STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
HOLMES REGIONAL MEDICAL CENTER, ) INC., )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE )
ADMINISTRATION, )
)
Respondent, )
)
and )
) WUESTHOFF MEMORIAL HOSPITAL, ) INC., d/b/a WUESTHOFF MEDICAL ) CENTER-ROCKLEDGE and WUESTHOFF ) MEMORIAL HOSPITAL, INC., d/b/a ) WUESTHOFF MEDICAL CENTER- )
MELBOURNE, )
)
Intervenors. )
Case No. 04-2810CON
)
RECOMMENDED ORDER
Pursuant to notice, a final hearing was held in this case on December 6-10, 13-16, 2004, and January 6, 2005, in Tallahassee, Florida, before T. Kent Wetherell, II, the designated Administrative Law Judge of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: R. Terry Rigsby, Esquire
W. Douglas Hall, Esquire Carlton Fields, P.A. Post Office Drawer 190
Tallahassee, Florida 32302
For Respondent: Kenneth W. Gieseking, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Mail Station No. 3 Tallahassee, Florida 32308
For Intervenors: Michael J. Glazer, Esquire
Stephen C. Emmanuel, Esquire Ausley & McMullen
227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302
STATEMENT OF THE ISSUE
The issue is whether Petitioner’s application for a Certificate of Need to establish a new 84-bed acute care hospital in Viera should be approved.
PRELIMINARY STATEMENT
In the first batching cycle of 2004 for hospital beds and facilities, Petitioner Holmes Regional Medical Center, Inc. (Holmes) filed an application for a Certificate of Need (CON) to establish a new 84-bed acute care hospital in Viera, which is in Brevard County, Acute Care Subdistrict 7-1. The Agency for Health Care Administration (Agency) published notice of its intent to deny Holmes’ application in the Florida Administrative
Weekly on June 25, 2004. Holmes timely petitioned the Agency for an administrative hearing on the denial of its application,
and on August 11, 2004, the Agency referred the petition to the Division of Administrative Hearings (Division) for the assignment of an Administrative Law Judge to conduct the hearing requested by Holmes.
A petition to intervene was filed by Wuesthoff Memorial Hospital, Inc. (Wuesthoff) d/b/a Wuesthoff Medical Center- Rockledge (Wuesthoff-Rockledge) and also d/b/a Wuesthoff Medical Center-Melbourne (Wuesthoff-Melbourne). The petition to intervene was granted through an Order dated August 24, 2004.
The final hearing was originally scheduled to begin on November 30, 2004, but it was continued to December 6, 2004, on Wuesthoff’s motion. The hearing was held over 10 days, and concluded on January 6, 2005.
At the hearing, Holmes presented the testimony of 17 witnesses: Jerry Senne, who was accepted as an expert in health care administration; Michael Means, who was accepted as an expert in health care administration; Lisa Gurri; Elizabeth Herrman, who was accepted as an expert in nursing administration and quality of care; Dr. Chris Finton, who was accepted as an expert in health care administration and cardiology; Christopher Kennedy, who was accepted as an expert in health care administration; Jim Kendig, who was accepted as an expert in safety and security for hospitals; Dr. Hugo Finarelli, who was accepted as an expert in health planning; Col. Danny McKnight;
Stephen Johnson; Dr. James Palermo, who was accepted as an expert in quality assurance; Fred Schwartz, who was accepted as an expert in traffic engineering and transportation planning; Dr. John McPherson, who was accepted as an expert in emergency medicine; Tom Mills; Shannon Kraus, who was accepted as an expert in health care facility planning and architecture; Dr.
Greg Vistnes, who was accepted as an expert in industrial organization economics and health care economics; and Armand Balsano, who was accepted as an expert in health care finance, health care financial feasibility, and health planning.
Holmes also presented the deposition testimony of nine witnesses: Dr. Kyle Anderson (Exhibit H-35), Dr. Stephen Blythe (Exhibit H-36), Dr. Gary Dana (Exhibit H-37), Dr. Heidar Heshmati (Exhibit H-38), Eugene McCarthy (Exhibit H-39), Dr. Ann Peterson (Exhibit H-40), Dr. James Ronaldson (Exhibit H-41), Dr. Catherine Rossi (Exhibit H-42), and Emil Miller (Exhibit H-43).
Holmes’ Exhibits H-1, H-2A, H-2B, H-2C, H-3 through H-49 were received into evidence.
The Agency presented the testimony of Jeffrey Gregg, who was accepted as an expert in health care planning and regulation. The Agency’s Exhibits A-1 and A-2 were received into evidence.
Wuesthoff presented the testimony of 11 witnesses: Emil Miller, who was accepted as an expert in health care facility
administration; Donnie Breeding, who was accepted as an expert in nursing and nursing administration; Jeff Leitner, who was accepted as an expert in health care facility management, including safety and security; Dr. David Williams, who was accepted as an expert in emergency medicine; Dante Gabriel, who was accepted as an expert in traffic engineering and transportation planning; Jose Estevez, who was accepted as an expert in hospital architecture; Dr. David Eisenstadt, who was accepted as an expert in industrial organization economics and health care economics; Rick Knapp, who was accepted as an expert in health care finance and financial feasibility; Doreen Woods, who was accepted as an expert in nursing, quality assurance, and utilization review; and Mark Richardson, who was accepted as an expert in health care planning.
Wuesthoff also presented the deposition testimony of five witnesses: Dr. Robert Barden (Exhibit W-53), David Barnhardt (Exhibit W-54), Dr. David Sims (Exhibit W-55), Dr. Ralph Zipper (Exhibit W-56), and Bob Galloway (Exhibit W-57).
Wuesthoff’s Exhibits W-1 through W-18, W-25 through W-35,
W-36A, W-36B, W-37 through W-40, and W-42 through W-57 were received into evidence. Exhibits W-19 through W-24 were offered but not received.
Official recognition was taken of the Recommended and Final Orders in Holmes Regional Medical Center, Inc. v. Agency for
Health Care Administration, 23 FALR 1280 (DOAH July 12, 2000; AHCA Nov. 21, 2000); Wuesthoff Memorial Hospital, Inc. v. Agency
for Health Care Administration, 25 FALR 746 (DOAH Sept. 12, 2002; AHCA Nov. 12, 2002); Columbia Hospital Corp. of South Broward v. Agency for Health Care Admin., 24 FALR 4273 (DOAH July 3, 2002; AHCA Sept. 30, 2002) (hereafter “Columbia
Hospital”); Memorial Healthcare Group, Inc. v. Agency for Health Care Admin., 25 FALR 2808 (DOAH Feb. 5, 2003; AHCA Apr. 8,
2003); Naples Community Hospital, Inc. v. Agency for Health Care Admin., 26 FALR 87 (DOAH Aug. 1, 2003; AHCA Sept. 25, 2003);
Wuesthoff Memorial Hosptial, Inc. v. Agency for Health Care Admin., 20 FALR 1266 (DOAH July 18, 1997; AHCA Apr. 2, 1998), on
remand, 22 FALR 956 (AHCA Jan., 13, 2000); Manatee Memorial Hospital, L.P. v. Agency for Health Care Admin., 23 FALR 1306 (DOAH Sept. 14, 2000; Nov. 28, 2000); and Wellington Regional Medical Center, Inc. v. Agency for Health Care Admin., Case Nos. 03-2701CON, etc. (DOAH Sept. 29, 2004; AHCA Mar. 9, 2005)
(hereafter “Wellington”). Official recognition was also taken of the Recommended Order in University Community Hospital, Inc. v. Agency for Health Care Admin., Case Nos. 03-0337CON, etc. (DOAH July 20, 2004).
The 16-volume Transcript of the final hearing was filed on March 8, 2005.1 The parties initially requested and were given
30 days from that date to file their proposed recommended orders
(PROs). The deadline was subsequently extended to April 22, 2005, on Wuesthoff’s motion.
PROs were filed by Holmes and Wuesthoff. The Agency filed a notice stating that it “adopts and/or joins” the PRO filed by Wuesthoff. Due consideration has been given to the PROs.
FINDINGS OF FACT
Parties
Holmes and the Health First System
Holmes, the applicant for the CON at issue in this case, is a not-for-profit corporation that operates two acute care hospitals in Brevard County: Holmes Regional Medical Center (HRMC) in Melbourne and Palm Bay Community Hospital (PBCH) in Palm Bay.
HRMC opened in 1962. It is a 514-bed acute care hospital, with 504 acute care beds and 10 Level II neonatal intensive care (NICU) beds.
HRMC provides tertiary-level services, including adult open-heart surgery, and it is the designated trauma center for Brevard County.
HRMC has been recognized as one of the top 100 cardiovascular hospitals in the country, and it has received other recognitions for the high quality of care that it provides.
PBCH opened in 1992. It is a 60-bed acute care hospital.
PBCH does not provide tertiary-level services, and it does not provide obstetrical (OB) services.
Holmes’ parent company is Health First, Inc. (Health First), which is a not-for-profit corporation formed in 1995 upon the merger of Holmes and the organization that operated Cape Canaveral Hospital (Cape Hospital).
Cape Hospital is a 150-bed not-for-profit acute care hospital in Cocoa Beach. The range of services that Cape Hospital provides is broader than range of services provided at PBCH, but not as broad as the range of services provided at HRMC. For example, Cape Hospital provides OB services, but it does not have any NICU beds.
All of the Health First hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO).
Health First provides a broad range of health care services in Brevard County in addition to the hospital services provided at HRMC, PBCH, and Cape Hospital. For example, it operates a hospice program, surgical center, outpatient facilities, and fitness centers.
Health First also administers the Health First Health Plan (HFHP), which is the largest managed care plan in Brevard County.
All of the Health First hospitals serve patients without regard to their ability to pay, and as more fully discussed in Part F(1)(g) below, Holmes provides a significant amount of care to Medicaid and charity patients at HRMC and PBCH.
Holmes also provides health care services to the medically underserved through a program known as HOPE, which stands for Health, Outreach, Prevention, and Education. HOPE was established in the early 1990’s to provide free health care for at-risk children as well as free clinics (both fixed-site and mobile) for medically underserved patients throughout Brevard County.
At the time of the final hearing, the free clinics operated by HOPE were being transitioned into a federally- qualified health center, the Brevard Health Alliance (BHA). After the transition, Holmes will no longer operate the clinics; however, Holmes is obligated to provide $1.3 million per year in funding to BHA and it will continue to provide services to at- risk children through the HOPE program.
Health First administers a charitable foundation that raises money to support initiatives such as the cancer center at
HRMC, the construction of a hospice house, and an Alzheimer’s support center. The foundation has raised approximately $7 million since its inception in October 2001.
Wuesthoff
Wuesthoff operates two not-for-profit acute care hospitals in Brevard County: Wuesthoff-Rockledge and Wuesthoff- Melbourne.
Like Health First, Wuesthoff provides a broad range of health care services in Brevard County in addition to its acute care hospitals. The services include a nursing home, assisted living facility, clinical laboratory, hospice program, home health agency, diagnostic center, and fitness centers.
Wuesthoff-Rockledge opened in 1941. It has 245 beds, including 218 acute care beds, 10 Level II NICU beds, and 17 adult inpatient psychiatric beds.
Wuesthoff-Rockledge provides tertiary-level services, including adult open-heart surgery, and it is the only acute care hospital in Brevard County designated as a Baker Act receiving facility.
Wuesthoff-Rockledge is in the process of adding 44 more beds, including a new 24-bed intensive care unit (ICU) that is projected to open in 2006 and 20 acute care beds. After those beds are added, Wuesthoff-Rockledge will have 289 beds.
Currently, approximately 57 percent of Wuesthoff- Rockledge’s beds are in semi-private rooms and 43 percent of the beds are in private rooms. After the addition of the 44 new beds, the percentages will be 69 percent in semi-private rooms and 31 percent in private rooms.
