STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
HCA HEALTH SERVICES OF ) FLORIDA, INC., d/b/a OAK HILL ) HOSPITAL, )
)
Petitioner, )
)
vs. ) Case No. 02-0454CON
)
AGENCY FOR HEALTH CARE ) ADMINISTRATION and HERNANDO HMA, ) INC., d/b/a BROOKSVILLE REGIONAL ) HOSPITAL, )
)
Respondents. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, Eleanor M. Hunter, held a final hearing in the above-styled case on June 3-7 and
10-14, 2002, in Tallahassee, Florida.
APPEARANCES
For Petitioner: Stephen A. Ecenia, Esquire
R. David Prescott, Esquire
Rutledge, Ecenia, Purnell & Hoffman, P.A.
215 South Monroe Street, Suite 420 Post Office Box 551
Tallahassee, Florida 32302-0551
For Respondent Hernando HMA, Inc., d/b/a Brooksville Regional Hospital:
James C. Hauser, Esquire Susan C. Hauser, Esquire Metz, Hauser & Husband, P.A.
215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302-2902
For Respondent Agency for Health Care Administration:
Gerald L. Pickett, Esquire
Agency for Health Care Administration
525 Mirror Lake Drive, North Sebring Building, Suite 310H St. Petersburg, Florida 33701
STATEMENT OF THE ISSUE
Whether Certificate of Need (CON) Application Number 9478 filed by Hernando HMA, Inc. (HMA or Hernando HMA), d/b/a Brooksville Regional Hospital (Brooksville Regional) for approval to replace and relocate its existing 91-bed hospital in Hernando County, Agency for Health Care Administration (AHCA) District 3, Subdistrict 6, meets the applicable criteria for approval.
PRELIMINARY STATEMENT
In September 2001, Hernando HMA filed CON Application Number 9478 to relocate and rebuild Brooksville Regional on a different site, approximately three miles from its current location, in Hernando County. AHCA published its intent to approve the application in the Florida Administrative Weekly, Volume 27, Number 52, on December 28, 2001.
On January 18, 2002, HCA Health Services of Florida, Inc., d/b/a Oak Hill Hospital (Oak Hill) timely filed a Petition for Administrative Hearing to contest the action of AHCA. The Petition with a request to assign an administrative law judge (ALJ) was forwarded to the Division of Administrative Hearings (DOAH) on February 5, 2002. Initially set for hearing on May 21-
24 and 27-31, 2002, by the previously assigned ALJ, the case was re-scheduled for the following week by the current ALJ due to scheduling conflicts and difficulties in securing court reporters for a holiday.
At the final hearing, Brooksville Regional presented the testimony of Wittie E. McNeil; Christopher A. Kingsley;
Gary Bell; Robert Foreman; Ted Lincks, expert in transportation engineering; Joe Nelson, M.D., expert in emergency medicine and emergency medical services; Susan Frimmel; Jacqueline Lindsey, M.D., expert in emergency medicine and quality assurance; Thomas Barb, expert in hospital administration and operations; Russell Heiken, expert in mechanical engineering; Kerry Blind, expert in landscape architecture, land planning, and environmental design; Kenneth Rigby, expert in electrical engineering; Chuck Braun, expert in hospital architecture and hospital building costs; Donald Lacey, Jr., expert in land use
planning; Clifford Manuel, expert in civil engineering; Daniel J. Sullivan, expert in health care planning and health care finance;
and Jaime Wesolowski. Brooksville Regional and AHCA jointly presented the testimony of Jeffrey N. Gregg of AHCA, an expert in health planning, CON review, and health care regulation.
Brooksville Regional's Exhibits 1-20, 22-27, 29-36, 38-42, 44-59, 63, and 69 were received in evidence.
Oak Hill presented the testimony of Jaime Wesolowski, expert in hospital administration; Patricia Greenberg, expert in health care planning and health care finance; and Rick D. Knapp, expert in health care finance and accounting. Oak Hill's Exhibits 1-26 were received in evidence.
The transcript of the final hearing was filed on August 23, 2002. After an unopposed request for an extension of time was granted, the parties filed proposed recommended orders on September 23, 2002. HMA's Memorandum of Law was also filed on that date. It included a request for judicial notice that Oak Hill has terminated its OB program.
