve the level of utilization it projects in its application, its facility would have a significant adverse impact on existing programs. In this regard, First Hospital's application projects that it will achieve 8,956 patient days in 1991, its first year of operation, and 13,193 patient days in 1992, its second year of operation. Through 1991, there will only be a growth of approximately 3,498 patient days over those that were served by existing facilities in 1988, and through 1992, there will only be a growth of approximately 4,664 patient days over those that were served by existing facilities in 1988. Therefore, to
achieve it's projected occupancy levels, First Hospital would have to capture 5,458 patient days in 1991 and 8,529 patient days in 1992 from the patient base that had previously been served at existing facilities. Such impact to those facilities, should First Hospital be able to achieve its projected levels of occupancy, would be significant and adverse. 9/
The costs and methods of the proposed construction
As heretofore discussed, First Hospital proposes to construct an 80- bed facility on approximately 30 acres of land in Palm Beach County, Florida, which will include the 48 short-term psychiatric beds which are the subject of this proceeding, as well as the 32 residential treatment beds which the Department concluded were not subject to CON review.
The 80-bed facility proposed, at 49,142 gross square feet, will consist of a central core area of approximately 25,000 square feet, which includes three wings; an education and activity wing, a food service wing, and an administrative wing. These wings will house the therapy, kitchen and dining, gymnasium, classrooms, administrative offices, and other services necessary to support the psychiatric facility. Attached to the core area, are two psychiatric wings, at 7,592 square feet each, which will each contain 24 beds dedicated to short-term psychiatric care, and one wing, at 8,944 square feet, which will contain 32 beds dedicated as residential treatment beds. On the adjacent grounds, First Hospital also proposed a swimming pool, tennis courts, baseball field, and sports filed.
In its application, First Hospital estimated its total project cost for the proposed psychiatric facility at $4,213,522. This project cost was composed of development cost of $61,500, financing/refinancing costs of
$259,800, professional services of $162,000, construction costs of $2,503,162, equipment costs of $480,000, and other related costs of $150,000. But for the construction cost category ($2,503,162), First Hospital derived its estimate of total project costs by allocating 60 percent of the cost of each component of the total cost to the psychiatric facility and 40 percent to the residential treatment facility (the 60/40 methodology). In the case of construction costs, First Hospital based its estimate on the square footage of the psychiatric wings and 60 percent of the core area, which derived a gross square footage for this cost item based on 30,184 square feet, to which it added 60 percent of its estimated costs for site preparation and contingency of construction. Based on this premise, First Hospital's proposal is driven by a $76.33 per square foot cost of construction. 10/ Assuming the propriety of First Hospital's 60/40 allocation of costs, its estimate of project costs is still significantly understated.
Here, the proof demonstrates that, as opposed to the $76.33 per square foot cost for construction and site preparation costs estimated by First Hospital, the cost for such work will be $105 per square foot, inclusive of construction and site preparation costs. Based on the 30,184 square feet First Hospital allocated to the project, such cost will amount to $3,169,320, which, when added to the 5 percent contingency factor, the $96,000 allocated for the proposed pool, and the addition of 460 square feet to patient rooms needed to meet Department standards, derives a construction cost figure of $3,472,086, as opposed to the $2,503,162 estimated by First Hospital.
