STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

VENCOR HOSPITALS SOUTH, INC., )

)

Petitioner, )

)

vs. ) Case No. 97-4419RU

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, a formal hearing was held in this case on October 21 through 23, 1997, and November 4, 1997, in Tallahassee, Florida, before Eleanor M. Hunter, a duly designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: R. Terry Rigsby, Esquire

Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A.

204 South Monroe Street Tallahassee, Florida 32301

For Respondent: Kim Kellum, Esquire

John Gilroy, Esquire

Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308 STATEMENT OF THE ISSUE

Whether the Agency for Health Care Administration has a policy regarding the determination of the need for long term care

beds which constitutes a rule and, if so, whether rulemaking is feasible and practicable.

PRELIMINARY STATEMENT

Vencor Hospital South, Inc. (Vencor), the preliminarily denied applicant for a certificate of need (CON) to establish a 60-bed long term care hospital, filed a Petition to Determine Invalidity of an Agency Statement Pursuant to Section 120.56(4), Florida Statutes. Vencor asserted that the Agency for Health Care Administration (AHCA) applied an invalid, unpromulgated rule to the review of its CON application. This case was consolidated for formal hearing with Division of Administrative Hearings Case No. 97-1171, in which Vencor challenges the denial of its CON.

At the final hearing, Vencor presented the testimony of James Novak, expert in long term care hospital administration and operations; Douglas Ivan Thompson, expert in outcomes management and outcomes measurement; R. Daniel Lacy, expert in health care finance; W. Eugene Nelson, expert in health planning; and Elfie Stamm, Chief of the CON Office for the Agency for Health Care Administration (AHCA). Vencor's Exhibits 1-15 were received in evidence. AHCA presented the testimony of Elfie Stamm, expert in health planning; and Karen Rivera, health services and facilities coordinator with AHCA. AHCA Exhibits 1-4 were received in evidence.

The transcript of the hearing was filed at the Division of Administrative Hearings on November 10, 1997. In this Final Order, references to the transcript are abbreviated as T., followed by the page number. Proposed findings of fact and

conclusions of law were filed on December 23, 1997.

FINDINGS OF FACT

1. Vencor Hospitals South, Inc. (Vencor), applied for a certificate of need (CON No. 8614) to establish a 60-bed long term care hospital in Agency for Health Care Administration (AHCA) District 8, for Fort Myers, Lee County, Florida.

2. AHCA is the state agency authorized to administer the CON program for health care services and facilities in Florida. AHCA reviewed and preliminarily denied Vencor's application for CON No. 8614. The reasons for AHCA's actions on this or any other CON application are memorialized in documents called State Agency Action Reports (SAARs).

3. Vencor alleges that the following statement generally describes AHCA's policy in regard to the review of CON applications for long term care hospitals:

   Long term care is not a separate category of health service, but is instead merely an allowable form of reimbursement pursuant to Medicare regulations. The care provided in acute care hospitals, hospital based skilled nursing beds, "subacute" care in nursing homes, and care at rehabilitation facilities, are all equivalent to the care provided at long term care hospitals. Therefore, in evaluating the need for long term care hospital beds, AHCA will assess the availability of other categories of beds and services to meet the need for the services proposed by the applicant for long term care hospital beds. Need for long term care beds is determined on a regional basis.

4. Prior to 1994, long term care hospitals were not regulated separately and were considered comparable to general acute care hospitals. In 1994, AHCA amended the CON rules to

   establish long term care beds and hospitals as separate categories of health care providers.

5. In 1994, AHCA defined and continues to the present to define long term care hospital as follows:

   "Long term care hospital" means a hospital licensed under Chapter 395, Part I, F.S., which meets the requirements of Part 412, subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services.

   Rule 59C-1.002(29), Florida Administrative Code.

   
   

6. In the federal regulations referenced by the AHCA rule, long term care hospital is more specifically defined as a hospital with an independent governing structure, an average length of stay greater than 25 days, referral of at least 75 percent of total patients from separate hospitals, and which meets the requirements for Medicare participation. 42 CFR Ch. IV, Subch. B, Pt. 412, Subpt. B, s. 412.23.

7. AHCA also distinguishes long term care in its rules governing the conversions from one type of health care provider to another. The applicable conversion rules provide:

   "Conversion from one type of health care facility to another" means the reclassification of one licensed facility type to another licensed facility type, including reclassification from a general acute care hospital to a long term care hospital or specialty hospital or from a long term care hospital or specialty hospital to a general acute care hospital.

