STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MEDSHARES OF FLORIDA, INC., )

)

Petitioner, )

)

vs. ) Case Nos. 96-4040

) 96-4041

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, David M. Maloney, conducted a formal administrative hearing in these consolidated cases on September 23-25, and October 1, 1997, in Tallahassee, Florida.

APPEARANCES

For Petitioner Medshares: Alfred W. Clark, Esquire

Post Office Box 623

Tallahassee, Florida 32302-0623

For Petitioner NHC: Gerald B. Sternstein, Esquire

Frank P. Rainer, Esquire Sternstein, Rainer & Clarke, P.A.

314 North Calhoun Street Tallahassee, Florida 32301

For Respondent: Mark S. Thomas, Esquire Agency for Health Care

Administration

2727 Mahan Drive, Building 3

Tallahassee, Florida 32308

STATEMENT OF THE ISSUES

Whether applications for Certificates of Need filed by Medshares of Florida, Inc., and National Healthcare, L.P., for Medicare Certified Home Health Agencies in Health Planning District 8 for the July 1997 Planning Horizon, should be granted or denied by the Agency for Health Care Administration.

PRELIMINARY STATEMENT

Medshares of Florida, Inc., (Medshares) and National HealthCare, L.P., (NHC) each submitted to the Agency for Health Care Administration (AHCA or the "Agency") applications for certificates of need to establish a Medicare-certified Home Health Agency in Health Planning District 8 for the July 1997, planning horizon. The Agency preliminarily denied the applications. Timely-filed petitions for formal administrative hearings were filed with AHCA and referred to the Division of Administrative Hearings. The undersigned was designated to conduct the proceedings. Following extension of the sixty-day requirement in Section 408.039(5)(b), Florida Statutes, final hearing was held over four days: September 23-25 and October 1, 1997.

By Prehearing Stipulation, the parties agreed that the only statutory criteria in dispute in the proceeding are Paragraphs (a), (b), (l), (n), and (o) of Subsection 408.035(1), Florida Statutes. The parties also agreed that the there were no disputes over the content or timeliness of letters of intent,

applications, or notices of publication. The only rule provisions at issue are found in Rule 59C-1.1031(1), (2) and (3)(d)-(g), Florida Administrative Code.

At final hearing, Medshares presented the testimony of Glenna McAllister, expert in home health administration, operations, and clinical services; and Newell D. Yarborough, Jr., expert in health planning. Medshares Exhibits 1-17 were admitted into evidence.

NHC presented the testimony of Lisa Reed, expert in home health administration, operations and clinical services; Judy Thomason, expert in health care finance and home health care Medicaid matters; David Kantner, expert in health planning and certificate of need applications; and Bruce K. Duncan, expert in health care planning, certificate of need programs with an emphasis on need methodology and practice, and gerontology. NHC Exhibits 1-8 were admitted into evidence.

The Agency presented the testimony of Laura MacLafferty, expert in CON Health Planning. Agency Exhibits 1, 2, 3, 6, 7, and 10 were admitted into evidence. Offered but not admitted were Agency Exhibits 4, 5, 8, and 9.

The transcript of the hearing was filed November 3, 1997.

By agreement of the parties, proposed recommended orders were due in mid-December. An extension of time until December 24, 1997, was granted at the behest of NHC for the filing of proposed recommended orders. NHC did, in fact, file its PRO on December

24; Medshares and AHCA filed their proposed recommended orders, respectively, on December 19 and 22, 1997.

FINDINGS OF FACT

The District

1. District 8 is composed of Sarasota, DeSoto, Charlotte, Lee, Glades, Hendry, and Collier Counties. Rule 59C-1.031(2)(e), Florida Administrative Code, Section 408.032(5), Florida Statutes. If granted, the requested certificates of need will enable Medshares and NHC to provide Medicare-certified home health services throughout the entire district.

2. The parties disagreed as to the number of District 8 home health companies with Medicare-certified home health agency CONs. For purposes of the 1997 planning horizon, the district has thirty-five home health care companies (reporting and non- reporting) with certificates of need for Medicare-certified home health agencies.

