STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
KINDRED HOSPITALS EAST, LLC,
Petitioner,
vs.
AGENCY FOR HEALTH CARE ADMINISTRATION,
Respondent.
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) Case No. 05-2744CON
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RECOMMENDED ORDER
This case was heard by David M. Maloney, Administrative Law Judge at the Division of Administrative Hearings on May 31, and June 1, 2006, in Tallahassee, Florida.
APPEARANCES
For Petitioner Kindred Hospitals East, LLC:
M. Christopher Bryant, Esquire
Oertel, Fernandez, Cole & Bryant, P.A.
301 South Bronough Street Tallahassee, Florida 32302
For Respondent Agency for Health Care Administration: Sandra E. Allen, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Building 3
Tallahassee, Florida 32308
STATEMENT OF THE ISSUE
Whether the Agency for Health Care Administration should approve the application of Kindred Hospitals East, LLC, for a Certificate of Need to establish a 60-bed, long- term care hospital ("LTCH") to be located in Brevard County, one of four counties in AHCA District 7.
PRELIMINARY STATEMENT
In the 2005, 1st Hospital Beds and Facilities Batching Cycle, Petitioner, Kindred Hospitals East, LLC, ("Kindred") filed an application with the Agency for Health Care Administration ("AHCA" or the "Agency") for a Certificate of Need ("CON"). The application, CON 9835, is for the establishment of a 60-bed LTCH in District 7, which consists of four counties: Brevard, Osceola, Orange, and Seminole. Should it be approved, Kindred proposes to locate the LTCH in a location near the city of Melbourne in Brevard County.
CON Application 9835 was preliminarily denied by AHCA in a State Agency Action Report ("SAAR") issued June 17, 2005. Kindred filed a petition for a formal administrative hearing contesting the denial and seeking approval of its application.
On July 28, 2005, AHCA filed a Notice with the Division of Administrative Hearings ("DOAH"). The Notice
advised DOAH that AHCA had received Kindred's request for a formal hearing. The Agency further requested that DOAH assign the matter to an administrative law judge to conduct all proceedings required by law including submission of a recommended order to the Agency.
A motion to intervene was filed on July 29, 2005, by Select Specialty Hospital – Orlando Inc. The motion was granted on August 9, 2005, subject to proof of standing at the hearing.
Hearing was set for September 19 through 22, 2005. Petitioner subsequently filed a motion to reset the date for the final hearing. The hearing was rescheduled for November 18, 21, and 22, 2005. Petitioner later moved to bifurcate the proceedings with regard to the Intervenor’s standing and to continue the hearing. On October 18, 2005, the motion to bifurcate was denied and the hearing was again rescheduled to February 7 through 10, 2006.
On January 5, 2006, Intervenor Select Specialty Hospital – Orlando Inc., filed a Notice of Voluntary Dismissal of its petition to intervene. AHCA filed an unopposed motion for a continuance and the hearing was rescheduled for March 14 through 17, 2006. Pursuant to a joint motion for a continuance, the hearing was rescheduled for May 31 through June 2, 2006.
Final hearing commenced on May 31, 2006. Kindred proceeded first. It presented the testimony of Clarence "Bud" Wurdock, Director of Market Planning for Kindred Healthcare, Inc., and an expert in the field of health care planning; and James Novak, Senior Vice President of Kindred Healthcare Inc.'s Hospital Division
and an expert in health care administration and long-term care hospital administration. Eleven exhibits were marked for identification as K-1 through K-7 and K-9 through K-12. All eleven exhibits were received into evidence.
A twelfth exhibit, K-8, was filed late: the transcript of the deposition of Rita DeArmond, a clinical liaison for Kindred Hospital-Fort Lauderdale, and an expert in LTCH case management and nursing. It is admitted into evidence. The transcripts of other depositions were among the exhibits. The deposed witnesses whose testimony was preserved for hearing are: Sean Muldoon, M.D., Chief Medical Officer of Kindred Healthcare Inc.'s Hospital Division, and an expert in pulmonary disease, internal medicine, preventive medicine, and critical care medicine; Richard Baney, M.D., a physician with Melbourne Internal Medicine Associates in Brevard County, an expert in internal medicine; and Doreen Woods, Vice President of Quality Management for Wuesthoff Health Systems, a system
of short-term acute care hospitals ("STACHs") in Brevard County, an expert in hospital administration and intensive care nursing.
The Agency presented the testimony of Karen Rivera, the primary person in the Agency who supervises reviews of CON applications. Ms. Rivera is the Health Services and Facilities Consultant Supervisor with the Agency. She was accepted in this proceeding as an expert in both health care planning and CON review. Fourteen exhibits were marked for identification sequentially as AHCA Nos. 1-14 and offered by the Agency. All were admitted into evidence.
At the conclusion of the hearing, the parties agreed that July 26, 2006, would be the deadline for filing their proposed recommended orders. On July 24, 2005, the parties filed a joint motion for an extension of time to submit proposed recommended orders. This motion was granted; proposed recommended orders were to be filed by August 15, 2006. A second motion to extend the time for filing proposed orders was granted extending the time to file by a weekend. Each party timely filed a proposed recommended order on August 18, 2006. This Recommended Order follows.
FINDINGS OF FACT
The Parties
Kindred Hospitals East, LLC, ("Kindred" or the "Applicant") is a subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 84 LTCHs nationwide, including eight in the State of Florida. Twenty-four of Kindred Healthcare's LTCHs are operated by Kindred Hospitals East, LLC, including the eight in Florida.
The Agency is the state agency responsible for the administration of the Certificate of Need program in Florida. See § 408.034(1), Fla. Stat., et seq.
Pre-hearing Stipulation
The Joint Pre-hearing Stipulation between Kindred Hospitals East, LLC, and Agency for Health Care Administration, filed May 25, 2006, contains the following:
The CON application filed by Kindred complies with the application content and review process requirements of Sections 408.037 and 408.039, Florida Statutes (2005), and Rule 59C- 1.008, Florida Administrative Code, and the Agency's review of the application complied with the review process requirements of the above-referenced Statutes and Rule.
With respect to compliance with Section 408.035(3), Florida Statutes (2005), it is agreed that Kindred has the ability to provide a quality program based on the descriptions of the program in its CON application and based on the operational facilities of the applicant and/or of the applicant's parent facilities which are JCAHO certified.
With respect to compliance with Section 408.035(4), Florida Statutes (2005), it is agreed that Kindred has the ability to provide the necessary resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation.
With respect to compliance with Section 408.035(6), Florida Statutes (2005)it is agreed that the project is likely to be financially feasible.
The parties agree there are no disputed issues with respect to Kindred's compliance with Section 408.035(8), Florida Statutes (2005), which relates to an applicant's proposed costs and methods of proposed construction for the type of project proposed.
The parties agree there are no disputed issues with respect to Kindred's compliance with Section 408.035(9), Florida Statutes (2005), which relates to an applicant's proposed provision of health care services to Medicaid patients and the medically indigent.
Section 408.035(10), Florida Statutes (2005), relating to nursing home beds, is not at issue with respect
to the review of Kindred's CON application.
With respect to compliance with Rule 59C-1.008(1)(a)-(c), Florida Administrative Code, it is agreed that Kindred complied with the letter of intent requirements contained therein.
9. Rules 59C-1.008(1)(d), (e), (h),
(i), and (j) are not at issue with respect to the review of Kindred's CON applications.
With respect to compliance with Rule 59C-1.008(1)(f), Florida Administrative Code, it is agreed that Kindred complied with the applicable certificate of need application submission requirements contained therein.
The need assessment methodology is governed by Rule 59C-1.008(2)(e)2.a.- d., Florida Administrative Code.
