STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WUESTHOFF MEMORIAL HOSPITAL, INC., )

)

Petitioner, )

)

vs. )

) STATE OF FLORIDA, AGENCY FOR HEALTH ) CARE ADMINISTRATION, )

)

Respondent, ) Case No. 97-0389

)

and )

) HOLMES REGIONAL MEDICAL CENTER, ) INC., )

)

Intervenor. )

)

RECOMMENDED ORDER

On March 17 through 26, 1997, a formal administrative hearing was held in this case in Tallahassee, Florida, before

1. Lawrence Johnston, Administrative Law Judge, Division of Administrative Hearings.

   APPEARANCES

   
   

   For Petitioner: David C. Ashburn, Esquire

   Gunster, Yoakley, Valdes-Fauli and Stewart, P.A.

   215 South Monroe Street, Suite 830 Tallahassee, Florida 32301

   
   

   For Respondent: Mark Thomas, Esquire

   Agency for Health Care Administration Office of the General Counsel

   2727 Mahan Drive

   Tallahassee, Florida 32308

   For Intervenor: Stephen K. Boone, Esquire

   Boone, Boone, Boone and Hines, P.A. Post Office Box 1596

   Venice, Florida 34284 and

   
   

   R. Terry Rigsby, Esquire Blank, Rigsby & Meenan

   204 South Monroe Street Tallahassee, Florida 32301

   
   

   STATEMENT OF THE ISSUE

   
   

   The issue in this case is whether the Agency for Health Care Administration (AHCA) should grant the application of Wuesthoff Memorial Hospital, Inc. (WUESTHOFF), for a Certificate of Need (CON) (CON 8597) to establish a new 50-bed general acute care hospital in South Brevard County, District 7.

   PRELIMINARY STATEMENT

   
   

   When AHCA gave notice of intent to deny CON 8597, WUESTHOFF petitioned for formal administrative proceedings. The case was referred to the Division of Administrative Hearings (DOAH) on January 13, 1997, and final hearing was scheduled for

   March 17 through 28, 1997. Holmes Regional Medical Center, Inc. (HRMC), was granted leave to intervene and participate as a party to the case in support of AHCA’s intent to deny.

   At the outset of hearing, HRMC argued the Motion for Summary Recommended Order it filed on March 14, 1997; ruling was deferred to give WUESTHOFF time to respond in writing.

   At final hearing, WUESTHOFF called 23 witnesses and had

   WUESTHOFF Exhibits 1 through 10 admitted in evidence. AHCA called one witness and had AHCA Exhibit 1 admitted in evidence. HRMC called ten witnesses and had HRMC Exhibits 1 through 34 admitted in evidence.

   During the hearing, HRMC’s Motion for Summary Recommended Order was denied; however, it was indicated that the substantive issues raised would be addressed in this Recommended Order.

   At the conclusion of the presentation of the evidence, AHCA and WUESTHOFF ordered the preparation of a transcript of the final hearing, and the parties requested and were given 30 days from the filing of the transcript in which to file proposed recommended orders. The complete transcript (1550 pages in 13 volumes) was filed on April 24, 1997, making proposed recommended orders due to be filed on May 27, 1997; later, the parties requested and were given an extension until June 2, 1997.

   In addition to the joint proposed recommended order it filed with AHCA, HRMC also filed a Motion for Entry of a Recommended Order Denying WUESTHOFF’s CON Application on the Merits.

   WUESTHOFF responded in opposition and moved to strike. Since it is too late for a summary disposition, the motion to strike is granted; however, as previously indicated, the substantive issues are addressed in this Recommended Order.

   FINDINGS OF FACT

   
   

   1. WUESTHOFF is a 303-bed, acute care hospital in Brevard County, Florida. In addition to its hospital, WUESTHOFF has

      three home health locations, eight or nine walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, two freestanding diagnostic centers, and outpatient labs throughout Brevard County.

   2. HRMC is a JCAHO accredited, 528-bed, regional, not-for- profit community hospital based in Melbourne, Brevard County, Florida. HRMC is comprised of two acute care campuses: a 468- bed tertiary hospital in Melbourne, and a 60-bed, general acute care hospital in Palm Bay. The Melbourne campus operates a

      10-bed, Level II, neonatal, intensive care unit, and 428 general medical and pediatric beds.

      The Proposed Project

      
      

   3. WUESTHOFF chose to establish a satellite hospital complex in South Brevard County by applying separately for:

      (1) a certificate of need (CON) to decertify and de-license 100 general acute care hospital beds and undertake certain renovations and improvements at its existing Rockledge hospital facility; (2) a CON for a medical office building (MOB); (3) a non-reviewability letter for a $35 million diagnostic and treatment center (DTC), which would provide all of the ancillary services for the new satellite hospital; and (4) the CON to establish the 50-bed hospital (CON 8597) which is at issue in this case.

   4. In CON 8597, WUESTHOFF has asked AHCA to treat the $35 million DTC as the “sunk” costs of an existing facility, and to

      review the CON application at issue in this case incrementally— i.e., as consisting of only the inpatient tower and the additional ancillary activities that would take place at the complex, over and above those that would take place at the DTC without the inpatient tower. Viewing CON 8597 in this way, WUESTHOFF presented total project costs of only $13 million.