On October 1, 2002, Oak Hill Hospital's Motion to Strike Portion of HMA's Proposed Recommended Order and Response to HMA's Request for Judicial Notice was filed, opposing the Request which relied for factual support of the matter to be noticed on a newspaper article published after the conclusion of the final hearing. HMA's Response in Opposition to Oak Hill's Motion to Strike Portion of Brooksville's Proposed Recommended Order was filed on October 4, 2002. The Motion to Strike is granted and
the Request for Judicial Notice is denied. Page 9 of the Memorandum of Law, Attachment C to the Memorandum, footnote 2 of Brooksville's Proposed Recommended Order, and Attachment 2 to Brooksville's Proposed Recommended Order are stricken.
FINDINGS OF FACT
The Agency for Health Care Administration (AHCA) is the state agency authorized to administer the certificate of need (CON) law in Florida. AHCA is the designated state health planning agency. See Subsections 408.034(1) and 408.035(1), Florida Statutes.
AHCA Health Services Planning District 3 is composed of Hamilton, Suwannee, Lafayette, Dixie, Columbia, Gilchrist, Levy, Union, Bradford, Putnam, Alachua, Marion, Citrus, Hernando, Sumter, and Lake Counties. See Subsection 408.032(5), Florida Statutes.
Within District 3, Hernando County is designated acute care subdistrict 6. The three acute care hospitals in the County are Hernando HMA, Inc., d/b/a Brooksville Regional Hospital (Brooksville Regional) which was previously operated under the name of Lykes Memorial Hospital, Spring Hill Regional Hospital (Spring Hill), and HCA Health Services of Florida, Inc., d/b/a Oak Hill Hospital (Oak Hill).
HMA
Hernando HMA is the applicant for CON Number 9478 to replace and relocate Brooksville Regional, an existing 91-bed hospital in Brooksville, Florida. Constructed over a 40-year time period to a maximum size of 166 beds, Brooksville Regional is currently licensed to operate 91 beds. In the early 1990s, 75 beds were transferred from Brooksville Regional to establish Spring Hill. Spring Hill is located in southwest Hernando County near the Hernando/Pasco County line.
Health Management Associates, Inc., the parent of Hernando HMA, is a publicly traded for profit corporation, with headquarters in Naples, Florida. Hernando HMA leases and operates, under a single state license, both Brooksville Regional and Spring Hill. Both are owned by Hernando County. In 1998, the County entered into a 30-year lease agreement for HMA to assume the management of the hospitals which were then bankrupt. HMA acquires primarily non-urban area hospitals in need of capital and/or new management strategies to reverse patient out- migration. The corporation owns or operates 43 hospitals in 14 states, including 13 in Florida. HMA has rebuilt and replaced 8 of the 43 hospitals it has acquired since its establishment in 1977.
In addition to Brooksville Regional and Spring Hill, in Hernando County, HMA also operates Pasco Regional Medical Center
(Pasco Regional), in adjacent northeast Pasco County, in AHCA District 5. See Subsection 408.032(5), Florida Statutes. Pasco Regional, a 120-bed hospital located on U.S. Highway 301, in Dade City, Florida, serves residents of eastern Hernando and Pasco Counties who reside along the four-lane corridor, in the communities of San Antonio, St. Leo, Trilby, Lacoochee, Ridge Manor, Dade City, Zephyrhills, and Wesley Chapel. Because of the emergency medical transport policy of taking patients to the nearest hospital, over 85% of those transported from eastern Hernando County are taken to Pasco County hospital emergency rooms.
Hernando HMA's 1998 lease agreement with Hernando County required HMA to pay the debts necessary for the hospitals to emerge from bankruptcy, to provide Medicaid and charity care for Hernando County residents, and to provide $25 million in capital improvements to the two hospitals. To date, $15 million has been spent, $7 million for improvements to Brooksville Regional and $8 million for Spring Hill. Under the terms of the lease, the proposal to relocate the hospital required County approval. At a meeting held on September 25, 2001, Hernando County Commissioners vote unanimously to allow the filing of CON Number 9478.
Hernando HMA proposes to replace and relocate Brooksville Regional to a 95-acre site on which it has a purchase option for $25,000 an acre. The total estimated project cost is
$52 million, $33 million of that for construction. The parcel is located at the intersection of Lykes Dublin Road and a four-lane stretch of State Road 50. The proposed new site is 2.7 miles west of the existing site and 1.8 miles west of Cobb Road where the southern Brooksville City bypass of State Road 50 ends. HMA has agreed to donate the hospital, and approximately 25 acres of underlying and surrounding land to Hernando County. HMA will continue, under the terms of the lease, to manage the hospital, and also plans to build medical offices on the remainder of the parcel of land.