   Rule 59C-1.002(14), Florida Administrative Code (emphasis added);

   and

   
   

   "Conversion of beds" means the reclassification of licensed beds from one category to another including, for facilities licensed under Chapter 395, F.S., conversion to or from acute care beds, neonatal intensive care beds, hospital inpatient psychiatric beds, comprehensive medical rehabilitation beds, hospital inpatient substance abuse beds, distinct part skilled nursing facility beds, or beds in a long term care hospital; and, for facilities licensed under Chapter 400, Part I, F.S., conversion to or from skilled beds and intermediate care beds in a facility that is not certified for both skilled and intermediate nursing care if such conversion effects a change in the level of care of 10 beds or 10 percent of the total bed capacity of the facility within a 2-year period, or conversion to or from sheltered beds and community beds.

   
   

   Rule 59C-1.002 (15), Florida Administrative Code (emphasis added).

8. AHCA also defined "substantial change in health services" to include:

   The conversion of a general acute care or specialty hospital licensed under Chapter 395, Part I, F.S., to a long term care hospital.

   
   

   Rule 59C-1.002(41)(c), Florida Administrative Code.

   
   

9. Taken together AHCA's rules recognize long term care hospitals or beds as a separate and distinct category.

10. Elfie Stamm was responsible for the development of the rules and is currently the chief of the CON and Budget Review Office at AHCA. Ms. Stamm testified in a 1994 rule challenge case, when AHCA was drafting a rule with a numeric need

    methodology for long term care beds, that:

    
    

    1. long term care hospitals serve patients who cannot be cost effectively treated in an acute care hospital, who do not have the same needs for the same types of service;

       
       

    2. it would not be fair for an applicant for the new construction of a long term care hospital to be compared to an acute care hospital;

       
       

    3. comprehensive medical rehabilitation (CMR) services are different than services in a long term care hospital;

       
       

    4. a long term care hospital with an average length of stay of 25 days or more is different from an acute care hospital that generally has a length of stay of 5 to 6 days but provides a full range of services;

       
       

    5. the patient populations in long term care hospitals are different from those in an acute care hospital in terms of overall patient characteristics, including older than average age, higher percentage of patients with particular diagnoses, such as ventilator dependency, higher overall mortality rates than acute care hospitals, and a much higher percentage of admissions by referrals from acute care hospitals. [T. 262-283].

       See also Tarpon Springs Hospital Foundation, etc. v. AHCA, et al., DOAH Case No. 94-0958RU (R.O. 8/2/94).

11. On behalf of AHCA, Ms. Stamm testified in this proceeding that:

    1. AHCA has changed its mind on whether or not it is appropriate to leave a patient in an acute care setting rather than transfer to long term care, specifically with regard to cost-effectiveness. [T. 373].

       
       

    2. AHCA has not changed its mind and still says acute care hospitals and long term care hospitals should be reviewed separately,

       because if they would be reviewed comparatively, . . . there would be no chance for any [long term] beds ever because we don't show any need for acute care beds anywhere in the state. [T. 376].

       
       

    3. But in evaluating Vencor's application for long term care hospitals in District 8 that would be located in Lee County, the Agency viewed hospital-based skilled nursing units, community nursing home subacute beds and comprehensive medical rehab beds throughout the entire district as existing and like potential alternatives to the proposed project. [T. 389]. AHCA does not necessarily agree that CMR services are different from long term care hospital services. [T. 265].

       
       

    4. AHCA does not have a clearly identified population group for whom long term care would be more cost-effective, or to determine a numeric need methodology. [TR. 324]. Although there is a population that does need services that exceed 25 days or prolonged ventilator service, AHCA is not sure what is the most appropriate setting for their care because of inadequate data on comparative costs and outcomes. [TR. 327-8].

12. AHCA attributes its change in position to the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Lewin-VHI, Inc. The document is commonly referred to as the Lewin Report.

13. The Lewin Report concludes that long term care hospitals serve patients who are also served in other subacute settings, including CMR beds and hospitals, acute care hospital skilled nursing units, and skilled nursing units in freestanding

    nursing homes. As a result of the conclusions in the Lewin Report, AHCA maintains that it is unable to develop a numeric need methodology without an identifiable patient population. AHCA has not, however, repealed the rules establishing long term care as a separate type of health care service. Rather, the agency intends to wait for additional studies, including one being conducted for Vencor.

