The Issue Whether the Agency for Health Care Administration has a policy regarding the determination of the need for long term care beds which constitutes a rule and, if so, whether rulemaking is feasible and practicable.
Findings Of Fact Vencor Hospitals South, Inc. (Vencor), applied for a certificate of need (CON No. 8614) to establish a 60-bed long term care hospital in Agency for Health Care Administration (AHCA) District 8, for Fort Myers, Lee County, Florida. AHCA is the state agency authorized to administer the CON program for health care services and facilities in Florida. AHCA reviewed and preliminarily denied Vencor's application for CON No. 8614. The reasons for AHCA's actions on this or any other CON application are memorialized in documents called State Agency Action Reports (SAARs). Vencor alleges that the following statement generally describes AHCA's policy in regard to the review of CON applications for long term care hospitals: Long term care is not a separate category of health service, but is instead merely an allowable form of reimbursement pursuant to Medicare regulations. The care provided in acute care hospitals, hospital based skilled nursing beds, "subacute" care in nursing homes, and care at rehabilitation facilities, are all equivalent to the care provided at long term care hospitals. Therefore, in evaluating the need for long term care hospital beds, AHCA will assess the availability of other categories of beds and services to meet the need for the services proposed by the applicant for long term care hospital beds. Need for long term care beds is determined on a regional basis. Prior to 1994, long term care hospitals were not regulated separately and were considered comparable to general acute care hospitals. In 1994, AHCA amended the CON rules to establish long term care beds and hospitals as separate categories of health care providers. In 1994, AHCA defined and continues to the present to define long term care hospital as follows: "Long term care hospital" means a hospital licensed under Chapter 395, Part I, F.S., which meets the requirements of Part 412, subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Rule 59C-1.002(29), Florida Administrative Code. In the federal regulations referenced by the AHCA rule, long term care hospital is more specifically defined as a hospital with an independent governing structure, an average length of stay greater than 25 days, referral of at least 75 percent of total patients from separate hospitals, and which meets the requirements for Medicare participation. 42 CFR Ch. IV, Subch. B, Pt. 412, Subpt. B, s. 412.23. AHCA also distinguishes long term care in its rules governing the conversions from one type of health care provider to another. The applicable conversion rules provide: "Conversion from one type of health care facility to another" means the reclassification of one licensed facility type to another licensed facility type, including reclassification from a general acute care hospital to a long term care hospital or specialty hospital or from a long term care hospital or specialty hospital to a general acute care hospital. Rule 59C-1.002(14), Florida Administrative Code (emphasis added); and "Conversion of beds" means the reclassification of licensed beds from one category to another including, for facilities licensed under Chapter 395, F.S., conversion to or from acute care beds, neonatal intensive care beds, hospital inpatient psychiatric beds, comprehensive medical rehabilitation beds, hospital inpatient substance abuse beds, distinct part skilled nursing facility beds, or beds in a long term care hospital; and, for facilities licensed under Chapter 400, Part I, F.S., conversion to or from skilled beds and intermediate care beds in a facility that is not certified for both skilled and intermediate nursing care if such conversion effects a change in the level of care of 10 beds or 10 percent of the total bed capacity of the facility within a 2-year period, or conversion to or from sheltered beds and community beds. Rule 59C-1.002 (15), Florida Administrative Code (emphasis added). AHCA also defined "substantial change in health services" to include: The conversion of a general acute care or specialty hospital licensed under Chapter 395, Part I, F.S., to a long term care hospital. Rule 59C-1.002(41)(c), Florida Administrative Code. Taken together AHCA's rules recognize long term care hospitals or beds as a separate and distinct category. Elfie Stamm was responsible for the development of the rules and is currently the chief of the CON and Budget Review Office at AHCA. Ms. Stamm testified in a 1994 rule challenge case, when AHCA was drafting a rule with a numeric need methodology for long term care beds, that: long term care hospitals serve patients who cannot be cost effectively treated in an acute care hospital, who do not have the same needs for the same types of service; it would not be fair for an applicant for the new construction of a long term care hospital to be compared to an acute care hospital; comprehensive medical rehabilitation (CMR) services are different than services in a long term care hospital; a long term care hospital with an average length of stay of 25 days or more is different from an acute care hospital that generally has a length of stay of 5 to 6 days but provides a full range of services; the patient populations in long term care hospitals are different from those in an acute care hospital in terms of overall patient characteristics, including older than average age, higher percentage of patients with particular diagnoses, such as ventilator dependency, higher overall mortality rates than acute care hospitals, and a much higher percentage of admissions by referrals from acute care hospitals. [T. 262-283]. See also Tarpon Springs Hospital Foundation, etc. v. AHCA, et al., DOAH Case No. 94-0958RU (R.O. 8/2/94). On behalf of AHCA, Ms. Stamm testified in this proceeding that: AHCA has changed its mind on whether or not it is appropriate to leave a patient in an acute care setting rather than transfer to long term care, specifically with regard to cost-effectiveness. [T. 373]. AHCA has not changed its mind and still says acute care hospitals and long term care hospitals should be reviewed separately, because if they would be reviewed comparatively, . . . there would be no chance for any [long term] beds ever because we don't show any need for acute care beds anywhere in the state. [T. 376]. But in evaluating Vencor's application for long term care hospitals in District 8 that would be located in Lee County, the Agency viewed hospital-based skilled nursing units, community nursing home subacute beds and comprehensive medical rehab beds throughout the entire district as existing and like potential alternatives to the proposed project. [T. 389]. AHCA does not necessarily agree that CMR services are different from long term care hospital services. [T. 265]. AHCA does not have a clearly identified population group for whom long term care would be more cost-effective, or to determine a numeric need methodology. [TR. 324]. Although there is a population that does need services that exceed 25 days or prolonged ventilator service, AHCA is not sure what is the most appropriate setting for their care because of inadequate data on comparative costs and outcomes. [TR. 327-8]. AHCA attributes its change in position to the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Lewin-VHI, Inc. The document is commonly referred to as the Lewin Report. The Lewin Report concludes that long term care hospitals serve patients who are also served in other subacute settings, including CMR beds and hospitals, acute care hospital skilled nursing units, and skilled nursing units in freestanding nursing homes. As a result of the conclusions in the Lewin Report, AHCA maintains that it is unable to develop a numeric need methodology without an identifiable patient population. AHCA has not, however, repealed the rules establishing long term care as a separate type of health care service. Rather, the agency intends to wait for additional studies, including one being conducted for Vencor. The Medicare prospective payment system (PPS) for acute care hospitals created the market for subacute and long term care. Under the PPS, acute care hospitals receive a fixed payment based on the patient's diagnosis or diagnostic related group (DRG). Upon discharge to a subacute or long term setting, the patient's care is no longer reimbursed on a fixed basis, but at actual, reasonable costs. AHCA maintains that financial pressures created the current system, but without cost/benefit or outcomes analyses to demonstrate the appropriateness of using long term care hospitals. Therefore, AHCA considered the occupancy levels of acute care hospitals and available nursing home beds in determining the need for Vencor's project. AHCA has no rule defining subacute care, no inventory of subacute care units in nursing homes, and no reporting requirements from which it can determine the level of care or services provided in hospital based skilled nursing units. AHCA has no reports on specific levels or types of services provided in CMR beds. AHCA, nevertheless, presumed that the services are like those provided in long term care beds based on the Lewin Report. In rejecting Vencor's attempts to distinguish itself from other types of health care providers, AHCA relied, in part, on its finding that 1995 District 8 acute care hospital occupancy averaged 47.69 percent and peaked at 60.26 percent. By not adopting rules for determining the numeric need for long term care, AHCA also failed to establish the appropriate service area for determining need. AHCA considers the need for long term care services on a regional basis. In support of AHCA's decision to deny a long term care hospital application in District 9, Ms. Stamm's predecessor, Elizabeth Dudek, testified that long term care is a regional service. As further evidence of AHCA's position, the SAARs issued by AHCA on long term care hospital applications, have examined available services beyond the limits of the district. AHCA contends that long term care is regional, but determines its need by comparison to available hospital based skilled nursing units and subacute beds in community nursing homes, which are evaluated on a subdistrict basis, and CMR services which are tertiary but evaluated on a district-wide basis. See Finding of Fact 22. Since November 1995, AHCA has preliminarily denied all CON applications for long term care hospitals. Its policy of comparing the need for long term care to available beds in nursing homes and other types of hospitals is consistently repeated in the portions of the SAARs which address need. In analyzing the need for long term care hospitals in AHCA District 1, the SAAR dated January 10, 1997, includes the following statements: Vencor Hospitals South, Inc. defines its patient population as those currently being treated in ICUs and belonging to roughly 10 DRGs (which account for approximately 83% of Vencor patients. . . .) However these DRGs could also [be] appropriate for acute care, hospital based freestanding skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to residents of District 1. and The applicant [Baptist Health Affiliates Inc.] also discusses the differences between its proposed patient population and that of an acute care hospital, nursing home and those treated at home. However, there is no documentation provided which demonstrates the applicant's potential patients could not receive appropriate care in the District's existing rehabilitation facility, hospital based or nursing home skilled subacute nursing units. . . . Vencor Exhibit 12, pages 3-4 and 8. AHCA reviewed a CON application filed by Columbia of Pinellas County, Inc., to convert acute care beds to a long term care hospital in District 5, and concluded: The patient population represented by the DRGs listed above (by the applicant) are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 13, page 8. The SAAR issued on the Columbia of Pinellas County CON application continued with an extensive discussion of the Lewin Report. The SAAR reported AHCA's finding that CMR hospitals are alternatives since they admit patients who do not fit federal guidelines for CMR admissions (being able to tolerate three hours of therapy a day), and who might otherwise be in long term care hospitals. In the SAAR issued after the review of long term care applications for District 7, the same statement appears: The patient population represented by the DRGs listed above [by Orlando Regional Hospital] are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 14, page 11. Finally, in reviewing applications from Palm Beach County in District 9, AHCA concluded again: The applicant states that generally speaking the long term care hospital patients have respiratory complications, . . . tracheostomies, . . . chronic diseases, an infectious process requiring antibiotic therapy, . . . skin complications . . . need a combination of rehabilitation and complex medical treatment or are technology dependent individuals requiring high levels of nursing care. However, these patients could also [be] appropriate for acute care, hospital based skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to the residents of District IX. Vencor Exhibit 15, page 4. AHCA relies on the statutory review criteria in Subsection 408.035(1)(b), Florida Statutes, as authority for its consideration of all beds and facilities which may serve the same patients. That provision requires consideration of: (b) The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care facilities and health services in the service district of the applicant. The expert witness for AHCA, however, distinguished between "like and existing" services for purposes of determining numeric need and the statutory criteria. She noted that once numeric need is established and published for nursing beds or CMR beds, for example, that same category of beds outside the appropriate health service planning subdistrict or district is not considered "like and existing." Similarly, within the district or subdistrict, there is a factual issue in each case but no presumption that beds of a different category are "like and existing." AHCA contends that it has no policy related to long term care and any comparable services. Since 1995, long term care CON applicants, according to AHCA, have failed to meet the requirements of Rule 59C-1.008(e), which provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. (Emphasis added). AHCA's argument ignores the fact that its expert witness provided competent, substantial evidence that it has redefined and expanded the meaning of "like services" for purposes of demonstrating need through a needs assessment methodology. It also ignores the fact that AHCA has expanded the comparison of need beyond the geographical limits of the district. AHCA's argument that it is waiting for additional data before adopting a need methodology, including data from a Vencor study, is to no avail since AHCA has already changed its policy. After reviewing a total of eighteen CON applications for long term care hospitals, AHCA has issued two CONs, one as part of a settlement agreement and the other approving an application filed by St. Petersburg Health Care Management, Inc. (St. Petersburg), for CON 8213. The St. Petersburg application demonstrated need using an identical methodology prepared by the same health planner as Vencor in this case. Referring to CON 8213, AHCA's expert witness candidly admitted . . . "I want to make clear that particular application was actually submitted and approved prior to the Lewin study." (T. 393). Subsequent to the Lewin study, AHCA has consistently denied applications for long term care beds or hospitals.
Findings Of Fact Petitioner, Department of Health and Rehabilitative Services (HRS), is designated as the state agency responsible for the administration of federal and state Medicaid funds, and is authorized by statute to provide payments for medical services. Respondent, Marvin H. Ledbetter, is a doctor of osteopathy who is enrolled as a general practitioner provider in the Medicaid Program. His professional office is in Ormond Beach, Florida where he is engaged in family practice. Under the Program, Ledbetter is assigned a provider number (48220-0) which is used to bill Medicaid for services rendered to Medicaid recipients. During calendar year 1981, which is the only time period in question, Ledbetter received $42,809 in Medicaid reimbursements from HRS, of which $28,062 related to fees for Medicaid hospital patients. The latter category of fees is at issue. In order to qualify for federal matching Medicaid funds HRS must meet certain federally-imposed requirements, including the establishment of a program integrity section designed to insure that all Medicaid services are medically necessary. If they are not, HRS is obliged to seek recoupment of funds paid to the provider. This proceeding involves an attempt by HRS to recoup certain funds paid to Ledbetter for hospital services. After providing medical services to various hospital patients, Ledbetter completed and sent in the necessary forms to obtain payment. As noted earlier, these payments totaled $28,062 during 1981. Upon receipt of the forms, HRS input the information from the forms into a computer data base, along with similar information from other Medicaid providers throughout the State. This information included, among other things, the number of admissions, number of discharges, amount paid for hospital services and length of stay. The retention of such data is necessary so that possible overpayments may be detected by HRS through the statistical analysis of claims submitted by a group of providers of a given type. Because Ledbetter's total discharges exceeded the average of other family physicians throughout the State, the computer generated a report which flagged Ledbetter for further review and examination. An HRS analyst conducted such a review of Ledbetter's records, and found his average hospital length of stay for patients to be acceptable when compared to the average physician in the State. This report was forwarded to the HRS peer review coordinator who randomly selected thirty of Ledbetter's patients from the computer, and obtained their patient charts (numbering sixty-eight). Such a statistical calculation is authorized by Rule 10C-7.6(4)(b), Florida Administrative Code. A medical consultant employed by HRS then reviewed twelve of the sixty-eight charts and recommended the records be sent to a Peer Review Committee (PRC) for its review and recommendation. This committee is authorized by Rule 7C-7.61(4)(c), Florida Administrative Code serves under contract with HRS, and is composed of eight members of the Florida Osteopathic Medical Association. It is their responsibility to review the files of physicians whose Medicaid payments are questioned by HRS's program integrity section. When Ledbetter's records were forwarded to the PRC by HRS, the transmittal letter stated that a "study" of his records had been made, and that said study revealed "overutilization of inpatient hospital services" and "excessive lengths of stay." After a PRC review was conducted in early 1984, the records were returned to HRS with a notation that "mild overutilization" had occurred. According to informal guidelines used by the PRC, this meant that Ledbetter's overutilization fell within the range of 0 percent to 20 percent. HRS accepted these findings but for some reason initially determined that a 40 percent overutilization had occurred, and that Ledbetter was overpaid in 1981 by 40 percent for his hospital services. Finding this amount to be inconsistent with the mild overutilization guidelines, HRS arbitrarily added back two days to each patient's hospital stay, which decreased overutilization to 33.8 percent, or $9,505.06 in overpayments. By proposed agency action issued on May 18, 1984, it billed Ledbetter this amount, thereby precipitating the instant controversy. All of the patients in question were from the lower income category, and most were black. Their home conditions were generally less than desirable, and the ability of the parents to supply good nursing care to ill or sick children was in doubt. At the same time, in 1981 Ledbetter was working an average of 56 hours per week in the emergency room of a local hospital and devoted only minimal time to his family practice. Because of this Ledbetter's number of hospital admissions greatly exceeded the norm when compared to general practitioners who engaged in an office practice. Consequently, he received most of these patients through the emergency room rather than his office and was dealing with patients whose socioeconomic conditions were an important consideration. These factors must be taken into account in analyzing Ledbetter's patient records. HRS does not contend that Ledbetter failed to perform the services for which he was paid--rather, it questions only whether some of the admissions were medically necessary and whether some of the lengths of stay were too long. In this regard, conflicting expert testimony was offered by the parties concerning the amount of overutilization, if any. Expert testimony by two local doctors of osteopathy support a finding that only mild overutilization of admissions and lengths of stay occurred. This is corroborated by HRS's expert (Dr. Smith) and by the testimony of its "live" expert, Dr. Conn, who conceded that lengths of stay were only "a little bit too long." The more persuasive testimony also establishes that while mild overutilization falls within the range of 0 percent to 20 percent, 10 percent is an appropriate median in this proceeding. Using this yardstick, Ledbetter should reimburse HRS for 10 percent for his billings, or $2,806.20.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent repay petitioner $2,086.20 in excess Medicaid payments received for calendar year 1981 claims. DONE and ORDERED this 16th day of May, 1985, 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 May, 1985.
The Issue Whether under Section 381.494(6)(c)-(d), Florida Statutes, and Rule 10-5.11, Florida Administrative Code, Respondent, Martin Memorial Hospital Association, Inc., is entitled to a Certificate of Need ("CON") authorizing a proposed 75-bed satellite hospital in Port Salerno, Martin County, Florida.
Findings Of Fact Background Respondent, Martin Memorial Hospital Association, Inc. ("Martin Memorial"), seeks a CON to construct and operate a 75- bed satellite hospital in Port Salerno, Florida. Of the proposed 75 acute-care beds, 50 will be new and 25 will be transferred from Mar in Memorial's existing hospital in Stuart, Florida. The proposed satellite hospital will have six intensive care beds, 69 medical-surgical beds, and two operating rooms. Respondent, Department of Health and Rehabilitative Services ("DHRS"), preliminarily issued the applied-for CON. After Petitioner, Palm Beach-Martin County Medical Center ("PBMC"), owner of nearby Jupiter Hospital in northern Palm Beach County, requested a Section 120.57 hearing to contest issuance of the CON, DHRS forwarded this case to the Division of Administrative Hearings for assignment of a hearing officer. This case, in its earlier stages, was a consolidated proceeding with numerous parties and party-applicants. In the fall of 1984, several parties withdrew or were dismissed. One of the them, American Healthcorp., dismissed its challenge of DHRS' denial of its application to construct a 120-bed new hospital in Vero Beach, Florida. Prior to that dismissal, American Healthcorp. had filed a mandamus action in Leon County Circuit Court to require DHRS to issue a CON. The writ of mandamus was issued and that order was appealed by DHRS to the First District Court of Appeal. On June 18, 1985, the First District reversed the Circuit Court's order. DHRS never issued a CON to American Healthcorp., as the writ of mandamus was stayed during the pendency of the appeal. Initially, PBMC, another party-applicant, contested DHRS' denial of a proposed 66-bed addition to its existing hospital in Jupiter, Palm Beach County, Florida. Later, PBMC dropped its opposition to the denial after concluding that, due to a dramatic drop in patient census during 1984, additional beds in the area were not needed.1 On Martin Memorial's unopposed motion to dismiss, PBMC was dismissed as a party. Other nonapplicant intervenors subsequently withdrew. In the earlier consolidated proceeding, Martin Memorial had contested the denial of its initial application (filed in 1983) for a CON to construct a 150-bed satellite hospital in Port Salerno, on the same site as now proposed for the 75-bed hospital. In October, 1984, Martin Memorial revised its application, within a deadline for submittal of amended applications set by prehearing order. This revised application, now the subject of this proceeding, reduced the number of beds in the proposed hospital from 150 to 75: 50 were to be new and 25 were to be transferred from Martin Memorial's existing hospital in Stuart.2 This 75-bed application was then preliminarily approved by DHRS, as part of an effort to settle the pending consolidated proceeding. After notice of the approval was published on December 7, 1984 in the Florida Administrative Weekly, PBMC timely requested a hearing to contest it. PBMC's position is, generally, that another hospital in the area is not needed and will result in an unnecessary duplication of services and that, if built, the hospital would draw patients who would otherwise use Jupiter Hospital, to the economic injury of PBMC. The remaining party-applicant in the consolidated proceeding was Lawnwood Medical Center, whose proposed 50- bedexpansion of its hospital in Fort Pierce (St. Lucie County), was preliminarily approved by DHRS. Martin Memorial requested a Section 120.57(1) hearing to contest the approval. By stipulation dated May 15, 1985, Lawnwood Medical Center was dismissed as a party. Martin Memorial II. The Parties The applicant, Martin Memorial, operates a not-for- profit community hospital in Stuart, Florida, which has served the health care needs of the area since 1939. At that time, it had 25 beds and the site consisted o eight acres. In subsequent years, Martin Memorial added five additional acres of land, and the hospital now has 336 beds, including 26 new beds: nearing completion. Martin Memorial is a subsidiary of Coastal Health Corporation, a not-for-profit holding company. One of the holding company's other non-profit subsidiaries, Coastal Care Corporation, provides services such as ambulatory surgery and primary or emergency care at medical treatment centers. Martin Memorial and its parent corporation, Coastal Health Corporation, are governed by boards comprised of full- time residents of Martin County who serve without compensation. Martin Memorial Hospital has a proven record of providing health care to indigents. Its policy is to provide health services without regard to race, religion, national origin, or a patient's ability to pay. It has always participated in the Medicare/Medicaid Programs and participates in the county indigent program. It proposes to follow the same policy at the proposed satellite hospital. Martin Memorial Hospital, in Stuart, is adjacent to the St. Lucie River on the north, bounded by the Heida-Brad Park residential development on the east, by the St. Mary's Episcopal Church on the south, and by various businesses and residences on the west. It would be difficult for Martin Memorial Hospital to expand to meet anticipated future demand. It has found it impractical to buy additional land adjacent to its existing facility. (It does not nave eminent domain power.) Under current zoning, its height is limited to the existing six floors. Other obstacles include problems with parking access and compliance with fire safety codes. Palm Beach-Martin (PBMC) PBMC is a non-profit corporation, organized in 1973, with the stated purpose of serving tee health care needs of residents of northern Palm Beach County and southern Martin County. It operates a community not-for-profit hospital, known as Jupiter Hospital, in Jupiter, Florida. A 156-bed acute care hospital, it is the northern most hospital in Palm Beach County and provides health care services to the residents of northern Palm Beach and southern Martin Counties. Over 10% of Jupiter Hospital's patients come from the Hobe Sound area of Martin County, and another 20% come from the Tequesta area of Martin County. The boards which operate PBMC and Jupiter Hospital are made up of volunteers; one-half of whom are doctors on the hospital's medical staff, and the other half are lay-members from the community. All policy decisions are made by the boards. The hospital is managed, under contract, by hospital Corporation of America Management Company (owned by Hospital Corporation of America) which supplies only the hospital administrator and finance director, all other personnel are employees of PBMC. Like Martin Memorial, PBMC has a practice of providing health care to indigent patients. It has a Medicaid contract at its convalescent pavilion and treats Medicaid patients requiring care. (Since it has not had a Medicaid contract with the state, PBMC "writes-off" the cost of care provided to Medicaid and indigent patients. But due to an increasing number of Medicaid patients, PBMC has applied for a Medicaid contract.) It has a current contract with Palm Beach County to treat indigents in its out-patient facility. Department of Health and Rehabilitative Services (DHRS) DHRS is designated by statute as the single state agency charged with issuing and denying CONs in accordance with district plans, DHRS rules, and state and federal statutes. See, Section 381.494, Florida Statutes (1983). Geographic Facts The proposed satellite hospital would be located in Port Salerno, Martin County, 5 1/2 miles south of Martin Memorial Hospital and 15 miles north of Jupiter Hospital. The site of the proposes hospital is 35 acres in size, and is located approximately 1/4 mile east of Highway U.S. 1, on Port Salerno Road. Jonathan Dickinson State Park, abutting Highway U.S. 1 for five miles, is situated between the site of the proposed satellite hospital and PBMC's Jupiter Hospital. The area of Hobe Sound is just north of this State Park. The proposed hospital would be adjacent to the Martin County Campus of Indian River Community College. III. Standing of PBMC: Expected Impact of Proposed Hospital on PBMC. Since it is physicians who admit patients to hospitals, the extent to which medical staffs overlap is one factor used to project how a new hospital will affect an existing one. Martin Memorial Hospital and Jupiter Hospital have distinct medical staffs and there is no material overlap. Neither has it been shown that Jupiter Hospital physicians will seek staff privileges at the proposed satellite hospital. It is reasonably expected that the proposed hospital will be staffed, for the most part, by physicians who are also on the staff of Martin Memorial Hospital. Nevertheless, the proposed satellite hospital would draw away a substantial portion of Jupiter Hospital's patient base and is intended to reduce Jupiter Hospital's market share in the Hobe Sound area to near zero. (Indeed, this is a result projected in Martin Memorial's Long Range Plan.) Martin Memorial (in its Long Range Plan) estimates Jupiter Hospital's current market share to be 65%. Jupiter Hospital's primary service area includes Hobe Sound, from which it draws approximately 10% of its patients. The northern boundary of the Hobe Sound area is 20 minutes driving time from Jupiter Hospital. Hobe Sound is also within the primary service area of the proposed satellite hospital. The proposed hospital would be in the same DHRS Service District as Jupiter Hospital and both hospitals would have overlapping primary service areas. The projected loss of 10% of its patient base to the proposed satellite hospital would have a significant adverse financial impact on PBMC. It has not been shown, however, this impact would imperil the continued financial feasibility of Jupiter Hospital. IV. Numerical Bed-need Projected by Applying DHRS Rule-Based Bed-need Methodology. The proposed satellite hospital would be located in DHRS Health District 9, which consists of Indian River, St. Lucie, 55artin, Okeechobee, and Palm Beach Counties. The state acute care bed-need methodology is a complex formula contained in Rule 10-5.11(23), Florida Administrative Code. It projects bed-need, on a district-wide basis, five years into the future, creating what is referred to as a "five-year planning horizon" for assessing acute care bed-need. The formula requires several district-specific inputs, including population forecasts in four age groups, the average fertility rate in the district for the three most recent years, the average historical utilization rate in the district for the three most recent years, together with specific factors used to determine the net flow of elderly patients. Three other input factors are applied uniformly to all districts: discharge rates by service and by age cohort for Florida residents, average length of stay by service and by age cohort, and occupancy standards by service and by age cohort. Application of the formula entails seven steps: Project patient days by service and by age cohort using the formula: Patient days = projected population x discharge rate x average length of stay Adjust the projected patient days for the 65 and over age cohort to account for patient flows. Calculate bed-need by applying service- specific occupancy standards to projected patient days. Calculate the district bed allocation by summing the beds needed by service. Calculate the projected occupancy of these beds using the district's historical utilization rate. If the projected occupancy. rate is less than 75 percent or greater than 90 percent, apply specified formulas to adjust the district bed allocation (downward or upward, respectively. Check to ensure that each district will be able to meet peak demand based on the adjusted allocation. (R-l8l/, Testimony of Kolb) Population projections used in the methodology are: "for age- specific cohorts residing in the relevant district projected five years into the future," Rule 10-5.11(23)(f)1., Florida Administrative Code. These age-specific cohort projections (of county populations) must be "those developed by the State Health Planning Agency, and will be based on the latest mid-range projections published by the Bureau of Economic and Business Research of the University of Florida [BEBR]." Id. There are currently 4,695 licensed or approved acute care beds in District 9, which includes the 50 additional beds (preliminarily) approved for the proposed satellite hospital and the 45 beds approved in a subsequent batching cycle. For July, 1989, application of the bed-need methodology shows a district wide gross need of 4,621 beds. This is based on population forecasts for July, 1939, released by the Governor's Budgeting and Planning Office on- January 1, 1985.This office interpolates and publishes population forecasts based on figures received from BEBR. Since later 1934 (when Rule 27E-2.01-.04 was adopted requiring state agencies to use, in their planning, population projections provided by the Governor's Office), DHRS's Office of Health Planning and Development has used such forecasts to project bed-need under the methodology. These forecasts are appropriate for such use since they are "developed" by the State Health Planning Agency and based on the latest mid-range projections published by BEBR. When the licensed or approved bed total of 4,645 (excluding 50 beds for the proposed satellite hospital) are subtracted from the district wide gross need, there is a net surplus of 24 beds. If the 50 beds of the proposed satellite hospital are included, the net surplus increases to 74 beds. A planning horizon of January, 1990, however, is more appropriate. It more closely conforms to the methodology's requirement that need be projected five years into the future. (At hearing, all parties agreed or acquiesced to the proposition that the five year planning horizon should begin to run, to the extent possible, from the date of final hearing in June, 1985.) The latest county-wide projections released by the Governor's Office for state agency use, projects population by age and sex cohorts for January 1, 1990 and July 1, 1990. The July 1, 1990 projections are beyond the five year horizon and so less suitable for use in the methodology. Applying, then, the bed-need methodology to project bed-need for January, 1990, shows a gross need of 4,702 beds, resulting in a total district wide net need of 57 beds (excluding the proposed 50-beds satellite hospital). Hence the methodology shows (just barely) a January, 1990 need for the 50- beds sought for the proposed satellite hospital. Because of projected increases in district population, the methodology predicts a significant growth in bed-need between July, 1989 and January, 1990: bed-need grows by 81 beds or by more than 10 beds per month. PBMC contends that a planning horizon of July 1, 1989, and no later, must be used since DHRS has, historically, updated bed-need projections only on July 1 of each year. Annual updates were limited to once a year because updated population figures were received only in July. Now, however, -he situation has greatly improved. DHRS receives updated population forecasts from the Governor's Office twice a year--in January and July. There is no reason why these updated and, presumably, more accurate population forecasts cannot be used to project bed-need Martin Memorial, on the other hand, argues for a more distant planning horizon--April 1, 1990. This horizon, however, requires use of BEBR projections recently received but not yet released or interpolated by the Governor's Office, until released, such projections are not appropriate for use by state agencies. See, Rule 27E-2.01-2.04, Fla. Admin. Code. V. Consideration of Other CON Review Criteria [A CON may be denied even though the bed- need methodology projects a need for the proposed beds five years into the future. Rule 10-5.11(23)(b): "An unfavorable Certif- icate of Need determination may be made when a calculated bed-need exists, but other criteria specified in Chapter 3Bl.494(6)(c), Florida Statutes, are not met." DHRS must consider CON applications in light of all statutory and rule criteria. See, Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361 (Fla. 1st DCA 1984).] Subdistrict Need: Allocation of District Wide Bed-need to|-. Relevant Subdistrict In 1983, the Local Health Council divided District9 into five subdistricts: (1) Indian River County, (2) Martin and St. Lucie Counties, (3) Okeechobee County, (4) northern Palm Beach County, and (5) southern Palm Beach County. Each subdistrict "is an area where the co-unity, by itself, uses the facilities in an area. It is supposed to be a sort of natural boundary that separates the different communities." (TR-413) The council also adopted a methodology for allocating acute care beds among the five component subdistricts. (R.