Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The petitioner Brookwood Medical Center of Lake City, Inc., d/b/a Lake City Medical Center (hereinafter referred to as LCMC) is a 75-bed acute care hospital, which presently has 65 medical/surgical beds and 10 alcohol treatment beds. Plans are under way to convert 10 of the medical/surgical beds to a psychiatric unit with 10 beds. LCMC primarily serves Columbia County, a primarily rural community with a population of 34,625, and derives 74 percent of its patients therefrom. The remaining 261 of its admissions come from the surrounding counties of Hamilton, Lafayette and Suwannee. Approximately 60 percent of its patients are sixty years of age or older. The source of reimbursement for the year 1980 was 40 percent Medicare, 8 percent Medicaid, 8 percent indigent or bad debt, and the remaining portion from other third-party payors. The current occupancy rate at LCMC is approximately 502 or 37.5 patients per day. Seasonal trends cause this figure to vary between 32 and 37.5. The daily census is expected to increase over the next year due to the planned addition of four new programs. These include the ten-bed psychiatric unit for which a Certificate of Need application is pending, an industrial medical and occupational health program which would provide on-site care to employees and their family members, the recruitment of an internist/cardiologist and the recruitment of an ophthalmologist. It is projected that the proposed new psychiatric unit will add eight patients to LCMC's daily census, the industrial health program will add 2.5 patients per day as well as outpatients, and that the internist/cardiologist will generate five patients per day. Psychiatric beds are less likely to generate intensive care patients than medical/surgical beds. It is expected that LCMC's program of expansion will change the mix of the primary and secondary service areas and will increase the average daily census to 42.5 by the end of 1981. Petitioner presently has a nursing staff of 48 and a medical staff of Of its medical staff, 13 are listed as active, 4 as courtesy, 4 as consulting and one with temporary privileges. LCMC has one operating room, no emergency room, and no intensive care/cardiac care unit (also referred to as IC/CCU). On an average basis, it is estimated that from ten to twelve surgical procedures per week are performed at LCMC. In 1980, 468 surgical procedures were performed. For the first quarter of 1981, the busiest time of the year, 156 surgical procedures were performed. Petitioner does have a step-down unit or a progressive care unit (also referred to as PCU) with four beds. The current utilization of the PCU is 2.7 patients per day, with a 50 percent medical component and a 50 percent surgical component. If petitioner's application for a Certificate of Need were granted, LCMC's PCU would be converted to an IC/CCU with invasive monitoring capabilities and patients who currently receive treatment in the PCU would be treated in the new IC/CCU. The current patient charge for the PCU is $111.00 per day. LCMC proposes an IC/CCU charge of $250.00 per day. Petitioner estimates that 8 percent of its patients would need and use an IC/CCU, and that, for the first year of operation, the IC/CCU would have a daily census of 3.5 patients. For the second year of operation, a daily patient census of 4.5 is projected. The projected daily utilization of over 50 percent is not consistent with actual utilization achieved in the IC/CCUs of other hospitals in the area. The prime concept of an IC/CCU is to provide more intensive nursing care and monitoring capabilities for unstable medical and surgical patients. The majority of admissions to an IC/CCU come from the emergency room and the second largest source is from the operating room after surgery. While some physicians feel that no physician or acute care facility should be without an IC/CCU, that all post-operative patients should be monitored in an ICU and that it is not good practice to transport an unstable patient under any circumstances, others disagree. These physicians, while agreeing that all hospitals need some form of life support capability, feel that for general routine surgery, only a very small percentage of patients are in need of an intensive care unit. It is possible to reduce the need for an intensive care unit by screening patients prior to surgery. A recovery room and/or a progressive care unit can provide the routine noninvasive monitoring and more intensive nursing care and observation needed by many medical and surgical patients. The use of a recovery room for critical care patients does pose serious problems due to the exposure to additional commotion and the potential mixing of well surgical patients with septic unstable patients. It is better medical practice to have separate personnel for infectious and noninfectious patients. The transfer of an unstable patient to another facility can pose serious risk to the patient. The intervenor Lake Shore Hospital (also referred to as LSH) is located approximately 1.5 miles from the petitioner. Lake Shore Hospital is a full- service, acute care, public hospital with 128 beds, an emergency room and a 9- bed IC/CCU. LSH has had an IC/CCU since 1970 or 1971. More than 50 percent of its intensive care patients come from its emergency room. Approximately 1600 surgical operations per year are performed at LSH. The IC/CCU at LSH provides basic noninvasive monitoring equipment connected to the patient's bedside and the nurses' stations. It does not presently have Swans-Ganz monitoring equipment, an invasive device which measures a patient's hemodynamics. The wiring and other equipment for two such monitoring capabilities are in place and, with the addition of a module and transducer for each unit, two units can be installed for a cost of approximately $4,400.00. At the present time, no one in Lake City has the extensive training required to utilize the Swans-Ganz monitoring equipment. LSH is in the recruitment process and plans to purchase and install this equipment when a cardiologist or other trained specialist is recruited. The IC/CCU at LSH experiences an occupancy rate of 3.5 patients per day, or 