STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RECOMMENDED ORDER

Pursuant to notice, this matter was heard by Charles A. Stampelos, Administrative Law Judge of the Division of Administrative Hearings on January 8-10, 17-19, and 25, 2007, in Tallahassee, Florida.

APPEARANCES

For Petitioner Promise Healthcare of Florida III, Inc.:

F. Philip Blank, Esquire Blank & Meenan, P.A.

204 South Monroe Street Tallahassee, Florida 32301

For Respondent Agency for Health Care Administration:

Sandra E. Allen, Esquire Office of General Counsel

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

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

Whether Promise Healthcare of Florida III, Inc.'s (Promise) Certificate of Need (CON) Application No. 9870 should be approved to establish a 40-bed freestanding Long Term Care Hospital (LTCH) in Agency for Health Care Administration (AHCA or Agency) Service District 3.

PRELIMINARY STATEMENT

In 2005, Promise filed CON Application No. 9870 CON to establish a 40-bed freestanding LTCH in AHCA Service District 3 (District 3), to be located in Lake County, Florida. Leesburg Regional Medical Center, Inc. (LRMC) and Select Specialty Hospital-Lake Inc. (Select Specialty) also filed CON applications to provide LTCH services in District 3.

On December 20, 2006, Promise and the Agency filed a Joint Pre-Hearing Stipulation (PHS).

The final hearing was held on January 8 through January 10, 2007, on January 17 through 19, 2007, and on January 25, 2007, in Tallahassee, Florida.

During the final hearing, Promise called the following witnesses: Leigh R. Kerr, an expert in land planning, comprehensive planning, population growth and transportation; Michael J. Kornblatt, an expert in LTCH development, operation, and administration; Rhona Campton, an expert in clinical and administration services, including quality of care; Lawrence

Leder, an expert in health care finance and financial feasibility; William L. Gunlicks, an expert in financing and lending; Armand E. Balsano, an expert in health care, health care planning and health care financial analysis; Dana Signore, Case Manager at Leesburg Regional Medical Center in the Open Heart Section, and an expert in nursing; Paul Hocking, Director of Cardiovascular Services at Leesburg Regional Hospital and an expert in nursing care; Cheryl Johnson, Clinical Director of an ICU at Leesburg Regional Medical Center and an expert in nursing; Claire Souliere, Director of Quality Care for both Leesburg and the Villages hospitals and an expert in nursing and health care quality management; Wayne Gillis, Associate Vice- President of the Villages Regional Hospital and an expert in critical care nursing, including administration; and Dale Hocking, Vice-President and Chief Financial Officer of Central Florida Healthcare Development Corporation, and an expert in health care financing. Promise called Anthony N. Grigonis, M.D., as a rebuttal witness, an expert in health management information analysis and clinical data analysis. Promise Exhibits numbered 1 through 10, 12-15, 24-51, and Rebuttal (R) Exhibits 2-5 were admitted into evidence.

The Agency called Jeffrey Gregg, the Chief of the Bureau of Health Facility Regulation of the Agency and an expert in CON review and health care planning, and Ryan Fitch, an Economic

Analyst in the AHCA CON Financial Analysis Office and an expert in health care financial analysis and CON review procedures.

AHCA Exhibits 1, 1A, 2 through 5, 7-17, 19-21 and Surrebuttal (SR) Exhibit 1 were admitted into evidence. AHCA Exhibits numbered 6 and 18 were withdrawn.

The Transcript (T), volumes I-VII of the final hearing, was filed with DOAH on February 2, 2007. On March 16, 2007, Promise and the Agency filed proposed recommended orders and they have been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Parties

   
   

   1. AHCA. The Agency for Health Care Administration is the state agency authorized to evaluate and render final determinations on CON applications to pursuant to Section 408.034(1), Florida Statutes.

   2. Promise. Promise Healthcare of Florida, III, Inc. (Promise) is the applicant in this proceeding. Promise is a newly-formed and wholly-owned subsidiary of Promise Healthcare, Inc. (Promise Healthcare).

   3. Promise Healthcare is a Florida corporation headquartered in Boca Raton, Florida. Promise Healthcare was established in July 2003 when it acquired the assets of Camelot Healthcare.

   4. Promise Healthcare owns and operates 13 LTCHs in six other states; seven freestanding facilities and six hospitals- within-hospitals. One additional freestanding LTCH is scheduled to begin operation in 2007 in Bossier, Louisiana. Promise Healthcare does not presently operate any facilities, including LTCHs, in Florida.

2. CON applications and preliminary agency action

   
   

   1. Promise timely filed an appropriate letter of intent, which contained the information requested by AHCA.

   2. Promise timely applied for a CON to establish a 40-bed freestanding LTCH in Lake County, one county of the 16 counties in District 3. The project will consist of 47,951 square feet at construction costs of $11,244,400 and a total project cost estimated at $20,901,826.

   3. As a condition of approval, Promise agreed to provide two percent of patient days of Medicaid and charity care.

   4. During the same batching cycle, Select Specialty and Leesburg Regional filed CON applications to provide LTCH services in District 3. All applications were deemed complete and comparatively reviewed by AHCA.

   5. The numbers and assumptions in Schedule 1 of Promise's CON application represent reasonable projections.

   6. The information contained in Schedule 2, 3, and 6, and the assumptions relating to Schedule 3 and 6 represent

      reasonable projections. The information contained in Schedule 4 is not required. The information contained in Schedules 9 and

      10 represent reasonable estimates, including the days required to complete the project.

   7. The Agency's review of the CON application complied with all statutory and regulatory requirements.

   8. The Agency's review of the CON applications resulted in the issuance of a State Agency Action Report (SAAR) on

      December 16, 2005. The Agency recommended the denial of the three CON applications. Leesburg Regional and Select Specialty requested formal administrative hearings, but dismissed their cases prior to the final hearing.

   9. Promise argues there is a need for additional LTCH beds and services in District 3 and AHCA disagrees. AHCA also argues Promise cannot obtain the required funds to build and operate the LTCH.

3. LTCH services

   
   

   1. The classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals" include long term care hospitals, which are identified as having an average length of patient stay (ALOS) of 25 days for all beds, Section 408.032(13), Florida Statutes, and also comply with 42 C.F.R. Section 412.23(e)(1994). See Fla. Admin. Code R. 59C-1.002(28).

   2. Some hospital patients need acute care services on a long-term basis. A long-term basis is 25 to 34 days of additional acute care service after the typical stay in a short- term hospital. Although some of these patients are "custodial" in nature and not in need of LTCH services, many of these long- term patients may be better served in a LTCH than in a traditional short-term acute care hospital.

   3. LTCHs typically furnish extended medical and rehabilitation care for patients who are clinically complex and have multiple acute or chronic conditions. Patients appropriate for LTCH services are differentiated from other hospital patients in that, by definition, they have multiple co- morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly, frail, and are usually regarded as catastrophically ill.