In addition to straight construction costs, First Hospital also underestimated its equipment costs. In this regard, First Hospital's equipment list omits many necessary items, including: nurse call equipment, a security
system, an emergency generator, therapy and recreational equipment, gym equipment, ice machines, defibrillators, crashcarts, educational materials, media equipment, graphic artwork, interior design items, shelving/lockers for staff and patients, housekeeping items, medication carts, and other necessary equipment. Had First Hospital properly calculated its equipment costs, it would have derived a cost of at least $1 million for movable equipment and at least
$150,000 for fixed equipment for the 80--bed facility as opposed to the $700,000 for movable equipment and $100,00 for fixed equipment it estimated. Under such circumstances, applying First Hospital's 60/40 methodology would establish an equipment cost for the subject project at $690,000, as opposed to the $480,000 estimated by First Hospital. 11/
Since financing costs and professional services fees would also require an upward adjustment because of the increase in construction and equipment costs, the total cost for the subject project, utilizing First Hospital's 60/40 methodology, would reach at least $5,488,843, as opposed to the
$4,213,522 estimated by First Hospital. 12/
The foregoing analysis of construction costs assumed the reasonableness of First Hospital's 60/40) allocation methodology. For reasons discussed infra, First Hospital's allocation methodology is not reasonable, and its construction costs are therefore dramatically understated. In this regard, the proof demonstrated that the core area, consisting of 25,000 square feet, would be necessary to support the 48-bed psychiatric units whether the 32-bed residential treatment unit were built or not, and that it would be more appropriate to combine the core area and the psychiatric area to assess the subject application. When this is done, the construction cost alone for the project calculates to $4,638,501. 13/
In addition to straight construction costs, all of the other estimated project costs appearing on Table 25 of First Hospital's exhibit 1 are also suspect because of its 60/40 methodology; however, for purposes of this analysis item a, project development costs, and item f, other related costs are assumed accurate, as are construction supervision costs and loan fees. Notably, capitalized interest would increase to at least $355,621, architectural/engineering fees would increase to approximately $242,969, and equipment costs would increase to approximately $726,000. With these adjustments alone, the cost of the 48-bed psychiatric project, which includes the core area, comes to approximately $6,821,000, or over $2,607,000 more than First Hospital estimated. 14/
The unreasonableness of
First Hospital's 60/40 methodology
To assess the financial feasibility of the proposed project, First Hospital's pro formas address only the expected financial performance of the 48 psychiatric beds and ignore the financial feasibility of the 32-bed residential treatment unit, even through First Hospital postulates that such unit will support 40 percent of the cost of the hospital's core area.
At hearing, the explanation offered by First Hospital and the Department for not addressing the financial feasibility of the residential treatment unit, as well as the out-patient services, was their contention that such services are not CON reviewable because First Hospital, as regards the residential treatment unit, is not yet a "health care facility" and, as regards
the outpatient services, that such services are exempt from review. In this regard, they point to the provisions of Section 381.706(1), Florida Statutes, which provides;
. . . all health-care-related projects, as described in paragraphs (a)-(n), shall be subject to review and shall file an application for a certificate of need with the department . . .
(c) A capital expenditure of $1 million or more by or on behalf of a health care facility . . . for a purpose directly related to the furnishing of health services at such
facility; provided that a Certificate of Need shall not be required for an expenditure to provide an outpatient health service . . . (Emphasis added)
They also point to the provision of Section 381.702, Florida Statutes, which contains the following definitions:
(7) "Health care facility" means a hospital. . . .
(12) "Hospital" means a health care facility licensed under chapter 395.
Based on these statutory provisions, First Hospital and the Department conclude that the residential treatment unit and the outpatient services are not CON reviewable because First Hospital is not yet licensed or the outpatient services are exempt.
While the logic of First Hospital's and the Department's conclusion seems questionable where, as here, the projects are proposed to be integrated and constructed simultaneously, the Department's reading of the statute comports with its literal reading and is accepted. However, although the residential treatment unit and outpatient services may not be subject to CON review does not suggest that their financial feasibility is not relevant to this proceeding. To the contrary, their financial feasibility is critical if First Hospital's 60/40 methodology is to be considered rational.
Here, the 48-bed psychiatric facility proposed by First Hospital is comprised of two 24-bed units and a core unit that provides all necessary support functions, including administrative, therapy, kitchen and dining, gymnasium and classroom areas, for those units. That core area, of 25,000 square feet, is an essential part of the proposed psychiatric hospital; without it there would be no psychiatric hospital, and at a lesser square footage the project would be lacking sufficient space to provide necessary services. When licensed by the Department, the two 24-bed units and the core area will be licensed as a psychiatric hospital.
Notwithstanding, the fact that the 25,000 square foot support area is an integral and essential part of the proposed hospital, the Department chose to ignore 40 percent of its costs and expenses in assessing the financial feasibility of the project. The basis for the Department's action was its conclusion that the non-CON reviewable residential treatment unit comprised 40
percent of the overall population of the entire facility (80-beds overall), and that since it would share the core area, 40 percent of the costs of constructing that area, as well as subsequent operating expenses, were not pertinent to an evaluation of the proposed hospital. Here, the Department's reasoning and its conclusion, be they incipient policy, do not have evidentiary support.
