STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SELECT SPECIALTY HOSPITAL-LEE, ) INC., )

)

Petitioner, )

)

vs. )

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent, )

)

and )

) CYPRESS COVE AT HEALTHPARK ) FLORIDA, INC.; LEE MEMORIAL ) HEALTH SYSTEM; CAPE MEMORIAL, ) INC.; HEALTHPARK CARE CENTER, ) INC.; AND LEE MEMORIAL )

REHABILITATION HOSPITAL, )

)

Intervenors. )

Case No. 03-2487CON

)

RECOMMENDED ORDER

This cause came on for formal hearing before William R. Pfeiffer, Administrative Law Judge with the Division of Administrative Hearings, on April 6 through 9, 13, and 14, 2004, in Tallahassee, Florida. Subsequent to the final hearing, but before entry of the Recommended Order, Administrative Law Judge ("ALJ") Pfeiffer left the employ of the Division. Based upon the ALJ's new employment, Intervenors filed a Motion to Disqualify the ALJ and a Motion to Vacate the Recommended Order,

both of which were denied. Intervenors filed Petitions for Writs of Prohibition and Certiorari with the First District Court of Appeal. The Court granted both Petitions and vacated both the Order Denying the Motion to Disqualify the ALJ and the Motion to Vacate the Recommended Order. This matter was reassigned to Administrative Law Judge Robert S. Cohen, who reviewed the record and issues the following Recommended Order.

APPEARANCES

For Petitioner Select Specialty Hospital-Lee, Inc.:

Mark A. Emanuele, Esquire Deborah S. Platz, Esquire Panza, Maurer & Maynard, P.A.

Bank of America Building, Third Floor 3600 North Federal Highway

Fort Lauderdale, Florida 33308-6225 For Respondent Agency for Health Care Administration:

Richard J. Saliba, Esquire (through hearing)

Kenneth W. Gieseking, Esquire (post-hearing)

Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

For Intervenors Cypress Cove at HealthPark Florida, Inc.; Lee Memorial Health System; Cape Memorial, Inc.; HealthPark Care Center, Inc.; and Lee Memorial Rehabilitation Hospital:

W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Caleen, P.A.

1725 Mahan Drive, Suite 201

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

The issue in this proceeding is whether the need exists for an additional new freestanding 60-bed Long Term Acute Care Hospital ("LTACH") to be located in Lee County, AHCA District 8.

PRELIMINARY STATEMENT

Petitioner filed an Application for CON No. 9656 to establish a freestanding 60-bed facility to be licensed as a LTACH and developed in AHCA Service District 8, consisting of Sarasota, Charlotte, Desoto, Glades, Hendry, Lee, and Collier counties. § 408.032(5), Fla. Stat. The proposed project would be located in Lee County, Florida.

Pursuant to notice, Petitioner's application for CON

No. 9656 was preliminarily denied by the Agency for Health Care Administration ("AHCA"). 29 Florida Administrative Weekly 2612 (June 27, 2003). Petitioner timely filed a Petition for Formal Administrative Hearing to contest the denial, and the case was referred to the Division of Administrative Hearings and assigned DOAH Case No. 03-2487CON.

On or about August 1, 2003, Petitions to Intervene were filed by Cypress Cove at HealthPark Florida, Inc. ("Cypress Cove") and the Lee Memorial Health System ("LMHS"), comprising three short-term acute care hospitals ("STACHs"), a comprehensive medical rehabilitation hospital, and a skilled

nursing facility. Petitioner filed motions to strike the petitions. Following a hearing, these parties were allowed to participate in these proceedings contingent upon proving their standing at the final hearing.

On the eve of hearing, Petitioner filed motions for summary recommended orders dismissing the Intervenors' petitions or, in the alternative, seeking an order in limine restricting the testimony and evidence Intervenors' expert Robert A. Beseigel could present at hearing. These motions were denied.

At final hearing, Petitioner called as witnesses Gregory H. Sassman, an expert in LTACH development; Marsha Lynn Webb- Medlin, an expert in nursing care; Sharon Gordon-Girvin, an expert in health planning; Steven Baird, an expert in health care finance (Mr. Baird also presented rebuttal testimony); Randall K. Watts, an expert in health care construction; Charles D. Foster, an expert in health care architecture and construction; and Patricia Greenberg as a rebuttal witness and expert in health planning, health care finance, and financial feasibility. Petitioner offered and had accepted into evidence exhibits and deposition transcripts numbered 1-42, as well as the deposition of Robert A. Beseigel, in support of its Motion in Limine.