35 percent of its capacity. It has only achieved full capacity on two occasions in the ten years of its existence. Lake Shore Hospital presently charges $275.00 per day for the use of its IC/CCU. If it were to lose one patient per day, LSH would lose approximately $100,000.00 per year in revenue. Such a loss could result in either increased taxes or increased patient charges. In spite of the fact that several major admittors to LCMC and LSH have their offices at LCMC, It was their testimony that were a Certificate of Need granted to LCMC for an IC/CCU, they would continue to admit and refer patients to both facilities. Lake Shore Hospital has a medical staff of 22 or 23 specialists and nonspecialists. Of this number, all but one are also on the staff of Lake City Medical Center. The PCU at LCMC and the IC/CCU at LSH are presently comparable. While the nursing staff at Lake Shore's IC/CCU is better trained, at least one physician who practices at both hospitals felt that the same level of care could presently be obtained at LCMC's PCU as at LSH's IC/CCU. This is due to the fact that LSH does not now have the invasive monitoring capabilities felt to be essential to an IC/CCU. The traditional difference between a PCU and an IC/CCU is the degree of training of the nursing staff and the sophistication of the equipment. Underutilization of an IC/CCU can have an adverse effect upon the quality of care provided. One of the most important aspects of an intensive care unit is superior trained personnel. A reduction in patient use obviously reduces the personnel's exposure to complications and skills become dull. Thus, a reduction in patients reduces the quality of care. There is presently a shortage of nurses in the Lake City area. Lake Shore Hospital presently has 8 nursing vacancies and has been actively recruiting to fill those vacancies. In order to operate its proposed IC/CCU, LCMC would have to employ two full-time equivalent nurses with training in that area. The petitioner projects the cost of its requested IC/CCU to be $240,000.00. In 1979, LCMC ran a deficit of $1 million, the sixth largest loss in the State. In 1980, the deficit was $390,000.00. LCMC is presently experiencing a positive cash flow for 1981. It appears that LCMC anticipates the proposed IC/CCU to be a profit-making venture and projects that, if its presumptions are true with respect to patient use, the project will be financially feasible. At the time of the hearing, negotiations were under way for the sale of petitioner to another entity. The reviewing Health Systems Agency, the North Central Florida Health Planning Council, Inc. (NCFHPC), unanimously denied the petitioner's request for an IC/CCU at every level of the review process. The 1981-1985 Health Systems Plan for the NCFHPC contains certain criteria and standards for intensive and coronary care units which should he met within five years of operation. Two of the criteria are that an IC/CCU should have an average annual occupancy rate of 80 percent and that an IC/CCU should be available within one hour's (one-way) travel time of 95 percent of the region's residents. As noted above, LSH is approximately 1.5 miles away from LCMC. Lake City is 45 miles from Gainesville and 65 miles from Jacksonville with interstate highways connecting these cities. With an optimal utilization rate of 80 percent, it is projected that 8.5 IC/CCU beds are needed in the planning area in 1980, and, by 1985, there will be a need for 9 beds. There are presently 15 IC/CCU beds in the Level 2 planning area, which includes Lafayette, Suwannee, Hamilton and Columbia Counties. Of the licensed 212 acute care medical/surgical hospitals in Florida, 22 or 10 percent do not have intensive or coronary care units. The approximate bed size of most of these facilities is 50.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that petitioner's application for a Certificate of Need to construct and operate an intensive care/coronary care unit at Lake City Medical Center be DENIED. Respectfully submitted and entered this 7th day of August, 1981, in Tallahassee, Florida. DIANE D. TREMOR, 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 7th day of August, 1981. COPIES FURNISHED: John H. French, Jr. Messer, Rhodes and Vickers Post Office Box 1876 Tallahassee, Florida 32301 Donna H. Stinson General Counsel Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301 Jon Moyle and Thomas Sheehan, III Moyle, Jones and Flannagan, P.A. 707 North Flagler Drive Post Office Box 3888 West Palm Beach, Florida 33402 Honorable Alvin J. Taylor Secretary, Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301
Findings Of Fact Memorial Hospital of Jacksonville, Petitioner, seeks, via a variance, approval of an intensive care/coronary care unit (ICU/CCU) in excess of the 5,000 square foot requirement of the 1973 Life Safety Code, which has been adopted and is enforce by the Department of Health and Rehabilitative Services (Respondent herein), pursuant to Rule 10D-28.79, Florida Administrative Code. The unit size in question is approximately 11,540 square feet, which is, of course, approximately twice the size of the ICU/CCU unit size permitted by the 1973 Life Safety Code. The Respondent disapproved the Petitioner's request for a variance based inter alia on the fact that the Petitioner's plans, as presented, exceeded the 5,000 square foot requirement by approximately 6,000 square feet and due to the fact that the number of feet from the patient beds to the exits was in excess of the 50 feet exit requirement set forth in the 1973 Life Safety Code. Rudolph Nudo, Petitioner's Director of Engineering for approximately thirteen years, studied the plans presented for approval by Respondent and has been involved in the variance request from the outset. During January of 1978, Petitioner engaged the architectural firm of Ellerbe and Associates to arrive at a design that would be efficient both in terms of space utilization and in terms of cost efficiency. Based on its studies, Ellerbe decided upon a triangular design. The working drawings, plans and specifications were submitted to the City of Jacksonville for approval, which approval has been granted. The City of Jacksonville`s code