   4. Generally, Medicare patients admitted to LTCHs have been transferred from general acute care hospitals and receive a range of services at LTCHs, including cardiac monitoring, ventilator support, and wound care. These patients require daily physician involvement, extensive nursing care, and appropriate respiratory, occupational, speech, and physical therapies, usually accompanied by some type of technologically advanced support. Quite commonly, the technological support includes a ventilator.

   5. The level of care provided in an LTCH is generally analogous to that provided in an ICU (Intensive Care Unit) in a short-term acute care hospital. However, the staff at general acute care hospitals has different orientations than staff at LTCHs. The staff at general acute care hospitals is geared toward shorter lengths of stay (five days or less) than are more typical in an LTCH, where extended lengths of stay are more appropriate.

   6. An LTCH is distinguished within the health care continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization, which averages 25 days or more for patients requiring complex medical care. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, skilled nursing facilities (SNFs), skilled nursing units (SNUs), and comprehensive medical rehabilitation facilities (CMRs). The complex medical, nursing, and therapeutic requirements necessary to serve the LTCH patient with a high acuity level are generally beyond the capability of these other post-acute care facilities on a sustained basis, i.e., 25 days or more.

   7. Services provided in LTCHs are also distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Additionally, most nursing homes provide two to three hours of nursing care per patient per day, whereas LTCHs provide on average in excess of seven hours of nursing care per patient day.

   8. Families and other caregivers play a critical role regarding the delivery of care to LTCH patients. Many LTCH patients are elderly and are a special population, with special needs. They commonly have to manage multiple problems, including financial difficulties, drug management, transportation logistics, and sometimes fragile mental and physical conditions. Older patients as well as older caregivers also have a more difficult time driving, for example, two hours and over long distances.

4. The federal government recognition of LTCHs

   
   

   1. Within the continuum of care, the federal government's Medicare program recognizes LTCHs as distinct providers of services to patients with high levels of acuity. The federal government treats LTCH care as a discrete form of care and provides a separate Medicare payment system of diagnostic related groups (DRGs) and case mix reimbursement that provides

      Medicare payments at rates different from what the Prospective Payment System (PPS) provides for other traditional post-acute providers.

   2. Under the LTCH reimbursement system, each patient is assigned a DRG with a corresponding payment rate that is weighted based upon the patient's diagnosis. LTCHs are reimbursed the predetermined payment rate for that DRG, regardless of the costs of care. These rates are higher than what the federal Centers for Medicare and Medicaid Services (CMS) provides for other traditional post-acute care providers.

   3. Effective October 1, 2002, CMS established a new prospective payment system for long-term care hospital providers, the "LTC-DRG". CMS recognizes the patient population of LTCHs as separate and distinct from the population treated by short-term acute care hospitals and by other post-acute care providers, as well as costs of care, resources consumed by the patients and health care delivery.

   4. Since the establishment of the PPS for LTCHs, concerns about the high reimbursement rate for LTCHs, as well as about the appropriateness of the patients treated in LTCHs, have been raised by the Medicare Payment Advisory Commission (MedPAC) and CMS. CMS administers the Medicare payment program for LTCHs, as well as the reimbursement programs for acute care hospitals, skilled nursing facilities, and comprehensive rehabilitation

      hospitals. MedPAC's role is to help formulate federal policy on Medicare regarding services provided to Medicare beneficiaries (patients) and the appropriate reimbursement rates to be paid to the health care providers.

   5. The 2006 MedPAC report found that LTCHs were making a good margin or profit, and recommended against an annual increase in the Medicare reimbursement rate for the upcoming fiscal year. In 2006, CMS adopted a reimbursement rate rule for LTCHs for 2007 that did not raise the base rate and made other changes that reflect the ongoing concerns of CMS regarding LTCHs.

5. AHCA's concerns regarding long term care hospitals

   
   

   1. In deciding on whether to approve or deny new health care facilities, the Agency is responsible for the "coordinated planning of health care services in the state." AHCA looks to federal rules and reports to assist in making health care planning decisions for the state. MedPAC has reported, and CMS has noted that, nationwide, there has been a recent, rapid increase in the number of LTCHs. Nationwide there has also been a huge increase in Medicare spending for LTCH care from $398 million in 1993 to $3.3 billion in 2004.

   2. Because of what it perceives to be a lack of specific data from applicants with regard to the composition and acuity level of LTCH patient populations, AHCA is not convinced that

      there is a need for additional LTCHs in the state. AHCA believes there may be an overlap between the LTCH patient populations and the population of patients served in other healthcare settings, such as SNFs and CMR facilities. AHCA also believes some long-term patients can be appropriately served in the short-term acute care hospitals, rather than requiring LTCH care. In the absence of the applicants better identifying the acuity level of the LTCH patient population, AHCA has reached the conclusion that there may be other health care options available to those patients targeted by the LTCH applicants, and there are enough approved and operating LTCHs in each District of the state, including District 3.

6. Applicable statutory and rule criteria

1. The parties stipulated that Subsections 408.035(1)-(9), Florida Statutes, apply in this proceeding. In addition, in the absence of agency policy regarding long-term care hospital beds and services, the criteria under Florida Administrative Code Rule 59C-1.008(2)(e) 2.a.-d., apply and include consideration of the following topics, except where they are not inconsistent with the applicable statutory or rule criteria:

   1. Population demographics and dynamics;

      
      

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

   3. Medical treatment trends; and

      
      

   4. Market conditions.

      
      

      1. Population, demographics, and dynamics and medical treatment trends and market conditions

         
         

2. Promise plans to develop its LTCH in Lake County and to target and serve Leesburg Regional and its sister hospital, The Village's Regional Hospital, and secondarily to serve the Citrus and Hernando Counties, located to the west of Sumter County and in the most southern portion of District 3.

3. Promise plans to offer a full array of LTCH services.

1. The Leesburg Regional Medical Center, Inc. health care facilities

   
   

   1. Leesburg Regional (owned by Leesburg Regional Medical Center, Inc. (LRMC)) is a 309-bed (including a 32 intensive care unit (ICU)) acute care hospital located in the City of Leesburg, Lake County, Florida (east of Sumter County). It serves primarily Lake and Sumter Counties.

   2. Leesburg Regional provides a variety of primary and tertiary care services, including obstetrics and comprehensive rehabilitation. It is the only provider of neurosurgery and open heart services in the area. LRMC also owns a 120-bed skilled nursing facility located one mile from Leesburg Regional providing oncology services. Leesburg Regional is the safety net provider for the community it serves.

   3. There is evidence that patients stay longer at Leesburg Regional, i.e., exceeding an ALOS of five days, which affects not only patient care, but causes the facility to incur additional costs.

   4. Leesburg Regional's emergency room relies on the availability of beds to place patients. The inability to move patients from its cardiac intensive care and critical care units to more appropriate settings like an LTCH affects the care patients receive.

   5. Sixteen of the 32 intensive care beds are located on the third floor of Leesburg Regional and eight of these beds are used exclusively for open heart patients and seven of these eight beds must be available on an almost constant basis because of the large open heart surgery volume. Adding more ICU beds is not likely to resolve the problems experienced at Leesburg Regional.

