The Issue The issue for consideration in this hearing is whether the Intervenor, St. Joseph Hospital of Port Charlotte, should be issued Certificate of Need #6202 for the establishment of a cardiac catheterization laboratory at its facility in Port Charlotte, Florida.
Findings Of Fact At all times pertinent to the issues herein, the Department was the state agency responsible for the regulation and certification of health care facilities in this state and charged with the responsibility of issuing Certificates of Need, (CON), under the criteria set forth in Section 381.705 Florida Statutes and the Department's Rules. St. Joseph Hospital is a 212 bed general acute care hospital located in Port Charlotte, Florida, within the jurisdiction of the Department's District VIII. It is a not for profit, tax exempt corporation owned by Bon Secours Health Systems, a multi-hospital system. It offers varied medical and surgical services, including obstetrics and pediatrics, and operates a 24 hour emergency room. The facility is accredited by the Joint Commission on Accreditation and Health care Organization, and its laboratory is accredited by the American College of Pathology. Because St. Joseph opened a nursing home in Port Charlotte in 1975, Chapel Manor Nursing Home, Fawcett's predecessor, and at that time, the only nursing home in Port Charlotte, applied for and was issued a CON to convert from a nursing home to an acute care hospital and began operation as Fawcett Memorial Hospital that year. Fawcett is now a 254 bed general medical surgical acute care hospital providing a broad range of services with the exception of obstetrics and pediatrics, and is located directly across the street from St. Joseph. It offers diagnostic cardiac catheterization service only, implementing that service in August, 1989. Both Fawcett and St. Joseph have the same service area and utilize the same physicians on their medical staffs, which are practically identical. St. Joseph offers a full array of cardiology services with the exception of cardiac catheterization. As a result, any St. Joseph patient requiring cardiac catheterization must be discharged from St. Joseph and transferred to another hospital in the area which provides that service. Between January 1989 and February, 1990, approximately 97 St. Joseph patients required transfer because of the fact that St. Joseph had no pertinent program. Because of this fact, and recognizing that the Department had determined there was a numeric need for an additional cardiac catheterization lab within the district, specifically based on the under-served indigent and Medicaid patients, in February, 1990, St. Joseph submitted a letter of intent to file a CON application for the establishment of an adult inpatient cardiac catheterization laboratory at its facility in District VIII. This letter of intent was based on proper Board Resolution, and was filed not only with the District but also with the local Health Council, and the required notice was published in a local paper. Thereafter, in March, 1990, St. Joseph filed its CON application for the facility, along with the appropriate fee, with the Department, at the same time filing a copy with the local Health Council. The Department responded with an omissions letter, the requirements of which were met by St. Joseph in a timely manner, and the Department thereafter deemed the application complete. Notwithstanding Fawcett's allegations in the post hearing submission that St. Joseph's application was not complete, there was no evidence presented at hearing to so establish, and the Department deemed it both timely and ultimately complete. On on about July 17, 1990, the Department issued its State Agency Action Report and notified St. Joseph of its decision to approve the application. Approximately one month later, in a timely fashion, Fawcett filed its Petition challenging the Department's approval of St. Joseph's application. St. Joseph projects implementation of service by the unit in December, 1992. The unit will encompass approximately 3,800 square feet and will be part of and companion to a larger construction project designed to expand St. Joseph's surgical capacity. It will be located in a proposed two-story addition to the south side of the existing hospital. Total cost of the project, including construction of the building and equipment, is estimated to be approximately $2.6 million, one hundred percent of which will be financed by debt. It is estimated that interest costs over the term of the financing will be an additional $2.25 million. St. Joseph anticipates the charge for a cardiac catheterization will be $6,657.48 in 1993, and $7,123.50 in 1994. This is the same as the average charge for the procedure by existing providers in the district, adjusted for inflation in later years. The facility will be open routinely from 7:00 AM to 2:30 PM, Monday through Friday. An on-call team will, however, be available 24 hours a day although cardiac catheterization, usually an elective procedure, should not require much in the way of emergency services. Dr. Victor Howard, a Board certified internist and cardiologist, who is already on staff at St. Joseph, is projected to be the medical program director for the new facility without additional compensation. Cardiac catheterization is a relatively new diagnostic and therapeutic invasive procedure which involves the insertion of an extremely fine hollow tube through a blood vessel in the groin, up into the patient's heart. Because the patient faces danger from collateral problems such as bleeding, stroke, congestive heart failure and medication reactions, at least three staff members are required to assist the physician performing the catheterization. As with most procedures, the more it is done, the more proficient the individuals doing it become. By the same token, the medical staff assistants to the physician in charge must have specialized skills and training, and the Department rules require that in order to properly provide for therapeutic catheterization patients, an open heart surgery facility must be available within thirty minutes of the facility where the catheterization is being carried out. St. Joseph intends to rely on Medical Center Hospital in Punta Gorda, approximately ten miles away, as the required backup open heart facility. Medical Center is within the maximum thirty minute drive time criteria. It provides not only an open heart surgery program but also both diagnostic and therapeutic cardiac catheterizations. Diagnostic catheterizations, as opposed to therapeutic catheterizations, can be done on an outpatient basis. Experience has indicated that staff assistant technicians, nurses and others, are frequently not reasonably available. As a result, there is continuing competition between hospitals providing the services requiring these individuals, and this competition is often severe. Nonetheless, Fawcett has, up to the present, been able to recruit and retain adequate numbers of experienced personnel without the necessity for paying a bonus over and above normal salary. By the same token, St. Joseph believes it, too, will be able to attract and retain sufficient numbers of qualified personnel to successfully operate its laboratory as approved. At the present time, St. Joseph has ten registered nurses on staff who have cardiac catheterization laboratory experience. The laboratory, if approved, will not open at St. Joseph until the second half of 1992. At that time, manpower requirements for the project call for 3.36 full time employees, (FTE's), and that number appears capable of being satisfied by the current staff, though a cardiovascular technician, (CVT), has not yet been hired for the lab. In addition, St. Joseph appears to have on hand adequate management and supervisory personnel. It projects salary and benefits expense of almost $140,000.00 in 1993 and almost $150,000.00 in 1994. Maintenance expense is expected to approximately $65,000.00 the second year of operation. The proposed project has been enthusiastically received by the medical community in the service area. Because, in that area, the treating physician determines where the patient will be treated, support for the project by the area cardiologists is important as a positive factor for consideration. Because it has both the financial and personnel resources to provide the service, access to the service will be improved for the medically indigent and the facility's current cardiology program will be enhanced. The Florida legislature has, by its passage of Section 381.705, Florida Statutes, laid the basic analytical framework to be used in determining whether the facility here in question is needed. Consistent with the terms of the enabling statute, the Department has promulgated Rule 10-5.011, F.A.C., to implement the provisions of the statute. The rule formula provides a showing of "need" if at least 300 procedures could be performed by the new program, based on the total number of catheterizations, diagnostic and therapeutic, projected for the District. Projections for Charlotte County alone indicate 180 additional catheterizations between 1989 and 1994. Consistent therewith, the Department has determined that within DHRS District VIII, the pertinent service district, there is a numeric need for one additional cardiac catheterization laboratory. Need, however, goes beyond the question of numeric need. It is also a factual issue that requires an analysis of health planning principles and standards used within the ultimate goal of providing the best quality medical care for the citizens of this state in a sound, economically justified manner. In that regard, it is appropriate to evaluate need with an eye that looks toward avoiding unnecessary and costly duplication of services that are unnecessary. Fawcett contends there is no need for an additional lab in District VIII, based on the underutilization of existing programs. The Department's rule, the use of which resulted in a determination of need for one additional unit, does not regulate capacity. District VIII consists of Sarasota, DeSoto, Glades, Hendry, Charlotte, Lee, and Collier Counties. Sarasota and Lee Counties each have three cardiac catheterization programs while Collier has one in its only hospital. Charlotte County has two, Fawcett and Medical Center. It has already been noted that Fawcett and St. Joseph are located across the street from one another. Medical Center, which is used for therapeutic catheterizations, is located not far from the other two, and all three are Medicaid providers. All three also serve generally the same service area and use, essentially, the same medical staff. Moreover, the three facilities' cardiology staffs are essentially identical. When evaluating the service availability, however, it must be noted that Charlotte County experienced the highest relative increase in population among all the District VIII counties during the decade of the 1980's, and projections are that it will continue to lead up through 1995. At the present time, Charlotte County has the highest percentage of residents over age 65, (34%), of any of the District VIII counties. Looking at the proposed service in light of the pertinent State Health Plan, that for 1989, four preferences should be considered when evaluating the need for the proposed service. One deals with giving preference to those who propose to establish both cardiac catheterization and open heart surgical services. Since there is no established need for an open heart surgery service in the District, St. Joseph could not and does not plan to provide for one. Consequently, this preference is not pertinent here. The second preference is for those applicants who propose to establish a cardiac catheterization program in a county without any existing program. Again, this is not pertinent to the current situation. The third preference is toward applicants with a history of providing a disproportionate share of Medicaid and charity care. Here, St. Joseph is not a disproportionate Medicaid share provider, a point made by Fawcett. By the same token, however, neither is Fawcett. Fawcett did not, over the years, keep an accurate record of the number of patients to whom it provided free medical services, or of the value of those services. It claims it did not realize the importance of those numbers, concerning itself more with the provision of the service rather than with the recording of it. It was not, for most of its existence, however, a Medicaid provider, applying for and gaining that certification as of September l, 1989. Yet, during those non-certified, unrecorded years, it claims to have provided care to patients regardless of their ability to pay. While this claim is accepted as true, it is impossible to quantify it. The fourth preference is given to applicants who agree to provide services to all patients regardless of ability to pay. St. Joseph has agreed to do so and has a history of providing care to the medically indigent. So does Fawcett, but Fawcett is not an applicant, so the preference issue does not, necessarily, apply. It is clear, however, that neither the existing providers nor the applicant are precluded or disqualified as a result of the application of these preferences. Turning to the local, (District) Health Plan, which is also to be considered in the evaluation of the projects, the 1989 update of the District VIII Plan, that pertinent here, also provides for applicants to be evaluated in light of several preferences. One calls for an applicant to provide certain services, all of which are provided currently by St. Joseph. The second preference calls for the laboratory to be open no less than 40 hours a week and to provide a maximum waiting time of one month for simple, elective cases. The evidence presented indicates that the currently operating facilities meet this criteria, but also that St. Joseph will likely do the same if approved. Another preference relates to the proposed program's impact on existing providers in the area. It is here that the parties disagree radically on whether or not such an impact exists. St. Joseph has taken the position that its program will have only minimal impact on the ability of Fawcett and other existing providers to continue to provide quality economic service. On the other hand, Fawcett projects a major negative impact on its services, and claims the Department apparently failed to consider, at the time it did its initial evaluation, whether or not St. Joseph's program would adversely impact on it's existing service. Fawcett contends that its presently improving financial posture will be definitely impacted adversely by St. Joseph's implementation of the new service, if approved, in that its anticipated positive financial improvement will be reduced, if not destroyed, by the opening of St. Joseph's proposed program. Evidence produced by Fawcett tends to indicate that by 1994, if current projections hold true, Charlotte County will experience an increase of only 180 diagnostic catheterizations per year. St. Joseph's projections indicate that in that timeframe it expects to perform 509 diagnostic catheterizations per year. Simple arithmetic, then, would reveal that if those figures are correct, 329 of the 509 projected diagnostic procedures would have to come from the number of procedures performed by both Fawcett and Medical Center. Since approximately 75% of the current cardiac catheterizations performed in Charlotte County are performed at Fawcett, by far the greatest impact would be on that institution. The figures projected indicate a loss by Fawcett, then, of 232 procedures in 1993 and 318 in 1994. Medical Center's projected losses would be somewhat less, but nonetheless, such a reduction, if realized, would result in a loss of revenue to each of the existing providers from current income levels. Fawcett experienced severe financial problems during the past several years prior to the incumbency of the present CEO. In 1987 and 1988, it had financial losses which were improved in 1989 to a result showing a marginal excess of revenue over expenses. For 1990, Fawcett expects to show a profit for the first time in several years. Its prior negative operating result, however, has had a negative impact on its debt to equity ratio which, itself, is significant in that it is used by lenders as an index or flag regarding the financial health of an institution which seeks to borrow money. Because of its poor financial condition in the past, Fawcett was unable recently to borrow money needed for 1990 capital projects, and it is the increasing profit margin, which Fawcett hopes will make it more competitive in the borrowing market, that is most threatened by the proposed initiation of St. Joseph's project. The improved financial picture which Fawcett experienced in the most recent financial years has been directly attributed to the revenue earned by its cardiac catheterization program. In 1989, Fawcett determined that each cardiac catheterization patient contributed $1,927.00 to the hospital's financial health, and Fawcett contends that each patient taken from it by the opening of St. Joseph's proposed program will result in a financial loss to it. Utilizing the 1989 contribution margin projected to 1993 and 1994 reflects that if St. Joseph's program is approved, and if the anticipated numerical patient load is lost, the net financial loss to Fawcett would be in excess of $446,000.00 in 1993 and in excess of $612,000.00 in 1994. If these figures are inflated to 1993 and 1994 dollars, the loss could well be greater. Fawcett contends that it is currently experiencing a healthy improvement in its financial position which it anticipates would be substantially and adversely affected by the loss of cardiac catheterization patients to St. Joseph if that facility's project were approved as proposed. No doubt there would be a negative impact, but the degree thereof is speculative. Both the statute and the rule mentioned previously set forth criteria for the evaluation of these projects. One is the existence of an alternative to the service provided. Whereas St. Joseph contends there is no alternative diagnostic procedure preferable to cardiac catheterization, Fawcett contends there are several alternatives to St. Joseph's proposed project. Nonetheless, prior to its application, St. Joseph considered some alternatives. One was the setting up of a mobile laboratory on an interim basis. Since this could be used only by outpatients, it was determined not to meet the need of those patients requiring an inpatient procedure or of the physicians who would perform in it, and the anticipated $1.3 million cost was considered excessive for a short term fix. It is so found. Another was the possibility of establishing the lab somewhere within the hospital's existing space, but a survey of the facility quickly revealed there is no available existing space. However, since a part of the service proposed by St. Joseph would include outpatient catheterization, this part of the need could be met by the laboratory established in Charlotte County by several cardiologists who practice on the staff of St. Joseph, and who recently established a facility in the county. By the same token, if a need for outpatient procedures is demonstrated, the existing inpatient program could, Fawcett contends, provide it. Finally, is the existence of under-utilized programs at Fawcett and the Medical Center which have existing excess capability which could be considered an adequate and available alternate to the St. Joseph program. Turning to the question of financial feasibility, another evaluation criteria, there is no doubt that St. Joseph has the ability to borrow the capital to make the project financially feasible in the immediate future. St. Joseph's financial condition is sound. As might be expected, there is substantial difference in opinion as to the reasonableness of the pro forma projections submitted by St. Joseph's as evaluated by the Department. In fact, the parties agree to very little. St. Joseph contends that the patient mix estimated in the application is reasonable and based on its experience and that of Lee Memorial Hospital, and that the staffing level is appropriate and reasonable, and there is little to contest. The major difference in positions is in the area of supply costs and the percentage of patients accounted for by Medicare. St. Joseph estimated a supply cost of $248.00 per admission in 1989 dollars, inflated by 7% per year up to 1993 and 1994, but Fawcett contends the actual supply cost in 1989 dollars is $492.00 per admission. Assuming, arguendo, that Fawcett is correct, the projected supply costs would then be increased by in excess of $85,000.00 in 1993 and almost $126,000.00 in 1994, and this would result in a reduction of projected income for the service in both years. Fawcett's evidence and argument here are not persuasive, however. Fawcett also contends that St. Joseph's assumption that 58.9% of the cardiac catheterization patients would be Medicare, a figure which assumes that the Medicare patient utilization for catheterization would be the same as the facility as a whole, is not reasonable. Fawcett relies on the fact that St. Joseph is the sole obstetrics provider in Charlotte County and the majority of these obstetric patients are not Medicare patients. Considering that along with the fact that cardiac catheterization is a service which has a higher level of Medicaid utilization than St. Joseph presently provides, a more likely and reasonable predictor of the Medicare utilization of St. Joseph's program would be the Medicare utilization for the two existing catheterization programs. Fawcett's utilization in that regard is 64.6% and Medical Center's is 70.5%. Extrapolating from those figures, Fawcett contends a reasonable financial projection for St. Joseph's program would be 65% Medicare utilization. Since that type of service is reimbursed on the basis of DRG, the amount of income to the hospital is less, and the resultant contractual allowances, deductions from revenue, would be in excess of $61,000.00 in 1993 and more than $87,000.00 in 1994. Therefore, combining both the increase in projected supply costs and the decrease in projected income from Medicare, Fawcett contends that the projected number of catheterizations in 1994 and 1994, as modified using Fawcett's figures would result in a net reduction of approximately $210,000.00 in the former year and in excess of $126,000.00 in the latter. If those figures prove correct, St. Joseph's proposed program , it is suggested, would apparently not be feasible in the long term. On the other hand, St. Joseph contends its utilization figures for 1993 and 1994 are reasonable in that it projects a volume slightly greater than one-half of the number of procedures accomplished by Fawcett in its first year of operation. St. Joseph's expert evaluated the use projections for the first two complete years of operation and the costs assumptions and found both to be reasonable. Nonetheless, he also accomplished calculations of profitability utilizing Fawcett's suggested increased costs figures, and utilizing three different approaches, ultimately concluded that even looking at the worst case scenario, St. Joseph's proposal would be financially feasible both in the short and the long term. Independent analysis of the evidence leads to the conclusion that the projected staffing level and the salaries and benefits for that staff are reasonable. The anticipated reimbursements on the basis of the DRG's are reasonable. The projected utilization in the first and second years of operation are reasonable, and taken together, the evidence supports the conclusions drawn by St. Joseph's expert. It is so found. Another area for consideration is the impact St. Joseph's program would have on Fawcett's existing program. Fawcett's program has now been in operation for several years and even with approval of St. Joseph's, will continue to operate without competition until the second half of 1992, after which St. Joseph's program would be in a start-up configuration for at least a year. As such, it will be well into 1993 and possibly into 1994 before St. Joseph's program can be considered to have its full impact vis-a-vis the Fawcett program. Fawcett's expert, who concluded that St. Joseph's program would have a serious adverse effect on Fawcett's ability to contribute to its improving financial picture did not consider the fact that Fawcett does not currently perform outpatient cardiac catheterization procedures, and any of that nature done by St. Joseph should have no impact on Fawcett. The expert also did not consider in his analysis of impact any population growth beyond 1990 or growth in the demand for diagnostic catheterization procedures. Fawcett listed approximately $13.7 million in proposed capital expenses over the next five years which, it claims, will be adversely impacted by the effect of St. Joseph's proposed program on its cash picture. Many of the line items within this figure are much the same as normal routine replacement items, and only $3.5 million represent the cost of items specifically identified as needed to meet existing life safety code violations or for accreditation purposes. No doubt there will be some impact on Fawcett's operation by the opening of St. Joseph's program, yet Fawcett has not demonstrated clearly that the impact will result in a return to the pre-1990 negative cash position which was shown to now be reversing. Even accepting Fawcett's expert's assumptions, the likelihood is great that Fawcett's equity balance would increase by over $900,000.00 from 1992 to 1993 and by over $800,000.00 from 1993 to 1994. So long as Fawcett's cardiac catheterization program performs more than 182 procedures per year, its current break-even point, no negative impact to the hospital's overall financial picture is likely to occur. Assuming that Fawcett's procedures were no more than one-half its 1990 admissions, at current rates, its program would render a positive contribution of more than $650,000.00 to the hospital's financial picture. This figure could not be considered as other than a viable financial contribution. What is more, the implementation of the program at St. Joseph should not exert any upward pressure on the cost of other services rendered by St. Joseph, and should, by competition, moderate future price increases for this procedure at the two competing facilities. As regards Medicaid and indigent care, St. Joseph has been a Medicaid provider since 1965 and has a history of providing service to indigent patients and under-served groups. In fact, the value of care rendered without cost to patients by St. Joseph has climbed from $418,000.00 in 1988 to a projected $1.5 million in 1991. By the same token, its commitment to Medicaid has increased to almost 4% in 1990, in addition to approximately 2% of uncompensated care that same year. The obstetric unit has been shown to operate $500,000.00 a year in the red because of the volume of indigent care provided. Nonetheless, St. Joseph agrees to accept a condition to its CON requiring it to provide 1.5% Medicaid and 2% charity care. In comparison, Fawcett was not certified for Medicaid until late 1989 and its experience since that time has not been substantiated. This tends to underscore the Department's contention that Medicaid and charity patients are under-served within the Charlotte County area. Other criteria outlined within the statute have not been shown by evidence presented, as being significantly affected one way or the other by the implementation of St. Joseph's proposed program. Several of the statutory criteria are, in fact, not applicable to the proposed project in this case. Much the same can be said for the criteria outlined in Rule 10-5.011(1), F.A.C., which tend to overlap to a substantial degree with the statutory review criteria. Fawcett claims that the application filed with the Department by St. Joseph is "very incomplete" in that it omits significant information regarding project costs, capital expenses, source of funds, and a litany of other required information. It claims, therefore, that the Department could not have conducted any meaningful review of the application based upon the information provided. The Department's representative, Ms. Dudek, admits that most, if not all applications omit some information. That is the purpose of the omissions letter which is sent to an applicant after initial review. Not all information called for by the statute is deemed essential however. If an omission is considered immaterial, it will not cause the application to be denied, all other essential material being provided. There are primarily two criteria called for by the statute which are essential to Departmental approval. The first deals with the applicant's access to resources to develop and operate the project, and the second is that the applicant offer quality care. In this case, both were deemed to have been met as was stipulated to by Fawcett. In the instant case, the Department's representative concluded that St. Joseph's application was one of the most thorough and comprehensive, in terms of presentation and backup, to have been filed within the past few years.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that a Final Order be entered by the Department approving St. Joseph's application for an inpatient cardiac catheterization laboratory, (CON #6202) for District VIII. RECOMMENDED in Tallahassee, Florida this 4th day of April, 1991. ARNOLD H. POLLOCK, 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 4th day of April, 1991. APPENDIX TO RECOMMENDED ORDER CASE NO. 90-5815 The following constitutes my specific rulings pursuant to Sec 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. & 2. Accepted and incorporated herein. 3. & 4. Accepted. 5. & 6. Accepted. 7. - 10. Accepted and incorporated herein. 11. & 12. Accepted. 13. & 14. Accepted and incorporated herein. Accepted. Accepted and incorporated herein. Accepted. & 19. Accepted and incorporated herein. 20. & 21. Accepted and incorporated herein. 22. - 26. Accepted and incorporated herein. 27. - 34. Accepted. Rejected. - 39. Accepted. 40. - 42. Accepted and incorporated herein, except for the first sentence of Finding 41. Rejected. Accepted and incorporated herein. & 46. Accepted. Rejected. Rejected. - 51. Accepted and incorporated herein. Accepted. Accepted. Not proven. - 59. Accepted and incorporated herein. Accepted that the loss of revenue will have an impact but the loss has not been shown to be substantial. - 65. Accepted and incorporated herein. 66. & 67. Accepted. 68. - 76. Accepted incorporated herein in substance. Rejected that the loss of revenue would "cripple" the health trend. It would adversely affect it but not cripple it. - 83. Accepted and incorporated herein. 84. - 90. Accepted. Accepted. Accepted and incorporated herein. - 97. Accepted that there are alternatives, but rejected that they are acceptable or adequate. Rejected as too broad a statement. Rejected as to the conclusion of waste. & 101. Accepted. Ultimate conclusion rejected. Need for level of education and experience accepted. Accepted. Underlying fact accepted. Balance is editorialization. - 108. Accepted. Accepted. Not an appropriate Finding of Fact. Accepted. & 113. Accepted and incorporated herein. 114. - 116. Rejected. Accepted. & 119. Rejected. 120. & 121. Accepted and incorporated herein. Rejected. - 126. Accepted. 127. & 128. Accepted. 129. & 130. Rejected. 131. & 132. Accepted. 133. & 134. Rejected. Not a Finding of Fact but a comment of the state of the evidence. Accepted. & 138. Accepted. Accepted. Rejected. & 142. Accepted. Rejected. St. Joseph was a Hill-Burton hospital. Accepted. Accepted that St. Joseph receives funds from taxes and other sources, but the conclusions that aid to Medicaid an the indigent "is to be expected" is an unjustified conclusion. 146. Accepted. 147. Accepted but probative value questionable. 148. Accepted that it is less costly. 149. First two sentences accepted. Remainder not proven. 150. Rejected. 151. & 152. Accepted in the short term. 153. Accepted. 154. Not proven. 155. Rejected. 156. - 158. Rejected. 159. & 160. Accepted. FOR THE RESPONDENT AND INTERVENOR: 1. - 3. Accepted and incorporated herein. Accepted. - 8. Accepted and incorporated herein. Accepted. - 13. Accepted. 14. - 16. Accepted and incorporated herein. Accepted. & 19. Accepted and incorporated herein. 20. & 21. Accepted. 22. - 24. Accepted and incorporated herein. Accepted and incorporated herein. - 28. Accepted and incorporated herein. Accepted and Incorporated herein. - 35. Accepted and incorporated herein. 36. - 41. Accepted and incorporated herein. Accepted. - 45. Accepted and incorporated herein. 46. & 47. Accepted. 48. & 49. Accepted and incorporated herein. 50. & 51. Accepted. 52. - 54. Accepted and incorporated herein. 55. - 58. Accepted. 59. & 60. Accepted and incorporated herein. Accepted. Accepted. & 64. Not Findings of Fact but a comment on the state of the evidence. 65. & 66. Accepted and incorporated herein. Not a Finding of Fact but a statement of party position. Not a Finding of Fact but a comment on the evidence. & 70. Accepted and incorporated herein. 71. & 72. Accepted and incorporated herein. Accepted. Accepted. Not a Finding of Fact but a comment on the evidence. Accepted. - 80. Accepted and incorporated herein. Accepted but irrelevant to the issues here. Accepted but considered more a statement of party position and a comment on the evidence. & 84. Accepted and incorporated herein. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted and noted in the Conclusions of Law portion of the Recommended Order. - 100. More proper as Conclusions of Law than as Findings of Fact, but accepted where pertinent. COPIES FURNISHED: John D. C. Newton, II, Esquire Aurell, Radey, Hinkle & Thomas Suite 1000, Monroe-Park Tower P.O. Drawer 11307 Tallahassee, Florida 32302 Richard Patterson, Esquire DHRS 2727 Mahan Drive Tallahassee, Florida 32308 R. Terry Rigsby, Esquire Philip Blank, P.A. P.O. Box 11068 Tallahassee, Florida 32302 Linda K. Harris Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32399-0700 Sam Power Agency Clerk DHRS 1323 Winewood Blvd. Tallahassee, Florida 32399-0700
The Issue The issue in this case is whether the Respondent, the Department of Health and Rehabilitative Services (HRS), should grant the application of the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds.