The psychiatric hospital proposed by First Hospital is, as heretofore noted, the two 24-bed units and the core area. This is the only portion of the project over which the Department has control, and necessarily the only portion that it can assure will be built as proposed; it has no control over whether the residential treatment unit will ever be built or be built as proposed. Therefore, since the core unit is an essential part of the psychiatric hospital, and the residential treatment unit is exempt from CON review, an assessment of the subject application must consider the cost of the entire core area as part of the project under review.
While economies of scale permit utilization of the core unit by the residential treatment unit without additional space, this does not detract from the conclusion that the cost of the core is a cost of the hospital. Rather, such excess capacity is fortuitous for First Hospital, and may permit it to spread the expenses of its operation over a larger population base if the residential treatment unit is built. However, to reasonably assess whether those expenses of operation can be spread to or supported by the residential treatment unit to any extent, much less 40 percent, requires an analysis of the financial feasibility of those services. Here, First Hospital offered no proof of the financial feasibility of the residential treatment unit, and there is no rational basis on which any allocation of operating expenses for the core area can be demonstrated to be supportable by it. Accordingly, to assess the financial feasibility of the proposed psychiatric hospital it is necessary to attribute the cost of the core area to the proposed project, as well as the costs of carrying and operating that part of the proposed hospital. 15/
The immediate and long-term financial feasibility of the proposal
To assess the financial feasibility of the proposed project, First Hospital's pro forma assumes that it will achieve 8,956 patient days in its first year of operation and 13,193 patient days in its second year of operation, with a per diem patient charge of $500 in year one and $525 in year two, and that it will thereby achieve a gross revenue of $4,478,000 in its first year of operation and a gross revenue of $6,926,325 in its second year of operation. While the proposed patient charges are reasonable, First Hospital's occupancy projections are not supported by persuasive proof and, therefore, it has failed to demonstrate what revenues it could reasonably expect to generate.
A facility's projected patient days are typically a product of an informed analysis of projected admissions and projected average length of stay. Here, First Hospital undertook no such analysis, but simply assumed a number of patient days, without any rational predicate in an effort to demonstrate financial feasibility.
Notably, there is a clear trend toward shorter lengths of stay in psychiatric hospitals, which was even recognized by First Hospital's Dr. Dozoretz who reasonably expected an average length of stay at the proposed facility of 30 to 40 days. However, First Hospital assumed in its pro forma an average length of stay ranging from 45 to 60 days. Such assumption could not
have been the basis for any considered analysis of utilization since it is excessive, as well as too imprecise.
Moreover, in testing the reasonableness of a utilization projection, it is also important to consider physician support, the extent of waiting lists, community support, the extent of competition, and the depth of local needs assessment. Here, there is no persuasive proof that First Hospital enjoys any support from local physicians, that there are any waiting lists, that the market is not competitive, that there is any community support for the project, or that it undertook any reasonable assessment of local need.
In addition to its failure to demonstrate what utilization level it could reasonably achieve in its first two years of operation, and therefore establish a reasonable estimate of its gross revenue, First Hospital's pro forma also, significantly underestimated building depreciation, equipment depreciation, and interest expense because of its failure to adequately address construction and equipment costs, discussed supra. Had First Hospital properly assessed such costs, by subsuming the psychiatric hospital to include 100 percent of the psychiatric wings and core area, it would have calculated building depreciation at $176,230 per annum, equipment depreciation at $72,600 per annum, and interest at $750,360 per annum. At these rates, assuming the validity of First Hospital's projection of gross revenue, the facility's projected loss in year one would increase from $115,629 to $529,848, and its projected profit in year two of $442,184 would be reduced to $27,965. 16/
As well as underestimating the foregoing expenses, First Hospital's pro forma also significantly underestimates a number of other expenses, including deductions from gross revenue, supplies and other expenses, and the indigent care tax assessment. In this regard, the proof demonstrates that First Hospital underestimated its deductions from revenue by $367,000 in year one and
$214,000 in year two; underestimated its supplies and other expenses in year one by at least $645,000, and in year two by at least $561,000; and omitted the indigent care tax assessment of $56,000 in year one and $75,000 in year two.
