STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
KINDRED HOSPITALS EAST, LLC, ) d/b/a KINDRED HOSPITAL SOUTH ) FLORIDA, )
)
Petitioner, )
)
vs. ) Case No. 01-2712CON
)
MERCY MEDICAL DEVELOPMENT, )
INC., and AGENCY FOR HEALTH )
CARE ADMINISTRATION, )
)
Respondents. )
)
RECOMMENDED ORDER
This case was heard by David M. Maloney, Administrative Law Judge of the Division of Administrative Hearings, from October 29 through November 2 and from November 28 through 30, 2001, in
Tallahassee, Florida.
APPEARANCES
For Petitioner: W. David Watkins, Esquire
Watkins & Caleen, P.A. 1725 Mahan Drive, Suite 201 Post Office Box 15828
Tallahassee, Florida 32317-5828 For Respondent Mercy Medical Development, Inc.:
Jonathan L. Rue, Esquire
Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower
285 Peachtree Center Avenue, Northeast Atlanta, Georgia 30303
Karen A. Putnal, Esquire
Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200
118 North Gadsden Street Tallahassee, Florida 32301
For Agency for Health Care Administration:
Gerald L. Pickett, Esquire
Agency for Health Care Administration
525 Mirror Lake Drive, North Sebring Building, Suite 310K St. Petersburg, Florida 33701
STATEMENT OF THE ISSUE
Whether the Agency for Health Care Administration should grant Mercy Medical Development Inc.'s certificate of need application to establish a 29-bed long-term acute care hospital- within-a-hospital in AHCA Health Planning Service District 11?
PRELIMINARY STATEMENT
On July 11, 2001, the Division of Administrative Hearings ("DOAH") received a notice from the Agency for Health Care Administration (the "Agency" or "AHCA"). The notice advised DOAH that AHCA had received a request for a formal administrative hearing from Kindred Hospitals East, LLC, d/b/a Kindred Hospital South Florida ("Kindred").
Attached to the notice was Kindred's petition containing the request. The petition challenges the preliminary approval by AHCA of Certificate of Need Application No. 9642, an application by Mercy Medical Development, Inc., ("Mercy Medical") for a 29- bed long-term care hospital.
The notice further requested that an administrative law judge be designated to conduct all proceedings necessary under law and to submit a recommended order to the Agency. The request was granted by DOAH. The undersigned was designated to conduct the proceedings and an initial order was sent out on July 23, 2001.
On August 6, 2001, an Order of Pre-Hearing Instructions was sent to the parties and the case was noticed as set for final hearing for two weeks in October commencing October 8. Pursuant to a motion for continuance, the case was re-scheduled to commence October 29 and re-scheduled again to finish on November 30, 2001.
At final hearing, Mercy Medical, as the applicant, proceeded first. Mercy Medical called as witnesses: Sister Elizabeth Worley, SSJ, Chairperson of the Board of Trustees of Mercy Medical Hospital, Inc., and member of the Board of Governors of Mercy Medical, expert in hospital governance, and the authorized representative of the applicant, Mercy Medical Development, Inc., as well as Mercy Medical Hospital Inc.; Berta Cabrera, expert in health care social work, discharge planning and case management; Raul Moas, M.D., expert in pulmonary medicine, internal medicine and critical care medicine; Hugo Gonzalez, M.D., expert in pulmonary medicine, internal medicine and critical care medicine; Claudia DiStrito, R.N., expert in acute care hospital nursing
administration, long-term acute care hospital nursing administration, and nursing; Jerry Mashburn, CPA, expert in health care finance and accounting; Daniel Sullivan, expert in health care planning and health care finance; Cherilyn Murer, expert in long-term acute care hospital finance, long-term acute care hospital regulatory compliance, and long-term acute care hospital planning and administration; and, Bernand Horovitz, AIA, expert in health care architecture and design, and construction cost budgeting. During the presentation of AHCA's case-in-chief and its presentation of the testimony of its sole witness, Jeffrey Gregg, expert in health care planning, Mercy Medical conducted direct examination of Mr. Gregg and tendered him as an expert in CON and licensure regulation for the State of Florida. Pursuant to the tender and over the objection of Kindred,
Mr. Gregg was accepted as an expert in CON and health care licensure regulation. Mercy Medical introduced 47 exhibits consecutively numbered for identification as Mercy Medical Exhibits 1-47. All were admitted into evidence.
In addition to the testimony of Mr. Gregg, AHCA introduced two exhibits, identified as AHCA Exhibits 1 and 2. Both were admitted into evidence.
Kindred called as witnesses: Elizabeth Jane Jackson, expert in the fields of long-term care hospital administration, nursing administration and quality assurance; Lynne A. Mulder, expert in
health care planning; James John Novak, expert in long-term care hospital administration; John Caron, expert in financial feasibility analysis, including long-term care hospitals; and Robert J. Diamond, expert in hospital facility architecture and design, including long-term care architecture and design.
Kindred introduced into evidence 19 exhibits, identified consecutively as Kindred Exhibits 1-19. With the exception of Kindred Exhibit 6 which was rejected and then proffered by Kindred, Kindred's Exhibits were admitted. Official recognition was taken of four documents.
Two proposed recommended orders were submitted timely by the parties on April 2, 2002; one jointly by Mercy Medical and AHCA, the other by Kindred. This Recommended Order follows.
FINDINGS OF FACT
Long-term Acute Care Hospitals
A long-term acute care hospital (an "LTACH") is an acute care hospital with an average length of stay of its patients that equals or exceeds 25 days. In contrast to an LTACH, the patients in a typical acute care hospital experience much shorter lengths of stay so that the average length of stay in a non-LTACH hospital is much less than 25 days. Characteristics of an LTACH that distinguish it from a non-LTACH acute care hospital flow from that single primary factor: prolonged length of stay.
LTACH Services
As to be expected from the long-lasting lengths of stay of its patients, LTACHs provide services associated with complex acute conditions that require extended care. For instance, an LTACH would typically serve patients that require ventilator assistance for a long time, in many cases, indefinitely. Other typical patients in an LTACH are those who have had procedures such as open heart surgery while medically compromised so that their recoveries take considerably longer than the average open heart surgery patient, patients with slow-healing wounds or complications arising from chronic lung disease, patients served by multiple invasive pumps, or patients in need of extended treatment by chemotherapy or intravenous antibiotic therapy.
The services provided in an LTACH are distinct from those provided in a skilled nursing facility or rehabilitation unit for reasons other than the acuity level of the patient. Skilled nursing facilities generally are not oriented toward patients who need daily physician visits or intense nursing services or observation. Skilled nursing clinical personnel, moreover, are generally not experienced with long-term acute care patients' and their families' psychosocial needs demanded by acuity levels and durations of illness.
Comprehensive medical rehabilitation hospitals are inappropriate venues for long-term acute care patients.
Rehabilitation hospitals are geared toward the physical rehabilitation of patients. It is true that "[p]atients who have been debilitated because of their long-term illness require some physical therapy to assist in rehabilitating their muscle to get them back on their feet whenever possible." (Tr. 277). But long-term acute care patients, because of their conditions, are not able to tolerate the minimum three hours of physical rehabilitation therapy per day that is a regular part of treatment in a comprehensive medical rehabilitation hospital.
In the universe of health care providers in the United States, therefore, long-term acute care hospitals are unique.
"Hospital-within-a Hospital"
An LTACH may be a free-standing facility or it may be located inside an existing hospital. When it is located inside an existing hospital, an LTACH is referred to as a hospital- within-a-hospital.
Mercy Medical proposes that its LTACH be located within Mercy Medical Hospital in Miami, Florida. In other words, Mercy Medical proposes that the LTACH subject to CON Application 9462 be a hospital-within-a hospital.
As a hospital-within-a hospital, Mercy Medical's LTACH will have an advantage over a free-standing LTACH. The location within a larger acute care hospital provides an environment in which a more intensive array of acute care services is
immediately accessible to LTACH patients. For example, patients in Mercy Medical's LTACH will have immediate access to emergency services and the services of hospital-based physician specialists.