14. The Medicare prospective payment system (PPS) for acute care hospitals created the market for subacute and long term care. Under the PPS, acute care hospitals receive a fixed payment based on the patient's diagnosis or diagnostic related group (DRG). Upon discharge to a subacute or long term setting, the patient's care is no longer reimbursed on a fixed basis, but at actual, reasonable costs. AHCA maintains that financial pressures created the current system, but without cost/benefit or outcomes analyses to demonstrate the appropriateness of using long term care hospitals. Therefore, AHCA considered the occupancy levels of acute care hospitals and available nursing home beds in determining the need for Vencor's project.

15. AHCA has no rule defining subacute care, no inventory of subacute care units in nursing homes, and no reporting requirements from which it can determine the level of care or services provided in hospital based skilled nursing units. AHCA has no reports on specific levels or types of services provided in CMR beds. AHCA, nevertheless, presumed that the services are

    like those provided in long term care beds based on the Lewin Report. In rejecting Vencor's attempts to distinguish itself from other types of health care providers, AHCA relied, in part, on its finding that 1995 District 8 acute care hospital occupancy averaged 47.69 percent and peaked at 60.26 percent.

16. By not adopting rules for determining the numeric need for long term care, AHCA also failed to establish the appropriate service area for determining need. AHCA considers the need for long term care services on a regional basis. In support of AHCA's decision to deny a long term care hospital application in District 9, Ms. Stamm's predecessor, Elizabeth Dudek, testified that long term care is a regional service. As further evidence of AHCA's position, the SAARs issued by AHCA on long term care hospital applications, have examined available services beyond the limits of the district. AHCA contends that long term care is regional, but determines its need by comparison to available hospital based skilled nursing units and subacute beds in community nursing homes, which are evaluated on a subdistrict basis, and CMR services which are tertiary but evaluated on a district-wide basis. See Finding of Fact 22.

17. Since November 1995, AHCA has preliminarily denied all CON applications for long term care hospitals. Its policy of comparing the need for long term care to available beds in nursing homes and other types of hospitals is consistently repeated in the portions of the SAARs which address need.

18. In analyzing the need for long term care hospitals in AHCA District 1, the SAAR dated January 10, 1997, includes the following statements:

    Vencor Hospitals South, Inc. defines its patient population as those currently being treated in ICUs and belonging to roughly 10 DRGs (which account for approximately 83% of Vencor patients. . . .) However these DRGs could also [be] appropriate for acute care, hospital based freestanding skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to residents of District 1.

    and

    
    

    The applicant [Baptist Health Affiliates Inc.] also discusses the differences between its proposed patient population and that of an acute care hospital, nursing home and those treated at home. However, there is no documentation provided which demonstrates the applicant's potential patients could not receive appropriate care in the District's existing rehabilitation facility, hospital based or nursing home skilled subacute nursing units. . . .

    Vencor Exhibit 12, pages 3-4 and 8.

    
    

19. AHCA reviewed a CON application filed by Columbia of Pinellas County, Inc., to convert acute care beds to a long term care hospital in District 5, and concluded:

    The patient population represented by the DRGs listed above (by the applicant) are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital.

    Vencor Exhibit 13, page 8. The SAAR issued on the Columbia of Pinellas County CON application continued with an extensive discussion of the Lewin Report. The SAAR reported AHCA's finding that CMR hospitals are alternatives since they admit patients who do not fit federal guidelines for CMR admissions (being able to tolerate three hours of therapy a day), and who might otherwise be in long term care hospitals.

20. In the SAAR issued after the review of long term care applications for District 7, the same statement appears:

    The patient population represented by the DRGs listed above [by Orlando Regional Hospital] are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital.

    Vencor Exhibit 14, page 11.

    
    

21. Finally, in reviewing applications from Palm Beach County in District 9, AHCA concluded again:

    The applicant states that generally speaking the long term care hospital patients have respiratory complications, . . . tracheostomies, . . . chronic diseases, an infectious process requiring antibiotic therapy, . . . skin complications . . . need a combination of rehabilitation and complex medical treatment or are technology dependent individuals requiring high levels of nursing care. However, these patients could also [be] appropriate for acute care, hospital based skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to the residents of District IX.