Wuesthoff-Melbourne opened in December 2002. It originally received CON approval for 50 beds in November 2000. Before it opened, it received CON approval for an additional 50 beds, which increased its licensed capacity to 100 beds.
Wuesthoff-Melbourne opened with 65 beds, all of which are in private rooms. At the time of the hearing, Wuesthoff- Melbourne had that same number of beds and an occupancy rate of approximately 80 percent.
In December 2004, Wuesthoff-Melbourne added an additional 50 beds. Wuesthoff was awaiting final licensure approval from the Agency for those beds at the time of the hearing. The approval will increase Wuesthoff-Melbourne’s licensed capacity to 115 beds, all of which are in private rooms.
The additional 15 beds (beyond the 100 previously licensed) were added pursuant to the 2004 amendments to the CON law, which permit bed expansions at existing hospitals without CON approval.
Wuesthoff-Melbourne was designed and engineered for approximately 200 beds, and it expects to have 134 beds in service in the near future. The space for the additional 19 beds (to expand from 115 to 134) has been shelled-in, and the bed expansion will likely be completed in late-2005 or early- 2006. All of those beds will be in private rooms.
The expansion of Wuesthoff-Melbourne to 134 beds will occur notwithstanding the outcome of this proceeding, but the expansion of the facility to 200 beds depends in large part on the outcome of this proceeding.
Wuesthoff-Melbourne provides all of the basic acute care services, including OB services. It does not provide tertiary-level services.
The Wuesthoff hospitals are accredited by JCAHO.
Wuesthoff has been recognized as one of the “100 Most Wired” hospitals by Hospitals & Health Networks magazine for the comprehensive information technology (IT) systems in place at its hospitals.
The Wuesthoff hospitals serve all patients without regard to their ability to pay, and as discussed in Part F(1)(g) below, the Wuesthoff hospitals provide a significant amount of care to Medicaid and charity patients.
Wuesthoff also provides health care services to the medically underserved through a free health clinic in Cocoa and a mobile unit that serves patients throughout Brevard County.
Like Health First, Wuesthoff administers a charitable foundation that funds initiatives at the Wuesthoff hospitals and in the community.
(3) Agency
The Agency is the state agency that administers the CON program and is responsible for reviewing and taking final agency action on CON applications.
Application Submittal and Preliminary Agency Action
Holmes filed a letter of intent and a CON application in the first batching cycle of 2004 for hospital beds and facilities. Holmes’ letter of intent and CON application were timely and properly filed.
Holmes application, CON 9759, proposes the establishment of a new 84-bed acute care hospital in the Viera area of Brevard County. The proposed hospital will be known as Viera Medical Center (VMC).
The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero new acute care beds in Subdistrict 7-1, which is Brevard County. There were no challenges to the published fixed need pool.
The Agency comparatively reviewed Holmes’ application with the CON applications filed by Wuesthoff to add 34 beds at Wuesthoff-Melbourne (CON 9760) and to add 44 beds at Wuesthoff- Rockledge (CON 9761).
On June 10, 2004, the Agency issued its State Agency Action Report (SAAR), which summarized the Agency’s findings and conclusions based upon its comparative review of the applications. The SAAR recommended denial of Holmes’ application and both of Wuesthoff's applications.
After the Agency published notice of its intent to deny the applications in the Florida Administrative Weekly, Holmes timely petitioned the Agency for an administrative hearing on the denial of its application.
Wuesthoff did not pursue an administrative hearing on the denial of its applications as a result of the 2004 amendments to the CON law, which became effective July 1, 2004. Under the new law, a CON is not needed to add acute care beds at an existing hospital and, as indicated above, the Wuesthoff hospitals are already in the process of adding the beds that they were seeking through CON 9760 and CON 9761.
The Agency reaffirmed its opposition to Holmes’ application at the hearing through the testimony of Jeffrey Gregg, the Bureau Chief for the Agency’s CON program.
Acute Care Subdistrict 7-1 / Brevard County
The Agency uses a five-year planning horizon in determining the need for new acute care beds, and it calculates the inventory of acute care beds and considers CON applications for new acute care beds on a subdistrict basis.
Brevard County is in Subdistrict 7-1. There are no other counties in the subdistrict.
There are six existing acute care hospitals in Brevard County, all of which are not-for-profit hospitals: Parrish Medical Center (Parrish) in Titusville, Cape Hosptial, Wuesthoff-Rockledge, Wuesthoff-Melbourne, HRMC, and PBCH.
Brevard County is a long, narrow county. It stretches approximately 70 miles north to south, but averages only 20 miles east to west.
The county is bordered on the north by Volusia County, on the west by the St. Johns River and Osceola County, on the south by Indian River County, and on the east by the Atlantic Ocean.
The major north-south arterial roads in the county are Interstate 95 (I-95) and U.S. Highway 1 (US 1). The Intracoastal Waterway also runs north and south through the eastern portion of the county. Other arterial roads in the south/central portion of the county are Murrell Road, Eau Gallie Boulevard and Wickham Road.
Because of the county’s long and narrow geography, three recognized market areas for hospital services have developed in the county, i.e., northern, central, and southern.
The northern area of the county, which includes the Titusville area, had approximately 63,000 residents in 2003. It is primarily served by one hospital: Parrish.
The central area of the county, which includes the Rockledge and Cocoa areas, had approximately 163,000 residents in 2003. It is primarily served by two hospitals: Wuesthoff- Rockledge and Cape Hospital.
The southern area of the county, which includes the Melbourne and Palm Bay areas, had approximately 276,000 residents in 2003. It is primarily served by three hospitals: HRMC, Wuesthoff-Melbourne, and Palm Bay.
The Viera area, discussed below, overlaps the central and southern market areas and is primarily served by Wuesthoff- Rockledge, Wuesthoff-Melbourne, and HRMC. According to the data in Table 28 of the CON application, those hospitals together accounted for 90 percent of the patients from zip code 32940, which is the “main” Viera zip code.
The evidence was not persuasive that the three market areas in Brevard County equate to “antitrust markets” from an economist’s standpoint, but it was clear that the hospitals and physicians in the county recognize the existence of the market
areas. For example, there is very little overlap in the medical staffs of the hospitals in different market areas, but there is significant overlap in the medical staffs of the hospitals in the same market area, and the opening of Wuesthoff-Melbourne in south Brevard County impacted HRMC and PBCH, but had little impact on the hospitals in central Brevard County.
Additionally, there is very little out-migration of patients from one area of the county to hospitals in another area. The data in Tables 18 and 19 of the CON application shows that in 2003, for example, 83.6 percent of south Brevard County adult medical/surgical patients were admitted to one of the three south Brevard County hospitals, and 79.5 percent adult medical/surgical patients in central Brevard County were admitted to one of the two hospitals in that area of the county.
Viera
Viera is an unincorporated area in south/central Brevard County that is being developed by The Viera Company (TVC). TVC is a for-profit land development company owned by A. Duda & Sons, Inc. (Duda).
The Viera DRI
Viera is being developed pursuant to a development of regional impact (DRI) development order that was first adopted by Brevard County in 1990.
The original DRI included 3,000 acres east of I-95, which was developed primarily as residential subdivisions. In 1995, an additional 6,000 acres were added to the DRI west of I- 95, which is being developed as a mixed-use community.
The portion of the DRI east of I-95 has effectively been built-out. The build-out date for the remainder of the DRI is 2020.
The master plan for the DRI includes approximately 19,000 residential units, 3.7 million square feet (SF) of office space, 2.9 million SF of commercial space, a governmental center, six schools, parks, open space, and a 7,500-seat baseball stadium and practice facility used by the Florida Marlins. As of October 2004, over 5,800 homes and approximately
2 million SF of commercial and office space have been developed west of I-95 in addition to the governmental center, several schools, and the Florida Marlins’ facilities.
There are approximately 12,000 acres of undeveloped, agricultural property adjacent to and to the west of the DRI that are owned by Duda and that, according to the chief operating officer of TVC, will likely be added to the DRI in the near future. The record does not reflect what type of uses will be developed on that property or when that development will begin.
The DRI development order includes authorization for up to 470 hospital beds, with vested traffic concurrency for 150 beds. The master site plan for the DRI designates an area west of I-95 on the southwest corner of the Wickham Road/Lake Andrew Drive intersection as the “Proposed Viera Medical Park.” VMC is proposed for that location.
The DRI development order provides all of the local government land use approvals, including traffic concurrency, that are necessary for VMC.
TVC is developing Viera for and marketing it to retirees and younger persons, including families with children. The DRI includes age-restricted subdivisions, but it also includes amenities such as three elementary schools and a large regional park with ball fields and playgrounds.
(2) Negotiations for a Hospital in Viera
TVC has long wanted a hospital in Viera.
Wuesthoff identified the Viera area as future growth area in the 1990’s and began establishing health care facilities in the area at that time. Wuesthoff has a diagnostic center, a lab facility, and a rehabilitation facility in the Suntree area, which is just to the east of the Viera DRI.
Wuesthoff expressed interest in building a hospital in Viera in 1993 and, more recently, in 2003.
In August 1993, Wuesthoff and TVC entered into an agreement that gave Wuesthoff a 10-year exclusive right to develop a hospital in Viera if certain conditions were met. However, Wuesthoff ultimately built Wuesthoff-Melborune in Melbourne (rather than in Viera), and the exclusivity provision in the August 1993 contract never went into effect.
In July 2003, Wuesthoff sent a letter to TVC expressing its interest in obtaining an option to purchase 25 to
acres within the Viera DRI to construct a hospital. In the letter, Wuesthoff stated that it would construct the hospital “within 10 years or when the population of Viera exceeds 40,000, whichever first occurs”; that the hospital would be “constructed similar to Wuesthoff Medical Center-Melbourne which currently encompasses 65 licensed beds in a 150,000 sq. ft. facility”; that it wanted the “sole right to build a hospital or hospital like facility in Viera . . . until 5 years after the opening of the hospital” and that it wanted TVC to “consider selling the desired land to Wuesthoff at a reduced price.”
Wuesthoff’s July 2003 offer was not seriously considered by TVC because, by that time, TVC was in the process of finalizing its agreement for the sale of 50 acres to Health First for VMC. Additionally, the Health First agreement was more appealing to TVC because Health First was offering to purchase more property at a higher price than was Wuesthoff, and
Health First was committed to building a hospital sooner than was Wuestoff.
The contract between Health First and TVC was executed on August 5, 2003, and Health First has since closed on the purchase of the 50 acres at a cost of approximately $9 million.
The Health First/TVC contract includes an exclusivity provision that prohibits the development of another hospital within the Viera DRI or on any of the lands owned by Duda until 2029 if Holmes constructs at least 70 percent of Phase I of the Viera Medical Park by August 31, 2006, and begins construction on a hospital with at least 80 beds by August 31, 2010. The contract also includes exclusivity provisions relating to the other uses being developed as part of the Viera Medical Park, but the exclusivity on those uses expires in 2010, at the latest.
The exclusivity provision will be included in restrictive covenants that are recorded in the public records of Brevard County. The restrictive covenants will run with the land and will bind future purchasers of property from TVC and Duda.
Exclusivity provisions are not uncommon in land- purchase contracts for large commercial projects or new hospitals. The August 1993 agreement between Wuesthoff and TVC included such a provision as did Wuestoff’s July 2003 offer.
However, the length of the hospital exclusivity provision in the Health First/TVC contract and the fact that it applies to the land owned by Duda outside of the Viera DRI goes beyond what is reasonably necessary to allow the new hospital to become stabilized and has the potential to stifle competition for acute care hospital services in the Viera area for the next 25 years.
Viera Medical Center (1) Generally
Holmes conditioned the approval of its CON application on VMC being located at the "[i]ntersection of Lake Andrew Drive and Wickham Road, Viera, Florida."
