The Issue Whether, under Section 381.494-381.499, Florida Statutes, Humana, Inc., d/b/a Kendall Community Hospital, is entitled to a Certificate of Need to construct a 150-bed acute care hospital in the west Kendall area of south Dade County, Florida.
Findings Of Fact HUMANA is an investor-owned, multi-institutional hospital system which owns and operates more than 90 hospitals, most of which are medical/surgical facilities. (DHRS Ex.1, p.10). HUMANA applied for a Certificate of Need from DHRS to construct a 150- bed acute care community hospital in the west Kendall area of south Dade County, Florida. The specific area to be served is bounded on Miller Drive to the north, southwest 177th Avenue to the west, Coral Reef Drive to the south, and Calloway Road to the east. The proposed 150-bed hospital includes 100 medical/surgical beds, 20 pediatric beds, 20 Level II obstetric beds, 10 intensive care/critical beds, and a Level II nursery in conjunction with the obstetric unit. (TR 277). The proposal includes a 24-hour, physician-staffed emergency room and a "dedicated" outpatient surgery department, with separate recovery room. Surgery suites are specifically designed and reserved only for outpatient surgery, thereby facilitating outpatient scheduling and efficient operations. (TR 279). The outpatient surgery unit is intended to reduce the costs of health care by providing a cost-effective alternative modality of health care delivery. (TR 278). Finally, the proposal contemplates a full-body CT Scanner, digital radiography and general state-of-the-art ancillary equipment. (TR 278). If built, it would be the westernmost hospital in south Dade County. It is a "community" hospital, designed to provide hospital care to the rapidly growing population of the west Kendall area, but not serve as a major referral center for patients living elsewhere. (DHRS Ex. 1, pp. 32-34; TR 250, 280). The local health planning agency, then the Health Systems Agency ("HSA") of South Florida, Inc., 1/ reviewed HUMANA's application for a Certificate of Need, along with four other similar applications, and recommended that all five be denied because of asserted inconsistency with the HSA's Health System Plan. ("HSP") 2/ (DHRS Ex. 1, TR 77). The applications were then submitted to DHRS, the single state agency empowered to issue or deny Certificates of Need. 381.493(3)(a) and 381.494(8), Fla.Stat. (Supp. 1982). DHRS reviewed the HSA recommendation, conducted its own evaluation, and then denied all five applications, including HUMANA's. DHRS concluded: None of the five proposed projects are in compliance with the adopted Goals, Criteria, Standards and Policies of the Health Systems Agency of South Florida, as stated in the Health Systems Plan (HSP) and Annual Implementation Plan (AIP). A need to add acute care hospital beds to Dade County does not exist at the present time. The proposed projects would add to excess capacity and underutilization of hospital beds that now exist in Dade County. There are only five hospitals in Dade County that are at the recommended occupancy level of 80 percent based on licensed beds (none of which are located in South Dade), and the number of beds per 1000 population. The primary alternative would be not to construct any of the proposed projects. While all of the proposed projects represent some degree of financial feasibility, none are felt to be cost effective because increased bed capacity would result in costs and revenue higher than those projected for existing "High Cost" hospitals in 1984 as determined by the Hospital Cost Containment Board. (DHRS Ex. 1, p. 404) Thereafter, HUMANA timely instituted Section 120.57(1) proceedings challenging DHRS's denial; HUMANA's standing to do so is uncontested. HUMANA's position, maintained throughout, is that its proposed 150-bed hospital satisfies every legal criterion for the issuance of the applied-for Certificate of Need. Intervenor Baptist Hospital Intervenor BAPTIST HOSPITAL will be substantially affected if HUMANA is granted a Certificate of Need. BAPTIST is a fully licensed and accredited 513- bed, general acute care hospital located within HUMANA's proposed service area, at 8900 North Kendall Drive, Miami, Florida. (STIP-para. 8). If the proposed hospital is built, it would significantly and adversely affect the patient census and revenues of BAPTIST HOSPITAL. (TR 16, VOL 4). In 1982, BAPTIST drew 36.7 percent of its patients from HUMANA's proposed service area. (TR 15, 16, VOL 4). Fifty percent of the residents of the proposed service area (who were admitted to hospitals in Dade County) were admitted to BAPTIST HOSPITAL. (TR-440). It is estimated that BAPTIST would lose 15,047 patient days to the new HUMANA hospital and would experience significant adverse economic impacts. (TR 88-89, VOL 5). The proposed hospital would also adversely impact BAPTIST's ability to hire and retain nursing and technical personnel. BAPTIST has experienced difficulty in hiring and retaining these personnel. (TR 18, 60-73, VOL 4). Historically, the opening of a new hospital has adversely affected the hiring and retention of such personnel in nearby hospitals. (TR 72-73, VOL 4). Here, approximately 84 percent of BAPTIST's nurses live near HUMANA's proposed cite, thus increasing the likelihood that BAPTIST will be adversely affected in this manner. (TR 135, VOL 5). BAPTIST opposes the issuance of a Certificate of Need for HUMANA's proposed hospital, and supports DHRS's initial denial. Intervenor American Hospital Similarly, intervenor AMERICAN HOSPITAL would be significantly affected if the proposed HUMANA hospital is built. AMERICAN is a fully licensed and accredited 513-bed, general acute care hospital located and operated within HUMANA's proposed service area, at 11750 Bird Road, Miami, Florida, (STIP-para 8). AMERICAN currently draws 41 percent of its patients from HUMANA's proposed service area. The proposed hospital will cause AMERICAN to lose an estimated 5,300 patient days. (TR 76, VOL 5). This translates into an approximate loss of $4.1 million in potential revenues, based upon HUMANA's achieving a 75 percent occupancy rate and 41,000 patient days. (TR 75-76, VOL 5). Such a revenue loss may result in higher costs, which in the health care system, are normally translated into higher patient charges. (TR 86, VOL 5) HUMANA's proposed hospital would also aggravate AMERICAN's continuing shortage in nursing personnel. (Currently AMERICAN has approximately 50 full- time registered nurse vacancies.) (TR 134, VOL 5). It is reasonable to expect that HUMANA will hire a significant number of its nurses away from nearby hospitals. Over a six-month period, HUMANA's four existing hospitals in south Florida hired 112 registered nurses, 32.1 percent of whom were hired away from other hospitals in the area. (TR 783). AMERICAN, likewise, opposes the issuance of a Certificate of Need to HUMANA, and supports DHRS's initial denial. II. STATUTORY CRITERIA FOR CERTIFICATES OF NEED Section 381.494(6)(c) and (d), Florida Statutes (Supp. 1982), prescribes standards for evaluating applications for Certificates of Need. Those standards pertinent to HUMANA's application include: The need for the health care facilities and services . . . being proposed in relation to the applicable district plan, annual implementation plan, and state health plan adopted pursuant to Title XV of the Public Health Service Act, except in emergency circumstances which pose a threat to the public health. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services . . . in the applicant's health service area. 7. The availability of resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation; the effects the project will have on clinical needs of health professional training programs in the service area; the extent to which the services will be accessible to schools for health professions in the service area for training purposes if such services are available in a limited number of facilities; the availability of alternative uses of such resources for the provision of other health services; and the extent to which the proposed services will be accessible to all residents of the service area. 11. The probable impact of the proposed project on the costs of providing health services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and service to promote quality assurance and cost-effectiveness. In considering HUMANA's application, specific consideration must also be given to whether: . . .less costly, more efficient, or more appropriate alternatives to such inpatient services are . . . available and the development of such alternatives has been studied and found not practicable. . . . existing inpatient facilities providing inpatient services similar to those proposed are being used in an appropriate and efficient manner. . . . alternatives to new construction, for example, modernization or sharing arrangements, have been considered and have been implemented to the maximum extent practicable. . . . patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new service. 381.494(6)(d) Fla.Stat. (Supp. 1982). The controversy here is whether in 1988 (using a five-year planning horizon) there will be a need for HUMANA's proposed 150-bed hospital in the west Kendall area of south Dade County. DHRS, BAPTIST, and AMERICAN say that there will be no need: that existing hospitals serving the area have excess capacity and are underutilized--and that this condition will persist through 1988. HUMANA contends otherwise. As the applicant for a license, the burden of proving entitlement rests squarely upon HUMANA. 3/ The most accurate and reliable method for determining bed-need in this case, the historical demand-based method, requires the following: (1) identify planning area boundaries; (2) from historical population data, project population for the planning area using the five-year horizon for hospital services; (3) calculate a hospital use rate or the rate at which patients in the service area have used hospitals in terms of patient days per thousand; (4) project patient days by multiplying the use rate times the area population, and divide by 365 to yield a projected bed need; (5) compare projected bed-need with the licensed bed capacity of area hospitals and, using an appropriate occupancy standard, determine whether there will be an excess or shortage of hospital beds in the proposed planning area. (TR 55, VOL 5). Selecting a Health Planning Area The first step in determining whether a new hospital will be needed is selection of the appropriate health planning area. In 1982, the now-defunct HSA of South Florida adopted a Regionalization Plan for south Florida dividing HSA IX, a region, into five districts. (AM Ex. 4). Although not specifically mentioning hospitals, this plan implies that hospital bed-need determinations should be made on a district basis. The Kendall area, extending east and west, generally is denominated as "District D," and is, in turn, subdivided into three subdistricts. "D-1" encompasses Coral Gables and South Miami; "D-2" and "D-3" include Weschester, Kendall, Killian, and the west central Dade areas, the boundaries of which are U.S. 1 and the Palmetto Expressway on the east, Coral Reef Drive and Eureka Drive on the south, conservation area on the west, and the East-West Expressway, and Tamiami Trail on the north. (HU Ex. 4). HUMANA chose "D-2" and "D-3" as the appropriate health care planning area for determining need for its proposed hospital. District "D," however, is a more appropriate and reasonable area to use in determining need for the proposed HUMANA hospital. (TR 203, 258; 145-146, VOL 4; 56-57, VOL 5). The entire area of District "D" may be traversed, by car, in approximately 30 minutes, the roads are adequate, and there are numerous hospitals in the district which are easily accessible to its residents. (TR 57-58, 66, 77-78, VOL 5). Hospitals located in one part of District "D" are readily accessible to patients who reside in other areas of the District. HUMANA's bed-need analysis fails to adequately take into account hospitals within "D-1" or which are outside the District but are readily accessible (within 30-minutes driving time) to the majority of residents in "D- 2" and "D-3." (TR 145-146, VOL 4). Existing hospitals which are readily accessible to residents of a proposed service area cannot be reasonably excluded merely because they are located outside a theoretical boundary line. (TR 145- 146, VOL 4). A health planning area should be the area where most of the residents seek health care. (TR 615; 78-79, VOL. 5). Hence, a proposed health planning area should be tested against the actual hospital use of its residents and the accessibility of existing hospitals to those residents. The residents of District "D" travel freely within District "D" in seeking hospital care. South Florida Hospital Association Utilization and Patient Origin Program ("HUPOP") data show that approximately 60 percent of the patients residing in subdistricts "D-2" and "D-3" seek inpatient hospital care elsewhere. (TR 72, VOL 5; 616; AM Ex. 7 p. 19). 4/ There is a corresponding inflow of residents from outside "D- 2" and "D-3" who seek hospital care within "D-2" and "D-3". (TR 72, VOL 5). In comparison, approximately 70 percent of the residents of District "D" seek hospital care within the boundaries of the District and--of all the districts within the region-- District "D" has the highest percentage of residents who seek in-district hospital care. (TR 72-73, 79, VOL 5; AM Ex. 7, p. 19). In actual practice, then, the residents of District "D" heed the District boundaries but largely disregard subdistrict "D-2" and "D-3" boundaries. The residents of "D-2" and "D-3" have ready access to numerous hospitals providing a broad range of medical services. (TR 78, VOL 5). BAPTIST is a large general hospital with tertiary, secondary, and primary care services. With the exceptions of a burn center and a Level III neotology unit, virtually all health care services are provided. BAPTIST, AMERICAN, Coral Reef, South Miami, and Larkin hospitals provide health care services to residents of "D-2" and "D-3," within a 20-minute travel time. (BH Ex. 10, p. 1-13-19; BH Ex. 5 and 7). The few specialized services not available at these hospitals are provided at Jackson Memorial Hospital, within a 30-minute travel time. (BH Ex. 10, p. 1- 13). Accessibility of Existing Acute Care Hospitals Section 381.494(6)(c)(2), Florida Statutes (Supp. 1982), requires examination of the accessibility of existing health care facilities providing similar services to the same health service. The generally accepted standard for determining accessibility, found appropriate here, is whether general hospital beds are available to the service area's population within 30-minutes travel time by automobile, under average traffic conditions and for non- emergency purposes. This standard is used by HSAs and DHRS is used by federal health care planners, and is widely used by professional health care planners. (DHRS Ex. 1; BH Ex. 10, p. 1-10-13; TR 90, 123, 144, 166, 193; 85, 133-134, VOL 4; 58, 77, VOL 5). Applying this standard, seven hospitals are reasonably accessible to residents of HUMANA's proposed service area: AMERICAN, BAPTIST, Coral Reef Hospital, South Miami Hospital, Larkin Hospital, Doctors' Hospital, and Jackson Memorial Hospital. District "D" contains eleven hospitals, with a total of 2,882 licensed beds. (AM 3, p. 41; 4, p. D-3). Moreover, five of these, AMERICAN, BAPTIST, Coral Reef, Larkin, and South Miami, are even closer, within 20-minutes average travel time. (BH 5, p. 11). There is no evidence that the residents of "D-2/D-3", or District "D," as a whole, have any difficulty using or gaining access to these hospitals. Beds are available. The five hospitals closest to HUMANA's proposed service area, AMERICAN, BAPTIST, Coral Reef, South Miami, and Larkin, have a total of 1,825 licensed beds, 326 of which are not in service; of the 1,499 beds in service, 109 are not used. So there are 435 licensed beds, within 20-minutes of "D-2/D-3," not in service or not in use due to lack of demand. (BH Ex.10, p. I- 26, 5, 7, 10, p. I-26-28). Occupancy Standard for Determining Need The generally accepted occupancy standard for hospitals, used in deciding if additional beds are needed, is the 80 percent average annual occupancy rate. This standard is included in the 1981 Florida State Health Plan, is used by DHRS and HSAs, and is widely used by professional health care planners. Its use is appropriate here. (AM 135, VOL 2; TR 90-91; 95-97, 118, 132, 140, 165, 172, 313, 469; 141, VOL 4). In application, it means that additional hospitals should not be built until existing hospitals providing acceptable care to the proposed service area are operating at or above an 80 percent occupancy rate--the level at which hospitals, generally, operate most efficiently. In 1982, none of the eleven hospitals in District "D" met the 80 percent occupancy standard. (DHRS Ex. 1, AM Ex. 3, p. 7). In 1981, the five hospitals closest to HUMANA's proposed site had an average annual occupancy rate of 60.9 percent. (BH Ex. 10, p. I-24). Moreover, this excess is sufficient to meet the future health care needs of residents of "D-2/D-3" and District "D," as a whole. BAPTIST and AMERICAN will not achieve 80 percent occupancy until after 1988; AMERICAN is projected to have an occupancy of only 63.61 percent in 1990. (AM Ex. 3, p. 8; BH Ex. 10, p. 10, I-24). Availability of Resources to Build and Support Proposed Hospital Section 381.494(6)(c)(7) also requires consideration of whether there will be available adequate resources to support a new hospital, including manpower and financial resources. The evidence establishes, without contradiction, that HUMANA has sufficient funds to construct and operate its proposed hospital. The projected cost of the hospital, including equipment, is $29,175,500--70 percent to be funded by debt, the remainder by equity funds. HUMANA has, on hand, approximately $225 million in cash and cash equivalents. (TR 709, HU Ex. 2). The design of the proposed hospital will be based on HUMANA's "prototype" 150-bed facility, developed from years of experience in hospital design construction, and operation. The design is efficient and economical, and will permit a 50-bed expansion without further construction. (TR 714-716, 720, 719, HU Ex. 9). The parties agree that HUMANA has the ability to enlist or employ sufficient physicians and management personnel to staff the proposed hospital. (STIP, para. 3). HUMANA also has the ability to hire and retain an adequate nursing and technical staff. It recruits such personnel, routinely, on a national basis and transfers employees within its hospital system. Moreover, it has a mobile nurse corps, a group of nurses which are available on an as-needed basis, to help staff its south Florida hospitals during peak winter months. Historically, HUMANA has successfully recruited and retained nurses in its south Florida hospitals. (TR 772, 776-777, 781-782, 801-802, VOL 4). Projected Population of Service Area As already mentioned, under the preferred demand-based bed-need methodology, population is projected over a five-year planning horizon, for hospital facilities. This is because an increase in a service area's population will generate a need for more beds. The population of the Kendall area of south Dade County has been growing rapidly, and is expected to continue to do so through 1990. This population is younger than the population of Dade County or HSA IX, as a whole. The population projections for District "D" (the appropriate health planning area for the proposed hospital) by age groups are: District D 1987 1990 Under 15 92,301 96,506 15 to 64 357,567 327,652 65 and over 52,188 55,822 TOTAL (AM 3; TR 59-61, VOL 5; 488 VOL 3) 502,056 529,980 I. Hospital Use Rate Under the demand-based methodology, found acceptable here, once the planning area is designated and the population projected over a five-year planning horizon, a hospital "use rate" is calculated. The "use rate" is the rate at which people use hospitals, expressed in terms of the number of patient days per thousand residents residing in the health service area. This rate can be derived using various factors. Those factors most appropriate for use in this case are "age" and "service-specific" uses. (TR 66 VOL 5; 497-498 VOL 3). "Age-specific" use rates, reflecting historic hospital use rates by age group, are applied to the projected population to determine total patient days. This factor takes into account the fact that people 65 or older utilize hospitals at a rate three to four times that of people under 65. This is particularly significant here since the Kendall area population is younger than the population of Dade County, HSA IX, or the state, as a whole. (TR 58-59, VOL 5; AM 3, p. 12). In 1981, the age-specific use rate for HSA IX reflects a use rate of 1,524.6 patient days per thousand population. (AM 3, p. 63). "Service-specific" use rates are derived from historical use of particular hospital services, such as psychiatry, obstetrics, pediatrics, and medical-surgical. (AM 3, pp. 14-15, 70-72). The 1981 service-specific use rate, covering all services, for HSA IX was 1,524.6 patient days per thousand--a figure equal to the age-specific use rate. (AM 3, p. 14-15, 71). J. Calculation of Future Bed Need for District "D" In 1982, there were 2,882 licensed non-federal beds in District "D." Taking into account an 80 percent occupancy rate, and applying the HSA age- specific use rate to the projected population of District "D" yields a need for only 2,282 beds per day in 1987, and 2,419 beds per day in 1990. Hence, there will be an excess of 600 beds in District "D" in 1987; 554 in 1988; and 463 in 1990. (AM 3, p. 41, 69; TR 63, VOL 5). Similarly, applying the HSA IX service- specific use rate to the projected District "D" population results in a bed excess of 232 beds in 1987 and 87 in 1990. (AM 3, p. 74). Significantly, these projected bed excesses are, if anything, understated. This is because the HSA IX hospital use rate was utilized. Hospital use is greater in HSA IX, with its older population, than in District "D," where the population is younger and less likely to be hospitalized. (TR 61-62, VOL 5). HUMANA, in its analysis, applied age and service-specific use rates to the projected population of "D-2/D-3," concluding that there would be a need for 238 additional beds in 1988. This conclusion, however, is unconvincing since "D-2/D-3" is unduly restrictive and the 235 unused beds of South Miami and Larkin Hospitals, both located in "D-1," are not fully considered. (DHRS 1, p. 370; AM 3, p. 18). (Both hospitals are within a 20-minute average travel time from selected points in "D-2/D-3.") (TR 544, VOL 3; 612, VOL 4). By failing to properly account for empty beds at nearby hospitals, and by unreasonably limiting its planning area, HUMANA overstates the need for additional hospital beds in District "D." Moreover, even assuming the propriety of "D-2/ D-3," HUMANA failed to properly take into account the 260 beds of Coral Reef Hospital, a "D-2" hospital. If Coral Reef Hospital beds are correctly included within "D-2/D-3," HUMANA's projected bed-need decreases from 238 to 129 beds in 1988. (TR 80, VOL 5). Finally, Thomas W. Schultz, HUMANA's health care planning expert, admitted that a figure of 1,038 patient days per thousand patients would be "useful" in establishing bed-need for "D-2/D-3." (TR 501, VOL 3). Applying that use rate, and correctly including Coral Reef Hospital, results in a projected "D-2/D-3" need of 36 additional beds in 1988. (TR 83-84, VOL 5). HUMANA does not propose to construct a 36-bed hospital and such a hospital has not been shown to be feasible.
Recommendation Based on the foregoing, it is RECOMMENDED: That HUMANA's application for a Certificate of Need to construct a hospital in the west Kendall area of Dade County, Florida, be denied. DONE and ENTERED this 25th day of May, 1983, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of May 1983.
The Issue The issue in this case is whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious? Mercy has also raised one issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.