   The Parties

   
   

3. Medshares of Florida, Inc., (Medshares) was formed "pretty much immediately prior to the application [in this case]." AHCA No. 10, p.15. Although it recently received a CON to establish a Medicare-certified home health agency in District 9, there has not been enough time for Medshares to build a record in Florida. But Medshares is a member of a family of companies (the "Medshares Family") founded in Tennessee in 1985. The Medshares family has now expanded into 12 states. Through 2000

   employees, it provides various home health services, including Medicare-certified home health services, private nursing services, management services for home health agencies, infusion services, and consulting services.

4. In 1996, the Medshares Family provided approximately one million visits through its Medicare-certified home health agencies and approximately 1.7 million visits through its non- Medicare-certified and managed home health agencies. Recent growth in Medshares Family business is attributable to increased admissions, not to increased home health visits.

5. It is Medshares Family policy for each of its home health agencies which have operated for three years to seek accreditation from the Joint Commission on the Accreditation of Healthcare Organizations (JCAHO). This policy, of course, is applicable to a Medshares District 8 agency should the Medshares application in this case be granted.

6. In the nursing home business for over 26 years, National HealthCare, L.P., (NHC) is a national nursing home company and a southeastern regional home health care company. It has thirty- three home care offices in three states and did in excess of 750,000 home health visits in 1996. It owns or manages one hundred and five nursing homes throughout the United States. It owns eight nursing homes in Florida of which five have a superior rating. NHC manages thirty-two other centers in Florida.

7. NHC currently has three nursing home facilities which it owns or manages in District 8. The facilities, in Collier, Sarasota, and Charlotte Counties, have a total of 420 beds. Because of this ownership of existing facilities in the district, NHC has developed significant community linkages, training programs, and community involvement in the district. Obtaining a certificate of need for a Medicare-certified home health agency in District 8 will enhance NHC's continuum of care in District 8.

8. NHC has a well-developed corporate and regional management structure dedicated to providing high quality care to its patients. The management structure places a significant amount of decision making at the home health agency level. The corporate and regional structure's purpose is to support the local delivery of health care services.

1. The Agency for Health Care Administration is designated by statute as the "single state agency to issue, revoke, or deny certificates of need . . . in accordance with the district plans, the statewide health plan and . . . federal and state statutes." Section 408.034(1), Florida Statutes.

   Need Projections Paragraph (a) of Section 408.035

   
   

2. AHCA's rule setting a home health agency need methodology was invalidated several years ago. See Principal Nursing v. Agency for Health Care Administration, 16 FALR 10465, reversed in part, 650 So. 2d 1113 (Fla. 1st DCA 1995). AHCA did not publish a fixed need pool for Medicare-certified home health

   agencies for the July 1997 planning horizon applicable to these applicants. AHCA did not propose any methodology in its initial, free-form review or testimony of the applications. Instead, AHCA left it to the applicants to develop and present need methodologies in support of their applications.

   Medshares' Need Methodologies and AHCA Criticism

   
   

3. The Medshares application presented various need methodologies and estimates of need for additional Medicare- certified home health visits in District 8.

4. The primary Medshares methodology is a clinical need model based upon data obtained from the National Center for Health Statistics. The model develops home health use rates by sex for four age groups, 0-64, 65-74, 75-84, and 85+, and by geographic region. Patient volume and visits projections are made by developing individual use rates for each diagnostic category collected in the data survey. Each use rate is the result of dividing the total number of visit characteristics for the specific age and sex combination by the matching age and sex population estimates. To project need for 1997, the developed use rates are applied to the projected 1997 District 8 population by diagnostic category.

5. For the 1997 planning horizon for District 8, Medshares' clinical need model estimates total visits of 3,488,290, which is an increase of approximately 1.6 million

   visits over 1994 (the latest year for which data was available at the time of the application).

