Findings Of Fact THE APPLICANT Petitioners Osteophathic Medical Hospitals, Inc. (OMHI), proposes to build a 120-bed acute care osteopathic teaching hospital in the Hobe Sound area of Martin County. Hobe Sound is located in the south-central portion of the county, along the eastern seaboard. The hospital is intended to serve the needs of both osteopathic and allopathic physicians and their patients but will be openly identified and administered as an osteopathic institution. Osteopathic physicians, under the guidance of the current principals of OMHI, will be responsible for recruitment and organization of the professional staff, along with the development and administration of an osteopathic intern and residency training program. OMHI's application was filed on August 15, 1983, and was deemed complete by Respondent, Department of Health and Rehabilitative Services (DHRS), on October 15, 1983. DHRS reviewed the application and, in January 1984, denied the application. This administrative proceeding followed. OMHI revised its application twice during the pendency of these administrative proceedings, the most recent revision occurring on October 18, 1985. The most outstanding revision is the involvement of Hospital Corporation of America (HCA) in the proposed hospital and HCA's backing and eventual takeover of the project. The revision also based the need for the project on need projected for January 1, 1991. OMHI is a Florida corporation, the shareholders of which are three osteopathic physicians practicing in District IX: Dr. Harold Kirsh, Dr. Michael Longo, and Dr. Albert LaTorra. 0MHI is party to a binding contract with Hospital Corporation of America (HCA), under which HCA has agreed that, if the certificate of need is granted, HCA shall acquire the stock of OMHI and, thereafter, shall construct the proposed hospital and operate it as an osteopathic institution, consistent with the representations included in the CON application. HCA had no such interest in this project when the original CON application was filed in August 1983. OMHI had not intended to involve HCA in this project and, indeed, would have preferred to have proceeded autonomously with development of the hospital. At the time the original application was denied, OMHI had entered into an agreement with a large commercial developer whereby the latter had agreed to finance and construct the hospital if the application were granted. OMHI's original intention was then to employ a professional management company to operate the hospital. When the application was denied, it became necessary to seek another joint venturer to underwrite the anticipated financial burden of the administrative hearing. OMHI representatives contacted various proprietary health care chains to ascertain whether any would agree to underwrite the cost of an administrative proceeding in return for the opportunity to own and operate the new osteopathic facility. OMHI had such discussions with Universal Health Services, Inc. and American Medical International, Inc., in addition to Hospital Corporation of America. Further, Dr. Kirsh inquired whether Martin Memorial would be interested in a joint venture in connection with Martin Memorial's then pending application to construct a satellite hospital in central Martin County on the condition that this latter proposed facility be open to all licensed osteopathic physicians. Ultimately, OMHI elected to enter into the relationship with Hospital Corporation of America. In addition to acquiring the stock of OMHI should this application be granted, HCA has agreed to operate the facility as an osteopathic institution, to insure that the professional staff by-laws comport with the requirements of the American Osteopathic Association, to seek accreditation by the AOA, and to implement an osteopathic intern and residency program. For their part, the principals of OMHI agree to assume responsibility for recruitment and staff of the new facility and for supervision and administration of the proposed osteopathic intern and residency programs. The principals of OMHI already have had such experience in connection with their role in the development of the new osteopathic hospital in Wellington, as well as the development of Community (now Humana) Hospital of the Palm Beaches when it was an osteopathic facility. The principals of OMHI also are parties to the contract and would have a continuing right of enforcement. OSTEOPATHIC MEDICINE AND OSTEOPATHIC TRAINING. The osteopathic profession emphasizes the delivery of primary care. Approximately 80 percent of practicing osteopathic physicians today are engaged in general/family practice. Although there may be increasing numbers of osteopathic students who seek specialty training, more than 70 percent of the osteopathic students graduating today still go into family practice. Because of the profession's commitment to the emphasis upon primary care, the curriculum at osteopathic colleges varies significantly from the course of study at allopathic medical schools. Osteopathic schools require all students to take a broad range of clinical and didactic courses, so that the student is exposed to all medical subject matter. Further, during upper class years, each student is required to take rotating "externships" during which he or she concentrates, for months at a time, on different medical specialities at various osteopathic hospitals. By contrast, the allopathic student typically elects his or her specialty during the medical school years and begins to concentrate on a narrower range of medical subject matter during that time. Upon graduation, the allopathic student continues this specialty training with two or more years of postgraduate training in that particular area. As a result, many allopathic students may complete their entire education without exposure to the broader medical subject matter with which every family physician must have a working familiarity. Osteopathic postgraduate education is also quite different from the allopathic model. Unlike the allopathic student, who continues his specialty training during his postgraduate years, the osteopathic graduate is required to take a one year "rotating internship" at an osteopathic hospital. Again, the emphasis and point of this internship is to prepare the student for family practice because that preparation is the profession's mission. During the internship, the student is required to serve in all of the major hospital departments, including surgery, internal medicine, OB/GYN, family practice and the ancillary departments. Allopathic training and postgraduate programs are accredited by the AMA through the Liaison Committee on Graduate Medical Education. The Liaison Committee has no connection with osteopathic postgraduate programs, which are accredited by the AOA. As a result of this training in general medicine, the osteopathic physician is fully qualified to enter family practice following his or her one- year rotating internship. Florida grants licensure to osteopathic students at that time. In essence, the profession's emphasis on general practice during the student's early medical school years commences his or her "specialty" training in family practice well before graduation and the postgraduate internship. Osteopathic medicine differs from the allopathic school not only in philosophy, but also in the clinical approach to the musculoskeletal system. Osteopathic physicians are trained not only to treat the symptoms of disease through drug therapy but to view disease as dysfunction in a patient's system as a whole. Thus, osteopathic physicians stress a "holistic" approach to the healing arts with emphasis on nutrition and preventive medicine. The distinctiveness of osteopathic medicine arises from its emphasis upon osteopathic manipulative therapy. Manipulative therapy is taught in osteopathic medical schools and is practiced clinically at osteopathic hospitals as an element of the osteopathic focus on preventive medicine and on treating the body's symptoms as an integrated whole. HISTORY OF OSTEOPATHIC DISCRIMINATION. Martin Memorial Hospital is a 336 bed allopathic acute care hospital located in Stuart, Florida. Martin Memorial is located in the northeast section of Martin County and is within the proposed service area of OMHI's planned hospital. Jupiter Hospital is an allopathic acute care hospital located in northern Palm Beach County, just south of the Martin County line. Jupiter Hospital is located approximately 8 to 10 miles from the proposed site of OMHI's planned hospital. Growth of the osteopathic profession in Martin County has been impeded by the policies of Intervenors, Martin Memorial Hospital, Inc. (Martin Memorial), and Jupiter Hospital, Inc. (Jupiter Hospital). To some extent, Martin Memorial and Jupiter Hospital are responsible for the shortage of D.O.S (osteopaths) in Martin County and, if OMHI's facility were opened, more osteopathic physicians soon would move to the area. Both Martin Memorial and Jupiter Hospital had adopted medical staff policies and by-laws intended to preclude osteopathic physicians from qualifying for staff privileges. As Florida law has changed to prohibit this direct discrimination, both adopted new policies which comply with the law but have had the continuing effect of excluding the majority of osteopathic physicians from their respective medical staffs. Martin Memorial. In the early 1970's, the Martin Memorial by-laws seemed to permit privileges for osteopathic physicians by allowing an applicant to offer "equivalent training" as a means of satisfying the educational criteria. Nevertheless, when a fully credentialed osteopathic physician applied for privileges in 1973 that application was denied despite the fact that the applicant presented three letters from allopathic physicians offering "unhesitating" recommendations and documenting his professional skills. In response to that application, the Martin Memorial by-laws were amended to require specifically that an applicant have training approved by the American Medical Association and the Association of American Medical Colleges. Because osteopathic physicians are trained in schools approved by the American Osteopathic Association, all osteopathic graduates were precluded from staff membership by this provision. Martin Memorial similarly relied upon its by-law provisions to deny the applications of Drs. Equi and Shefter, two osteopathic physicians who applied for staff privileges in 1976. In October 1976, Dr. Equi notified Martin Memorial that he had obtained legal counsel and served notice that he intended to challenge the hospital's blanket prohibition of staff privileges for graduates of AOA-approved medical schools. In reaction, the medical staff several months later (January 1977) voted to amend the staff by-laws to permit applications from osteopathic physicians. As with the previous by-laws, however, the new provision had the effect of excluding most osteopathic physicians from the medical staff, since it additionally required all applicants to have two years of postgraduate training recognized by the American Medical Association. As stated above, osteopathic physicians take their postgraduate training at AOA- approved medical schools and hospitals. Although an osteopathic physician may qualify to attend AMA postgraduate programs, in fact few D.O.s choose to do so for example, approximately one percent of the graduating class of SECOM, the Southeastern College of Osteopathic Medicine. In 1979 a new Florida law was enacted, effective January 1, 1980, requiring all hospitals to accord equal treatment to osteopathic and allopathic applicants for staff privileges. Section 395.0653, Florida Statutes (1979). Accordingly, in February 1980, Martin Memorial amended its by-laws to permit training accredited by the American Osteopathic Association as an acceptable credential for privileges at the hospital. Nevertheless, the hospital retained its prior requirement that all applicants have two years of postgraduate education in order to qualify for privileges. The practical effect of the two-year postgraduate education requirement was to exclude the majority of osteopathic physicians from staff positions at Martin Memorial. As stated above, approximately 70 percent to 80 percent of all osteopathic physicians enter general practice, and the AOA requires only a one-year postgraduate internship for licensure because of the concentration on general practice during medical school. The exclusionary effect of the two year postgraduate education requirement is reflected in the experience of Martin Memorial itself. Since the by-law provisions seemingly were amended to permit equal treatment in February 1980, only three osteopathic physicians have obtained admitting privileges, and one of those (Dr. Equi) obtained privileges only as a result of litigation. By contrast, there are approximately 170 allopathic physicians on the Martin Memorial staff, of whom 140 are active and associate members. The earlier discrimination against osteopathic physicians practiced by Martin Memorial, together with the effective exclusion of most osteopathic physicians from the hospital staff today, has caused an undersupply of osteopathic physicians in the Martin County area. Hospital privileges are essential to the establishment of a medical practice in a community today. Privileges are important not only to provide access to hospital facilities, but also to convey to the public that the physician is "good enough to be on a hospital staff." Jupiter Hospital. The first set of medical staff by-laws adopted by Jupiter Hospital in 1979 prohibited osteopathic physicians from staff membership by requiring graduation from a school approved by the AMA's Liaison Committee on Graduate Medical Education and by requiring similar postgraduate training, Like Martin Memorial, Jupiter Hospital agreed to amend its by-laws to permit hospital privileges for D.O.s only when required to do so by changes in Florida law. Nevertheless, when Jupiter Hospital amended those by-laws in 1980, the new provisions relating to osteopathic applications retained the requirement that D.O. applicants have postgraduate training approved by the Liaison Committee on Graduate Medical Education, and those provisions continue to exist today. (Although HCA provides financial management services at Jupiter Hospital, that corporation has no involvement with the hospital's staff by-laws or the granting and denial of staff privileges.) Dr. Harold Kirsh, who lives in the northern Palm Beach County area, has encountered difficulty because he is unable to obtain staff privileges at Jupiter Hospital. Although Dr. Kirsh received two years of postgraduate training in his specialty, he was denied privileges at Jupiter because that training was approved by the American Osteopathic Association rather than the allopathic Liaison Committee on Graduate Medical Education. As a result, Dr. Kirsh has been unable to treat friends, neighbors, and patients in the northern Palm Beach County area who prefer to seek treatment at a hospital near their homes. Proximity to a hospital is a critical factor in a patient's selection of a physician. Osteopathic specialists, although they receive more than one year of postgraduate training, similarly are discouraged from applying for allopathic hospital staff privileges by the two year postgraduate requirement. Because osteopathic specialists rely upon osteopathic general practitioners for referrals, osteopathic specialists are not likely to locate in areas in which the existing hospitals limit access by osteopathic general practitioners. The effect of Jupiter Hospital's past discrimination against osteopathic applicants, and current by-laws indicating that osteopathic physicians who do not have two years of postgraduate training approved by the Liaison Committee on Graduate Medical Education will not be admitted to the staff, is reflected in the fact that only four or five osteopathic physicians have privileges at Jupiter on a medical staff of approximately 140 allopathic physicians (including at least one Bonnie Hubicz, D.O. whose post-graduate training was not approved by the Liaison Committee despite provisions in the By- Laws requiring Liaison Committee approval.) Even if the many osteopathic general practitioner graduates in Florida today desired to obtain more than one year of postgraduate training in family practice, only three or four residency slots offering two years of such postgraduate family practice training are available in the entire state. DHRS. OMHI did not prove that DHRS discriminates against osteopaths or has been purposefully obstructionist in the face of applications for certificates of need for osteopathic facilities. The evidence only proves: (1) that, from its enactment in 1972 as Chapter 72-391, Laws of Florida (1972), DHRS interpreted Section 381.494(2), Florida Statutes, contrary to the interpretation ultimately given by the District Court of Appeal, First District, by its decision in the Gulf Coast case on December 16, 1982; (2) that DHRS has not yet promulgated a rule methodology for determining osteopathic bed need; and (3) that, on a case- by-case basis, DHRS recently has changed the utilization assumptions it has used in determining osteopathic bed need in the face of declining average length of stay and occupancy rates for osteopathic (as well as allopathic) hospitals. No discriminatory intent or effect is inferred from these facts. NEED FOR FACILITY. State Health Plan and District Health Plan. The 1985 Florida State Health Plan provides little guidance with regard to an osteopathic hospital, whether or not a teaching hospital. Page 22 of the Plan establishes the policy guide that "a holistic concept of health is espoused which views man's well-being as a function of the complementary interaction of mind, body, and environment. The holistic concept of health places emphasis on promotion of well-being and prevention of illness." As was previously discussed, osteopathic medicine is founded on the holistic concept of medicine. The development of additional osteopathic facilities and training for osteopathic physicians advances this policy guide of the 1985-87 State Health Plan. Additionally, the State Health Plan notes the applicability of Section 381.494(2), Florida Statutes (1979), and its distinction between allopathic and osteopathic medical practices. Neither the State nor the District IX Health Plan specifically address numerical need for osteopathic hospitals and services. But both address the problem of acute care overbedding and optimal occupancy rates for such facilities. Those portions of the Plans apply equally to osteopathic and allopathic hospitals. The acute care section of Volume II of the 1985-87 State Health Plan emphasizes the ever growing problem and societal expense caused by excess acute care beds in the State. It states that "the combined effect of ambulatory surgery, HMOs, DRGs, and other innovations could reduce acute care bed need for (1989) by 15 percent or more," with the result being fewer acute care beds needed statewide than existed in 1984. The State Health Plan also contains the goal that all acute care hospitals in each district of the state attain an average annual occupancy rate of 80 percent by 1989. The Acute Care Section of the 1985 District IX Health Plan states that the overall annual licensed bed occupancy rate for acute care general hospitals in District IX should equal 80 percent. The local health plan also states that before needed new beds may be approved, the average annual occupancy rate of the applying facility for the most recent calendar year, and the corresponding subdistrict average, should equal or exceed 80 percent. Although this section of the local health plan only addresses "needed beds," as determined by Rule 10- 5.11(23), Florida Administrative Code, its minimum required average occupancy should apply equally before any new acute care beds, including new osteopathic beds, are approved. In 1985, The District IX Local Health Council raised its recommended occupancy levels for medical surgical beds (and its required minimum occupancy before "needed" new beds may be approved) from 75 percent to 80 percent. Citing the Florida Hospital Bed Utilization and Distribution Study, the 1985-87 State Health Plan notes that the concentration of surplus beds occurs primarily in four geographical areas: District IV (Jacksonville), District VI (Tampa), District x (Ft. Lauderdale), and District XI (Miami). The study notes that Districts VI and XI alone accounted for 57.1 percent of the total projected surplus in the state in 1983. The four districts cited accounted for 87.9 percent of the state's bed surplus. The Existing Osteopathic Facilities and Services. Wellington Medical Center is an approved, 120 bed osteopathic hospital in Palm Beach County. Humana Hospital Palm Beaches is listed as an osteopathic hospital in the 1985-86 Yearbook and Directory of the Florida Osteopathic Medical Association. Humana Hospital Palm Beaches is listed as an accredited osteopathic hospital in the American Osteopathic Association's 1984-85 Yearbook of Osteopathic Physicians. The American Osteopathic Association, Division of Accreditation, on October 15, 1985, directed a letter to Jennings, Ryan, Federa & Co. which stated: The institution Humana Hospital Palm Beaches 3 was surveyed and examined by a survey team earlier this year. The Committee on Hospital Accreditation examined the survey report and made a recommendation for continuing approval of the institute that was acted upon by our Board of Trustees at its July, 1985 meeting. The Humana Hospital Palm Beaches is accredited by the American Osteopathic Association and has an internship program that is also accredited by that organization. Approximately 22 percent of the admitting medical staff at Humana Hospital Palm Beaches is composed of osteopaths. Of 150 total on the staff in 1983, 50 were osteopaths. Now 50 of approximately 200 on the staff are osteopaths. Humana Hospital Palm Beaches' governing board has one D.O. member and one M.D. member. Approximately 44 percent of Humana Hospital Palm Beaches' patient admissions in February 1985 were by D.O.s. The hospital's D.O. admissions are "approximately 50/50." The medical staff by-laws of Humana Hospital Palm Beaches provide that the position of chairman of each department be held by an osteopath every other year. The chairman and vice- chairman, one of whom is an allopath and one of whom is an osteopath, rotate positions annually. Similarly, the office of chief of staff is alternated between an allopathic and an osteopathic physician. Humana Hospital Palm Beaches has an Osteopathic Methods and Concepts Committee which meets regularly. It has an organized Department of Osteopathic and Family Medicine. There is also an Accreditation Committee whose duties include assuring "that the hospital is presently, and in the future, in compliance with the accreditation standards of the American Osteopathic Association." Humana Hospital Palm Beaches (Humana) has numerous attributes of an osteopathic hospital. Based on the testimony and record of this proceeding, there is little difference between the osteopathic attributes of Humana Hospital Palm Beaches and the osteopathic attributes proposed for OMHI's proposed hospital. From a health planning standpoint, osteopathic services rendered at Humana Hospital Palm Beaches should be counted among the available osteopathic services in District IX. Humana has always had osteopathic manipulation tables. The hospital's osteopathic internship program is currently training eleven interns. The reason Humana responded to OMHI's interrogatories stating that it is not an osteopathic facility was its administrator's understanding that "osteopathic hospital" meant totally osteopathic with no allopathic participation. Although the Humana Hospital's obligations to maintain AOA accreditation and to operate an intern program for osteopathic physicians are the result of a law suit settlement Humana has no plans to discontinue the AOA accreditation or the intern training program. There is no basis to assume that Humana will discontinue the osteopathic services now offered. Under the terms of that settlement agreement, Humana's compulsion to operate an intern program lapses this year. Similarly, Humana's obligation to refrain from any effort to amend the medical staff by-laws, which provide for the rotation of department chairmanships between M.D.'s and D.O.'s, terminates five years after the settlement date (1987). In addition to the Humana and Wellington facilities, osteopathic services are offered at other area acute care hospital that have osteopaths on their staffs, including Martin Memorial and Jupiter. Bed Need. In part, OMHI proposes two supply-based methods for use in projecting the number of osteopathic beds needed in District IX. A supply-based method attempts to project bed need by multiplying a physician use rate by the number of physicians projected to be practicing in an area in the future. For several reasons, the statewide supply-based methods OMHI proposes are unreliable. First, in general it is more appropriate to base need projections on population use rates and projected population. It is the sick portion of the population represented by the population use rates and population that generates bed need, not the supply of physicians (whether allopathic or osteopathic.) Generally, it should be assumed that physicians follow the sick population, not vice versa. Second, it is more accurate to project population than it is to project the number of physicians expected to be practicing in an area. Being a much smaller group than the population as a whole, projections of the number of osteopaths expected to be practicing in an area in the future are more affected by variables other than passing of time than are population projections. In addition, because the current number of osteopaths in District IX is significantly influenced by the variables of past allopathic hospital staff privilege policies, as discussed above, it is even more difficult to project the number of osteopaths expected to be practicing in District IX in the future. Adding to this inherent unreliability, OMHI's expert witness may not have plotted the data points correctly in performing his regression analysis, a significant error when one has only ten data points with which to work. Third, a statewide supply-based method must assume that the percentage of physicians who do not actively practice in the area in question is the same as the percentage of physicians who do not practice in the area used to obtain the physician use rates. For example, as of November 1985, there were approximately 121 osteopaths in Districts IX, but only 88 were practicing. The use rate used by OMHI in its statewide supply-based method is a use rate for osteopathic hospitals throughout Florida. There was no evidence that the same percentage of active osteopaths in District IX, i.e., approximately 73 percent, obtains statewide. Fourth, the osteopath use rate incorporated in OMHI's statewide supply-based method includes both osteopath and allopath admissions at osteopathic hospitals throughout the state. The method must therefore assume that there is one osteopath admission at an allopathic hospital for each allopath admission included in the admission statistics of the osteopathic hospitals. There is no evidence supporting the validity of this assumption, but the assumption is reasonable given the limitations of the available data. OMHI also, in part, proposes a type of supply-based method for determining osteopathic bed need referred to as the "Wellington rate." The "Wellington rate," so called because it was used by OMHI to support its application to construct the Wellington osteopathic hospital in Palm Beach County, actually uses the statistics generated at Humana Hospital Palm Beaches. The Wellington rate isolates osteopath admissions at the Humana Hospital and applies the resulting use rate to the projected number of osteopaths expected to be in District IX in the future. It therefore does not suffer from the weakness noted in paragraph 53(d.) above. But it does share the other weaknesses of a supply-based method set-out in paragraph 53., plus one. The problem referred to in paragraph 53.