With respect to Rule 59C-1.008(2), Florida Administrative Code, except as to Rule 59C-1.008(2)(e)2.a-d and (2)(e)3, Florida Administrative Code, it is agreed that this provision is not applicable to this proceeding, as the Agency did not at the time of the review cycle at issue, and currently does not, calculate a fixed need pool for LTCH beds.
With respect to compliance with Rule 59C-1.008(3), Florida Administrative Code, it is agreed that Kindred submitted the required filing fees.
With respect to compliance with Rule 59C-1.008(4)(a)-(e), Florida Administrative Code, it is agreed that Kindred complied with the certificate
of need application requirements contained therein.
Rule 59C-1.008(5), Florida Administrative Code, relating to identifiable portions of a project, is not at issue with respect to the review of Kindred's CON applications.
In light of the stipulation, the issues remaining generally concern: the need for Kindred's proposed facility (including the reasonableness of Kindred's need methodology and whether its need assessment conforms to AHCA rules), the accessibility of existing LTCH facilities, and the extent to which the proposal will foster competition that fosters cost-effectiveness and quality.
Long-Term Care Services
The length of stay in the typical acute care hospital (a "short-term hospital" or a "STACH") for most patients is four to five days. Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients in an short-term hospital.
Patients appropriate for LTCH services represent a small but discrete sub-set of all inpatients. They are differentiated from other hospital patients. Typically, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to
be elderly and frail, unless they are victims of severe trauma. All LTCH patients are generally medically complex and frequently catastrophically ill.
Generally, Medicare patients admitted to LTCHs have been transferred from short-term hospitals. At the LTCH, they receive a range of services, including cardiac monitoring, ventilator support, and wound care.
Existing LTCHs in District 7
At the time of the CON application there were 12 LTCHs operating in Florida with a total licensed bed capacity of 805 beds.
There is one existing LTCH within District 7.
Another is approved and under construction. Select Specialty Hospital-Orlando, Inc. ("Select-Orlando") contains 35 beds; it was licensed in 2003. The occupancy rate for this facility for CY 2005 was 73.57 percent.
Select-Orlando's history shows few discharges to Brevard County. The majority of its discharges are to Orange, Seminole, and Osceola Counties. Most of the balance are to Volusia, Lake, and Polk Counties.
A second LTCH, Select Specialty-Orange, Inc., has been approved and is under construction. It will contain
40 beds. The total licensed capacity of these two LTCHs will be 75 beds. Both of the facilities are located in
Orange County and are located in or near Orlando within a few miles of each other.
The acuity levels of the patients in the existing LTCH are not known.
There are no LTCHs in Brevard County where Kindred proposes to build and operate a new LTCH should its application be approved.
Kindred's Proposal
Kindred's proposal in Brevard County, AHCA District 7, is for a freestanding 60-bed LTCH, with all private rooms, including an 8-bed intensive care unit (ICU). The proposed LTCH will follow a care model template that is similar to Kindred's other LTCHs. It will be a freestanding, licensed, certified and accredited acute-care hospital with an independent self-governed medical staff under the same model as a short-term acute hospital.
The majority of patients in an LTCH typically arrive after discharge from a short-term acute care hospital, most often ending their STACH stay in an ICU. Not surprisingly, Kindred projects that its proposed LTCH will receive the bulk of its referrals from STACHs in the surrounding area. Kindred's LTCH patients will be discharged to either their homes, home health care, or to
another post-acute provider on the basis of patient needs, family preference, and geography.
There are several levels of care provided within an LTCH such as Kindred's proposed facility. Typically, LTCHs accept stable medical patients but with catastrophically ill patients some are bound to become medically unstable. There are eight ICU beds for the medically unstable patient. Thus, Kindred's patients who undergo changes of condition (such as becoming medically unstable) can be cared for without a transfer, unlike in skilled nursing facilities or comprehensive medical rehabilitation hospitals facilities not suited for the medically unstable patient.
The goal of an LTCH is to take acute care hospital patients and provide them with a higher level of medical rehabilitation than they would receive in an STACH, and rehabilitate them so that they can be transferred home, or to a rehab hospital, or to a nursing facility. The "medical rehabilitation" of an LTCH addresses system failures and dependence on machines. This is different from the rehabilitation that takes place in an inpatient or outpatient rehab center, where patients usually have suffered an injury or trauma to a muscular or bone system,
and their care is based on physical medicine rather than internal medicine.
The Orlando Metropolitan Area and Brevard County
In evaluating markets that may need an LTCH, Kindred looks at established metropolitan areas the boundaries of which are determined on the basis of population concentrations and commuting data.
District 7 contains most of the metropolitan area associated with the city of Orlando (the "Orlando Metropolitan Area"). Like District 7, the Orlando Metropolitan Area has a presence in four counties. But the counties are different. The Orlando Metropolitan Area encompasses all or part of Orange, Osceola, Seminole, (shared with AHCA District 7) and a county that is not in District 7: Lake County. In addition to the three counties it shares with the Orlando Metropolitan Area, District 7 includes Brevard County. At hearing, Mr. Wurdock explained the following about the Orlando Metropolitan Area:
When we talk about the Orlando area, we are not just talking about Orange County. Orange County, Osceola County, and Seminole County are all part of the Orlando metro area. That means they're an integrated economic unit based on commuting patterns. Lake County is also part of [the Orlando metropolitan area.] . . . [W]hen we looked at . . .
Orange, Osceola and Seminole and ran an analysis . . ., we found . . . there was a need for approximately 180 more beds beyond the . . . 35 that currently existed. So even after you take out the 40 under construction, there is still a really huge need [in the Orlando metropolitan area.]
Tr. 56-57. That Brevard County is not part of the Orlando Metropolitan Area is a consideration in this case.
Kindred's evaluation also showed two other factors about Brevard County that distinguish it from the Orlando Metropolitan Area. First, it does not have adequate access to long-term care hospitals. Second, it's population with a significant number of seniors and a high number of discharges from STACHs makes it one of the few markets of its size that does not have at least one LTCH. As
Mr. Wurdock continued at hearing:
Brevard County has a population of more than a million people and it's got more than 100,000 seniors and they have six short term hospitals that produce more than 60,000 discharges a year. . . .
[T]here are very few markets of that size in this country that do not have at least one long term hospital . . .
Tr. 57. These two factors led Kindred to pursue the application that is the subject of this proceeding.
Kindred's decision to pursue a CON for an LTCH in District 7 also stemmed from the interest of Brevard County physicians who had referred patients to Kindred facilities
in Fort Lauderdale and Green Cove Springs in Duval County, a government unit consolidated with the city of Jacksonville. This interest was also supported by evidence that showed a predominate north/south referral pattern along the I-95 corridor. Patients in Brevard County STACHs appropriate for LTCH services are referred to facilities in Duval County (north) and Fort Lauderdale (south), but generally not to the lone District 7 LTCH in Orlando.
The number of short-term acute hospitals in an area affects the decision of whether to locate a facility in a particular market. The presence of STACHs in a market is significant because the vast majority of an LTCH's patients are transfers from STACHs. The growing senior population (persons aged 65 and over) in Brevard County was also a factor; the elderly population is a large constituent of an LTCH's patient base.
Dr. Richard Baney, who practices with Melbourne Internal Medicine Associates, the largest physician- practice group in Brevard County, holds privileges at Holmes Regional Medical Center, and is familiar with the various health care facilities of all types in Brevard County, including hospitals, inpatient rehabilitation hospitals, and nursing homes. Dr. Baney anticipates serving as either an attending or consulting physician if
the Kindred facility in Brevard is approved, as do several of the other physicians in his group, including some "intensivists" such as pulmonologists, critical-care physicians, and cardiologists.
Dr. Baney's physician group consists of 45 primary care physicians, including internists, family practitioners and pediatricians. The group also includes OB/GYNs, neurologists, medical sub-specialists such as cardiologists, pulmonologists, endocrinologists, hematologists, and oncologists. Among the oncologists are radiological oncologists. There are general surgeons in the group, surgery sub-specialists, including vascular surgeons, and ENT (ear, nose, and throat) physicians.