VMC was projected to open in 2008 as part of the Viera Medical Park that Health First is building on the 50 acres that it purchased from TVC at that location.
VMC will be located in zip code 32940, which is the “main” Viera zip code.
VMC will be built on 20 of the 50 acres purchased by Health First. The remaining 30 acres will be developed with the other health care facilities that will make up the Viera Medical Park.
The development of the Viera Medical Park will be done in three phases. Phase I will include a fitness center; a medical office building; and outpatient facilities such as an urgent care center, an ambulatory surgical center, and a
diagnostic imaging and rehabilitation center. Phase II will include VMC. Phase III may include a nursing home and/or assisted living facility as well as “multi-family retirement units.”
VMC will be a 213,000 SF facility with 84 licensed beds, 16 “observation” beds, and a full emergency room (ER). The 84 licensed beds will consist of 72 acute care beds and a 12-bed critical care unit/ICU. All of the beds will be in private rooms.
The total project cost for VMC is approximately $106 million, which will be funded primarily by tax-free bonds issued by Holmes.
VMC will have a cardiac catheterization lab, but it will not provide interventional cardiology services such as angioplasty. VMC will not provide any tertiary-level services or OB services, and it will not have a dedicated pediatric unit.
VMC will share management and administrative support services with HRMC so as to minimize duplication of those services and to reduce overhead costs.
VMC will have an integrated IT system that will utilize electronic medical records and a computerized physician order entry system, as well as an electronic ICU (e-ICU). The e-ICU is an innovative critical care management system based
upon a telemedicine platform that is in use at the existing Health First hospitals in Brevard County.
Except for the e-ICU, which the Wuesthoff hospitals do not have, the IT systems at VMC will be materially the same as Wuesthoff’s award-winning IT systems.
VMC will have a helipad without any weight restrictions and, as discussed in Part F(1)(a)(iv) below, VMC has been designed with hurricanes and other “contingency events” (e.g., bioterrorism) in mind.
Demographics of VMC’s Proposed Service Area
The primary service area (PSA) for VMC consists of zip codes 32934, 32935/36, 32940, and 32955/56; the secondary service area (SSA) consists of zip codes 32901/02/41, 32904, 32922/23/24, 32926/59, and 32927. Neither Wuesthoff nor the Agency contested the reasonableness of the PSA or the SSA.
All of the zip codes targeted by VMC are within the primary service area of one or more of the existing hospitals, and there are three hospitals physically located within those zip codes. Wuesthoff-Melbourne and Wuestoff-Rockledge are located in VMC’s PSA, and HRMC is in VMC’s SSA.
The 2003 population of the PSA was 108,436. In 2010, which would be VMC’s third year of operation, the PSA’s population is projected to be 128,498.
The 65+ age cohort, which is the group that most heavily utilizes hospital services, is projected to make up 21.5 percent of the PSA’s population in 2010. That is a lower percentage than the projected populations of the 18-44 age cohort (29.1 percent) and the 45-65 age cohort (29.7 percent) in the PSA.
VMC’s PSA has a more favorable payor-mix than the county as a whole. It has a lower percentage of Medicaid patients and a higher percentage of insured patients --i.e., commercial, HMO, PPO, workers comp, and Champus/VA patients -- than the county as a whole.
Except for zip code 32935/36, each of the zip codes in VMC’s PSA has a higher median household income than Brevard County as a whole. Zip code 32935/36 is the zip code in which Wuesthoff-Melbourne is located.
The zip code in which VMC will be located, 32940, has the highest median household income in Brevard County. The median household income in that zip code for 2004 was $67,000 as compared to the county-wide average of $44,000.
Utilization Projections
VMC was projected to open in January 2008, and Holmes' CON application contains utilization and financial projections for VMC's first three years of operation, i.e., 2008, 2009, and 2010.
The utilization projections are based upon an average length of stay (ALOS) of 3.69 days, which is reasonable.
The utilization projections are also based upon the assumption that by VMC’s third year of operation, it will have
26.9 percent market share in its PSA and a 7.4 percent market share in its SSA. VMC's projected market share in zip code 32940, which is its “home” zip code and the “main” Viera zip code, is projected to be 35 percent. The market share assumptions are reasonable and attainable.
The utilization projections include a “ramp-up” period for VMC. Its annual occupancy rate in its first year of operation is projected to be 45.6 percent; its annual occupancy rate in its second year of operation is projected to be 65.7 percent; and in its third year of operation (2010), VMC is expected to have an annual occupancy rate of 76 percent with 6,313 discharges and 23,298 patient days. The occupancy rates, and the discharges and patient days upon which they are based, are reasonable and attainable.2
The application projects that VMC will redirect or “cannibalize” a significant percentage of its patients from the other Health First hospitals. The percentage of patients that VMC will cannibalize from the other Health First hospitals in each zip code varies from 75 percent to 45 percent, depending upon the proximity of the zip code to VMC.
Overall, approximately 69.4 percent of VMC’s patients will be cannibalized patients, i.e., patients that would have otherwise gone to HRMC (66.2 percent), Cape Hosptial (3.2 percent), or PBCH (less than 0.1 percent). The remaining 30.6 percent of VMC’s patients will be patients that would have otherwise gone to Wuesthoff-Rockledge (15.8 percent) or Wuesthoff-Melbourne (14.8 percent).
The record does not reflect the outpatient volume projected for VMC, but Holmes’ health planner conceded at the hearing that the projected outpatient revenues for VMC did not take into account the outpatient services that will be included in Phase I of the Viera Medical Park. As a result, the volume on which the outpatient revenues were based is overstated to some degree, but there was no credible evidence regarding the extent of the overstatement.
VMC is projected to treat 15,851 patients in its ER in its first year of operation (2008), and by its third year of operation (2010), VMC is expected to treat 27,780 patients in its ER. The record does not reflect how those figures were calculated, nor does it reflect what percentage of those patients would have otherwise been treated in the ERs at HRMC, PBCH, or the Wuesthoff hospitals. However, the reasonableness of those figures was not contested by Wuesthoff or the Agency.
Statutory and Rule Criteria
Statutory Criteria -- Section 408.035, Florida Statutes (2004)3
Subsections (1), (2) and (5) -– Need for Proposed Services; Accessibility of Existing Services;
and Enhancing Access
According to the CON application (page 14), the need for VMC is justified based upon:
The large population base and significant population growth projected for the [Viera] area.
The need to improve access and reduce travel times for this significant population for both critical care and inpatient services.
The projected need for additional acute care beds at HRMC and the benefits of delivering non-tertiary services away from [HRMC’s] campus.
Additionally, the CON application (page 15) asserts that the approval of VMC will:
Significantly enhance the area’s Homeland Security and disaster planning and preparedness.
Enhance the quality of care delivered to area residents as a result of key design and information technology innovations planned for [VMC].
Provide access to cost-effective, quality of care for all residents of the service area, including the uninsured.
In its PRO (page 19), Holmes identifies those same six issues as the “not normal” circumstances that justify approval of VMC.
Holmes’ health planner conceded at the hearing that the VMC project is not intended to address any cultural, programmatic, or financial access problems, and that those potential “not normal” circumstances were not advanced in the CON application as bases for approval of VMC.
Population of and Growth in the Viera Area
There has been considerable growth in Viera over the past 15 years, and the demand for new homes in the Viera DRI remains strong.
The projected population of the Viera DRI is expected to exceed 40,000 when the DRI is built-out in 2020, and that figure does not include the population of the Suntree area, which is outside of the Viera DRI and has a number of large residential subdivisions.
Zip code 32940, which is the “main” Viera zip code, had a population of 22,940 in 2003. By 2010, that zip code is projected to have a population of 31,862. That is an increase of 38.9 percent, but only 9,000 persons.
As stated above, the population of VMC's PSA is projected to increase from 108,436 (in 2003) to 128,489 (in
2010). That is an increase of 18.5 percent, but only 20,000 persons.
The population of VMC’s PSA is projected to grow at a faster rate than Brevard County as a whole. Over the seven-year period used in the application (2003 to 2010), the annual growth rate for VMC’s PSA is projected to be 2.64 percent while the annual growth rate of Brevard County as a whole is projected to be 1.74 percent.4
Population growth in Florida is normal and, indeed, is expected. There is nothing extraordinary about the growth projected for zip code 32940 and/or VMC’s PSA. Accordingly, the population growth projected in the Viera area does not, in and of itself, justify the approval of VMC.
Enhanced Access
There are two main components to Holmes’ argument that VMC will enhance access. First, Holmes contends that VMC will reduce travel times for Viera residents and thereby enhance their access to hospital services. Second, Holmes contends that the approval of VMC will relieve pressure on the overcrowded ERs at the existing hospitals in Brevard County thereby enhancing access to ER services countywide.
For Viera Residents
VMC will provide more convenient access to hospital services for Viera residents (at least those in need of the
basic, non-OB services that will be offered at VMC), and to that extent, VMC will enhance access for Viera residents.
VMC will also provide more convenient ER access for Viera residents. Quicker access to an ER is generally beneficial to the patient, although certain heart-attack patients may benefit more by going to the ER of a hospital that can do an immediate angioplasty, such as Wuesthoff-Rockledge or HRMC.
VMC will not necessarily enhance access for other residents of the PSA and SSA targeted by VMC (e.g., those outside of the Viera area) because many of those residents are closer to an existing hospital. Indeed, some of those residents would have to pass an existing hospital to get to VMC, which seems particularly unlikely for emergency patients. VMC will also not enhance access for patients in need of OB services or tertiary services that will not be offered at VMC.
Convenience alone is not a basis for approving a new hospital, particularly where (as here) the evidence establishes that the residents of the area to be served by the new hospital currently have reasonable access to hospital services.
VMC will be located approximately 10 miles south of Wuesthoff-Rockledge, and approximately 11 miles north of Wuesthoff-Melbourne. VMC will be approximately 15 miles northwest of HRMC.
There are multiple routes from the Viera area to the Wuesthoff hospitals and HRMC. The routes are along major arterial roads, including I-95, US 1, Wickham Road, Murrell Road, Fiske Boulevard, and Eau Gallie Boulevard. All of those roads are at least four lanes wide.
The travel-time studies presented by Wuesthoff show that it takes less than 15 minutes to drive from either of the Wuesthoff hospitals to the VMC site. There was anecdotal testimony suggesting longer travel times, particularly from the VMC site to Wuesthoff-Melbourne,5 but that testimony was not as persuasive as Wuesthoff’s travel-time studies.
The travel-time studies presented by Wuesthoff were not without flaws. For example, the travel times were calculated by driving away from the Wuesthoff hospitals, rather than driving towards the hospitals as a potential patient from Viera would be doing. Holmes did not present its own travel- time studies, and notwithstanding the directional issue and the other unpersuasive criticisms of the study by Holmes’ traffic engineer, Wuesthoff’s studies are found to be credible and persuasive. Indeed, Holmes’ traffic engineer estimated that it would take 15 to 20 minutes to get from VMC to Wuesthoff- Melbourne using the most direct route (Transcript, at 668), which is consistent with Wuesthoff’s travel-time studies.
It takes longer to drive from Viera to HRMC than it does to drive from Viera to either of the Wuesthoff hospitals. The travel-time studies did not directly address the issue, but the anecdotal testimony suggests that the travel times from Viera to HRMC are between 25 and 45 minutes depending upon the time of day and traffic conditions.6
There are several road segments on the routes between Viera and the Wuesthoff hospitals whose “v/c ratios”7 currently exceeds 1.0, which is an indication of an over-capacity road. However, there are roadway improvements planned or underway that will expand the capacity of those road segments by 2010.
Indeed, a comparison of the 2003 (Exhibit H-23) and 2010 (Exhibit W-50) v/c ratios for the road segments on the routes between Viera and the Wuesthoff hospitals shows only marginal increases in the ratios, with many of the 2010 ratios projected to be lower than 0.8, which according to Holmes’ traffic engineer, indicates that the “roadway that is probably operating well within its ability to carry that traffic volume.”