   6. Fourteen ICU beds, including a four-bed dialysis unit, are located on the second floor and will be expanded to 16 beds in March 2007 with the relocation of the dialysis unit. Patients on the second floor face conditions similar to those patients on the third floor ICU.

   7. Leesburg Regional performed approximately 865 open heart surgery cases in 2005 and expects to perform 1,000 to 1,250 open heart surgery cases annually during the next five

      years. Leesburg Regional ranks the third largest, by volume, open heart surgery provider in the state.

   8. At the time of hearing, Leesburg Regional ICU was operating at 100 percent occupancy and was expected to continue at that level until April 2007.

   9. Leesburg Regional is designated as a "primary stroke center" by the federal government, serving as the first responder for stroke patients in the LRMC service area.

   10. Leesburg Regional is also designated as a Medicare disproportionate share hospital, indicative of a large population of Medicare patients. The average age of a patient treated at Leesburg Regional's cardiac unit is between 75 and 85 years. These patients often have co-morbidities, i.e., multiple health problems, such as congestive heart failure, diabetes, obesity, and respiratory issues.

   11. Over the past several years, over 16 percent of the patients served by LRMC's hospitals were Medicaid or low income patients.

   12. The patient transport process from Leesburg Regional to an existing LTCH is lengthy and potentially labor intensive. It requires at least 24 hours advance notice to the only emergency medical services (EMS) provider. The planned transport is subject to change due to the number of EMS vehicles available and emergencies. Also, the transferring hospital may need to

       provide, for example, a respiratory therapist to accompany the patient to an LTCH.

   13. Patients referred by Leesburg Regional to LTCHs are usually unable to be weaned from ventilators, often require complex wound care, wound vacs, extensive intravenous (IV) therapy, and extensive therapy care.

   14. The Village's Regional Hospital (Villages Regional) also owned by LRMC, is a 62-bed acute care facility, including

       12 ICU beds, located within the development known as The Villages. The Villages is located in Lake, Sumter, and Marion Counties (north of Leesburg). By 2008, Villages Regional will expand to a 198-bed hospital.

   15. The Villages is a large development which currently comprises approximately 40,000 people and is projected to increase to approximately 100,000 when it is fully built out. The Village's limits residents to persons who are at least 55 years old. By comparison, Weston, Florida, in Broward County, is fully built out at 40,000 residents.

2. District 3

   
   

   1. District 3, comprised of 13 counties, is the largest geographical AHCA service district in the state with approximately 11,000 square miles.

   2. The main population centers in District 3 are Gainesville, Ocala, and Leesburg.

   3. Lake and Sumter Counties are projected to be the fastest growing counties by population in District 3. Lake County is the fastest growing county in terms of resident growth

      • about 38,200 new residents are projected between 2005 and 2010 or about one out of every four new residents in District is projected to reside in Lake County.

   4. Promise expects a significant portion of LTCH referrals from Lake and Sumter Counties.

   5. Between 2005 and 2010, the 65 and older population is predicted to grow by 14.2 percent statewide, but 21 percent in Lake County and 22 percent in Sumter County. The same age group is projected to grow at 16.8 percent on a district-wide basis. T 359-360; PE 2 at 30.

   6. The total population is growing at a high rate and the elderly rate is growing at a higher rate.

   7. Due to the location of the Ocala National Forest, the projected growth in District 3 is projected to occur along the southeastern portion of District, i.e., the general corridor of Interstate 4, the Florida Turnpike, and US Highways 441. Other than the primary roads of US Highway 441 and 27, the roads are open with few street lights.

   8. Except for Alachua County (mainly because of the University of Florida), there is no mass transportation system available to the residents of District 3. The aging of the

      population limits somewhat the times of day that family members can travel.

   9. The road configuration, travel times, lack of public transportation and the age of the patients and families in the Leesburg service area make access to LTCHs in Gainesville and Ocala difficult.

3. Quantifying the need for additional LTCH beds in District 3

   • Section 408.035(1), Florida Statutes

     
     

     1. The Agency has not adopted a need methodology for LTCH services. There is no published fixed need pool for LTCHs.

     2. Need is determined on a district-wide basis, here District 3.

     3. In order to determine whether there is a need for its project, Promise examined the population estimates and the number of acute care beds for District 3, discharge data from area acute care hospitals, and the lengths of stay of the patients treated at those hospitals. (Since the application was filed, the number of long term stay days of care in acute care hospitals in District 3 increased from 63,429 in 2004 to 68,602 in 2005.)

     4. Promise performed its analysis on a district-wide basis and also offered an analysis based on its targeted primary service area Lake and Sumter Counties and secondary area, Citrus and Hernando Counties.

     5. Promise used the Geometric Mean Length of Stay + 15 (GMLOS + 15) analysis of long stay patients in acute care short stay hospitals in District 3 to demonstrate need for additional LTCH beds in District 3.

     6. The Agency has accepted the GMLOS + 15 methodology to show need for an additional LTCH. See generally Select Specialty Hospital - Escambia, Inc. vs. Agency for Health Care Administration, DOAH Case No. 05-0319CON, 2005 Fla. Div. Adm. Hear. LEXIS 1095 (DOAH June 17, 2005; AHCA July 11, 2005); Select Specialty Hospital - Marion, Inc. vs. Agency for Health Care Administration, DOAH Case No. 03-2483CON, 2004 Fla. Div. Adm. Hear. LEXIS 1658 (DOAH July 14, 2004; AHCA Sept. 15, 2004).

     7. Promise identified the number of long-stay patients discharged from the District 3 hospitals as a starting point to quantify the number of patients who have used LTCH services in the past.

     8. Long-stay discharges were defined using the following criteria: age of patient was 18 years or older; the discharge DRG was consistent with discharge DRGs from a Florida LTCH; and the ALOS in the acute care hospital was at the GMLOS for the specific DRG plus 15 days or more. Applying these criteria reduced the number of DRGs used and the potential patient pool.

     9. In 2004, there were 1,667 acute care hospital discharges from District 3 hospitals that met the above

        criteria. These 1,667 discharges averaged a length of stay of

        
        

        38 days, significantly higher than the overall ALOS (approximately five days) for patients discharged from short- term acute care hospitals.

     10. Applying the weighted average annual growth rate of the population 18 years or older to District 3 2004 LTCH discharges resulted in a total of 1,978 potential acute care discharges in the five-year planning horizon (2005-2010) and specifically for 2010. Promise then reduced the 1,978 discharges by 25 percent to 1,484, anticipating the effect of CMS policies which, according to Mr. Balsano, would restrict admissions to LTCHs and encourage LTCHs to care for the more complex patients or would provide alternatives to patients who would otherwise be admitted to an LTCH. (A high percentage of LTCH patients are Medicare recipients. Approximately 80 to 85 percent of admissions to Promise Healthcare LTCHs are Medicare patients. Promise projects 87.9 percent of its patient days will be Medicare and Medicare HMO.)

     11. Promise held the ALOS of 34.5 days constant and then multiplied the ALOS times the projected number of admissions in 2010 resulting in 51,198 LTCH patient days (1,484 x 34.5).