   5. In preparing the financial schedules for CON 8597, WUESTHOFF presented the revenues and expenses of the entire hospital operation (including the DTC), except for the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower, and the revenues and expenses of the entire hospital operation, including the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower. By presenting the financial schedules in this manner, WUESTHOFF never presented the revenues and expenses of the entirety of the new satellite hospital it is proposing to establish, and AHCA has not had the opportunity to review those revenues and expenses.

   6. WUESTHOFF planned to build the MOB, the DTC and the inpatient tower in one continual course of construction and to open the entire complex at the same time; the complex, when completed, was planned to function as a single, integrated hospital facility.

   7. AHCA granted the first three applications comprising WUESTHOFF’s project but denied CON 8597.

   8. In a subsequent batch, WUESTHOFF filed a letter of intent for a single CON application that the combined the DTC and inpatient tower projects at a total cost of approximately

      $50,000,000.

      
      

      Need In Relation To State And District Health Plans: Section 408.035(1)(a) Florida Statutes

      
      

      1. State Health Plan

         
         

   9. The first State Health Plan preference favors applicants who demonstrate that the subdistrict occupancy rate is at or exceeds 75 percent, or in the case of existing facilities, where the occupancy rate for the most recent 12 months is at or exceeds

      85 percent. WUESTHOFF failed to meet this preference. For the applicable period, the subdistrict occupancy was approximately 53 percent; however, more recent data shows that occupancy is below

      53 percent, which suggests a continuing decline in inpatient occupancy rates in the subdistrict. During the applicable period, the occupancy rate at WUESTHOFF’s Rockledge facility was only slightly more than 45 percent.

   10. The second State Health Plan preference favors an applicant with a history of providing a disproportionate share of the subdistrict’s acute care and Medicaid patient days, and further meets the Medicaid disproportionate share hospital criteria. WUESTHOFF failed to meet this preference, as it is not a disproportionate share provider.

   11. The third State Health Plan preference favors an applicant that provides or proposes to provide disproportionate

       share of Medicaid and charity care patient days in relation to other hospitals within the district or subdistrict. WUESTHOFF’s existing facility is not a disproportionate share hospital. (Although WUESTHOFF’s CON application proposes to condition award of the CON setting aside 15 percent of its discharges for Medicaid, charity, and indigent patients, its application does not provide percentages for each category.)

   12. The fourth State Health Plan preference considers the current and projected indigent inpatient case load, the proposed facility size, and the case and service mix, WUESTHOFF’s application partially complies with the preference in that it proposes to provide some indigent care.

   13. The fifth State Health Plan preference favors proposals that would not negatively affect the financial viability of an existing, disproportionate share hospital. This preference is not applicable in this case.

   14. The sixth State Health Plan preference favors applicants with a record of accepting indigent patients for emergency care. WUESTHOFF meets this preference.

   15. The seventh State Health Plan preference favors applicants for any type of hospital project if the facility is verified as a trauma center. WUESTHOFF does not meet this preference. WUESTHOFF claims that it operate the emergency room at the proposed facility with “the same level of services as WUESTHOFF’s existing emergency room.” WUESTHOFF does not

       currently operate a Level II trauma center at its Rockledge campus.

   16. The eighth State Health Plan preference favors applicants who can document that they provide a full range of emergency services. WUESTHOFF’s Rockledge facility offers a range of emergency services, but the emergency department at the proposed facility will necessarily offer a limited range of services, as the proposed facility will not be a tertiary care hospital, and emergency patients in need of those services will have to be transferred.

   17. The ninth State Health Plan preference favors applicants who can document that it has not been fined by HRS for any violation of the emergency services statutes. WUESTHOFF meets this preference.

       1. Local Health Plan Preferences

       
       

   18. The District 7 Local Health Plan sets forth five preferences to be used in evaluating CON applications for the transfer/relocation/delicensure of acute care beds. The health plan provides that “[p]reference shall be given to applications for transfer of existing acute care beds, delicensure/conversion of existing acute care beds and/or relocation of an entire facility if the applicant can provide substantial documentation of:

       1. The need for acute care beds or specialty beds in the service area proposed to receive the beds. Need should address specific populations, access consideration, etc.

       2. The impact of the proposed project on the parent facility including projected occupancy declines, curtailing of service effect on operating cost, use of vacated space at the main campus and charge changes.

          
          

       3. The proposed service improving access by at least

          25 minutes to at least 10 percent of the population or a minimum of at least 35,000 people. This should be substantiated by analyses of patient origin to existing providers, physician referral practices and location of physician offices.

          
          

       4. Commitment to provision of care to both no-pay and low-pay medically indigent patients and Medicaid patients at a minimum of no more than 2 percent below the most recent HCB publication for the District of the charity/uncompensated care percentage of net revenues.

          
          

       5. Agreement to participate in any indigent care programs which exist in the county or counties proposed to be served. Participation should be at a rate equal to or greater than the average for the general hospitals also serving that area.

       
       

   19. As to the first preference, WUESTHOFF failed to demonstrate a need for the proposed 50-bed general acute care hospital. Even with the delicensure of 100 acute care beds as a result of WUESTHOFF’s companion application, there still is an oversupply of 215 acute care beds in the county. The evidence presented at the final hearing failed to demonstrate any geographic or other barriers to accessing acute care services that would warrant the expenditure proposed by WUESTHOFF to construct the proposed project. Indeed, WUESTHOFF’s own evidence was clear that every resident of Brevard County has access to a general acute care hospital within a maximum drive time of 30-40 minutes and, in almost all instances, to two different acute care facilities within a 30-40 minute drive time.