is patterned largely from the 1973 Life Safety Code. During a meeting with the Respondent's agents during August of 1978, Respondent's officials voiced concern about the excessive square feet contained in the ICU/CCU unit and, based therein, formally submitted a letter of denial to Petitioner based on the excessive square feet. Presently, exterior construction has commenced on the proposed unit and Petitioner is now awaiting approval of its interior construction plans. Petitioner has indicated its desire to comply fully with all other requirements in terms of the necessary time/ratings for the fireproofing of walls, et cetera. In terms of other safety precautions, the Petitioner regularly conducts safety inspections and fire drills. Petitioner has not been cited for any safety infractions by the Respondent. Don Benson, the architect employed by Ellerbe and Associates assigned to this project, has been engaged in the design of medical facilities since approximately 1964. The plans, as submitted, have space to accommodate approximately twenty-four beds for coronary and intensive care patients. As stated, the design is triangular and the monitoring station is semi-circular. (See Petitioner's Exhibit A.) The burn factor for the wall is rated by Underwriters Laboratories (UL) for a period of up to two hours. The facility as planned is a one-story unit and is designed for easy ingress and egress to other adjacent units. Dr. Kay E. Gilmore, M.D., a cardiologist who has specialized in heart and vascular diseases for approximately seven years, was a member of the Petitioner's in-house committee charged with studying and implementing the design for the proposed ICU/CCU unit. Prior to submittal of the proposal, Dr. Gilmore visited various sites to study other ICU units which were operational. Dr. Gilmore, as did other witnesses, noted that in ICU units, a primary concern is that of complete visualization and monitoring of patients at all times. Dr. H. Azcuy, M.D., who has been engaged in the practice of pulmonary medicine since approximately 1964, is Petitioner's Director of Respiratory Therapy. Dr. Azcuy is a member of the Critical Care design unit committee and has been instrumental with the planning for the proposed facility. Dr. Azcuy remarked that most patients which he treats have respiratory problems and that all patients in the intensive care unit are prohibited from smoking due to the presence of oxygen in the critical care units. Vernon Wallace, Petitioner's biomedical engineer, is in charge of the procurement and maintenance of all patient care equipment at the facility. Recognizing that fire hazards are potential problems in all hospitals, Messr. Wallace testified that all equipment purchased by Petitioner is of high-level workmanship, most of which operates on very low voltage, thereby reducing the likelihood of fires. Messr. Wallace testified that during his tenure with Petitioner, no fire has occurred at the hospital nor has it been necessary to evacuate patients for any reason. Mary Nikoden, an R.N. for approximately thirty-three years and Petitioner's Director of Nursing for the past ten years, has been employed in many phases of patient care at hospitals and nursing homes. Ms. Nikoden testified that patients are interchanged regularly from the intensive care units to the critical care units as patient load fluctuates. She cited one problem, i.e., the movement of patients from the ICU/CCU units which is hampered due to the bulky equipment and the necessity to constantly monitor intensive and critical care patients. She opined that if the units were combined, patient care would be enhanced due to the fact that similarly trained employees work in both units. She also pointed out that the proposed design would increase patient care due to the fact that patients can be observed at all times and access will be increased and/or enhanced if the proposed design is approved. Karen Cornelius, a registered nurse who holds a master's degree in nursing, has been employed at Memorial Hospital since approximately September of 1976. From 1964 through 1967 she was employed at Cornell University Hospital and from 1967 through 1970 she was head nurse in charge of the surgery and intensive care units at Cornell. She was employed at Grady Memorial Hospital in Atlanta from 1970 through 1973, and from 1973 through 1975 she trained personnel in the intensive care and coronary care units at Grady Memorial Hospital. Ms. Cornelius was involved in the input and the design of the room sizes for the proposed unit. According to Ms. Cornelius, one of the basic reasons for the proposed design is to maximize the use of the staffs from the intensive care and coronary care units who are regularly interchanged and cross-coordinated. Ms. Cornelius has visited and compared other area hospital intensive care and coronary care units and is of the opinion that the proposed plan is far superior due to the easy patient visibility and the ability to constantly monitor patients' vital signs. During the year of 1978, Petitioner submitted a request for an equivalency (waiver) from the Joint Commission on Accreditation of Hospitals, which approval was granted in early March, 1979, with certain recommendations and conditions respecting exit requirements; the necessity to increase the frequency of fire drills, installation of adequate fire extinguishers and smoke exhaust systems and single-story construction (Petitioner's Exhibit 8). John T. Ludwig, an electrical engineer who holds a Ph.D. in engineering, has had vast experience in various engineering positions. Messr. Ludwig received his Ph.D. in 1954 and relocated to Pinellas County during 1966. Since 1971, he has been employed by the Respondent in the Bureau of Health Facilities, where he is now in charge of the review of plans for nursing homes and hospitals. Messr. Ludwig concluded that the Petitioner's plans as proposed were unsafe due to the "failure to consider fire safety and the undue risks of harm which would result to patients' lives if the proposed plans here approved." Among Messr. Ludwig's concerns were the facts that intensive care and coronary care patients differ with respect to the type of life support equipment