STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HOSPICE OF NORTHWEST FLORIDA, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 96-4073

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard by Eleanor M. Hunter, the Administrative Law Judge for the Division of Administrative Hearings, from February 17 - 21 and 24, 1997, in Tallahassee, Florida.

APPEARANCES

For Petitioner, J. Robert Griffin, Attorney

Hospice of J. Robert Griffin and Associates, P.A. Northwest Florida, 2559 Shiloh Way

Inc.: Tallahassee, Florida 32308

For Respondent, Richard Ellis, Senior Attorney

Agency For Health Agency for Health Care Administration Care 2727 Mahan Drive

Administration: Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

For Respondent, Darrell White, Attorney Bay Medical William B. Wiley, Attorney

Center: McFarlain, Wiley, Cassedy and Jones, P.A.

215 South Monroe Street 600 Barnett Bank Building Post Office Box 3174

Tallahassee, Florida 32316-2174

STATEMENT OF THE ISSUES

Whether a need exists for an additional hospice in Agency for Health Care Administration service area 1. Whether the certificate of need application of Bay Medical Center to establish the hospice, on balance, meets the criteria for approval.

PRELIMINARY STATEMENT

The Agency For Health Care Administration (“AHCA”) published a need for an additional hospice program in AHCA service area 1. In response, Bay Medical Center (“BMC”) and Panhandle Hospice, Inc., (“Panhandle”) applied for the certificate of need (“CON”) to establish the additional hospice program. AHCA preliminarily approved the application of BMC and preliminarily denied that of Panhandle. Hospice of Northwest Florida, Inc., an existing provider of hospice services in the area, filed a petition challenging the need for an additional hospice and opposing the approval of either application.

On October 3, 1996, Panhandle Hospice, Inc., filed a Motion For Summary Recommended Order to dismiss the CON of BMC. Panhandle claimed (1) that the letter of intent should have been adopted by BMCH rather than BMC; (2) that the chairman/record custodian's certification of Board action, which was prospectively executed was invalid; and (3) that BMC is not the type of organization which can be licensed as a hospice pursuant to Section 400.601(3), Florida Statutes. Following the filing of

responses and after arguments at a motion hearing, Panhandle's motion was denied by Order, dated January 21, 1997. Panhandle voluntarily dismissed its petition, on February 17, 1997, immediately prior to the commencement of the final hearing.

At the final hearing, BMC presented the testimony of Gregory Ohe, expert in health care administration; Jay D. Cushman, expert in health care planning; Ronald V. Wolff, expert in hospital administration; Tammy Sharp Henely, expert in health services marketing and public relations; Dorothy Perry, R.N., expert in hospice administration; Sharon Gordon-Girvin, expert in health care planning; and Darryl Weiner, expert in health care finance, including financial feasibility. BMC’s exhibits 1-13, 15-40, 42 and 43 were received in evidence.

AHCA presented the testimony of Elizabeth Dudek, expert in health planning, CON policy, and CON procedure. AHCA’s exhibits

1 and 2 were received in evidence.

Hospice of Northwest Florida, Inc. (“HNWF”) presented the testimony of Dale Knee, expert in hospice operations and management, and health care administration; Thomas D. Sunnenberg, M.D., expert in oncology, hematology and hospice medical care; Donald J. Gaetz, expert in hospice and health care administration; Joseph D. Mitchell, expert in accounting and health care finance; Donna Elaine (Laney) Beard, R.N., expert in hospice nursing; Elizabeth Kuehn, expert in hospice social work and social work; Chetta McCart, expert in hospice social work and

hospice AIDS program administration; Sandra J. Kerns, expert in hospice social work and bereavement, and pediatric and adolescent services; Julie Patton, expert in hospice quality assurance and quality improvement; Jo Marilyn Webb, R. N., expert in hospice education and nursing; Charles Timothy Davis, Ph.D.; Lynne Mulder, expert in health care planning; and Janet Wilke, expert in hospice bereavement services. HNWF’s exhibits 1-9 and 11-21 were received in evidence.

The last of the twelve volumes of the final hearing transcript was filed on March 17, 1997. Proposed recommended orders were filed by BMC and HNWF on March 27, 1997. On May 5, 1997, AHCA filed a Notice of Joinder In Proposed Recommended Order of Bay Medical Center. On March 27, 1997, BMC also filed a Motion For Official Recognition of Halifax Hospital Medical Center, etc. v. AHCA, DOAH Case No. 95-0742 (R.O. 9/30/96, F.O.