6. The Agency criticized Medshares' clinical need model because it included population aged 64 and under. The criticism fails on two counts. First, Medicare-certified home health agencies are expected to provide home health services to persons under age 65. Second, inclusion of the population and use rates for those under age 65 does not have any significant impact on Medshares needs projections since only 3 per cent of the originally projected visits are attributable to population under 65.

7. AHCA's major criticism of Medshares clinical need model is that it considers the model's total visits projection of 3.4 million in 1997 to be an unreasonable increase over the actual visits in 1996 shown in AHCA publications. (These publications were not available at the time of the filing of the applications and so were not used by Medshares.) AHCA's published actual visits for 1996 of 2.4 million, however, are, without doubt, not accurate. The figure assumes that 9 agencies which did not report in 1996 conducted the same number of visits in 1996 as they reported in 1995, that is, 900,000. Whether this assumption is to high or too low, there is little question that it is not correct.

8. If, for example, an agency not reporting in 1996 did not do so because it did not conduct any visits (not an

   unreasonable assumption since the agencies are obligated by law to report) then the 1995 reported visits are much too high for that agency as a figure for 1996 visits.

9. On the other hand, if the non-reporting agency simply failed to report in 1996, the number of 1995 visits is likely lower than the actual number of visits in 1996.

10. Home health care visits have been on the increase in District 8, a trend mirroring the state-wide trend. Utilization of home health care agencies is increasing because of growth in elderly population and an increase in the number of visits per patient. Furthermore, the amount of time spent by patients in hospitals has been decreasing. The decrease translates into an increased need by the patients for home health care visits. The need for home health care will continue to increase because it is a cost-effective alternative to nursing home placement and hospital care.

11. In sum, AHCA's criticism of the Medshares clinical need methodology is based on inaccurate assumptions. Perhaps AHCA is correct that Medshares' projected visits for 1997 is unreasonably high. But the projection squares with the direction that home health visits are going, both because of increase in population and increase in use rate as well as decrease in hospital's lengths of stay.

1. In addition to the clinical need model, Medshares projected need by two other methodologies. Through the first of

   these two, the clinical need model was tested by comparing its results to projections based upon the average Medicare-certified home health use rate growth from 1991 to 1995. This methodology yielded an estimate of 3.6 million for the 65 and over population of District, thus supporting the need projected by the clinical need model. In the second of the two additional methodologies, Medshares estimated the number of home health visits based upon the number of hospital discharges of patients within a certain Major Diagnostic Category (MDC). This methodology yielded an estimated need for 2,704,910 visits in 1997.

2. All three of Medshares' methodologies provided an estimate of need for at least two additional Medicare-certified home health agencies in District 8 in 1997.

   NHC's Need Methodologies

   
   

3. One of NHC's methodologies computes the increase in the home health use rate from 1993 to 1994 and applies a reduced increase in use rates to the projected population for each year to the horizon year of 1997. The methodology yields projected visits of 2,403,630 visits in 1997, for an increase from 1994 of 550,950 visits. In contrast to AHCA's determination that the Medshares' methodologies were unreasonable, AHCA agreed that NHC's methodology was reasonable. AHCA found fault with the NHC opinion of need, however, because of the data NHC used in its calculation of need.

4. The AHCA document relied on by NHC for its base year (1993) visits of 1,656,112 was later revised by AHCA to reflect 1,702,106 visits in 1993. As a result, AHCA contends, the initial use rate increase used by NHC (7.6 per cent from 1993 to 1994) is higher than the actual use rate increase (4.8 per cent), which means that NHC's projections are overstated. Other criticisms were leveled by AHCA at NHC methodologies used in the application.

5. The Agency's criticisms do not hold sway. Overlooking for the moment that any error was caused by faulty data provided NHC by the Agency, given the undisputed increase in the use rate, the NHC forecast for 1997 visits compared to actual 1996 visits shows the 1997 forecast to be conservative. After taking all of the Agency's criticisms into account, there was competent substantial evidence to establish a need for five more home health agencies in the district. The inadequacy of the criticisms was underscored when NHC's health planning expert used a "median agency size" in his calculations, an approach now favored by AHCA as it attempts to develop a new rule methodology for ascertaining Medicare-certified home health agency numeric need. Employing such a method still yielded a need for at least two more Medicare-certified home health agencies in the district.