Brooksville Regional is currently located, on approximately 11 acres on Ponce De Leon Boulevard in downtown Brooksville, a mile east of the State Road 50 bypass and one- tenth of a mile from U.S. Highway 41 which is being increased from four to six lanes. The City of Brooksville opposes the relocation of the hospital to the new site which is 1.5 miles beyond the city limits.
Oak Hill
Oak Hill is a 204-bed hospital, located just off State Road 50, in western Hernando County. Oak Hill was constructed 18 years ago on a 40-acre campus which includes two medical office buildings, related structures for staff offices and plant operations, and a cancer institute. Oak Hill is approximately
five miles west of Brooksville's proposed new site, and eight miles west of its existing location.
Oak Hill, like many Florida hospitals, experiences seasonal variations in occupancy. Typically, utilization reaches up to 90% in the first quarter of the year and goes down to 60% in the fall. Occupancy rates have been growing approximately 4% a year from 1997 to 2000, but from 2000 to 2001, patient days at Oak Hill increased 8%.
Oak Hill has also recently received CON approval to establish an open heart surgery program, which is expected to reverse the out-migration of open heart surgery and other cardiac patients, primarily to another HCA facility, Bayonet Point in Pasco County. Bayonet Point is 17 miles or a 30-minute drive from Oak Hill. With the anticipated reversal of some out- migration, and a 2% annual increase in patient days, Oak Hill will have over 100% occupancy in the first quarter of 2005, going down to 74% occupancy in the fall of that year.
Oak Hill opposes the proposal to relocate Brooksville Regional. Oak Hill asserts (1) that the proposed new location is less desirable than alternative sites suggested by the City of Brooksville; (2) that Brooksville Regional failed to demonstrate that replacement rather than renovation of the existing building is necessary; (3) that the proposed site will decrease access for
residents in eastern Hernando County; and (4) that the replacement and relocation will adversely impact Oak Hill.
The published fixed need pool for the subdistrict indicated no need for additional acute care beds. Brooksville Regional's proposal to relocate, but not add beds, is not inconsistent with the fixed need pool.
CON review is required and is not expedited in this case because Brooksville Regional is proposing to relocate to a different site which is more than one mile from its current site.
Review criteria
The parties, in a prehearing stipulation, agreed that Brooksville Regional and Oak Hill have good records of providing quality care and can be expected to continue, as required by Subsections 408.035(2) and (3), Florida Statutes (2001).
The parties agreed that Brooksville Regional's staffing projections are reasonable and sufficient based on its projected utilization, but Oak Hill disputed the accuracy of the utilization projections.
The parties agreed that the design and schematic drawings for the new hospital are reasonable.
The parties acknowledged that there will be an adverse impact on Oak Hill as a result of a loss of some employees, physicians, and patients, the magnitude of which has to be considered under Subsection 408.035(9), Florida Statutes (2001).
The parties stipulated that Brooksville Regional has sufficient resources, including personnel and funds, to accomplish the project and operate the facility, as required by Subsection 408.035(6), Florida Statutes (2001).
The parties agreed that Subsection 408.035(5), related to the needs of research and educational facilities; and Subsection 408.035(12), Florida Statutes (2001), related to nursing home beds, are not at issue in this proceeding.
The parties stipulated that, at issue, are the criteria in Subsections 408.035(1), (2), (4), (7), (8), (9), (10), (11); and Subsections 408.037(1)(b)3. and (c), Florida Statutes (2001); and Florida Administrative Code Rules 59C-1.008(3) and (5), 59C- 1.030(2)(a) through (f), and 59C-1.038(6)(a).
District health plan
District 3 health plan criteria related to the establishment or expansion of services, the establishment of services in a community with no current service, the addition of beds, and the establishment of new facilities are not applicable to this project. Oak Hill's health planning consultant noted, however, that criteria related to bed transfers could also relate to a proposal to relocate an entire hospital. Those considerations include whether Medicare and private pay markets of disproportionate share charity and Medicaid hospitals will be adversely affected, whether access generally, and access
particularly for Medicaid and indigent patients, or other traditionally underserved groups, will be improved. The criteria also overlap those in other applicable statutes and rules. See also Subsections 408.035(2), (7), and (11), Florida Statutes (2001); Rule 59C-1.038(6)(a) and Rule 59C-1.030(2)(a) through (f), Florida Administrative Code. Other relevant considerations include whether the transfer is needed and is more cost-efficient than renovation or expansion of the existing facility, and whether the proposal is financially feasible. See also Subsections 408.035(1), (4), (8), (9), and (10), Florida Statutes
(2001).