     12. Promise assumed that the proposed facility would experience an ALOS of 34.5 days reflecting 2004 LTCH experience in Florida, and would operate at 80 percent occupancy.

     13. These assumptions yielded a need for 175 LTCH beds by 2010. However, the net bed need by 2010 is 100 after deducting

         75 LTCH beds which are approved and operational in District 3.

         
         

     14. If the number of potential LTCH patients is reduced by

         
         

         50 percent rather than 25 percent and the occupancy standard is increased to 85 percent, the methodology yields a need for approximately 47 beds (122 minus 75 beds).

     15. On Schedules 7B and 8A for the second year of operation, Promise projected it would provide 11,216 patient days with an average occupancy of 76.8 percent in order to achieve a net profit of $1,048,236 in year two of operation.

     16. In order to break even in year two, Promise used a sensitivity analysis and updated data and projected it would need approximately 9,551 patient days at an ALOS of 34.5 or approximately 17 to 19 percent of the total projected patient days for District 3 (56,090). T 475, 489, 820. Promise assumed a loss of approximately 15 percent of patient days from the 11,216 patient days projected. T 450-451. Stated otherwise, Promise needs approximately 276 discharges by year two (2010) to break even. T 472-475, 825.

     17. Notwithstanding the above, the Agency is concerned with the type of patients (acuity levels) who are appropriate for LTCH services, suggesting in part that admitted LTCH patients are not always appropriate for that level of care and that LTCH

         applicants have traditionally overstated the need for additional LTCH beds.

     18. The basis of this concern lies in part on information obtained by the Agency from CMS which, as interpreted by the Agency, indicates that 37 percent of patients historically admitted to LTCHs are short-term outliers, and that 29 percent of patients admitted were totally inappropriate for such admissions.

     19. In 2002, CMS adopted a rule intended to assure that if an LTCH did not expend funds to treat a patient, CMS would receive the benefit of the lower cost and/or more efficient care. For reimbursement purposes, the rule defined short-term as the admission of any patient who stayed in an LTCH no loner than 5/6ths, or 83 percent, of the ALOS at a particular LTCH. The rule generates a number of short-term outliers equal to approximately 37 percent of all admissions.

     20. Mr. Balsano considered this rule in reducing the potential number of admissions at the District 3 LTCHs in the future by 25 percent as well as reducing the projected Medicare reimbursement rates the proposed facility would receive.

     21. The Agency also relied on a 2004 study of LTCH admissions which found that 29 percent of the patients were inappropriate for hospital care and that CMS supported the study's findings. However, within the same exhibit, CMS

         recognized that 17.4 percent of the admissions reviewed in the survey involved payment errors and only 5.9 percent involved admission denials. Payment errors involve billing and coding errors not whether an admission was appropriate. The percentage of admission or payment denial claims for acute care hospitals during 2004 was 4.6 percent, similar to the LTCH percentage.

     22. In order to ensure patients are appropriate for LTCH care, Promise has implemented a number of programs including an increased level of patient admission scrutiny. Promise uses a standardized model for its admission criteria known as InterQual.

     23. InterQual is a set of measurable, clinical indicators that reflect a patient's need for hospitalization. Rather than being based on diagnosis, InterQual criteria consider the level of illness of the patient and the level of services required. InterQual measures the acuity levels of LTCH patients.

     24. Using InterQual criteria provides some assurance that patients will be suitable for LTCH care, i.e., actually need LTCH care because of the severity of the patient's illness.

     25. InterQual criteria include discharge screens, which require an LTCH to continuously determine whether a patient can be more appropriately cared for in an alternative setting.

     26. Approximately 35 to 60 percent of patient referrals are admitted at Promise Healthcare LTCHs.

     27. Promise has used InterQual criteria since the summer of 2004, and at the time of hearing, used the criteria in all of its facilities. (However, Promise did not specifically offer proof of actual results of using InterQual in its LTCHs.

         T 718.)

         
         

     28. Thirty-nine of 52 Quality Improvement Organizations (QIO) have adopted InterQual as their criteria to review the appropriateness of LTCH admissions.

     29. Notwithstanding Promise's use of InterQual criteria, the Agency is still concerned regarding inappropriate admissions at Promise's proposed facility as well as existing LTCHs.

         But see AHCA 13.

         
         

     30. During a 2004 site visit to SemperCare Hospital in Orlando (Select Specialty Hospital - Orlando), AHCA obtained information which identified patients' severity of illness. The Agency viewed this report favorably and suggested that this information is the type of evidence which should be included in a LTCH CON application to establish the segment of patients appropriate for admission to an LTCH. See AHCA 17.

     31. During rebuttal, Promise called Dr. Grigonis as a witness. Dr. Grigonis' firm was retained by SemperCare to generate the data and analysis presented to the Agency in AHCA Exhibit 17. Dr. Grigonis was retained by Promise to analyze data similar to AHCA Exhibit 17. T 742-743.

     32. According to Dr. Grigonis, the severity of illness of a patient can be determined by using a product developed by 3M Corporation and is part of a system known as APR-DRG (all patient refined (APR)) patient classification system.

     33. The DRG is the standard classification system developed by Medicare and others to classify patients into broad diagnostic groups. The APR is a further refinement of the DRG system and is used by CMS and is in use in many acute care hospitals in the country.

     34. A patient's severity of illness is broken down into four categories: minor, moderate, major, and extreme and ranked from a low of one to a high of four along these categories. Patients with the highest severity (major and extreme/ three and four) have the highest probability of being admitted into an LTCH.

     35. Dr. Grigonis was asked to determine the severity of a potential pool of LTCH patients considering only Medicare patients.

     36. First, he used a database of Medicare patients known as MedPAR data and for the period October 1, 2004 through September 30, 2005.

     37. Second, filters were applied to the data based upon both clinical and length of stay information. Only patients who stayed the GMLOS plus 15 days for similar patients in that DRG

         category were considered. This filter was provided by Mr. Balsano. Patients were also eliminated who based on their DRG were not appropriate for an LTCH. Patients who expired were also eliminated.

     38. When these stringent filters were applied to the MedPAR data from 2004-2005, the potential patient population was reduced to less than one half of one percent of all Medicare patients discharged from the four acute care hospitals studied, Leesburg Regional, Villages Regional, Florida Hospital Waterman, and Citrus Memorial Hospital,1 which are not LTCHs, serving Lake, Sumter, Citrus, and Hernando Counties within District 3.

         T 751-753, 794.

         
         

     39. This exercise was followed to determine the reasonable number of candidates who were appropriate for admission to an LTCH from this geographic area.

     40. Once the patients were separated using the filters, Dr. Grigonis applied the same algorithm obtained from the 3-M Corporation to determine the APR/DRG and severity of illness, i.e., determine the proportion of patients falling within each severity level. This is the same methodology he used for the SemperCare study.

     41. The data generated by Dr. Grigonis indicated that during October 2004 to September 2005, the four acute care hospitals generated 192 Medicare only filtered patients who

         would be appropriate for admission to an LTCH (but did not receive LTCH care) and 87.5 percent of the 192 patients were in the major and extreme severity of illness categories - levels three and four. (Patient origin data was not included as part of the data or analysis.)

