STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RHPC, INC., d/b/a RIVERSIDE )

HOSPITAL, )

)

Petitioner, )

)

vs. ) CASE NO. 91-5736

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES and )

HCA HEALTH SERVICES OF ) FLORIDA, INC., d/b/a BAYONET ) POINT/HUDSON MEDICAL CENTER, )

)

Respondents. )

)

RECOMMENDED ORDER

On November 5 and 6, 1991, a formal administrative hearing was held in this case in Tallahassee, Florida, before J. Lawrence Johnston, Hearing Officer, Division of Administrative Hearings.

APPEARANCES

For Petitioner: William L. Hyde, Esquire

Roberts, Baggett, LaFace & Richard

101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302

For HRS: Edward Labrador, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 2727 Mahan Drive

Fort Knox Executive Center Tallahassee, Florida 32308

For Bayonet Point: No Appearance.

STATEMENT OF THE ISSUE

The issue in this case is whether the Respondent, the Department of Health and Rehabilitative Services (HRS), should grant the application of the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds.

PRELIMINARY STATEMENT

Riverside commenced this proceeding by filing a Petition for Formal Administrative Proceedings, and later an Amended Petition for Formal

Administrative Proceedings, both on HRS' notice of intent to deny of its application, CON Action No. 6582, as well as HRS' notice of intent to grant the application of HCA Health Services of Florida, Inc., d/b/a Bayonet Point/Hudson Medical Center (Bayonet Point), CON Action No. 6583, for the addition of 56 beds. The applications had been filed in the review cycle for Pasco County, Florida, HRS Service District V, having an application filing deadline of March 25, 1991.

In part, the Riverside petition stated: "Riverside's substantial interests have been adversely affected by the intended agency action because the applications of Riverside and Bayonet Point are mutually exclusive and because based upon a comparative review, HRS intends to approve the application of Bayonet Point in lieu of the approval of the Riverside application. . . .

Approval of the Bayonet Point application will adversely affect the efficiency, extent of utilization, and financial circumstances of Riverside. The location of additional beds at Bayonet Point will constitute an unnecessary duplication of health services and is inappropriate so as to be adverse to Riverside's substantial interests in serving the health care needs of the same service area population." From a fair reading of the Riverside petition, taken as a whole, Riverside's position was that its application should have been granted instead of the Bayonet Point application, not that both applications should have been granted.

The Riverside petition was referred to the Division of Administrative Hearings for formal administrative proceedings on September 5, 1991. Bayonet Point intervened and took the position that final hearing should be scheduled in accordance with the requirements of Section 381.709(5)(b), Fla. Stat. (1989).

Final hearing was scheduled for November 4 through 8, 1991.

On October 30, 1991, Riverside filed the Petitioner's Notice of Voluntary Dismissal "with prejudice concerning its challenge . . . to the intended issuance . . . of Certificate of Need Application No. 6583 to HCA Health Services of Florida, Inc., d/b/a Bayonet Point/Hudson Medical Center," and the parties filed a Stipulation "that HCA's application should be remanded to HRS for the entry of a final order granting CON #6583 with such conditions as HRS may impose." Jurisdiction was relinquished to HRS for that limited purpose and was retained for other purposes.

Riverside moved to continue the hearing for one day, and final hearing was held on November 5 and 6, 1991.

At the beginning of the final hearing in this case, the parties stipulated that Riverside meets the certificate of need application review criteria set out in Section 381.705(1)(c), (m) and (n), Fla. Stat. (1989), and that the criteria set out in Section 381.705(1)(e), (f), (g), (j) and (k), Fla. Stat. (1989), are not applicable to the Riverside application. Of the remaining statutory review criteria, and the review criteria set out in F.A.C. Rule Chapter 10-5, the issues tried at final hearing primarily involved: (1) whether Riverside proved the need for the 31 additional beds applied for in its application; and (2) whether the project described in the application is financially feasible.

At the final hearing, contrary to the position taken in its Amended Petition for Formal Administrative Proceedings, Riverside took the position that the Bayonet Point application had been granted based on need shown by high occupancy rates during the "base period" for projecting need, taking outpatient "observation days" as well as inpatient census into account, and that,

regardless of the approval of the Bayonet Point application, CON Action No. 6583, the same analysis shows the need for 31 additional beds at Riverside.

At the final hearing, Riverside called four of its own witnesses and also called one HRS employee as an adverse witness. Riverside also had Riverside Exhibits 1 through 16 admitted in evidence. HRS called two witnesses, and had HRS Exhibit 1 identified but did not seek to have the exhibit admitted in evidence. Bayonet Point did not participate in the hearing.

At the conclusion of the hearing, Riverside ordered the preparation of a transcript of the final hearing, and the parties requested 14 days from the filing of the transcript for filing proposed recommended orders. The transcript was filed on December 2, 1991. However, the parties asked for two extensions of time for the filing of proposed recommended orders, the second one extending the time to January 8, 1992. Explicit rulings on the proposed findings of fact contained in the parties' proposed recommended orders may be found in the attached Appendix to Recommended Order, Case No. 91-5736.

