STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SACRED HEART HOSPITAL OF PENSACOLA, )

)

Petitioner, )

vs. ) CASE NO. 93-6207RU

) AGENCY FOR HEALTH CARE ADMINISTRATION, )

)

Respondent. )

and )

) WEST FLORIDA REGIONAL MEDICAL CENTER, ) INC. d/b/a WEST FLORIDA REGIONAL MEDICAL ) CENTER and BAPTIST HOSPITAL, INC., )

)

Intervenors. )

)

FINAL ORDER

A formal hearing was held in this case on May 3-6, 9-13, 16-19, 23-24, 1994, before Eleanor M. Hunter, the Hearing Officer designated by the Division of Administrative Hearings, in Tallahassee, Florida.

APPEARANCES

For Petitioner, William Wiley, Attorney At Law Sacred Heart: Darrell White, Attorney At Law

Charles A. Stampelos, Attorney At Law McFarlain, Wiley, Cassedy & Jones

600 First Florida Bank Building

215 South Monroe Street Tallahassee, Florida 32301

For Respondent, Richard Patterson, Attorney At Law Agency for Agency for Health Care Administration Health Care 325 John Knox Road

Administration: Tallahassee, Florida 32303

For Intervenor, Jeffrey Frehn, Attorney At Law West Florida John Radey, Attorney At Law

Regional Aurell, Radey, Hinkle, Thomas & Baranek Medical 101 North Monroe Street, Suite 1000 Center, Inc.: Post Office Drawer 11307

Tallahassee, Florida 32302

For Intervenor, Michael J. Cherniga, Attorney At Law Baptist Greenberg, Traurig, Hoffman Hosopital: Post Office Drawer 1838

Tallahassee, Florida 32302

and

John A. Rudolph, Jr., Attorney At Law

W. Dexter Douglass, Attorney At Law Douglass & Powell

Post Office Box 1674 Tallahassee, Florida 32302

STATEMENT OF THE ISSUES

The issue for determination is whether an agency statement, and criteria used in support of the statement, constitute a rule under Subsection 120.52(16), Florida Statutes (1993), whether the statement and criteria have been adopted as a rule pursuant to Section 120.54, Florida Statutes (1993), and whether the statement and criteria violate Subsection 120.535(1), Florida Statutes (1993).

PRELIMINARY STATEMENT

Sacred Heart Hospital of Pensacola ("Sacred Heart") filed a Petition for Formal Administrative Determination of an Agency Statement pursuant to Subsection 120.535(2), Florida Statutes (1993), and a More Definite Statement. The case was assigned Case No. 93-7207RU, and upon motion filed by Sacred Heart, this case was consolidated for hearing with the Section 120.57 challenges in Cases Nos. 93-4886 and 93-4887. In those cases, Sacred Heart and West Florida Regional Medical Center ("West Florida") challenged the Agency for Health Care Administration's ("AHCA") preliminary approval of Certificate of Need ("CON") No. 7184 to Baptist Hospital, Inc. ("Baptist"), for the establishment of an adult open heart surgery program. See, West Florida Regional Medical Center, Inc., d/b/a West Florida Regional Medical Center, et al. v. Agency For Health Care Administration and Baptist Hospital, Inc., Case Nos. 93-4886 and 93-4887 (R.O. 11/18/94). At the final hearing on the consolidated cases, Sacred Heart's exhibit 40 was received solely for consideration in this section 120.535 proceeding. Exhibit 40 contains State Agency Action Reports ("SAARs") issued by AHCA or its predecessor in 1987, 1990 and 1992, in response to Baptist's prior applications for adult open heart surgery services. The transcript of the proceedings was filed with the Division of Administrative Hearings on July 5, 1994. Proposed final orders were filed on September 1, 1994.