The location of an LTACH within a larger acute care hospital also facilitates the appropriate utilization of LTACH services. Physicians are more comfortable transferring fragile patients into an LTACH when the transfer involves relocating the patient via hospital corridors rather than via ambulance. As a practical matter, moreover, an LTACH within a hospital makes it easier for the treating physician to continue to care for the patient following the patient's transfer from the acute care setting into the long-term acute care setting.
PPS Exemption
In 1982, when the prospective payment system ("PPS") was adopted by the federal government for Medicare reimbursement, long-term acute care hospitals were one of seven types of institutions exempted from the system. A decade or so later, another development occurred that is significant to this case. Regulations were promulgated defining conditions for an LTACH to operate as a hospital within a hospital as part of a continuum of care. The hospital-within-a-hospital concept was required if a hospital business organization was to receive the financial benefits of an LTACH within the setting of a larger acute care
hospital (see paragraph 11, below) because long-term acute care cannot not take place within a unit in a hospital. "[T]here [is] no such thing as a long-term [acute] care hospital unit." (Tr.
575).
As a specific category of hospitals under the Medicare regulations that is exempt from the DRG prospective payment system, LTACHs are attractive to hospital business organizations because the Medicaid reimbursement for LTACH services is much more favorable than the reimbursement under PPS received by acute care hospitals that are not LTACHs.
Qualification for PPS Exemption
To be exempt from PPS, there is a six-month period during which a prospective LTACH must show that it meets the Medicare requirements, including those related to average length of stay, for an LTACH. During these six months, the LTACH receives PPS Medicare reimbursement so that it usually operates at a loss. Other considerations related to the first two years of operation keep the LTACH from fully achieving the benefits of exemption until it has both qualified as exempt based on the initial six-month period and then completed the two full years of operation.
Distribution of LTACHs
There are eight LTACHs in the State of Florida, all of which are free-standing facilities. All eight are owned and
operated by for-profit corporations, and seven are owned by the same for-profit corporation, Kindred Healthcare, Inc., the parent of Petitioner.
The LTACHs in Florida are concentrated in areas of high population. One of 16 of AHCA's hospital health service planning districts, District 11, where Mercy Medical hopes to locate its LTACH, is the most populous health planning district in the State. Its population of "65 year of age and over" is approximately 305,000. Notwithstanding its populace, District 11 has only one LTACH, Kindred Coral Gables (one of three LTACHs operated by Kindred). Other less populated districts, District 6 and District 10 have two LTACHs.
District 10, consisting of Broward County is immediately to the north of District 10. Of the two LTACHs in District 10, Kindred Hospital Fort Lauderdale and Kindred Hospital - Hollywood, the latter is the closest to Mercy Hospital. Approximately 15 to 20 miles away from each other, it takes between 30 minutes and an hour (depending on traffic) to travel the distance between Mercy Hospital and Kindred Hollywood.
The Parties
AHCA
The Agency for Health Care Administration ("ACHA" or the "Agency") is responsible for the administration of the CON
program in Florida under the Health Facility and Services Development Act," Sections 408.031-408.045, Florida Statutes.
Mercy Medical
Mercy Medical Development, Inc., ("Mercy Medical") is the applicant for the proposed project. Mercy Medical is a subsidiary of Mercy Medical Hospital, Inc., ("Mercy Hospital"). A not-for-profit hospital, Mercy Hospital is the sole member of Mercy Medical. As the parent of Mercy Medical and its sole corporate member, Mercy Hospital controls Mercy Medical. At the time of hearing, no effort had been made to separate Mercy
Development from Mercy Hospital. For example, no action had been taken to change the bylaws of the medical staff, or to hire a chief executive officer for Mercy Medical. It is appropriate, therefore (although the two must be separated prior to operation of the LTACH under applicable regulations), to find facts with regard to Mercy Medical's sole corporate member.
Mercy Hospital is located in the southeastern portion of Miami-Dade County. Founded in 1950 under the administration of the Congregation of the Sisters of St. Joseph, a Roman Catholic religious organization, Mercy Hospital is a full-service general hospital. It has 512 licensed acute care beds and is accredited by the Joint Commission on the Accreditation of Health Care Organizations.
Mercy Hospital's mission is distilled into a statement of core values. Among these values is to "give priority to those whom society ignores." (Mercy Ex. 2). Together these values stand for a commitment to enhance quality of life through an integrated health care delivery system.
Across its continuum of care, Mercy Hospital provides excellent quality of care for which it has been publicly recognized. Recently designated a Community Comprehensive Cancer Center by the American College of Surgeons, it was one of six hospitals in the eastern United States to win the Gallup Quality Award for inpatient satisfaction. The basis for the award was
re-confirmed in the most-recent year before hearing when Mercy Hospital received the Systema Award as the hospital of choice in the community following a survey conducted by the Miami Chamber of Commerce.
In furtherance of its mission and in recognition of the need for medical services across the continuum of care, Mercy Hospital operates a 15-bed inpatient hospice unit and provides home-based hospice services in affiliation with other community providers. It operates a 20-bed inpatient comprehensive medical rehabilitation unit and provides a full complement of outpatient comprehensive medical rehabilitation services. And it is part owner of a 120-bed skilled nursing facility.
One full wing of Mercy Hospital is dedicated to providing acute care services to HIV-positive and AIDS patients on an outpatient basis (the "Special Immunology Unit.") All patients served in the unit have AIDS or are HIV-positive. The operation of the Special Immunology Unit illustrates the depth of Mercy Hospital's commitment to providing services to the dispossessed or patients who would otherwise be unable to obtain desperately needed medical care.
In support and recognition of its commitment to AIDS and HIV-positive patients, the Ryan White Foundation has awarded Mercy Hospital funding to help support the Special Immunology Unit. The funding enables Mercy Hospital to extend its care beyond the provision of acute care in recognition that most of the patients in the Special Immunology Program have lost their jobs. As Sister Elizabeth Anne Worley explained at hearing,
[I]n most cases . . . they've lost their jobs and therefore they've lost their insurance, so part of [the Ryan White] funding is used to continue to purchase insurance for them so they can remain with care. It also provides vouchers for electricity, food, transportation, to assist in home health [care and] provide medical services, and it's all part of an array of outpatient services that are managed through case managers for maximum efficiency, but providing for the patients in a setting . . . that's as appropriate and comfortable as possible.
. . . [I]t has been a remarkable program for
(Tr. 55).
folks in our local area that did not have access to care otherwise.
Beyond its Special Immunology Program, Mercy Hospital provides substantial acute and outpatient health care services to Medicaid-eligible, uninsured, under-insured, and indigent patients. Historically, Mercy Hospital has provided substantial amounts of un-reimbursed charity care though the hospital and through projects such as the St. John Bosco Clinic. In 2000, Mercy Hospital provided over $3.58 million in un-reimbursed medical care to Medicaid-eligible patients, and over $1.67 million in traditional charity care. At the time of hearing in October 2001, Mercy Hospital had provided over $4.48 million in un-reimbursed care to Medicaid-eligible patients and $947,430 in traditional charity care.
To fulfill its healing mission as part of the church, Mercy Hospital strives to provide charitable community services at a level twice the value of the tax benefit derived from its not-for-profit status. In 2000, for example, it met this "challenge from the congregation" (tr. 70) it sets for itself. The value of Mercy Hospital's total tax exemption was $5.7 million. The value of its community service was $13.7 million.
Kindred
Kindred Hospitals East, LLC, d/b/a Kindred Hospital
South Florida ("Kindred") operates three for-profit LTACHs: Kindred Hospital Coral Gables in Dade County, District 11, ("Kindred Coral Gables); Kindred Hospital Hollywood, in Broward County, District 10 ("Kindred Hollywood"); and Kindred Hospital Ft. Lauderdale, also in Broward County, District 10 ("Kindred Fort Lauderdale").