FINDINGS OF FACT

1. The Applicant and the Application.

   
   

   1. The applicant, the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), is a 102 bed acute care hospital 1/ located at 6600 Madison Street, New Port Richey, Florida, in the West Pasco County Subdistrict of HRS Service District 5, which also includes Pinellas County and East Pasco County. Included among its complement of beds are 14 obstetrical (OB) beds. There are no existing pediatric beds.

      
      

   2. Riverside's application is for a certificate of need to spend approximately $2,000,000 to renovate its existing OB unit, add 14 beds to the OB unit, add 11 medical/surgical beds and add six pediatric beds.

      
      

      The addition of the pediatric unit will be accomplished by relatively minor alterations to existing space and existing beds, and the cost attributable to this phase of the application is negligible.

      
      

      Similarly, the 11 additional med/surg beds will be accomplished by adding beds to existing private rooms, to create semi-private rooms, at a cost of only approximately $44,000. (Gas and electric lines for the additional beds already have been run to the headwall of these rooms and can be connected without difficulty or much expense.)

      
      

      Most of the $2 million total capital expenditure proposed in the application is attributable to the cost of modernizing the OB unit, with the addition of 14 beds in the process. The addition of 14 beds to the unit does not add significantly to what the modernization effort would cost without the addition of the 14 beds. The proposed new OB unit would include private rooms, to go along with the semi-private rooms that make up the existing 14-bed unit. In addition, the proposed modernized 28-bed OB unit would consist of the combined labor/delivery/recovery/post-partum (LDRP) rooms now preferred by most patients.

      
      

2. Pertinent State Health Plan Provision.

   
   

   1. The 1989 State of Florida Health Plan states at the outset of a list of preferences to be utilized in comparing applications for additional acute care beds:

      No additional acute care beds should generally be approved unless the subdistrict occupancy rate is at or exceeds 75 percent, or, in the event of an existing facility, an applicant shall demonstrate that the occupancy rate for the most recent 12 months is at or exceeds 80 percent.

      
      

3. The Need Methodology.

   
   

   1. Using the F.A.C. Rule 10-5.038 methodology, the district and subdistrict would show numeric need of approximately 201 and 230, respectively. See F.A.C. Rule 10-5.038(5).

      
      

   2. Regardless of the calculated bed need, HRS does not normally approve additional beds in a subdistrict unless the annual average acute care bed occupancy rate is 75 percent or higher during the 12-month base period of July, 1989, through June, 1990. See F.A.C. Rule 10-5.038(7)(d). The 670 licensed beds in the West Pasco Subdistrict reported only 68.92% occupancy during the 12- month base period, resulting in no projected need for additional acute care beds in the subdistrict for the applicable 1996 planning horizon.

      
      

   3. Even when a subdistricts's need for additional acute care beds projected by the methodology is zero, an application by an existing hospital still may be approved where that hospital's annual average occupancy rate exceeds 75 percent for the 12-month base period (again, in this case, from July, 1989, through June, 1990.) See F.A.C. Rule 10-5.038(7)(e).

      
      

   4. During the 12-month base period from July, 1989, through June, 1990, Riverside's occupancy averaged 72.40%, not high enough to be approved under

      F.A.C. Rule 10-5.038(7)(e).

      
      

4. Observation Bed Days.

   
   

   1. Three types of beds days are included in a category of so-called "outpatient observation bed days." First, "twenty-three hour patients" are patients who are not eligible for inpatient services under the Health Care Finance Administration (HCFA) criteria for the Medicare program. Second, "observation patients" are similar non-Medicare patients. Third, some outpatients (or ambulatory surgery patients) also use beds for part of a day.

      
      

   2. With new cost containment and review/regulation developments in hospital care, more patients are spending up to 23 hours in the hospital before a decision is made that further hospitalization in not needed. As a result, "observation" bed use has increased.

      
      

   3. Outpatient observation services have been recognized and defined by HCFA. Blue Cross and Blue Shield of Florida (the Medicare intermediary) and the Health Care Cost Containment Board (HCCCB) have addressed issues such as reimbursement, billing and reporting of observation beds. Services are provided to "observation bed" patients under doctor's orders, including diagnostic services, observation and monitoring by nursing personnel and/or medical intervention or treatment.

      
      

   4. Calculation of occupancy rates under the HRS need methodology does not take into account the so-called "observation bed days." 2/

   5. There was no evidence that any part of District V or the West Pasco Subdistrict are inaccessible geographically.

      
      

5. Other Need Factors.

   
   

   1. The evidence showed that there is a seasonal peak utilization and occupancy of acute care beds in District V and in the West Pasco Subdistrict during approximately October or November through March or April each year. This seasonal peak is reflected by the statistics. As previously stated, Riverside's occupancy averaged 72.40% during the period from July, 1989, through June, 1990. During the first quarter of 1990, occupancy was 86.83%. Riverside's average occupancy for calendar year 1990 was 73.87%.