Considering these additional adjustments, First Hospital's project, even assuming its gross revenue projections are reasonable, is not financially feasible in either the short-term or long-term. 17/
The criteria on balance
In evaluating the application at issue in this proceeding, none of the criteria established by Section 381.705, Florida Statutes, or Rule 10- 5.011(1)(o), Florida Administrative Code, has been overlooked. First Hospital's failure to demonstrate the financial feasibility of its proposal is, however, dispositive of its application, and such failure is not outweighed by any other, or combination of any other, criteria.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings. Section 381.709(5), Florida Statutes.
At issue in this proceeding is whether the application of First Hospital to construct a 48-bed short-term psychiatric hospital, dedicated to the care of children and adolescents, in Palm Beach County, Florida, should be approved. As the applicant, First Hospital has the burden of demonstrating its entitlement to a Certificate of Need. Boca Raton Artificial Kidney Center, Inc.
v. Department of Health and Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA 1985), And Florida Department of Transportation v. J.W.C. Co., 396 So. 2d 788 (Fla. 1st DCA 1981). However, First Hospital has challenged the standing of the petitioners, Lake Hospital and Humana, to challenge the Department's preliminary decision to grant First Hospital's application. Accordingly, the threshold issue in these proceedings is whether Lake Hospital or Humana have demonstrated standing to contest the Department's proposed action.
Pertinent to the issue of standing, Section 381.709(5)(b), Florida Statutes, provides:
. . . In administrative proceedings challenging the issuance or denial of a Certificate of Need, only applicants considered by the department in the same batching cycle are entitled to a comparative hearing on their applications. Existing health care
facilities may initiate or intervene in such administrative hearing upon a showing that an established program will be substantially affected by the issuance of a Certificate of Need to a competing proposed facility or program within the same district. . .
Here, the proof demonstrated that Lake Hospital had an existing program for the provision of short-term psychiatric services to adolescents when it filed its petition for a formal administrative hearing to contest the Department's preliminary decision to approve First Hospital's application, and that if First Hospital were able to achieve the level of utilization it projected in its application that Lake Hospital's existing program would be substantially adversely affected by the grant of the subject application for a Certificate of Need. As such, Lake Hospital has demonstrated that it had standing to initiate its proceeding. Savannas has likewise demonstrated that it had an existing program for the provision of short-term psychiatric services to adolescents when it filed its petition to intervene, and that if First Hospital were able to achieve the level of utilization it projected in its application that Savanna's existing program would be substantially adversely affected by the grant of the subject application. As such, Savanna's has demonstrated that it had standing to intervene in these proceedings. However, Humana has failed to demonstrate that it had an existing program for the provision of short-term psychiatric services to adolescents when it filed its petition, and has otherwise failed to demonstrate that any existing program it may have had would be substantially adversely affected by approval of the subject application. As such, Humana has failed to demonstrate that it had standing to initiate its proceeding. 18/
Pertinent to an evaluation of First Hospital's application, Section 381.705, Florida Statutes, and Rule 10- 5.011, Florida Administrative Code, establish the criteria which must be considered in evaluating an application for a Certificate of Need. Balsam v. Department of Health and Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1986), and Department of Health and Rehabilitative Services v. Johnson and Johnson Home Health Care, Inc., 447 So. 2d 361 (Fla. 1st DCA 1984). The weight to be accorded each criterion and the consequent balancing of the criteria will vary, however, depending on the facts and circumstances of each case. Collier Medical Center, Inc. v. Department of Health and Rehabilitative Services, 462 So. 2d 83 (Fla. 1st DCA 1985). See also: Graham v. Estuary Properties, Inc., 399 So. 2d 1374 (Fla. 1981).
Under the facts and circumstances of this case, as heretofore found, First Hospital has failed to demonstrate its entitlement to a Certificate of Need since it has failed to demonstrate the financial feasibility of its proposal.
Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that:
As to Case NO. 89-1415, that a final order be entered denying First Hospital's application for Certificate of Need.
As to Case NO. 89-1438, that a final order be entered dismissing Humana's petition for formal hearing.
DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23rd day of May 1990.
WILLIAM J. KENDRICK
Hearing Officer
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 23rd day of May 1990.
ENDNOTES
1/ First Hospital also timely filed its Letter of Intent and corporate resolution with the Department and the local health council, as well as its response to the Department's request for omissions. By letter of November 16, 1988, the Department notified First Hospital that its application was complete. Such application was consistent with First Hospital's Letter of Intent.
