Findings Of Fact Petitioner, Health Care and Retirement Corporation of America, d/b/a Heartland of Broward, filed an application with respondent, Department of Health and Rehabilitative Services (HRS), for a certificate of need to construct a 120- bed nursing home in Broward County, Florida. After reviewing the application, respondent issued its proposed agency action in the form of a letter dated January 28, 1983 denying the application on the ground no need for 120 additional nursing home beds was demonstrated under the existing bed need methodology set forth in Rule 10-5.11(21), Florida Administrative Code. The parties now agree, and have so stipulated, that a numerical need for 101 nursing home beds exists in Broward County at the present time. They have also agreed that petitioner meets all statutory and rule criteria for the issuance of a certificate of need for those 101 beds. There are four other pending applications, including a second one by petitioner herein, for nursing home beds in Broward County. These applications were evaluated and denied by HRS in an earlier batching cycle than that of applicant. However, their final hearing was not conducted until after the hearing in this cause. Despite a contention by HRS counsel that under HRS policy or practice an earlier applicant has first priority over a later applicant to any available beds, there was no evidence to support that policy.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's application for a Certificate of Need be granted in part and that it be authorized to construct a 101-bed nursing home facility in Broward County, Florida. DONE and ENTERED this 16th day of February, 1984, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of February, 1984.
The Issue The issue is whether Petitioner lawfully reduced Respondent's certificate to operate a nursing home from Superior to Conditional.
Findings Of Fact Respondent is licensed to operate a nursing home known as Sunshine Manor in Sarasota. Petitioner conducted an annual relicensure survey of Sunshine Manor on March 1-3, 1999. Two tags arising out of that survey are the subject of this case. Tag F 224 states that Respondent's staff neglected Resident 2 by failing to document a condition in which he suddenly developed five small blisters on his right hand. Tag F 224 states that the staff left Resident 2 unattended with the catheter tubing wrapped around his right ring finger while his right hand was under his right leg and that this caused the blisters. Tag F 224 alleges that the staff first documented this injury on December 17, 1998. Tag F 224 concludes by stating that the staff left Resident 2 lying for 12 hours without assessing his catheter or turning him. Resident 2, who weighed over 200 pounds, was admitted to Sunshine Manor in October 1998 with diagnoses of coronary artery disease, hypertension, and diabetes. He was fed by a gastrostomy tube and required a urinary foley catheter. He needed assistance to get into and out of bed and had limited ability to move even while in bed. On the morning of December 7, 1998, a nurse discovered that Resident 2 had developed five blisters on the top of his right hand sometime during the night. The nurse reported this discovery to her supervisor, who joined her in treating and dressing the hand. The nurse supervisor then prepared an incident report and an unusual circumstances report and notified Resident 2's physician. The nurse supervisor also arranged for the wound care center to treat the wound at Resident 2's regularly scheduled appointment the following day. The wound care center treated the hand wound the following day, and it healed unremarkably. It is unclear how the blisters developed on Resident 2's hand. Respondent's staff cared for him throughout the night and early morning hours of December 6 and 7. Petitioner has failed to prove that Respondent's staff neglected Resident 2, or that any neglect caused the injury. Tag F 325 states that Resident's staff failed to maintain acceptable nutrition for Resident 12. Tag F 325 states that Resident 12 was admitted to Sunshine Manor on January 8, 1999, with the primary diagnoses of chronic obstructive pulmonary disease (COPD), Congestive Heart Failure (CHF), and weight loss. Tag F 325 states that Resident 12 weighed at admission 115.8 pounds, which was at least 18 pounds below ideal body weight. Tag F 325 states that he weighed 119 pounds on February 1, 1999, but only weighed 102 pounds on March 2, 1999. Tag F 325 then asserts the details of allegations that generally state that Respondent failed to design and implement an adequate nutrition plan for Resident 12, failed to monitor his weight adequately, and erroneously described a physician's order to the frequency of supplemental milkshakes. In fact, on admission, Resident 12's diagnoses were end-stage COPD, end-stage cardiomyopathy with CHF, weight loss secondary to the COPD and CHF, and gastroesophageal reflux disease. In combination, these conditions make it likely that Respondent would lose weight as he died from one or more of these diseases. The failure to reweigh Resident 12 was intentional and compassionate, as the weighing process itself was physically painful for the easily exerted resident. It was obvious to Respondent's staff, including an independent nutritional consultant, that Resident 12 was losing weight rapidly. Likewise, the short-lived (one day) mistranscription of the physician's orders concerning number of shakes was also immaterial under the circumstances, including Resident 12's inability to consume all of the milkshakes offered to him. Resident 12 died on March 16, 1999. His death was not attributable to any nutritional deficiencies caused by Respondent. At the time of the March 1999 survey, Respondent's license was rated Superior. Respondent's license had been rated Superior for the preceding ten years. Respondent reduced the rating from Superior due to the two tags, which have already been discussed, and the failure of Respondent to meet the minimum score. The record is relatively undeveloped to address whether Petitioner should have given Respondent the minimum score necessary to achieve a Superior rating. Petitioner objected to evidence on this point on the ground that Respondent had not raised the issue, but Respondent's petition clearly requests the restoration of its Superior rating. Thus, the Administrative Law Judge overruled the objection. Respondent's strategy was to introduce evidence showing that the conditions that earned the points necessary for a Superior rating in the 1998 survey were the same in March 1999, even though Petitioner's surveyors did not award the points in 1999. However, nothing in the record indicates whether Petitioner had legitimately chosen to make more rigorous the scoring and its surveys.
Recommendation It is RECOMMENDED that the Agency for Health Care Administration enter a final order restoring Respondent's license to Superior from the date of the March 1999 survey. DONE AND ENTERED this 7th day of September, 1999, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of September, 1999. COPIES FURNISHED: Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Karel L. Baarslag Senior Attorney Agency for Health Care Administration Post Office Box 60127 Fort Myers, Florida 33906-0127 Alfred W. Clark Attorney Post Office Box 623 Tallahassee, Florida 32302-0623
Findings Of Fact Veazey's Restorium was operated in Tampa for many years as a skilled- care 72-bed nursing home by George Veazey, Jr. and his wife, Fairolene Veazey, as owners. During the years here involved, Respondents contracted with the Social and Economic Services program office to provide services as a skilled nursing home. The Florida Medicaid Program permits payment for services performed based upon a recognized maximum or reasonable costs plus 6 percent, whichever is lower. The charges here disputed are directly related to the computation of patient costs authorized to be paid to Respondent for Medicaid patients. In 1972, Raymond Kernon and his wife, Jacqueline, bought into the business and Mrs. Kernon, a professional registered nurse, took over as Director of Nursing at the facility. A new nursing home was constructed containing 120 beds and the patients were moved to the new facility in August, 1973. In 1976 the Kernons purchased the Veazeys' interest in the nursing home and changed the name to Kernon's Su Casa. The land on which the new facility is built is owned by Ve-Ker, a corporation whose stock is owned by the owners of the nursing home. No specific testimony was submitted regarding the land ownership except that of Mrs. Kernon, who testified she and her husband owned the Ve-Ker corporation. It appears from the corporate name that the Veazeys originally were shareholders of the corporation, but no evidence on this was presented. It was not contested that common ownership of the land and the nursing home existed. During 1972 Raymond Veazey, the brother of George L. Veazey, Jr., was the administrator of the nursing home. In 1973 George Louis Veazey, III, the son of the owners, was administrator. George L. Veazey, Jr. was in charge of the kitchen prior to the hiring of a dietician subsequent to fiscal year 1973. During this period he made up menus and bought groceries, laundry and medical supplies. He ran errands for patients, carried them for doctor's visits, shopping, and acted as general handyman while not occupied in the kitchen. He had no job title in 1972 but in 1973 his title was Kitchen Supervisor. Prior to his departure in 1976, he acted as a general handyman and performed numerous tasks, the principal one being purchasing agent. Upon his departure no one was hired to replace him. No testimony was presented regarding the duties performed by Raymond Veazey or George Louis Veazey, III, while they were assigned as administrator. This is significant only to show that if they performed as full-time administrators and did not have time to perform the duties for which George L. Veazey, Jr. was paid, the latter's work was necessary and beneficial. In 1972 George L. Veazey, Jr. was in charge of the kitchen and purchased supplies for the home, George L. Veazey, III, was assistant administrator and Raymond Veazey was the administrator. By allowing only the salary for one administrator to perform all of these functions in a 72-bed nursing home, Petitioner disallowed $10,954 of the total salary expense for these three people. In addition, Petitioner disallowed $5,300 of the salary paid to Fairolene Veazey. Mrs. Veazey's testimony respecting her duties, which was submitted by affidavit after the hearing concluded, shows that many of the functions she performed were necessary and proper and that the disallowance of more than $3,000 of her total salary was not appropriate. Other items disallowed by Petitioner in the audit included: $1,525 in telephone directory advertisement. No evidence was presented to rebut Petitioner's testimony that the purpose of this advertising was to entice patrons to the nursing home; Cost of officers' life insurance policy where the provider was the beneficiary. No evidence was presented to rebut the testimony that the provider was a direct beneficiary of this policy or policies. Cost of an administrator's license in the amount of $87. No evidence was presented to show a need for more than one administrator at a 72- bed facility. Rent in the amount of $86,640 apparently allocated but never paid to the Ve-Ker corporation. No evidence was submitted that this rent was actually paid, or that the Ve-Ker corporation was not owned by the same shareholders that owned the nursing home. Similarly, with respect to the 1973 audit, the $1,644 for directory advertising and rent expense in the amount of $87,360 were disallowed for the same reasons as these items were disallowed in 1972 and no evidence was presented to show this disallowance to be in error. Salaries in 1973 for owners was again reduced to the maximum salary for one full-time administrator and the maximum salary for a full-time director of nursing. This reduced the salaries to $21,004 in administration from more than $50,000 paid to owners, George Veazey, Jr., George Veazey, III, Jacqueline Kernon, Fairolene Veazey, Ramond Kernon and Ray Estes, son-in-law of Kernon. No evidence was presented indicating that George L. Veazey, III, was fully occupied as administrator and could not have performed some of those services which his father actually performed and for which compensation was disallowed. Similarly no evidence was presented that Kernon or his son-in-law provided services beneficial to the patients. Evidence presented would indicate that no salary was approved for anyone other than the Administrator and Director of Nursing. Fifty percent of the salaries claimed for those other owners should be allowed. Fairolene Veazey obviously performed some beneficial function other than as housekeeper for which compensation could and should be authorized. George Veazey, Jr. was performing an essential function in 1973 for which he is entitled to compensation. Although his position as Kitchen Supervisor was not filled when his services were terminated in 1976, George Veazey, Jr. obviously performed many functions related to patient care. The fact that his specific position was not filled after his departure is not sufficient, standing alone, to say he did not perform essential services related to patient care. Many businesses learn they can do without the services of a particular employee after he leaves, whereas that was not believed true before his departure. The fact this employee was an owner does not change the concept. Fifty percent of Veazey's disallowed salary should be restored. With respect to those items disallowed on the 1976 audit, all of Respondents' evidence was directed at owners' compensation and no evidence was presented by Respondents to rebut Petitioner`s witnesses who stated the following expenses are not allowed because not patient-related: Forgiveness of a note receivable from George Veazey, Jr. in the amount of $28,774 in connection with Provider's purchase of Treasury stock. Professional fees incurred by Provider in connection with buy-out agreement with George L. Veazey, Jr. in the amount of $2,150. Interest paid to Randolph Kernon of $1,475. Offset of undocumented miscellaneous revenue against general and administrative expenses in amount of $1,215. Legal expenses in the amount of $330. Interest expense on loan from former shareholder in the sum of $4,414. Provider. Sales tax totaling $2,747 by Ve-Ker on rents collected by Employee benefits on disallowed salary. This item covers several owners' salaries which were disallowed. No evidence was presented to show any basis for benefits if the salary to which the benefit is pertinent is removed. Mrs. Jacqueline Kernon during the periods in question performed her duties as Director of Nursing, but also exercised additional supervisory duties in her role as owner. These duties consisted of being on call every weekend, remaining at the nursing home late every evening, visiting the nursing home on weekends, paying extra attention to the personal needs of the patients, spending 70 to 80 hours per week at the nursing home, and generally operating the nursing home efficiently and effectively. The work over and above that normally expected of a Director of Nursing should be compensated at 25 percent of the salary allowed her for Director of Nursing. This finding is based partially on the fact that the patient per-day cost at this nursing home is substantially lower than the costs in other comparable nursing homes in Florida.