      
      

   2. For the period from March, 1990, through February, 1991, average occupancy for Riverside's acute care beds was 71.2%. 3/

      
      

   3. For the period from March, 1990, through February, 1991, occupancy for Riverside's obstetrics beds was 92.9%.

      
      

   4. There is no acute care pediatric unit in the West Pasco subdistrict. Subdistrict residents (as well as others in Riverside's general service area) needing level II pediatric services generally go to a Pinellas County or East Pasco County hospital for them. Given the choice, some but not all of these patients likely would prefer to get these services at Riverside, depending primarily on the severity of the particular medical needs. But the evidence did not quantify the number predicted to switch to Riverside. Also, occupancy of pediatric beds in Pasco county was less than 15% during 1987 and 1988.

      
      

6. Medical Care for the Poor.

   
   

   1. The State Health Plan also notes that the uncompensated care burden on hospitals has grown during the 1980s because of a growing number of low-income persons; simultaneously, the proportion of persons covered by Medicaid has dropped. Numerous statewide studies, moreover, have shown that hospitals' uncompensated care is increasing at the same time that their ability to absorb the cost of care is decreasing.

      
      

   2. Riverside's predecessor bought the hospital from Pasco County in 1982. As a condition to the purchase, Riverside's predecessor agreed to provide Medicaid and indigent care for Pasco County in perpetuity. When Riverside purchased the hospital on December 29, 1983, it assumed the contractual obligation to provide Medicaid and indigent care in perpetuity.

      
      

   3. Riverside is a disproportionate share provider within the meaning of the State and local health plans. Approximately, 13% of Riverside's total annual patient days are for Medicaid patients. In 1990, 2,647 of Riverside's obstetrical, and 4,272 of its non-obstetrical patient days, were Medicaid. Riverside's charity care deduction from gross patient revenue for fiscal year 1990 was 1.07% of gross patient revenue. Riverside's Medicaid deduction from gross patient revenue for fiscal year 1990 was 5.96% of gross patient revenue. Approximately, 14.8% of Riversides's services go to Medicaid and indigent patients.

      
      

   4. Although Riverside has only 14% of the beds in the West Pasco subdistrict, it does more than 90% of the non-emergency, non-OB Medicaid care.

   5. Approval of the Riverside application would enable Riverside to spread its administrative and overhead costs over a larger base, thereby reducing average charges.

      
      

   6. Approval of the Riverside application also would make Riverside more profitable and thereby better able to absorb the cost of the Medicaid and indigent care it provides.

      
      

   7. If Riverside converts existing acute care beds to pediatric or OB beds, it probably would have to squeeze out paying patients during seasonal occupancy peaks, thereby losing more revenue and profits.

      
      

7. Competition.

   
   

   1. If the Riverside application is approved, Riverside's share of the market represented by the West Pasco subdistrict will rise from approximately 14% to approximately 18%. HCA controls the rest of the market.

      
      

   2. There are no existing OB beds in the West Pasco subdistrict other than at Riverside. The HCA hospital in New Port Richey had an OB unit which it recently abandoned. As a result of the grant of Bayonet Point's application, CON Action No. 6583, with which Riverside had been in direct competition in this application review cycle, Bayonet Point now is approved for a seven-bed OB unit as part of its bed complement.

      
      

   3. Upgrading its existing OB unit and adding 14 more OB beds will enable Riverside to capture more private paying patients, which will better enable it to compete with the HCA hospitals. At present, Riverside's OB unit is utilized almost exclusively by indigent and Medicaid patients because of the hospital's contract with Pasco County. This unit now is operating at close to absolute capacity. With the upgrades and additional beds, Riverside can work to capture some private pay patients; without them, Bayonet Point will capture the private pay patients.

      
      

8. Financial Feasibility.

1. Riverside operated at a deficit from 1983 essentially to the present. By the end of 1990, Riverside had accumulated a deficit of $8.8 million.

   
   

2. Riverside's corporate parent, American Healthcare Management, Inc. (AHM), was funding the deficit. From 1985 through December, 1989, AHM was in Chapter 11 bankruptcy proceedings. During that time period, there was legitimate concern whether AHM would be able to continue to fund Riverside deficits.

   
   

3. AHM emerged from bankruptcy in December, 1989, stronger financially. It has since become stronger still. AHM reduced its debt by approximately $88 million. Part of the debt reduction was achieved by the sale of $43 million of underperforming assets. In addition, $45 million of bond debt was exchanged for common stock on September 30, 1991. The interest savings on the bond-for-stock exchange is $6 million a year. As a result, AHM's current debt-to-equity ratio is approximately $160 million to $130 million.

   
   

4. AHM's corporate staff has been reduced from about 102 to 65. Its corporate office were transferred from expensive quarters in Dallas, Texas, to less expensive quarters in King of Prussia, Pennsylvania. Corporate expenses have been greatly reduced as a result. Accounts receivable have been reduced by

   better collection methods, and the $43 million of assets sold to reduce corporate debt had been underperforming.

   
   

5. AHM had $21 million cash and short-term investments as of December 31, 1989. As of the date of the final hearing, it had $18 million cash and short- term investments.

   
   

6. Riverside's gross margin (profit) for the first nine months of 1991 was $4 million. After depreciation, amortization, and interest and home office costs, Riverside generated approximately $1.2 million for the first nine months of 1991. Internal cash flow generated by AHM and Riverside would be sufficient to finance Riverside's application project.