1/14/97). The Motion For Official Recognition is granted, no response in opposition having been filed.

FINDINGS OF FACTS

1. The Agency For Health Care Administration (“AHCA”) is the state agency which administers the certificate of need (“CON”) program for health care facilities and services in the state. AHCA published a need for one additional hospice program in service area 1, in Volume 22, Number 5 of the Florida Administrative Weekly (February 2, 1996).

2. Bay Medical Center (“BMC”), which currently operates a hospice in service area 2A, is the applicant for CON 8377 to establish the additional hospice program in service area 1. Hospice of Northwest Florida, Inc. (“HNWF”) is an existing provider of hospice services in both service areas 1 and 2A. Service area 1 encompasses Escambia, Santa Rosa, Okaloosa, and Walton Counties. Adjacent service area 2A includes Bay, Holmes, Washington, Jackson, Calhoun and Gulf Counties.

3. Hospice care is provided to terminally ill persons, defined as those with a life expectancy of six months or less if their disease runs its normal course. It is palliative and comfort-oriented, rather than curative. Clinical, pschosocial, and spiritual services are provided by an interdisciplinary team, which includes a physician, nurses, social workers, home health aides, chaplains, and bereavement counselors. In addition to paid staff, hospices also use volunteers. Social workers, chaplains, and bereavement counselors work with patients' families for up to a year following death. Services are provided in patients' homes, nursing homes, or acute care hospitals. Hospice care is less expensive than aggressive acute care for the terminally ill. It is estimated that every dollar of hospice care saves a dollar and a half in Florida.

4. Hospice services began in the United States in the 1970’s and were approved for government reimbursement in the 1980’s. Routine home hospice care is reimbursed at a per diem

   rate, for which the hospice provides care, and pharmaceutical drugs and supplies. Hospices also receive financial support from fund raising activities, and typically provide substantial community services which are otherwise unfunded and not reimbursed. These include community outreach programs in churches and schools, and services to families in which a death was accidental.

5. In 1985, the national hospice penetration rate or P Factor (the percentage of total deaths in which patients received hospice care) was approximately 8 percent. By 1995, the P Factor had increased to 17 percent, with the greatest rate of growth in the most recent five years. In Florida, approximately 29.6 percent of all deaths occur after a person has been admitted to a hospice program. In service area 1, the P Factor is 21 percent.

   
   

   Bay Medical Center

   
   

6. BMC is a legislatively - created independent special governmental district, authorized initially to provide health care services to Bay County, but now also to surrounding areas. It operates a 353-bed public, not-for-profit full service hospital in Panama City, Florida, but does not receive tax support. Over 190 physicians staff BMC’s hospital with every specialty, except rheumatology, endocrinology, and neonatology. BMC’s tertiary services include an open heart surgery program. BMC also provides ambulatory or outpatient services.

7. Since 1992, BMC has operated a hospice program in service area 2A, with offices in Panama City (on the campus of the BMC hospital) and in Marianna. The Marianna office opened in February 1997, as a result of the Florida Legislature's 1995 amendment to the enabling legislation allowing BMC to offer services beyond Bay County. The 1995 legislation also expressly authorizes BMC to provide hospice services and to create other organizations to further its mission.

8. The Board of Directors of BMC created the Bay Medical Center Hospice (BMCH). BMCH is governed by a board of directors which is separate and distinct from the board of BMC, although BMC is the entity licensed to operate the hospice program in service area 2A. The BMCH board members live and work in each of the six counties of service area 2A.

9. BMC, which holds the existing license, is the applicant in this proceeding. The board of BMC met on the day that the letter of intent was due, February 19, 1996. A few days prior to the meeting the Chairman of the Board executed the letter of intent, and sent it to a health planning consultant in Tallahassee. After the Board met and passed the resolution authorizing the filing of the letter of intent, the consultant filed the letter of intent with AHCA in Tallahassee.

10. In service area 2A, BMCH has an average daily census of 58-64 patients. BMC projected and HNWF stipulated that BMC can reasonably attain 250 admissions for a total of 12,471 patient

    days in year one, and 300 admissions for 18,706 patient days in year two of operation in service area 1.