   20. WUESTHOFF contends that its proposed 50-bed general acute care hospital is needed for four reasons: (1) to provide a high quality alternative inpatient health care provider in south Brevard County; (2) to introduce competition into the south Brevard area; (3) to enhance access to care to Medicaid, charity, and indigent population, as well as to enhance access for the managed care segment of the population; and (4) to enable WUESTHOFF to remain competitive in the marketplace.

   21. The evidence is clear that HRMC provides high quality inpatient health care in south Brevard County. See Findings 30- 44, infra. In addition, WUESTHOFF already serves some patients, residing in south Brevard County, and so does Sebastian River Medical Center, located in the adjacent county to the south.

   22. The evidence also is clear that there already is competition for inpatient hospital services in south Brevard County. HRMC serves a much greater percentage of those patients primarily due to its location and the high quality and low costs of HRMC’s services. In view of the excess capacity of hospital beds in the county, it does not make sense to add a satellite WUESTHOFF hospital in south Brevard County that would duplicate the services of the existing providers.

   23. WUESTHOFF also attempted to show that its proposed acute care hospital was needed in order to provide services for managed care participants. However, WUESTHOFF failed to offer any competent evidence to show that participants in managed care

       programs are a traditionally underserved population group and did not prove that WUESTHOFF’s ability to participate in managed care networks is a valid basis for determining the need of additional acute care services in south Brevard County. To the contrary, the evidence tended to show that the expansion of managed care programs would result in a decrease in the utilization of inpatient acute care services. Furthermore, there is no barrier to WUESTHOFF’s participating in managed care programs with one or more facilities in the southern portion of Brevard County, and in fact WUESTHOFF has aligned itself with Sebastian River Medical Center in a number of managed care contracts serving residents of southern Brevard County.

   24. While WUESTHOFF is offering a larger discount to managed care payers, its charges are higher, resulting in net revenue per managed care case that is still higher than HRMC’s. The price the managed care providers pay to HRMC is actually 14 percent lower than what they pay to WUESTHOFF. Not only does HRMC provide a better “deal” to managed care payers, but HRMC’s managed care volume is also greater than WUESTHOFF’s, indicating HRMC’s willingness to negotiate and work with managed care companies.

   25. At the time WUESTHOFF submitted its CON application, the penetration of managed care in Brevard County was approximately 8.6 percent. However, more recent data from 1996 shows a significant increase in the penetration of managed care

       to 15 percent, without the allegedly needed new hospital.

       
       

   26. A primary thrust of WUESTHOFF’s case for the need for its proposed project was that patients in the southern portion of Brevard County cannot be admitted into HRMC’s Palm Bay facility because its physicians do not enjoy staff privileges at that facility. Each hospital establishes criterion for staff privileges. In order to be eligible for staff privileges, it is normally required that the physician reside or have his or her office within certain geographic boundaries surrounding the hospital. The primary reason for such requirement is to ensure that the physician is capable of responding to patient needs within a time certain and that the physician will be able to provide coverage for his or her patients admitted into a facility. Dr. Arnold, a physician with staff privileges at WUESTHOFF who operates an office in West Melbourne, conceded that if his physician group associated with a physician living within HRMC’s geographic boundaries who was able to meet response time criteria, the physician group could admit patients into HRMC.

       Dr. Arnold also conceded that his physician group is not eligible for staff privileges at other Brevard hospitals, based on geographic considerations.

       The Availability, Quality Of Care, Efficiency, Appropriateness, Accessibility, Extent Of Utilization, And Adequacy Of Like And Existing Health Care Services In The Service District: Section 408.035(1)(b), Florida Statutes.

       
       

   27. There is no need for another hospital in South Brevard County. The county already has more than enough hospitals. Even in light of a 27-29 percent increase in population, utilization of Brevard County hospitals has dropped 10 percent in the last five years.

   28. There has been a marked shift in the Brevard County area away from inpatient services toward outpatient services. That shift is still growing.

   29. HRMC is the only hospital in Brevard County which has been nationally recognized for quality care by the National Research Corporation.

   30. According to AHCA’s hospital report card, HRMC was shown to be a consistent, low-charge provider, operating within the expected range of outcomes.

   31. According to a study done by AHCA, HRMC performs as one of the top five hospitals in Florida for reducing overall

       C-section births and increasing vaginal births after Cesarean (“VBAC”). This is important because vaginal births are safer for both mother and baby and save approximately $3,000 per delivery when compared with Cesarean births. HRMC has the lowest Cesarean Section rate and the highest VBAC rate in Brevard County and is one of the five lowest charging hospitals in the State for these services. Wuesthoff, on the other hand, has some of the highest

       costs in the county for these services.

       
       

   32. HRMC is providing efficient hospital services when compared with WUESTHOFF and other markets where competition is a factor.

   33. Of the zip codes addressed in WUESTHOFF’s travel study, there is no zip code in Brevard County that is more than 30 minutes from an existing hospital. Of the fourteen intersections tested, the addition of the proposed project would decrease travel times from only three intersections, with the greatest decrease in travel time being only nine minutes. Thus, the construction of WUESTHOFF’s proposed facility would not significantly increase access for Brevard County patients.

   34. HRMC delivers the majority of Medicaid babies in the county and is also a contract provider for Children’s Medical Services.

   35. HRMC worked with the Public Health Department to develop a better system for giving prenatal care and delivery to Medicaid and indigent mothers. HRMC offered to subsidize the salary of a doctor, and eventually two midwives, to work with the Public Health Department for this purpose.