   State Health Plan Preferences

   
   

6. The Florida State Health Plan establishes six preferences for applicants of certificates of need for Medicare- certified home health agencies.

7. The State Health Plan provided for preference to an applicant proposing to serve AIDS patients, (Preference 1). Both Medshares and NHC meet Preference 1. Medshares will provide services to AIDS and HIV-positive patients. The Medshares family has a history of providing services needed by these patients and Medshares proposes to condition its certificate on provision of services to AIDS patients. NHC is actively involved and has seen patients for Bay Aids Services Information Coalition, Tallahassee AIDS Support Services and Big Bend - Comprehensive AIDS Residential Education Services. NHC provided extensive documentation in its application to demonstrate current provision of significant levels of AIDS care. It has the organizational capability to continue to do so.

8. Preference is given by the State Health Plan to an applicant proposing to provide a full range of services, including high technology services, unless they are sufficiently available and accessible in the same service area,

   (Preference 2).

   
   

9. NHC surveyed existing home health agencies in the district to reveal that 29 agencies do not provide dietary guidance, 28 do not provide homemaker services, 26 do not provide

   medical supplies, 21 do not provide respiratory services, six do not provide speech therapy and five do not provide social services. NHC will provide all of these. NHC meets

   Preference 2.

   
   

10. Medshares provides a full range of skilled nursing, homemaker, and therapy services including cardiac care, continuous IV therapy, diabetes care, oncology services, pediatrics, rehabilitation services, pain therapy, total parenteral nutrition, speech, physical and occupational therapies, respiratory therapies, audiology therapy, and infusion therapy. Medshares meets Preference 2.

11. The State Health Plan provides a preference to applicants with a history of serving a disproportionate share of Medicaid and indigent patients in comparison with other providers within the same AHCA service district and proposing to serve such patients within its market area (Preference 3). There is no definition of "disproportionate share" and no data available to determine the level of Medicaid and indigent care provided by home health providers in District 8. Nonetheless, it is fair to find that NHC meets this preference and Medshares, based on the experience of the Medshares family, meets the spirit of this preference. In addition, both have committed to continue to provide Medicaid and indigent care; in the case of NHC, 2 per cent of patient visits to Medicaid patients and 1.5 per cent of its visits to the indigent, in the case of Medshares, its

    application is conditioned on 1 per cent of its patients being Medicaid and another 1 per cent being indigent.

12. The State Health Plan provides a preference to an applicant proposing to serve counties under served by existing home health agencies (Preference 4). No demonstration was made that any of the counties in District 8 were underserved by existing home health agencies.

13. The fifth State Health Plan preference is for applicants which commit to provide the department with consumer survey data measuring consumer satisfaction. Both Medshares and NHC meet this preference.

14. The final preference in the State Health Plan is for an applicant proposing a comprehensive quality assurance program and proposing to be accredited by the Joint Commission on Accreditation of Hospital Organizations. Both Medshares and NHC meet this preference with NHC conditioning its application on implementation of a quality assurance program and successfully obtaining JCAHO accreditation.

    The District 8 Health Plan

    
    

15. The District 8 Health Plan contains two allocation preferences for applicants for Medicare-certified home health agencies. The first is for the applicant able to demonstrate community contacts and relationships with hospitals, nursing homes, hospices, psychiatric, substance abuse, mental health, and other outpatient facilities within the proposed service area.

    The second is for the applicant showing a commitment to, or a historical record of, service to the medically indigent or other healthcare underserved population groups.

16. NHC has developed significant community linkages through its existing nursing home beds in the health planning district with the types of health care providers listed in the preference. Further, NHC has agreed to condition its CON on the satisfaction of this preference. Medshares does not have operations in the district currently. But its application contained evidence of contact with local District 8 health care providers.