Kindred is a wholly-owned subsidiary of Kindred Healthcare, Inc., ("Kindred Healthcare") a publicly traded for- profit company. Kindred Healthcare and Kindred, together establish the majority of policies for Kindred's three South Florida LTACHs.
Kindred Healthcare was formerly known as Vencor, Inc. ("Vencor"). In the fall of 1999, Vencor, Inc., and its subsidiary corporations filed a Chapter 11 bankruptcy proceeding. Vencor emerged from bankruptcy in approximately April of 2001. The name change from Vencor to Kindred was adopted by the parent and the subsidiary corporations.
Various Vencor entities and individuals associated with Vencor were the subject of a recent Florida investigation into allegations that Vencor had unlawfully evicted Medicaid patients from a Vencor facility in Tampa, Florida. The allegations against Vencor included the allegation that there had been a corporate decision by Vencor to stop treating or curtail the treatment of Medicaid patients for financial reasons. The
investigation ultimately resulted in a settlement pursuant to which Vencor paid a fine in the amount of $270,000 (i.e., $5,000 for each of the 54 Medicaid patients who were allegedly evicted). Vencor was also the subject of a companion federal investigation relating to such allegations, which was resolved by Vencor's payment of a fine to the federal government of $113,000. The Medicaid eviction matter also resulted in a class action lawsuit against Vencor on behalf of the families of the Medicaid patients, and a criminal investigation of high-ranking officers of Vencor, including the senior vice-president in charge of the eastern hospital division of Kindred, which includes the Florida operations, and the chairman of the board and chief executive officer of the parent corporation.
Vencor and its subsidiaries were also the subject of a broad Medicare/Medicaid fraud and abuse investigation which was initiated by the Office of the Inspector General of the Department of Health and Human Services (OIG), in part as a result of a qui tam lawsuit relating to a Vencor LTACH in Tampa, Florida. The original allegations centered around Medicare cost report fraud. The investigation also included allegations that quality of care at Vencor facilities was poor. In particular, the government alleged that Kindred failed to staff its facilities adequately and failed to meet dietary needs of some of its residents. As part of the Medicare fraud and abuse
investigation, the Medicare program sought to recover millions of dollars in overpayments made to Vencor facilities nationwide. As part of its bankruptcy proceeding, Vencor entered into a settlement agreement with the federal government settling the Medicare fraud and abuse allegations. Pursuant to the settlement agreement, Vencor agreed to pay the federal government $219 million, $90 million of which represented Medicare overpayments received by Vencor.
As part of the settlement agreement, Vencor also entered into a corporate integrity agreement with the OIG which applies to all Kindred entities nationwide, including the Florida facilities operating under Kindred, i.e., Kindred Coral Gables, Kindred Hospital Hollywood, and Kindred Ft. Lauderdale. The corporate integrity agreement requires Kindred to educate its employees about financial and quality-of-care issues. The corporate integrity agreement also requires Kindred to put in place a comprehensive internal quality improvement program, including specific steps which must be taken to improve quality of care at Kindred facilities nationwide. Pursuant to the corporate integrity agreement, Kindred also is required to enhance its internal financial controls to promote compliance with the Medicare guidelines on hospital reimbursement. The corporate integrity agreement includes potential sanctions for
failure to comply, including the exclusion of Kindred from the Medicare and Medicaid programs.
Filing of Mercy Medical's LOI and CON Application
Mercy Medical timely filed its letter of intent and CON application containing its proposal with AHCA and the local health council. Consolidated financial statements for Mercy Hospital, Inc., in the CON application contained separately audited financial information for Mercy Medical. The financial information submitted by Mercy Medical contained sufficient information to allow a thorough and accurate assessment of the financial viability of Mercy Medical as an applicant, as well as the feasibility of Mercy Medical's Proposal.
Mercy Medical's Proposal
Mercy Medical proposes to establish a 29-bed LTACH within Mercy Hospital. The LTACH is proposed to be located on the fourth floor west wing of Mercy Hospital, in a unit known as "Four West." Four West is currently a 29-bed medical-surgical unit of the existing acute care hospital. Mercy Hospital has agreed to delicense the 29 acute care beds in Four West upon approval of Mercy Medical's LTACH CON application.
Additional description of the proposal is found in Section C., of Mercy Medical's application, entitled "Project Summary":
The proposed long-term care hospital will be located on the fourth floor of Mercy Hospital in Miami at 3663 South Miami Avenue, Dade County, District 11. The facility will consist of approximately 12,200 square feet of unused hospital space, which is comprised of three single patient rooms, 10 semi- private rooms, two isolation rooms and a four-bed ventilator unit.
The applicant agrees to condition award of the certificate of need on the following:
A minimum of five percent of inpatient days will be provided for the treatment of Medicaid patients.
A four-bed ventilator unit for the treatment of patients who are ventilator- dependent.
The delicensure of 29 of Mercy Hospital's acute care beds upon the receipt of the CON to establish 29 long-term care beds. Edward J. Rosasco, Jr., President and CEO of Mercy Hospital provided a letter stating that should the applicant be granted the CON, the hospital would immediately seek to delicense 29 beds.
The proposed project cost is $56,765 and will involve 791 GSF of renovation and $28,000 in renovation cost.
(Mercy Ex. 19, p. 2).
The rules of AHCA do not provide a numeric need methodology for LTACHs. An LTACH applicant, therefore, is required to submit its own methodology to support the need for its proposed project.
Mercy Medical's application presents four bed need methodologies: the first, a "discharge-based" methodology; the
second, a "population-based LTACH bed need" methodology; the third, that focuses on the number of LTACH patient days in Florida per 1000 age 65-and-over population; and, a fourth that uses a model assessment pioneered by the State of Tennessee. All four produced a need for beds dependent on occupancy rates that ranged from 91 to 666 beds. Subtracting the 53 existing LTACH beds at Kindred Coral Gables yields a range of new beds needed or net need derived from the four methodologies between 38 and 607.
Of the four, the third methodology offered by Mercy Medical is the most conservative. It is a methodology commonly used by health planners in projecting the need for additional beds within a service category in a particular district. Kindred relied upon the same methodology in its recently filed CON application for additional LTACH beds at its facility in
St. Petersburg, District 5.
The third of the four methodologies derives a use rate for LTACH beds based on the utilization rates of the age 65-and- over population in those districts in which LTACH facilities are located. The methodology does not include "use rates" from districts that do not have access to LTACH services because to do so would artificially skew downward the expected use rate for LTACH beds in District 11. Deriving a utilization rate for LTACH services in the manner of the third methodology yields a realistic and meaningful utilization rate for LTACH beds.
The third methodology is a reasonable methodology for determining need for LTACH beds in District 11. It reasonably produces a need for new LTACH beds in District 11 of 70, that is, the result of the subtraction of the 53 existing LTACH beds at Kindred Coral Gables from the need for 123 beds at an 85% occupancy rate in District 11 produced by the methodology.
Mercy Medical hopes to meet the need for new LTACH beds in District 11 through a demonstration that its proposed 29-bed project meets CON review criteria. Kindred hopes that its case at hearing will establish that, on balance, Mercy Medical does not meet the CON review criteria or that the project is defeated by failure to comply with applicable rules.
Utilization, Availability and Accessibility
A review of pertinent data shows that all eight of the existing long-term acute care hospitals in Florida are well utilized. Overall, LTACH beds in the state were utilized at 76% occupancy in 1999 and close to 77% occupancy in 2000.