Dr. Baney summed up his opinion on the need for an LTCH in Brevard County as follows:
In our area we have excellent acute- care hospitals, and we have a good network located throughout the area of subacute rehab facilities, as well as nursing homes, and then home care, and then eventually a patient is home.
What we don't have in this area is a long-term acute-care facility that would handle the more significantly ill patients who need more intensive medical and nursing and physical therapy support.
Right now those patients that would normally benefit from this type of facility have to dwell in the hospital
for . . . weeks and weeks at a time until they achieve a point of stability where they can be moved into a subacute rehab. What this does in turn is clog up the hospital beds, ICU beds in particular, and every year we have at our large acute-care hospitals here at Holmes patients who are being quartered in the . . . auditorium at the hospital, in the hallways of the emergency room, since the hospital gets just overwhelmed with patients and cannot move them out.
Certainly I believe a facility in this area would have no trouble being able to fill that need of taking many of these patients who need this kind of care out of the [STACH] into a better, more efficient setting. Also, we don't have any place that's nearby that patients and their families can go for this kind of care.
. . . [I]t's really not logistically feasible for patients and their families to go 80, 90 miles away or further to . . . have their care for this type of duration.
Kindred No. 7, Deposition of Richard Baney, Jr., M.D., at 10-11.
When asked about the difficulty presented by the distance to the LTCHs in Fort Lauderdale and Duval County, Dr. Baney answered with regard to one of his patients that administratively there a few if any problems. The problem is for the family:
But the family was very hesitant to allow their father to be transported
. . . 150, 180 miles away and be there
for weeks or months while they were recovering. They were quite resistant to the idea of him so far away, since the family would have to travel back and forth. Eventually they overcame that and the patient did go . . . to the facility down south.
* * *
But it was quite a hurdle that we had to get over.
Id., p. 16, 17.
Aside from the logistical problems faced by the families whose loved one is a potential patient at an LTCH at great distance from home, Dr. Baney's testimony accentuates another factor faced by potential LTCH patient in Brevard County. This is a factor favoring approval of an LTCH application recently recognized by AHCA when it approved Select-Orange, a second LTCH in the Orlando Metropolitan Area dominated by two large hospital organizations. Similar to the Orlando area, Brevard County STACHs, for the most part, belong to one of two hospital organizations predominate in the area.
Brevard County's Two Main Hospital Organizations
There are two main hospital organizations in Brevard County: the Health First system and the Wuesthoff system. Health First includes Holmes Regional Medical Center; Palm Bay Community Hospital, which is about 90
beds; and Cape Canaveral Hospital, which is also about 90 beds, in the central part of the county. Palm Bay is a large community about 15 miles south of Melbourne. Cape Canaveral is about 20 miles from Melbourne, and Rockledge is about 15 miles from Melbourne.
The Wuesthoff system consists of Wuesthoff Rockledge and Wuesthoff Melbourne. Wuesthoff Rockledge is a 267-bed acute care facility with 32 ICU beds, 8 cardiac surgery beds, and an active emergency room that sees about 1,500 visits a month. Wuesthoff Melbourne is a 115-bed facility with a 12-bed ICU and an active ER of around 800 visits a month.
Wuesthoff currently refers LTCH patients- primarily long-term ventilator patients-to Kindred's facilities in Fort Lauderdale and near Jacksonville. When Wuesthoff refers a patient to Kindred, it calls Kindred's intake coordinator who journeys to Wuesthoff to review the patient's records, meet with the family, and determine if the patient can be placed. Only if a physician from the LTCH signs an admission order concurring that the patient is clinically appropriate for admission to an LTCH is the patient transferred. Often, however, because the Kindred facilities are so far away, just as Dr. Baney pointed out, the families do not want to move the patient out of
Wuesthoff. This resistance continues despite increased education about the benefit of LTCHs to potential LTCH
patients.
LTCH Education
When an LTCH comes into a market, an education process begins. It begins with the physicians, and with the case managers and social workers in the STACH. Kindred educates these professionals about what an LTCH is, what its services are, and where it fits into the continuum of care.
Kindred's Admission and Patient Evaluation Processes
Kindred does not admit every patient that falls within the diagnoses that might produce LTCH-appropriate patients. Patients are pre-assessed before admission using what is nationally known as Interqual criteria for hospital admissions. That set of criteria is based on severity of the patient's illness and the intensity of services required to treat the patient, and then a review committee at the LTCH makes a clinical determination whether or not the patient is appropriate for LTCH services.
The sole way that a patient gets referred to a Kindred Hospital is through a physician order. Before a patient comes to a Kindred Hospital, a physician has determined that to the best of his or her judgment the
patient requires continued care at the level of an acute care hospital and that the patient's course of treatment will be prolonged. A physician from a Kindred Hospital must write the admission order, concurring that it is appropriate for that patient to be in an LTCH. Prior to obtaining that physician order, potential candidates for transfer are identified through the STACH case management staff, with the assistance of the LTCH staff. The STACH medical staff, nurses, or other personnel initiate the request for Kindred to visit the patient, interview the family, talk with the STACH attending physician, and make a determination of whether transfer and care at Kindred is clinically appropriate.
Kindred gathers information on a potential patient to assist in making the admission determination using individuals in the field known as "clinical liaisons," who are primarily licensed registered nurses. The clinical liaison gathers the information, but does not make the ultimate determination as to whether to admit the patient to a Kindred facility. The ultimate determination for admission is made by the physician who will be seeing the patient at the Kindred facility.
In order to comply with Medicare reimbursement requirements, Kindred employs such safeguards to make sure
only appropriate patients are admitted. Medicare reviews the patients treated into the hospital, and it can and does reduce payment for "short stay outliers" who do not stay at least five-sixths of the geometric mean of the length of stay (GMLOS) for the patient's diagnosis. Mathematically, however, LTCHs will always have some patients who are short stay outliers. Even if GMLOSs rise as result of the elimination of short stay patients, between 35 and 40 percent of patients will always be "short stay outliers" under CMS's current definition. They will just be hospitalized for a stay that is short relative to a longer length of stay.
Kindred LTCHs utilize criteria that assure that patients, once admitted, have sufficient severity of illness and need sufficient intensity of service to continue to warrant acute care. Case managers in LTCHs apply discharge screens to patients as they near completion of their LTCH care plan to help physicians make a judgment of when they are ready to be transferred either home or to a lower level of post-acute care.
Kindred's CON application included a utilization review plan, using an example from Kindred Hospital North Florida. Every hospital has a utilization review plan designed to assure that appropriate care is given to
patients. It serves an oversight function for medical care, nursing care, medication administration, and any other area where resources are expended on behalf of the patient.
A PPS for LTCHs
Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services (CMS) established a prospective payment system for LTCHs. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by providers of short-term acute care or other post short-term acute care providers. Under the system, each patient is assigned an LTCH DRG, indicating that the patient's diagnosis is within a certain Diagnostic Related Group. The LTCH is reimbursed the pre-determined payment rate for that DRG, regardless of the cost of care.
The creation of separate DRGs for LTCH patients is the mark of the federal government's recognition of the validity of LTCH services and the distinct place occupied by LTCHs in the continuum of care based on the high level of LTCH patient acuity. Despite this recognition, concerns about the identification of patients that are appropriate for LTCH services have been voiced both at the federal level and at the state level. With the rise in LTCH
applications over the last several years, AHCA has been consistent in voicing those concerns, particularly when it comes to LTCH population levels of acuity.