Holmes’ traffic engineer did not attempt to quantify the extent to which travel times would increase due to the marginal increases in the v/c ratios. Thus, his opinion that travel times would “increase significantly” and be “significantly greater” in the future is not persuasive.
TVC is required to mitigate for the off-site traffic impacts generated by the development of the Viera DRI. In this regard, road improvements (e.g., additional lanes, traffic signals, etc.) will be made in the future as necessary to accommodate the additional population in the Viera DRI. In fact, there are significant road improvements currently underway that are being funded, at least in part, by TVC pursuant to the Viera DRI development order, including the six-laning of I-95 through the Viera area.
In sum, the evidence establishes that persons in the PSA and SSA targeted by VMC, including residents of the Viera area, currently have reasonable access to acute care services, and the evidence was not persuasive that there will be access problems over the applicable five-year planning horizon such that a new hospital in Viera is necessary to enhance access.
For ER Services in Central and South Brevard County
The Brevard County government is the emergency medical services (EMS) provider for the county. Brevard County EMS responds to emergency calls throughout the county and its ambulances transport emergency patients to hospital ERs.
Overcrowded ERs can adversely affect the EMS system in several ways. First, if the ER is overcrowded it can take longer for ambulances to off-load patients to the ER staff, which results a longer period of time that the ambulance is “out
of service.” Second, if the closest hospital is on “diversion status” because of an overcrowded ER, ambulances will have to transport patients to a more distant hospital, which also results in the ambulance being out of service for a longer period of time.
Longer out-of-service periods can, on a cumulative basis, strain the EMS system because an out-of-service ambulance is not able to respond to emergency calls in its service area and the EMS provider may have to shift other ambulances to cover the area at the risk of increasing response times for emergency calls.
Brevard County EMS protocol requires ambulances to take patients to the closest hospital, unless the patient is a trauma patient or the closest hospital is on diversion status. Trauma patients are taken to HRMC, which is the designated trauma center for the county.
A hospital requests diversion status from EMS when it is unable to accept additional emergency patients because its ER is overcrowded. The most common reasons that an ER is overcrowded is that it had a large number of emergency patients arrive at the same time or that there is a “bottleneck” in the ER caused by a lack of inpatient beds to move patients from the ER that need to be admitted to the hospital.
If diversion status is granted, EMS will take emergency patients to another hospital, even if it is further away than the hospital on diversion. As noted above, this strains the EMS system and can result in longer response times for emergency calls, which in turn, can negatively impact patient care.
If diversion status is denied, the hospital is required to continue to accept emergency patients. This can create a less than optimal setting for patient care because the hospital may not have adequate space or resources to treat the patient in a timely manner.
Until recently, Brevard County EMS would not grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informed EMS that they could not take the patients. That policy recently changed, and EMS will now grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informs EMS that it can take the patients.
The new EMS policy change makes it easier for hospitals in south Brevard County to be placed in diversion status. For example, under the old policy, diversion status would not be granted to HRMC if either Wuestoff-Melbourne or PBCH informed EMS that they could not take HRMC’s emergency
patients, but under the new policy, diversion status will be denied to HRMC only if Wuesthoff-Melbourne and PBCH both inform EMS that they cannot take HRMC’s emergency patients.
In Brevard County, having a hospital on diversion was “pretty rare” until 2002. Diversion requests have become more frequent since then, and they are no longer a seasonal phenomenon caused by the influx of “snowbirds” into the county.
Diversion is a more frequent problem in south Brevard County than it is in central Brevard County, and in south Brevard County, the diversion requests have come primarily from HRMC.
The evidence was not persuasive that ER overcrowding is a significant problem for the Wuesthoff hospitals or PBCH.
Wuesthoff-Melbourne has not requested to go on diversion, and only one occasion was identified where HRMC’s diversion request was denied because Wuesthoff-Melbourne was unable to handle HRMC's diverted patients. That occasion occurred when Wuesthoff-Melbourne had only 65 beds and, hence, less ability than it currently has to move patients out of the ER to accommodate additional emergency patients.
According to Holmes, VMC will enhance access to ER services in central and south Brevard County because it will increase the area-wide ER capacity and reduce the frequency of
diversion requests, which in turn, will reduce strains on the EMS system and benefit patients.
The "North Expansion" underway at HRMC (discussed below) will include a new ER that is expected to help address the overcrowding issues that have required HRMC to request diversion in the past. The new ER is designed with shelled-in space to facilitate future ER expansions as needed.
In any event, the evidence was not persuasive that VMC will materially reduce the ER volume at HRMC. The record does not reflect what percentage of VMC’s projected ER patients would have otherwise been served at HRMC as compared to the Wuesthoff hospitals. Moreover, it is not likely that non-trauma emergency patients from the Viera area are contributing to the overcrowding in the ER at HRMC because, under EMS protocol, those patients currently are being taken to Wuesthoff-Melbourne or Wuesthoff-Rockledge, which are closer to Viera than is HRMC.
Need to “Decompress” HRMC
Holmes contends that VMC will help to “decompress” HRMC and that it is the only viable option for doing so.
HRMC is a well-utilized facility. According to the SAAR, its annual occupancy rate for the 12-month period ending June 2003 was 81.22 percent. HRMC's occupancy rate tends to stay above 80 percent, and at times it is as high as 115 percent.
If VMC is not approved, HRMC’s annual occupancy rate for 2008 is projected to be 83.9 percent, and by 2010, its occupancy rate is projected to increase to 90 percent. Even if VMC is approved, HRMC’s annual occupancy rate is projected to be
81.7 percent in 2010. Those figures assume that HRMC will maintain its current bed capacity and they do not take into account the impact of the expansion of the Wuesthoff hospitals.
HRMC currently includes approximately 612,000 SF. It is located on 18 acres of property that is bounded by streets and developed properties.
Holmes owns several parcels of land adjacent to HRMC, and it is continuing to acquire parcels as they come available.
Much of the adjacent land owned by Holmes is used for parking, and notwithstanding a 500-space parking garage on the south side of HRMC, there is still a shortage of parking at HRMC. Some of its staff parks at a nearby shopping center and take a shuttle to the hospital. There is an area on the north side of HRMC identified as the site of a "future parking garage," but there are no current plans to construct that structure.
The original portion of the hospital, which is referred to as the “core” area, was built in the 1960’s. The remainder of the hospital has been added over the years, which has resulted in a less than ideal facility layout and has
created operating inefficiencies. Some of the hospital’s support functions and administrative offices are located off- site.
HRMC has undertaken a series of construction projects in recent years to reduce inefficiencies and congestion at the hospital and to increase the percentage of private rooms at the hospital. Those projects include the construction of a new OB unit and, most significantly, the $100 million “North Expansion.”
The North Expansion is an eight-story, 337,000 SF addition to the hospital that is expected to be completed by the end of 2006. It will include 144 patient rooms, a new ER with a number of new observation beds, and it will allow all of the hospital’s cardiology services to be located in contiguous space.
The 144 patient rooms will include 14 cardiovascular ICU beds, 22 ICU beds, and 108 acute care beds. All of the beds will be in private rooms.
The 144 beds added as part of the North Expansion will not increase the bed capacity at Holmes. The same number of existing licensed beds will be eliminated, either through the conversion of existing semi-private rooms to private rooms or because the rooms are located in space that will be demolished to construct the North Expansion.
The North Expansion has been designed and engineered to withstand 200-mile per hour winds, which exceeds the applicable building code requirements for hurricane protection.
The North Expansion has also been designed and engineered to accommodate future expansion at HRMC in several respects. First, it includes shelled-in space on the eighth floor for an additional 36 private patient rooms. Second, it is engineered (but not shelled-in) to allow the fourth through eighth floors to be further expanded to include up to 180 additional private patient rooms in what was referred to at the hearing as a “mirror image” of the tower being built as part of the North Expansion. Third, the ER includes shelled-in space for future expansions as well as adjacent open space into which the ER could be further expanded in the future.
There is no current plan to finish the shelled-in space on the eighth floor, but Holmes’ facility manger testified that he expected that to occur as soon as funding is available, and perhaps prior to the completion of the North Expansion. The
beds added on the eighth floor will not increase the licensed capacity at Holmes, but rather they will come from the conversion of 36 additional existing semi-private rooms to private rooms.
There is also no current plan to construct the “mirror image” side of the fourth through eighth floors of the
North Expansion. That construction will be done in conjunction with the renovation of the core area of the hospital and will initially be used to locate the services from the core area that are displaced by the renovation. After the renovation of the core area, however, the "mirror image" will be used for patient rooms.
In conjunction with the construction of the North Expansion, HRMC expects to relocate some of its ancillary and support services from the core area into the space where the existing ER is located, which in turn will open up space in the core area for other purposes. The space created by the construction of the new OB unit will also be available for other uses after it is no longer needed as "swing space" during the construction of the North Expansion. Additionally, Holmes recently purchased a building directly behind HRMC into which it will likely locate other ancillary and support services.
Currently, less than 40 percent of HRMC’s general acute care beds are in private rooms. After the North Expansion, almost 80 percent of those beds will be in private rooms. Ultimately, Holmes wants all of the beds at HRMC to be in private rooms.
Private rooms are beneficial because they offer the patients and their families more privacy and a more restful environment, and they can also help reduce the spread of
infections. However, private rooms can also create operational inefficiencies for nurses who have to visit more rooms (often on longer hallways) than they would to serve the same number of patients in semi-private rooms.
High quality care can be provided in semi-private rooms, and HRMC and Wuesthoff-Rockledge each do so.
Although patients may prefer private rooms and most new hospitals are being designed with only private rooms, private rooms are still best characterized as an amenity, not a necessity. As a result, and Holmes’ desire to convert all of HRMC’s semi-private rooms to private rooms does not justify the building a new hospital based upon alleged capacity constraints at HRMC. Indeed, if Holmes chose to do so, it could increase the bed capacity at HRMC with little or no additional cost by adding the 36 beds in the shelled-in eighth floor of the North Expansion and/or by not converting as many semi-private rooms into private rooms.
Moreover, after the North Expansion, HRMC will have approximately 50 observation beds (as compared to 20 currently) in private rooms that can be used for inpatients as needed. Indeed, as a result of the 2004 amendments to the CON law, some of those beds could be converted to licensed acute care beds at any time without CON review. Even if the beds are not converted to licensed beds, they will still help to decompress HRMC
because observation patients will not need to be placed in inpatient rooms while they are being observed and evaluated for possible admission to the hospital.
Several Holmes’ witnesses testified that even if Holmes wanted to add bed capacity to HRMC by converting fewer semi-private rooms to private rooms or other means, it could not do so because of limitations on the space available to provide the support services necessary for those additional rooms. That testimony was not persuasive because the witnesses conceded that Holmes has not undertaken a thorough analysis of what it intends to do with the space created in the existing building by the relocation of services as part of the North Expansion, which as noted above, will free up additional space for support services in the core area.
The evidence was also not persuasive that the alternative presented in the CON application for adding 84 beds to HRMC is realistic. That alternative, the cost of which is presented in Table 23 of the CON application, was prepared after the decision was made to seek approval of a CON for VMC; it was not an alternative actually considered by Holmes and, indeed, it was characterized by the Holmes’ witness who prepared the cost estimate as a “theoretical solution” and not a viable solution to adding beds.
The cost estimate in Table 23 is based upon a plan that would require the acquisition of additional land across the street from HRMC and the construction of a new bed tower on that land and an adjacent parcel on which Holmes currently owns a medical office building. The bed tower would be connected to HRMC by a two-story bridge over the street. The plan also includes the construction of a new parking garage and an office building to replace the existing medical office building.