11. BMCH currently advertises its hospice services on television and radio stations, and in newspapers with coverage extending into service area 1. Fund-raising events, including the holiday tree lighting program, are used to market hospice services. Hospice services are also explained in newsletters which reach 27,000 households and all physicians in the area. BMC purchased over 100 sixty-second radio spots, which aired on three stations over a two month period in 1996. The hospice radio spots reached an estimated 87,000 people an average of five times each.

12. BMC estimates a total project cost of $129,591, if CON 8377 is approved, to extend hospice services into service area 1. BMC proposes to condition CON 8377 on the provision of a minimum of 12.8 percent Medicaid and 3.65 percent charity care by the end of the second year of operation, and the care of 7 AIDS patients (with a minimum of 350 total visits) each year.

    
    

    Hospice of Northwest Florida

    
    

13. HNWF is an existing provider of hospice services in AHCA service areas 1 and 2A. It is the only licensed hospice in service area 1 and competes with only BMC in 2A. HNWF, organized by hospitals in Pensacola, was issued a CON in December 1982 and a license in 1983, to operate a hospice in Escambia, Santa Rosa, Okaloosa, Walton, Holmes, Washington and Jackson Counties. The

    home office of HNWF is located in Pensacola. HNWF admitted its first patients and families in January 1984. In 1987, HNWF opened a branch office in Fort Walton Beach, later apparently consolidated with a Niceville office, to serve Okaloosa and Walton Counties. An additional branch office was opened in Marianna in 1991. An adjunct medical director for the Marianna and Niceville offices was hired in 1996. In December 1995, HNWF received a CON waiver and its license was amended to allow it to operate in the remainder of service area 2A, in Bay, Gulf, and Calhoun Counties. HNWF then opened a branch office in Panama City, in August 1996. HNWF also operates, and is expanding from six to eight beds, a residential facility in Pensacola, to house hospice patients without homes or without at-home caregivers.

14. Prior to opening the Panama City office, HNWF historically served Holmes, Washington, and Jackson Counties, while BMCH served patients in Bay, Gulf, Washington, and Calhoun Counties. From 1993 to the present time, HNWF has increased its contracts or agreements from the Pensacola hospital to all of the hospitals in the service areas, including two military hospitals, from none to virtually all assisted living facilities, and from five to all except two or three nursing homes.

15. HNWF operates an extensive outreach and educational effort, including a monthly half-hour television show, which is estimated to reach over 200,000 people in Escambia and Santa Rosa Counties. Other efforts include radio talk show appearances,

    speaking engagements reaching over 5,000 people in 1996, and extensive direct physician contact. HNWF also relies on it chaplaincy and bereavement programs to extend information about hospice care, particularly to culturally diverse groups of people. Despite these efforts, the number of hospice patients in service area 1 has remained relatively constant. HNWF served 969 patients in calendar year (CY) 1995, and 963 in CY1996.

16. HNWF contends that its lack of growth is due, in part, to declining referrals from nursing homes despite increased referrals from other sources. HNWF attributes the nursing home decline to government investigations of suspected excessive nursing home reimbursements. There is no waiting list for HNWF's services, and its goal is to admit patients within 24 hours of referral.

17. HNWF criticized BMCH’s outreach efforts as inadequate and misdirected, attracting only “easy” patients, those easily diagnosed as qualified for hospice care by well-informed referral sources. On this basis, HNWF expects BMC to take hospice patients from HNWF and not from any growth in hospice patients. HNWF also expects competition from BMC to adversely affect its ability to provide enhanced and unfunded services, including bereavement services in schools, on military bases, and in work- places, and its ability to operate satellite offices and the residential facility. Revenues from patient care are

    supplemented by donations and grants. In 1992, HNWF established a foundation to coordinate fund raising efforts.

18. The approval of the BMC application, according to HNWF, will also affect the types of hospice services available in the area. In general, more sophisticated hospice services can be provided by larger hospices, including palliative chemotherapy and radiation. BMC’s expert testified that HNWF will continue to be a large hospice with or without the approval of a CON for BMC, and that the additional program will create additional demand for the service.

19. The parties stipulated that subsections 408.035(1)(m) and (3), Florida Statutes, and Rule 59C-1.0355(7) and (8), Florida Administrative Code, are not applicable to this proceeding. At hearing, the parties also stipulated that BMC's list of capital projects meets the requirements of subsection 408.037(2)(a).