Acuity
The Agency is not convinced that there is not significant overlap between the LTCH patient population and the population of patients served appropriately in healthcare settings other than LTCHs. The Agency has reached the conclusion that there are options (other than an LTCH in Brevard County) available to patients targeted by Kindred. The options depend on such matters as physician preference and the availability of long-term care hospitals in a given geographic area. Kindred answers the concerns, in part, with evidence that relates to acuity.
A "case mix index" for the hospital is a measure of its average resource consumption. Resource consumption can be viewed as a surrogate measure of complexity and severity of illness, so case mix index is often cited as a readily available measure of patient acuity. Using that indicator, the case mix index of Kindred hospitals is high compared to the entire LTCH industry, and is higher than the average case mix index for STACHs.
The APR/DRG system is a way to further refine the variation of patients' acuity within a DRG. The system
assigns not only a DRG, but a severity of illness on a scale of one (minor severity) to four (extreme severity). Using that tool with the Kindred data base (as well as the federal MedPAR data base) confirms that the distribution of severe and extreme severity of illness is skewed toward LTCH patients, meaning that there are more patients with higher severity of illnesses in LTCHs than in STACHs. As is to be expected, and one would hope if LTCHs are appropriately serving their niche in the continuum of care, this is consistent with the empirical observation that patients in LTCHs, are more sick than those in STACHs.
A third measure of patient acuity routinely used in Kindred hospitals is an APACHE score, which is a combination of physiologic derangement and concurrent illnesses. The average Kindred patient has an APACHE score of about 45, whereas the average critical care patient in all STACHs has a score about two-and-a-half points higher. Thus, Kindred's LTCHs treat a severely ill population only a few points, on the APACHE measure, below that of critical care units in STACHs across the country.
The Agency does not, by rule or order, define the level of acuity at which LTCH patients should be for admission. Information on acuity level of patients in STACHs is not available through the State's health
statistics data base, nor is any information that would allow an LTCH applicant to undertake an acuity analysis of potential patients. AHCA acknowledges that it has no reason to believe that Kindred admits lower-acuity patients with the least need for resources among those in LTCH- appropriate DRGs.
Family Hardship
In those markets that do not have LTCHs, STACH patients typically have no choice of treatment but to stay in the STACHs, unless they are willing to travel long distances. As Dr. Baney pointed out in his deposition testimony, many patients who could benefit from an LTCH are not inclined to travel long distances. One reason is that the patients' families are not able to commute that distance. If the patient is going to be in an LTCH for weeks or months, it creates a hardship on the family to have their loved one that far away. The family either loses contact with their loved one or they actually have to relocate to where the loved one is and abandon their home temporarily.
The need for family presence and involvement is more than just an emotional matter of patient and family preference. Families are involved in the treatment of a patient in a long-term care hospital, not only through
their presence in the hospital but also because they will participate in patient care after the patient leaves the LTCH. Families have to learn how to get the patients out of bed, feed them, and possibly suction them. The families would be taught how to care for their family members once they leave the LTCH, by nursing and therapy staff, teaching them exercises for the patient, how to regulate the oxygen, and giving medications.
Differences between LTCHs and Other Providers
LTCHs and STACHs do not have the same purpose, and the gap is widening between the two. Over the last 20 years, STACHs have evolved into settings that are very good at stabilizing patients, diagnosing their conditions, and developing treatment plans. Most admissions to the medical ward of an STACH come in through the emergency room where patients are so acute, so unstable, that emergency care is required to stabilize the patient.
In their role as diagnostic centers, STACHs provide imaging and laboratory services, and then develop a treatment plan based on the diagnostic work-up performed. STACHs have moved away from the function of carrying out a treatment plan. This is borne out by shrinking STACH lengths of stay over the last 20 years, which now average four to six days. As a result, STACHs have limited
capability to provide a prolonged treatment plan for patients with multiple co-morbidities. In contrast, LTCHs do not hold themselves out to be diagnostic or stabilization centers. They have developed expertise in caring for the small subset of patients that require a prolonged treatment plan. A multi-disciplinary physician- based care plan is provided in LTCHs that is not provided in STACHs or other post-acute settings.
LTCH patients meet hospital level criteria, and if there is no LTCH readily accessible to provide a hospital-level discharge option for these patients, then the STACH has no option but to keep them, and manage their treatment and costs as best they can. LTCHs take care of those patients who need to be in a hospital, but for whom reimbursement is not adequate for STACHs to treat. The reimbursement system is driving this to a great extent, because of the incentives it gives to discharge patients as quickly as possible.
Not every STACH patient needs LTCH care; as a rule of thumb, about one percent of all non-obstetric patients are potentially LTCH-appropriate. Ms. Woods, Vice President for Wuesthoff Health System which operates STACHs in Brevard County, testified in deposition that Wuesthoff's ICUs in Wuesthoff hospitals often retain patients who could
be placed in an LTCH. As the Wuesthoff ICUs remain full, the ability to move patients through the hospital, from the emergency department through the ICU, is significantly impacted.
While long-term care hospitals take a team approach to getting patients weaned from ventilators or getting them to a rehab involvement, an acute care hospital ICU deals more with acute crisis situations, such as an acute MI (myocardial infarction) or an acute blood clot to the lungs, or someone who has acute sepsis or infection.
The roles that LTCHs play have a significant impact on acute care hospitals such as Wuesthoff. If an acute care hospital has to maintain a patient for 30 to 60 days on a ventilator in order to get them weaned or to meet their needs, that poses the potential to interfere with the acute care hospital from meeting the needs of the community, such as patients who are coming in the emergency room with acute conditions. Most of the stays in Wuesthoff's ICU beds, for example, are five to seven days; they are trauma patients, surgery patients that need support and critical care, and patients coming in with major infections. When ICU beds are unavailable, these patients are being held in the emergency departments; it
stops the patient flow if the beds in a community hospital are taken up from a long-term ventilator patient.
SNFs and LTCHs are different both in intent and execution. SNFs are appropriate for patients whose primary needs are nursing, who are stable and unlikely to change, and who do not require very much medical intervention. Conversely, LTCHs, being licensed and accredited as acute care hospitals, are appropriate when daily medical intervention is required. LTCHs are able to respond to changes in conditions and changes in care plans much better than SNFs because LTCHs have access to diagnostics, laboratory, radiology, and pharmacy services. Further, there are no skilled nursing facilities in Brevard County that operate beds for ventilator dependent patients, nor are there hospital-based skilled nursing units ("HBSNUs").
Using Kindred's own nursing data base, which consists of 250 SNFs across the country, and Kindred's LTCH data base, consisting of 75 LTCHs, Kindred has discovered that that overlap in patient condition is very small. Where there is overlap, it tends to be at the ends of care in LTCHs and the beginning of care in SNFs. This progression makes sense, since SNFs are a common discharge destination for LTCH patients.
LTCHs and rehab hospitals are also distinctly different. Rehab hospitals are geared for people with primarily neurologic or musculoskeletal orthopedic issues, and are driven with a care model based on physical medicine rather than internal medicine; LTCH care requires the oversight of an internist rather than a physical medicine doctor. While rehab is a concurrent component of LTCH care, the patient in an LTCH cannot tolerate the three hours per day of therapy required for admission to rehab hospitals due to their medical conditions. In fact, a common continuum of care is for an LTCH patient to receive treatment and improve to the point where they can tolerate three hours of rehab and so be transferred to a rehab hospital.
There is one acute rehab center in Brevard County, and it does not take ventilator-dependent patients. There are no hospital based skilled nursing units in Brevard County. There are no skilled nursing facilities in Brevard County that can accommodate ventilator-independent patients. Often ventilator-dependent patients also have IV antibiotics and tube feedings, and these are complicated conditions that a nursing home will not treat.
LTCH care cannot be provided through home health care, because, by definition, LTCH patients meet criteria
for inpatient hospitalization. Home health care is designed for patients who are very stable and have such a limited medical need that it can be administrated by a visiting nurse or by families. This is in sharp contrast to an LTCH patient where many hours a day of nursing, respiratory, and other therapies are required under the direct care of a physician.