-19) Although DHRS has not yet adopted, by rule, District9's subdistricts and subdistrict bed-need allocation methodology, both are part of District 9's Local Health Plan, adopted after a series of workshops and public hearings. The subdistricts were identified pursuant to a protocol furnished by DHRS which required consideration of whether an area was urban or rural, or comprised a standard metropolitan statistical area (SMSA). Under the protocol, an SMSA must be designated a separate subdistrict. Since Martin and St. Lucie Counties form a SMSA, they form a separate subdistrict. The five subdistricts of District 9 were identified in a rational manner, have a factual basis, and are useful tools for health care planning purposes. The methodology for allocating district wide bed-need to the subdistricts, also part of the Local Health Plan, has also been shown to be supported by reason and accepted health care planning concepts. DHRS cannot rationally determine the need for additional acute care beds, at least in =he context of this case without looking at subdistrict need or lack of need. In this way, local needs and conditions are considered in the decision- making process. District 9 is too large to serve as a useful unit for acute care bed planning purposes. Applying the Local Health Plan's sur5istrict bed-need allocation methodology to the July, 1989 planning horizon, indicates a net acute care bed-need for the Martin/St. Lucie-- County Subdistrict (not counting the 50 beds at issue) of 103beds. If the proposed hospital were approved, the subdistrict bed-need methodology would show a remaining subdistrict need for53 acute care beds. (R-18, TR-249) When applied to the January, 1990 planning horizon, preferred to the July, 1999 horizon., the subdistrict methodology shows a net acute care bed-need of 119 beds for the Martin/St. Lucie County Subdistrict (not counting the 50 beds at issue). Thus, the bed-need allocation methodology contained in District 9's Local Health Plan, shows a need for the proposed 50-acute care beds, with a 69-bed margin. (T-18, TR-248) Since the total number of licensed and approved beds (excluding the 50-beds at issue) for the subdistrict is 761, the projected need for 119 new acute care beds in January, 1990, is considered to be substantial. But the subdistrict bed allocation methodology assumes, incorrectly, that patients do not "cross-over" from one subdistrict to another. It fails, therefore, to consider or take to account the significant number of patients residing in the Martin/St. Lucie Counties Subdistrict who use acute care beds at Jupiter Hospital, located in the subdistrict to the south. This failure in the subdistrict methodology detracts from the weight to be given the resulting bed-need calculation. Availability, Accessibility and Adequacy of Like and Existing Facilities. Section 384.494(6) (c) 2.; Florida Statutes, requires review of CON applications in context with the "availability . . . accessibility and adequacy of like and existing health care services . . . in the district of the applicant."] Excess or under-utilized acute care bed capacity is a problem because it contributes to higher health costs. There are fixed overhead costs associated with acute care beds, whether empty or filled by a patient. These costs must ultimately be borne by the patients, or their insurers In reviewing a CON application, DHRS considers the number of available unoccupied beds at the facility and in the county or subdistrict for the most recent calendar year, determines actual occupancy rates, and compares them against an 80% occupancy standard, a standard generally accepted by health care planners. For example, one stated reason for DHRS' denial of Martin Memorial's initial 150-bed application was the availability of 20 unoccupied medical-surgical beds at Martin Memorial in 1982, on an average daily basis. Similarly, the average daily availability of 73 unoccupied medical-surgical beds in the five hospitals within PBMC's service area, plus additional approved but not licensed beds in the area, were stated reasons for DHRS' denial of PBMC's initial 1983 application for additional beds. (R-13) Applying the 80% occupancy standard to 1984 bed utilization statistics in the Martin/St. Lucie County Subdistrict, there were 111 unoccupied acute care beds on an average daily basis, not counting the 50 new beds recently approved for Lawnwood Hospital and the 26 new beds soon to be available at Martin Memorial. This is a 63.7% occupancy rate. Moreover, there were 47 unoccupied licensed beds on an average daily basis at Martin Memorial Hospital (not counting the 26 new beds under construction). The same calculation using only medical-surgical beds shows that in 1984, on an average daily basis, Martin Memorial had 36 unoccupied medical-surgical beds or an occupancy rate of 661. At Jupiter Hospital and Port St. Lucie Medical Center, the two hospitals having overlapping service areas with Martin Memorial, there were 31 (58.2% occupancy rate) and 49 (43.7% occupancy rate) unoccupied medical-surgical beds, respectively, on an average daily basis. (HRS-4) There is an ample supply of available beds: there is not a shortage of acute care hospital beds at Martin Memorial Hospital or in the Martin/St. Lucie Subdistrict. Martin Memorial has shown only that there may be, or could be, bed availability problems during certain peak months at Memorial Hospital in 1990, based on seasonal considerations. At most, it has shown that, without the proposed satellite hospital, the average occupancy for its highest occupancy month in 1990 would reach 91%. (TR-263-265) However, it is possible to operate a hospital at such an occupancy level for several months and yet maintain an acceptable level of service. (Moreover, Martin Memorial's analysis fails to take into account acute care beds which would be available in 1990 at Port St. Lucie Medical Center and Jupiter Hospital, where occupancy rates would be much lower.) Martin Memorial does not assert that in 1990 its average daily occupancy rate will exceed 80%. Indeed, assuming the validity of its average length of stay and hospital utilization assumptions (which are questionable), Martin Memorial forecasts an average daily occupancy rate of 79.4%. The State Health Plan states that "the issue of surplus beds is expected to be an even greater problem in the future because of the growth of alternative delivery systems"-- (R-20, p.22)--a proposition with which Martin Memorial's expert generally agrees. (TR-287-288) The State Health Plan concludes that "the combined effect of ambulatory surgery, HMOs, DRGs, and other innovations could reduce acute care bed-need by 15% or more." Id. Thus it becomes more likely that there will be an ample supply of available unoccupied beds in the subdistrict through 1990. The proposed satellite hospital would improve or enhance the accessibility of hospital services, since it would be located closer to some patients than either Martin Memorial or Jupiter Hospital. However, it has not been shown that geographic accessibility has been or will be a serious problem without construction of the proposed satellite hospital. The proposed hospital would be located about 5 miles from Martin Memorial and about 15 1/2 miles from Jupiter Hospital. Patients in the southern part of Martin County, residing south of the northern part of Hobe Sound, can be driven to Jupiter Hospital in 20 minutes or less. The definitive standard, commonly used by DHRS and.generally accepted by health care planners to detect geographical bed-access problems, is the 30 minute drive-time standard. Under this standard, if acute care hospital beds are available and accessible, within an automobile travel time of 30 minutes under average traffic conditions to at least 90% of the population, there is no cause for concern about geographic accessibility. It is undisputed that hospital beds are now available well within 30 minutes travel time to all residents of Martin County during all relevant periods, and will continue to be so through 1990. In short, geographic accessibility is not a current or projected problem and although the satellite hospital would make in-patient services more geographically accessible to some residents, such a result could be expected whenever a new hospital is constructed, whatever its location. As to adequacy of existing and licensed and approved facilities, there is no showing that the quality or extent of health care provided is inadequate. Extent of Utilization of Like and Existing Facilities. [Under Section 3Bl.494(6)(c)2., Florida Statutes, CON applications must also be reviewed in context with the "extent of utilization . . . of like and existing health care services . . . in the service district of the applicant."] During the last two years, the health care industry has undergone major changes resulting in a sudden and dramatic decline in the use of hospital in-patient services. The main cause of this decline was the shift, in October 1983, to the Medicare prospective payment system, otherwise known as Diagnostic Related Groupings (DRGs). The DRG payment system changed Medicare reimbursement from a cost basis to a set reimbursement based on diagnosis. It has caused a sharp decline in the average length of stay of Medicare patients as well as a decrease in Medicare admissions, and a resulting decline in hospital occupancy levels. For example, in calendar year 1984, the average length of stay for hospital patients in District 9 dropped from approximately 6.8 to 6.1. (DHRS-4) Another recent development contributing to the general decline in hospital utilization .is the increasing emphasis on providing out-patient services such as out-patient surgery and home health services. In many areas of the country, the advent of Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs) have significantly impacted hospital occupancy rates, not only by encouraging shorter lengths of stay, but also by greatly lowering admission rates. (TR-604-05, 773: P-3, p.l8) According to the State Health Plan, "the emergence of [these] alternative delivery systems . . . [has] exacerbated declining occupancy rates." (R-20, Vol. 1, p.26) Martin Memorial has developed free-standing medical treatment centers in Hobe Sound and Port St. Lucie, which can provide up to 80% of the services required by patients in hospital emergency rooms. (TR-56-59 R-1, Vol. II at 73) In addition, Martin Memorial is merging with VNA in Martin County to provide home health care. These alternative delivery systems, along with the expected increasing effects of PPOs, HMOs and prospective payment systems, will contribute to further declines in hospital utilization and tend to extend the time during which the existing inventory of acute care beds will be adequate to meet the needs of a growing population. Although witnesses for Martin Memorial suggest that this steady decline in bed utilization at Martin Memorial will soon bottom out and that the average length of stay will fall no further, the weight of credible evidence shows that hospital utilization in District 9, as well as in the country as a whole, is still declining and that no one can say, with any reasonable degree of certainty, just when the decline (or "nose dive," TR- 682) in average length of stay and overall utilization will stop. The Executive Director of the District 9 Health Council predicts that the average length of stay in the district may fall from its current level of 6.1 or 6.2 to 5, and a recent survey of southeastern hospitals predicts at least a 5% further decline in average length of stay from 1984 levels. Hospital admission or discharge rates in District 9 fell slightly in 1984, but on the whole have remained relatively constant. The decline in hospital utilization has been chiefly caused by the unprecedented drop in average length of stay. Several factors causing declines in hospital admissions as well as utilization in other areas of the state and country have not yet begun to significantly affect northern Palm Beach, Martin, and St. Lucie Counties. It is, however, reasonably expected that these factors, such as out-patient or ambulatory surgical centers, and home health services (which are becoming increasingly used), will continue to grow and further decrease hospital in-patient surgery and care, admissions, and utilization. (TR-39-40, 578) As stated earlier, the most recent State Health Plan predicts that the combined effect of ambulatory surgery and other alternative health care delivery systems will be to reduce hospital discharges (or admissions) by 15% or more by 1989. (R-20, Vol. 2, p.72) Another factor which will contribute to the further decline in hospital utilization in Florida will be the required adoption of prospective payment programs by hospitals and private insurers for non-;5edicare patients. Under the Florida Health Care Access Act of 1984, hospitals are required to negotiate a prospective payment arrangement with each health insurer representing 10% or more of the hospital's private pay patients (R-20, Vol. 1, p. ll) To date, the only active HMOs in District 9 are found in southern Palm Beach County and their impact has not been felt elsewhere in the district. It is reasonably anticipated, however, that HMOs will expand throughout the district in the next several years and will contribute to a further decline in admissions. (Some commentators predict HMOs will reduce hospital admission rates by as much as 40%.) (TR-605-06, 679-80) Even without these factors, the extent of the decline in hospital utilization in District 9 has been dramatic. Overall hospital utilization i., 1984 declined from a level of 73.7% in 1983 to 65.R% in 1984. (HRS-4; R-~9: P-5) The District 9 medical-surgical utilization rate dropped from 76.3% in 1983 to 67.3% in 1984. The decline in hospital utilization in the Martin/St. Lucie Subdistrict and at specific hospitals in the area have been even more pronounced: 1983-84 Subdistrict and Specific Hospital Utilization Rates Overall Rate Med-Surg Rate 1983 1984 1983 1984 Martin/St. Lucie Subdistrict 76.9%1 63.7% 78% 63.8% Martin Memorial 74.1% 65.1%4 74.8% 66.0% Port St. Lucie5 38.9% 44.1% 37.6% 43.7% Jupiter Hospital 67.7% 55.7% 71.4% 58.2% Although experts disagree on how long the decline in hospital utilization will continue and how far it will fall, it is apparent that hospital utilization is continuing to decline in District 9 in 1985. By January and February 1985, the Martin/St. Lucie Subdistrict medical-surgical utilization declined about 1% from the same period in 1984. However, the most recent data for March, 1985, shows a decline in monthly medical-surgical utilization from 73.2% in 1984 to 68.8%. Martin Memorial's patient days in 198; are less than the corresponding number of patient days .when compared to the same periods in 1984. In addition, in no single month during Martin Memorial's 1985 fiscal year, beginning on October 1, 1984, has Martin yet achieved its budgeted patient days or admissions. In fact, Martin Memorial's bed utilization is more than 10% under budget for fiscal year 1985. (TR-66-69 P-1) Martin Memorial contends that the projected increase in the population and the aging in population in the Martin/St. Lucie Subdistrict will offset the decline in average length of stay and gradually increase the in-patient population. Although it is reasonable to expect that such factors would increase utilization, over the last year in District 9, use rates have gone down and admission rates have decreased slightly even though population increased and aged. In addition, it is reasonably anticipated that the future negative impact of HMOs on use and admissions will offset these population changes and contribute to further decline in utilization. Projected Utilization of Martin Memorial Hospital and the Proposed Satellite Hospital. In projecting- utilization for its existing and proposed facilities, Martin Memorial used 1984 District 9 use rates and a constant to increasing average length of stay. (R- 18) Use and admission rates have declined steadily for several years for the under-65 population and, in the first year of DRGs, dropped by over 3% for the over-65 population. Vet, despite this t-end and projections of decreasing use and admission rates in the future due to alternative delivery programs, Martin Memorial's utilization forecast uses admission rates slightly higher than the 1984 actual admission rates. (R- 18) In projecting the average length of stay for the proposed Port Salerno Hospital, Martin 'Memorial discounted 10% from its 1984 average length of stay. This discount, however, was due to projections of lower Medicare utilization and lower intensity of services at the new hospital, and makes no allowance for any further decreases in average lengths of stay. Similarly, in projecting utilization for Martin Memorial Hospital, Martin Memorial assumed an increase over the 1984 average length of stay of 6.0 days to 6.1 days in 1990. These assumptions are unreasonable in that they 'ail to fully into account the current and projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization—that the satellite hospital would experience 58% occupancy in 1990, the first year of operation. Martin Memorial projects that without the proposed Port Salerno Hospital, Martin Memorial would achieve an occupancy rate of 79.4% in 1990. This utilization projection was based on population projections for Martin County done in 1984 by Dr. Stanley Smith it fails to take into account Dr. Smith's recent revision downward of the 1990 population projections for Martin County from 100,900 to 98,700. (TR-95-96, 294-95 R-6) The decline in average length of stay and hospital use rates will have a major impact on the number of empty beds in District 9 and, at least as applied to this District, the bed- need methodology of Rule 10-5.11(23), over-states the need for additional beds in 1990. The methodology uses a constant average length of stay derived from prior years. It is not an accurate predictor of future occupancy when, as now, use rates and utilization are declining and are reasonably expected to continue to decline. (TR-639-41: TR-614, 621-22 P-5) Martin Memorial's projected 79.4% occupancy rate in 1990 is overstated because it fails to fully take into account continuing declines in average length of stay and use rates, and because the 1984 population figures used to derive the 1984 use rate may be understated, thereby overstating the use rate. Similarly, using the same assumptions, an occupancy rate of 69.7% was projected for Jupiter Hospital (without the proposed Port Salerno Hospital). This projection is also overstated for the same reasons. If the Port Salerno Hospital were approved, the 1990 occupancy figures for both Martin Memorial and Jupiter Hospital would, in all likelihood, be much lower. (TR-627 P-5) 21 A more credible projection of ,Martin Memorial Hospital's 1990 occupancy rate was offered by Thomas W. Schultz, PSMC's health care planning expert. By reducing the 1984 Dis- trict 9 use rate by 2.9% to account for declining utilization at Martin Memorial during the first three months of 1985, as well as the general continuing decline in hospital utilization, Mr. Schultz projected Martin Memorial's 1990 occupancy (without the new facility) to be only 72.6%. Similarly, because use rates are still declining and because the 1985 population numbers used to calculate the rates may have been understated, this projected occupancy is overstated. (TR-628-30, 635-38; P-5) The State Health Plan and the District 9 Local Health Plan [Section 381.494(6) (c)l. requires that CON applications be reviewed "in relation to the applicable district plan and state health plan "] Several specific utilization and occupancy standards are contained in the State Health Plan and the District 9 Local Health Plan. A major stated goal of the State Health Plan is to promote the efficient utilization of acute care services by raising the occupancy rates or acute care hospitals. (R-20) It identifies 80% as the appropriate minimum occupancy level for acute care hospitals: an average annual occupancy rate of at least 80% is made an objective. As conceded by Debra S. Kolb, Ph.D., Martin Memorial's expert health planner, the 80% occupancy standard is an appropriate minimum standard which should be "looked at as a hurdle before beds are added." (TR- 289) She adds, however, that "there are other factors, such as . . . size of the facility, seasonality issues, age problems. . . that would warrant special cases." (T?.-289) By policy and practice, DHRS considers current occupancy levels to be an important criterion and has applied this 80% occupancy standard in reviewing CON applications. Its use of these standards is illustrated by its initial action on the various applications which were once part of this proceeding. DHRS granted Lawnwood Hospital's application for several stated reasons, one of which was a 1982 occupancy rate of 90%. Martin Memorial's initial 150-bed application and PBMC's 60-bed application (later dropped) were denied, in substantial part, because of low utilization rates in 1982 and because there was an adequate supply of beds currently available. (Interestingly, both Martin Memorial and PBMC had 1982 occupancy rates exceeding 70%.) As stated by Gene Nelson, then supervisor of DHRS' CON review section, in the State Agency Action Report denying PBMC's application: "Overall utilization for Palm Beach Martin County Medical Center for 1982 was 72.3% and medical/surgical utilization was 76.4%, neither being sufficiently high to justify additional beds." (R-13) The Acute Care portion of District 9's Local Health Plan (1984), contains "Recommendations by Priority Ranking" reflecting policies and priorities which, according to the local health council, should be used (in addition to the DHRS bed-need methodology) in planning and allocating acute care bed-need. Priority I delineates the subdistricts for purposes of allocating acute care hospital beds: Priority II establishes the_ subdistrict allocation methodology: Priority III establishes an occupancy rate which must be met before additional beds may approved: Before needed beds, as determined by Rule 10-5.11(23), may be approved, applicants requesting additional acute care beds should demonstrate that certain occupancy thresholds have been achieved relative to medical/surgical, obstetric, pediatric and ICU/CCU beds. The average annual occupancy rate (most recent calendar year) in the applying facility and its corresponding subdistrict average, should equal or exceed the following levels (inclusive of CON approved beds): Medical/Surgical 75% Obstetrical 65% Pediatric 65% ICU/CCU, Monitored & Intermediate Care 75% (e.s.) (R-10, pp.48-49) The rationale for this standard is set forth in the plan: With the advent of the Medicare prospective reimbursement system, there is literally no way to estimate the magnitude of impact that this reimbursement mechanism will have on hospital admissions, occupancy rates, and average lengths of stay. Therefore, relying upon the national standard of 4 beds/1000 population was not adequate. There is a need for an indicator based solely on utilization for the elderly. Since the reimbursement mechanism for non-Medicare patients has not changed, a resource based methodology has been utilized for this population group. Moreover, the program goals of the Local Health Plan state that the overall occupancy rate in District 9--as a whole--for licensed acute care beds as well as the occupancy rate for medical/surgical beds should equal or exceed 756. (Id. at 47) These minimum annual district and subdistrict occupancy rates take seasonality and age considerations into account. Bed utilization or occupancy standards are the only bed-need criteria that look to actual, verifiable data reflecting current conditions as opposed to forecasts, which look to the future.6 Failure to achieve the occupancy standards of Priority III A of the Local Health Plan creates, at least, a strong presumption against the approval of the project. In exceptional situations, however, additional beds may be approved even though the occupancy standard is not met. A typical example projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization--that the satellite hospital would experience 58% occupancy in 1990.the first year of operation would be where there was a geographical access problem.7 Both the State and District 9 Health Plans cite the high cost of unused hospital beds which add to the cost of hospitalization. (R-20, p.70: R-10, p.10) A primary goal of both plans is to raise occupancy rates and eliminate excess beds. With this in mind, it is reasonable to give considerable weight to current utilization rates even though a numerical "need" for the beds is projected by the DHRS bed-need methodology.8 1984 bed utilization at Martin Memorial, Port St. Lucie and Jupiter Hospitals, as well as average utilization for District 9 and the Martin/St. Lucie Subdistrict, fall well below the minimum occupancy standards normally applied by DHRS and set out in the State and Local Health Plans. These minimum occupancy standards have not been met and are not reasonably projected to be met by 1990. Considerable weight should be accorded this factor since that is the effect of the State and Local Health Plans and DHRS' normal practice. Moreover, since occupancy rates are based on actual current conditions, they are less subject to manipulation, and inject a healthy measure of reality into CON decision-making during a time of great change in the health care industry. Economies and Improvement Services Derived From Operation of Joint, Cooperative or Shared Resources. [Another CON criterion is whether there will be "[p]robable economies and improvements in service that may be derived from the operation of joint, cooperative, or shared health care resources." Section 3fll.494(6)(c)5., Florida Statutes.] Because the proposed project is a satellite hospital, there will be economies and improvements in services realized from the operation of joint, cooperative or shared health care resources, as compared to the operation of a wholly separate free-standing hospital. The satellite hospital will not offer obstetrics or a defined pediatric unit. It will not have a CAT Scanner, a -- personnel office similar to Martin Memorial's, or a hospital laundry. It will have an emergency room, normal operating room suites, and radiology and lab services, although the more complex lab tests will be performed at Martin Memorial Hospital. The Need for Research and Educational Facilities. [CON applications are also reviewed in context with the "need for research and educational facilities . . .." Section 381.494 (6)(c)7, Florida Statutes.] The proposed satellite hospital will be located directly adjacent to the Martin County campus of Indian River Community College ("IRCC"). The IRCC campus has an Allied Health Building with approximately nine classrooms, a nursing 120 and an emergency medical technician lab. IRCC has a contract with Martin Memorial Hospital which allows IRCC students to use Martin Memorial facilities for clinical training. Clinical training is an important part of the allied health curriculum at IRCC. Construction of the satellite hospital next to the IRCC campus would benefit the Allied Health Programs since there could be joint use of equipment, facilities, and personnel, and a better opportunity to invite doctors, nurses, and other health care professionals to the classroom. The satellite hospital would also be more convenient to students, in terms of scheduling and transportation, than Martin Memorial Hospital, where they now receive clinical training. Although the proposed satellite hospital would enhance the IRCC health care training programs, there is no evidence that the clinical training programs now provided at Martin Memorial Hospital are inadequate. The proposed facility is not predicated on a claim that its primary purpose will be to serve as a research or educational facility. Financial Feasibility of the Proposed Satellite Hospital. [Another CON criterion is "[t]he immediate and long-term financial feasibility of the proposal." Section 381.494 (6)(c)9, Florida Statutes.] Estimated Project Costs The estimated costs of the movable equipment for the proposed satellite hospital are reasonable. (Stipulation, P.3) The real property in Port Salerno where the proposed satellite hospital would be located, is owned by Martin Memorial and is of adequate size and otherwise appropriate for the proposed project. (Stipulation, p.3) The estimated cost of construction and fixed equipment is $7,490,625.00, which amounts a cost of $117.50t per square foot. (The hospital will have 850 square feet per bed: $117.50 X 850 X 75 = $7,490,625.00.) his is a reasonable cost for bidding the project in the spring of 1986. Estimates of the architect's fee ($545,317.00), the cost for surveys and borings ($25,000.00j, the 3% contingency cost ($251,000.00), the developmental costs ($195,000.00), the site work and utilities ( $960, 000.03 ), the actual land costs.($595,000.00), and the financing and refinancing costs($3,100,770.00) have also been shown to be reasonable. Short-Term Financial Feasibility Martin Memorial has sufficient funds to make the equity contribution necessary to obtain financing. It also has the ability to raise $16,370,000.00 through the sale of tax exempt bonds, which appear to be marketable. It is likely that Martin Memorial would be able to secure the necessary funds for construction. The proposed satellite hospital would be financially feasible in the short-term. Martin Memorial has proven its ability to operate a hospital efficiently and profitably. Even with the advent of the DRG payment system, Martin Memorial Hospital has continued to operate profitably. During the initial DRG phase-in year of 1984, Martin Memorial benefited financially from the use of the new prospective payment schedule. Even if bed use at the satellite hospital is less than projected, or desired, during the start-up years, it is likely that Martin Memorial would be able to subsidize its operation until, with expected population growth, utilization increases and it becomes financially self- sustaining. Long-Term Financial Feasibility The proposed satellite hospital is also financially feasible in the long-term his conclusion is supported by a financial analysis utilizing reasonable assumptions based on Martin Memorial Hospital's historical experience an t financial costs obtained from a qualified securities analyst. The financial analyst also used bed utilization projections supplied by Martin Memorial's qualified earth care planner. Although the reliability of the 1990 utilization forecast is questionable, over the long-term--with projected increases in population9 is likely that the proposed hospital would become financially feasible, self-sustaining, and able to meet its operating expenses and debt service payments. I. Availability of Manpower and Resources [Another CON criterion is "[t]he availability of resources, including health manpower . . .." Section 381.494 (6)(c)8, Florida Statutes.] Martin Memorial has an in-place recruiting department which, in the past, has successfully recruited new employees for expansion programs. It has the capability of recruiting, training, and staffing the 175 full-time equivalent medical personnel shown in its CON application. There has been no showing that the hiring of employees for the satellite hospital will significantly impact other facilities or that there is a shortage of health manpower and resources. III. Need for the Proposed Hospital (using a planning horizon of January, 1990) Based on a Balanced Consideration of all CON Criteria_ ["Need" for a proposed facility, under CON law, is determined by "a balanced consideration of all the statutory [and rule] criteria." Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361, 363 (Fla. 1st DCA 1984) See, Section 381.494(6)(c), Florida Statutes. DHRS may not adopt a rule allowing it to "ignore some statutory criteria and emphasize others." Id. Nor may it adopt a methodology, in rule form, which "rigidly control[s] the granting or withholding of [CON] approval." Humana, Inc. et al. v. Department of Health and Rehabilitative Services, So. 2d (Fla. 1st DCA Case No. AY-422, Opinion filed May 16, 1985), 10 F.L.W. 1222.] (a) The foregoing evidentiary findings support an ultimate finding that the proposed satellite hospital is not needed, either now or within the planning horizon of January, 1990. When measured against all pertinent statutory and rule criteria, the factors favoring approval of Martin Memorial's application are outweighed by the factors supporting denial. The DHRS numerical bed-need methodology projects a January, 1990 "need", but barely so. Further, the methodology, as one criterion among many, is assigned less weight since it is a less accurate predictor of "need" in times, such as these, when in-patient bed use is steadily declining. This decline is pervasive, has continued, unabated, for over 13 months and has not yet bottomed-out. The methodology uses bed-need figures rooted in the past and does not adequately reflect this decline. Allocation of bed-need to the Martin/St. Lucie Subdistrict shows a more substancial "need" (103 beds), but this figure is, in part, also derived from the DHRS methodology. There is an adequate current supply of available acute care beds at existing facilities, similar in nature. No geographical access problem has been shown. The existing hospitals which serve the area proposed to be served by the satellite hospital, as well as the subdistrict and district, have 1984 occupancy rates considerably below the,30% occupancy standard generally applied by DHRS and health care planners. There is not a current shortage of beds. In January, 1990, it is likely that the supply of acute care beds will continue to be adequate. In all likelihood, daily occupancy rates at Martin Memorial and in the subdistrict will still be below the 80% standard. At best, Martin Memorial has shown that during two or three peak winter months, its own institution-specific occupancy rate will exceed 90%.10 But on a short-term basis, such a rate is doable and consistent with quality health care. Current bed utilization, a readily ascertainable criterion which reflects actual conditions, should be accorded considerable weight on the scale of criterion when, as now, the health care industry is in rapid flux and past trends have been disrupted, or even displaced. With declining average lengths of stay and anticipated growth in alternative delivery systems, it is reasonably expected that acute care bed use will continue to decline. The steady drop in bed use makes it more likely that the currently existing and licensed or approved beds in the area will be adequate through January 1990. Martin Memorial's utilization forecast failed to fully take into account the steady decline in bed use. Approval of the proposed hospital would be inconsistent with the State Health Plan, which identifies 80% as a minimum occupancy rate for acute care hospitals and, more particularly, with the Local Health Plan (Priority III) which, with few exceptions, does not allow new beds (irrespective of the DHRS methodology numbers) until specified occupancy thresholds have been met. These thresholds have not yet been met. The proposed hospital would be financially feasible in the short-and-long-term, enhance competition, and improve the education of health care students at the adjacent Indian River Community College. These benefits, however, are outweighed by the other factors which support a conclusion that the proposed hospital will not be needed by January, 1990. Construction of an unneeded hospital would have the effect of reducing occupancy rates at nearby hospitals and exacerbating the problem of excess bed capacity.