necessary to maintain proper patient care; potential problems which might result due to the distance between patient suites and exits; corridor problems (the storing of combustibles in the hallways) and the inability to visualize patients from the central nursing station due to the triangular design. Max C. Karrer, M.D., is an associate of Memorial Hospital who specializes in obstetrics and gynecology. Dr. Karrer is a member of the committee charged with investigating the concept for the proposed critical care/intensive care unit. As a member of this committee, Dr. Karrer visited intensive care and critical care units of Hollywood, California; Pittsburgh, Pennsylvania; the University of Maryland Trauma Center; Machua General Hospital and a hospital in Cambridge, England. Dr. Karrer concluded that the proposed plan was one of the better plans he had observed because, among other things, personnel use would be maximized; better use could be made of patient beds; better care would result based on the number of dollars spent and the utilization of and the interchange of staffs from the intensive care and coronary care units. Additionally, he noted that the proposed plan made possible the ability to constantly visualize patients and was by far the best designed intensive care unit he had seen. During the examination of Dr. Karrer, it was brought out that the hospital dispenses medication on the unit-dosage system and all stored linens in the proposed unit was of the fire-retardant type. Thus, he concluded that the likelihood of a fire was remote in this unit since no combustibles are stored in the corridors as charged by Respondent's agents. Ben F. Britt, a registered architect licensed to practice in Maryland, Virginia, South Carolina, North Carolina and Florida, has practiced architecture for approximately fifteen years and is presently the Medical Facilities' architect for Area I in Florida. This area has approximately eighty-four hospitals and more than ninety nursing homes. Messr. Britt testified that the spread of fire was the primary reason that the Life Safety Code of 1973 restricted the area for an intensive care or coronary care unit to 5,000 square feet. He also cited the problem respecting the transfer of patients who necessarily had attached to their person monitoring equipment which could not be easily moved from one location to another. Messr. Rudolph Nudo was recalled to emphasize the fact that the Petitioner reviewed all safety codes when the subject design was implemented and that there were no linens stored which were not of the fire retardant type; that inasmuch as the Petitioner dispenses medication on the unit system, no boxes are stored in the hallways which could be the source of a potential fire hazard. Messr. Nudo also testified that the Petitioner would install the necessary exits to comply with all codes which the Respondent enforces. He testified that the additional size was justified in this case based on the additional safety features which were present in the design and the type of equipment utilized. Messr. Benson was recalled to emphasize the fact that the proposed unit consists of single rooms which were the optimum in coronary care units and that the trend in intensive care and coronary care units is toward centralization of such units.
The Issue Whether Certificate of Need Application No. 8614, filed by Vencor Hospitals South, Inc., meets, on balance, the applicable statutory and rule criteria. Whether the Agency for Health Care Administration relied upon an unpromulgated and invalid rule in preliminarily denying CON Application No. 8614.
Findings Of Fact Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida. The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County. Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities. In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and 40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale. Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that: On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8; Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published; Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996; Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes; Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council. During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate. In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that: "Long term care hospital" means a hospital licensed under Chapter 395, Part 1, 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. Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application. Numeric Need In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) 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. Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules. W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients. Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8. By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU. Statutory Review Criteria Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute. (1)(a) need in relation to state and district health plans. The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care. (1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district. Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units. AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined. AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives. Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions. Vencor also distinguished its patients, who require 7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to 3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units. Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week. Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population. In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes. (1)(c) ability and record of providing quality of care. The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c). (1)(e) probable economics of joint or shared resources; (1)(g) need for research and educational facilities; and (1)(j) needs of health maintenance organizations. The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue. (f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas. Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home. (h) resources and funds, including personnel to accomplish project. Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million. At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable. (i) immediate and long term financial feasibility of the proposal. Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal. needs of entities serving residents outside the district. Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8. probable impact on costs of providing health services; effects of competition. There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8. costs and methods of proposed construction; and (2)((a)-(c) less costly alternatives to proposed capital expenditure. The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area. past and proposed service to Medicaid patients and the medically indigent. Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare. services which promote a continuum of care in a multilevel health care system. While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8. (2)(d) that patients will experience serious problems obtaining the inpatient care proposed. Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor. Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8. DONE AND ENTERED this 3rd day of March, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Kim A. Kellum, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301
The Issue Which Certificate of Need (CON) application for a new 120- bed community nursing home in Agency for Health Care Administration, Nursing Home District 1, Subdistrict 1, should be granted: Life Care Health Resources, Inc. (CON No. 8802) or National HealthCare L.P. (CON No. 8799).
Findings Of Fact The NHC Application NHC proposes to build a new 120-bed facility. The project will have approximately 63,104 gross square feet. NHC projects the total project cost to be $8,763,625. NHC agreed to condition its application on the following: (a) a 16-bed subacute unit; (b) a 30-bed Alzheimer/Dementia services unit; (c) provision of adult day care through an existing provider; (d) respite care; and (e) care for HIV/AIDS patients. NHC further agreed to accept as a condition a Medicaid commitment of 74.5 percent of patient days. Finally, NHC offered to condition its application on the acceptance of "patients with HIV/AIDs referred by the public health unit serving the County in which the facility is or is proposed to be located." NHC agrees to be subject to monitoring and fines in the event that any of the above conditions are not met. The late Carl E. Adams, M.D., a Tennessee physician, founded NHC in 1971. From the beginning, NHC adopted innovations in nursing care which are now standard in the care of the elderly, e.g., skilled care programs, 24-hour RN coverage, computerized patient care assessment programs, and physical, occupational, and speech therapy. It is currently adopting other innovative therapies such as pet and music therapy, as well as children's visits. NHC is one of the largest owners/managers of nursing homes and assisted living facilities in the country. It has operations in 107 centers located in ten states. NHC has been operating nursing centers in Florida since 1985. At the time of its application, NCH owned nine nursing homes in the State of Florida, including five that had a superior rating. NHC manages 32 other centers in the State of Florida, the majority of which have superior ratings. NHC manages a facility in Escambia County known as FCC Palm Garden of Pensacola. Palm Garden has 180 beds. NHC does not own any facilities in the health planning District I, Subdistrict 1, which includes Santa Rosa and Escambia Counties. NHC has a well-developed corporate and regional management structure. The management structure places a significant amount of responsibility for decision-making at the facility level. The corporate and regional staff support individual facilities in the delivery of health care services to patients. At the corporate level, the following people are available to assist the local nursing homes and regional personnel in delivering high quality service: Vice President of Patient Services, Corporate Dietitian, and Coordinator of Social Services. Also, there are support service personnel for medical records, accounting and all of the therapy services, including but not limited to physical, occupational, and physical therapy. NCH has separate departments, which support nursing home development, construction, interior design, and human resources, as well as the company's retirement and assisted living facilities. At the regional level, NHC has established the following directorships to provide support personnel for the individual facilities: Regional Administrator, Regional Nurse, Regional Dietitian, Regional Social Worker, Regional Activities Coordinator, Regional Medical Records Director, Regional Accountant, Regional Physical Therapist, Regional Occupational Therapist, and Regional Speech Therapist. In addition to providing support, regional personnel actively monitor the quality of care provided at each of the NHC facilities. Annually, the NHC regional team spends two to three days in each center doing a comprehensive assessment of the delivery of care. Once a year, the Regional Nurse performs a full patient-care survey for each patient in each facility. Quarterly, the Regional Nurse reviews portions of each patient's care, so that twice a year there is a complete review of each case file. The regional team conducts Consumer View Surveys, which were developed by NHS. These surveys determine patient satisfaction with the quality of care, quality of life, and matters of patient rights which extend to family members. All of NHC's patients receive a quality control card to mail back to the home office upon admission, ninety (90) days after admission, and on each anniversary. The regional team reviews all patient care outcomes on a monthly basis. NHC's management philosophy includes a strong commitment to provide quality of care to its patients. Management strives to ensure that NHC employees have the education, training, and experience to deliver that care. Extensive corporate resources and support are provided to