On the basis of regulation alone, STACHs could provide LTCH care. They generally do not do so because they have evolved into centers of stabilization, diagnosis, and initiating a treatment plan. Case studies bear out that when patients who made very little progress in STACHs are transferred to LTCHs, where the multidisciplinary approach takes over from the diagnostic focus, the patients improve in both medical and physical well-being.
Those patients that would normally benefit from an LTCH have to dwell in the hospital for weeks until they achieve a point of stability where they can be moved in to a subacute facility; instead of continuing to move efficiently down the continuum they remain in the "upper end of the stream." This, in turn, may overwhelm the short-term acute care hospital, particularly in its ICU, resulting in patients being quartered in the auditorium at the hospital and in the hallways of the emergency room.
The LTCHs available along the east coast of Florida in Fort Lauderdale or Jacksonville are at a distance from Brevard County that is an obstacle to referral of a Brevard County patient. Having a long-term care hospital in Brevard County would enhance the continuum of services available to Brevard County residents.
On the other end of the referral process from Dr. Baney is Rita DeArmond, the clinical liaison for Kindred Hospital Fort Lauderdale. Her duties include, "patient evaluations on potential admissions to [Kindred Fort Lauderdale], which also involves meeting with families and educating the families, . . . case managers, . . . physicians and other people in the community about our hospital and long-term acute care hospitals in general." Kindred No. 8, at 5. She serves "Palm Beach County, the area around Lake Okeechobee [Okeechobee and Hendry Counties], Martin County, . . ., St. Lucie County, Indian River County and Brevard County." Id. at 11.
In Ms. DeArmond's experience in dealing with potential long-term care hospital patients and their families not in the immediate vicinity of an LTCH, the willingness of those patients to travel great distances is the biggest hurdle for the patients admission to an LTCH. Most of the patients and their spouses are elderly, and
they do not tend to travel long distances, or on the interstate. Being faced with traveling hundreds of miles round-trip to visit a loved one is very distressing to most of them.
Not only would potential Brevard County LTCH patients be more likely to avail themselves of LTCH services if there were an LTCH in Brevard County but so would patients in other counties. For example, according to Ms. DeArmond, Lawnwood Regional Medical Center in Fort Pierce, a St. Lucie County STACH, and Sebastian River Medical Center, an STACH in Indian River County, would definitely send potential LTCH patients to an LTCH in Brevard County rather than the current closest LTCH, Kindred Fort Lauderdale.
Having an LTCH would be a positive impact for other Brevard County STACHs as well. For example, Wuesthoff would not experience the backup in its emergency department and in its ICU beds, especially in the winter time where there is a high census due to more cases of pneumonia in the winter. If a patient who might be clinically appropriate for an LTCH remains in the ICU in an acute care hospital such as Wuesthoff, that patient does not receive the same care that he or she would receive at an LTCH. Acute care hospitals do not provide the medical
rehabilitation work that LTCH's do, such as a plan of care just for the rehab of ventilator patients. An acute care hospital can deal with the pneumonia, and can wean the patient, but does not have the same plans or care or the same focus that an LTCH does with those types of patients. If the patient does not go to an LTCH, they will stay in the acute care hospital using the hospital resources.
Wuesthoff has had patients there up to 65 days.
The hospitals and physicians visited by Kindred- Fort Lauderdale clinical liaison Ms. DeArmond on a regular basis are located in Brevard County in District 7, as well as Indian River and St. Lucie counties. The hospitals within Brevard County that she contacts include Holmes Regional and Wuesthoff Melbourne Hospital; within Indian River County, Indian River Memorial Hospital in Vero Beach and Sebastian River Medical Center, and within St. Lucie County, St. Lucie Medical Center in Port St. Lucie and Lawnwood Hospital in Fort Pierce.
In gathering letters of support that were submitted with Kindred's CON application for a long-term care hospital in Brevard County, Ms. DeArmond met with case managers and physicians and informed them of Kindred's intention to apply for a CON to build a hospital in Brevard County. The physicians and case managers who provided
letters of support had previously referred patients to Kindred Hospital in Fort Lauderdale, so they were familiar with the services that Kindred can offer in an LTCH. It is reasonable to assume that such physicians and case managers would refer patients to a Kindred LTCH in Brevard County, if approved.
MedPAC Concerns
In denying Kindred's application, AHCA relied on reports issued to Congress annually by the Medicare Payment Advisory Committee (MedPAC) that discuss the placement of Medicare patients in appropriate post-acute settings. The June 2004 MedPAC report state the following about LTCHs:
Using qualitative and quantitative methods, we find that LTCHs' role is to provide post-acute care to a small number of medically complex patients.
We also find that the supply of LTCHs is a strong predictor of their use and that acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable.
AHCA Ex. 7, at 121. The June 2004 MedPAC report, therefore, concludes that LTCHs should "be defined by facility and patient criteria that ensure that patients
admitted to these facilities are medically complex and have a good chance of improvement." Id.
Despite the above language in the June 2004 MedPAC report, discussion in the SAAR of portions of the MedPAC report shows that AHCA may have misread some of the subtleties of the MedPAC findings.
The MedPAC report makes statements that LTCHs and SNFs substitute for one another. While there is some gross administrative data to support that hypothesis, that conclusion cannot yet be drawn due to limitations in data and the wide variation of patient conditions that may be represented by a single administrative grouping such as a DRG.
An example of patients in different settings who would appear to be similar are those under DRG-475, which means they were on ventilator life support for at least 96 hours. Such patients may be discharged in conditions that vary greatly. These conditions range from an "alert, talking patient, no longer on life support," to a patient who is "not on life support but is making no progress." There is no administrative data that describes patients at the time of their discharge. MedPAC analysis, therefore, lacks the data to determine why some of those patients went to a higher versus a lower level of care.
The SAAR also concludes, based on a letter from the MedPAC Chairman, that LTCH patients cost more on average than patients in other settings. This conclusion is based on an analysis that is unable to differentiate patients within a DRG based on their severity at the time of discharge. The limitation in the DRG is that it is designed to describe the patient's need at the time of admission rather than discharge, so the DRG classification alone does not identify whether the patient was healthy or ill at the time of discharge. Furthermore, MedPAC found that patients who tended to be more severe based on DRG assignment tended to be cared for at similar cost between LTCHs and other settings. In fact, for the tracheostomy patient, which is the extreme of severity and complexity, there was evidence of lower cost of care for patients whose case included an LTCH stay.
MedPAC Chairman Glenn Hackbaith, in his March 20, 2006 letter, agreed that CMS's proposed change to the short stay outlier policy was "too severe"; that it affects a "substantial percentage of LTCH patients"; and that it would continue to affect a large percentage of admissions "regardless of the admission policies of LTCHs." MedPAC's March 2006 Report to Congress notes that the total Medicare
payments to LTCHs nationwide -- $3.3 billion in 2004 -- represented less than one percent of all Medicare spending.
Need Analysis in the Absence of an AHCA Need Methodology
The Agency does not have a rule that sets out a formula for determining the need for LTCH beds. Accordingly, AHCA does not publish a fixed need pool for LTCH beds. As the parties agree, this case is governed, therefore, by Florida Administrative Code Rule 59C- 1.008(2)(e)2.a-d (the "Needs Assessment Rule").
Application of the Needs Assessment Rule makes Kindred responsible for demonstrating need through a needs assessment methodology that covers specific criteria listed by the rule as detailed below, following the sections of this Order devoted to Kindred's Need Methodology and AHCA's criticisms of it.
Kindred's Need Methodology
Kindred bases its need methodology (the "Kindred Methodology") in this case on long-stay patients in short- term hospitals.