     42. Of the 192 patients, Leesburg Regional, Villages Regional, Citrus Memorial, and Florida Hospital Waterman accounted for 69, 13, 60, and 50 patients, respectively.

     43. Leesburg Regional and Villages Regional had a very high proportion of high severity cases.

     44. Dr. Grigonis compared the SemperCare study (AHCA 17) with his recent four-hospital study (Promise R 3) and concluded that the population of patients selected for the four-hospital study had an overall higher degree of severity than patients who were typically treated at the SemperCare LTCH. T 760.

     45. Dr. Grigonis ultimately concluded that the results from the four-hospital study indicate a group of patients that are suitable for LTCH admissions. T 765.

     46. Dr. Grigonis also opined that the range of the total number of patients appearing on Promise Exhibit 29 is consistent with his findings. T 767-777.2 He also stated that "over time there are likely to be higher severity patients in certain areas, and that would also be consistent with the fact that the

         data we analyzed from the pure Medicare file was a year older." T 768.

     47. During its surrebuttal case, in response to Promise Rebuttal Exhibit 3, the Agency reviewed Florida statewide LTCH actual discharge data for calendar year 2005. This exhibit provided the number of discharges/cases and percentages by DRG code of patients who were discharged from an LTCH. AHCA SR 1. The data was not limited to Medicare patients. T 830-849.

     48. The Agency compared this data set with Promise Rebuttal Exhibit 3 and concluded that many of the patients treated at the four acute care facilities would not necessarily be candidates for LTCH care. For example, for LTCH statewide discharges, approximately 50 percent of the discharges were from DRGs 475 (respiratory system diagnosis with ventilator support/22.40 percent); 87 (pulmonary edema and respiratory failure/8.55 percent); 271 (skin ulcers/5.97 percent); 416 (septicemia age greater than 17/4.44 percent); 88 (chronic obstructive pulmonary disease/4.26 percent); and 79 (respiratory infections and inflammation greater than age 17 with CC/3.91 percent). AHCA SR 1.

     49. For these same DRGs, for the patients discharged from the four acute care facilities, the percentages were: 1.6 percent/475; 1.04 percent/87; 0 percent/271; 6.2 percent/416;

         2 percent/88; and 5.2 percent/79. Only three patients were classified within DRG 475.

     50. The percentages of patients classified within DRGs 416, 88, and 79 are closer in comparison than the others.

     51. The Agency reiterated that the purpose of this surrebuttal exhibit was to show the DRGs of patients actually admitted to an LTCH. T 849.

     52. The data used by Dr. Grigonis is different from the data used by the Agency, in part, because the patient pools are different and the point of discharge is different. T 847.

     53. The Agency also pointed out that, although there has been a steady increase in the state's population for the past ten years, and an increase in the number of LTCHs starting in 2003, there has been a decline in the utilization of LTCHs. See, e.g., AHCA 13 and 14. (The expansion of LTCHs statewide has been significant. As of 2003, there were 740 licensed LTCH beds in 10 facilities statewide. The number of beds rose to 876 by 2005 in 14 facilities and, as of July 2006, there were 475 additional LTCH beds approved statewide in nine facilities. Id.)

     54. Past occupancy numbers assist somewhat in predicating future need for future health care services in general. However, the needs of each service district should be analyzed, not lumped into one category of need because of the wide

         variation in bed occupancy in the various districts and because the numbers do not necessarily indicate whether access or bed availability is a problem.

     55. Despite the Agency's concerns, Promise's methodology is more conservative than those applied in other LTCH CON applications in part because Promise considered the potential impact of future CMS actions which would tend to remove the lower acuity patients from being admitted or considered appropriate for admission to LTCHs. Also, the study performed by Dr. Grigonis, see also endnote 2, is persuasive that there is a pool of potential patients who need LTCH services within Promise's service area.

1. Availability, extent of utilization, accessibility, and quality of care of like services in District 3 - Section 408.035(2), Florida Statutes

   
   

   1. LTCHs

      
      

      1. Kindred - Hospital East (Kindred Marion) is the only operational LTCH in District 3 and is located in Ocala, Marion County, Florida, north of Lake and Sumter Counties.

      2. The drive time from Leesburg Regional to the Kindred Marion LTCH is approximately one hour to one hour and 15 minutes. (It takes approximately 30 minutes to drive from Leesburg Regional to Villages Regional and thus approximately 30 minutes north to Kindred Marion from Villages Regional.)

         
         

         
         

      3. Kindred Marion is a "hospital within a hospital" (HIH) because it is physically located in Munroe Regional Medical Center (Munroe Regional), an acute care hospital.

      4. Kindred Marion has 30 beds in 15 semi-private rooms and one bed in an isolation room.

      5. Kindred Marion's short-term hospital Medicare provider number became effective November 30, 2005, and its long-term hospital Medicare provider number became effective June 1, 2006. Notwithstanding its status as an HIH, it is separately licensed.3

      6. From October 2005 through November 2006, Kindred Marion reported 147 admissions to its LTCH, of which 42, 21, and

         20 came from Munroe Regional, Shands Hospital, and Ocala Regional, respectively, and no referrals from Village's Regional and two admissions from Leesburg Regional. During the same time period, Kindred Marion received 6.8 and 2.7 percent of its patients from Lake and Sumter Counties, respectively, or about two patients a day from these two counties.4

      7. Since it opened, Kindred Marion's average daily census (ADC) has experienced an upward trend. By October 2006, Kindred Marion's ADC reached as high as 20 to 22 patients, with an occupancy rate of approximately 71 percent.

      8. Utilization and inefficiencies may result when a facility is composed solely of semi-private rooms. These

         include assuring that patients of different sexes are not housed in the same room; that contagious diseases or infections are appropriately considered; the location of additional equipment, such as monitoring devices, for patients with co-morbidities; and that the preferences of patient's families are taken into consideration.

      9. In light of some these limitations, unlike facilities with private bed configurations, facilities with semi-private bed configurations have more limited capacity. Kindred Marion's realistic occupancy threshold is approximately 70 to 75 percent. (However, Kindred Marion can add LTCH beds without CON review by notifying the Agency of the addition. Kindred Marion can also become a freestanding LTCH without CON review. It is not certain whether Kindred Marion intends to expand or whether it has the capacity to expand or whether it intends to become a freestanding LTCH.)

      10. There is some evidence that Leesburg Regional's personnel have not been successful in placing patients at Kindred Marion, although the attempts were not quantified with any precision. See, e.g., T 224-225, 241-242.

      11. One additional LTCH (Select Alachua) has been approved and is under construction by Select in Gainesville, Alachua County, Florida, close to the Shands Hospital System (Shands).

          It will be a freestanding LTCH with 44 beds and is expected to open in 2008.

      12. Select Alachua was approved on the basis that the majority of its patients would be generated by Shands and would serve patients in Alachua County and surrounding counties.