enable all the employees in the corporation to educate and improve themselves in the provision of long-term care. NHC has extensive programs in place to train administrators (two-year program), directors of nursing (preceptor program), dietitians, and certified nursing assistants (three levels of in-house education beyond the normal certification requirements.) NHC provides incentives to its employees to encourage their participation in educational and training programs, i.e., tuition reimbursement for college courses, in-house seminars, and annual company seminars as an entire organization and along specialty lines. NHC has developed extensive, state-of-the-art quality assurance, patient assessment and utilization programs. NHC, through its Partners in Excellence (PIE) program, Presidential Excellence Awards and CNA Awards, provides strong financial incentives to staff to maintain and improve quality care. NHC is also directly involved in community education efforts in the area of long-term care research and geriatric education. NHC founded the Foundation for Geriatric Education. This foundation has funded numerous chairs at various colleges and promotes public education on geriatric issues. Also, NHC supports and contributes to the training of LPNs, CNAs, therapists, and dietitians at local vocational schools, junior colleges, and universities. The LCHRI Application LCHRI is a Tennessee corporation, which is wholly owned by Forest L. Preston. It is not a subsidiary or an affiliate of any other corporation. LCHRI is self-described in the application as "a Tennessee corporation whose purpose is to develop and acquire high quality skilled nursing facilities." Mr. Preston is also the sole shareholder of Life Care Centers of America, Inc. (LCCA). LCCA is the largest privately held nursing home company in America. It operates approximately 25,000 nursing home beds in 200-plus facilities in 28 states. It also operates over 2,000 retirement center units. LCCA operates nine nursing homes in Florida. LCHRI intends to enter into a management arrangement with LCCA for the operation of its proposed facility. LCHRI is proposing to construct a 120-bed freestanding nursing home in the north/northeast portion of Escambia County. The facility will have approximately 57,600 gross square feet. LCHRI proposes to construct and equip the facility for the sum of $8,497,000. LCHRI conditions its application on providing at least 75 percent of its patient days to Medicaid patients. LCHRI also conditions its application on providing a 20-bed secured Alzheimer's/dementia unit and a ten-client adult day care center. LCHRI's application states that it will serve Medicare/subacute patients and HIV/AIDS patients. It will provide respite care and care to hospice patients. LCHRI's program will include a wide range of therapies, including occupational therapy, speech therapy, and physical therapy. It will provide intravenous care, wound care, and ventilator/respiratory care. However, care to these patient populations and provision of these services is not a condition of LCHRI's application, which would be subject to subsequent monitoring by the Agency. LCHRI will provide the required and necessary administrative services to its residents, including pre-admission screening services, utilization review, appropriateness review, care planning, and discharge planning services. The effectiveness of those services will be monitored through a Continuous Quality Improvement Program. LCHRI will incorporate into its project all required dietary programs, activities programs, and programs for family and community involvement. It will assure that resident's rights are protected by implementation of a Residents' Rights Policy. Resident security will be assured via use of a security council, a safety committee, and a program designed to prevent accidents. A Resident's Council will provide for the expression of grievances, offer a means of making suggestions to the nursing home, and assist management in understanding the needs and concerns of residents. COMPARATIVE FACTORS BETWEEN NHC'S AND LCHRI'S APPLICATIONS Quality of Care: Level and Extent of Services A significant comparative factor between the applicants is the level, quantity, and quality of care that both propose. The staffing and extent to which each applicant's proposal would serve various residents of the health planning district was left at issue by the parties. Likewise, the comparative quality of care of the applicants was left at issue. The parties' prehearing stipulation states as follows regarding state health plan allocation factors: Allocation Factor VIII regarding history of providing superior resident care programs is at issue, provided, however, the parties shall only introduce evidence of licensure history, JCAHO accreditation, staffing, level of service, programs and architectural matters. Allocation Factor IX regarding proposed staffing levels, all applicants meet minimum staffing levels. However, the parties retain the right to contest whether the applicants have the ability to meet the proposed staffing levels and to use the proposed staffing levels as a comparative factor. Allocation Factor XII relating to the preference for applicants proposing lower administrative costs and higher resident care costs compared to the average nursing home in the district is at issue in this proceeding. The parties' prehearing stipulation regarding the statutory review criteria located in Section 408.035(1)(c), Florida Statutes, states as follows: Subsection (c) relating to quality of care, all parties meet the criteria and it is not at issue as to past quality of care or quality of care proposed in the applications; provided, however, the parties may use this criteria as a comparative factor, but shall only introduce evidence as to licensure history, JCAHO accreditation, level of service, programs, staffing and architectural matters. Both applicants will provide staffing levels which exceed minimum standards. NHC proposes a total of 115.87 full- time equivalent (FTE) positions, with 67.2 total nursing FTEs. LCHRI proposes a total of 109.3 FTE positions, with 62.2 total nursing FTEs. Some of NHC's nursing staff will have