    Rule 59C-1.0355(4)(a) - Numeric Need; Subsections 408.035(1)(b) - like and existing services; (d) - available alternatives

    
    

20. Rule 59C-1.0355, the hospice rule, includes the formula for calculating the numeric need for hospice programs. Numeric need exists if the projected total number of hospice patients in service area one for the planning horizon (1400 for July 1997) minus the actual number of hospice patients in the base year (969 in calendar year 1995) is equal to or greater than 350 (in this case, 431). The statewide P Factor, 29.6 percent, is used in the

    formula to calculate the ratio of projected hospice patients to projected total deaths. The statewide rate represents the normative minimum applied to each service area by operation of the formula in the rule. In service area 1, the P Factor in the base year was 21 percent.

21. The statewide P Factor is an average of rates for various disease categories and ages. Those rates range from a high of hospice care for 70.9 percent of deaths due to cancer in people 65 and over, to a low of 14.1 percent for people under 65 with all other diseases.

22. BMC cites HNWF's relatively low hospice penetration rate as proof of the need for an additional hospice program to create and accommodate additional potential demand. HNWF asserts, however, that certain local circumstances cause the deviation from the statewide P Factor. HNWF also contends that more people received hospice services than the number used in the formula for the base year. The result, according to HNWF is an excess projected demand for hospice services by the July 1997 planning horizon. The extenuating local circumstances cited by HNWF, are the sizable active duty military population, the strong Medicaid AIDs program, the aggressiveness of home health agencies, the prevalence of cancer centers, and the established practice parameters of medical doctors in the service area.

23. The number of active duty military in service area 1 is 23,162. The number of those who die from terminal illnesses is

    statistically insignificant, because it is military policy to retire personnel who are diagnosed with terminal illnesses, which enhances death benefits to survivors. BMC's expert confirmed that policy and the improbability of serving military patients, although HNWF has served military base families after active duty casualties. Military families represent some of those served by HNWF in the base year, who are not included in the numeric need formula as hospice admissions. In the numeric need formula, according to BMC's expert, military personnel are included in projected deaths to younger age cohorts from causes other than cancer. Of the 431 projected additional hospice admissions, BMC’s expert calculated that, at most, 3 projected hospice deaths of those result from including the active duty military population. By contrast, HNWF's expert testified that the military population of 23,162 multiplied by the statewide death rate of .008 results in an estimated 186 deaths, or approximately

    62 hospice patients.

    
    

24. The background information in support of the fixed need pool, prepared by AHCA, shows that AHCA calculates projected hospice patients by age and disease. The actual base year service area non-cancer deaths under 65 (1010) divided by the actual service area total deaths (4562), times total projected deaths (4816) gives the total projected deaths non-cancer under

    65 (1066). Of the 1066 deaths, 150 are expected to be hospice patients. It is not reasonable to assume that 186 deaths will

    occur among active duty military, or that 62 of the 150 non- cancer hospice patients under 65 will be in that group. It is more reasonable to assume, as BMC's expert did and as the state numeric need methodology does, that the age cohort of that group has and will continue to have a significantly lower death rate and lower hospice admissions than the 65 and over population.

25. HNWF's expert health planner was unable to distinguish service area 1 from the rest of the state in terms of the strength of the Medicaid AIDs waiver program, the presence of prisons, the existence of home health agencies, the presence of cancer centers, or physicians' practice patterns. Similarly, BMC's expert found no statistical relationship between home health agency visits and hospice utilization. BMC's expert also noted that some hospices provide services to prisoners. HNWF's expert agreed that there is no prohibition to providing hospice services to prisoners. In some areas of the state, such as Gainesville and Tampa, cancer centers co-exist with high levels of hospice utilization. There was no evidence to distinguish physicians' practice patterns in service area 1 from the areas of the state. The argument that HNWF served more than the reported 969 in the base year, through it AIDs support groups, in schools, and for families in which deaths were accidental also does not distinguish HNWF. The evidence shows that hospices typically provide services to persons other than patients and their families, and benefit in terms of marketing and fund-raising.

26. The incidence of AIDS in service area 1 is below that of the state. That could affect the gap between 21 percent and

    29 percent, by approximately 3 or 4 percent.