The land and building costs of the plan were approximately $86.2 million, which is approximately $18.3 million more than the land and building costs of VMC. When the equipment costs are added, the total cost of the plan is approximately $120 million.
Not only was the plan not a viable solution, its cost was clearly overstated. For example, the $450/SF cost of the new bed tower was irreconcilably higher than the $278/SF cost of VMC and the $2.5 million that Holmes represented to the Agency in October 2003 that it would cost to add 50 beds to HRMC.
In sum, the evidence fails to support Holmes’ claim that the only way to add bed capacity to HRMC is through the
$120 million plan presented in Table 23 of the CON application.
The evidence also fails to support Holmes’ claim that VMC is the only viable option to decompress HRMC. Indeed, the
evidence establishes that HRMC could be decompressed if PBCH was better utilized.
Holmes contends that PBCH is too far away from Viera to be a viable alternative to HRMC for patients from the Viera area. The evidence supports that claim, but that claim ignores the fact that better utilization of PBCH by Palm Bay patients will help to decompress HRMC.
PBCH is currently an underutilized facility, and it has been ever since it opened in 1992. According to the SAAR, PBCH's annual occupancy rate for the 12-month period ending June 2003 was only 51.5 percent. Its annual occupancy rate is projected to be only 60.1 percent in 2008 and 65.4 percent in 2010, which are well below the 75 to 80 percent optimum utilization level.
Approximately 25 to 30 percent of HRMC’s patient volume comes from the Palm Bay zip codes. If those patients were redirected to PBCH, the utilization rate at HRMC would go down and the utilization rate at PBCH would go up.
Redirecting Palm Bay patients to PBCH has the potential to decompress HRMC more than redirecting Viera patients to VMC because HRMC has approximately 7,000 admissions from the Palm Bay area, as compared to approximately 6,000 admissions from the Viera area.
Holmes did not present any persuasive evidence as to why patients from the Palm Bay zip codes could not be redirected to PBCH as a means of decompressing HRMC. On this issue, there was credible evidence presented by Wuesthoff that virtually no elective cases are being done at PBCH and that PBCH is essentially being used as a triage facility for HRMC.
Finally, the expansion of the Wuesthoff hospitals (particularly Wuesthoff-Melbourne) will help to decompress HRMC because the Wuesthoff hospitals will be able to serve more patients. As the Wuestoff hospitals' market share grows, HRMC’s market share (and patient volume) will decline.8
Enhanced Homeland Security and Disaster Planning
Brevard County is susceptible to hurricanes because of its location on the east coast of Florida and the length of its coastline.
The evidence was not persuasive that Brevard County is more susceptible to hurricanes than are the other counties on the east coast. The three major storms that affected the county in the summer of 2004 were not the norm.
Brevard County has a comprehensive emergency management plan to prepare for and respond to hurricanes, as do all of the existing hospitals in the county. Those plans were tested in the summer of 2004 when the county was directly
impacted by three of the four major storms that hit the state Florida.
The hospitals’ hurricane plans include securing the building, discharging as many patients as possible prior to the arrival of the storm, and canceling elective surgeries scheduled around the time the storm is expected to hit the area. The plans also provide for the evacuation of some of the hospitals during particularly strong storms, i.e., Category 3 or above.
Cape Hospital is particularly prone to evacuation when a strong hurricane threatens the area because it is located close to the ocean on a peninsula in the middle of the Intracoastal Waterway. Cape Hospital was evacuated twice during the summer of 2004.
None of the hospitals in Brevard County were evacuated during the first storm, Hurricane Charley.
Cape Hospital and Wuesthoff-Rockledge were evacuated prior to the second storm, Hurricane Francis. That was the first time that Wuesthoff-Rockledge was evacuated since it opened in 1941, and its ER remained open and staffed even though the remainder of the hospital was evacuated.
Cape Hosptial’s patients were taken to HRMC, and Wuesthoff-Rockledge patients were taken to Wuesthoff-Melbourne. The evacuated patients were accompanied by physicians and nurses and were transported to the receiving hospitals by ambulance.
The evacuation of Cape Hospital and Wuesthoff- Rockledge placed strains on the receiving hospitals and their staffs. At one point during the evacuation, HRMC had more than 700 patients in its 514-bed facility and Wuesthoff-Rockledge had
156 patients in its 65-bed facility.
By all accounts, despite the strains placed on the receiving hospitals, the evacuations went smoothly and there were no adverse patient outcomes attributable to the evacuation. Indeed, the director of Brevard County’s Health Department testified that all of the hospitals in the county responded and performed “great” during the hurricanes, and that sentiment was echoed by physicians and administrators affiliated with both of the hospital systems involved in this case.
Cape Hospital was evacuated again prior to the third storm, Hurricane Jeanne. Wuesthoff-Rockledge was not evacuated during that storm, and approximately 15 of Cape Hospital’s patients were taken to Wuesthoff-Rockledge.
None of the Health First or Wuesthoff hospitals suffered any significant damage from the hurricanes.
The approval of VMC will not eliminate the possibility that Cape Hospital, Wuesthoff-Rockledge, or some other hospital in Brevard County may have to evacuate during a future hurricane.
VMC may provide a more convenient (or at least an additional) place to evacuate some of the patients from Cape Hospital during a future hurricane because VMC is closer to Cape Hospital than is HRMC. VMC will also be more inland than HRMC and it will be designed to withstand 165 mile per hour winds.
Holmes conditioned the approval of its CON application on the inclusion of a "suitable parcel, fully equipped and designed to support temporary staging of Disaster Medical Assistance Teams (DMAT)" at VMC.
A DMAT is essentially a mobile emergency room set up by the federal government after a natural disaster to help serve the medical needs of those affected by the disaster.
The DMAT staging area at VMC will be an open field adjacent to the hospital that is “pre-plumbed” with water, electricity, and communication lines.
In some situations, it is beneficial for a DMAT to be set up proximate to a hospital, and in that regard, VMC’s inland location and proximity to I-95 may make it an attractive location to set up a DMAT in the future.
It is not necessary, however, for a DMAT to be set up proximate to a hospital. DMATs are fully self-sustaining and they can be set up anywhere, including a Wal-Mart parking lot.
Indeed, in some situations, it is more beneficial for the DMAT to be located closer to the persons in need of its
services than to a hospital. For example, after Hurricane Jeanne, a DMAT was set up near the Barefoot Bay community in southern Brevard County, which is miles from the closest hospital.
VMC’s central-county location and proximity to I-95 would also make it a good point-of-dispensing (POD) for vaccines and medicines in the case of a severe biological emergency. However, like DMATs, PODs can be set up anywhere and it is not critical for a POD to be proximate to a hospital even though proximity might allow for greater medical oversight of the dispensing process.
There are high-profile, “Tier 1” terrorist targets located in Brevard County, including Kennedy Space Center, Cape Canaveral Air Force Station, Patrick Air Force Base, and Port Canaveral. There is also a nuclear power plant in Indian River County, just south of the Brevard County line.
The nature of these targets is somewhat unique because they involve the country's space program, but the presence of multiple “Tier 1” terrorist targets is not unique to Brevard County and is not, in and of itself, a special circumstance that justifies approval of a new hospital.
Brevard County has developed emergency management plans in conjunction with the state and federal governments to prepare for and respond to terrorist attacks on those targets.
Those plans have been in place for many years, but they have been significantly strengthened since September 11, 2001.
VMC will include decontamination areas and other design features to facilitate the treatment of victims of bio- terrorism. The existing hospitals in Brevard County have similar design features as well as comprehensive plans for dealing with bio-terrorism.
The evidence was not persuasive that VMC, as an 84- bed, non-tertiary satellite hospital, will materially enhance County’s ability to deal with a large-scale terrorist attack, whether biological or otherwise.
Similarly, the evidence was not persuasive that Brevard County’s emergency management plans for hurricanes and/or terrorism are deficient in any way or that the approval of VMC would result in material enhancements to those plans. Any enhancements attributable to VMC would be marginal, at best.
The DMAT staging area and other design elements included at VMC to facilitate the hospital’s participation in the Brevard County’s response to hurricanes, terrorist attacks, or other contingencies are positive attributes. Inclusion of those features in VMC (or any new hospital for that matter) is reasonable despite the infrequency of those contingencies, but it does not follow that VMC should be approved simply because it will include those features.
IT Innovations and Design Features
The evidence was not persuasive that VMC will provide a higher quality of care than is currently being provided at the existing hospitals serving central and south Brevard County as a result of the “innovative” IT systems and the other design features that will be incorporated into VMC. See Part F(1)(b) below.
Accordingly, the approval of VMC is not justified on that basis.
Enhanced Access to Care for the Uninsured
Holmes’ contention that VMC will enhance access for the uninsured implicates the issue of “financial access.”
Financial access concerns arise when there is evidence that necessary services are being denied to patients based upon their inability to pay or their uninsured status.
Holmes’ health planner acknowledged at the hearing that VMC was not intended to address any financial access concerns for patients in the Viera area and, indeed, there was no credible evidence of any financial access concerns in PSA and SSA targeted by VMC. As discussed in Part E(2) above, VMC’s PSA include a higher percentage of insured patients than Brevard County as a whole, and as discussed in Part F(1)(g) below, the existing hospitals are adequately serving the medically indigent patients in central and south Brevard County, both at the
hospital and through outreach efforts such as the Holmes’ HOPE program and Wuesthoff’s free clinics.
Accordingly, the evidence failed to establish that VMC will enhance access to care for the uninsured, and approval of VMC is not justified on that basis.
Subsection (3) -- Applicant’s Quality of Care
Holmes, the applicant, provides a high quality of care at HRMC and PBCH, and it is reasonable to expect that it will provide the same high quality of care at VMC.
The Wuesthoff hospitals also provide a high quality of care, and Holmes' witnesses acknowledged that VMC was not proposed to address any problem with quality of care in central or south Brevard County.
The evidence was not persuasive that the quality of care at VMC will be materially better (or worse) than that provided at Wuesthoff-Melbourne, which has a similar range of services that will be provided at VMC.
The award-winning IT systems in place at the Wuesthoff hospitals are materially the same as those proposed for VMC except for e-ICU at VMC. The evidence was not persuasive that the e-ICU significantly enhances quality of care, and because the e-ICU is being used at the existing Health First hospitals in Brevard County, VMC will not be providing any new technology or service that is not already available to
physicians and patients in the county. Thus, the "innovative" IT systems proposed for VMC do not provide an independent basis for approving the CON application.
The evidence was not persuasive that VMC would exacerbate nursing or physician shortages in Brevard County thereby negatively affecting quality of care in the county. See
Part F(1)(c) below.
Subsection (4) -- Availability of Personnel and Resources for Operations
Holmes and Health First have the management resources necessary to establish and operate VMC.
Holmes’ CON application projects that VMC will have
241.4 full-time equivalents (FTEs) in its first year of operation, and that by its third year of operation, it will have
355.7 FTEs. Nursing positions -- registered nurses, licensed practical nurses, nursing aides, and nursing directors -- account for 123.1 of the FTEs in the first year of operation, and 189.2 of the FTEs in the third year of operation. According to the CON application, a significant number of the initial FTEs at VMC are expected to be filled by persons who transfer from Holmes’ existing campuses, HRMC and PBCH.
The parties stipulated that the projected number of FTEs needed by position and the projected salaries contained in Holmes’ CON application are reasonable for the census projected
at VMC. However, Wuesthoff disputed whether Holmes will be able to adequately staff VMC due to nurse and physician shortages in Brevard County and/or that VMC will exacerbate those shortages and make it more difficult to staff the existing hospitals in the county.
There is a nursing shortage in Brevard County, as there is around Florida and across the nation, but the situation in Brevard County is improving.