In particular, Kindred Coral Gables in District 11 has experienced high utilization rates. Those rates have been high over an extended period of time. For some years, they have been extremely, unacceptably, high. In 1998, Kindred Coral Gables had an overall occupancy rate of 92.4% and a med-surg occupancy rate of 94%. In 1999, Kindred Coral Gables experienced 93% occupancy overall and 100% med-surg occupancy. In 2000, Kindred Coral
Gables experienced 87% overall occupancy and 94% med-surg occupancy. For 2001 through the time of hearing as determined from available data, Kindred Coral Gables' occupancy rate had dropped to the 83 to 84% range. Although lower than the high occupancy rates observed over an extended period of time, such a rate is still high. There is, moreover, nothing in the health care environment in District 11 that indicates demand for LTACH services should have diminished in 2001. As Daniel Sullivan, expert in health care planning, testified in hearing when queried about the lower 2001 rate:
[A]ll the indicators that I reviewed [indicated] . . . that the need is still strong. I can only assume that whatever reason the access went down is more internal to Kindred and their decisions about how they're going to utilize their facility than it does about the external needs of the population.
(Tr. 402).
High occupancy levels at Kindred Coral Gables limit access to LTACH services for a significant number of residents of District 11. Kindred's expected return to high occupancy rates, like the 87 to 98 percent occupancy rates experienced over an extended period of time, renders Kindred Coral Gables inadequate to absorb either the existing or reasonably anticipated demand for LTACH services in District 11. In addition, as a result of
Kindred Coral Gables' admission policies, there is a significant underserved population in District 11.
Underserved Populations in District 11
Although the only provider of LTACH services in Dade County, Kindred Coral Gables has consistently refused to admit patients appropriate for long-term acute care who do not have sufficient Medicare-reimbursable days remaining to cover the anticipated length of stay, or who are uninsured, underinsured, or have Medicaid as their only source of funding. Kindred Coral Gables has made it clear to discharge planners at Mercy Hospital that Kindred Coral Gables does not admit Medicaid patients who have no other source of funding. Mercy Hospital's discharge planners, therefore, typically focus their attention and resources on alternative solutions for such patients, rather than attempting to refer patients who are eligible for Medicaid, but not eligible for Medicare, to Kindred Coral Gables.
The result of Kindred Coral Gables' admission practice and policies is that Mercy Hospital has had great difficulty placing numerous patients who need LTACH services at Kindred Coral Gables. The financial positions of these patients coupled with Kindred Coral Gables' admission policies constitute financial barriers that prevent access to service in District 11 for a significant population of patients.
Barriers to Access for Medicaid-Eligible Patients
That barriers to District 11 LTACH services exist for Medicaid patients is obvious. In 1998 and 1999, Kindred Coral Gables reported zero Medicaid revenue. In 2000, Kindred Coral Gables reported minimal Medicaid revenues.
It may be comfortably predicted that these barriers will come down if Mercy Medical's proposal is approved. Mercy Medical's sole corporate member, Mercy Hospital, has demonstrated a strong commitment to serve Medicaid patients. Mercy Medical intends to extend the mission of Mercy Hospital to Mercy Medical's proposed LTACH with respect to providing care to Medicaid-eligible and indigent patients.
Barriers to Access for Medicare-Eligible Patients
In addition to denying admission to Medicaid patients with no other source of funding, Kindred generally does not admit Medicare patients who have used up a large portion of their allowable acute care days under Medicare.
In some instances, Medicare patients admitted to Kindred Coral Gables have had lengths of stay that exceeded their allowable acute care Medicare days, leaving only Medicaid as a source of reimbursement. These patients appear to account for the very small number of Medicaid or "charity" patient days reported by Kindred Coral Gables.
Barriers to Access for Uninsured, Underinsured, Or Unfunded Patients
In addition to denying access to Medicaid and Medicare patients who have used up their allowable acute care days, Kindred also does not admit patients who are uninsured, underinsured, or un-funded. Discharge planners at Mercy Hospital have been unable to obtain charity approvals from Kindred Coral Gables for uninsured or un-funded patients.
Barriers to Access for Patients with Managed Care Insurance
Even some patients with managed care insurance cannot gain admission to Kindred Coral Gables, as some managed care companies do not want their patients referred to Kindred Coral Gables, but prefer to keep such patients in a short-term acute care setting, notwithstanding their anticipated long length of stay.
Kindred's Other Restrictive Admission Criteria
Consistent with its focus on reimbursement, Kindred Coral Gables generally does not admit ventilator patients who are not weanable from a ventilator within a reasonable time. In practice, Kindred Coral Gables accepts very few of a large number of ventilator patients at Mercy Hospital who are eligible for long-term acute care. Other types of patients who require long- term acute care but whom Mercy Hospital is unable to place include patients who have slow-healing wounds; diabetic patients;
patients with ischemic problems who are either receiving hyperbaric therapy, or who have received it and then are requiring very aggressive or ongoing wound care; and patients with end-stage congestive heart failure who often require weeks of treatment with IV medications and fairly intensive medical monitoring.
There is a significant need for Mercy Medical's proposed 29-bed LTACH in District 11. As the most populous district in the state with a large and increasing population of elderly age 65 and older, District 11 is able to
support both Kindred Coral Gables and Mercy Medical's proposed 29-bed LTACH.
Alternatives
Kindred Coral Gables
One alternative to Mercy Medical's proposal is to preserve the status quo. But, in the absence of the proposal and the competition provided by Mercy Medical to Kindred Coral Gables, significant numbers of patients in District 11 will be denied access to LTACH services.
Medicare patients with inadequate reimbursement days remaining, un-funded and uninsured patients, and patients not weanable from a ventilator are held at Mercy Hospital in an acute care bed, sometimes indefinitely, because they cannot gain admission to Kindred Coral Gables. Mercy Hospital has had a
significant number of long-term ventilator patients who have stayed in the hospital for months or years, including a recent example in which Mercy Hospital provided acute care to a ventilator patient for three years.
Mercy Hospital absorbs the extraordinary cost of care for its patients who could be discharged to an LTACH if one were available. Conservatively stated, the annual cost of un- reimbursed care provided by Mercy Hospital to long-term acute care patients is approximately $1.5 million. This cost represents a significant inefficiency in the delivery of long- term acute care services is District 11 and lost revenue in the context of Mercy Hospital's mission to extend needed care to Medicaid, indigent and dispossessed patients in the Miami area.
The suggestion that Mercy Hospital continue to keep long-term acute care patients in the hospital, notwithstanding financial loss, is unreasonable. Every dollar lost is a dollar that cannot be used to treat the next patient-in-need who presents at Mercy Hospital.
Kindred Coral Gables and the status quo are not reasonable alternatives to Mercy Medical's proposal. Aside from Kindred Coral Gables' historical high occupancy levels that prevent access for prospective LTACH patients and that are likely to return in the near future, there is a significant segment of the population in District 11, as found above in this order, that
does not have access to Kindred Coral Gables because of its financial criteria for admission.
Broward County LTACHs
Of the two Broward County LTACHs, there is no contention that Kindred Fort Lauderdale is a reasonable alternative for Mercy Hospital patients. That leaves in District 10, Kindred Hollywood as an alternative to Mercy Medical's proposal.
Kindred Hollywood's occupancy rates historically have been much lower than Kindred Coral Gables. In calendar year 1999, they were just under 65%; in calendar year 2000, 72.88%. Occupancy rates, while on the rise, are not the problem with Kindred Hollywood as an alternative.
Kindred Hollywood is not a reasonable alternative to Mercy Medical's proposal for Mercy Hospital patients or to other south-central Dade County patients because of travel time from that area of Dade County to Kindred Hollywood.
Mercy Hospital is located in south Dade County.
Interstate 95, the main automobile and vehicular conduit from Dade County to Broward County, is often congested. Travel from Mercy Hospital to Broward County is particularly difficult for the elderly. Many of the patients who require placement in an LTACH are elderly and may have an elderly spouse. Special
transportation services available to the elderly in Dade County do not cross the Dade County line into Broward County.