Medicaid and indigent care
Hernando HMA, at Brooksville Regional and Spring Hill combined, provided approximately 71% of total charity care in the County in 2000, and 79% in 2001. Brooksville Regional is a disproportionate share provider of Medicaid, having provided approximately 8% of its total care to Medicaid patients.
Brooksville Regional separately provided more Medicare, but half as much Medicaid as Spring Hill which, unlike Brooksville Regional, has obstetrics and neonatal intensive care programs which typically provide services to a large number of economically disadvantaged mothers and newborns.
Oak Hill provided the remaining 20 to 30 percent of the charity care in Hernando County. Approximately 6% of Oak Hill's
patients are in the Medicaid payor category, but Oak Hill is not a disproportionate share provider. Oak Hill provided almost 2% of its total revenues for charity care in 2000, and its Medicaid care increased from approximately $7.4 million in 2000, to $12.3 million in 2001.
Although Hernando HMA did not offer a CON condition related to a specific level of Medicaid and charity care, its historic levels and Hernando County's continued
ownership of the hospital provide the assurances required by the criteria.
Geographical access
Hernando County had a population of 130,810 people in 2,000, which increased to 136,552 in February of 2002, and is projected to be 159,400 people in 2010. There are 7,227 residents of the City of Brooksville, and 129,313 in unincorporated areas of the County. The population is more dense, more growth is projected, and more development is allowed under the comprehensive plan, in the central and western portions of the County.
The population in the zip codes east of Interstate 75 was, in 2001, 4,301 of the total of 132,590. By 2010, the eastern area is projected to have 1,295 more people as compared to a projected increase of 19,401 people in areas west of Highway
The projected areas of most intense population growth are in
western Hernando County, clustered around U.S. Highway 19, to the north of State Road 50, and Highway 41, to the south of State Road 50. These are also areas with a high concentration of the population over 65 in a "retirement belt."
East of Interstate 75, the population of Hernando County is more sparsely settled, younger, and has a lower mortality rate. More eastern area residents who need inpatient acute care, on an elective or emergency basis use the closest hospitals, Pasco Regional in Dade City and East Pasco Community Hospital (East Pasco) in Zephyrhills. In recent years, the trend towards utilization of Pasco county hospitals by eastern Hernando County residents has increased. Residents in the area also use hospitals in Lake County.
The Hernando County Board of County Commissioners hired Tribrook Healthcare Consultants to report on the relocation proposal, including consideration of access for residents of eastern Hernando County. Residents of the three eastern zip codes accounted for 83 discharges from Hernando County hospitals from the second quarter of 1999 through the first quarter of 2000. Of those, 43% or 36 discharges were from Brooksville Regional, 18% or 15 from Spring Hill, and 39% or 32 from Oak Hill. For the year ending June 30, 2001, fifty-three discharges from Brooksville Regional and 28 from Oak Hill originated in the three eastern zip codes.
From January through August 2001, the Hernando County Fire and Rescue service responded to 259 emergency health care calls from the eastern area, which represents approximately 5% of its total volume of 4,863 transports. Of the 259 transports, 109 people were taken to the emergency room (ER) at Brooksville Regional, and an equal number to the Pasco Regional ER, 14 to the East Pasco ER, and eight to the Oak Hill ER. Level one trauma patients, such as those with severe injuries from Interstate car accidents, are air lifted to trauma centers at Orlando hospitals, Tampa General Hospital or Bayfront Medical Center in
St. Petersburg.
If Brooksville Regional is relocated to the proposed new site, the increase in average peak travel times from various locations in the County will range from four to six minutes, for total average travel times ranging between 10 and 21 minutes.
For the majority of the County residents, the average peak travel times will decrease, saving from one to six minutes, since the new location is closer to more densely populated residential areas. The acute care travel time goal is to have most residents able to reach the service within 30 minutes. The standard is already met and will, with Brooksville Regional's proposed relocation, continue to be met in District 3, Subdistrict 6.
The residents of the County in the eastern areas will not be adversely affected by the relocation because relatively
few use Brooksville Regional, and because, for many residents along the U.S. 301 corridor, Pasco Regional is more accessible.
In addition, in return for approval of the Brooksville Regional relocation proposal, Hernando County required HMA to purchase an ambulance with advanced life support equipment to station in the eastern area near Interstate 75. There is credible evidence that, in some cases, the time it takes for paramedics to reach an emergency patient and begin treatment can be more important in saving lives than the actual travel time to a hospital emergency room.