administrative duties in addition to their direct patient care duties. The Assistant Director of Nursing, the Subacute Unit Director, and the Alzheimer's Unit Director will serve in dual roles. However, there is no persuasive evidence that serving as an RN and a unit director will detract from a nurse's direct patient care responsibilities. NHC proposes 10.37 FTEs for ancillary care (therapy) using. LCHRI proposes 8.5 FTEs for ancillary care. Both parties presented evidence that they will provide therapists for eight hours a day, five days a week. LCHRI's statement that it will be able to stagger its staff to allow for therapies up to seven days per week is not persuasive. NHC will have six more full-time persons serving its 120 beds than LCHRI will have serving its 120 beds and ten person adult day care. Five of the additional persons who will staff the NHC facility are involved in direct patient nursing care. Both applicants will provide a wide range of therapeutic programs necessary to the successful operation of a nursing home. LCHRI proposes to use in-house therapists to accentuate continuity of care. NCH's application states that it will contract with its wholly-owned subsidiary, National Health Rehab, for the services of therapists. In either case, the applicants will be able to provide patients with high-quality ancillary care. Another method of determining the relative merits of an applicant's commitment to provide patient care services is a comparison of the applicant's expenditure for administrative and patient care costs to the district average. The average administrative cost of the district is $27.91 a day per patient. NHC projects its administrative cost will be $23.37. LCHRI's administrative cost will be $24.32. The average patient care cost of the district is $58.94 a day per patient. NHC's patient care cost will be $86.46 a day per patient. LCHRI will spend $61.97 a day per patient on patient care. NHC will spend $993,115 a year more than LCHRI on patient care. NHC's greater patient care cost will provide more nursing staff, better paid nursing staff, incentives and bonuses to nursing staff for quality service, higher dietary expenditures, and more recreational and social activities. Another indicator of quality is the historical performance of an applicant pursuant to its licensure history. LCHRI has no operating history. Therefore, the operating history of LCCA, the projected operator of the LCHRI facility, must be examined here. There are three (3) types of licensure awarded by the State of Florida: Conditional, Standard, and Superior. The license categories are awarded and/or changed upon the regular bi-annual survey for licensure renewal or after a complaint investigation survey. The survey process involves grading violations as Class I, II, or III. Class I violations are the most serious and require immediate correction. A facility that receives a conditional rating at the time of its re-licensure or other survey has Class I or II deficiencies. Of the nine facilities owned and operated by NHC in Florida, seven had a superior rating and two had a standard ratings at the time of the final hearing. The facility managed by NCH in Escambia County, Palm Garden of Pensacola, was issued a conditional license on May 22, 1997. However, the Palm Garden facility corrected its deficiencies and subsequently received a standard license on June 11, 1997. As of May 5, 1998, the Palm Garden facility had a superior rating. As of July 30, 1998, LCCA had five skilled nursing facilities in the state: two with a superior rating, and three with a standard rating. Additionally, LCCA operates three nursing homes for affiliated owners in the state: one with a superior rating and two with a conditional rating. The licensure history for the ninth nursing home operated by LCCA, Life Care of Orlando, is not included in the record. At the time of the hearing, LCCA operated 60 facilities in the United States that were accredited by the Joint Commission on Accreditation of Health Care Organizations (JCAHO). LCCA operated 34 facilities nationally that had JCAHO applications pending. NHC also has significant experience with JCAHO accreditation. It operates 16 facilities in its north Florida region. One of these facilities, which is owned by NCH, is JCAHO accredited. Five of the facilities, which are managed by NHC, are accredited. One of the latter has a special accreditation for its subacute unit. Both parties have architectural features which promote quality of care. These architectural features are discussed in detail below. As to State Health Plan Allocation Factor VIII, NHC has a comparatively better history of providing superior resident care programs as evidenced by its licensure history, staffing, level of service, and programs. As to State Health Plan Allocation Factor IX, on a comparative basis, staffing levels proposed by NHC compare favorably to LCHRI's proposal. As to State Health Plan Allocation Factor XII, both applicants propose lower administrative costs and higher resident care costs compared to the average nursing home in the District. NHC compares favorably as to LCHRI in all aspects of this review criteria. It is undisputed that NHC will spend $24 per patient per day more than LCHRI on patient care. As to Statutory Review Criteria Section 408.035(1)(c), Florida Statutes, NHC's 120-bed proposal, when compared to LCHRI's 120 proposal, will provide a higher quality of care as to licensing history, level of service, programs, and staffing. Special Programs The type and nature of special programs proposed by a nursing home applicant is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding the state health plan allocation factors: Allocation Factor III relating to specialized services to special care patients is not at issue in this proceeding. All applicants meet this preference, but it can be a basis for comparison. Allocation Factor VI regarding proposals to provide innovative therapeutic programs is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding Section 408.035(1)(b), Florida Statutes: Subsection (b) is at issue to the extent the parties want to argue that their respective proposals better meet the need for health care services