   
   

7. Since the capital costs of Riverside's proposed project are relatively small, financial feasibility is relatively easy to achieve. Besides costing relatively little, the 31 new beds will not increase intercompany interest or management fees significantly. In addition, the 31 new beds would enable Riverside to better compete for private pay patients. Given the expected utilization of the new beds, the proposed project will be to the financial benefit of the applicant.

   
   

8. The pro forma bears this out. It projects 75.11% occupancy for the 31 new beds in the second year of operation (July, 1994, to June, 1995). (This projection does not include expected "observation bed days.") A profit of

   $2,477,199 for the 31 beds is projected for the second year of operation (not counting any portion of the preexisting intercompany interest or management fees).

   
   

   CONCLUSIONS OF LAW

   
   

9. Section 381.705(1)(a), Fla. Stat. (1989), measures applications on the basis of the need for the health care facilities and services in relation to the applicable district plan and state health plan.

   
   

   1. Need Methodology.

      
      

10. Section 381.704(3), Florida Statutes, requires HRS to establish, by rule, uniform need methodologies for health services and health facilities. The uniform methodology for determining need for acute care hospital beds is found in F.A.C. Rule 10-5.038.

    
    

    3. F.A.C. Rule 10-5.038(2) provides: Department Goal. The Department will consider applications for acute care hospital beds in context with all applicable statutory and rule criteria. The Department will not normally approve applications for new or additional acute care hospital beds in any departmental service district if approval of an application would cause the number of beds in that district to exceed the number of beds calculated to be needed according to the methodology included

    in subsections (6), (7) and (8) below. A favorable certificate of need determination may be made when the criteria other than bed need, as provided for in Section 381.705, Florida Statutes, demonstrate need.

11. F.A.C. Rule 10-5.038(7)(d) provides that, regardless of the district bed allocation calculated based on the formula described in paragraphs (5)(b), (7)(a), (b), and (c) and (8)(a), (b), and (c), HRS shall not normally approve applications for new or additional acute care hospital beds in any acute care subdistrict unless the average occupancy rate for all existing acute care hospital beds is at or exceeds 75% in the subdistrict, or the provisions of subsection (9) are met. (F.A.C. Rule 10-5.038(9) sets out geographic accessibility considerations that are not met in this case.) The determination of the average occupancy rate is made "based on the most recent average 12 months occupancy rate, reported by quarter, available to HRS two months prior to the letter of intent submission deadline marking the beginning of the batching cycle." (As reflected in the findings of fact, this 12-month base period was July, 1989, through June, 1990, in this case.)

    
    

12. Under the foregoing rules, and in particular F.A.C. Rule 10- 5.038(7)(d), the Riverside application would not normally be approved.

    
    

13. F.A.C. Rule 10-5.038(7)(e) provides that, regardless of the subdistrict's average annual occupancy rate, an application submitted by an existing hospital for additional acute care beds may be approved if a net need for beds is shown based on the need methodology formula and occupancy of licensed beds is at or exceeds 75%. For purposes of this provision, the determination of the average occupancy rate is made "based on the most recent average 12 months occupancy rate made available by the local health council two months prior to the beginning of the respective acute care hospital batching cycle." (Again, as reflected in the findings of fact, this 12-month base period was July, 1989, through June, 1990, in this case.) Even under this provision, approval of the Riverside application is not authorized.

    
    

14. Riverside has not contended, and did not prove, that circumstances are not "normal" in this case. Rather, Riverside pointed to treatment given to Bayonet Point's application and argues that its application should be given the same favorable treatment. Riverside's argument fails for two reasons.

    
    

15. First, as found, HRS did not treat the Bayonet Point application as Riverside alleges it did. The evidence was contrary to Riverside's allegation that HRS used Bayonet Point's "observation bed days" to boost its occupancy over the 75% threshhold referred to in F.A.C. Rule 10-5.038(7)(e). Instead, HRS considered factors cited in Bayonet Point's application indicating that, during the 12-month period from April, 1990, through March, 1991, Bayonet Point's occupancy, excluding "observation bed days," averaged 79.5%. (Including the "observation bed days," occupancy for that period averaged 86.2%.) In contrast, Riverside's application was unable to cite any 12-month period of time during which overall occupancy, without reference to "observation bed days," averaged 75% or better. Nor did the evidence at final hearing demonstrate any 12-month period of time during which overall occupancy averaged 75% or better (without taking "observation bed days" into consideration.)

    
    

16. Second, having stipulated to approval of the Bayonet Point application and issuance of the Bayonet Point CON, Riverside cannot now be heard to contend that it is unfair to grant the Bayonet Point application and deny its application. The time and place to raise and litigate that issue was in comparative review proceedings in which the Hearing Officer, and ultimately HRS, would have the opportunity to evaluate the evidence and arguments and decide which application, if either, should be approved.

    1. Other Statutory Criteria.

       
       

17. Under F.A.C. Rule 10-5.038(2), there being no need under the methodology, a favorable determination of Riverside's certificate of need application may be made only when the criteria other than bed need, as provided for in Section 381.705, Florida Statutes, demonstrate need.