(c) above is exacerbated in OMHI's "Wellington rate method" because it uses only 33 heavy admitting osteopaths to generate its osteopath use rate but multiplies the resulting use rate by all osteopaths expected to be in District IX in the future, whether admitting, active or inactive. OMHI'S Wellington rate method therefore assumes that all the osteopaths expected to be in District IX in the future will be active and just as heavy admitters as the 33 heavily admitting osteopaths now on the staff of the Humana Hospital, the only osteopathic hospital in District IX at this time. Such an assumption is unreasonable. It is more reasonable to assume that, if the Wellington rate is used, future osteopathic bed need will be the product of the Wellington rate and the number of admitting osteopaths projected to be actively practicing in District IX on the relevant planning horizon. As alluded to earlier, a population-based method for determining bed need generally is preferable to a supply- based method. But because of the limitations of available data, the population-based method used in part by OMHI to project osteopathic bed need has weaknesses, too. Because there is only one hospital in District IX that has a substantial number of osteopath admissions, the choice of population-based use rates is between a "Wellington" population-based rate and a statewide osteopath admission rate. If the statewide rate is used, it assumes that the statewide use rate "fits" District IX. There was no evidence supporting this assumption. To the contrary, the evidence was, e.g., that use rates in 1984 at osteopathic hospitals in the state (excluding irrelevant obstetrical and psychiatric admissions where possible) varied from a low of approximately 12.5 patient days per 1,000 population in District VI to a high of 113 in District V, with an average of approximately 45. Because the statewide osteopathic use rate is obtained from the use rates at osteopathic hospitals, as is the rate for the statewide supply-based method, it shares with that supply-based method the weakness of requiring an assumption that there is one osteopath admission at an allopathic hospital for each allopath admission counted among the admissions at the osteopath hospital. Finally, population-based methods share with supply-based methods the difficulty of trending declining use rates forward to the relevant planning horizon. Each of three methods statewide supply-based, the Wellington rate, and statewide population-based have weaknesses which make it unwise to determine osteopathic bed need exclusively-on any one of them. The most rational approach is to average the three in the hopes of obtaining the best projection. There was insufficient evidence on which to conclude that the average should be weighted in any way. The best population-based approach available from the evidence in the record would use a statewide use rate of 42.39 patient days per 1,000 population. This use rate is derived by taking twice the total patient days at all AOA accredited hospitals in Florida, excluding irrelevant obstetrical and psychiatric admissions to the extent possible, for the first half of 1985 and dividing the total by the total population of the districts in which those hospitals are located. Using Tampa Bay Community Hospital, not AOA accredited, as part of the data base to generate the use rate is specifically rejected as unreasonable; likewise, not using Humana Hospital Palm Beaches, under the facts of this case, is specifically rejected as unreasonable. In addition, it is not reasonable to include irrelevant obstetrical and psychiatric admissions in the numbers generating the use rate. On these points, the testimony of Martin Memorial's expert, Judy Horowitz, is accepted, and the contrary testimony of OMHI's expert, Phillip Taylor, and HRS' expert, Elizabeth Dudek, is rejected. The formula for using the statewide population-based use rate of 42.39 to projection bed need is: Bed Need = 42.39 patient days x Population divided by 1, 000 365 days/yr divided by 80 percent occupancy standard Population for District IX is projected to be: 1,145,423 on July 1, 1988 1,218,311 on July 1, 1990 1,235,361 on January 1, 1991 Using the formula, osteopathic bed need under the statewide population-based method would be: 166 on July 1, 1988 177 on July 1, 1990 179 on January 1, 1991 For comparison purposes, if the use rate were obtained by dividing the total patient days by the population only of the counties, instead of districts, in which the hospitals are located, the bed need would be: 233 on July 1, 1988 248 on July 1, 1990 251 on January 1, 1991 The "old" Wellington rate first suggested by OMHI for use in projecting osteopathic bed need is obsolete and should not be considered. The "new" and more appropriate Wellington rate is 618 patient days per osteopath. But OMHI proposes to multiply that rate by the total of all osteopaths projected to be in District IX on the relevant planning horizon although the "new" Wellington rate is generated by dividing total osteopathic patient days at the Humana Hospital only by the admitting osteopaths. This methodology is rejected. It results in an unreasonably high bed need projection. Instead, the "new" Wellington rate should be multiplied only by the number of admitting osteopaths expected to be practicing in District XI on the relevant planning horizon. No party explicitly offered a method of projecting the number of admitting osteopaths expected to be practicing in District IX in the future. However, there was evidence that, of the 121 osteopaths registered by the Department of Professional Regulation as residing in District IX on November 1, 19B5, only 33 were the heavily admitting osteopaths whose admissions from January to June 1985 resulted in the "new" Wellington rate. Using Horowitz' linear regression analysis, which is specifically accepted as more reliable than Taylor's (since Taylor could not testify whether he plotted the ten data points correctly), the number of admitting osteopaths expected to be practicing in District IX in the future can be projected by the formula: Y 33 + 0.756 X where Y number of osteopaths And X number of months after January 1985 Using that formula: Y on July 1, 1988 33 + 0.756(42) 65 Y on July 1, 1990 33 + 0.756(66) 83 Y on January 1, 1991 33 + 0.756(72) 87 Multiplying the "new" Wellington rate of 618 by the number of admitting osteopaths expected to be practicing in District IX yields the following bed need projections: Bed Need 7/1/88 618 patient days x 65 D.O.s divided by D.O. 365 days/yr 80 percent occupancy standard = 138 Bed Need 7/1/90 618 patient days x 83 D.O.s divided by D.O. 365 days/yr 80 percent occupancy standard = 176 Bed Need 1/1/91 618 patient days x 87 D.O.s divided by D.O. 365 days/yr 80 percent occupancy standard = 184 Finally, there is evidence supporting a statewide supply-based method of projecting osteopathic bed need. The statewide use rate of 313.24 admissions per osteopath suggested by Horowitz is specifically accepted as more reasonable than the use rate of 369.2 suggested by Taylor and Dudek. See paragraphs 61 and 62 above. Since the statewide use rate is obtained by dividing total osteopathic admission by total osteopaths registered with the Department of Professional Regulation, it is appropriate to multiply the statewide use rate by the total number of osteopaths Horowitz' linear regression analysis projects will be in District IX on the relevant planning horizon. Again, Horowitz' linear regression analysis is preferred as more reliable than Taylor's. The statewide supply-based method described in paragraph 70 yields the following results: Bed Need 7/1/88 313.24 patient days x 141 D.O.s divided by D.O. 365 days/yr 80 percent occupancy standard = 151 Bed Need 7/1/90 313.24 patient days x 159 D.O.s divided by D.O. 365 days/yr 80 percent occupancy standard = 171 Bed Need 1/1/91 313.24 patient days x 164 D.O.s divided by D.O. 365 days/yr 80 percent occupancy standard = 176 The results of the three applicable osteopathic bed need methods population-based, statewide supply-based, and Wellington rate supply-based, as revised based on the evidence in this case can be summarized: Population- Statewide Supply- Revised Wellington Average Based Based Rate Supply-Based 7/1/88 166 151 138 152 7/1/90 177 171 176 175 1/1/91 179 176 184 180 Since there already are 120 approved osteopathic beds at Wellington and approximately 81 of the Humana Hospital's 162 beds are used to render osteopathic services, there is no raw bed need for OMHI's proposed 120-bed osteopathic hospital. Area hospitals have a high seasonality factor of approximately 122 percent of average. Occupancy in a hospital above 90 percent at any time created quite a few problems with regard to a patient's ability to receive inpatient care. Any time one deals with an occupancy rate above 90 percent, particularly when some rooms are semi-private, one must be concerned about the type of patients, infectious disease control, and other serious problems that can arise in terms of ability to admit a patient. But the peak season high utilization still does not justify the addition of 120 beds in District IX. It would be more accurate to subtract beds at an osteopathic facility filled by allopathic physicians from osteopathic bed inventory. But it is impossible to do this from the evidence in this case. The only osteopathic hospital in District IX (excluding Humana) is not yet operating. In addition, it would logically follow that a pro rated portion of all osteopathic admissions at all allopathic hospitals in District IX also would have to be added to the inventory, an impermissible result under the law. Consideration of the beds at the Humana Hospital serving osteopathic patients is based on the uniqueness of the Humana Hospital, as more fully described above. Health Planning Horizon. Because of the length of lead time necessary to plan new construction of a 120-bed hospital facility and to open the facility to the public, it is reasonable from a health planning viewpoint to determine whether a new hospital is needed based upon the need for the facility projected five years from the completion date of the application or, if there are formal administrative proceedings, five years from the final hearing in the administrative proceedings. DHRS has in the past followed a non-rule policy of projecting need for all acute care hospitals, allopathic and osteopathic, five years into the future from the completion date of the application or, if there are formal administrative proceedings, from the final hearing in the administrative proceeding. There was no evidence that DHRS has decided whether or how to re- formulate its policy in light of the recent decision in Gulf Court Nursing Center vs. Department of Health and Rehabilitative Services, 10 FLW 1983 (Fla. 1st DCA 1985), clarified on rehearing, 11 FLW 437 (February 14, 1986.) Other Need Considerations. Although the evidence was that only approximately 10 percent of the population as a whole prefers to use osteopathic physicians, the evidence demonstrates a shortage of osteopaths in Martin County. Past history of discrimination and current staff privilege policies at area hospitals have contributed to the shortage, as previously explained in more detail. Only three osteopaths are on Martin Memorial's staff of approximately 173 physicians, and Jupiter Hospitals's staff of approximately 145 physicians includes only 4 or 5 osteopaths. There are only two osteopaths in all of St. Lucie County. OMHI's proposed osteopathic hospital would attract osteopaths to the area and help alleviate the shortage. There also is a shortage of osteopathic internship and residency programs. Only eight of the fifteen osteopathic hospitals in Florida have internship programs. (In addition, the osteopathic Wellington hospital being built by OMHI will have an internship program with the Southeastern College of Osteopathic Medicine.) Those programs cannot accommodate Florida graduating osteopaths, much less the net influx of out-of-state graduates who desire to intern in Florida. Only three to four osteopathic hospitals in the country offer residency programs for osteopaths, one of which fortunately is located in Florida. OMHI's proposed teaching hospital with internship and residency programs might help meet the need for such programs. However, low and declining utilization at existing osteopathic facilities will adversely impact the viability of osteopathic intern programs already existing in Florida. A hospital with a low utilization rate would have difficulty supporting such a program. Stated conversely, a hospital with adequate utilization of 75 percent or more would have more opportunity to train students. Currently, only eight of the fifteen osteopathic hospitals in Florida are able to offer such programs. Given the decline in osteopathic utilization which will be discussed below, the approval of OMHI's proposed hospital could further decrease utilization at existing and approved osteopathic facilities and jeopardize the existing program at Humana and the proposed program at Wellington, as well as OMHI's own proposed program. OMHI did not prove that it has studied and found not practicable less costly and less efficient alternatives for meeting the need for osteopathic internship and residency programs in Florida. Those alternatives include the expansion or formation of internship and residency programs at the existing Florida osteopathic hospitals, especially the seven which have no such programs at this time. The other alternative would be for HCA to operate one or more of its existing allopathic hospitals in manner similar to the way in which Humana Hospital Palm Beaches is operated. If, for example, HCA's Port St. Lucie or Lawnwood Memorial Hospital, both in St. Lucie County, could be operated as Humana Hospital Palm Beaches is, HCA could help meet the need for osteopathic hospital beds and internship and residency programs in District IX in a less costly and more efficient manner. ACCESSIBILITY. The only substantial and persuasive evidence on accessibility to osteopathic services and hospitals was that most of Martin and all of St. Lucie and Indian River Counties would be more than a thirty minute drive from Humana Hospital Palm Beaches and the proposed Wellington Hospital. This would be more than 10 percent of the total population of District IX. However, OMHI did not prove that a thirty minute drive time is the appropriate standard for geographic accessibility to osteopathic services and hospitals. Nor did OMHI prove that such accessibility to 90 percent of the total population of the district is the appropriate standard in this case. Although DHRS has by rule made geographic accessibility within a 30 minute drive time in urban areas for 90 percent of a district's population the standard for all acute care hospitals under Rule 10-5.11(23)(i), Florida Administrative Code, those standards cannot logically be used to measure osteopathic accessibility since only approximately 10 percent of the population prefers to use osteopathic physicians. There was no competent proof what osteopathic geographic accessibility standard should be applied in this case. Nor was there proof that there are no osteopathic facilities or services in adjoining districts that are accessible to remote parts of District IX. Finally, there was no proof how accessible OMHI's proposed hospital would be to the most northern parts of District IX. Nor was there proof that the Rule 10-5.11(23)(I) standard for accessibility to acute care hospitals (either allopathic or osteopathic) is not satisfied in District IX. The evidence suggested that the standard is satisfied. OMHI estimates that 2.5 percent of its patients will be Medicaid patients. UTILIZATION. Utilization of acute care hospitals is declining. The reasons for the decline are the dramatic changes which the health care industry has undergone since 1983. The primary reason has been the shift in 1983 to the Medicare prospective payment system, otherwise known as DRGs. The DRG system changed Medicare reimbursement from cost base to a set reimbursement based on type of illness. The effect of this change has been primarily to sharply decrease the average length of stay of Medicare patients. Other causes of decline in utilization include an increased emphasis on utilization review and the use of outpatient services such as outpatient surgery and home health services. In many areas of the country, preferred provider organizations (PPO's) and health maintenance organizations (HMO's) also have impacted hospital occupancy rates significantly, lowering lengths of stay and admission rates. As specifically recognized by the State Health Plan, "the emergence of these alternative delivery systems ... have exacerbated declining occupancy rates." In District IX, average lengths of stay have declined in acute care hospitals as follows: 1983 6.9 First half of 1984 6.5 1984 6.2 First half of 1985 6.2 During the same time periods, occupancy rates in District IX acute care hospitals have declined as follows: 1983 73.7 First half of 1984 72.3 1984 65.8 First half of 1985 64.7 Statewide, average lengths of stay in osteopathic hospitals have declined as follows: 1983 7.9 First half of 1984 7.1 July 1, 1984 thru June 30, 1985 6.9 During the same time periods, occupancy rates at osteopathic hospitals throughout the state have declined as follows: 1983 50.4 1984 43.3 July 1, 1984 thru June 30,1985 39.9 Meanwhile, at Humana Hospital Palm Beaches, the only hospital in District IX with significant osteopathic admissions, average lengths of stay declined as follows: 1983 7.7 1984 6.8 First half of 1985 7.4 Occupancy rates at Humana Hospital Palm Beaches declined as follows: 1983 82.9 1984 76.9 First half of 1985 67.2 Generally, utilization of medical/surgical beds have declined faster than overall hospital bed utilization. For example, occupancy rates at Humana, Jupiter and Martin Memorial have declined as follows: 1983 1984 Semiannual 1984 1985 Semiannual Jupiter 71.4 67.8 58.2 59.9 Martin Memorial 74.8 71.2 66 68.3 Humana 82.7 85.8 76.9 66.9 The low average occupancy rates for District IX do not include over 700 beds in District IX which have been approved but have not yet been licensed (120 of which are at the Wellington facility). Underlying part of OMHI's need and utilization projections has been the contention that an osteopathic hospital will attract new osteopathic physicians to an area in sufficient numbers to adequately utilize a facility. However, the utilization evidence in this case does not support this "magnet effect". If this magnet effect were a valid principal upon which to base need or utilization projections, one would expect the existing osteopathic facilities in Florida to have attracted sufficient osteopaths to support reasonable utilization of those facilities. The fact of low and falling osteopathic utilization in Florida, rather than supporting such a contention, casts serious doubts on the ability of any osteopathic facility to achieve adequate utilization. It is probable that utilization will decline somewhat more before the decline bottoms out. It is highly unlikely that utilization will increase in the next five years. OMHI's ABILITY TO PROVIDE QUALITY CARE. OMHI and HCA possess the ability to provide quality care at the proposed acute care hospital. Several doctors of osteopathy have expressed an interest in practicing in the area if an osteopathic hospital is located there and others would be attracted. HCA owns approximately 35 hospitals in Florida. It owns or operates 420 hospitals throughout the world. It has assets of 4 billion dollars and has committed the approximately 23 million dollars that will be necessary to construct and begin operation of this facility. It has a one billion dollar line of credit as a part of its general debt capability. It can attract the manpower and other resources necessary to operate OMHI's proposed hospital. The principals of OMHI have the credentials and experience to recruit a qualified staff of osteopathic physicians. The staffing of the hospital would be accomplished in part by interns who will be a part of the hospital's teaching program. The American Osteopathic Association has no particular staffing requirements for osteopathic teaching facilities. Over the years, it is likely that students who receive internship, externship and residency training at OMHI's proposed hospital will remain in the vicinity. There is ample medical staff personnel available to support OMHI's proposed hospital. METHOD OF CONSTRUCTION. OMHI proved that the cost and methods of construction of the proposed hospital can be expected to be reasonably energy-and-cost-efficient. I. FINANCIAL FEASIBILITY. As previously mentioned, HCA has the financial ability to construct and begin operating OMHI's proposed hospital in the short term. However, OMHI did not prove the long-term financial feasibility of its proposed hospital. The evidence presented by OMHI's experts on the long- term financial feasibility of the proposed hospital were dependent upon the accuracy of the osteopathic bed need projections of Dr. Philip Taylor. As previously discussed, Dr. Taylor's need projections erroneously inflated the osteopathic bed need. For these and other reasons, the testimony of OMHI's financial experts was based upon erroneous assumptions and did not prove long- term financial feasibility. The Site Of OMHI's Proposed Hospital. OMHI does not yet know exactly where the proposed location of the hospital is. Hobe Sound, where the proposed OMHI hospital is to be located, is near the northern border of Jonathan Dickinson State Park. Jonathan Dickinson State Park is a large, unpopulated park area. There is no evidence that either HCA or OMHI can purchase property in or around Hobe Sound that is appropriate for a proposed hospital for a price at or below 1.5 million dollars. Zoning Considerations. To construct an acute care hospital in the vicinity of Hobe Sound, the property must be designated "institutional" under the Martin County Comprehensive Plan. According to the Zoning Administrator of Martin County, the lands in the vicinity of Hobe Sound that are designated "institutional" are south of Bridge Road along U.S. 1 somewhat adjacent to Jonathan Dickinson State Park. This property was so designated because the Hobe Sound Company, which owns the "institutional" designated lands, wanted to keep residential development off of the property. This would insure that their well fields would not be encroached upon by small subdivisions. No evidence was adduced that any of this property is for sale, could be purchased by HCA within its budget, or is appropriate for a hospital. The only other "institutional" land near Hobe Sound is owned by Martin County for park sites, fire halls, and uses of that nature. No applications are pending to designate other lands "institutional" in the Hobe Sound area. The only time such applications can be made is between September 1 and October 31 of each year. The earliest OMHI could apply for such a designation, therefore, is September 1, 1986. Typically, it would take at least until April, 1987 to approve a change in designation to "institutional." Other building and zoning approvals necessary to construct a hospital would take until approximately the middle of 1987. OMHI's CON application projects that "continuous" construction would be underway in October, 1986. According to existing zoning and land use requirements in Martin County, it is likely that construction of the proposed hospital could not begin until at least mid-1987, some nine months behind schedule, assuming necessary approvals are successfully obtained. If construction of OMHI's proposed hospital was delayed longer than six months, HCA would have to rebudget the project. Forecasted Utilization. OMHI's forecasted utilization for its proposed hospital suffers from several flaws. OMHI's forecasted utilization at its proposed hospital is based upon OMHI's need analysis. In forecasting 1988 utilization, OMHI did not consider the timing difference between the need projection it issued (July, 1990) and the proposed opening date of the hospital (January, 1988). Because the need for osteopathic beds is less in 1988 than in 1990, basing a utilization forecast on 1990 need would result in an overestimate of patient days. OMHI assumed an average length of stay of 6.9 days in its bed need calculation, yet the projected average length of stay used by OMHI's financial expert at the proposed hospital is 5.8 days. If the average length of stay in January 1988 is 5.8 days, use of 6.9 will have resulted in an overestimate of need and, thus, an overestimate of utilization. OMHI projects a first year of occupancy at the proposed hospital of 51.7 percent which is greater than the average experienced in 1984 by all existing Florida osteopathic hospitals. The 15 AOA accredited hospitals in Florida experienced an aggregate acute care occupancy rate of 42.5 percent in 1984. None of those 15 hospitals is a start-up facility like OMHI proposes. None of the occupancy levels of other existing osteopathic hospitals even approached OMHI's 75 percent estimate of occupancy for the second year at the proposed new hospital. The aggregate acute care occupancy for all existing District IX hospitals in 1984 was 65.8 percent. Only 3 of 18 existing hospitals experienced occupancies greater than 75 percent in 1984. There will not be a sufficient number of osteopaths in the Martin-St. Lucie primary service area in 1988 and 1989 to reach OMHI's projected occupancy levels. Even if all the growth in the supply of osteopaths projected for 1988 or 1989 by OMHI for District IX occurred in only Martin and St. Lucie Counties, OMHI's utilization forecast is not supported. All of this goes to show that OMHI's need analysis was faulty and over-estimated the need for osteopathic beds in District IX, as previously discussed. Financial Feasibility Of The Proposed Hospital To evaluate the financial feasibility of OMHI's proposed project, OMHI's expert used a computer model. The computer model used by OMHI's financial expert incorrectly includes all insurance costs, including malpractice insurance costs and liability insurance, rather than just insurance that is rightfully associated with capital costs, to determine capital cost reimbursement by Medicare. The impact of including all insurance in allowable capital costs depends upon the Medicare payor mix. If that Medicare payor mix is about 60 percent, the impact of including all insurances would erroneously increase the bottom line of OMHI's pro forma. OMHI's financial expert used three different hospitals in the development of payor mix assumptions: Lawnwood Medical Center, Port St. Lucie Hospital, and Doctors General Hospital in Lake Worth. In assuming a 55 percent payor mix of Medicare patients, OMHI's financial expert did not know the percent of persons that are 65 and over in either the Hobe Sound area, Martin County, or District IX. One of the hospitals that OMHI's financial expert considered in assuming a 55 percent Medicare payor mix was Lawnwood, which has an obstetric/gynecology department. OMHI's application does not propose OB/GYN. Using Lawnwood's experience in determining the payor mix for the proposed hospital without making any adjustment is unreliable because people 65 and over do not use obstetric programs. Assuming a 55 percent Medicare payor mix for OMHI's proposed hospital was inappropriate. A Medicare payor mix of between 60-65 percent would be more in keeping with the demographics of the Hobe Sound area and Stuart and to the south. OMHI's financial expert failed to include emergency room physician fees in his analysis even though the proposed hospital will offer a 24 hour a day emergency room. The hospital is unlikely to generate sufficient emergency room revenues in its first 2 years of operation to cover the total expense of having emergency room physicians. OMHI's assumption of physician fees is understated. Staffing an emergency room with qualified physicians could cost $500,000 a year, $125,000 to $250,000 of which would have to be subsidized by OMHI. OMHI's financial expert inappropriately assumed that annual inflation would be 5 percent on both the expense side and the revenue side of his analysis. Rate Controls, a publication relied upon by financial professionals, shows all expense inflation rates above 5 percent. A higher inflation rate for expenses should have been used by OMHI's financial expert, recognizing the different components of inflation. Very few expense components will experience rates less than 5 percent. HCA's acquisition costs of the project are not included in the analysis performed by OMHI's financial expert. These costs should have been accounted for under generally accepted accounting principles. OMHI's financial expert erroneously assumed the same fixed amounts of $559,000 for deductions from revenue for 1988 and 1989 Medicaid and outpatient Medicare contractual allowances. Using fixed amounts in this manner illustrates a lack of understanding of the reimbursement system or an inability of OMHI's computer model to properly reflect how the system works. To assume these amounts would be fixed is totally erroneous. The bottom line profitability projected by OMHI's financial experts, approximately $3,000,000 before taxes after the second year, is not believable. Martin Memorial's financial feasibility expert, Robert Smith, prepared an alternative financial statement which reflects estimates and assumptions that more appropriately reflect the financial outcome of the proposed OMHI hospital in its first 2 years of operation. Mr. Smith's alternative assumptions reflect that the OMHI hospital will lose approximately $1.8 million dollars in its first year and $1.9 million dollars in its second year. The break-even analysis performed by OMHI's financial expert is not a valid analysis of the projected break- even point of OMHI's proposed hospital. OMHI's financial expert assumed in his break-even analysis that many of the projected expenses at the proposed hospital would be 100 percent variable. For example, physician fees and other fees, supply expenses, leases, rentals and repairs. It is inappropriate and erroneous to treat such items as totally variable. OMHI's financial expert's break-even analysis concludes that that proposed hospital will break-even with an average daily census of 35 or an occupancy of about 29 percent. A hospital, and particularly a 120-bed teaching hospital, is unlikely to break even at an average daily census of 35. Over a five-year period, using the more reasonable assumptions employed by Martin Memorial's expert, OMHI's hospital is not financially feasible. The hospital probably would lose a significant amount of funds in its fifth year of operation. IMPACT OF THE OMHI HOSPITAL ON COMPETITION. OMHI'S original CON application, on page 18, contained a discussion about HCA's impact on the market in the area of its proposed hospital to the north and west through its Lawnwood and Port St. Lucie Hospitals in St. Lucie County and H. H. Raulerson Hospital in Okeechobee County. OMHI stated in that initial application that its application would "bring competition to a health care market now dominated exclusively by Hospital Corporation of America and Martin Memorial Hospital." This discussion was omitted from the application after HCA became involved as a future owner of OMHI. Approval of the OMHI hospital would give HCA the opportunity to increase its impact on the health care market in and near the Martin-St. Lucie metropolitan statistical area. HCA would own three out of the four hospitals in Martin and St. Lucie Counties. In addition, Raulerson Hospital in Okeechobee County is owned by HCA. (Jupiter is managed by HCA but is not owned by HCA and HCA does not control policy there.) But approval of the OMHI hospital would not enable HCA to set prices and salaries in the area or take away the charge-paying patients, leaving the nonpaying patients. Only the primary service areas of Martin Memorial and Port St. Lucie overlap with OMHI's proposed service area. Even with OMHI's additional 120 beds, Martin Memorial still would have more beds than OMHI and Port St. Lucie. The OMHI Hospital would further HCA's advantage over Martin Memorial in the CON process. For example, Lawnwood and Martin Memorial are at present competing for an open-heart and cardiac catherization CON in the same batch. Martin Memorial faces an uphill battle because Lawnwood can draw upon a network of referral base hospitals, such as Port St. Lucie, Raulerson in Okeechobee, and perhaps others to the south. Given the lack of need for 120 osteopathic beds and the current under-utilization of allopathic hospitals in District IX, it should not be expected that OMHI's additional competition will promote quality assurance or cost effectiveness. To the contrary, the additional hospital services probably would result in duplication of services, higher costs and economic pressures to sacrifice quality assurance for cost considerations. MORE COST-EFFECTIVE ALTERNATIVES. HCA owns the Port St. Lucie, Lawnwood Memorial and H. H. Raulerson hospitals. Virtually no osteopaths practice at any of them. If HCA would operate those hospitals as Humana Hospital Palm Beaches is operated, the future need for osteopathic services and hospitals and internship and residency programs in District IX could be met more efficiently and at a lower cost. OMHI did not prove that it explored those alternatives and found them not to be practicable. There are now approximately 15 osteopathic hospitals in Florida, but only eight have internship or residency programs. If such teaching programs could be established at those hospitals, any additional need for them in Florida could be met in a more efficient and less costly manner than by building a hospital that is not otherwise needed. OMHI did not prove that it has explored those alternatives and found them not to be practicable. IMPACT OF THE PROPOSED HOSPITAL ON MARTIN MEMORIAL, JUPITER, AND NME. If the proposed hospital succeeds and fills with patients, it will negatively impact both Martin Memorial and Jupiter Hospitals. It would introduce another 120 beds, which are not physically any different from available beds. Jupiter Hospital has received 15 percent of its patients from the Hobe Sound area for the last few years. Jupiter Hospital is a fifteen minute drive from Hobe Sound. The OMHI hospital would have a substantial effect on Jupiter's market in the Hobe Sound area. It would impact substantially on Jupiter's financial viability. The OMHI hospital could result in Jupiter Hospital eliminating some services that it now makes available to the community. The OMHI hospital would probably result in another reduction of staff at Jupiter. The OMHI hospital probably would cause an increase in patient charges at Jupiter Hospital. National Medical Enterprises, Inc., d/b/a West Boca Raton Medical Center (NME), applied for a certificate of need to add 15 allopathic obstetrical beds at its hospital. The NME application was reviewed in the same batching cycle as the OMHI application. Approval of the OMHI application would decrease the net need for acute-care allopathic beds under Rule 10-5.11(23), Florida Administrative Code, and substantially impact NME's application.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that Respondent, Department of Health and Rehabilitative Services, deny the application of Osteopathic Medical Hospitals, Inc., for a Certificate of Need for an osteopathic hospital in Martin County, CON Action No. 2842. RECOMMENDED this 8th day of April, 1986, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 8th day of April, 1986.