Recommendation Based on the foregoing, it is RECOMMENDED: That Martin Memorial's application or a CON to construct and operate the Port Salerno Hospital be DENIED. DONE and ORDERED this 4th day of October, 1985, in Tallahassee, Florida. R. L. CALEEN, J . Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, FL 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of October, 1985.
The Issue The issue in this case is whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious? Mercy has also raised one issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.
Findings Of Fact Introduction. The HCCB and Its Hospital Grouping Function. The HCCB was formed pursuant to Part II of Chapter 395, Florida Statutes (1979). The HCCB was created pursuant to the specific authority of Section 395.503, Florida Statutes (1979), in order to further the accomplishment of legislative intent contained in Section 395.5025, Florida Statutes (1984 Suppl.): It is the intent of the Legislature to assure that adequate health care is affordable and accessible to all the citizens of this state. To further the accomplishment of this goal, the Hospital Cost Containment Board is created to advise the Legislature regarding health care costs; inflationary trends in health care costs; the impact of health care costs on the state budget; the impact of hospital charges and third-party reimbursement mechanisms on health care costs; and the education of consumers and providers of health care services in order to encourage price competition in the health care marketplace. The Legislature finds and declares that rising hospital costs and cost shifting are of vital concern to the people of this state because of the danger that hospital services are becoming unaffordable and thus inaccessible to residents of the state. It is further declared that hospital costs should be contained through improved competition between hospitals and improved competition between insurers, through financial incentives which foster efficiency instead of inefficiency, and through sincere initiatives on behalf of providers, insurers, and consumers to contain costs. As a safety net, it is the intent of the Legislature to establish a program of prospective budget review and approval in the event that competition-oriented methods do not adequately contain costs and the access of Floridians to adequate hospital care becomes jeopardized because of unaffordable costs. As a part of its responsibilities the HCCB is required, "after consulting with appropriate professional and governmental advisory bodies and holding public hearings, and considering existing and proposed systems of accounting and reporting utilized by hospitals," to specify a uniform system of financial reporting for hospitals. Section 395.507(1), Florida Statutes Suppl.) to: In order to allow "meaningful comparisons" of data reported by hospitals under the uniform system of financial reporting, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.) to group hospitals according to characteristics, including, but not limited to, a measure of the nature and range of services provided, teaching hospital status, number of medical specialties represented on the hospital staff, percentage of Medicare inpatient days, average daily census, geographical differences, and, when available, case mix. In providing for grouping of hospital, the HCCB is required to establish ten general hospital groups and additional speciality groups "as needed." Section 395.507(2), Florida Statutes (1984 Suppl.). No hospital group can contain fewer than five hospitals, however. Id. Grouping is to be provided by rule. Id. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file its budget with the HCCB for "approval." The budget is required to be filed on forms adopted by the HCCB and based on the uniform system of financial reporting. Section 395.507(6), Florida Statutes (1984 Suppl.). To determine whether a hospital's budget is to be approved, all hospitals in Florida are to be placed in groups. A hospital's budget is then compared to the budgets of the hospitals assigned to its group. Hospital groups for this purpose are established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The provisions of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), are identical to Section 395.507(2), Florida Statutes (1984 Suppl.). In determining whether a hospital's budget is to be approved, Section 305.509(2), Florida Statutes (1984 Suppl.), establishes two initial "screens" which a hospital must meet based upon the hospital's gross revenue per adjusted admission. The term "gross revenue" is defined as: the sum of daily hospital service charges, ambulatory service charges, ancillary service charges, and other operating revenue. Gross revenues do not include contributions, donations, legacies, or bequests made to a hospital without restriction by the donors. Section 395.502(11), Florida Statutes (1984 Suppl.). "Adjusted admission" is defined by Section 395.502(1), Florida Statutes (1984 Suppl.), as: the sum of acute admissions and intensive care admissions divided by the ratio of inpatient revenues generated from acute, intensive, ambulatory, and ancillary patient services to gross revenues. Gross revenues per adjusted admission (hereinafter referred to as "GRAA") is therefore the total hospital ambulatory and ancillary service charges and other operating revenue for all acute and intensive care admissions divided by the ratio of inpatient revenues from acute, intensive, ambulatory and ancillary patient services to gross revenue; or, stated more simply , inpatient revenue per admission. The "screens" which must be met in order for a hospital's budget to be approved upon initial determination are: (1) the hospital's GRAA must not be in the upper 20th percentile of the hospitals within its group; and (2) the rate of increase in a hospital's GRAA as contained in its current budget compared to the hospital's GRAA as reported in its most recently approved budget must not exceed a "maximum allowable rate of increase" if the hospital's GRAA is in the 50th to 79th percentile of the hospitals in its group. If a hospital's GRAA is in the 49th percentile or less of the hospitals in its group, its budget is automatically approved. In determining whether a hospital's GRAA fails the screens, Section 395.509(2), Florida Statutes (1984 Suppl.), provides: Percentile values for gross operating revenue per adjusted admission shall be determined monthly by the board for each group established pursuant to s. 395.507(2) by ranking projected gross operating revenues per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. In determining the applicability of paragraph (a) or paragraph (b), the board shall consider the basis of the projections by the hospital, including consideration of the following factors: any increase in patient admissions caused by the creation of preferred provider organizations or health maintenance organiza- tions, population increases, changes in the hospital case mix or in services offered, changes in technology, or other similar factors. If a hospital's GRAA fails either of the screens (its GRAA is in the upper 20th percentile of its group or its GRAA rate of increase is excessive and its GRAA is in the 50th to 79th percentile of its group) that hospital's budget must be reviewed by the HCCB "to determine whether the rate of increase contained in the budget is just, reasonable, and not excessive." Section 395.509(5), Florida Statutes (1984 Suppl.). Pursuant to Section 395.509(6), Florida Statutes (1984 Suppl.), the HCCB is authorized, if it first determines under Section 395.509(5), Florida Statutes (1984 Suppl.), that the hospital's rate of increase is not just, reasonable and not excessive, to amend or disapprove any hospital's budget which does not meet the two screens of Section 395.509(2), Florida Statutes (1984 Suppl.), to establish a rate of increase which is "just, reasonable, and not excessive." The HCCB's authority under Section 395.509(6), Florida Statutes (1984 Suppl.), applies only if the HCCB first complies with the following pertinent provisions of Section 395.509(5), Florida Statutes (1984 Suppl.): The board shall disapprove any budget, or part thereof, as excess that contains a rate of increase which is not necessary to maintain the existing level of services of the hospital or, if the hospital increases its existing level of services, any amount not necessary to accomplish that increase. In making such deterioration . . . the board shall consider the following criteria: The efficiency, sufficiency, and adequacy of the services and facilities provided by the hospital. The cost of providing services and the value of the services to the public. The ability of the hospital to improve services and facilities. The ability of the hospital to reduce the cost of services. The ability of the hospital to earn a reasonable rate of return. The accuracy of previous budget submissions by the hospital compared to the actual experience of the hospital the The number of patient days reimbursed by Medicare or Medicaid. The number of patient days attributable to the medically indigent. The research and educational services provided by the hospital if it is a teaching hospital. The projected expenditures or revenues for or from construction of facilities or new services which are subject to regulation under s. 381.494 may not be included in the budget of a hospital until the construction or services are approved or authorized by the state health planning agency. The cost of opening a new hospital, for first 3 years. The Challenged Rules. In carrying out its duty to establish a uniform system of financial reporting, the HCCB adopted Section 4D- 1.03, F.A.C., which provides: The Board, pursuant to Section 395.505, Florida Statutes, hereby adopts and establishes a uniform system for hospitals to file the prior year audited actual data report, the interim report of financial and statistical information. This system is described and the forms, instructions, and definitions therefor are contained in the Board's publication entitled Hospital Uniform Reporting System Manual. The Chart of Accounts adopted pursuant to Section 395.507(1), Florida Statutes, and this Chapter 4D-1, and as hereafter modified, shall be utilized by each hospital for submitting the prior year audited actual data report, the interim report and the budget report. In order to determine whether a hospital's budget should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), the HCCB adopted Section 4D-1.12, F.A.C. Sections 4D-1.12(1) and (2), F.A.C., provide: The staff shall review the budget report based upon the hospital's ranking for gross revenue per adjusted admission within its group and upon its rate of change in gross revenue per adjusted admission in the proposed budget as required in Section 395.507(6), Florida Statutes, and the most recently Board approved budget. As part of the budget report review process, groupings of hospitals shall be established according to the characteristics and methodology as outlined in Chapter V, Section B, Hospital Unit Uniform Reporting System Manual and as outlined in Section 395.507(2), Florida Statutes. Percentile values for gross revenue per adjusted admission shall be determined monthly for each group by ranking projected gross revenue per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. 12. Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., are the rules challenged by Mercy. These rules, as quoted herein, were effective as of November 5, 1984. The rules were originally adopted effective June 30, 1980. The rules were amended to their present wording in response to "major" legislation enacted in 1984 which amended Part II, Chapter 395, Florida Statutes (1983), and granted authority to the HCCB for the first time to approve, disapprove or amend hospital budgets under certain circumstances. Chapter 79-106, Laws of Florida. The challenged rules essentially provide that the HCCB, when grouping of hospitals for purposes of the uniform system of financial reporting and for purposes of reviewing and comparing budgets to determine if they should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), will apply the grouping methodology outlined in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). Section 4D-1.18, F.A.C., also adopted effective November 5, 1984, incorporates by reference the Manual within each rule in Chapter 4D-1, F.A.C., which references the Manual. This rule has not been challenged in this proceeding. The Hospital Grouping Methodology and Its Development. Generally, Chapter V, Section B of the Manual, sets out the objective of the grouping methodology, the procedure for forming groups, a list of the variables considered in forming groups and the weight to be accorded each variable. The goals of the grouping methodology, as provided in the Manual, are to "facilitate comparison of hospitals with similar patient mix and market conditions" and to "develop groups of sufficient size . . . to assure statistically valid comparisons." Based upon the procedure for forming groups contained in the Manual, hospitals are grouped into nine, non-teaching, short-term hospital groups, one Major teaching hospital group and a number of specialty hospital groups. It is the method of grouping hospitals into nine short-term hospital groups which is at issue in this proceeding. Assignment of hospitals to the nine short-term hospital groups is accomplished through the use of the "McQueen's K-means clustering algorithm included in the cluster analysis t computer program package CLAN developed by T.D. Klastorin and Robert Ledingham (June, 1980 version)." A clustering analysis is a method of grouping a set of objects (in this case, hospitals) into relatively homogeneous groups. The goal of a clustering algorithm is to minimize the differences between the members of the group. The objects are grouped based upon a set of variables which are considered significant for purposes of comparing the objects. In order to account for the significance of each variable, the variables are weighted. The variables have a numerical score and after weighing, the weighted sum of the variables for each object is compared and the objects are grouped based upon their variable scores. There are a number of clustering algorithms which can be used to group hospitals. The HCCB chose to use the "McQueen's K-means" clustering algorithm. The use of McQueens K-means clustering algorithm has not bean challenged in this proceeding. Nor does the evidence establish that the selection of McQueen's K-means clustering algorithm is arbitrary and capricious. The clustering algorithm is performed by computer. The computer program utilized by the HCCB to perform the algorithm is called "CLAN" and was developed by T.D. Klastorin and Robert Ledingham. The evidence at the hearing supports a finding that the selection of this computer program is reasonable. Once hospitals are grouped, they are notified of their group designation and allowed to request reconsideration of their group assignment. The request must made within thirty days after notification. Following the creation of the HCCB in 1979, Price Waterhouse & Company was engaged by the HCCB as a consultant to assist in still establishing an appropriate hospital grouping methodology. The HCCB also created an advisory committee to assist the HCCB and Price Waterhouse & Company in developing the grouping methodology. This committee, designated as the Technical Advisory Committee (hereinafter referred to as the "TAC") was comprised of individuals from the hospital industry and academia and certified public accountants. The TAC worked with Price Waterhouse & Company in developing the grouping methodology and the uniform reporting system. Because of time constraints, the TAC's involvement with evaluating the methodology was limited. The HCCB ultimately decided to pattern the grouping methodology it adopted after the grouping methodology then being used by the State of Washington, as recommended by Price Waterhouse & Company. The Washington system was not adopted exactly; a number of changes to Washington's methodology were made to the grouping methodology adopted by the HCCB. Mercy has proposed several findings of fact beginning on page 35 and ending on page 38 of its proposed order concerning the "Differences in Washington Hospital Characteristics and Grouping Methodology Model." Those proposed findings of fact can be and are hereby disposed of by the following finding of fact: because of differences in the hospital industries of the States of Florida and Washington and other differences between the two States, Florida's grouping methodology cannot be justified solely on the basis that Washington's grouping methodology was used as a starting point in developing Florida's grouping methodology. Those differences, however, do not support a finding of fact that Florida's grouping methodology is arbitrary and capricious since the Washington system was not adopted without substantial modifications, including a reduction of Washington's eighteen variables initially to fourteen and ultimately to seven, and the use of unequal weighting of the variables. The TAC reviewed and discussed the grouping methodology initially approved by the HCCB prior to its approval. Some of Mercy's witnesses, who were members of the TAC, indicated during their testimony that the TAC never decided anything because no "vote" was ever taken of TAC members and that the TAC did not advise the HCCB but instead advised the staff of the HCCB. Their testimony in this regard has been given little weight. The fact that no formal "vote" was taken of TAC members does not mean that the TAC did not take a position on matters it discussed. The consensus of the TAC could be, and was, gleaned from its discussions. The staff of the HCCB in fact reported decisions of the TAC to the HCCB verbally and by minutes of TAC meetings. Although the accuracy of staff's reports was sometimes questioned, no question was raised about whether TAC had taken positions. The fact that the HCCB staff reported TAC actions to the HCCB also disputes the testimony to the effect that TAC did not advise the HCCB but instead advised the staff of the HCCB. While it may be true that TAC did not deal directly with the HCCB, its analysis was reported, to the HCCB. The HCCB ultimately adopted rules effective June 30, 1980, which incorporated by reference to the Manual, the general outline of the grouping methodology adopted by the HCCB. The TAC ceased to exist following adoption of the HCCB's initial rules. Two new advisory committees were formed: a Technical Advisory Panel (hereinafter referred to as "TAP") on grouping and a TAP for financial analysis. The grouping TAP was made up of individuals from the hospital industry. The grouping TAP met in November and December of 1980 and reviewed the results of test runs of the grouping methodology initially adopted by the HCCB. The results of the initial run were described as "bizarre." This run used equal weighting of the variables. Equal weighting was abandoned and three to four more test runs were made and reviewed by the grouping TAP. After each run the variable weights were adjusted until the results appeared to be "reasonable." The HCCB also established a committee consisting of members of the HCCB designated as the Research and Development Committee (hereinafter referred to as the "R & D Committee"). The R & D Committee reviewed the results of test runs and also found the final groups reasonable. The HCCB met in January, 1981, and adopted the grouping methodology with the adjusted variable weights arrived at as a result of the test runs for use in establishing hospital groups for use in 1981. The grouping methodology was reviewed every year after its initial adoption in 1980. The methodology was reviewed by the HCCB, HCCB's staff, the TAP's and the R & D Committee each year. Throughout the period from 1980 to the present, criticisms of the grouping methodology have been made. Some of these criticisms were agreed with and others were rejected by the HCCB or its staff. Following review of the grouping methodology by the TAP's and the R & D Committee in 1981, the original fourteen variables were reduced to eight. In January, 1982, the weight of one of the variables was changed and one variable was replaced by another variable. In December, 1982, a variable was deleted; seven variables remained. In 1983, clustering analysis was limited in its application to the formation of short-term acute care general hospital groups. In 1984, following the significant amendment of Chapter 395, Florida Statutes (1983), the HCCB adopted the present challenged rules. The rules were effective November 5, 1984. The only change in the grouping methodology approved by the HCCB was the substitution of the Florida price level index variable for percent of population over age 65. The weight assigned to the Florida price level index was the same as the weight that had been assigned to the percent of population over age 65. The changes made to the grouping methodology in 1984 were first suggested by the staff of the HCCB to the grouping TAP in June of 1984. The grouping TAP met on July 11, 1984 and considered and discussed the proposed changes. A number of problem areas were discussed. Although no test run results were presented at this TAP meeting, they were provided to TAP members before the HCCB adopted the grouping methodology changes. Concerns about the geographic or exogenous variables expressed at the grouping TAP meeting suggested a belief that too much or too little emphasis was being placed on geographic considerations. Mercy has proposed a number of findings of fact beginning on page 33 and ending on page 35 of its proposed order concerning the significance of the changes made by the Legislature in 1984 to Part II of Chapter 395, Florida Statutes (1983). Those proposed findings of fact essentially deal with the fact that the powers of the HCCB after the 1984 amendments may have a more significant impact on hospitals and that, therefore, the grouping methodology is of greater interest to hospitals. Mercy's proposed findings of fact are not, however, relevant in determining whether the challenged rules are arbitrary and capricious. The fact that the effect of the grouping methodology on a hospital may now be different does not mean that the use of the grouping methodology, as modified after the 1984 legislative changes to the law, which was developed when the purpose of grouping was different, is not an appropriate methodology. The evidence does not support such a conclusion. Therefore, to the extent that Mercy's proposed findings of fact under Section II, A, of its proposed order have not already been made, they are rejected as unnecessary. Mercy and the HCCB have proposed findings of fact as to whether Mercy has ever questioned the HCCB's grouping methodology since it was first adopted prior to instituting this proceeding. Those proposed findings of fact are not deemed relevant in determining whether the grouping methodology is arbitrary and capricious. If the grouping methodology is in fact arbitrary and capricious, the fact that Mercy did not challenge the methodology when it was first adopted will not make it any less arbitrary and capricious today. Mercy's Challenge. A. Introduction. Mercy is a not-for-profit, general acute care hospital with 550 licensed beds located in Dade County, Florida. Mercy has raised a number of points in this proceeding and its proposed order in challenging the rules in question. All of those points, according to Mercy, prove that the rules are an invalid exercise of delegated legislative authority. In determining whether the facts support such a conclusion, the following standard must be kept in mind: [I]n a 120.54 hearing, the hearing officer must look to the legislative authority for the rule and determine whether or not the proposed rule is encompassed within the grant. The burden is upon one who attacks the proposed rule to show that the agency, if it adopts the rule, would exceed its authority; that the requirements of the rule are not appropriate to the ends specified in the legislative act; that the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation or that the proposed rule or the requirements thereof are arbitrary or capricious. A capricious action is one which is taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion. Agrico Chemical Company v. State, Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978), cert. denied, 376 So.2d 74 (1979). Additionally, the following must be kept in mind: The well recognized general rule is that agencies are to be accorded wide discretion in the exercise of their lawful rulemaking authority, clearly conferred or fairly implied and consistent with the agencies' general statutory duties. . . . An agency's construction of the statute it administers is entitled to great weight and is not to be overturned unless clearly erroneous. . . . Where, as here, the agency's interpretation of a statute has been promulgated in rulemaking proceedings, the validity of such rule must be upheld if it is reasonably related to the purposes of the legislation interpreted and it is not arbitrary and capricious. The burden is upon petitioner in a rule challenge to show by a preponderance of the evidence that the rule or its requirements are arbitrary and capricious. . . . Moreover, the agency's interpretation of a statute need not be the sole possible interpretation or even the most desirable one; it need only be within the range of possible interpretations. Department of Professional Regulation v. Durrani, 455 So. 2d 515, 517 (Fla. 1st DCA 1984). The witnesses who testified in this proceeding who were accepted as experts were qualified in a number of different areas. Those witnesses qualified as experts in statistical analysis or related areas and health care finance rendered opinions as to the appropriateness of the HCCB's grouping methodology. The method of grouping hospitals adopted by the HCCB is a statistical method. Therefore, the determination of whether the HCCB's methodology is arbitrary and capricious depends largely upon whether the methodology is statistically sound. Mercy and the HCCB therefore presented the testimony of witnesses qualified in the area of statistics: Rick Zimmerman, Ph.D., an expert in statistical analysis and social science statistics (for Mercy), and Duane Meeter, Ph.D., an expert in economics and applied statistical analysis and Frank Fox, Jr., Ph.D., an expert in applied statistics (for the HCCB). All three witnesses were knowledgeable and credible. Dr. Zimmerman testified that the HCCB's grouping methodology was "clearly inappropriate." Dr. Zimmerman's opinion was based upon a three step analysis in which he determined: (1) whether the variables selected by the HCCB are appropriate; (2) whether the weights assigned to the variables by the HCCB are appropriate; and, (3) the effect changing the variables and/or weights would have on hospital groups. The results of Dr. Zimmerman's analysis, which formed the basis for his opinion that the HCCB's grouping methodology is not appropriate, are discussed, infra. Mercy has proposed a number of findings of fact in its proposed order concerning the credibility of Dr. Meeter's and Dr. Fox's testimony. Some of those proposed findings of fact have been considered in determining the weight given to their testimony. Both Dr. Meeter and Dr. Fox were, however, knowledgeable and credible. In addition to the opinion of its statistical expert, Mercy presented the testimony of three witnesses who were accepted as experts in health care finance: Messrs. Lawrence R. Murray, Jerry A. Mashburn and Anthony Krayer. All three are certified public accountants. All testified that it was his opinion that the HCCB's grouping methodology was arbitrary. The bases for their opinions are discussed, infra. Selection of "Seed" Hospitals. In order to use a clustering algorithm, a starting point is needed; the first object (hospital) to be placed in each group must be selected. The first objects selected are called "seed" objects. Mercy has attached the HCCB's method of selecting the nine "seed" hospitals in initially performing the McQueen's K-means clustering algorithm. Mercy has proposed the following findings of fact with regard to this point: While none of the parties challenged the use of McQueen's and the CLAN program, no support was offered during the hearing for the method by which the HCCB had selected the nine seed hospitals as initial clustering points. The HCCB's own statistician criticized the HCCB's selection method. The Rankis-Zimmerman report indicates that the final groupings based upon the HCCB's seed hospitals were vastly different than groupings based upon the utilization of seed hospitals selected on a statistical basis. Both the HCCB's and Mercy's statisticians proposed statistically sound methods for selecting seed hospitals, which had not been employed by the HCCB in the Grouping Methodology. [Citations omitted] These proposed findings of fact are not relevant to this proceeding. The burden is on Mercy to show that the selection of "seed" hospitals was arbitrary and capricious; the HCCB is not required to show "support" for its method of selecting the seed hospitals. Additionally, whether there are other methods of selecting seed hospitals is not the test. The HCCB's interpretation of the statute need not be the sole interpretation or even the most desirable one; it only needs to be within the range of possible interpretations. Durrani, supra. Therefore, even if the Rankis-Zimmerman report does indicate that the final groupings of hospitals of the HCCB were vastly different than groupings based upon other methods of selecting seed hospitals, it does not automatically follow that the HCCB's method of selecting seed hospitals was not "within the range of possible interpretations. The weight of the evidence does not prove that the HCCB's method of selecting seed hospitals was arbitrary and capricious. Selection of the Variables. In delegating legislative authority to the HCCB to establish a grouping methodology, the Legislature provided that the following relevant characteristics are to be taken into account: A measure of the nature and range of services provided; Number of medical specialties represented on the hospital staff; Percentage of Medicare inpatient days; Average daily census; Geographic differences; and Case mix, "when available." In response to the Legislature's mandate, the HCCB has adopted seven variables or characteristics. The variables selected by the HCCB include five hospital- specific (endogenous) variables and two geographic (exogenous variables). The variables are as follows: Endogenous Variables: Average occupied beds. Available services. Physician mix. Number of residents. Percent Medicare days. Exogenous Variables: Florida price level index. Personal income. The following findings of fact are made with regard to each of the specific characteristics required to be taken into account by the Legislature and the variables adopted by the HCCB: 1. A measure of the nature and range of services provided. The HCCB has provided in the Manual that "available services" or a service index will be considered. The specific services considered are listed on Table B, Chapter V, of the Manual. Table B also weights or provides a score for each of the various services listed. Each hospital gets the specified score if it has a particular service available. The available services listed are based upon a survey of hospital administrators and chief financial officers in New York, New York, made in the 1970's. Problems with the list of available services have been pointed out to the HCCB and its staff. The primary problem is that the volume of services provided is not taken into account. The problems with the service index, however, relate to the fact that the service index is a proxy for case mix. To date, there is no alternative available which would be a better proxy for case mix. The Legislature contemplated this fact by providing that a measure of the services provided by a hospital will be considered and that case mix will be taken into account "when available." Therefore, while there are "problems" with the service index, consideration of available services is mandated by the Legislature and there are no acceptable alternatives available use for by the HCCB. 2. Number of medical specialties represented on the hospital staff. 