Intervenors called as witnesses Christine Nesheim, an expert in nursing, discharge planning, and utilization

management; Walter D. Ittenbach, an expert in health care administration, nursing administration, rehabilitation nursing, and rehabilitation program administration; and Robert A. Beseigel, a certified forensic financial analyst and an expert in health care finance, financial analysis, and financial feasibility. Intervenors' Exhibit Nos. 1 through 15 and 17 through 35 were all admitted into evidence (no Exhibit No. 16 was offered). Intervenors presented deposition transcripts in lieu of live testimony for several witnesses. The deposition transcript of David Kistel, tendered as an expert in facility project development and regulatory compliance, was admitted as Lee Exhibit No. 17. The deposition transcript of

Michael German, tendered as an expert in hospital finance, was admitted as Lee Exhibit No. 18. The deposition transcript of Melvin King, tendered as an expert in health care human resources, was admitted as Lee Exhibit No. 19. The deposition transcript of Randolph Toscano, tendered as an expert in human resources, was admitted as Lee Exhibit No. 20. The deposition transcript of Martin F. Jackson, an expert in finance, was admitted as Lee Exhibit No. 21. The deposition of

Edward Kunzweiler, tendered as an expert in nursing home administration and health care administration, was admitted as Lee Exhibit No. 22. The deposition transcript of Susan Behr, tendered as an expert in nursing and nursing administration, was

admitted as Lee Exhibit No. 23. The deposition transcript of Marjorie May, tendered as an expert in nursing and post-acute services, was admitted as Lee Exhibit No. 24. The deposition transcript of Susan Loreti, tendered as an expert in nursing and post-acute care service planning, was admitted as Lee Exhibit No. 25. The deposition transcript of Douglas Potts, tendered as an expert in nursing home administration, was admitted as Lee Exhibit No. 26. The deposition transcript of James Nathan, tendered as an expert in health care administration, hospital administration, and health care finance, was admitted as Lee Exhibit No. 27. The deposition of Ed Cooper was admitted as Lee Exhibit No. 28. Mr. Cooper was experienced in LTACH operations, including experience with freestanding LTACHs.

AHCA and Intervenors called Jeff Gregg who was accepted as an expert in health planning and Certificate of Need ("CON") review. The State Agency Action Report ("SAAR") issued for CON No. 9656 was adopted by reference as expert witness testimony of Jeff Gregg, and was received into evidence as Petitioner's

Exhibit No. 14.

FINDINGS OF FACT

The Parties and Background Information

1. AHCA is the single state agency responsible for the administration of the certificate of need program in Florida. In its SAAR, the Agency determined that Petitioner's project was

   financially feasible in both the short and long term, and that, based upon the resources available to Petitioner through its parent Select Medical Corporation, it could provide quality care. AHCA determined that Petitioner's project as proposed was cost-efficient and reasonable. The only criterion that AHCA determined Petitioner had failed to meet was demonstration of need for the project.

2. Petitioner, Select Specialty Hospital-Lee, Inc. ("Select-Lee"), is a wholly-owned subsidiary of Select Medical Corporation, and is the applicant in this proceeding for CON No. 9656, which proposes to construct a 60-bed freestanding LTACH in Lee County, Florida. Select Medical Corporation is one of the largest providers of long-term acute care hospital services in the United States with 79 LTACHs in 24 states.

3. Intervenor, LMHS, is a public health system created by special authorizing legislation and is the largest public health care system in Florida that operates without any direct tax support or taxing power. LMHS is controlled by a board of directors directly elected by the citizens of Lee County. It consists of three hospitals, a rehabilitation hospital, a children's hospital, a skilled nursing facility ("SNF"), a physician service, a home health agency, and outpatient health services. LMHS has 946 licensed acute care beds, 5,000 employees, 85 employed physicians, and 830 physicians on its

   medical staff. HealthPark Care Center has 112 licensed SNF beds, all of which are Medicare certified.

4. LMHS treats a large share of all patients seen in Lee County, but is not necessarily the financially dominant provider in the service area due to the large number of Medicaid, uninsured, and underinsured patients it serves. LMHS is the safety net provider in Lee County, providing 18 percent Medicaid and 4 percent charity care annually. The comprehensive medical rehabilitation ("CMR") facility also acts as a community safety net.

5. Intervenor, Cypress Cove at HealthPark, Florida, Inc. ("Cypress Cove"), is a multi-stage adult congregate living facility ("ACLF") that includes an ACLF known as "the Inn" and a 64-bed SNF known as "the Lodge."

6. Effective October 1, 2002, The Centers for Medicare and Medicaid Services ("CMS") of the U. S. Department of Health and Human Services established a new prospective payment system for long-term care hospital providers. Through this system, CMS reimburses the services of LTACHs separately and distinctly from short-term acute and other post acute care providers. Under the system, each LTACH patient is assigned a Diagnosis Related Group ("DRG") with a corresponding payment rate that is weighed based upon the patient's diagnosis and acuity. The LTACH is reimbursed the predetermined payment rate for that DRG,

   regardless of the cost of care. This reimbursement system was established pursuant to 42 C.F.R. §§ 412, 413, and 476.

7. Under the LTACH prospective payment system, each patient admitted to a LTACH is assigned a LTC-DRG (different from the short-term acute care hospital DRG system) with a corresponding payment rate that is based upon the patient's diagnosis and acuity. The LTACH will be reimbursed the pre- determined payment rate for that DRG, regardless of the cost of care.

8. LTACHs provide services to patients who are medically complex and for whom the services of a traditional short-term acute care hospital are no longer the most appropriate or lowest cost setting, but who are still in need of acute care on a long- term basis. Generally, Medicare patients admitted to LTACHs have been transferred from general acute care hospitals and receive a range of post-acute care services, including comprehensive rehabilitation, cancer treatment, head trauma treatment, and pain management. LTACH patients generally have complex medical, nursing, and therapeutic requirements that are beyond the capabilities of the traditional rehabilitation hospital, nursing home, SNF, skilled nursing unit ("SNU"), and home health care.