    
    

18. Section 381.705(1)(b), Florida Statutes, considers the question of "availability, quality care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing care services and hospices in the service district of the applicant." Riverside's proposal would provide quality care at a reasonable cost. Except for the lack of need as determined by the rule methodology, Riverside's proposal efficiently provides services. Riverside's proposal would provide acute health care services at a relatively low charge to the patient. But these factors alone do not demonstrate need.

    
    

19. Section 381.705(1)(c), Florida Statutes, speaks to "the ability of the applicant to provide quality of care and the applicant's record of providing quality of care." The parties stipulate that Riverside meets this criterion. But this factor alone does not demonstrate need.

    
    

20. Section 381.705(1)(d), Florida Statutes, examines applications on the basis of "the availability and adequacy of other health care facilities and services . . . ." In terms of numbers alone, the bed need methodology controls the determination whether other health care facilities and services are available and adequate.

    
    

21. There was evidence that Riverside is a disproportionate share provider of Medicaid services. There also was evidence that the approval of its application would enable Riverside to better compete with Bayonet Point, while continuing to provide the same level of Medicaid services, especially in the area of obstetrics. This evidence may have been enough to establish that the Riverside application is better than the Bayonet Point application. But, having stipulated to the approval of Bayonet Point's application, and the issuance of its CON, Riverside has waived the argument that its application is better than the Bayonet Point application. Neither the Riverside application nor its evidence presented at final hearing demonstrate that the health care facilities and services are needed to enable Riverside to continue to provide the same level of Medicaid services.

    
    

22. Section 381.705(1)(e), Florida Statutes, as a review standard, deals with "probable economies and improvements in service" that may be derived from shared resources. The parties stipulate that this criterion is not applicable.

    
    

23. Section 381.705(1), paragraphs (f) and (g), Florida Statutes, deal with special equipment and research and education. The parties stipulate that this criterion is not applicable.

    
    

24. Section 381.705(1)(h), Florida Statutes, as a review standard, requires the consideration of available resources to accomplish proposed projects. Riverside has demonstrated that there are available staff and resources within its community. Riverside can obtain the needed staff and resources. But these factors are not related to need.

    
    

25. Section 381.705(1)(i), Florida Statutes, speaks to the immediate and long-term financial feasibility of proposals. As found, the Riverside application is financially feasible. New evidence, not available at the time of

    the application, demonstrates that both Riverside and its parent company can afford to make the $2 million investment needed to make the capital improvements proposed in the Riverside application. The new evidence, not available at the time of the application, also demonstrates that the investment would result in long-term improvement in Riverside's financial position, the most relevant test of the financial feasibility of a project. The new evidence, not available at the time of the application, also demonstrates that Riverside, and its parent company, can cover any operational losses that reasonably might be anticipated in the short term. However, unless proven necessary to the continued viability of a needed health care facility or service, a project's financial feasibility, in itself, is not sufficient to demonstrate need. Neither the Riverside application nor its evidence presented at final hearing demonstrate that the health care facilities and services are needed to the continued viability of Riverside or any of the health services it provides.

    
    

26. Section 381.705(1), paragraghs (j) and (k), Florida Statutes, deal with health maintenance organizations and with health care facilities that provide a substantial portion of their health care services to non-residents of the service district. The parties stipulate that this criterion is not applicable.

    
    

27. Section 381.705(1)(l), Florida Statutes, requires a consideration of the probable impact of the proposed project on the costs of providing health services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and services to promote quality assurance and cost-effectiveness. This criterion favors approval of the Riverside application. Riverside's approval would better enable it to compete with Bayonet Point and the HCA New Port Richey Hospital, especially for paying obstetrical patients. This competition likely would create some incentive for HCA to reduce its charges towards the generally lower charges at Riverside for the same services.

    
    

28. Section 318.705(1)(m), Florida Statutes, deals with the costs and methods of the proposed construction, including the costs and methods of energy provision and the availablility of alternative, less costly, or more effective methods of construction. Riverside's costs and methods of proposed construction reasonably could not be less costly or more effective. However, if the proposal is not needed, the most cost-effective alternative would be not to build at all.

    
    

29. Section 381.705(1)(n), Florida Statutes, concerns the applicant's past and proposed provision of health care services to medicaid and charity patients. Riverside has a history of providing significant health care services to Medicaid and charity patients. It is a disproportionate share provider of Medicaid services. It has a contract with Pasco County to provide Medicaid services to any county resident seeking them.

    
    

30. Section 381.705(2), Florida Statutes, addresses required findings in cases of capital expenditure proposals for the provision of new health services to inpatients. In the case of Riverside's application, the only new service being proposed is pediatric beds.

    
    

31. In regard to subparagraph (a), as mentioned in Conclusion of Law 19, above, assuming a need, there would be no practicable less costly, more efficient, or more appropriate alternative to the Riverside proposal. However,

    if the proposal is not needed, the most cost-effective alternative, from a health planning standpoint, would be not to build at all.