Findings Of Fact Background Manasota applied for a Certificate of Need to construct a 100-bed osteopathic acute care hospital in Sarasota County, (District VIII). Manasota did not specifically designate a site in its application and indeed has not obtained a site for its proposed hospital as yet. It intends to locate its facility in the southern part of Sarasota County, near the interchange of I- 75 and Jacaranda Boulevard. There are three existing acute care hospitals serving south Sarasota County. Memorial, which is a 788-bed acute care hospital located in the southerly portion of the City of Sarasota; Venice, which is a 312-bed acute care hospital located in Venice; and Englewood Community Hospital (ECH) which is a brand new 100-bed acute care hospital located in Englewood, also in southern Sarasota County, immediately south of the City of Venice. ECH opened its facility in early November, 1985. The proposed location of the Applicant Manasota is in the vicinity of the southerly environs of Venice, and is within the primary service areas of these existing hospitals. The Parties Venice Hospital is a not-for-profit, general, acute care hospital. It has 312 licensed beds, of which 6 are OB beds and 32 are intensive care beds. In fiscal year 1983, it enjoyed an 89.5% average annual occupancy. That occupancy declined to 83.5% in 1984 and the next fiscal year (1985) it dropped to 71%. The hospital's occupancy rate in fiscal year 1986 will decline to approximately 55.8%. That figure includes consideration of the impact of the November, 1985 opening of the Englewood Hospital but not the projected impact of Manasota. Venice's primary service area is the southerly portion of Sarasota County and northern Charlotte County, generally co-extensive with that proposed by Manasota. Memorial is a 788-bed, publicly owned, acute care hospital. Its primary service area is Sarasota County. Its publicly elected board requires it to maintain at least a 2% operating margin (profit) in order to maintain sufficient working capital and a sufficiently favorable bond rating so that its debt financing can be obtained at optimum cost. In 1984, Memorial obtained a 6.5% operating margin, but in 1985, that margin declined to approximately 2%, due to reduced utilization. Due to declines in utilization, only 590 of its licensed beds were in service in October, 1985. Memorial's total patient days for 1985 were the lowest it has experienced since 1973. Memorial is a full-service acute care hospital, offering services including obstetrics, psychiatric services, pediatrics, emergency care, cardiac catheterization and open heart surgery, neo-natal intensive care and ambulatory surgery. ECH is a 100-bed, full-service, acute care hospital located in Englewood, immediately south of Venice, in Sarasota County. It will open in November, 1985, and thus has not yet had an opportunity to obtain patients, adequate utilization, and a favorable operating experience. Its primary service area is southern Sarasota County and northern Charlotte County, substantially the same as that of Venice and that proposed by the Applicant. ECH has osteopathic physicians on its staff and provides manipulative therapy to patients of osteopathic physicians, as do the other two existing hospitals. The chief of ECH's medical staff is an osteopath. Manasota seeks approval for construction of a 100-bed osteopathic teaching hospital in southern Sarasota County in the immediate environs of Venice. The hospital would provide medical surgical services, ICU/CCU, a 24-hour physician staffed emergency room, outpatient surgery, a pharmacy, clinical laboratory, x-ray and other surgical and diagnostic services such as radiography, cardio-pulmonary and ultra-sonography. Manasota projects opening the facility in 1988 with 92 medical surgical beds and 8 intensive care beds. The hospital would be owned by Manasota, but will be operated and managed as a subsidiary of AmeriHealth, Inc., a Florida corporation. Ninety-two per cent of Manasota's stock has been purchased by AmeriHealth Systems, Inc., which is a wholly owned subsidiary of AmeriHealth Holdings, Inc., which in turn is a wholly-owned subsidiary of AmeriHealth, Inc. AmeriHealth Inc. is a publicly-held, Florida corporation. Manasota proposes to treat patients in accordance with the principles of osteopathy, supported by osteopathic specialists. Manasota will have an open medical staff, meaning it will have allopathic and osteopathic physicians on its staff. It maintains that management and control of the facility will be by osteopaths or those "sympathetic" to the osteopathic school of medicine. Although two of the four present members of Manasota's Board of Directors are osteopathic physicians, the chief executive officer of AmeriHealth, Inc., Mr. White established that in the near future that parent entity will nominate a new board of directors. Manasota proposes to affiliate with the Southeastern College of Osteopathic Medicine in Miami as an osteopathic teaching hospital and seek accreditation by the American Osteopathic Association. The facility would be located adjacent to or east of I-75 in southern Sarasota County, a minimum distance of five miles from existing hospitals. The primary service area would be southern Sarasota County (Census Tracts 20- 27). The secondary service area would include northern Sarasota County and northern Charlotte County, as well as the remainder of HRS District VIII, purportedly within a 30-60 minute driving time. In this connection, however, it is noted that osteopathic acute care hospitals have been held to be regional in nature and Manasota's health planning witness, Mr. Konrad, established that a two-hour driving time access standard is appropriate for osteopathic hospitals. District VIII is not, by rule, divided into subdistricts for health planning and CON review purposes. See, South Dade Osteopathic Medical Center v. Department of Health and Rehabilitative Services, DOAH Case No. 84-0750, Final Order at 7 FALR 5681 (November 14, 1985); Community Hospital of Collier, Inc. v. Department of Health and Rehabilitative Services, et al. and Naples Community Hospital v. Department of Health and Rehabilitative Services, et al., DOAH Case Nos. 84- 0744, 84-0907 and 84-0909 (consolidated), (Recommended Order August 16, 1985), p. 39. Although there are no operating osteopathic acute care hospitals in District VIII at the time of hearing, Gulf Coast Hospital has been approved by Final Order for a CON for 60 osteopathic beds and will be located approximately 68 miles and less than two hours driving time from the proposed location of the Manasota facility. Demoqraphics of the Proposed Service Area Sarasota County ranks second in the state in the percentage of its population which is 65 years of age or older. Projections show that by 1990 approximately 31% of its population will be 65 years of age or older, and 14% of the population will be 75 years of age or older. It will, at that time, rank first in the state as to the percentage of its population in excess of 74 years of age. Between 1980 and 1985, Sarasota County, which comprises most of the applicant's primary service area, increased in population approximately 40,000 persons. The county is expected to grow by an additional 43,000 persons between 1985 and 1990. Southern Sarasota County (above census tracts), between 1980 and 1985, grew by approximately 28,000 persons. Between 1985 and 1990, the southern portion of the county, will increase by an additional 33,000 persons, for growth rates of 33% and 32% respectively. Between 1980 and 1985, the population of southern Sarasota County in the 65 to 74 age group grew by about 5,000 persons, as did the population of the 75 and older age group. Between 1985 and 1990 it is projected that Sarasota County residents between the ages of 65 and 74 will increase by 5,700 persons and those in the county age 75 and older will increase by approximately 6,000 persons. Northern Charlotte County, adjacent to the southern Sarasota County primary service area of the applicant, increased by approximately 16,000 persons between 1980 and 1985. This same area is projected to increase by an additional 17,000 persons between 1985 and 1990. Approximately 7,000 of those additional persons will be 65 years of age or older. Much of the population growth in Sarasota County is due to in-migration from other areas. Approximately 43% of the immigrants to Sarasota County come from the midwestern area of the United States. This is somewhat significant because the greatest percentage of osteopathic medical schools and osteopathic physicians and acute care facilities are located in what is generally described as the midwestern United States. It may be expected that elderly immigrants from those areas might have somewhat more of a predisposition to use osteopathic acute care facilities and physicians in Sarasota County. It has not been proven, however, what percentage of the population growth of Sarasota County is attributable to in-migration from all areas of the state and nation. It has thus been demonstrated that the primary service area of the applicant has experienced significant population growth since 1980, but that that population growth will continue at the same or a lesser rate between 1985 and the horizon year of 1990. Indeed, it was established that the population growth rate of elderly persons age 65 and older, who tend to use acute care hospital services more intensively than other age cohorts of the population, will actually decline between the years 1985 and 1990. It has also been proven that between 1980 and 1985 (especially since 1983), the utilization rate for Sarasota County hospitals and District VIII hospitals as a whole, has declined markedly and will continue to do so through 1990, in spite of and counter to the population growth. This is a result of such factors as the advent of "DRG" methods of medic re reimbursement, professional review organizations and consequent shifts in the provision of many health care services to an "outpatient" basis. These changes in the Medicare reimbursement system, of course, are directly related to the segment of the population aged 65 and older, which provide the majority of all acute care hospital admissions from the general population. Because the population growth rate will decline for the age 65 and older age group, the trend of declining occupancy and utilization in the face of population growth will continue through l990 The Need for the Facilities Section 381.494(6)(c)(1), Florida Statutes. HRS has not adopted, by rule, a bed need methodology for determining need for osteopathic acute care hospitals. The normal bed need determination methodology embodied in Rule 10- 5.11(23), Florida Administrative Code, is not used for determination of bed need and need for osteopathic facilities because Section 381.494(2), Florida Statutes, requires that need for osteopathic facilities be determined separately from general acute care facilities. South Dade Osteopathic, supra at 5684. Thus, osteopathic bed need must be determined by development of agency policy in light of the general statutory criteria contained in Section 381.494(2), Florida Statutes, and Subsection (6) of that provision. HRS policy has been to consider whether the proposed facility will be osteopathic; whether a demonstrated need exists for additional osteopathic acute care beds; and whether similar services or facilities exist and are available in the area where the proposed facility is to be located. The court in Gulf Coast Hospital, Inc. v. Department of Health and Rehabilitative Services, 424 So.2d 86, 90 (Fla. 1st DCA 1982) defined "osteopathic facilities" as those maintained for the purpose of: . the cure and treatment of patients in accordance with the principles of osteopathy, the teaching and the study of osteopathic medicine, and the association in practice of doctors of osteopathy, including osteopathic specialists, with support from staff personnel suitably trained in the principles and philosophy of osteopathy. The management and control of the facility so as to actively further all of the above activities rather than to merely tolerate them, must be in the hands of osteopaths or those sympathetic to that school of medicine. Manasota has proposed in its application to construct and operate a 100-bed osteopathic acute care facility with patients being treated in accordance with the principles of osteopathy in a facility meeting the above definition. The preponderant evidence reveals however, that Manasota is not truly an "osteopathic" applicant. AmeriHealth's president, Mr. White, established that AmeriHealth would soon be appointing its own board of directors for Manasota, with no assurance given that osteopathic membership would be retained. None of the officers, directors or shareholders of AmeriHealth have any experience in ownership or operation of osteopathic facilities. Mr. White established that the proposed hospital would have an open staff, but it was not shown what percentage of the staff would be osteopaths and what percentage would be M.D.'s. Mr. White intends to staff the hospital from the existing medical community in Sarasota County. There would be no recruitment of physicians from outside that area unless it became impossible to staff the hospital with Sarasota County doctors. Mr. White would seek advice from "the medical community here" in establishing needed specialties and credentials. AmeriHealth intends to assure the viability of the proposed hospital by following the practice it employed at its Richmond Hospital of obtaining physicians in the community as investors in the hospital. It was not shown, however, what percentage of the investor-physicians the Applicant seeks would be D.O.'s and what percentage would be M.D.'s. In this connection, Dr. Fred Miller, M.D., testifying for Manasota, established that the promoters of the project intend that the staff physicians would be existing physicians in the Venice area. There are six or seven D.O.'s in the Venice area, and approximately 120 M.D.'s. In this regard, Dr. Norman Ross attended a meeting at Dr. Miller's office concerning organization of Manasota. All the doctors at the meeting were M.D.'s, except for the two D.O.'s who had an ownership interest in Manasota. Mr. White assured the physicians attending the meeting that the source of physicians for the new hospital would be physicians who had already developed practices in the Venice area who could "swing their admissions" to the new hospital. Dr. Ross was also assured that the vast majority of the staff physicians would be M.D.'s. Dr. Navarro attended this or a similar meeting and, was assured by a promoter and owner of Manasota that there would not be a heavy influx of osteopaths to town because they intended to get investor-physicians in the community to staff and support the hospital. When Dr. Navarro questioned Dr. Oliva, D.O., one of the directors of Manasota, concerning how he would build an osteopathic hospital without osteopaths, Dr. Oliva explained that "the rules did not require them to have a majority of osteopaths." The intent to staff the hospital largely with M.D.'s is borne out by the fact that the promoters of the hospital offered limited partnerships in the facility to Venice area M.D.'s first. Since Manasota's own witness, Dr. Snyder, D.O., showed that it would take 50 to 75 physicians to staff such a hospital, and since Manasota's principals see no need to recruit physicians from other areas, and have primarily sought support from M.D.'s who make up 95% of the physician population in the county, it is quite unlikely that the project would actually operate as an osteopathic hospital. In this regard, the four Sarasota osteopaths testifying for existing hospitals would definitely not use the proposed facility and feel it is not needed. The preponderant evidence thus establishes that the vast majority of staff physicians will be M.D.'s. The proposed facility has been promoted primarily to M.D.'s and the majority of Sarasota County D.O.'s testifying will not use the facility. Thus, Manasota has not demonstrated it is controlled or in the hands of osteopaths or those sympathetic to that school of medicine. It has not shown it can meet the definition of an osteopathic facility even as described by some of its own medical experts. Dr. Oliva, Dr. Lewis, Dr. Kudelko and Dr. David Lowery, (D.O.'s) opined that the majority of the medical staff and department heads would have to be osteopaths for it to truly be an osteopathic facility. This will clearly not be the case at Manasota. Manasota proposes to be accredited by the American Osteopathic Association (AOA), but also proposes to be accredited by the association which accredits allopathic facilities. The AOA accreditation manual requires osteopathic hospitals to identify themselves as such on buildings and letterheads, unless they are of mixed staff. Manasota proposes a mixed M.D. and D.O. staff. Likewise, nothing in the AOA accreditation requirements mandates any particular composition of the governing board or the medical staff. The Applicant has thus not proven that it will meet any record definition of an "osteopathic" hospital, nor that it will operate as such. Assuming arguendo that it would be osteopathic, the question of whether a demonstrated need exists for additional osteopathic acute care beds and an osteopathic acute care facility and the question of whether similar services or facilities exist and are available in the area of the proposed facility must be addressed. In this connection, although there are no osteopathic facilities currently operating in District VIII, Gulf Coast Osteopathic Hospital has had its Certificate of Need approved by final order of HRS for 60 beds with its request for 120 beds being currently on appeal. It will be located in Lee County, some 68 miles from the approximate location of the applicant. Mr. Konrad, having established that osteopathic hospitals are regional in nature, and that a two-hour travel time more or less is appropriate as a standard for access to an osteopathic facility, the service areas of Gulf Coast and Manasota will overlap. It is therefore found that an osteopathic acute care facility is legally in existence and will be operationally available for osteopathic physicians and patients in District VIII and Sarasota County in the near future. Over-bedded, under-utilized acute care facilities are available represented by existing hospitals whose need for more patients is discussed elsewhere in this Recommended Order. It is undisputed amongst the parties that there is no difference between the way allopathic and osteopathic physicians and hospitals practice in terms of the health care services rendered their patients, except for the emphasis, in the osteopathic realm, of manipulation therapy for patients and the increased emphasis on a holistic view of patients by osteopathic physicians in terms of determining a proper treatment regimen. In any event, acute care patients can be fungibly treated in osteopathic or allopathic hospitals by either osteopathic or allopathic physicians. It is thus found that the services rendered by the existing allopathic facilities are like and similar services to those proposed by the applicant. There was no testimony establishing that patients wishing osteopathic care from osteopathic physicians are not receiving it. Indeed, Drs. Furci and Nestor, osteopathic physicians in Sarasota, and Dr. Chirillo, who practice in southern Sarasota County, established that doctors are currently able to treat their patients with adequate quality of care, in an osteopathic manner, in existing hospitals. Sarasota County has a significant population of 20 osteopathic physicians. Their patients desiring osteopathic acute care services are currently receiving them despite the lack of an operating osteopathic hospital. Indeed, many of those physicians could accept more patients in their practices. Some close their offices at noon due to lack of patients. The number of osteopathic physicians per 1,000 persons in the District VIII population, when compared to the state and national averages for osteopaths per 1,000 population, reveals that there is no shortage of osteopathic physicians in District VIII. A number of the osteopaths practicing in Sarasota County testified on behalf of Manasota. Doctors James and Donald Blem and Dr. Chirillo are osteopaths practicing in southern Sarasota County and northern Charlotte County. Dr. James Them supports the application in that he would prefer to practice in an osteopathic hospital with osteopathic specialists on staff with whom he could consult. He prefers the continuity of care available if he had a situation where he could refer his patients upon admission to an osteopathic specialist, rather than having to refer patients to allopathic specialists. He also supports the teaching aspect of the Manasota application. Dr. Chirillo supported the application of Manasota essentially because it would be a teaching hospital and he feels that there is a need to train osteopathic physicians, but acknowledged that no additional acute care beds are needed in Sarasota County and District VIII. Dr. Donald Them supported the hospital's application for similar reasons. None of the three doctors would transfer all their patient admissions to the Manasota Hospital, should it be built, however. Indeed, Dr. James Them did not feel some of his patients would want to go to the Manasota facility because of the travel distances involved. Drs. Them and Chirillo are on the staff of Venice Hospital, and have no difficulty in getting their patients admitted to that hospital. They have full privileges and can practice osteopathic medicine there, including manipulation therapy. They know of no patients in Sarasota County going without acute care services because there is not an osteopathic hospital in the county. The osteopathic physicians in the county have no trouble getting staff privileges at existing facilities and each is generally practicing as he chooses without restriction, other than specialization. Osteopaths will practice with allopathic physicians at Englewood Community Hospital. Three osteopaths are on its charter Medical staff. One of these was chosen as the president elect of the ECH medical staff. The osteopaths at that facility are being provided with any needed equipment. Drs. Furci, Bipman, Yonkers, and Nestor, osteopaths testifying for the existing hospitals, all feel that they can treat their patients in a proper osteopathic manner. All are on the staffs of Doctors or Memorial Hospitals in Sarasota. They believe osteopaths in the area have enough acute care beds for their patients and there are always empty beds. All found no need for any additional beds, osteopathic or allopathic. In the words of Dr. Mervin Lipman, D.O., of Sarasota, "we don't need any more hospital beds period. We are up to our ears in hospital beds today." In short, the low utilization of acute care hospitals in the district and the county, among other factors, reveals that there are available, accessible mixed staff hospitals to serve the needs of patients of allopathic or osteopathic doctors. Manasota's proposal is, in part, consistent with the 1985-87 state health plan. That plan states at Volume 2, Pages 22 and 23: in short, the dynamic nature of health care calls for a planning approach which attends to overall development patterns rather than viewing specific health problems in isolation. Three interrelated policy guides were adopted as part of the 1985-87 State Health Plan: A holistic concept of health is espoused which views man's well-being as a function of the complementary interaction of mind, body, and environment. The holistic concept of health places emphasis on promotion of well- being and prevention of illness. The resources available for organized health care activities are limited and must, therefore, be utilized to their greatest effect. Given a holistic concept of health and finite health resources, priority should be placed on increasing resources for effective health promotion and primary care while containing total health care costs. In that Manasota proposes to be an osteopathic teaching hospital and the osteopathic philosophy comports with the holistic concept of health espoused above, the Manasota proposal is consistent in part with the 1985-87 State Health Plan. Neither the state nor the District VIII Health Plans specifically address need for osteopathic beds and for osteopathic hospitals and services, but rather treat all acute care services, osteopathic or allopathic, together. The State Health Plan emphasizes the growing problem and societal expense caused by excess acute care beds in the state, and states that "the combined effect of ambulatory surgery, HMO's, DRG's and other innovations could reduce acute fewer acute care beds will be needed state-wide than existed in 1984. Mr. Konrad, Manasota's own expert health planning witness, conceded that that projection may be accurate and would apply equally to allopathic and osteopathic facilities. Goal no. 3 at page 83 of the state health plan states the policy that efficient utilization of acute care services should be promoted. Objective 3.1 of that goal expresses the intent that all non federal hospitals, considered together, should attain an average occupancy rate of at least 80 per cent by 1989. District VIII currently has a district-wide occupancy rate for the last six months of 1985 of only 63.9%. Thus, approval of an additional acute care hospital would not conform with objective 3.1 of the state health plan, and, given the declining occupancy and use rates, even if the Manasota application were not approved, District VIII will not be in compliance with this objective by 1989. Due to the continuing decrease in patient days, decrease in average length of stay and decrease in admissions projected to 1989, the occupancy rate for 1989 for District VIII is likely to be less than 69%. The Department of Health and Rehabilitative Services (HRS) has not adopted a rule setting forth an osteopathic acute care bed need methodology. The policy of HRS, in this case at least, is to use the so-called "Wellington Methodology" in determining osteopathic bed need. Ms. Dudek, the sole HRS witness, collected data for this methodology from a number of·a 33 sources. She used data concerning numbers of admissions by osteopathic physicians from July, 1984 through June, 1985, and the total number of patient days by osteopathic physicians from the local health councils in Broward, Dade, Duval, Volusia, Hillsborough, Orange and Pinellas Counties. Those counties were chosen because they contain osteopathic hospitals. Ms. Dudek considers such data important when reviewing applications for acute care osteopathic beds in areas like District VIII where no such facilities exist. The department ascertained the number of licensed osteopathic physicians residing in District VIII from the Department of Professional Regulation, and used the latest population projection issued by the Governor's Office. This data was used in three formulas, the results of which were then averaged to determine the department's position as to osteopathic acute care bed need for District VIII in the horizon year of 1990. HRS used these three formulas because, by Ms. Dudek's admission, it felt no single formula was best. The first of the formulas is population based. It multiplies the number of osteopathic admissions to hospitals per 1,000 population, multiplied times the projected 1990 population for District VIII. It then multiplies that number by the average length of stay per osteopathic admission and divides the result by 365 days, further dividing that result by 80 per cent utilization to project the total number of osteopathic beds supposedly needed in 1990. Shown mathematically, that formula is as follows: [8.6 x (907, 804/1,000) 6.9]/[365 x .80] = 184 beds. The second formula is termed "physician based" and multiplies the admission rate per osteopathic physician by the number of osteopathic physicians licensed in District VIII. It then multiplies that number by the average length of stay per admission and divides the result by 365 days, once again divided by 80% utilization, to project the number of osteopathic beds putatively needed in 1990. That formula is depicted mathematically as follows: [53.1 x 67 x 6.9]/[365 x .80] = 84 beds. The third formula, also physician based, multiplies the number of osteopathic physicians in District VIII times the number of patient days per osteopathic physician (taken from the counties from which data was collected, not District VIII), divides the resulting number by 365 days; and then multiplies that by 80% utilization to project the number of beds needed in 1990. That formula is depicted mathematically as follows: [67 x369.2]/[365 x .80] = 85 beds. The Department averaged the results of these three formulas to arrive at its position that there is a gross osteopathic acute care bed need for 1990 of 118 beds. It then subtracts the 60 beds already