Wuesthoff was able to fully staff Wuesthoff-Melbourne prior to its opening in December 2002, even though the nursing shortage was more severe at that time. Additionally, Wuesthoff is currently in the process of adding beds at Wuestoff-Melbourne and Wuesthoff-Rockledge, and it expects to be able to recruit and retain the nurses necessary to staff those additional beds despite the current state of the nursing shortage.
Holmes received “magnet designation” from the American Nurses Credentialing Center, which is a recognition of its excellence in nursing. No other hospital in Brevard County has magnet designation, and that designation helps Holmes attract and retain nurses.
The evidence establishes that Holmes will be able to recruit and retain the nursing and other staff needed for VMC, and the evidence was not persuasive that the staffing of VMC
will exacerbate the nursing shortage or otherwise significantly impact Wuesthoff.
There is a shortage of physicians in Brevard County with certain specialties, including neurosurgery, neurology, orthopedics, dermatology, and gastroenterology. Like the nursing shortage, this problem is not unique to Brevard County and it is not as severe in Brevard County as it is elsewhere in the state.
The shortage of physician specialists in Brevard County is to some extent hospital-specific. For example, there is only one neurosurgeon covering Wuesthoff-Rockledge and Cape Hospital, and Wuesthoff-Melbourne only has part-time coverage neurosurgical coverage, but Holmes has several neurosurgeons.
Holmes has recently had success in recruiting new physicians to Brevard County, including specialists.
One of the largest multi-specialty physician groups in Brevard County, whose physicians are on staff at Holmes’ and Wuestoff's hospitals, has also been successful recently in recruiting new physicians to the area. That group, Melbourne Internal Medicine Associates, will be adding more physicians whether or not VMC is approved.
The evidence establishes that Holmes will be able to attract the necessary physician staff for VMC, just as Wuesthoff-Melbourne was able to do when it opened. Indeed there
are a number of physicians who have offices in the Viera area that are closer to VMC than the existing hospitals where they have privileges.
Holmes and Wuesthoff require physicians with privileges at their hospitals to provide coverage for ER calls on a rotational basis. Physicians with privileges at more than one of the hospitals are required to provide ER call coverage at multiple hospitals, which can create a problem if the physician is on-call at two (or more) hospitals at the same time.
Physicians who choose obtain privileges at VMC will be required to provide ER call coverage at VMC.
ER call coverage is a problem in Brevard County, but the evidence was not persuasive that the problem is as significant in Brevard County as it is elsewhere in the state or that VMC would seriously exacerbate the problem.
More specifically, the evidence was not persuasive regarding the extent to which VMC would cause physicians to be on call at more than one hospital at the same time. Nor was the evidence persuasive regarding the likelihood that physicians would relinquish privileges at other hospitals in Brevard County to obtain privileges at VMC in such numbers that ER call coverage problems would be created for the other hospitals.
Subsection (6) -- Financial Feasibility
The parties stipulated that VMC is financially feasible in the short-term and that Holmes has sufficient availability of funds for VMC's capital and operating expenses. The long-term financial feasibility of VMC is in dispute.
Generally, if a CON project will at least break even in the second year of operation, it is financially feasible in the long-term. If, however, the project continues to show a loss in the second year of operation it is not financially feasible in the long-term unless it is nearing break-even and it is demonstrated that the hospital will break even within a reasonable period of time.
Agency precedent (e.g., Wellington, supra, at 73-74) and the evidence in this case (e.g., Exhibit W-57, at 22) establish that in the context of a satellite hospital project that is expected to “cannibalize” patients from the applicant’s existing hospital, it is important to consider the impact of the project on the entire hospital system in evaluating the long- term financial feasibility of the project.
The net operating revenue projected on Schedule 7A of the CON application, which is the starting point for the net income/loss projected on Schedule 8A, is reasonable.9
On Schedule 8A of the CON application, in the column titled “VMC only,” Holmes projects that VMC will generate a net
loss of $5.71 million in its first year of operation, but that it will generate net profits of $1.48 million and $5.11 million in its second and third years of operation.
Thus, as a stand-alone entity, VMC is financially feasible in the long-term. However, the “VMC only” figures do not provide the complete picture of the financial feasibility of the VMC project because of the significant percentage of its patients that will be cannibalized from HRMC and PBCH.
In evaluating the long-term financial feasibility of the VMC project, it is also important to consider the “incremental difference” column in Schedule 8A. That column reflects VMC’s net financial benefit (or burden) to Holmes after taking into account the patients that VMC is cannibalizing from HRMC and PBCH.
The “incremental difference” column in Schedule 8A shows a net loss of $695,000 in the VMC’s first year of operation, and net profits of $605,000 and $983,000 in the second and third years of VMC’s operation.
The incremental figures presented in the CON application identify the profit/loss that will be generated by the patients treated at VMC that are new to the Holmes’ system, but they do not take into account the fact that the patients treated at VMC that were cannibalized from the other Holmes’ hospitals would have generated a different profit/loss for the
Holmes’ system if they were treated at one of the other Holmes’ hospitals.
When incremental profit/loss associated with treating the cannibalized patients at VMC rather than HRMC or PBCH is factored in, the “incremental difference” generated by VMC will be net profits of $498,000 (year one); $720,000 (year two); and
$252,000 (year three).
Included in the “incremental difference” column on Schedule 8A (and embedded in the revised figures in the preceding paragraph) are negative figures on the “depreciation and amortization” line and the “interest” line. Those figures are intended to reflect the depreciation, amortization, and interest expenses that Holmes will “save” by building VMC rather than by adding 84 beds at HRMC.
A critical assumption underlying the “savings” shown on those lines is that it would cost $120 million to add 84 beds to HRMC. To the extent that cost is overstated, then the depreciation, amortization, and interest expense “savings” on Schedule 8A are also overstated, as is the incremental net profit of the VMC project. The extent to which the net profit is overstated depends upon the extent to which the $120 million cost is overstated.
For example, if the cost of adding 84 beds to HRMC is the same as the cost of VMC (i.e., $106 million rather than $120
million), then the depreciation, amortization, and interest expense shown in the “incremental difference” column on Schedule 8A would be $0 (rather than a negative number) because the depreciation, amortization, and interest expenses in the “with this project” and “without this project” columns would be the same. If, on the other hand, there was no cost associated with the addition of 84 beds at HRMC, then the depreciation, amortization, and interest expense shown in the “without this project” column would be $10.662 million lower in 2010 (see Endnote 10) and that amount would appear as a positive number -- i.e., expense -- rather than a negative number -- i.e., “savings” -- in the “incremental difference” column.
The evidence was not persuasive that it will cost
$120 million to add beds to HRMC, which is the amount underlying the projected “savings” in depreciation, amortization, and interest expense shown on Schedule 8A. Indeed, as discussed in Part F(1)(a)(iii) above, the evidence establishes that the alternative that gave rise to the $120 million cost estimate was not a viable option and that Holmes could add 84 beds at HRMC with little or no cost if it chose to do so by reducing the number of semi-private rooms that it converts to private rooms as part of the North Expansion and/or by finishing the shelled- in space on the eighth floor of the North Expansion.
Accordingly, the “savings” embedded in Schedule 8A are grossly overstated as is the incremental net profit shown in that schedule. Specifically, in the third year of operation, when VMC is at a near-optimal occupancy level of 76 percent, the incremental net profit generated by VMC will be no more than
$234,000 and, more likely, will be a net loss between $497,000 and $10.41 million.10
A net profit of $234,000 is a very marginal return on the $106 million cost of VMC, and is well below the three percent return that Holmes' seeks to achieve for its capital projects. However, according to Holmes' chief financial officer, the return generated by a project is not Holmes' paramount concern as a not-for profit organization, and at that level, the project would be considered financially feasible in the long-term.
A $497,000 to $10.41 million incremental net loss would mean that the project is not financially feasible in the long-term.
The “including this project” column on Schedule 8A projects that Holmes will have net income of approximately $31.1 million in 2010. Thus, even if VMC actually generated an incremental net loss in the range of $497,000 to $10.41 million in 2010, the Holmes' system would still be profitable.
Subsection (7) -- Fostering Competition that Promotes Cost-Effectiveness
Generally, competition for hospital services benefits consumers because it leads to lower prices and it creates incentives for hospitals to lower costs.
It is not necessary for hospitals to be equal in size to compete, but the beneficial effects of competition will be greater if the hospitals are more equal. As explained by Dr. David Eisenstadt, Wuesthoff’s expert economist, “competitive constraints are a matter of degree” and “while it is true that a small hospital can pose some competitive constraint, it’s not correct that a small hospital can impose the same competitive constraint . . . as a large hospital could.” (Transcript at 1571-72).
Holmes is, and historically has been, the dominant provider of hospital services in south Brevard County, with market shares exceeding 80 percent prior to the opening of Wuesthoff-Melbourne. Holmes still has a market share in excess of 70 percent in south Brevard County.
A dominant hospital has the ability to set prices above competitive levels by commanding higher prices in negotiations with commercial payors. Holmes has done so in the past and, based upon the comparison of the commercial average net inpatient revenues reported by the Health First hospitals
and the Wuesthoff hospitals in 2003 and 2004, it continues to do so.
Holmes ability to set prices above competitive levels is enhanced by the fact that the largest managed care plan in Brevard County, HFHP, is operated by Health First.
The original approval of the CON for Wuesthoff- Melbourne was based upon the Agency’s determinations that there was at that time a “compelling” need for competition for hospital services in south Brevard County; that the entry of a new, non-Health First provider into the market would give commercial payors and, ultimately, patients an alternative to Holmes, which because of its relationship with HFHP, had no incentive to negotiate competitive rates with other providers; and that competition would have the effect of reducing prices paid by the commercial payors to the hospitals and, ultimately, the premiums paid by patients.
Wuesthoff-Melbourne’s entry into the market in December 2002 has not yet resulted in any material price reductions. Indeed, notwithstanding Wuesthoff-Melbourne’s presence in the market, HRMC increased its charges by 15 percent in 2003-04 and by an additional five percent in 2004-05.
A hospital’s charges do not necessarily correspond to the prices that the hospital negotiates with commercial payors. However, in this case, there appears to be a correlation because
Holmes had an 11.6 percent increase in net revenue per admission between 2003 and 2004 and it also had significant increases in the commercial average inpatient revenues per admission at HRMC and PBCH between 2003 and 2004.
Moreover, the significant increase in charges at Holmes over the past two years is a strong indication that Holmes is not feeling any significant competitive pressure as a result of Wuesthoff-Melbourne’s presence in the market.
Wuesthoff-Melbourne will be able to exert more competitive pressure on Holmes as its market share increases, particularly if Holmes’ market share continues to decline at the same time as is projected. As a result, Wuesthoff-Melbourne’s ability to expand and increase (or at least maintain) its market share in the growing Viera market is particularly significant to achieving price reductions (and/or minimizing price increases) in Brevard County.11
Holmes contends that even if VMC is approved, there will be sufficient competition in Viera because, according to Table 33 in the CON application, in 2010 the Health First hospitals will have a 50.5 percent market share of the PSA targeted by VMC and the Wuesthoff hospitals will have a 44.3 percent market share of the PSA. However, the approval of the VMC will have the effect of dramatically slowing the upward trend in Wuesthoff’s market share and corresponding downward
trend of Health First’s market share in the PSA targeted by VMC because according to Tables 28 and 33 of the CON application, without VMC, the market share of the Wuesthoff hospitals in the PSA is projected to increase from 43.3 percent (in 2003) to 52.3 percent (in 2010), and the market share of the Health First Hospitals in the PSA is expected to decline from 51.2 percent (in 2003) to 42.5 percent (in 2010).
Moreover, if VMC is approved, it is less likely that there will be sufficient need for additional acute care beds in the area to justify expanding Wuesthoff-Melbourne beyond 134 beds. That, in turn, will limit the competitive pressure that Wuesthoff-Melbourne will be able to exert on Holmes in the future.