    
    

27. Late referrals to hospice services can adversely affect utilization rates. The federal government program, Restore Trust, initiated a HCFA Inspector General's investigation into charges of waste, fraud, and abuse in nursing homes and home health agencies. The decline in referrals to hospice programs coincided with the investigation, while hospice referrals and admissions in non-nursing home settings increased. There is no evidence, however, that service area 1 nursing homes were subject to more intense scrutiny than any others in the state. In fact, the Executive Director of HNWF testified that the effects of Restore Trust were national.

28. The active duty military population difference of 3 fewer projected hospice deaths, and the 3 or 4 percent gap in the P Factor due to the lower incidence of AIDs are insufficient to explain the gap between P Factors of 21 and 29 percent. BMC's expert's estimate that ninety percent of the gap results from the lower than average P Factor is, at most, reduced to eighty-six percent.

29. From 1994 to 1996, as the hospice utilization statewide reached 27.7 percent, the rate increased from 22 to 27 percent in service area 2A. By contrast, the rate increased from 17 to 22 percent in service area 1. For the six months ending December

    31, 1996, the rate in service area 1 declined to 18 percent, while that in service area 2A increased to 24 percent. One of the highest rates in service area 2A is in relatively rural Washington County, in which BMC and HNWF have the greatest overlap in services. HNWF has approximately 60 percent and BMC has 40 percent of the hospice market in Washington County. In western Washington County, hospice rates range from 27 to 100 percent, with the remainder of the county in the 18 to 27 percent range. In service area 2A, there has been a steady increase in hospice admissions for HNWF and BMC, except for a decline at BMC immediately after HNWF opened an office in Panama City.

    Subsection 408.035(1)(a) - need in relation to district and state health plans; Rule 59C- 1.0355(5) and (4)(e)

    
    

30. District health plan allocation factor one favors applicants having hospice services available seven days a week, district-wide for 24 hours a day as needed, regardless of a client’s ability to pay. BMCH currently complies with the requirement in service area 2A and can do so in service area 1. By carefully selecting patients, hiring staff in appropriate locations to serve the patients, and expanding slowly geographically, as HNWF has done, BMC can meet the requirements. Initially, BMC will focus on adjacent Okaloosa and Walton Counties.

31. District allocation factor two, for proposals to add beds or use existing inpatient facilities rather than construct

    new facilities, is met by BMC. By proposing to contract with existing hospitals and nursing homes, BMC also meets the preference in Rule 59C-1.0355(4)(e)2.

32. State health plan preference one, for applicants who seek Medicare certification, is consistent with BMC’s current and proposed operations.

33. State health plan preference two favors members of the National Hospice Organization ("NHO") and applicants accredited by the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). BMCH is a member of the NHO. BMC is JCAHO-accredited, after receiving a rating of ninety-six of a possible one hundred in the scoring system in December 1996. Recently, BMCH was separately surveyed by the JCAHO, and received favorable exit comments. BMCH is also annually surveyed by AHCA, which identified no deficiencies in its January 1996 report. BMCH and HNWF each had one complaint regarding practices and procedures in 1996. A BMCH nurse disposed of controlled drugs when no longer needed in the patient's home, without the required signature of the patient's family representative on the disposal record. HNWF received a complaint and disciplined the responsible admitting nurse who failed to convene the appropriate staff to timely prepare an Interdisciplinary Care Plan. Neither incident indicates that the hospices are not providing a high quality of care. It is reasonable to expect BMC hospice to meet the requirements of the preference and to provide appropriate

    hospice care. See, also, subsection 408.035(1)(b) and (c), on the quality of care of the existing hospice and the applicant’s ability to provide quality of care.

34. In proposing to establish a physical presence in rural, underserved Walton County, BMC meets state preference three and the preference in Rule 59C-1.0355(4)(e)4.

35. State health plan preference four for applicants proposing to meet unmet needs of specific groups, such as children, is consistent with BMC's current and proposed operations. The same preference is also a requirement of Rule 59C-1.0355(4)(e)1.

36. State health plan preference five favors applicants proposing residential services to patients without at-home assistance. BMC proposes to provide caregivers or to use existing inpatient facilities to provide residential services. The proposal is, therefore, also consistent with Rule 59C- 1.0355(4)(e)3 as it relates to those who are without primary caregivers at home or who are homeless.