2/ In addition to First Hospital, three other applicants also applied for a CON to address the short-term psychiatric bed need in the July 1993 planning horizon, to wit: Lawnwood Medical Center, Inc. d/b/a HCA Harbour Shores of Lawnwood (Lawnwood), Indian River Community Mental Health Center, Inc. d/b/a the Savannas Hospital (Indian River), and Rivendell of Indian River, Inc. (Rivendell). Lawnwood, an existing 60-bed general hospital in St. Lucie County, sought a CON to add 32 new short-term psychiatric beds to its facility; Indian River, an existing 70- bed short-term psychiatric speciality hospital in St.
Lucie County, sought a CON to add 30 new short-term psychiatric beds (alternatively 20 beds) to its facility; and Rivendell, an existing 54-bed children and adolescent long-term psychiatric specialty hospital in Indian River County, sought a Certificate of Need to convert 15 of its beds from long-term to short-term care. Upon review, the Department proposed to grant the application
of First Hospital for its 48-bed facility, as well as the application of Rivendell to convert 15 of its beds from long- term to short-term care, and to deny the other applications.
Lawnwood and Indian River filed formal protests to contest the Department's denial of their applications, as well as the Department's proposal to approve the application of Rivendell. These matters were consolidated for comparative review with the application of First Hospital; however, prior to hearing Lawnwood, Indian River and Rivendell withdrew their applications. Consequently, the only application still pending for the July 1993 planning horizon is that of First Hospital.
3/ The therapeutic preschool program and the partial hospitalization program are outpatient services and not subject to CON review. In reviewing the subject application, the Department also considered the RTC exempt from CON review. The propriety of this decision will be addressed infra. The application at issue here is, however, the application for a CON to construct the two psychiatric patient wings and the core unit, for which the applicant will ultimately seek licensure as a psychiatric hospital.
4/ Of the .35 beds per thousand, the rule provides that a minimum of .15 beds per 1,000 population should be located in hospitals holding a general license, and that the remaining .20 beds per 1,000 population may be located in specialty hospitals or hospitals holding a general license. Here, the proof demonstrates that the requirements of this portion of the rule have been satisfied, and the subject 48 beds may be located in a specialty hospital such as proposed by First Hospital.
5/ In June 1989, Lake Hospital collapsed its 26-bed long-term adolescent psychiatric unit and moved it into the 18-bed unit adjacent to the short-term adolescent psychiatric unit. While such move and reduction in long-term beds may have been prompted by low occupancy rates in the long-term beds, there was no persuasive proof that Lake Hospital's short-term beds did not continue to enjoy a high occupancy rate after 1988. (HRS Exhibit 1)
6/ Currently, Fair Oaks operates a 20-bed children's unit for ages 5-13, and a 30-bed adolescent unit for ages 13-18. When Fair Oaks commenced such utilization does not appear of record, however from the proof available it must have been subsequent to August 1989. (HRS Exhibit 1)
7/ For calendar year 1987, Humana did not report utilization of its adolescent beds to the local health council and an average length of stay could not be calculated from that data. However, the record contains compelling proof that Humana operated a 27- bed long-term adolescent program with an average length of stay of approximately 280 days from January 1987 until at least July 1989, and that it did not have an established short-term adolescent program during that period. Significantly, Humana had no medical director for a short-term adolescent program as of the date of hearing, and had only been attempting to recruit one since approximately January 1989. As importantly, the semi-annual occupancy statistics for District IX, which are based on data provided by Humana, demonstrate that at least through June 1989, its 27-bed adolescent-unit was operated as a long-term unit with an average length of stay of 280 days. At hearing, Humana's administrator suggested that the data reported which reflected 3,921 patient days for the 27-bed unit was really only applicable to a 15-bed long-term adolescent unit and than the patient days for its short-term admissions were inadvertently limped with the adult population. To accept the administrator's explanation would require the conclusion that the supposed 15-
bed long-term unit operated at a 143 percent occupancy level from January through June 1989. Such conclusion is facially not credible, nor was the proof offered on behalf of Human during the course of this proceeding concerning the existence of any short-term program. Rather, as conceded by Humana in its proposed recommended order, "Humana's short-term adolescent program is still in the start-up mode."