17. As discussed earlier, both NHC and Medshares meet the second preference of the local health care plan.

    Availability and Access Paragraph 408.035(1)(b)

    
    

18. Access issues become much less important for applicants who have demonstrated a numeric need for their proposals. Nonetheless, the addition of both NHC and Medshares Medicare- certified home health agencies will enhance both availability and access to these health services.

    Competition and Cost Effectiveness Paragraph 408.035(1)(l)

    
    

19. Competition among home health providers in District 8 is more restricted than the number of providers would indicate because the District 8 market is dominated by a few large providers. Four companies provide 75 per cent of home health

    visits. Seventeen of the agencies are hospital-based and 10 of these are owned by one hospital.

20. Competition will be enhanced by approval of the Medshares and NHC proposals. Both Medshares and NHC have the ability to compete effectively with the large providers in District 8.

21. Cost effectiveness should be enhanced as well. District 8 has the highest average cost per home health visit in

    Florida. The 1994 average was $71.48. Generally, hospital-based home health agencies have higher costs. Hence, it is not surprising that District 8, with its many hospital-based agencies, has the highest average cost per home health visit.

    The cost per visit projected by Medshares in its second year is

    
    

    $65.21. Approval of the Medshares and NHC applications should help to lower the district-wide average cost per visit.

    Past and Proposed Provision of Services

    to Medicaid Patients and the Medically Indigent Paragraph 408.035(1)(n)

    
    

22. As discussed above, both Medshares and NHC meet this statutory criterion.

    Multi-level Health Care System Paragraph 408.035(1)(o)

    
    

23. Home health services play a key role in the continuum of care in a multi-level health care system by providing a less restrictive and less costly setting for discharges of patients from hospitals and nursing homes to their homes or assisted living facilities. Medshares participates in programs which

    promote a continuum of care, including a pre-heart transplant and post-heart transplant program, a "Healthy Homecomings" program for high risk pregnancies and a program which enables physically challenged persons to remain employed.

24. NHC proposes to provide home health care in a continuum of care in conjunction with NHC's own nursing home and assisted living facilities located throughout District 8. An award to NHC would expand the continuum of care already provided by NHC.

    CONCLUSIONS OF LAW

    
    

25. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding. Sections 408.039(5) and 120.57(1), Florida Statutes.

26. The applicants, in this case, Medshares and NHC, have the burden of proving entitlement to a certificate of need based on a balanced review of the applicable criteria. Boca Raton Artificial Kidney Center, Inc. vs. DHRS, 475 So. 2d 360 (Fla. 1st DCA).

27. In the absence of a methodology mandated by rule and the failure of AHCA to devise a free form methodology, the applicants have devised their own methodologies. The methodologies are reasonable and the data used by the applicants in the calculation of need withstands any criticism raised by AHCA. Both applicants proved that there is numeric need in District 8 for at least two more Medicare-certified home health agencies.

28. Upon a balanced review of the lawful criteria applicable to the issue of whether the applications in this case should be granted, it is determined that both applications should be granted.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED:

That the Agency for Health Care Administration enter its final order granting the applications of Medshares of Florida, Inc., and National HealthCare L.P. for CON Nos. 8412 and 8413, respectively.

DONE AND ORDERED this 3rd day of February, 1998, in Tallahassee, Leon County, Florida.

DAVID M. MALONEY

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of February, 1998.

COPIES FURNISHED:

Mark Thomas, Esquire Agency for Health Care

Administration

2727 Mahan Drive, Suite 3431 Fort Knox Building III Tallahassee, Florida 32308-5403

Alfred W. Clark, Esquire Post Office Box 623

Tallahassee, Florida 32301-0623

Gerald B. Sternstein, Esquire Frank P. Rainer, Esquire Sternstein, Rainer & Clarke, P.A.

314 North Calhoun Street Tallahassee, Florida 32301

Jerome W. Hoffman, General Counsel Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive

Tallahassee, Florida 32308-5403

Sam Power, Agency Clerk

Agency for Health Care Administration Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308-5403

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order must be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 96-004040CON

Orders for Case No: 96-004040CON