The difficulty posed by travel from south and central Dade County to Broward County presents at least two different complications that undermine the LTACH patient's chance for recovery. First, it is likely the travel to Broward County will erode the support structure offered an LTACH patient by the family if the patient is from South or Central Dade County. Patients and their families have difficulty adjusting to the patient's status as an LTACH patient, as it is. The obstacle of difficult travel can prove too much for family members who want to support the LTACH patient. Second, physician-family relationships, the quality of which significantly affects the care of the LTACH patient, are disrupted when there is transfer from one physician to another. The patient's family often resists the transfer and the physician treating the chronically ill patient with complex medical conditions may resist the transfer of the patient to another physician, as well. The associated stress within the family and in the relationship with the physicians involved would in all likelihood be detrimental to the patient whose care is required to be transferred to another physician when the patient becomes an LTACH patient in Broward County, far, under the circumstances, from Central and South Dade County.
The unreasonableness of Kindred's suggestion that Kindred Hollywood constitutes an alternative to Mercy Medical's proposal is evidenced by the fact that Kindred Hollywood has never admitted a patient from Mercy Hospital. No physician has ever asked Mercy Hospital's Director of Case Management to refer a patient to Kindred Hollywood. Nor has Kindred Coral Gables proposed such an admission. For at least the last 10 years, case managers from Kindred Coral Gables have never promoted Kindred Hollywood or Kindred Ft. Lauderdale as options for Mercy Hospital patients eligible for LTACH services who were denied admission to Kindred Coral Gables.
Mt. Sinai Hospital
Kindred alleges that a 20-bed unit at Mt. Sinai in which ventilator patients are treated constitutes a reasonable alternative to Mercy's proposed LTACH. Other than that Mt. Sinai is not licensed as an LTACH, there was no competent evidence at final hearing regarding the nature of the unit at Mt. Sinai. Based on general health planning principles, it is not appropriate to include these beds (in a classification of beds different from LTACH beds) as an alternative for a CON LTACH proposal in determining the need for the proposed project.
Financial Feasibility
Short-term
The short-term financial feasibility of Mercy Medical's proposal depends upon Mercy Medical's ability to provide or obtain sufficient capital to fund its proposed project through the initial implementation and start-up stage. Mercy Medical's source of funds for its proposed project and its pre-existing capital commitments are pertinent to an analysis of the short- term financial feasibility of Mercy Medical's proposal.
Mercy Hospital, Inc., will loan Mercy Medical the initial sum of $56,765 and any additional monies necessary to establish and operate Mercy Medical's proposed 29-bed LTACH. Mercy Hospital, Inc., has the financial wherewithal to fund Mercy Medical's project and to provide the additional financial support promised in its Notice of Financial Solvency included in Mercy Medical's CON application. In fiscal year 2000, Mercy Hospital, Inc., had a total gain of $4.8 million, with an operating gain of
$1.3 million. For the same period, Mercy Hospital, Inc., had liquid assets in the amount of $59.9 million with current liabilities of $25 million, reflecting a better than two-to-one current ratio, and solid financial health. In addition, in 2000, Mercy Hospital, Inc., had a total of $43 million in restricted and escrowed funds that are available for capital expansion.
Mercy Medical's audited financial statements also reflect its
financial health. For fiscal year 2000, Mercy Medical had an operating gain of $1.1 million and a total gain of $1.9 million, with liquid assets of $4.8 million and current liabilities of
$1.2 million. Accordingly, there is an adequate source of funding for the implementation and start-up of Mercy Medical's proposed LTACH.
Mercy Medical's Capital Commitments
In its SAAR, the Agency questioned whether Mercy Medical had capital expenditure projects applied for, pending, approved or underway that were not disclosed on Schedule 2 of Mercy Medical's CON application. Mercy Medical's capital expenditure requests must be approved for execution by the finance committee. In response to AHCA's inquiry, at the final hearing Mercy Medical identified four capital project proposals for Mercy Medical which were not approved by the finance committee at the time of filing of Mercy's CON application, and not required to be disclosed on Schedule 2 of Mercy Medical's CON application. An additional, fifth project, involving renovation of a nuclear cardiology facility, was approved and completed prior to the filing of Mercy's CON application in March 2001. Subsequent to Mercy Medical's filing of its CON application, one of the other four projects involving the replacement of darkroom cabinetry at an anticipated capital expenditure of $2,161, was presented to the finance committee. The remaining three
projects, totaling $240,000, remained unapproved at the time of the final hearing. Had all five of these capital projects been included in Schedule 2 of Mercy Medical's CON application, the total capital expenditure commitment, upon approval of the projects in their entirety, would have been approximately
$442,000. With current assets of $4.8 million and current liabilities of $1.2 million, capital expenditure commitments in the amount of $442,000 would not materially impact Mercy Medical's financial condition or the feasibility of Mercy Medical's proposal. Mercy Hospital and Mercy Medical have adequate financial wherewithal to ensure the short-term financial feasibility of Mercy Medical's proposed LTACH and the project thus is financially feasible in the short term.
Long-term Financial Feasibility
Long-term financial feasibility is assessed by an analysis of whether the proposed project will sustain itself by generating revenues in excess of expenses on an ongoing basis. The reasonableness of Mercy Medical's utilization projections, project costs, and revenue and expense projections are the primary factors bearing on the long-term feasibility of Mercy Medical's proposal.
Mercy Medical's utilization projections are reasonable.
Mercy Medical reasonably projects that it will achieve 60%
utilization in the first year of operation and 77.6% occupancy in year two.
Mercy Medical's most conservative bed-need methodology, discussed above, demonstrates that there is sufficient demand for LTACH services within District 11 to enable Mercy Medical to meet its utilization projections for its proposed project.
In addition, Mercy Hospital will be a primary referral source for Mercy Medical's LTACH. Mercy Hospital has a fairly geriatric patient population which typically experiences advanced cardiac problems, pulmonary problems, and oncologic problems (problems related to cancer and bone marrow disorders). Within those categories, physicians at Mercy see patients with emphysema, patients with very severe asthmas, patients with skeletal deformities causing respiratory insufficiency, patients with congestive heart failure, patients with valvular disease, and patients with all manner of cancer and chemotherapy-related complications that require long-term acute care intervention. These patients are frequently candidates for long-term acute care hospitalization. On an annual basis, there are approximately 300 to 400 pulmonary patients at Mercy Hospital alone who would be candidates for long-term care. There are additional cardiac patients who would require long-term acute care hospitalization but who do not currently have access to Kindred Coral Gables. Because Mercy Hospital has difficulty placing these patients at
Kindred Coral Gables, the majority remain as acute care patients within Mercy Hospital.
Based on Mercy Medical's need analysis for the District as a whole, and the volume of patients at Mercy Hospital who would be candidates for admission to Mercy Medical's proposed LTACH, Mercy Medical's utilization projections, as shown on Schedule 5 of Mercy Medical's CON application, are reasonable.
Mercy Medical's projected revenues for its proposed project through the second year of operation are reasonable.
Mercy Medical's revenue projections are based in part upon Mercy Medical's exemption from the acute care inpatient PPS. Mercy Medical can seek exemption from PPS after six months of operation. During the initial six months of operation, Mercy Medical will receive Medicare reimbursement under the acute care PPS system.
Medicare regulations set forth alternative methods of qualification for exemption from PPS for hospital-based LTACHs. Mercy will seek to qualify for exemption by limiting the amount of services the LTACH purchases from the host hospital to 15% of the LTACH's annualized operating expenses, not including the LTACH's lease payment to the host hospital. With regard to expenses, Mercy Medical will closely monitor its financial performance to ensure compliance with the pertinent Medicare regulations. This method of ensuring compliance with the
Medicare requirements for exemption has proved successful for several other LTACHs. Kindred's financial witness expressed the opinion that Mercy Medical would have to purchase certain services and supplies from Mercy Hospital. The witness acknowledged, however, that Mercy Hospital can obtain a number of the identified services and supplies from sources other than the host hospital. Mercy Medical and Mercy Hospital have pledged that they will take all steps necessary to conform to the 15% rule and other requirements for exemption and have engaged consultants with substantial experience and expertise in guiding LTACHs through the exemption process. It is reasonable to expect that Mercy Medical will be able to limit its expenses attributable to services purchased from the host in a manner that complies with the rule.