    
    

32. In regard to subparagraph (b), except as might relate to the unoccupied existing beds in District V (which is taken into account by the rule methodology for projecting need for acute care beds), existing inpatient facilities providing pediatric beds are being used in an appropriate and efficient manner.

    
    

33. Subparagraph (c), dealing with new construction, does not apply to the Riverside application.

    
    

34. In regard to subparagraph (d), pediatric patients residing in the West Pasco Subdistrict who would prefer to obtain those services close to home now have to travel to Pinellas County or to the East Pasco Subdistrict. For those patients, this can be seen as a problem. But Riverside did not prove that, overall, patients will experience serious problems if the Riverside application is not granted. (Riverside did not prove that the pediatric beds are geographically inaccessible under F.A.C. Rule 10-5.038(9).)

    
    

35. Subparagraph (e), dealing with the addition of beds for the provision of skilled nursing or intermediate care services, new construction, does not apply to the Riverside application.

    
    

    1. State and Local Health Plans.

       
       

36. The 1989 State of Florida Health Plan states at the outset of a list of preferences to be utilized in comparing applications for additional acute care beds:

    
    

    No additional acute care beds should generally be approved unless the subdistrict occupancy rate is at or exceeds 75 percent, or, in the event of an existing facility, an applicant shall demonstrate that the occupancy rate for the most recent 12 months is at or exceeds 80 percent.

    
    

    The Riverside application does not meet this requirement of the State Health Plan.

    
    

37. The other preferences in the State Health Plan, by their terms, applicable only in the evaluation of competing applicants. Now that Bayonet Point's application has been approved and its CON issued, the Riverside application would not receive "preferences" under the State Health Plan. In addition, the expressed preference for an applicant with a history of providing a disproportionate share of the subdistrict's charity care and Midecaid patient days is conditioned on the showing of acute care bed need.

    
    

38. Similar to the State Health Plan, it appears that the preferences in the District V Local Health Plan, strictly speaking, are applicable only in the evaluation of competing applicants. By its clear terms, the preference given to an applicant who can document an 80% existing subdistrict medical/surgical bed inventory occupancy and a 65% existing subdistrict pediatric bed inventory occupancy applies only if a numeric bed need exists as shown by the state bed methodology. There is no indication that the preferences in the Local Health

    Plan are intended or designed to apply where there is no need shown by the HRS uniform need methodology.

    
    

    1. Other Rule Criteria.

       
       

39. F.A.C. Rule 10-5.030 provides that, in addition to criteria set forth in Section 381.705, Florida Statues, the following criteria "are used" in the review of an application:

    
    

    (2) Health Care Access Criteria.

    1. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the

       district, and in particular low income persons, racial and ethnic minorities, women, handi- capped persons, other underserved groups and the elderly, are likely to have access to

       those services.

    2. [Not applicable.]

    3. The contribution of the proposed services in meeting the health needs of members of such medically underserved groups, particularly those needs identifed in the applicable local health plan and State health plan as deserving of priority.

    4. In determining the extent to which a pro- posed service will be accessible, the following will be considered:

    1. The extent to which medically underserved individuals currently use the applicant's services, as a proportion of the medically underserved population in the applicant's proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved;

    2. The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons

       to programs receiving Federal financial assis- tance, including the existence of any civil rights access complaints against the applicant;

    3. The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and

    4. The extent to which the applicant offers a range of means by which a person will have access to its services.

    
    

    F.A.C. Rule 10-5.030 does not advise how the criteria are to "be used." It states in paragraph (e) of the rule that, in cases where an applicant does not satisfy the criteria specified in paragraphs (a) through (d), HRS may, if its approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria.

    1. Balanced Consideration.

    
    

40. Riverside, as the applicant, has the burden of establishing its entitlement to the certificate of need for which it has applied. Fla. Dept. of Transp. v. J.W.C. Company, Inc., 396 So. 2d 778 (Fla. 1st DCA 1981). Specifically, it must meet the criteria set forth in Section 381.705, Florida Statutes, and F.A.C. Rule 10-5.038 based upon a "balanced consideration" of all the criteria set forth. Dept. of Health, etc., v. Johnson and Johnson, 447 So. 2d 361 (Fla. 1st DCA 1984). The weight to be given to each factor is not fixed but varies depending on the facts of each case. Northridge General Hospital v. NME Hospitals, 478 So. 2d 1138 (Fla. 1st DCA 1985).

    
    

41. Based upon a balanced consideration of the relevant statutory and rule criteria, it is concluded that Riverside did not meet its burden of establishing its entitlement to the certificate of need for which it has applied.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that HRS enter a final order denying the Riverside application for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds.

RECOMMENDED this 28th day of January, 1992, in Tallahassee, Florida.

J. LAWRENCE JOHNSTON 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 28th day of January, 1992.

ENDNOTES

1/ Riverside also has 20 rehabilitation beds.