FINDINGS OF FACT

1. Sacred Heart initiated this proceeding by filing a Petition alleging that, in reviewing the Baptist application, AHCA developed a statement which violates the provisions of Section 120.535(1), Florida Statutes, because the statement should have been promulgated as a rule. The statement, as described by Sacred Heart, is as follows:

   
   

   The Agency may, in its discretion, approve a CON application to establish an adult open

   heart surgery program notwithstanding findings by it that: 1) Need is not indicated pursuant

   to Florida Administrative Code Rule 59C-1.033(7)(c), i.e., approval of a new program will reduce the

   12 month total to an existing adult open heart surgery program in the district below 350 open

   heart surgery operations; (2) the applicable fixed need pool for adult open heart surgery programs in the District is zero; and, (3) the application failed to demonstrate "not normal" circumstances justifying the approval of its application.

   
   

2. By contrast, Rule 59C-1.033(7)(c) establishes the formula for determining numeric need and also provides:

   
   

   (c) Regardless of whether need for a new adult open heart surgery program is shown in paragraph

   (b) above, a new adult open heart surgery program will not normally be approved for a district if the approval would reduce the 12 month total at an existing adult open heart surgery program in the district below 350 open heart surgery opera- tions. . . .

   
   

3. In reaching the preliminary decision to approve the Baptist application, various AHCA staff considered and discussed the facts presented, and the merits of the Baptist application.

   
   

4. Dr. James T. Howell, the AHCA Division Director for Health Policy and Cost Containment, made the decision to approve the Baptist open heart surgery CON, because of Baptist's substantial, active, sophisticated cardiology program, its status as a high disproportionate share provider, its size, and because the results of the numeric need calculation and the formula for determining the reduced volume at existing providers were close to that required by rule.

   
   

5. In February, 1993, after the numeric need publication and prior to the filing of the application at issue in this case, Dr. Howell, Albert Granger, and Robert Sharpe of AHCA met with the Mayor of Pensacola who is also Senior Vice President of Baptist Health Care and President of Baptist Health Care Foundation, and Baptist's Vice President for Planning who expressed frustration over the denials of its prior open heart surgery CON applications. Baptist submitted CON applications for open heart surgery in 1987, 1989, 1991, 1992, and 1993. Among the issues of concern was the status of Sacred Heart and West Florida Regional as grandfathered providers resulting in their having "a permanent franchise." Baptist representatives expressed concern about their ability ever to secure an open heart surgery program under the current rules.

   
   

6. After that meeting, the rule amendment process was initiated to allow consideration of data reported up to 3 months, rather than 6 months prior to the publication of the fixed need pool. At the time the Baptist application for CON 7184 was reviewed, the amendment had not been adopted. No other change in the open heart surgery rule has been made subsequent to the review of the prior Baptist CON application.

   
   

7. When the Baptist application for CON 7184 was filed initially, Laura MacLafferty was assigned as AHCA's primary reviewer. The state agency action report ("SAAR") represents her factual analysis of the application, although she did not and, routinely, does not make recommendations to issue or deny CONs.

8. Ms. MacLafferty and her supervisor, Alberta Granger, are not aware of any AHCA non-rule policy to determine if a calculation of minimum volume is "close" enough to the 350 standard of the rule, nor any agency guidelines to determine when a hospital is "large" or "operates a large cardiology program" which should include open heart surgery.

   
   

9. Subsequent to reviewing the Baptist application, in December 1993, Ms. MacLafferty reviewed another open heart surgery application from District 1, filed on behalf of Fort Walton Beach Medical Center.

   
   

10. In her review of both the Baptist and Fort Walton applications, Ms. MacLafferty found no documentation that patients in District 1 experienced problems with access to open heart surgery services.

    
    

11. Ms. MacLafferty submitted the draft SAAR to a supervisor, Alberta Granger. The draft SAAR was retrieved from her desk, prior to Ms. Granger's reviewing it. It was removed by Elizabeth Dudek, who heads AHCA's CON and health care board sections. Ms. Granger did not review the SAAR, which was prepared by Ms. MacLafferty. The final draft was returned to Ms. Granger for her to sign on July 7, 1993. This was the only time since Ms. Granger became supervisor in the CON office, that she has not reviewed and discussed with Ms. Dudek SAARs prepared by her staff. Ms. Granger had been the primary reviewer of Baptist's 1989 CON application.