8/ At hearing, the protestants to First Hospital's proposal took little issue with its ability to satisfy this criteria with one exception. Here, the protestants noted that First Hospital proposed in its application to finance 100 percent of its project with Sovran Bank, and that since the only proof it offered at hearing to demonstrate Sovran Bank's commitment was a letter and therefore not competent proof (hearsay), First Hospital had failed to demonstrate that it had the available capital resources. The protestants' contention is simply not persuasive in light of the compelling proof of First Hospital's financial experience and capability. Further, whether First Hospital ultimately acquires financing from an entity other than Sovran Bank is not significant nor an improper update of its application. What is dispositive is that it has the financial capacity and commitment to consummate the project.
9/ The District IX Local Health Council reported 34,499 short- term child and adolescent admissions for 1988. Included in that total were 9,326 admissions for Humana that were, in fact, long- term admissions. Accordingly, for 1988, there were 25,173 short- term admissions. At such level in 1991, First Hospital would attract 21.7 percent of the patient base served by existing facilities, and in 1992 would attract 33.9 percent of the patient base served by existing facilities, if it achieved the occupancy levels it projected in its application.
10/ For the line item for construction, appearing under Construct Costs in Table 25, First Hospital Exhibit 1, the figure $2,159,964 appears. This figure added to the site preparation figure of $240,000 and divided by 30,184 square feet, derives a cost of $79.5 per square foot. Included within the $2,159,964 figure is, however, $96,000 which represents 60 percent of the cost to construct a pool at the facility. When this cost is factored out, a cost of $76.33 per square foot cost for construction is derived.
11/ The $50,000 addition to fixed equipment is for the cost of an emergency generator.
12/ Capitalized interest is calculated by First Hospital's methodology of taking 11 percent of total project cost, assuming the 60/40 allocation, and dividing by two. This would calculate to at least $286,148. Architectural and engineering fees are calculated by adding the cost of construction ($3,169,320), cost of the pool ($96,000), and cost of 460 square feet to conform the project to Departmental standards ($48,300) and multiplying by 5.5 percent. The remaining costs in Table 25 of First Hospital's exhibit one are assumed reasonable for purposes of this calculation.
13/ This figure is derived by adding the square footage of the core (25,000), the square footage of the psychiatric wings (15,184), and the square footage necessary to conform the patient rooms to Department standards (460), and multiplying by $105 as a cost per square foot. This calculation derives a figure of $4,267,620, to which is added the cost of the pool ($150,000), and the
5 percent contingency factor ($220,881)
14/ Capitalized interest is calculated per First Hospital's methodology of taking 11 percent of total project costs and dividing by two.
Architectural/engineering fees are calculated by adding the construction cost of
$4,267,620 and the pool cost of $150,000, and multiplying by 5.5 percent. Equipment costs are based on the $12,000 movable equipment cost per bed rule of thumb, which was also substantiated by Humana's expert's analysis of the equipment needs for this facility, as well as the addition of the cost for fixed equipment. An annual inflation rate of 5 to 6 percent during construction would inflate the bottom line even further, but was ignored in these calculations.
15/ To support its argument of cost allocation, First Hospital suggested that the 60/40 allocation based on square footage was reasonable because it is essentially the same as the square footage allocation method used by Medicare and is an acceptable method of allocating costs for cost accounting purposes. First Hospital's suggestion is not persuasive. First, First Hospital did not make such allocation based on square footage but, rather, on the basis of the population of the two services. Second, while such practice may be reasonable for accounting purposes where multiple uses occur at one facility, it is not reasonably justified to ignore 40 percent of the cost of an integral part of a proposed project, or to ignore 40 percent of the expenses to operate that part when it is unknown whether the other uses can or will even contribute to its operation. In sum, evaluation of the financial feasibility of the subject application would be an exercise in futility unless the psychiatric hospital to include the psychiatric units and the core unit, are evaluated as one, or the entire 80-bed facility is evaluated as one.
16/ Building depreciation is calculated by adding financing costs of $375,421, professional services of $272,969 and construction costs of $4,638,501, and then dividing by a 30-year depreciation figure. Equipment depreciation is based on a cost of $726,000 with a life of 10 years. Interest is based on total project cost of $6,821,451 at 11 percent annual interest.
Even if the 60/40 methodology were retained, the increased construction, equipment and interest costs would also impact feasibility significantly. In this regard, building depreciation would increase to $133,009, equipment depreciation to $69,000, and interest expense to $603,773 per annum. At these rates, the facility's projected loss in year one would increase from $115,629 to
$336,800, and its projected profit in year two of $442,184 would decrease to
$221,013.