52. The HCCB has provided that a physician specialties mix be considered in grouping hospitals. This physician specialties mix is based upon a list of twenty- six specialties for which a hospital gets a single credit for each specialty available regardless of the number of physician specialists available in each specialty or the volume of patients admitted by a physician. 52. Like the service index, the physician specialties mix is a proxy for ease mix and has problems associated with its use. Also like the service index, consideration of this factor is mandated and there are no acceptable alternatives available for use by the HCCB. 3. Percentage of Medicare inpatient days. 53. The HCCB has provided that "percentage Medicare days be considered in grouping hospitals. Consideration of this variable has not been shown to be arbitrary and capricious. 4. Average daily census. 53. The HCCB has provided that "average occupied beds" is to be considered in grouping hospitals. It does not appear that this variable's use was proper, as discussed, infra. 5. Geographic differences. The HCCB has provided that geographic differences be considered in grouping hospitals by providing for the inclusion of the Florida price level index, by county, and median income, by county, as variables to be considered. The only thing that the evidence established with regard to these variables was that they are not "very good" predictors, that "if" they are intended as a measure of input prices they are "poor substitutes," and that there may be "better" measures of the cost of doing business. The evidence does not, however, show that the use of these variables is arbitrary and capricious. Mercy has proposed a number of findings of fact concerning geographic influences in part II, H of its proposed order. The proposed findings of fact begin on page 29 and end on page 33. Most of these proposed findings of fact are not made in this Final Order because they are not deemed relevant or material and are unnecessary to the resolution of this proceeding. The proposed findings of fact contained in part II, H of Mercy's proposed order purportedly show that the HCCB has inadequately accounted for geographic influences. The evidence does establish that the financial characteristics of Florida hospitals and GRAA are affected by the geographic location of a hospital. This is especially true in Florida because of the impact on parts of the State from tourism, language barriers, the number of elderly residents, the available labor markets, and competition. It is also true that the combined weights of the two geographic variables the HCCB has selected for consideration in the grouping methodology--the Florida price level index and median income--is only one-seventh of the combined weights of all the HCCB's variables. It is also true that the grouping methodology results in hospitals from different areas of the State being grouped together, i.e., Mercy's hospital group includes twenty- three hospitals, four of which are located in Dade County and three of which are located in Escambia County. It does not necessarily follow, however, that the HCCB has been arbitrary and capricious in designating only two variables to take into account geographic differences between hospitals. The evidence also does not support a conclusion that it was not proper for the HCCB to limit the weight of the geographic variables to one-seventh of the total weight of the variables. Nor does the evidence demonstrate that the inclusion of hospitals from different areas of the State in the same group is not a proper result just because geographic influences are important. The fact that a large percentage of Dade County and south Florida hospitals do not qualify for automatic approval of their budgets under Section 395.509(2), Florida Statutes (1984 Suppl.), because they are in the upper 20th and the upper 50th to 79th percentiles does not necessarily prove that geographic influences have not been adequately accounted for either, as suggested be Mercy on page 30 of its proposed order. The evidence simply does not support such a conclusion. Nor does it necessarily follow that because Dade County hospitals are "efficient" in the minds of some of Mercy's witnesses and yet are unable to achieve automatic approval of their budgets that the grouping methodology does not adequately account for geographic influences, as suggested by Mercy on pages 30 and 31 of its proposed order. First, the Legislature has provided that factors other than geographic differences are to be considered, which the HCCB has provided for. It may therefore be that some Dade County hospitals do not achieve automatic approval of their budgets because of the other variables. The fact that not all Dade County hospitals fail to achieve automatic approval of their budgets supports such a conclusion. Also, even though a hospital's budget is not automatically approved it does not necessarily mean that it is considered inefficient. If that were the case, its budget would probably be subject automatically to amendment or disapproval. That is not the case. If a hospital's budget is not automatically approved its budget is subject to further review under Section 395.509(5), Florida Statutes (1984 Suppl.). It may still be determined that the hospital is "efficient" based upon this review. The Legislature, in enacting Part II of Chapter 395, Florida Statutes, did indicate that it intended to promote competition and efficiency among hospitals in order to contain hospital costs. Section 395.5025, Florida Statutes (1984 Suppl.). The grouping methodology and, in particular, the comparison of hospitals' GRAA under Section 395.509(2), Florida Statutes (1984 Suppl.), does not alone achieve that intent. Therefore the opinion of several of Mercy's witnesses that Dade County hospitals and in particular, Mercy, are efficient does not support a conclusion that the methodology is arbitrary and capricious or that geographic influences are not adequately considered. On pages 31 and 32 of its proposed order, Mercy suggests that Dade County hospitals only compete with other Dade County hospitals and therefore grouping hospitals from all sections of the State is illogical. In support of this suggestion, Mercy proposes findings of fact to the effect that the HCCB has recognized that consumers are interested in comparing hospital charges on a regional basis and has provided information about hospital cost on a county-by- county basis in the past. Mercy's proposed findings of fact are not accepted for essentially the same reasons that its proposed findings of fact with regard to the efficiency of hospitals were rejected. These proposed findings of fact do not support a finding that the HCCB's grouping methodology is arbitrary and capricious or that geographic differences have not been adequately taken into account. Mercy's has also proposed findings of fact with regard to geographic differences to the effect that after the Legislature specifically required that "geographic differences" be considered in an amendment to Chapter 395, Florida Statutes (1981), in 1982, the HCCB has not added any additional geographic factors to be considered. Although no additional geographic variables have been added, geographic variables have been reviewed and have been changed since 1982. More importantly, these proposed findings of fact do not prove that the existing variables are not adequate. 6. Case Mix. 66. Case mix is to be taken into account "when available." The evidence does not establish that case mix is available at this time. 7. Other variables. The HCCB is not limited to a consideration of the factors which the Legislature specifically provided are to be considered. Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.). The only other variable the HCCB has provided for consideration is "number of residents." No evidence of significance concerning this variable was presented at the hearing. There was testimony at the hearing that there are other variables which would be appropriate for consideration in grouping hospitals. The evidence does not, however, establish that failure to consider other variables means that the grouping methodology adopted by the HCCB is arbitrary and capricious. Dr. Zimmerman opined that he had determined that the variables selected by the HCCB were not appropriate. Dr. Zimmerman based his opinion upon the fact that he had conducted a "multiple regression analysis." According to Dr. Zimmerman, a "multiple regression analysis is a statistical procedure used to evaluate the relationship of a given set of independent, predictor variables (the HCCB's seven variables) to a single dependent variable (GRAA)." Based upon his application of multiple regression analysis, Dr. Zimmerman concluded that three of the variables used in the HCCB's grouping methodology are not statistically significant predictors of GRAA: available services, average occupied beds and median income. Two of these variables (available services and average occupied beds) are required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), to be taken into account in the grouping methodology. These Sections also require that geographic factors, which median income is, be taken into account. This does not, however, mean that median income must be included as a variable by the HCCB. Dr. Meeter testified that the statistical significance of the HCCB's variables can be determined by the use of "log transformation." Based upon Dr. Meeter's use of log transformation, median income and available services are statistically significant variables; average occupied beds is not statistically significant. Although the HCCB was required to include "average daily census" as a factor in grouping hospitals, the HCCB was not required to use "average occupied beds." Based upon Dr. Zimmerman's and Dr. Meeter's testimony, the use of average occupied beds as a variable was not proper. Whether the use of available services and median income as variables was proper depends upon whether log transformation is a proper method of determining the statistical significance of variables. Although the evidence on this question was in conflict, it appears that the use of log transformation was proper. The inclusion of available services and median income is therefore not arbitrary and capricious. A second problem with the variables used by the HCCB suggested by Dr. Zimmerman involves the correlation between the seven predictor variables or "multicollinearity." The existence of multicollinearity can invalidate a clustering program. Dr. Zimmerman determined that the correlation between the physician mix, available services and average occupied beds variables and between the Florida price level index and median income variables is large enough that there is a "potential" problem. Dr. Zimmerman's determination that there is a "potential" problem was made through two techniques. He first used "paired correlation." Based upon paired correlation, Dr. Zimmerman used a "rule of thumb" that a paired correlation of 0.7 or higher should be looked at closer. Finding a paired correlation between physician mix, available services and average occupied beds of .74 and between the Florida price level index and median income of .71, Dr. Zimmerman then calculated "R squared" to determine if a potential problem did in fact exist. Dr. Zimmerman indicated that the calculation of R squared is the most highly recommended method of determining if multicollinearity is a problem but agreed there are other methods of making such a determination. Dr. Meeter indicated that Dr. Zimmerman's rule of thumb that based upon paired correlations of 0.7 or higher indicates the problem should be looked at more closely is too strict. Other than Dr. Zimmerman's "experience" (which according to Dr. Zimmerman, consisted of a class he took), Dr. Zimmerman did not cite any authority which supported his rule of thumb. The only other source Dr. Zimmerman referred to--the "SPSS" manual--only indicates that the .82-1.0 range indicates that extreme collinearity exists. Another problem raised by Dr. Meeter with Dr. Zimmerman's conclusions as to multicollinearity, involves the use of "variance inflation factors" (hereinafter referred to as VIF is another technique used by statisticians to determine if multicollinearity is a problem. Dr. Zimmerman did not look at VIF. VIF can be determined by transforming R squared: VIF 1/1- R2. A VIF in excess of 5 or 10 is an indication that multicollinearity exists. One source quoted by Dr. Meeter even indicates that a much higher VIF is necessary to conclude that multicollinerity exists. Transforming Dr. Zimmerman's R squared calculations indicates that VIF is in excess of 5 in only one instance. As discussed more fully, infra, Dr. Zimmerman used a number of alternative methods of grouping hospitals which he designated as "Schemes." Based upon Dr. Zimmerman's "Scheme 3," Dr. Zimmerman found an R squared value of .819. The VIF for an R squared value of .819 is in excess of 5. Scheme 3, however, is not an application of the HCCB's grouping methodology; it is a grouping methodology in which the variables are assigned different weights. As indicated by Dr. Meeter, the weights used in grouping can effect the correlation of the variables. Therefore, the fact that Scheme 3 indicates a possible multicollinearity problem does not prove that multicollinearity is in fact a problem with the HCCB's grouping methodology. Based upon the foregoing it is found that multicollinearity does not exist sufficiently to conclude that the variables used by the HCCB are arbitrary and capricious. Dr. Zimmerman only testified that there was a "potential" problem. Additionally, although multicollinearity may invalidate a clustering program, the evidence does not prove that the HCCB's clustering program is in fact invalid because of any existing "potential" problem. In light of the foregoing findings of fact, it is clear that the HCCB's variables are appropriate with the exception of average occupied beds. The fact that this one variable is not statistically significant, however, does not by itself support a finding that the grouping methodology is inappropriate. The Lack of Testing of the Grouping Methodology. A third point raised by Mercy is entitled "Lack of Testing" in its proposed order and includes several proposed findings of fact on pages 17 and 18 of Mercy's proposed order. Mercy has essentially proposed findings of fact that: (1) it had been recommended to the HCCB when it originally adopted its grouping methodology in 1980 that a statistician be hired to test the grouping methodology; (2) that the failure to do so had been criticized in the past; that it had been recommended that the HCCB obtain assistance of individuals knowledgeable in Florida hospital characteristics to evaluate the grouping process but had failed to do so; (4) that the HCCB had not, until just prior to the hearing of this case, hired a statistician; (5) that the HCCB has not used multiple regression analysis or within-cluster co- variance weighting; and, (6) that the State of Washington's State Hospital Commission has employed a statistician to test its methodology and has effectively been advised by individuals knowledgeable with Washington's hospital characteristics. These proposed findings of fact do not establish that the grouping methodology adopted by the HCCB is arbitrary and capricious even if they were all correct findings of fact. All that these proposed findings of fact show is that the HCCB may not have gone about the adoption of its grouping methodology in the most appropriate manner. Any such shortcomings, based upon 20/20 hindsight, in the manner in which the methodology was adopted do not prove that the grouping methodology itself is not appropriate. Additionally, the evidence does not support all of these proposed findings. In particular, as was discussed, supra, the HCCB did in fact look to individuals knowledgeable in Florida hospital characteristics to evaluate its grouping methodology. The Weight of the Variables. The most significant and troublesome challenge made by Mercy to the HCCB's grouping methodology involves the weights assigned to the variables considered in grouping hospitals. The weights assigned by the HCCB to the seven HCCB variables are: Variable Weight Endogenous: Average occupied beds. 1.0 Available services. 2.0 Physician mix. 0.5 Number of residents. 0.5 Percent Medicare days. 2.0 Exogenous: Florida price level index. 0.5 Personal income. 0.5 The determination of whether the weights selected by the HCCB are arbitrary and capricious depends largely upon the evidence presented at the hearing by those witnesses knowledgeable in the field of statistics. Three witnesses were qualified as experts in statistically related fields. All three were well qualified in their fields and were credible and persuasive. According to Dr. Zimmerman, "the weights used currently by the HCCB are clearly inappropriate." In Mercy exhibit 17, Dr. Zimmerman reaches the following conclusion with regard to the HCCB's variable weights: These weights clearly do not reflect the relationship of the various variables to GRAA and thus appear as arbitrary and inappropriate for use in clustering hospitals on the basis of cost-related variables. Dr. Zimmerman's opinion is based upon the use of "multiple regression analysis," which, according to Mercy exhibit 17, "assesses the relationship of each of the predictor variables to the dependent measure (GRAA)." The evidence, however, does not support a finding of fact that multiple regression analysis is the only statistically valid method of establishing weights to be used in clustering analysis. In fact, there are a number of statistically valid methods of establishing variable weights. One of those acceptable methods is the "subjective" method which was used by the HCCB. Doctors Meeter and Fox substantiated this finding of fact. The use of the subjective method involves the participation of individuals knowledgable in the Florida hospital industry in reviewing and commenting on the weights used. The evidence clearly supports a finding that individuals with such knowledge participated in the process of developing the HCCB's grouping methodology including the selection of variable weights. Even one of Mercy's witnesses provided testimony which supports this conclusion: Mr. Kenneth G. McGee testified that "[i] t was just a trial and error process of changing weights until we ended up with something that people considered more reasonable than what had been produced in the past." Mercy has questioned Dr. Meeter's testimony with regard to the use of the subjective method of weighting variables based upon a number of proposed findings of fact. First, Mercy has proposed findings of fact to the effect that Dr. Meeter indicated that the subjective method is "bad" if not carefully applied. What Dr. Meeter actually said was that any method should be applied carefully. Secondly, Mercy has proposed a finding of fact that in a book relied upon by Dr. Meeter in rendering his opinion about the subjective method--John Hardigan's 1975 book, Clustering Algorithms--the author describes the subjective method as an "unsatisfactory" one. What Dr. Meeter's testimony proves is that Hardigan's comment was a tongue- in-cheek comment that there are several appropriate methods of weighting variables all of which are unsatisfactory, including regression analysis (used by Dr. Zimmerman) and the subjective method (use by the HCCB). Dr. Meeter also relied upon other statistical literature in rendering his opinion as to the use of the subjective method in determining variable weights. Finally, Mercy has suggested that Dr. Meeter did not undertake any independent "statistical" analysis which would support his opinions. Based upon the nature of Dr. Meeter's testimony, it does not appear that such a statistical analysis is a prerequisite to concluding that the use of the subjective method is an acceptable method of determining variable weights. Mercy has proposed a finding that the subjective method of weighting is inappropriate based upon Dr. Zimmerman's testimony. Dr. Zimmerman was asked the following questions and gave the following responses concerning the subjective method: Q Now, in your understanding of how the Board arrived at its weights, is it your opinion that that is totally inappropriate methodology for clustering? Yes or no or maybe? A I am looking to counsel for counsel here. MR. PARKER: Do you understand the questions? THE WITNESS: I do understand the question. And let me give you my full answer as I best understand it. The weights -- and I think what I have commented on at great length -- the weights used by the Hospital Cost Containment Board are clearly on statistical grounds inappropriate. There's no question about that. BY MR. COLLETTE: Now, on these clustering grounds, you testified as to your familiarity with clustering grounds, on clustering grounds, are they totally inappropriate? A If the question is -- I wouldn't say that. Hearing that there is no objection, I will continue. I would rule out the use of a purely subjective weighting scheme as a final solution for cluster analysis. I think it might be one that would be considered at a very early step, but never used, as kind of a preliminary idea. However, I would clearly rule out the use of a purely subjective weighting scheme as something to be proud of and actually put into application. So, if that means yes to your question, I guess yes in that specific way. Dr. Zimmerman's responses are not totally clear with regard to whether the subjective method is, in his opinion, an acceptable method of determining variable weights. Nor would his response, if totally clear, overcome the weight of the evidence in support of a conclusion that the HCCB's method of determining variable weights is not arbitrary and capricious. Alternative Methods of Grouping Hospitals. Mercy has proposed a number of findings of fact under a section of its proposed order entitled "Alternative Variables and Weights Indicated by Statistical Analyses." Pages 22 to 29 of Mercy's proposed order. Some of the proposed findings included therein have been dealt with in other portions of this Final Order, including those findings of fact dealing with the use of multiple regression analysis and multicollinearity. In Dr. Zimmerman's report (Mercy exhibit 17) and during his testimony a number of alternative methods of grouping hospitals were tested and evaluated. Dr. Zimmerman concluded that a number of these alternative methods would be preferable to the methodology adopted by the HCCB. Dr. Zimmerman tested twelve different methods (referred to as "Schemes" by Dr. Zimmerman): the HCCB's, the State of Washington's and ten other methods which used some or all of the seven variables designated by the HCCB. Scheme 3 used all seven variables selected by the HCCB but with different weights. Dr. Zimmerman rejected this scheme because of multicollinearity. In Scheme 4, Dr. Zimmerman used only the four variables which he found to be statistically significant: physician specialties mix, number of residents, percent Medicare days and the Florida price level index. Dr. Zimmerman recognized that this Scheme was not acceptable because of the statutory mandate as to the types of factors which must be taken into account. In order to recognize the requirement of Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), that certain variables be taken into account and to alleviate the purported multicollinearity problem, Dr. Zimmerman combined the variables he considered highly correlated into two "scales." "Scale 1" combined physician specialties mix, available services and average occupied beds and "Scale 2" combined the Florida price level index and median income. The weights assigned to these scale were based upon the weights Dr. Zimmerman felt were more appropriate as discussed, supra. Dr. Zimmerman then used multiple regression analysis and a variety of combinations of variables and Scales in Schemes 6-12. Of these Schemes, Dr. Zimmerman testified that Schemes 6 and 10 were preferable, if Scheme 4 could not be used. Scheme 6 involved the use of all of the variables: percent Medicare days, number of residents and Scales 1 and 2. Scheme 10 involved the use of all of the variables except median income: percent Medicare days, number of residents, the Florida price level index and Scale 1. Dr. Zimmerman compared the results of using the HCCB's grouping methodology to the results from using Schemes 3,4,6 and 10. The results showed that more Dade County hospitals had GRAA's, in comparison to the hospitals in the resulting groups under Schemes 3,4,6 and 10, which would result in automatic approval of their budgets than under the HCCB's methodology. Mercy's position within its group also improved as a result of using Schemes 3,4,6 and 10. These proposed findings of and Mercy's proposed findings of fact concerning alternatives considered by Dr. Meeter do not prove that the HCCB's grouping methodology is arbitrary and capricious. As found, supra, six of the seven variables selected by the HCCB are reasonable. The weights assigned to those variables have also been found to be reasonable and Mercy's suggested findings of fact with regard to multicollinearity have been rejected. Mercy has failed to prove that the HCCB's grouping methodology is arbitrary and capricious. Therefore, any alternative methods or Schemes and the results of using such methods cannot and do not overcome such findings. Conclusions. Based upon the foregoing, it is clear that the bases for the opinions that the HCCB's grouping methodology is inappropriate are not supported by a preponderance of the evidence. Dr. Zimmerman's opinion, which was based upon a number of conclusions, was only supported by the fact that one of the variables selected by the HCCB is not proper. The evidence, however, does not support a finding that this fact alone means that the grouping methodology adopted by the HCCB is inappropriate. The facts do not support a conclusion that the grouping methodology adopted by the HCCB is arbitrary and capricious.