      13. AHCA expects Shands will refer the large majority of its patients requiring LTCH services to Select Alachua.

          See Finding of Fact 119 regarding the ability to expand.

          
          

      14. The drive time to Select Alachua from Leesburg Regional is approximately one hour and a half to two hours.

      15. Kindred Marion and Shands Alachua are closer to Leesburg Regional and the residents of Lake and Sumter Counties than the Kindred Tampa LTCHs. However, given the relationship between Shands and Select Alachua, the evidence is not persuasive that Select Alachua will be a viable alternative for the residents of Lake and Sumter Counties and potential patients from, for example, from Leesburg Regional and Villages Regional, needing LTCH services.

   2. CMRs, SNFs, SNUs, and Home Health Agencies

      
      

      1. The CMR unit in the Leesburg Regional service area has not been available for ventilator patients. Also, CMR units are rarely appropriate for the LTCH patient, in part, because LTCH patients are not able to tolerate the minimum three hours of daily therapy associated with CMR care.

      2. The services offered at SNFs and SNUs and by home health agencies in District 3 are not appropriate substitutes for the services offered at an LTCH and needed by typical LTCH patients.

   3. LTCH services outside District 3

   
   

   1. For calendar year 2004 and prior to the operation of an LTCH in District 3, over half (143 out of 259) of the District 3 resident/patients receiving LTCH services were discharged from the Kindred - North Florida LTCH in Green Cove Springs, Florida. An additional 25 percent of the District 3 resident/patients were discharged from Kindred - Central Tampa and Kindred - Tampa.

   2. Kindred Hospital - Bay Area - Tampa (Kindred Tampa), in District 6 to the west of District 3, is an existing LTCH with 73 licensed LTCH beds. Patients at Leesburg Regional requiring LTCH services are transported two hours away to the Kindred Tampa facility. Kindred Tampa terminated its family bus shuttle service in the Leesburg Regional service area so family members (of patients admitted to Kindred Tampa) must provide or find transportation and travel two hours each way to visit patients at Kindred Tampa. Patients are transported by EMS.

   3. Kindred also operates another LTCH in District 6 known as Kindred Hospital - Central Tampa with 102 licensed LTCH beds.

   4. For calendar years 2002 through 2005, the occupancy levels for Kindred Tampa were 67.50, 65.93, 62.64, and 59.49, respectively. For the same time period, the occupancy levels for the Kindred Hospital - Central Tampa LTCH were 79.42, 70.33, 69.52, and 63.05, respectively. (Both Kindred LTCHs have been operational at least since 1995.)

   5. The two Kindred LTCHs in the Tampa area are potential alternatives for the residents in Lake and Sumter Counties, but the driving time to and from these facilities is problematic both for the patients and caregivers and costs are incurred by the transferring facility. For example, a respiratory therapist from Leesburg Regional will often accompany the patients, which keeps the therapists out of the hospital for six to seven hours. T 218.

   6. There is one LTCH (opened in 2003) in Orlando known as Select Specialty Hospital - Orlando (formerly SemperCare - Orlando), with 35 LTCH beds and another LTCH under construction in southern Orange County within a few miles of the current LTCH known as Select Specialty Hospital - Orange with 40 approved, but not operational LTCH beds. The approximate drive time from Leesburg Regional to the Orlando LTCH is approximately one hour and 20 minutes and one hour and 50 minutes to the LTCH (Orange County) under construction.

   7. For calendar year 2004 and 2005, the occupancy levels at the Select Specialty - Orlando LTCH were 71.28 and 73.37 percent, respectively, compared to the statewide average of

      67.14 and 64.70 percent, respectively.

      
      

   8. Select Specialty - Orlando is associated with the Florida Hospital5 System, whereas the approved Select Specialty Hospital - Orange facility is associated with the Orlando Regional Health System. Both LTCHs were approved in part based on patients residing in the Orlando/Orange County area within District 7 needing LTCH services and on the specific needs of these large hospital systems and the patients they serve.6

      T 627, 690, 700-705, 709, 729-731. (Select Specialty - Orlando is an LTCH within the multiple buildings of Florida Hospital in Orlando. T 627).

   9. Given the special relationships forged by these Orlando/Orange County LTCHs with existing health care systems, the evidence is not persuasive that they are viable alternatives for the residents of Lake and Sumter Counties or, for that matter, other residents in District 3, except perhaps LTCH eligible patients from Florida Hospital Waterman. Also, Leesburg Regional has tried to place patients with the Select Orlando but bed availability has been a problem. Travel is also problematic.

   10. As of July 2006, University Community Hospital, Inc. has been approved to operate a 50-bed LTCH in Pasco or Pinellas County, Florida. T 714. The record is scanty on any details regarding this facility and its proposed service area.

2. The ability of Promise to provide quality of care - Section 408.035(3), Florida Statutes

   1. Promise is a new development stage corporation without a track record in Florida. However, Promise demonstrated that it can provide quality of care should its project be approved and that its parent company has a history of providing quality of care.

   2. About one-half of Promise Healthcare's facilities are accredited by the Joint Commission of Accreditation of Health Care Organizations (JCAHO). Promise Healthcare expects the remaining facilities will be similarly accredited within the next 18 months.

   3. LTCHs must go through a six-month demonstration period (unless extended) when they are treated like an acute care hospital. During this period, they must demonstrate that they are caring for medically complex patients who have an ALOS of more than 25 days. The hospital is reimbursed at the acute care hospital rate.

   4. In addition to JCAHO accreditation and the use of InterQual admission measures indicated above, Promise Healthcare

      utilizes a number of other outcome measurement systems, including JCAHO's ORYX performance measurement system, medication error rate determinations and best practices standards.

   5. ORYX is a national clinical outcome database operated by Healthcare Data, Inc., under a contract with JCAHO, which enables providers like Promise to evaluate and compare themselves to others in the industry by reporting indicators, such as infection control, ventilator dependency and weaning, and wound healing. In order to maintain JCAHO accreditation, JCAHO requires LTCH facilities to report nine indicators on a quarterly basis. T 41-48.

3. The availability of resources, including health personnel, management personnel, and funds for capital, and operating expenditures, for project accomplishment and operation-- Section 408.035(4), Florida Statutes

   
   

   1. The parties agree that Promise has or will be able to recruit or otherwise obtain sufficient resources, including health and management personnel, to accomplish the project. The parties have differing views on the availability of funds for capital and operating expenditures discussed herein.

4. The extent to which the proposed services will enhance access to health care for residents of the service district -- Section 408.035(5), Florida Statutes

   
   

   1. Based primarily on the experiences of personnel at Leesburg Regional, the need assessment performed by Mr. Balsano,

      and the study performed by Dr. Grigonis, see also endnote 2, approval of the project is likely to enhance access to LTCH services for the residents of District 3.

5. The immediate and long-term financial feasibility of the proposal -- Section 408.035(6), Florida Statutes

   
   

   1. Promise is required to prove its project will be financially feasible in the short-term by establishing its ability to fund the project, and in the long-term by establishing a positive net revenue or profit at the end of the second full year of its projected operation. In other words, can Promise obtain financing to fund the project and is the project likely to generate a profit at the end of its second year of operation?