   36. HRMC’s HOPE programs provides access to Medicaid and indigent patients. HOPE clinic and HOPE van expenses are direct expenses of HRMC. In addition to medical care, the HOPE program also provides free medication to those who cannot afford it.

   37. HRMC’s HOPE van provides services to the homeless every

       Tuesday, seeing as many as 40 patients each visit. Patients are provided with an examination, medications, and referrals to specialists or the hospital, if necessary. This care is provided at no charge to the patient.

   38. HRMC’s HOPE program was given the Nova award by the American Hospital Association for its ground-breaking effort in community health improvement. It is the only program in Florida which has been so recognized. The HOPE program has also received the Heartland Award from Governor Chiles for its work at improving the status of life in Florida.

   39. HRMC supports a variety of agencies to provide care to indigent AIDS patients. HRMC provides services to a nonprofit outpatient AIDS services organization, which offers reduced-rate and free lab services. HRMC, along with the Public Health Unit, funded a dental clinic for the AIDS organization.

   40. The hospitals in Brevard County do a good job in regard to taking care of the patients who are incapable of paying, with HRMC going the extra mile to provide services to the poor.

   41. There was no evidence that persons in need of quality, general acute care services are not able to access those services at any existing provider in Brevard County. There is no lack of availability or access to general acute care services based on either geographic or financial grounds. WUESTHOFF’s proposed 50- bed general acute care hospital is not needed to accomplish this.

       The Ability Of The Applicant To Provide Quality Of Care And The Applicant’s Record Of Providing Quality Of Care: Section

       408.035(1)(c), Florida Statutes.

       
       

   42. It is clear that WUESTHOFF is capable of providing quality inpatient health care services. However, it is found that HRMC is providing higher quality services (and at a lower cost).

   43. As shown in AHCA’s hospital report card, WUESTHOFF performed in the lowest 15 percent in the State in 5 of 6 serviced lines where mortality was measured. On the other hand, HRMC was indicated to be consistently a low-charge provider, operating within expected outcomes.

   44. HRMC’s C-section rate is significantly lower than WUESTHOFF’s, and its VBAC rate much higher. The results of a low C-section rate are lower lengths of stay and less risk to both mom and baby.

       The Availability And Adequacy Of Other Health Care Facilities And Services In The District Which May Serve As Alternatives For The Services To Be Provided By The Applicant: Section 408.035(1)(d), Florida Statutes.

       
       

   45. WUESTHOFF already has three home health locations, 8 or

       
       

       1. walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, 2 freestanding diagnostic centers, and outpatient labs in Brevard County. In addition, WUESTHOFF plans to construct a new outpatient and diagnostic center in south Brevard County.

   46. In addition, inpatient surgeries have shifted to private, for-profit outpatient centers and ambulatory surgery centers that have opened in the last five years in Brevard

       County.

       
       

   47. The competent, substantial evidence presented at the final hearing demonstrates that within Brevard County, there are available and adequate alternatives to the inpatient services proposed by WUESTHOFF. First, as discussed above, the existing providers of acute inpatient health care services have capacity to absorb any increase in the utilization of acute care services in the County. Second, data introduced at the final hearing demonstrate that overall utilization for the types of services WUESTHOFF proposes to offer are declining and demonstrate that residents are seeking out alternatives to inpatient hospital services. For example, from 1993-1996, inpatient surgery services in Brevard County showed a marked decline of approximately 20 percent, both in number of patients and procedures. This trend is not unique to Brevard County, but is occurring throughout the state. Health care providers are seeking alternatives to hospitalization, with procedures being performed in physician offices and ambulatory surgical centers.

   48. Likewise, there has been a decline in utilization of several other services WUESTHOFF is proposing for its 50-bed hospital. During the period 1993-1996, while the population of Brevard County was growing at a rate of approximately 2.4 percent per year, the rate of obstetric admissions as a percentage of admissions to Brevard hospitals declined.

   49. There is excess capacity for pediatric and obstetrical

       services in Brevard County. The average daily census in obstetrical beds has dropped from approximately 34 patients per day to approximately 29 per day. With 66 reported available obstetrical beds in Brevard County, that means that on any day only 44 percent of the available capacity is being utilized.

       Likewise, pediatric census has gone from approximately 32 patients per day to only about 25. With 78 reported pediatrics beds, a demand for only 25 beds means that approximately 32 percent of available capacity is utilized.

       Probable Economies And Improvements In Service That May Be Derived From Operation Of Joint, Cooperative, Or Shared Health Care Resources: Section 408.035(1)(e), Florida Statutes.

       
       

   50. WUESTHOFF does not propose the operation of a joint, cooperative, or shared program with any other entity. WUESTHOFF contends that its application is consistent with this criterion because it proposes the sharing of certain resources with its main facility. But the construction of a satellite facility will result in the duplication of certain services. It is actually less efficient for a hospital to operate two campuses.

       The Need in the Service District for Special Equipment and Services Which Are Not Reasonably and Economically Accessible in Adjoining Areas: Section 408.035(1)(f), Florida Statutes.

       
       

   51. WUESTHOFF’s CON application does not propose to provide special equipment. This criterion is not met.

       The Need For Research And Educational Facilities, Health Care Practitioners, And Doctors Of Osteopathy And Medicine At The Student, Internship, And Residency Training Levels: Section 408.035(1)(g), Florida Statutes.