The conditions imposed by the County also required a
$20,000 contribution from HMA for an indigent patient clinic and recruitment of a physician to staff a clinic in the eastern area.
Relocation and replacement vs. renovation; alternative sites
The proposed relocation site was criticized as inappropriate geologically. The property includes wetlands. Agricultural land across the street drains through a ditch under the road into a pond on one corner of the property. The elevation of the land at State Road 50 is 90 feet above sea level, increases to 95 feet but then slopes down to 65 feet at Wiscon Road. There are sinkhole-like depressions towards the back of the property. To meet state disaster preparedness
standards, the elevation of a hospital must be equal to or above the major thoroughfare leading to the entrance.
Brooksville Regional can be constructed on the proposed site with its main entrance facing and above the elevation of State Road 50. Other entrances can also be elevated using fill dirt.
In general, the site meets the County land use criteria and has sufficient uplands. It also meets the criteria developed by HMA and its land planning consultant for (1) a minimum of 40 acres, (2) the potential for traffic signalization, (3) proximity to population growth centers, and (4) good visibility from passing traffic.
Currently, Brooksville Regional is located on 11 acres in two separate three-story towers connected through a central building on the ground floor. The building is constructed from
10 to 15 feet below the street it faces, Ponce De Leon Boulevard.
The entrance floods in heavy rains and lacks good visibility from street traffic.
During the last four years, improvements at Brooksville Regional have included a new roof, lobby renovations, electrical upgrades in the operating room, the installation of new air handlers, and substantial investments in new equipment.
Despite the improvements, the physical plant cannot be renovated to meet current codes and the layout of the building
inevitably results in inefficiencies. Oak Hill noted, however, that the building is not technically violating any code but is "grandfathered." In addition, none of deficiencies affect Brooksville Regional's ability to provide excellent care, as measured by it score of 97 out of 100 on the most recent survey by the Joint Commission on Accreditation of Health Care Organizations.
Patient corridors, in one tower, are less than eight feet wide as required by the National Life Safety Code. The building is not in compliance with the Americans With Disabilities Act (ADA). The parking area exceeds the level for a ramp to the building. Electrical, heating, ventilation and air conditioning (HVAC) systems require major upgrades to meet codes. Improvements are limited by the inadequately sized ceiling spaces for ductwork and pipes. The HVAC inefficiencies are estimated to cost Brooksville Regional from $400,000 to $500,000 a year.
The major functional inefficiencies at Brooksville Regional result from the configuration in two separate towers. Staff must cross the central core and use one of two elevators in each tower to provide care, deliver food, remove trash and soiled linens, and transport patients. The elevators and corridors are shared with visitors. The separate towers divide patients into smaller, inefficient groupings which require more staff.
One witness cited a cost estimate of $250,000 for a pedestrian walkway to connect the second and third floors of the two towers. Oak Hill criticized the absence of any other cost estimates for renovation of the existing building. If any major renovations are undertaken, all "grandfathered" code exemptions will be lost. The hospital would have to be closed and rebuilt.
Inadequate space compromises patient privacy in various areas, including the emergency room and surgical suite. Spaces are inadequate for modern equipment in appropriate locations, so, for example, a CT scan, is located outside the radiology department, and 140 feet from the emergency room
Brooksville Regional proposes to increase the size of the radiology department from approximately 6,400 square feet in the existing building to 16,000 square feet in the new building. Operating rooms currently range from 245 to 345 square feet as compared to code requirements of 450 to 600 square feet, with the larger rooms necessary to accommodate surgeries, such as orthopedics, which require larger equipment. The total size of surgical department is approximately 6,200 square feet while the guidelines suggest it should be 10,800 square feet. The new plan includes 6,300 square feet for the pharmacy and laboratory combined, which now occupy approximately 3,000 square feet. Overall, the new building will be almost 182,000 square feet, 65,000 square feet larger than the existing facility. The new
plan also offers all private patient rooms, except one semi- private room, consistent with the current industry trend which is intended to allow family members to spend the night with patients. The design is taken from a prototype used by HMA to construct five other replacement hospitals in the last five years. Therefore, HMA is certain that the estimated construction cost is reasonably accurate and that the design works well for patients, visitors, and staff.
Considering the deficiencies in the current structure which could only be corrected by closing the hospital completely and rebuilding it on site, taking five to six times as long as construction of a new facility, renovation of the existing structure is not a viable alternative.