The evidence was not persuasive regarding the extent of the competitive pressure and/or price reductions that would result from the expansion of Wuesthoff-Melbourne rather than the approval of VMC.12 However, the fact remains that VMC will strengthen Holmes’ market position in central and south Brevard County, which will not foster competition that promotes cost effectiveness.
Not only will the approval of VMC negatively affect the evolution of competition in south Brevard County, but it will effectively preclude the construction of another hospital
in the Viera area until 2029 when the exclusivity provisions and restrictive covenants discussed in Part D(2) above expire.
The evidence was not persuasive that there was an anticompetitive motivation underlying Holmes’ decision to propose VMC, but the evidence does establish that the approval of VMC will have anticompetitive effects. As a result, the criteria in Section 408.035(7), Florida Statutes, strongly weigh against the approval of Holmes’ CON application.
Subsection (8) -- Costs and Methods of Construction
The parties stipulated that the costs (including equipment costs), methods of construction, and energy provision for VMC are reasonable; that the architectural drawings for the VMC satisfy the applicable code requirements; and that the construction schedule for VMC is reasonable. Thus, VMC satisfies the criteria in Section 408.035(8), Florida Statutes.
Subsection (9) -- Medicaid and Charity Care
Holmes conditioned the approval of its application on VMC providing the following levels of Medicaid and charity care:
At least 3.0 percent of inpatients at [VMC] will be covered by Medicaid and/or Medicaid HMOs.
At least 2.3 percent of the gross revenues of [VMC] will be attributable to patients who meet the guidelines for charity care.
The Medicaid and charity commitments are lower than the averages for Brevard County, but they are reasonable and
attainable in light of the demographics of the area that will be served by VMC.
Holmes has a history of providing considerable services to Medicaid and charity patients, both at its existing facilities and through community programs such as HOPE.
Wuesthoff also has a history of providing considerable services to Medicaid and charity patients at its existing facilities and through community programs such as its free clinic in Cocoa.
Wuesthoff-Rockledge is a Medicaid disproportionate share provider, which entitles it to a higher Medicaid reimbursement rate from the State as a “reward” for serving more than its fair share of Medicaid patients.
Holmes' hospitals and Wuesthoff-Melbourne are not Medicaid disproportionate share providers. Wuesthoff-Melbourne has not been open long enough to qualify.
The Wuesthoff hospitals have a contract with Well Care, which is the only Medicaid HMO in Brevard County. Holmes' hospitals do not have a contract with Well Care.
On a dollar-amount basis, Holmes provides considerably more Medicaid and charity care than any other hospital in Brevard County, including the Wuesthoff hospitals. In fiscal year 2003, for example, Holmes’ Medicaid gross revenues were $53.7 million (as compared to $39.7 million for
the Wuesthoff hospitals) and its charity care gross revenues were $27.8 million (as compared to $10.9 million for the Wuesthoff hospitals).
The larger dollar-amount of Medicaid and charity care provided by Holmes is due, at least in part, to Holmes being almost twice the size of the Wuesthoff hospitals.
On a percentage basis, Holmes provides approximately the same level of charity care as Wuesthoff-Rockledge, but it provides less Medicaid care than Wuesthoff-Rockledge. In fiscal year 2003, for example, 2.8 percent of Holmes’ gross revenue was charity care (as compared to 2.5 percent for Wuesthoff- Rockledge) and seven percent of Holmes’ patient days were attributable to Medicaid patients (as compared to 10.9 percent for Wuesthoff-Rockledge).
According to Mr. Gregg, the Agency gives more weight to the percentage of Medicaid and charity care provided by a hospital than it does to the dollar amount of such services. However, Mr. Gregg acknowledged that Holmes satisfies the criteria in Section 408.035(9), Florida Statutes, based upon its history of providing services to the medically indigent and its Medicaid and charity commitments at VMC.
Holmes' satisfaction of the criteria in Section 408.035(9), Florida Statutes, is not given great weight in this proceeding because the medically indigent in central and south
Brevard County are currently being adequately served by the existing facilities and, more significantly, zip code 32940, in which VMC will be located and from which it is projected to draw the largest percentage of its patients, has a lower percentage of Medicaid/charity patients and a higher median household income than Brevard County as a whole.
Subsection (10) -- Designation as a Gold Seal Nursing Homes
The parties stipulated that Section 408.035(10), Florida Statutes, is not applicable because Holmes is not proposing the addition of any nursing home beds.
Rule Criteria
The Agency rules implicated in this case -- Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038 -- do not contain any review criteria that are distinct from the statutory criteria discussed above.
The “health care access criteria” and “priority considerations” in those rules focus primarily on the impact of the proposed facility on the medically indigent and other underserved population groups, as well as the applicant’s history of and/or commitment to serving those groups.
Holmes satisfies those rule criteria, but they are not given great weight for the reasons discussed in Part F(1)(g) above.
Impact of VMC on the Wuesthoff Hospitals
As discussed above, VMC is projected to take patients that are currently being served by, or would otherwise be served by one of the existing hospitals in central or south Brevard County. Approximately 30 percent of VMC’s patient volume will come at the expense of the Wuesthoff hospitals.
As a result of the projected population growth in central and south Brevard County over the planning horizon, the Wuesthoff hospitals are projected to have more admissions in 2010 than they currently have, whether or not VMC is approved. However, if VMC is approved, the Wuesthoff hospitals will have fewer admissions in 2010 than they would have had without VMC.
The health planners who testified at the hearing agreed that in determining the impact of VMC on the Wuesthoff hospitals it is appropriate to focus on the number of admissions that the Wuesthoff hospitals would have received but for the approval of VMC. The Agency’s precedent is in accord. See Wellington, supra, at 54, 109 n.13.
Holmes’ health planner projected in the CON application that the approval of VMC will result in the Wuesthoff hospitals having 1,932 fewer admissions in 2010 than they would have had without VMC, 998 at Wuesthoff-Rockledge and 934 at Wuesthoff-Melborune.
Wuesthoff’s health planner projected that the approval of VMC will result in the Wuesthoff hospitals having 2,399 fewer admissions in 2010 than they would have had without VMC, 1,541 at Wuestoff-Rockledge and 858 at Wuesthoff-Melborune.
The projections of Wuesthoff’s health planner are more reasonable because they are based upon more current market share data and, as to Wuesthoff-Melbourne, the projections may even be understated because its market share is still growing in the areas targeted by VMC.
On a contribution-margin basis, the lost admissions projected by Wuesthoff’s health planner translate into a loss of approximately $3.9 million of income at Wuesthoff-Rocklege and a loss of approximately $2 million of income at Wuesthoff- Melbourne. Using the lost admissions projected by Holmes’ health planner, the lost income at Wuesthoff-Rockledge would be
$2.51 million and the lost income at Wuesthoff-Melbourne would be $2.15 million.
Thus, impact of VMC on the Wuesthoff system would be a lost income of at least $4.66 million and, more likely, $5.9 million.
A loss of income in that range would be significant and adverse to the Wuesthoff hospitals, both individually and collectively.
Even though the Wuesthoff system has a net worth of approximately $70.95 million, its net income (i.e., “excess of revenues over expenses”) was only $971,000 in 2003 and $1.1 million in 2004. The system is still recovering from a “devastating” financial year in 1999 when it reported a loss of almost $12 million. Wuesthoff-Melbourne reported a $4.1 million net loss in 2003, and as of June 2004, it had yet to show a profit.
The significance of the projected lost income at the Wuesthoff hospitals is tempered somewhat by the increased patient volume that the hospitals are projected to have in 2010 even if VMC is approved. However, the evidence was not persuasive that the increased patient volumes will necessarily result in greater profits at the Wuesthoff hospitals in 2010.13
The approval of VMC will also likely result in a loss of outpatient volume at the Wuesthoff hospitals. However, there is no credible evidence regarding the amount of outpatient volume that would be lost or the financial impact of the lost outpatient volume on Wuesthoff.
CONCLUSIONS OF LAW
The Division has jurisdiction over the parties to and the subject matter of this proceeding pursuant to Sections 120.569, 120.57(1), and 408.039(5), Florida Statutes.
The parties stipulated that the Wuesthoff hospitals have the requisite standing to participate in this proceeding, and as discussed in Part G of the Findings of Fact, the evidence establishes that VMC will have a substantial adverse impact on the Wuesthoff hospitals. See § 408.039(5)(c), Fla. Stat.
Holmes has the burden to prove by a preponderance of the evidence that its CON application should be approved. See, e.g., Boca Raton Artificial Kidney Center, Inc. v. Dept. of Health & Rehab. Servs., 475 So. 2d 260, 263 (Fla. 1st DCA 1985).
In evaluating Holmes’ CON application, a balanced consideration of the applicable statutory and rule criteria must be made; the appropriate weight to be given to each criterion is not fixed, but rather varies based upon the facts of the case. See, e.g., Morton F. Plant Hospital Ass’n, Inc. v. Dept. of
Health & Rehab. Servs., 491 So. 2d 586, 589 (Fla. 1st DCA 1986) (quoting North Ridge General Hospital, Inc. v. NME Hospitals, Inc., 478 So. 2d 1138, 1139 (Fla. 1st DCA 1985)).
The parties stipulated that Holmes’ CON application must be evaluated under the statutory criteria in the 2004 version of Section 408.035, Florida Statutes, even though the application was filed and the SAAR was issued prior to the effective date of the 2004 amendments to that statute. Accord
Wellington, supra, at 91-92.
There is a presumption that there is no need for additional acute care beds in Subdistrict 7-1, based upon the Agency’s publication of a fixed need pool of zero for the subdistrict See Naples Community Hospital v. Agency for Health Care Admin., Case No. 92-1510CON, 1993 WL 944132, at *15 n.1 (DOAH March 19, 1993; AHCA June 6, 1993) (“A lack of numeric need under the rule formula establishes a rebuttable presumption of no need.”) (citing Humhosco v. Department of Health and Rehabilitative Services, 476 So. 2d 258, 261 (Fla. 1st DCA 1985)).
Holmes must demonstrate the existence of “not normal” circumstances to overcome the presumption. See, e.g., Wellington, supra, at 94-95.
The requirement that a CON applicant demonstrate “not normal” circumstances in the absence of a published need for new hospital beds came from the language of Florida Administrative Code Rule 59C-1.038(4)(a), which stated that “[t]he agency shall not normally approve applications for new or additional acute care hospital beds” unless bed need is shown based upon the formula used to calculate the fixed need pool for the subdistrict. The rule was recently repealed by the Agency. See Fla. Admin. Weekly, Vol. 31, No. 6, at 564 (Feb. 11, 2005) (stating that “Section 6 of Chapter 2004-383, Laws of Florida,
revised Chapter 408, F.S., necessitating the repeal of the rule.”).
Neither party argued in its PRO that the repeal of the rule eliminates the need for Holmes to prove “not normal” circumstances for its application to be approved. Accordingly, it is not necessary to determine in this case whether that standard still applies to CON applications for new acute care hospitals.14
To demonstrate “not normal” circumstances, Holmes
must demonstrate and there must be some finding of fact that, without the requested [service], the existing facilities are (or will be) unavailable or inaccessible, or the quality of care is (or will be) suffering from overutilization, or other evidence of that nature.
Humana, Inc. v. Dept. of Health & Rehab. Servs., 492 So. 2d 388,
392 (Fla. 4th DCA 1986). See also Humana, Inc. v. Dept. of Health & Rehab. Servs., 469 So. 2d 889, 891 (Fla. 1st DCA 1985).
There is not a list of enumerated “not normal” circumstances; however, “not normal” circumstances traditionally involve “issues related to financial, geographic, or programmatic access to the proposed service by potential patients, and not facility specific concerns.” West Florida Regional Medical Center, Inc. v. Agency for Health Care Admin., 1994 WL 1027902, at *14 (DOAH Nov. 18, 1994; ACHA Apr. 18, 1995). See also Bethesda Healthcare System, Inc. v. Agency for
Health Care Admin., 2002 WL 31668865, at *28 (DOAH Nov. 21, 2002; AHCA July 22, 2003) (“Institution-specific criteria alone have not constituted not normal circumstances in the past.”).