   Need

   
   

9. AHCA has not established a numeric need methodology for

   
   

   LTACH services, and does not publish numeric need projections for additional LTACH beds and facilities. However, applications for LTACH beds and facilities are accepted in batching cycles twice a year. Fla. Admin. Code R. 59C-1.008. AHCA's

   Florida Administrative Code Rule 59C-1.008(2)(e)2., provides:

   
   

   1. If no agency policy exists [to determine need], the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria:

      1. Population demographics and dynamics;

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

      3. Medical treatment needs; and

      4. Market conditions.

      
      

   2. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area.

      
      

10. Petitioner addressed each of the four topics in its CON application.

11. AHCA has not identified a service area for LTACHs.

    
    

    Therefore, in order to respond to this criterion, Petitioner must analyze the population, demographics, and dynamics of its proposed service area to demonstrate the reasonableness of the

    applicant's service area based upon the needs of the population in the area.

12. AHCA reviews LTACH applications on a District level.

    
    

    For this type of service, however, use of the statutorily- created district as the service area does not take into account the fact that patients will cross district lines to secure needed services and physicians and other referral sources tend to refer to facilities within reasonably close proximity to a fixed facility.

13. In order to determine what the service area would be for the proposed facility, Petitioner's Vice President of Development, Greg Sassman, reviewed and analyzed various sources, including population estimates for Lee County and surrounding areas, the number of acute care beds in the area, the number of LTACH beds in the area, discharge data from area acute care hospitals, the types of patients treated at acute care hospitals, and the lengths of stay of the patients treated at those hospitals.

14. Mr. Sassman then initiated a market analysis for the Lee County area and was contacted by Intervenor, Lee Memorial Hospital, who, through a series of e-mails encouraged Petitioner to pursue the LTACH in Lee County. Petitioner held discussions with Lee Memorial Hospital ("Lee Memorial") concerning placement of its LTACH on its campus. Lee Memorial shared discharge data

    with Petitioner which helped identify patients Lee Memorial believed were most appropriate for LTACH admission. The data produced were for Lee Memorial's fiscal year 2002 (10/01/05 - 9/30/05). The data for that time period identified more than 969 long-stay patients that could have been appropriate for admission to a LTACH.

15. Although Lee Memorial stated that a LTACH would be a valuable service in the continuum of care in Lee County, and that the hospital would work with Petitioner if its project were ultimately approved, Lee memorial determined that its campus did not have sufficient room for Petitioner to initiate a hospital in-hospital program. Therefore, Petitioner decided to proceed with a freestanding project.

16. Population estimates for Lee County and its surrounding areas demonstrate that the population will continue to grow in all age groups with the over 85 population expected to be the fastest growing. As of January 2003, nearly 25 percent of Lee County's population was aged 65 and over, a proportion that is expected to remain constant for the next five years. More people in this age cohort live in Lee County than in any other county in District 8.

17. The over-65-age cohort is expected to use acute hospital services, including LTACH services, more than any other age group because they are more likely to suffer complications

    from illness or surgical procedures, and more likely to have co- morbid conditions that would require long-term acute care. In fact, most Florida hospitals attribute about 50 percent of their occupancy to persons 65 years of age and older.

18. As is common with other LTACHs in Florida, most of the patient days expected at Petitioner's proposed LTACH will originate from residents of the county. Therefore, the primary service area is Lee County, and the broader service area includes a 40-mile radius from the proposed location of the LTACH in western Lee County that includes surrounding counties serving as feeder areas for the project.

19. The designation of Lee County and the surrounding four-mile radius as the proposed LTACH service area is reasonable from a need, cost, and accessibility perspective due in part to the large over-65 population in Lee County; the expected referrals from Lee Memorial, one of the area's largest health care providers; and the anticipated out migration of patients from surrounding areas that do not have LTACH services available.

20. The second criterion contained in Florida Administrative Code Rule 59C-1.008(2)(e)2., requires the applicant to examine the facilities providing long-term care services as well as the services proposed by the applicant. A review of the relevant data shows that all of the LTACHs in the

    State that were operational and had reporting data available at the time of the application was filed were well utilized.

    Overall, LTACH beds in Florida were utilized at 76.6 percent occupancy for the period July 2001-June 2002 reporting period.

21. The only approved LTACH beds in District 8 are located in Sarasota County, 75 miles from Petitioner's proposed LTACH. Since Petitioner proposes a service area with a radius of 40 miles, the Sarasota facility is not a "like or similar service" for Petitioner's proposed facility. Accordingly, Petitioner addressed this criterion by reviewing the role other types of health care facilities may have in providing services that are like or similar to those proposed by Petitioner. This review is performed based upon the Agency's belief that other types of post-acute care services, e.g., SNUs, SNFs, CMRs, nursing homes, and home health services are "similar" or "like" the services provided in a LTACH. AHCA believes this to be true do to its position that acute care services are only truly provided in short-term general acute care hospitals and, accordingly, any long-term facilities such as LTACHs fall into a separate category of post-acute settings. However, a look at the patients who actually present for care in LTACHs demonstrates that LTACHs do provide acute care, since the patient's condition must be acute and must meet medical necessity for admission to an acute setting.