Findings Of Fact Introduction. The HCCB and Its Hospital Grouping Function. The HCCB was formed pursuant to Part II of Chapter 395, Florida Statutes (1979). The HCCB was created pursuant to the specific authority of Section 395.503, Florida Statutes (1979), in order to further the accomplishment of legislative intent contained in Section 395.5025, Florida Statutes (1984 Suppl.): It is the intent of the Legislature to assure that adequate health care is affordable and accessible to all the citizens of this state. To further the accomplishment of this goal, the Hospital Cost Containment Board is created to advise the Legislature regarding health care costs; inflationary trends in health care costs; the impact of health care costs on the state budget; the impact of hospital charges and third-party reimbursement mechanisms on health care costs; and the education of consumers and providers of health care services in order to encourage price competition in the health care marketplace. The Legislature finds and declares that rising hospital costs and cost shifting are of vital concern to the people of this state because of the danger that hospital services are becoming unaffordable and thus inaccessible to residents of the state. It is further declared that hospital costs should be contained through improved competition between hospitals and improved competition between insurers, through financial incentives which foster efficiency instead of inefficiency, and through sincere initiatives on behalf of providers, insurers, and consumers to contain costs. As a safety net, it is the intent of the Legislature to establish a program of prospective budget review and approval in the event that competition-oriented methods do not adequately contain costs and the access of Floridians to adequate hospital care becomes jeopardized because of unaffordable costs. As a part of its responsibilities the HCCB is required, "after consulting with appropriate professional and governmental advisory bodies and holding public hearings, and considering existing and proposed systems of accounting and reporting utilized by hospitals," to specify a uniform system of financial reporting for hospitals. Section 395.507(1), Florida Statutes Suppl.) to: In order to allow "meaningful comparisons" of data reported by hospitals under the uniform system of financial reporting, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.) to group hospitals according to characteristics, including, but not limited to, a measure of the nature and range of services provided, teaching hospital status, number of medical specialties represented on the hospital staff, percentage of Medicare inpatient days, average daily census, geographical differences, and, when available, case mix. In providing for grouping of hospital, the HCCB is required to establish ten general hospital groups and additional speciality groups "as needed." Section 395.507(2), Florida Statutes (1984 Suppl.). No hospital group can contain fewer than five hospitals, however. Id. Grouping is to be provided by rule. Id. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file its budget with the HCCB for "approval." The budget is required to be filed on forms adopted by the HCCB and based on the uniform system of financial reporting. Section 395.507(6), Florida Statutes (1984 Suppl.). To determine whether a hospital's budget is to be approved, all hospitals in Florida are to be placed in groups. A hospital's budget is then compared to the budgets of the hospitals assigned to its group. Hospital groups for this purpose are established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The provisions of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), are identical to Section 395.507(2), Florida Statutes (1984 Suppl.). In determining whether a hospital's budget is to be approved, Section 305.509(2), Florida Statutes (1984 Suppl.), establishes two initial "screens" which a hospital must meet based upon the hospital's gross revenue per adjusted admission. The term "gross revenue" is defined as: the sum of daily hospital service charges, ambulatory service charges, ancillary service charges, and other operating revenue. Gross revenues do not include contributions, donations, legacies, or bequests made to a hospital without restriction by the donors. Section 395.502(11), Florida Statutes (1984 Suppl.). "Adjusted admission" is defined by Section 395.502(1), Florida Statutes (1984 Suppl.), as: the sum of acute admissions and intensive care admissions divided by the ratio of inpatient revenues generated from acute, intensive, ambulatory, and ancillary patient services to gross revenues. Gross revenues per adjusted admission (hereinafter referred to as "GRAA") is therefore the total hospital ambulatory and ancillary service charges and other operating revenue for all acute and intensive care admissions divided by the ratio of inpatient revenues from acute, intensive, ambulatory and ancillary patient services to gross revenue; or, stated more simply , inpatient revenue per admission. The "screens" which must be met in order for a hospital's budget to be approved upon initial determination are: (1) the hospital's GRAA must not be in the upper 20th percentile of the hospitals within its group; and (2) the rate of increase in a hospital's GRAA as contained in its current budget compared to the hospital's GRAA as reported in its most recently approved budget must not exceed a "maximum allowable rate of increase" if the hospital's GRAA is in the 50th to 79th percentile of the hospitals in its group. If a hospital's GRAA is in the 49th percentile or less of the hospitals in its group, its budget is automatically approved. In determining whether a hospital's GRAA fails the screens, Section 395.509(2), Florida Statutes (1984 Suppl.), provides: Percentile values for gross operating revenue per adjusted admission shall be determined monthly by the board for each group established pursuant to s. 395.507(2) by ranking projected gross operating revenues per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. In determining the applicability of paragraph (a) or paragraph (b), the board shall consider the basis of the projections by the hospital, including consideration of the following factors: any increase in patient admissions caused by the creation of preferred provider organizations or health maintenance organiza- tions, population increases, changes in the hospital case mix or in services offered, changes in technology, or other similar factors. If a hospital's GRAA fails either of the screens (its GRAA is in the upper 20th percentile of its group or its GRAA rate of increase is excessive and its GRAA is in the 50th to 79th percentile of its group) that hospital's budget must be reviewed by the HCCB "to determine whether the rate of increase contained in the budget is just, reasonable, and not excessive." Section 395.509(5), Florida Statutes (1984 Suppl.). Pursuant to Section 395.509(6), Florida Statutes (1984 Suppl.), the HCCB is authorized, if it first determines under Section 395.509(5), Florida Statutes (1984 Suppl.), that the hospital's rate of increase is not just, reasonable and not excessive, to amend or disapprove any hospital's budget which does not meet the two screens of Section 395.509(2), Florida Statutes (1984 Suppl.), to establish a rate of increase which is "just, reasonable, and not excessive." The HCCB's authority under Section 395.509(6), Florida Statutes (1984 Suppl.), applies only if the HCCB first complies with the following pertinent provisions of Section 395.509(5), Florida Statutes (1984 Suppl.): The board shall disapprove any budget, or part thereof, as excess that contains a rate of increase which is not necessary to maintain the existing level of services of the hospital or, if the hospital increases its existing level of services, any amount not necessary to accomplish that increase. In making such deterioration . . . the board shall consider the following criteria: The efficiency, sufficiency, and adequacy of the services and facilities provided by the hospital. The cost of providing services and the value of the services to the public. The ability of the hospital to improve services and facilities. The ability of the hospital to reduce the cost of services. The ability of the hospital to earn a reasonable rate of return. The accuracy of previous budget submissions by the hospital compared to the actual experience of the hospital the The number of patient days reimbursed by Medicare or Medicaid. The number of patient days attributable to the medically indigent. The research and educational services provided by the hospital if it is a teaching hospital. The projected expenditures or revenues for or from construction of facilities or new services which are subject to regulation under s. 381.494 may not be included in the budget of a hospital until the construction or services are approved or authorized by the state health planning agency. The cost of opening a new hospital, for first 3 years. The Challenged Rules. In carrying out its duty to establish a uniform system of financial reporting, the HCCB adopted Section 4D- 1.03, F.A.C., which provides: The Board, pursuant to Section 395.505, Florida Statutes, hereby adopts and establishes a uniform system for hospitals to file the prior year audited actual data report, the interim report of financial and statistical information. This system is described and the forms, instructions, and definitions therefor are contained in the Board's publication entitled Hospital Uniform Reporting System Manual. The Chart of Accounts adopted pursuant to Section 395.507(1), Florida Statutes, and this Chapter 4D-1, and as hereafter modified, shall be utilized by each hospital for submitting the prior year audited actual data report, the interim report and the budget report. In order to determine whether a hospital's budget should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), the HCCB adopted Section 4D-1.12, F.A.C. Sections 4D-1.12(1) and (2), F.A.C., provide: The staff shall review the budget report based upon the hospital's ranking for gross revenue per adjusted admission within its group and upon its rate of change in gross revenue per adjusted admission in the proposed budget as required in Section 395.507(6), Florida Statutes, and the most recently Board approved budget. As part of the budget report review process, groupings of hospitals shall be established according to the characteristics and methodology as outlined in Chapter V, Section B, Hospital Unit Uniform Reporting System Manual and as outlined in Section 395.507(2), Florida Statutes. Percentile values for gross revenue per adjusted admission shall be determined monthly for each group by ranking projected gross revenue per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. 12. Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., are the rules challenged by Mercy. These rules, as quoted herein, were effective as of November 5, 1984. The rules were originally adopted effective June 30, 1980. The rules were amended to their present wording in response to "major" legislation enacted in 1984 which amended Part II, Chapter 395, Florida Statutes (1983), and granted authority to the HCCB for the first time to approve, disapprove or amend hospital budgets under certain circumstances. Chapter 79-106, Laws of Florida. The challenged rules essentially provide that the HCCB, when grouping of hospitals for purposes of the uniform system of financial reporting and for purposes of reviewing and comparing budgets to determine if they should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), will apply the grouping methodology outlined in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). Section 4D-1.18, F.A.C., also adopted effective November 5, 1984, incorporates by reference the Manual within each rule in Chapter 4D-1, F.A.C., which references the Manual. This rule has not been challenged in this proceeding. The Hospital Grouping Methodology and Its Development. Generally, Chapter V, Section B of the Manual, sets out the objective of the grouping methodology, the procedure for forming groups, a list of the variables considered in forming groups and the weight to be accorded each variable. The goals of the grouping methodology, as provided in the Manual, are to "facilitate comparison of hospitals with similar patient mix and market conditions" and to "develop groups of sufficient size . . . to assure statistically valid comparisons." Based upon the procedure for forming groups contained in the Manual, hospitals are grouped into nine, non-teaching, short-term hospital groups, one Major teaching hospital group and a number of specialty hospital groups. It is the method of grouping hospitals into nine short-term hospital groups which is at issue in this proceeding. Assignment of hospitals to the nine short-term hospital groups is accomplished through the use of the "McQueen's K-means clustering algorithm included in the cluster analysis t computer program package CLAN developed by T.D. Klastorin and Robert Ledingham (June, 1980 version)." A clustering analysis is a method of grouping a set of objects (in this case, hospitals) into relatively homogeneous groups. The goal of a clustering algorithm is to minimize the differences between the members of the group. The objects are grouped based upon a set of variables which are considered significant for purposes of comparing the objects. In order to account for the significance of each variable, the variables are weighted. The variables have a numerical score and after weighing, the weighted sum of the variables for each object is compared and the objects are grouped based upon their variable scores. There are a number of clustering algorithms which can be used to group hospitals. The HCCB chose to use the "McQueen's K-means" clustering algorithm. The use of McQueens K-means clustering algorithm has not bean challenged in this proceeding. Nor does the evidence establish that the selection of McQueen's K-means clustering algorithm is arbitrary and capricious. The clustering algorithm is performed by computer. The computer program utilized by the HCCB to perform the algorithm is called "CLAN" and was developed by T.D. Klastorin and Robert Ledingham. The evidence at the hearing supports a finding that the selection of this computer program is reasonable. Once hospitals are grouped, they are notified of their group designation and allowed to request reconsideration of their group assignment. The request must made within thirty days after notification. Following the creation of the HCCB in 1979, Price Waterhouse & Company was engaged by the HCCB as a consultant to assist in still establishing an appropriate hospital grouping methodology. The HCCB also created an advisory committee to assist the HCCB and Price Waterhouse & Company in developing the grouping methodology. This committee, designated as the Technical Advisory Committee (hereinafter referred to as the "TAC") was comprised of individuals from the hospital industry and academia and certified public accountants. The TAC worked with Price Waterhouse & Company in developing the grouping methodology and the uniform reporting system. Because of time constraints, the TAC's involvement with evaluating the methodology was limited. The HCCB ultimately decided to pattern the grouping methodology it adopted after the grouping methodology then being used by the State of Washington, as recommended by Price Waterhouse & Company. The Washington system was not adopted exactly; a number of changes to Washington's methodology were made to the grouping methodology adopted by the HCCB. Mercy has proposed several findings of fact beginning on page 35 and ending on page 38 of its proposed order concerning the "Differences in Washington Hospital Characteristics and Grouping Methodology Model." Those proposed findings of fact can be and are hereby disposed of by the following finding of fact: because of differences in the hospital industries of the States of Florida and Washington and other differences between the two States, Florida's grouping methodology cannot be justified solely on the basis that Washington's grouping methodology was used as a starting point in developing Florida's grouping methodology. Those differences, however, do not support a finding of fact that Florida's grouping methodology is arbitrary and capricious since the Washington system was not adopted without substantial modifications, including a reduction of Washington's eighteen variables initially to fourteen and ultimately to seven, and the use of unequal weighting of the variables. The TAC reviewed and discussed the grouping methodology initially approved by the HCCB prior to its approval. Some of Mercy's witnesses, who were members of the TAC, indicated during their testimony that the TAC never decided anything because no "vote" was ever taken of TAC members and that the TAC did not advise the HCCB but instead advised the staff of the HCCB. Their testimony in this regard has been given little weight. The fact that no formal "vote" was taken of TAC members does not mean that the TAC did not take a position on matters it discussed. The consensus of the TAC could be, and was, gleaned from its discussions. The staff of the HCCB in fact reported decisions of the TAC to the HCCB verbally and by minutes of TAC meetings. Although the accuracy of staff's reports was sometimes questioned, no question was raised about whether TAC had taken positions. The fact that the HCCB staff reported TAC actions to the HCCB also disputes the testimony to the effect that TAC did not advise the HCCB but instead advised the staff of the HCCB. While it may be true that TAC did not deal directly with the HCCB, its analysis was reported, to the HCCB. The HCCB ultimately adopted rules effective June 30, 1980, which incorporated by reference to the Manual, the general outline of the grouping methodology adopted by the HCCB. The TAC ceased to exist following adoption of the HCCB's initial rules. Two new advisory committees were formed: a Technical Advisory Panel (hereinafter referred to as "TAP") on grouping and a TAP for financial analysis. The grouping TAP was made up of individuals from the hospital industry. The grouping TAP met in November and December of 1980 and reviewed the results of test runs of the grouping methodology initially adopted by the HCCB. The results of the initial run were described as "bizarre." This run used equal weighting of the variables. Equal weighting was abandoned and three to four more test runs were made and reviewed by the grouping TAP. After each run the variable weights were adjusted until the results appeared to be "reasonable." The HCCB also established a committee consisting of members of the HCCB designated as the Research and Development Committee (hereinafter referred to as the "R & D Committee"). The R & D Committee reviewed the results of test runs and also found the final groups reasonable. The HCCB met in January, 1981, and adopted the grouping methodology with the adjusted variable weights arrived at as a result of the test runs for use in establishing hospital groups for use in 1981. The grouping methodology was reviewed every year after its initial adoption in 1980. The methodology was reviewed by the HCCB, HCCB's staff, the TAP's and the R & D Committee each year. Throughout the period from 1980 to the present, criticisms of the grouping methodology have been made. Some of these criticisms were agreed with and others were rejected by the HCCB or its staff. Following review of the grouping methodology by the TAP's and the R & D Committee in 1981, the original fourteen variables were reduced to eight. In January, 1982, the weight of one of the variables was changed and one variable was replaced by another variable. In December, 1982, a variable was deleted; seven variables remained. In 1983, clustering analysis was limited in its application to the formation of short-term acute care general hospital groups. In 1984, following the significant amendment of Chapter 395, Florida Statutes (1983), the HCCB adopted the present challenged rules. The rules were effective November 5, 1984. The only change in the grouping methodology approved by the HCCB was the substitution of the Florida price level index variable for percent of population over age 65. The weight assigned to the Florida price level index was the same as the weight that had been assigned to the percent of population over age 65. The changes made to the grouping methodology in 1984 were first suggested by the staff of the HCCB to the grouping TAP in June of 1984. The grouping TAP met on July 11, 1984 and considered and discussed the proposed changes. A number of problem areas were discussed. Although no test run results were presented at this TAP meeting, they were provided to TAP members before the HCCB adopted the grouping methodology changes. Concerns about the geographic or exogenous variables expressed at the grouping TAP meeting suggested a belief that too much or too little emphasis was being placed on geographic considerations. Mercy has proposed a number of findings of fact beginning on page 33 and ending on page 35 of its proposed order concerning the significance of the changes made by the Legislature in 1984 to Part II of Chapter 395, Florida Statutes (1983). Those proposed findings of fact essentially deal with the fact that the powers of the HCCB after the 1984 amendments may have a more significant impact on hospitals and that, therefore, the grouping methodology is of greater interest to hospitals. Mercy's proposed findings of fact are not, however, relevant in determining whether the challenged rules are arbitrary and capricious. The fact that the effect of the grouping methodology on a hospital may now be different does not mean that the use of the grouping methodology, as modified after the 1984 legislative changes to the law, which was developed when the purpose of grouping was different, is not an appropriate methodology. The evidence does not support such a conclusion. Therefore, to the extent that Mercy's proposed findings of fact under Section II, A, of its proposed order have not already been made, they are rejected as unnecessary. Mercy and the HCCB have proposed findings of fact as to whether Mercy has ever questioned the HCCB's grouping methodology since it was first adopted prior to instituting this proceeding. Those proposed findings of fact are not deemed relevant in determining whether the grouping methodology is arbitrary and capricious. If the grouping methodology is in fact arbitrary and capricious, the fact that Mercy did not challenge the methodology when it was first adopted will not make it any less arbitrary and capricious today. Mercy's Challenge. A. Introduction. Mercy is a not-for-profit, general acute care hospital with 550 licensed beds located in Dade County, Florida. Mercy has raised a number of points in this proceeding and its proposed order in challenging the rules in question. All of those points, according to Mercy, prove that the rules are an invalid exercise of delegated legislative authority. In determining whether the facts support such a conclusion, the following standard must be kept in mind: [I]n a 120.54 hearing, the hearing officer must look to the legislative authority for the rule and determine whether or not the proposed rule is encompassed within the grant. The burden is upon one who attacks the proposed rule to show that the agency, if it adopts the rule, would exceed its authority; that the requirements of the rule are not appropriate to the ends specified in the legislative act; that the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation or that the proposed rule or the requirements thereof are arbitrary or capricious. A capricious action is one which is taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion. Agrico Chemical Company v. State, Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978), cert. denied, 376 So.2d 74 (1979). Additionally, the following must be kept in mind: The well recognized general rule is that agencies are to be accorded wide discretion in the exercise of their lawful rulemaking authority, clearly conferred or fairly implied and consistent with the agencies' general statutory duties. . . . An agency's construction of the statute it administers is entitled to great weight and is not to be overturned unless clearly erroneous. . . . Where, as here, the agency's interpretation of a statute has been promulgated in rulemaking proceedings, the validity of such rule must be upheld if it is reasonably related to the purposes of the legislation interpreted and it is not arbitrary and capricious. The burden is upon petitioner in a rule challenge to show by a preponderance of the evidence that the rule or its requirements are arbitrary and capricious. . . . Moreover, the agency's interpretation of a statute need not be the sole possible interpretation or even the most desirable one; it need only be within the range of possible interpretations. Department of Professional Regulation v. Durrani, 455 So. 2d 515, 517 (Fla. 1st DCA 1984). The witnesses who testified in this proceeding who were accepted as experts were qualified in a number of different areas. Those witnesses qualified as experts in statistical analysis or related areas and health care finance rendered opinions as to the appropriateness of the HCCB's grouping methodology. The method of grouping hospitals adopted by the HCCB is a statistical method. Therefore, the determination of whether the HCCB's methodology is arbitrary and capricious depends largely upon whether the methodology is statistically sound. Mercy and the HCCB therefore presented the testimony of witnesses qualified in the area of statistics: Rick Zimmerman, Ph.D., an expert in statistical analysis and social science statistics (for Mercy), and Duane Meeter, Ph.D., an expert in economics and applied statistical analysis and Frank Fox, Jr., Ph.D., an expert in applied statistics (for the HCCB). All three witnesses were knowledgeable and credible. Dr. Zimmerman testified that the HCCB's grouping methodology was "clearly inappropriate." Dr. Zimmerman's opinion was based upon a three step analysis in which he determined: (1) whether the variables selected by the HCCB are appropriate; (2) whether the weights assigned to the variables by the HCCB are appropriate; and, (3) the effect changing the variables and/or weights would have on hospital groups. The results of Dr. Zimmerman's analysis, which formed the basis for his opinion that the HCCB's grouping methodology is not appropriate, are discussed, infra. Mercy has proposed a number of findings of fact in its proposed order concerning the credibility of Dr. Meeter's and Dr. Fox's testimony. Some of those proposed findings of fact have been considered in determining the weight given to their testimony. Both Dr. Meeter and Dr. Fox were, however, knowledgeable and credible. In addition to the opinion of its statistical expert, Mercy presented the testimony of three witnesses who were accepted as experts in health care finance: Messrs. Lawrence R. Murray, Jerry A. Mashburn and Anthony Krayer. All three are certified public accountants. All testified that it was his opinion that the HCCB's grouping methodology was arbitrary. The bases for their opinions are discussed, infra. Selection of "Seed" Hospitals. In order to use a clustering algorithm, a starting point is needed; the first object (hospital) to be placed in each group must be selected. The first objects selected are called "seed" objects. Mercy has attached the HCCB's method of selecting the nine "seed" hospitals in initially performing the McQueen's K-means clustering algorithm. Mercy has proposed the following findings of fact with regard to this point: While none of the parties challenged the use of McQueen's and the CLAN program, no support was offered during the hearing for the method by which the HCCB had selected the nine seed hospitals as initial clustering points. The HCCB's own statistician criticized the HCCB's selection method. The Rankis-Zimmerman report indicates that the final groupings based upon the HCCB's seed hospitals were vastly different than groupings based upon the utilization of seed hospitals selected on a statistical basis. Both the HCCB's and Mercy's statisticians proposed statistically sound methods for selecting seed hospitals, which had not been employed by the HCCB in the Grouping Methodology. [Citations omitted] These proposed findings of fact are not relevant to this proceeding. The burden is on Mercy to show that the selection of "seed" hospitals was arbitrary and capricious; the HCCB is not required to show "support" for its method of selecting the seed hospitals. Additionally, whether there are other methods of selecting seed hospitals is not the test. The HCCB's interpretation of the statute need not be the sole interpretation or even the most desirable one; it only needs to be within the range of possible interpretations. Durrani, supra. Therefore, even if the Rankis-Zimmerman report does indicate that the final groupings of hospitals of the HCCB were vastly different than groupings based upon other methods of selecting seed hospitals, it does not automatically follow that the HCCB's method of selecting seed hospitals was not "within the range of possible interpretations. The weight of the evidence does not prove that the HCCB's method of selecting seed hospitals was arbitrary and capricious. Selection of the Variables. In delegating legislative authority to the HCCB to establish a grouping methodology, the Legislature provided that the following relevant characteristics are to be taken into account: A measure of the nature and range of services provided; Number of medical specialties represented on the hospital staff; Percentage of Medicare inpatient days; Average daily census; Geographic differences; and Case mix, "when available." In response to the Legislature's mandate, the HCCB has adopted seven variables or characteristics. The variables selected by the HCCB include five hospital- specific (endogenous) variables and two geographic (exogenous variables). The variables are as follows: Endogenous Variables: Average occupied beds. Available services. Physician mix. Number of residents. Percent Medicare days. Exogenous Variables: Florida price level index. Personal income. The following findings of fact are made with regard to each of the specific characteristics required to be taken into account by the Legislature and the variables adopted by the HCCB: 1. A measure of the nature and range of services provided. The HCCB has provided in the Manual that "available services" or a service index will be considered. The specific services considered are listed on Table B, Chapter V, of the Manual. Table B also weights or provides a score for each of the various services listed. Each hospital gets the specified score if it has a particular service available. The available services listed are based upon a survey of hospital administrators and chief financial officers in New York, New York, made in the 1970's. Problems with the list of available services have been pointed out to the HCCB and its staff. The primary problem is that the volume of services provided is not taken into account. The problems with the service index, however, relate to the fact that the service index is a proxy for case mix. To date, there is no alternative available which would be a better proxy for case mix. The Legislature contemplated this fact by providing that a measure of the services provided by a hospital will be considered and that case mix will be taken into account "when available." Therefore, while there are "problems" with the service index, consideration of available services is mandated by the Legislature and there are no acceptable alternatives available use for by the HCCB. 2. Number of medical specialties represented on the hospital staff. 