approved for Gulf Coast Hospital, by Final Order, for a net need of 58 osteopathic beds. Formulas 2 and 3 above are essentially identical in that they are composed of the same variables and produce the same effective result, absent rounding of numbers. It is thus apparent that it is not truly valid to include both formulas 2 and 3 in the averaging calculation since they contain the same information. They would improperly weight the result (and HRS' position) in favor of the physician-based data. This is especially true in light of the fact that HRS concedes itself that no single formula used is more accurate than the other. If the results of the population based formula number 1 is averaged with only one of the other methods, the result is a gross osteopathic bed need for District VIII of 134 beds for 1990. When the 60 beds already approved for Gulf Coast Hospital are subtracted from this total, a net osteopathic bed need for 1990 of 74 beds results. Ms. Dudek acknowledged that, in reaching the agency's position she espoused at hearing, she had not considered the other applicable statutory criteria, but merely employed her "need methodology" to determine bed need results. She acknowledged however, that her data itself showed that admissions- at osteopathic facilities in the counties she surveyed were declining. Further, in employing her formula she did not determine how many physicians were available and would actually use the facility in the Sarasota County service area, nor how many of their osteopathic patients would be admitted to existing hospitals as opposed to the Applicant' s. Her formula assumed that the osteopaths would send all their patients to an osteopathic facility in District VIII. Indeed, a number of the physicians who would seek to become staff numbers at Manasota also testified that they would not necessarily refer all their patient admissions to that facility. The D.O. specialists who expressed a desire to become staff members would admit few patients because they would not have primary care practices. The evidence establishes that osteopaths as close as the City of Sarasota would not seek to use this facility. It is thus illogical to assume that physicians further away in District VIII would attempt to use it. Ms. Dudek also apparently assumed that the data regarding admissions per osteopathic physician and per one-thousand population obtained from other areas of the state would automatically apply in the service area involved in this application. There was no proof that that would be the case. Further, her formulas take into account the optimal 80% occupancy rate which the record clearly reflects does not prevail in District VIII. The average occupancy for District VIII acute care facilities is substantially less than that and will decline through 1990. In short, there is no basis in fact to support some of the HRS assumptions with regard to its bed need methodology since some of those assumptions were not shown to apply to District VIII and since it did not include in its assumptions certain data regarding osteopathic admissions which was available for District VIII. Since its formula assumptions are thus flawed and since HRS did not evaluate the remaining statutory criteria, its conclusion that there should be approval of a 60-bed osteopathic hospital (or any other number of beds) is rejected. Testifying on behalf of Manasota, Mr. Thomas Konrad, an expert in health planning, opined that a need exists for the Manasota project. Mr. Konrad believes there is no acceptable mathematical need calculation for osteopathic beds, but feels it reasonable that the district, with two large population centers in Lee County and Sarasota Counties, could support two osteopathic hospitals. He based this on his general proposition that osteopathic acute care facilities should be placed in populous areas with high acute care utilization rates based upon the age characteristics of the population. Sarasota has a relatively large population base and will be the 14th most populous county in the state in 1990, with a large percentage of elderly persons who utilize acute care services at a higher rate than the general population. Mr. Konrad performed a "reality check" to test the efficacy of his position by calculating the osteopathic acute care bed to population ratios for the populous counties in which osteopathic hospitals are located, which have similar demographic characteristics to Sarasota County. His analysis showed that the state-wide osteopathic hospital bed to population ratio is .313 beds per 1,000 population. If the 100-bed Manasota facility were approved, the ratio for Sarasota County would be .351 beds per 1,000 population. Mr. Konrad acknowledged that he has never before employed the osteopathic bed to population test used in this case. The test contains a fallacy in that Mr. Konrad did not adjust the bed to population ratio by any occupancy standard, but rather his approach necessarily embodies the assumption that either the beds are needed in those counties he surveyed, merely because they are in existence or approved, or alternatively, he failed to consider the occupancy rates in those counties vis-a- vis the present or projected occupancy rates in Sarasota County and District VIII. It is apparent from his testimony that he did not take into account the recent occupancy rates and trends for osteopathic hospitals in the counties included in his analysis. In fact, the osteopathic hospitals in the surveyed counties experienced a collective occupancy rate of approximately 43 per cent, rather than the optimal 80%, in 1984, which represented a 10% decrease since 1982. Between 1983 and 1985 the patient days per osteopathic physician in those counties decreased by almost 28%. The test used by Mr. Konrad does not present a true picture of need for District VIII since it does not take into account whether the figures upon which it is based represent excess osteopathic bed capacity and does not take into account the utilization rates in those counties, much less the presently existing and projected utilization rate for Sarasota County and District VIII as that might relate to an appropriate bed to population rates. The utilization rate at Gulf Coast is unknown because it has not had an opportunity to get into operation and the utilization rate at the allopathic hospitals which are like, existing facilities and services, is substantially lower than 80% and declining. Manasota will admittedly compete for the same declining patient day pool with those existing allopathic facilities. Thus, Mr. Konrad's general opinion that the two populous centers of District VIII involved could support two minimum-sized osteopathic hospitals, as tested by his osteopathic bed to population ratio method of analysis, was not established to be a valid test for osteopathic acute care bed need for District VIII and Sarasota County. In light of this and in consideration of the other above findings, there has been shown to be no need for additional osteopathic (or other) acute care beds or facilities in Sarasota County or District VIII. Availability, Quality of Care, Efficiency, Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Health Care Facilities in the District There presently are no acute care osteopathic hospitals operating in District VIII nor do any have dedicated portions of their facilities devoted solely to the practice of osteopathic medicine, although each of the acute care hospitals involved have varying numbers of osteopaths on their staffs. Gulf Coast Hospital, however, will construct and operate its approved facility in the immediate future and thus, at least 60 osteopathic beds are approved and not yet utilized as available osteopathic services in the district. Gulf Coast Hospital has not had the opportunity to get into operation, attain its market share and a favorable utilization experience so as to become available as yet. Given that Gulf Coast will be constructed 68 miles from Manasota in Lee County, much closer than the two-hour regional travel time standard established above, it is obvious that an osteopathic acute care hospital will soon be available and accessible to District VIII patients. Osteopathic acute care services are presently available in District VIII, notwithstanding the fact that the Gulf Coast facility is not yet open. Sarasota County osteopathic physicians have staff privileges at area hospitals and by their own testimony, are able to treat their patients in a fully osteopathic manner at existing Sarasota County acute care facilities. Venice Hospital is supportive of the practice of osteopathic medicine. Dr. James Them, D.O., is on the staff at Venice with full privileges and has no difficulty in getting his patients admitted. He can practice osteopathic medicine there in an unimpeded way, including the use of manipulation tables provided by the hospital. He acknowledged that the patients in Sarasota County are not denied acute care services because of the lack of an osteopathic hospital. Drs. Donald Them, D.O., and Joseph Chirillo, D.O., of the Venice staff are of a similar opinion. The other area D.O.'s testifying are able to treat their patients in a proper osteopathic manner at existing facilities and they would not seek staff privileges at Manasota. Although several osteopaths testified that they desired the availability of osteopathic specialists in an osteopathic facility to render consultation and referral of their patients with attendant continuity of care more facile, and to avoid, in some instances, duplication of tests in the referral process with allopaths, they did not demonstrate that their patients suffer from any lack of adequate care in existing facilities. The advent of the Manasota facility would not necessarily alleviate this "physician inconvenience" purportedly caused by referring patients to allopathic specialists, inasmuch as Manasota will be a mixed staff hospital, such that many of the specialists on its staff are likely to be allopathic physicians anyway. All of the Sarasota County osteopathic physicians can handle additional patients and have had osteopathic patients adequately cared for in existing facilities, at which they have full privileges. Osteopathic physicians have no difficulty gaining staff privileges and admitting patients at existing facilities. Indeed, at the new Englewood facility, three osteopaths are on the staff and one was chosen by his peers as president-elect of the medical staff. Osteopaths at Englewood will be provided with any needed equipment. In short, with the advent of the 100-bed Englewood facility, the 60-120 bed Gulf Coast facility, together with the existing hospitals which have substantial unused capacity, osteopaths practicing in Sarasota, Charlotte County, and District VIII have enough beds between now and 1990 for their patients at facilities at which they may freely practice osteopathic medicine. These like and similar services are available because both allopathic and osteopathic physicians and hospitals draw from the same limited patient pool. There is no essential difference between the way allopathic and osteopathic primary care physicians, surgeons, and specialists practice in terms of the services rendered acute care hospital patients. The primary difference only lies in the use of manipulative therapy, with attendant manipulation tables which are used in the osteopathic setting. This service is already available at the existing hospitals. The difference in philosophy between osteopathic and allopathic practice is manifested more at the out-patient primary care level. At the primary treating physician level the patient is looked at holistically in the sense that, in addition to treating the illness or condition the patient is presented with, the osteopath seeks to ascertain and correct causes of the illness rooted in other systems of the body or the patient's environment or family circumstance. The allopathic physician tends to be oriented toward treating the specific problem by dealing with the involved bodily system only. There is, at any rate, very little difference in the way allopathic and osteopathic physicians practice at the acute care hospital level, in caring for their patients. Thus, all persons desiring osteopathic acute care services are able to receive them in District VIII, despite the lack of an additional osteopathic hospital. In view of the number of osteopaths per thousand population in District VIII, as compared to state and national averages in evidence, there is no shortage of osteopathic physicians in District VIII. Given the low utilization of existing acute care hospitals in the district and in Sarasota County, including Gulf Coast, which has not had the opportunity to fill any of its beds, there are like, existing, available, accessible, mixed staff hospitals in Sarasota County and in District VIII providing adequate acute care services, including osteopathic of the type proposed. The quality of existing hospitals in the district has not been placed at issue. No testimony or evidence concerning quality of care about Memorial or Doctors Hospitals has been adduced. The Englewood Hospital, as of the time of the hearing, had not yet opened. Dr. Raymond McDearmott, M.D., was presented to criticize quality of care at the Venice Hospital. Dr. McDearmott, however, did not have admitting privileges and was limited in his experience to working in the emergency room at Venice. He has been engaged in a dispute with Venice's administration concerning his operation of the emergency room, which may culminate in litigation. This adversarial attitude toward Venice, together with his failure to describe specific instances of inadequate care, entitles his testimony to scant consideration. There is no competent evidence to indicate that existing hospitals are not providing adequate quality care. Likewise, the efficiency of existing facilities was largely not addressed, with the exception of Venice Hospital. Manasota contended that Venice Hospital was not operating efficiently because of an alleged excessive amount of administrative expenses. That contention was predicated upon data submitted to the Hospital Cost Containment Board by Venice Hospital which was reported by the board and indicated that administrative expenses at Venice exceeded those of other hospitals in the cost containment board "reporting group" of which Venice is a member. It was established, however, that that information had either been filed with or reported by the Hospital Cost Containment Board in error, and that indeed, the error was corrected on the Board's own volition. The administrative expenses at Venice Hospital for the reporting period in question, were at approximately the mid-point for hospitals-in its reporting group. Thus, it has not been established that Venice or any of the other hospitals in Sarasota County or District VIII, are operating inefficiently, aside from their problems with under-utilization and unused capacity. It has also been proven that the existing hospitals are "like" facilities which are accessible. Indeed, 95% of the population of District VIII is within 20-miles or less of an existing acute care hospital. The Gulf Coast osteopathic facility will be well within the proven two hour accessibility standard for osteopathic hospitals, since it will be 68 miles from the proposed location of the Manasota facility. The existing hospitals are underutilized. There has been no showing that existing hospitals are inaccessible to residents of the county and the district. Concerning the issue of extent of utilization of like and existing facilities, witnesses Konrad, Beechey, Shanika, Zaretsky, Schwartz and Porter acknowledged the declining utilization of acute care hospitals in Sarasota County and District VIII, and the continuing nature of that decline. In District VIII, occupancy of acute care hospitals has decreased significantly from 1983 through 1985, such that the composite occupancy rate for the district was 67.2% in 1983, 60.9% in 1984 and 52.4% for 1985. The dramatic changes occurring in the health care industry since 1983 have caused the severe declines in inpatient utilization. The primary reason has been the change, beginning in 1983, to the Medicare prospective payment system as opposed to the former cost-based reimbursement system. The new system is otherwise known as the "DRG" system. Thus, Medicare reimbursement is now based on a Fla. rate reimbursement based upon the type of illness, diagnosis or treatment. The effect of this change has been to sharply decrease the average length of stay of Medicare patients in hospitals, as well as to decrease Medicare admissions. Medicare admissions are decreasing through increased emphasis on utilization review by professional review organizations mandated by the Medicare system. This results in more procedures, such as some surgery, being performed on an outpatient basis. Inpatient utilization concomitantly declines. These factors, coupled with the growth of home health services, and the imminent impact of preferred provider organizations (PPO's) and health maintenance organizations (HMO's) in Sarasota County and District VIII, have and will impact hospital occupancy rates significantly to an increasing degree. Mr. Conrad and Mr. Schwartz both showed that these factors which depress hospital utilization impact utilization of osteopathic and allopathic facilities in the same way. In fact, since osteopathic facilities have historically experienced higher average lengths of stay than allopathic facilities, the DRG method of prospective reimbursement has and will have a greater impact on osteopathic hospitals. Hospital utilization in District VIII is still declining. Even though the population is increasing significantly, hospital occupancy is decreasing. During 1980 the population of Sarasota County was 205,846 from which 292,500/ patient days were generated. In 1985 the projected population for Sarasota County was 242,875 and the projected number of patient days was down to 273,486. Thus, the population of the county increased by 37,000 during that five year period, yet the number of patient days decreased by approximately 19,000. Thus, the hospital use rate is decreasing more rapidly than the population is increasing, and it has not been shown that patient days will increase in relation to the population through the year 1990. The increasing influence of the above-mentioned alternatives to inpatient care will continue to cause a drop in the hospital use rate for Sarasota County in the future. Indeed, the 1985-87 state health plan, in evidence, predicts that the combined effect of outpatient surgery and other delivery systems will result in an additional 15 per cent decline in hospital admissions by 1989. The current decline in utilization rate in Sarasota County hospitals has not yet been affected by the advent of HMO's and PPO's, but those prepaid health insurance organizations are in the offing and will cause further declines in utilization. If present trends continue, as has been proven to be likely, and the Manasota Hospital application is approved with its proposed 100 beds, hospital occupancy in Sarasota County will decline to approximately 40% in 1990. Approval of the applicant's facility would result in occupancy rates as low as 35 to 38% for Venice, Englewood and Manasota Hospitals, since Manasota, with a large number of M.D.'s on its staff will draw its patients and patient days from the same pool as the existing hospitals and thus share an insufficient number of patients with them. In order for all hospitals in District VIII to operate at the optimum of 80% utilization, as many as 1,344 acute care beds would have to be eliminated from the existing licensed and approved beds. Even if no additional beds are approved, the most realistic projection of hospital utilization in District VIII for 1990 is 44.6%. The average occupancy for acute care beds in District VIII during 1983 averaged 67.2%. By 1985 the occupancy rate was down to 52.4%. Accordingly, in view of the significantly low district-wide and county occupancy and the continuing downward trend, the legislatively mandated goal of hospital cost containment underlying Section 381.494, Florida Statutes, will not be furthered by the approval of additional hospital facilities in District VIII and Sarasota County, including that proposed by Manasota. Manasota's Abilitv to Provide Qualitv CareSection 381.494(6)(C)(3), Florida Statutes Inasmuch as the Manasota facility has not been found needed for a variety of reasons enunciated herein, the issue of its ability to provide quality health care will not be addressed in depth. It is quite likely that Manasota, if it got into operation, overcoming the operational and legal impediments discussed herein, could provide quality health care. Its management team is made up of Mr. Gerald White and other former managers of Health Corporation of America, all of whom have substantial health care managerial expertise. The Availability of Alternative Sources of Care -Section 381.494(6) (c)4, Florida Statutes There are less costly, more efficient and appropriate alternatives to the proposed Manasota project for District VIII and Sarasota County. The existing acute care hospitals are like and existing facilities offering similar health care services which are severely under-utilized. The osteopaths testifying both for and against the Manasota application acknowledge that there are plenty of hospital beds to admit their patients in Sarasota County, and that they can be satisfactorily, osteopathically treated at existing hospitals. Those D.O.'s supporting the application of Manasota acknowledged that they will continue to send their patients to existing facilities as well. Thus the existing acute care hospitals (as well as the future Gulf Coast facility), are appropriate alternatives to the Manasota facility, and since they are greatly under-utilized, or in the case of ECH and Gulf Coast, not yet utilized, they need more patients and more revenue to become more efficient, enabling them to deliver health care services in a less costly manner the public. If Manasota's hospital were approved, utilization would decline still further, generating even more excess acute care capacity. Unused capacity has a significant fixed cost increment which will have to be borne by the health care consuming public. This is wholly aside from the capital expenditure in excess of fifteen million dollars needed to place the Manasota facility in operation. This would be an unnecessary cost for the consumers of District VIII to bear in view of the lack of need for it. Probable Economies in Service Derived from Joint or Shared Resources-Section 381.494(6)(c)5, Florida Statutes Manasota does not propose to operate joint, cooperative or shared health resources in conjunction with its proposed hospital. This criteria is not really at issue in this case and no party offered proof with regard thereto. Need in the District for Special Equipment and Services not Accessible in Adjoining Areas-Section 381.494(6)(c)6, Florida Statutes This criterion is not applicable in this proceeding. Manasota will not offer specialized equipment or services of a type not already available in Sarasota County or the district. The Need for Research and Educational Facilities Including Institutional and Community Training Programs for Practitioners and for Doctors of Osteopathy and Medicine at the Internship and Residency Training Level-Section 381.494(6)(c)7, Florida Statutes Manasota proposes an osteopathic teaching hospital. It called Dr. Arnold Melnick to testify regarding the need for additional osteopathic teaching hospitals in Florida. Dr. Melnick is the Dean of the Southeastern College of Osteopathic Medicine (SECOM) in North Miami Beach. He was accepted as an expert in the fields of medical education and osteopathic medicine. Dr. Melnick established that the emphasis in osteopathic medical education is to train general or family practitioners. This aspect of medical education and practice comports with the holistic philosophy of osteopathic medicine which emphasizes treatment of a patient by looking at the patient's entire physical and environmental circumstance, rather than being specific disease, condition or system oriented. Because of the emphasis on training for ability to diagnose and treat all aspects of a patient's medical circumstance, osteopaths tend to be in general practice and family practice rather than specializing such that approximately 87% of osteopaths are in general. Only 4% of the osteopathic profession are primary care specialists in the areas of pediatrics, obstetrics and internal medicine. Dr. Melnick established that because of the holistic philosophy, there is not a significant need for more osteopathic specialists. This is also the reason that internships for osteopaths are required to be one year "rotating" internships. Osteopathic interns in teaching hospitals must rotate for a month or more through each of a teaching hospital's medical departments, such as pediatrics, obstetrics, and the like so that their training will be designed to give them a broad knowledge of many areas of medical practice. Contrastingly, with allopathic internships, interns concentrate in the area of their chosen specialty with a view toward moving on toward a residency in that specialty. It is for this reason that osteopathic teaching hospitals must offer a sufficient number of different medical practice departments so that interns may be given broad training in all the medical practice fields they will be required to know to be competent general or family practitioners, in keeping with the osteopathic philosophy of medical practice. Thus, although osteopathic practice is characterized by a vast majority of family practitioners, specialists are required· to train osteopathic physicians. The AOA accreditation requirement dictates that certified osteopathic trainers must be present in the various departments. Dr. Melnick established that an osteopathic teaching hospital should not be smaller than l00 beds, must have at least three outstanding osteopathic internists, at least two osteopathic surgeons, an osteopathic pediatric specialist, as well as an obstetrics-gynecology specialist. Manasota presented testimony of osteopathic specialists consisting of a surgeon, a pathologist and an opthamologist from Suncoast Hospital in Largo, Florida who are willing to move to Sarasota County and become staff members if the hospital is built. Manasota, however, has not established that it will have the specialists required for an appropriate quality osteopathic teaching hospital. It did not show how it would obtain the required number of internal medicine specialists, surgeons, a pediatrician nor a specialist in obstetrics and gynecology. In fact, Manasota will not have an obstetrics department. Both Dr. Melnick and Mr. White established that a teaching hospital needs more FTE staff members than a non- teaching hospital. The proposed 3.4 FTE's will be less than necessary for a teaching hospital to adequately operate. There is currently a shortage of nurses and other technical staff employees in Sarasota County, as evidenced by the difficulty Venice has had hiring and retaining people in these positions due to the advent of the Englewood facility and its competing recruitment. There is a substantial likelihood that Manasota will have difficulty obtaining sufficient staff members to be a bona fide quality teaching hospital, especially since it proposes to hire osteopathically trained nurses and technicians. It did not establish where it intends to recruit them. In view of the fact that Manasota proposes to recruit its medical staff locally, it has failed to establish where it will obtain the required number of D.O. specialists as certified trainers for each of its departments. There are eight osteopathic teaching hospitals in Florida. The most recent graduating class from SECOM consisted of 40 osteopathic physicians. All of them were placed in suitable intern programs in and out of Florida. It was not shown that all of these 40 interns would have remained in Florida even had there been an additional osteopathic teaching hospital. The college will be graduating 100 osteopathic physicians per year by 1987. It was not established that all of the internships they will require must be at Florida hospitals. In this connection it was shown that a 100-bed osteopathic teaching hospital could accommodate eight interns, but only if that hospital was operating at 80% capacity. If the same hospital had only a 57% occupancy it could accommodate 5.7 interns. Thus by Manasota's own utilization projections it could accommodate only about five interns, even if it could obtain the required number of osteopathic specialists as trainers. Further, such interns typically receive stipends of from $18,000 to $20,000 per year. Although Manasota could obtain approximately $3,000 per year per intern from a grant program established by the legislature, it did not demonstrate in its financial evidence that it