22. CMS and AHCA consider LTACHs to be post-acute care settings. Both CMS and AHCA have found an overlap in services of post-acute care providers, including LTACHs, rehabilitation providers, skilled nursing, and home health. CMS, however, recognizes that most patients in LTACHs have several diagnosis codes on their Medicare claims, which indicate that they have multiple co-morbidities and are less stable than patients admitted to other post-acute settings. CMS recognizes that LTACHs frequently treat patients with multiple diagnoses which supports the greater length of stay experienced in LTACHs. In order to ensure that LTACHs do not fill their facilities with patients more appropriate for short-term acute care, CMS has established a short stay and a very short stay outlier reimbursement system (lower reimbursement for shorter stays) to avoid overpaying a LTACH for a patient who does not meet the LTACH Prospective Payment System ("PPS") Geometric Mean Length of Stay ("GMLOS") (The system that sets the per stay reimbursement for the long-term acute care diagnosis).

23. The bare fact that a patient is transferred from a short-term acute care setting to a LTACH does not mean the patient needs only that care provided in traditional post-acute care settings. Patients admitted to these traditional settings must be "post-acute" and no longer meet the criteria for acute

    care admission. Accordingly, these other settings do not provide the range and level of care required by a LTACH patient.

24. In order to meet the level of care the patient requires, Petitioner's LTACHs provide four core programs: pulmonary, including ventilator patients; wound care; neuro- trauma; and medically complex. Most of Petitioner's patients fit within one of these four categories.

25. The majority of Petitioner's patients come from the critical care units of short-term acute acre hospitals. Patients in these critical care units are still undergoing diagnosis and stabilization, and, typically, their conditions change frequently. In a LTACH, these changes to a patient's condition, whether good or bad, occur in a matter of days or weeks, not hours. Accordingly, these ICU patients become LTACH patients once they are diagnosed, stabilized to a degree, and need an extensive length of stay to treat their medical conditions.

26. The average length of stay in one of Petitioner's LTACHs is typically 25 to 30 days. An ICU is not equipped to keep a patient for an extended period of time. For example, the patient's family is not part of the care plan in an ICU since the patient is supposed to be there for only a short duration. In a LTACH, however, family members are encouraged to participate in the plan of care for their loved ones.

    Additionally, patients needing longer-term acute care cause logistical problems for hospital ICUs by tying up those beds which are needed for short-term patients.

    Financial Feasibility

    
    

27. The short-term financial feasibility of Petitioner's proposal depends on its ability to provide or obtain sufficient capital to fund its proposed project through the initial implementation and start-up phases. Accordingly, Petitioner'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 Petitioner's proposal.

28. Petitioner's parent corporation, Select Medical Corporation, will provide the funding of the initial project cost of $12,421,457.00 and any additional funds needed to establish and operate the proposed 60-bed freestanding LTACH. At the time the application was filed, Select Medical had funds exceeding $125 million; therefore, it has sufficient funds to finance the proposed project.

29. Even if, as Intervenors argue, the actual project cost is greater than $14 million, Select Medical has the wherewithal and willingness to provide the additional funds for implementation and start-up of the proposed LTACH. While it is true that Petitioner has applied for certificates of need for LTACHs in several Districts, which, if approved, would impair a

    greater proportion of the parent corporation's capital, that is a consideration for another day. At the time of this hearing, Petitioner, through its parent, has more than adequate funds to initiate and carry the project to long-term financial feasibility.

30. Long-tern 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 Petitioner's utilization projections, project costs, and revenue and expense projections are the primary factors to consider when examining the long-term financial feasibility of the project.

31. Petitioner's utilization projections are reasonable, if not overly conservative. In year one, for the first and second quarters, Petitioner will undergo a demonstrative period under short-term acute care PPS to establish a length of stay of

    25 days; therefore, admissions are restricted in the first quarter. The balance of Petitioner's utilization projections is based upon its standard start-up model adjusted for what the anticipated growth pattern would be for this LTACH. Accordingly, Petitioner projects a conservative 36 percent occupancy for year one and a 68 percent occupancy for year two. With the large demand for LTACH services in Lee County and the surrounding area, even using Petitioner's most conservative

    forecast of bed need, the figures appear to be easily achievable, if not understated.

32. Additionally, Petitioner's projected revenues for its proposed project through the second year of operations are reasonable. Petitioner's Medicare revenue projections were based upon its exemption from acute care inpatient PPS after six months of operation, and based upon Medicare reimbursements under the acute care PPS system during the first six months of operation. Commercial insurance and other managed care projections were based upon an average for the Florida market and on contacts Petitioner has had. Medicaid/self-pay projections were based upon a Florida cost factor.

33. Overall, the Medicare revenues projected on Schedule 7A of the application are conservative and lower than what the project, if implemented, would actually realize. When Petitioner submitted its application, it was not under the new reimbursement method implemented by CMS. Therefore, Petitioner estimated that it would have Medicare revenues of $25,000 for non-ventilator patients, and $30,000 for ventilator patients. It is now reasonable to expect, however, that under the new LTACH PPS system, Medicare reimbursement will average $31,504.00 per patient, which will add an additional $843,222.00 in revenues to those projected by Petitioner on Schedule 7A.