52. The HCCB has provided that a physician specialties mix be considered in grouping hospitals. This physician specialties mix is based upon a list of twenty- six specialties for which a hospital gets a single credit for each specialty available regardless of the number of physician specialists available in each specialty or the volume of patients admitted by a physician. 52. Like the service index, the physician specialties mix is a proxy for ease mix and has problems associated with its use. Also like the service index, consideration of this factor is mandated and there are no acceptable alternatives available for use by the HCCB. 3. Percentage of Medicare inpatient days. 53. The HCCB has provided that "percentage Medicare days be considered in grouping hospitals. Consideration of this variable has not been shown to be arbitrary and capricious. 4. Average daily census. 53. The HCCB has provided that "average occupied beds" is to be considered in grouping hospitals. It does not appear that this variable's use was proper, as discussed, infra. 5. Geographic differences. The HCCB has provided that geographic differences be considered in grouping hospitals by providing for the inclusion of the Florida price level index, by county, and median income, by county, as variables to be considered. The only thing that the evidence established with regard to these variables was that they are not "very good" predictors, that "if" they are intended as a measure of input prices they are "poor substitutes," and that there may be "better" measures of the cost of doing business. The evidence does not, however, show that the use of these variables is arbitrary and capricious. Mercy has proposed a number of findings of fact concerning geographic influences in part II, H of its proposed order. The proposed findings of fact begin on page 29 and end on page 33. Most of these proposed findings of fact are not made in this Final Order because they are not deemed relevant or material and are unnecessary to the resolution of this proceeding. The proposed findings of fact contained in part II, H of Mercy's proposed order purportedly show that the HCCB has inadequately accounted for geographic influences. The evidence does establish that the financial characteristics of Florida hospitals and GRAA are affected by the geographic location of a hospital. This is especially true in Florida because of the impact on parts of the State from tourism, language barriers, the number of elderly residents, the available labor markets, and competition. It is also true that the combined weights of the two geographic variables the HCCB has selected for consideration in the grouping methodology--the Florida price level index and median income--is only one-seventh of the combined weights of all the HCCB's variables. It is also true that the grouping methodology results in hospitals from different areas of the State being grouped together, i.e., Mercy's hospital group includes twenty- three hospitals, four of which are located in Dade County and three of which are located in Escambia County. It does not necessarily follow, however, that the HCCB has been arbitrary and capricious in designating only two variables to take into account geographic differences between hospitals. The evidence also does not support a conclusion that it was not proper for the HCCB to limit the weight of the geographic variables to one-seventh of the total weight of the variables. Nor does the evidence demonstrate that the inclusion of hospitals from different areas of the State in the same group is not a proper result just because geographic influences are important. The fact that a large percentage of Dade County and south Florida hospitals do not qualify for automatic approval of their budgets under Section 395.509(2), Florida Statutes (1984 Suppl.), because they are in the upper 20th and the upper 50th to 79th percentiles does not necessarily prove that geographic influences have not been adequately accounted for either, as suggested be Mercy on page 30 of its proposed order. The evidence simply does not support such a conclusion. Nor does it necessarily follow that because Dade County hospitals are "efficient" in the minds of some of Mercy's witnesses and yet are unable to achieve automatic approval of their budgets that the grouping methodology does not adequately account for geographic influences, as suggested by Mercy on pages 30 and 31 of its proposed order. First, the Legislature has provided that factors other than geographic differences are to be considered, which the HCCB has provided for. It may therefore be that some Dade County hospitals do not achieve automatic approval of their budgets because of the other variables. The fact that not all Dade County hospitals fail to achieve automatic approval of their budgets supports such a conclusion. Also, even though a hospital's budget is not automatically approved it does not necessarily mean that it is considered inefficient. If that were the case, its budget would probably be subject automatically to amendment or disapproval. That is not the case. If a hospital's budget is not automatically approved its budget is subject to further review under Section 395.509(5), Florida Statutes (1984 Suppl.). It may still be determined that the hospital is "efficient" based upon this review. The Legislature, in enacting Part II of Chapter 395, Florida Statutes, did indicate that it intended to promote competition and efficiency among hospitals in order to contain hospital costs. Section 395.5025, Florida Statutes (1984 Suppl.). The grouping methodology and, in particular, the comparison of hospitals' GRAA under Section 395.509(2), Florida Statutes (1984 Suppl.), does not alone achieve that intent. Therefore the opinion of several of Mercy's witnesses that Dade County hospitals and in particular, Mercy, are efficient does not support a conclusion that the methodology is arbitrary and capricious or that geographic influences are not adequately considered. On pages 31 and 32 of its proposed order, Mercy suggests that Dade County hospitals only compete with other Dade County hospitals and therefore grouping hospitals from all sections of the State is illogical. In support of this suggestion, Mercy proposes findings of fact to the effect that the HCCB has recognized that consumers are interested in comparing hospital charges on a regional basis and has provided information about hospital cost on a county-by- county basis in the past. Mercy's proposed findings of fact are not accepted for essentially the same reasons that its proposed findings of fact with regard to the efficiency of hospitals were rejected. These proposed findings of fact do not support a finding that the HCCB's grouping methodology is arbitrary and capricious or that geographic differences have not been adequately taken into account. Mercy's has also proposed findings of fact with regard to geographic differences to the effect that after the Legislature specifically required that "geographic differences" be considered in an amendment to Chapter 395, Florida Statutes (1981), in 1982, the HCCB has not added any additional geographic factors to be considered. Although no additional geographic variables have been added, geographic variables have been reviewed and have been changed since 1982. More importantly, these proposed findings of fact do not prove that the existing variables are not adequate. 6. Case Mix. 66. Case mix is to be taken into account "when available." The evidence does not establish that case mix is available at this time. 7. Other variables. The HCCB is not limited to a consideration of the factors which the Legislature specifically provided are to be considered. Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.). The only other variable the HCCB has provided for consideration is "number of residents." No evidence of significance concerning this variable was presented at the hearing. There was testimony at the hearing that there are other variables which would be appropriate for consideration in grouping hospitals. The evidence does not, however, establish that failure to consider other variables means that the grouping methodology adopted by the HCCB is arbitrary and capricious. Dr. Zimmerman opined that he had determined that the variables selected by the HCCB were not appropriate. Dr. Zimmerman based his opinion upon the fact that he had conducted a "multiple regression analysis." According to Dr. Zimmerman, a "multiple regression analysis is a statistical procedure used to evaluate the relationship of a given set of independent, predictor variables (the HCCB's seven variables) to a single dependent variable (GRAA)." Based upon his application of multiple regression analysis, Dr. Zimmerman concluded that three of the variables used in the HCCB's grouping methodology are not statistically significant predictors of GRAA: available services, average occupied beds and median income. Two of these variables (available services and average occupied beds) are required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), to be taken into account in the grouping methodology. These Sections also require that geographic factors, which median income is, be taken into account. This does not, however, mean that median income must be included as a variable by the HCCB. Dr. Meeter testified that the statistical significance of the HCCB's variables can be determined by the use of "log transformation." Based upon Dr. Meeter's use of log transformation, median income and available services are statistically significant variables; average occupied beds is not statistically significant. Although the HCCB was required to include "average daily census" as a factor in grouping hospitals, the HCCB was not required to use "average occupied beds." Based upon Dr. Zimmerman's and Dr. Meeter's testimony, the use of average occupied beds as a variable was not proper. Whether the use of available services and median income as variables was proper depends upon whether log transformation is a proper method of determining the statistical significance of variables. Although the evidence on this question was in conflict, it appears that the use of log transformation was proper. The inclusion of available services and median income is therefore not arbitrary and capricious. A second problem with the variables used by the HCCB suggested by Dr. Zimmerman involves the correlation between the seven predictor variables or "multicollinearity." The existence of multicollinearity can invalidate a clustering program. Dr. Zimmerman determined that the correlation between the physician mix, available services and average occupied beds variables and between the Florida price level index and median income variables is large enough that there is a "potential" problem. Dr. Zimmerman's determination that there is a "potential" problem was made through two techniques. He first used "paired correlation." Based upon paired correlation, Dr. Zimmerman used a "rule of thumb" that a paired correlation of 0.7 or higher should be looked at closer. Finding a paired correlation between physician mix, available services and average occupied beds of .74 and between the Florida price level index and median income of .71, Dr. Zimmerman then calculated "R squared" to determine if a potential problem did in fact exist. Dr. Zimmerman indicated that the calculation of R squared is the most highly recommended method of determining if multicollinearity is a problem but agreed there are other methods of making such a determination. Dr. Meeter indicated that Dr. Zimmerman's rule of thumb that based upon paired correlations of 0.7 or higher indicates the problem should be looked at more closely is too strict. Other than Dr. Zimmerman's "experience" (which according to Dr. Zimmerman, consisted of a class he took), Dr. Zimmerman did not cite any authority which supported his rule of thumb. The only other source Dr. Zimmerman referred to--the "SPSS" manual--only indicates that the .82-1.0 range indicates that extreme collinearity exists. Another problem raised by Dr. Meeter with Dr. Zimmerman's conclusions as to multicollinearity, involves the use of "variance inflation factors" (hereinafter referred to as VIF is another technique used by statisticians to determine if multicollinearity is a problem. Dr. Zimmerman did not look at VIF. VIF can be determined by transforming R squared: VIF 1/1- R2. A VIF in excess of 5 or 10 is an indication that multicollinearity exists. One source quoted by Dr. Meeter even indicates that a much higher VIF is necessary to conclude that multicollinerity exists. Transforming Dr. Zimmerman's R squared calculations indicates that VIF is in excess of 5 in only one instance. As discussed more fully, infra, Dr. Zimmerman used a number of alternative methods of grouping hospitals which he designated as "Schemes." Based upon Dr. Zimmerman's "Scheme 3," Dr. Zimmerman found an R squared value of .819. The VIF for an R squared value of .819 is in excess of 5. Scheme 3, however, is not an application of the HCCB's grouping methodology; it is a grouping methodology in which the variables are assigned different weights. As indicated by Dr. Meeter, the weights used in grouping can effect the correlation of the variables. Therefore, the fact that Scheme 3 indicates a possible multicollinearity problem does not prove that multicollinearity is in fact a problem with the HCCB's grouping methodology. Based upon the foregoing it is found that multicollinearity does not exist sufficiently to conclude that the variables used by the HCCB are arbitrary and capricious. Dr. Zimmerman only testified that there was a "potential" problem. Additionally, although multicollinearity may invalidate a clustering program, the evidence does not prove that the HCCB's clustering program is in fact invalid because of any existing "potential" problem. In light of the foregoing findings of fact, it is clear that the HCCB's variables are appropriate with the exception of average occupied beds. The fact that this one variable is not statistically significant, however, does not by itself support a finding that the grouping methodology is inappropriate. The Lack of Testing of the Grouping Methodology. A third point raised by Mercy is entitled "Lack of Testing" in its proposed order and includes several proposed findings of fact on pages 17 and 18 of Mercy's proposed order. Mercy has essentially proposed findings of fact that: (1) it had been recommended to the HCCB when it originally adopted its grouping methodology in 1980 that a statistician be hired to test the grouping methodology; (2) that the failure to do so had been criticized in the past; that it had been recommended that the HCCB obtain assistance of individuals knowledgeable in Florida hospital characteristics to evaluate the grouping process but had failed to do so; (4) that the HCCB had not, until just prior to the hearing of this case, hired a statistician; (5) that the HCCB has not used multiple regression analysis or within-cluster co- variance weighting; and, (6) that the State of Washington's State Hospital Commission has employed a statistician to test its methodology and has effectively been advised by individuals knowledgeable with Washington's hospital characteristics. These proposed findings of fact do not establish that the grouping methodology adopted by the HCCB is arbitrary and capricious even if they were all correct findings of fact. All that these proposed findings of fact show is that the HCCB may not have gone about the adoption of its grouping methodology in the most appropriate manner. Any such shortcomings, based upon 20/20 hindsight, in the manner in which the methodology was adopted do not prove that the grouping methodology itself is not appropriate. Additionally, the evidence does not support all of these proposed findings. In particular, as was discussed, supra, the HCCB did in fact look to individuals knowledgeable in Florida hospital characteristics to evaluate its grouping methodology. The Weight of the Variables. The most significant and troublesome challenge made by Mercy to the HCCB's grouping methodology involves the weights assigned to the variables considered in grouping hospitals. The weights assigned by the HCCB to the seven HCCB variables are: Variable Weight Endogenous: Average occupied beds. 1.0 Available services. 2.0 Physician mix. 0.5 Number of residents. 0.5 Percent Medicare days. 2.0 Exogenous: Florida price level index. 0.5 Personal income. 0.5 The determination of whether the weights selected by the HCCB are arbitrary and capricious depends largely upon the evidence presented at the hearing by those witnesses knowledgeable in the field of statistics. Three witnesses were qualified as experts in statistically related fields. All three were well qualified in their fields and were credible and persuasive. According to Dr. Zimmerman, "the weights used currently by the HCCB are clearly inappropriate." In Mercy exhibit 17, Dr. Zimmerman reaches the following conclusion with regard to the HCCB's variable weights: These weights clearly do not reflect the relationship of the various variables to GRAA and thus appear as arbitrary and inappropriate for use in clustering hospitals on the basis of cost-related variables. Dr. Zimmerman's opinion is based upon the use of "multiple regression analysis," which, according to Mercy exhibit 17, "assesses the relationship of each of the predictor variables to the dependent measure (GRAA)." The evidence, however, does not support a finding of fact that multiple regression analysis is the only statistically valid method of establishing weights to be used in clustering analysis. In fact, there are a number of statistically valid methods of establishing variable weights. One of those acceptable methods is the "subjective" method which was used by the HCCB. Doctors Meeter and Fox substantiated this finding of fact. The use of the subjective method involves the participation of individuals knowledgable in the Florida hospital industry in reviewing and commenting on the weights used. The evidence clearly supports a finding that individuals with such knowledge participated in the process of developing the HCCB's grouping methodology including the selection of variable weights. Even one of Mercy's witnesses provided testimony which supports this conclusion: Mr. Kenneth G. McGee testified that "[i] t was just a trial and error process of changing weights until we ended up with something that people considered more reasonable than what had been produced in the past." Mercy has questioned Dr. Meeter's testimony with regard to the use of the subjective method of weighting variables based upon a number of proposed findings of fact. First, Mercy has proposed findings of fact to the effect that Dr. Meeter indicated that the subjective method is "bad" if not carefully applied. What Dr. Meeter actually said was that any method should be applied carefully. Secondly, Mercy has proposed a finding of fact that in a book relied upon by Dr. Meeter in rendering his opinion about the subjective method--John Hardigan's 1975 book, Clustering Algorithms--the author describes the subjective method as an "unsatisfactory" one. What Dr. Meeter's testimony proves is that Hardigan's comment was a tongue- in-cheek comment that there are several appropriate methods of weighting variables all of which are unsatisfactory, including regression analysis (used by Dr. Zimmerman) and the subjective method (use by the HCCB). Dr. Meeter also relied upon other statistical literature in rendering his opinion as to the use of the subjective method in determining variable weights. Finally, Mercy has suggested that Dr. Meeter did not undertake any independent "statistical" analysis which would support his opinions. Based upon the nature of Dr. Meeter's testimony, it does not appear that such a statistical analysis is a prerequisite to concluding that the use of the subjective method is an acceptable method of determining variable weights. Mercy has proposed a finding that the subjective method of weighting is inappropriate based upon Dr. Zimmerman's testimony. Dr. Zimmerman was asked the following questions and gave the following responses concerning the subjective method: Q Now, in your understanding of how the Board arrived at its weights, is it your opinion that that is totally inappropriate methodology for clustering? Yes or no or maybe? A I am looking to counsel for counsel here. MR. PARKER: Do you understand the questions? THE WITNESS: I do understand the question. And let me give you my full answer as I best understand it. The weights -- and I think what I have commented on at great length -- the weights used by the Hospital Cost Containment Board are clearly on statistical grounds inappropriate. There's no question about that. BY MR. COLLETTE: Now, on these clustering grounds, you testified as to your familiarity with clustering grounds, on clustering grounds, are they totally inappropriate? A If the question is -- I wouldn't say that. Hearing that there is no objection, I will continue. I would rule out the use of a purely subjective weighting scheme as a final solution for cluster analysis. I think it might be one that would be considered at a very early step, but never used, as kind of a preliminary idea. However, I would clearly rule out the use of a purely subjective weighting scheme as something to be proud of and actually put into application. So, if that means yes to your question, I guess yes in that specific way. Dr. Zimmerman's responses are not totally clear with regard to whether the subjective method is, in his opinion, an acceptable method of determining variable weights. Nor would his response, if totally clear, overcome the weight of the evidence in support of a conclusion that the HCCB's method of determining variable weights is not arbitrary and capricious. Alternative Methods of Grouping Hospitals. Mercy has proposed a number of findings of fact under a section of its proposed order entitled "Alternative Variables and Weights Indicated by Statistical Analyses." Pages 22 to 29 of Mercy's proposed order. Some of the proposed findings included therein have been dealt with in other portions of this Final Order, including those findings of fact dealing with the use of multiple regression analysis and multicollinearity. In Dr. Zimmerman's report (Mercy exhibit 17) and during his testimony a number of alternative methods of grouping hospitals were tested and evaluated. Dr. Zimmerman concluded that a number of these alternative methods would be preferable to the methodology adopted by the HCCB. Dr. Zimmerman tested twelve different methods (referred to as "Schemes" by Dr. Zimmerman): the HCCB's, the State of Washington's and ten other methods which used some or all of the seven variables designated by the HCCB. Scheme 3 used all seven variables selected by the HCCB but with different weights. Dr. Zimmerman rejected this scheme because of multicollinearity. In Scheme 4, Dr. Zimmerman used only the four variables which he found to be statistically significant: physician specialties mix, number of residents, percent Medicare days and the Florida price level index. Dr. Zimmerman recognized that this Scheme was not acceptable because of the statutory mandate as to the types of factors which must be taken into account. In order to recognize the requirement of Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), that certain variables be taken into account and to alleviate the purported multicollinearity problem, Dr. Zimmerman combined the variables he considered highly correlated into two "scales." "Scale 1" combined physician specialties mix, available services and average occupied beds and "Scale 2" combined the Florida price level index and median income. The weights assigned to these scale were based upon the weights Dr. Zimmerman felt were more appropriate as discussed, supra. Dr. Zimmerman then used multiple regression analysis and a variety of combinations of variables and Scales in Schemes 6-12. Of these Schemes, Dr. Zimmerman testified that Schemes 6 and 10 were preferable, if Scheme 4 could not be used. Scheme 6 involved the use of all of the variables: percent Medicare days, number of residents and Scales 1 and 2. Scheme 10 involved the use of all of the variables except median income: percent Medicare days, number of residents, the Florida price level index and Scale 1. Dr. Zimmerman compared the results of using the HCCB's grouping methodology to the results from using Schemes 3,4,6 and 10. The results showed that more Dade County hospitals had GRAA's, in comparison to the hospitals in the resulting groups under Schemes 3,4,6 and 10, which would result in automatic approval of their budgets than under the HCCB's methodology. Mercy's position within its group also improved as a result of using Schemes 3,4,6 and 10. These proposed findings of and Mercy's proposed findings of fact concerning alternatives considered by Dr. Meeter do not prove that the HCCB's grouping methodology is arbitrary and capricious. As found, supra, six of the seven variables selected by the HCCB are reasonable. The weights assigned to those variables have also been found to be reasonable and Mercy's suggested findings of fact with regard to multicollinearity have been rejected. Mercy has failed to prove that the HCCB's grouping methodology is arbitrary and capricious. Therefore, any alternative methods or Schemes and the results of using such methods cannot and do not overcome such findings. Conclusions. Based upon the foregoing, it is clear that the bases for the opinions that the HCCB's grouping methodology is inappropriate are not supported by a preponderance of the evidence. Dr. Zimmerman's opinion, which was based upon a number of conclusions, was only supported by the fact that one of the variables selected by the HCCB is not proper. The evidence, however, does not support a finding that this fact alone means that the grouping methodology adopted by the HCCB is inappropriate. The facts do not support a conclusion that the grouping methodology adopted by the HCCB is arbitrary and capricious.
The Issue The issue involved in this case is whether the Petitioner Good Samaritan Health Systems, Inc., should be issued a Certificate of Need to construct an ambulatory surgical center in West Palm Beach, Florida. Testifying on behalf of the Petitioner at the final hearing were Kenneth A. Weda, President of Good Samaritan Hospital; Ms. Patricia Sher, an expert in alternative delivery systems; Samuel G. Tischler, an expert in ambulatory surgical design, administration and planning; Dr. Milton R. Tignor, Jr., a urologist on the staff of the Good Samaritan Hospital; Dr. Abraham Schmuckler, an anesthesiologist at Good Samaritan Hospital; Jerome A. Goebel, an expert in hospital design and architecture; Ross Raneri, an expert in architecture for health care facilities; Byron Thompson, an expert in health care finance; Ms. Linda Vossler, an expert in operating room administration, nursing, staffing and equipment; Robert L. Broadway, an expert in health care planning, administration and finance; and Daniel J. Sullivan, an expert in health care planning and finance. Elizabeth Dudek, Health Services and Facility Consultant Supervisor in the Office of Community Medical Affairs, testified for the Department of Health and Rehabilitative Services. Michael L. Schwartz, an expert in health care planning; Rick D. Knapp, an expert in financial feasibility; and Robert J. Zasa, a former vice-president of Alternative Care, testified on behalf of Intervenors. Nancy McAnallen, nursing director of surgical services at St. Mary's Hospital testified by deposition for Intervenors. Petitioner Good Samaritan's Exhibits 1-3, 6-9, 11-12, 14, 15(a)-(i) and Department of Health and Rehabilitative Services' Exhibits 1-4 were offered and admitted into evidence. The following Intervenor's Exhibits were offered and admitted into evidence: St. Mary's Exhibits 1-4, 6 and 7; Visual Health's Exhibit 1; Intervenor's Exhibits 1-4 and Palm Beach Exhibits 1, 2, 3(a), (b) and (c). At the final hearing ruling was reserved on Petitioner Good Samaritan's Exhibits 4-5 and Intervenor St. Mary's Exhibits 5-6 which are now admitted. The transcript of hearing was filed on September 16, 1986. The parties filed their proposed recommended orders on October 16, 1986. Ruling on the parties' proposed findings are contained in the attached appendix.