Findings Of Fact The Applicant and the Application. The applicant, the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), is a 102 bed acute care hospital 1/ located at 6600 Madison Street, New Port Richey, Florida, in the West Pasco County Subdistrict of HRS Service District 5, which also includes Pinellas County and East Pasco County. Included among its complement of beds are 14 obstetrical (OB) beds. There are no existing pediatric beds. Riverside's application is for a certificate of need to spend approximately $2,000,000 to renovate its existing OB unit, add 14 beds to the OB unit, add 11 medical/surgical beds and add six pediatric beds. The addition of the pediatric unit will be accomplished by relatively minor alterations to existing space and existing beds, and the cost attributable to this phase of the application is negligible. Similarly, the 11 additional med/surg beds will be accomplished by adding beds to existing private rooms, to create semi-private rooms, at a cost of only approximately $44,000. (Gas and electric lines for the additional beds already have been run to the headwall of these rooms and can be connected without difficulty or much expense.) Most of the $2 million total capital expenditure proposed in the application is attributable to the cost of modernizing the OB unit, with the addition of 14 beds in the process. The addition of 14 beds to the unit does not add significantly to what the modernization effort would cost without the addition of the 14 beds. The proposed new OB unit would include private rooms, to go along with the semi-private rooms that make up the existing 14-bed unit. In addition, the proposed modernized 28-bed OB unit would consist of the combined labor/delivery/recovery/post-partum (LDRP) rooms now preferred by most patients. Pertinent State Health Plan Provision. The 1989 State of Florida Health Plan states at the outset of a list of preferences to be utilized in comparing applications for additional acute care beds: No additional acute care beds should generally be approved unless the subdistrict occupancy rate is at or exceeds 75 percent, or, in the event of an existing facility, an applicant shall demonstrate that the occupancy rate for the most recent 12 months is at or exceeds 80 percent. The Need Methodology. Using the F.A.C. Rule 10-5.038 methodology, the district and subdistrict would show numeric need of approximately 201 and 230, respectively. See F.A.C. Rule 10-5.038(5). Regardless of the calculated bed need, HRS does not normally approve additional beds in a subdistrict unless the annual average acute care bed occupancy rate is 75 percent or higher during the 12-month base period of July, 1989, through June, 1990. See F.A.C. Rule 10-5.038(7)(d). The 670 licensed beds in the West Pasco Subdistrict reported only 68.92% occupancy during the 12- month base period, resulting in no projected need for additional acute care beds in the subdistrict for the applicable 1996 planning horizon. Even when a subdistricts's need for additional acute care beds projected by the methodology is zero, an application by an existing hospital still may be approved where that hospital's annual average occupancy rate exceeds 75 percent for the 12-month base period (again, in this case, from July, 1989, through June, 1990.) See F.A.C. Rule 10-5.038(7)(e). During the 12-month base period from July, 1989, through June, 1990, Riverside's occupancy averaged 72.40%, not high enough to be approved under F.A.C. Rule 10-5.038(7)(e). Observation Bed Days. Three types of beds days are included in a category of so-called "outpatient observation bed days." First, "twenty-three hour patients" are patients who are not eligible for inpatient services under the Health Care Finance Administration (HCFA) criteria for the Medicare program. Second, "observation patients" are similar non-Medicare patients. Third, some outpatients (or ambulatory surgery patients) also use beds for part of a day. With new cost containment and review/regulation developments in hospital care, more patients are spending up to 23 hours in the hospital before a decision is made that further hospitalization in not needed. As a result, "observation" bed use has increased. Outpatient observation services have been recognized and defined by HCFA. Blue Cross and Blue Shield of Florida (the Medicare intermediary) and the Health Care Cost Containment Board (HCCCB) have addressed issues such as reimbursement, billing and reporting of observation beds. Services are provided to "observation bed" patients under doctor's orders, including diagnostic services, observation and monitoring by nursing personnel and/or medical intervention or treatment. Calculation of occupancy rates under the HRS need methodology does not take into account the so-called "observation bed days." 2/ There was no evidence that any part of District V or the West Pasco Subdistrict are inaccessible geographically. Other Need Factors. The evidence showed that there is a seasonal peak utilization and occupancy of acute care beds in District V and in the West Pasco Subdistrict during approximately October or November through March or April each year. This seasonal peak is reflected by the statistics. As previously stated, Riverside's occupancy averaged 72.40% during the period from July, 1989, through June, 1990. During the first quarter of 1990, occupancy was 86.83%. Riverside's average occupancy for calendar year 1990 was 73.87%. For the period from March, 1990, through February, 1991, average occupancy for Riverside's acute care beds was 71.2%. 3/ For the period from March, 1990, through February, 1991, occupancy for Riverside's obstetrics beds was 92.9%. There is no acute care pediatric unit in the West Pasco subdistrict. Subdistrict residents (as well as others in Riverside's general service area) needing level II pediatric services generally go to a Pinellas County or East Pasco County hospital for them. Given the choice, some but not all of these patients likely would prefer to get these services at Riverside, depending primarily on the severity of the particular medical needs. But the evidence did not quantify the number predicted to switch to Riverside. Also, occupancy of pediatric beds in Pasco county was less than 15% during 1987 and 1988. Medical Care for the Poor. The State Health Plan also notes that the uncompensated care burden on hospitals has grown during the 1980s because of a growing number of low-income persons; simultaneously, the proportion of persons covered by Medicaid has dropped. Numerous statewide studies, moreover, have shown that hospitals' uncompensated care is increasing at the same time that their ability to absorb the cost of care is decreasing. Riverside's predecessor bought the hospital from Pasco County in 1982. As a condition to the purchase, Riverside's predecessor agreed to provide Medicaid and indigent care for Pasco County in perpetuity. When Riverside purchased the hospital on December 29, 1983, it assumed the contractual obligation to provide Medicaid and indigent care in perpetuity. Riverside is a disproportionate share provider within the meaning of the State and local health plans. Approximately, 13% of Riverside's total annual patient days are for Medicaid patients. In 1990, 2,647 of Riverside's obstetrical, and 4,272 of its non-obstetrical patient days, were Medicaid. Riverside's charity care deduction from gross patient revenue for fiscal year 1990 was 1.07% of gross patient revenue. Riverside's Medicaid deduction from gross patient revenue for fiscal year 1990 was 5.96% of gross patient revenue. Approximately, 14.8% of Riversides's services go to Medicaid and indigent patients. Although Riverside has only 14% of the beds in the West Pasco subdistrict, it does more than 90% of the non-emergency, non-OB Medicaid care. Approval of the Riverside application would enable Riverside to spread its administrative and overhead costs over a larger base, thereby reducing average charges. Approval of the Riverside application also would make Riverside more profitable and thereby better able to absorb the cost of the Medicaid and indigent care it provides. If Riverside converts existing acute care beds to pediatric or OB beds, it probably would have to squeeze out paying patients during seasonal occupancy peaks, thereby losing more revenue and profits. Competition. If the Riverside application is approved, Riverside's share of the market represented by the West Pasco subdistrict will rise from approximately 14% to approximately 18%. HCA controls the rest of the market. There are no existing OB beds in the West Pasco subdistrict other than at Riverside. The HCA hospital in New Port Richey had an OB unit which it recently abandoned. As a result of the grant of Bayonet Point's application, CON Action No. 6583, with which Riverside had been in direct competition in this application review cycle, Bayonet Point now is approved for a seven-bed OB unit as part of its bed complement. Upgrading its existing OB unit and adding 14 more OB beds will enable Riverside to capture more private paying patients, which will better enable it to compete with the HCA hospitals. At present, Riverside's OB unit is utilized almost exclusively by indigent and Medicaid patients because of the hospital's contract with Pasco County. This unit now is operating at close to absolute capacity. With the upgrades and additional beds, Riverside can work to capture some private pay patients; without them, Bayonet Point will capture the private pay patients. Financial Feasibility. Riverside operated at a deficit from 1983 essentially to the present. By the end of 1990, Riverside had accumulated a deficit of $8.8 million. Riverside's corporate parent, American Healthcare Management, Inc. (AHM), was funding the deficit. From 1985 through December, 1989, AHM was in Chapter 11 bankruptcy proceedings. During that time period, there was legitimate concern whether AHM would be able to continue to fund Riverside deficits. AHM emerged from bankruptcy in December, 1989, stronger financially. It has since become stronger still. AHM reduced its debt by approximately $88 million. Part of the debt reduction was achieved by the sale of $43 million of underperforming assets. In addition, $45 million of bond debt was exchanged for common stock on September 30, 1991. The interest savings on the bond-for-stock exchange is $6 million a year. As a result, AHM's current debt-to-equity ratio is approximately $160 million to $130 million. AHM's corporate staff has been reduced from about 102 to 65. Its corporate office were transferred from expensive quarters in Dallas, Texas, to less expensive quarters in King of Prussia, Pennsylvania. Corporate expenses have been greatly reduced as a result. Accounts receivable have been reduced by better collection methods, and the $43 million of assets sold to reduce corporate debt had been underperforming. AHM had $21 million cash and short-term investments as of December 31, 1989. As of the date of the final hearing, it had $18 million cash and short- term investments. Riverside's gross margin (profit) for the first nine months of 1991 was $4 million. After depreciation, amortization, and interest and home office costs, Riverside generated approximately $1.2 million for the first nine months of 1991. Internal cash flow generated by AHM and Riverside would be sufficient to finance Riverside's application project. Since the capital costs of Riverside's proposed project are relatively small, financial feasibility is relatively easy to achieve. Besides costing relatively little, the 31 new beds will not increase intercompany interest or management fees significantly. In addition, the 31 new beds would enable Riverside to better compete for private pay patients. Given the expected utilization of the new beds, the proposed project will be to the financial benefit of the applicant. The pro forma bears this out. It projects 75.11% occupancy for the 31 new beds in the second year of operation (July, 1994, to June, 1995). (This projection does not include expected "observation bed days.") A profit of $2,477,199 for the 31 beds is projected for the second year of operation (not counting any portion of the preexisting intercompany interest or management fees).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that HRS enter a final order denying the Riverside application for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds. RECOMMENDED this 28th day of January, 1992, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 28th day of January, 1992.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the decision of the respondent to deny petitioner's proposal to establish a new ten station dialysis facility in Dade County be AFFIRMED. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 21st day of August, 1978. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Bart Pelstring, Administrator Dialysis Associates, Inc. 2125 Biscayne Boulevard Miami, Florida 33137 Eric J. Haugdahl Assistant General Counsel Department of HRS 1323 Winewood Boulevard Suite 406 Tallahassee, Florida 32301 Mr. Art Forehand, Administrator Office of Community Medical Facilities 1323 Winewood Boulevard Tallahassee, Florida 32301 ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES DIALYSIS ASSOCIATES, INC., Petitioner, vs. CASE NO. 78-779 DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, OFFICE OF COMMUNITY MEDICAL FACILITIES, Respondent. /
Findings Of Fact Donald Davis is the promoter behind the formation of Community Hospital of Collier, Inc. He is a health care management consultant and a principal of the firm Health Research and Planning Associates, Inc. In his profession he concentrates on the promotion and development of health care facilities. He has engaged previously in the business of forming corporations for the purpose of submitting applications and obtaining Certificates of Need. He also provides consulting services to health service corporations. Neither Davis nor the other principals of the applicant corporation, including his wife, have any experience or expertise in constructing or operating hospitals, and Davis admitted that the sole purpose for forming the entity known as Community Hospital of Collier, Inc. was for the purpose of submitting an application and prosecuting it in order to obtain a Certificate of Need for an acute care hospital for District VIII. Mr. Davis' own company, Health Research and Planning Management Associates, Inc. was paid $15,000 by Community Hospital of Collier, Inc. to develop the Certificate of Need application at issue. Community has "a couple of thousand dollars" in its own bank account. The officers and directors of Health, Research and Planning Management Associates, Inc. are the same as those of Community Hospital of Collier, Inc. On June 15, 1983, after having previously filed a letter of intent, Mr. Davis filed an application for a Certificate of Need for a 152-bed acute care hospital on behalf of Community Hospital of Collier, Inc. Mr. Davis is an officer and director of that corporation. The articles of incorporation for Community Hospital of Collier, Inc. which gave it its de jure status were not signed until July 29, 1983 and were not filed with the Secretary of State until August 19, 1983. Be that as it may, Mr. Davis maintains that the Board of Directors of Community ratified the filing of the application. That authorization found at page 44 of the application, however, refers to the Board of Directors of Community Health Care of Okaloosa/Walton. The resolution was dated June 7, 1983 and Mr. Davis testified that the use of the name Community Health Care of Okaloosa/Walton in the caption of that Board of Director's resolution was a "typographical error." In any event, the applicant corporation had no legal existence at the time the application was filed on June 15, 1983, however, by its later acts in filing and prosecuting the application it implicitly, at least, ratified the action of its promoter, Mr. Davis, in filing the application since the officers and directors consisted of Mr. Davis, his wife and a third individual. Be that as it may, Community negotiated a stock purchase agreement with National Medical Enterprises (NME) on August 15, 1984. Pursuant to this agreement, NME is obligated to purchase all capital stock of Community if a Certificate of Need for 100 beds or more is awarded. In return for the sale of the stock of the applicant corporation to NME, Mr. Davis and the other two board members of Community will receive a total of $600,000 in addition to the $15,000 Mr. Davis has already received for his efforts in preparing and prosecuting the Certificate of Need application. The only asset of Collier is the inchoate Certificate of Need. Upon consummation of the stock purchase agreement, Mr. Davis will resign from the Board of Directors and presumably NME will appoint its own board. Community has given full authority to NME to prosecute the application as it sees fit, including making certain changes NME deemed appropriate to the application, including seeking 150 beds instead of 152 and changing the method and means of financing the project (mostly equity instead of debt). Additional changes in NME's approach to prosecution of the application include the proposed method of recruitment of personnel and management of the hospital. Community has no agreements with any other group, entities or individuals to provide financial, personnel and other resources necessary to construct, manage and operate an acute care hospital and did not demonstrate that it has any such resources in its own right. Mr. Frank Tidikis, Vice-President for Operations for the eastern region for National Medical Enterprises, testified concerning the financial and management resources and staffing arrangement NME proposes for the new hospital should it be authorized. He enumerated many medical specialties that NME intends to place on the staff of the hospital, but neither Community nor NME have done any studies revealing what types of medical specialties are presently available in the Collier County area, how many physicians in those specialties are available and what ratio exists or is appropriate for various types of physicians to the community population. The proposed staffing pattern, sources and method of recruitment was predicated solely on NME's past experience in obtaining hospital staff in other areas of the nation, and not upon any study or other investigation showing the availability of appropriate types of trained staff people in reasonable commuting distances of the proposed hospital, which would be located in northern Collier County. If NME consummates the purchase agreement, the hospital would be locally managed by a board of directors consisting of 51 per cent of the hospital's own medical staff and 49 per cent lay members chosen from the community at large. FINANCING Mr. Michael Gallo was Community/NME's expert in the area of health care finance, being NME's Vice-President for Finance. It was thus established that the total cost of the project, if approved, would be approximately $23,600,000. This amount would be financed by NME which proposes to make a 35 per cent equity contribution in the amount of approximately $8,500,000 and which will finance the balance of the project cost at a rate of approximately 13 per cent interest for 20 years. NME projects that an average daily patient census of 45 would be necessary to "break even." A daily census of 45 would yield 6,425 patient days per year, with the facility projected to break even in its first year of operation. NME projects that by the third year of operation, a return on investment of 10 to 12 per cent would be achieved. NME's projections are based on an assumed average length of stay per patient of 5.6 days. NME allocated two and sone-half per cent of its projected gross revenues for indigent patient care, and four per cent of projected gross revenues allocated to bad debt, that is, uncollectible hospital bills, not necessarily related to indigent patients. The $600,000 which NME must pay Community Hospital of Collier and Mr. Davis in order to acquire the assets of that corporation (i.e. the CON) will be treated as a project cost and will be depreciated as though it were a part of the buildings. Community/NME projects its total revenue per adjusted patient admission to amount to $4,843, with projected total revenue per adjusted patient day at $865. It predicts these figures will increase by about five per cent for successive years as a factor of inflation. The proposed hospital site consists of approximately 12 acres, available at a price of $30,000 to $50,000 per acre. The application itself originally proposed a location in the central or southern portion of Collier County. However, after NME entered into the agreement with the applicant corporation for the stock purchase and became involved in the prosecution of the application, the location was changed. Thus, it was discovered at the outset of the hearing that indeed, the proposed location of Community of Collier's hospital would be in the northern portion of Collier County in close proximity to Lee County. 1/ The proposed $360,000 to $600,000 land cost would of course, be added to the total cost of Community's proposed project. It has not been demonstrated what use would be made of the entire 12 acres, nor that the entire 12 acres is required for the hospital, its grounds, parking and ancillary facilities. STAFFING One of the reputed benefits of Community's proposed project is that it would afford a competitive hospital in the Collier County health services market to counter what Community contends is a virtual monopoly held by Naples Community Hospital, as well as to promote the attraction of more qualified medical staff to that "market". In this context, Community contends that its facility, by being built and operating as an alternative acute care hospital, would attract more physicians to the Collier County area and thus, arguably, render health services more readily available. Community thus decries the supposed "closed staff" plan of Naples, contending that Community offers an "open" staffing plan, which would serve to attract more physicians to the geographical area involved and enhance Community's ability to appropriately staff its hospital. Naples Community Hospital, on the other hand, experiences numerous physicians vacationing in the area requesting staff privileges. Many of these physicians apparently do not have any intention of permanently locating in the Naples/Collier County area, however, and therefore in order to determine which physicians are seriously interested in locating there, Naples has a screening procedure which includes an interview with the Chief of Staff, the Assistant Director for Staff Development, and the chief of the service for which a physician is applying for privileges. This preliminary screening procedure is not tantamount to a closed staffing situation, which only exists where a fixed number of physicians are permitted on a hospital staff, with others waiting until an opening occurs. In the open staff situation, as exists at Naples, no matter how rigorous the screening process, there is not a finite number of staff physicians available. Any physician who qualifies under the hospital bylaws and assures the screening committee of his intention to locate in the area served by the hospital is admitted to the staff. Thus, the staffing pattern for physicians at Naples Community Hospital augurs just as well for the attraction of physicians to the Collier County vicinity as does the staffing method proposed by Community. In that vein Naples has granted privileges to 13 new physicians in the preceding calendar year and had 8 applications pending at the time of hearing. Only one applicant was denied privileges during that year. Additional factors which must be considered in the context of staffing such a hospital concern the ability of the applicant to provide quality of care and appropriate, available resources including health care and management personnel to operate the facility. Aside from demonstrating that NME, through the stock purchase agreement, may obligate itself to provide ample funds and other resources to fund, staff and operate the project, and that it has successfully staffed and operated hospitals in numerous locales, Community did not demonstrate what likely sources would be drawn upon for nurses and other staff members to staff its hospital in order to avoid recruiting most of them from nearby facilities, including Naples Community, which could precipitate a diminution in the quality of health care at these other facilities. In short, other than showing that NME's management has the financial resources and experience to accomplish the staffing and operation of the hospital, there was no demonstration by Community which would establish the availability of sufficient health care personnel to operate and manage its hospital at adequate levels of care. COMPETITION Community contends that its facility should be built in order to foster competition in the provision of health care services in Collier County. It took the position, through its expert witness, Dr. Charles Phelps, that the Naples hospital holds a monopolistic position in Collier County inasmuch as it is the only hospital in the county. It should be pointed out somewhat parenthetically, however, that this "County market area" theme ignores the fact that this application is for an acute care hospital in District VIII, which is not subdivided by rule into County sub-districts for health care planning purposes. Further, Community originally proposed locating its hospital in the central or southerly portion of Collier County, but as of the time of the hearing, proposed to locate its hospital in the northerly portion of Collier County with a service area it itself proposed which will include the southerly portion of Lee County. This area is also within the service areas of Naples Community Hospital, Lee Memorial Hospital, Fort Myers Community Hospital and the soon to be constructed Gulf Coast Osteopathic Acute Care Hospital. Thus, in its attempt to establish Naples Community Hospital as occupying a monopolistic position in the "Collier County health care market", Community did not establish that Collier County either legally or practically is a separate health care market demarcated by the county boundary with Lee and Hendry Counties, such that Naples' status as the sole acute care hospital within the legal boundaries of Collier County is monopolistic. Indeed, it competes for patients with the Lee County hospitals named above in the northern Collier-southern Lee County market area involved. Community attempted to demonstrate a monopolistic situation in favor of Naples Community Hospital by comparing its relative increase in costs per day and costs per patient stay with Fort Myers Community Hospital and Lee Memorial Hospital. Naples Community Hospital did indeed exhibit the largest rate of cost increase in both those categories. Community's expert, Dr. Phelps, opined that lack of competition in the Naples area caused the disparity in rate of increase in costs between Lee County hospitals and the Collier County hospital. Naples called Ed Morton, who was accepted as an expert witness in hospital financial analysis, reimbursement, hospital auditing and accounting, financial feasibility and corporate finance. It was thus established that Naples does not occupy a monopoly position and provides health care at lower costs than would be the case should the Community Hospital facility be constructed. Mr. Morton demonstrated that analyzing total costs per adjusted patient day does not reliably indicate the efficiency of a hospital, since such daily costs fluctuate with the average length of stay. A better indicator for determining hospital efficiency is to analyze total revenue per adjusted admission. A comparison of Lee Memorial, Naples Community Hospital, Fort Myers Community Hospital and NME's six Florida hospitals was employed based on data provided to the hospital cost containment board for the years 1980 through 1983, in order to show which hospital operated more efficiently and tended less toward monopolistic market positions. In making this comparison, Mr. Morton employed the "total revenue per adjusted admission" and "total revenue per adjusted patient day" methods of comparing the hospitals. He used this approach because it reduces to a common denominator the various values and statistics utilized in the hospital cost containment board formulas. It was thus established that Naples has the lowest total revenue per adjusted admission and lowest total revenue per adjusted patient day of all the hospitals depicted in the comparison study (Naples Exhibit 23). Naples total revenue per adjusted admission is $400 to $1,900 less than each of the other hospitals. One reason Naples experiences less total revenue is because its