37. The sixth and final state health plan preference, for hospices proposing to use additional beds in existing facilities rather than new construction, is not applicable to the BMC proposal.

38. On balance, the BMC application meets the preferences in the rule, and in state and district health plans.

    Subsection 408.035(1)(b) and (1)(d) - availability and quality of like and existing services; other alternatives

    
    

39. Alternatives to hospice care include home health, acute, and nursing home care, all of which are available. The state policy, as reflected in numeric need methodology, encourages the use of hospice services until every service area achieves the state norm. Consistent with that policy, theoretically, HNWF could be even more aggressive in marketing and outreach than it has been. Historically, for BMC and HNWF, however, hospice services are more available, more accessible, better utilized, and higher in quality of care in areas in which they compete.

    Subsection 408.035(1)(c) - economics and improvements of joint, cooperative or shared resources

    
    

40. Because BMC operates an existing hospice, it is reasonable to expect economics of scale and improvements based on its experience, if it establishes a second hospice. BMC expects to use existing human resources and billing departments.

    Subsection 408.035(1)(f) - need for special equipment or services not available in adjoining areas

    
    

41. The statutory criterion is inapplicable to the case.

    
    

    Subsection 408.035(1)(g) and (h) - need for research, educational, health professional training

    
    

42. BMC's is not a proposal which is intended to assist a research or educational program. In-service and volunteer

    training programs are proposed for the benefit of its staff and to assure the quality of its own services.

    Subsection 408.035(1)(h) - available manpower, management personnel; (1)(i) - immediate and long-term financial feasibility of the proposal

    
    

43. BMC has over $21 million in cash, and revenues and gains in excess of $4 million for the year ending September 30, 1995. BMC has and continues to generate sufficient funds to provide over $24 million for planned capital projects over the next two years, including $129,591 in costs for the additional hospice program. BMC’s proposal is financially feasible in the short term.

44. HNWF claims that the BMC proposal is not financially feasible in the long term, based on understated salaries, wages, and benefits, travel expenses, depreciation, and interest.

45. Salaries, wages, and benefits are based on the staffing ratios at BMCH, which, according to HNWF, serves a more concentrated population in Panama City. Initially, BMC plans to serve Okaloosa and Walton Counties from a Destin office, with staff appropriately located throughout the areas to timely and efficiently serve patients. BMC plans to hire 6.6 full time equivalent (FTEs) administrative staff and 11.4 FTEs patient care staff. HNWF asserts that BMC will need an additional 1.7 FTEs for nurses, 2.6 for home health aides, and 1 FTE for a social worker. HNWF also questioned the ability of BMC to implement its proposed children's programs without a registered nurse with

    pediatric experience. HNWF asserted that .4 FTE for a chaplain was inadequate, as is reliance primarily on volunteer chaplains.

46. The adequacy of the proposed staffing is supported by calculating the 50 day average length of stay times the annual volume of 250 patients, times 1.6 (the projected worked hours per patient day), which equals 10.85 FTEs for patient care. BMC's

    11.4 FTEs for patient care in year one is a reasonable, conservative complement of staff. In addition, HNWF received 19 percent of its 1996 hours worked from volunteers, and has a history of hiring specialized staff and establishing specialized programs and departments when justified by the demand for those services. For its first seven or eight years, HNWF was well- served by a volunteer medical director. The bereavement coordinator was hired in 1990. The children's bereavement specialist was hired in 1993, when bereavement and social services became separate departments.

47. Travel expenses, projected by BMC, were also criticized by HNWF. HNWF would increase miles for each visit from 13.9, as estimated in BMC’s CON application, to 18.3 miles per visit as experienced by HNWF. One assumption, which invalidates HNWF’s projection of travel distances, is that each separate visit will originate and end at the Destin office, not that BMC staff would make some visits going directly from their residences to the patient's home, or that they would arrange schedules to make several visits without returning to the office between each

    visit. In addition, BMCH will initially cover two counties rather than the entire service area.

48. As a result of a mathematical error in the BMC CON application, the depreciation expense for year one of operations is $25,578, not $21,962.

49. HNWF's expert's adjustments to interest expenses assumed that any additional expenses would require additional borrowing. BMC, however, has not materially underestimated expenses, considering the $3,616 difference in depreciation. The pro forma is conservatively based on revenues and expenses without reliance on charitable donations, although hospices typically depend on donations to break-even financially.