    Vencor Exhibit 15, page 4.

    
    

22. AHCA relies on the statutory review criteria in Subsection 408.035(1)(b), Florida Statutes, as authority for its consideration of all beds and facilities which may serve the same patients. That provision requires consideration of:

    (b) The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care facilities and health services in the service district of the applicant.

    
    

    The expert witness for AHCA, however, distinguished between "like and existing" services for purposes of determining numeric need and the statutory criteria. She noted that once numeric need is established and published for nursing beds or CMR beds, for example, that same category of beds outside the appropriate health service planning subdistrict or district is not considered "like and existing." Similarly, within the district or subdistrict, there is a factual issue in each case but no presumption that beds of a different category are "like and existing."

23. AHCA contends that it has no policy related to long term care and any comparable services. Since 1995, long term care CON applicants, according to AHCA, have failed to meet the requirements of Rule 59C-1.008(e), which provides in pertinent part:

    1. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which

       must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria:

       1. Population demographics and dynamics;

       2. Availability, utilization and quality of like services in the district, subdistrict or both;

       3. Medical treatment trends; and

       4. Market conditions. (Emphasis added).

    
    

24. AHCA's argument ignores the fact that its expert witness provided competent, substantial evidence that it has redefined and expanded the meaning of "like services" for purposes of demonstrating need through a needs assessment methodology. It also ignores the fact that AHCA has expanded the comparison of need beyond the geographical limits of the district. AHCA's argument that it is waiting for additional data before adopting a need methodology, including data from a Vencor study, is to no avail since AHCA has already changed its policy.

25. After reviewing a total of eighteen CON applications for long term care hospitals, AHCA has issued two CONs, one as part of a settlement agreement and the other approving an application filed by St. Petersburg Health Care Management, Inc. (St. Petersburg), for CON 8213. The St. Petersburg application demonstrated need using an identical methodology prepared by the same health planner as Vencor in this case. Referring to CON 8213, AHCA's expert witness candidly admitted . . . "I want to make clear that particular application was actually submitted and approved prior to the Lewin study." (T. 393). Subsequent to the

    Lewin study, AHCA has consistently denied applications for long term care beds or hospitals.

    CONCLUSIONS OF LAW

    
    

26. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Section 120.56(4), Florida Statutes.

27. The Petitioner has the burden of proving, by a preponderance of the evidence, that the agency statement is a rule. Once that requirement is met, the burden shifts to the agency to overcome the statutory presumption that rulemaking is feasible and practicable, thus, showing that it can continue to rely on the statement. Spear v. Department of Highway Safety and Motor Vehicles, DOAH Case No. 92-4816RU (10/29/92).

28. Subsection 120.54(1), Florida Statutes, provides that:

    
    

    Rulemaking is not a matter of agency discretion. Each agency statement defined as a rule by s. 120.52 shall be adopted by the rulemaking procedure provided by this section as soon as feasible and practicable.

    
    

    1. Rulemaking shall be presumed feasible unless the agency proves that:

       
       

       1. The agency has not had sufficient time to acquire the knowledge and experience reasonably necessary to address a statement by rulemaking;

          
          

       2. Related matters are not sufficiently resolved to enable the agency to address a statement by rulemaking; or

          
          

       3. The agency is currently using the rulemaking procedure expeditiously and in good faith to adopt rules which address the statement.

    2. Rulemaking shall be presumed practicable to the extent necessary to provide fair notice to affected persons of relevant agency procedures and applicable principles, criteria, or standards for agency decisions unless the agency proves that:

       
       

       1. Detail or precision in the establishment of principles, criteria, or standards for agency decisions is not reasonable under the circumstances; or

          
          

       2. The particular questions addressed are of such a narrow scope that more specific resolution of the matter is impractical outside of an adjudication to determine the substantial interests of a party based on individual circumstances.

    
    

29. In addition to the general rulemaking requirement, pursuant to subsection 408.034(3), Florida Statutes, AHCA is required to:

    . . . establish, by rule, uniform need methodologies for health services and health facilities. In developing uniform need methodologies, the department shall, at a minimum, consider the demographic characteristics of the population, the health status of the population, service use patterns, standards and trends, geographic accessibility, and market economics.