17/ These additional expenses would render First Hospital's proposal financially unfeasible even if its 60/40 methodology were adopted.
18/ In reaching the conclusion that Lake Hospital had standing, I have not overlooked the fact that First Hospital failed to demonstrate that it could achieve the occupancy level it projected in its application. Standing is, however, to be judged at the time the petition was initiated, and gauged by the threat the application poses at that time. It is not subject to being defeated through an applicant's failure to sustain its own burden of proof, or a protestant's successful challenge of its application.
APPENDIX
The proposed findings of fact submitted by Lake Hospital are addressed as follows:
Adopted in paragraph 28.
Rejected as a conclusion of law. See
paragraph 1, Conclusions of law.
Adopted in substance in paragraph 11.
Adopted in substance in paragraph 15 and 16.
Adopted in substance in paragraph 19.
6-8 and 10. Adopted in substance in paragraphs 1 and 37-44.
9. To the extent pertinent, addressed in paragraphs 45-52.
11. Rejected as not a finding of fact. 12-14. Adopted in substance in paragraph 3.
Addressed in paragraph 29.
To the extent necessary, addressed in paragraph 32.
17-28. Addressed in paragraphs 6-9.
29. First two sentences adopted in substance. Remainder of paragraph 29 rejected as not relevant.
30-33. Rejected as not relevant.
Rejected as not persuasive.
Addressed in paragraph 36.
Addressed in footnote 5.
Addressed in paragraph 30.
38-40. Addressed in paragraphs 53-56.
41-57. Addressed in paragraphs 24-27 and 30.
58. Addressed in paragraph 33.
59-61. Addressed in paragraphs 30, 33, and 56.
62-67. Addressed in paragraphs 10-23, and 55.
68-77. Addressed in paragraph 30.
78-79. Addressed in paragraphs 28-29.
80-82. Addressed in paragraph 31.
83-99. Addressed in paragraphs 29, and 53-58. 100-103. To the extent pertinent, addressed in
paragraphs 33-36.
104-119. Addressed in paragraphs 37-44.
120-122. To the extent pertinent, addressed in paragraphs 32.
123. Addressed in paragraph 59.
Humana's proposed findings of fact are addressed as follows:
Addressed in paragraphs 8 and 9.
First sentence addressed in paragraph 2. Remainder of paragraph rejected as not a finding of fact or not necessary to the result reached.
3-4. Rejected as not a finding of fact.
5 & 8. To the extent pertinent, addressed in paragraphs 1, 31, and 51.
6-7. Rejected as not relevant or necessary to the result reached.
9-11 & 13. Addressed in paragraphs 4, 29, 46 and 47.
12. Addressed in paragraph 56.
14. Rejected as misleading. First Hospital may provide substance abuse services, but not as a primary diagnosis.
15-25. Addressed in paragraphs 15-18.
26. Rejected as contrary to the proof.
27-30. Addressed in paragraphs 6-23. As to paragraph 28, it is noted that the Department's action was contrary to its fixed need pool methodology and improper; and as to paragraph 29, such beds arose after the fixed need pool was established and are not relevant.
31. Addressed in paragraph 59. 32-34. Addressed in paragraph 30.
35-37. Addressed in paragraphs 6-23, and 55.
38-47. Addressed in paragraph 30.
48-51. Addressed in paragraphs 23, 30, and 55.
52-53. Addressed in paragraphs 23 and 29. 54-56. To the extent relevant, addressed in
paragraphs 23, 26, and 27.
57-58. Rejected as contrary to the proof. See paragraphs 23 and 30.
59-60. Addressed in paragraph 36.
61-67. Rejected as argumentative, and not a finding of fact.
68-70. Addressed in paragraphs 6-23, and 30.
Additionally, facilities approved after the publication of the fixed need pool are not relevant to any need determination.
71-76. Addressed in paragraphs 24-25.
77-80. Addressed in paragraphs 26-27.
81-86. Addressed in paragraph 31.
87-104. Addressed in paragraphs 37- 52.
105-131. Addressed in paragraphs 45-58.
132-137. Addressed in paragraphs 33-36.
138-140. To the extent pertinent, addressed in paragraph 32.