       
       

   52. This need is already being met in the community.

       WUESTHOFF, HRMC, and other Brevard County hospitals are already active in community training programs through their links with Brevard Community College and the University of Central Florida.

   53. HRMC has institutional training programs with the University of Florida, all Children’s Hospital, the local vo- tech, and University of Central Florida, in addition to other community programs.

       The Immediate And Long-Term Financial Feasibility Of The Proposal: Section 408.035(1)(i), Florida Statutes.

       
       

   54. The immediate financial feasibility of a proposed project is satisfied by showing that the applicant has adequate financial resources to fund the capital costs of the project and the financial ability to fund short-term operating losses. WUESTHOFF has demonstrated that its proposed project is financially feasible in the short-term.

   55. Long-term financial feasibility is established by demonstrating that projected revenues can be attained in light of the projected utilization of the proposed service and average length of stay.

   56. WUESTHOFF has not demonstrated that it can achieve its projected revenues by the second year of operation and has, therefore, failed to demonstrate long-term financial feasibility. It is impossible to tell from the information contained in WUESTHOFF’s CON application 8597 what the revenues and expenses of the new hospital will be.

   57. Staffing and supply costs associated with the ancillary

       building, but which will be used by the hospital when constructed and which amount to millions of dollars, are not broken out in the application.

   58. The application also does not show the totality of the costs associated with the 50-bed hospital WUESTHOFF seeks to establish. For example, provision for bad debt expense does not appear in the application, nor does the indigent care tax expense. Furthermore, the application does not provide for any administrative staff for the new hospital, nor has all other necessary staff been provided for. If these positions are included under “other,” then the salary expense projected is not enough. Also, the salaries listed on Schedule 6 do not include benefits.

   59. The preopening expenses figure shown in WUESTHOFF’s application is reasonable only if the entire facility, the ancillary, outpatient, and inpatient tower would open all at the same time.

   60. It is very difficult to analyze the reasonableness of the financial projections because the revenues and expenses do not match. All the revenue from the proposed new facility appears to be included, but not all of the expenses.

   61. Schedule 8A shows that daily ancillary expenses are

       
       

       $470 at WUESTHOFF’s existing hospital but only $82 at the new, proposed hospital. It is implausible that the new hospital would have costs this much lower than the existing hospital.

   62. WUESTHOFF’s staffing projections do not account for a significant number of nursing and other staff necessary for the operation of the facility as a hospital. The projections only address nursing positions for the 50-bed, inpatient tower. The schedule fails to show those nurses assigned to the ancillary services areas in the outpatient diagnostic center who will be working with inpatients. For example, the scrub nurses in the emergency department who will be working on inpatients are not included in the schedule, and the nurses working in radiology who will be caring for inpatients are not shown. The schedule fails to include a director of nursing at the proposed hospital facility. Although WUESTHOFF claimed that it will assign a director of nursing when patient volumes reach 50%, it failed to include projections for that position in this second year projections, even though patient volumes are projected to reach 50% in the second year. Wuesthoff also failed to include benefits in its computation of salaries on Schedule 6, even though it expects to pay benefits at a rate of 20% of salary.

   63. Interest expenses are also significantly understated. The project is financed with 100 percent debt, which should amount to an interest expense of approximately $850,000.00 per year. However, the application shows interest in year one as

       $197,000.00 and for year two, $393,000.00. It is unusual that interest would be higher in year two than year one.

   64. There is no way to tell from looking at the schedules

       or assumptions in the application what the utilization of the new hospital will be, or how the patient days break out by payor.

       Therefore, reasonableness of the financial projections cannot be tested.

   65. Without additional information, one cannot determine if the average charges projected are reasonable. There are unusual projections, such as the charges during construction, year one, and year two, in the application which without explanation are not reasonable.

   66. The financial projections as to the whole facility are unreasonable. They show that WUESTHOFF, which currently makes $7 or $8 million dollars each year, will lose money once the new facility is open but that, in its second year, the new facility will make $6.9 million. Such a projection is unreasonable.

   67. By focusing only on the incremental effect of adding an inpatient tower to a presumed existing DTC, WUESTHOFF’s financial projections are not sufficient to allow a conclusion to be drawn as to the financial feasibility of the new 50-bed hospital. However, it would appear that, if those schedules had been presented, they would have shown the new satellite hospital, taken in its entirety, not to be financially feasible in the long term.

       The Special Needs Of Health Maintenance Organizations: Section 408.035(1)(j), Florida Statutes.

       
       

   68. The application is not made on behalf of an HMO, and this criterion is not applicable.

       The Needs And Circumstances Of Those Entities Which Provide A Substantial Portion Of Their Services Or Resources, Or Both, To Individuals Not Residing In The District: Section 408.035(1)(k), Florida Statutes.

       
       

   69. The CON application does not address serving a substantial number of persons or providing a substantial portion of services to individuals residing outside the district, and this criterion is not applicable.

       The Probable Impact Of The Proposed Project On The Costs Of Providing Health Services Proposed By The Applicant, Including The Effect On Competition: Section 408.035(1)(l), Florida Statutes.

       
       

   70. There is significant competition for managed care services in Brevard County. HRMC seeks and desires to enter into managed care contracts and is as competitive in the managed care arena as WUESTHOFF is. In fact, HRMC’s managed-care, patient volume is higher than WUESTHOFF’s.

   71. Managed care penetration in Brevard County has increased over the last five years and especially in the last two years.