However, in the context of satellite hospitals, the Agency has considered facility-specific concerns in conjunction with current or future geographic access problems.
In the Final Order in Wellington, the Agency discussed a number of the recent cases involving the approval of satellite hospitals, and summarized the common factors in those cases as follows:
In all the cases . . ., except Halifax[15], there were serious access issues involving the main facilities that were addressed by the CON applications for satellite hospitals. In all of the cases . . ., including Halifax, all of the hospitals that applied for CONs had underutilized space at their main facilities, and expansion of the main facilities was not a feasible alternative to satellite hospitals.
Wellington Final Order, at 10. See also Columbia Hosptial, 24 FALR at 4290-93, 4303 (approving a new 100-bed acute care hospital in southwest Broward County based upon a number of “not normal” circumstances, including the high occupancy at the applicant’s existing hospitals and the inability to add beds at the existing hospitals in a cost-effective manner).
Thus, in cases involving satellite hospitals, “not normal” circumstances can include facility-specific issues such
as the need to “decompress” the main hospital through expansion and an inability to do so at all or in a more cost-efficient manner than the construction of the proposed satellite hospital, but those facility-specific concerns must be causing or contributing to “serious access issues” in the subdistrict. See Wellington Final Order, at 10.
In this case, the evidence established that HRMC is a well-utilized facility and that, at its current bed capacity, its annual occupancy rate will be 90 percent in 2010. However, the evidence was not persuasive that beds cannot be added to HRMC or that VMC is the most cost-effective way to “decompress” HRMC as its occupancy rate increases. Moreover, the evidence failed to establish that there are, or over the five-year planning horizon that there will be, serious access problems in the Viera area or in south Brevard County that VMC is needed to address. Accordingly, the cases discussed in the Wellington Final Order and officially recognized in this proceeding that involved the approval of other satellite hospitals are distinguishable.
None of the other “not normal” circumstances advanced by Holmes justify the approval of VMC. For example, the evidence was not persuasive that VMC is needed because of the high-profile terrorist targets in Brevard County and/or because some of the existing hospitals in the county have to evacuate
during strong hurricanes. To the contrary, the evidence establishes that Brevard County and the existing hospitals have adequate plans in place to address those circumstances when or if they arise.
Because Holmes failed to establish the existence of any “not normal” circumstances, its application should be denied.
Even if Holmes was not required to establish “not normal” circumstances because of the 2004 amendments to the CON law or the recent repeal of Florida Administrative Code Rule 59C-1.038, its application should still be denied based upon a balanced consideration of the applicable statutory and rule criteria.
Specifically, Holmes’ failed to prove that there is, or that over the five-year planning horizon applicable to this case there will be an access problem for residents of the Viera area for acute care services that needs to be enhanced through the approval of VMC. Holmes also failed to prove that VMC is the most cost-effective way to address future acute care bed need in the subdistrict and/or the capacity constraints at HRMC. Moreover, the evidence establishes that VMC will adversely affect the developing competitive environment for acute care services in south-central Brevard County.
Those factors, coupled with the likely incremental negative financial impact of VMC on Holmes and the adverse impact of VMC on the Wuesthoff hospitals, strongly outweigh the more convenient access that Viera residents would have to an ER and acute care services by having a hospital in Viera. Those factors also outweigh the marginal benefit that VMC would offer in relation to disaster planning in Brevard County, Holmes’ history of providing quality care to its patients, its ability to staff VMC, and its history of serving Medicaid and charity patients and commitment to serve those patients at VMC.
Based upon the foregoing findings of fact and conclusions of law, it is
RECOMMENDED that the Agency issue a final order denying Holmes’ application, CON 9759.
DONE AND ENTERED this 17th day of June, 2005, in Tallahassee, Leon County, Florida.
S
T. KENT WETHERELL, II 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 17th day of June, 2005.
ENDNOTES
1/ The Transcript includes a separately-bound document entitled “Confidential Discussion with Counsel and the Court,” which was effectively an in-chambers discussion with counsel regarding the possibility of closing a portion of the final hearing to hear testimony on a purported confidential matter. See Transcript, at 54-58. The parties later determined that they did not want to close any portion of the proceeding and the court reporter was directed to file the in-chambers discussion along with the Transcript.
2/ In making this finding, the undersigned did not overlook the opinion of Wuesthoff’s health planner regarding alleged overstatements in the utilization calculations. See, e.g., Exhibit W-51, at 3-7. However, on that issue, the undersigned finds more persuasive the opinion of Holmes’ health planner.
See, e.g., Exhibit H-45, H-46.
3/ All statutory references are to the 2004 version of the Florida Statutes.
4/ These percentages were calculated by dividing the “percent change” figures for VMC’s PSA (18.5) and Brevard County (12.2) in the “2003-2010” column on Table 10 of the CON application by seven. See Exhibit H-2C, at 43. The 2.64 annual growth rate calculated for VMC’s PSA is consistent with the 2.88 compound annual growth rate calculated in Exhibit W-51 (page 2) for the five-year period of 2004 to 2009.
5/ See, e.g., Exhibit H-41, at 32-33 (25 to 30 minutes from VMC to Wuesthoff-Melbourne, and 20 minutes from VMC to Wuesthoff- Rockledge); Exhibit H-35, at 31 (“probably on the order of 25 to
minutes” from VMC to Wuesthoff-Melbourne, and “perhaps as short as 15 minutes” in earlier, less congested hours); Exhibit H-37, at 21 (“best guess” of 30 minutes from his office to Wuestoff-Melbourne and “under 30 minutes” from his office to Wuesthoff-Rockledge, with “another five minutes at the most” from his office to the VMC site).
6/ See Exhibit H-41, at 33 (25 to 30 minutes); Exhibit H-35, at
(“when it’s busy . . . as long as 30, 35 minutes and then
during earlier or non-congested hours probably on the order of
20 to 25 minutes”); Exhibit H-36, at 17 (“would probably plan 40 to 45 minutes” to get to the VMC site from his office, which is less than a minute's walk from HRMC).
7/ The “v/c ratio” is calculated by dividing the traffic volume on the road segment by the capacity of traffic that the segment can handle based upon the road’s adopted level of service. The relationship between the v/c ratio and travel time was described by Holmes’ traffic engineer as follows:
As VC [sic] ratio goes up, the travel time goes up also, and at lower ranges of VC [sic] ratio, the sensitivity is not very great, but as you get up to .8 and .9 VC [sic] ratio, then the travel times start to increase significantly, especially as you pass the 1.0 marker.
Transcript, at 651.
8/ In making this finding, the undersigned did not overlook the deposition testimony of the physicians presented by Holmes who opined that adding beds at the Wuesthoff hospitals is not an acceptable alternative to VMC because those hospitals are effectively too far away from Viera. See, e.g., Exhibit H-35 through H-37, H-39 through H-41. That testimony was contrary to the weight of the evidence. See, e.g., Exhibit H-42, at 18 (testimony of Dr. Catherine Rossi, who acknowledges that Wuesthoff-Melbourne is a viable option for people in the Viera area in need of hospitalization); Exhibit H-41, at 31-32 (testimony of Dr. James Ronaldson, who acknowledges that the addition of beds at HRMC, Wuesthoff-Melbourne and PBCH would alleviate bed shortages at HRMC, but testifies that such bed additions would not be “optimal” because “it still wouldn’t solve the convenience factor of people not wanting to travel a long way to get to the hospital”)(emphasis supplied); Part F(1)(a)(ii) above. Nor did the undersigned overlook Holmes’ argument that the Wuesthoff hospitals will have excessively high utilization rates in the future if VMC is not approved. See Exhibit H-2C, at 93, Table 38 (projecting an 89.6 percent utilization rate for Wuesthoff-Rockledge in 2010 and an 82.7 percent utilization rate for Wuesthoff-Melbourne in 2010).
However, those rates do not take into account the recent bed additions at those hospitals and the planned expansion of Wuesthoff-Melbourne to 134 beds.
9/ In making this finding, the undersigned did not overlook Wuesthoff’s argument that the revenue projections are overstated because they fail to take into account the impact that the outpatient services being developed in Phase I of the Viera Health Park will have on VMC’s outpatient revenues and/or because they include discrepancies in the way that revenues were calculated for certain payor classes at VMC as compared to HRMC. There was no credible evidence quantifying the alleged overstatement of outpatient revenue, and with respect to the other discrepancies, the undersigned found the testimony of Holmes’ financial expert (see Transcript, at 2064-67; Exhibit H-
47) to be more persuasive than the testimony of Wuesthoff’s financial expert (see Transcript, at 1683-93; Exhibit W-43, at Tables III-VI).
10/ The $234,000 net profit is calculated by deducting the
$749,000 “savings” from the $983,000 net profit shown on Schedule 8A. The $497,000 net loss is calculated by deducting the $749,000 “savings” from the revised net profit of $252,000 shown in Exhibit W-41, at page 19. The $10.41 million net loss is calculated by deducting all of the depreciation, amortization, and interest expense associated with the expansion of HRMC ($10.662 million) from the $252,000 revised net profit. The $10.662 million depreciation, amortization, and interest expenses for the expansion of HRMC was calculated by adding the
$749,000 “savings” to the $9.913 million ($5.062 million plus
$4.851 million) in depreciation, amortization, and interest expense shown for VMC in Schedule 8A, page 6.
11/ In making this finding, the undersigned did not overlook the testimony of Dr. Gregory Vistnes, Holmes’ expert economist, who opined that the approval of VMC would be better for competition in south Brevard County than would the expansion of the Wuesthoff hospitals. Dr. Vistnes’ opinion was counter- intuitive and was generally less persuasive than the testimony and ultimate opinion of Dr. Eisenstadt that approval of VMC will “likely retard the evolution of price competition in south Brevard County.” See Exhibit W-39, at 17.
12/ In making this finding, the undersigned did not overlook Dr. Eidenstadt’s projections using the PC-AIDS model. See Exhibit W-40, at 20. However, the undersigned was not persuaded that the PC-AIDS model is reliable in this context.
13/ In making this finding, the undersigned did not overlook Exhibits H-48 and H-49 and the related testimony of Holmes’ financial expert regarding the projected “bottom line” of the
Wuesthoff hospitals in 2010. However, the projections in those exhibits are not persuasive because the analysis did not take into account a number of important variables. See Transcript, at 2076-79, 2085-86.
14/ But cf. Wellington, supra, at 93-94 (rejecting the argument that the 2004 version of Section 408.035(1), Florida Statutes, requires a CON applicant for a new hospital to demonstrate “not normal” circumstances, but suggesting that whether or not “not normal” circumstances must still be proven after the 2004 amendments to the CON law “may be a distinction without a difference because the other statutory criteria [in Section 408.035, Florida Statutes] effectively encompass the same issues that are typically evaluated in determining whether ‘not normal’ circumstances exist”).
15/ Halifax Medical Center (Port Orange), SAAR dated December 15, 1999.
COPIES FURNISHED:
Richard Shoop, Agency Clerk
Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3
Tallahassee, Florida 32308
Williams Roberts, Acting General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431
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
Kenneth W. Gieseking, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3
Tallahassee, Florida 32308
R. Terry Rigsby, Esquire Carlton Fields, P.A. Post Office Drawer 190
Tallahassee, Florida 32302
Michael J. Glazer, Esquire Ausley & McMullen
227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Oct. 19, 2005 | Agency Final Order | |
| Jun. 17, 2005 | Recommended Order | The Certificate of Need application for a new 84-bed hospital in Viera, Florida, should be denied because Petitioner failed to prove that the hospital is needed. |