141-149. Rejected as contrary to the proof or not relevant as not pertaining to the appropriate time of inquiry. See paragraphs 15-18, and 33- 36.
First Hospital's proposed findings of fact are addressed as follows: 1-2. Addressed in paragraphs 8 and 9.
3-6. To the extent pertinent, addressed in
paragraph 1.
7-19. Addressed in paragraphs 3-5, 32, 55, and 56. 20-43. To the extent pertinent, addressed in
paragraphs 6-23, 26 and 27.
44. Rejected as not persuasive and material. 45-49. Addressed in paragraph 32.
50-58. To the extent pertinent, addressed in paragraphs 24-27.
59-66. To the extent pertinent, addressed in paragraph 31.
67-89. Addressed in paragraphs 37-52. Regarding the testimony of Fred Hennies, such testimony is not credited in the face of his refusal to divulge the underlying data for his opinion.
90-111. To the extent pertinent, addressed in paragraphs 53-58.
112-128. To the extent pertinent, addressed in
paragraphs 28 and 29.
129-141. | Addressed in | paragraphs 28, 29, and 31. |
142-163. | Addressed in | paragraphs 10-23, and 30. |
164-173. | Addressed in | paragraphs 33-36. |
174-175. | Addressed in | paragraph 30. |
The Department's proposed findings of fact are addressed as follows: 1-5. Addressed in paragraphs 3-5, 28, and 32.
6-16. Addressed in paragraphs 10-23.
17-20. To the extent pertinent, addressed in paragraphs 8, 9, and 46-48.
21-26. Addressed in paragraphs 24-27.
27-31. Addressed in paragraphs 6-23.
32-34. Addressed in paragraphs 28 and 29.
Addressed in paragraph 30.
Not relevant.
Not relevant.
Not relevant.
39-40. Addressed in paragraph 31.
41-43. Addressed in paragraphs 53-58.
Not relevant.
Not relevant.
Addressed in paragraphs 33-36, and 53.
Addressed in paragraphs 37-52.
Addressed in paragraph 32.
49-50 and 52.Addressed in paragraphs 10-23, and 30.
51. Not relevant
Savanna's proposed findings of fact are addressed as follows: 1-6. Addressed in paragraphs 1 and 2
7-11. Addressed in paragraphs 10-23 and 33-36.
Addressed in paragraphs 1, 3, and 4.
To the extent pertinent, addressed in paragraphs 6-23, and 30.
14-15. Addressed in paragraphs 24-27.
16-23. To the extent pertinent, addressed in paragraphs 10-23, and 30.
24-25. Addressed in paragraphs 28 and 29.
26-32. Addressed in paragraphs 31 and 45-52.
Addressed in paragraphs 53-58.
Addressed in paragraphs 33-36. 35-40. Addressed in paragraphs 37-44.
41. Addressed in paragraph 32.
COPIES FURNISHED:
Michael J. Glazer, Esquire
R. Stan Peeler, Esquire Ausley, McMullen, McGahee,
Carothers & Proctor Post Office Box 391
Tallahassee, Florida 32302
Kathleen Stratton Bonner & O'Connell
Suite 1000, 900 17th Street
Washington, D.C., 20006
James C. Hauser, Esquire Foley & Lardner
Post Office Box 508 Tallahassee, Florida 32302-0508
Thomas J. Jones, Esquire Eleanor A. Joseph
John Alford, Esquire Holland & Knight
Post Office Drawer 810 Tallahassee, Florida 32302
Lesley Mendelson Senior Attorney
Department of Health and Rehabilitative Services
Fort Knox Executive Center 2727 Mahan Drive, Suite 103
Tallahassee, Florida 32308
Charles D. Hood, Jr., Esquire Monaco, Smith, Hood
& Perkins
Post Office Box 15200
444 Seabreeze Boulevard Suite 900
Daytona Beach, Florida 32115
Sam Power, Clerk Department of Health and
Rehabilitative Services 1323 Winewood Boulevard
Tallahassee, Florida 32399-0700
| Issue Date | Proceedings |
|---|---|
| May 23, 1990 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Jul. 25, 1990 | Agency Final Order | |
| May 23, 1990 | Recommended Order | Financial feasibility not demonstrated where feasibility of nonreviewable part of facility that was to carry portion of operating expenses not shown |