A description of the Kindred Methodology, supported and proved by the testimony of Mr. Wurdock at hearing, appears in Kindred's CON application under a section entitled "Bed Need Analysis," see Exhibit K-1,
at 14. It begins with the statement: "Long-term care hospital bed need can be estimated directly based on the acute care discharges and days occurring in the market." Id. There follows a chart that lists the six Brevard County STACHs and shows the number of patient discharges in the six months ending March 2004 and the patient days for the same period. These total 68,710 and 309,704, respectively.
To identify the number of patient days appropriate for LTCH care, the Kindred Methodology takes into account patient diagnosis at discharge, patient age and length of stay.
Some types of patients (burn patients, obstetric and pediatric patients or behavioral patients) are not appropriate for LTCH admission. Likewise, patients with short-term rehabilitation diagnoses typically are not appropriate for LTCH care. The first step in the Kindred Methodology, therefore, is to identify and omit those diagnoses which represent patients not appropriate for long-term care admission. Those include all DRGs in the Major Diagnostic Categories (MDC) of 13-Female Reproductive System; 14-Pregnancy, Childbirth and Puerperium; 15- Newborns and Other Neonates; 19-Mental Diseases and Disorders; 20-Alcohol and Substance Abuse; 22-Burns; and
23-Factors Influencing Health Status. Two additional groups of DRGs are omitted by the Kindred Methodology: DRGs specific to patients less than 18 years of age and DRGs for organ transplant patients who are usually required to remain in the STACH for specialized care.
The end result of the first step in the Kindred Methodology is a list of 387 short-term acute care DRGs ("LTCH Referral DRGs") that represent patients who potentially could be eligible for LTCH admission.
The Kindred Methodology's second step is to identify discharges that are assigned to one of the LTCH Referral DRGs and are aged 18 or older and whose length of stay exceeds a threshold number of days. This threshold is described in the application as follows:
The length of stay threshold is defined in terms of the national geometric mean length of stay (GeoMean). That statistic is calculated annually by the federal Centers for Medicare and Medicaid Services (CMS) for each DRG.
The number of long-term hospital patients and patient days is affected by the timing of the referrals.
Referrals usually occur after the patient's length of stay has become longer than average. It is commonly accepted that many patients who stay in the acute care hospital beyond the geometric mean length of stay would be best cared for in a specialized, long- term environment. Therefore, in this analysis it is assumed that referral to
Kindred Hospital Brevard will occur five days after a patient has passed their DRG-specific geometric mean length of stay. This allows time for patient assessment and transfer arrangements.
Another important factor affecting the potential number of long-term hospital patients and patient days is the length of time a patient stays in the LTCH. In order to qualify for Medicare certification, long-term care hospitals must maintain a minimum average length of stay of twenty-five days or greater among their Medicare patients.
Admission criteria, therefore, are used to minimize the number of Medicare patients requiring just a few days of care. To reflect this in the analysis, patients are considered to be LTCH appropriate only if they would have a long-term hospital length of stay of ten days or more.
Exhibit K-1, at 16. Discharged patients, therefore are considered appropriate for LTCH care by the Kindred Methodology if they are discharged from a Brevard County STACH, are at least 18 years of age, are assigned to one of the 387 Referral DRGs, and have a hospital length of stay that exceeds the geometric mean by at least 15 days, the sum of a referral period of five days and an LTCH minimum length of stay of ten days.
The third step in the Kindred Methodology is to sum the potential LTCH days produced by the appropriate patients. For these patients, potential LTCH days include
all days after the "'transfer day' (i.e., all days that exceed the GeoMean + five days)." Id. For the 12-month period ending March 2004, this calculation yielded approximately 18,400 hospital days in the six Brevard County hospitals, for an average daily census (ADC) of 50.4.
The fourth step in the Kindred Methodology is to identify the number of patient days that are leaving Brevard County for LTCH care, due to the absence of an LTCH in the county. During the 12-month period ending in
March 2004, 41 Brevard County residents were discharged from Kindred Hospital North Florida in Green Cove Springs and Kindred Hospital Fort Lauderdale. Those patients received 2,229 days of LTCH care, equaling an average daily census of 6.1. Adding that to the 50.4 ADC un-served patients in Brevard County, yields a potential LTCH ADC of 56.5.
The fifth step is to account for population growth. This is especially important when there is rapid growth in senior population as there is in Brevard County. According to AHCA projections, the population 65 and over will increase 9.2 percent during the next five years, while the total population will increase 10.8 percent. It is appropriate to increase LTCH ADC at least by 9.2 percent
during this time period, since the proposed project will not open until 2007 at the earliest, and will not achieve full utilization until at least 2011. This step produces an LTCH ADC of 61.7.
The sixth and final step is to calculate LTCH "bed need" by assuming 85 percent occupancy. Dividing the LTCH ADC of 61.7 by 0.85 yields a bed need of 72 LTCH beds.
The Kindred Methodology does not account for the five percent or more of referrals that come from sources other than LTCHs such as nursing homes. Nor does it take into account the admissions from Indian River County currently served by Kindred Hospital Fort Lauderdale, some of which are sure to come to the proposed project if approved.
AHCA Criticism
The methodology is criticized by AHCA on the bases, among others, that it does not account for beds available elsewhere in District 7, and that it determines need solely within Brevard County, a departure from the statutory mandate which requires Agency review of CON applications with regard to "availability, quality of care, accessibility, and extent of utilization of existing health care facilities in the service district of the applicant."
§ 408.035(2), Fla. Stat. (emphasis supplied).
The Agency's argument with regard to the un- utilized beds at the one existing LTCH in District 7, Select-Orlando, is undermined by recent action of the agency in approving a second Select facility in Orange County, a 40-bed freestanding facility: Select Specialty Hospital-Orange, Inc. ("Select-Orange"). The Agency approved the 40-bed Select-Orange facility, not open at the time of hearing, by way of a Settlement Agreement (the "Select-Orange Settlement Agreement") with the applicant. The two parties to the agreement, AHCA and Select-Orange, jointly stated in that document:
[T]he Agency, in recognizing that there are two distinct health systems in the Orlando area, believes that this LTCH is needed for the Orlando Regional Healthcare System due to that unique situation . . .
Kindred Ex. 4, at 2. The two distinct health systems in the Orlando area are Orlando Regional Healthcare System, Inc., which has a number of STACHs in the Orlando area including Orlando Regional Medical Center (ORMC), a tertiary medical facility with more than 500 beds, and the Adventist Health System, Inc. (Adventist), a hospital organization with a nationwide presence that as of 2002 operated seven acute care campus systems under a single license held by Adventist d/b/a Florida Hospital in the
Orlando Metropolitan Area. See Orlando Regional Healthcare System, Inc. vs. AHCA, Case No. 02-0449 (DOAH November 18, 2002), pp. 8-10.
The Select-Orange Settlement Agreement was entered in the midst of administrative litigation over AHCA's preliminary agency action with regard to a CON application.
The meaning and impact of AHCA's statement quoted above from the Select-Orange Settlement Agreement were not fully elaborated upon at hearing by any direct evidence. Kindred established through the testimony of Mr. Wurdock and through cross-examination of Ms. Rivera that although Select-Orange was originally approved as a "hospital-in- hospital" or "HIH," that Select-Orange obtained a modification of its CON to become a freestanding facility. Had the facility remained an HIH, federal regulations would have limited the percentage of Medicare referrals that could come from its host hospital, ORMC. As a freestanding facility, Select-Orange has no such limitations. It can fill its beds with referrals from ORMC.