34. Petitioner has reasonably projected 7,877 patient days in the first year and 14,878 patient days in the second year of operations. Accordingly, Petitioner's projected payor mix was calculated using Petitioner's average at the time which was 75 percent Medicare, 2.8 percent Medicaid and self-pay, and the remainder for commercial payers.

35. The projected expenses shown on Petitioner's Schedule 8A are reasonable and based upon Petitioner's experience with existing LTACHs.

36. Petitioner's projected staffing salaries, as shown on Schedule 6, are reasonable. Petitioner's staffing projections on Schedule 6 are based upon its staffing model. This model utilizes patient days during the start-up process and is based upon the census projected in Schedule 5, providing the number of FTEs needed by position.

37. In projecting nursing staff, Petitioner uses 8 to 8 1/2 hours per patient day. Total therapies are averaged at 2.7 hours per patient day; respiratory therapy at 1.67 hours per patient day; speech therapy at 0.2 hours per patient day; and occupational therapies at 0.5 hours per patient day. Although Intervenors criticized Petitioners projected staffing as greater than its current experience at other LTACHs, clearly Petitioner is willing to staff its proposed facility at whatever high level is required to render medically appropriate patient care.

38. The salaries projected on Schedule 6 are based upon Petitioner's Miami experience in hiring staff, using a slight adjustment for wage index using the Medicare wage index, and are reasonable for the proposed project.

39. Petitioner's projected utilization, revenues, and expenses are reasonable for the proposed project, and the project is financially feasible in the long term.

    Quality of Care

    
    

40. Petitioner will adopt the Quality Care Standards utilized by all of Select Medical Corporation's LTACHs.

41. Petitioner is a quality care provider as evidenced by its accreditation from the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") for all its facilities. Petitioner shall seek accreditation by the JCAHO for this proposed facility and it is reasonable to assume that it will provide quality care at its proposed Lee County LTACH. Medicaid and Charity Care

42. Petitioner has conditioned approval of its proposal to providing 2.8 percent Medicaid and charity care, combined with

    .08 percent of its total patient days for Medicaid patients, and

    
    

    2.0 percent of its total patient days to charity care. Although the 0.8 percent Medicaid is below the statewide average for LTACHs (due in large part to the high rate of Medicaid care provided at one LTACH in Tampa), the commitment to 2.0 percent

    charity care is higher than the statewide average. This demonstrates Petitioner's commitment to treating all appropriate patients regardless of their ability to pay.

    Architectural Criteria and Construction Costs

    
    

43. The projected construction costs for the proposed project are reasonable as set forth in Schedule 1.

44. Petitioner's construction costs were developed using the knowledge and experience of its architect, the use of R. S. Means data, which is a nationally-recognized industry database, and the review of market area data.

45. Included in the construction costs are "fixed" items which include walk-in coolers, freezers, major kitchen equipment, security cameras, announcement systems, cubical curtains, interior/exterior signage, ventilator hoods, pharmacy hoods, and some landscaping.

46. Petitioner used a real estate agent to assist with development of costs associated with site costs and site selection. The costs associated with site preparation for this project are reasonable even with the potential for elevation and fill issues associated with one of the potential sites.

47. Petitioner did not adequately address all of the potential issues that might arise on its proposed three sites for the LTACH. As noted before, one or more of the sites might require rather extensive fill work to bring the land to the

    elevation required for hurricane standards. Moreover, Petitioner failed to account for delays that might be brought about by the South Florida Water Management District or any local permitting and zoning authorities. While any of these issues might have some significance in terms of the start date for the proposed project and permitting/zoning/additional construction fees, all can generally be overcome and do not appear to be insurmountable obstacles to commencing and completing the proposed LTACH.

48. Additional equipment that Intervenors allege were omitted, including portable X-ray equipment, phone, housekeeping, copiers, fax machines, dumpsters, and linens are all contracted services. Lab equipment and blood refrigerators are intra-company contracted services.

49. The projected timetable for completion of Petitioner's proposed LTACH is reasonable.

    Adverse Impact

    
    

50. LMHS is a safety net provider, a category of health care provider to which AHCA pays special attention when determining whether a new facility will have an adverse impact. LMHS' financial expert, Robert A. Beseigel, performed an adverse impact analysis concerning Petitioner's proposed LTACH for both LMHS and Cypress Cove. He concluded that the project proposed by Petitioner would have a substantial and material adverse

    impact on existing programs and services at both LMHS and Cypress Cove.

51. Mr. Beseigel concluded that, in a worst case scenario, the lost revenues for CMR patients would be $4.4 million. The lost revenues to HealthPark Care Center, Inc. ("HPCC") would be

    $108,000, a "material amount" for the financially struggling HPCC. The lost revenues to Cypress Cove would be $450,000, a "material amount" for that facility as well. Mr. Beseigel's assumptions are based primarily on the fact, as he sees it, that there is a significant overlap between the services proposed by Petitioner and those provided at Lee Memorial Hospital, HPCC, and Cypress Cove. As stated above, while some overlap may be expected, the type of patients appropriate for long-term acute care, as proposed by Petitioner, are not appropriate for treatment in these other facilities. Moreover, based upon the significant need for the long-term acute care services proposed by Petitioner, these existing facilities should suffer little, if any, adverse impact.