    
    

12. Ms. Granger and her supervisor, Ms. Dudek, are aware that in this case and in one or more of its prior CON open heart surgery applications, Baptist argued that its size, scope of cardiology services, and proposed fixed rate structure were reasons to approve its proposal. Ms. Granger stated, and Ms. Dudek confirmed, that the usual procedure was not followed in the review of this and one other application in this batching cycle. In this batching cycle, Dr. Howell requested that Mr. Sharpe, head of AHCA's planning section, also review those two open heart surgery applications.

    
    

13. Ms. Dudek recalls, that prior to 1987, there were two batches of approximately 12 total applications in which agency personnel other than the CON staff was involved in the review of CON applications.

    
    

14. In making his decision on the Baptist application, Dr. Howell consulted Ms. Dudek and Mr. Sharpe. Ms. Dudek, who heads the CON and health care board section, was not initially in favor of the approval of the Baptist application. Mr. Sharpe, head of the planning section, prepared a 9 page analysis of the pros and cons of the Baptist proposal.

    
    

15. The Sharpe analysis demonstrates that an increase of 9 additional open heart surgeries during the 12 month reporting period, and the use of the more current data under the pending rule revision would have resulted in the need for one additional open heart surgery program in District 1. The memorandum also demonstrated that a lower future volume of open heart surgeries is projected by using the actual use rate, as required by Rule 59C-1.033(7)(6)2, rather than a trended use rate. If these adjustments to the data are made to achieve numeric need, then Baptist's application could be approved without a showing of not normal circumstances.

16. The memorandum also reported the October 1991-September 1992 volumes of cardiac cath admissions at Baptist as 2677, at Sacred Heart as 2053, and at HCA West Florida as 1915, with the conclusion that Baptist "had the largest number of cardiac catheterization admissions of the three hospitals." The evidence in this proceeding is that the memorandum was in error. Actual volumes for October 1991-September 1992 were 912 at Baptist, not 2677.

    
    

17. Dr. Howell found Baptist's proposal consistent with health care reform trends towards eliminating the need for CON regulation by enhancing market competitive forces, as a part of Florida's managed competition model, as explained in the Sharpe analysis. Similarly, Dr. Luke described the 1980's use of the CON process to control costs by limiting duplication and the rejection of institution specific planning as outdated. Dr. Luke also favors a model of competition for cost controls. At this time, however, these positions have not been adopted in Florida Statutes and rules. The 1994 Florida Health Security Plan recommends the continuation of CON review of all tertiary services, including open heart surgery. That plan was submitted as a part of AHCA's 1994 legislative proposals.

    
    

18. Ms. Dudek described traditional "not normal" circumstances as issues related to financial, geographic, or programmatic access to the proposed service by potential patients, and not facility specific concerns. Facility specific concerns, in this case, include Baptist's attempt to retain cardiologists who wish to perform procedures not approved at Baptist and to improve its position to compete for managed care contracts.

    
    

19. Baptist and AHCA contend that the intent to approve the application is predicated upon the exercise of AHCA's discretion to determine whether the circumstances justify a departure from the "normal" operation of the rule methodologies. As stated by Baptist and AHCA, this position is not inconsistent with the wording of the rule, but reflects a disagreement with Sacred Heart over what constitutes not normal circumstances.

    
    

20. AHCA interprets Rule 59C-1.033 as giving the agency flexibility, in the exercise of its professional judgment, to approve open heart surgery applications when the rule methodology does not result in a numeric need for a new program, and/or the calculation intended to assure the 350 minimum procedures for established providers yields a lower number. Both sections of the open heart surgery rule have been upheld with the not normal circumstances provisions included. St. Mary's Hospital v. HRS, 13 FALR 2096 (F.O. 5/1/91).