Whatever the impact of the freestanding nature of Select-Orange, the Agency's recognition of the unique situation in the Orlando area created by two distinct health systems, such that there is support for a new LTCH
when the existing LTCH has available beds, gives rise in this case to an inference in Kindred's favor. If two distinct hospital systems in the Orlando area can support the addition of 40 LTCH beds, then it is highly likely that Brevard County can support a 60-bed LTCH. The county is not a part of the Orlando Metropolitan Area. LTCH referral patterns are north-south along the I-95 corridor (not to Select-Orlando). There are geographic and roadway access issues from Brevard County to the Orlando area demonstrated by commuting patterns that exclude Brevard County from the Orlando Metropolitan Area. And most significantly, the methodology reasonably established need for more than 60 beds in Brevard County.
The Needs Assessment Rule
The need for any health care service or program regulated by CON Law for which AHCA has not provided a specific need methodology by rule is governed by Florida Administrative Code Rule 59C-1.008(2)(e)(the "Need Assessment Rule"), which states in part:
. . . If an agency need methodology does not exist for the proposed project:
. . . If an agency need methodology does not exist for the proposed project:
The Agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy.
If no agency policy exist, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except when they are inconsistent with the applicable statutory and rule criteria:
Population demographics and dynamics;
Availability, utilization and quality of like services in the district, subdistrict or both;
Medical treatment trends;
Market conditions; and
Competition.
The Agency does not publish a fixed need pool for LTCH beds because it does not have a specific need formula or methodology for LTCH beds.
The Agency, furthermore, has not provided Kindred with any policy upon which to determine need in this case. Accordingly, Kindred used its own methodology for determining need in Brevard County and elsewhere in the district (the Orlando Metropolitan Area). Finally, since no agency policy exists with regard to an LTCH need
methodology, Kindred is required to prove the existence of need for its proposed project on the basis of the five categories of criteria (referred to in the rule as "topics") listed in sub-paragraphs "a. through e.," of paragraph 2., in subsection (2)(e) of the Rule.
Population Demographics and Dynamics
In assessing an area's population and demographics for the purpose of evaluating LTCH need, special attention is paid to the elderly population because the majority of LTCH patients are Medicare patients. The elderly are also more likely to produce LTCH patients because they are more likely to be medically complex and catastrophically ill with co-morbidities and dependent on medical equipment like ventilators. Brevard County, while home to only an approximate one-quarter of District 7's population, accounts for more than a third of its seniors. While Brevard County's elderly population is experiencing average or slightly below average growth in relation to the rest of the state, there is no question that Brevard County's elderly population is on the increase and reasonably projected to increase in the future.
Availability, Utilization, and Quality of Like Services in the District
"[B]y definition, putting a long term hospital in Brevard County will increase accessibility [make LTCH services more available] because . . . the people in Brevard County will no longer have to go all the way to Orlando, or Jacksonville, or Ft. Lauderdale for [LTCH] care." Tr. 48. Mr. Wurdock elaborated on the point of district availability at hearing:
We did look at the entire district.
. . . [T]here [are] only four counties in the district, three of which orbit around the Orlando and then there is the Palm Bay/Melbourne metropolitan area, which is Brevard.
And when we looked at the district as a whole, what we discovered was that there is a need really for two new long term hospitals in the district. There is clearly a need for another one in Orlando [beyond the existing Select- Orlando and the approved not yet operating Select-Orange] and there is also a need for one in Brevard County.
. . . [You] could build . . . two new long term care hospitals, both of them in Orlando, but that doesn't . . . make
. . . sense when you've got a very large concentration of seniors significantly removed from the Orlando area with six short term hospitals in
. . . [Brevard C]ounty comprising essentially its own market.
So logically, you . . . put one long term hospital in Brevard and then another long term hospital in Orlando.
Tr. 48-49.
The presence of six STACHs in Brevard County and the large senior population is significant. The closest LTCH is Select-Orlando more than an hour's drive away. The distance to Select-Orlando and Select-Orange's future site from the municipality in which Kindred proposes to site its proposed LTCH, Melbourne, is more than 60 miles, in a direction not favored by Brevard County residents oriented to driving north or south along the I-95 corridor, but not to the west into the Orlando Metropolitan Area. Furthermore, and most significantly, family members rarely fully understand and accept that their catastrophically ill elderly loved one should be shipped 60 miles away when the patient is in a hospital with a good reputation. Their resistance to a referral at such a distance is unlikely to increase utilization at the Orlando area LTCHs no matter how convinced are their physicians and other clinical practitioners that such a move is required for better care.
Medical Treatment Trends
LTCHs are recognized as a legitimate part of the health care continuum by the federal government and CON approvals of LTCHs in Florida have been on the upswing
throughout this decade. At the federal level, in recognition of their treatment of a small but important subset of patients, Medicare has adopted LTCH DRGs, that is, DRGs specific to LTCHs, for reimbursement under Medicare's PPS. At the state level, the Agency recognizes that "[t]he trend is for LTCHs to be increasingly used to meet the needs of patients in other settings who for a variety of reasons are better served in LTCHs." Respondent Agency for Health Care Administration's Proposed Recommended Order, at 15. This recognition is made by AHCA despite MedPAC's concerns, many of which were tempered and adequately addressed by Kindred in this proceeding.
Market Conditions
At first blush, market conditions might not seem to favor Kindred's application. The occupancy rate in the District indicates that there are available beds. In AHCA's view, the occupancy rate at the one existing LTCH in District 7, the 35-bed Select-Orlando facility, an H-I-H in a converted nursing home at Florida Hospital Orlando, is not optimal. Select-Orlando opened in 2003, only a few years ago, and it is operating at a high occupancy rate that is approaching optimal. Kindred, moreover, did not confine its need case to its Brevard County methodology. It also presented evidence of need in the Orlando
Metropolitan Area consisting, in part, of the three other counties in District 7.
Competition
While the Agency asserts that it did not give competition much weight in this application, AHCA has not taken the position that Kindred's proposed facility would not foster competition. Having an LTCH in Brevard County would foster competition in the traditional sense in that the only LTCHs in the District, one existing and one approved, are those of Select Medical Corporation, Kindred's chief competitor.
A Reasonable Methodology for Brevard County
In short, Kindred's methodology is reasonable for determining need in Brevard County and it appropriately includes the topics required by the Needs Assessment Rule. The Agency's argument that there is no need for LTCH beds in Brevard County when there are LTCH beds available elsewhere in the district is defeated by its approval of the Select-Orange facility.
Whether Kindred's methodology in this case carries the day for Kindred, given the Agency's approach on a district-wide basis to the need for LTCHs, is addressed in the section of this Order devoted to conclusions of law.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. §§ 120.569, 120.57(1), and 408.039(5), Fla. Stat.
Kindred has the burden to prove by a preponderance of the evidence that its CON application should be approved. See Boca Raton Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA 1985).
The award of a CON must be based on a balanced consideration of all statutory and rule criteria. The weight accorded each criterion depends on the circumstances of the case. Department of Health and Rehabilitative
Services v. Johnson and Johnson Home Healthcare, Inc., 447 So. 2d 261 (Fla. 1st DCA 1984); Balsam v. Department of Health and Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1988).
In light of the parties' stipulation, the following statutory and rule criteria are at issue in this proceeding. The facts with regard to each must be found and weighed in the balancing process that determines whether to issue the CON Kindred seeks:
Whether pursuant to Section 408.035(1), Florida Statutes, there is a need for Kindred's proposed 60-bed facility in District 7.
Whether pursuant to Sections 408.035(2) and (5), Florida Statutes, Kindred's proposed facility will enhance the availability and accessibility of LTCH services to District 7 residents.
Whether pursuant to Section 408.035(7), Florida Statutes, Kindred's proposed facility will foster competition that promotes quality and cost-effectiveness.
Whether Kindred demonstrated need through a needs assessment methodology which includes consideration of the five topics listed in (2)(e)2., of the Needs Assessment Rule.