52. In fact, the services proposed by Petitioner should have a positive effect on LMHS by offering a referral source that does not currently exist to LMHS' patients who need acute care services for extended stays. Petitioner's expert Patricia Greenberg, identified long-term cases that are currently treated by LMHS that would be more appropriate for

    care in Petitioner's proposed facility, and determined that LMHS would experience financial gain due to saved patient days for earlier discharges to the long-term setting. Even LMHS' own representatives conceded that the benefit of a LTACH in Lee County (whether it be Petitioner or some other provider) would save $1.9 million through discharges of patients who no longer qualified for reimbursed care in Lee Memorial Hospital.

    Ms. Greenberg estimated a savings of nearly $1.7 million to Lee Memorial if Petitioner's LTACH were established.

53. Ms. Greenberg also examined the potential for lost revenues at either the skilled nursing facility or Lee Memorial's rehabilitation unit due to the approval of Petitioner's facility. She found that the CMR unit could potentially lose 27 patients, a loss of approximately $108,000, hardly a substantial, adverse impact. Since the skilled nursing facility does not provide the level of care required to treat long-term acute care patients, Petitioner's proposed LTACH could not have a substantial or adverse impact on HPCC.

54. When comparing the net positive financial impact Petitioner's LTACH would have on LMHS with the slight negative impact it would have on the CMR and skilled nursing facility, the net impact would be positive in the amount of $1.5 million.

55. The approval of Petitioner's LTACH would not have an adverse impact on Cypress Cove, a licensed continuing care

    facility under Chapter 651, Florida Statutes. Similar to HPCC, Cypress Cove is not equipped to treat the type of patient admitted to a LTACH since they provide only one hour of nursing care per patient day.

56. Accordingly, the Intervenors, through their expert, Robert A. Beseigel, were unable to quantify an adverse impact brought about by the approval of Petitioner's facility on these existing providers. While some negative impact is evident, the overall impact to the health care delivery system in Lee County will be positive. Mr. Beseigel's assumptions are far too radical to be considered reasonable since he opined that 100 percent of the patient days at both the rehabilitation hospital and the skilled nursing facility would be lost to Petitioner. Further, his assumption that every length of stay greater than

    15 days would be lost to Petitioner is not supported by the data or evidence produced at hearing. If this were true, which reason and the greater weight of the evidence tells us it is not, then LMHS would not be seeking a partner to help develop a LTACH in Lee County. It is simply beyond reason to assume that a LTACH provider, whether it be Petitioner or some other provider, would take 100 percent of all these admissions when the need so clearly exists for a provider of acute care services in a long-term setting.

57. As previously demonstrated, CMR patients are a different population from what Petitioner seeks to serve, and experience a Length of Stay ("LOS") averaging 10.2 days. Additionally, the type of patients care for in HPCC receive only

    70 minutes of nursing care per patient day with only 10.8 minutes being direct Registered Nurse ("RN") care. LTACH patients, on average, receive eight hours of nursing care per patient day.

58. Further, if Petitioner's proposed facility admitted the entire volume of patients projected by Mr. Beseigel, the LTACH would have no room for any other patients who, according to the need projections, need long-term care.

59. Mr. Beseigel also attempted to demonstrate how the competition for staffing between Petitioner and Intervenors would have a substantial and adverse impact on Intervenors' ability to provide quality services. Again, citing the oft- cited nursing shortage in Florida, Intervenors portray a picture of Petitioner recruiting all of its staff from LMHS, leaving them high and dry when it comes to their ability to recruit, train, and maintain staff. It is more likely that Petitioner would recruit 25 percent of its staff from existing providers such as LMHS who would experience the same recruiting issues with respect to any LTACH whose entrance into the Lee County market they decide to support. Mr. Beseigel overstated the cost

    of staff recruitment as 1.5 times the annual salary for each full-time employee ("FTE") recruited away by Petitioner. This figure equates to $24,000 per FTE (based upon 100 percent of Petitioner's staff coming from LMHS), while a more reasonable assumption would be $8,000 per FTE, as suggested by Cypress Cove, and a more reasonable assumption of the number of staff recruited away from LMHS being 25 percent. While, certainly, this would have some impact on LMHS recruitment of staff, perhaps $186,000, the impact would not be substantial or adverse.

    State Agency Action Report

    
    

60. In its SAAR, AHCA criticized Petitioner's approach to determining need for the proposed LTACH. Specifically, AHCA criticized Petitioner for not utilizing patient discharge data in its need analysis, and pointed out that the approval of LTACHs in Sarasota (40 beds to HealthSouth) and in Pinellas (22 beds to Kindred-St. Petersburg in District 5) demonstrates that no additional beds were needed in District 8.

61. As discussed above, AHCA failed to acknowledge that Petitioner used discharge data and DRG data to determine a need for the specific services it seeks to provide. Specifically, Petitioner examined Florida Hospital Discharge Data for the 12- month period ending June 2002 to identify patient days for its

    proposed LTACH, and used discharge information obtained directly from Lee Memorial Hospital by Gregg H. Sassman.