charges are lower, since it employs some 1,600 volunteer workers. If these workers were paid at a minimum wage they would reflect a cost of approximately $600,000 per year. Further, the hospital over the years has obtained large donations of money and labor through funding drives, all of which have enabled it to keep charges down for its patients and to continue to operate certain services at a deficit. For instance, Naples has a discreet pediatric unit, which means a physically separate, self-contained pediatric care unit, with specialized staff, who perform no other services than those they are designated to perform in pediatrics. That unit operates at a deficit repeatedly since 40 per cent of the Naples pediatric patients originate from the Immokalee area, which is characterized by an extremely high percentage of indigent persons. Naples' witness Morton performed a patient origin study which shows that approximately 84 per cent of Naples' patients originate in Collier County, 12 per cent originate in Lee County, particularly southern Lee County, and two per cent originate from unrelated areas. The Naples Community Hospital is located in Naples, approximately in the mid-section of Collier County and a significantly greater distance from the northern Collier/Lee County line than will be the Community facility, if built. Community expects to draw approximately one-half, or six per cent, of the 12 per cent of Naples' patient load which is derived from Lee County. NCH however, at the present time, competes with Fort Myers Community Hospital and Lee Memorial Hospital, in particular, for patients from both southern Lee County and northern Collier County, Community's proposed service area. Thus, NCH does not maintain a monopoly serving Collier County or Community's proposed service area to the exclusion of these other hospitals. The placement of Community's facility at a point much closer to the Lee County border than is Naples' present facility would result in the injection of a fourth or fifth strong competitor into the Collier County-southern Lee County patient origin and health service market area, rather than merely the addition of a second competitor for Naples Community Hospital. ADVERSE COMPETITIVE EFFECTS Both Lee Memorial Hospital and Fort Myers Community Hospital already draw a substantial number of patients from southern Lee County, as well as northern Collier County. Gulf Coast Osteopathic Hospital, after protracted litigation, has secured approval of a Certificate of Need to build an osteopathic acute care hospital in the southerly portion of Lee County. That Final Order authorizes 60 beds. It is fair to assume, inasmuch as these hospitals are already drawing from southerly Lee County, that the capture of the patient market in southern Lee County will be made much more pervasive with the addition of the Gulf Coast Osteopathic acute care facility. That being the case, insofar as the 1989 horizon year is concerned, far less than 12 per cent of the Lee County origin patient days now available to hospitals located in Collier County will actually be available. Community will thus draw even less than its own projected six per cent of its patient days from Lee County. In any event, it is logical to conclude that substantially all the patient days resultantly available to a Collier County situated facility will be derived from Collier County upon the advent of the Gulf Coast Hospital. Thus, any patients drawn to Community, if its facility were built, would be at the direct expense of NCH. That being the case, it is reasonable to conclude that the analyses performed by Mr. Morton, Naples' expert, which reveal that Community Hospital will potentially siphon off as many as 80 patient days per day from Naples Community Hospital, is accurate. If this occurs, it would mean that approximately 29,200 annual patient days would be garnered by Community. Mr. Morton's analysis established that a resultant raising of rates by Naples would have to occur in the amount of $240 per patient day. Failure of Naples to so raise its rates to patients, would cause an annual revenue deficiency of 6.5 million dollars. This increase of $240 per patient day would result in a $1,536 increase in the average charge per adjusted admission, based upon the average length of stay at Naples which is 6.2 days. Even if Community obtained only half its patients from the Naples Community Hospital, (a likely understatement of its patient market impact), the resulting loss to Naples per patient day would be $220 with a concomitant necessary increase, in average patient charges per admission in the amount of $768, in order for NCH to remain financially viable. If Naples were unable to raise its charges to compensate for this loss of patients to the Community facility, then it would have to curtail services currently rendered on a deficit basis, such as its discrete pediatric unit, which experiences a 40 per cent indigent patient utilization. Community's own projections show that it expects to garner 27,790 patient days, which for the above reason, are likely to all be gained at the expense of NCH. This will result in the loss to NCH of at least 76 patient days per day with a resultant revenue shortfall nearly as high as that postulated by Morton as a result of his patient origin study and adverse impact analysis. Thus, in terms of lost patient days and lost revenue, both the figures advanced by Naples and those advanced by Community reveal that a substantial adverse impact will be occasioned to Naples by the installation of Community's hospital, especially in view of its location at approximately the midpoint between the Lee County boundary and NCH's facility in Naples. Naples derives approximately 54 per cent of its gross patient revenues from Medicare reimbursement. Four per cent of its revenues are represented by Medicaid patient reimbursement. Eight to nine per cent of its billings are not collected because of non-reimbursable, indigent patient care and bad debts. Community will obtain from 76 to 80 patient days per day case load now enjoyed by Naples Community Hospital. Community projects that its billable case load will be characterized by four per cent Medicaid reimbursable billings, and six and one- half per cent of its annual case load will be represented by indigent and bad debt uncollectible billings. Forty-six per cent of NCH's indigent and bad debt cases come from the Immokalee area lying east of State Road 887 and north of State Road 846, and the Community Hospital would be built approximately midway between that area and the location of NCH. Therefore, based upon Community's own projection of total billings for 27,790 patient days, or at most, 29,200 days per year, (according to NCH's figures which depict the loss to NCH of 80 patient days instead of 76) it becomes obvious that Community's bad debt, indigent case billings would actually be in the neighborhood of 17 per cent of its total, billable case load, rather than the six and one-half per cent it projects in its application and evidence. This would render the bad debt, indigent patient-based uncollectibles of Community to be on the order of four million dollars per year. Such a high magnitude of bad debt, uncollectible billing experience can reasonably be expected since Community's Hospital would be constructed between the source of most of the indigent bad debt case load and NCH's location. This location is also in the center of the most affluent, rapidly developing residential area of Collier County. Given the fact that Community-NME's proposed location is likely to attract a high indigent, bad debt case load from the economically depressed Immokalee area, approaching the magnitude of 17 per cent of total case load, if a policy of freely accepting indigent, uncollectible cases were followed by Community-NME, but considering also the fact that Community proposes to locate its hospital in the service area it has delineated to include the most concentrated source of more affluent, privately paying patients available to these competing hospitals, it cannot be concluded that Community-NME plans to incur such a high financial risk by free acceptance of indigent, charity cases. Rather it seeks to largely serve the collectible, private-paying patient source of northwestern Collier County, hence its recently altered proposed location. This determination is borne out by the experience of NME's other Florida hospitals, which are characterized by a very low percentage acceptance of indigent, bad debt, patient service. Thus, it is quite likely that NCH would be relegated to continued service of this large number of indigent, nonpaying patients while Community/NME would serve a patient base composed of largely private-paying and Medicare reimbursed patients drawn primarily from NCH, a significant financial detriment to that entity, which at present experiences a rather precarious operating ratio, characterized by, at best, a three per cent profit margin. Such an eventuality would force upon NCH the choice of raising its rates substantially or curtailing services, or both, with the probable alternative of seeking taxpayer subsidization of such an increased charity case load. NCH effectively competes with the pertinent hospitals in Lee County for the same patient base, due to its lower charges, as shown by the fact that Naples has the lowest revenue per adjusted admission and per adjusted patient day of the hospitals in Collier and Lee Counties. Thus, any increase in charges at Naples necessitated by the adverse effect of the installation of Community's hospital would put it at a distinct additional disadvantage in competing with the Lee County hospitals. A similar financial resultant adverse impact would be imposed on Lee Memorial, Fort Myers Community and Gulf Coast in terms of declining utilization and revenues. It is further noteworthy that Community's own projection of annual patient days reveals that it will experience an occupancy rate of approximately 50 per cent. It has not been established how 27 to 29 thousand patient days with a concomitant occupancy rate of only SO to 51 per cent can support a 150-bed free standing, acute care hospital with a full complement of ancillary services, which fact renders the financial feasibility of Community's proposed hospital substantially in doubt. In terms of the relationship of adverse impacts on existing hospitals to the legislative goals of hospital cost and rate containment, it should be pointed out that the current utilization rate of all hospitals in this area District VIII are declining, partly as a result of the impact of the "diagnostic related groups" (DRG) method of reimbursement. The utilization at NCH for the first six months of 1984 has dropped to 62.3 per cent. The utilization rate of the Lee County hospitals has been reduced to approximately 65.4 per cent. The addition of another acute care hospital to this area, which is established to likely experience a utilization of only 50 to 51 per cent itself, would only cause the current low utilization rates to plummet more drastically. This situation would substantially impair the financial viability of all existing hospitals in the relevant area of District VIII, and Community, as well. Thus, if the proposed Community Hospital were added to this area, it would only aggravate the problem the CON approval process is designed to prevent, that of avoiding escalating health care rates and costs, concomitant decline in adequate levels of service and unnecessary duplication of services. GEOGRAPHIC ACCESSIBILITY In support of its assertion that by 1989 a portion of its service area will not be accessible within 30 minutes driving time of an existing hospital, Community adduced the testimony of Mr. Michael Dudek, accepted as an expert traffic engineer. Mr. Dudek plotted the time and distance of travel from NCH, Cape Coral Hospital, Lee Memorial Hospitals Fort Myers Community Hospital, Eastpoint Hospital, the future Gulf Coast Hospital and proposed Lee Memorial 100-bed satellite facility. He employed the "floating car method" in determining travel times from each hospital to points 30 minutes from the hospital. He projected future travel times along the same routes with a view toward growth in traffic volume based upon population growth. Mr. Dudek opined that in 1989 there will be, under average traffic conditions, a portion of northern Collier and southern Lee Counties which will not be within 30 minutes average travel time of any existing hospital. In his own opinion, in peak travel seasons, coextensive with seasonal, winter population peaks in this geographic area, the situation will be aggravated such that the territory where residents are more than 30 minutes driving time from existing hospitals will expand. Mr. Dudek conceded that vehicles on roads adjacent to main artery roads would reach various main arteries at different times, depending on the density of the population in the residential neighborhoods between those main traffic arteries. He did not map his proposed 30-minute driving time contour lines to indicate these variables. Further, he acknowledged that even during the 1989 projected peak traffic season, the geographical triangle in which Community-NME will locate its proposed hospital, was not outside the driving time projected for Naples Community Hospital. He apparently based his conclusions on the premise that road and traffic improvements would not occur so as to significantly compensate for the population and traffic growth posed by various real estate developments of regional impact which have been filed and proposed for north Collier and south Lee Counties. Naples, presented the testimony of Mr. Jack Barr, also accepted as an expert traffic engineer. Mr. Barr used the "average car method" in conducting a travel-time study to determine the points on arterial roads 30-minutes distance from all existing hospitals in Lee and Collier Counties as well as from the proposed Lee Memorial Satellite Hospital. (Naples Exhibit 76). The distances between those points are interpolated and plotted on the basis of estimated average speeds on the non- arterial segments of the roadways that would be traversed by people making their way to the arterial roads. Mr. Barr also surveyed proposed road improvements in the Collier and Lee County areas (Naples Exhibit 7C). He predicated this survey on the most recent Department of Transportation traffic maps. He performed his original field study during a four-week period in December and January, 1982. The travel times for Collier County were then revised and updated on October 24, 1984 with a field survey and for Lee County on August 14 through 23, 1984. Mr. Barr was unable to determine any significant statistical difference between the contours he plotted in his 1982-83 survey and those plotted in the 1984 updated survey. Mr. Barr employed information obtained from the Southwest Florida Regional Planning Council, the Lee County Planning Department and the Collier County Traffic Planner, as well as information from his own files on proposed residential building projects with which he has been associated professionally or become aware of in the area. It was thus established that that portion of north Collier County and southern Lee County, where most of the proposed residential development will occur, and which is in Community's proposed service area, is currently partially or totally within 30-minutes driving time of three existing and one approved hospital. All the proposed major residential developments in the north Collier/south Lee County area are within 30 minutes travel time of at least one existing hospital and most lie within the 3 minute contour lines for the proposed Lee Memorial Satellite Hospital. The travel time contours will remain substantially unchanged for the next ten years based upon major road improvements planned in the next ten years. Information as to road improvements was obtained from the approved Collier County Comprehensive Plan, from average daily traffic counts on U.S. 41 conducted by the Department of Transportation and Collier County, from the Lee County Transportation and Improvement Program which shows the status of road improvements for 1985 through 1989, and from the Department of Transportation Road Improvement Program extending through the fiscal year 1989 for Lee and Collier Counties. All the roads included in the DOT projection for the next five years are committed and will be built. Although there will not be a decrease in traffic along U.S. 41, rather the increase in traffic that would normally occur on U.S. 41 will be largely offset by traffic shifting over to parallel routes which are to be developed through the road improvement programs established by Mr. Barr. There has been a steady decrease in use of the formerly highly congested U.S. 41 artery because of the development of parallel highways such as Airport Road. Mr. Barr established that the road improvements upon which his opinion is partly based are being implemented, and since most are funded by gasoline tax monies earmarked for that purpose, it is reasonable to assume that the DOT sponsored improvements will continue to be made. Further, although Community sought to show that a portion of the population of its service area is beyond a 30- minute travel time from existing acute care hospitals, it did not demonstrate that that population now or in 1989 amounts to more than 10 per cent of the Collier County population. In his capacity as a traffic-engineer, Mr. Barr has worked in Lee and Collier Counties for approximately seven years, representing public and private clients. He has monitored the implementation of the Collier Comprehensive Plan as it relates to roadways and real estate development and established that road improvements are indeed being implemented. His testimony and opinion, predicated on more accurate surveying techniques, supported by local planning and Department of Transportation documentation, is better corroborated and more competent than that of Mr. Dudek and is accepted. Thus, it has not been shown that the 30 minute travel time points and distances attributable to existing hospitals will recede sufficiently to create the new service area contemplated by Community. EXISTING SERVICE - AVAILABILITY, QUALITY, ADEQUACY OF CARE, ACCESSIBILITY To ALL, INCLUDING INDIGENTS NCH affords adequate availability and access to acute care services for patients in Collier and southern Lee Counties, including indigent patients. Community's proposed facility would not have a level 2 or 3 nursery, and would not have a discreet pediatric unit, both of which Naples has. Thus, access to pediatric, as well as obstetric services, would not be enhanced by the advent of Community's hospital, for indigent or other patients originating in Community's proposed service area. Additionally, inasmuch as NCH's pediatric unit operates at a deficits the addition of such services, even of their limited scope, by Community may, for financial reasons, result in the curtailment of such services, especially for indigent, in view of the considerations expressed above. The physician-director of the Collier County Health Department, Dr. Polkowski was called and accepted as an expert witness on behalf of Naples in the area of public health, for the purpose of discussing the distribution of medically indigent persons and availability of services in Collier County. Her work requires her to routinely review U.S. Bureau of Census data on age and health characteristics of the population of Collier County and to travel throughout the county to acquire knowledge of the health characteristics of the population. It was thus established that the highest concentration of poverty level patients occurs in Census Tracts 112, 113, 114 and 104, with a particularly high concentration in Census Tract 112 which comprises the Immokalee area in northeastern Collier County. A particular health problem in that area is teenage pregnancy, with 90 births to females under 19 years of age in 1983 out of a county-wide statistic for such births of 172. Eleven per cent of the babies born to women under 19 years of age in Collier County are low birth weight babies, which typically necessitate higher levels of neonatal, specialized care because of the increased chances of serious health problems occasioned by low birth weight. There are three recognized levels of care for newborn babies in Florida. Naples Community Hospital has a Level 1 and 2 nursery. Level 1 represents babies who have no exceptional conditions. Level 2 is for those babies with respiratory and other serious problems requiring enhanced levels of care and is characterized by such special equipment as isolettes, intensive care bassinets with respirators, cardiac monitors, apnea monitors, resuscitation and cardiac resuscitation equipment. The staffing level of the Level 2 nursery is at a ratio of one neonatal specialized nurse to three babies rather than the one nurse per six babies of the Level 1 nursery. The Level 2 and 3 babies have serious and frequently chronic health conditions for the short, and sometimes the long-term, often characterized by quite high patient costs. The Immokalee area has the highest poor as well as non white concentration in the bounty. There are approximately 14,000 permanent residents, but during the wintertime the population swells to over 20,000 when predominantly Mexican American migrant farm workers arrive in the area. The poor population has a higher mortality rate for infants and manifests more serious medical problems on a greater per capita basis than does the more affluent population lying to the west and southwest. The Immokalee area population has a high rate of tuberculosis, venereal disease, parasites and hepatitis. The current level of services provided to the indigent population by Naples Community Hospital however, is of a high quality. Richard Akin is the Director of the Collier Health Services, a private, nonprofit primary health care organization which offers primary medical and dental care services to the rural, poor population of northeast Collier County. Most of these patients are migrant farm workers who have absolutely no means of paying their own medical bills. Collier Health Services provides primary medical care at three locations in the county with the largest center being at Immokalee. The Immokalee facility has seven staff positions which include such specialties as pediatrics, family practice, internal medicine and obstetrics. The Immokalee facility records approximately 60-thousand patient visits per year. Seventy-five per cent of these are represented by Mexican- American farm workers who are employed in the area seasonally. Another 10 to 12 per cent per year are Haitian immigrants employed in agriculture. Between 60 and 80 per cent of all patient visits are not paid for by the patient. The Immokalee primary care facility refers 4,000 to 4,500 patients to a hospital annually, with about 12 to 15 such referrals per day. These are for normal, non-emergency care situations. Additionally, between 400 and 450 patients are referred to a hospital for emergency care per year. All the primary care center's emergency and non emergency patients are referred to NCH. Mr. Akin has attempted to refer patients from the Immokalee facility to other area hospitals such as in Lee County, but without success. NCH is located in fairly close proximity to the Immokalee Primary Care Center, and, even though most patients have no means of paying for medical care, NCH treats and admits them without questioning them in advance concerning their ability to pay, insurance, Medicaid and the like. Mr. Akin has previously attempted to refer his indigent patients to the Fort Myers area hospitals with little success in having them admitted. LeHigh Acres Hospital is considerably closer, being 24 miles away, but Mr. Akins has had little success in having the indigent patients he serves admitted there. Instead, he refers to Naples since the patients are treated with the same dignity and decency as paying patients at that hospital. In excess of 50 per cent of the patients he refers from the primary health center to Naples never pay anything for the services received. Approximately 30 per cent of the non-emergency patients referred to Naples annually are pediatric referrals. About 30 per cent of the emergency referrals are also pediatric patients. Four hundred to four-hundred fifty non- emergency patients annually are obstetric patients who come to full term and are delivered. It is unlikely that any of the pediatric patients would be referred to a hospital, such as the proposed Community facility, which does not have a discreet pediatric unit with a specialized staff and equipment, since the primary care center in Immokalee has the capability of treating any overnight, routine pediatric problem itself, and any pediatric patient that cannot be handled on a one-day admission at the facility, can be sent to the discreet, specialized pediatric unit at Naples Community Hospitals which Community of Collier will not offer. The standard procedure at Naples Community Hospital for admitting patients who do not have a private physician or a private physician referral, is nondiscriminatory. That is, in the triage process, when a patient arrives at the emergency room, for instance, only the patient's name, address, age, date of birth and questions eliciting his medical status are asked upon his arrival. Depending on the nature of the injury involved, the on-call medical specialist for that type of injury is then summoned to the emergency room. If it appears necessary to admit the patient to the hospital, the on-call specialist authorizes the admission. When the admission determination is made, there is no information available on the admitting documents and no questions are asked to indicate whether the patient is a paying patient, a nonpaying migrant worker, an insured patient, or a Medicare patient. Naples presently has a labor and delivery area with a birthing room and a three-stage cohort type of nursery. Infants move through three different stages in the nursery depending on age, so as to reduce infections. Seventeen of the 24 beds on the floor are designated as OB beds. Whenever more than 17 patients must use that floor, they are able to expand to gynecological medical surgical beds on the same floor which thus gives a total capacity for OB patients of 24 beds. The OB services as proposed by Community are essentially duplicative of the services in existence at Naples Community Hospital, although with a less intensive level of care for 08 and pediatric patients. Essentially all the other services proposed by Community duplicate these services already available to area residents at NCH and the other pertinent hospitals. Thus, it is apparent that if Community's facility is located where proposed, it will actually serve an area that is more elongated north to south rather than east to west, and will in reality serve the more affluent, private- paying patient origin areas lying in west-central and northwest Collier County. The reason for this is that most of the indigent patient population will bypass Community of Collier's Hospital and go to Naples for the above delineated reasons, and Community would then tend to draw patients from the more populated, wealthier areas on a north-south line from the Naples area up to and across the Lee County line rather than on an east-west axis. The fact that Community/NME would serve primarily privately-paying patients is exemplified by the fact that NME's other Florida hospitals typically have no (or very minimal) Medicaid patient days, such that that parent company's policy is not one of encouraging service to Medicaid or indigent patients. It is thus apparent that with the advent of Community/NME's hospital that there would be created two different patient bases or patient markets, with Naples continuing to serve the vast majority of the indigent, Medicaid, or bad- debt patient base. Community/NME would garner its patient base largely from private-paying, more affluent patients with substantially less bad debt ratio. This would siphon off much of Naples's private paying base, such that, with its already slim or sometimes nonexistent profit margin, its financial viability would become more and more in doubt. This would raise the alternative mentioned above of either raising its rates substantially, causing health care costs for the consuming public to rise significantly, seeking relief from the taxpayers of Collier County, or curtailment of available services to indigents and all other patients, especially GE and pediatrics; possibly even all three cost coverage alternatives. Such an eventuality would ultimately result in a reduction in the quality of health care afforded the patient public. NAPLES AVAILABLE AND PROPOSED SERVICES Mr. Mike Jernigan was tendered by NCH and accepted as an expert in health