   72. One particular HMO in Brevard County that is just getting started has received an acceptable managed care offer from HRMC. If they did not receive an acceptable offer from WUESTHOFF.

   73. Brevard County does not need another inpatient facility to allow the County to achieve higher levels of managed care penetration. There are no barriers in Brevard County to increasing HMO and other managed care penetration.

   74. Even though HRMC has an 82 percent market share in South Brevard County, that by itself does not indicate HRMC is charging non-competitive prices. In fact, HRMC’s charges are much lower than WUESTHOFF’s.

   75. Both the State of Florida and the FTC found that HRMC’s merger with Cape Canaveral when Health First was formed did not create an adverse, competitive effect on the marketplace.

   76. Because HRMC’s charges are so much lower than WUESTHOFF’s, the addition of the proposed hospital would not introduce price competition into the market.

   77. The majority of the proposed hospital’s patients are likely to come from South Brevard County-–an area where HRMC has an 82.5 percent market share. Thus, the bulk of the proposed hospital’s patients will come from HRMC.

   78. If the proposed hospital meets its projected utilization, HRMC stands to lose somewhere between $4 and $5 million a year. While that loss may not put HRMC into bankruptcy, it will have a significant adverse effect.

       The Costs And Methods Of The Proposed Construction And The Availability Of Alternative, Less Costly, Or More Effective Methods Of Construction: Section 408.035(1)(m), Florida Statutes.

       
       

   79. WUESTHOFF’s proposal to establish a 50-bed, general, acute care hospital entails the construction of a 3-story, 50-bed patient tower adjoining an outpatient diagnostic center. The outpatient diagnostic center, and not the inpatient tower, will encompass virtually all of the ancillary services necessary for

       WUESTHOFF to obtain a license to operate its facility as a hospital.

   80. As more fully discussed below, WUESTHOFF’s proposed 50- bed inpatient hospital will require substantial design modification and increased square footage in order to obtain licensure as a general, acute care hospital.

       The Applicant’s Past And Proposed Provision Of Health Care Services To Medicaid Patients And The Medically Indigent: Section 408.035(1)(n), Florida Statutes.

       
       

   81. The evidence showed that all acute care hospitals in Brevard County provide a fair level of Medicaid and indigent care in comparison to the remainder of the state. In its CON application, WUESTHOFF proposes to condition approval of its 50- bed, general, acute care hospital on providing 15 percent Medicaid and charity care, but did not provide a breakdown of each. There was no documented access problems for Medicaid or indigent patients that would warrant a new health care facility.

   82. Because indigent care is reported to the State based on a hospital’s charges, WUESTHOFF and HRMC could be doing the same amount of indigent care, but WUESTHOFF could appear to be doing more because its charges are higher.

       Whether Less Costly, More Efficient, Or More Appropriate Alternatives To The Proposed Inpatient Services Are Available: Section 408.035(2)(a), Florida Statutes.

       
       

   83. HRMC’s average charges are significantly lower than WUESTHOFF’s on both a per case and per patient day basis. HRMC’s

       costs are also lower, indicating it is more efficient. Therefore, the addition of another less-efficient, higher- charging WUESTHOFF hospital into the market would be more costly and less efficient than what it is there now.

   84. The greater weight of the evidence establishes that denial of WUESTHOFF’s proposed 50-bed, general acute care hospital is the least costly, more efficient, and appropriate alternative. The existing providers of acute care services in Brevard County are operating efficiently and have unused capacity that is available to serve Brevard residents. Data suggests that while the population of Brevard County is growing, there is no corresponding increase in utilization of general, acute care services. While Brevard enjoys a proportionately higher growth rate than the rest of the State, the growth does not translate into higher utilization of general acute care services. Further, the age 65+ population, those most likely to use hospital services, has experienced an annual growth of approximately

       3.7 percent between 1990-1996, which is higher than the overall rate of growth for Brevard.

   85. While there has been a significant growth in the number of elderly and Medicaid eligible population, only approximately

       1. percent of those eligible for Medicaid in the 14 zip codes targeted as the service area of WUESTHOFF’s proposed hospital actually use hospital services.

   86. In 1993, the last year of available data, the actual

       county-wide use rate for Medicaid eligible residents was only

       
       

       8.4 percent. This is expected to remain constant in subsequent years, as the demand for inpatient acute care services has not increased, but has in fact decreased.

   87. There is insufficient utilization of the inpatient acute care services which already exist in Brevard County, with approximately 50 percent of the available beds unoccupied. The addition of another health care facility will not improve access, improve delivery of services, or make services available to a population that is not presently being adequately and appropriately served by existing providers.

   88. In a market where inpatient volume is going down, length of stay is going down, and utilization is going down, it does not make sense to spend scarce dollars on new inpatient services.

       Whether The Existing Facilities Providing Similar Inpatient Services Are Being Used In An Appropriate And Efficient Manner: Section 408.035(2)(b), Florida Statutes.

       
       

   89. The greater weight of the evidence established that there is available capacity for inpatient services like those proposed by WUESTHOFF at the existing, general, acute care facilities in Brevard County. WUESTHOFF did not demonstrate that any provider is suffering from over utilization or that any patient has not been able to access general acute care services when such services were necessary. On the contrary, there was a consensus among the experts, even WUESTHOFF’s experts, that there

       is no problem with geographic or financial access to existing providers.