The City of Brooksville suggested other sites it favored over that selected by Brooksville Regional. The first parcel examined was 32 acres, not HMA's required minimum of 40 acres for the prototype. It would require assembling separate parcels and closing streets. The second, with 49 acres, is located on a two-lane city street and has a large pond in the center of the tract. A third, with 55 acres, would have to be shared with a post office carrier facility and lacks good visibility because of its location on a curve. The fourth site has 38 acres, but is too narrow for the prototype and is well below the elevation of State Road 50. The fifth tract is south
of the fourth. It has 46 acres which, if acquired with the 38 acres to the north would be more than adequately sized, but is even lower than the parcel to the north and has a lake in the center. A sixth site with 66 acres is too long and narrow for the prototype.
Finally, the City suggested assembling more parcels surrounding the existing building, which would require the acquisition of 38 to 40 lots, but that tract would be long and narrow. As previously noted, the hospital would have to close for reconstruction for a substantially longer period of time than required for new construction. The possibility that the City would donate a portion of an adjacent park was discussed but it was never formally offered. It is also currently the location of fire and police stations. That acquisition also would have required the condemnation of roads.
Costs, financial feasibility, adverse impact and cost-effectiveness competition
The cost for the new facility is estimated at $52 million. The parties stipulated that HMA can fund and operate the project. And, though previously bankrupt, Brooksville Regional had pre-tax profit of $5 million in 2001.
The financial feasibility of the project was questioned. Oak Hill's expert criticized an underlying assumption that Medicare reimbursement would increase 6.4% from
the first to second year. Taken in isolation, the increase looks unrealistic, but viewed over the entire time period from the base year to the second year of operation, the average annual rate of inflation is 2.5%, and is reasonable, as is the resulting projected Medicare revenues.
Brooksville Regional's financial schedules included a management fee of 3% of gross revenues, although HMA has recently charged up to 4% to individual hospitals. HMA can assess a management fee of 3% rather than 4%, which one of its officers described as conservative considering that its actual corporate overhead is less than one percent of revenues. The assessment is based on tax considerations more than on actual costs.
In addition to the management fee, Brooksville Regional's start-up costs, equipment costs, and depreciation costs were questioned as too low. Even when deducted from projected revenues, however, the additional expenses do not render the project financially infeasible.
The proposed project is financially feasible considering either the CON-projected incremental increases in profit, $437 thousand in the first year and $868 thousand in the second year, or the revised estimates in HMA/Brooksville Regional's Exhibit 56. In Exhibit 56, the projected increase in profits, after relocation, are $860 thousand in the first year and $1.3 million in the second year. See Conclusion of Law 79.
Brooksville Regional currently operates at a competitive disadvantage. In 1999, Brooksville Regional had 3,758 discharges, which increased to 3,794 in 2000. By contrast, Oak Hill increased its discharges from 10,575 in 1999, to 11,376 in 2000, and up to 12,743 in 2001. Excluding approximately 400 newborns, the increase in discharges is not entirely attributable to population growth. It also reflects Oak Hill's increase in market share. Overall occupancy rates were 80% at Spring Hill, 70% at Oak Hill, and 62% at Brooksville Regional in 2001.
If the new hospital is built, Brooksville Regional projected it would have 405 more discharges in the first year of the project and 413 more in the second year, for an increase in revenue of $1.3 million in the second year. Oak Hill suggested the incremental increase in the number of patients was insufficient to justify a $52 million expenditure, yielding only
$1.3 million or 2.5% return on investment, while HMA returns average approximately 15%.
Oak Hill also maintained that Brooksville Regional underestimated the projected increase in discharges which would result from the proposed relocation and replacement. Oak Hill's expert estimated that Brooksville Regional would have 770 discharges in the first year and 1,146 in the second year of operations. If Brooksville Regional has more discharges, its revenues and profits will also be higher. Of those 1,146 year
two discharges, Oak Hill estimated that it would have captured 823 admissions in the absence of a new Brooksville Regional hospital. Oak Hill's expert planner also asserted that the loss of patients would make Oak Hill less efficient and less cost- effective, and result in higher charges at Brooksville Regional.
In addition to opening a new open heart surgery program, Oak Hill is undergoing $10 million in emergency room renovations. With these, Oak Hill is projected to reach between
82 and 83% average occupancy, in 2004 and 2005, before Brooksville Regional could become fully operational. The optimum is around 75%.