50. In 1996, HNWF received a total of $339,780 in contributions. To estimate what BMC might expect in District 1, it is reasonable to exclude from HNWF's experience, approximately

    $80,000 in interest on reserve invested income (used by HNWF in 1996) and $90,000 in grants, since BMC has not applied for any grants. The balance, representing memorials and fund-raising of

    $240,000 reasonably indicates the level of contributions which a new BMC hospice might expect in service area 1. That level, for BMC, is proportionately half that projected by BMC, or $60,000 to

    $80,000 in year one, and $130,00 to $185,000 in year two of operations.

51. With a projected loss in income of $28,091 in year one, a projected profit of $74,054 in year two, and considering

    historical hospice fund-raising, BMC's operation of a hospice in service area 1 is reasonably expected to be financially feasible in the long term.

    Adverse Impact

    
    

    Subsection 408.035(1)(l) - probable impact on costs, effects of competition.

    
    

52. Using BMC's experts' utilization projections for service area 1, HNWF projects that its net operating income will decline from a negative $408,070 to a negative $655,712 in year one, and from a negative $355,404 to a negative $612,696 in year two. Approximately $420,000 in total contributions to HNWF is expected each year, although that number has increased annually since 1993, from 183,750, to $224,415 in 1994, to $282,368 in 1995, and $339,780 in 1996. BMC suggests that the adverse impact analysis should consider HNWF's total operations in service areas

    1 and 2A to determine financial feasibility.

    
    

53. Health planning experts for both BMC and HNWF acknowledge that there are up to 431 more people available for hospice admissions than are currently receiving hospice services. They also agree that number will increase by approximately 100 a year as the population increases, and that the presence of a new hospice provider will increase hospice penetration rates. In addition, as HNWF's witnesses emphasized, nursing home hospice admissions were depressed temporarily due to a government investigation.

54. BMC’s expert also noted that, as long as available admissions exist, increasing hospice utilization is largely a function of how the hospice delivers its services. For example, the historic requirement that patients have a caregiver at home has adversely affected HNWF’s penetration rate. As recently as November 1996, at least one referral source, Sacred Heart Hospital, in Pensacola was distributing an HNWF brochure which specifically required an eligible hospice patient to have “[a] capable caregiver in the home to meet the patient’s day-to-day basic needs." Essentially, the same requirement is included in a list of admissions criteria on page 49 of BMC's CON application. HNWF and BMC have both changed their policies and now admit patients without caregivers, which is reasonably expected to increase admissions of patients. With competition to identify and alleviate access barriers, HNWF and BMC are better able to increase hospice utilization rates by eliminating self-imposed constraints.

55. Based on the rapid increase in hospice utilization in service area 2A after HNWF began to compete with BMC, it is reasonable to assume the same effect of competition in service area 1. By the year 2000, BMC's expert reasonably projects hospice penetration rates of 29 percent in service area 1, equaling the current statewide average. As the late entrant into a limited geographical area within the market, BMC is projected to capture approximately one-third of that market by the years

    2000 to 2001, leaving two thirds for HNWF. At the same time BMC and HNWF are reasonably expected to divide in half the market in service area 2A. At those levels, HNWF will range, in total projected admissions for both service areas, from 1,186 to 1,400, from 1997 to 2001. The evidence that a BMC hospice in service area 1 will not adversely impact HNWF is more persuasive.

56. The suggestion that health care providers or the public will be confused by the presence of BMCH in service area 1 is rejected.

    Subsection 408.035(1)(n) - The applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent.

    
    

57. BMC is a disproportionate share Medicaid provider, having historically provided over 97 percent of all indigent care in Bay County. In 1995, the charity care write-off was over $8.5 million.

58. The effect of approving BMC’s CON is increased hospice penetration in service area 1, caused by an expanding market for hospice services. As a disproportionate share provider of inpatient acute care services, BMC is uniquely capable of identifying and referring low income patients for hospice care.

    Subsection 408.035(1)(0) - The applicant’s past and proposed provision of services which promote a continuum of care in a multilevel health care system, which may include, but is not limited to, acute care, skilled nursing care, home health care, and assisted living facilities.