   2. AHCA argues that Promise is a development stage company with assets of $60,000 and no results from operations. In addition, AHCA argues that Promise did not provide audited financial statements for its parent company, Promise Healthcare, and that, as a result, AHCA cannot perform a review of Promise's short and long-term position. In essence, AHCA questions Promise's ability to obtain financing necessary to fund this project and associated working capital. Promise noted that it intends to fund the project through debt financing and provided a letter of interest. AHCA does not consider a letter of interest a firm commitment to lend.

   3. Promise is a start-up company. Promise included an audited financial statement of itself in its CON application, but not for its parent company.

   4. There is nothing unusual about establishing a separate start-up company.

   5. At the time of the hearing, Promise Healthcare, the parent company, generated net patient revenues in excess of $200 million.

   6. Promise Healthcare is viable and profitable, as indicated in its financial documents and financial history.

   7. With the exception of its first year of operation, Promise Healthcare has been profitable, and, in 2005, Promise Healthcare generated positive retained earnings in excess of $10 million.

   8. In 2006, Promise Healthcare's profits "are just about the same for 2005." Mr. Leder stated that there were some changes in reimbursement that lowered some of the revenue and also one company was in a start-up mode with a six month loss, which was absorbed, but if considered a start-up, net income for the year would have been approximately $5 million. T 147.

   9. Mr. Leder explained that audits are being done now which "hopefully will be completed within the next six or eight weeks." He further explained that when Promise Healthcare purchased other companies, there was a significant amount of

      financial information unavailable to list on statements which were auditable. Nevertheless, he opined that their financial statements "are fairly accurate" and the balance sheet and income statement have "always been fair and reasonable." T 148.

   10. Through the years, Promise Healthcare has been successful in securing financing as needed.

   11. Promise Healthcare's "sister" company, Sun Capital, obtained in excess of $250 million in loans through the efforts of Founding Partners Capital Management Company (Founding) and its principal, Mr. Gunlicks. Founding acts as the general partner in managing investment funds. Founding is registered with the U.S. Securities and Exchange Commission, the federal Commodities Futures Trading Commission, and the Florida Division of Securities.

   12. Promise Healthcare has obtained approximately $15 million in loans from Founding for two facilities in Nederland (by mortgage) and Bossier City (by construction loan).

       T 148-149.

       
       

   13. It is not uncommon for health care companies to rely on letters of intent to finance their facilities at this stage of the CON process.

   14. Mr. Gunlicks and his associates have conducted extensive due diligence into Promise Healthcare's plans to expand in Florida.

   15. If approved, Mr. Gunlicks and the entities that he controls stand ready, willing, and able to provide the necessary financing for the Promise project.

   16. According to AHCA's financial expert, Mr. Fitch, there has not been a CON project which, if approved, was not developed due to lack of financing.

   17. If the Agency approves the application, it is reasonable to expect that the project will be financed appropriately. Promise produced credible evidence in this regard.

   18. Promise, by and through the testimony of witnesses employed at Leesburg Regional, proved that it had strong support from LRMC.

   19. Promise's projected occupancy rates are based on the methodology proposed by Mr. Balsano, including the adjustments contained in the projected number of patients who would likely be admitted to District 3 LTCHs. The projected occupancy rates for years one and two, although presenting a challenge for Promise in today's LTCH/health care climate, are reasonable.

   20. The projected Medicare revenues as well as the overall net revenues per patient day included in the application are reasonable. The proposed costs per patient day are reasonable.

   21. Overall, the projections that Promise's project will at least break even and potentially generate a profit in excess

       of $1.2 million at the end of the second year of operations, although challenging, is reasonable.

   22. The Agency raised legitimate concerns regarding the financial ability of Promise and its parent. The lack of audited financial statements for the parent is troubling, but not dispositive. The financial ability of Promise and its parent to fund and operate this project presents a credibility issue in this de novo hearing.

   23. Based on the totality of the evidence presented, Promise proved by a preponderance of the evidence that the project is likely to be financially feasible in the short-term and long-term.

6. The extent to which the proposal will foster competition that promotes quality and cost-effectiveness -- Section 408.035(7), Florida Statutes

   
   

   1. Approval of Promise's application would provide competition in the District 3 LTCH market and reduce expensive and time consuming patient transfers. In addition, it is likely to provide efficiencies in various departments of hospitals, such as those operated by LRMC. Access to the proposed Promise project is likely to decompress LRMC's emergency departments and intensive care units, reduce hospital stays, and provide better care for patients.

7. The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction -- Section 408.035(8), Florida Statutes

   
   

   1. The parties agree that the estimated construction costs of the Promise project are reasonable and that the architectural plans submitted by Promise comply with all statutory and rule requirements.

8. The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent -- Section 408.035(9), Florida Statutes

   
   

   1. If awarded a CON, Promise agreed to provide a combined two percent of the facility's total annual patient days to Medicaid and charity patients. At hearing, Promise reiterated its commitment contained in the application.

   2. In some states in which Promise operates, the Medicaid program does not provide any benefits for LTCH patients. In its Shreveport facility, the percentage of Medicaid patients averages between five and ten percent. It is even higher in Promise's Phoenix facility.

   3. Promise provides care to patients who do not have any reimbursement available-allowing its facilities to do so on a case-by-case basis.

   4. Promise's commitment to Medicaid and charity care is accounted for in the application's projections.

   5. Promise's commitment compares favorably with the level of similar care provided by existing LTCH facilities in Florida.

9. The applicant's designation as a Gold Seal Program nursing facility pursuant to s.400.235, when the applicant is requesting additional nursing home beds at that facility -- Section 409.035(10), Florida Statutes

1. The parties agree this criterion does not apply.

   
   

   CONCLUSIONS OF LAW

   
   

2. The Division of Administrative Hearings 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.

3. Promise has the burden of proving by a preponderance of the evidence that CON Application No. 9870 should be approved. Boca Raton Artificial Kidney Center, Inc. v. Department of Health & Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA 1985); § 120.57(1)(j), Fla. Stat.

4. The award of a CON must be based on a balanced consideration of all applicable and statutory rule criteria. Balsam v. Department of Health & Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1986). "[T]he appropriate weight to be given to each individual criterion is not fixed, but rather must vary on a case-by-case basis, depending upon the facts of each case." Collier Medical Center, Inc. v. Department of

   Health & Rehabilitative Services, 462 So. 2d 83, 84 (Fla. 1st DCA 1985).

5. The main issue to be resolved in this proceeding is whether there is a need for Promise's 40-bed LTCH project.

6. A CON application is reviewed in context with several statutory criteria including "[t]he need for the health care facilities and health services being proposed " and "[t]he availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant."

   § 408.035(1) and (2), Fla. Stat.

   
   

7. The need methodology advanced by Promise is more conservative than prior methodologies considered by the Agency in Final Orders, which resulted in approval of LTCH applications.

8. Even with the adjustments suggested by the Agency to the methodology, a need for additional beds in excess of those sought by Promise is found to exist.