Oak Hill argued that it could absorb the projected growth through the CON-exempt addition of 20 beds which would return occupancy to reasonable levels between 75 and 76%. The costs incurred for the addition, however, will be unnecessary if Brooksville Regional is more competitive and utilized more efficiently.
As estimated by Oak Hill's expert, the proposed relocation of Brooksville Regional will leave Oak Hill with 12,243 discharges in 2005, and 12,265 discharges in 2006. Assuming the estimate is correct, Oak Hill will be at approximately the same volume as it currently experiences. There is no suggestion that its operations are not cost-effective or efficient at between 11,000 and 13,000 discharges. The pre-tax
income decrement could be as high as $1.93 million. In the context of the Oak Hill budget of $17.1 million for 2002, and considering its competitive advantages, the adverse impact to Oak Hill is outweighed by the need for improvements at Brooksville Regional.
Oak Hill's expert estimated that Brooksville Regional's projected volume was understated and that additional admissions should be expected based on more recent trends in utilization.
If Brooksville Regional reached that volume, then revenues at the new facility would increase an additional $1.8 million, to a pretax total exceeding $6 million. The project is financially feasible, therefore, and the costs are justified to enhance the efficiency and competitiveness of Brooksville Regional.
Oak Hill noted that the impact of the development of the entire 95-acre site is likely to be greater than that of the 25-acre hospital tract. Whether the same owner held the entire tract or not, there is no reason to expect that land surrounding a hospital would not become medical office buildings and related health care services.
Oak Hill will face competition from a 60-bed Healthsouth comprehensive medical rehabilitation hospital currently under development approximately two miles away on State Road 50 in the direction of the Brooksville Regional site. The impact of the rehabilitation hospital, a reduction in acute care
lengths of stay, will apparently be felt by all acute care hospitals throughout the region not just Oak Hill. There is no evidence to indicate that the combined impact of Healthsouth and Brooksville Regional on Oak Hill justifies the denial of the proposed relocation of Brooksville Regional.
HMA's letter of intent and financial statements
HMA's letter of intent indicated that the project costs would not exceed $40 million, but the CON project cost is $52 million.
Since letters of intent are not required to include project costs, AHCA has taken the position that the error in the letter of intent is insignificant as long as the project was identified with sufficient specificity.
AHCA received the audited financial statements for Hernando H.M.A., the applicant, but not separate audited financial statements for Brooksville Regional. Oak Hill's expert suggested that AHCA received inadequate information to determine the financial feasibility of the project.
Hernando HMA's audited financial statement and Schedule 2, with its other financial commitments, demonstrated its ability to provide the funds. The separate financial schedules related to Brooksville Regional's operations, especially Schedules 7 and
8 provided the information necessary for AHCA to determine if the project is financially feasible.
Hernando HMA has demonstrated that it met the letter of intent and application content requirements, and that, on balance, it meets the criteria to relocate and replace Brooksville Regional as proposed in CON Application No. 9478.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of these proceedings. Subsections 408.039(5), and 120.57(1), Florida Statutes.
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 Certificate of Need must be based on a balanced consideration of all statutory and rule criteria. Department of Health and Rehabilitative Services v. Johnson and Johnson Home Healthcare, Inc., 447 So. 2d 261 (Fla. 1st DCA 1984); Balsam v. Department of Health and Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1988). The weight to be given each criterion is not fixed but depends on the facts and circumstances of each case. Collier Medical Center, Inc. v. Department of Health and Rehabilitative Services, 462 So. 2d 83 (Fla. 1st DCA 1985).
Oak Hill has standing because the program at Oak Hill will be substantially affected, consistent with the prehearing
stipulation of the parties and the evidence of an adverse impact of $1.9 million in last revenues.
Despite the error in the project cost, Hernando HMA's letter of intent met the requirements of the following:
(c) Letters of intent must describe the proposal; specify the number of beds sought, if any; identify the services to be provided and the specific subdistrict location; and identify the applicant.
Subsection 408.039(2)(c), Florida Statutes.
Hernando HMA, as the applicant, was required to submit its audited financial statements which demonstrated its ability to fund the project. Both Subsection 408.037(1)(c), Florida Statutes, and Rule 59C-1.008(5)(c)3., Florida Administrative Code, require the audited financial statement of the applicant. In fact, the rule provides that:
Only audited financial statements of the applicant will be accepted. Audited financial statements of any part of the applicant, including but not limited to subsidiaries, divisions, specific facilities or cost centers, will not qualify as an audit of the applicant. Nor shall the financial statements of the applicant's parent corporation qualify as an audit of the applicant.