The Issue Whether Petitioners (collectively referred to as "Humana") are entitled to exemptions from the Certificate of Need ("CON") Law, to establish certain services at their facilities, pursuant to Subsection 381.713(1)(b), Florida Statutes (1989), (a provision which was repealed by Chapter 91-282, Laws of Florida). Whether Intervenors have standing to contest the exemption requests of Humana.
Findings Of Fact Petitioners Humhosco, Inc. d/b/a Humana Hospital Brandon (Humana Brandon) in Hillsborough County applied for CON exemption to initiate open heart surgery services. Humhosco, Inc. d/b/a Humana Hospital Northside (Humana Northside) in St. Petersburg, Pinellas County, applied for a CON exemption to initiate open heart surgery and inpatient MRI services. Humana of Florida, Inc. d/b/a Humana Hospital St. Petersburg (Humana St. Petersburg), in Pinellas County applied for a CON exemption to establish a Level II neonatal intensive care unit (NICU). Humana of Florida, Inc. d/b/a Humana Hospital Pasco (Humana Pasco) in Dade City, Pasco County, applied for CON exemption to initiate inpatient cardiac catheterization. Humana of Florida, Inc. d/b/a Humana Hospital Bennett (Humana Bennett) in Plantation, Broward County applied for a CON exemption for a Level II NICU. Community Hospitals of Humana, Inc. d/b/a Humana Hospital Cypress (Humana Cypress) in Pompano Beach, Broward County applied for CON exemption to perform inpatient cardiac catheterization procedures, and for substance abuse and psychiatric beds. Community Hospital of The Palm Beaches, Inc. d/b/a Humana Hospital Palm Beaches (Humana Palm Beaches) in Palm Beach County applied for a CON exemption to perform inpatient cardiac catheterization procedures. Humana Hospital Pembroke Pines, Inc. d/b/a Humana Hospital Pembroke Pines (Humana Pembroke) in Broward County applied for CON exemptions for open heart surgery, inpatient cardiac catheterization, Level II NICU, psychiatric and comprehensive rehabilitation beds. Intervenors Adventist Health System/Sunbelt, Inc. (Adventist) filed a Notice of Voluntary Dismissal on June 3, 1991. Florida Hospital Association (FHA) is a trade association of approximately 225 hospitals in the State of Florida. The Association of Voluntary Hospitals of Florida, Inc. (AVHF) is a not-for-profit corporation representing approximately 90 private and public not- for-profit hospitals in the State of Florida. All Children's Hospital (ACH), a 144-bed children's specialty hospital with Level II and Level III NICU beds, is a Regional Perinatal Intensive Care Center (RPICC) located in St. Petersburg in HRS District 5 for Pinellas/Pasco Counties. Florida Medical Center, Ltd. (FMC) is a 459-bed acute care hospital in HRS District 10, Broward County, at which services include inpatient cardiac catheterization, open heart surgery, and short term psychiatric services. Lakeland Regional Medical Center (LRMC) is an 897-bed acute care hospital, located in Polk County in HRS District 6, with a range of cardiac services, including open heart surgery. Plantation General Hospital (Plantation), a general acute care hospital in HRS District 10, Broward County, offers cardiac catheterization and Level II NICU among its procedures and programs. South Broward Hospital District (SBHD), a legislatively-created special taxing district, operates a 737-bed Memorial Hospital in HRS District 10, Broward County, at which its services include open heart surgery, inpatient cardiac catheterization, Level II and III neonatal intensive care, short-term inpatient psychiatric treatment, and inpatient comprehensive rehabilitation. St. Anthony's Hospital is a 434-bed community hospital in St. Petersburg, Pinellas County, which is in HRS District 5, and offers inpatient cardiac catheterization. St. Joseph's Hospital is a 649-bed facility in Tampa, Hillsborough County, which is in HRS District 6, and provides inpatient cardiac catheterization and open heart surgery. St. Mary's Hospital, a 378-bed general, acute-care hospital in West Palm Beach, Florida, offers Level II and III NICU, and inpatient cardiac catheterization. Hillsborough County Hospital Authority, operates Tampa General Hospital (Tampa General) in HRS District 6, with 1,024 beds and a range of cardiac services, including open heart surgery. University Community Hospital (UCH) is located in HRS District 6, and is an existing provider of open heart surgery. Standing Adventist failed to present evidence of standing. FHA members include all of the petitioners and intervenors in this case. AVHF members include at least one member providing the same service in the same HRS District as the services which the eight Humana hospitals seek to establish by the exemption requests. ACH is an existing provider of Level II NICU in HRS District 5, the same service in the same area as proposed in the exemption request of Humana St. Petersburg. FMC provided 10% of its cardiac services in 1990 to HMP enrollees and is an existing provider of inpatient cardiac catheterization, open heart surgery, and short term psychiatric services in HRS District 10, which are, in part, the subjects of the Humana Cypress and Pembroke exemption requests. At LRMC, from October 1, 1989 through September 30, 1990, 163 open heart surgeries, 215 cardiac catheterizations, 22 angioplasties, and 1,434 other cardiology procedures were performed on patients discharged to zip codes included by Humana Brandon in its service area for its exemption request for open heart surgery. Plantation is an existing provider in HRS District 10 of inpatient cardiac catheterization, for which Humana Cypress requested exemption, and Level II NICU, for which Humana Bennett requested exemption, and both of which services are included in the Humana Pembroke exemption request. SBHD estimates the range of patients lost, as a result of approval of the exemption requests of Humana Pembroke and Humana Bennett, at between 25-344 cardiac catheterizations, 58-434 open heart surgeries, up to 232 substance abuse treatments, between 8-352 comprehensive rehabilitations, 25-1933 short-term inpatient psychiatric, and 58-1354 neonatal patients. St. Anthony's provides inpatient cardiac catheterization in St. Petersburg and Southern Pinellas County, the same service in an overlapping service area as proposed in the Humana Pasco exemption request. St. Joseph's service areas for inpatient cardiac catheterization and open heart surgery overlap those in the exemption requests of Humana Pasco for cardiac catheterization, and overlap those of Humana Brandon and Humana Northside for open heart surgery. St. Mary's is a Humana Care Plan provider for inpatient cardiac catheterization, in a service area overlapping that proposed for inpatient cardiac catheterization by Humana Palm Beaches, and for NICU at Humana Bennett, since St. Mary's is one of the designated statewide Regional Perinatal Intensive Care Centers. Tampa General is under contract to Humana HMO, PPO and insurance subscribers, and provided 116 open heart surgeries to patients included within the service area of the Humana Brandon exemption request, and projects its loss of gross revenue at $1.5 million from the approval of the Humana Brandon exemption request for open heart surgery. At UCH, which has a service area within the area proposed for open heart surgery at Humana Brandon, twenty open heart surgeries in fical year 1990, and forty open heart surgeries in the first six months of 1991 were performed on HMP enrollees, the latter generating approximately $2 million in gross revenues. Amendment of Applications for Exemption (Costs) The June 1990 Humana exemption requests failed to include the costs of the services proposed, as required by Florida Administrative Code 10- 5.005(2)(a). HRS reviewed the requests, failed to notify Humana of the omission of cost data, and failed to cite the absence of that data as a basis for its decisions. The cost of services is included implicitly within the statutory criterion for review of exemption requests, because cost may be a factor in distinguishing between services which are or are not available by exemption. Tertiary and Inpatient Institutional Health Services or Beds Subsection 381.702(20), Florida Statutes, defining "tertiary health services" was enacted subsequent to the HMO exemption in Subsection 381.713(1), Florida Statutes, without any concurrent, material amendment of the latter. NICU and comprehensive rehabilitation are included in Subsection 381.702(2), Florida Statutes, as examples of tertiary health services. Open heart surgery is included within the definition of tertiary health services in Florida Administrative Code Rule 10-5.002(66). Inpatient cardiac catheterization is an inpatient institutional health service. Short-term inpatient psychiatric and substance abuse services are included in "alcohol treatment, drug abuse treatment and mental health services" as defined in Subsection 381.702(9), Florida Statutes. Because they are within the definition of "health services" but not within the definition of "tertiary services", short-term inpatient pschiatric and substance abuse are also included within the definition of "institutional health services" which may be exempt from CON regulation if all other provisions of the HMO exemption provision are met. Certain inpatient institutional health services, such as substance abuse and psychiatric services are authorized by the issuance of licenses designating the number of approved beds which may be used in offering the service. Need methodology and physical plant requirements are factors which differ in the requirements for services offered in approved licensed beds. The HMO exemption provision encompasses inpatient services provided in licensed bed inventories, in the phrase "inpatient institutional health services." Nature and Control of Facilities Each of the eight Humana hospitals are health care facilities, as defined in Subsection 381.702(7), Florida Statutes. Each of the eight Humana hospitals are licensed acute care hospitals which primarily provide inpatient health services, as required by Subsection 381.713(1)(b)1., Florida Statutes (1989). Humana Pembroke Humana Pembroke Pines, Inc. was incorporated in December 1989. It acquired the assets of Pembroke Pines General Hospital, pursuant to an asset sale and purchase agreement, the performance of which was guaranteed by Humana, Inc. Humana Medical Plan, Inc. (HMP), an HMO, is a wholly-owned subsidiary of Group Health Insurance, Inc., which in turn is a wholly-owned subsidiary of Humana, Inc. Although HMP acquired 100% of the stock in Humana Pembroke Pines, Inc., documents filed with state and federal agencies, other than HRS and the Department of Insurance, continued to list Humana, Inc. as the insured or controlling entity. Humana first indicated to HRS that the acquisition of Pembroke Pines General Hospital would be made by Humana Hospital Pembroke Pines, Inc., with a possible change of ownership to another Humana subsidiary, and subsequently notified HRS that the acquiring subsidiary would be HMP. Based on Humana's notice that the acquisition would not result in a change in beds or services, HRS determined that the acquisition of Pembroke Pines was not reviewable under CON requirements. An internal memorandum dated February 1, 1990, indicates that Humana planned to take advantage of the HMO exemption request prior to the acquisition of Pembroke Pines General Hospital, but did not report its plans to HRS. On March 2, 1990, HRS issued a license to Humana Hospital Pembroke Pines, Inc. There is no evidence to support the assumption that HRS would not have approved the acquisition of Humana Pembroke, or that Humana's plans to utilize the HMO exemption would have invoked CON review of the acquisition and resulted in a denial of the acquisition. Humana Pembroke is controlled directly or indirectly by HMP, the Humana HMO, as required by Subsection 381.713(1)(b)2. Enrollment of 50,000 Individuals Within the Service Area Subsection 381.713(1)(b)2., Florida Statutes, required the enrollment of at least 50,000 enrollees within the HMO's service area. The term "service area" is not used in the statute on CON application review criteria. Rather that statute, in Section 381.705, Florida Statutes, uses the term "service district", which is defined in Subsection 20.19(7), Florida Statutes, as the organizational components of HRS. The term "service area" is also not used in Subsection 641.47(3), Florida Statutes; that statute defines the area in which an HMO does business as an approved "geographic area". The HMO service area, under the exemption provision, is the HMO's geographic area, because the requirement in subsection (2), that the HMO have 50,000 enrollees, otherwise would be indistinguishable from the requirement in subsection (3), that the facility's access area have 50,000 enrollees. HMP's appoved service area includes Broward, Dade, Flagler, Hillsborough, Orange, Osceola, Palm Beach, Pasco, Pinellas, Seminole and Volusia Counties, and approximates 400,000 enrollees. Facility Geographically Located So That Service Is Reasonably Accessible To The 50,000 Enrollees Accessibility standards for various services are established for CON applications by rules. There is no reason to distinguish between the standards used for the determination of accessibility to health services within the CON application process and the standards applicable to making that same determination within the CON exemption request process. Florida Administrative Code Rule 10-5.011(1)(o)6. establishes a standard of 45 minutes maximum ground travel time under average travel conditions for access to inpatient psychiatric services, which is the equivalent of a 15-mile radius for Humana Pembroke. Humana Pembroke's exemption request, filed in June 1990, as up-dated in July, identified 55,592 enrollees within a 15-mile radius of the hospital. This enrollment data was given by zip code in Attachment 3B for inpatient cardiac catheterization and in Attachment 3D for short term inpatient psychiatric services. 1/ In its September 1990 CON application for inpatient cardiac catheterization, which has the slightly longer travel time of one hour, Humana Pembroke identified a service area with zip codes which would include only 21,375 of the 55,592 enrollees. When compared to enrollment data for the same zip codes in Humana's Exhibit 41, the most recent data available, enrollment in Humana Pembroke's zip codes for inpatient cardiac catheterization services and short term inpatient psychiatric services equals 27,083 HMP members, although one zip code, 33154, does not appear on Exhibit 41. Even accepting Humana's assertion that 321 enrollees reside in zip code 33154, total enrollment would equal 27,404. Humana has failed to demonstrate that Humana Pembroke is geographically located so as to be reasonably accessible to provide either inpatient cardiac catheterization or short term inpatient psychiatric services to 50,000 HMP enrollees. Limitation of Service to HMO Enrollees HRS preliminarily determined that Humana Pembroke's exemption request for inpatient cardiac catheterization services should be granted but that the service should only be available to HMP members. The text of subsection 381.713(1)(b), Florida Statutes, does not however restrict the provision of services to HMO enrollees, and the fact that a minimum number of enrollees must be in the service area to maximize the utilization of the service by enrollees does not compel such a conclusion. Subsection 381.713(1)(a), Florida Statutes, is a similar exemption provision which requires the enrollment of 50,000 individuals in an HMO's service area and a reasonably accessible facility, but also requires that 75% of reasonably expected patients be HMO enrollees. The Legislature was, therefore, obviously aware of the issue, yet in the applicable subsection failed to include any provision conditioning CON exemption approved upon provision of services only to HMO enrollees. Exemption Requests Based On Voting Trust Agreements Humana Pasco, Humana Palm Beaches, and Humana Cypress requested exemption approval to establish various inpatient institutional health services based on the control of those facilities by HMP by virtue of a voting trust agreement. The license-holder of Humana Pasco, Humana of Florida, Inc., is a wholly owned subsidiary of Humana, Inc. The license-holder of Humana Palm Beaches, Community Hospital of the Palm Beaches, Inc., is a wholly owned subsidiary of Humana, Inc. The license-holder of Humana Cypress, Community Hospitals of Humana, Inc., is a wholly owned subsidiary of Humana, Inc. On behalf of Humana Pasco, Humana Palm Beaches, and Humana Cypress, Humana, Inc., entered into Voting Trust Agreements (Agreements) designating HMP, the Humana HMO, as trustee, but did not report the change of control to state and federal agencies. The Agreements, dated May 29, 1990, have identical substantive provisions. The term of the Agreements is ten years, terminating May 28, 2000, with a provision that Humana, Inc. may not unilaterally terminate the Agreements, although Humana, Inc. subsequently offered to terminate one of the agreements. Each Agreement authorizes HMP to hold and vote the shares of stock of the respective Humana, Inc. subsidiary. Each Agreement obligates HMP to vote the shares in the best interest of Humana, Inc. and the applicable wholly-owned subsidiary. Each Agreement requires HMP to pay over all profits and dividends to Humana, Inc., with all convenient speed. Each Agreement provides that without the consent of Humana, Inc., HMP shall not increase or reclassify capital stock; sell, lease or exchange all or substantially all property or assets; or vote to consolidate, merge, or dissolve the Humana, Inc. subsidiaries. The Agreements provide that the trustee accepts the specified responsibilities, but recite no compensation. The Humana hospitals, including Humana Pasco, Humana Palm Beaches, and Humana Cypress, have chief operating officers who are known as executive directors, who report to HMP Vice-Presidents, but the executive directors receive incentive compensation for maximizing hospital utilization, as do all their superiors throughout the chain of command, up to and including the president of Humana Inc. Humana Pasco, Humana Palm Beaches, and Humana Cypress pay management fees to Humana, Inc., as does HMP, and are directly owned by corporate entities which have the same officers and directors as HMP. By virtue of the voting trust agreement, HMP votes the shares of stock in Humana Pasco, Humana Palm Beaches, and Humana Cypress, but no operational changes in the facilities have resulted from the establishment of the voting trust agreements. HMP, as voting trustee, has control of the assets of Humana Pasco, Humana Palm Beaches, and Humana Cypress. HMP is an HMO with in excess of 50,000 enrollees in its service area. See, Findings 60 and 61, above. The standard for determining if a proposed service is geographically accessible for 50,000 enrollees is the same as that established in the rules for CON applications for the same service. See, Findings 62 and 63, above. Humana Pasco. Humana Pasco's exemption request for inpatient cardiac catheterization asserted that 74,225 HMP enrollees reside within one hour's travel time of the facility. The applicable travel time standard for inpatient cardiac catheterization subject to CON review is one hour, under Florida Administrative Code Rule 10-5.032. Areas within a forty-mile radius of Humana Pasco are within one-hour average travel time of the facility. The zip codes for enrollees in the Humana Pasco exemption request are substantially different from those included within its service area in a 1987 CON application and from Hospital Cost Containment Board data on actual utilization of the facility. Humana failed to demonstrate that 50,000 HMP enrollees have geographic accessibility for inpatient cardiac catheterization services to Humana Pasco, based on the applicable travel time standard of one hour. 2/ Humana Palm Beaches. In the June 7, 1990 Humana Palm Beaches' exemption request for inpatient cardiac catheterization services, Humana asserted that there were 58,268 HMP enrollees within a 40-mile radius, or one-hour average travel time of the facility. In the July 31, 1990 submission of corrected information, Humana's attachment 3a asserts that 50,592 HMP enrollees reside in areas within 45 miles of Humana Palm Beaches. 3/ Humana's Exhibit 41, a computer printout of enrollees for May 1990, demonstrates that the enrollees in the zip codes listed on attachment 3a of the July submission equal 49,894 HMP members. Although not determinative of enrollment in the service area, HMP's reports to the Department of Insurance on enrollment in Palm Beach County and the Hospital Cost Containment Board data on zip codes with greater than 5% actual utilization of Humana Palm Beaches also show fewer than 50,000 enrollees. Humana attempted to assert that its enrollment figures are constantly increasing. Because the number of HMP members is so close to 50,000, that assertion becomes significant. A comparative review of the individual zip code enrollments asserted in Attachment 3A to the Humana Palm Beaches' July submission to those in Humana Exhibit 41 demonstrates that some zip codes lost members, presumably due to changing residential patterns. Therefore, it is impossible to make a general assumption that HMP's growth in membership is evenly distributed across zip codes within an area geographically accessible to a hospital. Humana has failed to establish that 50,000 enrollees have geographic access to Humana Palm Beaches for inpatient cardiac catheterization services using the one-hour travel time standard for CON review. Humana Cypress. Humana asserted that 50,962 HMP enrollees are geographically accessible to Humana Cypress for inpatient cardiac catheterization, or within the one-hour travel time or 15 miles, although its September 1990 CON application for the same service defines an area including approximately half that number. Humana asserted that 68,412 HMP enrollees are geographically accessible to Humana Cypress for inpatient substance abuse and short term inpatient psychiatric services, or within the 45-minute travel time or a 15-mile radius, although its September 1989 CON applications for the same services encompass an area with approximately 41,000 of the enrollees. When zip codes in the exemption requests are compared to Humana's exhibit 41, a computer printout of enrollees for May 1990, 4/ the enrollees in the zip codes submitted in the exemption request for inpatient cardiac catheterization total 50,581 and those submitted in the exemption requests for inpatient substance abuse and short term inpatient psychiatric services total 67,812. 5/ Humana has established that Humana Cypress is geographically accessible to provide inpatient cardiac catheterization to 50,000 HMP enrollees under the one-hour travel time requirement. Humana has established that Humana Cypress is geographically accessible to 50,000 HMP enrollees under the 45 minute travel time requirement for short term inpatient psychiatric and inpatient substance abuse services.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered Dismissing the Petition to Intervene filed by Adventist based on its Notice of Voluntary Dismissal; Denying the exemption requests of Humana Brandon for open heart surgery, Humana Northside for open heart surgery, Humana St. Petersburg for Level II NICU, and Humana Bennett for Level II NICU, Humana Pembroke for open heart surgery and Level II NICU, because those services are tertiary services, not institutional health services. Denying the exemption request for inpatient cardiac catheterization and short-term inpatient psychiatric services at Humana Pembroke for failure to establish geographic accessibility to 50,000 HMP enrollees. Denying the exemption requests of Humana Pasco and Humana Palm Beaches for failure to establish that 50,000 HMO enrollees have reasonable access to inpatient cardiac catheterization services at these facilities. Granting the exemption request of Humana Cypress for inpatient cardiac catheterization, short term inpatient psychiatric services, and inpatient substance abuse services, without limiting the provision of services to HMP enrollees. RECOMMENDED this 14th day of October, 1991, at Tallahassee, Florida. Eleanor M. Hunter Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of October, 1991.