Findings Of Fact Paragraphs 1-14 Accepted. 15-28 Accepted, but not in dispute at the hearing. 29-30 Accepted and covered in paragraphs 3-5 of Recommended Order. 31-32 Not relevant to this proceeding. 33-39 Accepted. 40-54 Accepted, but not relevant only to the extent institution specific criteria are considered. 55-58 Accepted. 59-64 Rejected. The preponderance of the evidence supports a finding that the proposal will not merely shift existing services, but will add to the under-utilization problem experienced in the service district. 65-66 Accepted, except as modified in the Recommended Order. 67-70 Rejected. 71-78 Accepted. 79 It is unclear from the record whether scheduling problems exist because of the size of the rooms or doctor preference. 80-81 Accepted. 82-84 Accepted, but modified to show that although the applicant's present operating rooms are far from ideal, less costly and more efficient solutions were not adequately considered as an alternative to the Ambulatory Surgical Center. Rejected. Accepted. 87-90 Accepted. 91-109 Rejected. Table 7 was not utilized in the formulation of the Recommended Order primarily because it uses only a portion of the population of Palm Beach County, the North Palm Beach subdistrict, instead of the entire county or health planning district population as required by law. 110 Accepted. 111-124 Rejected. The Department's non-rule policy was not adequately explained nor justified at hearing. The Department's failure to consider the capacity of approved but not yet operational facilities in granting CON's within the service district was likewise never justified. 125 Accepted. 126-130 Rejected. The capacity-based analysis was adequately explained and justified and was essentially accepted. 131 Accepted. 132 Rejected. The elderly presently have numerous alternatives to inpatient treatment within the service district. 133-134 Accepted. 135 Rejected. 136 Accepted, but modified to reflect that neither Palm Beach nor Visual Health are organized as nonprofit corporations. 137-150 Accepted to the extent they are relevent to this proceeding. 151-159 Rejected. It was not adequately demonstrated that the costs of renovation would be greater or less efficient than shutting down existing space and adding space in a new, separate facility. 160-162 Rejected. Not relevant to these proceedings. 163-169 Accepted. 170-243 Accepted as modified in the Recommended Order. 244 Accepted as modified to reflect that the applicant will increase its market share as a result of this project. 245-247 Rejected. The proposal adds services and capacity to the service district. 248 Accepted. 249-250 Rejected. The nature of this project will affect referral patterns of physicians. 251-253 Accepted. 254 The first sentence is accepted and the second sentence is rejected. 255-256 Accepted. 257 Rejected. The project is not cost-effective if it duplicates the services provided by under-utilized facilities. 258 Accepted. 259. Accepted. The proposal will result in increased outpatient market share and additional revenue for the applicant. 260-261 Accepted. 262-264 Rejected. To the extent that competition exists in the health care field, any added health care provider will foster competition. However, the law permits a CON to issue only when a need for the service is demonstrated. It is based on the assumption that excess services will not lower prices, but will instead result in under- utilized, over-duplicated facilities in the service district. INTERVENORS' PROPOSED FINDINGS OF FACT Paragraphs 1-4 Accepted as modified in the Recommended Order. 5-10 Accepted as modified in the Recommended Order. 11-12 Accepted as modified. 13-14 Not relevant to this proceeding. 15-21 Accepted, not in dispute at the final hearing. 21-25 Accepted as modified in the Recommended Order. 26-38 Accepted. 39-40 Accepted as modified in the Recommended Order. 41 Accepted if the 10-hour day is reasonable. 42-43 Rejected. The need in the community is the primary focus of the CON law rather than the need of an applicant. 44-45 Accepted. There are six approved or existing centers in Palm Beach County. 46 Accepted as modified in the Recommended Order. 47-50 Accepted. 51-54 Accepted. 55-61 Rejected. 62 Accepted. 63-64 Rejected. 65 Accepted. COPIES FURNISHED: Byron Mathews, Esquire Paul H. Amundsen, Esquire MCDERIOTT, WILL & EMORY 101 North Monroe Street Suite 1090 Tallahassee, Florida 32301 Douglas H. Mannheimer, Esquire CULPEPPER, PELHHAM, TURNER & MANNHEIMER, P.A. 300 East Park Avenue Tallahassee, Florida 32301 R. Bruce McKibben, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Charles Stampelos, Esquire MCFARLAIN, BOBO, STERNSTEIN, WILEY & CASSEDY 666 First Florida Bank Bldg. Tallahassee, Florida 32301 Terry Cole, Esquire OERTEL & HOFFMAN, P.A. Post Office Box 6507 Tallahassee, Florida 32314-6507 F. Philip Blank, Esquire Reynold D. Meyer, Esquire 241 East Virginia Street Tallahassee, Florida 32301 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Recommendation Based on the foregoing, it is RECOMMENDED that Petitioner's application for a Certificate of Need authorizing establishment of an ambulatory surgical facility in Palm Beach County, Florida be DENIED. DONE and ENTERED this 9th day of March, 1987 in Tallahassee, Florida. SHARYN L. SMITH Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of March, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 84-3722 RULINGS ON PETITIONER'S JOINTLY
Findings Of Fact Filiberto did not appear, and was not represented, at the final hearing. There is no evidence in the record of the proceeding concerning Filiberto's application for CON 4302. On or about October 10, 1985 Brevard filed an application with the Department for CON 4301 to construct a 60 bed medical-surgical satellite hospital of Holmes Regional Medical Center (HRMC) in the Palm Bay area of south Brevard County, Florida. This application does not contain any reference to, or information about, a voluntary delicensure or transfer of 60 previously approved beds, but rather seeks approval for 60 "new" beds. By letter dated February 28, 1986, the Department notified Brevard of its intent to deny this application, and thereafter Brevard timely sought review of the Department's decision. The parties stipulated as follows: Brevard's application for CON 4301 meets all statutory criteria, except for criteria set forth in Section 381.705(1)(a), (b), (d) and (1), Florida Statutes (1987). The Department does not dispute any of the data or information contained in Tables which are a part of Brevard's application, with the exception of Table 10 (Projected Utilization) which is in dispute, and Table 6 (Total Facility Utilization) upon which Brevard does not rely. There is no numeric need for additional medical- surgical beds in the applicable service district. Financial feasibility of this project is not at issue. The site proposed by Brevard for this satellite hospital is an appropriate hospital site. In certain life-threatening situations, a thirty minute drive time to a hospital may be too long, and in order to protect and save a particular patient's life, less than a thirty minute drive time may be needed. There is a dispute between the parties concerning the authenticity of the State Agency Action Report (SAAR) introduced at hearing as Brevard's Exhibit There is no signature page on the SAAR, and a review of all files relating to this matter has failed to locate the missing page, which would also normally contain a summary of the Department's findings. Although Brevard introduced the Exhibit, it did so simply to establish that the SAAR on file at the Department does not evidence approval, through signature, by any authorized representative of the Department. Nevertheless, this SAAR was obtained from the Department's official files concerning the CONs here at issue, and was also authenticated, in part, by Reid Jaffe, consultant supervisor, who prepared the original draft of the SAAR and recalled seeing the final SAAR with a signed signature page. No evidence disputing the authenticity of this document was offered. Therefore, Brevard's Exhibit 4 is accepted for all purposes as the Department's SAAR concerning CONs here at issue. In view of stipulation 4(c), set forth above, Brevard's case at hearing in support of CON 4301 is largely premised upon the offer of Holmes Regional Health Care Systems to voluntarily delicense or transfer 60 approved beds at HRMC, a wholly owned and operated non-profit corporate subsidiary of Brevard. The Department deemed Brevard's application complete on December 30, 1985, at which time the application contained no reference to, or information about, a voluntary delicensure and/or transfer of approved beds. In discussions between the parties in January, 1987, Brevard made this offer and on January 27, 1987 the Department informed Brevard of its position "that the change from `new beds' as proposed in the application, to `transferred beds' would be a substantial change in the scope of the project," and as such the Department would consider this to be a "substantial amendment to the application," which it contends is prohibited after an application is deemed complete. As a significant new issue or factor which was not addressed or raised in any way in Brevard's application prior to it being deemed complete, although its ability to have raised this issue was entirely within Brevard's control, Brevard's offer to voluntarily delicense 60 beds at HRMC if CON 4301 is approved constitutes a substantial amendment of its CON application, rather than an update or supplement of data contained therein. Such an amendment is not permitted after an application is deemed complete because it raises issues which the Department had no way to consider when it reviewed the application and the SAAR was prepared. Additionally, to allow consideration of Brevard's offer at hearing would change the entire need methodology against which this application was reviewed by the Department since the acute care bed need rule, which was properly used to review this application for new beds, is not applicable and cannot be applied to bed transfers. Brevard's offer to voluntarily delicense beds in connection with approval of an equal number of beds at a satellite facility is nothing more than an impermissible, substantial change of its new bed application. There is currently pending before the Department, in a subsequent batch, an application filed on behalf of HRMC to delicense 6 beds and relocate or transfer those beds to a new satellite hospital in the Palm Bay area. At the time of hearing, the Department had not acted upon this subsequent application. HRMC is a 528 bed acute care hospital located in Melbourne, which is in south Brevard County. Of its 528 licensed beds, 495 are actually in service. Brevard proposed to delicense 60 of these 528 beds at HRMC, which would then result in a net reduction of only 27 beds actually in service at HRMC. Brevard has proposed in its application to locate a 60 bed satellite hospital of HRMC on a 45 acre site located east of Interstate 95 and north of Malabar Road in Brevard County. This location is immediately south and east of the city limits of Palm Bay, which itself is located south of Melbourne. The site has already been purchased. The proposed satellite would have 36 private and 12 semi-private rooms. It is proposed to have a primary service area that includes an area from Palm Bay south and west to the county line and bordered on the east by the intra-coastal waterway, and will serve Medicare, Medicaid, indigent and charity patients, as well as paying patients. HRMC has had an indigent care agreement with Brevard County since 1977, and this proposed satellite would be included in that agreement. The primary service area of the proposed satellite has been an area of extremely rapid population growth. From 1970 to 1980, the area's population increased 156.3 percent (9,660 to 24,578 residents) compared with Brevard County's 18.7 percent increase. It is estimated that the primary service area's "phenomenal" population growth will continue through 1990. The population of Palm Bay has grown from 15,000 in 1980 to a current population of 55,000; Palm Bay's growth has been primarily to the south and west, away from HRMC and toward the proposed site of the satellite. A satellite hospital associated with an established acute care hospital has a number of significant advantages over a new free-standing facility, including the ability to share: administrative and management support; clinical and financial data; data processing; insurance and billing costs; purchasing; and staff orientation and education programs. Need In Relation To the Applicable Health Plans The State Agency Action Report (SAAR) prepared by the Department in its review of Brevard's application specifically indicates that this application is consistent with the applicable District 7 Local Health Plan, and therefore Brevard's ability to meet the policies, goals and priorities of the Local Health Plan is not at issue in this case. Brevard's CON application addresses certain goals, objectives and policies set forth in the 1981 Florida State Health Plan. However, the 1985-87 Florida State Health Plan was adopted prior to the filing of Brevard's CON application at issue in this case, and is therefore applicable to the review of that application. The Florida State Health Plan sets forth the following pertinent Objectives and Recommended Actions: By 1989, the ratio of acute care hospital beds to Florida's population (in 1000's) should be less than 4.11. (Objective 1.1) Restrain increases in the supply of hospital beds in Florida through the state certificate of need program. (Recommended Actions 1.1a and 3.1a) By 1989, attain an average annual occupancy rate of at least 80 percent for all non federal, short-stay hospital beds considered together in each of Florida's eleven HRS districts. (Objective 3.1) Brevard's application is inconsistent with these Objectives and Recommended Actions. Specifically, it seeks to add 60 new beds to the acute care bed inventory when the bed ratio is already less than 4.11, occupancy rates are significantly below 80 percent, there is a projected surplus of 166 beds in Brevard County for 1990, and the parties have stipulated there is no numeric need for new beds. It is directly contrary to a restraint on the increase of beds. Even if the delicensure and transfer were to be considered, rather than viewing this as an application for 60 new beds, this application is still inconsistent with the State Health Plan because it does nothing to reduce the oversupply of acute care beds, and competent, substantial evidence was not introduced to establish that such a transfer would significantly increase occupancy rates or to otherwise establish a need for these new beds. See also Recommended Action 1.16. Geographic Accessibility Brevard's application does not specifically address the issue of accessibility, or set forth reasons why its application should be approved based upon this review criterion. The State Health Plan sets forth the following Objective: Through 1989, assure that acute care hospital services are available and accessible to urban residents within thirty minutes average one way drive time . . . (Objective 2.2). The applicable Local Health Plan sets forth the following Priority: Priority for needed acute care services should be given to those applicants who transfer unutilized beds and/or establish hospital facilities in regions of the District where access to service can be substantially improved by at least 25 minutes for 10 percent of the population . . . (Priority 4). The SAAR concludes that geographic accessibility is not a problem as it relates to Brevard's application and therefore concludes that this application does not meet this criterion. A travel time sketch prepared by Reid Jaffe is included in the SAAR. Therefore, geographic accessibility is at issue in this proceeding by virtue of the Department's reliance upon this criterion, contained in the SAAR, as a basis of denial. Accordingly, the Department's objections at hearing to the admissibility of travel time data are hereby specifically overruled, and evidence concerning geographic accessibility offered at hearing is admitted, and has been considered. The residents of Palm Bay and south Brevard County are predominantly located within thirty minutes of HRMC, although the less populated area of south-west Palm Bay, which has recently started to develop, is beyond a thirty minute drive time to HRMC. This finding is based upon the testimony and study of William Tipton, who was accepted as an expert in traffic and transportation engineering, as confirmed and supported by Reid Jaffe's testimony and study contained in the SAAR, and a study performed by Wendy Thomas, who was accepted as an expert in health care planning. While Peter Wahl, Community Services Director for Brevard County, who was accepted as an expert in county health planning, testified about the inadequacy of access roads and major arterials in Palm Bay, and the increasing problems which will result as the population of Palm Bay continues its extraordinarily rapid growth, ambulance run times which he described from the scene of an accident to existing hospitals were primarily under thirty minutes. Although emergency medical response time is increasing, Wahl's testimony does not establish that the thirty minute drive time standard is being exceeded. Tipton confirmed the characterization of Palm Bay's road system as very poor, and also that as its population increases the traffic delays will worsen. Quality of Care, Efficiency HRMC renders quality care, and is a well respected acute care hospital in south Brevard county. As a corporate subsidiary of Brevard, its record of quality care can reasonably be expected to continue at the proposed satellite hospital. As set forth in Finding of Fact 13, above, a satellite hospital has a number of significant advantages over a new free-standing hospital. These advantages contribute to the efficient operation of such a satellite. Availability and Adequacy of Alternatives Brevard has not shown that other health care facilities and services, such as outpatient care and ambulatory services, are inadequate or cannot serve as alternatives to the proposed satellite hospital. There are a surplus of beds available. HRMC had only a 70.8 percent occupancy rate in 1985, and the SAAR reports that the occupancy rate for acute care beds in Brevard County in 1985, including HRMC, was only 68 percent. Thus, although HRMC's share of south Brevard County patients was approximately 87 percent, there are still surplus beds available at HRMC as well as other area hospitals. HRMC currently operates an out-patient, ambulatory service facility in Palm Bay on the site of the proposed satellite. Impact of the Proposed Project HRMC would experience a slight negative financial impact until approximately 1992 if the satellite were constructed. After 1992 both the satellite and HRMC would have recouped losses and start-up costs. Patient charges at HRMC are lower than at other hospitals in the service district, and would continue to be lower if the satellite were constructed. In addition, because of the cost-sharing and efficiencies which would result from the satellite hospital's affiliation with HRMC, the proposed satellite would be able to operate with lower patient charges than a new free- standing hospital.
Recommendation Based upon the foregoing, it is recommended that the Department issue a Final Order denying CON applications 4301 and 4302. DONE AND ENTERED this 29th day of March, 1988, in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of March, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 86-1537 87-0930 Rulings on Brevard's Proposed Findings of Fact: Adopted in Findings of Fact 2, 9. Adopted in Findings of Fact 3, 6. Adopted in Findings of Fact 3, 5 but otherwise Rejected as unnecessary. 4-5 Rejected in Findings of Fact 5. Adopted in Findings of Fact 4(c), 6, 7, 25, but Rejected as to any stipulated need based upon the access. While this was the position of Brevard, it was opposed by the Respondent. Rejected as irrelevant and not based upon competent substantial evidence. 8-9 Adopted and Rejected in part in Finding of Fact 20. Rejected as unnecessary, cumulative and otherwise irrelevant. Adopted in Finding of Fact 19, but otherwise Rejected as unnecessary. Adopted in Finding of Fact 20. 13-14 Rejected in Finding of Fact 19 and as otherwise unnecessary and irrelevant. 15 Adopted in Finding of Fact 4(e) but otherwise Rejected as unnecessary. 16-18 Rejected as irrelevant, and as simply a summation of testimony, and as otherwise not based on competent substantial evidence. Adopted in Finding of Fact 11. Rejected in Finding of Fact 19, and otherwise as irrelevant. Adopted in Finding of Fact 14 but Rejected in Findings of Fact 16, 17. Rejected in Finding of Fact 15 and otherwise as simply a summation of testimony. Rejected in Findings of Fact 16, 17 and otherwise as irrelevant. 24-25 Adopted in Findings of Fact 4(d), 26, but otherwise Rejected as irrelevant and unnecessary. 26-27 Rejected as irrelevant in view of Findings of Fact 6,7. Adopted in Finding of Fact 27. Adopted in Finding of Fact 26. Adopted in Findings of Fact 13, 27. Rejected in Finding of Fact 24. Adopted in part in Finding of Fact 10, otherwise Rejected as irrelevant and unnecessary. Rejected as irrelevant. Rulings on the Department's Proposed Findings of Fact: Adopted in Findings of Fact 1, 2. Adopted in Finding of Fact 3. Adopted in Finding of Fact 4. The parties' stipulation is set forth in Finding of Fact 4. Adopted in Findings of Fact 4(c), 17. Adopted in Finding of Fact 17. 6-7 Adopted in Findings of Fact 6, 7. Adopted in Findings of Fact 18, 19. Adopted in Findings of Fact 4(c), 17, 24. COPIES FURNISHED: E. G. Boone, Esquire Jeffrey A. Boone, Esquire Post Office Box 1596 Venice, Florida 34284 Frank P. Filiberto, M.D. 5200 Babcock Street, NE Palm Bay, Florida 32905 Guyte P. McCord, III, Esquire Post Office Box 82 Tallahassee, Florida 32302 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 ================================================================= DOAH ORDER RULING ON MOTION TO STRIKE =================================================================
Findings Of Fact By letter dated December 16, 1977, the Division of State Planning forwarded Petitioner's request for a hearing on an application for a Binding Letter of Interpretation submitted by North Florida Regional Hospital, Respondent. Respondent sought a determination that a proposed addition to North Florida Regional Hospital was not a Development of Regional Impact (DRI) pursuant to Section 380.06(4)(a), Florida Statutes. Thereafter Respondent filed a request with the State of Florida, Department of Health and Rehabilitative Services (HRS) for a determination that a certificate of need was not required for the proposed addition to the hospital. Petitioner thereupon requested a hearing pursuant to Section 120.57(1), Florida Statutes for a factual determination whether or not the preliminary plans for the proposed addition had been filed by Respondent prior to July 1, 1973, so as to exempt Respondent from the requirement of obtaining a certificate of need. This was forwarded to the Division of Administrative Hearings (DOAH) for the designation of a hearing officer to conduct the hearing, assigned Docket Number 78-054, and referred to the undersigned for hearing. Petitioner moved that these two cases be consolidated for hearing on the grounds that the parties and issues of fact for the two cases are the same. A prehearing conference was held on January 6, 1978, at which all pending motions were considered, and the issues to be contested at the forthcoming hearings were resolved. After full discussion by the parties, oral stipulations were entered into. These stipulations were written down by the Hearing Officer, read back to and accepted by the parties, and thereafter incorporated in the Order entered January 9, 1978. Prior to the motion hearing on July 28, 1978, no party questioned the accuracy or validity of these stipulations. On January 9, 1978, the results of the January 6, 1978 prehearing conference were memorialized in an Order stating that all parties agreed that only two basic issues were involved in this case. One was a factual determination relating to the status of Respondent's application to HRS (Docket 78-054) respecting a certificate of need and the other a legal issue regarding the interpretation of Rule 22F-2.04, Florida Administrative Code. The parties agreed that the factual issues regarding the certificate of need was a threshold question which needed to be resolved before the instant case was decided and, therefore, that case should proceed first. At this prehearing conference the parties stipulated that: If no certificate of need is required pursuant to Section 381.494, F.S. for the 150 bed addition proposed for North Florida General Hospital, and that, if in Rule 22F-2.04 Florida Administrative Code the words "whose application for a certificate of need under Section 381.494, Florida Statutes," refers only to the application under consideration and not to other applications by Respondent for a certificate of need, then the application is not a Development of Regional Impact and the Division of State Planning should issue the binding letter of interpretation re- quested by Respondent. The Hearing Officer submit a Recommended Order to Division of State Planning construing Rule 22F-2.04, Florida Administrative Code and make recommendations regarding the issuance of a binding letter of interpretation. The parties will submit briefs by January 13, 1978 on the interpretation of Rule 22F-2.04, Florida Administrative Rule to Hearing Officer for his consideration in preparing his Recommended Order. By Order entered January 19, 1978 Petitioner's Motion for Consolidation of Dockets 77-2223 and 78-054 was denied and the entering of a Recommended Order in Docket 77-2223 was stayed pending completion of the hearing in Docket 78-054. The hearing in Docket No. 78-054 was held on March 31, 1978 and the Recommended Order was filed April 13, 1978. On July 11, 1978 HRS entered its Final Order in Docket Number 78-054 sustaining the ultimate findings of the Hearing Officer that Respondent had filed preliminary plans for the proposed addition prior to July 1, 1973 and did not now require a certificate of need for the proposed addition to the hospital.
Recommendation RECOMMENDED that Respondent, North Florida Regional Hospital, be issued a Binding Letter of Interpretation that its proposed three-floor addition to the hospital is not a Development of Regional Impact. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 15th day of September, 1978. K. N. AYERS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: William C. Andrews, Esq. and Philip A. Delaney 1133 N.W. 23rd Avenue Gainesville, FL 32601 Robert M. Rhodes, Esq. Post Office Box 1876 Tallahassee, FL 32302 Peter Skoro, Esq. Assistant County Attorney Post Office Drawer "CC" Gainesville, FL 32602 Jon Moyle, Esq. and Daniel H. Jones, Esq. Post Office Box 3888 West Palm Beach, FL 33402 C. Lawrence Keesey, Esq. Staff Attorney Division of State Planning 335 Carlton Building Mailing address: 530 Carlton Bldg. Tallahassee, FL 32304 =================================================================
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER 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 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue The ultimate issue in these cases is whether the Petitioners are subject to the regulatory jurisdiction of the Health Care Cost Containment Board pursuant to Chapter 407, Florida Statutes?