Findings Of Fact Petitioner is in all respects qualified to provide the services for which this certificate of need is sought. Pinellas and Pasco counties comprise one health service district which is subdivided into two subdistricts. Pinellas County is one of these subdistricts. Pinellas County has been further broken down into a northern subdistrict and a southern subdistrict. Petitioner presented two witnesses who opined that, because Pinellas County had a large percentage of its population over the age of 75, an additional 120-bed nursing facility was needed. These witnesses further opined that the introduction of diagnostic related groups for payment purposes by Medicare would cause hospitals to discharge patients earlier and thereby further increase the need for nursing home beds. No facts to support these opinions were presented. Applying the bed need methodology contained in Rule 10-5.11(21), Florida Administrative Code, and projecting the population to 1986, there will be a need for 5,229 nursing home beds in District V and a need for 3,869 beds in the subdistrict of Pinellas County. There are presently, both licensed and approved, 8,114 nursing home beds districtwide and 6,819 beds in the subdistrict of Pinellas County. Petitioner's witness testified there are presently 6,630 approved nursing home beds in Pinellas County, of which 5,906 are now licensed. Regardless of which of these figures is accurate, there is a surplus of nearly 3,000 nursing home beds districtwide and a similar surplus in Pinellas County. Occupancy rates of nursing homes in Pinellas County based upon utilization from July to December, 1983, was 93.2 percent. In Pasco County the occupancy rate for the same period was 87.3 percent. Accordingly, neither the district nor the subdistrict reached the 95 percent occupancy rate needed to justify additional beds in a subdistrict.
Findings Of Fact Manor Care properly and timely filed with HRS its certificate of need application in July 1985. Hearing Officer's Ex. 2, T. 163. On July 15, 1986, Health Care and Retirement Corporation of America timely filed a petition to intervene alleging that its substantial interests would be affected by this case because it was an earlier batched applicant for the same health services in the same service district. On July 21, 1986, counsel for HRS wrote to counsel for Health Care and Retirement Corporation of America confirming that it is the position of HRS that "non-final CON approval of a subsequent application does not count against a prior application when that prior application proceeds to administrative hearing." Hearing Officer's Ex. 1. No ruling has been made on the petition to intervene due to this letter, and there has been no further request by Health Care and Retirement Corporation of America to have its petition to intervene ruled upon. The petition to intervene therefore remains pending. The only criterion at issue in this case is need. T. 145-6. Criteria 3, 4, 5, 6, 7, 10, 11, 12 and 13 of section 381.494(6)(c)m, Fla. Stat., are not in dispute in this case. Financial feasibility is not in dispute except for the dispute as to need. Criterion 8 is in dispute only with respect to "the availability of alternative uses of such resources for the provision of other health services, and the extent to which the proposed services will be accessible to all residents of the service district." Criterion 9 is in dispute only with respect to whether Manor Care can achieve its projected utilization and Medicare projected utilization. Hearing Officer Ex. 2. Manor Care has sufficient and available health manpower resources, management personnel resources, and capital and operating expenditures for project accomplishment and operation. Hearing Officer Ex. 2. The costs and methods of the Manor Care proposed construction are reasonable, and there are no alternative, less costly, or more effective methods of construction available. Hearing Officer Ex. 2. Manor Care proposes to develop 60 community nursing home beds as a skilled nursing facility. T. 17. Some of the skilled nursing services that it would offer include intravenous therapy, hyperalimentation therapy, nasogastric feeding, gastroscopy feeding, tracheostomy care, and bowel and bladder training. Id. Additionally, the proposed 60 beds would be supported by intermediate nursing services, rehabilitation services, physical therapy, occupational speech therapy, respiratory therapy, recreational therapy, and community programs. Id., Manor Care Ex. 1, p. 2. Manor Care also proposes to offer respite nursing care, which is short-term inpatient nursing care. T. 18. In addition to the 60 community nursing home beds which are the subject of these proceedings, Manor Care proposes to provide an attached 60 bed adult congregate living facility (ACLF). T. 18. An ACLF may be operated without a certificate of need. The ACLF will be in an attached wing of the building. Id. The ACLF wing is intended to provide services for persons not needing skilled nursing care. The 60 community nursing home beds would be used for acutely ill persons in need of skilled nursing care. T. 23. The ACLF would provide assistance in daily activities and one hour a day of personal care, but would not involve nursing care. T. 18, 23. Having the ACLF attached to a nursing home will allow for easier transitions for patients from one level of care to another (ACLF to nursing, and return) and will give ACLF residents access to therapies in the nursing wing. T. 24. An ACLF may also be useful to allow a spouse to be closer to a patient in the nursing wing where the at-home spouse needs assistance with daily activities. T. 80. Manor Care proposes to locate the facility in west Tampa, Florida. T. 26. Manor Care projects a payor mix of 60 percent private pay, 30 percent Medicaid, and 10 percent Medicare. T. 26. The Medicare average in Hillsborough County is 4 percent. T. 27. About one-third of the nursing homes in Hillsborough County do not participate in Medicare, T. 28, and these would not be able to take Medicare patients needing skilled nursing services. Id. District VI has about 58 percent Medicaid beds. Manor Care Ex. 4. Manor Care projects an occupancy of 60 percent on the average in the first year, and 90 percent average in the second year. T. 28. The two nursing facilities that opened in Hillsborough County in 1985 achieved 90 percent occupancy in less than a year. T. 22. Given the findings of need and occupancy levels elsewhere in this recommended order, it is reasonable to believe that the projections of occupancy are reasonable and will occur. The projected opening date for the proposed facility is December 1988. T. 29. Petitioner's proposed facility will be consistent with the following criteria contained in the local health plan applicable to Hillsborough County: The local plan ranks Hillsborough County, northwest, as priority 1 among 6 regional priorities. This proposal is consistent with this criterion. T. 30, Manor Care Ex. 1. The local plan provides that applicants should at a minimum serve Medicaid patients in proportion to the representation of elderly poor in the subdistrict. T. 30. The subdistrict of Hillsborough County, northwest, has 18.6 percent persons age 65+ in poverty. Manor Care Ex. 1. The proposed facility is consistent with this criterion. The local plan provides preference to applicants who historically complete projects on time. Manor Care's record on this point is consistent with this criterion. T. 31. See also paragraph 3 above. The local plan requires that existing nursing homes must have been at an average rate of 90 percent occupancy or greater for the six months prior to new beds being approved. Manor Care Ex. 1. The occupancy rate has been over 95 percent since October 1985, T. 31, so this criterion is satisfied. The local plan requires that available alternatives be considered. Manor Care Ex. 1. There are no available alternatives. The local plan requires as a goal that the nursing home be within 30 minutes travel time of 90 percent of the urban residents and 45 minutes travel time of 90 percent of the rural residents. Manor Care Ex. 1. There is unrebutted evidence that this proposal will be consistent with that criterion. T. 32. The local plan requires evaluation of the proposal against the achievement of the applicant of superior quality of care. Manor Care Ex. 1. Quality of care has not been questioned by HRS in this case. See finding of fact 5. Moreover, Manor Care has presented sufficient evidence that it will provide care of good quality. T. 45-9, 59-82. The proposal is consistent with the state health plan since there is a need for the project, and the state health plan goals of consistency with state methodology and accessibility of services, are primarily related to need. T. The services will be accessible to those with need. T. 33. The Department of Health and Rehabilitative Services relies upon rule 10-5.11(21), Florida Administrative Code, to calculate bed need in this case. Hearing Officer Ex. 2, p. 2. All parties have calculated need using Hillsborough County as the proper subdistrict in District IV. Manor Care Ex. 14 accurately summarizes the mathematical method of the rule. Manor Care Ex. 6. The method of calculation relied upon by HRS in this case depends upon application of incipient policy which seeks to implement the decision in the Gulf Court case. T. 154-5. That policy is initially contained in HRS Ex. 2, which is a memorandum from Steven W. Huss, General Counsel, dated March 6, 1986, and adopted as policy by the Administrator of Community Medical Facilities, Office of Health Planning and Development. The memorandum states that the "planning horizon" applicable to all applications for certificates of need shall be projected from the filing deadline of the application, but that "applications shall be evaluated using current or available data for projecting need for the applicable horizon. . . ." HRS Ex. 2. Included in the definition of "current health planning information" is "population." Id. The policies are not rules. T. 159. The Department of Health and Rehabilitative Services put on no evidence to demonstrate the reasonableness of these policies as applied to the Petitioner in this case. T. 160. In the case at bar, HRS proposes to implement the foregoing policy by establishing a "planning horizon" three years from the date that Petitioner's application was date-stamped in, but using "current data," meaning data as of the date of the formal administrative hearing. T. 154. The application was received in July 1985, and thus HRS proposes to establish July 1988 as the planning horizon. T. 163. It also proposes to use population estimates, the number of licensed and approved beds in the subdistrict, and the occupancy levels, from the most recent semiannual community nursing home report as of the date of the formal administrative hearing. T. 163-4. Thus, for "current populations," HRS proposes to use 1986 estimates of 1986 populations. T. 165. Following rule 10-5.11(21) and applying the foregoing incipient policy, the Department calculates a need for 51 community nursing home beds in subdistrict Hillsborough County in the horizon year, July 1988. HRS Ex. 1, T. 154. This calculation is identical to Manor Care Ex. 16. T. 154. The Department proposes to deny Petitioner's application because this calculation does not show at least 60 beds needed. T. 145. 