9. The parties agreed that services provided by LTCH facilities are distinct from other post-acute care services. The federal government has recognized that, under the right circumstances, LTCH services are appropriate and provide benefits to patients.

10. It cannot be said that, in all cases, other post-care settings, such as SNFs CMR facilities, or home health services, are alternatives to the services proposed here. Likewise, it cannot be said that, in every circumstance, every acute care patient whose length of stay exceeds a certain number of days is an appropriate candidate for admission to an LTCH.

11. In this case, there was persuasive evidence that SNFs, SNUs, CMR facilities, and home health services within and outside District 3 are not appropriate alternatives.

12. Although opened relatively recently, Kindred Marion is well utilized, considering its semi-private bed complement.

13. In light of the characteristics of the population, road conditions, its semi-private bed complement, and the occupancy rates experienced at Kindred Marion, it was not persuasively shown that this LTCH is reasonably accessible to the population which Promise would primarily serve.

14. Due to the circumstances surrounding the approval of the Select Alachua, as well as the demographic factors noted above, the Select Alachua facility is not likely to be a reasonable alternative.

15. The two LTCH facilities in Orange County, part of District 7, are not considered alternatives, in part, because they are not located in the same district as Promise.

16. The availability and accessibility of LTCH services to the residents of District 3 will be enhanced by the proposed project. By locating its facility in the LRMC service area, the project will enhance access to LTCH services to residents of District 3. The travel problems now experienced by the aging population of the area are likely to be reduced, if not eliminated.

17. Promise is part of a large corporation with a history of providing services to Medicaid and charity patients in other locations. There is no reason to believe its experience in Florida would be different, especially in light of the clear commitment contained in the application. (Promise is committed, as a condition of approval, to providing two percent of its patient days to Medicaid and charity patients.)

18. As an existing provider in a number of states, Promise Healthcare has the ability and record to provide good quality of care to its patients and it is likely that Promise will also provide good quality of care.

19. Promise has available the necessary resources to accomplish the project.

20. The use of a "start up" corporate entity to develop a health care facility is not uncommon. The issuance of a CON is the first step in a lengthy approval, development and construction process which will take years to complete.

21. The relationship between Promise Healthcare, the parent, and its lender of choice is based on several years of conducting business. After conducting appropriate due diligence, the lender is convinced financing will be available for the Promise project.

22. The projections contained in the CON application, revised at hearing, are reasonable and recognize the effect of future potential reductions in Medicare reimbursement. Even with such adjustments, the project is likely to be profitable in its second year of operation, and therefore, financially feasible.

23. It is likely that the project will be financially feasible in the short-term. It is likely that, once the application is approved, Promise will be able to obtain financing through a variety of sources, including its preferred lender.

24. The number of potential LTCH discharges in District 3 projected which in part formed the basis for the occupancy rates, the projected reduced Medicare reimbursement revenues, and the support of LRMC, all support the conclusion that the project will be profitable at the end of its second year of operation. It is likely the project will be financially feasible in the long-term.

25. Approval of the project will introduce an additional competitor for patients needing LTCH services in District 3. This will afford patients, hospitals and physicians an alternative not presently available, and will likely promote quality and cost-effectiveness, including favorably affecting operational and financial conditions at LRMC.

26. AHCA raised legitimate concerns regarding whether Promise, or for that matter, any LTCH can meet occupancy projections with patients who are appropriate for LTCH care.

27. Promise Healthcare's prior and continual use of InterQual criteria and other measures adequately address the concerns expressed by AHCA in this regard.

28. Overall, Promise has met its burden of proof in this case because it showed that there is a need in District 3 for an additional LTCH facility and, on balance, satisfies the applicable statutory and rule criteria.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that the Agency for Health Care Administration issue a final order granting Promise Healthcare of Florida III, Inc.'s CON Application No. 9870.

DONE AND ENTERED this 10th day of April, 2007, in Tallahassee, Leon County, Florida.

S

CHARLES A. STAMPELOS

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 10th day of April, 2007.

ENDNOTES

1/ These were hospitals of interest in the region that were chosen to determine potential LTCH use. T 754. Citrus Memorial Hospital is located toward the eastern portion of Citrus County; Florida Hospital Waterman is located in Lake County and west of Leesburg Regional; and Villages Regional is located at the convergence of Sumter, Lake, and Marion Counties. Promise 2 at

38. Florida Hospital Waterman is a medium-sized community hospital located in Eustis, Lake County, Florida, that is part of the Florida Hospital system.

2/ In an effort to support Promise's patient projections,

Mr. Hocking's office, with input from Mr. Balsano, prepared an analysis of inpatients from July 1, 2005 to June 30, 2006, to determine the number of possible LTCH patients who were patients at Leesburg Regional and Villages Regional. Promise 29; T 329-

331. The list was reduced to patients who had a length of stay of 15 days or more than the GMLOS. The list was further reduced to include only patients who fit under certain DRG codes. This process eliminated all but 173 patients who would qualify for an LTCH transfer based on these assumptions. 173 patients generated 4,962 patient days at an ALOS of 28.7 days. 130 patients generated 3,722 patient days and 87 patients generated 2,481 patient days with the ALOS kept constant at 28.7 days. Each percentage of patients generated 23.7 additional days (28.7

minus 5.0) than the normal stay at a short-term acute care hospital. Keeping population constant, based on this analysis, it appears that Leesburg Regional and Villages Regional generated at most 173 patients who may have been eligible for LTCH services.

3/ LTCHs are required to go through a startup period in order to document to CMS that they will serve a patient population that averaged a length of stay of 25 days or more.

4/ Approximately 29 percent of the admissions to Kindred Marion came from Munroe Regional, the host hospital. The federal government has changed the reimbursement policy for LTCH patients served within a HIH LTCH. The 25 percent rule is scheduled to become effective over a period of time beginning with a 50 percent cap on admissions from the host hospital, with an eventual reduction to 25 percent. This change is likely to impact admissions at Kindred Marion in the future although the significance was not quantified to any degree of specificity.

If it became a problem, Kindred Marion could relocate from inside the host hospital similar to the action taken by the Select Specialty LTCH facility in Orlando, Florida.

5/ Florida Hospital is a multi-campus hospital headquartered in Orlando, Florida, operated by Adventist.

6/ In or around April of 2005, the CON for the Select Specialty

• Orange LTCH was modified to change its status from a hospital within a hospital to a freestanding LTCH.

COPIES FURNISHED:

Richard J. Shoop, Agency Clerk

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

Tallahassee, Florida 32308

Craig H. Smith, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3

Tallahassee, Florida 32308

Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration 2727 Mahan Drive, Suite 3116

Tallahassee, Florida 32308

F. Philip Blank, Esquire Blank & Meenan, P.A.

204 South Monroe Street Tallahassee, Florida 32301

Sandra E. Allen, Esquire Office of General Counsel

Agency for Health Care Administration 2727 Mahan Drive, Building 3

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

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

Docket for Case No: 06-000568CON

Orders for Case No: 06-000568CON