has provided for the necessity of $75,000 per year for intern salaries. In short, it has not been proven that Manasota genuinely can establish its facility as an osteopathic teaching hospital in accordance with Dean Melnick's own, requirements. Availabilitv of Resources, Manpower, Management Personnel and Funds for Operating and Capital Expenditures; Effects on Clinical Needs of Training in the District for Health Care Professionals; Accessibility to Schools in the District for Health Care Training; Alternative Uses of Resources for Other Health Services; Accessibility of the Facility to all Residents of the District; Section 381.494(6)(c)8, Florida Statutes In terms of manpower availability, the Applicant intends to have an open staff of M.D.'s and D.O.'s, purportedly recruited from the existing medical community in Sarasota County. Manasota will only seek to recruit physicians from outside that area if unable to staff the hospital from existing physicians with practices in Sarasota County who could "swing" their patients from existing hospitals to Manasota's facility, discussed above. The potential physician-investors, referenced above, were assured by Manasota's principals, that the vast majority of the 20 or 30 physicians needed to staff the facility would be M.D.'s from the Venice and Sarasota area. The doctors attending these promotional meetings were told there would not be a heavy influx of osteopathic physicians to Venice to staff the hospital. There are between 100 and ll0 M.D. physicians in the Venice area. There are 20 osteopathic physicians in Sarasota County. Three support the application and would seek privileges at Manasota, four of them would not and do not feel the hospital is needed. The remainder did not testify nor indicate any interest in staff privileges. The testimony of the osteopathic physicians from other areas (Dade City and Pinellas County), as well as Dr. Melnick, as found above, established that for a hospital to be osteopathic in philosophy and operation, at least 52% of its governing body should be osteopathic physicians, as well as the majority of its department heads and staff. Only four of these doctors expressed a desire to join Manasota's staff. There is therefore simply no competent, substantial evidence of record to establish that a majority of the staff physicians will be osteopathic physicians, nor that the majority of the department heads will be osteopaths. In fact, the evidence does not reflect clearly how many staff positions Manasota proposes to obtain to operate the hospital, nor that a sufficient number of M.D.'s and D.O.'s can be obtained locally in the face of the staff privileges offered at existing hospitals. If an influx of physicians will be required from outside areas to staff the hospital, while this might provide adequate physicians to staff the hospital, it would not serve to increase hospital utilization, they would bring no patients with them. In fact, with the utilization rate decreasing, the pool of patient days available to render the hospital and medical practices feasible is continuing to shrink and if more physicians are added to the Sarasota County market, health care costs can only rise as doctors and the hospitals must raise charges in order to render their practices financially feasible when there are not enough patients in relation to the number of doctors or beds available. Better alternative uses of the resources represented by the increased charges would involve not building such a facility in such a shrinking patient market, but rather allowing existing hospitals a chance to improve their utilization experience first with their already constructed and financed excess capacity. The 3.4 full time staff equivalents (FTE's) per occupied bed based upon witness Sucher's projections are insufficient to staff an acute care hospital such as this. Indeed, as shown by Mr. White, a teaching hospital may require up to 5.6 FTE's. A minimum of 3.8 FTE's per occupied beds would be needed to staff an acute care facility such as that proposed by Manasota as shown by Mr. Schwartz, and as a teaching hospital an even higher staff ratio would be necessary. If Manasota adjusted its FTE staff to meet only the minimum 3.8 FTE standard, its costs for staffing would be $450,000 more than that proposed in its pro forma expense statement. Indeed, if it actually proposes to be a teaching hospital, its staffing requirements and concomitant expense would increase on the order of one million dollars more than that proposed in its pro forma. In connection with this, the staff proposed to be needed in certain departments was understated. For instance, 16 to 18 employees would be needed to staff a laboratory in a 100-bed hospital and Manasota only allocated 8. Similarly, it only proposes to have 3 FTE's to staff its pharmacy. This is an insufficient number of employees to staff a pharmacy seven days a week, 24 hours a day as Manasota proposes to do. Finally, although Manasota proposes to have an osteopathically trained staff of nurses and other technicians, it did not demonstrate where it would be able to recruit such staff members trained in osteopathic principles of nursing and other disciplines. Thus the Applicant has not proven the availability of sufficient manpower and related resources to feasibly operate the project. The issue of availability of funds for capital and operating expenditures for accomplishment and operation of this project is treated with more specificity infra., however, it should be pointed out that Manasota has significantly understated land purchase, site development, working capital and other capital costs by more than two million dollars, and otherwise understated the magnitude of resources the project will require. Although the facility will be readily accessible to the population of south Sarasota County, in view of the above findings there is no accessibility difficulty for acute care patients, both allopathic and osteopathic, at the present time, in the county and District VIII, especially with the advent of the Gulf Coast Osteopathic Hospital and the recently opened Englewood facility. The considerations in the above statutory criteria regarding health care training and education needs are dealt with to the extent they are relevant in this proceeding in the findings concerning Manasota's proposed posture as an osteopathic teaching hospital. Financial Feasibility Mr. Randy Sucher and Dr. Elton Scott, testified as financial experts on behalf of Manasota. Mr. Sucher testified that the projected utilization of a proposed facility is the "cornerstone" of a financial feasibility study, and financial forecast. Mr. Sucher conceded that the financial feasibility study done in this case was much less detailed and thorough than had been done in his experience when he was employed by an accounting firm to perform feasibility studies for hospital clients, especially in the area of evaluating patient demand. Mr. Sucher largely relied on the demand and utilization study performed by Dr. Scott. The frailty in the study lies in the method employed by Dr. Scott to study demand and project utilization, which lacks specificity. He determined his position regarding patient demand for Manasota's project largely by attending meetings and interviewing physicians, most of whom are M.D.'s in Sarasota County. He then projected utilization by determining the admission rate per 1,000 population in south Sarasota County which is Manasota's primary service area. He arrived at a figure of 102 admissions per 1,000 population, determined by merely considering the admissions to Venice Hospital as reported in the 1983 hospital cost containment board data. He applied that admission figure to the population figures for south Sarasota County for 1985. He performed no patient origin studies for Venice Hospital, so it was not established whether all of those admissions originated from the same south Sarasota County origin area represented by his population figure. The results of his interviews with physicians do not indicate hat all the patients admitted by those physicians to Venice Hospital, came from the south Sarasota County service area proposed for Manasota. There is thus no way to determine from this record if the patient admission figures relied upon by Dr. Scott correlate with the actual admissions to Venice and from the relevant primary service area population. Thus, even though Dr. Scott's data showed 102 admissions for Venice per 1,OO0 population, when only looking at the census tract population areas for south Sarasota County, it was not established that those admissions were not drawn from a much larger population base representing more of Sarasota County and possibly north Charlotte County. If so, that would result in a much lower admissions per 1,000 population figure for Venice Hospital, as that relates to the number of patient admissions Manasota could expect to capture from Venice. Dr. Scott's utilization assumptions were not verified by any patient origin studies for Venice Hospital, which might show, for instance, that significant numbers of its admissions come from areas from which Memorial and Englewood will draw patients. Thus, the 22 per cent share of Venice's admissions that Scott opines Manasota will attract, have not been verified by a showing that those patients are from origin areas or physicians more likely to be attracted to Manasota as opposed to Venice, Englewood or Memorial, if Manasota is built. In this connection, no in-depth physician analysis study or market analysis study was done by Dr. Scott or Mr. Sucher. Instead, they relied upon general discussions at interviews with three local osteopathic physicians and 12 to 15 M.D.'s as well as three or four out-of-district D.O.'s and, according to Mr. Sucher,: "from that, we just kind-of got a composite feeling that we could generate 'x'." Dr. Scott and Mr. Sucher also relied in part upon a 1983 informal survey conducted by a Manasota shareholder of an indefinite number of Sarasota County physicians. Some of these, including the four Sarasota D.O.'s discussed above, now have privileges at other Sarasota area hospitals and will not admit patients to Manasota. The three D.O.'s who support the application will not refer all their patients to Manasota and the osteopathic physicians from the St. Petersburg area, who indicated a desire to join Manasota's staff, are not all "admitting physicians," some of them being specialists who only engage in hospital practice and would provide no patient admissions. As found above, Manasota did not prove that it could adequately staff the hospital with M.D.'s and D.O. s. If it obtains doctors from other areas, they will not have a local patient base from which the hospital can gain the admissions necessary to achieve a feasible revenue posture. Neither Dr. Scott or Mr. Sucher took into account the market share that Englewood would obtain, including its share of admissions from Venice Hospital. Englewood is a new, 100-bed acute care facility located in Sarasota County, closely proximate to the Manasota proposed location and to Venice's location. A significant portion of its staff physicians are located in Venice. The primary service areas of all three hospitals substantially overlap. It is not reasonable to conclude that Manasota will not compete with Englewood for patients, as well as with Venice. Thus, Dr. Scott and Mr. Sucher's estimate that 22% of its admissions could be obtained from the patient pool enjoyed by Venice at the present time, is over-stated as that relates to Manasota's projected patient utilization and revenue. All three hospitals will compete for the same pool of patients, as will Memorial. Englewood is likely to claim a substantial number of the patient admissions originating in this area, and thus it is unrealistic to ignore the market share that Englewood is likely to obtain. Manasota is not likely to realize the admissions it projects obtaining from the Venice area and thus its utilization will be significantly lower than projected, as will its revenues. Patient days will continue to drop through 1990 because the use rate is dropping more rapidly than the population is increasing. Manasota will thus have to obtain most of its patient days from the admissions enjoyed by existing hospitals, which already have low and declining utilization. It has simply not been established that Manasota will be able to capture sufficient patient days from them to ensure its financial feasibility. Assuming arguendo, that its utilization projections are accurate, the revenue and expense projections based thereon are inaccurate and not supportive of finanical feasibility. "Contractual adjustments" represent the differences between what the hospital charges and what is actually reimbursed by Medicare and other reimbursement schemes. The contractual adjustment represents a deduction from gross revenue. A significant issue was raised by all parties through their financial experts, concerning the portion of the contractual adjustment related to capital cost pass-through. Mr. Beachey, and other witnesses for existing hospitals, opined that capital cost pass-through, whereby a hospital is reimbursed for its cost of capital through the DRG reimbursement system, will be eliminated entirely phased out in steps such that the increment of DRG reimbursement represented by capital cost pass-through should be eliminated from Nanasota's revenue figures. Mr. Beachy feels the ultimate federal regulations enacted will call for a phased reduction in capital cost pass-through. All experts, both for the Applicant and the protestants, agreed that the capital cost pass-through is very likely to be reduced or eliminated in future years. The dispute amongst the experts concerned whether new facilities, either CON approved, under construction, or opening in the year the regulation becomes effective, will have their capital cost pass-through reimbursement entirely eliminated. Because all the opinions are based upon conjecture and speculation regarding what the Congress will do in this regard, they are rejected. The Applicant's pro forma statement of revenues (in evidence) is predicated, in part, upon the assumption that DRG Medicare reimbursement will increase five per cent a year through fiscal year 1989-1990. This assumption is rejected in favor of Mr. Beachey's expert testimony. Mr. Beachey established that the Medicare reimbursement increase for 1986 will only be one-half of one per cent, and that for 1987 one house of congress has agreed to a one half per cent increase in the reimbursement rate, and the other to a one per cent increase. While the ultimate 1987 rate is speculative, Mr. Beachey established that for that and future years it is not likely to be on the order or magnitude of 5%. Mr. Beachey, in an abundance of caution (favorable to the Applicant), opined that at best there might be a 3% annual increase in Medicare reimbursement after 1986, rather than the 5% postulated by the Applicant (even though the 1986 increase is only one-half per cent. His opinion is clothed with substantial probability of reliability and is accepted. The Applicant projects a 5% deduction to revenue for bad debts. Mr. Beachey established that this is more likely to be 8%. That was indeed the figure used by the Applicant in its own application, also in evidence. Mr. Sucher's pro forma statement also projected Manasota providing 3% Medicaid, while the application itself, in evidence, indicates Manasota will obtain 5% of its revenue based upon reimbursement for Medicaid care. These resulting contractual adjustments, which are deductions from revenue, coupled with the necessary adjustment for the increased increment for bad debt, which was established, reveal that, because of these adjustments alone, the Applicant will experience a loss of $414,000 for its first year of operation, and a $1,012,000 loss for the second year. These loss figures do not reflect Mr. Beachey's opinion that an increased number of FTE's are necessary over the 3.4 FTE's projected by Mr. Sucher, which would reduce revenue by $512,000, nor his opinion that declines in "capital cost pass-through" would reduce revenue by $700,000 the first year and $430,000 the second year. This latter opinion was rejected for the reasons mentioned above, and his opinion regarding the additional FTE staff required is rejected because of Mr. Beachey's lack of expertise regarding adequate staffing patterns and levels. The Applicant failed to account for indigency tax assessments of $155,000 and $188,000 for 1988-1990. That assessment is designed to enhance reimbursement for indigent care for hospitals in the state. Although Mr. Sucher and Dr. Scott opined that the amount of the assessment would be reimbursed, an accounting "wash," the preponderant, expert testimony reveals that there is no direct reimbursement payment related to the amount paid into that fund. In any event, the amounts of such possible reimbursements are not proven. Additionally, the Applicant did not account in its expenses for real estate taxes which will amount to $155,000 per year. These expense increases and concomitant revenue deductions are reflected in the above found loss figures. The Applicant will have to increase its charges by a substantial amount to offset these net losses. The revenues would have to be increased on the order of 36% the first-year of operation and 35.9% the second year. It is important to remember that only 26% of the Applicant's patient mix would be private paying or insurance reimbursed patients, who could absorb these increased charges. Concerning staff salaries and benefit expense, the Applicant proposes 3.4 FTE's per occupied bed. A number of the expert witnesses, both for the protestant hospitals and the Applicant, established that that is an insufficient level of staffing for a 100-bed hospital. Mr. Sucher acknowledged that he had no personal experience in determining staffing patterns and staffing a hospital, although in his capacity as an expert in hospital finance, he had dealt with the financial implications of staffing. Mr. Sucher admitted that his 3.4 FTE figure was a rough estimate, which primarily included only nursing and administrative staff, and did not take into account laboratory staff and other technical positions. Mr. White himself finds that teaching hospitals, require a range of from 3.7 to 5.6 FTE's per occupied bed. Mr. Schwartz established that the non-teaching hospitals in the area have a minimum of 3.8 FTE's per occupied bed which is the minimum accepted for a facility such as Manasota's. Indeed, the testimony of Dr. Melnick and Mr. White shows that a higher staffing rate would be needed since Manasota proposes to be an osteopathic teaching hospital. Thus, the appropriate staff ratio (and concomitant salary and benefit expense) for Manasota would have to be substantially higher than 3.8 FTE's per occupied bed. If the FTE ratio were, however, raised to the minimum level of 3.8 FTE's, the expense figure for salaries and benefits would increase by $450,000. Given Mr. White's, Mr. Schwartz's and Dr. Melnick's testimony that a higher level of staffing is needed at a teaching facility, this expense figure might be much higher. If, for example, a modest increase in staffing to account for Manasota's obligations as a teaching hospital operation necessitated a raise in the FTE ratio to only 4.2 FTE's per occupied bed, the total additional expense over that attributable to the projected 3.4 FTE's would be on the order of $900,000. Even that figure would be on the lower end of the range normal for teaching hospitals. These additional staffing expense adjustments would increase the above loss figures by a minimum of $450,000 and likely much more. In addition to the above understated expense items, the Applicant failed to account for payment of federal income tax. The Applicant also failed to provide for payment of insurance which Mr. Sucher acknowledged would cost between $400,000 and $600,000 per year. Payments for utility expense were also not accounted for and Mr. Sucher acknowledged those would cost approximately S300,000 per year. Payments for sales taxes and contract services such as laundry service, which will be a substantial expense, were not accounted for, nor were principal payments on the approximate 14 million dollar debt. The Applicant did not allow for marketing expenses, even though Mr. Sucher and Mr. White acknowledged that an aggressive marketing strategy would be used to obtain a feasible level of admissions. Mr. Sucher testified that a great deal of these expenses generally fell under the heading "supply and other" in the pro- forma statement but, in consideration of these and many other non-itemized expenses such as kitchen or food service, supply purchases, and drug purchases which were not depicted in the pro- forma statement as to amount, it was not established that the general category for supply and other expenses was sufficient to cover all of these expenditures. Capital Costs The Applicant has additionally understated some of the capital costs involved in the project. Foremost among these, as Mr. Sucher admitted, the proposed $15,587,000 capital cost attributable to the project did not include a required 1.5 million dollars in working capital. Manasota also included only $500,000 for land acquisition. One of the sites under consideration however, would cost approximately $1,250,000. Manasota's own witness regarding real estate values established that the required 7 to 10 acre site in south Sarasota County, would cost on the order of a million dollars, exclusive of real estate commissions, legal fees, and other preliminary site costs. Although Manasota has proposed to be an osteopathic hospital, no provision was made in its proposed equipment costs for manipulative therapy tables. Ms. Usher, Manasota's equipment expert, opined that such a table would cost from $150 to $8,000. Indeed, Dr. Snyder, D.O., established that equipping a department of manipulative therapy could cost as much as $100,000. The equipment list does not provide for other items of equipment normally present in operating an acute care hospital, such as an incinerator or two-way radio communication equipment. Some items, such as televisions and a computer system, are optional to some extent, and the record does not reflect whether some items such as a telephone system might be included in the overall capital costs for the facility, even though not listed on the equipment list. It is noteworthy, however, that Manasota has not provided for any expenditure for kitchen or dining room equipment, which could cost as much as $250,000 to $350,000. This unprovided for equipment is essential for functioning as an acute care hospital. The inclusion of these items would boost the capital costs of the project to approximately $17,837,000, without considering the cost of the osteopathic manipulation tables and unknown construction contingencies, dependent on site selection, such as acceleration and deceleration traffic lanes, extension of utility lines and service, and, potentially, a package sewage treatment plant. The contingency fund of $400,000 described by Mr. Henry, was not shown to be adequate to cover these costs. Short-Term Financial Feasibility Manasota retained Morgan, Schiff and Company, Inc. as its financial adviser and broker for this project approximately three months prior to hearing. Mr. Thaddeus Jaroszewicz represented that corporation in testifying regarding financiability of the project. Neither Mr. Jaroszewicz nor Morgan Schiff have participated in the financing of a health care facility prior. Mr. Jaroszewicz stated that it was necessary to have an understanding of the health care industry in which a client operates in order to evaluate the reasonableness of cash flow projections provided to him by the client. Although Mr. Jaroszewicz has some understanding of the economics of the health care industry, due to his lack of experience with health care clients, his expertise is somewhat limited. Given his experience in the financial markets, Mr. Jaroszewicz is confident he can raise the 90% debt financing, probably through banking institutions. However, he based his opinion on the financial projections provided him by Manasota, which for reasons expressed in the other findings herein, have been shown to be inaccurate in projecting financial feasibility. The capital costs, for reasons found herein, are understated as well, such that the true capital costs of the project will approach 18 million dollars, instead of $15,587,000 which Mr. Jaroszewicz assumed. All of these factors, coupled with the fact that AmeriHealth, Inc., through its purchase of Richmond Metropolitan Hospital, the pending purchase of Antauga Medical Center and Smith Hospitals in Alabama from HCA, the Savannahs Hospital Project in Indian River County, Florida, together with its pending half-million dollar lease of a facility in Lockhart, Texas, has committed all its resources and indeed is heavily "leveraged" in seeking to accomplish these purchases. AmeriHealth owes in excess of 11.3 million dollars on the 14 million dollar Richmond Hospital purchase. Regarding the HCA Alabama facilities purchase, AmeriHealth will assume 5 to 6 million dollars in HCA debt and incur new debt totaling 8 million dollars. Additionally, it will give 2.3 million dollars in subordinated notes back to HCA for the remainder of the financing. Upon completion of an expansion project at the Antauga Hospital there will be an additional 8 million dollars in debt assumed by AmeriHealth. The Savannahs Hospital Project in Indian River County will involve an additional 9.5 million dollars in debt. That financing has not closed. AmeriHealth is additionally involved in purchasing Ambulatory Surgical Centers which will cost $450,000 to $750,000 each. AmeriHealth's net worth is approximately 4.7 million dollars. As of September 11, 1985, the HCA acquisitions had not closed because AmeriHealth was unable to secure acceptable financing. Citibank, the proposed lender, was requiring strict liquidity requirements and capital expenditure requirements on AmeriHealth before it would finance the project. AmeriHealth found these requirements unworkable so that it was unable to close the HCA transaction and had to ask for extensions of time on the closing date. AmeriHealth has not yet been able to obtain acceptable financing for that purchase. AmeriHealth is thus a fledgling company which has leveraged all its assets. It will likely have substantial difficulty obtaining financing for the Manasota project. In view of the fact that Mr. Jaroszewicz had not had the benefit of doing his own analysis of the Applicant's proposed financial projections, and in view of the other evidence that has shown that revenues have been overstated and expenses and capital costs understated, it must be concluded that if a lender was aware of this negative cash posture, obtaining of satisfactory financing would be quite doubtful. In this regard it is understood that if a CON were actually granted financing might be arranged. It must be proven that the financial projections are indeed accurate and that indeed, the project will be financially feasible on a short and long term basis for that to happen, however. Such has simply not been proven to be the case. Special Needs of Health Maintenance Organizations (HMO's)-Section 381.494(6)(c)10, Florida Statutes This provision is not at issue in this proceeding. There is no evidence regarding special needs of HMO's. Needs and Circumstances of Entities Which Provide a Substantial Portion of Services to Individuals Not in the District or Adjacent Districts-Section 381.494(6)(c)11, Florida Statutes If Manasota were approved and could feasibly operate as a teaching hospital, it would be available to provide internship and residency programs to students from SECOM and other medical schools. Additionally, Manasota would be available to provide osteopathic health care services to individuals in adjacent districts. However, the preponderant evidence of record does not reveal that osteopathic health care services in adjacent districts are not already being met, especially given the under utilization of osteopathic hospitals in Pinellas and Hillsborough Counties, approximately an hour's drive to the north. Probable Impact of Project on Cost of Providing Health Services, Effects of Competition on Innovations in Financing and Delivery of Health Services which Foster Competition Section 381.494(6)(c)12, Florida Statutes. That portion of this criterion concerning innovations in financing and delivery of health services which foster competition, etc., is not truly at issue. There was no evidence to indicate that any innovations in financing and delivery of health services are proposed other than that Manasota proposes to be an osteopathic teaching hospital, and proposes to charge 10% lower rates. As found above, the Gulf Coast Osteopathic Hospital will be substantially less than two hour's travel time from Manasota's site, and thus Manasota will not truly be an