20. Following essentially the same mathematical formula contained in the rule, but with a single critical difference, the Petitioner calculates net bed need in Hillsborough County in July 1988 as 184 beds. T. 105, Manor Care Ex. The critical difference is that Manor Care Ex. 15 uses a July 1, 1986 estimate of 1985 population in calculating "bed rate" within the mathematical formula of the rule. As stated above, HRS proposes to use the 1986 estimate of the 1986 population. Compare Manor Care Ex. 23 with Manor Care Ex. 15 and HRS Ex. 1. It should be noted that this distinction is not at all clear from an examination of Manor Care Ex. 15, which erroneously refers to the ages 65-74 population of 129,366 as "July 1, 1986," population, and the ages 75+ population of 89,297 as population of "July 1, 1986," also. These populations, however, are actually 1986 estimates of 1985 populations. See Manor Care Ex. 23. Manor Care's expert witness did not clearly make this distinction either, calling these "July 1, 1986," population projections, and referring to a "base period of July 1, 1985," without defining what he meant by "base period." T. 103-4. The difference of 133 beds (184 compared to 51) in the two calculations proposed by the parties is caused by the fact that the so-called "bed rate" in the rule is inversely proportional to the population which is assumed to need the nursing home beds. Rule 10-5.11(21)(b) employs a "bed rate" defined as the number of licensed beds divided by the population ages 65 and older, presumably the primary users of nursing home beds. This so-called "bed rate" is then multiplied against the future population of expected users to obtain a bed need figure. (In effect the rule projects the status quo into the future.) If licensed beds, the numerator of the fraction, remains constant (as it does in the two methods discussed above), but the denominator increases (as it does when HRS uses 1986 populations instead of 1985), then the so-called "bed rate" decreases. This result can be traced mathematically for the two methods. Rule 10-5.11(21)(b) calculates a "bed rate" for the population ages 65-74 (called BA) and 75+ (called BB). The number of licensed beds in the district, 5,617, remains constant in both methods. But in Manor Care Ex. 15, the 1986 estimates of 1985 population are 129,366 for the population ages 65-74, and 80,297 for the population ages 75+. In HRS Ex. 1 (and Manor Care Ex. 16) the 1986 estimate of 1986 population ages 65-74 is 133,730 and population ages 75+ is 93,666. The bed rate using the lower population figures (Manor Care Ex. 15) is 104.596 percent of the bed rate using 1986 estimates of 1986 population. In step 4 of the formula as presented in Manor Care Exs. 15 and 16, the preliminary subdistrict bed allocation (SA) is a result of multiplying the bed rate times the licensed beds. Consequently, the result using 1985 populations is a preliminary subdistrict bed allocation of 3,031. Using 1986 populations, the preliminary subdistrict bed allocation is 2,898. The expected difference is 104.596 percent of 2,898, or 133 beds. Manor Care's expert witness presented an alternative calculation of bed need which used 1986 estimates of 1986 population to derive the bed rates BA and BB, but used 1989 as the planning horizon. T. 110. In this manner, the three-year period specified in the rule commences from the date of the formal administrative hearing. Everything else was the same as HRS Ex. 1. This method results in a subdistrict bed need in Hillsborough County of 162. T. 110, Manor Care Ex. 17. The difference of 111 net beds between the method in HRS Ex. 1 and Manor Care Ex. 17 is the result of the increase of population in the two age groups projected between 1988 and 1989. Although the bed rates in HRS Ex. 1 and Manor Care Ex. 17 are lower than the bed rates in Manor Care Ex. 15, these bed rates are multiplied directly against the projected populations in the horizon year. Rule 10-5.11(27)(b)1, Florida Administrative Code. The increase in projected population in 1989, compared to 1988, results in a need for 111 more beds despite the fact that both methods (HRS Ex. 1 and Manor Care Ex. 17) use the same bed rate. In summary, comparing Manor Care Exs. 15 and 17 and HRS Ex. 1, it must be concluded that the effect in HRS Ex. 1 of using population data as of the time of the formal administrative hearing, but projecting need for a three-year period commencing before the formal administrative hearing, causes a diminution of projected need in all cases where the relevant population is increasing. On the one hand, the increase in populations used to compute bed rate results in a lower rate. On the other hand, the use of a horizon year that is less than the full three years from the date that the bed rate is calculated results in a lower horizon year population, and thus ultimately a lower net bed need. In effect, if the term "planning horizon" means a future date to which need is to be projected, beginning from a base date and using a need rate current as of the base date, then the method in HRS Ex. 1, which uses a 1986 bed rate projected to a 1988 population, is actually using only a two year "planning horizon." As will be discussed in the conclusions of law, the method used by HRS to calculated bed need is not legally correct because it does not use data current as of the date of the application. The method proposed by the Petitioner using a 1989 planning horizon is not legally correct because the Petitioner cannot apply for beds in that horizon without amending its application and changing to a later batching cycle. The method proposed by the Petitioner in Manor Care Ex. 15 is essentially correct in method. However, it uses the wrong data because it fails to use data for licensed beds and occupancy rates preceding the batching cycle as required by the rule. The correct calculation of need is the calculation found in Manor Care Ex. 15, but substituting the following data in the formula as indicated: LB 5,270 LBD 2,392 AB 824 ABD 488 (approved beds in the subdistrict) OR 0.962 POPA 141,736 POPB 102,242 POPC 129,366 POPD 89,297 LB and LBD are supposed to be as of June 1, 1985, according to the rule. At the conclusion of the hearing and after receipt of post hearing proposed findings it was discovered that the record did not contain these figures. Thus, an order was entered reopening the record for the limited purpose of having the parties submit this data as of June 1, 1985. The parties did so, but the only data in existence was as of May 1, 1985. There is no reason in this record to believe that the figures LB and LBD changed in the 30 days to June 1, 1985, and thus the figures provided are accepted as June 1, 1985, totals for LB and LBD. Further, if LB and LBD are to be derived from the figures from Hearing Officer's Ex. 4, which are May 1, 1986, figures, the number of approved beds for the district (AB) and subdistrict (to be termed ABD in this order) should also be from the exhibit. AB and ABD above thus are from Hearing Officer's Ex. 4. The occupancy rate, however, has been derived from Manor Care Ex. 22 for the reasons stated in finding of fact 32. LB, LBD, AB, ABD, and OR are new figures, and differ from Manor Care Ex. 15. All else in the computation which follows is the same as Manor Care Ex. 15. In this regard, POPA and POPB are 1986 estimates of 1985 populations, and POPC and POPD are 1986 estimates of 1988 populations. Strictly speaking, the rule seems to require 1985 estimates, but, as discussed in the conclusions of law, there seems to be little reason not to use the most recent estimates of these populations, which presumably would be more accurate. Substituting the above figures in the formula found in Manor Care Ex. 15, the following is the proper calculation of net bed need in this case: Step 1: A = (POPA x BA) + (POPB x BB) A = (141,736 x BA) + (102,242 x BB) A = (141, 736 x 0.007923) + (102,242 x 0.047538) Step 2: A BA = = 1123 + 4860 5983 LB (FOPC + (6 x POPD) BA = 5,270 5,270 BA = (129,366 + (6 x 89,297) 0.007923 665,148 Step 3: BB = 6 x BA BB = 6 x 0.007923 BB = 0.047538 Step 4: SA SA SA = = = A x LBD x OR LB 0.90 5983 x 2,392 x 0.962 5,270 0.90 5983 x 0.4538899 x 1.0688889 SA 2903 Step 5: If LB + AB is less than 27 POPE 1,000 and PDB is greater than PBS, than PA 27 x POPE 1,000 If 5,270 + 824 = 0.0278694 is greater than 0.027, 218,663 then the poverty adjustment does not apply. Step 6: Not applicable because 0.0278694 is greater than 0.027 Step 7: LB 5,270 as of June 1, 1985 LBD 2,392 as of June 1, 1985 Step 8: Projections based on 3-year period from July 1, 1985 to July 1, 1988. Step 9: NH = need SA - LB - (0.90 x ABD) NH = need 2903 - 2392 - (0.90 x 488) NH = need 2903 - 2392 - 439 NET NEED 72 beds In January 1983, nursing homes in Hillsborough County were experiencing an occupancy rate of 91 percent on the average. Manor Care Ex. 22. In about July 1983, hospitals began to be affected by the new federal prospective payment system and diagnostic related groups (DRO's). T. 125-6. The federal DRG system of Medicare reimbursement results in flat rate payments for specified numbers of days of hospital care. T. 50. Since the purpose of the system is to lower cost by decreasing the length of hospital stays, the result has been to produce a greater need for skilled nursing centers to care for sicker patients needing higher levels of care. Id., T. 88, 50. This increases the demand for short term skilled nursing placements. T. 88. As a result, there was greater utilization of existing nursing home beds in Hillsborough County, and by August 1983, the occupancy rate went to 96 percent on the average. Manor Care Ex. 22. By November 1983, it was at 97 percent. Id. In 1984, nursing homes in Hillsborough County averaged 97 percent occupancy. Manor Care Ex. 22. In the first two months of 1985, existing nursing homes in Hillsborough County continued to experience a 97 percent occupancy. Manor Care Ex. 22. In March 1985, 120 new nursing home beds in Hillsborough County were opened, and the occupancy rate average dropped to 92 percent, but by July 1985 the average had climbed again to 95 percent. Id. In October 1985, another 120 beds were opened, and the rate again dropped to 91 percent, but by December 1985, it had increased to 94 percent. Id. The rate has been steady at 94 percent to March 1986, the last month for which there is data in the record. Id. See also Manor Care Ex. 21. It should also be noted that the facility that opened in October 1985 had achieved an occupancy level of 95 percent in six months. T. 129. The occupancy rate for subdistrict Hillsborough County for the period October 1984 through March 1985 was 96.2 percent. This is derived from Manor Care Ex. 22. The exhibit shows that the occupancy rate for the months of October 1984 through February 1985 was 97 percent. In March 1985, the rate dropped to 92 percent. The average of these six figures is 96.2 percent. It should be noted that this occupancy rate was used in findings of fact 26 and 27 instead of the lower occupancy rate found in Hearing Officer Ex. 4. The occupancy rate of 96.2 percent is more credible for several reasons. First, it was presented by a witness who was subject to cross-examination. If there had been a problem with the rate as depicted in Manor Care Ex. 22, the problem might have been exposed in cross examination. Second, it is based on a more detailed (month by month) set of data. Finally, it is consistent with the trend shown by Manor Care Ex. 22. The lower rate contained in Hearing Officer Ex. 4 is out-of- line from this trend, and therefore apparently in error. Persons who most need nursing home services are 65 years or older, and these groups are