   90. Between 1993 and 1996, hospital utilization dropped from 63 percent to 52 percent. AT WUESTHOFF’s Rockledge campus, utilization fell from a high of 63 percent in 1993, to approximately 46 percent in 1996. During this same period, the population of Brevard County grew at a rate of approximately

       2.4 percent per year, which was proportionately higher than for the rest of the state. At HRMC, its occupancy dropped, but not quite as dramatically. Between 1993 and 1996, HRMC’s occupancy went from 67 percent to approximately 62 percent. The satellite facility, operated by HRMC in Palm Bay and located in the same service area where WUESTHOFF proposes to construct its 50-bed general acute care hospital, has never experienced occupancy above 31 percent.

       That Patients Will Experience Serious Problems In Obtaining Inpatient Care Of The Type Proposed, In The Absence Of The Proposed New Service: Section 408.035(2)(d), Florida Statutes.

       
       

   91. There was no evidence to show that any population group in Brevard County is unable to access quality health care services at any of the subdistrict’s existing facilities. Further, WUESTHOFF failed to establish that its proposed facility was needed to provide general acute care services not currently provided or currently accessible to residents of south Brevard County. WUESTHOFF maintains that participants in managed care contracts may not be able to access WUESTHOFF’s general acute

       care services without approval of the proposed project, but there was not demonstration that those individuals would not otherwise have access to quality affordable health care in Brevard County. WUESTHOFF also failed to demonstrate that participants in managed care programs are a “traditionally underserved” population group for a determination of need under not normal circumstances.

       CON Application Content And Procedures: Section 408.037, Florida Statutes And Rule 59C-1.008, Florida Administrative Code.

       
       

   92. The parties stipulated as to the timeliness of the submission of WUESTHOFF’s Letter of Intent, initial CON application and response to omissions. However, the board resolution required by Section 408.037, Florida Statutes, and Rule 59C-1.008, Florida Administrative Code, is fatally defective. The applicant is required to provide certification that its governing board enacted a resolution to license and operate the proposed facility. In this case, the proposed 50- bed, inpatient tower cannot be licensed by the applicant as a hospital. In order to obtain hospital licensure, the proposed project would necessarily include the $35+ million that WUESTHOFF proposes to spend on its outpatient diagnostic center.

   93. WUESTHOFF’s CON application also fails to comply with Section 408.037(2)(c), which requires detailed financial projection including a statement of the revenues and expense for the period of construction and the first two years of operation after completion of the project. The proposed project is a “hospital.” The hospital will report all of the revenues and

       expenses of the inpatient and outpatients to the state in its actual report, and those same projected revenues and expenses should be in the pro forma of a certificate of need application for a new hospital project. Instead, the projected revenues and expenses in the pro formas take an “incremental” approach and focus only on the 50-bed tower and an unspecified portion of the diagnostic center. WUESTHOFF’s own financial expert admitted that one cannot determine the revenues and expenses of the new hospital from the information contained in the application. AHCA does not have sufficient information with respect to revenues and expenditures in the pro formas to determine the financial feasibility of the hospital project. The pro formas do not meet the statutory requirement contained in 408.037(2)(c), Florida Statutes, and are fatally defective.

   94. Neither AHCA nor its predecessor agency ever have approved a CON to establish a hospital without ever seeing projections of the revenues and expenses of the hospital as a whole. Additions to hospitals have been approved on a strictly incremental basis; but, in those cases, the revenues and expenses of the hospital as a whole already had been reviewed and approved.

   95. Inpatient cardiac catheterization programs also have been approved, based on a strictly incremental review of the financial impact of converting from an existing outpatient to an inpatient program. But there is a meaningful difference between

       the approval of a program in a hospital facility that already has been reviewed and approved as a whole and what WUESTHOFF is seeking to have done in this case.

   96. There also is a difference between treating the costs of an existing and operating facility or program as being “sunk” and treating the $35 million capital cost and additional operating costs of the proposed DTC in this case as being “sunk.” In the former, the costs have been or are being spent and truly are “sunk”; in the latter, despite WUESTHOFF’s assurances, the DTC money has not been spent, and the DTC has not been established. Indeed, the decision properly before AHCA in this case is whether those expenditures should be made for purposes of establishing a hospital. If not, the hospital should not be approved. If WUESTHOFF still wants to build and operate its proposed $35 million anyway, as it has assured AHCA that it will do, it is free to do so.

       Criteria Used In Evaluation Of CON Applications: Rule 59C-1.030, Florida Administrative Code.

       
       

   97. AHCA’s rules set forth additional criteria used to evaluate CON applications which focus on whether there is a need for the proposed service in the population to be served and whether the proposed project is accessible to those in need of the service. The evidence in this case showed that there was no unmet need in Brevard County for inpatient, general, acute care services and that the target population is adequately served by the existing providers of general acute care services.

       Furthermore, the evidenced showed that the anticipated population growth in Brevard County is not likely to generate additional numbers of inpatient admissions, based on the decline in utilization during a period when Brevard County was experiencing unprecedented annual growth at a rate of 2.4 percent overall and

       3.7 percent in the 65+ population. Any attendant increase in demand for inpatient general acute care services can be easily accommodated by the existing providers in Brevard County. The rule also examines the extent to which an applicant provides services to Medicare, Medicaid, and the medically indigent patients. The evidence showed that WUESTHOFF provides a fair amount of general acute care services to Medicare, Medicaid, and charity patients, as do the other existing providers in Brevard County.

       Hospital Physical Plant Requirements For Licensure: Rule 59A-3, Florida Administrative Code.