care planning and hospital financial management. Mr. Jernigan is employed as Director of Planning at Naples and prepared the instant Certificate of Need application seeking 30 beds. Naples has recently added 43 psychiatric beds under previously issued Certificates of Need. The instant application contemplates relocation of the 43 psychiatric beds to the fourth floor of a support building, there creating a discrete psychiatric care unit. Naples amended its request at hearing so as to seek 20 instead of 30 medical/surgical beds to be added to the space to be vacated by the 43 psychiatric beds. No significant construction will be required in the vacated space, rather semiprivate rooms will be converted to private rooms. The 1.7 million dollar project cost is chiefly attributable to the construction of the facility which will house the licensed 43 psychiatric beds. Thus, the reduction in the number of acute care beds sought from 30 to 20 will not significantly alter the 1.7 million dollar project cost. Naturally, the minor project costs attributable to installation of 10 acute care beds in the vacated, former psychiatric bed space will be lessened by an amount attributable to 10 beds. In any event, NCH has been demonstrated to have adequate financial resources to undertake the project outlined in its application and has those funds committed. Naples can add these 20 proposed beds and successfully operate them as a minor addition to its now feasibly operating acute care hospital. Naples has recently opened a free standing, primary care center called North Collier Health Center, in the vicinity of the proposed site of Community/NME's hospital. That facility includes a radiology room, laboratory and emergency medical service station, in addition to offering normal, primary care services. It is staffed 24 hours a day, seven days a week with a physician, but does not have inpatient beds. A similar primary care center has been constructed on Marco Island. Both of these centers have been added to Naples complement of facilities and services in implementation of a long-range health care expansion plan designed to make Naples' services more accessible and available to the public throughout its Collier County, southern Lee County service area. Given Naples low and sometimes non existent margin of revenue over expenses, the construction of these two facilities was rendered largely financially feasible through the donation of the land for both of them through community fund raising efforts, and the construction of the Marco Island facility was accomplished with entirely donated funds. The EMS substation at the North Collier Primary Care Center is operated and financed by the county, and the sleeping quarters at that sub station and at the Naples main campus facility for EMS personnel are provided free of charge at some financial loss to the hospital. Such an arrangement constitutes good health care planning, even though it results in some financial detriment to Naples, since it makes the emergency medical technicians immediately available to assist emergency patients who are transported to the primary care centers by their own means, and shortens the reaction time for emergency personnel since they are not located at separate locations from the hospital or primary care centers. These arrangements further Naples' long range goal in making its emergency primary care and primary care services more available and accessible to the public in its service area, which goal receives strong public support as evidenced by the large public donations which largely made the installation and operation of these facilities possible. Since Naples is a not-for-profit hospital, any excess of revenue over expenses it experiences is used to acquire new and needed equipment or expand facilities, including facilities and services such as these. The installation of Community/NME's hospital at its proposed locations especially, would duplicate the services offered at North Collier Primary Care Center and to a great extent those offered at the main campus of NCH in Naples. It was established through the testimony of Miles Price, an architect specializing in hospital design, that the construction costs, architectural costs and related inflation factors depicted in Naples' application are reasonable and accurate with regard to the relocation and construction for the psychiatric beds, which are to be moved, and the installation of the 20 acute care beds proposed. Acquisition of equipment necessary for the operation of the 20 proposed beds will be financially assisted by its present shared purchasing arrangements, whereby it is able to obtain resultant discounts in acquisition of the necessary equipment needed for installation and operation of the new beds. BED NEED AND BED ALLOCATION Thomas Porter was tendered and accepted as an expert in health care planning in Florida. Subpart (23) of Rule 10-5.11, F.A.C. is the acute care bed need determination methodology. It is the policy of HRS in accordance with the legal mandate referenced herein to facilitate the use of subpart (23) of the rule by regularly compiling and disseminating district bed need information, including that depicted in Community's Exhibit 16, which includes a memorandum from Phil Rond, the Administrator of the Office of Comprehensive Health Planning of HRS. If the formula at subpart (23) of the above rule is employed using historical utilization data from the years 1981 through 1982, a net bed need of 375 for all of District VIII results and that is the current bed need status of the district advocated by Community. However, as established by the memorandum from Mr. Rond incorporated in Exhibit 16, the most recent utilization data includes that for the year 1983, which is the most recent hospital reporting period envisioned by the formula and above rule. When the 1983 utilization data is added to the 1981-1982 information, a drop in total bed need for District VIII occurs from a figure of 4,147 beds to 3,654 beds. When licensed and approved beds are subtracted from that figure, a minus bed need results and District VIII has an excess of 118 beds. The rule formula at subpart (23)(g) dictates that the three most recent annual hospital licensure reporting periods must be used for the utilization data necessary to operate the need determination formula. 2/ The use of the most recent utilization data, including 1983, for District VIII causes the overall projected occupancy level contemplated in the methodology (at 10.5.11(23)(g)(2)) to fall below 75 per cent, when the bed need calculation is carried out to its conclusion. Given the projected occupancy falling below 75 per cent, the end result is that gross bed need in District VIII is 3,654 beds, rather than 4,147 beds as postulated by Community. Community contends that the 1983 utilization data should not be used since it was not available for Districts I and II and should not be used for any district until it is available and disseminated for all districts 3/ The reason the department promulgated Mr. Rond's special memorandum with regard to the bed need projections for District VIII, was to alert users of that information that in that particular district the drop in the most recent utilization data triggered the rule mechanism of subpart (23)(g)(2) because it revealed that the overall projected occupancy levels would fall below 75 per cent, all of which showed on a district-wide basis an over-bedding of 118 acute care beds. Mr. Larry Bebe is Acting Executive Director and Planner for the District VIII Health Council. He was accepted as an expert witness in health care planning and public health administration. Mr. Bebe considers the local health council plan to be a valuable planning tool for purposes of allocating beds in District VIII on a less than district-wide basis. The plan was adopted in March, 1984, but has not yet been adopted as a rule by HRS. According to the District VIII Health Council Plan, that district is sub-districted by counties, except for Glades and Hendry Counties which are combined in a two-county sub- district. This form of sub-districting has been done for approximately seven years. District VIII is sub-districted on a county basis rather than on other geographical boundaries, because population data, useful in planning allocation of beds, is only available in the form of county-based population projections by age-specific cohorts from the Bureau of Economic and Business Research at the University of Florida (BEBR). Further, in considering the location of existing hospitals, the greatest proportion of people in the seven county area of District VIII can be located within a reasonable time and access to health care services by allocating the beds on a county sub-district basis. The population data promulgated by the BEBR is employed by HRS, is generally accepted as authoritative in Certificate of Need proceedings, and is herein. It is not available by age-specific cohort in the census tract geographical subdivisions attempted to be used by Community in 4 in delineating its purported service area. 4/ Performance of population based health care planning must be done consistently and future need must be projected based upon preparing utilization rates predicated on the same population geographical area each time. A common geographical basis for allocation of beds, such as counties, is most appropriate since that is the basis on which the most accurate population data is available. The bed allocation methodology used by the local health council to allocate beds by county sub-districts is contained in Naples Exhibit No. 35. Bed allocation on a county sub-district basis is determined by taking the overall bed number available from the state methodology rule formula and breaking it down into county sub-districts according to the District VIII health plan methodology. This methodology takes into account existing hospital utilization and location, changes in population, and projected patient days. All items of information to operate the allocation formula are obtained on a county basis. Under the District VIII health plan methodology, when existing beds are subtracted from needed beds, a projected need for 20 medical/surgical beds in Collier County results with an excess of 41 existing beds in Lee County for the horizon year of 1989. Mr. Porter corroborated Mr. Bebe's testimony and established that, although not adopted by HRS rule, the sub-districting of District VIII by county for health planning purposes conforms with HRS policy in terms of population and geographical criteria and constitutes a reasonable and rational health planning tool. The methodology used by the local health councils to allocate beds to the counties incorporates standard, accepted health planning practices and HRS' policy is not to interfere with that allocation of beds on a sub-district basis, so long as the subdistricting allocation does not exceed the bed need number for the district as a whole. Mr. Porter demonstrated that it is possible under the state Subpart (23) methodology to find no need or excessive beds at a district level, however, by applying the local health council methodology a positive mathematical need might be shown in one or more county sub-districts. Thus, it has been shown that the local health council allocation method which reveals a 20-bed need for Collier County is the result of a rational, standard, accepted health planning practice with regard to determining projected bed need on a less than district- wide basis. However, although that methodology shows a formula-based "need" in Collier County, the above findings reflecting the severely declining utilization experience in Collier County at NCH, together with its already scant operating ratio, when considered with the future effect on its utilization rate caused by the advent of Gulf Coast Hospital, show that no true need for any beds exists. Bed need projections are not the only pivotal considerations in determining entitlement to a CON. Brown and Kendall Lakes Hospital, Inc., Humana, Inc. d/b/a Kendall Community Hospital v. HRS, 4 FALR 2452A, (Final Order entered October 6, 1982).
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the application for a Certificate of Need submitted by Community Hospital of Collier, Inc. for 150-beds for northern Collier County be DENIED, and that the application for a Certificate of Need submitted by Naples Community Hospital, Inc. for the addition, as amended, for 20 beds be DENIED, and that, in view of the application involved in Case No. 84-0909 having been withdrawn, that that case be CLOSED. DONE and ENTERED this 16th day of August, 1985 in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of August, 1985.
The Issue Whether Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): 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 The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(8): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the costs and methods of the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
Findings Of Fact Procedural background: Petitioner, COMMUNITY DIALYSIS CENTERS, INC., d/b/a COMMUNITY DIALYSIS SERVICES OF LAKELAND (CDC), owns and operates a 16- station outpatient kidney dialysis facility in Lakeland, Florida. On February 14, 1984, Respondent, WATSON CLINIC (WATSON), received a certificate of need to operate a four-station outpatient kidney dialysis center in Lakeland, Florida, CON No. 2916, from the DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES (HRS). Petitioner contests the grant of this certificate of need as an existing provider. Timely notice of the final hearing was issued June 26, 1984, and the final hearing was held as stated above. WATSON presented the testimony of Spero Moutsatos, Dudley Towne, Franklin L. Smith, Carter Fitzgerald, Joy Harrison, Nell Boutwell, Eugene DeBerry (by deposition), Sandra Biller, Dr. James Whitfield, John Dowless, Robert L. Mayer, Don Morris, Marilyn Neff, and Dr. Henry M. Haire. HRS presented the testimony of Ed Carter. CDC presented the testimony of Elaine Feegel, Jan Graff, and Michael Sullivan. CDC presented seven exhibits which were received into evidence, HRS had one exhibit, and WATSON presented into evidence 27 exhibits. The parties stipulated that subparagraphs 6, 7, 10, and 11 of Section 381.494(6)(c), Fla.Stat., are not applicable to this case, but that subparagraphs 1 through 5, 8, 9, 12, and 13 are in dispute in this proceeding. WATSON seeks a certificate of need to provide kidney dialysis for end- state renal disease (ESRD) patients in the western portion of Polk County, District 8, and particularly in the vicinity of Lakeland, Florida. WATSON's proposal would also include training for home hemodialysis and chronic ambulatory peritoneal dialysis (CAPD). WATSON originally applied for ten dialysis stations, HRS Exhibit 1, but amended its application at the hearing to four stations. WATSON Exhibit 14, hereinafter W. Exhibit 14. The area in which WATSON seeks to provide services is now served primarily by the 16 dialysis stations operated by CDC. ESRD patients must either successfully dialyze, obtain a successful kidney transplant, or they will die. Evidence as to need was provided by Spero Moutsatos, Executive Director of the Florida End-Stage Renal Disease Network 19. Network 19 was established in August 1977 as a part of a national network established by Congress, administered by the Health Care Financing Administration. Network 19 gathers data in Florida regarding End-Stage Renal Disease (ESRD) patients, provides data and projections of ESRD dialysis need to the Department of Health and Rehabilitative Services (HRS), assists patients and professionals with information, serves as an ombudsman for patient complaints, and monitors and evaluates the quality of care delivered in dialysis facilities. Network 19 did two evaluations of need with respect to the WATSON proposal, WATSON Exhibits 1 and 2. In the last three years, following the growth in availability generally of renal dialysis facilities in Florida, Network 19 has considered need on the basis of sub-areas within a District in about 75 percent of the cases considered. As of September 1, 1984, most of the ESRD patients residing in Polk County were dialyzing at CDC in Lakeland. CDC Lakeland provided services for 51 patients and one home patient, while the remainder (10 in-clinic patients and 16 home dialysis patients) were treated at Lakeland Regional Medical Center, CDC Winter Haven, CDC Tampa, and BMA of Orlando (one patient). WATSON Exhibit 2. Dialysis often leaves a patient feeling very weak at the end of the dialysis session. Dialysis in-clinic is required at least three times each week and takes about four hours. Emergency services are needed nearby since on occasion a dialysis patient will become unconscious and need immediate attention and hospitalization. Patients needing dialysis frequently are not employed or underemployed and do not have money for extensive travel for dialysis. Based upon the zip code analysis in WATSON Exhibit 2 and the testimony of patients, the appropriate service area for consideration of the need for dialysis facilities in this case is at a minimum in Polk County, and more appropriately, the vicinity of Lakeland. While some Lakeland area patients in the past drove all the way to Tampa for in-center dialysis, this is not a suitable alternative. Only CDC Lakeland and CDC Winter Haven adequately provide in-center dialysis to persons living in the Polk County and Lakeland areas. Lakeland Regional Memorial Center does not provide in-center dialysis, but only provides services for chronic ambulatory peritoneal dialysis (CAPD) Rule 10-5.11(18), F.A.C., establishes the methodology applicable in this case for determining need for chronic renal dialysis facilities. This rule sets forth the method to project the number of patients who will need dialysis one year from the date the application is deemed complete. The number of dialysis stations needed is then computed by using an 80 percent use rate for each station. The rule provides that each station at 100 percent use can dialyze four patients, assuming two shifts, six days each week. (Each patient dialyzes three times during the week.) Evening or third shifts are not counted as a part of capacity. The 80 percent use rate results in a capacity of 3.2 patients per station. The record evidence reflects that 80 percent is a reasonable level of use to set as a maximum justifying additional stations. The 20 percent additional capacity is needed for transient patient dialysis during the winter season, to account for repairs and maintenance on machines, and to provide some leeway when there are staffing problems. The net number of new stations needed is then computed by dividing the number of projected patients by 3.2 stations and subtracting from this the number of existing stations. The use rates for the two in-center dialysis facilities in the Lakeland area for the most recent quarter prior to the hearing show that facilities in the area are over the threshold for expansion: Utilization Month Rate (percent) CDC Lakeland July 1984 78 August 1984 81 September 1984 81 CDC Winter Haven July 1984 85 August 1984 87 September 1984 88 The evidence indicates that the above rates are not unusual, but reflect an upward trend in the area. In 1983, CDC Lakeland operated at an average of 76.5 percent, and CDC Winter Haven operated at 77 percent of its capacity. Network 19 projects a need by September 1, 1985, for six additional in-center dialysis stations for Polk County, and seven additional stations for the Lakeland sub-area. These calculations are explained in WATSON Exhibit 2 and the testimony of Mr. Moutsatos, transcript pages 68-72. The methodology for these projections is to take the ESRD patient census from Net work 19 records as of September 1, 1984, for the particular area, subtract the number of actual home dialysis patients on that date, add the number of patients projected for the area as new patients by September 1, 1985, calculated using 116 new patients per one million of projected population, subtract the number of these new patients expected to go on home dialysis, subtract the projected number of kidney transplants for the coming year, add back 25 percent of these transplant patients as transplant failures, subtract projected deaths of patients, and add back the number of patients on home dialysis which must return for in center dialysis. The final number is the number of patients expected to need in-center dialysis by September 1, 1985. Then, using 3.2 patients as the optimum per station, the number of stations projected as needed by that date, less the existing number, yields the projected net need. These projections of need followed the formula set forth in the rule. Moreover, there was no evidence that the assumptions or data underlying the above methodology was unreasonable, inaccurate, and for any other reason unreliable. Based upon the evidence, there is in fact a need for six in-center kidney dialysis stations for Polk County by September 1, 1985, and a need for seven stations by the same time for the Lakeland sub-area. Polk County is the only county in Florida where all in center dialysis facilities are owned by one owner. That owner is Community Dialysis Centers, Inc., CDC. CDC also owns the only other somewhat near facility in Plant City. Of the 97 patients using in-center dialysis in Polk County on September 1, 1984, 54 percent of these (52 patients) were using CDC in Lakeland. Home dialysis and CAPD are two alternatives to dialysis in-center. These alternatives for certain patients are more desirable due to the greater freedom afforded by these methods. Training and continued assistance, however, is needed to allow use of these methods. CDC Lakeland has not in the last few years provided adequately in this area. CDC's current home training nurse, unit administrator Elaine Feegel, lives in Tampa and must commute to Lakeland each day, thus making it more difficult for her to provide home training. Ms. Feegel further has not been able to provide home training because she has been so busy trying to correct problems at the CDC Lakeland facility. In addition to the lack of home training, the evidence showed that for significant periods of time in the past few years the ESRD patients who have had to use the CDC Lakeland facility as their only reasonable source of dialysis have been subjected to seriously inadequate, and at times, dangerous health care. Several patients who now dialyze at CDC Lakeland, and who have used that facility for several years, testified to the quality of care received. The facility was initially named Kidneycare, and was not opened or operated by CDC. In late 1980 or sometime in 1981, CDC bought Kidneycare and took over the management of the facility. (The precise date was not established by competent non-hearsay evidence, but is irrelevant.) At some time after patients became aware that CDC was managing the Lakeland unit, the quality of care began to decline. The quality of care when the unit was operated as Kidneycare was adequate. Joy Harrison is a resident of Lakeland, Florida, and has depended upon kidney dialysis since 1978 to stay alive. She moved to Lakeland, Florida, in 1981. She is 41 years old and has two children, 12 and 8 years of age. Ms. Harrison dialyzed at CDC from March 29, 1981, until June 1984 when she went on CAPD. Dr. Haire has been her physician since 1981. Her testimony concerned the quality of health care at CDC from 1981 until June 1984. Ms. Harrison testified to the following regarding the quality of care at CDC, all of which were unrebutted and is found to be true: Another patient was dialyzing at the station immediately next to Ms. Harrison. Ms. Harrison, who was then being disconnected from her dialyzer at the end of her session, noticed that the other patient was getting sick. She told the CDC employee on duty. Ms. Harrison had to tell the employee three times, and still the employee failed to respond, continuing to work on disconnecting Ms. Harrison from her dialyzer. By this time, the adjacent patient had passed out and began vomiting. When CDC staff finally responded, it took 20 minutes to revive her. CDC staff failed to turn on the air bubble detector on another occasion when Mrs. Harrison as dialyzing. Air got into the lines. The air bubble came within three inches of entering Ms. Harrison's body when CDC staff stopped it. (The distance is the estimate of the Hearing Officer observing the witness indicate the distance.) Had the air bubble entered her blood stream, it may have killed her. CDC staff failed to observe or record the correct number of bags of saline solution that is normally to be given to a patient at the end of the dialyzing session to restore the correct balance of fluid and weight, and ended up giving her two bags too many. Ms. Harrison got very sick as a result. On another occasion, there was only one nurse on the floor. Ms. Harrison was dialyzing, and her feet began to cramp. Saline solution at times must be injected when cramps occur to prevent cramping. Ms. Harrison called out to the nurse, who was talking on the telephone, to tell her she was cramping and needed saline solution. The nurse continued to talk. A few minutes went by and the pain of the cramps got worse. Again, Ms. Harrison called to the nurse for help. The nurse continued to talk on the telephone. The cramps worsened, and Ms. Harrison's hands started to cramp, and she was in much pain. She then told the nurse that if she did not get off the phone and help, she (Ms. Harrison) was going to pull the dialyzing lines out by herself. The dialyzing lines are inserted into Ms. Harrison's arms with two 16-gauge needles. The nurse finally came to assist her. Ms. Harrison could hear the nurse's conversation on the telephone as she was cramping, and the nurse was "laughing and joking on the phone to somebody." (This testimony is not hearsay, but is admissible as proof of what Ms. Harrison heard, not for the truth of what the nurse said on the phone.) During the dialyzing process, nurses each hour are supposed to take blood pressure, weight, and temperature to insure that the patient's system remains stabilized during the otherwise rather intrusive and disruptive process of having all of their blood circulating outside their body to be cleansed. Nurses at CDC frequently failed to check these vital signs when Ms. Harrison was dialyzing for two and three hours at a stretch. Ms. Harrison later checked her medical record and discovered that weights and blood pressures would be recorded at hourly intervals when in fact no one at CDC had actually observed and taken these readings at these times. On other occasions she was given 5 percent extra saline solution, but CDC staff failed to record this in the record. Someone else came along and read the chart and tried to give her another dose of 5 percent saline solution. Ms. Harrison stopped her. When Ms. Harrison first dialyzed at the Lakeland facility, it was in good location near the hospital. Shortly thereafter, while under the ownership of CDC, it was moved to a small shopping center. The location, as will be discussed in additional findings ahead, was undesirable for two reasons: the outside was trashy, and alcoholics and transients hung around the parking lot and rear of the facility. ESRD patients who must dialyze to remain alive depend upon the continued health of special grafts that are placed in their arms or legs which provide access for the dialyzing needles three times each week. Ms. Harrison lost her arm graft apparently due to the negligence of CDC staff in the insertion of the needle or use of a needle with a burr on it. (Additional findings have been made ahead as to the substantial likelihood that the injury was caused by a needle with a burr on it.) On the day of the injury, Ms. Harrison felt unusual pain during the entire dialyzing process. When CDC staff took the needle out at the end of the dialyzing session, an aneurysm (a sac formed by enlargement of the wall of an artery, caused by disease or injury, Webster's New World Dictionary) had formed in her arm. That night the aneurysm broke and a blood clot came out. Ms. Harrison had to go to the hospital. Her graft was destroyed, and surgeons next created a Bentley button for further dialyzing. A Bentley button is another method of allowing access to the blood stream of an ESRD patient. Ms. Harrison still had some infection in her system from the failed arm graft. It was very important that the Bentley button be kept antiseptic and clean because it is a direct open hole providing access to the patient's blood steam. Ms. Harrison's infection was doing well, responding to antibiotics given to her by her physician. But as she was dialyzing at the CDC facility, the attending nurse failed to use the antiseptic procedure of wearing a mask and using gloves. At the end of the