62. Lee Memorial Hospital alone indicated in excess of 969 long-stay patients in a one-year period it believed were appropriate for admission to a LTACH.

63. AHCA also asserts in the SAAR that Petitioner failed to provide any supporting documentation, such as letters of support, from area physicians and other providers regarding potential referrals. However, at final hearing, the Agency admitted that these types of letters are not critical to an application. Furthermore, when asked whether the letters of support filed by Lee Memorial Hospital in a subsequent batch identifying 1220 potential LTACH patients should indicate need for the services, AHCA agreed that these letters could support the methodology utilized by Petitioner.

64. The Agency also asserted that Petitioner failed to demonstrate that patients who qualify for LTACH services were not currently being served or that an access problem exists for residents in District 8. However, Petitioner's CON application and testimony at hearing strongly support that such patients' needs are not being met by existing providers of acute care, CMR, and skilled nursing services.

65. AHCA also criticized Petitioner for not considering the availability of services at Kindred-St. Petersburg, a 22-bed

addition to the LTACH in Pinellas County, in adjoining District

1. However, the occupancy for that facility from July 2001- June 2002 was 99.23 percent meaning that none of its beds were available to provide services to the population Petitioner seeks to serve. All this bed addition demonstrates is that a need exists in District 5 for additional beds that is not being met by a full facility in Pinellas County. The evidence at hearing did not demonstrate that this bed addition would draw upon the same patient population as the beds proposed by Petitioner. All this addition demonstrates is that Kindred will be able to operate at a more efficient level and take on additional patients needing long-term acute care services in District 5.

   CONCLUSIONS OF LAW

   
   

   1. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings. §§ 120.569, 120.57(1), and 408.039(5), Fla. Stat.

   2. As the applicant, Select-Lee, has the burden of establishing the need for a new hospice program in Service Area

1. Boca Raton Artificial Kidney Center, Inc., vs. Dept. 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 all applicable statutory and rule criteria. Humana, Inc. vs. Dept. of Health and Rehabilitative Services,

   469 So. 2d 889 (Fla. 1st DCA 1985), citing Dept. of Health and

   Rehabilitative Services vs. Johnson & Johnson Home Health Care, Inc., 447 So. 2d 361, 363 (Fla. 1st DCA 1984). The appropriate weight accorded each individual criterion contained in the statute regarding CON applications is not fixed, but depends on the facts and circumstances of each case. Collier Medical Center, Inc. vs. Dept. of Health and Rehabilitative Services, 462 So. 2d 83 (Fla. 1st DCA 1985).

   1. The CON review criteria set forth in Subsections 408.035(2), (3), (4), (6), (7), (8), (9), (10), and (11), Florida Statutes, are applicable to this project. The review criteria set forth in Subsections 408.035(1), (5), and (12), Florida Statutes, are not applicable.

   2. The CON submission and process requirements set forth in Subsections 408.039(2)(a), (c), and (3)(a), Florida Statutes, and Florida Administrative Code Rule 59C-1.008, are applicable. The parties stipulated that Petitioner's Letter of Intent and CON No. 9656 met the Agency's rules regarding minimum content and timely submission requirements.

   3. The rule criteria and requirements of Florida Administrative Code Rules 59C-1.002(28), 59C-1.030, and

      59C-1.008, are applicable. The parties stipulated that AHCA has no fixed need methodology for LTACH beds and, therefore, no fixed need pool is published for LTACH beds.

   4. The Agency for Health Care Administration has no need methodology or agency policy for long-term care hospital services. If no agency policy or need methodology exists, Florida Administrative Code Rule 59C-1.008(2)(e)2., states that the applicant is "responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria:

      1. Population demographics and dynamics;

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

      3. Medical treatment trends; and

      4. Market conditions.

         
         

   5. The credible evidence of record demonstrates that need for Petitioner's proposed LTACH is evidenced by:

      1. the elderly population dynamic in Lee and its projected continued growth since this is the demographic of patients who most often utilize LTACHs; Rule

         59C-1.008(2)(e)2.a., F.A.C.

      2. the lack of available and accessible LTACH services at existing health care facilities in District 8, specifically in Lee County and its surrounding areas;

         §§ 408.035(2),(7), Fla. Stat. and Rule 59C-1.008(2)(e)2.b., F.A.C.

      3. medical treatment trends that require state of the art medical technology found in LTACHs to treat medically complex and critically ill patients who may be dependent on mechanical ventilators, metabolic analyzers and breathing monitors to assist in their recovery. These needs are beyond

         the capabilities of short-term acute care hospitals, traditional rehabilitation

         hospitals, nursing homes, SNFs and home health. Rule 59C-1.008(2)(e)2.c., F.A.C.

      4. positive market conditions that demonstrate the feasibility of Select-Lee's proposed LTACH. Rule 59C-1.008(2)(e)2.d., F.A.C.

         
         

   6. Petitioner adequately presented appropriate and previously accepted need methodologies in its CON Application. See Select Specialty Hospital-Marion, Inc. vs. AHCA, et al., Case No. 03-2483CON (DOAH July 14, 2005)(AHCA Final Order, September 17, 2004); and Select Specialty Hospital-Escambia, Inc. vs. AHCA, Case No. 05-0319CON (DOAH June 17, 2005)(AHCA Final Order, July 11, 2005). These numeric methodologies contained within Petitioner's CON application were shown to be reasonable and confirmed a numeric need for its proposed LTACH in addition to the already approved 40-bed LTACH in Sarasota. Accordingly, Petitioner's application demonstrates need pursuant to the applicable statutory criteria contained in Section 408.035, Florida Statutes, and Florida Administrative Code Rule 59C-1.008(2)(e).