Findings Of Fact La Amistad. Standing. By letter dated April 27, 1990, to the Executive Director of the Board, the managing director of La Amistad requested "exemption from HCCCB reporting requirements due to its considerable likeness to Daniel Memorial Hospital, which was exempted in October, 1989." La Amistad's request for exemption was premised on the Board's Final Order in Daniel Memorial Hospital v. Health Care Cost Containment Board, DOAH Case No. 89-1839H, in which Daniel Memorial Hospital was determined by the Board to not be subject to the reporting requirements of Chapter 407, Florida Statutes. By letter dated July 25, 1990, the Executive Director of the Board informed La Amistad that La Amistad's "request for an exemption from the reporting requirements of Chapter 407, Florida Statutes, is denied." The Board informed La Amistad that it could request an administrative hearing pursuant to Section 120.57, Florida Statutes, if La Amistad wished to contest the Board's denial of its request. La Amistad filed a Petition for Formal Hearing dated August 15, 1990, challenging the Board's notice that La Amistad was subject to the requirements of Chapter 407, Florida Statutes. La Amistad's Petition for Formal Hearing alleged that there were disputed issues of material fact in this matter. Therefore, the Board filed La Amistad's Petition with the Division of Administrative Hearings on August 22, 1990, for a formal administrative hearing. There is no provision in Chapter 407, Florida Statutes, which allows persons to request an exemption from the requirements of Chapter 407, Florida Statutes, or authorizes the Board to declare any person to be "exempt" from the requirements of Chapter 407, Florida Statutes. The weight of the evidence failed to prove that the Board had taken or planned to take any immediate action against La Amistad prior to its request for exemption. La Amistad has failed to prove that it has standing to institute the instant proceeding. Certificate of Need. La Amistad Foundation, Inc., the predecessor of La Amistad, was issued by the Department of Health and Rehabilitative Services (hereinafter referred to as the "Department"), certificate of need number 3064 to operate a 27-bed intensive residential treatment facility for children and adolescents in Maitland, Florida. In agreeing to issue certificate of need number 3064, the Department required La Amistad Foundation, Inc., to apply for licensure of its facility pursuant to the requirements of Rule 10D-28.100, et seq., Florida Administrative Code. A certificate of need is a prerequisite to licensure as a health care facility in Florida. The certificate of need issued to La Amistad and the stipulation upon which it was based do not expressly provide that the facility is a "specialty hospital" or otherwise state that it is a "hospital" under Section 395.002(6), Florida Statutes. Licensure. On August 17, 1988, La Amistad Foundation, Inc., d/b/a La Amistad Psychiatric Treatment Center, was issued a license by the Department to "operate a SPECIAL PSYCHIATRIC hospital with 27 beds." On September 30, 1988, the license issued on August 17, 1988, was replaced by a license to La Amistad to "operate a INTENSIVE RESIDENTIAL TREATMENT hospital with 27 beds." On August 17, 1990, the license issued on September 30, 1988, was replaced by a license to La Amistad to "operate a INTENSIVE RESIDENTIAL TREATMENT-SPECIALTY hospital with 27 INTENSIVE RESIDENTIAL TREATMENT FACILITY beds." La Amistad operates and is surveyed by the Department, the agency responsible for licensing health care facilities in Florida, pursuant to Rules 10D-28.100 through 10D-28.111, Florida Administrative Code. La Amistad's Location and Facilities. La Amistad's facility is located in a residential neighborhood at 201 Alpine Drive, Maitland, Florida. The facility provides a noninstitutional, residential setting and environment. Residents at La Amistad live in one of three small single-story buildings in a family-style atmosphere. The grounds of the facility include a play area and a multipurpose building which is used for recreational activities and therapy. Residents live in individual rooms which do not contain standard hospital equipment. La Amistad's facility does not include any seclusion rooms, restraints, treatment or procedure rooms that are required of general acute care or specialty psychiatric hospitals. There are no locked doors at La Amistad but residents are prohibited from leaving the facility without permission. La Amistad's facility does not have designated areas for diagnostic x- ray, clinical laboratory, surgery or obstetrical services. La Amistad's Residents. Residents at La Amistad are six to eighteen years of age. Residents suffer from a full range of psychiatric illnesses and disorders. The average length of stay at La Amistad is 221 days to one year. Ninety-five percent of the residents of La Amistad are referred from acute care specialty psychiatric or general hospitals. The payer mix at La Amistad is approximately 55% CHAMPUS (a government payer program), 25% from the Department and 25% nongovernment or private insurance. CHAMPUS payments to La Amistad include payments for all services whether provided by La Amistad or by referral. La Amistad's Staff. The full-time staff of La Amistad consists of mental health workers or psychiatric assistants, mental health counselors, registered nurses, marriage and family therapists, occupational therapists and recreational therapists. There is no physician "directly" employed on La Amistad's payroll. La Amistad has four psychiatrists, including a medical director, on its staff. They are independent contractors. Services Provided Directly to Residents. La Amistad provides diagnosis and treatment of psychiatric illnesses and disorders to children and adolescents. Treatment of La Amistad residents is definitive psychiatric medical treatment. Psychiatry is a medical specialty and psychiatric treatment is a form of medical treatment. La Amistad is an intensive residential treatment program for children and adolescents. All residents at La Amistad are admitted only with a psychiatric evaluation and diagnosis of a psychiatric illness or disorder by a psychiatrist. Admitting diagnoses, which are determined by the admitting psychiatrists, run the full range of psychiatric illnesses and disorders. La Amistad does not treat "acutely or extremely suicidal" persons. Although direct psychiatric therapy is not regularly provided by a physician, psychiatric therapy is in fact provided by physicians and through a multi-disciplinary treatment team, which includes the psychiatrist. A psychiatrist is available to provide services twenty-four hours a day. A psychiatrist is ultimately responsible for each resident's care and treatment. Only a psychiatrist may admit or diagnose a resident, prescribe medication, monitor medication and determine when to discharge a resident. The only psychiatrists who can admit to La Amistad are the four independent contractor psychiatrists on La Amistad's staff. Psychiatrists regularly review medical and clinical records of residents at La Amistad to insure proper treatment. Treatment of residents may include the prescription of psychotropic medications, group therapy, recreational therapy and/or occupational therapy. Medications prescribed for residents are dispensed by a nurse, normally at the nurses' station. La Amistad complies with the requirements of Rules 10D-28.100 through 10D-28.111, Florida Administrative Code. La Amistad residents attend public schools. The Orange County public school system provides a fully-accredited educational program on-site. La Amistad provides the services referenced in Section 395.002(6)(a), Florida Statutes (1990 Supp.). Other Services. La Amistad does not provide clinical laboratory services on its premises. Although clinical laboratory services are not actually needed on a frequent basis, such services are ordered when necessary by an attending physician and are available through an agreement with an outside provider which provides such services pursuant to an agreement bid on a national basis by La Amistad's parent organization. Samples for clinical laboratory analysis, including blood samples, are collected on the premises. La Amistad does not provide x-ray services on its premises. Although x-ray services are not actually needed on a frequent basis, diagnostic x-ray services are available through a letter of agreement with Florida Hospital, an acute care hospital. La Amistad does not provide treatment facilities for surgery or obstetrical care. No person in need of obstetric services or in need of acute care services normally provided at a general or special acute care hospital, or having a primary diagnosis of drug or chemical dependency or suffering from an acute psychiatric disorder is eligible for residency at La Amistad. La Amistad does not have a pharmacy on its premises or a license to fill prescriptions. La Amistad provides pharmacy services through a "working relationship" with a local pharmacy in Winter Park, Florida, to fill residents' prescriptions. La Amistad provides dental treatment and routine and emergency medical treatment to residents through agreements with outside providers. Emergency medical services for residents are available pursuant to a letter agreement with Florida Hospital. Ultimate responsibility for deciding where a resident of La Amistad receives clinical laboratory services, x-ray services or pharmacy services remains with the parents of residents. If a parent does not exercise his or her right and the services are necessary, La Amistad will insure that the services are provided. Payment for such services are made directly from parents or insurance companies for some residents. The referral agreements between La Amistad and providers do not require that La Amistad make referrals exclusively to that provider. Pediatric diagnostic and treatment services are not regularly made available by La Amistad. Referrals for such services are made by the residents' attending physicians or parents. Accreditation. La Amistad is accredited by the Joint Commission for the Accreditation of Health Care Organizations (hereinafter referred to as "JCAHO"). La Amistad is accredited and surveyed under JCAHO's consolidated standards. JCAHO's consolidated standards are "designed for use by organizations that provide mental health services, alcohol and drug abuse services, and services to mentally retarded/developmentally disabled persons, and in a variety of settings, including forensic facilities and community mental health centers. " Among the eligibility criteria for survey under the consolidation standards is the following: [t]he organization is not eligible for survey as a hospital under the Accreditation Manual for Hospitals. The weight of the evidence failed to prove, however, what constitutes a "hospital" for JCAHO purposes. Additionally, the eligibility criteria under the consolidated standards indicate that an entity which qualifies under the consolidation standards may still constitute a hospital even for JCAHO purposes. The standards provide, in pertinent part, that "the accreditation process is intended primarily for the following types of organizations . . . : . . . Hospitals not eligible for survey under the Accreditation Manual for Hospitals . . . ." [Emphasis added]. Manatee Palms. Standing. By letter dated March 29, 1990, to the Executive Director of the Board, counsel for Manatee Palms requested that a determination be made by the Board that Manatee Palms was "not subject to the regulatory jurisdiction of the HCCCB except for those reporting requirements found in Sections 407.07(1)(b) and 407.13, Florida Statutes, and therefore need not file any budget or actual reports from this point forwards." Manatee Palms' request for exemption was premised on the Board's Final Order in Daniel Memorial. By letter dated July 25, 1990, the Executive Director of the Board informed Manatee Palms that its "request for an exemption from the reporting requirements of Chapter 407, Florida Statutes, is denied." The Board informed Manatee Palms that it could request an administrative hearing pursuant to Section 120.57, Florida Statutes, if Manatee Palms wished to contest the Board's denial of its request. Manatee Palms filed a Petition for Formal Administrative Hearing dated August 15, 1990, challenging the Board's notice that Manatee Palms was subject to the requirements of Chapter 407, Florida Statutes. Manatee Palms' Petition for Formal Administrative Hearing alleged that there were disputed issues of material fact in this matter. Therefore, the Board filed Manatee Palms' Petition with the Division of Administrative Hearings on August 22, 1990, for assignment of a Hearing Officer to conduct a formal administrative hearing. There is no provision in Chapter 407, Florida Statutes, which allows persons to request an exemption from the requirements of Chapter 407, Florida Statutes, or authorizes the Board to declare any person to be "exempt" from the requirements of Chapter 407, Florida Statutes. The weight of the evidence failed to prove that the Board had taken or planned to take any immediate action against Manatee Palms prior to its request for exemption. Manatee Palms has failed to prove that it has standing to institute the instant proceeding. Certificate of Need. Manatee Palms was built in 1986. It opened on or about January 12, 1987, as a 60-bed residential treatment facility for children and adolescents. Manatee Palms was built and opened without obtaining a certificate of need from the Department. Subsequent to its opening, Manatee Palms filed an application for a certificate of need which was issued by the Department on November 29, 1988, for "licensure as a specialty hospital under Chapter 395, Florida Statutes, for a 60-bed intensive residential treatment center for children and adolescents, currently operating as Manatee Palms Residential Treatment Center " Licensure. Manatee Palms was initially licensed by the Department as a "residential child caring" facility and by the Department's Alcohol, Drug Abuse and Mental Health Program office to provide services. In January 1989, Manatee Palms filed an application for licensure with the Department. There was not a category for intensive residential treatment program under the column titled "hospital bed utilization" on the application. Therefore, the initials "IRTF" were hand written on the application with a notation that all 60 beds are used in an intensive residential treatment program. On October 25, 1989, a license was issued by the Department to Manatee Palms "to operate a Intensive Residential Treatment Facility - Specialty hospital with 60 IRTF beds." Manatee Palms is currently operating under this license. Manatee Palms operates and is surveyed by the Department pursuant to Rules 10D-28.100 through 10D-28.111, Florida Administrative Code. Manatee Palms' Location and Facilities. Manatee Palms is located at 1324 37th Avenue, East, Bradenton, Manatee County, Florida. The Manatee Palms facility consists of a single building. Patients at Manatee Palms reside in semiprivate rooms. Manatee Palms' facility is a locked facility. Patients at Manatee Palms cannot leave the facility without permission because of the locked doors. Manatee Palms has seclusion and restraint capabilities because of the type of patients cared for at the facility: "some very, very severely emotionally disturbed children, some of which have come even from the state hospitals." Transcript page 181, lines 20-21. Detoxification facilities for the treatment of substance abuse patients are available at the facility. Manatee Palms' Patients. Patients are six to eighteen years of age. Patients suffer from chemical dependencies and a wide range of psychiatric disorders. Some patients have failed at other facilities and are very aggressive. The average length of stay at Manatee Palms is 97 days. Most of Manatee Palms' patients are referred from other facilities: "[w]e get some kids from other hospitals, acute care hospitals. We get some from therapists in the communities . . . ." Transcript page 180, lines 5-6. Manatee Palms' patients are physically healthy. Manatee Palms' Staff. Manatee Palms' staff consists of psychiatrists, nurses, social workers, recreational therapists, psychologists and teachers. There are six psychiatrists who provide treatment planning and care at Manatee Palms. Services Provided Directly to Patients. Manatee Palms provides diagnosis and twenty-four hour a day treatment of psychiatric illnesses and disorders to children and adolescents. Manatee Palms is an intensive residential treatment program for children and adolescents. A psychiatrist must approve every admission to Manatee Palms. Patients are admitted only upon an order of a medical doctor and upon a diagnosis of a psychiatric disorder. Although the facility administrator must ultimately decide whether a patient is admitted, the weight of the evidence failed to prove that the facility administrator may veto or modify the medical decision of a psychiatrist to admit a patient. Within twenty-four hours of admission, a psychiatrist completes a psychiatric evaluation of each patient. Psychiatric care is provided to patients through an interdisciplinary team composed of a psychiatrist, nurses, social workers, recreational therapists, psychologists and teachers. The team identifies each patient's problems and develops a treatment plan for each patient. A psychiatrist meets with each patient for approximately one-half to one hour a week; more if required by a patient. The psychiatrist also meets with the treatment team once a week to evaluate a patient's progress and adjust treatment as needed. The multi-disciplinary team provides care and nurturing in a group setting designed to enhance the patient's experiences in the areas in which he or she is not successful. Treatment includes counseling, psychotropic medications, adjunctive therapies and schooling. Most patients attend school at the facility. School is conducted by teachers from the Manatee County School Board. Patients at Manatee Palms are considered to be in treatment from the moment they wake up to the moment they go to bed at night. A psychiatrist prescribes and monitors the use of psychotropic medications. Such medications are administered at the facility by a nurse. Registered nurses are at the facility twenty-four hours a day, seven days a week. A psychiatrist is always on call to deal with emergencies. Manatee Palms is able to provide detoxification treatment for patients. Manatee Palms complies with the requirements of Rules 10D-28.100 through 10D-28.111, Florida Administrative Code. Manatee Palms provides the services referenced in Section 395.002(6)(a), Florida Statutes (1990 Supp.). Other Services. Manatee Palms does not provide clinical laboratory services on its premises. Blood and urine samples are, however, taken by Manatee Palms personnel upon admission and from time to time after admission upon a physician's orders. Clinical laboratory services are available through an agreement with a non- affiliated laboratory. Manatee Palms provides diagnostic x-ray services through an agreement with Quality X-Ray of Sarasota, Inc., a non-affiliated provider. X-ray services are typically provided off-site but are also provided at Manatee Palms' facility through portable equipment. Manatee Palms does not provide treatment facilities for surgery or obstetrical care at its facility. Manatee Palms has a contract with a pharmacist. The pharmacist fills prescriptions at the facility. Emergency medical services are provided off-site to patients through Manatee Memorial Hospital, a non-affiliated hospital. Manatee Palms has a referral agreement with the hospital. Manatee Palms has an agreement with a group of family practice physicians. These physicians conduct physicals upon admission of a patient and when medically indicated. Manatee Palms projected in a 1990 budget filed with the Board that it would have the following approximate revenues: a. $108,000.00 from laboratory services; b. $350,000.00 from drug sales; and c. $17,000.00 from diagnostic radiology services. Manatee Palms also projected in the 1990 budget the following approximate expenditures: a. $50,000.00 for laboratory services; b. $61,000.00 for drug sales; and c. $16,000.00 from diagnostic radiology services. I. Accreditation. Manatee Palms is accredited by JCAHO. Manatee Palms is accredited and surveyed under JCAHO's consolidated standards. RTCPB. Standing. By letter dated March 29, 1990, to the Executive Director of the Board, counsel for RTCPB requested that a determination be made by the Board that RTCPB was "not subject to the regulatory jurisdiction of the HCCCB except for those reporting requirements found in Sections 407.07(1)(b) and 407.13, Florida Statutes, and therefore need not file any budget or actual reports from this point forwards." RTCPB's request for exemption was premised on the Board's Final Order in Daniel Memorial. By letter dated July 25, 1990, the Executive Director of the Board informed RTCPB that its "request for an exemption from the reporting requirements of Chapter 407, Florida Statutes, is denied." The Board informed RTCPB that it could request an administrative hearing pursuant to Section 120.57, Florida Statutes, if RTCPB wished to contest the Board's denial of its request. RTCPB filed a Petition for Formal Administrative Hearing dated August 15, 1990, challenging the Board's notice that RTCPB was subject to the requirements of Chapter 407, Florida Statutes. RTCPB's Petition for Formal Administrative Hearing alleged that there were disputed issues of material facts in this matter. Therefore, the Board filed RTCPB's Petition with the Division of Administrative Hearings on August 22, 1990, for assignment of a Hearing Officer to conduct a formal administrative hearing. There is no provision in Chapter 407, Florida Statutes, which allows persons to request an exemption from the requirements of Chapter 407, Florida Statutes, or authorizes the Board to declare any person to be "exempt" from the requirements of Chapter 407, Florida Statutes. The weight of the evidence failed to prove that the Board had taken or planned to take any immediate action against RTCPB prior to its request for exemption. RTCPB has failed to prove that it has standing to institute the instant proceeding. Certificate of Need. RTCPB was built in 1986-1987. It opened on or about June 1, 1987, as a 40-bed residential treatment facility for adolescents. RTCPB was built and opened without obtaining a certificate of need from the Department. Subsequent to its opening, RTCPB filed an application for a certificate of need which was issued by the Department on November 29, 1988, for "establishment of a licensed 40-bed intensive residential treatment facility in Palm Beach County . . . . Licensure. RTCPB was initially licensed by the Department as a "residential child care agency" and by the Department's Alcohol, Drug Abuse and Mental Health Program office to provide services. In May 1989, RTCPB filed an application for licensure with the Department. There was not a category for intensive residential treatment program under the column titled "hospital bed utilization" on the application. Therefore, the initials "IRTF" were hand written on the application with a notation that all 40 beds are used in an intensive residential treatment program. On May 29, 1990, a license was issued by the Department to RTCPB "to operate a Specialty Intensive Residential Treatment Facility hospital with 40 Intensive Residential Treatment Facility beds." RTCPB is currently operating under this license. RTCPB operates and is surveyed by the Department pursuant to Rules 10D-28.100 through 10D-28.111, Florida Administrative Code. RTCPB's Location and Facilities. RTCPB is located at 1720 Fourth Avenue, North, Lake Worth, Palm Beach County, Florida. The RTCPB facility consists of a single building. The facility is divided into two 20-bed wings. Boys reside on one wing and girls reside on the other wing. Patients at RTCPB reside in semiprivate rooms. There are no private rooms. RTCPB is a locked facility. Patients are not allowed to leave the facility without permission. RTCPB has seclusion and restraint capabilities because of the type of patients cared for at the facility. Detoxification facilities for the treatment of substance abuse patients are available at the facility. RTCPB's Patients. Patients are six to eighteen years of age. RTCPB patients suffer from chemical dependencies and a wide range or psychiatric disorders, including schizophrenia, conduct disorders and attention deficit disorders. For the fiscal year ending May 31, 1990, the average length of stay at RTCPB was 218 days. RTCPB routinely treats patients referred by the Department. For the fiscal year ending May 31, 1990, 24% of total patient days were provided to patients referred by the Department. Ninety-five percent of all patients admitted to RTCPB are patients who were previously treated in an acute psychiatric care setting. RTCPB patients are physically healthy. RTCPB's Staff. RTCPB's staff consists of psychiatrists, nurses, social workers, recreational therapists, psychologists and teachers. Services Provided Directly to Patients. RTCPB provides diagnosis and twenty-four hour a day treatment of psychiatric illnesses and disorders to children and adolescents. RTCPB is an intensive residential treatment program for children and adolescents. Patients are admitted to the facility by a director of admissions and an admissions committee. A psychiatrist provides a diagnosis justifying admission. Psychiatric care is provided to patients through an interdisciplinary team composed of a psychiatrist, nurses, social workers, recreational therapists, psychologists and teachers. The team reviews the background, psychiatric and psychological assessment, and social history of each patient and develops a treatment plan for each patient. A psychiatrist meets with each patient for a few minutes each day, five days a week. The psychiatrist also meets with the treatment team for approximately one and one-half hours a day, four days a week. The multi-disciplinary treatment team provides care and nurturing in a variety of therapies provided in a highly structured setting. Treatment includes counseling, psychotropic medications, adjunctive therapies and schooling. School is conducted at the facility by teachers from the Palm Beach County School Board. A psychiatrist prescribes and monitors the use of psychotropic medications. Such medications are administered at the facility by a nurse. Registered nurses are at the facility twenty-four hours a day, seven days a week. A psychiatrist is always on call to deal with emergencies. Detoxification treatment is available at the facility. RTCPB complies with the requirements of Rules 10D-28.100 through 10D- 28.111, Florida Administrative Code. RTCPB provides the services referenced in Section 395.002(6)(a), Florida Statutes (1990 Supp.). Other Services. RTCPB does not provide clinical laboratory services on its premises. Blood and urine samples are, however, taken by RTCPB personnel upon admission and from time to time after admission upon a physician's orders. Clinical laboratory services are available through an agreement with a non- affiliated laboratory. RTCPB provides diagnostic x-ray services and dental services by referring the patient to an off-site provider. RTCPB does not provide treatment facilities for surgery or obstetrical care at its facility. Emergency medical services are provided off-site to patients through non-affiliated hospitals. RTCPB has a referral agreement with Bethesda Memorial Hospital. RTCPB has an agreement with a group of family practice physicians. These physicians conduct physicals upon admission of a patient and when medically indicated. RTCPB projected in a 1990 budget filed with the Board that it would have the following approximate revenues: a. $131,000.00 from laboratory services; b. $176,000.00 from drug sales; c. $6,000.00 from diagnostic radiology services; d. $11,000.00 for CT scanner services; and e. $3,600.00 for electrocardiography services. RTCPB also projected in the 1990 budget the following approximate expenditures: a. $46,000.00 for laboratory services; b. $22,000.00 for drug sales; c. $2,500.00 for diagnostic radiology services; d. $400.00 for CT scanner services; and e. $1,600.00 for electrocardiography services. I. Accreditation. RTCPB is accredited by JCAHO. RTCPB is accredited and surveyed under JCAHO's consolidated standards. Daniel Memorial. On October 26, 1989, a Recommended Order was issued in Daniel Memorial. In the Conclusions of Law in Daniel Memorial, the Hearing Officer concluded that a medical facility is subject to most of the requirements of Chapter 407, Florida Statutes, only if it is a "hospital" as defined in Section 407.002(13), Florida Statutes, which in turn incorporates the definition of "hospital" contained in Section 395.002(6), Florida Statutes. The Hearing Officer also concluded that Daniel Memorial Hospital was not a "hospital" as defined in Section 395.002(6), Florida Statutes, and, therefore, was not subject to most of the requirements of Chapter 407, Florida Statutes. The Hearing Officer in Daniel Memorial made the following conclusion of law: To meet the provisions of Subsection 396.002(6) [sic], supra, Daniel Memorial would have to provide the services set forth in both Subparagraphs (a) and (b), above. Because Daniel Memorial does not regularly provide the services defined in Subparagraph (b), above, it is not a hospital with[in] the scope of Subsection 396.002(6) [sic], supra. However, Subsection 395.002(8), supra, defines Intensive Residential Treatment Programs (IRTP's) as specialty hospitals without reference to the provisions of Subsection 395.002(6), supra. It is under Subsection 395.002(8), supra, that Daniel Memorial specifically is licensed. Its beds are excluded specifically from consideration under Subsections (6) and (14) of Section 395.002, supra. It is concluded that IRTP's are not specialty hospitals defined by Subsection 395.002(14), supra. The staff of the Board filed exceptions to the Recommended Order in Daniel Memorial. The exceptions filed by the staff of the Board were rejected by the Board in a Final Order issued on March 1, 1990. In the Final Order issued in Daniel Memorial, the Board adopted the Recommended Order issued by the Hearing Officer in its entirety. The Final Order issued in Daniel Memorial has not been appealed or overturned. All of the Petitioners in these cases requested that the Board declare them exempt from most of the requirements of Chapter 407, Florida Statutes, because of their similarity to Daniel Memorial Hospital. Counsel for Manatee Palms and RTCPB also suggested that those facilities were exempt under the holding in Daniel Memorial simply because they are "intensive residential treatment programs." In a memorandum to the Board dated July 11, 1990, the Executive Director of the Board informed the Board of his action with regard to requests from entities like the Petitioners which had suggested that they were similarly situated to Daniel Memorial Hospital. In pertinent part, the Executive Director stated that "we are responding negatively to requests for exemption from these facilities for the reasons outlined." The reasons referred to by the Executive Director were set out in a memorandum dated June 25, 1990, from the Senior Attorney of the Board to the Executive Director. In essence, the Senior Attorney concluded that the "operation and licensure" of each entity seeking treatment similar to the treatment afforded Daniel Memorial Hospital should be reviewed to determine whether that entity constituted a "hospital" under Chapter 407, Florida Statutes. The Senior Attorney recommended the following: Accordingly, I recommend that this agency deny any specialty hospital IRTP's request to be relieved of Chapter 407 requirements and recommend that administrative complaints be filed against those which fail to comply with Chapter 407, Florida Statutes. The Board has not, however, taken any action against the Petitioners. In denying the Petitioners' request for exemption, the Executive Director of the Board indicated the following: The information you have provided is insufficient to establish that your facility falls within the narrow exception from reporting requirements afforded Daniel Memorial Hospital. Accordingly, your facility's request for an exemption from the reporting requirements of Chapter 407, Florida Statutes, is denied. The Board has failed to enunciate how, if at all, the Petitioners differ in their operation from Daniel Memorial Hospital. The Board did not take any action against the Petitioners inconsistently applying its Final Order in Daniel Memorial. The Board took the position during these proceedings that any medical facility which is licensed by the Department pursuant to Chapter 395, Florida Statutes, is a "hospital" under Section 407.002(13), Florida Statutes. The Board's Position. The Department's Interpretation of Relevant Sections of Chapter 395, Florida Statutes. The Department is charged with the responsibility of licensing "hospitals" pursuant to Chapter 395, Florida Statutes. The term "hospital" is defined by Section 395.002(6), Florida Statutes (1990 Supp.). The terms "specialty hospital" are defined by Section 395.002(14), Florida Statutes (1990 Supp.). This definition incorporates by reference the definition of "hospital" contained in Section 395.002(6), Florida Statutes (1990 Supp.). The terms "intensive residential treatment program" are defined by Section 395.002(8), Florida Statutes (1990 Supp.). The Department interprets the terms "specialty hospital" as used in Section 395.002(8), Florida Statutes (1990 Supp.), to mean "specialty hospital" as used in Section 395.002(14), Florida Statutes (1990 Supp.). The Department interprets Chapter 395, Florida Statutes, to allow an intensive residential treatment program to be licensed as a "specialty hospital" if it meets the requirements of Rules 10D-28.100 through 10D-28.111, Florida Administrative Code. It is the Department's position that Rules 10D-28.100 through 10D- 28.111, Florida Administrative Code, require as a condition of licensure that intensive residential treatment programs provide services consistent with the services required to be provided by a "hospital" pursuant to Section 395.002(6), Florida Statutes (1990 Supp.). It is the Department's position that all intensive residential treatment programs licensed pursuant to Chapter 395, Florida Statutes, are "hospital's" as defined in Section 395.002(6), Florida Statutes (1990 Supp.). It is the Department's position that the Petitioners must continue to meet the definition of a "hospital" pursuant to Section 395.002(6), Florida Statutes (1990 Supp.), to be entitled to continued licensure by the Department. The Board's Reliance on the Department's Licensure of a Facility. It has been the position of the Board that the fact that a facility is licensed by the Department pursuant to Chapter 395, Florida Statutes, constitutes the best evidence of whether the facility constitutes a "hospital" as defined in Section 407.002(13), Florida Statutes. The Board did not adequately explicate its policy of relying upon the Department's licensure action under Chapter 395, Florida Statutes.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Board issue a Final Order dismissing the Petitions in these cases because of the failure of the Petitioners to prove that they have been substantially affected by any action of the Board; or That the Board, if it rejects recommendation number 1, issue a Final Order dismissing the Petitions in these cases because the Petitioners have failed to prove they are not "hospitals" under the definition of Section 407.002(13), Florida Statutes. DONE and ENTERED this 10th day of April, 1991, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of April, 1991. APPENDIX TO RECOMMENDED ORDER The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. La Amistad's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 I.B.1. 2 I.B.2. 3 I.B.1. 4 I.B.3. 5 I.B.4. I.C.1. The Department's action was consistent with the stipulation between the Department and La Amistad. Not relevant. 8 I.C.2. 9 I.A.1. 10 I.A.1-2. Not relevant. Not supported by the weight of the evidence or not relevant. IV.7. and hereby accepted. The Executive Director's memorandum was sent in July instead of June. 14 I.A.3. 15 Not supported by the weight of the evidence or not relevant. 16 I.A.3. 17-18 Hereby accepted. 19 See V.B.1. 20-22 Hereby accepted. 23 Not supported by the weight of the evidence or not relevant. 24 I.G.1. 25 I.D.1. 26 I.D.2. 27 I.E.3. 28 I.D.4. 29 I.E.4. See I.D.5. See I.F.1. See I.G.2. The last sentence is not supported by the weight of the evidence. 33 I.E.5. 34 Not relevant. 35 I.G.9. 36 I.H.10. 37 I.H.6. 38 I.H.4. 39 I.H.3. Not relevant. See I.H.1. The weight of the evidence failed to prove that La Amistad "does not regularly make available clinical laboratory services to its residents." Hereby accepted. 43 I.H.8. 44 I.H.9. The last sentence is not relevant. 45 I.H.8. 46-47 I.H.5. 48 Not supported by the weight of the evidence. 49 I.I.2. 50-51 See I.I.3. Hereby accepted. Not supported by the weight of the evidence. See I.H.1-10. Hereby accepted. Conclusion of law. Not relevant. Conclusion of law. La Amistad failed to prove exactly what the agreement with Florida Hospital was. Not supported by the weight of the evidence. Hereby accepted. The failure of the Board to provide such evidence does not preclude a proper application of unambiguous statutory law. Manatee Palms' and RTCPB's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1-2 III.B.1. 3 III.C.1. 4 III.B.2. 5-6 III.B.3. 7 III.C.2. 8 III.C.3. and D.1. 9 III.G.1. 10 III.I.1. and I.I.2-3. 11 III.G.3. 12 III.E.5. 13 III.E.6. 14 III.G.5. 15-16 III.G.6. III.G.8. III.H.6. III.G.2. and 9. The second sentence is not supported by the weight of the evidence. The suggestion that "individual psychiatric treatment is not routinely provided" is not supported by the weight of the evidence. 20 III.H.1-2. III.H.3. and 5. III.H.3. III.H.4. The suggestion that "other definitive medical treatment of similar extent" is not provided is not supported by the weight of the evidence. Not relevant. 25-27 III.E.4. 28-30 Hereby accepted. The last sentence of 30 is not supported by the weight of the evidence. III.A.1. III.A.3. Not supported by the weight of the evidence; too speculative. II.B.1. and II.D.1. 35 II.B.1. 36 II.C.1. 37 II.B.2. 38-39 II.B.3. 40 II.C.2. 41 II.C.3. 42 II.G.1. 43 II.I.1. and I.I.2-3. 44 II.G.4. 45 II.E.4. 46 II.E.5. 47 II.G.6. 48-49 II.G.7. 50 II.G.10. II.H.7. The last sentence is not relevant. II.G.2. and 11. The second sentence is not supported by the weight of the evidence. The suggestion that "individual psychiatric treatment is not routinely provided" is not supported by the weight of the evidence. 53 II.H.1-2. II.H.6. The first sentence is not supported by the weight of the evidence. See II.H.3. II.H.4. The suggestion that "other definitive medical treatment of similar extent" is not provided is not supported by the weight of the evidence. Not relevant. Hereby accepted. 59 II.E.3. 60-62 Hereby accepted. 63 Not relevant. 64 II.A.1. 65 II.A.3. Not supported by the weight of the evidence; too speculative. IV.1. See IV.2. The Hearing Officers' comment concerning whether all intensive residential treatment programs are not hospitals is dicta. IV.3. The last sentence is not supported by the weight of the evidence. 69 IV.4. 70 IV.5. 71-72 Hereby accepted. Not relevant. Cumulative. 75-81 Hereby accepted. 82-83 Not supported by the weight of the evidence or not relevant. 84 V.A.3. 85 Not relevant. 86-87 Hereby accepted. 88 Not relevant. The Board's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 I.C.1. 2 I.G.1. 3 I.G.2. 4-5 I.G.3. 6 I.E.3. 7 I.E.4. 8 I.G.1. 9 I.H.1-9. 10 I.G.7. 11 I.G.8. 12 I.I.1. III.C.3. III.G.1. III.G.2. III.E.2. See III.D.5. III.G.3. III.G.4. and 7. III.D.6-7. and III.G.6. III.E.3. III.E.5. See III.H.1-5. III.H.7. 25 III.H.11. 26 III.I.1. 27 II.C.3. 28 II.G.1. 29 II.G.2. 30 II.D.5. and II.E.2. 31 II.D.4-5. 32 II.D.6. 33 II.F.1. and II.G.2. and 4. 34 II.G.2. and 4-5. 35 II.G.9. 36 II.E.3. 37 See II.H.1-6. 38 II.H.8. 39 II.G.13. 40 II.I.1. 41 V.A.1. and 6. 42 V.A.5. 43 V.A.7. 44 V.B.1. The Intervenor's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection Not supported by the weight of the evidence or a correct conclusion of law. Not relevant. 3 I.C.1., II.C.3. and III.C.3. 4 V.A.5. 5-6 Law. 7 I.A.1., II.A.1. and III.A.1. 8 IV.7-8. 9, 11, 16, 18, 30, 32-33, 41, 43, 46-47, 51 and 64 These proposed findings of fact are generally true. They are only relevant, however, as they relate to one or more of the Petitioners. 10-11 I.G.1. 13 I.G.3. I.G.3, II.G.2. and III.G.3. I.G.6, II.G.7. and III.G.6. 17 Hereby accepted. 19 I.D.2., II.D.2-3. and III.D.2-3. Hereby accepted. II.D.4. and III.D.5. III.D.4. III.D.3. Hereby accepted. 25 I.D.4. II.D.5. and III.D.6. Hereby accepted. II.D.6. and III.D.7. 29 I.C.2. 31 II.D.4. and III.D.5. 34 I.G.3. 35 II.G.8. 36 I.G.7. 37 I.G.7. and I.H.6. 38-39 I.F.3. 40 I.G.2., II.G.2. and III.G.2. 42 Law. 44 I.G.2-5. 45 I.G.1. 48-50 Law. 52 I.G.2-5. 53 Law. 54 I.E.5. 55 I.G.5. 56-61 Hereby accepted. 62-63 V.A.5. 65 Not relevant. 66 V.A.8. 67 V.A.1. 68 V.A.9. See V.A.9. Hereby accepted. See V.A.9. 72 I.C.1., II.C.3. and III.C.3. 73 Not relevant. 74 I.A.4., II.A.4. and III.A.4. 75 Not relevant. COPIES FURNISHED: Robert D. Newell, Jr., Esquire 817 North Gadsden Street Tallahassee, Florida 32303-6313 Michael J. Glazer, Esquire Post Office Box 391 Tallahassee, Florida 32302 Julia P. Forrester General Counsel Health Care Cost Containment Board 301 The Atrium 325 John Knox Road Tallahassee, Florida 32303 Jack Shreve Public Counsel Stephen M. Presnell Associate Public Counsel Peter Schwarz Associate Public Counsel c/o The Florida Legislature 111 West Madison Street Room 812 Tallahassee, Florida 32399-1400
The Issue Whether there is need for a new hospital in AHCA Acute Care Subdistrict 5-2 (eastern Pasco County)? If so, whether AHCA should approve either CON 9975 or CON 9977?