Medicare regulations also provide that a hospital-based LTACH seeking exemption from PPS must have a separate governing body, separate medical staff, and separate officers, including a separate chief medical officer and separate chief executive officer. These changes will involve the identification of new officers for Mercy Medical and the restructuring of Mercy Medical's governing body such that a majority of the board positions are held by at-large numbers who have no direct relationship with Mercy Hospital, Inc. Because Mercy Medical's approval of Mercy Medical's project is delayed by this CON
litigation, it is not yet practical for Mercy Medical and Mercy Hospital to implement the changes in Mercy Medical's governance structure that will be necessary for Mercy Medical's PPS exemption. It is reasonable to expect, however, that Mercy Medical will implement the necessary changes. In essence, implementation of the changes must take place if Mercy Medical is ever to operate under the CON for which it has applied.
Overall, the Medicare revenues projected on Mercy Medical's Schedule 7A are comparable to and lower than Medicare revenues for existing LTACHs in Florida. As a new provider, Mercy Medical's Medicare cost-based reimbursement, i.e., TEFRA rate, will be capped at $23,500 per discharge. Mercy Medical's actual TEFRA rate will be determined following the second year of operation of Mercy Medical's LTACH. Mercy Medical reasonably anticipates that its final TEFRA rate will be capped at the
$23,500 limit. Mercy Medical's pro formas conservatively incorporate a projected reimbursement rate for Mercy Medical that is $3,500 below the TEFRA cap per discharge.
The Medicare reimbursement structure for long-term acute care hospitals is projected to change. By approximately 2003 or 2004, CMS is expected to implement a new prospective payment system for long-term acute care hospitals. New, (i.e., post-1997) LTACH providers, will not be substantially adversely affected by the new reimbursement system, and may even benefit.
The anticipated per diem of $800 to $850 per day under the proposed LTACH prospective payment system is more than the projected cost set forth in Mercy Medical's CON application. Accordingly, the anticipated reimbursement level under the proposed prospective payment system for Medicare-certified long- term acute care hospitals is reasonably expected to exceed Mercy Medical's projected expenses as reflected on Mercy Medical's pro formas.
Mercy Medical has reasonably projected an average length of stay for its LTACH of 28 days in the first year of operation and 29 days in year two. Mercy Medical's projected payor mix, as shown on Mercy Medical's Schedule 7A, is reasonably consistent with the experience of the eight existing providers of long-term acute care services in Florida. Mercy Medical's projected Medicaid utilization is higher than the state average for long-term acute care services, but Mercy Medical specifically intends to serve this currently underserved segment of the population.
The projected expenses shown on Mercy Medical's Schedule 8-A are reasonably consistent with those of the existing long-term acute care hospitals in Florida and are reasonable for the project proposed. Mercy Medical's pro formas do not directly reflect any interest expense associated with Mercy Hospital, Inc.'s loan of the funds necessary to implement Mercy Medical's
proposed LTACH. The loan's interest expense, however, is only
$3,000 (approximately.) Such a relatively minor expense is immaterial with respect to the long-term feasibility of Mercy Medical's project.
Mercy Medical's projected salaries, as shown on Schedule 6, are lower in some categories than the salaries paid by Kindred Coral Gables. Nonetheless, the salaries shown, including salaries for registered nurses, are generally reasonable for the project proposed.
In general, while seeking to remain competitive, Mercy Medical does not intend to be the market leader with respect to clinical staff salaries in the Miami-Dade area. The salaries projected in Mercy Medical's Schedule 6 are based on the salaries currently paid by Mercy Hospital and are within a reasonable range for the project proposed. Recruitment of clinical personnel may be challenging in view of the current nursing shortage, but Mercy Medical will be able to recruit and retain the necessary clinical staff to implement and operate its LTACH. (See paragraphs 86 - 88, below.) Mercy Medical's expense pro forma includes a cushion of $3,500 per Medicare discharge that will allow Mercy Medical to increase its salaries for clinical personnel, if necessary, and have a substantial portion of the LTACH's salary expense reimbursed by the Medicare program. Thus,
salary increases, if necessary, will not directly reduce the net income of Mercy Medical's proposed project.
The categories of FTEs shown on Mercy Medical's CON Application No. 9462 Schedule 6 are reasonable for the project proposed. The projected number of full-time equivalents (FTEs) needed to implement Mercy Medical's proposed LTACH in the first two years is generally reasonable.
Mercy Medical's projected utilization, revenues and expenses are reasonable for the projected proposed and the project is financially feasible in the long term.
The Nursing Shortage
There is a serious shortage of nurses in Dade County.
The nursing vacancy rate in the County is now approximately 16 percent.
With the nursing shortage comes significant competition for nurses in the Dade County market. There could be a slight impact to Kindred Coral Gables if Mercy Medical's proposal is approved. Kindred Coral Gables, however, appears to be more aggressive in its advertising and salary packages than is Mercy Hospital. Its approach to the shortage should minimize its effects on Kindred Coral Gables. Rather than for the approval of Mercy Medical to have a negative impact on Kindred, the effect of the nursing shortage is more likely to make it hard for Mercy Medical to obtain the nurses it needs.
Mercy Hospital has been successful in recruiting and retaining nurses by focusing on creating a working environment that is attractive to nurses. Mercy Medical will use the same approach to combat the nursing shortage. The approach has been successful in the face of the current nursing shortage and it is reasonable to expect to continue to have success toward staffing Mercy Medical's LTACH.
It is reasonable to expect that Mercy Medical will be able to staff its proposed project. The impact to Kindred, if any, will be slight.
Quality of Care
The approach to the nursing shortage is not the only shared characteristic between Mercy Medical and Mercy Hospital. Mercy Medical embraces Mercy Hospital's commitment to providing high quality of care. Mercy Hospital will provide the advisory support to Mercy Medical with respect to quality of care and quality assurance practices.
Medicaid and Indigent Commitment
Mercy Medical has conditioned approval of its proposal on the pledge that at least 5% of the LTACH's total inpatient days will be comprised of Medicaid patient days. Mercy Medical shares the commitment Mercy Hospital has to serving Medicaid- eligible, uninsured, underinsured and indigent patients in District 11 for these and other categories of patients. Mercy
Medical's proposed LTACH will significantly enhance access to long-term acute care hospital services in District 11.
Financial Impact of Approval
Approval of Mercy Medical's proposed project will not have an adverse financial affect on Kindred Coral Gables because it is unlikely to suffer reduction in admissions as a result of approval. Historically, Kindred Coral Gables has accepted few patients from Mercy Hospital.
Kindred's own estimation of patient loss is 13-15 patients annually if the project is approved at a financial loss of $775,000. Kindred Coral Gables rejects significantly more referrals of patients than it accepts. There are ample patients in the community to replace any that may be lost to Mercy Medical. In any event, it is likely that Kindred would not accept many, if any, of the patients Mercy Medical intends to serve.
Kindred Coral Gables opposition to the project because approval might set a precedent that would lead to additional hospitals within hospitals in Florida is not cognizable as an adverse impact under CON review criteria.
Benefits of Competition
Because there is demonstrable need for Mercy Medical's proposed LTACH, approval will not result in unnecessary duplication of services. On the other hand, approval has the
chance of enhancing competition. That chance is diminished since the patients Mercy Medical will serve are not likely to be patients Kindred seeks to serve. Still, there may be from time- to-time a patient that both will wish to serve and there may be some benefits from the slight increase in competition caused by approval. Managed care companies, moreover, will see Mercy Medical as an alternative to Kindred Coral Gables and may improve their negotiation position for payment rates for LTACH services in District 11.