2/ Riverside's presentation at final hearing was based on an assumption that HRS took the so-called "observation bed days" into account in approving the Bayonet Point application. (Taking the observation bed days into account in considering the Riverside application would result in average occupancy of 78.6% for the period July, 1989, through June, 1990.) But the evidence did not prove the facts assumed. To the contrary, the evidence was that HRS never has taken the so-called "observation bed days" into account in calculating occupancy rates under the methodology. Rather, the evidence was that HRS considered the representations concerning "observation bed days" contained in the Bayonet Point application as part of Bayonet Point's case that "not normal" circumstances warranted granting the Bayonet Point application notwithstanding the absence of need shown under the methodology.

3/ In its application, Bayonet Point cited statistics for the 12-month period from April, 1990, through March, 1991, showing that its average occupancy during that period was 79.5%. Taking the observation bed days into account, the occupancy rate went up to 86.2%. This was a factor in HRS' decision to approve the Bayonet Point application.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-5736

To comply with the requirements of Section 120.59(2), Fla. Stat. (1989), the following rulings are made on the parties' proposed findings of fact:

Petitioner's Proposed Findings of Fact.

1.-3. Accepted and incorporated to the extent not subordinate or unnecessary.

4. Rejected as not proven in that, although it is the only existing provider of OB services, Bayonet Point now has a CON for a 7-bed OB unit. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

5.-9. Accepted and incorporated to the extent not subordinate or unnecessary.

1. Accepted and incorporated to the extent not subordinate or unnecessary. (However, significantly, Riverside stipulated to approval of the Bayonet Point application and issuance of the CON.)

2. Second sentence, rejected as not proven as to the City Council. Rejected as not probative of any relevant fact. Otherwise, accepted but not necessary.

3. In part (the first paragraph), accepted and incorporated. In part (the second and third paragraphs), rejected as not relevant; otherwise, accepted but not necessary.

4. Accepted and incorporated.

14.-15. Rejected as not relevant; otherwise, accepted but not necessary.

16.-20. Accepted and incorporated to the extent not subordinate or unnecessary.

1. Rejected as not proven and, as to the second sentence, argument and conclusion of law. The evidence was that exclusion of the "observation bed days" is not "historical" but rather has continued through the HRS evaluation of the Riverside and Bayonet Point applications.

2. Accepted and incorporated.

23.-25. Accepted and incorporated to the extent not subordinate or unnecessary.

1. Accepted that HRS considered the information Bayonet Point supplied on "observation bed days" as a factor in the evaluation process. But irrelevant and unnecessary in view of the Riverside stipulation for approval of the Bayonet Point application.

2. Rejected in part as not proven in that the 73.9% was for calendar year 1990. Otherwise, accepted and incorporated as a footnote. However, "observation bed days" are not considered under the rule methodology.

3. Rejected as not proven. The evidence was that Bayonet Point did not meet the rule threshhold. Besides, irrelevant and unnecessary in view of the Riverside stipulation for approval of the Bayonet Point application.

29.-32. Rejected as argument and, in view of the Riverside stipulation for approval of the Bayonet Point application, irrelevant and unnecessary.

1. Rejected as not proven.

2. In view of the Riverside stipulation for approval of the Bayonet Point application, irrelevant and unnecessary.

3. Second sentence, accepted and incorporated. The rest is rejected as not proven.

4. Accepted but unnecessary. Riverside did not prove 100% occupancy.

5. Rejected as not proven that HRS treatment of the Riverside application was unreasonable or that HRS "relied on" population fluctuations to approve the

   Bayonet Point application (although population fluctuation was a factor considered.) In view of the Riverside stipulation for approval of the Bayonet Point application, irrelevant and unnecessary. Also, argument.

6. First sentence, rejected as not proven. (Population growth is factored into the rule methodology.) Last sentence, rejected as irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application. The rest is accepted but unnecessary.

39.-41. Rejected as not proven. (Population growth is factored into the rule methodology. Health planning should not be institution specific.)

42. First sentence, accepted and incorporated. Second sentence, second clause, rejected in part as not proven; first clause, accepted and incorporated.

43.-44. Accepted and incorporated to the extent not subordinate or unnecessary. 45.-46. Rejected as irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application. Also, argument.

1. Accepted. Subordinate to facts found.

2. Accepted and incorporated to the extent not subordinate or unnecessary. (In view of the Riverside stipulation for approval of the Bayonet Point application, the Riverside market share now is approximately 14% and would rise to approximately 18% if the application is granted.)

3. Rejected as not proven that it is "clearly in the public interest." Otherwise, accepted that enabling Riverside to better to compete with the HCA hospitals is a factor in favor of granting the Riverside application, and incorporated to the extent not subordinate or unnecessary.

51. Accepted in part (that paying patients could be squeezed out of OB during seasonal peak occupancy) and incorporated. The rest is rejected as being argument.

52.-53. Cumulative.

1. "Perilously close" is rejected as argument. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

2. Last sentence, rejected as overstated and not proven. (It fails to take into consideration the possibility of converting med/surg beds to OB.) The rest is accepted and incorporated to the extent not subordinate or unnecessary.

3. Rejected as not proven and as argument.

4. Last sentence, accepted but unnecessary. The rest is rejected as overstated and not proven.

5. Last sentence, rejected as not proven (and ambiguous.) The rest is accepted and incorporated to the extent not subordinate or unnecessary.