innovative health service in the district. Even if Manasota were approved, it is highly unlikely, in view of the above findings, that it can deliver its health services more cost-effectively. The probable impact of the project on cost of health services and the effects of resultant competition on the supply of health services, must be addressed. In this regard, Memorial is a full-service, acute care hospital, competing for the pool of patients in the primary service areas of Venice, Englewood and the proposed Manasota facility. Memorial is licensed for 788 beds, but as of October, 1985, only 590 beds were in service and staffed, due to a steady decline in utilization. Memorial's total patient days for 1985 were the lowest it has experienced since 1973, 15% less than its peak year of 1982. Memorial would experience substantial adverse financial impact if the Manasota project were approved. Memorial, in 1984, obtained 1,458 patients from the south Sarasota County area, including the cities of Osprey, Venice, Nokomis and Northport, in the primary service area proposed by Manasota and also served by Venice and Englewood. If the Manasota Hospital is approved, Memorial will lose approximately half of those patients. This would result in a reduction of gross revenues of approximately $3,579,000 and a concomitant reduction in its net operating revenue margin of $1,382,000. A reduction of this magnitude would reduce Memorialt's overall operating margin to 1.2%. A 2% operating margin, which Memorial will experience for 1985, is the absolute minimum safe level at which a hospital can operate in a financially viable manner. With a 1.2% operating margin, Memorial will be unable to maintain necessary working capital, nor maintain favorable bond financing ratings with bond rating agencies. If its bond rating worsens, its cost of bonded indebtedness will correspondingly rise. In order for Memorial to maintain its 2% operating margin, it would have to increase prices by at least 2.6%. The only other alternative would be to raise its tax levy as a public hospital board by approximately 28%. Either eventuality would result in a significant increase in health care costs to the Sarasota County community. Venice Hospital has 312 licensed beds. Its average annual occupancy was 71% in 1985, but will decline to 55.8% for the 1986 fiscal year. The declining utilization will be caused by the continuing effects of the DRG reimbursement system, and the other factors enumerated above. The average length of stay and projected utilization at Venice will continue to decline at least until 1990. The 55.8% occupancy rate projected for 1986 includes only the impact on Venice's utilization of the opening of the ECH, not Manasota. Even so, its projected operating revenue for 1986 will be only $589,150. The patients that Manasota will obtain will come from the same pool of patients served by Venice and the declining utilization rate, even in the face of increasing population, reveals that there are not enough patients for Venice to operate cost-effectively, especially if Manasota is opened. The loss of patients to Manasota will cause a loss of gross revenues for Venice of $10,287,200, strictly from inpatient revenues, not taking into account outpatient losses. Venice has already laid off personnel and will have to continue to do so to compensate for revenue losses from the downturn in its utilization. Venice will have to close additional nursing units and beds and further reduce staff on account of the competitive effects of the ECH opening. Even after reducing a reasonable percentage of such variable costs, Venice will suffer a net operating revenue loss of approximately $4,020,119 if Manasota is opened. If this eventuality occurs, Venice will be forced to face either bankruptcy or likely closing of entire wings and drastic reductions of present services. This would diminish access to health care services in the area, and quite likely result in declination of quality care. Dr. Scott acknowledged that Manasota would take a significant number of patients from Venice, but minimized its effect by opining that Venice could make up for the loss by operating more efficiently, believing that its recent bond refinancing resulted in unnecessary additional financing costs to Venice, that Venice had an excessive amount of administrative expenses. The above findings reflect, however, that the bond refinancing did not result in any significant increase in debt cost to Venice, and yielded several million dollars more capital funds for Venice. Dr. Scott's figures for Venice's purportedly high administrative costs was shown by Mr. Shanika to be in error. Thus, if Manasota Hospital meets its own projections, which are over-stated, it will draw approximately 2,415 patients from Venice, causing it to operate at a loss, and destroying the feasibility of its programs and endangering its quality of care. Since Venice is already operating as a relatively efficient hospital, it cannot make up those losses by becoming more efficient. Venice's operating revenue would fall to the break even point if it only lost 309 patients. If Manasota drew anywhere near 2,415 patients from Venice, charges would have to be increased on the order of 40% to compensate for the loss. Englewood is a fledgling 100-bed acute care facility scheduled to open in November, 1985, and has thus not yet had an opportunity to obtain adequate utilization of its beds and services and to secure a positive operating ratio. Dr. Scott recognized the potential impact on Englewood of the Manasota opening, particularly with respect to physicians located in the Englewood area who might swing all or part of their admissions to Manasota. If any of Englewood's staff physicians, such as Dr. Chirillo, who testified in support of Manasota, swung all or part of their patient bases to Manasota, it would have a substantial deleterious effect on the patient days and revenue for Englewood. This would result in a diminution of service at Englewood or in some cases a discontinuance of certain services. Under present projections, Englewood will not realize profit for approximately 5 years, but if the Manasota facility is built, that time will be significantly extended. Manasota will have a significant adverse impact on Englewood's utilization and financial viability by taking patients away from it before it has an opportunity to reach a profitable operating situation. Englewood has already experienced problems in hiring sufficient qualified staff members. It has experienced counter offers to prospective staff members made by other hospitals, such that in order to obtain qualified staff, Englewood has had to raise the salaries it offers. If Manasota opened, the additional competition for staff members would likely cause salaries for staff to be bid upwards still further, as well as causing technically trained staff members to become even scarcer. This situation could cause significant cost increases to all facilities involved and to the health care consuming public. Manasota seeks to staff its facility largely with physicians in Sarasota County who could swing their admissions to the new hospital. There is only one pool of patients and patient days for the four contending facilities to divide amongst them, however. Osteopathic patients come from the same patient pool as those treated by M.D.'s, in that all are acute care patients. Since there is no unserved need for more acute care beds in Sarasota County, or District VIII, inpatient utilization of the three existing facilites will necessarily decrease by the advent of Manasota. Manasota also projects 1,200 outpatient surgeries its first year. These patients must come from Venice, Englewood or Memorial. These facilities depend on outpatient surgeries as an important source of revenue and profit which is used to offset areas of service which do not operate as favorably. The loss of these patients to Manasota by the existing facilities, which are already competing for a shrinking patient market in terms of declining patient days and utilization, will inevitably lead to higher patient charges and to shrinking availability of services. The cost to the community will be significant. Under- utilized facilities are more costly to the community. As utilization declines due to the above-found causes, future patients will be forced to absorb the cost of excess beds. The more patients who utilize a service which represents a capital expenditure, the lower the unit cost will be to the health care consumer. The construction of unneeded facilities, representing excess capacity, results in capital expenses borne by the public increasing at a greater rate than the numbers of patients or patient days from which off-setting revenues must come. The patients and the community will then have to bear a higher unit cost for health care services represented by this excess capacity. While Manasota contended, as partial justification for its facility, that there are a number of hospitals-in the state with occupancy rates in the low forty percentile range, which still generate significant profits, this point ignores the high cost the health consuming public must pay for 50 to 60% unused capacity at such hospitals. Hospitals can only reduce their variable costs attributable to unused bed capacity and typically, 40% of the costs of unused capacity are fixed costs which are not covered by any revenue and which cannot be reduced by staff and service reductions. Such fixed costs must be passed on to the public through higher rates and through the government reimbursement systems. Indeed, as established by Dr. Zaretsky, the cost of 100 excess beds to the Sarasota County community would amount to $3,674,349 in aggregate added annual costs, expressed in 1983 dollars. Even without the advent of the Manasota facility, there are already considerably more than 100 excess beds in Sarasota County. If the capital cost "pass through" scheme is eliminated in whole or in part, the hospitals would have to absorb or pass on to consumers more costs through inFla.ed rates and possible increases in Medicare and Medicaid reimbursement. To the extent that existing facilities are unable to raise charges sufficiently, they will have to absorb the differences, incur losses or cut back on services and quality of care. If a hospital is approved for an area that is not currently a monopoly, with existing hospitals already competing for patients, especially if the hospitals are operating below capacity, than the added competition is destructive. It dilutes the patient volume each hospital depends upon for adequate revenue coverage of costs. This results in inefficiency in the health care system since hospitals have fewer patients to spread the fixed costs among. Thus it has been established that approval of Manasota as an additional competitor in this market will result in significant added health care costs to the community. Cost and Methods of Construction, Etc.-Section 381.494(6)(c)13, Florida Statutes Aside from the capital cost understatements reflected in the above findings, the construction costs, methods of construction and provisions for energy conservation dictated by the south Florida environment where the hospital will be built, have been shown by the Applicant to be reasonable and appropriate. Because of the indefinite site location in the south Sarasota County area, however, the funds set aside in the pro forma of $35,000 for site preparation costs, and the $400,000 contingency fund related to construction, have not been established to be adequate to cover all site preparation work and such potential offsite construction costs as additional traffic lanes, signals and utility service extensions. Available, Less Costly, More Efficient Alternatives Section 381.494(6)(d)(1), Florida Statutes. There are available less costly, more efficient alternatives to the acute care inpatient services proposed by the Applicant. The existing inpatient facilities, including Gulf Coast Osteopathic Hospital, can or will provide, inpatient services similar to those proposed. The existing facilities are providing them in an appropriate, efficient manner to the extent they are able, given their under-utilization. Existing Facilities Are Being Used in an Appropriate, Efficient Manner-Section 381.494(6)(d)2, Florida Statutes It has not been established that existing inpatient facilities are being used in an efficient manner, in terms of adequate use of their present capacity. Rather, the record reflects that existing hospitals are under-utilized with the added health care costs and inefficiencies that entails, which Manasota would aggravate. Alternatives to New Construction such as Modernization and Sharing-Section 381.494(6)(d)3, Florida Statutes The Applicant has not established that alternatives to the proposed construction have been considered and implemented to the maximum extent possible. The existing facilities are viable alternatives to the proposed new construction, in that they have substantial amounts of unused capacity and can provide additional acute care services as needed without expansion. Many of the osteopathic physicians testifying acknowledged that their patients can be treated in an appropriate, efficient manner in existing facilities. Patients Will Experience Serious Problems Obtaining Inpatient osteopathic Care in the Absence of the Proposed Facility-Section 381.494 (6)(d)4, Florida Statutes. The Applicant has not established that patients will experience serious problems in obtaining inpatient care of the type proposed in the absence of Manasota. Osteopathic acute care services are available in District VIII, notwithstanding the absence of another identifiable osteopathic facility, for the reasons delineated above.
Recommendation Accordingly, having considered the foregoing Findings of Fact, Conclusions of Law, the competent, substantial evidence of record, the candor and demeanor ot the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the application of Manasota Osteopathic General Hospital, Inc. for a Certificate of Need authorizing establishment and operation of a 100-bed osteopathic teaching hospital in HRS District VIII and Sarasota County, Florida be DENIED. DONE and ENTERED this 26th day of June, 1986 in Tallahassee, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of June, 1986. COPIES FURNISHED: John D. C. Newton, II, Esquire CARSON & LINN, P.A. 253 East Virginia Street Tallahassee, Florida 32301 William E. Williams, Esquire FULLER & JOHNSON, P.A. Post Office Box 1739 Tallahassee, Florida 32302 Robert A. Weiss, Esquire 118 North Gadsden Street Suite 101 Tallahassee, Florida 32301 Ken Davis, Esquire DAVIS, JUDKINS & SIMPSON Post Office Box 10368 Tallahassee, Florida 32302 E. G. Boone, Esquire Robert Klingbeil, Esquire Post Office Box 1596 Venice, Florida 34284 W. David Watkins, Esquire OERTEL & HOFFMAN, P.A. Post Office Box 6507 Tallahassee, Florida 32314-6507 Theodore C. Eastmore, Esquire WILLIAMS, PARKER, HARRISON, DIETZ & GETZEN Post Office Box 3258 Sarasota, Florida 33578 Harden King, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 William Page, Jr., Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES VENICE HOSPITAL, INC., Petitioner, vs. CASE NO. 85-0045 DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, and MANASOTA OSTEOPATHIC GENERAL HOSPITAL, INC., Respondents. / HCA OF FLORIDA, INC., d/b/a DOCTORS-HOSPITAL OF SARASOTA, Petitioner, vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, CASE NO. 85-0047 Respondent, and MANASOTA OSTEOPATHIC GENERAL HOSPITAL, INC. AND ENGLEWOOD COMMUNITY HOSPITAL, Intervenors. / DOCTORS' OSTEOPATHIC MEDICAL CENTER, INC. d/b/a GULF COAST HOSPITAL, INC., Petitioner, vs. CASE NO. 85-0050 DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, Respondent. / SARASOTA COUNTY PUBLIC HOSPITAL BOARD d/b/a, MEMORIAL HOSPITAL, SARASOTA, Petitioner, vs. CASE NO. 85-0051 DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES and MANASOTA OSTEOPATHIC GENERAL HOSPITAL, Respondent. /
Findings Of Fact The Respondent is licensed by the Board to practice as an osteopathic physician in Florida. The Respondent has been licensed to practice as an osteopathic physician in the State of Pennsylvania. He was criminally charged in the State of Pennsylvania with various violations of 35 Penna. Stat. Section 780- 113(a)(14). After entering a plea of not guilty, he was tried and convicted of three counts of violating the statute. He was adjudicated guilty and sentenced. The Respondent has exhausted all direct appellate remedies in Pennsylvania. He continues to pursue available collateral remedies. The Pennsylvania State Board of Osteopathic Examiners initiated disciplinary action against the Respondent. A hearing was conducted, and the Pennsylvania board concluded that the Respondent was convicted of a crime involving moral turpitude and was guilty of unethical conduct. The Board stated: It is clear that the Respondent blatantly disregarded the health and welfare of the citizens of Pennsylvania and the Board can impose a penalty for such disregard. How- ever, the Board has taken into consideration the fact that the Respondent no longer resides or practices osteopathic medicine in Pennsylvania, and therefore, he is presently not a danger to the health, safety and welfare of Pennsylvania. Apparently disregarding the testimony of the Respondent in the record that he did intend to continue practicing osteopathic medicine in Pennsylvania if his license was not revoked, the Board imposed no penalty against the Respondent. The Respondent thus continues to be licensed to practice osteopathic medicine in Pennsylvania. The Respondent is presently engaged in the general practice of osteopathic medicine in Florida. He practices in a black area and is the only doctor who accepts Medicaid patients in the area. During 1976 he turned in his federal license to dispense controlled substances. He is thus not able to prescribe controlled substances in his practice, but he can prescribe other drugs. The Respondent has not been the subject of any other disciplinary proceedings during his many years as a practicing osteopathic physician.
Findings Of Fact The Applicants. Land O'Lakes Petitioner Land O'Lakes Hospital, Inc. (Land O'Lakes) is an applicant for a certificate of need to construct and operate a 112-bed general acute care hospital in Land O'Lakes. None of the beds will be designated as either pediatric or obstetrical beds; all will be considered general medical/surgical beds. Notwithstanding its own designation of Land O'Lakes Hospital, Inc., as the Petitioner in Case No. 84-1509, the actual applicant is entitled Health Care Associates Of America, Inc. The President of Health Care Associates Of America, Inc., is a veterinarian named Robert R. Hase, Jr. Veterinarian Hase's only experience with human health care is his involvement in his company's certificate of need for a 60-bed nursing home in Hudson, Florida, next to the Bayonet Point Regional Medical Center. Hase's company obtained the certificate of need in 1982, and the facility still is under construction, being only about 40 percent completed. In the preparation of the Land O'Lakes application and the preparation for final hearing, Hase relied to a large extent on the advice of those he retained as expert witnesses for the final hearing. For whatever reason, Hase waited until shortly before the final hearing to plan and decide upon some of the important details of his proposed project. As of the final hearing, Land O'Lakes had a square foot analysis for the proposed facility but no line drawings, no functional program and no utilization forecast for ancillary departments. The Land O'Lakes pro formas were not prepared until less than two weeks before the final hearing. Although Land O'Lakes relied to a great extent on the advice of its expert witness Michael Schwartz in shaping and modifying its application, there was no evidence that Mr. Schwartz would continue to advise Land O'Lakes or otherwise be involved in the project's development after the final hearing or in the operation of the facility when built. Within one week before the final hearing, Hase changed the Land O'Lakes application from one for a for-profit hospital to one for a not-for-profit hospital. The motivation for the change primarily was to improve the chances that the application ultimately would be approved. The switch seemed inconsistent with Hase's primary interest in the "financial bottom line" and whether things made "financial sense" to him as opposed to "good health care sense." Despite the technical application for a not-for-profit hospital, the evidence did not offer much assurance that Land O'Lakes would remain a not-for- profit hospital after the granting of a certificate of need unless required by HRS or University Community Hospital. Shortly before the final hearing, Land O'Lakes entered into an "intent to agree" with University Community Hospital (UCH) for management and consulting services in the pre-operational and operational phases of the proposed Land O'Lakes hospital and for ancillary and support services during the operational phase. The "intent to agree" was not signed until the Friday before the start of the final hearing on Monday, August 11, when the original was produced by Hase during cross examination. So new was this development that not even Land O'Lakes' attorneys were aware that the "intent to agree" had been signed. Despite the uncertain nature of the arrangements between Land O'Lakes and UCH, certain features of the Land O'Lakes application are dependent upon the establishment of the relationship. For example, the application does not include enough ancillary services to support a free-standing hospital, even a relatively small, relatively rural and relatively unsophisticated hospital. Only the most basic ancillary services would be provided at Land O'Lakes. The rest would be referred to UCH. As a result of this arrangement, the Land O'Lakes application proposes a hospital with a staff 13 to 15 FTE's smaller than one would expect, with resulting lower forecasted operating expenses. In addition, Land O'Lakes does not plan to have 24-hour emergency room service, intending to rely on UCH for emergency room service part of the time. Since the "intent to agree" is tentative in nature, even if a Land O'Lakes-UCH relationship is established, it is uncertain what that relationship would be. It is possible that it ultimately would result in Land O'Lakes becoming a virtual satellite hospital for UCH. (UCH has in fact already applied for a certificate of need for a satellite hospital in north Hillsborough County.) Bi-County Community Hospital. Petitioner Bi-County Community Hospital (Bi-County) has applied for a certificate of need to construct and operate a 100-bed osteopathic acute care hospital in Land O'Lakes. Like Land O'Lakes, Bi-County would not have any designated pediatric or obstetrical beds, only general/medical surgical beds. But unlike Land O'Lakes, Bi-County I's designed to have 24-hour emergency room service and a full complement of ancillary and support services ordinarily maintained and operated in a relatively rural and relatively unsophisticated hospital of its size. In addition, as an osteopathic hospital, Bi-County would be accredited by the American Osteopathic Association (AOA) and would make conditions conducive to practice of osteopathy at the hospital, including the installation and availability of osteopathic manipulation tables, without excluding or discouraging the practice of allopathic medicine at the hospital. The application also represents that it will offer an osteopathy internship program. Bi-County's principals include osteopathic doctors Lewis Faulkenberg and Robert Ford, an allopathic doctor named Fellman, and Mrs. Dr. Faulkenberg. Drs. Faulkenberg and Ford started Bi-County primarily as a response to the reduction of their privileges at Carrollwood Community Hospital in north Hillsborough County. The three physicians have considerable experience as practitioners, and Dr. Faulkenberg has experience as developer, principal, president of the board of directors and medical director of a 250-bed osteopathic hospital opened in Colorado in 1963. Notwithstanding Faulkenberg's experience, a health care facilities development company named Southwood Development Company, owned and operated by James H. Lewis of Elizabethton, Tennessee, has been in charge of the preparation of, and modifications to, the Bi-County application and the preparation for final hearing. Lewis also has selected Bi-County expert witnesses for the final hearing and is paying litigation costs. Faulkenberg and the other Bi-County principals have committed themselves to invest in the project in the future if the certificate of need is granted. Although most of Lewis' experience has been in the nursing home industry, he demonstrated his ability to shepherd the proposed project to the operational phase. Like Land O'Lakes, Bi-County also left some important details of its application until shortly before the final hearing. Bi-County did have line drawings of a proposed facility, but they were prepared approximately 10 days before the final hearing primarily to give the appearance of preparedness which did not exist. The architect who drew the plans did not know the gross square footage of the proposed facility and did not know the HRS regulations which would impact the design of the facility. The square footage for certain areas of the drawing he did were inconsistent with the square footage for the same areas in the application. The architect designed the facility for all private rooms, contrary to the application. He did the drawing without even inquiring as to Bi-County's desire as to the mix of private and semi-private rooms. Finally, the line drawing erroneously includes a labor and delivery room which is not part of the application. There also was no evidence that Bi-County had designed a functional program or had forecasted utilization for ancillary departments. Again, these are primary steps in the prudent preparation of a plan to built a new hospital. Bi-County's financial expert was not retained until two weeks before the final hearing and did not prepare pro formas until after her deposition. Bi-County's application contemplates management by a for-profit company named Health Care Management Corporation, a wholly owned subsidiary of Basic American Medical, Incorporated, (BAMI). Under the Bi-County application, Health Care Management would be paid 5 percent of net operating revenue as a management fee. This creates a conflict with Bi-County's not-for-profit status by building in a management incentive to maximize profitable procedures and minimize less profitable procedures regardless of community needs. Also, since Health Care Management primarily owns and operates rural hospitals, the Bi- County application builds in the real possibility that Health Care Management eventually would buy Bi-County from Faulkenberg and the other principals and change it to for-profit status. No management contract has as yet been entered into between Bi-County and Health Care Management. However, in light of Faulkenberg's experience, there is more assurance that Bi- County would be properly managed, subject to the reservations of the preceding paragraph, than that Land O'Lakes would. Quality Of Care (Section 381.494(6)(c)3., Florida Statutes 1985). Land O'Lakes' ability to provide quality care is dependent upon the establish of a relationship with UCH. Without UCH, Land O'Lakes as proposed would not provide necessary ancillary services and support and would not be able to operate a twenty-four hour emergency room. Assuming the Land O'Lakes-UCH relationship, however, the Land O'Lakes proposal would be able to provide quality care. There was sufficient evidence to prove that Bi- County would be able to provide quality care. There was little evidence as to the availability of health manpower (Section 381.494(6)(c)8., Florida Statutes 1985) to operate either Land O'Lakes or Bi-County. However, it would appear that the more serious issue than the availability of doctors and nurses to care for the patients is the availability of patients to support the doctors and nurses. If the need for the hospital services is there, doctors and nurses can be expected to follow. Need In Relation To State And District Health Plans (Section 381.491(6)(c)1., Florida Statutes 1985). State Health Plan. Goal 1 under the Florida State Health Plan is "to develop acute care resources in the quantity and mix which appropriately meet population needs in the most cost-efficient manner. The first objective under that goal is for the ratio of acute care hospital beds per one thousand of Florida's population be less then 4.11 by 1989. At this time, there are approximately 53,000 hospital beds in Florida, approximately 2000 to 7000 too many under the health plan's objective. The health plan recommends that increases in the supply of hospital beds in Florida be restrained through the state certificate of need program. Objective 2.2 under Goal 1 of the State Health Plan is to assure that acute care hospital services are available and accessible to urban residents within 30 minutes average one way driving time through 1989. The plan recommends that sub-districts with net need for beds be identified and acute care beds reallocated to subdistricts exhibiting need or inadequate access. This objective and recommendation is designed to help meet Goal 2 under the State Health Plan "to insure adequate access to acute care resources for all Floridians." Goal 3 under the state health plan is "to promote the efficient utilization of acute care services." Objective 3.1 under Goal 3 is to attain an average annual occupancy rate of at least 80 percent by 1989 for all non- federal, short stay hospital beds considered together in each planning district. Again, the plan recommends that increases in the supply of licensed hospital beds in Florida be restrained through the state certificate of need program. The 80 percent occupancy standard applies for both allopathic and osteopathic hospital beds. It is not met state-wide in Florida, in District 5 (consisting of Pasco and pinellas Counties), in Pasco county or in Pinellas county. Occupancy rate for all acute care hospital beds in each subdistrict of District 5 for 1985 were: West Pasco 61 percent East Pasco 55 percent North Pinellas 61 percent South Pinellas 62 percent The same occupancy rates for medical/surgical, intensive care and cardiac care beds only were: West Pasco 63 percent East Pasco 58 percent North Pinellas 58 percent South Pinellas 50 percent The State Health Plan does not specifically address the need for osteopathic acute care hospital beds. District 5 Health Plan. Neither does the District 5 Health Plan specifically address the need for osteopathic acute care hospital beds. The District 5 Health Plan does, however, set forth policies intended to promote access for the indigent population to adequate health care. To promote this policy, the District 5 Health Plan states that future expansion of acute care hospital facilities should be through existing providers with a history as major providers of care to the medically indigent. The plan also states that future changes in the hospital facilities and services systems in District 5 should occur so as to maintain the fiscal and programmatic integrity of institutions providing a full range of services with documented access for the total community irrespective of ability to pay. Land O'Lakes and Bi- County, as proposed new providers, have no history to look at. Meanwhile, intervenor Riverside Hospital is the designated provider of hospital care for the indigent population in west Pasco County. Even so, its occupancy rate for 1986 has averaged only between 40 and 45 percent. 