Findings Of Fact The Applicants and Background Pasco-Pinellas Pasco-Pinellas, the applicant for CON 9975, is a joint venture between two nonprofit healthcare organizations: University Community Hospital, Inc. (UCH) and Adventist Health System Sunbelt Healthcare Corporation (Adventist). A not-for-profit healthcare system, UCH has served the Tampa Bay area for the last 40 years. It owns and operates two hospitals in Hillsborough County and one in Pinellas County. UCH has approximately $100 million available for capital expenditures to fund the hospital proposed by CON 9975. One of its Hillsborough County facilities, University Community Hospital, is located on Fletcher Avenue in northern Hillsborough County, AHCA Health Planning District VI. Across the street from the main campus of the University of South Florida (USF) and its College of Medicine, University Community Hospital has an agreement with USF for GME. University Community Hospital at present serves the Wesley Chapel area in eastern Pasco County. The other member of the joint venture, Adventist, is a financially successful not-for-profit healthcare organization. It operates 17 hospitals in the state of Florida. As of December 31, 2007, Adventist's cash on hand, including investments, exceeded $3.6 billion and net revenue for 2007 was approximately $368 million. The joint venture between UCH and Adventist was formed to establish a hospital to serve the Wesley Chapel area of Pasco County and to provide other healthcare services in the county. At present, the two members of the joint venture compete to serve the Wesley Chapel area through University Community Hospital and Adventist's Florida Hospital Zephyrhills (FHZ), a 154-bed general acute care hospital in Pasco County. The collaboration of competing hospitals in seeking approval for a new hospital through Florida's CON process is unusual. But by bringing the similar missions, strength in community interests and capable leadership of UCH and Adventist together, the Pasco Pinellas joint venture poses potential healthcare benefits to eastern Pasco County. BayCare The Applicant for CON 9977, BayCare of Southeast Pasco, Inc., is a not-for-profit corporation formed to develop the hospital proposed in the application. The sole member of BayCare is BayCare Health System, Inc. ("BayCare System"). BayCare System is the largest full-service community- based health care system in the Tampa Bay area. It operates 9 nonprofit hospitals and 11 ambulatory/outpatient centers in Hillsborough, Pasco and Pinellas counties. Initially organized in 1997 under a joint operating agreement between several hospitals, BayCare System's purpose has been to compete effectively in managed care operations in order to reduce the expenses of the individual organizations that are its members. In the first 5 years of operation, BayCare System saved its members a total of $90 million because of the enhanced cost efficiencies it achieved through business function consolidations and group purchasing. Its members are all not-for-profit hospitals. BayCare System's focus is on the treatment of one patient at a time. Its mission is to improve the lives of people in the community it serves, to operate effectively as a group of not-for-profit hospitals, and to provide high quality, compassionate healthcare. BayCare's application, because it provides potential for its proposal with its teaching aspects, draws significant and considerable support from USF, a national research university. USF has a College of Medicine, a College of Nursing, and a College of Public Health, collectively "USF Health." USF Health will collaborate with BayCare in the development of the hospital BayCare proposes, should it be approved and should its teaching functions come to fruition. The Agency The Agency for Health Care Administration is the state agency that administers the CON program pursuant to Section 408.034, Florida Statutes. It will make the final decisions to approve or deny the two CON applications at issue in this proceeding. Community Community Hospital is a general acute care for profit hospital with 386 beds. It is located within the City of New Port Richey in western Pasco County, Acute Care Subdistrict 5-1. With the exception of neonatal intensive care, open heart surgery and organ transplantation, Community is a full- service community hospital. It provides OB services. It is licensed for 46 adult psychiatric beds. It offers a variety of outpatient services including outpatient surgery, endoscopy, and outpatient procedures and lab testing. Its medical staff consists of approximately 400 physicians. Community serves patients without regard to ability to pay, and does not discriminate in any manner. Accredited by the Joint Commission on Accreditation of Hospital Organizations, it has received numerous awards and recognition for the quality of its health care services. Community's hospital facility is over 30 years old. Access to the campus from US 19, the closest major thoroughfare approximately 1.5 miles away, is gained via a two-lane street through a residential area. Land-locked but for the two-lane street, the campus is sandwiched between the residences and a high school. There are no medical office buildings ("MOB") owned by Community on the campus; less than 20 acres in size, it is completely built out. Community's Replacement Hospital Community has a replacement hospital facility currently under construction in Acute Care Subdistrict 5-2. Approximately five miles southeast of Community's New Port Richey location, the replacement facility is located at the intersection of Little Road and State Road 54. Expected to open in late 2010 at a cost in excess of $200 million, it is to be known as Medical Center of Trinity ("Trinity"). All current Community services will be offered at Trinity. At the same time, the new hospital will offer many advantages over the old facility. Trinity will initially be five stories in height, with fewer licensed beds, but constructed with the ability to expand. It will offer new medical equipment with the latest technology. Situated on 52 acres, with a new three-story MOB adjacent to the hospital, Trinity has plans to add a second MOB at some time in the future. Unlike existing Community Hospital, Trinity will have all private rooms. Its more efficient layout among service areas will improve efficiencies and patient satisfaction. Trinity's location is more accessible than Community's current location in New Port Richey. It is on State Road 54 (SR 54), a six-lane highway that runs east/west through Pasco County. The road has recently undergone major construction and expansion which was nearly complete at the time of hearing. Suncoast Parkway (a/k/a Veterans Expressway), furthermore, is an expressway toll road system that runs north/south from Hernando County through Pasco County to Tampa airport. From the intersection of Suncoast Parkway and SR 54, it takes approximately seven minutes to reach Trinity. Little Road runs north/south along the Trinity site, and north through Pasco County to Regional Medical Center Bayonet Point ("Bayonet Point"). Community's poor financial performance in recent years is expected to improve after the opening of Trinity. The Proposals Although both applicants propose a new hospital in roughly the same location in Subdistrict 5-2, the two are different both in scope and approach. Pasco-Pinellas' Proposal Pasco-Pinellas proposes to build an 80-bed acute care hospital on Bruce B. Downs Boulevard in the area known as Wesley Chapel in eastern Pasco County. If approved and constructed, the hospital will include 36 medical/surgical beds, 8 labor/delivery/recovery/post partum beds, 12 critical care beds, and 24 progressive care beds. The project would involve 184,000 gross square feet of new construction, at a total estimated cost of $121 million. Pasco-Pinellas proposes a typical primary service area (PSA). Five and one-half zip codes comprise the PSA; Pinellas- Pasco reasonably projects 82% of its admissions will come from the PSA. Two and one-half zip codes comprise the secondary service area (SSA). The zip code that is shared by the PSA and the SSA (33559) is split roughly in half between Pasco County and Hillsborough County. The half that is in Pasco County is in Pasco-Pinellas' PSA. The five full zip codes in the PSA are 33541, 33543, 33544, 34639, and 33576. The two full zip codes in the SSA are 33549 and 33647. Pasco-Pinellas' in-migration from outside its proposed service area (the PSA and the SSA) is forecast by Pasco- Pinellas's health planner at 12%. For a community hospital in the Wesley Chapel area without tertiary services, the in- migration percentage projected by Pasco-Pinellas is reasonable. BayCare's Proposal BayCare proposes to establish a general acute care hospital with 130 beds. The application proposes that it be collaboratively developed by BayCare System and USF Health so as to provide teaching functions associated with the USF College of Medicine and other health-related university components of USF Health. Consisting of approximately 476,000 square feet of new construction at an estimated total project cost of approximately $308 million, the hospital will have 92 medical/surgical beds, 24 critical care beds, and 14 post-partum beds. Like Pasco-Pinellas' proposal, BayCare's proposed hospital will be located on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County. BayCare's proposed PSA is circular. The center point of the PSA is the proposed BayCare hospital site in the Wesley Chapel area. The circumference is along a series of seven-mile radii so that the diameter of the circular PSA is 14 miles. The seven-mile radius was chosen to approximate a fifteen-minute travel time by automobile from the outer edge of the circular PSA to the hospital site. BayCare's PSA includes some part of seven zip codes. Two are Wesley Chapel zip codes: 33543 and 33544. Two are Lutz area zip codes: 33549 and 33559. Two are Land O'Lakes zip codes: 34639 and 34638, and one is a zip code in Hillsborough County: 33647. Relative to typical PSAs for most proposed hospitals, the PSA proposed by BayCare's application was described at hearing by BayCare's health planner as "small." See Tr. 1855. For calendar years 2013 and 2014, BayCare projects that 19,0976 and 20,008 patient days, respectively, will be generated from within the PSA. These projections constitute a projection of 60% of all patient days projected for the two years, a percentage substantially lower than would be generated from a typical PSA. The remaining 40% of projected patient days is roughly double what would be expected from beyond a PSA under a more typical proposal. The high number of projected patient days for patients originating outside the PSA was explained at hearing by BayCare's health planner. The involvement of the USF Physician's Group and the "teaching" nature of the proposal "pumps up and provides an additive level of in-migration that would not be experienced without the USF combination with BayCare in [the] project." Tr. 1856-7. Pasco County Hospitals There are five hospitals in Pasco County. Two in western Pasco County will continue to remain in Subdistrict 5-1 in the near future: Regional Medical Center Bayonet Point, located in northwest Pasco County and Morton Plant North Bay Hospital, located in New Port Richey. Two are in eastern Pasco County, Subdistrict 5-2: Pasco Regional Medical Center in east central Pasco County, and FHZ, located in southeast Pasco. The fifth is Community/Trinity. No Need for Both Hospitals None of the parties contends there is need for both hospitals. Nor would such a contention be reasonable. Indeed, the record does not demonstrate need for both a new 80-bed community hospital as proposed by Pinellas-Pasco and a new 130- bed hospital that BayCare denominates a "teaching" hospital, each with an intended location on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County in Subdistrict 5-2. The question remains: is there a need for one new hospital? If so, which of the two applications, if either, should be approved? Need for a New Hospital; Access Enhancement Among the counties in the Tampa Bay area, Pasco County has been the fastest growing in recent years. From 1990 to 2000, its population grew 22.6%. Three times higher than the state average, this represents tremendous growth for any locale. The Wesley Chapel area of south Pasco County roughly coincides with the PSAs of the two applicants. Dramatic growth over the last 20 years has marked the Wesley Chapel area's transformation from an agricultural area to a suburban community. North of Hillsborough County and its largest city, Tampa, improvements in the transportation network has made south Pasco County and in particular, the Wesley Chapel area, a bedroom community for workers commuting to Tampa. Claritas, a national demographic data service, is a generally accepted population projection source for CON applications. Claritas projects the growth in Pasco County to continue. For example, the projected population for Pasco- Pinellas' proposed PSA, which substantially overlaps with BayCare's proposed PSA, is 113,397 in 2011 and 118,505 in 2012. The Claritas projections are based on the most recent decennial U.S. Census, that is, 2000, and do not take into account data of impending population growth, such as new housing starts and new schools. Claritas, therefore, may understate projections in areas that have experienced more recent, rapid growth. The University of Florida Bureau of Economic and Business Research ("BEBR") also provides reliable population data by county. In the year 2000, the census for the Pasco County population was 344,765. By 2030, that population is projected by BEBR to grow to 526,100 based on low projections, 681,100 based on medium projections, and 876,900 based on high projections. For the high projection rate, this would constitute a 154% increase in population. Even assuming the low growth rate, the population would increase by 53%. According to BEBR data, the county can be expected to grow at a rate of 4.71% per year. Another source of population data relied upon by population experts is Demographics USA. The Demographics USA data shows a substantial growth in population for Pasco County. According to Demographics USA, the population for Pasco County can be expected to grow from 343,795 in the year 2000 to 440,527 in the year 2010 and then to 504,277 by the year 2015. Based on the Demographics USA data, the county can be expected to grow at a rate of 3.11% per year. The Wesley Chapel area is considered to be the area of Pasco County with the most development and development potential now and in the future. Of 175 major projects actively undergoing development in Pasco County, 76 are in the Wesley Chapel area. Between 2010 and 2012, the population in the area is projected to grow by 5,000 persons per year. With the increase in the general population in the area comes an expected increase in the need for schools. Of 37 schools identified by the Pasco County School Board to be built in the near future, 19 are to be located in the Wesley Chapel area. Whether the historic growth rate of the last few decades will continue for sure is an open question with the downturn in the economy and the housing market that commenced in Pasco County in mid-2007. Absent a major recession, however, it is reasonable to expect growth in the Wesley Chapel area to continue even if not at a rate as rapid as in the recent past. Whatever the future holds for Wesley Chapel's growth rate, there is clearly a demand for inpatient general acute care services in the Wesley Chapel area. The total non-tertiary discharges from the Pasco-Pinellas service area was 15,777, excluding newborns, for the 12-month period ending June 30, 2006. As a result, AHCA found the existing and growing population in the Wesley Chapel area warranted a new hospital. Along with significant growth in the Wesley Chapel area comes resulting traffic and healthcare and hospital access issues. Drive time analysis shows the average drive time from each of the Pasco-Pinellas PSA six area zip codes to the eight area hospitals in 2007 to be 46.11 minutes. The analysis shows that future drive time is expected to be lengthier, strengthening the need for a hospital in the Wesley Chapel area. In 2012, the average time increase is expected to 57.68 minutes. A Drive Time Study Report prepared by Diaz Pearson & Associates compared drive times to the proposed site for Pasco- Pinellas hospital to eight existing hospitals: UCH, Pasco Regional, FHZ, Tampa General, University Community Hospital on Dale Mabry in Tampa, St. Joseph's North, St. Joseph's in Tampa, and the site for Community's replacement hospital. The study concluded: The results of this travel study demonstrate that the vehicular travel times for access to the proposed PPHCHS Hospital [Pasco- Pinellas' Hospital] are consistently LESS for residents within the six Zip codes of the Primary Service Area for years 2007, 2011, and 2012 than for comparable trips to any of the eight area hospitals for alternate choice. Pasco-Pinellas 36, p. 27. Of particular note are the travel times from each of the six zip codes in Pasco-Pinellas' PSA to UCH, FHZ, and Tampa General. For example, a patient driving from the centroid point in zip code 33559 to UCH would take 24.28 minutes and to FHZ would take 37.97 minutes in 2007. This increases to 29.55 minutes and 50.94 minutes in 2012. Another example, the time it takes a patient to travel from zip code 33541 to Tampa General was 75.51 minutes in 2007. In 2012, the travel time is projected to increase approximately 20 minutes to 95.33 minutes. In contrast, a new hospital in the Wesley Chapel area would decrease travel times significantly for patients in the six zip code areas of the Pasco-Pinellas PSA. For example, in 2007, it would only take a zip code 33559 patient 11.41 minutes to reach the proposed site for Pasco-Pinellas. This represents a time savings of 12.87 minutes compared to the average driving time to UCH and 26.56 minutes compared to the average driving time to FHZ. In 2012, the reduction in time to drive to Pasco- Pinellas' proposed hospital site instead of UCH is 18.34 minutes and for FHZ, it is 39.53 minutes. The time savings for patients from the 33541 zip code traveling to Tampa General for non- tertiary services is even greater. Using Pasco-Pinellas' site in the Wesley Chapel area would save the patient 52.67 minutes in 2007 and is projected to save 63.88 minutes in 2012. Anecdotal evidence supports the need for a new hospital in the Wesley Chapel area. Dr. Niraj Patel practices obstetrics and gynecology in the Wesley Chapel area. A drive for him in good traffic is typically 20 minutes to UCH (the only hospital at which he practices because the distance between area hospitals is too great). In morning traffic during "rush" periods, the drive can exceed 40 minutes. Caught in such a drive in January of 2008, Dr. Patel missed the delivery of a patient's baby. He was required to appear before the UCH Medical Staff's credentials committee to "explain the situation . . . [because it] was the third or fourth [such] episode." Pasco-Pinellas 47, p. 11. As Dr. Patel explained in a pre- hearing deposition, "it doesn't fare well for me . . . credential and requirement wise but it doesn't fare well for the patient [who] had to be delivered by the nursing staff which [without a physician present] increases patient risk and [the chance] of complication[s]." Id. A new hospital in the Wesley Chapel area will provide residents of the Pasco-Pinellas PSA or the BayCare PSA with shorter travel time to a hospital compared to the time necessary to reach one of the eight existing hospitals in the region. In 2007, residents of the six zip codes in the Pasco-Pinellas' PSA could be expected to access Pasco-Pinellas' proposed hospital in a range of 10.9 to 21.8 minutes. For the year 2012, the time can be reasonably predicted to range from 17 to 31.4 minutes. In comparison the drive times to the eight hospitals in the region for residents of Pasco-Pinellas' PSA are significantly longer. In 2007, it took a resident in zip code 34639 approximately 55 minutes to get to UCH and 73 minutes to get to St. Joseph's Tampa. By 2012, those drive times are reasonably projected to increase to 64 minutes and 83 minutes, respectively. Simply put, travel times are expected to increase as the population increases in coming years. The site of Pasco-Pinellas' hospital is approximately one mile from the site of the proposed BayCare hospital. The travel times suggested for the residents of the Pasco-Pinellas PSA to the proposed Pasco-Pinellas hospital can be expected to be similar to travel times to the proposed BayCare hospital. Given the proximity of the two proposed sites, either will significantly reduce travel time to hospitals for patients in the Wesley Chapel area. The existence in the Wesley Chapel area of a community hospital with an emergency room and primary inpatient services will benefit doctors, patients and their families. Heightened driving concerns among elderly patients and traffic congestion and inadequate roadways that delay Emergency Medical services support the need for a Wesley Chapel area hospital. The support is based not only on 2007 travel times but also on the reasonable expectation that travel time will be greater in the future. Existing hospitals are capable of absorbing the increased need for acute care hospital services that result from the increased growth that is reasonably projected to occur in Subdistrict 5-2. If there is to be a new hospital in the subdistrict, the Wesley Chapel area is the best location for it. A new hospital in the Wesley Chapel area will enhance access to acute care services for residents of Subdistrict 5-2. Preliminary Agency Action; the SAAR The Agency determined that there is a need for a new hospital in the Wesley Chapel Area when it issued its State Agency Action Report on CONs 9975 and 9977. The Agency also determined that between the two applications, Pasco-Pinellas was superior and should therefore be approved over BayCare's. This determination was founded primarily on Pasco-Pinellas' application being more reasonable in terms of size and impacts on existing providers. The Agency maintained at hearing the position it took in it preliminary action memorialized by the SAAR. Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation received in this proceeding as an expert in health planning and CON Review explained when called to the stand to testify: The proposal by [Pasco-Pinellas] was on the smaller side and gave us more comfort [than BayCare's] . . . [W]hile we . . . agree with these applicants that there is a hospital in the future of [the Wesley Chapel area], we are more comfortable with the conservative approach, the smaller approach [of Pasco- Pinellas], particularly given that should it be necessary in the future, any hospital can add beds, acute care beds, merely by notifying us. And we were more comfortable that [Pasco-Pinellas'] approach would be able to expand access and improve services for people in this area while at the same time minimally impacting all of the competitors. Tr. 1995. As detailed below, AHCA's determination that the Pasco-Pinellas application is superior to BayCare's is supported by the record even if the basis for the determination made on the state of the record is not quite the same as the basis advanced at hearing by AHCA. Size and Cost Pasco-Pinellas proposed hospital involves about 184,000 square feet of new construction at a cost of approximately $121 million dollars. It is much smaller and less costly than BayCare's proposed hospital of 476,000 square feet of new construction for about $308 million. The Pasco-Pinellas proposal is more reasonably sized to meet the needs of the Wesley Chapel area and, in turn, Subdistrict 5-2. The difference in size and cost of the two proposals, however, is a function of a major difference in approach in the applications. Pasco-Pinellas' proposal is for a typical community hospital that would start out with a bed size within a range that includes 80 beds. BayCare, on the other hand, proposes to serve not only the Wesley Chapel area and Subdistrict 5-2, but also a substantial population of patients to be drawn to the subdistrict particularly from Hillsborough County. Patients migrating to the hospital from outside the subdistrict will for the most part be the product of BayCare's affiliation with USF Health and its service to the USF College of Medicine in its proposal denominated in the application as a "teaching hospital." Need for a New Teaching Hospital "Teaching hospital" is a term defined in the Health Facility and Services Development Act, sections 408.031-408.045, Florida Statutes: "Teaching hospital" means any Florida hospital officially affiliated with an accredited Florida medical school which exhibits activity in the area of graduate medical education as reflected by at least seven different graduate medical education programs accredited by the Accreditation Council for Graduate Medical Education or the Council of Postdoctoral Training of the American Osteopathic Association and the presence of 100 or more full-time equivalent resident physicians. The Director of the Agency for Health Care Administration shall be responsible for determining which hospital meets this definition. § 408.07(45), Fla. Stat. The Agency has not determined that BayCare's proposal meets the statutory definition as directed by the statute for it to qualify as a "teaching hospital." The record indicates that the proposal is not a typical teaching hospital. For example, teaching hospitals in the United States are usually located near indigent populations to achieve the efficiency of training future practitioners with treating people who otherwise could not afford services. BayCare's proposal in a small county with a more affluent population does not serve that purpose. BayCare contends neither that it is a "statutory" teaching hospital nor that it should be determined by the Agency to meet the statutory definition of "teaching hospital." Instead it grounds its case for need in the teaching functions its proposal would fulfill for USF Health and in particular for the GME needs of the students of the USF College of Medicine and the results those teaching functions would produce. Considerable testimony was offered by BayCare at hearing with regard to GME and the needs and aspirations of the USF College of Medicine. The Dean of the College, Stephen K. Klasko, M.D., spiritedly and eloquently related a narrative of need which was supported and amplified by other witnesses including faculty members at the college. There were many elements to the narrative. Highlights include the hybrid nature of the USF College of Medicine, "acting like a research intensive medical school . . . in a community-based body" (tr. 1132)," its on-going successful striving towards becoming an academic center for world class physicians as evidenced by this year's receipt of a research grant from the National Institute for Health, "the largest . . . given to a medical school in the last four or five years," id., and the GME challenges the college faces in the Tampa Bay area such as the recent loss of its anesthesiology residency program. BayCare's opponents point out the many ways in which the proposal is not only not a statutory teaching hospital but does not fit a nationwide model for teaching hospitals. BayCare counters that its model is one of many different models for a teaching facility. Whatever the merits of the various assertions of the parties on the point, USF's need for a teaching facility will be filled at least in part by the BayCare proposal. It is not an exaggeration, moreover, to call USF's