session, the button must be carefully cleaned and Betadine placed in the two holes. The nurse said she was in a hurry and did not carefully clean the Bentley button or put any Betadine in the button. She simply replaced the cap and wrapped gauze around it. By the next treatment several days later, Ms. Harrison's infection was worse, and she had to start again on antibiotics. For the next two months Ms. Harrison could not use the Bentley button. Finally, it failed entirely as a method of dialysis, and it was removed. Ms. Harrison now is on CAPD, but testified it is not working very well, and she does not know what alternative for dialysis she may have if it too fails. CAPD (chronic ambulatory peritoneal dialysis) is a method of dialysis that involves the implantation of a tube into the interior of the peritoneum. A bag of fluid is placed above the point of insertion so that the fluid will slowly drain into the peritoneal area. Blood slowly exchanges its impurities with this fluid. After a few hours, when the bag has drained fully, the process is reversed. The bag is lowered, and the fluid drains out. When the bag is again full, it is discarded, a new bag is attached, and the process begins again. On another occasion, the dialyzing machine was not working properly. A line collapsed, the red light was flashing, and when the line collapses, it hurts the patient. The nurses failed to respond. A technician, who is not supposed to do any work in connection with treatment of a patient, tried to come over and get the machine working again. During the time CDC owned the facility at Lakeland, there was a significant continuing turnover of nurses, thus subjecting patients to new nurses who were not very experienced in dialysis. Some stayed only a few months; others, longer. Ms. Harrison dreaded getting a new nurse because an untrained nurse often took three or four attempts to implant the needle and it hurt. Also, as described above, ESRD patients depend upon the life of their access point for their own life. An untrained nurse who is likely to cause injury to an ESRD patient's access is particularly hazardous to the health of that patient. Ms. Harrison served for a time as a patient representative for patients on her shift. Of the complaints made by patients, CDC only responded to the request that curtains be installed on the back windows to prevent vagrants from looking in at the patients. (A man was seen at the window on one occasion.) Another request, that a particular nurse not pump the blood pressure cuff up so high as to be painful, was not corrected. Nell Boutwell is an ESRD patient who has dialyzed for about seven years. She began her dialysis at Tampa General Hospital, then dialyzed at Tampa BMA. In about August 1978, she began to dialyze at Kidneycare in Lakeland. She had no complaints about the quality of care at the Kidneycare unit. There then came a time, which the witness was unable to establish precisely, when it became generally known among patients and staff that Kidneycare had been purchased by Community Dialysis Centers, Inc. The purchase by CDC occurred before Ms. Boutwell wrote a certain letter dated August 25, 1981. Ms. Boutwell testified to a number of matters concerning the quality of health care at the CDC Lakeland facility. Her testimony was unrebutted and is found to be true: Under Kidneycare, the Lakeland facility was typically staffed at about two nurses for four patients, or six nurses for a shift of 12 patients. When CDC took over, the number of nurses declined until there were only two or three nurses for 11 or 12 patients, about one nurse for four patients, which is approximately 50 percent fewer nurses. One result of having fewer nurses was that patients had to stay on the dialyzer machine longer because a nurse is needed to disconnect that patient, thus causing patient discomfort. The replacement nurses were not well trained. On one occasion, air got into the lines of Ms. Boutwell's machine. The available nurses were busy and failed to respond to her calls for help. A technician came over, and he finally was directed by another patient to turn off the machine. Then a nurse appeared and fixed the machine. Air in the machine is a life-threatening condition, as described above. CDC was short on tape and frequently had no Band Aids to cover the place where the needles are removed at the end of the session. When Kidneycare ran the Lakeland facility, it was clean. When CDC took over, the new location was dirty on the outside: there were bottles, dirt, and Pampers in the parking lot. A streak of blood was on the wall of the reception room a week before the hearing. Blood is sometimes left on the dialysis chairs from the last patient to dialyze, including the arm rest. Ms. Boutwell was concerned about cleanliness due to the risk of infection. A patient with a heart monitor attached during dialysis was left unattended as all nurses left the floor, and the monitor began to "act up", although Ms. Boutwell is not trained in reading such a monitor and could not say what it meant. The needle came out of the arm of one patient and he became unconscious as his blood drained onto the floor. This accident was not discovered by CDC staff, but was first discovered by another patient. The restrooms had no paper towels so that patients who wished to wash their hands had nothing sanitary to dry them on. A CDC nurse by mistake put Clorox into Ms. Boutwell's machine as she was dialyzing. The Clorox was intended for another machine which was being cleaned. Ms. Boutwell caught the error before it harmed her. Ms. Boutwell dialyzes early in the morning now, and in the winter it is dark when she arrives. Having vagrants hanging around the shopping center causes her fear. As will be discussed ahead, the artificial kidney in a dialysis machine is a relatively small tubular filter. After appropriate cleaning, an artificial kidney under some circumstances can be reused. Ms. Boutwell did not want to dialyze with an artificial kidney that had been used before. She had had experience with reused kidneys, and they did not clear her blood as well as new kidneys. Ms. Boutwell's insurance pays for a new kidney for each dialysis. CDC staff brought a consent form for Ms. Boutwell to sign agreeing to reuse. She refused to sign. CDC told her she either had to sign or she would not be allowed to dialyze at CDC Lakeland. Her only other choices involved unreasonable travel (Tampa, Orlando) or facilities owned by CDC (Winter Haven, Plant City) After continuing to refuse to sign the consent form, CDC allowed her to have a new artificial kidney for each dialysis. CDC Lakeland periodically was inspected by outside agencies. For the week or so prior to inspections, Ms. Boutwell observed CDC staff making unusual efforts to clean the facility and bring patient records up-to-date. For four years, Ms. Boutwell worked during the day, and thus had to dialyze at night. The administrator of CDC Lakeland told Ms. Boutwell that CDC was going to discontinue the evening shift. She told Ms. Boutwell that she could come early in the morning to dialyze, drive to Tampa in the evenings after work, or quit work. There were four patients using the evening shift. As a result of the proposal to stop the evening shift, Ms. Boutwell wrote a letter dated August 25, 1981, to Dr. Michael Pickering. Dr. Pickering had been one of the physicians associated with the clinic when it was Kidneycare and knew of the needs of those patients. In the letter, Ms. Boutwell asked for his help to prevent the cessation of the evening shift. She explained that dialysis left her in a weak condition, and that travel home from Tampa at 10:00 p.m. would not be safe, that dialysis at 6:00 a.m. at CDC Lakeland would require too many hours away from her job, that she did not have help for home dialysis, and that CAPD was not suited for her due to her work. Her letter is WATSON Exhibit 17. CDC sent a representative to investigate as a result of her letter. The representative told Ms. Boutwell that CDC was only "talking" about discontinuing the evening shift, but that they were not actually going to do it. This contradicted what the administrator had told Ms. Boutwell initially, leading to the conclusion that either on the first occasion or the second occasion, and more probably the second occasion, the CDC administrative staff was untruthful to one of their patients. On each occasion mentioned above when CDC staff told Ms. Boutwell that she could go somewhere else to dialyze if she did not like the new CDC policy, there was no adequate alternative for Ms. Boutwell to turn to. The suggestion that she could go somewhere else when no reasonable alternative existed was evidence of a callous indifference to her needs as a patient, and was harmful to the trust needed for a healthy clinical patient relationship. Ms. Boutwell had experienced dialysis at CDC since January 1984 when Elaine Feegel became unit administrator. Ms. Boutwell was of the opinion that Ms. Feegel was doing a good job as the new administrator, trying to clean the place up, trying to hire good nurses, and personally on the floor more often than her predecessor checking on the operation of the unit. She felt that she was personally getting good treatment at CDC Lakeland at the time of the hearing, November 6, 1984. The deposition of Eugene DeBerry, another patient who dialyzes at CDC Lakeland, was received into evidence as WATSON Exhibit 18. Petitioner's objections to certain portions of that deposition have been ruled upon in the conclusions of law. Mr. DeBerry began dialysis in January 1977 at Tampa General Hospital. Mr. DeBerry has dialyzed at seven other clinics and CDC Lakeland since he began at Tampa General Hospital. Mr. DeBerry's testimony has not been rebutted and is found to be true with respect to the following matters concerning the quality of care at CDC Lakeland: Of all of the units in which Mr. DeBerry dialyzed, the Lakeland unit operated by Kidneycare was the best, in his opinion. Mr. DeBerry was one of the six initial patients at Kidneycare when it opened on June 22, 1977. Kidneycare operated the clinic for two or three years before CDC purchased it. The original locations of the Kidneycare facilities (there were two) were about a block from the Lakeland General Hospital. The second facility that was used by Kidneycare had a central nurses station that permitted observation of all kidney dialysis stations at one time. About a year after CDC bought the Kidneycare facility, CDC moved it to its present shopping center location. Mr. DeBerry described the same problem with vagrants and trash on the outside of the CDC facility as described by other witnesses. There have been occasions when these vagrants have entered the clinic to use the restrooms, sit in patient chairs, or steal. Mr. DeBerry requires a wheelchair for movement. The restroom at the CDC unit is too small to allow him to use the toilet, that is, it is not accessible to a wheelchairbound person. Similarly, the waiting room for patients is not suitable for wheelchair patients, and Mr. DeBerry has to wait in his wheelchair in the hall. Kidney dialysis patients are restricted on intake of fluids, so being able to have coffee or a soft drink is a special treat. At the beginning of dialysis in the first hour there is an opportunity to drink a liquid. Kidneycare used to provide this treat; CDC cut it out, stating that it was expensive. When CDC took over the unit, the attitude of the nurses changed. The nurses said that CDC was very cost-conscious, and were cutting back on expenses, including nursing staff, that CDC wanted to get rid of four nurses. (This hearsay evidence was corroborative of direct testimony that the staffing under CDC was decreased by about 50 percent compared to Kidneycare staffing.) When CDC took over the unit, it attempted to require all patients to use only one type of artificial kidney, or to stock only a few. ESRD patients, however, have different needs. Some still have a portion of their natural kidneys intact and operative, and need less dialysis, and especially cannot tolerate large losses of fluid during dialysis because this causes painful cramps. Others, like Dr. DeBerry, have no kidneys, and need an artificial kidney that dialyzes more completely. The CDC effort to cut this cost ultimately was blocked by the orders of individual physicians requiring specific artificial kidneys for their patients. Within six months of the CDC takeover, CDC circulated a consent to reuse form among all patients. The form relieved CDC from responsibility for harm that might be caused by reuse of artificial kidneys. Darlene, the CDC unit administrator told Mr. DeBerry that he could either reuse the artificial kidneys or he could dialyze someplace else. Mr. DeBerry did not want to reuse due to the possibility of infection. He had already lost not only his kidneys, but his bladder, prostate, and both legs due to infection. But Mr. DeBerry could not go on home dialysis because it caused him severe hypertension, and travel to Tampa was unacceptable, so he signed the consent form. After about a year of reuse, Mr. DeBerry again discussed his options with the unit administrator, then Pat Segien. Ms. Segien said that the CDC units at Plant City and Winter Haven also required reuse. The CDC unit was often short on important supplies. Mr. DeBerry had to dialyze with the wrong needle and the wrong kidney on occasion. The unit was out of Band Aids, tape, blood lines, and saline solution on a regular basis, and Mr. DeBerry complained about this several times. The CDC facility was not clean inside. Blood would remain on dialysis chairs, the floor, and on walls for a week or more. As a result of these problems with the quality of care at the CDC unit, Mr. DeBerry complained to Senator Lawton Chiles' office. Thereafter, Network 19 came in to inspect and the unit was cleaned up. When CDC took over Kidneycare, they began using a cheaper grade dialysis needle, and Mr. DeBerry began to experience a tearing of the place where the needle was inserted, resulting in bleeding around the needle throughout the four hours of dialysis. Mr. DeBerry complained to his physician. His physician then ordered CDC to provide him with the needle he had formerly used. CDC complied. Mr. DeBerry encouraged other patients who were experiencing the same bleeding to contact their own physicians. Now CDC seems to use the good needles generally throughout the unit. Pat Segien, the unit administrator, told Mr. DeBerry that CDC used the new, inferior, needles because they were cheaper. CDC cut the nurse/patient ratio to 1:4. It had been 1:3 or less under Kidneycare. The problem with having only one nurse for four patients is that nurses routinely during dialysis have to respond to special needs, including sick patients. Mr. DeBerry described the following example of why three nurses cannot adequately handle 12 patients: one patient passed out; two nurses responded. Another patient started vomiting, Mr. DeBarry's line got air in it, and another patient was nearly unconscious due to low blood pressure. The nurses were unable to handle all of this and continue to do the routine work of checking blood pressure of other patients. Mr. Deberry was home trained, and therefore knew to clamp off the incoming air bubble and turn off his blood pump, which he did himself. Mr. DeBerry had seen air enter the lines of other patients on a number of other occasions because CDC staff allowed saline or blood bags to be pumped dry without properly attending to them. Many of the patients sleep during the four hours of dialysis, and thus the attentiveness of CDC staff is very important to their health. Since CDC took over, there has been so much turnover of nurses that many of the nurses are not experienced. Under CDC management, technicians who were not trained as nurses were allowed to do blood pressures, put heparin in the dialysis machine, and mix the formula for the bicarbonate bath. These practices have now been discontinued by CDC. CDC suffered from a frequent lack of soap, towels, and toilet paper in the restrooms, and a lack of soap at the sink at the exit to the isolation room. Nurses had no soap to wash their hands after leaving the isolation room when that room was in use dialyzing a patient that required isolation from the other patients. It took six to eight months for CDC to buy curtains to stop vagrants from looking into the back windows at the patients at night. In May 1984, Mr. DeBerry was mistakenly given a double dose of Desferal, and went into such shock that he could not talk so as to tell the nurses the mistake they had made. CDC has been constantly out of blankets, and once recently was out of sheets. Mr. DeBerry's wife had to buy a sheet to enable him to dialyze on schedule that day. CDC nurses are supposed to keep patient medical records current. On several occasions, Mr. DeBerry was asked to go over and sign his records for as many as four months earlier, which had-not been kept up-to-date. This happened before inspections in particular. Prior to inspections, CDC staff makes a number of improvements, including updating records and cleaning the facility. The front door of the CDC facility is not adequately constructed to allow a wheelchair to enter unless the patient has one person to push him up the ramp and another person to hold the door. Since Elaine Feegel became unit administrator at CDC, the quality of care has improved, but the nurses still need to improve in implementation of sterile procedures. Mr. DeBerry felt that he had received good quality care in the last few months. Sandra Biller is a registered nurse specializing in hemodialysis. She is currently employed by the Lakeland Regional Medical Center. She has specialized in hemodialysis for six and one-half years. She was accepted as an expert witness in ESRD nursing. She has worked in hemodialysis nursing at the Kidneycare facility beginning in 1979 and remained employed there under CDC until October 1982. During the time that the facility was managed as Kidneycare, the quality of care was good. Then CDC purchased the facility and began management thereof. Ms. Biller testified to the following aspects of health care at CDC when she was employed by CDC. The testimony was not rebutted, and is found to be true: When CDC took over the facility, it changed the type of needle used. The new needles had burrs on them that tore the access points in the patients' bodies and prolonged bleeding. Trauma to the access ultimately decreases the life of the access. As was seen by the medical history of Joy Harrison, an ESRD patient depends upon the life of the access for her own continued life. When all accesses and dialysis methods have been exhausted, and dialysis becomes impossible, the patient dies. Moreover, burrs on the needles caused unnecessary pain to the patients. Kidneycare did not have these problems because they used Terumo needles. CDC "frowned" upon use of these needles, and required a special order by the physician to use these needles. The new needles used by CDC were cheaper and were used to save money. Patients and nurses complains about the use of the cheaper needles, but nothing was done about it. A policy was instituted by CDC requiring reuse of artificial kidneys by all patients. Patients were told to dialyze elsewhere if they refused to reuse. Some patients who objected to reuse long enough were allowed not to reuse, but CDC told nurses to keep that fact quiet among other patients, and did not tell other patients about the exceptions. Jerry Bryant, the area administrator for CDC, told Ms. Biller that the reuse policy was premised upon the size of the facility and a goal of having a certain percentage of patients reusing. CDC's reuse policy was initially limited by a standard that the reused kidney function at 80 percent of its initial capacity. This was then changed to 75 percent of initial capacity. At one point reuse was also limited to 12 reuses, but later some artificial kidneys were reused 25 or 30 times. Patients and nurses complained about reuse without success. The primary harm to patients caused by reuse was that Ms. Biller's patients did not feel well at the end of dialysis on a reused kidney. Reused artificial kidneys frequently still had dark brown clots of fibrin in them. CDC reused the parallel plate type of dialyzer, and this type of dialyzer was inappropriate for reuse because it was impossible to inspect between the parallel plates to see if the dialyzer was clean. One patient became septic reusing a parallel plate kidney. Reuse caused an additional health problem or potential health problem for CDC patients because a reused kidney is cleaned with formaldehyde which is toxic to humans and must not be ingested in excessive quantities. Cleaning the dialyzers with formaldehyde released fumes into the air. Although CDC had an instrument to measure the quantities of formaldehyde fumes in the air to insure safety to patients, it did not use it to test the air as required on a regular basis. There are several types of artificial kidneys, and some are more suitable than others for the needs of specific patients. CDC would not provide the type of dialyzers specifically needed by individual patients. Dialyzing machines were not maintained according to the 100- and 500- hour schedules for maintenance that they were supposed to have. Staffing at Kidneycare was two patients per nurse. Under CDC, the staffing ratio ultimately became four patients per nurse, a loss of 50 percent of the nursing staff. It was a dangerous condition for the patients sometimes. Many of the patients were unstable. The nurses did not have enough time to care for sick patients and monitor the equipment properly due to the staffing shortages. When CDC took over, the pay and benefits for nurses was regulated more strictly. All nurses were paid on an hourly basis. Sick leave went from an informal system to a strict accounting policy. CDC refused to carry over certain forms of sick leave earned as employees of Kidneycare. New nurses were placed in charge of direct care of patients without sufficient training. Nurses require four to six weeks not only to learn how to operate the machines, but more importantly, to learn what to look for as trouble signs in a dialyzing patient. Jerry Bryant stated it should not take more than two weeks to train a CDC nurse, and CDC nurses were put onto the floor with less than four weeks' training. One nurse was found to be doing dangerous things, and when Ms. Biller reported this, she was ignored and told to "watch her closely." The nurse was failing to turn on the air bubble detector and failed to close the saline line to prevent an overdose of saline solution. On one occasion a patient was negligently given three liters of saline solution, and this mistake was never documented on the patient's record. This sort of mistake happened more than once. One liter was the normal amount, and probably was not proper for this patient, who usually needed fluid taken off during dialysis. CDC staff generally did not show a professional attitude toward their work. They came in late without correction by the administrator. One nurse, who did the reuse job, wore dirty clothes, and she was handling the dialyzers. Sometimes a nurse would see that a patient was sick and vomiting and would walk right by, failing to stop and care for the patient. All of the nurses who originally worked for Kidneycare have left CDC and most work for Lakeland Regional Medical Center now. Typically, within a period of four years nurses do not leave a good dialysis center. Ms. Biller left CDC due to her dissatisfaction with the quality of health care provided at CDC. Patient charts were supposed to be done at least every two weeks. Sometimes the CDC staff would fail to complete these records for six or eight months, but would do so for an inspection. Charts were not kept current due to the shortage of nursing staff. Dr. de Quesada was the Medical Director of CDC when Ms. Biller was a nurse employed by CDC. He lived in Tampa where he had his practice, and she saw him at the CDC Lakeland facility about once a month. During emergencies, it was sometimes difficult to reach the Tampa physicians until two or three hours later. The Watson Clinic physicians were always available. Watson Clinic nephrologists were seen at the CDC clinic at least every week or so. James Whitfield is a physician specializing in internal medicine and kidney diseases. He practices nephrology with Dr. Haire and has treated ESRD patients who dialyze at the CDC Lakeland facility since July 1983. Dr. Whitfield observed the following matters with respect to the quality of medical care at CDC Lakeland which were not adequately rebutted and are found to be true: The most frequent problem at CDC was failure to achieve the proper weight at the end of the dialysis session. CDC staff is supposed to monitor the process so as to achieve the correct weight at the end. Leaving a patient with either too much fluid or too little fluid is hazardous to the patient. One patient on two successive occasions had too much fluid taken off, causing the patient to go into shock and necessitating emergency procedures to revive the patient. The problem was that the CDC dialysis machine had a part stuck in an open position, thus operating to remove excessive amounts of fluid. Patient records were not maintained in a current condition. Orders were given to CDC to take a blood count at the end of each dialysis because the patient had recurrent internal bleeding. CDC failed to take the blood count. The patient suffered a substantial drop in blood count, and had to be hospitalized for anemia. On another occasion, an order to use a particular type of artificial kidney was not followed by CDC. CDC delayed a long time in providing a bicarbonate dialysis machine, which was needed for several patients. Four or five weeks before the hearing, Dr. Whitfield had a patient that for a two-week period needed to be dialyzed daily. CDC refused to do this, stating that they would only get recompensed for routine dialysis and would not be paid for the extra dialysis. Medicare will pay for non-routine dialysis in certain cases, but in this case, CDC did not apply. In the summer of 1983, Dr. Whitfield performed a rectal examination of a patient, taking a small amount of fecal matter to test for blood. A week later he used the same examination room at CDC Lake land. He found the feces and towel he had used the week before in the same place he left it. CDC had not cleaned it up for a week. CDC has a goal of requiring all patients to reuse artificial kidneys. Formaldehyde is used to clean the kidney for reuse. The long-range toxic effects of formaldehyde are unknown. Many of the leaders in the field of dialysis feel it is inappropriate for ESRD patients to constantly be exposed to formaldehyde. Formaldehyde use also creates a heard of fumes in the air. Moreover, a reused dialyzer is not as efficient as a new one, and results in fluid not being removed properly from the patient, causing the patient to come back the next day for dialysis. On one occasion, a dialyzer that had been reused 15 times was supposed to have removed 10 pounds from a patient, but removed only two pounds, resulting in the discomfort of another dialysis session the next day. Reuse can, for some patients, be beneficial because the reused kidney does not cause a mild allergic reaction suffered by some patients. But the safe level of reuse cannot be established administratively at a single standard or level because the medical needs of patients vary greatly. Supervision of nursing staff at CDC has improved considerably since Elaine Feegel became unit administrator. John Dowless is a hospital consultant/supervisor, Office of Licensure and Certification, Department of Health and Rehabilitative Services. He is a team leader on an interdisciplinary survey of health care team. The team determines if health care facilities in Florida meet federal and state requirements. He has 40 years of experience in health care, and has worked in the above capacity for eight years. He was accepted as an expert in health care surveying. In late March 1983 his office received a request from the Health Care Financing Administration that Mr. Dowless' office conduct an investigation of the CDC Lakeland facility with respect to complaints received about the quality of health care at that facility. Mr. Dowless and Maryanne Judkins, R.N., constituted the survey team that conducted the investigation on or about April 8, 1983. The investigation was an unannounced visit. (Annual routine surveys conducted by HRS are announced in advance.) The purpose of the April investigation was to determine if the CDC Lakeland clinic was in compliance with Medicare regulations. WATSON Exhibit 4 contains the HCFA forms used by Mr. Dowless in conducting this survey. Mr. Dowless found more patient care deficiencies at the CDC