6. The reference to Bayonet Point is rejected as irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

7. First sentence, rejected as argument. The rest is accepted and incorporated to the extent not subordinate or unnecessary.

8. Rejected as argument.

9. Subordinate, unnecessary and argument.

63.-79. Accepted and incorporated to the extent not subordinate or unnecessary.

1. First sentence, rejected as overstated and not proven. Also, argument. The rest is accepted and and incorporated to the extent not subordinate or unnecessary.

2. Rejected as overstated and not proven. Also, argument. (The last sentence is not probative without a time frame.)

3. Accepted but not necessary.

4. Rejected as argument. Hospital growth should be tied to the need for hospital growth. Riverside effectively ceded the growth to Bayonet Point by stipulating to the approval of the Bayonet Point application.

5. Rejected as subordinate to generalities that are not probative to the issues in this case and unnecessary.

6. First sentence, rejected as not proven. "Surely" in last sentence, rejected as overstated and not proven. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary.

7. Accepted and incorporated to the extent not subordinate or unnecessary. 87.-105. Rejected as subordinate and unnecessary. Also, to a great extent, irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application.

Respondent's Proposed Findings of Fact.

1.-7. Accepted but subordinate and unnecessary. 8.-9. Accepted and incorporated.

10.-12. Accepted and incorporated to the extent not subordinate or unnecessary. Also, in part, irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application.

1. Accepted but irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application and in view of the absence of numeric need.

2. Rejected as a conclusion of law that Riverside "partially complied" with the local health plan, which speaks in terms of preferences, not requirements. Third, fourth and fifth sentences are accepted but subordinate to facts found. Also, all of it is irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application and in view of the absence of numeric need.

3. Accepted but, except for the first of the three quoted paragraphs, irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application and in view of the absence of numeric need.

4. Rejected as a conclusion of law that Riverside "partially complied" with the parts of the state health plan that speak in terms of preferences, rather than requirements. Accepted and incorporated that Riverside did not comply with the first of the three quoted paragraphs of the state health plan.

5. Accepted and incorporated.

6. First sentence, rejected as contrary to the greater weight of the evidence that Riverside did not prove "that problems exist." The rest is accepted and incorporated to the extent not subordinate or unnecessary.

7. Accepted but subordinate and unnecessary and irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application.

8. Accepted and incorporated to the extent not subordinate or unnecessary.

9. First sentence, rejected as incoherent (that a project is "evidenced by . .

. utilization." Second sentence, rejected as subordinate and unnecessary and irrelevant in view of the Riverside stipulation for approval of the Bayonet Point application.

22.-23. Accepted but subordinate to facts found.

24. Accepted and incorporated.

25.-31. Accepted (all based on 1990 financial statements) but subordinate to facts contrary to those found, and unnecessary.

1. Rejected as not proven that Riverside "is in" a weak financial position, the ratios reflecting only the 1990 financial statements.

2. Accepted and incorporated to the extent not subordinate or unnecessary.

34.-35. Accepted but, since the intercompany interest and management fees would exist regardless of the proposed project, not truly reflective of the financial feasibility of the proposed project, which would be to Riverside's financial benefit.

1. Last sentence, rejected as contrary to facts found and to the greater weight of the evidence. The rest is accepted but subordinate to facts contrary to those found.

2. First sentence, accepted but subordinate and unnecessary. (Riverside does not contend that it has no competition, but rather that it has formidable competition in the form of the HCA hospitals. Without Riverside, there would be no competition. To the extent that Riverside is a weak competitor, HCA would be able to dominate and act with less regard to its competition.) Second sentence,

   rejected as subordinate to facts contrary to those found and to the greater weight of the evidence.

3. First sentence, rejected as subordinate to facts contrary to those found and to the greater weight of the evidence. Second sentence, accepted and subordinate to facts found.

4. Rejected as subordinate to facts contrary to those found and to the greater weight of the evidence.

COPIES FURNISHED:

William L. Hyde, Esquire

Roberts, Baggett, LaFace & Richard

101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302

Edward Labrador, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 2727 Mahan Drive

Fort Knox Executive Center Tallahassee, Florida 32308

John Radey, Esquire

Aurell, Radey, Hinkle & Thomas

101 North Monroe Street, Suite 1000 Post Office Drawer 11307 Tallahassee, Florida 32302

R. S. Power, Esquire Assistant General Counsel Agency Clerk

Department of Health and Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

John Slye, Esquire General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

ALL PARTIES HAVE THE RIGHT TO SUBMIT TO THE DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES WRITTEN EXCEPTIONS TO THIS RECOMMENDED ORDER. ALL AGENCIES ALLOW EACH PARTY AT LEAST TEN DAYS IN WHICH TO SUBMIT WRITTEN EXCEPTIONS. SOME AGENCIES ALLOW A LARGER PERIOD WITHIN WHICH TO SUBMIT WRITTEN EXCEPTIONS. YOU SHOULD CONSULT WITH THE DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES CONCERNING ITS RULES ON THE DEADLINE FOR FILING EXCEPTIONS TO THIS RECOMMENDED ORDER.

Docket for Case No: 91-005736

Orders for Case No: 91-005736