Mercy Medical's proposal also provides a lower cost alternative to Kindred Coral Gables with respect to Medicare services that benefits the health care system as a whole. Medicare cost-based reimbursement for LTACHs established prior to October 1, 1997, is capped at the rate of $41,000 per discharge. As a new provider, Mercy Medical's cost-based reimbursement ceiling will be $23,500 per discharge. Kindred Coral Gables was established prior to October 1, 1997, and therefore, operates subject to the much higher cap on Medicare reimbursement. In addition, payors who pay based on charges, or some component of charges, will also benefit because Mercy Medical's proposed changes are less than Kindred Coral Gables' current charges.
Competition from the approval of Mercy Medical's proposal may also have a positive effect with respect to quality of care. In addition, the introduction of an alternative to
Kindred Coral Gables represents a positive enhancement in the delivery of LTACH services in District 11. This is particularly appropriate given Kindred's recent turmoil, including bankruptcy and significant governmental investigations and settlements.
Approval of Mercy Medical's proposed project will have other beneficial effects within the District. Approval of Mercy Medical's proposal will allow many patients to remain under the care of their chosen physician. The conversion of Mercy Hospital's Four West wing to a Medicare-certified LTACH also will help to alleviate patient flow issues within Mercy Hospital and enhance the hospital's ability to utilize properly its short-term acute care beds.
Although Mercy Hospital has 29 licensed acute care beds available on Four West, the hospital cannot feasibly keep Four West open on a full-time basis. At times, Mercy Hospital has had to close its emergency room because of capacity issues. On any given day, Mercy Hospital may have as many as 15 to 20 patients who would be eligible for discharge to a long-term acute care hospital facility, if such a facility were accessible to the patients at issue. Because of the access problems at Kindred Coral Gables, these patients are not discharged, but instead are kept in an acute care bed at Mercy Hospital. Approval of Mercy Medical's proposal would provide a discharge venue for these
patients, thus freeing short-term acute care beds at Mercy Hospital.
Enhancement of Access
As described above, establishment of the 29-bed LTACH proposed by Mercy Medical will enhance access to LTACH services for District 11 residents who currently encounter capacity constraints and financial barriers to access at Kindred Coral Gables. In addition, because Kindred Coral Gables is highly selective with respect to the clinical conditions of patients it admits, Mercy Medical will further enhance access by admitting a broader array of patients.
Architectural Criteria and Costs
Section 395.003(1)(a), Florida Statutes (2001), provides, "[n]o person shall establish, conduct or maintain a hospital . . . in this state without first obtaining a license under this part."
Rule 59A-3.201(34), Florida Administrative Code, provides:
"Long term care hospital" means a general hospital which:
Meets the provision of s. 395.002(12), F.S.;
Has an average length of inpatient stay greater than 25 days for all hospital beds; and,
Meets the provisions of Paragraph 59C- 1.002, F.A.C.
Rule 59A-3.202(1), Florida Administrative Code, provides:
The agency [AHCA] will license four classes of facilities;
(a) Class I or general hospitals which includes:
* * *
2. Long term care hospitals, which meet the provisions of 59A-3.201(31).
Rule 59A-3.201(31), in turn, provides:
"'Inpatient beds' means accommodations with supporting services for patients who are admitted by physician order with the expectation that the patient would stay in excess of 24 hours and occupy a bed."
Mercy Medical's proposed LTACH will provide "inpatient beds." It meets the definition of "long term care hospital." It will have to be licensed as a Class I or general hospital to operate if it receives a CON.
Rule 59A-3.202(2), Florida Administrative Code, provides:
. . . [A]ll licensed hospitals shall have at least the following:
Inpatient beds;
A governing authority legally responsible for the conduct of the hospital;
A chief executive officer or other similarly titled official to whom the governing authority delegates the full-time authority for the operation of the hospital
in accordance with the established policy of the governing authority;
An organized medical staff to which the governing authority delegates responsibility for maintaining proper standards for medical and other health care;
A current and complete medical record for each patient admitted to the hospital;
A policy requiring that all patients be admitted on the authority of and under the care of a member of the organized medical staff;
Facilities and professional staff available to provide food to patients to meet their nutritional needs;
A procedure for providing care in emergency cases;
A method and policy for infection control;
An on-going organized program to enhance the quality of patient care and review the appropriateness of utilization services.
Kindred Coral Gables, an LTACH, is licensed as a Class I hospital. All parties agree the Mercy Medical's applied-for LTACH will have to be licensed as a Class I or "general" hospital and will have to comply with the licensing requirements listed above in order to receive its license.
The parties disagree over the applicability of Rule 59A-3.080(4)(f), Florida Administrative Code. The Rule has a last sentence that is a grandfather clause inapplicable to this proceeding. Otherwise, the Rule provides:
An ambulatory surgical center or a birth center may not be constructed or operated on the same premises as a hospital. A facility or building used for medical care, including a medical office building which is owned and operated by the licensee of a hospital, may
be fully integrated with the hospital physical plant. If a fully integrated facility or building in operation or under construction on the effective date of this rule is subsequently transferred, the hospital licensee shall be solely responsible for either physical separation or assuring full compliance with all life safety codes.
Any other facility or building used for medical care, including a medical office building, must be physically separated from the hospital and have clear, visible and readable signs denoting its separateness from the hospital. Physically separate means, at a minimum, separation by fire walls and distinct mechanical and electrical systems.
It is AHCA's position that Rule 59A-3.080)4)(f) "[sh]ould not, as a matter of policy, [be applied] in this case." (Tr. 766). The purpose of the Rule is to prevent a non-licensed medical service provider, such as a medical office building, from being located on a hospital campus as part of the hospital, that is, without physical separation. That concern is alleviated with regard to Mercy Medical's LTACH operating as a hospital-within-a- hospital because AHCA will have direct licensure authority over the LTACH as a Class I or general hospital. Mercy Medical's LTACH, moreover, is subject to the same life safety codes as its host hospital. Furthermore, the proposed location of the LTACH is Four West of Mercy Hospital. Four West already complies with the applicable licensure codes for Class I or general hospitals found in Chapter 59A-3, Florida Administrative Code.
Along the same lines, Mercy Medical's LTACH will satisfy the state and federal handicap accessibility requirements for general hospitals. The federal ADA and Florida Accessibility code both require that 10% of the patient rooms and toilets in a general hospital be handicap-accessible. Mercy Medical reasonably proposes to satisfy this requirement through renovation of two of the patient rooms on Four West.
The projected costs on Mercy Medical's Schedule 1, including renovation cost, are reasonable for the proposed project. The timetable for completion of Mercy Medical's proposed renovations is reasonable for the project proposed.
CONCLUSIONS OF LAW
Jurisdiction
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings. Sections 120.569, 120.57(1), and 408.039(5), Florida Statutes.
Standing
Kindred does not have standing to be a petitioner in this proceeding.
The test for standing of Kindred Gables to support its petition in this case is statutory:
Existing health care facilities may initiate
. . . an administrative hearing upon a showing that an established program will be
substantially affected by the issuance of any certificate of need . . . to a competing proposed facility or program within the same district.
Section 408.039(5)(c), Florida Statutes.
Kindred sets out the entirety of its argument as to standing in proposed recommended order, at paragraph 167:
KCG [Kindred] has demonstrated that its existing hospital will be substantially adversely affected by MMD's [Mercy Medical's] approval, both in terms of lost revenue and impairment of its ability to adequately staff its facility. As an existing provider of LTACH services in District 11, KCG has demonstrated standing to contest the MMD proposal. S. 408.039(5), Fla. Stat.(2001)
(Petitioner's Proposed Recommended Order, p. 45.)
While Kindred showed circumstances that indicate it could be slightly affected "in terms of lost revenue and impairment of its ability to adequately staff its facility," the showing by Kindred does not meet the threshold requirement that it will be "substantially affected" as required by the CON standing statute. While staffing from time-to-time may be problematic for Kindred if CON 9462 is approved, it is not reasonable to conclude that Kindred will have difficulty adequately staffing its facility. As for its projections of loss of revenue, Kindred did not take into account the reality of the existing program at Kindred Coral Gables and the reality of the program proposed by Mercy Medical. Given the type of patients
Mercy Medical will serve, the admission practices of Kindred, and the ample number of LTACH patients in the District, the evidence is that financial impact is not significant enough to confer standing.