30. Although AHCA has separately defined long term care beds by rule since 1994, it has failed to promulgate a uniform need methodology for the service. AHCA contends that it has no policy or agency statement of general applicability regarding the determination of need for long term care hospitals. AHCA further contends that rulemaking at this time is not feasible due to

    insufficient data to establish a numeric need methodology for long term care beds.

31. As a threshold requirement, the Petitioner must establish that the agency statement constitutes a rule as defined in subsection 120.52(15), Florida Statutes, which provides:

    "Rule" means each agency statement of general applicability that implements, interprets, or prescribes law or policy or describes the procedure or practice requirements of an agency and includes any form which imposes any requirement or solicits any information not specifically required by statute or by an existing rule. The term also includes the amendment or repeal of a rule.

32. In Spear, supra, the hearing officer relied on the Florida House of Representatives committee staff analysis for guidance in determining if a statement was a rule.

    The term "rule" should be interpreted broadly. The word "statement" used in the definition of rule is extended to encompass any form of communication by an agency. The words "general applicability" used in the definition of "rule" are intended to be given their plain meaning. The restrictive interpretation given "general applicability" by the case decisions should be reversed. (citations omitted). A broad interpretation of the term "rule" gives effect to the Legislature's intent to maximize the applicability of the rulemaking standard to the implementation of delegated authority by administrative agencies.

    
    

    Staff of Fla. H. R. Comm. On Govtl. Ops., HB 1879 (1991) Staff Analysis 4 (final May 22, 1991) (on file with comm.)

    
    

33. In Balsam v. Health and Rehabilitative Services, 452 So. 2d 976 (Fla. 1st DCA 1984), the Department of Health and

    Rehabilitative Services (HRS) imposed an administrative moratorium on certificate of need applicants for one batching cycle. HRS argued that the moratorium was necessary to allow it time to promulgate uniform need methodologies. The Court determined that the moratorium was an invalid rule due to its pervasive and consistent effect on CON applicants, and its departure from rules previously adopted by the agency.

    452 So. 2d at 978.

    
    

34. In this case, AHCA has also consistently and pervasively treated applicants, since November 1995, as if long term care is not a distinct health care service. That policy has been communicated in every subsequent SAAR and meets the definition of a rule. While the Lewin Report may support AHCA's position that it is unable to develop a need methodology because long term care should not be a separate and distinct provider category, AHCA presented no evidence to explain why it has not been feasible or practicable to repeal its existing rules or to adopt relevant portions of the Lewin Report by rule. Absent evidence to the contrary, rulemaking is found to be feasible and practicable.

35. AHCA is required to follow its rules as written, not as it wishes to modify them. Boca Raton Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative Services, 493

    So. 2d 1055 (Fla. 1st DCA 1986). Although not bound by its initial interpretation of a statute, the agency may not "change

    its mind" without amending its rules pursuant to established rulemaking procedures. Cleveland Clinic Florida Hospital v. Agency for Health Care Administration, et al., 679 So. 2d 1237 (Fla. 1st DCA 1996).

36. In rejecting long term care as a separate and distinct category and treating the services as regional, AHCA has required CON applicants for long term care beds or facilities to compete with alternative providers which it defines as unlike. The comparative, competitive review of dissimilar health care services is invalid. See Tarpon Springs Hospital Foundation, Inc., etc. v. AHCA, et al., DOAH Case No. 94-0958RU (FO 8/22/94), affirmed sub nom, Health Care and Retirement Corporation of America, et al. v. Tarpon Springs Hospital Foundation, Inc., etc., 671 So. 2d 217 (Fla. 1st DCA 1996).

ORDERED

Based on the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that the Petition is GRANTED, and the Agency for Health Care Administration's statement that long term care is not a separate category of health service and that need is determined on a regional basis is invalid.

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

ELEANOR M. HUNTER

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847

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

COPIES FURNISHED:

Kim Kellum Esquire John Gilroy, Esquire

Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A.

204 South Monroe Street Tallahassee, Florida 32301

Sam Power, Agency Clerk

Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

Carroll Webb, Executive Director

Joint Administrative Procedures Committee

120 Holland Building Tallahassee, Florida 32399-1300

NOTICE OF RIGHT TO JUDICIAL REVIEW

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

Docket for Case No: 97-004419RU

Orders for Case No: 97-004419RU