Findings Of Fact I The Parties Charter Medical of Orange County, Inc., (Charter) is a wholly-owned subsidiary of Charter Medical Corporation, founded in Macon, Georgia in 1969. The parent corporation operates approximately 92 hospitals throughout the country, including Florida. Most of its hospitals are psychiatric or substance abuse facilities. Orlando Regional Medical Center (ORMC) is a 1,119- bed, nonprofit medical system comprised of four divisions. In downtown Orlando it operates a 630-bed tertiary care hospital and a 255-bed Arnold Palmer Hospital for women and children. A Sand Lake campus is located 10 miles southwest of Orlando, off I-4, and includes medical/surgical beds and 32 licensed short-term psychiatric beds. ORMC's St. Cloud Campus in Osceola County, south of Orlando, includes 84 medical/surgical beds. The Department of Health and Rehabilitative Services (HRS) is the state agency responsible for implementing and enforcing the certificate of need program pursuant to Sections 381.701-.715, F.S. Psychiatric Institute of Orlando, Inc., d/b/a Laurel Oaks Hospital, (Laurel Oaks) is a subsidiary of P1A Psychiatric Hospitals, Inc., which is a subsidiary of National Medical Enterprises (NME). P1A owns approximately 50 psychiatric hospitals throughout the county, including (30-bed Laurel Oaks, in southwest Orange County, a short-term psychiatric and substance abuse facility for children and adolescents Health Management Associates, Inc., (HMA) is a health management company which owns or operates 16 hospitals in the southeastern United States, including four psychiatric hospitals in Florida. HMA's Crossroads University Behavioral Center is a 100-bed free-standing psychiatric hospital in northeast Orange County. Its 60 adult beds and 40 adolescent beds opened in January 1989 as a licensed long-term facility, but it has been operating continually as a short-term facility. The Applications Charter proposes to develop a new free-standing 60- bed psychiatric hospital (40 beds for adults, 10 beds for adolescents and 10 beds for children). It plans a wide range of treatment modalities utilizing a multi-disciplinary team approach, tailored to the age and needs of the patient. Although no specific site has been selected, several have been identified in southwest Orange County. Charter anticipates the total cost for the project will be $7,783,000. Charter's patients will be primarily commercially insured (71%), with 15% Medicare and 4% indigent. Charter has committed to serve this share of indigent for the first two years of operation. As a specialty hospital, Charter is not eligible to accept Medicaid patients. ORMC proposes to build a 60-bed free-standing facility on a 7.2 acre site within 40 acres it already owns at Sand Lake and adjacent to its existing Sand Lake Hospital, for a total project cost of $6,678,935. No new licensed beds are required as ORNC will transfer its 32 short term beds from the sixth floor of the Sand Lake Hospital and will convert 28 of its licensed medical/surgical beds from its downtown hospital. The 60 beds will consist of 30 adult and 30 adolescent short term beds. Since the existing 32 beds are primarily adult beds, ORMC's project will be adding adolescent beds to the inventory in District 7. Proximity to Sand Lake Hospital will facilitate shared services, including engineering, dietary and laundry. ORMC also expects the joint use of therapists at its psychiatric facility and its existing brain injury rehabilitation unit at Sand Lake. Because the facility will be added to ORMC's general hospital license, it can and will accept Medicaid patients. ORMC has committed to serve 20% Medicare, 8% Medicaid and 8% indigent patients. ORMC will likely seek an outside management firm to operate its psychiatric facility. The Review On August 23, 1988, HRS published a need for 140 short-term psychiatric beds in District 7. Its SAAR issued in January 1989, recommended approval of a total of 137 beds. When the SAAR was amended in March 1989, to include the Charter approval, the total surged to 197 approved beds. Even after First Hospital withdrew its application for 55 beds, the total approved exceeded the published need for the 1993 horizon year by two beds. Numeric Need The short-term psychiatric bed need rule is found at Rule 10- 5.011(1)(o) , F.A.C. "Short-term" is defined as an average length of stay of 30 days or less for adults, and 60 days or less for children and adolescents under 18 years. A favorable need determination will not normally be given to an applicant unless a bed need exists according to sub-paragraph (1)(o)4 of "the rule". Rule 10-5.011(1)(0)4, F.A.C. provides as follows: Bed allocations for acute care short term general psychiatric services shall be based on the following standards: A minimum of .15 beds per 1,000 population should be located in hospitals holding a general license to ensure access to needed services for persons with multiple health These beds shall be designated as short term inpatient hospital psychiatric beds. 20 short term inpatient hospital beds per 1,000 population may be located in specialty hospitals, or hospitals holding a general license. The distribution of these beds shall be based on local need, cost effectiveness, and quality of care considerations. The short term inpatient psychiatric bed need for a Department service district shall be projected 5 years into the future based on the most recent available January or July population estimate prior to the beginning to the respective batching cycle. The projected number of beds shall be based on a bed need ratio of .35 beds per 1,000 population. These beds are allocated in addition to the total number of general acute care hospital beds allocated to each Department District under Paragraph 10-5.011(1)(m). The net need for short term psychiatric beds shall be calculated by subtracting the number of licensed and approved beds from the number of projected beds. The population estimates are based on population projections by the Executive Office of the Governor. Occupancy Standards. New Facilities must be able to project an average 70% occupancy rate for adult psychiatric beds and 60% for children and adolescent beds in the second year of operation, and must be able to project an average 80% occupancy rate for adult beds and 70% for children and adolescent short term psychiatric inpatient hospital beds for the third year of operation. No additional short term inpatient hospital adult psychiatric beds shall normally be approved unless the average annual occupancy rate for all existing adult short term inpatient psychiatric beds in a service district is at or exceeds 75% for the preceding 12 month period. No additional beds for adolescents and children under 18 years of age shall normally be approved unless the average annual occupancy rate for all existing adolescent and children short term hospital inpatient psychiatric beds in the Department district is at or exceeds 70% for the preceding 12 month period. Hospitals seeking additional short term inpatient psychiatric beds must show evidence that the occupancy standard defined in paragraph six is met and that the number of designated short term psychiatric beds have had an occupancy rate of 75% or greater for the preceding year. Unit size. In order to assure specialized staff and services at a reasonable cost, short term inpatient psychiatric hospital based services should have at least 15 designated beds. Applicants proposing to build a new but separate psychiatric acute care facility and intending to apply for a specialty hospital license should have a minimum of 50 beds. The parties do not dispute that application of the formula yields a need for 140 beds, the total published in the applicable fixed need pool. Nor do the parties dispute that the occupancy standard was met, since HRS uses the lower standard of 70% as a threshold for determining whether need should be published. The parties agree that approval of both Charter's and ORMC's applications results in an excess of two beds over the published need. There is substantial dispute as to whether that excess is justified, and as to the composition of the beds as "speciality hospital" or "general hospital" beds. The only provision in agency rules or policy for exceeding bed need calculations is when "not normal" or "special" circumstances exist in the District. HRS' Policy Manual for the Certificate of Need program, dated October 1, 1988, provides in Section 9-6 B. (3): If a qualified applicant exist but the proposed project exceeds the beds or services identified in the fixed need pool, the department may award beds or services in excess of the pool when warranted by special circumstances as defined in rule 10- 5.011(1)(b), 1-4, F.A.C. and, specifically for nursing homes Rule 10-5.011(1)(K)2.j. F.A.C. (Laurel Oaks Exhibit #10, P. 9-2) The referenced sections of Rule 10-5.011(1)(b), F.A.C., relate to the enhancement of access--primarily economic access and access by underserved groups. Access is addressed in Part VII, below. No evidence was presented regarding special problems of access in District 7. Rather, HRS asserts that its excess approval was based on "rounding up" the numbers of beds, and on the favorable occupancy rates in the district. In its SAAR, HRS calculated the following occupancy rates by age cohort in the district: Adult 75.8% Child/Adolescent 74.8%; and in Orange County: Adult 57.4% Child/Adolescent 100. The adult rate is therefore slightly above the 75% minimum in the district, and substantially below the minimum in Orange County. The child/adolescent rate is above the 70% minimum in both the district and county. HRS appropriately does not utilize occupancy in beds other than licensed short term psychiatric bed in calculating its rates as it would be difficult to compute the number of available beds (medical/surgical, long term psychiatric, etc.). The rule specifies that a minimum of .15 beds per 1000 population "should" be allocated to hospital1s holding a general license and that .20 beds per 1000 population may be located in either speciality hospitals or hospitals holding a general license. Of the 140 beds needed in District 7, 75 may be located in a speciality hospital under this formula. 30 speciality beds were awarded to West Lake and are unchallenged. The Charter application for 60 speciality beds exceeds by 15, the 45 speciality beds left to be allocated. The State and Local Health Plans The State Health Plan is dated 1985-1987. Goal 1 is the only portion of the plan that is relevant in this review. It essentially reiterates the need methodology described above, regarding the .35 beds per 1000 population and the 70% and 75% annual occupancy thresholds. The applicable local health plan is the 1988 local health plan for District 7. This plan divides the district into "planning areas": Brevard, Osceola, Seminole and Orange -- the four counties within the district. Planning areas, unlike subdistricts, are more in the nature of guidelines and do not carry the same legal weight as subdistricts. Both applicants are committed to submit data to the local health councils, as provided in recommendation #2. Both applicants have committed to provide a fair share of care to the underserved, although ORMC's commitment is substantially greater and has a proven record to support it. Recommendation #5 provides that no new short-term psychiatric or substance abuse beds shall be approved until all existing beds in the planning area are operating at or above 75% occupancy for the most recent twelve months for which data is available from the local health council. This criteria is barely met when adult and children/adolescent occupancy is combined, and is not met by the occupancy rate for adult beds in Orange County. Financial Feasibility The pro formas of both applicants, which are no more than best guess estimates, are generally reasonable, based upon the experience of the applicants' existing programs. Charter's proposal makes no provision for management fees, although such fees are remitted to the parent company by its subsidiaries and are reported to the Health Care Cost Containment Board. Charter anticipates that it would not incur additional corporate overhead to support this facility if it is built. In recent years ORMC's psychiatric unit has lost money in its operation when overhead is factored into the cost. Its Program Director, Jeffrey Oppenheim, reasonably anticipates the new facility will make a profit, as it will serve a better mix of age cohorts and will offer a more desirable setting than its limited facility now located on the sixth floor of a medical/surgical hospital. The financial feasibility of both applications depends on the programs' ability to attract patients. That ability is not seriously questioned. Both applications have substantial experience in operating financially efficient health care programs. Quality of Care and Accessibility No evidence was presented to challenge either applicant's ability to provide quality care. Nor, however, was the quality of care of existing alternative programs at issue. Geographic access in District 7 is not a problem, and none suggests that the access standard in Rule 10-5.011(1)(o)5.g., F.A.C., is not met (travel time of 45 minutes or less for 90% of the service area population). Charter's inability to provide Medicaid services and its time-limited commitment to serve even 4% indigents amount to only minimal contribution to the economically underserved population. In the past, ORMC has been a receiving facility for Baker Act patients and it anticipates it will again when the psychiatric program has its new quarters. It is only one of two hospitals in Orange County eligible to provide Medicaid services and is the fifth highest provider of charity and Medicaid in the State of Florida, according to Medical Health Care Cost Containment Board data. Impact on Existing Facilities and Competition Positive competition among providers already exists in District 7. There are eleven existing short term psychiatric programs in the four-county area, including both speciality and general hospitals, and adult, children and adolescent programs. Only three obtained an occupancy rate of more than 75% for the fiscal period ending June 1988. The Availability of Health Manpower There is a shortage of nurses, qualified social workers and counsellors in District 7. HMA has experienced problems in recruiting staff at its Orlando facility. Competition for these staff has caused salaries to rise, and consequently the cost of providing services has risen. Turnover results when staff are attracted to new facilities, causing training problems and affecting quality of care. Charter has the corporate resources to conduct effective recruiting, but has no experience recruiting in the Orlando area. ORMC, a large diverse facility, with good opportunity for lateral and upward mobility, has experienced few problems staffing its programs. The Availability of Alternatives Eight of eleven District 7 short term psychiatric facilities have operated below 75% occupancy in the last two years. These under-utilized facilities are plainly alternatives for new projects proposing the same services. Neither applicant is proposing novel or innovative services in psychiatric care. That licensed long term psychiatric facilities such as HMA, are operating short term programs does not justify the approval of new short term beds, but rather suggests these programs could be converted, with little or no capital outlay, into short term programs. Conversion of under-utilized acute are beds to short term psychiatric beds is also an alternative in District 7. Acute care bed occupancy rates in each county of District 7 failed to reach 60% in the most recent 12-month period of available data. The criterion of Rule 10-5.011(1)(o)5.f., F.A.C. favors the conversion of under-utilized beds in other hospital services unless conversion costs are prohibitive. There has been a trend in the last several years away from inpatient care and toward less restrictive treatment modalities. Both applicants acknowledge this trend with their inclusion of partial hospitalization programs in their plans. ORMC has no reasonable alternative to building a new facility if it is to maintain its inpatient psychiatric program. There is an increasing demand for the medical surgical beds it currently occupies on the sixth floor of Sand Lake Hospital. There is no appropriate space in its downtown facilities. Balancing the Criteria Comparative Review and Summary As reflected above, not all of the relevant statutory and rule criteria have been met by these applicants. There remains, however, the planning horizon numerical need for additional short term psychiatric beds. While that need could likely be met with the utilization of beds that are not licensed for the provision of short term care, such a solution frustrates state licensing requirements. Three alternative dispositions exist: to deny both ORMC and Charter applications, leaving an unmet need in this cycle for 86 beds; to grant one application only; or to approve both and exceed the need by two beds. HRS argues that the two-bed difference is of little consequence and that the excessive number of specialty beds if Charter is approved is irrelevant, as no general hospital is currently competing for the beds. It is not possible to conjecture that appropriate general hospital applicants will participate in a near future cycle, but it is certain that if those beds are awarded in this cycle to a specialty hospital, they will not be available in a future cycle. Nothing requires that all beds identified in a fixed pool must be awarded in that cycle. The converse follows when, as here, other considerations weigh against approval of additional beds. Between the two applicants, ORMC more consistently meets the rule and statutory criteria. Although it still proposes a substantial capital outlay, (ORMC) relies on conversion of existing licensed beds and results in less impact on other existing programs. Its contribution to the underserved population is more substantial; it proposes more needed adolescent, rather than adult beds; and it does not violate the .15/.20 general hospital, specialty hospital bed balance. That balance needs to be maintained in this case to insure competition among Medicaid providers. In summary, the evidence supports approval of ORMC's application and denial of Charter's.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED That a Final Order be entered denying CON number 5691 to Charter Medical of Orange County, Inc.; and granting CON #5697 to Orlando Regional Medical Center. DONE AND RECOMMENDED this 15th day of February, 1990, in Tallahassee, Leon County, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of February, 1990. APPENDIX TO THE RECOMMENDED ORDER IN CASES NO. 89-1358,89-1366.89-1368,89-2039 & 89-2041 The following constitute rulings on the findings of fact proposed by each party: Charter Medical of Orange County, Inc. Adopted in substance in paragraph 1. Adopted in substance in paragraph 2. Adopted in paragraph 3. Adopted in paragraph 4. Adopted in paragraph 5. 6.-17. Adopted in statement of the issues. 18. Adopted in paragraphs 6 and 7. 19.-36. Rejected as unnecessary, except as summarized in paragraph 6. 37. Addressed in paragraph 30. 38.-5O. Rejected as unnecessary, except as summarized in paragraph 36. 51.-57. Rejected as unnecessary, except at summarized in paragraph 7. 58.-6I. Adopted in paragraph 16. 62.-69. Rejected as unnecessary and contrary to the methodology in the rule. 70. Adopted in substance in paragraph 16. 71.-77. Rejected as unnecessary. 78. Rejected as contrary to the evidence and law. "Not normal" does not include high occupancy rates in several facilities. 79.-8I. Adopted in summary in paragraph 21. 82.-83. Rejected as immaterial. The evidence in this case supports maintenance of the balance, notwithstanding past practice. 84. Adopted in paragraph 15. 85.-103. Rejected as unnecessary. 104. Rejected as contrary to the law and evidence. 105. & 106. Adopted in paragraph 22. 107.-109. Adopted in paragraph 23. 110. & 111. Rejected as unnecessary. 112. & 113. Adopted in paragraph 24. Rejected as unnecessary. Adopted in substance in paragraph 25. 116.-149. Rejected as unnecessary. 150. Adopted in substance in paragraphs 26 and 29. 151.-161. Rejected as unnecessary. 162.-164. Adopted in substance in paragraph 27. 165.-171. Rejected as unnecessary. 172. Rejected as contrary to the evidence. 173.-180. Rejected as immaterial and unnecessary. 181. Adopted in paragraph 5. 182.-190. Rejected as unnecessary. Adopted in substance in paragraph 43. Rejected as contrary to the evidence. 193.-198. Rejected as unnecessary. 199. Rejected as contrary to the evidence. 200.-206. Rejected as unnecessary. Rejected as contrary to the evidence. Rejected as unnecessary. Adopted in paragraph 8. 210.-213. Rejected as unnecessary. 214. Adopted by implication in paragraph 33. 215.-218. Rejected as unsupported by the weight of evidence. Rejected as unnecessary. & 221. Rejected as contrary to the weight of evidence. 222. Adopted in summary in paragraph :28. 223.-238. Rejected as unnecessary. Orlando Regional Medical Center Adopted in paragraph 2. Adopted in paragraph 9. 3.-7. Rejected as unnecessary. Adopted in paragraph 9. Rejected as unnecessary. Adopted in substance in paragraph 42. Rejected as unnecessary. Adopted in substance in paragraph 42. Adopted in summary in paragraph 12. Adopted in paragraph 1. Rejected as ummaterial. Adopted in paragraph 6. Adopted in paragraph 4. Adopted in paragraph 15. Addressed in the preliminary statement. Adopted in paragraph 14. Rejected as unnecessary. 22.-24. Adopted in summary in paragraph 16. Adopted in paragraph 15 and conclusion of law #7. Adopted in substance in paragraph 21. Adopted in paragraph 15. Rejected as unnecessary. 29 & 30. Adopted in paragraph 9. Adopted in paragraph 20. Adopted in paragraph 22. Rejected as unnecessary. Adopted in paragraph 23. Adopted in paragraph 23. 36 & 37. Adopted in paragraph 24. Adopted in paragraph 11 and 33. Adopted in paragraph 8. Adopted in paragraph 11. 41 & 42. Rejected as unnecessary. Adopted in summary in paragraph 25. Rejected as unnecessary. Rejected as cumulative and unnecessary. Rejected as unnecessary. Adopted in summary in paragraph 26. 48.-52. Rejected as unnecessary. Adopted in paragraph 10. Rejected as contrary to the weight of evidence (the finding as to no alternatives). The finding regarding Park Place is unnecessary. Rejected as cumulative and unnecessary. Adopted in paragraph 42. Rejected as cumulative and unnecessary. Adopted in paragraph 9. Adopted in paragraph 7. Adopted in paragraph 36. Rejected as cumulative and unnecessary. Adopted in paragraph 30. 63.-66. Rejected as unnecessary. 67. Adopted in paragraph 47. The Department of Health and Rehabilitative Services 1. & 2. Addressed in Preliminary Statement. Adopted in paragraphs 6. and 9. Adopted in paragraph 24. Adopted in paragraph 20. Adopted in paragraph 36. 7.-9. Rejected as contrary to the weight of evidence. Adopted in paragraph 30. Rejected as contrary to the weight of evidence. Rejected as unnecessary. Adopted in paragraph 26. Rejected as contrary to the evidence. Adopted in paragraph 33. Adopted in substance in paragraph 32. Adopted by implication in paragraphs 30 and 34. Rejected as contrary to the evidence. Adopted in summary in paragraph 13. Adopted in paragraph 15. Rejected as contrary to the weight of evidence. Rejected as contrary to the evidence. The policy is found in HRS' Policy Manual. Rejected as immaterial. Adopted in paragraph 21. Rejected as unnecessary. 26 & 27. Adopted by implication in 23. Rejected as unnecessary. Rejected as contrary to the evidence. Rejected as immaterial. Rejected as unnecessary. Rejected as contrary to the evidence. 33 & 34. Rejected as unnecessary. Adopted in summary in paragraph 46. Rejected as contrary to the evidence, and immaterial (as to the ratio). Rejected as contrary to the definition "not normal" and immaterial. 38 & 39. Rejected as argument. Adopted in paragraph 16. Adopted in paragraph 20. Rejected as unnecessary. 43 & 49. Rejected as argument. Laurel Oaks Hospital Adopted in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 3. Adopted in paragraph 4. Adopted in paragraph 5. Rejected as unnecessary. Adopted in paragraph 13. & 9. Addressed in Preliminary Statement. 10. Adopted in paragraph 18. 11.-21. Rejected as unnecessary and immaterial. Adopted in paragraph 6. Adopted in paragraph 8. Adopted in paragraph 7. Adopted in paragraph 9. Adopted in paragraph 11. Adopted in paragraph 9. Adopted in paragraph 10. Adopted in paragraph 11. Adopted in paragraph 9. Adopted in paragraph 14. Rejected as unnecessary. Rejected as contrary to the evidence. The term is "should", not "shall". Adopted in paragraph 15. 36 Adopted in paragraph 13. 37.-40. Adopted in paragraph 16. 41 & 42. Adopted in paragraph 18. 43 & 44. Rejected as immaterial and unnecessary. 45.-47. Rejected as argument and unnecessary. 48 & 49. Adopted in paragraph 21. Rejected as unnecessary. Adopted in substance in paragraph 16. 52 - 54. Rejected as unnecessary. 55 & 56. Adopted in summary in paragraph 20. 57.-61. Rejected as unnecessary or argument. 62.-65. Adopted in summary in paragraphs 20 and 23. 66 & 67. Adopted in paragraph 22. 68. Adopted in paragraph 23. 69.-72. Rejected as unnecessary or cumulative. 73 & 74. Adopted in substance in paragraph 24. 75. Rejected as contrary to the evidence. 76.-78. Rejected as unnecessary. Rejected as contrary to the evidence. Adopted in paragraphs 30 and 31. Adopted in paragraph 37. 82.-85. Rejected as unnecessary. 86. Adopted in paragraph 30. 87 & 88. Rejected as unnecessary. Adopted in paragraph 34. Adopted in paragraph 41. Adopted in paragraphs 38 and 39. 92.-95 Rejected as immaterial and unnecessary. Adopted in substance in paragraph 39. Adopted in paragraph 35. Adopted in paragraph 30. Rejected as cumulative. Rejected as contrary to the evidence. 101-112. Rejected as unnecessary. Adopted in paragraph 27. Rejected as unnecessary. Adopted in paragraph 35. 116-121. Rejected as cumulative or unnecessary. Health Management Associates1 Inc:. (HMA) 1. & 2. Adopted in paragraph 6. Adopted in paragraph 1. Adopted in paragraph 6. 5.-6. Rejected as unnecessary. 7.-11. Adopted in paragraph 9. Adopted in paragraph 10. Adopted in paragraph 12. Rejected as unnecessary. Adopted in paragraph 16. Adopted in paragraphs 15 and 23. Adopted in paragraph 25. Adopted in paragraph 16. Adopted in paragraphs 16 and 18. 20 Adopted in paragraph 19. Adopted in paragraph 15. Adopted in paragraph 21. 23 & 24. Rejected as unnecessary. 25 & 26. Adopted in paragraph 5. 27.-51. Rejected as unnecessary. 52. Adopted in paragraph 35. 53.-55. Rejected as unnecessary. COPIES FURNISHED: Stephen A. Ecenia, Esquire Michael J. Cherniga, Esquire Roberts, Baggett, LaFace & Richard 101 East College Avenue Tallahassee, FL 32301 James M. Barclay, Esquire Cobb, Cole & Bell 315 South Calhoun Street Tallahassee, FL 32301 Steven R. Bechtel, Esquire Mateer, Harbert & Bates 225 East Robinson Street Orlando, FL 32802 Edgar Lee Elzie, Esquire MacFarlane, Ferguson, Allison & Kelly First Florida Bank Building, Suite 804 Tallahassee, FL 32401 C. Gary Williams, Esquire R. Stan Peeler, Esquire Ausley, McMullen, McGehee, Carothers & Proctor 227 South Calhoun Street Tallahassee, FL 32301 John Brennan, Jr., Esquire Bonner & O'Connell 900 17th street, Suite 1000 Washington, D.C. 20006 Robert S. Cohen, Esquire Haben & Culpepper 306 North Monroe Street Tallahassee, FL 32301 John Miller, General Counsel HRS 1323 Winewood Blvd. R. S. Power, Agency Clerk HRS 1323 Winewood Blvd. Tallahassee, FL 32399-0700
Findings Of Fact Upon consideration of the oral and documentary evidenceadduced at the hearing, the following relevant facts are found: On or about September 20, 1976, petitioner submittedits application for a certificate of need to construct an acutecare general hospital in Delray Beach, Florida. Additional information was requested by respondent. On November 3, 1976, petitioner forwarded to respondent its "First Supplement to the Application for Certificate of Need." By letter dated November 16, 1976, respondent acknowledged receipt of petitioner's capital expenditure proposal effective November 8, 1976, referred the proposal to the Health Planning Council for Indian River, Martin, Okeechobee, Palm Beach and St. Lucie Counties, and informed petitioner that a decision on the proposal would be rendered by respondent not later than February 6, 1977. Petitioner is seeking a certificate of need to construct a new 300 bed hospital at an estimated cost of $10,695,000.00.The facility is to be a non-tax supported, investor-owned acute care medical/surgical hospital. Petitioner proposes to locate this hospital on chimerically zoned land on the southwest corner of Lake Ida Road and Congress Avenue in Delary Beach, Florida. The general service area is identified as Area 3, as defined in planning documents of the Health Planning Council, and comprises that portion of Palm Beach County within the boundaries of the Florida Turnpike to the West, Hypoluxo Road to the North, the Atlantic Ocean to the East and the Palm Beach/Broward County line to the South. Two other hospitals are currently in operation in this Area 3. The intervenor in this proceeding, Bethesda Memorial, a tax-supported acute care short-term hospital, is located within four miles to the northeast of petitioner's proposed hospital. The driving time between petitioner'sproposed location and Bethesda is five to eight minutes, or twenty minutes during heavy traffic. Boca Community Hospital is located approximately 9 1/2 miles from petitioner's location, with a driving time of between fifteen to thirty-five minutes. The existing two hospitals are accessible to residents within Area 3. Petitioner's location, being on an east-west artery, would be more accessible to those within the area defined by petitioner as its primary service area. This area excludes the area immediately surrounding the two existing hospitals (Exhibits A and C). Petitioner's application was reviewed and analyzed by a review committee of the Health Planning Council (HPC). Thiscommittee listed two factors supporting approval of petitioner'sapplication -- reasonable patient costs and patient charges andwider choices to physicians as to where they hospitalize theirpatients. It was noted that the by-laws of Boca Community Hospital do not allow staffing privileges to physicians practicing north of Atlantic Boulevard in Delray Beach. The five factors supporting disapproval of petitioner's application were as follows: Based on the HPC document entitled Acute Care General Hospital Bed Needs, 1980, March 1975, there will exist the appropriate number of beds to meet the needs of the 1980 population of Palm Beach County (including area 3). Thus, development of this proposed facility would result in an extensive, unnecessary, and costly excess of hospital beds in Palm Beach County (especially in area 3). In determining bed needs for Palm Beach County in 1980, the State of Florida's Medical Facilities Plan 1975 shows that the county currently has more than enough beds to meet the 1980 demand. Such need determination does not consider those hospital/hospital expansion projects which were approved by the HPC and are currently under construction or recently completed. Although development and subsequent population centers are anticipated in the area, the extent and completion dates for such developments are unknown. Regardless of such growth, however, the geographical proximity between Bethesda Memorial Hospital and the proposed facility would indicate that both these hospitals would be serving approximately the same population. This would result in costly competition between the two hospitals ultimately resulting in increased patient charges with no foreseeable benefits to the patient in terms of appropriateness, effectiveness, or availability of health care. Westerly population growth will necessitate the development of medical services and facilities; however, because this growth is expected to develop over a period of years and is dependent on economic factors, medical services must keep pace with population increases. In meeting the health needs of this population in the most effective and efficient manner, the HPC, in its document entitled Acute Care General Hospitals Long Range Growth, Position Statement and Recommendations, August 1975, states that: "Satellite facilities, both outpatient and inpatient, should be developed by the existing hospital system to provide necessary and appropriate health care in areas where the population does not justify a full service acute care general hospital." These centers and facilities will compliment the existing full service hospitals and not duplicate them. The proposed hospital will not provide such services and, at the same time, will foster duplication. If the proposed facility is unable to effectively implement its staff recruitment plan, costly salary competition and related recruitment factors will result among area hospitals, especially between Bethesda Memorial Hospital and the proposed new facility. By a vote of 13 to 7, the Board of Directors of the HPC recommended disapproval of petitioner's certificate of needrequest. The Board's decision was based on the reasons set forthin paragraphs 1, 2 and 3 quoted above. (Exhibit 2). By letter dated January 21, 1977, respondent'sadministrator, Mr. Art Forehand, notified petitioner that itscapital expenditure proposal was not favorably considered becauseit was not consistent with the standards, criteria or plans developed pursuant to the Public Health Service Act. (Exhibit 1). Specifically, it was noted that "The 1976 Florida State Plan for Construction of Hospitals and Related Medical Facilities, which is the current HEW approved plan, indicates a need for 191 additional hospital beds to be constructed in Palm Beach County by 1981. Subsequent to publication of this plan, a 94-bed addition to Boca Raton Community hospital and a 135-bed addition to the Palm Beach Gardens Hospital were placed under construction, and the 162-bed Community Hospital of the Palm Beaches was placed in operation. Considering these 391-bed additions against the 191 beds to be added by 1981 results in a projected overbedding of Palm Beach County by 200 beds by 1981." At the hearing, petitioner attempted to illustrate that the 1976 Florida State Plan was erroneous, and that a correctapplication of the Hill- Burton formula and the State Plan wouldresult in a showing of greater bed needs for the area in question. Based upon interpretation by the undersigned of the applicable federal and state rules and regulations, objections to this line of testimony were sustained. Thereafter, the petitioner rested and neither the respondent nor the Intervenor presented any witnesses. The 1976 Florida State Plan for Construction of Hospitals and Related Medical Facilities indicates a need for 191 additional hospital beds in Palm Beach County by the year 1981 (Exhibit 3). The Regional Health Administrator of the Department of Health Education and Welfare notified respondent by letter dated November 3, 1976, that said Plan had been approved (Exhibit 3).