11.2 percent of its admissions, or 353 admissions in 1985, were from the Land O'Lakes area. At an average length of stay of 6 days, that translates to 2,118 patients from the Land O'Lakes area in 1985. At average gross revenue per patient stay between eight hundred fifty and one thousand dollars in 1986, the Land O'Lakes patient days represent approximately between one million eight hundred thousand and two million one hundred thousand dollars of gross patient revenue to Riverside Hospital. While the evidence did not quantify how much net patient revenue this represents, neither did the applicants, Land O'Lakes and Bi-County, prove that their proposed hospitals in Land O'Lakes would not seriously adversely affect the fiscal and programmatic integrity of Riverside Hospital. (Land O'Lakes forecast that it will capture 80 percent of the market of the Land O'Lakes area.) The District 5 Health Plan also adopts the policy of optimizing utilization of existing resources in District 5. The health plan states that additions to the inpatient acute care bed complement in a designated subdistrict should not be considered unless a numeric bed need is shown and, in the case of medical/surgical ICU and CCU services, the occupancy rate of existing subdistrict bed inventory is 80 percent. As seen in Findings Of Fact 29 through 32 below, there is no district need in the applicable subdistrict. But even if there were, the 1985 occupancy rate for existing services in the East Pasco subdistrict was only 58 percent. To optimize utilization, the District 5 plan also cautions that no additional acute care beds should be added to the inventory of a subdistrict which would result in a greater number than indicated by the bed need methodology except under extraordinary circumstances and in compliance with the directive referred to in the immediately preceding paragraph. See Findings Of Fact 29 through 32, below, for application of the bed need methodology. The District 5 Health Plan also includes a section on accessibility which states: "Travel time is not an obstacle in Pasco county, as all residents are within an average of 30 minutes of hospital services on an annual basis. This meets the time travel criterion for urban areas in the State adopted acute care rule". See Findings Of Fact 40 through 48, below, on accessibility. Uniform Bed Need Methodology. The uniform state-wide methodology for determining and forecasting acute care hospital need in HRS's planning districts is contained in Rule 10-5.11(23), Florida Administrative Code (1984) and (1985 Supp.). The division of District 5 into subdistricts and the allocation of bed need to designated subdistricts in District 5 is contained in Rule 10-17.006, Florida Administrative Code (1985 Supp.). The bed need methodologies forecast bed need at certain times, or planning horizons, in the future. Before the decision of the District Court of Appeal, First District of Florida, in Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, 483 So.2d 700 (Fla. 1st DCA 1986), HRS had a policy of forecasting acute care hospital bed need on a planning horizon five years from the date of the final formal administrative hearing. After the decision in Gulf Court, to make Gulf Court more workable and more consistent with reality, HRS now has a policy of interpreting the "fixed pool of beds" referred to in the decision to mean the planning horizon on which bed need is forecasted. HRS now has a policy of forecasting acute care hospital bed need on the bi-annual planning horizon closest to, without exceeding, five years from the date for filing applications for a particular batching cycle. The application filing date for the batching cycle in which Land O'Lakes and Bi- County filed their applications was November 1983. The applicable planning horizon under the HRS policy is July 1988. Under the policy, its makes no difference whether HRS notifies one or more applicants in a batching cycle of alleged errors or omissions or whether one or more applicants file documents intending to cure the alleged errors or omissions, as Land O'Lakes did in this case in April 1984. The HRS policy for determining the planning horizon for a batching cycle is a reasonable interpretation of the Gulf Court decision. Under Rule 10-17.006, Florida Administrative Code (1985 Supp.), the Land O'Lakes area, which includes the proposed location of both the Land O'Lakes hospital and the Bi-County hospital, is within the East Pasco county subdistrict of District 5, near the border of the west Pasco County subdistrict. There is relatively little population or potential for new population just west of the subdistrict border in the west Pasco subdistrict. Using the uniform state-wide methodology, there is an excess of 429 acute care hospital beds forecasted in July 1988 (assuming the 1986 existing and approved bed inventory is not increased). However, by use of the rule method for allocating forecasted bed need to the subdistricts, there would be a need forecast for July 1988 in both the East Pasco and west Pasco subdistricts of District 5. But the need in the East Pasco subdistrict will only be 18 beds. (The need in west Pasco will be only 70 beds.) Osteopathic Acute care Bed Need (Section 381.494(2), Florida Statutes 1985). District 5 has not been divided into subdistricts for purposes of determining and forecasting the need for osteopathic acute care hospital beds. There was no evidence that it is reasonable to divide District 5 into subdistricts for this purpose. Nor was there any evidence what accessibility standard should apply to osteopathic acute care hospital beds only. There are only four osteopathic acute care hospitals in District 5, all located in Pinellas county. Using the current osteopathic use rate in District 5 and the current average length of stay in District 5, a need for only 376 osteopathic beds in District 5 is forecast for July 1988, assuming 80 percent occupancy. Currently, there are 662 osteopathic beds in District 5, resulting in a forecast net excess of 286 beds in the district in July 1988 assuming that the current osteopathic bed inventory is not increased. In 1985, the 662 osteopathic beds in District 5 were only 44 percent occupied; in other words, on any given day in 1985 there were an average of approximately 370 empty osteopathic beds. Using the Pinellas County osteopathic use rate, a need for 94 osteopathic beds in Pasco County can be forecast in July 1988, assuming 80 percent occupancy. But that forecast is greater than the actual need. Osteopathic hospital use by Pasco County residents is included in the Pinellas County use rate, but none of the Pinellas County osteopathic hospital beds are allocated to Pasco County for purposes of the forecast. The evidence did not prove that there is enough need for osteopathic acute care hospital beds in District 5 to support and justify the proposed 100- bed Bi-County Hospital. This finding is buttressed by the fact that, at current admission rates and the 80 percent occupancy standard, it would take another 374 more osteopathic physicians to fill the osteopathic beds in District 5 in July 1988 if the Bi-County Hospital is added to the inventory. Such an increase in the number of osteopathic physicians in District 5 is highly unlikely. Hospital beds also are available at Carrollwood Community Hospital. Carrollwood Community is accredited by the AOA and is dedicated to and does create an environment in which both osteopathic and allopathic physicians can practice medicine. The chief of staff is an osteopath, and five of the seven department chiefs are osteopaths. Although the credentials committee has three allopaths to two osteopaths and although some disgruntled osteopaths have complained about the current administration of the hospital, Carollwood Community qualifies as an osteopathic hospital. It has 120 medical/surgical and ICU/CCU beds of which only 49 percent were occupied in 1985. Carrollwood Community is in north Hillsborough County within approximately 30 minutes average drive time from the Land O'Lakes area. Finally, although not strictly speaking an osteopathic hospital, Riverside Hospital in West Pasco County, approximately 30 to 45 minutes from the Land O'Lakes area, also provides services for osteopathic physicians and patients. Riverside Hospital offers a full range of osteopathic services and treatment. The chief of staff is an osteopath; it has a three member board of trustees of whom one is a D.O. There are no restrictions to admission of patients to the hospital as osteopathic patients, nor restrictions to admission to the staff to osteopaths, and the admissions for physicians is by a five- member medical executive committee which has on it three M.D.'s and two D.O.'s. Approximately 17 percent of Riverside's medical/surgical and ICU/CCU admissions in 1985 were osteopathic admissions. In 1985, Riverside's medical/surgical and ICU/CCU occupancy rate was 53 percent; in other words, on the average approximately 41 of Riverside's 88 medical/surgical and ICU/CCU beds were empty on any given day. Availability And Accessibility Of Existing Beds (Section 381.494(6)(c)2. Florida Statutes 1985). Availability. Due to low occupancy rates at existing acute care hospitals in Pasco County and Hillsborough county, there are plenty of acute care hospital beds available for use by residents of Land O'Lakes area. The following hospitals are within an average of approximately 30 minutes to an hour of the Land O'Lakes area: Humana Hospital in Dade city; East Pasco Medical center in zephyr Hills; Riverside Hospital and community Hospital of New Port Richey in New Port Richey; and Bayonet Point Regional Medical center in Hudson. In addition, Carrollwood community Hospital and University community Hospital in north Hillsborough county in HRS District 6 are within approximately 30 minutes of the Land O'Lakes area. On the average, those hospitals had the following empty beds on any given day in 1985: Hospital # of Beds Medical/Surgical & Empty ICU/CCU Occupancy Beds Rate East Pasco Medical center 76 72 percent 21 Humana Hospital Dade city 102 47 percent 54 Riverside 88 53 percent 41 Community Hospital New Port Richey 112 Bayonet Point 200 58 percent 84 Carrollwood Community 120 49 percent 61 University Community Hospital 364 58 percent 153 Leaving aside the question of accessibility, there was no evidence that any of these empty hospital beds are inadequate or inappropriate or that they offer less than quality care. Accessibility. Land O'Lakes did not retain a travel time expert to testify at the final hearing. Instead, it retained the services of a Pasco County deputy sheriff, who testified on factual matters but gave no opinion. Deputy Sheriff Campbell used as a starting point in the Land O'Lakes area for his trips to various area hospitals a point near the back of the largest subdivision in Land O'Lakes, Lake Padgett Estates, approximately 7 to 8 minutes into the subdivision from the main highways he had to access for the trips. Even so, his trips to University Community Hospital in north Hillsborough County took very close to just 30 minutes in peak traffic within a few weeks before the final hearing in August 1986. Although winter traffic maybe somewhat heavier, the Land O'Lakes area should not be expected to be greatly influenced by the influx of "snowbirds" during the winter. In any event, Land O'Lakes offered no competent testimony to the average travel times on an annual basis on the routes Deputy Campbell took. Land O'Lakes offered absolutely no evidence as to the travel time to Carrollwood Community Hospital, which other evidence placed at an average of 20 to 25 minutes south of the intersection of Pasco County Road 54 and US Highway 41, the main intersection in Land O'Lakes. Deputy Campbell also did not drive to the new Countryside Hospital southwest of Land O'Lakes which probably is the closest hospital to one of the few substantial residential areas west of Land O'Lakes, Sierra Pines. Bi-County offered the testimony and opinions 05 a time travel expert. However, Bi-County's evidence reflected average travel times along pertient road segments in both directions, not average travel times just in the direction from Land O'Lakes to the area hospitals in question. Bi-County's expert relatively randomly drove all over Pasco and Hillsborough county at various times on various different days over a period of several years. He then accumulated his data to arrive at average times in both directions along certain segments of roadway. He could not testify to exactly when the various trips which made up segment averages were made and could not testify in which direction he traveled. It was impossible to test how fairly the road segment travel times were averaged. To simulate trips from the Land O'Lakes area to area hospitals, Bi- county's expert summed the roadway segment travel times and added what he called average delays for intersections and turns. This method further decreased the accuracy of the resulting travel times. Despite the weakness of Bi-County's evidence, even its evidence was clear that the Land O'Lakes area is not now more than 30 minutes travel time from a hospital under average travel conditions. Except for a few isolated complaints, there was no evidence of any sufficiently widespread complaints by patients in the Land O'Lakes area about the distance they have to travel to a hospital. Neither HRS nor the District 5 Local Health council has received any complaints about inaccessibility of the Land O'Lakes area to an acute care hospital. Most complaints were directed to the travel required for standard blood work and x-rays. But, being largely a bedroom community for people employed in Tampa, many Land O'Lakes residents are in the Tampa area during normal business hours in any event. In addition, carrollwood and an osteopath are planning a joint venture to open a medical clinic in Land O'Lakes which would make some of these type services available in Land O'Lakes. Neither Land O'Lakes nor Bi-County proved the population of the portion of the Land O'Lakes area more than 30 minutes average drive from a hospital, even assuming the accuracy of the average drive time evidence. The population in the Land O'Lakes area at this time is just approximately fifteen thousand. Despite testimony projecting the population in 1989 to be at incredibly higher levels, the population of the Land O'Lakes area in 1989 should not be expected to be more than twenty five thousand. The inflated projections assume rates of build-up of large developments of regional impact that are unreasonably high or, at best, speculative. Meanwhile, the approximate current population of the East Pasco subdistrict is approximately seventy three thousand. There was no evidence of projected East Pasco subdistrict population in 1989. If portions of the Land O'Lakes area are beyond 30 minutes average drive time from the hospital in 1989, they will be portions north of Pasco County Road 54. Yet there is evidence that there are now 2,000 homes in the Land O'Lakes area south of County Road 54 and 4500 homes north of it. There was no competent evidence to forecast the size of the population which might be more than 30 minutes from a hospital, even under the applicants' average drive time evidence. Probable Impact On Cost (Section 381.494(6)(c)12., Florida Statutes 1985). Due to the lack of numeric need for additional beds in District 5 or the East Pasco County subdistrict and the lack of proof of inaccessibility justifying 100 additional beds in the Land O'Lakes area, the granting of either the Land O'Lakes or the Bi-County application probably will result in unnecessary duplication of hospitals services. The probable impact of the unnecessary of duplication of hospital services referred to in the immediately preceding paragraph will be higher hospital costs charged in order to pay for the capital investment in the hospitals affected. In addition, 100 new beds in the Land O'Lakes area likely would result in lower occupancy rates in at least some of the area hospitals and a low occupancy rate at the proposed new Land O'Lakes hospitals. Currently occupancy rates already are quite low. See Finding Of Fact 39, above. A further reduction could adversely affect the financial viability of one or more of the area hospitals. Extremely low occupancy rates could also have the effect of lowering overall quality of patient care. First, efficiency and skill in caring for patients and performing hospital procedures is likely to go down if the frequency with which those services are performed declines enough. Second, as hospital profits decline, adjustments will have to be made as hospitals seek to maintain financial viability. The necessary adjustments are likely to cost the patient some degree of quality of care. Financial Feasibility (Section 381.494(6)(c)9., Florida Statutes 1985). Immediate Financial Feasibility. Both applicants, Land O'Lakes and Bi-county, have been able to persuade investment bankers that their proposed projects are worthy of a commitment to fund the cost of the projects. However, at this stage in the development of a new hospital, the investment banker's commitment has certain conditions. One of the conditions is that the borrower obtain a certificate of need and clear the detailed financial feasibility study performed by a major accounting firm. Therefore, the proof of immediate feasibility is contingent upon proof of long-term feasibility. Both applicants, Land O'Lakes and Bi-County, proved that they have or can borrow the capital necessary to pay for the cost of borrowing sufficient capital to fund the construction of the projects. Long-term Financial Feasibility. Land O'Lakes projects a $1,147,197 excess of total revenues over expenses in yea two of operation (1990). However, Land O'Lakes' projection is liberal on the revenue side and conservative on the expense side in several respects. On the revenue side, Land O'Lakes' utilization forecasts are generated using a use rate of 900 patient days per thousand population. This utilization rate is unreasonably high. A use rate of 800 is more reasonable. The use of the 900 patient day per thousand use rate inflates the excess of total revenues over expenses by approximately 11 percent or approximately $126,000 in year 2. Land O'Lakes used a speculative method for projecting the population in the Land O'Lakes area in 1990. Rather than using any officially published demographic projections of population by census tract or other similar geographic area, Land O'Lakes' expert projected population by counting residential units in permitted developments of regional impact, assuming 2.8 people per unit, and assuming an optimistic rate of build-up of the development. The projection method is speculative and unreasonable,, and Land O'Lakes' 1990 projection of thirty nine thousand people in the Land O'Lakes area probably is ten thousand or more too high. An over-estimate of this magnitude (approximately 12.8 percent or more) would result in erroneously inflated projected revenue of approximately $294,000 or more. Land O'Lakes also projects capturing 80 percent of the Land O'Lakes area patient base by year 2. The projected market share is probably approximately 12.5 percent too high. This over estimate would result in excess of total revenues over expenses being approximately $143,000 too high. On the expense side, it has been mentioned that the low staffing proposed for the Land O'Lakes Hospital is dependent upon the establishment of a relationship with University Community Hospital. If the relationship is not established, Land O'Lakes' cost could be under-estimated by approximately one million dollars due to under-staffing. Even with the UCH relationship, Land O'Lakes' proposed staffing seems low, being approximately 50 full-time equivalent positions (FTEs) lower than one would expect in a full-service, free- standing one hundred bed hospital. In addition, the cost of the Land O'Lakes project does not include the cost of a telephone system. There was no evidence as to the approximate cost of a telephone system or to the probable impact of that omission on Land O'Lakes' longterm feasible. Finally, Land O'Lakes' financial projections assume not-for-profit status in omitting approximately two hundred thousand dollars of state sales tax from the cost of equipment to be purchased. There was no evidence as to the impact of two hundred thousand dollars of additional capital cost on the project's long-term feasibility. The Bi-county application also projects break-even during year two of operations and projects net income of $1,138,600 in year 2. Bi-County's utilization forecasts are more reasonable than Land O'Lakes. Their major flaw is the assumption that a high district wide osteopathic use rate, influenced by osteopathic use in Pinellas county, should be applied to Pasco county. In addition, Bi-County's projected outpatient revenue of approximately $1,737,700 in year 2 would be difficult to achieve with only two surgery suites, as proposed in the Bi-County application. On the expense side, however, Bi-County seriously under-estimates the expenses necessary to generate the revenues forecast. Bi-county proposes a full-service, 100-bed, free-standing hospital with a 24 hour emergency room. (Bi-County also proposes an osteopathic internship program but does not propose to start the program within the first two years of operation.) Yet it proposes to staff the hospital with only 162 full-time equivalent positions (FTEs) in year two of operations, approximately 3.24 paid FTEs per occupied bed. This low staffing results in under-estimating expenses by approximately $620,000. In addition, Bi-County's application does not address how its financial feasibility would be affected by the contributions Bi-County would have to make to, and the payments Bi-County would receive from, the Florida Public Medical Assistance Trust Fund. Section 395.101, Florida Statutes (1985), requires hospitals to pay one and one half percent of their net operating revenue into the trust fund. Payments to hospitals from the trust fund are determined by a formula which measures the extent to which the hospital services the indigent population. There was no effort to forecast how the formula would apply to Bi- County. (In fairness to Bi-County, there also was no explicit evidence whether the Land O'Lakes application addresses these considerations.) Like the Land O'Lakes application, Bi-County's equipment costs assume not-for-profit status, saving approximately $175,000 in Florida sales tax. There was no evidence how an additional $175,000 in capital cost would affect the long-term financial feasibility of Bi-County's application in the event Bi- County became a for-profit organization. Finally, Bi-County's application does not take into consideration attorneys' fees that will have to be expended in obtaining underwriting for the project or approximately 15 to 18 thousand dollars of attorneys fees for the certificate of need litigation involved in this case. There was no evidence how the omission of those costs might affect the long-term financial feasibility of the Bi-County proposal. As a result of the extent to which the applicants' net income for year 2 of operations has been over-estimated, and the extent to which questions concerning the applicants' ability to achieve even that much net income in year 2 of operations, neither applicant proved that their projects are financially feasible in the long term. Probably Economics And Improvements From Joint, Corporative, Or Shared Health Care Resources (Section 381.494(6)(c)s., Florida Statutes 1985). If the Land O'Lakes/UCH relationship is established, the Land O'Lakes application has the opportunity for significant economics and improvements in service. Through use of UCH ancillary and support services, Land O'Lakes would be able to operate with fewer full-time equivalent positions on its staff. UCH management of Land O'Lakes could result in significant economies of scale which could redound to the benefit of the patient of one or both of the facilities. It even is possible that Land O'Lakes could become a virtual satellite of UCH, with the attendant benefits. However, it also is possible that acute emergency patients from Land O'Lakes will not benefit from the Land O'Lakes Hospital if attempted economies require such patients to continue to be transported to UCH because certain major emergencies are designed not to be handled at Land O' Lakes. similarly, Bi-County is discussing a management agreement with BAMI which could result in some of the same economies of scale. It is possible that Bi-County and its patients could benefit from savings in the cost of management through use of BAMI's central accounting and other management functions and from BAMI's ability to obtain hospital supplies, equipment and pharmaceuticals at discounts. Need For Research And Educational Facilities (Section 381.494(6)(c)7., Florida Statutes 1985). UCH is a teaching hospital. However, the Land O'Lakes application does not in any way base need on the potential for use of Land O'Lakes as a research or educational facility for UCH. There was no evidence in that regard. Bi-County does propose osteopathic internship programs. However, there was no persuasive proof of a need for osteopathic internship programs in Land O'Lakes or District 5. Florida is training 5.3 percent of the nation's osteopathic students but only 2.5 percent of the allopathic students in the U.S. District 5 has the largest concentration of osteopathic hospitals and osteopathic internship program- in the State of Florida. There are 15 osteopathic hospitals in Florida, 7 of which have internship programs. 