projected to increase faster than the population ages 0-64 in Hillsborough County to the year 1990. Manor Care Ex. 23. From 1986 to 1990, the total population of Hillsborough County is estimated to grow each year at between 1.7 percent and 2.2 percent compared to the previous year. Manor Care Ex. 23. In the same four years, it is projected that the Hillsborough County age group 75+ will grow on the average at 4.6 percent each year, and the age group 65-74 will grow on the average at 2.7 percent each year. Id. As discussed above, the change in the federal method of reimbursing hospital costs has resulted in sicker patients needing nursing care outside the hospital. Florida sets a higher staffing requirement for skilled nursing care than other nursing facilities. T. 51. Skilled nursing care usually requires more staff, better trained staff capable of coping with multiple health problems, closer monitoring of patients, closer communication with physicians and hospitals, and more supplies. T. 61-2. Skilled nursing is more expensive. Id. A nursing home may elect not to provide skilled nursing because its current staff lacks sufficient training, because of exposure to greater liability, and because skilled nursing care is more difficult. T. 51. Nursing homes that can achieve high occupancy levels without skilled nursing care have less incentive to provide such care. T. 34. Hillsborough County appears to have such high occupancy levels that there may be less incentive for existing nursing homes to provide skilled nursing care. Id. Ten of the nursing homes in Hillsborough County each provide less then 1 percent of their services to Medicare patients. T. 130. Of these, six provide no Medicare services. Id. Thus, about one-half of the nursing homes in Hillsborough County provide no Medicare skilled nursing. Id. The three largest hospitals in Tampa currently have waiting lists for placement of patients needing skilled nursing care. T. 22. These hospitals have trouble placing patients after hospitalization, and demand for nursing home services exceeds availability. Manor Care Ex. 24, p. 7, T. 84. This often results in such patients having to stay longer in the hospital. T. 85. The following skilled nursing services are not adequately available in Hillsborough County: intravenous therapy, hyperalimentation therapy, and tracheostomy care. T. 24-5, 84-6, 89-90. Intravenous therapy involves the injection of fluids directly into a vein. T. 66. This therapy requires close monitoring by trained staff. T. 68. Manor Care proposes to provide intravenous therapy for up to four patients a day. T. 70. A tracheostomy is an opening at the base of the neck into which a tube is inserted to create an open airway. T. 70-1. Patients needing this type of care include neurological traumas, stroke patients, and head trauma victims. T. These patients are usually unstable and the tracheostomy requires close attention, sterility, and suction. T. 71-2. Manor Care proposes to provide tracheostomy care. Manor Care Ex. 1, section III, paragraph 5. Hyperalimentation therapy is either tube feeding through the gastro- intestinal tract, or through a vein. T. 73-4. Until about two years ago, this therapy was not typically provided in a nursing home. T. 74. Patients requiring this therapy are those with problems with excessive vomiting, diarrhea, bowel obstructions or cancer, and massive gastro-intestinal surgery. Id. Hypralimentation therapy may be short-term or long-term. Id. The procedure requires great care, caution, and specially trained staff. T. 75. There is a need in Hillsborough County for additional respite care. T. 87. The same admission paperwork is needed for a patient coming for only two days for respite care as for a patient that is to be a long-term patient, T. 54, and this acts as a disincentive to providing such care. There are two adult congregate living facilities in the Tampa community now. T. 89. One is associated with sheltered nursing home beds, and the other is associated with nursing home beds that are partially available to persons not residing in the ACLF. T. 91. Manor HealthCare Corporation has nine nursing centers in Florida. T. All are certified for Medicare. T. 49-50. Medicare has high criteria for skill level, and thus a nursing home that is certified for Medicare is capable of treating patients needing higher nursing skills. T. 50. Manor HealthCare has contracted with three health maintenance organizations to provide skilled nursing care, and is negotiating with four others for the same services. T. 44. These contracts enable the health maintenance organizations to move patients from acute care in a hospital to a lower cost skilled nursing care. T. 45. District VI, which includes Hillsborough County, has a higher poverty level for persons 65 years of age and over than Florida as a whole. T. 117. However, the poverty adjustment does not apply in this case. See finding of fact 28, steps 5 and 6. Subparagraph (b)5 of the rule provides a "poverty adjustment" to allocate at least 27 beds per 1,000 residents 65 years of age or older "in the current year." T. 112. Thus, the adjustment does not project a number of beds into the future. Id. Manor Care demonstrated that it would make a significant difference if this adjustment were based upon the number of residents 65 years of age and older in the horizon year. Applying the rule as currently written, HRS Ex. 1 and Manor Care Ex. 16, which are identical, show net need of 51. Using this same method if the population age 65+ in the horizon year (1988) is used, the net need is 99. T. 111-9, Manor Care Ex. 19. On August 22, 1986, the Department of Health and Rehabilitative Services published notice of intent to amend subparagraph (b)5 of rule 10- 5.11(27) to provide that the poverty adjustment would allocate no less than 27 nursing home beds per 1,000 population 65 years of age or over projected three years into the future. Vol. 12, No. 34, p. 3060, Florida Administrative Weekly. The proposed rule was withdrawn on September 12, 1986. Vol. 12, No. 37, p. 3384, Florida Administrative Weekly, Hearing Officer Ex. 4. HRS has previously approved certificate of need applications for nursing home beds despite lack of numerical need. T. 141-2. Apparently HRS construes rule 10-5.11(21)(b)10 as not constituting an exclusive list of exceptions justifying grant of a certificate of need despite lack of numerical need. T. 142. There is a need for the 60 bed skilled nursing facility as proposed in this formal administrative hearing by the Petitioner. Existing facilities do not fulfill this need, and there are no adequate alternatives.
Findings Of Fact On or before July 15, 1985 Petitioner timely filed an application for a certificate of need (CON No. 4179) to add 42 beds to an existing nursing home in Lee County, Florida. Petitioner's application was denied by Respondent, subject to the right to a hearing, by letter dated December 6, 1985 for the sole stated reason that: Application of Chapter 10-5.11(21), Florida Administrative Code, to Lee County shows no need for additional beds in the County through 1988. The letter further states that the "basis of the above decision" is contained in the State Agency Action Report. Petitioner timely sought a Section 120.57(1), Florida Statutes, hearing concerning Respondent's notice of its intention to deny this application. The parties filed a Pre-Hearing Stipulation on December 3, 1986 which states that the only statutory criteria at issue in this proceeding are those contained in Sections 381.494(6)(c)1, 2 and 12, as well as the criterion at Section 381.494(6)(c)9, Florida Statutes, insofar as it relates to the need for the proposed additional nursing home beds. Further, the parties stipulated that the only rule criteria at issue are found at Rules 10-5.11(1), (3) and (6), as well as the criterion at Rule 10-5.11(5), Florida Administrative Code, insofar as the long-term financial feasibility of the project is related to the need for the services being proposed. It is readily apparent that the parties have stipulated to issues in this proceeding which may be beyond the scope of the sole reason for denial of this CON application set forth in Respondent's letter of December 6, 1985. The parties' stipulation has been accepted, however, and will therefore define the issues to be determined in this case. Petitioner has an existing 78 bed nursing home in the vicinity of Ft. Myers, Florida. This is located in Respondent's District 8, Subdistrict Lee- County. Previously, Petitioner received approval to construct 120 beds at this facility but was only licensed to use 78 beds. In fact, Petitioner has already constructed, equipped and furnished the additional 42 beds, and now seeks approval to use these beds. No additional capital expenditures would be necessary to place these beds in service. The methodology for calculating need for community nursing home beds is set forth in Rule 10-5.l1(21)(b)1-9, Florida Administrative Code. As more particularly set forth in Findings of Fact 7 through 23, this methodology can be summarized as follows: Determine the planning horizon to which an application is directed. Determine the district's age adjusted number of beds in the horizon year by applying the current bed rates for population age groups 65-74 and 75 + to the district's horizon year population. Determine the gross allocation of beds to the applicable subdistrict by multiplying the district's age adjusted number of beds by the ratio of licensed beds in the subdistrict to licensed beds in the district, and also by the ratio of the average occupancy rate in the subdistrict to .90. For purposes of this calculation in this case, licensed beds are determined as of June 1, 1985 and occupancy rates are those that existed from October, 1984 to March, 1985. Determine the net allocation of beds to the applicable subdistrict by subtracting the total number of licensed beds in the subdistrict at the time of hearing plus 90 percent of approved beds in the subdistrict at the time of hearing from the subdistrict gross allocation. The first step in calculating need pursuant to Respondent's methodology set forth in Rule l0-5.11(21)(b)1-9, Florida Administrative Code, is to establish a planning horizon. Subparagraph (b) of the rule states: the Department will determine if there is a projected need for new or additional beds three years into the future according to the methodology specified under subparagraphs 1 through 10. (Emphasis supplied.) The Respondent interprets this to mean that the planning horizon is established by counting three years into the future from the filing deadline, established by rule, for a particular application. This is a reasonable interpretation and is consistent with the plain meaning of the rule. Thus, in this case the planning horizon to which Petitioner's application is addressed is July 15, 1988. The next step in applying the need methodology is to determine what is meant by "current population" as that term is used in Rule 10-5.11(21)(b)2. The Respondent interprets this to mean the population current on the application filing deadline which in this case was July 15, 1985. This is also a reasonable construction of the rule, and is therefore accepted. However, the Respondent further contends that the "current population" estimates to be used in applying the rule methodology are those that were available from the Office of the Governor when this application was submitted, and that more recent updates of those estimates should not be considered. Since all population estimates