59. BMCH is a part of a multilevel system with levels of care ranging from a 353-bed acute care tertiary hospital to a home health agency. Because of 1995 legislation, these services are available to persons beyond the boundaries of Bay County. Consistent with this statutory criterion, hospice services should also be extended.

    CONCLUSIONS OF LAW

    
    

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

61. As the applicant, BMC has the burden of demonstrating that, on balance, its CON application meets the statutory and rule criteria for approval. Florida Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services, 475 So.2d (Fla. 1st DCA 1985).

62. Consistent with Rule 59C-1.0355(4)(a), BMC demonstrated that a numeric need exists for an additional hospice in AHCA service area 1. There are no special local circumstances which make the application of the numeric need methodology to service area 1 unreasonable.

63. The BMC proposal meets, on balance, the need for a new hospice in relation to the state and district health plans. Subsection 408.035(1)(a).

64. BMC's proposal also meets the requirements of Rule 59C- 1.0355(4)(e)1.-4., Florida Administrative Code.

65. The existing hospice in service area 1 is available, accessible, adequate, appropriate, efficient, and offers a high quality of care. The numeric need methodology, which incorporates state health policy indicates that utilization is lower than desired in service area 1. Subsection 408.035(1)(b).

66. BMC established its record and ability to provide a high quality of hospice care. Subsection 408.035(1)(c).

67. Alternative health care services and facilities are available in the service area, but the alternatives are not adequate for all terminally ill patients, and none of those formally include the patients' families as the unit for care. Subsection 408.035(1)(d).

68. Having experience in operating a hospice in service area 2A, BMC reasonably expects to benefit from economies of scale and improvements in operating an additional hospice. Subsection 408.035(1)(e).

69. The BMC proposal will not provide special equipment or services which are not available in adjoining areas, nor meet the needs of research or educational facilities. Subsections 408.035(1)(f) and (g).

70. BMC has resources and funds to staff, establish, and operate the hospice in a manner which is financially feasible in the immediate and long term. Subsection 408.035(1)(h) and(i).

    See, also, Halifax Hospital Medical Center, etc. v. AHCA, Case No. 95-0742 (F.O. 1/14/97).

71. BMC's proposal does not meet the special needs of a health maintenance organization, nor those of an entity servicing people outside the service area. Subsections 408.035(1)(j) and (k).

72. There is no impact on the cost of hospice services as a result of the approval of BMC's application. There is evidence of a direct, positive impact on utilization and, therefore, innovations in the delivery of hospice services from the competition between BMC and HNWF. Subsections 408.035(1)(l) and 408.043(2).

73. No construction costs or significant capital expenditures are associated with the establishment of the hospice as proposed by BMC. Subsections 408.035(1)(m) and (2).

74. BMC has a history of providing a disproportionate share of services to Medicaid and indigent patients. Its proposal includes specific commitments to these payor categories. Subsection 408.035(1)(n).

75. BMC operates a multilevel health care system currently serving patients from areas within service area 1, for whom the continuum of care will be enhanced by the availability of hospice care. Subsection 408.035(1)(o).

76. On balance, BMC meets the criteria for approval of CON 8377 to establish a hospice in AHCA service area 1, on the conditions proposed by BMC.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that the Agency For Health Care Administration enter a Final Order issuing CON 8377 to Bay Medical Center to establish a hospice program in service area 1, conditioned on providing annually a minimum of 12.8 percent Medicaid care, 3.65 percent charity care, and service to a minimum of 7 AIDs patients with a minimum of 350 visits.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 19th day of May, 1997.

ELEANOR M. HUNTER

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 1997.

COPIES FURNISHED:

Richard Ellis, Senior Attorney

Agency for Health Care Administration 2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

Darrell White, Esquire William B. Wiley, Esquire

McFarlain, Wiley, Cassedy & Jones, P.A. Post Office Box 2174

Tallahassee, Florida 32315-2174

J. Robert Griffin, Esquire

J. Robert Griffin & Associates, P.A. 2559 Shiloh Way

Tallahassee, Florida 32308

Sam Power, Agency Clerk

Agency For Health Care Administration 2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

Jerome W. Hoffman, General Counsel Agency For Health Care Administration 2727 Mahan Drive

Fort Knox Building 3, Suite 3431

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 should be filed with the agency that will issue the final order in this case.

Docket for Case No: 96-004073CON

Orders for Case No: 96-004073CON