need in this regard compelling. USF's institution-specific need, however, does not fall under any of the CON review criteria. See paragraphs 167- 8, below, in the Conclusions of Law. Perhaps not unmindful of the limits of the criteria, BayCare's presented other evidence that flows from the teaching function of the BayCare proposal. Relevant to the general criterion of "need" in subsection (1) of the Statutory CON Review Criteria, the evidence relates to physician shortages. The Physician Shortage There is a shortage of physicians in the district as there is in Pasco County. The problem has statewide dimensions. The state is not doing enough to replace aging doctors in Florida with younger doctors. Nor are aging doctors providing sufficient emergency room call coverage. The physician shortage both in general and in emergency rooms in the state is likely to increase. Residents are more likely to remain and practice in the community in which they train. Residents in the Tampa Bay area, in particular, are more likely to remain in the Tampa Bay area to practice. Even 20 residents per year in training at BayCare's proposed hospital would make a difference in existing physician shortages. Should BayCare's proposed hospital be built and operated as contemplated, the teaching functions that BayCare's application proposes to offer at the hospital would serve as a step, however small, toward meeting Florida's physician shortage as well as the shortage in District V, Pasco County, Subdistrict 5-2 and the Tampa Bay area. Nonetheless, there is a feature of this case that undermines BayCare's claim that the proposal will aid the physician shortage and its denomination in the application of the proposal as a "teaching hospital." The feature is present in the agreement between USF and BayCare (the "BayCare and USF Agreement) to make the BayCare proposed hospital a University Hospital. The BayCare and USF Agreement The BayCare and USF Agreement contains a section devoted to implementation and termination. The following is excerpted from the section's six separately numbered paragraphs: The Parties [the University of South Florida Board of Trustees or USF and BayCare Health System, Inc.] shall negotiate in good faith all other terms and conditions relating to the execution and implementation of this Agreement, including, without limitation, any revisions to the provisions of the Articles of Incorporation and Bylaws of the Hospital Corporation, the terms and conditions of the Health Affiliation Agreement, the design and layout of the University Hospital . . . [etc.] and such other documents and instruments as the Parties may find necessary or desirable to implement the terms of this Agreement. In the event the Parties are unable to agree on all such terms and conditions and all such documents required to implement the terms and provisions of this Agreement despite their good faith efforts to do so, either Party shall have the option after a period of at least twenty four months from the Effective Date or six months after the final approval of the Certificate of Need for the University Hospital is received, whichever is longer, to terminate this Agreement on the terms described in this [s]ection . . . . BayCare 2, Appendix C, BayCare and USF Agreement, Section G, p. 8. (Emphasis supplied.) For USF to terminate, the terms include payment to BayCare of $500,000 and agreement that for five years after termination it will not enter into an affiliation or other agreement with any other provider for the establishment of a university hospital in Pasco County. See id. The ability of USF to terminate the agreement is not "at will." It requires good faith efforts to have been made at implementations that fail to work. Furthermore, termination is not without consequences. But the termination provision in the agreement is consistent with the lack of a condition in BayCare's application that the BayCare proposal be a teaching hospital, "one more detail that made [AHCA officials] scratch our heads about the characterization of this hospital as a teaching hospital." Tr. 2011. It is also consistent with USF's support for "legislation that would be statewide that would allow state medical schools at some point, if they chose to, to make it easier . . . to have a hospital or research hospital on campus . . . [of which] USF would be one . . . " Tr. 1190-91. Adverse Impact Providers Outside the District Evidence was produced at hearing about the adverse impact of approval of either of the two applications on providers outside the district. Objections to the evidence were taken under advisement pending consideration of post-hearing memoranda submitted by the parties. Upon consideration of the memoranda, the objections are sustained. See paragraphs 159-66, below, in the Conclusions of Law. Providers Within the District The Pasco-Pinellas proposal will have minimal impact on Community/Trinity Medical Center. Its impact on other hospitals will be minimal with the exception of its two partner hospitals--UCH and FHZ--and of those two, only FHZ is in the District. There will be no adverse impact on Community as a result of the BayCare proposal. There is little patient flow from eastern Pasco to the western Pasco hospitals. Only about 1% of the patients in eastern Pasco travel west for services at Community, Morton Plant or Bayonet Point. It is reasonable to project that there will be no material change in Community's patient draw as a result of the new Trinity Medical Center. The projections by Community's health care and financial experts of patient days that would be lost and adverse financial impact to Community/Trinity should the BayCare proposal be approved were based on faulty assumptions. The majority of the adverse impact from BayCare's proposal, as in the case of Pasco-Pinellas' proposal, will be on UCH and FHZ. Availability of Resources Nursing and Non-Nursing Staff Pasco-Pinellas should be able to recruit and retain nursing and other staff for its hospital based on the Adventist experience at FHZ. The nursing vacancy at FHZ is 1% lower than the vacancy rate reported by the Florida Hospital Association (7.5% and 8.5%, respectively.) The turn-over rate for nurses at FHZ is 12%, significantly lower than the national rate in the 18-19% range. Recruitment of nurses has been successful at FHZ particularly in the last few years. In 2007, FHZ hired 100 nurses and reduced its use of agency nursing staff by roughly 75%. Among its different recruitment tactics have been a foreign nursing program, education and training incentives, scholarships at local colleges and specialty pay programs. Pasco-Pinellas will use many of the same recruiting techniques that have been successful at FHZ. It is reasonably anticipated that the same recruitment practices employed by FHZ will work for Pasco-Pinellas. Many members of the current nursing staff at FHZ, moreover, live in the Wesley Chapel area and have expressed an interest in working at Pasco-Pinellas. Retention programs at FHZ have been aimed at retaining better nurses. These include the magnet concept and a self- governance program with "a unit based council and nursing council so nurses . . . practicing . . . at the bedside have the opportunity to help govern the practice of nursing." Tr. 225-6. Retention programs similar to those used at FHZ will be implemented at Pasco-Pinellas. Schedule 6 in Pasco-Pinellas application reflects anticipated staffing for its new hospital. The staffing model is consistent with staffing at other Adventist facilities, specifically FHZ. The average salaries and wages are based on actual salaries inflated forward to the projected date of opening. The FTEs per adjusted occupied bed are adequate and consistent with the staffing patterns at FHZ. All necessary staffing positions are accounted for and the number of FTEs and salaries are sufficient for the hospital to operate and provide high quality of care. The registered nurse FTEs, as opposed to LPNs and lower-level nursing care, in Schedule 6 offer optimal staffing to provide high quality care and positive patient safety. The nursing salaries are adequate for the time frame in which Pasco-Pinellas will open with a one-time 5% increase and a 4% increase per year from present until opening. Schedule 6 supports the reasonable expectation that Pasco-Pinellas will be able to recruit and hire nursing staff and retain an adequate staff. The proposed staffing pattern in Schedule 6 of the Pasco-Pinellas application, which includes nursing staff, moreover, is reasonable. BayCare has a comprehensive recruitment program for recruiting and retaining nursing personnel as well. The strategies include a partnership with the nursing programs at USF and St. Petersburg College. BayCare System provides additional training to its nurses and with regard to salaries has committed to remaining competitive in the market. BayCare's recruitment and retention initiatives have been successful. In the 2008 year to date at the time of hearing, BayCare System had been able to hire more experienced nurses that it did in 2007 for the same time period. Overall, the BayCare System has a turnover rate of about 15%. The RN vacancy is 10% with a 13% turnover rate. These figures are comparable to state and national figures; in some cases they are lower. With regard to non-nursing employees or team members, BayCare System also had developed recruitment initiatives that are targeted toward those individuals. BayCare System has a positive reputation in the community as a good place to work. As an example, the three St. Joseph's hospitals (St. Joseph', Women's and Children's) and South Florida Baptist received recognition among the "Best Work Places in Health Care" for the years 2005 and 2006. The award recognizes outstanding practices related to employees. BayCare has the ability to recruit and retain the staff necessary to staff the proposed BayCare SE Pasco hospital. The staffing projections in Schedule 6 of BayCare's application, which includes nursing staff, are reasonable. Physician Support Despite the physician shortage, both applicants should be able to adequately staff their hospitals with physicians as shown by the evidence with regard to physician support for the hospitals. Florida Medical Clinic (FMC), a multi-specialty physician group practice with 85 physicians, is the primary physician group that serves the Wesley Chapel area. Thirty percent of its members are family practitioners or specialists in internal medicine. The remainder of the members cover 20 or so specialties that include both secondary and tertiary specialties. FMC has determined that it will support the Pasco- Pinellas proposal through its physicians, admissions and outpatients activity. Ninety percent or more of the clinic's patients use the UCH and FHZ facilities. FMC has a long- standing relationship with the administrators, personnel, and strategic issues of FHZ and UCH and is comfortable developing future plans for a hospital facility in Wesley Chapel with the two organizations FMC is able to meet the needs of the Wesley Chapel community both today and in the future. In addition, there are numerous other individual physicians who practice in the Wesley Chapel area who "predominantly support University Community Medical Center and Florida Hospital in Zephyrhills." Tr. 63. Having relationships with physicians already in a market when a hospital is being developed is advantageous to the new hospital. Among other advantages, it minimizes resources used to recruit and move new physicians into the area. In contrast to support for the Pasco-Pinellas proposal, FMC has not made a commitment to BayCare as to its proposal because of lack of knowledge about the structure of the facility, its strategic plans and whether or not FMC's interests align with the BayCare proposal but it has not foreclosed such a commitment. The USF physicians group will be a source of many of the physicians who will staff the BayCare proposed hospital, a likely reason for FMC's lukewarm to non-existing support for BayCare's proposal. USF emergency physicians will staff the Emergency Department. The BayCare System has approximately 28 physicians with privileges at BayCare System facilities with offices in the Wesley Chapel area. The proposed BayCare hospital will be staffed by recruited physicians and USF faculty physicians. Other physicians from the Wesley Chapel area provided testimony of their support for the BayCare proposal. It is reasonable to anticipate that some local Wesley Chapel area physicians will join the medical staff of the proposed BayCare hospital. Despite the physician shortages in the subdistrict, District V and the Tampa Bay area, both Pasco-Pinellas and BayCare will be able to staff their hospitals adequately with physicians. Charity and Medicaid; Conditions Pasco-Pinellas committed to a number of conditions of its applications. These include a 12.6% commitment to charity and Medicaid; the establishment of funding for a clinic for the underserved, provision of educational programs for the community, and two neonatal transports and funding for local fire and rescue services. BayCare projects a 6.1% level of charity care, 2.4% higher than Pasco-Pinellas' charity care commitment. It projects 10.3% of its Medicaid and Medicaid HMO patients will be attributable to Medicaid and Medicaid HMO patients versus 8.9% at Pasco-Pinellas. BayCare System has a history of providing services to Medicaid and Charity Patients. In 2006, for example, as not- for-profit entities, BayCare System facilities and related entities provided a total community benefit of $135 million in uncompensated care. Approximately 50% was pure charity care. BayCare System facilities currently serve patients from the Wesley Chapel area, including, of course, Medicaid and charity patients. BayCare System facilities provide 57% of the charity care and 31% of the Medicaid in the market. St. Joseph's Children's Hospital and St. Joseph's Women's Hospital operate at approximately 50-to-60% Medicaid and un-reimbursed care. St. Joseph's Hospital currently serves approximately 20% of the patients from the Wesley Chapel area. St. Joseph's, however, provides 36% of the total charity, Medicaid, and Medicaid HMO care rendered to patients who reside in the Wesley Chapel area. Thus, the facilities within the BayCare System have a demonstrated track record of providing care without regard to a patient's resources. In light of the record, it is reasonable to expect BayCare to carry on in the same vein under the BayCare proposal. Utilization Schedule 5 relates to projected utilization after project completion. The projections in the schedule in Pasco- Pinellas' application were developed by looking at service area population, applying a use rate growth and taking a market share by individual zip code. They are based on the expectation that the hospital would be operating at approximately 70% occupancy in its third year of operation, which equates to an average census of approximately 56 patients. The assumptions contained in the schedule are reasonable. The utilization projections in Schedule 5 in Pasco- Pinellas' application are reasonable; they indicate that an 80- bed hospital is appropriate to meet the need for a new hospital in the Wesley Chapel area of the subdistrict. BayCare will able to achieve its projected utilization from its primary service area and from the 40% of its patients it expects to receive by way of in-migration. The population forecast and market share forecast for the primary service area are reasonable. While the support among local physicians is much stronger for the Pasco-Pinellas proposal, it is likely that they will admit patients to the BayCare proposed hospital since it will be in the Wesley Chapel area, the area of the subdistrict that is most suitable for a new hospital. The 40% projected in-migration from outside of the seven mile service area is a reasonable projection. It is reasonable to expect that the bulk of these admissions will come from USF physicians located at the USF north Hillsborough campus. Projected Revenues Schedule 7A governs projected revenues. The payor mix in Schedule 7A of Pasco-Pinellas' application is based on historic admission and patient days by payor class occurring in the proposed Pasco-Pinellas service area based on the most recent available AHCA data. Gross charges and net revenues were developed based on historical data from FHZ as reported to AHCA. These figures were inflated forward using a net increase over all in revenue payments of approximately 3%. The projected revenues including net revenues in Schedule 7A of Pasco- Pinellas' application are reasonable and consistent with the marketplace. The payor mix in BayCare's Schedule 7A was based on an analysis of patient discharge data from the proposed primary service area plus an analysis of the experience of other BayCare System facilities in the same market. It is a reasonable payor mix. It allows for consideration of the experience of BayCare System, including the high level of charity care and Medicaid and Medicaid HMO services and at the same time reflects that the Wesley Chapel area is more affluent and younger than other areas of Pasco and Hillsborough Counties. BayCare's revenue assumptions were based on an analysis of gross and net revenue per patient day from another BayCare System facility, South Florida Baptist. Financial class specific projected patient days were applied to derive a gross and net revenue number for each of the three pro forma years for the proposed project denominated by Schedule 7A as "Projected Operating Year 1, 2 and 3" and ending "12/31/11, 12/31/12 and 12/31/13" respectively as indicated by BayCare in the application. See BayCare 2, pp. 133-135. The 2006 South Florida Baptist gross and net revenue per patient day were trended forward for each of the three projected operating years to reach the projected revenue figures in Schedule 7A. The projected revenues in Schedule 7A of the BayCare application are reasonable. Projected Income and Expenses Schedule 8A in a CON application contains projected income and expenses for the proposal. Pasco-Pinellas' application used a methodology in Schedule 8 that its expert had used in other CON cases. The methodology is consistent with methodologies of other health care experts and has been accepted in recommended and final orders in CON cases. The projections in Schedule 8 of Pasco-Pinellas' application are appropriate and reasonable. BayCare's methodology used to project income and expenses in Schedule 8A is also appropriate and reasonable. BayCare's healthcare finance expert asked BayCare financial analysts to look at his initial projections. They recommended that expenses be increased in physical therapy, radiology lab and pharmacy and that expense be reduced in plant operations. The recommendations were accepted; the projections were adjusted. Medicare GME reimbursement in year 3 of operations was assumed to be $1.7 million. If no addition Medicare GME reimbursement were received, BayCare's proposal would still show a profit of $2.8 million by year 3. It is virtually certain, moreover, that some portion of the $1.7 million included in calculation of BayCare's income projections will be realized. However valid criticism of the inclusion of the $1.7 million, BayCare's proposal remains financially feasible in the long- term. Financial Feasibility Pasco-Pinellas proved the immediate and long-term financial feasibility of its proposal. The schedules in its application related to financial feasibility used reasonable methodologies that yielded reasonable projections. Analysis of capital costs and funding is contained in Schedules 1 through 3. Schedule 1 presents an accurate summation of total project cost. That figure, $121 million, is a reasonable and typical cost for a new 80-bed community hospital. The $149 million on Schedule 2 reflects an accurate summation of anticipated capital costs, including the hospital project and necessary capital expenditures for the first tow or three years of operation. Schedule 3 set forth the sources of funding, a combination of equity and debt financing, discussed below. Both UCH and Adventist are financially successful systems. They will have not difficulty funding the Pasco- Pinellas proposal. As of December 31, 2007, Adventist's net revenue was approximately $368 million. About $100 million in funds were available to UCH at the time of hearing to contribute to development of the project. Due to the financial strength of its members, Pasco- Pinellas will easily be able to fund the project through a combination of equity and debt. The equity, $45 million, will be provided equally by Adventist and UCH, $22.5 million each. The remaining $76 million will be financed through tax-free bonds issued by Ziegler Securities. The project is immediately financially feasible. The Pasco-Pinellas project is also financially feasible in the long-term. Schedule 8 in the application, year 3, shows the project will generate a return of approximately $5.3 million in revenue over expenses, an amount that "more than meet[s] the test for financial feasibility in the long-term." Id. Based on the sources of BayCare System, BayCare has access to the financial resources to implement its proposed hospital. Funding for the hospital will come from BayCare System on the basis of 50% debt and 50% equity investment. As of early 2008, BayCare System had approximately $1.2 billion in unrestricted cash on hand. BayCare System's financial strength will allow BayCare to obtain the financing it needs for the project. Schedule 3 of the BayCare application sets forth an accurate and reasonable statement of the sources of funds necessary to develop the project. The immediate financial feasibility of BayCare's proposal is demonstrated by the evidence presented by BayCare. By year three of the pro forma, the BayCare proposal is reasonably projected to generate a net income over expenses in the amount of $4,498,637. BayCare demonstrated that the proposal's long-term financial feasibility. Costs and Construction Methods The costs and methods of the proposed construction of the Pasco-Pinellas project are reasonable. The facility is adequately sized and programmed for the services included in the Pasco-Pinellas application. All of the departments, including central storage, fall within an appropriate benchmark range for community hospitals. The 2,300 square feet per bed is reasonable as are the construction costs when compared to similar community hospitals. The proposed Pasco-Pinellas facility meets the codes for all of the services included in the application. The design of the Pasco-Pinellas facility enable expansion. The designed expansion capabilities are reasonable, logical and appropriate to meet the needs of the Wesley Chapel community. The drawings contained in the CON application show an efficient community hospital. The departments allow for efficient intra-department circulation and department-to- department circulation. There are adequate separation of public and staff flow corridors. All of the areas and departments as shown in the Pasco-Pinellas plans are code compliant. The layout of the patient rooms is consistent with industry standards for the design of single patient rooms. The number and size of the operating rooms are adequate and appropriate for an 80-bed community hospital not offering tertiary services. The emergency department, including the trauma room, complies with code and its layout is adequate and appropriate for an 80-bed hospital. The ambulance entrance in relation to the trauma bay allows for efficient location of patients based on acuity level. The number of treatment beds, treatment bays, including observation areas, provide adequate emergency department capacity. The Schedule 1 costs set forth in the BayCare application are reasonable. These costs include projected costs associated with necessary medical equipment. The medical equipment costs set forth in Schedule 1 are reasonable and BayCare has properly accounted for the items and costs of equipment necessary to operate the hospital. The Schedule 9 construction costs of approximately $180 million are reasonable as are the construction costs per square foot ($347 versus $325 for Pasco-Pinellas). Contingencies and escalation factors have been built into the projected costs. Facilities, Sites, Related Costs At the time the UCH and Adventist joint venture was formed, UCH had a parcel of land under contract located on State Road 54 across from the Saddlebrook Resort (the "UCH Parcel"). When it filed its application, Pasco-Pinellas hoped the UCH Parcel would serve as the site of its hospital. In fact, Pasco- Pinellas touted the location of the parcel for meeting the need of the growing population in Pasco County when it represented in the application that the UCH Parcel is the center point of the Wesley Chapel area. Close to Interstate 75, the UCH Parcel is a good location for a hospital. Pasco-Pinellas' aspiration for the use of the parcel was defeated, however, when the Pasco County denied a request to re-zone the UCH Parcel for use as a hospital. After the inability to have the UCH Parcel re-zoned, Pasco-Pinellas changed the site for the hospital to a parcel owned by FHZ (the "Pasco-Pinellas Site"). Located on Bruce B. Downs Boulevard, a major north-south corridor in the Wesley Chapel area, the site is 51.5 acres. The Pasco-Pinellas Site had been purchased by FHZ in 2001 with the intention of using it for a hospital. Subject to a height variance to allow a seven-story building, the site is zoned for special use as a hospital and related medical uses. The site has good visibility and access from Bruce B. Downs Boulevard as evidenced by its compliance with the State Road 581 (Bruce B. Downs Boulevard) access management plan. It meets other regulatory requirements such as the minimum spacing criteria for Pasco County. The Pasco-Pinellas Site is governed by a development order associated with the Wiregrass Ranch Development of Regional Impact (the "Wiregrass DRI DO"). The Wiregrass DRI DO "indicates that the phasing schedule assumed 100 hospital beds would be developed within the building phase." Tr. 597. As explained at hearing by Lara Daly, Pasco-Pinellas' expert in civil engineering and property site development, there are other aspects of the Wiregrass DRI DO, "like trade-off matrices" and "entitlement advancements" that indicate "entitlements are not limited on a parcel-by-parcel basis." Tr. 598. The assumption, therefore, does not necessarily restrict the number of hospital beds on the Pasco-Pinellas Site; rather it allows impacts associated with 100 hospital beds. The number of allowable beds may be increased following action taken under other provisions of the Wiregrass DRI DO. A significant portion of the Pasco-Pinellas Site is wetlands: some of low quality, some of high quality. The higher quality wetlands, referred to in the record as "a high quality category 1 wetland as defined by Pasco County," tr. 552, (the "Category 1 Wetland") are on the north and east perimeter of the site. The project is designed so as to have no impacts on the Category 1 Wetland. The only potential impact to these high quality wetlands is if there were a county-mandated road to be built in their vicinity. The lesser quality wetlands located in the interior of the site are herbaceous in nature or an open water feature that is "an older borrow pit that naturalized over time." Tr. 552-53. These lower quality wetlands constitute roughly 11.5 acres of the site. They will be impacted by the project but it is reasonable to expect that the impacts will be permitted. As Ms. Daly put it at hearing, "[a]fter reviewing, running stormwater models, looking at the proposed wetland impacts, coming up with