and projections are only approximations, rather than actual counts, it is more reasonable to use updated revisions of "current population" which may be available at the time of hearing. These are still estimates of the population current as of the date an application is filed (in this case July, 1985), but they can reasonably be expected to be more accurate than the prior estimate. In the same manner, estimates of the planning horizon year population (July, 1988) available at the time of hearing should also be used rather than July, 1985 estimates of that population. Respondent's interpretation which is hereby rejected and which would require the use of population estimates available when the application was submitted, excluding all revisions and updates, is not set forth by rule. Additionally, Respondent offered only the testimony of its consultant, Joyce Farr, to explicate this "incipient policy" but she was neither involved in, nor part of, the decision making process which lead to this announced policy. Further, the position advocated by Farr is at variance with Respondent's prior application and interpretation of its rule, and is contrary to the interpretation used when Petitioner submitted this application. At the time of hearing, Farr did not know of any Final Order of Respondent, nor was any policy memoranda introduced, which set forth and adopted the interpretation she espoused as Respondent's policy. The only explanation offered for her interpretation was that she had been told by her supervisor that Respondent would take this position in all cases as a result of the Recommended Order in Case Number 86-0051, dated October 10, 1986, but not yet acted upon by Respondent at the time of hearing. No other evidence was presented by Respondent in support of Farr's interpretation, or to otherwise explicate this non-rule policy. Before applying the need methodology rule, a determination must also be made as to how "occupancy rates" will be measured, as used in Rule 10- 5.11(21)(b)4. As recently as May 8, 1986, Respondent's Administrator of Community Medical Facilities concurred in an interpretive memo prepared by Reid Jaffe, consultant supervisor, which indicated that at the time of hearing the latest available six months occupancy rates would be used. Yet, at hearing Joyce Farr again announced a change of policy to freeze everything, including occupancy rates, to the time of the original application. Under this interpretation, "occupancy rate" in this case would be based on the six months' data for October, 1984 through March, 1985. Petitioners urge the use of "occupancy rate" data from April, 1986 to September, 1986, the latest six months' occupancy data available at the time of hearing. The interpretation announced by Farr at hearing is reasonable, and although in apparent conflict with the interpretive memo dated May 8, 1986, it is consistent with the plain meaning of Rule 10-5.11(21)(b)4 which requires the review of applications submitted for the July batching cycle (in this case July, 1985) to "be based upon occupancy rate data for the months of October through March preceding that cycle" (October, 1984 through March, 1985). Petitioner's position regarding the data to be used in determining "occupancy rate" is therefore rejected as contrary to, and inconsistent with, the plain meaning of the applicable rule. Next, the number of "licensed beds" in District 8 for purposes of subparagraphs (b)2 and 4 of the need methodology calculation must be determined. The district licensed bed figure is explained by Rule 10-5.11(21)(b)7 as follows: Review of applications submitted for the July batching cycle should be based upon the number of licenses (sic) beds (LB and LBD) as of June 1 preceding that cycle; applications for the January batching cycle shall be based upon the number of licensed beds (LB and- LBD) as of December 1 preceding that cycle. Petitioner urges that licensed beds be based on June, 1986 data and Respondent urges data from June 1, 1985. Petitioner's position is again contrary to the plain meaning of the rule, and is therefore rejected. For purposes of subparagraphs (b)2 and 4, LB and LBD are determined as of June 1, 1985. Petitioner contends that its 78 community nursing home beds previously authorized by CON 1616 were licensed on May 31, 1985, and should therefore be counted as "licensed beds." Respondent's witness testified that these beds were actually licensed on June 3, 1985, and therefore should not be considered "licensed beds" for purposes of applying subparagraphs (b)2 and 4 of the need methodology calculation in this case. Petitioner has the burden of proof, but has not offered competent substantial evidence to support its position. It has not established that these 78 beds should be considered "licensed beds" for purposes of subparagraphs (b)2 and 4 since it has not been established that they were actually licensed on or before June 1, 1985. The provisions of Rule l0-5.1l(21)(b)1-4 and 7 can therefore be applied to calculate gross bed need for Lee County using July 15, 1988 as the applicable planning horizon, updated estimates of "current population" for July 15, 1985 and for the planning horizon which were introduced by Petitioner, the "occupancy rate" as determined by data from October, 1984 through March, 1985 which was introduced through exhibit by Respondent, and the number of "licensed beds" in District 8 and the Lee County subdistrict on June l, 1985, as also introduced through exhibit by Respondent. The first step in the calculation of gross need for the horizon year is to derive BA, the current bed rate for the age group 65-74. This rate is defined by subparagraph (b)2 of Rule 10-5.11(21) as follows: BA = LB / (POPC + (6 x POPD) Where: LB is the number of community nursing home beds in the relevant district. POPC is the current population age 65-74. POPD is the current population age 75 years and over. The district licensed bed figure (LB) is then defined by subparagraph (b)7 as follows: Review of applications submitted for the July batching cycle should be based upon the number of licenses (sic) beds (LB and LBD) as of June 1 preceding that cycle; applications - for the January batching cycle shall be based upon the number of licensed beds (LB and LBD) as of December 1 preceding that cycle. Application of the methodology prescribed by subparagraph (b)2 to this case produces the following calculation: BA = LB / (POPC + (6 x POPD) BA = 4,005 / (131,642 + (6 x 79,661) BA = 4,005 / (131,642 + 477,966) BA = 4,005 / 609,608 BA = .0065698 The second step in the calculation of gross need for the horizon year is to derive "BB", the current bed rate for the population age group 75 and over. This methodology is defined by subparagraph (b)3, and calculated in this case as follows: BB = 6 x BA BB = 6 x .0065698 BB = .0394188 The third step in the calculation of gross need for the horizon year is to derive "A", the district's "age-adjusted number of community nursing home beds" at the horizon year. This methodology is defined by subparagraph (b)1 as follows: A = (POPA x BA) + (POPB x BB) Where: POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future . . . Application of the methodology prescribed by subparagraph (b)1 to this case produces the following calculation: A = (POPA x BA) + (POPB x BB) A = (142,791 x .0065698 + (90,467 x .0394188) A = 938.10831 + 3,566.1006 A = 4504 The final step in the calculation of gross need in the horizon year is to derive "SA", the "preliminary subdistrict allocation of community home beds" (gross bed need in this case). This calculation is defined by subparagraph (b)4 as follows: SA = A x (LBD/LB) x (OR/.90) Where: LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of applications submitted for the July batching cycle shall be based upon occupancy rate data for the months of October through March preceding that cycle . . . . The subdistrict licensed bed figure (LBD) is defined, consistently with LB, by subparagraph (b)7, supra. Application of the methodology prescribed by subparagraph (b)4 to this case produces a gross need in July 1988 of beds, as follows: SA = A x (LBD/LB) x (OR/.90) SA = 4504 x (808/4005) x (.9689/.90) SA = 4504 x .20174 x 1.0766 SA = 978. The final step in the numeric need methodology is to derive net need from gross need. According to subparagraph (b)9, this need is derived as follows: The net bed allocation for a subdistrict, which is the number of beds available for Certificate of Need approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant depart- mental subdistrict from the bed allocation determined under sub- paragraphs 1 through 9 (sic 8). . . (Emphasis added.) In order to apply subparagraph (b)9 and thereby determine "net" need, it is necessary to decide on what date the licensed bed inventory should be calculated. Respondent asserts that "licensed beds" for purposes of subparagraph (b)9 is the same as LB and LBD used in subparagraph (b)2 and 4, as defined in (b)7. The rule, however, is silent as to how licensed bed inventory should be calculated for purposes of subparagraph (b)8. Respondent did not explicate the reasons for its interpretation. Respondent's position that subparagraph (b)7 defines licensed bed inventory for subparagraph (b)9 ignores not only the clear link between (b)7 and the gross need methodology, but also the plain language and purpose of subparagraph (b)9 which is to derive a realistic estimate of net (or actual) need in the horizon year. Since all licensed and approved beds from previous batching cycles will serve at least a portion of the horizon population, it is only reasonable to include these beds when calculating net need. It would be unreasonable not to count any beds licensed or approved after June 1, 1985 in the calculation of net need. In fact, subparagraph (b)9 itself addresses "the total number" of licensed and approved beds, not just beds that existed on June 1 1985. Petitioner's 78 beds should therefore be counted as "licensed" for purposes of applying the net need methodology calculation in subparagraph (b)9 of Rule 10-5.11(21), and the 143 beds reserved pursuant to the decision in-Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, 483 So.2d 700 (Fla. 1st DCA 1985) should be counted as "approved beds". Net need is then calculated under subparagraph (b)8 as follows: Subdistrict allocation for Lee County = 978 Less Licensed beds = 996 Less 90 percent of 143 approved beds = 129 Surplus in Lee County = 148 Therefore, according to Respondent's need methodology as established in Rule 10-5.11(21)(b) there is a surplus of beds in Lee County for the planning horizon to which Petitioner's application is directed. Petitioner has not established that there is a need for the beds sought in CON 4179 under review in this case. The source in the record of the data used in the above calculations is as follows: LB, LBD, OR - Respondent's Exhibits 1,2 POPC, POPD, POPA, POPS - Petitioner's Exhibit 4 It has not been established that persons using existing and like services are in need of nursing home care but are unable to access services currently available. The need for services which have been denied has not been documented by attending physicians' plans of care or orders, or assessments by either Respondent or attending physicians, as required by Rule 10-5.11(21)(b)10. Petitioner has not established that a geographic or economic accessibility problem exists in Lee County which would warrant approval of this application notwithstanding the lack of need under the methodology of Rule 10- 5.11(21)(b).