    
    

21. In the review of certificate of need applications, the weight to be accorded a particular statutory or rule criterion varies based upon the facts and circumstances of each case. If an earlier application is denied, and a new one submitted, the weight to be afforded certain criterion in the review of the more recent application may be different if the facts and circumstances are different. It is not consistent, however, for AHCA to treat the same facts differently, or to reach different conclusions of law on the same facts.

    
    

22. In 1987, the agency responsible for CON regulation, denied a Baptist application, in the absence of numeric need, for the express purpose of protecting the 350 volumes at existing providers. In the preceding 12 months, there were 45 emergency angioplasties performed at Baptist, Sacred Heart's open

    heart surgery volume was 291, and West Florida Regional's was 344. The Baptist application was denied in a SAAR, which is replete with the references to the relationship of volume to quality, and which concludes:

    
    

    There is insufficient need for a third open heart surgery program in District One. It would lower the average number of procedures below the

    350 recommended in the Rule and it would have a negative impact on existing providers.

    
    

    SAAR, CON Action No. 5120 at p.17.

    
    

23. In early 1990, another Baptist application for an open heart surgery CON was denied. Using the preferences from the 1989 state health plan, the agency found that Baptist was (1) in a large county with a higher than average elderly population, (2) a disproportionate share provider, which would serve patients regardless of their ability to pay, (3) large enough to propose a fixed price structure for 3 years, and (4) capable of providing all the supplementary procedures for a complete cardiac program. Baptist was also found to have met the quality of care standard and to have the resources to implement the program. In addition, the fixed rate proposal was viewed as enhancing competition. The agency recommended denial, after finding no need for the project, no enhanced access or quality of care benefits and that existing providers volumes would fall below 350. The 1989 state health plan is also applicable to the review of CON 7184. Using the same 1989 preferences, the findings on the preferences in this case are essentially the same, except that the elderly population in Escambia is now below the state-wide average. See, DOAH Cases Nos. 93-4886 and 93-4887, Findings of Fact 53-60 (R.O. 11/18/94).

    
    

24. By 1992, the use rate indicated a need for 2.48 open heart surgery programs in District One. Baptist asserted as "not normal" circumstances: (1) scheduling difficulties at Sacred Heart, (2) its status as a Level II trauma center, and (3) a fixed price structure at 85 percent of the average rate per DRG for the two existing providers. In its analysis of Baptist's asserted "nor normal" circumstances, the agency noted that "[a]pparently, Baptist has made no attempt to refer cases to West Florida Regional." The agency rejected the assumption that a trauma center has a need for open heart surgery services. The agency treated the proposed pricing structure as one reason for concluding that Baptist's proposed open heart program would reduce patient volumes at Sacred Heart and West Florida Regional. See, SAAR CON Action No. 6774, pp. 3-5.

    
    

25. In this case, AHCA made a mistake of fact and failed to follow its precedents in determining not normal circumstances. See, Finding of Facts 16 and 17, supra.

    
    

26. Due to the regulatory scheme which establishes the certificate of need review process and the criteria in statutes and rules which have be weighed and balanced, it is impossible to have a rule which would describe every set of circumstances which would justify departure from the "normal" operation of a

    rule methodology. The agency has, however, described the conditions which should be alleviated by the approval of a CON under not normal circumstances. In the 1987 CON 5120 SAAR, the agency found:

    
    

    There is no accessibility problem, geographic, programmatic or financial, noted by the applicant or the Local Health Council, for patients in District One for open heart surgery.

    
    

    SAAR, CON Action No. 5120 at p.6.

    
    

    The "not normal" circumstance claimed by Baptist do not involve access problems for District 1 residents and have been rejected as such by the agency in the past.