appropriate mitigation ratios based on our experience elsewhere on the Wiregrass site, the site will accommodate all the necessary wetland and floodplain historic basin compensation . . . ." Tr. 550. The costs contained in Schedule 1 of the application were arrived assuming the use of the UCH Parcel as the site for the Pasco-Pinellas project. The Pasco-Pinellas Site requires expenditures for site preparation and other expenditures, such as wetland mitigation, related to the site that were not required had the UCH Parcel been used. For example, three potential foundation systems have been suggested for the hospital because of the wetland and subsurface conditions on the Pasco-Pinellas Site had the UCH Parcel been the site. Using the most expensive of the three, however, would not cause Pasco- Pinellas to exceed the construction costs contained in Schedule 1 of the CON Application. The land acquisition costs were reasonably projected to be less for the Pinellas-Pasco Site than for the UCH Parcel as reflected in the application. All told, the estimated project cost using the Pasco-Pinellas site was not materially different from the cost projected in the application and presented the possibility of being less than the $121 million reflected in the application. Likewise, the equipment cost figure shown in Schedule 1 of the Pasco-Pinellas application is reasonable and achievable. The total of the costs for the project sited at the Pasco-Pinellas Site, despite the change of site that occurred after the filing of the application, should not exceed the total of the costs listed in the Pasco-Pinellas application. The preponderance of the evidence is that the Pasco- Pinellas Site should ultimately qualify as an appropriate, developable site for the Pasco-Pinellas project. The BayCare site, north of Highway 56 and bordering I-75, (the "BayCare Site") includes two parcels of 54 and 17 acres. The 54 contiguous acres will be used for the hospital, outpatient services, and a planned medical office building. The 17 acres will be used for research space, physician office space, and academic training space necessary for the research and education function at the project. BayCare has the appropriate zoning and approvals necessary to develop the hospital. The hospital will have all private beds. It will be fully digital and will rely on electronic medical records. The BayCare Site is well suited for construction of the hospital and related buildings. The available footprint and design of the hospital, which includes shelled-in space, will readily allow for future expansion of the hospital up to 300 beds. Design of the BayCare facility is based on principles of family-centered care, flexibility to allow for change and future growth, efficiency, a quality of environment for teaching, a sustainable, green building, and patient safety. A "health building" with improved environmental quality and energy efficiency, the facility will seek LEED certification given to facilities constructed to have minimal adverse environmental impact. In keeping with the teaching function intended by the application, the facility's design includes additional work space, reading areas, sleep areas and conference rooms to facilitate teaching. Overall, the BayCare facility is twice as large as the Pasco-Pinellas facility. Size has its advantages. For example, it allows for larger treatment patient areas. But the facility is much more expensive to build. It is reasonably projected to cost more than $180 million above the costs associated with the Pasco-Pinellas facility which is more than twice as much. The high expense associated with the BayCare facility is shown by its cost per bed: in excess of $2 million-- much more than the cost per bed of the Pasco-Pinellas facility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Agency for Health Care Administration approve CON 9975, Pasco-Pinellas' application for a new hospital in AHCA Subdistrict 5-2, and deny CON 9977, BayCare's application for a new hospital in the same subdistrict. DONE AND ENTERED this 28th day of October, 2008, 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 28th day of October, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone, Koda & Frook, P.A. 1001 Avenida Del Circo Post Office Box 1596 Venice, Florida 34284 Jonathan L. Rue, Esquire Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower 285 Peachtree Center Avenue Northeast Atlanta, Georgia 30303 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 R. David Prescott, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551
Findings Of Fact The Application West Florida Regional Medical Center is a 400-bed acute care hospital in Pensacola, Escambia County, Florida. The hospital is located in a subdistrict which has the greatest population aged 65 and over who are living in poverty. That group constitutes the population qualified for Medicare. Some 17 percent of Escambia County's population falls into the medicare category. Prior to October, 1987, HRS had determined that there was a fixed pool need in the Escambia County area for 120 nursing home or extended care beds. Several hospitals in the Escambia County area applied for the 120 nursing home beds. Those beds were granted to Advocare (60 beds) and Baptist Manor (60 beds). The award of the 120 beds to Baptist Manor and Advocare is not being challenged in this action. West Florida, likewise, filed an application for an award of nursing home beds in the same batch as Advocare and Baptist Manor. However, Petitioner's application sought to convert 8 acute care beds to nursing home or extended care beds. West Florida's claim to these beds was not based on the 120 bed need established under the fixed need pool formula. West Florida's application was based on the unavailability of appropriately designated bed space for patients who no longer required acute care, but who continued to require a high skill level of care and/or medicare patients. The whole purpose behind West Florida's CON application stems from the fact that the federal Medicare system will not reimburse a hospital beyond the amount established for acute care needs as long as that bed space is designated as acute care. However, if the patient no longer requires acute care the patient may be re-designated to a skilled care category which includes nursing home or extended care beds. If the patient is appropriately reclassified to a skilled care category, the hospital can receive additional reimbursement from Medicare above its acute care reimbursement as long as a designated ECF bed is available for the patient. Designation or re-designation of beds in a facility requires a Certificate of Need. Petitioner's application for the 8 beds was denied. When the application at issue in this proceeding was filed Petitioner's 13-bed ECF unit had been approved but not yet opened. At the time the State Agency Action Report was written, the unit had just opened. Therefore, historical data on the 13 bed unit was not available at the time the application was filed. Reasons given for denying West Florida's application was that there was low occupancy at Baptist Hospital's ECF unit, that Sacred Heart Hospital had 10 approved ECF beds and that there was no historical utilization of West Florida 13 beds. At the hearing the HRS witness, Elizabeth Dudek stated that it was assumed that Baptist Hospital and Sacred Heart Hospital beds were available for West Florida patients. In 1985 West Florida applied for a CON to establish a 21-bed ECF unit. HRS granted West Florida 13 of those 21 beds. The 8 beds being sought by West Florida in CON 5319 are the remaining beds which were not granted to West Florida in its 1985 CON application. In order to support its 1985 CON application the hospital conducted a survey of its patient records to determine an estimate of the number of patients and patient days which were non acute but still occupied acute care beds. The hospital utilized its regularly kept records of Medicare patients whose length of stay or charges exceeded the Medicare averages by at least two standard deviations for reimbursement and records of Medicare patients whose charges exceed Medicare reimbursement by at least $5,000. These excess days or charges are known as cost outliers and, if the charge exceeds the Medicare reimbursement by $5000 or more, the excess charge is additionally known as a contractual adjustment. The survey conducted by the hospital consisted of the above records for the calendar year 1986. The hospital assumed that if the charges or length of stay for patients were excessive, then there was a probability that the patient was difficult to place. The above inference is reasonable since, under the Medicare system, a hospital's records are regularly reviewed by the Professional Review Organization to determine if appropriate care is rendered. If a patient does not meet criteria for acute care, but remains in the hospital, the hospital is required to document efforts to place the patient in a nursing home. Sanctions are imposed if a hospital misuses resources by keeping patients who did not need acute care in acute care bed spaces even if the amount of reimbursement is not at issue. The hospital, therefore goes to extraordinary lengths to place patients in nursing home facilities outside the hospital. Additionally, the inference is reasonable since the review of hospital records did not capture all non-acute patient days. Only Medicare records were used. Medicare only constitutes about half of all of West Florida's admissions. Therefore, it is likely that the number of excess patient days or charges was underestimated in 1986 for the 1985 CON application. The review of the hospital's records was completed in March, 1987, and showed that 485 patients experienced an average of 10.8 excess non-acute days at the hospital for a total of 5,259 patient days. The hospital was not receiving reimbursement from Medicare for those excess days. West Florida maintained that the above numbers demonstrated a "not normal need" for 21 additional ECF beds at West Florida. However as indicated earlier, HRS agreed to certify only 13 of those beds. The 13 beds were certified in 1987. The 13-bed unit opened in February, 1988. Since West Florida had planned for 21 beds, all renovations necessary to obtain the 8-bed certification were accomplished when the 13- bed unit was certified in 1987. Therefore, no capital expenditures will be required for the additional 8 beds under review here. The space and beds are already available. The same study was submitted with the application for the additional eight beds at issue in these proceedings. In the present application it was assumed that the average length of stay in the extended care unit would be 14 days. However, since the 13 bed unit opened, the average length of stay experienced by the 13-bed unit has been approximately 15 days and corroborates the data found in the earlier records survey. Such corroboration would indicate that the study's data and assumptions are still valid in reference to the problem placements. However, the 15- day figure reflects only those patients who were appropriately placed in West Florida's ECF unit. The 15-day figure does not shed any light on those patients who have not been appropriately placed and remain in acute care beds. That light comes from two additional factors: The problems West Florida experiences in placing sub-acute, high skill, medicare patients; and the fact that West Florida continues to have a waiting list for its 13 bed unit. Problem Placements Problem placements particularly occur with Medicare patients who require a high skill level of care but who no longer require an acute level of care. The problem is created by the fact that Medicare does not reimburse medical facilities based on the costs of a particular patients level of care. Generally, the higher the level of care a patient requires the more costs a facility will incur on behalf of that patient. The higher costs in and of themselves limit some facilities in the services that facility can or is willing to offer from a profitability standpoint. Medicare exacerbates the problem since its reimbursement does not cover the cost of care. The profitability of a facility is even more affected by the number of high skill Medicare patients resident at the facility. Therefore, availability of particular services at a facility and patient mix of Medicare to other private payors becomes important considerations on whether other facilities will accept West Florida' s patients. As indicated earlier, the hospital goes to extraordinary lengths to place non- acute patients in area nursing homes, including providing nurses and covering costs at area nursing homes. Discharge planning is thorough at West Florida and begins when the patient is admitted. Only area nursing homes are used as referrals. West Florida's has attempted to place patients at Bluff's and Bay Breeze nursing homes operated by Advocare. Patients have regularly been refused admission to those facilities due to acuity level or patient mix. West Florida also has attempted to place patients at Baptist Manor and Baptist Specialty Care operated by Baptist Hospital. Patients have also been refused admission to those facilities due to acuity level and patient mix. 16 The beds originally rented to Sacred Heart Hospital have been relinquished by that hospital and apparently will not come on line. Moreover the evidence showed that these screening practices would continue into the future in regard to the 120 beds granted to Advocare and Baptist Manor. The president of Advocare testified that his new facility would accept some acute patients. However, his policies on screening would not change. Moreover, Advocare's CON proposes an 85 percent medicaid level which will not allow for reimbursement of much skilled care. The staffing ratio and charges proposed by Advocare are not at levels at which more severe sub-acute care can be provided. Baptist Manor likewise screens for acuity and does not provide treatment for extensive decubitus ulcers, or new tracheostomies, or IV feeding or therapy seven days a week. Its policies would not change with the possible exception of ventilated patients, but then, only if additional funding can be obtained. There is no requirement imposed by HRS that these applicants accept the sub-acute-patients which West Florida is unable to place. These efforts have continued subsequent to the 13-bed unit's opening. However, the evidence showed that certain types of patients could not be placed in area nursing homes. The difficulty was with those who need central lines (subclavian) for hyperalimentation; whirlpool therapy such as a Hubbard tank; physical therapy dither twice a day or seven days a week; respiratory or ventilator care; frequent suctioning for a recent tracheostomy; skeletal traction; or a Clinitron bed, either due to severe dicubiti or a recent skin graft. The 13-bed unit was used only when a patient could not be placed outside the hospital. The skill or care level in the unit at West Florida is considerably higher than that found at a nursing home. This is reflected in the staffing level and cost of operating the unit. Finally, both Advocare and Baptist Manor involve new construction and will take approximately two years to open. West Florida's special need is current and will carry into the future. The Waiting List Because of such placement problems, West Florida currently has a waiting list of approximately five patients, who are no longer acute care but who cannot be placed in a community nursing home. The 13-bed unit has operated at full occupancy for the last several months and is the placement of last resort. The evidence showed that the patients on the waiting list are actually subacute patients awaiting an ECF bed. The historical screening for acuity and patient mix along with the waiting list demonstrates that currently at least five patients currently have needs which are unmet by other facilities even though those facilities may have empty beds. West Florida has therefore demonstrated a special unmet need for five ECF beds. Moreover, the appropriate designation and placement of patients as to care level is considered by HRS to be a desirable goal when considering CON applications because the level of care provided in an ECF unit is less intense than the level of care required in an acute care unit. Thus, theoretically, better skill level placement results in more efficient bed use which results in greater cost savings to the hospital. In this case, Petitioner offers a multi-disciplinary approach to care in its ECF unit. The approach concentrates on rehabilitation and independence which is more appropriate for patients at a sub-acute level of care. For the patients on the awaiting proper placement on the waiting list quality of care would be improved by the expansion of the ECF unit by five beds. Finally, there are no capital costs associated with the conversion of these five beds and no increase in licensed bed capacity. There are approximately five patients on any given day who could be better served in an ECF unit, but who are forced to remain in an acute care unit because no space is available for them. This misallocation of resources will cost nothing to correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health and Rehabilitative Services issue a CON to Petitioner for five ECF beds. DONE and ORDERED this 30th day of March, 1989, in Tallahassee, Florida. DIANE CLEAVINGER Hearing Officer Division of Administrative Hearings 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of March, 1989. APPENDIX The facts contained in paragraph 1-29 of Petitioner's proposed Findings of Fact are adopted in substance, insofar as material. The facts contained in paragraph 1, 2, 3, 4, 5, 6, 8, 12, 15, 16, 20, 27, 28, 29, 31 and 33 of Respondent's Proposed Findings of Fact are subordinate. The first sentence of paragraph 7 of Respondent's Proposed Findings of Fact was not shown to be the evidence. Strict compliance with the local health plan was not shown to be an absolute requirement for CON certification. The remainder of paragraph 7 is subordinate. The facts contained in paragraph 9, 10, 11 and 30 of Respondent's Proposed Findings of Fact were not shown by the evidence. The first part of the first sentence of paragraph 13 of Respondent's Proposed Findings of Fact before the semicolon is adopted. The remainder of the sentence and paragraph is rejected. The first sentence of paragraph 14 of Respondent's Proposed Findings of Fact was not shown by the evidence. The remainder of the paragraph is subordinate. The facts contained in paragraph 17, 26 and 32 of Respondent's Proposed Findings of Fact are adopted in substance, insofar as material. The acts contained in paragraph 18 are rejected as supportive of the conclusion contained therein. The first (4) sentences of paragraph 19 are subordinate. The remainder of the paragraph was not shown by the evidence. The first (2) sentences of paragraph 21 are adopted. The remainder of the paragraph is rejected. The facts contained in paragraph 22 of Respondent's Proposed Findings of Fact are irrelevant. The first sentence of paragraph 23 is adopted. The remainder of paragraph 23 is subordinate. The first sentence of paragraph 24 is rejected. The second, third, and fourth sentences are subordinate. The remainder of the paragraph is rejected. The first sentence of paragraph 25 is subordinate. The remainder of the paragraph is rejected. COPIES FURNISHED: Lesley Mendelson, Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive Tallahassee, Florida 32308 Donna H. Stinson, Esquire MOYLE, FLANIGAN, KATZ, FITZGERALD & SHEEHAN, P.A. The Perkins House - Suite 100 118 North Gadsden Street Tallahassee, Florida 32301 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
Findings Of Fact Upon consideration of the oral and documentary evidence presented the following facts are found: Petitioners each made application for a certificate of need under the provisions of Sections 381.493 through 381.497, Florida Statutes, 1975, which applications were submitted to the Bureau of Community Medical Facilities and accepted as complete by the bureau. Each application seeks a certificate of need for a third generation computerized axial tomography scanner (whole body unit) hereinafter referred to as a CAT scanner. There is presently in Jacksonville a head scanner installed at St. Vincent Hospital in November, 1975, and a whole body scanner at St. Luke's Hospital which has been in full operation since January, 1976. All three Petitioners are located in Jacksonville, Florida. The applications were processed by the appropriate Health Systems Agency. After due consideration the Health Systems Agency recommended that each of the three applications be granted. At the request of the Bureau of Community Medical Facilities, Department of Health and Rehabilitative Services, the State Hospital Advisory Council reviewed the applications and upheld the Health Systems Agency's determination that the three applications should be granted certificates of need. After consideration of the applications, the Health Systems Agency's recommendation the State Hospital Advisory Council's recommendation, Mr. Art Forehand, Administrator, Office of Community Medical Facilities, Respondent herein, notified each of the three Petitioners that their applications were not favorably considered. Mr. Forehand's notification set forth three reasons for the unfavorable consideration. Those were (1) lack of demonstrated need for the requested scanner, (2) failure of each application to demonstrate positive action toward containment of cost for services rendered to the public, and (3) lack of demonstrated unavailability, unaccessability, and inadequacy of like services within the Jacksonville area. At the time of his decision Mr. Forehand had no material or information available to him which was not available to the Health Systems Agency or the State Hospital Advisory Council at the time of their decision. At the time the three applications were denied Mr. Forehand felt that there did exist a need for one additional scanner in the Jacksonville area but he did not feel that he should bear the burden of deciding which one of the three applications should be granted and therefore all three were denied. Except for those matters set forth in Mr. Forehand's denial and noted above, none of the parties to this proceeding disputed that the criteria for determining need found in Section 101-1.03(c), F.A.C., were met. A study of computerized axial tomography with suggested criteria for review of certificate of need applications was conducted by the staff of the Health Systems Agency of Northeast Florida relative to the Duval County area. This study was published in April of 1976 and its findings appear to have been accepted by the Health Systems Agency. As one of its suggested criteria for determining need it found that a hospital or applicant should have a potential case load of at least 1,000 CAT scans per year. The study went on to project a potential case load for the three Petitioners herein. That projection for Baptist Memorial Hospital shows a a potential case load of 2,512 scans per year. The study noted that Baptist Memorial projected 1,300 scans for the first year during start up operations and 2,080 scans during the second and third years of their forecast. The study found that Riverside Hospital has a potential case load of 1,196 scans per year compared to their own projections of 1,432 scans per year. The study finally found that the University Hospital has a potential case load of 1,558 scans per year compared to their projection of 2,904. Testimony on behalf of the Respondent shows that in the opinion of Respondent full use of a CAT scanner is 10 scans per day on a 20-day work month working five days a week. As shown by unrebutted testimony the existing scanner at St. Luke's Hospital in Jacksonville is presently averaging 10 scans per day, five-days a week. Further, according to the evidence presented by Respondent, the existing scanner at St. Vincent is being utilized to at least 85 percent of its capacity. Respondent took the position at the hearing that when existing scanners are being used to 85 percent or more of their capacity a need exists for more equipment. Thus, it appears that using the criteria of utilization adhered to by Respondent, the existing CAT scanners in Jacksonville are being utilized to the extent that there is a need for additional scanners. University Hospital has 310 licensed beds and is the community hospital in Duval County with the responsibility of serving the indigent on an emergency and short term basis. It is the trauma center of the city and has the most active emergency room. It is also the major teaching hospital in Duval County. Respondent agrees that it has the greatest need of any hospital in Duval County for a CAT scanner. The University Hospital has approximately 300 visits per month to its emergency room. In the four months prior to the date of final hearing the hospital did 586 skull x-rays due to trauma. In the case of acute trauma patients frequently may not be moved from one hospital to another for the purpose of a CAT scan nor, in some cases, should other dangerous invasive techniques be used for diagnosis. Baptist Hospital has 567 licensed beds and is a major oncology center or cancer center and does a large amount of surgical cancer work in additional to radiation therapy. With the possible exception of University Hospital, Baptist Hospital is the largest pediatric hospital in the area. According to the testimony of the administrator of the hospital it would take 14 to 18 months after receipt of a certificate of need to have a CAT scanner in service. Riverside Hospital has 183 licensed beds. The hospital has been a specialty hospital since its establishment in 1908 and serves the Riverside Clinic. The hospital has approximately 200 specialized physicians, all board certified, on-staff. Riverside is a unique hospital because of its degree of specialty and its relationship to Riverside Clinic. Riverside Hospital does 100 percent of the Riverside Clinic's radiology work. Riverside Hospital has been known as an established diagnostic center. Witnesses for Riverside Hospital testified that if they were not able to have a CAT scanner their reputation and ability to provide first class service would be seriously diminished. CAT scanners represent a significant development in diagnostic medicine. They reduce the need for many dangerous, painful and costly injections of dye, air and radioactive isotopes required by some of the more traditional diagnostic procedures. The three most common tests displaced by CAT scanners are pneumoencephalography, angiography and radioactive isotope scanning. The first two of the foregoing are particularly expensive procedures and require hospitalization. At present, patients at the three Petitioner hospitals have to be transported to another facility in order to use a scanner. The transfer of an inpatient to another hospital for a scan may effectively consume the better part of a patient's day and may require an extra day of hospitalization. The cost of transportation, increased hospital stay and ancillary matters increase the actual cost to the Patient. Patients suffering from severe trauma or otherwise in a critical state, may not be transported out of a hospital to a scanner. All three of the Petitioners have an active neurological and neurosurgical staff and qualified radiologists. The unrebutted testimony indicates that, although CAT scanners are a new development whose potential has not yet been fully explored and whose development may not yet be final, they nevertheless have become an essential diagnostic tool of regular use.