Recommendation Based upon the foregoing, it is recommended that Respondent issue a Final Order denying Petitioner's application for CON 4179. DONE AND ENTERED this 2nd day of March, 1987 in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of March, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-0047 Rulings on Petitioner's Proposed Findings of Fact: Adopted in Findings of Fact 1, 2. Adopted in Findings of Fact 1, 3, 4. Although true, rejected as unnecessary as a separate Finding of Fact. 4. Rejected in Findings of Fact 12, 13. Adopted in Finding of Fact 5. Adopted and rejected in part in Findings of Fact 6-23. Rejected as simply a quote from an exhibit and not a finding of fact. Rejected as unnecessary and not based on competent substantial evidence. 9-11 Rejected in Findings of Fact 6-23. 12-19 Rejected in Findings of Fact 26, 27 and otherwise not based on competent substantial evidence. 20 Rejected in Findings of Fact 10, 11. 21-22 Rejected as irrelevant, unnecessary and not based on competent substantial evidence. Rejected in Findings of fact 26, 27 and otherwise not based on competent substantial evidence. Although true, rejected as unnecessary as a separate finding of fact. 25-32 Rejected as irrelevant and unnecessary. 33-36 Rejected as simply a summation of testimony and statement of position rather than a finding of fact; otherwise cumulative and unnecessary. 37-38 Rejected as not based on competent substantial evidence. 39-44 Rejected as irrelevant and unnecessary. 45-47 Rejected in Findings of Fact 12, 13 and otherwise irrelevant and not based on competent substantial evidence. Rulings on Respondent's Proposed Findings of Fact: Adopted in Findings of Fact 1, 2. Adopted in Findings of Fact 1-4. Adopted in Findings of Fact 6-23. Adopted in Finding of Fact 5, but otherwise rejected in Finding of Fact 23. Rejected in Findings of Fact 7-9. Adopted in Findings of Fact 10, 11. Adopted in Findings of Fact 12, 13, but rejected in Findings of Fact 21-23. 8 Adopted in Finding of Fact 22. 9 Adopted in Finding of Fact 27. 10 Adopted in Finding of Fact 26. COPIES FURNISHED: W. David Watkins, Esquire Post Office Box 6507 Tallahassee, Fl 32314-6507 John F. Gilroy, Esquire Richard Patterson, Esquire Department of Health and Rehabilitative Services 1323 Winewood Blvd. Building One, Suite 407 Tallahassee, Fl 32399-0700 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Fl 32399-0700 John Miller, Esquire Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Fl 32399-0700
Findings Of Fact Hillhaven Convalescent Center is a 120-bed skilled nursing care facility, and it participates in Florida's medical assistance program (Medicaid) as a provider of skilled nursing home care. The Department reimburses the Petitioner for the Petitioner's cost in providing such services to eligible patients. As a part of the reimbursement system, Petitioner is required to calculate a per diem reimbursement rate for its Medicaid patients. The Petitioner computed this rate by dividing its total of appropriate expenses ($828,628) by its total patient days (39,399). The resulting per diem rate is $21.03. The total expense and total patient day figures were based upon all categories of patients served by the Petitioner, including Medicare, Medicaid, private and Veterans Administration patients. The Department retained a private accounting firm, Coopers & Lybrand, to audit the Petitioner's 1977 fiscal cost report. The accounting firm concluded that the per diem rate calculated by the Petitioner was erroneous. The firm subtracted total expenses and total patient days attributable to Medicare patients from the figure utilized by the Petitioner. The result of this adjustment was to substantially reduce the Center's per diem rate, and the amount of compensation that the Petitioner is entitled to receive for its participation in the Medicaid Program. Medicare patients generally require a more profound degree of care than do Medicaid patients. Including Medicare patients in a determination of per diem rates at nursing homes will almost universally result in an increase in the rate. The Department has not adopted its policy to exclude Medicare expenses and Medicare days in determining Medicaid per diem rates as a rule in accordance with the Administrative Procedure Act. The Department has uniformly enforced the policy with respect to nursing home facilities participating in the Medicaid Program that it has audited. The parties have stipulated and agreed that the decision in this matter will be applicable to a companion case involving a different nursing home owned by the same corporation. The Petitioner has submitted proposed findings of fact and conclusions of law. To the extent that the proposals have not been substantively adopted herein, they have been rejected either as not supported by the evidence, or as not relevant.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, hereby RECOMMENDED: That a final order be entered affirming the audit exceptions respecting the Petitioner's Medicaid reimbursement for the fiscal year ending March 31, 1977, and requiring that the per diem rate of compensation for Medicaid patients be recomputed by deleting expenses and patient days relating to Medicare patients. DONE and ENTERED this 7th day of December, 1979, in Tallahassee, Florida. G. STEVEN PFEIFFER Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of December, 1979.
Findings Of Fact The parties' stipulation The parties have stipulated to the following facts: Forum and Amedex timely filed their respective letters of intent and applications with the Department and the District Local Health Council for the July 1986 batching cycle. The Department ultimately deemed the applications complete and, following review, published its notice of intent to deny the applications. Forum and Amedex each timely filed a petition requesting a formal hearing on the denial of their application. With regard to the Forum application, the Department contends that there is no need for the proposed facility, that such lack of need will render Forum's project financially unfeasible, that the project is not the best use of Forum's resources, and that Forum fails to meet the local health plan priority relating to the construction of freestanding facilities with a minimum capacity of 120 beds. All other statutory and rule criteria are satisfied, at least minimally, based on Forum's 60-bed proposal. With regard to the Amedex application, the Department contends that there is no need for the proposed facility, that such lack of need will render Amedex's project financially unfeasible, and that the project is not the best use of Amedex's resources. The Department further contends that Amedex has not demonstrated that it can provide quality of care, that it has not demonstrated that its project is financially feasible in the short or long term, that it has not provided long range plans and that, even assuming minimal need, the size of Amedex' proposed project will cause difficulty in meeting projected utilization needs based on Broward County's past utilization rates. All other statutory and rule criteria are satisfied, at least minimally, based on Amedex' 240-bed proposal. As between the applicants, they agree that a comparative review is appropriate to determine the best applicant. Further, they agree for purposes of this proceeding that the other meets all statutory and rule criteria, at least minimally, except the following: need beyond 60 beds, ability to provide quality of care, and availability of funds for project accomplishment and operation. The parties have further agreed that there are no special circumstances existent in this case upon which a certificate of need is being sought. The Amedex Proposal In July 1986 Amedex filed an application with the Department for a certificate of need to construct a 240-bed skilled and intermediate care nursing home in Broward County, Florida. The total project cost is projected to be $9,040,228. At hearing, Amedex failed to offer any competent proof to demonstrate the immediate and long-term financial feasibility of its proposed project, that it could provide quality care, or that it had available the necessary funds for project accomplishment and operation. 1/ While the Department contended that the proposed project was not the best use of Amedex's resources, it offered no proof to demonstrate what other health services would be a more appropriate use of the resources. The Forum Proposal In July 1986, Forum also filed an application with the Department for a certificate of need to construct a skilled and intermediate care nursing home in Broward County, Florida. Forum's application sought leave to construct a 60-bed facility. The estimated cost for construction of Forum's proposed nursing home is $2,39,800. Forum has the necessary resources for project accomplishment and operation. While the Department contended that the proposed project was not the best use of Forum's resources, it offered no proof to demonstrate what other health service would be a more appropriate use of such resources. Forum is a publicly held health services company which owns, develops, and operates retirement living centers and nursing homes on a national basis. Pertinent to this case, Forum proposes to develop a retirement living center in Broward County that would consist of 120 apartments for independent living, a 30-bed adult congregate living facility, and the proposed 60-bed skilled and intermediate care nursing home. Forum has packaged its centers to provide these three levels of service to meet the desires of retired persons they hope to attract to their retirement community. Each of the three components which comprise Forum's retirement living center are physically connected and share some operational functions, such as a central kitchen and heating plant. Such design provides for an efficient operation, as well as an economical distribution of costs facility wide. The nursing facility proposed by Forum would offer a wide range of services for its residents including: 24-hour skilled and intermediate nursing care, physical therapy services, and other restorative services. Additionally, Forum proposes to offer, as needed, subacute services such as: intravenous care, continuous bladder irrigation, oxygen therapy, nastrogastric tube feeding, ventilator care, insulin treatment, sterile dressing changes, and sterile care of tracheotomies. Forum also proposes to offer in the future, if need is identified and if any necessary agreements can be reached, respite care, adult day care, meals on wheels and hospice care. Forum proposes to seek medicare and medicaid certification, and will dedicate 25 of its beds to medicaid patients. Forum has a history of providing quality care at its existing facilities, and will provide quality care at the proposed facility. Forum has demonstrated the immediate and long term financial feasibility of its proposed project. Forum is a national company, with substantial experience in developing and operating nursing homes and retirement living centers. Due to the excellent growth potential in Broward County for retirement living centers, Forum should be able to capture a sufficient share of the nursing home market to render its proposed nursing home financially feasible. However, in view of the lack of numeric need for such facility as discussed infra, Forum's success will be to the detriment of existing and approved facilities. Numeric need The Department has established by rule the methodology whereby the need for community nursing home beds in a service district shall be determined. Rule 10-5.011(1)(k)2, Florida Administrative Code. The first step in calculating need pursuant to the rule methodology is to establish a "planning horizon." Subparagraph 2 of the rule provides: Need Methodology ... the Department will determine if there is a projected need for new or additional beds 3 years into the future according to the methodology specified under subparagraphs a. through i... The Department interprets subparagraph 2, and the applicants concur, as establishing a "planning horizon" in certificate of need proceedings calculated from the filing deadline for applications established by Department rule. This interpretation is consistent with the numeric methodology prescribed by subparagraph 2, and with the decision in Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, 483 So.2d 700 (Fla. 1st DCA 1986). Applying the Department's interpretation to the facts of this case, establishes a "planning horizon" of July 1989. Pertinent to this case, subparagraphs 2 a-d provide the methodology for calculating gross bed need for the district/subdistrict (in this case the district and subdistrict are the same--Broward County) in the horizon year. The first step in the calculation of gross need for the horizon year is to derive "BA," the estimated bed rate for the population age-group 65-74. This rate is