    
    

    CONCLUSIONS OF LAW

    
    

27. Section 120.535 is applicable to a "statement" which, pursuant to the definition of a "rule" at Section 120.52(16), Florida Statutes, must constitute a "statement of general applicability that implements, interprets, or prescribes law or policy. "

    
    

28. AHCA's preliminary action does not fit that definition. AHCA's factual analysis was incorrect and its application of the CON rules and criteria to support its decision departed from its precedents despite the absence of any material amendments to the applicable rules or statutes. Therefore, Section

120.535 is not applicable to what is erroneous adjudication, but is not generally applicable to the review of CON applications for open heart surgery programs, and was not applied even to all of the applications in the same batch.

Based on the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that the Petition for Formal Administrative Determination of an

Agency Statement is DISMISSED.

DONE AND ENTERED this 18th day of November, 1994, in Tallahassee, Leon County, Florida.

ELEANOR M. HUNTER

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 18th day of November, 1994.

APPENDIX

To comply with the requirements of Section 120.59(2), Fla. Stat. (1993), the following rulings are made on the parties' proposed findings of fact:

Sacred Heart Hospital of Pensacola's Proposed Findings of Fact.

1. Accepted in Preliminary Statement.

2. Accepted in Finding of Fact 2 and 21.

3-5, 7-11. Accepted in or subordinate to Finding of Fact 2.

6. Accepted in Findings of Fact 22-24.

9. Rejected characterization as non-rule policy in Findings of Fact 25-26.

1. Accepted in Finding of Fact 15.

2. Accepted in preliminary statement and subordinate to Findings of Fact 2 and 19.

14-17. Accepted in or subordinate to Findings of Fact 2 and 15. 18-19. Accepted in Findings of Fact 25 and 26.

1. Accepted in Finding of Fact 7.

2. Accepted in Finding of Fact 11.

3. Accepted in or subordinate to Finding of Fact 11.

23-27. Accepted in or subordinate to Findings of Fact 4 and 17. 28-30. Accepted in or subordinate to Findings of Fact 14-16.

32-33. Accepted in or subordinate to Findings of Fact 4 and 17.

34. Accepted in or subordinate to Finding of Fact 2.

35-44. Accepted in or subordinate to Findings of Fact 22-26.

45-47. Rejected characterization as non-rule policy in Findings of Fact

25 and 26.

West Florida's Proposed Findings of Fact.

Proposed findings of fact are those addressed in the Recommended Order for the consolidated cases.

Baptist/AHCA's Proposed Findings of Fact.

1. See, Recommended Order.

2,3. Accepted in Finding of Fact 1.

1. Accepted in Finding of Fact 3.

2. Accepted as representations of AHCA in 17.

3. Accepted in Finding of Fact 20.

7-9. Accepted in Finding of Fact 21.

10. Accepted in part and rejected in part in Findings of Fact 21-26.

COPIES FURNISHED:

William Wiley, Esquire Darrell White, Esquire

McFarlain, Wiley, Cassedy & Jones 600 First Florida Bank Building

215 South Monroe Street Tallahassee, Florida 32301

John Radey, Esquire Jeffrey Frehn, Esquire

Aurell, Radey, Hinkle, Thomas & Baranek

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

Michael J. Cherniga, Esquire Greenberg, Traurig, Hoffman Post Office Drawer 1838 Tallahassee, Florida 32302

W. Dexter Douglass, Esquire John A. Rudolph, Jr., Esquire Douglass & Powell

Post Office Box 1674 Tallahassee, Florida 32302

Richard Patterson, Esquire

Agency for Health Care Administration

325 John Knox Road Tallahassee, Florida 32303

R. S. Power, Agency Clerk

Agency for Health Care Administration Atrium Building, Suite 301

325 John Knox Road Tallahassee, Florida 32303

Harold D. Lewis, Esquire The Atrium, Suite 301

325 John Knox Road Tallahassee, Florida 32303

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this final order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate procedure. Such proceedings are commenced by filing one copy of a Notice of Appeal with the agency clerk of the Division of Administrative Hearings and a second copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the appellate district where the party resides. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed.

Docket for Case No: 93-006207RU

Orders for Case No: 93-006207RU