Lakeland facility than he had previously found at any other renal dialysis facility. The survey team found three Medicare "conditions" not met by CDC Lakeland. Failure to meet a condition results in disqualification for Medicare participation by the facility. Mr. Dowless at that time was considering decertifying the CDC Lakeland facility as a Medicare provider. CDC then sent a representative from its Atlanta office, and CDC promised to make corrections. On June 20, 1983, a reinspection was made. Mr. Dowless found that the facility had made quite a bit of improvement. The facility did not lose its Medicare certification, and sufficient progress was made toward correcting the deficiencies. The April 1983 survey of CDC Lakeland by HRS found the following substantial deficiencies: One member of the nursing staff did not have a current Florida license. This was a violation of a condition to obtain Medicare participation. The governing body failed to effectively manage. It has no written policy on reuse of dialyzers. Patients were scheduled without an adequate time between treatments. The facility failed to adequately insure that physicians made rounds when the patients were in the facility. Records did not have physician signatures for orders. Patient copies of the grievance procedure did not inform them they could complaint to Network 19. The above cumulatively was a violation of a Medicare condition. There were no written policies regarding patients' rights available to relatives. This was a violation of a Medicare condition. The patient environment was found to be unsafe and unsanitary. A bloody reused kidney was placed on top of a disinfected dialysis machine. Two chairs used by patients for dialysis were soiled with blood. The nursing station had 21 items marked sterile with an expiration date 12 months earlier. Other dusty, dirty, and cluttered items were noted. The floor of the dialyzing area had soiled gauze, cotton, rubber gloves, and paper. A soiled mop and dirty water were stored in the supply room, and the floor of the supply room was dirty and cluttered. The acetate hemodialysis concentrate solution was contaminated. The emergency tray was not fully stocked. The facility had been directed by a written memorandum to discharge patients who refused to reuse dialyzers, in violation of the written discharge policy. CDC failed to recognize individual needs concerning reuse, forcing patients to choose between reuse and traveling 60 miles to Orlando to dialyze, and refusing to allow one patient to reuse who offered to pay for the new kidney. A year later, on April 5, 1984, HRS conducted its annual survey for Medicare certification. Annual surveys are announced beforehand, and as prior testimony indicated, CDC would make a special effort to clean up and correct deficiencies before such surveys. This annual survey found no discernible deficiencies. As a result of complaints about the quality of care at CDC Lakeland, Network 19 also conducted an investigation of the facility on May 2, 1983. The report of that investigation is contained in WATSON Exhibit 4. The report was acted upon by the executive committee of Network 19 and transmitted to HCFA for its information and action. The site visit was announced ahead of time to CDC. Network 19 concludes in the report that the problems existed at CDC due to lack of leadership at all management levels and poor communication. It also concluded that the physician director appeared to have no direct or deciding input into unit operations, and the new unit administrator was following corporate policy changes. It was reported to Network 19 that CDC had instituted changes to correct these deficiencies. Finally, after recommending that the physician director become more involved in directing the unit, the report concluded with the finding that there was no direct evidence that the health and safety of the patients were then being compromised. It is evident from the findings above that between the unannounced inspection by HRS on April 8, 1983, and the announced inspection by Network 19 on May 2, 1983, CDC made improvements. Dr. Alejandro de Quesada is the Medical Director of CDC Lakeland and CDC Winter Haven. He originally became involved with the Lakeland unit as an owner and investor, as well as a physician having ESRD patients treated three. He is responsible for delivery of medical care, but is not directly responsible for machine maintenance, purchasing of supplies, or personnel matters, including hiring and firing. In these areas, he becomes only involved to the extent that the Lakeland staff tells him about problems they have identified. Dr. de Quesada lives and works in Tampa and is an Associate Professor of Medicine at the University of South Florida as well. Dr. Tapia is Associate Director of the unit and he is located in Lakeland. Dr. de Quesada has been Medical Director at the Lakeland facility either in the fall of 1983 or 1982; he could not state precisely when. Neither Dr. de Quesada or Dr. Tapia attended the hearing, and Dr. de Quesada's testimony was made a part of the record by deposition. Dr. de Quesada admitted in general terms many of the problems found above (loss of experienced nurses, reuse of dialyzers, problems with needles) but did not have any detailed knowledge of these problems, did not state whether he felt the problems were serious or minor, did not elaborate on the cause of the problems, and asserted that each one had been corrected. He admitted that at about the time he became Medical director, there was a large turnover of nurses and medical care was not "optimum." The location and external condition of the CDC facility in Lakeland is very unpleasant. WATSON Exhibits 19, 20, and 21 are photographs taken during the work week (October 19, 22, and 26, 1984) and very close to the date of the hearing. The CDC facility is located in a small strip shopping center. Immediately next door is a grocery store. Drunks and vagrants hang around the shopping center. Thus, CDC dialysis patients must come three times every week to a place not associated with health care, but with vagrants and groceries. For two years CDC has received complaints about unsightly trash outside the CDC facility. Yet, one week before the final hearing these photographs show a dishearteningly filthy collection of debris in the gutter immediately in front of the door into the CDC facility. For patients who are so critically vulnerable to infection, this array of trash at the entrance to the place they depend upon for cleansing of their blood directly erodes their confidence in the CDC facility and is demeaning to them. Dr. Henry M. Haire lives in Lakeland and is a nephrologist. Since early in 1980, he has both been on the staff of Watson Clinic and a member of the treating staff at Kidneycare and CDC. He was accepted as an expert in nephrology. Dr. Haire wrote the original certificate of need application for WATSON. The original application for a certificate of need was the result of Dr. Haire's assessment in January or February of 1983 that it was unsafe for his patients to dialyze at CDC Lakeland due to the quality of care at that facility. Dr. Haire testified to the following matters concerning the quality of health care at the CDC Lakeland clinic. These matters were not adequately rebutted by the Petitioner and are found to be true: The quality of health care at CDC Lakeland has been like a roller coaster for the last four years, with poor care followed by improvement and then another decline in care. Care improved after the HRS and Network 19 investigation in April-May 1983, and then declined again. Since July 1984 the quality of care has again improved. There have been occasions when the Tampa treating physicians could not be located in emergencies, and Dr. Haire had to respond for their patients at CDC. Some patients need a bicarbonate dialysis machine to reduce acid levels. Dr. Haire waited 18 months after he requested CDC to obtain one of these machines before they did so. CDC on two occasions transferred patients of Dr. Haire without prior notification to him. One patient was transferred to Tampa when the night shift was discontinued. Two other patients were transferred to Winter Haven one month before the hearing. One of these patients was very unstable and needed to be dialyzed near Dr. Haire. Dr. Haire had her transferred to a physician in Winter Haven. As recently as July 1984, Dr. Haire had found that CDC staff had failed to take weights and record other data in the charts. On one occasion, Dr. Tapia, the Associate Medical Director at CDC who lives in Lakeland, was not available to handle an emergency involving evacuation of patients due to formaldehyde fumes in the room, and Dr. Haire had to fill in for him. Based upon the foregoing findings, the following additional findings are made: End-State Renal Disease (ESRD) patients are captive consumers. Without continuing adequate renal dialysis they will die. ESRD patients are particularly vulnerable in a variety of ways. Loss of the use of one's kidneys demands a major psychological readjustment for the patient. Confidence in the quality of health care is critical to the readjustment. Some ESRD patients are frail, confused, disabled in other ways, elderly, and cannot adequately protect themselves from inadequate health care during dialysis. Further, ESRD patients have a well justified fear of infection, since loss of dialysis access may mean loss of ability to dialyze and death. Dialysis is uncomfortable and painful under the best circumstances, and is easily made more uncomfortable and more painful if treating staff is overworked, untrained, or indifferent. The quality of health care at the Lakeland facility since 1980 when CDC purchased it and began to manage it has been inadequate in a number of ways. From 1980 until 1984, despite repeated complaints from patients, physicians, and nursing staff, the quality of care at CDC for substantial periods of time was inadequate. Improvements have been made in 1984. The current administrator, who took that job in July 1904, is doing an excellent job. She is well- qualified for the job and has shown a genuine interest in improving CDC Lakeland. The current regional administrator is equally well-qualified, and has also demonstrated a sincere desire to improve the Lakeland facility. But problems persist. A few instances of questionable care occurred within a few months of the November 1984 hearing. The outside of the facility remains trashy as of ten days before the hearing and the location of the facility continues to suffer from proximity to vagrants. From 1980 to 1984, the health care at CDC Lakeland has been erratic and unstable, improving only in response to an investigation under threat of loss of Medicare money, annual inspections, or the potential of competition that may occur as a result of this certificate of need proceeding. Health care which is erratic and unstable is unreliable and, for that reason, inadequate, and the health care provided by CDC Lakeland for this additional reason has not been adequate. The Watson Clinic was started in 1926. Today, it is a large specialty hospital providing a wide range of services, from primary care to open-heart surgery. It has 22 departments and specialty services. The Clinic has 75 affiliated physicians, all of whom, with the exception of two, are specialists. Of these, 67 physicians are partners in the partnership which owns and manages the Clinic. The organization of the Clinic as a multispecialty group practice was derived from the Mayo Clinic example. Major decisions are made by the full partnership. Day to-day management is committed to an Executive Committee and to the Clinic Manager, Dudley Towne. The Clinic is located in Lakeland, Florida, in Polk County. The Watson Clinic currently has approximately 265,000 outpatient visits annually. As of January 31, 1984, Watson Clinic had current assets of $3,084,200.36, of which more than 50 percent was in cash deposits. For the year ended January 31, 1984, the Watson Clinic collected over $27 million in fees and distributed more than $12 million to its 67 partners. The Watson Clinic partnership, through its Executive Committee and by vote of the partnership, approved the plan to seek a certificate of need for a kidney dialysis center. Watson Clinic's amended application for a certificate of need seeks a four-station unit. The Watson Clinic partnership will pay for the purchase of equipment of the proposed dialysis center, will pay all start-up costs, and will continue to absorb all losses until the dialysis center becomes profitable. The dialysis center would be managed as another one of the entities of the Watson Clinic. Watson Clinic does not necessarily plan to do more than break even in its operation of the dialysis center. From a fiscal perspective, the Watson Clinic frequently undertakes to provide a new service to its patients that itself may only be marginally profitable but that furthers the goal of the Clinic to be a full-service multi-specialty clinic. WATSON Exhibit 14 is WATSON's amended certificate of need application. The amendments were primarily to conform the application to the number of dialysis stations initially approved by HRS. WATSON originally requested ten stations, but HRS approved only four. The projected staffing for the dialysis center is one head nurse who would administer the unit, two staff registered nurses, one licensed practical nurse, and part-time assistance from a dietician, a social worker, and a secretary/receptionist. Watson Clinic is currently aware of six registered nurses with some background in nephrology who might fill one of the three nursing positions, and four licensed practical nurses. Of these, only one (one LPN) is currently on the staff of CDC Lakeland. There was no rebuttal evidence on these facts, and it thus appears that the new center could be staffed reasonably soon, and without causing a loss of staff to CDC. The projected salaries for staff were reasonable and sufficiently high to attract reasonably qualified staff. The total cost of the project is projected to be $81,500, and the underlying costs which make up this figure are reasonable. Two additional costs not included in the above figure were identified. Legal fees have been incurred in the amount of about $25,000, and this is paid by the Watson Clinic partnership, and future fees will be paid in a like manner. Most renovation costs will be of minimal expense. The dialysis center will be in a building owned by the Watson Clinic partnership directly across the street from the Clinic. The only cost not identified in the application that may be substantial is the cost of putting in plumbing. This, however, does not affect the financial feasibility of the project since the Watson Clinic clearly has sufficient assets to absorb the costs of plumbing renovation. The projected utilization of the new dialysis center is reasonable based upon the projected need data discussed above. It is projected that the new center will have ten patients the first month and will grow to a maximum of 16 patients by the seventh month, October 1985. Thereafter, the center is projected to operate at full capacity of 16 patients. WATSON Exhibit 2, page 3, shows a predicted 75 ESRD patients needing dialysis in the Lakeland sub-area by September 1, 1905. If 16 of these dialyzed at the WATSON dialysis unit, the remaining 59 would dialyze at CDC Lakeland, which would be seven or eight more patients at CDC than are currently using that facility. The data of projected ESRD patients from Network 19 were corroborated by evidence provided by Dr. Haire. Dr. Haire and his partners are currently following 12 patients with renal problems and expect six of these will need dialysis in the next four or five months. Dr. Haire estimated that initially four of his 22 patients now using CDC would immediately transfer to the new unit, and that later in the year another one or two would transfer. Dr. Haire finally estimated that the remaining six patients of the 12 mentioned above as having renal problems would need dialysis by the end of the year. Thus, the majority of the projected patients were in fact known to Dr. Haire by name and their projected needs currently identified. The projected operating revenues were based upon reasonable assumptions from experience in reimbursement and payment in dialysis centers in the industry and actual reimbursement experience at Watson Clinic. The operating expenses were likewise based upon experience in the industry and are found to be reasonable projections. Attached to WATSON Exhibit 14 are computer-generated pro forma financial statements. These statements project net income and operating profit for the new facility for a two-year period, and are premised upon the patient utilization rates discussed above, as well as projected revenues and expenses, including the expense of amortizing the initial project cost. The first year operating profit is projected to be $19,809, with a pretax profit of $428. The second year has a projected operating profit of $20,790 and a pretax profit of $13,126. The financial statements erroneously show a corporate income tax, which does not exist since the Clinic is a partnership, so the pretax profit is the same as the net income. The financial statements are conservative in that they presume that all patient revenue will come from patients who dialyze in the unit. Medicare pays for home dialysis as well, to encourage that form of dialysis, but since operating expenses are less for home dialysis, the new center will enjoy greater net revenue (approximately $6,000 more per patient per year) for each patient on home dialysis. Dr. Haire and his partners in their practice have historically placed great emphasis on home dialysis, and it is reasonably certain that the center will have greater net revenue as a result of their efforts to train new patients on home dialysis. The projected revenues are conservative for another reason: they are based on patient visits at a 90 percent rate during the year, rather than 100 percent of the available dialysis days. The 10 percent shortfall was used to account for missed appointments or hospitalization. For example, there are three dialysis days per week, or 156 dialysis days per year for 52 weeks. Thus, at 100 percent 16 patients would generate 2,496 revenue visits. WATSON's second year projection of revenue, however, is based upon 2,254 visits, or 90 percent of 2,496. Elaine Feegel, CDC's current administrator, however, testified that "very few" patients ever miss a dialysis visit. The willingness of the Watson Clinic, with its clearly ample resources, to absorb all losses from the new dialysis unit in order to provide a full range of services, means that the unit will always have a resource to turn to during the start-up phase and during lean periods. The evidence in the record also shows that the facility will be self-supporting in a reasonable period of time and therefore is financially feasible. The facility will break even in the first year based upon an average of 14.25 patients per month. While this utilization rate is somewhat high, it is supported by the evidence. First, Network 19 projects 75 patients needing dialysis in the Lakeland area by September 1, 1985. If 14 of these patients use the Watson unit, the remaining 61 can use the CDC unit, putting CDC at 95 percent of its capacity of 64 patients. Given the record of inadequate care at CDC and the fact that the Watson unit will be brand new, coupled with the association of the Watson unit with the adjacent Watson Clinic, it is very likely that the Watson unit will have from 14 to 16 patients regularly using the facility by the end of the first year. CDC's expert on accounting, Michael Sullivan, sought to discredit the financial feasibility of the proposed four station dialysis center, but his testimony was not persuasive. The portion of his testimony based upon the original CON application data was not relevant because the data was altered by the amended application. Mr. Sullivan also excluded pharmacy and EKG revenue from his calculations of revenue. The main Watson Clinic has both a pharmacy and EKG that will be used by the dialysis center. It is unclear on this record whether the revenues from these activities will, for accounting purposes, be treated as separate revenues of the dialysis center, or revenue of the Watson Clinic. The point is irrelevant, however, since the Watson Clinic will cover all losses that may occur at the dialysis center, and can use these center generated revenues to do so. Moreover, the amounts in question are relatively small. The annual projected EKG revenue is only about $600, and the annual projected pharmacy revenue is only about $7,000. If Watson Clinic successfully has three patients on home dialysis, it will enjoy $18,000 in additional revenue annually, which will more than cover any overstatement of pharmacy or EKG revenue. Mr. Sullivan's criticism that there was no expense indicated for fees of the medical director was not relevant since Dr. Haire will provide those services without charge until the center becomes financially self-sustaining. Mr. Sullivan's further criticism that administrative costs were not accounted for was similarly not correct. A portion of the rental fee will cover administrative services to be provided by the Watson Clinic. Further, the current plan is to computerize much of the billing, and the cost of the computer equipment is included in the financial statements. In summary, the evidence shows that the proposed dialysis center will be financially feasible. The quality of care that will be delivered by the proposed four- station center will with a reasonable probability be adequate. There was a substantial amount of evidence as to the qualifications of persons who will be involved in delivery of that health care, and no rebuttal of any consequence from CDC. WATSON intends to offer complete dialysis services consistent with the current state of the art, with new equipment, properly trained staff, professional operating and management procedures. a patients' bill of rights, adequate professional supervision, and adequate staffing. Dr. Haire, who will be the Medical Director, is well-qualified for the job. Initial planning and consultation will be provided by a professional consulting firm. The medical staff will be open staff. The proposed center will place great emphasis on self care and home dialysis since Dr. Haire and other nephrologists at the Watson Clinic actively encourage these techniques. Additionally, the Watson Clinic plans to offer a full range of support services, including dietary counseling, rehabilitation services, social services, and the like. When the new Watson facility opens, CDC Lakeland should experience some loss of patients, but will not suffer harm in the long run. Dr. Haire will continue to use CDC Lakeland for some of his 24 patients, since the new facility can only handle 16 patients at its maximum capacity. By September 1, 1985, there will be enough new patients in the Lakeland area that even if WATSON served 16 of these, CDC Lakeland still would be needed to serve the remaining 51 patients and would at that time be operating at 92 percent of its capacity. The new clinic will, over the long run, compete with CDC Lakeland for staff, but as discussed ahead, competition will be beneficial to patients and should result in better health care in dialysis in the area. Initially, however, as found above, the Watson facility could be staffed without "raiding" the staff at CDC since there is an adequate, identified pool of potential staff other than current CDC staff. Since CDC Lakeland has enjoyed a virtual monopoly over dialysis services in the Lakeland area for the last few years, and the quality of health care provided by CDC has been so unreliable, there is a great need for the Watson Clinic facility to provide CDC Lakeland with competition. Patients at CDC tried to persuade the management of CDC to improve, but when these patients objected to CDC policies and sought change, they were told to dialyze elsewhere if they were dissatisfied. Having the Watson Clinic facility available will enable CDC patients to make that choice, which should then result in sustained and real improvement at CDC. In sum, the need is such that the new facility will not really be duplicative of services provided by CDC, but to the extent it may be duplicative, the competition that will result will be beneficial, not detrimental, to ESRD patients. The parties may have proposed other findings of fact which have not been considered in the paragraphs above. Many of these are subordinate to findings stated above, are cumulative, or are irrelevant to the above findings and this case. Those of marginal relevance are considered in the following paragraphs: WATSON proposes that a finding be made as to the accidental infusion of formaldehyde and bleach into two patients on two separate occasions. This proposed finding was based solely upon hearsay, and therefore cannot be made on this record. WATSON proposes that a finding be made that formaldehyde causes cancer. There is no evidence in the record to support this finding. CDC Lakeland proposes a finding that the fluctuations in health care occurred as a natural consequence of change in management. This finding is contrary to the evidence and has no evidence to support it. CDC Lakeland proposes a finding that the absence of any projected cost for accounting or legal fees shows the project to be financially not feasible. The evidence does show that Watson Clinic has incurred about $25,000 to date in legal fees, and that it intends to pay these costs without attribution to the dialysis center. The issue, however, is basically irrelevant, since the Watson Clinic, which has sufficient funds to underwrite this project, intends to fund all costs until the project is self-sustaining. CDC Lakeland proposes a finding that Watson Clinic might expand to three shifts. There is no evidence to support this finding, and the only evidence on the evidence on the point is to the contrary.
Findings Of Fact Galencare, Inc., d/b/a Northside Hospital ("Northside") and NME Hospitals, Inc., d/b/a Palms of Pasadena Hospital ("Palms") were litigants in administrative proceedings concerning the Agency For Health Care Administration's ("AHCA's") preliminary action on certificate of need applications. Northside moved to dismiss Palms' application based on defects in the corporate resolution. The resolution is as follows: RESOLVED, that the Corporation be and hereby is authorized to file a Letter of Intent and Certificate of Need Application for an adult open heart surgery program and the designation of three medical/surgical beds as a Coronary Intensive Care Unit as more specifically described by the proposed Letter of Intent attached hereto. RESOLVED, that the Corporation is hereby authorized to incur the expenditures necessary to accomplish the aforesaid proposed project. RESOLVED, that if the aforedescribed Certificate of Need is issued to the Corporation by the Agency for Health Care Administration, the Corporation shall accomplish the proposed project within the time allowed by law, and at or below the costs contained in the aforesaid Certificate of Need Application. RESOLVED, that the Corporation certifies that it shall appropriately license and immediately there- after operate the open heart surgery program. In its Motion, Northside claimed that the third and fourth clauses in the Resolution are defective, the third clause because it does not "certify" that the time and cost conditions will be met and the fourth for omitting "adult" to describe the proposed open heart surgery program. Northside relies on the language of the statute requiring that a resolution shall contain statements . . .authorizing the filing of the application described in the letter of intent; authorizing the applicant to incur the expenditures necessary to accomplish the proposed project; certifying that if issued a certificate, the applicant shall accomplish the proposed project within the time allowed by law and at or below the costs contained in the application; and certifying that the applicant shall license and operate the facility. Subsection 408.039(2)(c), Florida Statutes. Northside also relies on Rule 59C-1.008(1)(d), which is as follows: The resolution shall contain, verbatim, the requirements specified in paragraph 408.039 (2)(c), F.S., . . . Palms' filed the Motion For Sanctions against Northside on November 15, 1993, pursuant to Subsection 120.57(1)(b)5 for filing a frivolous motion for an improper purpose, needlessly increasing the cost of the litigation, with no legal basis. Northside's claims that the Resolution was defective were rejected in the Recommended Order of Dismissal of January 11, 1994, amended and corrected on January 26, 1994, and not discussed in AHCA's Final Order of March 15, 1994.