defined by subparagraph 2b as follows: BA = LB/ (POPC + (6 x POPD) Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. The parties concur that the district licensed bed figure (LB) is calculated based on the number of licensed community nursing home beds as of June 1, 1986, and that there were 3,226 licensed beds in the district on that date. 2/ The parties do not, however, agree as to the date on which POPC and POPD should be derived. The formula mandated by the rule methodology for calculating BA requires that the "current population" for the two age groups be utilized. The rule does not, however, prescribe the date on which the "current population" is to be derived. Forum contends that the appropriate date to establish the "current population" for POPC and POPD is January 1, 1986. The Department contends that the appropriate date is the date of application. In the opinion of David Warner, which opinion is credited, the base for POPC and POPD should correspond to the period for which the average occupancy rate (OR) is calculated. For the July batching cycle, OR is based upon the occupancy rates of licensed facilities for the months of October through March preceding that cycle. January 1, 1986, as the midpoint of that date, is the appropriate date to derive POPC and POPD. Supportive of Dr. Warner's opinion are the past practices of the Department. Between December 1984 and December 1986, the Department routinely used a three and one half year spread between the base population period and the horizon date for "current population" in its semiannual nursing home census report and bed need allocation. That three and one half year spread was adopted by the Department for the same reasons expressed by Dr. Warner. In the batching cycle of January 1987, which cycle immediately followed the cycle at issue in this case, the Department utilized a three and one half year spread between the base population period and the horizon date for "current population" when it awarded beds in that cycle. The Department offered no explanation of why, in this case, it proposed to use a three year spread between the base population period and the horizon date for "current population" in calculating POPC and POPD. Application of the methodology prescribed by subparagraph 2b to the facts of this case produces the following calculation: BA = 3,226 / (158,878 + (6 x 110,217) BA = 3,226 / (158,878 + 661,302) BA = 3,226 / 820,180 BA = .0039332 The second step in the calculation of gross need for the horizon year is to derive "BB," the estimated bed rate for the population age group 75 and over. This methodology is defined by subparagraph 2c, and calculated in this case as follows: BB = 6 x BA BB = 6 x .0039332 BB = .0235992 The third step in the calculation of gross need for the horizon year is to derive "A," the district's "age-adjusted number of community nursing home beds" at the horizon year. This methodology is defined by subparagraph 2a as follows: A = (POPA x BA) + (POPB x BB) Where: POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future. The parties concur that POPA and POPB are, respectively, 165,533 and 128,250 for the horizon year. Accordingly, application of the methodology prescribed by subparagraph 2a produces the following calculation: A = (165,533 x .0039332) + (128,250 x .0235992) A = 651.07439 + 3,026.5974 A = 3,677.67 The final step in the calculation of gross need in the horizon year is to derive "SA," the "preliminary subdistrict allocation of community nursing home beds" (gross bed need in this case. 3/ This calculation is defined by subparagraph 2d as follows: SA = A x (LBD/LB) x (OR/.90) Where: LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average 6 month occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Occupancy rates established prior to the first batching cycle shall be based upon nursing home patient days for the months of July 1 through December 31; occupancy rates established prior to the second batching cycle shall be based upon nursing home patient days for the months of January 1 through June 30. The batching cycle in which these applications were filed occurred before the Department amended its rule to include the fixed need pool concept. Accordingly, the parties agree that the six month period on which the average occupancy rate is calculated is not as set forth in subparagraph 2d, but, rather is defined by former rule 10-5.11(21)(b)4 as follows: OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of applications submitted for the July batching cycle shall be based upon occupancy data for the months of October through March preceding that cycle... In Broward County (District X) LB and LBD are the same since the county has not been divided into subdistricts. Application of the foregoing methodology to the facts of this case produces a gross need in July 1989 of 3,453 beds, computed as follows: 4/ SA = 3,677.67 x (3226/3226) x (.845/.9) SA = 3,677.67 x 1 x .938888 SA = 3452.92 The net need calculation The final step in the numeric need methodology is to derive net reed from gross need. According to subparagraph 2i, this need is calculated as follows: The net bed need allocation for a subdistrict, which is the number of beds available for certificate of need approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant departmental sub- district from the bed allocation determined under subparagraphs 2.a. through f. Notably, former rule 10-5.11(21)(b)9 comports with the new rule in all material respects. While the rule requires that net need be calculated by subtracting "the total number of licensed and 90 percent of the approved beds" in the subdistrict from the gross need previously calculated, it is silent as to the date that inventory should be calculated. The Department asserts, through application of "policy," that the number of licensed beds should be calculated as of June 1, 1986 (the date established by former rule 10-5.11(21)(b)7 for calculating LB and LBD), and the number of approved beds as of December 1, 1986 (the date the Department's supervisory consultant signed the state agency action report). Forum would likewise calculate licensed beds as of June 1, 1986, but would also calculate approved beds as of that date. The Department offered no proof to expose and elucidate its policy choice. As discussed below, the dates used by the Department and Forum for purposes of calculating net need were facially unreasonable. 5/ The inventory of licensed and approved beds under subparagraph 2i, as well as former rule 10-5.11(21)(b)9, are inextricably linked. As approved beds are licensed, the approved bed inventory decreases and the licensed bed inventory increases. The Department's policy choice concerning the dates at which licensed and approved beds are to be counted is neither logical nor rational since it could result in some nursing home beds not being counted as either licensed or approved. For example, if beds were approved and not yet licensed in June 1, 1986, but licensed before the supervisory consultant signed the state agency action report (SAAR), they would not be counted in either inventory. Since the purpose of subparagraph 2i is to calculate a realistic estimate of the net bed need for the horizon year, it is appropriate to use the most current inventory of licensed and approved beds at the point a decision is rendered on an application. This assures, to the greatest extent possible, that the horizon population will not be over or underserved. In those circumstances where the SAAR becomes final agency action, the Department's approach of calculating inventory on the date the supervisory consultant signs the SAAR, assuming that inventory includes licensed and approved beds on that date, might be reasonable. However, where, as here, the SAAR constitutes only preliminary agency action, and a de novo review of the application is undertaken, there is no rational basis for subsuming that inventory. The rule methodology considered, the only rational conclusion is that net need be derived on the date of de novo review, and that it be calculated by reducing the gross need calculation by the inventory of licensed and approved beds, from previous batching cycles, existent on that date. As of the date of administrative hearing, there were 3,226 licensed beds and 695 approved beds in the district/subdistrict. Applying the methodology prescribed by subparagraph 2i to the facts of this case calculates a surplus of 399 community nursing home beds in the district for the June 1989 planning horizon. Consistency with State and local health plans The parties have stipulated that both proposals are consistent with the State and local health plans except for Forum's facial failure to comply with the local health plan priority relating to the construction of freestanding facilities with a minimum capacity of 120 beds. Pertinent to this issue, the local health plan provides: In addition to controlling capacity in order to discourage the construction of unneeded beds, the certificate of need program addresses cost containment by encouraging efficiencies in operation as a criteria to certificate of need approval. A number of operational models have historically proven to be positive influences on efficiency. Licensure laws, for instance, require nursing home staffing patterns to be structured in minimum modules of 30 bed configurations. As a result, the construction of nursing homes with beds totalling numbers not divisible by 30, has the capability of encouraging over staffing. Similarly, experience has shown that freestanding nursing homes constructed at less than 120 beds also are less cost efficient compared to larger facilities. Likewise, since construction and corresponding debt service retirement is greater for freestanding facilities than for new construction on existing facilities, expansion and conversion as an alternative to new construction frequently acts to reduce costs. The basis for the 120-bed minimum size for a "freestanding" facility in the local health plan is to insure efficiency and economy of scale. The 60- bed project proposed by Forum is not "freestanding" but is an integral part of a retirement center which also includes 120 independent living units and a 30-bed adult congregate living facility. Under the circumstances, the economies and efficiencies contemplated by the local health plan will be achieved, and Forum's proposal is consistent with such plan. The local health plan also provides, as a recommendation, that: ... applications for certificates of need to construct additional nursing home beds should be approved so as to support the State policy of 27 beds/1000 population over age 65 in Broward County. Considering the population over age 65 at the applicants' planning horizon, as well as the number of licensed and approved beds in the district, calculates a 14.36 beds/1000 population over age 65 for July 1989. Accordingly, the applicants' proposal is consistent with state and local health plans regarding bed to population ratio. Comparative Review As between the competing applicants, the proof demonstrates that Forum is the superior applicant, and that were the award of a certificate of need appropriate in this case that its application would be the one of choice. Under no circumstance does the proof support an award to Amedex, since it failed to demonstrate the immediate and long-term financial feasibility of its project, failed to demonstrate that it would provide quality care, and failed to demonstrate that it had sufficient resources for project accomplishment and operation. The criteria on balance In evaluating the applications of Amedex and Forum, none of the criteria established by Section 381.705, Florida Statutes (1987), or Rule 10- 5.011(k), Florida Administrative Code, have been overlooked. In the case of Amedex, the lack of need in the district, as well as its failure to demonstrate compliance with relevant criteria as discussed in paragraph 46, demonstrates that, on balance, its application should be denied. In the case of Forum, its application meets all relevant statutory and rule criteria except need. Need is the key criteria in the instant case. Forum's failure to satisfy that criterion by proof of numeric need or special circumstances is dispositive of its application for licensure, and such failure is not outweighed by any other, or combination of any other, criteria.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the applications for certificate of need filed by Amedex and Forum be DENIED. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of February, 1988. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of February, 1988.
The Issue Whether or not certain cost items disallowed in the Department of Health and Rehabilitative Services' audit report of Fountainhead Nursing and Convalescent Home, Respondent, for fiscal year ending June 30, 1977, were proper and, therefore, should be sustained.