Additional Conclusions
Although AHCA's acceptance of the conclusion that Kindred has no standing has the potential to dispose of this case, additional conclusions are offered in the event AHCA does not accept the conclusion.
Burden and Balancing
An applicant for a certificate of need has the burden of demonstrating that its application should be granted. Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA 1985). The award of a CON must be based on a balanced consideration of the applicable statutory and rule criteria. Department of Health and Rehabilitative Services v. Johnson and Johnson Home Health Care, Inc., 447 So. 2d 261 (Fla. 1st DCA 1984). The weight to be given each criterion depends on the facts and circumstances of each case. Collier Medical Center, Inc. v. Department of Health and Rehabilitative Services, 462 So. 83 (Fla. 1st DCA 1985).
Applicable Criteria
The Certificate of Need review criteria set forth in Section 408.035(2), (3), (5), (6), (7), (8), (9), (10), and (11),
Florida Statutes (2001), are applicable to this project. The review criteria set forth in Section 408.035(1), (4), and (12), Florida Statutes (2001), are not applicable. The health care access criteria set forth in Rule 59C-1.030(2)(a), (b), (c), and (d), Florida Administrative Code, are applicable.
The application content requirements set forth in Section 408.037, Florida Statutes (2001), and Rule 59C-1.008, Florida Administrative Code, are applicable. The review process requirements set forth in Section 408.039(2)(a) and (c), Florida Statutes (2001), Section 408.039(3)(a), Florida Statutes (2001), and Rule 59C-1.008, Florida Administrative Code, are applicable.
Need Methodology
The Agency does not have a need methodology for LTACH services. Accordingly, an applicant for long-term acute care hospital beds is responsible for demonstrating need through an appropriate need methodology. Rule 59C-1.008(3)2., Florida Administrative Code.
Mercy Medical used an appropriate need methodology that demonstrated need for more than the number of LTACH beds proposed by CON Application 9462.
Submission of Financial Information
Whether in compliance with statutory requirements for CON application content, the form of submission of Mercy Medical's financial information in its CON application did not
impair the fairness of the proceeding or affect the correctness of the action taken by AHCA. Any such failure in statutory compliance, therefore, is not cause for dismissal of the application. Section 408.039(5)(d), Florida Statutes.
Financial Feasibility
Mercy Medical's proposed project is financially feasible in both the short term and the long term.
Rule 59A-3.080(4)(f)
The Agency will not apply the Rule to Mercy Medical's proposal. The Agency's interpretation of the Rule that supports its decision not to apply it is advanced in its Joint Memorandum of Law filed April 1, 2002. The interpretation is reasonable in light of the Rule's purpose. That purpose is achieved by the requirement that Mercy Medical's LTACH, as a general or Class I hospital, meet those codes applicable to its host hospital and by the compliance already with Four West of Mercy Hospital, where the LTACH will be located, with those codes. The interpretation is also reasonable since the rule is not unambiguously applicable. Its silence on applicability to a hospital-within-a- hospital when both hospitals are licensed as Class I or general hospitals means the rule is not applicable or constitutes an ambiguity. When an agency rule is ambiguous or subject to more than one interpretation, the question is whether the agency's interpretation of the rule is permissible. State of Florida,
Department of Agriculture v. Sun Gardens Citrus, LLP, 780 So. 2d 922, 925 (Fla. 2nd DCA 2001).
Kindred's protestation that an agency must follow its own rules is indisputable.
Deference to AHCA's interpretation in this case, however, is supported by case law. An agency's interpretation of its own rules is entitled to great weight and should not be disregarded unless clearly erroneous. Orange Park Kennel Club v. Department of Business & Professional Regulation, 644 So. 2d 574,
576 (Fla. 1st DCA 1994). The Agency's interpretation in this case is not clearly erroneous. An agency's construction of a regulation to fit the purpose of the rule is permissible, moreover, even when alternate interpretation is legitimate. Suddath Van Lines, Inc. v. Department of Environmental
Protection, 668 So. 2d 209, 212 (Fla. 1st DCA 1996). Deference to an agency's interpretation of a rule is particularly appropriate when the subject of the rule involves matters within the Agency's expertise. Reedy Creek Improvement District v.
State of Florida, Department of Environmental Regulation, 486 So. 2d 642, 648 (Fla. 1st DCA 1986).
Amendment to the Application
The correction of the labeling error with regard to the soiled workroom did not materially change the nature or scope of Mercy Medical's proposed project and thus the correction is
not an amendment to the CON application. NME Hospitals, Inc. v. Department of Health and Rehabilitative Services, 14 FALR 1882, 1883-84 (HRS 1992).
Even if Mercy Medical's confirmation at hearing, revealed during discovery, of the incorrect labeling of the "soiled workroom" as a "lab" is an amendment to the application, the incorrect labeling did not prejudice Kindred in the presentation of its case. The error was harmless.
Compliance with Handicap-Accessibility Code Requirements
Mercy Medical's proposed LTACH will satisfy the requirements of both the federal Americans with Disabilities Act and the Florida Accessibility Code for Building Construction with respect to handicap-accessibility requirements for general acute care hospitals.
Kindred's architectural experts' testimony that 50% of the LTACH's rooms must be handicap accessible misunderstands the distinction between a "long-term acute care hospital" that is a Class I or general acute care hospital under Florida law and long-term facilities such as an nursing home or assisted living facility. Applying the correct "general hospital" standard, the renovation of the two patient rooms within Mercy Medical's LTACH will satisfy all handicap-accessibility requirements for the proposed project.
Need
A balancing of findings relative to CON review criteria is clearly in favor of approval of Mercy Medical's application. Once its LTACH is operational, for the first time, there will be competition between District 11 providers of LTACH services. More importantly, the proposed project will materially enhance access for underserved segments of the population in District 11.
On balance, Mercy Medical's CON Application No. 4642 satisfies applicable statutory and rule criteria. It should be
approved.
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration:
Dismiss the Petition of Kindred Hospitals East, LLC d/b/a Kindred Hospital South Florida for lack of standing; and,
Approve Mercy Medical Development, Inc.'s CON Application 9462 to establish a 29-bed long-term acute care hospital-within-a-hospital in AHCA Health Planning Service District 11.
DONE AND ENTERED this 23rd day of July, 2002, in Tallahassee, Leon County, Florida.
DAVID M. MALONEY
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 23rd day of July, 2002.
COPIES FURNISHED:
W. David Watkins, Esquire Watkins & Caleen, P.A. 1725 Mahan Drive, Suite 201 Post Office Box 15828
Tallahassee, Florida 32317-5828
Robert A. Weiss, Esquire Karen A. Putnal, Esquire
Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200
118 North Gadsden Street Tallahassee, Florida 32301
Jonathan L. Rue, Esquire
Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower
285 Peachtree Center Avenue, Northeast Atlanta, Georgia 30303
Gerald L. Pickett, Esquire
Agency for Health Care Administration
525 Mirror Lake Drive, North Sebring Building, Suite 310K St. Petersburg, Florida 33701
Virginia A. Daire, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive
Fort Knox Building, Suite 3431 Tallahassee, Florida 32308
William Roberts, Acting General Counsel Agency for Health Care Administration 2727 Mahan Drive
Fort Knox Building, Suite 3431 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.
| Issue Date | Document | Summary |
|---|---|---|
| Oct. 25, 2002 | Agency Final Order | |
| Jul. 23, 2002 | Recommended Order | Approval of Mercy Medical`s Certificate of Need for a long-term acute care hospital (LTACH) will enhance access to LTACH services for underserved segments of the population in District 11. |