4 of those hospitals, and 2 of the internship programs, already are located in District 5. In addition to the absence of proof, there was no evidence or argument on the parts of the Bi-County application proposing an internship program. Doctor Faulkenberg, one of Bi-County's principals, testified that there were no plans for an internship program within the first 2 years of operations. Bi- County did not provide much assurance when or if an internship program would be instituted. In any event, Bi-County provided no more assurance than the evidence that Carrollwood Community Hospital plans an osteopathic internship program within the next year or two provided assurance that that program would in fact be established. Other Criteria. Availability And Adequacy Of Non-Hospital Services (Section 381.494(6)(c)4., Florida Statutes 1985). Some hospital services can be replaced with outpatient care, ambulatory surgery and home care services. Carrollwood Community Hospital and a Land O'Lakes osteopath are now embarking on a joint venture to open a medical clinic in Land O'Lakes. In addition, an ambulatory surgery facility is about to open in Land O'Lakes. These facilities can offer some outpatient surgical procedures and minor emergency treatment. Generally, the applications in this case do not rely upon the provision of those services to justify need. However, Land O'Lakes only proposes emergency room service part of the time, relying on UCH to cover emergencies 24 hours, and does not propose full ancillary support and services, again in reliance on UCH. To that extent, the existing UCH services are an alternative to new construction in Land O'Lakes. Need Not Reasonably And Economically Accessible In Adjoining Areas (Section 381.494(6)(c)6., Florida Statutes 1985). There was no evidence of any need in District for special equipment and services to be provided by either Land O'Lakes or Bi-County which are not already reasonably and economically accessible in areas adjoining District 5 special Needs And circumstances Of Health Maintenance Organizations (Section 381.494(6)(c)10., Florida statutes 1985). There was no evidence of any special needs or circumstances of health maintenance organizations which would be pertinent to either the Land O'Lakes or the Bi-County application. Provision Of Substantial Services To Individuals Not Residing In District 5 (Section 381.494(6)(c)11. Florida statutes 1985). There was no evidence that either the Land O'Lakes application or the Bi-County application would provide a substantial portion of services or resources to individuals not residing in District 5 or that there is a need for a hospital in Land O'Lakes for this purpose. Energy And Cost Efficiency (Section 381.494(6)(c)13., Florida Statutes 1985). The evidence sufficiently proved that both the Land O'Lakes application and the Bi-County application proposed costs and methods of construction which are reasonably energy and cost efficient. The evidence did not suggest that any alternative methods of construction are available that would be substantially less costly or more effective. Required Findings (Section 381.494(d), Florida Statutes 1985). It cannot be found that less costly, more efficient, or more appropriate alternatives to the inpatient services proposed by Land O'Lakes and Bi-County are not available or that the development of such alternatives have been studied and have been found not practicable. Since there is no numeric need for 100 additional beds located in Land O'Lakes and area hospitals are running occupancy rates well below the 80 percent standard, utilization of existing hospital beds is a less costly, more efficient and more appropriate alternative which is practicable. It can be inferred from the evidence that existing inpatient facilities providing inpatient services proposed by Land O'Lakes and Bi-County are being used in an appropriate and efficient manner except that those facilities are running low occupancy rates. Alternatives to new construction for example modernization or sharing arrangements have been considered but are not practicable in relation to the Land O'Lakes and Bi-County applications. The evidence did not prove that patients will experience serious problems in obtaining inpatient care of the type proposed in the absence of one of the proposed new services. Balanced Consideration. After giving a balanced consideration to all of the pertinent statutory and rule criteria, it is found that there is no need or justification for either the Land O'Lakes application or the Bi-County application. Of all the criteria, the most significant was geographic accessibility. The applicants did not prove that accessibility considerations justify the construction of a 100-bed hospital in Land O'Lakes.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the Department of Health and Rehabilitative Services enter a final order denying both the application of Land O'Lakes Hospital, Inc., in Case No. 84-1509 and the application of Bi-County Community Hospital, Inc., in Case No. 84-1900. DONE AND ORDERED this 2nd day of January 1987 in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of January, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 84-1509 AND 84-1900 These rulings are made to comply with Section 120.59(2), Florida Statutes (1985). Bi-County's Proposed Findings of Fact. 1-4. Accepted and incorporated. Accepted but unnecessary. Rejected as contrary to the greater weight of the evidence and facts found. 7-8. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence and facts found. (Carrollwood is "osteopathic.") Accepted but unnecessary. Rejected as contrary to the greater weight of the evidence and facts found. (Harborside is "osteopathic.") Conclusion of law. Subordinate. Rejected as contrary to the greater weight of the evidence and facts found. Accepted that there would be no difficulty staffing; rejected that osteopaths in Pinellas would make it particularly "conducive" for Bi-County. Rejected as contrary to facts found. Accepted but unnecessary. Land O'Lakes Proposed Findings of Fact. 1. Accepted and incorporated. 2-3. Unnecessary. 4. Accepted and incorporated. 5 First sentence, accepted; second sentence, contrary to the greater weight of the evidence; third sentence, subordinate. Not proved. Proved only to the extent that it becomes a satellite of UCH. Conclusion of law. Rejected as contrary to facts found. Rejected as contrary to the greater weight of the evidence. Accepted. Subordinate. Not proved; not particularly relevant. Accepted but unnecessary. Subordinate to facts alleged but not proved. Accepted but unnecessary. 17.-18. Subordinate to facts alleged but not proved. Rejected as contrary to facts found. Subordinate. Subordinate. Rejected as contrary to facts found. Accepted and incorporated. Rejected as contrary to facts found since short-term financing is dependent on long-term feasibility. Rejected as being a summary of some of the evidence, not a finding. Rejected as not proved. Accepted but unnecessary. Accepted and incorporated. Accepted but unnecessary. Subordinate. Accepted but not necessary. Accepted with qualifications reflected in facts found. Rejected. There is no Pasco subdistrict. The total East and west Pasco is 88. Rejected. Underutilization proved; inaccessibility not proved. Accepted, assuming UCH involvement. Rejected as contrary to facts found. Accepted and incorporated. Cumulative. Rejected as contrary to the greater weight of the evidence. Accepted and incorporated. 41.-42. Subordinate to facts found. Rejected. There is some osteopathic need in Pasco. Accepted except for the last sentence, which is rejected. Subordinate. Accepted but subordinate and unnecessary. Rejected as summary of some evidence, not a finding. Subordinate to facts found; unnecessary. Accepted and incorporated. Subordinate to facts found. 51.-52. Argument. 53.-54. Accepted but unnecessary. Accepted and incorporated. Incomplete and incomprehensible. 57.-58. Subordinate to facts found. Argument. Second and third sentences are accepted but not necessary; the rest is cumulative. Accepted but unnecessary. First sentence accepted and incorporated; second sentence is accepted but unnecessary. Accepted and incorporated. Bi-County's financial feasibility was not proved. Accepted and incorporated in part, subordinate in part. Accepted but unnecessary. Conclusion of law. Irrelevant. 67.-68. Rejected as contrary to the greater weight of the evidence. 69. Conclusion of law. 70.-72. Cumulative. 73. Rejected as contrary to facts found. HRS/Riverside/Harborside Joint Proposed Findings of Fact. 1-3. Accepted and incorporated. Subordinate to facts found. Unnecessary. 6-7. Accepted but unnecessary. 8.-9. Accepted and incorporated. 10. Accepted but unnecessary. 11.-12. Accepted and incorporated except where subordinate and unnecessary. 13.-20. Accepted but unnecessary. 21. Accepted and incorporated. 22.-23. Accepted but unnecessary. 24. Accepted and incorporated. 25.-29. Accepted but unnecessary. Accepted and incorporated. Accepted but unnecessary. Accepted and incorporated. Conclusion of law. Accepted and incorporated. Conclusion of law. 36.-39. Accepted and incorporated. 40. Accepted and incorporated except where subordinate. 41.-44. Subordinate to facts found. 45. Accepted and incorporated. 46.-48. Subordinate to facts found. 49. Accepted Incorporated as to Riverside; unnecessary as to Harborside. 50.-51. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence. Subordinate to facts found. (Land O'Lakes FTEs are adequate assuming the UCH relationship.) 34 54. Rejected as contrary to facts found. Accepted but subordinate and unnecessary. Cumulative. 57.-59. Accepted but subordinate and unnecessary. 60. First sentence accepted but subordinate and unnecessary. Second sentence rejected as contrary to the greater weight of the evidence. 61.-63. Subordinate and unnecessary. 64.-69. Accepted and incorporated. Accepted but subordinate and unnecessary. Cumulative. Accepted and incorporated. Accepted and incorporated except where subordinate. 74 First sentence unnecessary; second sentence accepted and incorporated. 75. Accepted and incorporated except the implication that "specificity" and exact "accuracy" is necessary at this stage of a project is rejected as contrary to the greater weight of the evidence. 76.-77. Subordinate and unnecessary. 78. Rejected as contrary to facts found. 79.-81. Rejected as contrary to the greater weight of the evidence and facts found. Subordinate to facts found. Accepted and incorporated. 84.-86. Subordinate to facts found. 87.-88. Accepted and Incorporated. Rejected as contrary to facts found. Accepted that 80 percent is too high, but 50 percent-60 percent is too low. First sentence rejected as contrary to the greater weight of the evidence; second sentence accepted and incorporated. 92.-95. Subordinate to facts found. 96.-97. Cumulative. Rejected as contrary to the greater weight of the evidence. Unnecessary. Accepted and incorporated. Accepted but unnecessary. See 75, above. Unnecessary. Subordinate to facts alleged but not proved. 105.-106. Subordinate to facts found. 107.-1OB. Rejected as contrary to the greater weight of the evidence. 109.-110. Cumulative. Some patients would come from outside Land O'Lakes, but not as many as Bi-County projects. Rejected as contrary to facts found. Rejected as contrary to the greater weight of the evidence. 114.-116. Subordinate to facts found. 117. First sentence subordinate to facts found; second sentence rejected as contrary to facts found. 118.-119. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence. Accepted but unnecessary. 122.-123. Accepted and incorporated. 124.-129. Accepted but unnecessary. 130.-132. Accepted and incorporated. Accepted but unnecessary. Accepted and incorporated. Accepted but unnecessary. Cumulative. Accepted and incorporated to the extent necessary. Subordinate to facts found. 139.-140. Accepted and incorporated to the extent necessary. First sentence unnecessary; second cumulative. Rejected as contrary to facts found. Cumulative. Accepted and incorporated. First sentence cumulative; rest subordinate to facts found. 146.-147. Accepted and incorporated. D. HRS' Supplemental Proposed Findings Of Fact. Accepted and incorporated. Accepted and incorporated. Said another way, applicants did not prove inaccessibility. Accepted. Incorporated in large part. Accepted and incorporated. Accepted but unnecessary. Cumulative. Accepted. Incorporated to the extent necessary. Accepted and incorporated. Unnecessary. Accepted but unnecessary. 11.-12. Accepted and incorporated. Unnecessary. Subordinate to facts found. Accepted and incorporated to the extent necessary. Accepted and incorporated. Irrelevant. 18.-19. Subordinate to facts found. 20.-21. Accepted and incorporated. First sentence, conclusion of law; rest, cumulative. Accepted but not necessary. Accepted but not necessary. Conclusion of law and unnecessary. First sentence, conclusion of law; rest, subordinate. Accepted incorporated in part; in large part, subordinate. Subordinate to facts found. See 27 above. 30.-33. Subordinate to facts found. 34. Accepted but not necessary. 35 (a) Subordinate to facts found and unnecessary; (b) accepted in part, but rejected in part as conclusion of law and unnecessary; (c)-(f) subordinate to fact found; Accepted and incorporated to the extent necessary. Cumulative and subordinate. Rejected, not proved. Accepted. Incorporated in part; in part subordinate. Subordinate to facts found; unnecessary. COPIES FURNISHED: Kenneth F. Hoffman, Esquire Harold F. X. Purnell Oertel & Hoffman, P. A. Post Office Box 6507 Tallahassee, Florida 32314-6507 Charles D. Hood, Esquire Post Office Box 191 Daytona Beach, Florida 32015 Douglas L. Mannheimer, Esquire Post Office Drawer 11300 Tallahassee, Florida 32302-3300 Leonard A. Carson, Esquire Bruce A. Leinback, Esquire Carson & Linn, P. A. Mahan Station 1711-D Mahan Drive Tallahassee, Florida 32308 William Page, Jr. Secretary Department of HRS 1323 Winewood Blvd. Tallahassee, Florida 32301 Steven W. Huss, Esquire General Counsel Department of HRS 1323 Winewood Blvd. Tallahassee, Florida 32301
The Issue The Petitioner, State of Florida, Department of Professional Regulation, Board of Osteopathic Medical Examiners, has brought an action by Administrative Complaint against the Respondent, George Warren Frison, Jr., D.O., charging that on January 4 and 31, 1978, and February 28, 1978, the Respondent issued prescriptions for a substance commonly known as Quaalude, otherwise known as Methaqualone, and prescriptions for a substance known as Biphetamine, a material, mixture, compound or preparation which contains Amphetamines; both types of prescriptions being controlled substances within the meaning of Chapter 893, Florida Statutes. The complaint further alleges that the prescriptions were delivered to a patient, George DeBella, also known as George J. Conlon, without good faith and not in the course of the Respondent's professional practice, and, therefore, unlawfully. See Section 893.03, Florida Statutes. Finally, the Administrative Complaint alleges that these acts on the part of the Respondent are prohibited by Sections 893.05 and 893.13, Florida Statutes, and are violative of Subsections 459.14(2)(m) and (n), Florida Statutes, in that the Respondent is guilty of unprofessional conduct and has violated the laws of the State of Florida.
Findings Of Fact This cause comes on for consideration based upon the Administrative Complaint filed by the State of Florida, Department of Professional Regulation, Board of Osteopathic Medical Examiners. The Respondent in this cause is George Warren Frison, Jr., D.O., who holds license No. 1169 under regulation by the Petitioner. Dr. Frison also held license No. 1169 at all times pertinent to the Administrative Complaint. The Administrative Complaint is a six-count document, the general nature of which has been outlined in the issues statement of this Administrative Complaint. The specific contentions of the Administrative Complaint will be addressed in the course of these findings of fact. The proof offered reveals that on January 4, 1978, an officer of the Daytona Beach Police Department, one George Joseph Conlon, went to the office of the Respondent in DeBarry, Florida. At the time of this visit, Officer Conlon was operating under the assumed name of George DeBella. The purpose of Officer Conlon's visit was to ascertain if the Respondent was issuing prescriptions for drugs, not as a part of Dr. Frison's professional practice, but merely to satiate the desires of the ostensible patient and to profit from the encounter by charging the patient for the office visit. When Conlon entered the doctor's office on January 4, 1978, he was initially seen by Dr. Frison's nurse, who took the patient's blood pressure end weighed him and had the patient complete a form medical history data sheet. Conlon was then ushered in to see the doctor and he proceeded to tell Dr. Frison that he was not a "doper" and was not there for the purpose of getting Dilaudids. He explained to Dr. Frison that he had two jobs and that he was taking small black capsules to keep him going, to which Dr. Frison replied as an interrogatory, "Biphetamines?". Conlon explained that he didn't know what the substance was but that he had been paying $3.00 apiece to buy them from dealers and that arrangement was stupid and could he get some from the Respondent. Dr. Frison asked if Conlon meant a prescription and Conlon replied in the affirmative, and Frison said that he could get a prescription. Conlon in turn asked if he needed to provide other information. Frison responded by asking Conlon, "How many do you take?" Conlon indicated that he took one in the morning and one around six o'clock p.m. There was further conversation in which Conlon explained that he worked in a nursery in the daylight working hours and as a bartender from 2:00 p.m. to 2:00 a.m. Conlon also made remarks to the effect that he, Conlon, was not a "freak" and that he was trying to be "straight" with the doctor. Dr. Frison inquired if the small black capsules were the only thing that Conlon took and Conlon, in answering the doctor, indicated he had taken several Quaaludes, which helped to put him to sleep at night and that his frequency of using the drug was three times a week, at most. In response to the comments about Quaaludes, Dr. Frison asked Conlon if he would like a prescription for a few Quaaludes, and Conlon agreed. Frison indicated that he would give him a prescription for the Quaaludes, but not in the quantity of the Biphetamines which he was prescribing. There was further conversation about where the patient lived and in answering the Respondent's question, Conlon acknowledged that he lived in Daytona Beach, Florida. The Respondent asked why he didn't ask for a prescription in Daytona Beach and Conlon said it was because someone had mentioned Dr. Frison. There was a final series of remarks about buying drugs from other sources and paying $3.00 and that terminated the conversation. The only other examination or discussion which the doctor had with Conlon on January 4, 1978, involved the doctor taking the pulse of Officer Conlon during their conference. After this meeting between Dr. Frison and Conlon, Dr. Frison prescribed sixty Biphetamines, which is a mixture which contains Amphetamines and is a controlled substance within the meaning of Chapter 893.03, Florida Statutes, specifically a Schedule II item. Dr. Frison also prescribed thirty Quaaludes, also known as Methaqualone, which is a controlled substance within the meaning of Section 893.03, Florida Statutes, and specifically a Schedule II item. A copy of the prescriptions may be found as the Petitioner's Composite Exhibit No. 1 admitted into evidence. Officer Conlon was carrying a concealed transmitter on his person when this visit and the following visits were made to the Respondent's office, and tapes were made of the office conversations which were recorded from Conlon's transmitter. A transcript of the intelligible parts of the conversations between Conlon and the Respondent and Conlon and the Respondent's nurse, that occurred on January 4, 1978, may be found as the Petitioner's Exhibit No. 2 admitted into evidence. On January 31, 1978, Conlon returned to the office of the Respondent in DeBary, Florida. Again, the nurse weighed Conlon and took his blood pressure. Dr. Frison saw the patient and asked how the patient had been progressing and inquired about the number of tablets the patient had taken. Conlon responded that he took two or three a day. Dr. Frison indicated that that number was too many. Dr. Frison also noted that it had only been twenty-seven days since the last visit. Dr. Frison then determined to issue new prescriptions, but to postdate prescriptions for Biphetamines and Quaaludes to February 3, 1978. In connection with this, he prescribed sixty Biphetamines and sixty Quaaludes. There was some discussion held about the nature of the Quaaludes and how the patient, Conlon, might become dependent on them, leading to potential addiction. Frison also indicated that addiction to Biphetamines is one of the worst addictions and that Conlon should cut down the use of them. There was a further inquiry by Dr. Frison about why the patient did not get the prescriptions in Daytona Beach, to which Conlon replied that he was nervous about that. Frison terminated the conversation by telling Conlon not to take too many of the tablets and agreeing to write the prescriptions. There was no further physical examination of the patient or other discussion of the patient's condition. A copy of the prescriptions dated February 3, 1978, may be found as the Petitioner's Composite Exhibit No. 3 admitted into evidence and a copy of the transcript of the conversation between Conlon and the Respondent to the extent the conversation was intelligible, may be found as the Petitioner's Exhibit No. 4 admitted into evidence. Conlon made another trip to Dr. Frison's DeBary, Florida, office on February 28, 1978. He again was weighed and had his blood pressure taken by the nurse. Conlon was seen by Dr. Frison, who checked his pulse and chest. In the course of the visit, the Respondent inquired about Conlon's health and about his job at the bar. Then Frison stated that he would give Conlon prescriptions for that date, but would not be able to give him prescriptions for Quaalude and Biphetamine in the future. He explained to Conlon the reason for termination of the practice was that he was having problems of an unspecified nature. There was some brief discussion about a skin infection which the Patient had and that ended the conversation between the Respondent and Conlon. (Frison did not treat the patient for the skin condition.) Frison prescribed sixty Biphetamines and sixty Quaaludes and copies of these prescriptions may be found as part of the Petitioner's Composite Exhibit No. 5 admitted into evidence. As before, the intelligible parts of the conversation, as transcribed, may be found in the copy of that transcribed conversation which is Petitioner's Exhibit No. 6 admitted into evidence. In view of the events which occurred on January 4 and 31, 1978, and February 28, 1978, involving George J. Conlon, the ostensible patient of the Respondent, the Petitioner has brought the Administrative Complaint. Counts I and II deal with the events of January 4, 1978, and the prescription for Quaalude, otherwise known as Methaqualone; and Biphetamine, a material, mixture, compound or preparation containing Amphetamines, Count I dealing with the Quaalude and Count II dealing with the Biphetamine. Counts III and IV deal with the events of January 31, 1978, and the prescription for Quaalude, otherwise known as Methaqualone; and Biphetamine, a material, mixture, compound or preparation containing Amphetamines, Count III dealing with the Quaalude and Count IV dealing with the Biphetamine. Finally, Counts V and VI deal with the events of February 28, 1978, and the prescription for Quaalude, otherwise known as Methaqualone; and Biphetamine, a material, mixture, compound or preparation containing Amphetamines, Count V dealing with the Quaalude and Count VI dealing with the Biphetamines. In each of the counts, the Respondent is accused of delivering drugs without good faith and not in the course of professional practice and thereby unlawfully distributing and dispensing a controlled substance described in Section 893.03, Florida Statutes. According to the allegations, the acts of the Respondent in those instances are prohibited by Sections 893.05 and 893.13, Florida Statutes, and such acts constitute a violation of Subsections 459.14 (2)(m) and (n), Florida Statutes, in showing that the Respondent is guilty of unprofessional conduct and has violated the laws of the State of Florida. The substantive provisions dealing with disciplinary action against the Respondent are found in Subsection 459.14(2)(m), Florida Statutes, and Subsection 459.14(2)(n), Florida Statutes. The former provision states: 459.14(2)(m) A finding of the board that the individual is guilty of immoral or unprofes- sional conduct. Unprofessional conduct shall include any departure from, or failure to conform to, the minimal standards of accept- able and prevailing osteopathic medical prac- tice, without regard to the injury of a patient, or the committing of any act contrary to hon- esty, whether the same is committed in the course of practice or not. The evidential facts shown indicate that the substance commonly known as Quaalude, otherwise known as Methaqualone, a controlled substance within the meaning of Chapter 893, Florida Statutes, and the substance known as Biphetamine, a material, mixture, compound or preparation which contains Amphetamines, a controlled substance within the meaning of Chapter 893, Florida Statutes; were not prescribed in good faith and in the course of the Respondent's professional practice, as required by Section 893.05, Florida Statutes, if the Respondent is to avoid the penalties of the provisions of Section 893.13, Florida Statutes. This lack of good faith constituted unprofessional conduct, in the sense that the Respondent was departing from and failing to conform to the minimal standards of acceptable and prevailing osteopathic medical practice, set out in Subsection 459.14(2)(m), Florida Statutes. In particular, the departure from and failure to conform to those minimal standards is evidenced by the Petitioner's act of prescribing the controlled substance for Conlon when there was no specific complaint of a physical problem. This finding is made in spite of the witnesses who testified in behalf of the Respondent, who claimed that you could prescribe medication for compassionate reasons, and notwithstanding the Respondent's false entry into the medical chart of the patient, Conlon, indicating that the patient was being treated for the condition of being overweight. The Respondent further violated the standards of his professional community by failing to take an adequate history of the patient's condition on the occasions the patient was seen; failing to make an adequate physical examination of the patient on the occasions when the patient was seen; and by not placing reasonable controls over the drugs that were prescribed for the patient, particularly in his failure to warn the patient not to drive or use heavy machinery while under the influence of the medications. The Physician's Desk Reference manual creates a necessity for these cautionary instructions referred to above, and the Respondent should have warned the patient of the medications' possible effects. The Respondent also violated medical practice by postdating the prescriptions which were issued on January 31, 1978. Finally, the Respondent violated the minimum standards of his profession by prescribing Quaaludes and Biphetamines in combination when these drugs are known to have an antagonistic effect in combination. These findings of violations pertain to each date that the patient was seen; January 4 and 31, 1978, and February 28, 1978, involving both the substances, Quaalude and Biphetamine. The other substantive grounds of a violation alleged by the Petitioner deal with Subsection 459.14(2)(n), Florida Statutes, which reads as follows: 459.14 (2)(n) Violation of any statute or law of this state or any other state or terri- tory of the United States or any foreign country, which statute or law relates to the practice of medicine. To establish this violation, it would be necessary for a court of competent jurisdiction to have found the Respondent guilty of a violation of Section 893.13, Florida Statutes. This determination cannot be made by an administrative tribunal and in view of the fact that no court of competent jurisdiction has found such a violation, the Petitioner's claim under Subsection 459.14(2)(n), Florida Statutes, has not been sustained.
Recommendation It is recommended that the Petitioner, State of Florida, Department of Professional Regulation, Board of Osteopathic Medical Examiners, suspend the Respondent, George Warren Frison, Jr., D.O., for a period of one (1) year for the violations established in Counts I and II; for one year for the violations established in Counts III and IV, to run concurrently with the penalty imposed for Counts I and II; and for one (1) year for the violations established in Counts V and VI, to run concurrently with the penalty imposed for Counts I and II. DONE AND ORDERED this 25th day of July, 1979, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Ronald C. LaFace, Esquire Post Office Drawer 1838 Tallahassee, Florida 32302 Edward R. Kirkland, Esquire 126 East Jefferson Street Orlando, Florida 32801