The preponderance of the evidence established that there is need for one LTCH in District 7 and it should be located in Brevard County. While there is one existing LTCH and one approved LTCH in District 7, both are in the Orlando Metropolitan Area in Orange County. The existing
35 bed LTCH Select-Orlando operates is at relatively high occupancy. Its history shows very few discharges of Brevard County residents, with a large majority of its discharges going to Orange, Seminole, and Osceola counties, and most of the balance to Volusia, Lake, and Polk.
Although Kindred's need methodology as presented in its application was based on Brevard County population
and STACH discharges, Kindred has separately evaluated need in the Orlando Metropolitan Area and found unmet need for additional beds in that area, which includes Orange, Osceola, and Seminole counties. Thus, to the extent a Brevard-only need determination might have overstated need if there was apparent excess capacity in other portions of the district--as occurred in Select Specialty Hospital- Marion vs. AHCA, DOAH Case No. 04-3150CON (DOAH Recommended Order entered July 11, 2006), and Select Specialty Hospital-Marion vs. AHCA, DOAH Case No. 04-0444CON (AHCA Final Order entered December 29, 2005), and Kindred Hospitals East, LLC vs. AHCA, DOAH Case No. 05-2745CON (AHCA Final Order entered March 1, 2006)--those concerns are not well-founded here. There is little excess capacity within District 7 and Brevard residents are not accessing LTCH care within District 7, but historically have traveled in excess of 100 miles for such care to Duval County and Ft. Lauderdale.
Kindred's case answers the criticism of the Agency that it failed to address need on a district-wide base. Kindred's evidence of the existence of need for more beds in the Orlando Metropolitan Area, which contains the three counties in District 7 other than Brevard and the need in Brevard County shown by Kindred's methodology may
be combined. Although not precisely a calculation of district-wide need, the combination is tantamount to a showing of district-wide need.
Furthermore, as stated in AHCA's Settlement Agreement with Select-Orange, AHCA considered the 40-bed Select-Orange facility was needed to serve the Orlando Regional Healthcare System. At most, Select-Orange may also serve patients referred by other providers in Orange County, but AHCA's prior position on this specific facility is a recognition that in fact it will be needed just to serve the Orlando Regional facility. The approval of Select-Orange's facility undermines AHCA's criticism that Kindred failed to prove need when there are beds available in the District. Unlike other LTCH cases, Select-Specialty
Marion, Inc. vs. AHCA, Case No. 04-3150CON (DOAH July 11, 2006), for example, there is no existing provider with intervenor status whose interests were advanced in this proceeding. There is no intervenor in this case whose interests would deflect the action from weighing so heavily in favor of approval. The Agency's action in approving Select-Orange, therefore, falls clearly in favor of Kindred.
Select-Orange's decision to convert from an HIH at ORMC to a freestanding LTCH is not a departure from its
design to serve the Orlando Regional system. To the contrary, because CMS regulations would have limited the percentage of its Medicare admissions that Select-Orange could have received from ORMC if it had remained an HIH, and such restriction would disappear if Select-Orange was freestanding, Select-Orange is now free to accept 100 percent of its Medicare admissions from ORMC.
Accessibility is one of a number of criteria set out in the statute that must on balance be satisfied for a CON to be approved. § 408.035(2), Fla. Stat. See St.
Joseph's Hospital v. DHRS, 536 So. 2d 347 (Fla. 1st DCA 1988)(appellant's entitlement vel non to a CON is "based on a balanced consideration of statutory and rule criteria"), citing DHRS vs. Johnson and Johnson, 447 So. 2d 361 (Fla.
1st DCA 1984)(a CON rule allowing the agency "to ignore some statutory criteria and emphasize others" is "contrary to the legislative purpose it is supposed to implement"). Even the Agency's own rule on demonstrating need in the absence of an Agency-adopted need methodology identifies "availability" as only one of several factors to be considered. Fla. Admin. Code R. 59C-1.008(2)(e). Notably, AHCA has not by rule or other defined accessibility of LTCH services, either by distance or drive time, or LTCH occupancy level.
In any event, Kindred has demonstrated the existence of accessibility problems, particularly for those District 7 residents in Brevard. The record reflects accessibility problems in a number of ways: by Kindred's letters of support and testimony from area providers and potential referral sources and referral patterns; by the very low numbers of Brevard County residents accessing LTCH services over the last 11 years; and by Kindred's need methodology, which counts actual days spent in hospital settings in Brevard County by long stay patients in potentially LTCH appropriate DRGs.
As noted, the combination of the distance from Brevard to the existing and approved District 7 LTCHs, and their lack of existing and future capacity to serve additional patients, prove that a facility in Brevard would enhance the availability of LTCH services within the district, and the accessibility to residents such as those in Brevard, who currently experience barriers to LTCH services. The experiences of Brevard residents historically having to travel great distances, to Kindred- North Florida and Kindred-Fort Lauderdale, further support the belief that accessibility to LTCH services will be enhanced.
There is not enough evidence that the approval would foster competition that promotes quality and cost- effectiveness as delineated by statutory criteria. But there is un-rebutted evidence that competition in the traditional sense would be created by approval of Kindred's application since the only existing and approved LTCHs in District 7 are operated by Select Medical Corporation. And competition (without regard to whether it promotes quality and cost-effectiveness) is one of the five categories of criteria or topics under the Needs Assessment Rule to be considered in this case.
In addition to the factor of competition, Kindred properly took into account the other factors which the Needs Assessment Rule instructs applicants to consider in the absence of an agency rule setting forth a need methodology. Brevard has a large number of elderly residents, and the expected growth in Brevard will further justify the need for an LTCH in Brevard in the future. The LTCH services currently available in District 7 are well- utilized, but generally by Orange, Seminole, and Osceola residents.
Kindred presented evidence that medical treatment trends, at the federal and state levels and including local hospital referral practices, will continue
to encourage STACHs to place long-stay patients in appropriate settings as quickly as possible. Skilled nursing facilities and rehab hospitals are not reasonable substitutes for some STACH patients. It is acknowledged by AHCA, moreover, that these long-stay patients continue to need hospital level care that only an STACH or an LTCH could provide. The medical treatment trend is to recognize the strong financial incentive for STACHs to relocate these patients who are medically complex and are in need of long hospital stays to LTCHs, to preserve the resources of the STACH to further carry out its growing mission as the center for stabilization, diagnosis, and initial treatment of patients.
In addition to the market-related issues of STACH practice and referral patterns, and current and future population in the affected area, the Brevard STACH market is a mature market in its own right, with several large STACHs. Several of these hospitals are already familiar with the benefits that an accessible LTCH would provide to their medically complex long stay patients. These conditions will work to Kindred's benefit to ensure steady utilization.
In sum, the preponderance of the evidence in relation to the criteria to be considered following the
stipulation of the parties, demonstrates that, on balance, Kindred's application should be approved.
Based on the foregoing Findings of Facts and Conclusions of Law, it is recommended that the Agency for Health Care Administration issue CON No. 9835 to Kindred Hospitals East, LLC, for a 60-bed, long-term acute care hospital in AHCA Health Planning Service District 7, to be located in Brevard County.
DONE AND ENTERED this 29th day of November, 2006, in Tallahassee, Leon County, Florida.
S
DAVID M. MALONEY
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 29th day of November, 2006.
COPIES FURNISHED:
Alan Levine, Secretary
Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3116
Tallahassee, Florida 32308
Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3116
Tallahassee, Florida 32308
Richard Shoop, Agency Clerk
Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive
Tallahassee, Florida 32308
M. Christopher Bryant, Esquire
Oertel, Fernandez, Cole & Bryant, P.A.
301 South Bronough Street Tallahassee, Florida 32302
Sandra E. Allen, Esquire
Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive
Tallahassee, Florida 32308
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Feb. 02, 2007 | Agency Final Order | |
| Nov. 29, 2006 | Recommended Order | Petitioner proved need for a new long term care hospital in Brevard County in this certificate of need proceeding, after preliminary denial by Respondent. |