       
       

   98. WUESTHOFF’s 50-bed, general, acute care hospital, as proposed, cannot meet licensure standards without significant adjustment to the design to bring it into compliance with the licensure rules.

   99. Rule 59A-3.081(4)(c), Florida Administrative Code, specifically requires that the critical care nurse’s station be situated so that nurses have visual control of each patient from common spaces. The schematics provided by WUESTHOFF indicate that there is no visual control of two patient rooms located in the northwest end of the unit.

   100. As to functionality of the space, there is no observation from the nurses station to trauma rooms located at the end of the unit and inadequate proximity to support spaces, such as soiled and clean utility and med prep, to the trauma rooms. Seriously injured patients would necessarily be transported up to surgery through what would be public corridor spaces in order to access elevators and then through additional public spaces on the second floor.

   101. Inpatient access to the CT scan room and MRI room appears to be made through a narrow, 5-foot wide corridor. Hospital licensure regulations require inpatient access through an 8-foot corridor. The only 8-foot corridors available for inpatient use, the service corridor off the housekeeping and staff facilities area to the rear of the unit and the corridor located between radiology and dietary, do not appear to be appropriate means for inpatients to access these rooms.

   102. On the third floor of the facility, WUESTHOFF proposes to locate an aerobics and exercise room, directly above the second floor patient recovery area and two of the operating rooms. With an exercise area located above such critical areas, there is the possibility that vibrations would transmit to operating room lights, ceiling mounted microscopes, and other instruments. It would be costly to sufficiently stiffen the structure to minimize vibrations.

   103. In order to bring the proposed project into compliance

        with hospital licensure regulations, material changes to the plans must be made, which will necessarily increase the square footage of the facility. The square footage of the facility would likely be increased by approximately 5,000 square feet, and many of the areas would have to be significantly redesigned to accommodate concerns with compliance to ADA and hospital licensure regulations.

        CONCLUSIONS OF LAW

        
        

   104. As the applicant challenging AHCA’s preliminary decision to deny its CON application, WUESTHOFF bears the burden of establishing its entitlement to a certificate of need to establish a new, 50-bed, general acute care hospital in Brevard County, District 7. Boca Raton Artificial Kidney Center, Inc. vs. Department of Health and Rehabilitative Services, 475 So. 2d

        260 (Fla. 1st DCA 1985); Humana, Inc. vs. Department of Health and Rehabilitative Services, 469 So. 2d 889 (Fla. 1st DCA 1985).

   105. Section 408.037(2)(c), Florida Statutes, requires that an applicant for a CON include a statement of the projected revenue and expenses for the period of construction and for the first 2 years of operation. As found, WUESTHOFF’s application did not present the revenue and expenses associated with all portions of the new hospital during its first two years of operation. Because WUESTHOFF’s application fails to satisfy minimum statutory requirements, it must be denied. Humhosco vs. Department of Health and Rehabilitative Services, 561 So. 2d 388,

        (Fla. 1st DCA 1990).

        
        

   106. Even disregarding the fatal flaw in WUESTHOFF’s application, WUESTHOFF’s application also must be denied, based on a balanced consideration of the review criteria.

   107. A CON application is evaluated according to the statutory criteria set forth in Section 408.035, Florida Statutes, and the valid rules properly promulgated thereunder. A balanced consideration of the applicable statutory and rule criteria must be made. Balsam v. Dept. of Health and Rehab. Services, 486 So. 2d 1341 (Fla. 1st DCA 1986); Humana, Inc. vs. Department of Health and Rehabilitative Services, 469 So. 2d 889 (Fla. 1st DCA 1985). “[T]he appropriate weight to be given to each individual criterion contained in the statute regarding CON applications is not fixed, but rather must vary on a case-by-case basis, depending on the facts in each case.” Collier v. Dept. of Health and Rehab. Services, 462 So.2d 83 (Fla. 1st DCA 1985).

   108. As reflected in the Findings of Fact, a balanced consideration of the pertinent statutory and rule criteria requires denial of CON 8597. Under those criteria, a new, 50-bed hospital is not needed in south Brevard County. Besides, WUESTHOFF has not proven that such a project is financially feasible in the long term.

RECOMMENDATION

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

RECOMMENDED that the Agency for Health Care Administration enter the final order denying WUESTHOFF’s CON 8597.

RECOMMENDED this 18th day of July, 1997, in Tallahassee, Leon County, Florida.

J. LAWRENCE JOHNSTON 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 18th day of July, 1997.

COPIES FURNISHED:

David C. Ashburn, Esquire Gunster, Yoakley, Valdes-Fauli and

Stewart, P.A.

215 South Monroe Street, Suite 830 Tallahassee, Florida 32301

Mark Thomas, Esquire

Agency for Health Care Administration Office of the General Counsel

2727 Mahan Drive

Tallahassee, Florida 32308

Stephen K. Boone, Esquire

Boone, Boone, Boone and Hines, P.A. Post Office Box 1596

Venice, Florida 34284

R. Terry Rigsby, Esquire Blank, Rigsby & Meenan

204 South Monroe Street Tallahassee, Florida 32301

Douglas M. Cook, Director

Agency for Health Care Administration 2727 Mahan Drive

Tallahassee, Florida 32308

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

Tallahassee, Florida 32308

Sam Power, Agency Clerk

Agency for Health Care Administration 2727 Mahan Drive

Tallahassee, Florida 32308

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: 97-000389CON

Orders for Case No: 97-000389CON