Findings Of Fact During the course of the hearing, there was little dispute regarding the facts here involved. By letter dated March 21, 1979, Saul H. Silverman, C.P.A., requested an administrative hearing for the Fountainhead Nursing and Convalescent Home, Petitioner, provider No. 20043-0, due to certain audit adjustments based on an audit of the provider's Medicaid Cost Report for the fiscal year ending June 30, 1977. The audit in question was performed by Laventhol & Horwath, C.P.A.'s under contact with the Department of Health and Rehabilitative Services, Tallahassee, Florida. Bamberg, Superstein & Co., Certified Public Accountants, represent the Petitioner, Ni-Bud, Inc., T/A fountainhead Nursing and Convalescent Home, 390 Northeast 135th Street, North Miami, Florida, and prepared the Medicaid Cost Report for June 30, 1977. The Petitioner requested a hearing based on a disagreement with the following adjustments made by the auditors: 1. Administrator's compensation disallowed disallowed $37,162.00 2. Medical records expense disallowed 465.00 3. Oxygen income offset of expense 1,078.00 4. Method of computing Medicaid per diem cost by using cost finding methods not reflected in the instructions for preparation of the Cost Reports. During the hearing, Respondent agreed to permit the allowance for oxygen which had been previously disallowed provided Petitioner establish via documentation that the costs reflected for oxygen were, in fact, used only for emergencies. Documentation to that effect has been submitted and the oxygen income offset expense is no longer at issue herein. Additionally, based on an audit update received July 5, 1979, a review of the medical records expense, which expense was previously disallowed, was allowed during the updated audit. Therefore, the medical records expense is no longer at issue. What is remaining at issue herein are the items respecting the Administrator's compensation and the method of computing Medicaid per diem costs by using cost findings methods not reflected in the instructions for preparation of cost reports. The amount disallowed for the Administrator's compensation was an amount of $37,162. The total compensation allowed for the Administrator, Joseph Mossey, was $61,140. In the auditor's determination, a reasonable compensation for the Administrator was $23,978. Petitioner disallowed what it determined to be a "bonus" as such was not related to patient care. Kenneth Conners, Jr., an employee of Petitioner in the auditing section, appeared and testified respecting the manner in which cost adjustments are made. He testified that the cost reports submitted are primarily used for prior years and to determine interim per diem rates for the following year. He testified that cost reports result in no adjustment for Medicare rates and administrator's salary. He testified that with respect to the issues surrounding the disallowance of the Administrator's "bonus," the question centered around whether the money was in fact earned. Additionally, he testified that consideration is given to whether the "bonus" is reasonable; whether it is related to patient care and that in reaching a decision, consideration is given to allowable costs for bonuses in similar facilities in various regions of the country. Conners testified that based on figures contained in a publication issued by Commerce Clearing House, Inc. (CCH), the Administrator's bonus disallowed for this facility was proper. For example, he pointed out that in the Arkansas region the lower figure for comparable administrators is $19,500, with an upper range of $30,000. In Texas, the lower compensation is around $15,000, an upper range is $37,000 and the mean figure is $24,600. In New York, a similar figure results in compensation in the lower range of $8,100, an upper range is $32,500 and a mean compensation figure is 419,600. Conners cited a $9,000 lower range in California, an upper range of $26,00 and a median of $15,000. In Florida, the lower range for a comparable facility was $12,297, an upper range of $67,044 and a mean range of $19,588. He testified that when making its determination, Respondent utilizes a manual, HIM Section 22.01(2) and the guiding standard therein is whether or not the amounts are reasonable and related to patient care. Petitioner disagrees with Respondent's determination and points out that inasmuch as its Administrator, Joseph Mossey, is not a stockholder of the Respondent corporation, Ni-Bud, Inc., and is not related in any manner to any stockholder of the corporation, the amount that should be allowable compensation for him is not governed by the rules for owner's compensation as contained in regulation Section 405.425 and HIM-15-1, Chapter 9. Instead, he pointed out that the general rule of reasonableness, necessity, prudent buyer concept and expenses related to patient care are the pertinent considerations (Regulations 405.451 and HIM-15-1, Chapter 21) and should controlling. It is undisputed that Mr. Mossey's function as an administrator is necessary and related to patient care. The disagreement thus, centers around the reasonableness of the compensation and whether the Respondent's owners were acting as "prudent buyers" as that concept applies to the Medicaid reimbursement. As stated, Mr. Mossey is not an owner of the facility and, therefore, all employment contracts and compensation arrangements must be assumed to have been negotiated at "arms length." Regulation Section 405.451(c)(2) and (3). Subsections (2) and (3) of the above regulation provide in pertinent part that: The cost of provider's services vary from one provider to another and the variations generally reflect differences in scope of services and intensity of care. The provision entitled XVIII of the act for the payment of reasonable cost of services is intended to meet the actual cost, however widely they may vary from one institution to another. This is subject to a limitation where a particular institution's costs are found to be substantially out of line with other institutions in the same area which are similar in size, scope of services, utilization and other relevant factors. The determination of reasonable costs of services must be based on costs related to the care of beneficiaries of Title XVIII of the act. Reasonable cost includes all necessary and proper expenses incurred in rendering services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans. It includes both direct and indirect costs and normal standby costs. However, where the provider's operating costs include amounts not related to patient care, specifically not reimbursable under the program, or flowing from the provision of luxury items or services, (that is, those items of services substantially in excess of or more expensive than those generally considered necessary for the provision of needed health services), such amount will not be allowable. The reasonable cost basis of reimbursement contemplates that the providers of services will be reimbursed the actual cost for providing quality care, however widely the actual costs may vary from provider to provider and from time to time for the same provider. HIM-15-Part I, Section 2103 entitled, "Prudent Buyer," states that: In those cases where an intemediary notes that a provider pays more than a going price for a supply or service, in the absence of clear justification for the premium, the intermediary will exclude excess cost in determining allowable costs under Medicare. There is no question but that Mr. Mossey's compensation is higher than the average nursing home administrator. Respondent contends that Mr. Mossey's duties, management skills and background justify this higher than normal rate of compensation. Joseph Mossey, Administrator of the subject facility since October 1970, appeared at the hearing and testified respecting his background and duties at the provider. He testified that prior to becoming an administrator for the subject facility, he had been a supervisor in nusing services for Eastman Kodak Company. Prior thereto, he had operated a nursing home in Saudi Arabia and had also served as a private duty nurse. At the outset of his employment relationship with the provider, he initially hired a more competent staff and paid better salaries to recruit, attract and retain competent employees. He testified that since becoming administrator in 1970, the facility has enjoyed an excellent rating from the Respondent, resulting in only one citation during 1977 and two citations in 1978, none of which were related to patient care. Additionally, he testified that he is on call twenty-four hours daily and that he is called upon to answer and respond to all emergency situations and make emergency policy decisions. During the first seven years of his employment as administrator, which of couse covers part of the period in question, Mossey worked seven days a week plus holidays. Mossey attends seminars and workshops on a continuous basis and keeps abreast of changing trends in nursing home care. This aids in enabling him to better provide quality care at a reasonable rate. Evidence reveals that Mr. Mossey's experience and management skills have kept the rise in the cost of providing care of the subject facility at levels far below industry averages. The following is the cost per patient day at the facility, excluding fixed expenses, since 1970. FISCAL YEAR JUNE 30, AMOUNT PERCENT OF CHANGE 1970 $10.53 -0- 1971 9.95 -5.5 1972 9.57 -3.8 1973 9.41 -1.7 1974 9.82 +4.3 1975 11.41 +16.1 1976 12.50 +9.5 1977 13.76 +10.1 1978 15.25 +10.8 Since 1970, the cost per day is up approximately 45 percent or about 5.6 percent per year on average. During the same period, evidence reveals that the coinsurance rate paid by Medicare patients, which is set up annually by the U.S. Department of Health, Education and Welfare and based on the average per diem charge in a hospital, has gone up form $5.50 to $18.00, or 177 percent. This, of course, reflects a higher rate of cost increase in the healthcare industry as a whole, then in the Respondent's case. It appears that the Respondent is thus keeping the cost of operating the nursing home lower than the norm and, of course, a derivative benefit to the State Medicaid/Medicare Program through a lower reimbursement rate. Industry surveys indicate that from 1972 through 1976 nursing home costs increased 45.56 percent. The Respondent's costs for the same period increased by 25.6 percent. Since July 1, 1974, when Medicaid initiated their cost related reimbursement rates, the Respondent has consistently been under the maximum cost reimbursement cap set by the Medicaid program. The following examples are illustrative: YEAR REIMBURSEMENT RATE CAP 1974 $493.00 $550.00 1975 527.00 600.00 1976 575.00 630.00 1977 615.00 680.00 1978 600.00 2/ 778.00 The State cap, which represents the level at which approximately 60 percent of Florida nursing homes being run efficiently would be fully reimbursed for their costs, has risen 41.5 percent. Contrawise, the Respondent's rate has risen only 21.8 percent. Mr. Mossey has thus kept his costs lower than the industry average. This cost savings of approximately $3.18 per patient day more than compensates for the $.71 per day cost of Mr. Mossey's higher than average compensation. Therefore, it appears that the Respondent was justified in paying a higher than normal compensation to its Administrator under the prudent buyer and reasonableness concepts. I shall so recommend. The final item of contention is the cost finding method used by the auditors to determine Medicaid's share of the Respondent's operating costs. The auditors used a two-step method of allocation. First, the auditors determine allowable costs for the entire nursing home. Next, the auditors remove the patient days and costs of services for Medicare patients. It should be noted, that the entire facility is Medicaid certified. Using the remaining patient days and costs, the auditors calculated the per diem amount to be used to allocate operating costs to Medicaid patients. The Medicare costs and patient days removed were determined from the facility's Medicare Cost Report filed with that program. Medicare, however, uses a more sophisticated method of allocating costs than Medicaid. Medicaid is a full coverage program but all services, for example, physical therapy, speech therapy and drugs, are not covered by Medicaid. It is the Medicaid payments that are here involved and which Petitioner contends are computed after deductions and operating costs are made for those costs associated with Medicare. Based on the July 5, 1979, audit update report, a revision adding back a net effect for recomputing the Medicare adjustment based on audited Medicare cost reports resulted in an overpayment figure of $24,887 to the provider. Respondent contends that making the adjustments here involved resulted in removing costs which affect the average cost per patient day. It is also contended that the majority of those deductions come from the full-care patients which have the highest per diem cost and this results in lower payments to the provider. Responder urges that by isolating Medicare costs and removing them from the remaining costs for the nursing home prior to calculating the per diem cost of operation, the auditors have violated the Medicaid principles of reimbursement. Finally, Respondent contends that based on cost report instructions and instructions received from the Medicare program which is based on that program's more sophisticated cost reimbursement formula, the auditors should not enter into the calculation, the nursing home's determination of costs allocated to the Medicaid program. The Social Security Health Insurance Act in 42. U.S. COde 1395(x)(v)(i)(a), is the guiding standard for determining cost payments for the Medicaid/medicare program reimbursement formulas. That section provides in pertinent part that: The reasonable costs of any services shall be the costs actually incurred, excluding therefrom any part of the incurred costs found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included . . . such regulations shall (i) take into account both direct and indirect cost of providers of services (excluding therefrom any such costs, including standby costs, which are determined in accordance with regulations to be unnecessary in the efficient delivery of services covered by the insurance programs established under this title) in order that, under the methods of determining costs, the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this title would not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance program. . . . Regulations promulgated in accordance with the above statute are contained in 42 CFR 405.451(b)(l) which provides in pertinent part that: The objective is that in determining costs, the costs with respect to individuals covered by the program will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by the program. Considertion of the above-quoted provisions require that all costs relating to Medicare patients be separated out in determining the costs for which reimbursements will be made under Medicaid. The Medicare adjustments here presented are for the purpose of accomplishing this objective and/or adjustments that the Respondent is required to make. From the foregoing, it is concluded that the revised update audit report dated July 2, 1979, properly gives consideration to the requirements of the above-quoted provisions. It is, therefore, RECOMMENDED that Fountainhead Nursing Convalescent Home be required to remit the overpayments as reflected in the July 2, 1979, audit update, or in lieu thereof, that these overpayments be deducted from future Medicaid payments to Respondent. Additionally, it is recommended that the Petitioner credit the Respondent with the amount of $37,162 for fiscal year ending June 30, 1977, which amount represents the amount previously disallowed for the Administrator's compensation. RECOMMENDED this 30th day of August 1979, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
Findings Of Fact The department hereby adopts and incorporates by reference the findings of fact set forth in the Recommended Order.
Recommendation It is recommended that a Final Order be entered granting Kensington Manor Inc. CON No. 6430 to construct a 120 bed nursing home and to rehabilitate the existing 147 bed nursing home to an 87 bed nursing home in Sarasota County. RECOMMENDED this 14th day of March, 1991, in Tallahassee, Florida. K. N. AYERS Hearing Officer Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-3665 Petitioner's proposed findings are accepted, except #5. Sentence stating "There are no laundry facilities in the nursing home." is rejected as inconsistent with proposed finding #7. Respondent's proposed findings are also accepted. Most of the defects in the application which Respondent finds to be not in compliance with the statutory requirements were corrected by the testimony at this hearing. COPIES FURNISHED: Alfred W. Clark, Esquire 1725 Mahan Drive Tallahassee, FL 32308 Richard Patterson, Esquire 2727 Mahan Drive Tallahassee, FL 32308 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Linda Harris General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 =================================================================