Recommendation Based upon the findings of fact and conclusions of lawrecited above, it is recommended that the determination of theOffice of Community Medical Facilities to deny petitioner's application for a certificate of need to construct a 300- bed hospital in Delray Beach be upheld and affirmed. Respectfully submitted and entered this 27th day of May, 1977, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Donald H. Reed, Jr., Esquire Deschler and Reed Boca Raton Federal Building 555 South Federal Highway Boca Raton, Florida 33432 Eric J. Haugdahl, Esquire Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301 Fred W. Baggett, Esquire LaFace and Baggett, P.A. Post Office Box 1752 Tallahassee, Florida 32304 Mr. Art Forehand, Administrator Office of Community Medical Facilities 1323 Winewood Boulevard Tallahassee, Florida 32301
The Issue The issues in these cases are whether Certificate of Need (CON) Application No. 10432 filed by East Florida-DMC, Inc. (DMC), to build an 80-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, or CON Application No. 10433 filed by The Public Health Trust of Miami-Dade County, Florida d/b/a Jackson Hospital West (JW), to build a 100-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, on balance, satisfy the applicable criteria; and, if so, whether either or both should be approved.
Findings Of Fact Based upon the parties’ stipulations, the demeanor and credibility of the witnesses, other evidence presented at the final hearing, and on the entire record of this proceeding, the following Findings of Fact are made: The Parties The Public Health Trust of Miami-Dade County d/b/a Jackson Hospital West and Jackson Health System (JHS) JHS is a taxpayer-funded health system located in and owned by Miami-Dade County. It is governed by The Public Health Trust of Miami Dade-County, Florida (PHT), a seven-member board. JHS owns and operates three acute care hospitals in Miami-Dade County--Jackson Memorial Hospital (JMH); Jackson North Medical Center (JN); and Jackson South Medical Center (JS)--as well as three specialty hospitals: Holtz Children’s Hospital (Holtz); Jackson Rehabilitation Hospital; and Jackson Behavioral Health Hospital. JHS also owns and operates numerous other non- hospital healthcare facilities within Miami-Dade County. JHS’s applicant in this proceeding is JW which, if approved, will be another acute care hospital in JHS. JHS is an academic teaching institution, and the University of Miami (UM) is JHS’s affiliated medical school. Over 1,000 UM residents staff JMH pursuant to an operating agreement with JHS. JN and JS are not academic medical centers. JHS annually receives sales tax and ad valorem tax revenues from Miami-Dade County in order to help fund its operations. JS and JN are community hospitals operated as part of JHS. JS was acquired in 2001. JS is licensed for 226 beds and is also home to a verified Level II trauma center. The JN facility was acquired by JHS in 2006. The facility is licensed for 382 beds. East Florida (DMC) DMC is an affiliate of HCA Healthcare, Inc. (HCA), the largest provider of acute care hospital services in the world. DMC will operate within HCA’s East Florida Division (EFD), which is comprised of 15 hospitals, 12 surgery centers, two diagnostic imaging centers, four freestanding emergency departments, nine behavioral health facilities, and one regional laboratory, along with other related services. There are three HCA-affiliated hospitals in Miami-Dade County: KRMC; Aventura Hospital and Medical Center (Aventura); and Mercy Hospital, a campus of Plantation General Hospital (Mercy). Kendall Regional (KRMC) KRMC, which is located at the intersection of the Florida Turnpike and Southwest 40th Street in Miami-Dade County, is a 417-bed tertiary provider comprised of 380 acute care beds, 23 inpatient adult psychiatric beds, eight Level II neonatal intensive care unit (NICU) beds, and five Level III NICU beds. It is a Baker Act receiving facility. KRMC is a verified Level I trauma center. It also has a burn program. KRMC is also an academic teaching facility, receiving freestanding institutional accreditation from the Accrediting Council for Graduate Medical Education (ACGME) in 2013. KRMC currently has six residency programs including, among others, surgery, internal medicine, podiatry, anesthesia, and surgical critical care. Its teaching programs are affiliated with the University of South Florida, Nova Southeastern University, and Florida International University. KRMC also participates in scholarly and clinical research. In 2017, KRMC had over 82,000 Emergency Department (ED) visits. It treated over 115,000 total inpatients and outpatients that year. There are 850 physicians on KRMC’s medical staff. It offers a full range of medical surgery services, interventional procedures, obstetrics (OB), pediatric, and neonatal care, among many other service lines. KRMC primarily serves southern and western portions of Miami-Dade County but also receives referrals from the Florida Keys up through Broward County, Palm Beach County, and the Treasure Coast. Its main competitors include, but are not limited to: Baptist Hospital; Baptist West; South Miami Hospital; PGH; Hialeah; CGH; JS, and Palm Springs General Hospital. The Tenet Hospitals PGH, Hialeah, and CGH are wholly-owned subsidiaries of Tenet South Florida. These are all for-profit hospitals. PGH is a 368-bed tertiary facility that opened in the early 1970s. It has 297 licensed acute care beds, 48 adult psychiatric beds, 52 ICU beds, and 15 Level II NICU beds. It is located at the Palmetto Expressway and Northwest 122nd Street in Hialeah, Florida. The hospital employs about 1,700 people and has over 600 physicians on its medical staff. PGH is a tertiary-level facility offering a variety of specialty services, including adult open heart surgery, a comprehensive stroke center, and robotic surgery. It has inpatient mental health beds and serves the community as a Baker Act receiving facility. It also offers OB and Level II NICU services with approximately 1,500 births a year. It has approximately 70,000 ED visits and between 17,000 and 18,000 inpatient admissions per year. In addition to its licensed inpatient beds, PGH operates 31 observation beds. PGH is ACGME accredited and serves a significant teaching function in the community. It has approximately 89 residents and fellows. The hospital provides fellowships in cardiology, critical care and interventional cardiology, and also has rotations in neurology and gastroenterology. Residents from Larkin General Hospital also rotate through PGH. PGH generally serves the communities of Opa Locka, Hialeah, Miami Lakes, Hialeah Gardens, Doral, and Miami Springs. In reality, all of the hospitals in the county are competitors, but more direct competition comes from Palm Springs Hospital, Memorial in Miramar, Mount Sinai, Kendall, and even its sister hospital, Hialeah. Hialeah first opened in 1951 and is a 378-bed acute care facility. It has 356 acute care beds, 12 adult psychiatric beds, and 10 Level II NICU beds. The ED has 25 beds and about 40,000 visits per year. It has approximately 14,000 inpatient admissions and 1,400 babies delivered annually. It offers services including cardiac, stroke, robotic surgery, colorectal surgery, and OB services. The hospital has a Level II NICU with 12 beds. CGH is located in the City of Coral Gables and is near the border between Coral Gables and the City of Miami on Douglas Road. It first opened in 1926. Portions of the original structure are still in use. CGH has 245 licensed beds, over 725 employees, 367 physicians, and over 100 additional allied providers on its medical staff. The hospital has a full-service ED. Its service lines include general surgery, geriatrics, urology, treatment of cardiovascular and pulmonary disease, and others. The hospital has eight operating rooms and offers robotic surgery. The ED has 28 beds divided into the main area and a geriatric emergency room. It had about 25,000 ED visits last year, which is lower than prior years, due in part to the presence of over a dozen nearby urgent care centers. CGH has over 8,500 inpatient admissions per year and is not at capacity. While patient days have grown slightly, the average occupancy is still just a little over 40%, meaning, on average, it has over 140 empty inpatient beds on any given day. The hospital is licensed for 245 beds, but typically there are only 180 beds immediately available for use. Agency for Healthcare Administration (AHCA) AHCA is the state health-planning agency charged with administration of the CON program as set forth in sections 408.31-408.0455, Florida Statutes. The Proposals Doral Medical Center (DMC) DMC proposes to build an 80-bed community hospital situated within the residential district of Doral. The hospital will be located in southwestern Doral in zip code 33126 and will serve the growing population of Doral, along with residential areas to the north and south of Doral. The hospital will be located in the City of Doral’s residential district on Northwest 41st Street between Northwest 109th Avenue to the east, and Northwest 112th Avenue to the west. Doral has seen significant growth in the past 15 years and has been consistently included on the list of the fastest growing cities in Florida. The new facility will have a bed complement of 80 licensed acute care beds, including 72 medical/surgical and eight OB beds. The proposed acute care hospital will be fully accredited by the Joint Commission for the Accreditation of Healthcare Facilities and licensed by the State of Florida. No public funds will be utilized in construction of the hospital and it will contribute to the state, county, and municipal tax base as a proprietary corporation. DMC will offer a full range of non-tertiary services, including emergency services, imaging, surgery, intensive care, cardiac catheterization, and women's services, including an OB unit, and pediatric care. DMC will be a general medical facility that will include a general medical component and a surgery component. Although DMC will operate an OB unit, NICU services will not be offered at DMC. If DMC’s patients need more advanced services, including NICU, the EFD hopes they will receive them from KRMC. The open medical staff will be largely community-based, but University of Miami physicians would be welcome at DMC. Before the hospital is built, KRMC will construct and operate a freestanding emergency department (FSED) at the location that will eventually become the ED of DMC. Construction of the FSED is now underway, and Brandon Haushalter, chief executive officer (CEO) of KRMC, estimated that it will open in March or April of 2019. Jackson West JHS proposes to build a community hospital to be known as “Jackson West” near the eastern edge of Doral. The proposed 100-bed general acute care hospital would have medical surgical and obstetrical beds and offer basic acute care services. JHS is a public health system owned by Miami-Dade County. All of JHS’s assets, as well as its debts, belong to the county. JHS is a not-for-profit entity, and therefore does not pay taxes, though it receives hundreds of millions of dollars from property taxes and sales taxes in Miami-Dade County. JHS’s main campus is a large health campus located near the Midtown Miami area in between Allapattah (to the north) and Little Havana (to the south). In addition to JMH, the campus includes Holtz Children’s Hospital, a behavioral health hospital, an inpatient rehabilitation hospital, and several specialty clinics. Bascom-Palmer Eye Institute, a Veterans Administration hospital, and University of Miami Hospital are also located adjacent to Jackson West’s main campus. JMH is a 1,500-bed hospital with a wide array of programs and services, including tertiary and quaternary care, and a Level I trauma program, the Ryder Trauma Center. JMH receives patients from throughout Miami-Dade County, elsewhere in Florida, and internationally. JMH is a teaching hospital and has a large number of residents, as well as professors from the University of Miami, on staff. UM and JMH have had a relationship for many years, and in addition to research and teaching, UM provides physician staffing to JMH. JN is a 342-bed community hospital located in between Miami Gardens and North Miami Beach, just off of I-95 and the Turnpike. JS is a 252-bed community hospital located in the Palmetto Bay area just south of Kendall. It has stroke certification and interventional cardiology, and was recently approved for a trauma program, which began in May 2016. Both JN and JS were existing hospitals that were acquired by JHS. JHS has never built a hospital from the ground up. In 2014, JHS leadership directed its internal planning team to review the healthcare needs of county residents. JHS’s analysis identified a need for outpatient services in western Miami-Dade, the only remaining quadrant of the county in which JHS did not have a hospital or healthcare program at the time. As part of its due diligence, JHS then consulted healthcare firm Kurt Salmon & Associates (KSA) to independently evaluate the data. KSA’s investigation validated a need in the west county for adult and pediatric outpatient services, including need for an FSED. This prompted JHS to explore opportunities for expansion of outpatient services where needed: in the western corridor of Miami-Dade. This was also the genesis of JHS’s long-range plan to first build an FSED in the Doral area, to be followed ultimately by the addition of a general acute care hospital at the site. The JW site is a 27-acre parcel of land located just west of the Palmetto Expressway and north of 25th Street. The site is in an industrial area only a short distance from the western end of the runways at Miami International Airport. The site is located in zip code 33122, which is very sparsely populated. JW proposed a primary service area (PSA) consisting of zip codes 33126, 33144, 33166, 33172/33122, 33174, 33178, and 33182, and a secondary service area (SSA) of zip codes 33155, 33165, 33175, and 33184. JW intends to serve general, acute care non-tertiary patients and OB patients. Detailed below, trends in the JW service area do not demonstrate need for its proposed hospital. The location of the JW site will not contribute to the viability of the proposed hospital. According to 2010 census data, only 328 people live within a one-mile radius of the JW site. Since 2000, only 32 total people have moved into that same area around the JW site--an average of three per year. There are virtually no residences within a one-mile radius of the JW site. From 2000 to 2010, the population within a two- mile radius of the JW site decreased by a rate of 9.4%. The JW health planner projects JW’s home zip code of 33122 will have a total population of only eight (8) people in 2022. From 2012 to 2014, the use rate in the JW service area for non-tertiary patients decreased by 3.9%. That decline continued at a steeper pace of 4.2% from 2014 to 2017. This was largely due to the 65+ age cohort, the demographic of patients that utilize inpatient services the most. The 65+ age cohort is growing at a slower pace in the JW service area than in Miami- Dade or Florida as a whole. Non-tertiary discharges in the JW service area are declining at a greater pace than that of Miami- Dade County--negative 4.2% compared to negative 1.9%. The rate of projected population growth in the JW PSA is decreasing. The projected rate of growth for the JW service area is lower than that of Miami-Dade County and Florida as a whole. The OB patient base JW intends to rely on is projected to remain flat. The inpatient discharges for all ages in the JW service area have declined from 2014 to 2017. For ages 0-17, discharges in the JW service area declined 21.4% during that time period. The discharges for ages 18-44 declined by 4.8%, and the discharges for ages 45-64 declined by 8.9%. The discharges for the important 65+ age cohort declined by 0.1%. Specifically, the discharges for ages 65-74 declined by 6.5%, and the discharges for ages 75-84 declined by 3.3%. The discharges for ages 85+ are the only age cohort that has not declined from 2012 to 2017. Overall, the non-tertiary discharges per 1,000 population (i.e., use rate) for all ages in the JW service area declined from 2012 to 2014 by 6%, and from 2014 to 2017 by 7.8%. Despite these declines in discharges in the JW service area, the health planners who crafted the JW projections used a constant use rate for the 0-17, 18-44, and 45-64 age cohorts. The JW health planners used a declining use rate for the 65+ age cohort. These use rates were applied uniformly across all zip codes, despite wide variance in actual use rates in each zip code. Applying the zip code specific use rates in conjunction with the other assumptions used by the JW health planner demonstrates that the JW projections are unreasonable. For instance, JW’s reliance on a uniform use rate over-projects the number of discharges in JW PSA zip code 33178 by nearly 1,000 patients. This occurs because the population is only growing at a 2% rate in the zip code, but JW’s reliance on service area-wide projections cause the discharges to grow at an extraordinary rate of 8.9% per year. Applying actual use rates across all zip codes causes a drastic change in the JW PSA and SSA definition. Section 408.037(2) requires a CON applicant to identify its PSA and SSA by listing zip codes in which it will receive discharges in descending order, beginning with the zip code with the highest amount of discharges, then proceeding in diminishing order to the zip code with the lowest amount of discharges. The zip codes, which comprise 75% of discharges, constitute the PSA; and the remaining zip codes, which consist of the remaining 25% of discharges, makes up the SSA. However, JW did not project its utilization in this manner. In its application, JW did not define its service area, PSA, and SSA zip codes in descending order by number or percentage of discharges. When this correct adjustment is made, its PSA consists of zip codes 33126, 33172, 33178, 33174, 33144, and 33165; and its SSA consists of zip codes 33175, 33166, 33155, 33182, and 33184. Zip codes 33166 and 33182 were in the original JW PSA, and zip code 33165 was in the original JW SSA. As such, JW’s home zip code should actually be in its SSA. JW health planners call this illogical, but it demonstrates that the JW site is located within a zip code that has almost no population of potential patients. JHS is developing an FSED and outpatient/ambulatory facilities on the JW site regardless of whether its CON application for a hospital is approved. Construction has begun on the JW site, and JHS is actually building a “shelled in” structure intended to house a future hospital, notwithstanding lack of CON approval for the hospital. There is no contingency plan for use of the shelled-in hospital space if CON approval is not obtained. JHS executives unequivocally stated that they intend to continue pursuing CON approval for the JW hospital, even if the proposed DMC hospital is approved. Indeed, JHS has filed third and fourth CON applications for its proposed JW hospital. The budget for the JW campus is $252 million. Sixty to $70 million is being funded from a bond issuance approved by voters in Miami-Dade County. Notably, the bond referendum approved by voters made no mention of a new hospital. The remaining $180 to $190 million is being funded by JHS, which has chosen to only keep 50 days cash-on-hand, and put any surplus toward capital projects. This is well below the number of days cash-on-hand ws advisable for a system like JHS. The specific programs and services to be offered at JW have not been finalized, but it is clear that JW will be a small community hospital that will not offer anything unique or different from any of the existing hospitals in the area, nor will it operate NICU beds. Patients presenting to JW in need of specialized or tertiary services will need to be transferred to another hospital with the capability of serving them, most likely JMH. The Applicants’ Arguments Doral Medical Center (DMC) DMC’s arguments in support of its proposed hospital may be summarized as follows: Geographic features surrounding Doral create transportation access barriers for the residents of the area; Doral is a densely-populated community that is growing quickly and lacks a readily accessible hospital; KRMC, which is the provider of choice for Doral residents, is a growing tertiary facility that cannot sufficiently expand to meet its future demands. DMC will serve much of the same patient population currently served by KRMC and help decompress KRMC’s acute care load so KRMC can focus on its tertiary service lines; From a geographic standpoint, the Doral community and its patients are isolated from much of Miami-Dade County to the north, west, and east, and the nearest hospitals. East Florida-DMC is a subsidiary of HCA and would be a part of the HCA EFD. Michael Joseph is the president of the EFD, which includes 15 hospitals and other facilities from Miami north through the Treasure Coast. Mr. Joseph authorized the filing of the DMC CON application, which proposes an 80-bed basic acute care hospital that includes 72 medical surgical and eight OB beds. As noted, there will be neither unique services at DMC nor any tertiary services, such as a NICU. HCA anticipates that DMC patients needing tertiary services would be referred and treated at KRMC. The proposed hospital would be built on 41st Street, between Northwest 109th Avenue and Northwest 112th Avenue. This site is located on the western edge of Doral, just east of the Everglades. When the consultants were retained to write the first DMC CON application, HCA had already made the decision to go forward with the project. Mr. Joseph described Miami-Dade County as one of the most competitive markets in the country for hospital services. There is robust competition in the Miami-Dade market from the standpoints of payors, physicians, and the many hospitals located in the county, including Jackson, HCA, Tenet, Baptist and others. HCA is not proposing this project because any of the existing hospitals in the area do not provide good quality care. HCA is currently building an FSED on the DMC site that will open regardless of whether the DMC hospital is approved. Mr. Joseph acknowledged that there is a trend toward outpatient rather than inpatient care. Inpatient occupancy of acute care hospitals in Miami-Dade County has been declining in recent years. Managed care has added further pressure on reducing inpatient admissions. Surgical advances have also resulted in fewer inpatient admissions. Surgeries that formerly required an inpatient stay are now often done on an outpatient basis. Mr. Joseph agreed that 30 minutes is a reasonable travel time to access an acute care hospital. The home zip code for the proposed DMC hospital is 33178. KRMC’s market share for that zip code is 20%. Individuals in that zip code are currently accessing a wide variety of hospitals. PGH is only 6.7 miles away and has the fourth highest market share in that zip code. HCA’s healthcare planning expert, Dan Sullivan, acknowledged that, if approved, DMC would likely have an adverse financial impact on KRMC and other area hospitals. Several witnesses testified that the travel time from the DMC site to KRMC is about 10 minutes, and that an ambulance could do it in as little as five minutes. As to the argument that the residents of Doral face geographic access barriers, the evidence did not indicate that there is anything unique about Doral from a traffic standpoint compared to other parts of Miami-Dade County. People come in and out of Doral on a daily basis in significant numbers for work and other reasons via various access points. Witnesses agreed that 25 to 30 minutes is a reasonable drive time for non-tertiary acute care services, and the evidence showed that residents of Doral, and the DMC service area, are well within 30 minutes of multiple hospitals providing more intensive services than are proposed by DMC. Indeed, many residents of DMC’s service area are closer to other hospitals than to the DMC site. None of the DMC witnesses were able to identify any patient in Doral who had been unable to access acute care services, or had suffered a bad outcome because of travel from Doral to an area hospital. The evidence did not establish that there currently exists either geographic or financial access barriers within the service area proposed to be served by DMC. Jackson West As in its Batch One application, JW advances six arguments as to why its proposed hospital should be approved. They are: It will serve a significant amount of indigent and Medicaid patients. JHS already serves residents of the proposed service area, which JW characterizes as “fragmented,” in that residents go to a number of different hospitals to receive services. Development of the freestanding ED and ambulatory center is under way. JW would provide an additional opportunity to partner with UM and FIU. There is physician and community support for the project. JW will add to the financial viability of JHS and its ability to continue its mission. JW presented very little analysis of the types of factors typically considered in evaluating need for a new hospital. JW did not discuss existing providers and their programs and services, the utilization of existing hospitals, and whether they have excess capacity, or other important considerations. Instead, JW advanced the six arguments noted above, for approval of its proposed hospital, none of which truly relate to the issue of need. First, JW states that its proposed hospital will serve a significant level of Medicaid and indigent patients. While it is true that JHS serves a significant amount of Medicaid and indigent patients, there are a number of reasons why this is not a basis to approve its proposed hospital. As an initial matter, JW treads a fine line in touting its service to Medicaid and indigent patients, while also targeting Doral for its better payer mix and financial benefit to JHS. JHS also receives an enormous amount of tax dollars to provide care to indigent and underserved patients. While other hospitals in Miami-Dade County provide care to such patients, they do not receive taxpayer dollars, as does JHS, although they pay taxes, unlike JHS. Also, Medicaid is a good payer for JHS. With its substantial supplement, JHS actually makes money from Medicaid patients, and it costs the system more for a Medicaid patient to be treated at a JHS hospital than elsewhere. More significantly, there is not a large Medicaid or indigent population in Doral, nor evidence of financial access issues in Doral. Second, JW argues that its CON application should be approved because JHS already serves patients from the Doral area, which JW characterizes as “fragmented” because area residents go to several different hospitals for care. This so- called “fragmentation” is not unique to Doral, and is not unusual in a densely-populated urban market with several existing hospitals. The same phenomenon occurs in other areas of Miami-Dade County, some of which actually have a hospital in the localized area. The fact that Doral residents are accessing several different hospitals demonstrates that there are a number of existing providers that are accessible to them. As discussed in greater detail below, residents of the Doral area have choices in every direction (other than to the west, which is the Everglades). JHS itself already serves patients from the Doral area. If anything, this tells us that patients from Doral currently have access to the JHS hospitals. Third, JW argues that its CON application should be approved because development of the JW campus is under way. This is irrelevant to the determination of need, and is simply a statement of JHS’s intent to build an FSED and outpatient facilities on a piece of land that was acquired for that purpose, regardless of CON approval. Fourth, JW argues for approval of its proposed hospital because it would provide an additional opportunity to partner with UM and Florida International University (FIU). However, the statutory criteria no longer addresses research and teaching concerns, and JHS’s relationship with UM or FIU has no bearing on whether there is a need for a new hospital in the Doral area. Moreover, JW did not present any evidence of how it would partner with UM or FIU at JW, and there does not seem to be any set plans in this regard. Fifth, JW claims that there is physician and community support for its proposed hospital, but it is very common for CON applicants to obtain letters in support for applications. Indeed, the DMC application was also accompanied by letters of support. Sixth and finally, JW argues that its proposed hospital will add to the financial viability of HSA and allow it to continue its mission. However, JW provided no analysis of the projected financial performance of its proposed hospital to substantiate this. The only financial analysis in the record is from KSA, a consulting firm that JHS hired to analyze the programs and services to be developed at JW. The KSA analysis posits that the JW FSED project will lose millions of dollars and not achieve break-even unless there is an inpatient hospital co-located there so that JW can take advantage of the more lucrative hospital-based billing and reimbursement. The sixth “need” argument relates to the issue of JHS’s historical financial struggles, which bear discussion. Only a handful of years ago, the entire JHS was in dire financial trouble, so much so that selling all or parts of it was considered. Days cash-on-hand was in the single digits, and JHS fell out of compliance with bond covenants. JHS’s financial difficulties prompted the appointment of an outside monitor to oversee JHS’s finances. Price Waterhouse served in that role, and made several recommendations for JHS to improve its revenue cycle, make accounting adjustments, and improve its staffing and efficiency. As a result of these recommendations, JHS went through a large reduction in force, and began to more closely screen the income and residency of its patients. As a result of these measures, overall financial performance has since improved. Despite its improved financial position, JHS still consistently loses money on operations, including a $362,000,915 loss as of June 30, 2018. JHS clearly depends upon the hundreds of millions of non-operating tax-based revenues it receives annually. JHS’s CEO expressed concerns over decreases in the system’s non-operating revenue sources, and claimed that JHS needs to find ways to increase its operating revenue to offset this. JW is being proposed as part of this strategy. However, JHS’s chief financial officer testified that “the non-operating revenues are a fairly stable source of income.” In fact, JHS’s tax revenues have gone up in the last few years. JHS sees the more affluent Doral area as a source of better paying patients that will enhance the profitability of its new hospital. Beyond this aspiration however, there is no meaningful analysis of the anticipated financial performance of its proposed hospital. This is a glaring omission given that a significant impetus for spending millions of public dollars on a new hospital is to improve JHS’s overall financial position. The KSA analysis referenced above determined that changes to the Hospital Outpatient Prospective Payment System rule would result in the JW campus losing hundreds of millions of dollars and never reaching “break even,” absent an inpatient hospital on the campus for “hospital based” billing and reimbursement. Though a financial benefit to the system, the increased reimbursement JHS would receive by having an inpatient hospital on the JW campus would be a financial burden on the healthcare delivery system since it would cost more for the same patient to receive the same outpatient services in a hospital- based facility. Reports by KSA also state that a strategic purpose of JW is to attract patients that would otherwise go to nearby facilities like PGH and Hialeah, and to capture tertiary or higher complexity cases which would then be sent to JMH. JW’s witnesses and healthcare planning experts fully expect this to happen. In 2015, and again in 2017, JHS conducted a “Community Health Needs Assessment,” which is required by law to be performed by public safety net hospitals. The assessments were conducted by gathering responses to various questions from a wide array of community leaders and stakeholders, including the CEOs of JHS’s hospitals, about the healthcare needs of the community. The final Community Health Needs Assessment documents are lengthy and cover a variety of health-related topics, but most notable for this case is that: (1) nowhere in either the 2015 or 2017 assessment is the development of a new hospital recommended; and (2) expansion into western Miami-Dade County scored by far the lowest on a list of priorities for JHS. In its application and at hearing, JW took the position that JW can enter the Doral area market without impacting existing providers to any meaningful extent. While JW acknowledges that its proposed hospital would impact the Tenet Hospitals, it argues that the impact is not significant. The evidence established that the financial impact to the