Findings Of Fact University and West Broward filed applications in the same batching cycle to establish 7-station chronic renal dialysis facilities in southwest Broward County. On May 30, 1984, the Department denied their applications, and each filed a timely petition for formal administrative review. The petitions of University and West Broward were subsequently consolidated for comparative hearing. The proposals of University and West Broward are essentially the same. Each applicant proposes to establish a 7- station free-standing chronic renal dialysis facility within the southwest sector of Broward County to serve patients residing essentially west of the Florida Turnpike, south of West Broward Boulevard, and east of U.S. 27. The facilities proposed will offer a wide range of chronic dialysis services, including standard chronic hemodialysis, continuous ambulatory peritoneal dialysis (CAPD), home hemodialysis and home CAPD, bicarbonate dialysis, pediatric dialysis, and high-flux dialysis. The applicants also propose to offer comprehensive ancillary services to their patients including dietetic and social services, home dialysis training, laboratory, and blood services. The Need for the proposed facilities. Pertinent to this proceeding, Rule 10-5.11(18), Florida Administrative Code, establishes the applicable methodology for calculating numerical need for chronic renal dialysis facilities within a service area. Applying the rule methodology to the service area applicable to this case, District X - Broward County, 3/ establishes that there is an excess of nine End State Renal Dialysis (ESRD) stations in the service area, and no need for the proposed facilities. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services. Access to chronic dialysis care is a fundamentally important criterion in the evaluation of applications to establish such facilities. Dialysis is a life sustaining medical procedure whereby an ESRD patient's blood is passed through an artificial kidney to remove the impurities his dysfunctional kidney can no longer remove. ESRD is normally a lifetime form of health maintenance which requires three treatments of four to five hours duration each week. In addition to the life sustaining character of ESRD care, the importance of access is made more critical by the fact that dialysis patients are typically elderly and infirm. The average patient is over 60 years of age and suffers acute multi-system disease. Because of their age and infirmity, most dialysis patients must depend on family or friends for transportation to and from the facility. Accordingly, ESRD facilities must be sited so their services are available to an ESRD patient within a reasonable period of time. While the department averred that it had not established a bench mark which it considered a reasonable drive time for ESRD patients, the proof is clear that it consistently adopted the need recommendations of Network 19 which were predicated on a maximum drive time of 30 minutes to receive treatment. The evidence establishes sound medical reasons for Network 19's bench mark, and the Department failed to offer any persuasive proof why its prior application of a 30-minute drivetime standard should not apply in this case. 4/ Network 19 has, for purposes of determining need under its 30-minute accessibility standard, divided Broward County into three catchment areas; northern, central and southern Broward County. The southern catchment area, within which the proposed facilities would be located, currently has 50 approved ESRD stations, together with a 3-station backup at Memorial Hospital, and a projected need for 48 stations. Accordingly, no need exists, under Network 19's established collegiate policy, for the proposed facilities. While neither the Department's rule methodology nor Network 19's current policy demonstrate a need for the proposed facilities, University and West Broward assert that because of accessibility problems a need exists inn the "sub-area" of southwest Broward County that they have defined. 5/ To establish this "need," each applicant employed Network 19 to do an analysis of their zip code defined "sub area" (catchment area). Using the applicants' catchment area, and applying the rule based methodology to those catchment areas, Network 19 calculated a "need" within the sub-areas for 13-16 ESRD stations. Network 19 offered no opinion, however, as to the propriety of the applicants' catchment areas. Network 19's analysis does not establish a need for the proposed facilities. All Network 19's analysis establishes is that there exists an adequate ESRD patient base within the applicants' proposed catchment areas to support 13-16 ESRD. 6/ stations. Whether existing facilities are accessible to that patient base is dispositive of the question of need. 7/ To demonstrate that ESRD patients residing in its proposed catchment area were without the 30-minute accessibility standard, University introduced evidence of a drive time study it had commissioned. Utilizing eleven different routes from each ESRD facility serving south Broward County, the study circumscribed for morning, mid-day, and afternoon peak traffic hours a 30-minute drive time from each facility. University then took the data from the drive time studies done from Florida Kidney Center and BMA-Hollywood and superimposed it on a zip code map to demonstrate a 30-minute drive time from each of these facilities to the zip codes within its proposed catchment area. (University Exhibit 17) University asserts that this evidence demonstrates 7-8 ESRD patients must drive more than 30 minutes to receive treatment during the morning peak traffic hour, 8 patients must drive more than 30 minutes during the mid-day peak, and 6-7 patients must drive more than 30 minutes driving the afternoon peak. Therefore, University concludes, the evidence establishes that ESRD patients residing in southwest Broward County suffer an accessibility problem which must be addressed. University's proof is unpersuasive. University's Exhibit 17 does not purport to locate the residence of any ESRD patient within any zip code zone but, rather, simply indicates the total number of patients residing in each zone. Accordingly, in those circumstances where the 30- minute drive time line passes through a zip code zone the evidence can be as easily interpreted to demonstrate that those patients are within a 30-minute drive time from the selected facilities, as without a 30-minute drive time. Excluding such patients, University's exhibit only demonstrates that, at the most, 2 patients are without the 30-minute drive time at morning, mid-day, and afternoon peak traffic hours. These two patients, the same in each instance, reside in zip code zone 33332 and 33330. Network 19's data for November, 1985, reveals no ESRD patients residing in zip code zones 33332 or 33330. The patients University identified are the result of 1986 data. This is significant because Rule 10-5.11(18)(a), Florida Administrative Code, provides: The base period for determining the need for a proposed facility is one year from the date that the application is deemed complete by the department. Since the parties' applications were denied by the Department on May 30, 1984, there is no evidence of any ESRD patient residing outside University's 30-minute drive time study for the applicable base period. Even assuming that utilization of 1986 data were appropriate, University's drive time studies are not credible. University's analysis is predicated upon worst case conditions; peak traffic hours. With the exception of possibly the mid-day hours, ESRD patients will not be required to travel during peak traffic hours. Further, University's drive time studies are uncorroborated hearsay. They were prepared by David Plummer and Associates, Inc., at the request of University's health planning expert Nancy Persily. Not one witness from David Plummer and Associates, Inc., appeared at hearing to authenticate University's exhibits or to offer evidence which would demonstrate the veracity of the facts those exhibits sought to depict. In the absence of such proof, the opinions of Ms. Persily, and the other experts who relied on such studies, are not credited. In sum, the applicants have failed to establish that there exists any problem with availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization or adequacy of like or existing health care services for ESRD patients residing in their proposed catchment areas. 8/ The availability and adequacy of other health care facilities and services in the service district. The evidence is clear that there is an excess of 9-ESRD stations in the service district (Broward County), as well as an excess of ESRD stations in south Broward County. These facilities are adequate to serve the ESRD patients residing in southwest Broward County, and their services are readily available to such residents. Financial feasibility The applicants have demonstrated that their respective proposals are financially feasible. Such feasibility exists, however, solely because the physicians which will staff their facilities have existing ESRD patients residing in southwest Broward County. The financial feasibility of these proposals is, therefore, at the expense of existing facilities and not an indication of need. Other criteria The parties stipulated that the criteria established by Sections 381.494(6)(c)10 and 381.494(6)(d), Florida Statutes, are not applicable to this case. The need criteria established by Sections 381.494(6)(c) 6, 7, and 11, Florida Statutes, were not shown to be, and are hereby found not to be, applicable to this case. Each applicant has demonstrated that its proposal complies with the provisions of Sections 381.494 (6)(c) 3, 5, 8, 12 and 13, Florida Statutes. 9/
The Issue The issue presented is whether the application of Respondent Adventist Health System/Sunbelt, Inc. d/b/a East Pasco Medical Center for a certificate of need to add 24 acute care beds to its existing facility should be approved.
Findings Of Fact The Seventh Day Adventist Church owns Respondent Advent-ist Health System/Sunbelt, Inc. That corporation, which occupies a strong financial position, operates not-for-profit hospitals in several states, including Florida. One of the Florida hospitals is East Pasco Medical Center (East Pasco), located in Zephyrhills. Zephyrhills is in eastern Pasco County, which, for health planning purposes, is known as Subdistrict 2 of District 5. East Pasco is an 85-bed acute care hospital which provides most of the common services found in a community hospital. In addition to providing general acute care and obstetrics (OB), it has an intensive care unit (ICU) and offers neurosurgery and kidney dialysis services. East Pasco also has completed but not yet opened an 11-bed skilled nursing unit (SNU) and a 10-bed observation unit. The 11 beds in the SNU and the 10 beds in the observation unit are in addition to the 85 acute care beds for which East Pasco is licensed. For licensure purposes, acute care beds are not divided into types of service. East Pasco's current configuration for its 85 acute care beds is as follows: 68 medical-surgical beds, 8 ICU beds, and 9 OB beds. East Pasco has an active emergency room which experiences up to 30,000 visits per year. East Pasco obtains approximately 55 percent of its in-patient admissions through its emergency room. East Pasco is accredited by the Joint Commission for the Accreditation of Healthcare Organizations (JCAHO). Petitioner Humana of Florida, Inc. d/b/a Humana Hospital Pasco (Humana) is an existing 120-bed acute care hospital in Dade City. It is situated approximately 10 minutes away from East Pasco. Humana provides the same services that East Pasco provides, including medical-surgical, ICU/CCU, OB, kidney dialysis, and neurosurgery. Like East Pasco, Humana is accredited by the JCAHO. However, Humana's accreditation is "with commendation", the highest rating given by the JCAHO. Like East Pasco, Humana has a large medical staff, primarily consisting of physicians who have their offices located in Zephyrhills or Dade City. The medical staff rosters of Humana and East Pasco are virtually identical. Dade City is also located in east Pasco County, and the primary service areas of Humana and East Pasco are virtually identical. Like East Pasco, Humana serves the Medicaid and indigent patient populations. In its fiscal year 1991, Humana provided 6 percent of its patient days to Medicaid patients. In fiscal year 1992, that increased to 8.8 percent, the same as East Pasco. Humana's Medicaid patient days increased substantially with the introduction of OB services at Humana since Medicaid patients receive primarily OB services. East Pasco has been designated as a disproportionate share provider under the State's program to give economic incentives to hospitals serving a certain percentage of Medicaid patients. East Pasco also serves the indigent patient population pursuant to a contract between it and Pasco County. In September, 1991, East Pasco filed its application for a certificate of need (CON) requesting approval for 24 additional medical-surgical beds (acute care beds) for the July, 1996, planning horizon. In January, 1992, the Agency notified East Pasco of its intent to approve the application and issue to East Pasco CON No. 6783. Humana filed this challenge to the Agency's intent to grant the application, and this proceeding ensued. All parties subsequently stipulated that Humana has standing to initiate and maintain this proceeding and that Humana was not obligated to present evidence of its standing. East Pasco has proposed a new unit to house the 24 additional medical- surgical beds to be located on the third floor of a new three-story tower. That third floor would consist of 13,000 gross square feet (GSF), would cost $4,087,810, and would consist of only private rooms with three nurse stations. East Pasco proposes no new services, only additional beds. Construction of the three-story tower has not yet commenced but is awaiting the outcome of this proceeding. The first floor of the new tower will be a wellness center, a project which did not require CON review. The second floor will house a new ICU. East Pasco presented conflicting evidence as to the size of that new ICU. The Agency approved East Pasco's second floor ICU as a 12-bed ICU with a cost below the threshold cost which would have required CON review. In spite of the exemption from review obtained by East Pasco, it is specifically found that East Pasco intends to place a 16-bed ICU on the second floor of the yet-to-be-constructed tower. Thus, East Pasco would achieve its 16-bed ICU by relocating its existing 8-bed ICU and converting other beds to ICU beds. Thus, if the 24 new beds sought are approved they will produce 16 additional medical-surgical beds and 8 additional ICU beds. Resolution of the number of beds proposed for the second floor of the new tower is required in this proceeding for two reasons. First, the cost of this project is impacted. If 8 of the new beds are to be used as ICU beds rather than as medical-surgical beds, they will be more expensive to construct and equip. Second, corporate approval of corporate projects is a prerequisite in Florida's CON process. East Pasco's Board of Directors met on August 14, 1991, to authorize the filing of this application. This application proposes 24 medical-surgical beds, the corporate resolution filed with the Agency authorized 24 acute care beds, but the minutes of the Board's meeting reflect that the Board itself approved 24 beds for ICU and PCU services. Although ICU, PCU, and medical-surgical beds are all acute care beds, they are constructed, equipped, and staffed differently. For the reasons described below, there is no need in District 5 or in the east Pasco County Subdistrict for East Pasco's proposed 24 additional medical-surgical beds. Rule 59C-1.038, Florida Administrative Code, includes the numeric need methodology for projecting acute care bed need. Under that Rule, applications for acute care beds will "not normally" be approved unless there is numeric need. For the September, 1991, application batching cycle, the Agency published a fixed need of zero acute care beds needed in District 5, Subdistrict 2, which is composed of only East Pasco and Humana hospitals. This fixed and published need of zero was not challenged. Per paragraph (7)(d) of the Rule, additional acute care beds will "not normally" be approved unless the subdistrict occupancy is at or exceeds 75 percent. All parties agree that calendar year 1990 is the proper period to ascertain whether this standard is met. In 1990, the acute care bed occupancy rate in the Subdistrict was 55.33 percent. The parties agree that the Rule's occupancy standard is not met. Therefore, no additional beds should normally be approved. There is ample unused capacity in District 5 and in the Subdistrict to meet acute care demand. Humana's occupancy is well below 50 percent. In years and 2 for the proposed unit, East Pasco projects 1,042 and 1,760 patient days, respectively. Humana has sufficient unused capacity to accommodate that projected demand. Utilization trends support the lack of need shown by the need methodology and the occupancy standard. Acute care utilization in the Subdistrict has decreased since 1986. In 1986, the two Subdistrict hospitals generated 42,830 patient days, a 57.2 percent occupancy. In 1991, notwithstanding population growth in the Subdistrict, the two Subdistrict hospitals generated 41,756 patient days, a 55.8 percent occupancy. Clearly, then, there is no increased demand for acute care services, but only a reshuffling of market share between the two hospitals. Contrary to East Pasco's suggestion, first quarter utilization does not show need and has, in fact, been decreasing. For example, the first quarter (January-March) of 1986 generated 13,572 patient days in the Subdistrict, a 73.6 percent occupancy; in the first quarter of 1992, there were 12,482 patient days, a 66.9 percent occupancy, the lowest first quarter utilization in the last 6 years in the Subdistrict. Additionally, the average length of stay (ALOS) in the Subdistrict continues to decline. In the first quarter of 1991, the ALOS was 5.4 days; in the first quarter of 1992, the ALOS was 5.1 days. Accordingly, although East Pasco shows an increased number of admissions over the last several years, the continued decline in the ALOS has resulted in a decreasing number of patient days. The population growth in the Subdistrict is not so substantial as to demonstrate need. Humana relied upon population projections produced by a national firm specializing in demographic analyses. Such a population data source is generally more reliable than a county's own projections, relied upon by East Pasco. The Subdistrict is growing but not at an extraordinary pace. In comparison, the West Pasco Subdistrict is growing faster. There are no geographic access problems to receiving acute care services which would support a finding of need. There are many hospitals available and accessible to residents of the Subdistrict within 30 minutes travel time or less. The entire Subdistrict is within a 30-minute travel time of Humana and of East Pasco. Most of the Subdistrict is also within 30 minutes travel time to other acute care hospitals, including University Community Hospital in Tampa, Lakeland Regional Medical Center in Lakeland, and South Florida Baptist Hospital in Plant City. The Zephyrhills area in particular is within 30 minutes travel time to those other facilities. Humana is an available alternative to the proposed project. Humana is geographically accessible to the entire Subdistrict, provides all the services that East Pasco provides, and provides good quality of care. Humana's medical staff roster includes the same physicians that practice at East Pasco. Humana already serves the same geographic service area that East Pasco serves. Indeed, several East Pasco witnesses testified that patients are transferred to Humana when East Pasco is full, thereby acknowledging Humana as an alternative for Subdistrict residents. Hospitals situated outside the Subdistrict are also available and appropriate alternatives to the proposed project. These hospitals have unused capacity to accommodate the projected demand from the Subdistrict. Notably, residents of the Subdistrict have historically greatly utilized hospitals located outside the Subdistrict. In 1990, 63.7 percent of the Subdistrict's residents went to a hospital other than Humana or East Pasco. Thus, physicians and residents regard hospitals situated outside the Subdistrict as appropriate and viable alternatives. Since East Pasco does not propose to offer any new service, and since there is accessible unused capacity at Humana and these other facilities, there are better alternatives to adding new beds at East Pasco. In addition, although approving more beds at East Pasco would improve availability of services at East Pasco, such is not a planning consideration or a review criterion. East Pasco and Humana provide similar levels of Medicaid care. In calendar year 1991, Medicaid comprised 8.8 percent of all patient days at East Pasco, less than in 1990. From September, 1991, to August, 1992, 8.8 percent of all patient days at Humana were Medicaid days. The two hospitals also provide similar amounts of indigent care. Therefore, Humana is economically accessible to all residents of the Subdistrict. Facilities located outside the Subdistrict also are economically accessible. Physician preferences are not significant in formulating conclusions of need on a District or Subdistrict basis. Physicians may well have their own reasons for doing things which may be contrary to sound health care planning principles. Further, physicians' personal preferences are not relevant to ascertaining how existing resources can be best and most efficiently used. The acute care bed Rule provides that additional beds "may" be approved at a specific facility if its occupancy exceeds 75 percent even though no beds can be authorized pursuant to the mathematical calculations established by the Rule. While East Pasco achieved an occupancy rate of 78.78 percent in calendar year 1990, that statistic merely "opens the door" for an evaluation of whether there are compelling circumstances to justify the approval of beds at a specific facility despite the absence of need demonstrated by the acute bed methodology. There are no factors or circumstances which would justify the approval of 24 additional medical-surgical beds at East Pasco pursuant to the specific facility provision. First, there are accessible and available alternatives for meeting projected demand. The majority of east Pasco County residents outmigrate even when beds are available at East Pasco. There is an excess capacity in the Subdistrict and in the District. Second, East Pasco's application discusses seasonal overcrowding due, in large part, to using in-patient beds for "observation" patients. Observation patients are those with a hospital stay of less than 24 hours. East Pasco has recently completed a new 10-bed observation unit. In 1991, East Pasco averaged observation patients per day; therefore, this new 10-bed unit will ease the strain on East Pasco's in-patient beds. Third, East Pasco's application relies on the "overflow" of patients in the winter season to justify its proposed bed addition. The actual amount of "overflow" is reflected in East Pasco's transfer log, which shows that there were not that many patients transferred in 1991. In fact, there were several months in which there were zero transfers. Fourth, the proposed beds are only intended to handle "seasonal" population demands. The proposed unit would not be open year-round. East Pasco was below 75 percent occupancy from May to October, 1991. East Pasco acknowledges that the proposed beds are only for part of the year and are intended to accommodate the demands of the seasonal population, who are not necessarily residents of the Subdistrict. East Pasco's application in reality requests approval for adding 24 beds at a cost of over $4,000,000 to accommodate, by East Pasco's own projections, an average daily census of three patients the first year and five patients the second year in a unit that would be closed at least six months out of each year. That is an excessive expenditure to provide access to relatively few people, where access to nearby facilities exists. Although East Pasco has shown that on certain days it has exceeded its OB capacity, and although East Pasco maintains that its most common capacity problem is the lack of available ICU beds, East Pasco's application itself does not suggest that it intends to increase the number of OB or ICU beds. Further, although on certain days East Pasco has experienced over 100 percent occupancy and has placed patients in the hallways, that situation can be obviated by referring patients to other hospitals, and the situation will be alleviated when East Pasco soon opens its additional 10-bed observation unit and 11-bed SNU. East Pasco has, therefore, shown that it has an occupancy rate sufficient to entitle it to review despite the lack of need under the acute care bed Rule, but it has shown no other reasons why its application should be approved. The Florida State Health Plan includes various preferences for reviewing CON applications. On balance, the East Pasco application is not consistent with that Plan. The first group of preferences relates to the addition of hospital beds. The first item in that group provides that no additional beds should generally be approved unless the subdistrict occupancy is at or exceeds 75 percent or unless the applicant-facility is at 80 percent. Since calendar year 1990 data was used to calculate the need formula and Subdistrict occupancy standard, it is appropriate to use that same data to determine East Pasco's occupancy for evaluating this preference, rather than using two different time periods as the Agency did. In 1990, the Subdistrict was below 75 percent, and East Pasco's occupancy was below 80 percent. Therefore, this preference is not met. The second item under this group provides that "in the event that acute care bed need is shown", preference shall be given to an applicant who provides a disproportionate share of Medicaid and indigent services in the Subdistrict. This preference is not met since no "acute care bed need is shown". The next group of preferences is entitled "transfer and conversion of acute care beds". Because East Pasco does not propose to transfer or convert acute care beds, East Pasco does not satisfy any of the preferences included under this grouping. The next group of preferences is entitled "indigent care". The first item provides that preference shall be given to an applicant who provides a disproportionate share of Medicaid and charity care in relation to other hospitals in the District or Subdistrict. This preference is not met. Although East Pasco has historically provided more Medicaid and indigent care than Humana, there is no showing that East Pasco will provide disproportionately more Medicaid and indigent care for medical-surgical services specifically. Most of East Pasco's Medicaid participation is for OB and newborn services, not medical- surgical services. Both Humana and East Pasco provide less than 1 percent of their gross revenues for indigent care. Given that most of the Subdistrict population is elderly, indigent care is not a major issue. Also, it was stipulated that East Pasco does not know how much indigent care it provides for medical-surgical services only. The second item under this group relates to whether CON approval would negatively affect the financial viability of a disproportionate share hospital. This preference is not relevant to East Pasco's application. The third group of preferences is entitled "emergency services". The first item relates to the applicant's record of accepting indigent patients for emergency care. East Pasco presented no information on this in its application except for its proof that it has a contractual obligation to do so. The second item relates to whether the facility/applicant is a trauma center. East Pasco is not a designated trauma center. The third item relates to whether the applicant demonstrates a full range of emergency services. East Pasco did not address this in its application. The fourth item addresses whether the facility has ever been fined by HRS for violations of emergency services statutes. East Pasco did not address this item in its application. Therefore, East Pasco does not meet the preferences in this group. The fourth group of preferences is entitled "teaching, research, and referral hospitals". The application does not address these particular preferences, and East Pasco does not hold itself out as a teaching, research or referral hospital. Therefore, East Pasco does not satisfy the items under this grouping. The fifth group of preferences is entitled "specialized services". East Pasco does not propose to provide any specialized services and, therefore, items under this grouping are not satisfied. The District 5 Local Health Plan includes recommendations for reviewing CON applications. On balance, the East Pasco application does not satisfy that plan. The first preference relates to whether the applicant provides a disproportionate share of Medicaid and charity care. For the reasons indicated above regarding the State Health Plan, this preference is not met. Further, East Pasco's application does not suggest that the 24 medical-surgical beds sought will enhance its Medicaid or indigent participation. The second recommendation provides that "if a numeric bed need exists as shown by the state bed methodology", preference is given to an applicant who has generated certain occupancy levels. Because no numeric bed need was shown per the Rule