   7. Petitioner demonstrated that a need exists for its proposed LTACH services, and that, although there will be a slight overlap in some of the services proposed, no other facilities in the area it proposes to serve provide the same services as proposed. Therefore, Petitioner has adequately addressed the availability, quality of care, accessibility, and

      extent of utilization of existing health care facilities and health services in District 8. § 408.035(2), Fla. Stat.

   8. Select Medical Corporation has a history of providing quality care in its LTACHs and Petitioner has the ability to provide LTACH services as proposed in its application.

      § 408.035(3), Fla. Stat.

      
      

   9. Although the services proposed by Petitioner are not "special services" as contemplated by AHCA, Select-Lee will provide a service that is not reasonably accessible in adjoining areas and will be expected to draw patients from outside District 8. § 408.035(4), Fla. Stat.

   10. Petitioner has the necessary resources for project accomplishment and operation, and will be able to recruit and retain the clinical personnel necessary for implementation and operation of the LTACH. § 408.035(6), Fla. Stat.

   11. Petitioner's proposed LTACH services will enhance access to District 8 by providing a service that is not currently available in Lee County and the surrounding area. Further, Petitioner will increase access for these services to the underserved by its commitment to 2.8 percent of its patient days to charity and Medicaid care. § 408.035(7), Fla. Stat.

   12. Petitioner's proposed project is financially feasible in both the short and long term. § 408.035(8), Fla. Stat.

   13. Petitioner's proposed LTACH will foster competition with other LTACHs in Florida, including the proposed 40-bed LTACH in Sarasota if it is eventually implemented. This competition will have a positive impact on costs and quality district-wide and statewide with respect to LTACH care.

       § 408.035(9), Fla. Stat.

       
       

   14. Although Petitioner may have understated the cost of preparing one or more of its proposed sites for the LTACH, on balance, Petitioner's costs and methods of construction are reasonable. § 408.035(10), Fla. Stat.

   15. Petitioner's proposal includes a commitment to provide at least 2.8 percent of its patient days to charity care and Medicaid patients. § 408.035(11), Fla. Stat.

       Standing

       
       

   16. Neither Lee Memorial, et al., nor Cypress Cove has proven standing in this proceeding.

   17. While the applicant must prove its entitlement to the CON, an existing provider who challenges the Agency's preliminary approval of a CON must demonstrate that it has standing. The test for standing in this type of proceeding is statutory:

       Existing health care facilities may initiate or intervene in 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.

       
       

       § 408.039(5)(c), Fla. Stat.

       
       

   18. While both Lee Memorial, et al., and Cypress Cove attempted to prove that their existing programs would be affected, the record evidence demonstrates that neither established or proved that either's existing programs would be "substantially affected." In fact, their expert was unable to quantify the materialness of the impact Petitioner's proposed LTACH would have on any programs these existing providers offer. Their expert opined that the impact could range from no impact and no revenue losses to an impact in revenue loss that equates to 100 percent of the admission volumes currently experienced by these programs. While admittedly, some overlap in services to patients who present themselves for LTACH care may occur, in reality, the types of patients Petitioner proposes to serve and the fact that Lee memorial recognizes the need for a LTACH in the community better supports a positive financial impact on Intervenors than a negative one.

   19. Additionally, Intervenors' assertion that all the staff necessary for Petitioner's proposed LTACH will come from LMHS is neither probable nor reasonable.

   20. Accordingly, Intervenors have failed to meet the threshold requirement of demonstrating that each will be substantially affected by the approval of Petitioner's proposed LTACH services.

   21. On balance, Petitioner's application satisfies all the applicable statutory and rule criteria.

RECOMMENDATION

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

is

RECOMMENDED that the application of Select Specialty

Hospital-Lee, Inc., for CON No. 9656, be approved.

DONE AND ENTERED this 5th day of January, 2006, in Tallahassee, Leon County, Florida.

S

ROBERT S. COHEN

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 5th day of January, 2006.

COPIES FURNISHED:

Karl David Acuff, Esquire Watkins & Caleen, P.A.

1725 Mahan Drive, Suite 201 Post Office Box 15828 Tallahassee, Florida 32317-5828

Kenneth W. Gieseking, Esquire

Agency for Health Care Administration Fort Knox Building

2727 Mahan Drive, Mail Station 3

Tallahassee, Florida 32308

Mark A. Emanuele, Esquire Panza, Maurer, & Maynard, P.A.

Bank of America Building, Third Floor 3600 North Federal Highway

Fort Lauderdale, Florida 33308

Richard Shoop, Agency Clerk

Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive

Tallahassee, Florida 32308

Alan Levine, Secretary

Agency for Health Care Administration Fort Knox Building, Suite 3116

2727 Mahan Drive

Tallahassee, Florida 32308

Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 03-002487CON

Orders for Case No: 03-002487CON