Tenet Hospitals (calculated based upon lost contribution margin) would total roughly $3 million for lost inpatients, and $5.2 million including lost outpatients. While these losses will not put the Tenet Hospitals in financial peril, they are nonetheless significant and material. The Existing Healthcare Delivery System Miami-Dade County is home to 18 freestanding acute care hospitals, comprising a total of 7,585 licensed and approved acute care beds. With an average annual occupancy of 53.8% in calendar year 2017, there were, on average, approximately 3,500 unoccupied acute care beds in the county on any given day. While the countywide occupancy rate fluctuates from year to year, it has been on a downward trend in the past several years. As pointed out by several witnesses, the lack of a hospital in Doral is not itself an indication of need. In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. The population of Doral currently is only about 59,000 people. It is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. As set forth in JW’s CON application, the better payer mix in Doral was a significant factor behind its decision to file its CON application. Although there is not a hospital within the Doral city limits, there are a number of healthcare providers in Doral and several hospitals nearby. PGH and Palm Springs Hospital are just north of Doral. KRMC is just south of Doral. Hialeah is northeast of Doral. CGH, Westchester General, and NCH are southeast of Doral. JMH and all of its facilities are east of Doral. And there are others within reasonable distance. KRMC is only six miles due south of the proposed DMC site, and PGH is just eight miles north of the DMC site. As to the JW site, PGH is 6.9 miles distant, CGH is 8.6 miles distant, and Hialeah is 7.4 miles distant. Residents of the Doral area have many choices in hospitals with a wide array of services, and they are accessing them. The parties to this case, as well as other existing hospitals, all have a share of the Doral area market. JW calls this “fragmentation” of the market and casts it in a negative light, but the evidence showed this to be a normal phenomenon in an urban area like Miami, with several hospitals in healthy competition with each other. Among the experts testifying at the hearing, it was undisputed that inpatient acute care hospital use rates are on the decline. There are different reasons for this, but it was uniformly recognized that decreasing use rates for inpatient services, and a shift toward outpatient services, are ongoing trends in the market. Recognizing the need for outpatient services in the Doral area, both JW and DMC (or, more accurately, their related entities) have proposed outpatient facilities and services to be located in Doral. Kendall Regional Medical Center KRMC is currently the dominant hospital provider in the Doral area. Regarding his motivation for filing the DMC application, Mr. Joseph readily admitted “it’s as much about protecting what I already currently provide, number one.” KRMC treats Medicaid and indigent patients. KRMC has never turned away a patient because it did not have a contract with a Medicaid-managed care company. The CEO agreed that there is no access problem for Medicaid or charity patients justifying a new hospital. It was argued that KRMC is crowded, and the DMC hospital would help “decompress” KRMC, but the evidence showed that KRMC has a number of licensed beds that are not being used for inpatients. In addition, its ED has never gone on diversion, and no patient has ever been turned away due to the lack of a bed. Moreover, the census at KRMC has been declining. It had 25,324 inpatient admissions in 2015, 24,649 admissions in 2016, and 23,301 in 2017. The most recent data available at the time of hearing reflected that KRMC has been running at a little less than 75% occupancy, before its planned bed additions. KRMC is between an eight to 10 minute drive from Doral, and currently has the largest market share within the applicants’ defined service areas. KRMC is readily available and accessible to the residents of Doral. KRMC currently has a $90 million dollar expansion project under way. It involves adding beds and two new floors to the West Tower--a new fifth floor which will add 24 ICU beds and 24 step-down beds, and a new sixth floor which will house the relocated pediatric unit and 12 new medical-surgical beds. KRMC is also adding a new nine-story, 765 parking space garage and other ancillary space. This expansion will reduce the occupancy rate of KRMC’s inpatient units, and in particular its ICUs. These bed additions, in conjunction with increasing emphasis on outpatient services and the resultant declining inpatient admissions, will alleviate any historical capacity constraints KRMC may have had. There are also a number of ways KRMC could be further expanded in the future if needed. The West Tower is designed so it could accommodate a seventh floor, and the East Tower is also designed so that an additional floor could also be added to it. In addition, KRMC recently completed construction of a new OR area that is built on pillars. The new construction includes a third floor of shelled-in space that could house an additional 12 acute care beds. Moreover, this new OR tower was designed to go up an additional two to three floors beyond the existing shelled-in third floor. It is clear that KRMC has implemented reasonable strategies for addressing any bed capacity issues it may have experienced in the past. Decompression of KRMC is not a reason to approve DMC. Palmetto General Hospital Evidence regarding PGH was provided by its CEO Ana Mederos. Ms. Mederos is a registered nurse and has lived in Miami-Dade County for many years. She has a master of business education from Nova University and has worked in several different hospitals in the county. Specifically, she was the chief operating officer (COO) at Cedars Medical Center, the CEO at North Shore Medical Center, the CEO at Hialeah Hospital, and has been the CEO at PGH since August of 2006. Ms. Mederos is one of the few witnesses that actually lives in Doral. She travels in and out of the area on a daily basis. Her average commute is only about 15 minutes, and she has multiple convenient options in and out of Doral. PGH is located just off the Palmetto Expressway at 68th Street. It opened in the early 1970s and has 368 licensed beds, including 52 ICU beds. The hospital employs about 1,800 people and has over 600 physicians on its medical staff. PGH’s occupancy has declined from 79.8% in 2015 to 64% in 2016, and even further to 56.7% in 2017. There are many reasons for this decline, including pressure from managed care organizations, the continued increase in the use of outpatient procedures, improvements in technology, and increased competition in the Miami-Dade County market. Ms. Mederos expects that inpatient demand will continue to decline into the foreseeable future. PGH recently activated 31 observation beds to help improve throughput and better accommodate the increasing number of observation patients. PGH offers high-quality care and uses various metrics and indicators to measure and monitor what is going on in the hospital. The hospital has also been recognized with numerous awards. Through its parent, Tenet, PGH has contracts with just about every insurance and managed care company that serves the community. The hospital treats Medicaid and indigent patients. PGH’s Medicaid rate of $3,580 per patient is significantly lower than the rate paid to JMH. PGH has an office dedicated to helping patients get qualified for Medicaid or other financial resources, which not only helps the hospital get paid for its services, it also assists patients and families to make sure that they have benefits on an ongoing basis. Roughly 9-10% of PGH’s patients annually are completely unfunded. PGH only transfers patients if there is a need for a service not provided at the hospital, or upon the patient’s request. PGH does not transfer patients just because they cannot pay. PGH pays physicians to take calls in the ED which also obligates those physicians to provide care to patients that are seen at the hospital. PGH is a for-profit hospital that pays income taxes and property taxes, and does not receive any taxpayer subsidies like those received by JHS. Ms. Mederos reviewed the applications of JW and DMC, and articulated a number of reasons why, in her opinion, neither application should be approved. She sees no delays in providing care to anyone in the area, as there are hospitals serving Doral in every direction. There are a multitude of FSEDs available and additional FSEDs are being built in Doral by both applicants. There is another FSED being built close to PGH by Mount Sinai Medical Center. NCH has also opened an FSED that has negatively affected the volume of pediatric patients seen at PGH. There are also multiple urgent care centers. It was Ms. Mederos’ firm belief that persons living in Doral have reasonable geographic access to both inpatient and outpatient medical services. Ms. Mederos’ testimony in this regard is credited. There are no programs or services being proposed by either applicant that are not already available in the area. Ms. Mederos also noted that there is currently no problem with access to OB services in the area. However, she has a particular concern in that both applicants propose to offer OB services, but neither is proposing to offer NICU services. The evidence showed that most all of the hospitals that provide OB services to the Doral area offer at least Level II and some Level III NICU services. Thus, in terms of OB care, both proposed hospitals would be a step below what has developed as the standard of care for OB patients in the county. Ms. Mederos acknowledged that PGH does not have a huge market share in the zip codes that the applicants are proposing to serve, but that does not mean that the impact from either would not be real and significant. If a hospital is built by either applicant, it will need physicians, with some specialists in short supply. There are tremendous shortages in certain medical fields, such as orthopedics and neurology. In addition, there will be additional competition for nurses and other staff, which will increase the cost of healthcare. The loss of $1.3 to $2 million in contribution margin, as projected by Tenet’s healthcare planner, is a negative impact on PGH as hospital margins become thinner, and those numbers do not include costs like those needed to recruit and retain staff. PGH is again experiencing a nursing shortage, and losing nurses, incurring the higher cost for contract labor, paying overtime, and essentially not having the staff to provide the required services is a serious potential adverse impact from either proposed new hospital. JHS also tends to provide more lucrative benefits than PGH, and a nearby JW hospital is a threat in that regard. As a final note, Ms. Mederos stated that her conviction that there is no need for either proposed hospital in Doral is even more resolute than when she testified in the Batch One Case. With continued declines in admissions, length of stay and patient days, the development of more services for the residents of Doral, the shortages of doctors and nurses, the ever increasing role of managed care that depresses the demand for inpatient hospital services and other factors, she persuasively explained why no new hospitals are needed in the Doral area. Coral Gables Hospital (CGH) Maria Cristina Jimenez testified on behalf of CGH, where she has worked in a variety of different capacities since 1985. She was promoted to CEO in March 2017. She has lived in Miami her entire life. Ms. Jimenez has been involved in initiatives to make her hospital more efficient. She is supportive of efforts to reduce inpatient hospitalizations and length of stay, as this is what is best for patients. Overall, the hospital length of stay is dropping, which adds to the decreasing demand for inpatient services. CGH is accredited by the Joint Commission, has received multiple awards, and provides high-quality care to its patients. It also has contracts with a broad array of managed care companies as do the other Tenet hospitals. CGH treats Medicaid patients, and its total Medicaid rate is less than $3,500 per inpatient. The hospital has a program similar to PGH to help patients get qualified for Medicaid and other resources. CGH also provides services to indigent patients, and self-pay/charity is about 6% of the hospital’s total admissions. The hospital does not transfer patients just because they are indigent. Physicians are compensated to provide care in the emergency room and are expected to continue with that care if the patients are admitted to the hospital, even if they do not have financial resources. CGH also pays income and property taxes, but does not receive any taxpayer support. CGH generally serves the Little Havana, Flagami, Miami, and Coral Gables communities, and its service area overlaps with those of the applicants. In order to better serve its patients and to help it compete in the highly competitive Miami-Dade County marketplace, CGH is developing a freestanding ED at the corner of Bird Road and Southwest 87th Avenue, which is scheduled to open in January 2020. This will provide another resource for patients in the proposed service areas. Ms. Jimenez had reviewed the CON applications at issue in this case. She does not believe that either hospital should be approved because it will drain resources from CGH, not only from a financial standpoint, but also physician and nurse staffing. CGH experiences physician shortages. Urologists are in short supply, as are gastrointestinal physicians that perform certain procedures. Hematology, oncology, and endocrinology are also specialty areas with shortages. The addition of another hospital will exacerbate those shortages at CGH. While CGH does not have a large market share in the proposed PSA of either applicant, anticipated impact from approval of either is real and substantial. A contribution margin loss of $1.2 to $2.2 million per year, as projected by Tenet’s healthcare planner, would be significant. The drain on resources, including staff and physicians, is also of significant concern. Hialeah Hospital Dr. Jorge Perez testified on behalf of Hialeah. Dr. Perez is a pathologist and medical director of laboratory at the hospital. More significantly, Dr. Perez has been on the hospital’s staff since 2001 and has served in multiple leadership roles, including chair of the Performance Improvement Council, chief of staff; and since 2015, chair of the Hialeah Hospital Governing Board. Hialeah offers obstetrics services and a Level II NICU with 12 beds. Approximately 1,400 babies a year are born there. Hialeah’s occupancy has been essentially flat for the past three years, at below 40%, and it clearly has ample excess capacity. On an average day, over 200 of Hialeah’s beds are unoccupied. Like other hospitals in the county, Hialeah has a number of competitors. The growth of managed care has affected the demand for inpatient beds and services at Hialeah. Hialeah treats Medicaid and indigent patients. Approximately 15% of Hialeah’s admissions are unfunded. As with its sister Tenet hospitals, Hialeah is a for- profit hospital that pays taxes and does not receive tax dollars for providing care to the indigent. Dr. Perez succinctly and persuasively identified a variety of reasons why no new hospital is needed in Doral. First and foremost, there is plenty of capacity at the existing hospitals in the area, including Hialeah. Second, both inpatient admissions and length of stay continue trending downward. Care continues to shift toward outpatient services, thereby reducing the demand for inpatient care. According to Dr. Perez, if a new hospital is approved in Doral it will bring with it adverse impacts on existing hospitals, including Hialeah. A new hospital in Doral will attract patients, some of which would have otherwise gone to Hialeah. Moreover, Doral has more insured patients, meaning the patients that would be lost would be good payors. There would also be a significant risk of loss of staff to a new hospital. Dr. Perez’s testimony in this regard is credible. Statutory and Rule Review Criteria In 2008, the Florida Legislature streamlined the review criteria applicable for evaluating new hospital applications. Mem’l Healthcare Grp. v. AHCA, Case No. 12- 0429CON, RO at 32 (Fla. DOAH Dec. 7, 2012). The criteria specifically eliminated included quality of care, availability of resources, financial feasibility, and the costs and methods of proposed construction. Lee Mem’l Health System v. AHCA, Case No. 13-2508CON, RO at 135 (Fla. DOAH Mar. 28, 2014). The remaining criteria applicable to new hospital projects are set forth at section 408.035(1), Florida Statutes. Section 408.035(1)(a): The need for the healthcare facilities and health services being proposed. Generally, CON applicants are responsible for demonstrating need for new acute care hospitals, typically in the context of a numeric need methodology adopted by AHCA. However, AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. Florida Administrative Code Rule 59C-1.008(2)(e) provides that if no agency need methodology exists, the applicant is responsible for demonstrating need through a needs assessment methodology, which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory and rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Both applicants propose to build small community hospitals providing basic acute care and OB services in the Doral area of western Miami-Dade County. Both applicants point to the increasing population and the lack of an acute care hospital in Doral as evidence of need for a hospital. The DMC application focuses largely on geographic access concerns, while the JW application is premised upon six arguments as to why JHS contends its proposed JW hospital should be approved. The lack of a hospital in Doral is not itself an indication of need.3/ In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals, and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. Doral is in the west/northwest part of Miami-Dade County, in between the Miami International Airport (to the east) and the Everglades (to the west). It is surrounded by major roadways, with US Highway 27/Okeechobee Road running diagonally to the north, US Highway 836/Dolphin Expressway running along its southern edge, US Highway 826/Palmetto Expressway running north-south to the east, and the Florida Turnpike running north- south along the western edge of Doral. To the west of the Turnpike is the Everglades, where there is minimal population and very limited development possible in the future. The City of Doral itself has an area of about 15 square miles, and is only two or three times the size of the Miami International Airport, which sits just east of Doral. Much of Doral is commercial and industrial, with the largest concentration of residential areas being in the northwest part of the city. While there is unquestionably residential growth in Doral, the population of Doral is currently only about 59,000 people. Doral is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. JW proposes to locate its hospital on the eastern side of Doral, just west of Miami International Airport, while the DMC site is on the western side of Doral, just east of the Everglades. JW’s site is located in an industrial area with few residents, while the DMC site is located in an area where future growth is likely to be limited. Both sites have downsides for development of a hospital, with both applicants spending considerable time at hearing pointing out the flaws of each other’s chosen location. Both applicants define their service areas to include the City of Doral, but also areas outside of Doral. Notably, the entire DMC service area is contained within KRMC’s existing service area, with the exception of one small area. While the population of Doral itself is only 59,000 people, there are more concentrated populations in areas outside of Doral (except to the west). However, the people in these areas are closer to existing hospitals like PGH, Hialeah, KRMC, and others. For the population inside Doral, there are several major roadways in and out of Doral, and area residents can access several existing hospitals with plenty of capacity within a 20-minute drive time, many closer than that. It was undisputed that inpatient acute care hospital use rates continue to decline. There are different reasons for this, but it was uniformly recognized that decreasing inpatient use rates, and a shift toward outpatient services, are ongoing trends in the market. These trends existed at the time of the Batch One Case. As observed by Tenet’s healthcare planner at hearing: “The occupancy is lower today than it was two years ago, the use rates are lower, and the actual utilization is lower.” Both applicants failed to establish a compelling case of need. While there is growth in the Doral area, it remains a relatively small population, and there was no evidence of community needs being unmet. Sound healthcare planning, and the statutory criteria, require consideration of existing hospitals, their availability, accessibility, and extent of utilization. These considerations weigh heavily against approval of either CON application, even more so than in the prior case. Section 408.035(1)(b): The availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the service district of the applicant; and Section 408.035(1)(e): The extent to which the proposed services will enhance access to healthcare for residents of the service district. As stated above, there are several existing hospitals in close proximity to Doral. Thus, the question is whether they are accessible and have capacity to serve the needs of patients from the Doral area. The evidence overwhelmingly answers these questions in the affirmative. Geographic access was a focal point of the DMC application, which argued that there are various barriers to access in and around Doral, such as a canal that runs parallel to US Highway 27/Okeechobee Road, train tracks and a rail yard, industrial plants, and the airport. While the presence of these things is undeniable, as is the fact that there is traffic in Miami, based upon the evidence presented, they do not present the barriers that DMC alleges. Rather, the evidence was undisputed that numerous hospitals are accessible within 20 minutes of the proposed hospital sites, and some within 10 to 15 minutes. All of Doral is within 30 minutes of multiple hospitals. These are reasonable travel times and are not indicative of a geographic access problem, regardless of any alleged “barriers.” In addition, existing hospitals clearly have the capacity to serve the Doral community, and they are doing so. Without question, there is excess capacity in the Miami-Dade County market. With approximately 7,500 hospital beds in the county running at an average occupancy just over 50%, there are around 3,500 beds available at any given time. Focusing on the hospitals closest to Doral (those accessible within 20 minutes), there are hundreds of beds that are available and accessible from the proposed service areas of the applicants. KRMC is particularly noteworthy because of its proximity to, and market share in, the Doral area. The most recent utilization and occupancy data for KRMC indicate that it has, on average, 100 vacant beds. This is more than the entire 80-bed hospital proposed in the DMC application (for a service area that is already served and subsumed by KRMC). Moreover, KRMC is expanding, and will soon have even more capacity at its location less than a 10-minute drive from the DMC site. From a programmatic standpoint, neither applicant is proposing any programs or services that are not already available at numerous existing hospitals, and, in fact, both would offer fewer programs and services than other area hospitals. As such, patients in need of tertiary or specialized services will still have to travel to other hospitals like PGH, KRMC, or JMH. Alternatively, if they present to a small hospital in Doral in need of specialized services, they will then have to be transferred to an appropriate hospital that can treat them. The same would be true for babies born at either DMC or JW in need of a NICU. Similarly, there are bypass protocols for EMS to take cardiac, stroke, and trauma patients to the closest hospital equipped to treat them, even if it means bypassing other hospitals not so equipped, like JW and DMC. Less acute patients can be transported to the closest ED. And since both applicants are building FSEDs in Doral, there will be ample access to emergency services for residents of Doral. This criterion does not weigh in favor of approval of either hospital. To the contrary, the evidence overwhelmingly established that existing hospitals are available and accessible to Doral area residents. Section 408.035(1)(e), (g) and (i): The extent to which the proposed services will enhance access to healthcare, the extent to which the proposal will foster competition that promotes quality and cost-effectiveness, and the applicant’s past and proposed provision of healthcare services to Medicaid patients and the medically indigent. It goes without saying that any new hospital is going to enhance access to the people closest to its location; but as explained above, there is no evidence of an access problem, or any pressing need for enhanced access to acute care hospital services. Rather, the evidence showed that Doral area residents are within very reasonable travel times to existing hospitals, most of which have far more extensive programs and services than either applicant is proposing to offer. Indeed, the proposed DMC service area is contained within KRMC’s existing service area, and KRMC is only 10 minutes from the DMC site. Neither applicant would enhance access to tertiary or specialized services, and patients in need of those services will still have to travel to other hospitals, or worse, be transferred after presenting to a Doral hospital with more limited programs and services. Although it was not shown to be an issue, access to emergency services is going to be enhanced by the FSEDs being built by both applicants. Thus, to the extent that a new hospital would enhance access, it would be only for non-emergent patients in need of basic, non-tertiary level care. Existing hospitals are available and easily accessible to these patients. In addition, healthy competition exists between several existing providers serving the Doral area market. That healthy competition would be substantially eroded by approval of the DMC application, as HCA would likely capture a dominant share of the market. While approval of the JW application might not create a dominant market share for one provider, it would certainly not promote cost-effectiveness given the fact that it costs the system more for the same patient to receive services at a JHS hospital than other facilities. Indeed, approval of JW’s application would mean that the JW campus will have the more expensive hospital-based billing rates. Florida Medicaid diagnosis related group (DRG) payment comparisons among hospitals are relevant because both DMC and JW propose that at least 22% of their patients will be Medicaid patients. Data from the 2017-18 DRG calculator provided by the Medicaid program office was used to compare JHS to the three Tenet hospitals, KRMC, and Aventura Hospital, another EFD hospital in Miami-Dade County. The data shows that JHS receives the highest Medicaid rate enhancement per discharge for the same Medicaid patients ($2,820.06) among these six hospitals in the county. KRMC receives a modest enhancement of $147.27. Comparison of Medicaid Managed Care Reimbursement over the period of fiscal years 2014-2016 show that JHS receives substantially more Medicaid reimbursement per adjusted patient day than any of the hospitals in this proceeding, with the other hospitals receiving between one-third and one-half of JHS reimbursement. In contrast, among all of these hospitals, KRMC had the lowest rate for each of the three years covered by the data, which means KRMC (and by extension DMC) would cost the Medicaid program substantially less money for care of Medicaid patients. Under the new prospective payment system instituted by the State of Florida for Medicaid reimbursement of acute care hospital providers, for service between July 1, 2018, and March 31, 2019, JHS is the beneficiary of an automatic rate enhancement of more than $8 million. In contrast, KRMC’s rate enhancement is only between $16,000 and $17,000. Thus, it will cost the Medicaid program substantially more to treat a patient using the same services at JW than at DMC. Furthermore, rather than enhance the financial viability of the JHS system, the evidence indicates that the JW proposal will be a financial drain on the JHS system. Finally, JHS’s past and proposed provision of care to Medicaid and indigent patients is noteworthy, but not a reason to approve its proposed hospital. JW is proposing this hospital to penetrate a more affluent market, not an indigent or underserved area, and it proposes to provide Medicaid and indigent care at a level that is consistent with the existing hospitals. JHS also receives the highest Low Income Pool (LIP) payments per charity care of any system in the state, and is one of only a handful of hospital systems that made money after receipt of the LIP payments. HCA-affiliated hospitals, by comparison, incur the second greatest cost in the state for charity care taking LIP payments into consideration. Analysis of standardized net revenues per adjusted admission (NRAA) among Miami-Dade County acute care hospitals, a group of 16 hospitals, shows JHS to be either the second or the third highest hospital in terms of NRAA. KRMC, in contrast, part of the EFD/HCA hospitals, is about 3% below the average of the 16 hospitals for NRAA. DMC’s analysis of standardized NRAA using data from 2014, 2015, and 2016, among acute care hospitals receiving local government tax revenues, shows JHS receives more net revenue than any of the other hospitals in this grouping. Using data from FY 2014 to FY 2016, DMC compared hospital costs among the four existing providers that are parties to this proceeding and JMH as a representative of JHS. Standardizing for case mix, fiscal year end, and location, an analysis of costs per adjusted admission shows that the hospitals other than JMH have an average cost of between a half and a third of JMH’s average cost. The same type of analysis of costs among a peer group of eight statutory teaching hospitals shows JHS’s costs to be the highest. It should also be noted that if JW were to fail or experience significant losses from operations, the taxpayers of Miami-Dade County will be at risk. In contrast, if DMC were to fail financially, EFD/HCA will shoulder the losses. When the two applications are evaluated in the context of the above criteria, the greater weight of the evidence does not mitigate in favor of approval of either. However, should AHCA decide to approve one of the applicants in its final order, preference should be given to DMC because of its lower costs per admission for all categories of payors, and in particular, the lower cost to the Florida Medicaid Program. In addition, the risk of financial failure would fall upon EFD/HCA, rather than the taxpayers of Miami-Dade County. Rule 59C-1.008(2)(e): Need considerations. Many of the considerations enumerated in rule 59C- 1.008(2)(e) overlap with the statutory criteria, but there are certain notable trends and market conditions that warrant mention. Specifically, while the population of Doral is growing, it remains relatively small, and does not itself justify a new hospital. And while there are some more densely populated areas outside of the city of Doral, they are much closer to existing hospitals having robust services and excess capacity. Doral is a more affluent area, and there was no evidence of any financial or cultural access issues supporting approval of either CON application. The availability, utilization, and quality of existing hospitals are clearly not issues, as there are several existing hospitals with plenty of capacity accessible to Doral area residents. In terms of medical treatment trends, it was undisputed that use rates for inpatient hospital services continue trending downward, and that trend is expected to continue. Concomitantly, there is a marked shift toward outpatient services in Miami-Dade County and elsewhere. Finally, both applicants are proposing to provide OB services without a NICU, which is below the standard in the market. While not required for the provision of obstetrics, NICU backup is clearly the most desirable and best practice. For the foregoing reasons, the considerations in rule 59C-1.008(2)(e) do not weigh in favor of approval of either hospital.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Healthcare Administration enter a final order denying East Florida-DMC, Inc.’s CON Application No. 10432 and denying The Public Health Trust of Miami-Dade County, Florida, d/b/a Jackson Hospital West’s CON Application No. 10433. DONE AND ENTERED this 30th day of April, 2019, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of April, 2019.