The criteria from the District 3 health plan related to the need to transfer beds, arguably applicable to this case, overlap the other statutory and rule criteria. Subsection 408.035(1), Florida Statutes.
Brooksville Regional will, based on its history of commitments and obligation to Hernando County, continue to meet the needs of Medicaid and charity patients, consistent with Subsections 408.035(1) and (11), Florida Statutes, and Rules 59C- 1.030(2)(a), (b), (c), (d), and (e); and 59C-1.038(6)(a), Florida Administrative Code.
Geographical access will be enhanced by the relocation of Brooksville Regional closer to areas of more dense population and higher expected growth, in compliance with Subsections 408.035(2) and (7), Florida Statutes; and Rule 59C-1.030(2)(f), Florida Administrative Code.
For residents of eastern Hernando County, acute care services are reasonably and economically accessible in adjoining Pasco County, and not adversely affected by the proposed relocation of Brooksville Regional. See Subsection 408.035(4), Florida Statutes.
In the proposed recommended order, Oak Hill renewed its objection to HMA/Brooksville Regional's Exhibit 56, asserting that it is an impermissible amendment to the financial information in the CON. The rule is that:
The agency shall deem the application complete or withdrawn within 7 calendar days of the receipt of the requested information. Subsequent to an application being deemed complete by the agency, no further application information or amendment will be accepted by the agency.
Rule 59C-1.010(3)(b), Florida Administrative Code. Exhibit 56 consists of revised Schedule 7A, projected revenues, and Schedule 8A, projected income and expenses. The revisions are mathematical corrections, the addition of approximately $5.6 million in other managed care revenues (shown in the CON on Schedule 7A, column 7, but not included in the total of approximately $125.7 million in the CON in Schedule 7A, column 10), which increases the corrected total inpatient hospital service revenue to approximately $131.3 million. The mathematical correction is not an impermissible amendment to the CON. No information beyond that included in the initial CON was required to correct the mistake. Similarly, the corrections to Schedule 8A, regardless of how substantial, were also generated solely as a result of the mathematical correction of revenues on Schedule 7A using the same methodology which was the basis for the initial projections. The revisions to Schedule 8A are not impermissible amendments.
The Brooksville Regional relocation project will increase utilization and revenues at the hospital. Based on either the data in the CON or that in HMA Exhibit 56, the project is financially feasible incrementally and will allow the hospital to increase overall profitability. See Subsection 408.035(9), Florida Statutes.
Some deficiencies at Brooksville Regional's existing site, lack of compliance with various codes and the ADA, flooding due to inadequate elevation, inadequate size, and location on a two-lane street, cannot reasonably be corrected onsite. Others including electrical upgrades, improvements in the HVAC system and enlarged spaces would necessitate closing the hospital to make substantial renovations. The only cost-efficient alternative is relocation and construction of a new hospital, consistent with Subsection 408.035(10), Florida Statutes.
Brooksville Regional will be more competitive, and more cost-efficient if it relocates and replaces the existing facility as proposed in the CON application. See Subsection 408.035(9), Florida Statutes.
On balance, Hernando HMA demonstrated that it meets the criteria for the approval of CON Application No. 9478.
Based on the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that the Agency for Health Care Administration enter a final order approving CON Application No. 9478 for Hernando HMA to relocate and replace Brooksville Regional as proposed in the application.
DONE AND ENTERED this 24th day of December, 2002, 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 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 24th day of December, 2002.
COPIES FURNISHED:
James C. Hauser, Esquire Metz, Hauser & Husband, P.A.
215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302-2902
Stephen A. Ecenia, Esquire
R. David Prescott, Esquire Thomas W. Conrad, Esquire
Rutledge, Ecenia, Purnell & Hoffman, P.A.
215 South Monroe Street, Suite 420 Post Office Box 551
Tallahassee, Florida 32302-0551
Gerald L. Pickett, Esquire
Agency for Health Care Administration
525 Mirror Lake Drive, North Sebring Building, Suite 310H St. Petersburg, Florida 33701
Lealand McCharen, Agency Clerk
Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3
Tallahassee, Florida 32308-5403
Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3
Tallahassee, Florida 32308-5403
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Feb. 19, 2003 | Agency Final Order | |
| Dec. 24, 2002 | Recommended Order | Hernando demonstrated need to replace and relocate hospital to site three miles from existing location. Error in project cost in letter of intent is not significant. Applicants (audited) financial statements are required by and submitted to AHCA. |