methodology, this recommendation is not met. The third recommendation relates to the transfer of existing acute care beds. Because East Pasco does not propose a transfer of beds, its application is not consistent with this recommendation. The fourth recommendation gives preference to applicants who document the cost-effectiveness and efficiency of their project. East Pasco does not satisfy this preference. East Pasco failed to show any cost efficiencies for its project. East Pasco proposes to spend over $4 million to serve, on the average, 3 to 5 patients per day in years 1 and 2. That is cost-inefficient. East Pasco did not prove that the charges or costs of providing medical-surgical services would be any less than what it currently charges. East Pasco's application includes two pro formas: a hospital-wide pro forma and an incremental pro forma for the proposed 24-bed unit. The person who prepared those pro formas did not testify, and the person who did testify did not participate in preparing the pro formas. Further, the witness only testified to the reasonableness of the incremental pro forma; he did not testify, directly or indirectly, regarding the hospital-wide pro forma. An incremental pro forma alone does not demonstrate long-term financial feasibility, even if the incremental pro forma were reasonable. An incremental pro forma alone does not reflect the project as a whole. At East Pasco, there are several projects and activities on-going or planned that must be evaluated. In addition to the existing 85 beds, East Pasco has underway: (1) opening a 10-bed observation unit; (2) opening an 11-bed SNU; (3) a planned wellness center on the first floor of the proposed 3-story tower; and (4) the planned relocation and enlargement of its ICU to the second floor of the proposed tower. Those projects add expenses, put strains on cash, and require debt. Without considering all the activity at the hospital, one cannot reasonably ascertain whether the proposed $4.1 Million third-floor project is financially feasible. For example, a small project could show an incremental profit but the hospital as a whole could lose money. East Pasco simply assumes that its 24-bed unit will be financially feasible in 1994 and 1995, years 1 and 2 of the project. The health care field is too dynamic and volatile for such assumptions. For example, East Pasco had an operating loss in 1990 but did well in 1991. By not analyzing the hospital-wide pro forma and proving its reasonableness, East Pasco did not show the required financial feasibility. It only demonstrated the results of one component of an entire operation. East Pasco has left unanswered the question of whether the facility as a whole will be able to finance this project in conjunction with all its other requirements. Further, the application lacked sufficient and clear presentation of the assumptions underlying the hospital-wide pro forma. Restated, the hospital-wide pro forma is not self-explanatory. The incremental pro forma, showing the proposed revenues and expenses for the 24-bed medical-surgical unit for years 1994 and 1995, is not reasonable. The projected revenues are overstated, and the projected expenses are understated. The assumptions underlying the financial projections are unreasonable. Further, the profit projections are unrealistic; in year two, East Pasco projects a profit of about $615,000 on an average daily census of less than 5 patients per day. On its face, that is unrealistic. In 1991, East Pasco generated 24,517 patient days, which was virtually the same as its 1990 utilization. In 1993, East Pasco projects 26,220 days. In year 1 of this project (1994), East Pasco projects 27,262 days hospital-wide, including the 1,042 incremental days associated with this project. Thus, in just a 3-year period, East Pasco projects almost 3,000 additional patient days, and even more for year 2 (1995). It is not reasonable to assume such an increase in utilization since utilization during the first quarter of 1992 declined from first quarter 1991. Therefore, patient day projections are overstated, thereby causing overstated projected gross revenue. East Pasco's projected daily charge is based on the hospital-wide average charge. It is not based on historical charges for medical-surgical services specifically. It is unreasonable to use charges for hospital services as a whole when the proposed project is for medical-surgical services only. Because the underlying assumption is invalid, projected revenues lack credibility. In calculating deductions from gross revenues, East Pasco assumed the hospital-wide payor mix and did not specifically ascertain the payor mix (and, therefore, the deductions) for medical-surgical services specifically. Again, this is an unreasonable assumption. Deductions from gross revenue should have been analyzed for medical-surgical services specifically. Due to the invalid assumption, the deductions from revenue figures lack credibility. East Pasco projects 5.8 FTEs for year 1 and 6.0 FTEs for year 2. East Pasco proposes to operate the 24-bed unit as an independent unit. These staffing levels are insufficient. East Pasco's proposed utilization equates to a 4.8 average daily census, which requires two nurses at all times. By East Pasco's admission, to staff a unit with two persons at all times throughout the year requires 9.2 paid nursing FTEs in addition to ward clerks and other support personnel. If the volume fluctuated and the census exceeded 7 or 8, more than two nurses would be needed. Thus, the 5.8 and the 6.0 FTE numbers are too low. The proposed staffing does not allow one RN to be on the floor at all times. To maintain one RN on the floor at all times throughout the year requires 4.2 FTEs; East Pasco budgeted for one. East Pasco does not have excess RNs available from its existing staff to cover the proposed addition. The supplies expense shown on the incremental pro forma was based on a hospital-wide average. The proposed project is for a specific service, and one cannot reasonably use a hospital-wide average instead. Accordingly, the calculation of expense for supplies is not reasonable. The pro forma includes an expense item entitled "other". East Pasco offered no explanation for that expense. Also, the pro forma did not include a line-item for the HCCCB indigent care tax, which is 1.5 percent of net revenue. East Pasco's proposed 24-bed medical-surgical unit will cover 13,000 GSF and will cost more than $4.1 million. All rooms will be private. The unit will have three nurse stations. According to East Pasco, the unit is to be a basic medical-surgical floor and is not intended to be a progressive care unit (PCU). This proposed design is not reasonable and is excessively large by at least 30 percent. This design is inefficient and, in reality, is not the design of a basic medical-surgical unit, but is instead the design of a PCU. There are three main reasons why the design is excessive. First, it is not necessary or reasonable to have all private rooms. A regular medical- surgical unit should have about an equal split of semi-private rooms. Notably, East Pasco's new 11-bed SNU has 5 private and 3 semi-private rooms for patients who will require hospitalization for up to 90 days. Second, these private rooms are almost twice the minimum size required by state licensure regulations. Third, three nurse stations are unnecessary; only one nurse station is needed for a basic 24-bed medial-surgical unit. East Pasco currently has 68 medical- surgical beds on 2 units, and each such unit has only 1 nurse station. The existing 68 medical-surgical beds at East Pasco average about 360 GSF per bed. The proposed 24 beds will average 542 GSF per bed. All private rooms and 3 nurse stations are, clearly, the design for a PCU. A PCU is a step- down unit from an ICU, which has high staff-to-patient ratios thereby requiring more nurse stations. East Pasco's projected construction cost for the 24-bed medical- surgical unit is $142.91 per GSF. This is unreasonably understated. It is uncontroverted that an SNU is less costly to construct than a medical-surgical unit. According to its projections, East Pasco's 11-bed SNU cost $171 per GSF in 1992. Clearly, that SNU cost is substantially greater than East Pasco's projected construction cost at issue. This inconsistency was never explained by competent evidence. In evaluating East Pasco's estimates, the Agency's architect relied upon 1991 Means construction cost data. He averaged the Means' medium figure ($123 per GSF) with the high figure ($172 per GSF) to derive a 1991 estimate of $147.50 per GSF. To that, one must add a 10 percent contingency factor, inflation, and an architectural fee. That totals $187.69 per GSF. The $187.69 projected figure is consistent with the 1992 SNU cost figure of $171. Thus, for construction costs alone, East Pasco underestimated by $44.77 per square foot, which is about $582,000. East Pasco proposed to construct a three-story tower; the third floor will house the proposed 24 medical-surgical beds. The second floor will house a 16-bed ICU, comprised of relocating the existing 8 ICU beds and converting 8 other acute care beds. East Pasco's application project costs only cover the third floor; East Pasco maintains the second floor is exempt from CON review and thus its cost is not relevant. As described below, East Pasco unreasonably failed to include costs of the second floor in its application. A hospital project costing $1,000,000 or more (other than an out- patient project) requires CON review. In its letter for exemption East Pasco states that the second floor would contain 12 ICU beds and cost $975,000 (calculated by multiplying 6,500 GSF by $150/foot). That letter is erroneous for several reasons: (1) the $150/foot is in 1992 dollars and does not include inflation; (2) the $150/foot does not include a 10 percent construction contingency fee, which is necessary and reasonable; (3) the $150/foot does not include an 8.4 percent architectural/engineering fee, which is necessary and reasonable; and (4) the $150/foot does not include any debt or financing fee. Including these necessary amounts alone shows that the second floor, in truth, exceeds the $1,000,000 threshold. Also, the cost for equipping an ICU bed is $45,000 per bed; for 16 beds, that is $720,000 for equipment. Surely the size and cost of a 16-bed ICU is different from and greater than a 12-bed ICU. East Pasco stated in its exemption request letter that the second floor would have 12 beds even though East Pasco intends 16 beds. East Pasco and the Agency correctly argue that the exemption given to East Pasco by the Agency for its second-floor ICU project is not part of the instant application and cannot be considered in this proceeding. However, the accuracy and reasonableness of the costs projected by East Pasco attendant to the 24 additional beds it seeks are an integral part of this proceeding, as is the scope of the project being reviewed and challenged. The second and third floor projects are, in truth, one project. It is East Pasco's intention to add 16 medical-surgical beds and 8 ICU beds to its facility. To establish the 16-bed ICU unit, East Pasco needs additional acute care beds; East Pasco does not have 8 available beds among its existing bed complement to convert to ICU purposes. The OB beds often run at 100 percent occupancy and, during the peak season, the medical-surgical beds run high occupancy. Thus, East Pasco cannot fully implement the second floor without approval of the proposed 24 new beds. There will be no community benefits in terms of charges if this application is approved. "Net revenues" must be the basis for comparing charges between facilities. Net revenues refers to what third party payors (such as Medicare, Medicaid, HMO/PPOs and most insurors) actually pay for hospital services as opposed to what hospitals charge. Few patients ever pay gross charges, particularly in the elderly East Pasco Subdistrict. In 1991, Humana's average net revenue per day was lower than East Pasco's. Humana's actual net revenue per admission in its fiscal year 1992 was $4,180. East Pasco's projected 1992 net revenue per admission is $5,301. Thus, for 1992, third party payors paid, on behalf of their patients, less per admission at Humana than at East Pasco. In its application, East Pasco projects an 8 percent per year increase in charges. An annual increase of 8 percent is not promoting charge-efficiency. East Pasco's application did not demonstrate cost-efficiencies resulting from approval, but rather, cost-inefficiencies. First, Humana would lose patient volume should East Pasco be approved. Humana currently receives transfers and direct admissions when East Pasco is full. Loss of patient volume would increase operating costs per patient day at Humana. Second, there is no need for additional beds in the Subdistrict. There is already excess capacity in the Subdistrict. Exacerbating excess capacity promotes cost-inefficiency. East Pasco admits the unit will not even be open six months out of the year because there is no need for it then. Third, East Pasco projects very low census in years 1 and 2, about 3 patients per day in year 1 and less than 5 patients per day in year 2. Spending over $4,000,000 to accommodate such low utilization is inefficient and unreasonable. Approval of East Pasco's application would not promote positive competition. There is competition now in the Subdistrict between Humana and East Pasco. East Pasco already captures a larger market share of the Subdistrict than Humana. Approving this application would only tip the scales more in favor of East Pasco and would adversely impact Humana's already poor financial condition. The quality of care delivered at Humana is very good. The JCAHO rates all acute care hospitals, and its rating is widely recognized in the hospital industry. The JCAHO evaluates many factors and components of a hospital. Humana is accredited "with commendation", the highest rating given. Only 5-6 percent of all acute care hospital in the country receive that highest ranking. Humana maintains a good utilization management program. Humana implements an excellent quality improvement plan, including soliciting and reviewing patient satisfaction comments. Mortality statistics cannot, by themselves, meaningfully measure the quality of care delivered at a hospital. Although the Health Care Finance Administration (HCFA) produces such a report for Medicare patients, the report itself represents that it is not intended to measure quality of care, and the American Hospital Association does not view HCFA mortality statistics as a measure of quality of care. There are many factors which influence mortality statistics at a hospital and, even more importantly, mortality is only one clinical outcome resulting from a hospital admission. When East Pasco is full, there is no medical problem or complication resulting from transferring patients to Humana or from directly admitting patients at Humana. There is no diminution of care or loss of continuity of care in transferring to or directly admitting to Humana. Emergency medical services are available in the Subdistrict, and, therefore, transfer is not a problem. Also, driving to Humana or to a hospital outside the Subdistrict is neither a problem nor an unusual circumstance. The large seasonal population drive to Florida in the winter, and, therefore, it is a mobile patient population. Most of its residents seeking hospital services receive them outside the Subdistrict. Subdistrict residents currently leave the Subdistrict to receive a variety of hospital services, including: in-patient cardiac cath, open heart surgery, Level II NICU, psychiatric services, substance abuse services, and comprehensive rehabilitation services. Thus, there is no merit to the suggestion that transferring patients from East Pasco to Humana or elsewhere is problematic. There would not be community benefits regarding Medicaid/indigent care by approving this application. As indicated, for all hospital services, Humana and East Pasco provide similar amounts of Medicaid and indigent care, although indigent care at both facilities is relatively insignificant. Therefore, access to Medicaid and indigent care does not provide a basis for approving East Pasco's application. Also, East Pasco's payor mix in its application was based on hospital-wide averages. East Pasco has not shown the amount of Medicaid or indigent care which would be specifically provided to, or which is needed for, medical-surgical patients. Finally, East Pasco's Policy and Procedure Manual includes several provisions requiring deposits upon in-patient admission absent verification of third party payor coverage. Such provisions are inconsistent with the proposition that East Pasco accepts all patients regardless of ability to pay. In Florida, an application for a CON must include a certified copy of an authorizing resolution of the applicant's Board of Directors. East Pasco included its corporate resolution in its CON application, that resolution being adopted at an August 14, 1991, meeting. That resolution clearly states, among other things, authorization to file an application for up to 24 additional acute care beds. The minutes of that meeting clearly reflect the Board's approval for 24 beds for ICU and PCU. The application itself requests approval of 24 medical-surgical beds. PCU, ICU, and medical-surgical beds are all types of acute care beds. Accordingly, East Pasco did file a proper corporate resolution consistent with the minutes and consistent with the application. The minutes and the application, however, are inconsistent. Although the corporation resolution is technically correct and fulfills the requirements for a CON application, the inconsistency among the corporate resolution, the minutes, and the application raised questions about the actual intent of East Pasco. The intent became more questionable during the final hearing when East Pasco's witnesses contradicted each other as to the number of beds to be placed in the to-be-constructed ICU on the second floor of the to-be-constructed 3-story tower. It is clear that the Agency only approved the construction of a 12-bed ICU on the second floor. It is also clear that East Pasco in fact intends to construct a 16-bed ICU on that second floor. It is also clear that East Pasco intends to construct a "medical-surgical" unit on the third floor in accordance with a design for a PCU. While the corporate resolution technically complies with the requirements for a CON application, the questionable nature of its accuracy, when considered in conjunction with the conflicting evidence of the scope of this project, raises concern as to East Pasco's projections regarding revenue, expenses, staffing, and the actual services to be made available in the Subdistrict. The lack of clarity as to East Pasco's proposal is a compelling reason to deny East Pasco's application. East Pasco's occupancy rate is quite high. It is higher even during the "peak season," i.e., November through April. The projections contained in East Pasco's application are based upon the historic high occupancy rate experienced at East Pasco. Those projections, however, do not take into account, nor did the Agency consider in reviewing East Pasco's application, the fact that East Pasco now has more than the 85 beds which formed the basis for its historic occupancy rate and its projections related to this project. Construction has been completed on the 10-bed observation unit and the 11-bed SNU. East Pasco already has an expanded capacity in place which should alleviate some of its occupancy problems. For example, East Pasco has experienced an increased number of out-patient observation days. With its new observation unit, the beds previously used for observation days are now available for in-patients which, in turn, will likely alleviate East Pasco's most common capacity problem-the lack of available ICU beds. Similarly, the SNU beds will also be available for in-patients.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered denying East Pasco's application for Certificate of Need No. 6783. DONE and ENTERED this 9th day of February, 1993, at Tallahassee, Florida. LINDA M. RIGOT 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 9th day of February, 1993. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 92-1497 Petitioner's proposed findings of fact numbered 1-32, 34-82, and 84-96 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 83 has been rejected as being unnecessary for determination of the issues herein. Petitioner's proposed findings of fact numbered 33 and 97 have been rejected as not constituting findings of fact but rather as constituting recitation of the testimony, argument of counsel, or conclusions of law. The Agency's proposed findings of fact numbered 2-6, 8, 13, 14, 27, 28, 31-33, 37, 40, 41, 43, 44, 47, 49, 51, and 90 have been adopted either verbatim or in substance in this Recommended Order. The Agency's proposed findings of fact numbered 20, 21, 34, 45, 52, 54, 56-58, 68, 71, 73, 82, and 89 have been rejected as being unnecessary for determination of the issues herein. The Agency's proposed finding of fact numbered 1 has been rejected as not constituting a finding of fact but rather as constituting recitation of the testimony, argument of counsel, or a conclusion of law. The Agency's proposed findings of fact numbered 7, 9, 19, 26, 48, 59, 61, 62, and 64 have been rejected as being irrelevant to the issues under consideration herein. The Agency's proposed finding of fact numbered 46 has been rejected as being subordinate to the issues involved in this proceeding. The Agency's proposed findings of fact numbered 10-12, 15-18, 22-25, 29, 30, 35, 36, 38, 39, 42, 50, 53, 55, 60, 63, 65-67, 69, 70, 72, 74-81, 83-88, and 91-93 have been rejected as not being supported by the weight of the credible, competent evidence in this cause. East Pasco's proposed findings of fact numbered 1-3, 5-7, 10, 13, 16- 18, 20, 22-24, 37, 38, 40, 45, 46, 48, 62, 63, 66-69, 73, 78, 79, 81, 82, 85, 89, 118, 119, 131, 135, 140, 174, 178-180, and 192 have been adopted either verbatim or in substance in this Recommended Order. East Pasco's proposed findings of fact numbered 15, 25, 26, 55, 56, 70, 83, 90, 92, 94, 95, 100, 121, 127-129, 145, 146, 163, 164, 171-173, 176, 177, 184-189, 191, and 194 have been rejected as being unnecessary for determination of the issues herein. East Pasco's proposed findings of fact numbered 19, 87, and 88 have been rejected as not constituting findings of fact but rather as constituting recitation of the testimony, argument of counsel, or conclusions of law. East Pasco's proposed findings of fact numbered 4, 8, 9, 11, 12, 14, 21, 30, 31, 33-36, 39, 41, 51, 61, 86, 96-98, 102, 103, 105, and 154 have been rejected as being irrelevant to the issues under consideration herein. East Pasco's proposed finding of fact numbered 84 has been rejected as being subordinate to the issues involved in this proceeding. East Pasco's proposed findings of fact numbered 27-29, 32, 42-44, 47, 49, 50, 52-54, 57-60, 64, 65, 71, 72, 74-77, 80, 91, 93, 99, 101, 104, 106-117, 120, 122-126, 130, 132-134, 136-139, 141-144, 147-153, 155-162, 165-170, 175, 181-183, 190, and 193 have been rejected as not being supported by the weight of the credible, competent evidence in this cause. COPIES FURNISHED: Edward G. Labrador, Esquire Agency for Health Care Administration 2727 Mahan Drive, Suite 103 Tallahassee, Florida 32308 James C. Hauser, Esquire Messer, Vickers, Caparello, Madsen, Lewis, Goldman & Metz Post Office Box 1876 Tallahassee, Florida 32302-1876 Darrell White, Esquire William Wiley, Esquire McFarlain, Wiley, Cassedy & Jones 215 South Monroe Street Suite 600 Tallahassee, Florida 32301 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303
The Issue Whether Respondent Cleveland Clinic Florida Hospital's Motion to Dismiss the Petition in this case, for lack of standing, should be granted.
Findings Of Fact The facts necessary for disposition of the Motion to Dismiss are not in dispute. The Public Health Trust of Miami-Dade County operates Jackson Memorial Hospital ("JMH") in Dade County (AHCA District 11). In its Petition for Formal Administrative Hearing, certified to have been served on August 19, 1998, the Trust alleged that JMH is the only provider of adult kidney transplantation services within Florida Transplant Service Planning Area 4, which includes AHCA Districts 8, 9, 10 and 11. The Trust described itself in both the Petition and an amended Petition which followed as: [A]n agency and instrumentality of Miami-Dade County, which is organized and operated pursuant to Chapter 154, Part II, Florida Statutes, and Chapter 25A of the Code of Miami-Dade County. It governs and operates Jackson Memorial Hospital and other designated health care facilities. Its address is 1611 N.W. 12th Avenue, Miami, Florida 33136. Amended Petition, paragraph 2, p. 2. The Trust and Jackson Memorial Hospital are both in Dade County, AHCA District 11. With regard to CCFH, the Petition alleged the following. CCFH is located in Fort Lauderdale, Broward County (AHCA District 10). CCFH has CON approval to construct a new facility in Weston, also in Broward County. It submitted an application for an adult kidney transplantation program at the new Broward County facility which was awarded preliminary CON approval as noticed in the Florida Administrative Weekly on July 31, 1998. It is the application for the adult kidney transplantation program at the Weston facility in AHCA District 10 which the petition seeks to have denied contrary to AHCA's preliminary approval. The Petition's allegations with regard to standing are contained in paragraphs seven and eight: As the sole provider of adult transplantation services in Transplant Area 4, Petitioner has standing to file this petition because its substantial interests will be directly affected by the Agency action for which this petition seeks review. The adverse affects to the PHT if the preliminary approval of CON No. 9026 is upheld include but are not limited to: A decrease in the number of procedures performed at JMH, which may impair research objectives and medical proficiency; A loss of needed revenue to JMH, the largest provider of indigent hospital care in Florida; An increase in the competition for professional staffing, thereby driving up the costs of performing these hospital services; and An increase in the cost to the health care system for performing transplant services through he unnecessary duplication of services. Petition for Formal Administrative Hearing, p. 3 and 4. CCFH moved to dismiss the Petition on the basis that the Trust had not alleged facts sufficient to meet the standing requirement in CON proceedings found in Section 408.039(5), Florida Statutes. In essence, CCFH asserted that the Trust had failed to allege that its adult kidney transplantation program in District 11 was within the same district as the challenged kidney transplant program of CCFH approved by AHCA for District 10. In response, the Trust informed the Agency that it had on the same date filed an Amended Petition which, differs substantively from the original petition only in paragraphs 4 and 8, concerning the issue of standing. By filing its Amended Petition, the Trust adds an additional basis for standing, and does not in any manner retreat from the basis for standing asserted in its original Petition. Public Health Trust's Response to Cleveland Clinic Florida Hospital's Motion to Dismiss, p. 2, paragraph 2. The new paragraphs four and eight in the Amended Petition, state: PHT's medical staff (including its transplantation physicians) is provided by the university of Miami School of Medicine, doing business as the University of Miami Medical Group (UMMG), under an affiliation agreement between the PHT and the University of Miami. Through the UMMG, JMH conducts various activities in Broward County as part of its adult kidney transplantation program, including but not limited to the following: UMMG sees approximately one third of all its post transplant patients at two satellite clinics in Fort Lauderdale; and UMMG through the University of Miami's Organ Procurement Organization maintains agreements with various Broward donor hospitals and provides in-service training to hospital personnel involved in organ procurement, including kidney procurement. * * * As the sole provider of adult transplantation services in Transplant Area 4, as an existing health care facility with an established adult kidney transplant program operating in both Districts 10 and 11, Petitioner has standing to file this petition because its substantial interests will be directly affected by the Agency action for which this petition seeks review. Amended Petition, pages 2 and 3. The Amended Petition was filed with the Department Clerk for AHCA on September 4, 1998, prior to the case's referral by AHCA to DOAH. Argument on the Motion to Dismiss was heard on September 28, 1998. Ruling was reserved until entry of this order.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that the Agency for Health Care Administration enter a final order dismissing the amended petition in this case of the Public Health Trust of Miami-Dade County, Florida. DONE AND ENTERED this 14th day of October, 1998, in Tallahassee, Leon County, Florida. 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 Filed with the Clerk of the Division of Administrative Hearings this 14th day of October, 1998. COPIES FURNISHED: Jack P. Hartog, Esquire Assistant County Attorney Jackson Memorial Hospital West Wing 109 1611 Northwest 12th Avenue Miami, Florida 33136 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs LLP 118 North Gadsden Street, 2nd Floor Tallahassee, Florida 32301 Richard A. Patterson, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3 Suite 3431 Tallahassee, Florida 32308