within the health planning district and as to any special programs proposed by the applicants. Alzheimer Units NHC proposes to operate a secured Alzheimer's care unit with 30 beds. The implementation of this separate unit is a condition of NHC's application. The unit has numerous amenities such as a very large dining and lounging area for the Alzheimer's patients. The unit is also specially designed to accommodate the wandering characteristics of the Alzheimer's patient. None of the corridors end in a dead end. The design of the unit allows for the circular, wandering motion of the typical Alzheimer's patient, both inside the unit and from the building to the secured courtyard. NHC's application proposes a large outdoor walled courtyard area for the Alzheimer's patients. The courtyard has a well landscaped gazebo area for the patients. NHC's staff in the Alzheimer's unit will receive specialized training for the care of this type of patient. LCHRI's facility will include a 20-bed Alzheimer's and/or dementia unit. LCHRI's Alzheimer's unit has a smaller courtyard than the one proposed by NHC. The LCHRI unit has numerous dead end corridors, which hamper the circular wandering pattern of the typical Alzheimer's patient. The floor coverings (vinyl) have a shine, which is disruptive to the Alzheimer's patient. Over the next few years, the health care planning district will need more beds for Alzheimer's patients than either of the applicants are proposing. Under these circumstances, NHC's 30-bed unit will best meet the growing need for beds that will serve people with dementia and Alzheimer's disease. Subacute Units NHC proposes a comprehensive subacute unit. The subacute unit will handle medically complex patients who require the following services: TPN, dialysis, oncology treatment, cardiac rehabilitation, ventilator use, IV care, and respiratory therapy. NHC's subacute unit will have 16 beds; its implementation is a condition of NHC's application. LCHRI asserts that it also will provide Medicare/subacute care. The LCHRI application describes a 20-bed unit. LCHRI does not condition its application on implementing this unit. NHC's subacute unit will provide a higher level of care than the unit proposed by LCHRI. Adult Day Care Both applicants condition their respective applications on the provision of adult day care. LCHRI offers to condition its CON on a 10-person in-house program which will focus on early stage Alzheimer's patients. NHC proposes to condition its CON on providing adult day care through existing providers. The in-house adult day care program suggested by LCHRI will handle persons with Alzheimer's disease and dementia. The nursing staff from the Alzheimer's unit will make rounds to the adult day care unit and be responsible for the implementation of the program, even though the two units are at the extreme opposite ends of the building. The adult day care area does not appear to be a secured area. The parties disputed whether there is a need for adult day care within the health planning district. NHC conditioned its application on the provision of adult day care services through existing providers to avoid duplication of services already in the district. Rehab and Restorative Nursing NHC has extensive, existing rehabilitative and restorative nursing programs. The goal of NHC's rehabilitative programs is to achieve and maintain the residents' highest level of functioning. NHC uses the innovative recreational and treatment therapies of children contact, music therapy and pet therapy. NHC proposes a total of 10.37 FTEs of therapists for rehabilitation care compared to 8.5 FTEs proposed by LCHRI. NHC proposes 2.8 FTEs for restorative nursing compared to 2.0 FTEs for LCHRI. As discussed above, both applicants will provide a wide range of therapeutic programs. LCHRI's proposal includes several noteworthy features relating to these therapies. They include the following: (1) an outdoor textured walking area that provides different kinds of walking environments, e.g. steps, curbs, inclines, drop ramps for wheelchairs, rough stones, grass, etc; (2) a transitional unit that is akin to a small apartment, including a kitchenette, a dining area, a regular bed (as opposed to a standard nursing home bed), and a regular bathroom; and (3) a therapy suite which allows for individualized therapy treatments and which is equipped with offices for in-house therapy professionals. However, the physical therapy unit and the specialized therapy courtyard are separated by a significant distance. The LCHRI application asserts that its facility will employ in-house therapists. Pursuant to a contract, LCCA will act as a consultant for LCHRI's therapists. However, LCCA will not be responsible for managing the clinical aspects of the LCHRI rehabilitation and restorative programs. LCCA will not be responsible for the results of the outcomes of these programs. LCHRI's claim of competency and proficiency in this area is therefore tentative. On the other hand, NHC and its wholly-owned subsidiary, National Health Rehab, will have a high level of integration in the delivery of rehabilitation services. The close corporate relationship between the two entities will minimize any managerial or clinical territorial conflicts, which might otherwise exist with an outside third party rehabilitation company. Moreover, the rehabilitation staff assigned to NHC's proposed facility will be permanently located there and not rotated among other facilities. As to State Health Plan Allocation Factor III, NHC provides superior specialized programs to residents of the health planning district. Based upon absolute numbers, NHC proposes ten (10) more Alzheimer's beds than LCHRI. NHC proposes to condition its application on the provision of Medicare subacute beds. NHC will provide a higher level in its subacute unit than LCHRI. NHC demonstrated that it has in the past, currently does, and will in the future provide care to HIV/AIDS patients. As to State Health Plan Allocation Factor VI, NHC will provide superior innovative therapeutic programs. As to Statutory Review Criteria Section 408.035(1)(b), Florida Statutes, NHC's specialized programs are superior in satisfying this requirement. ARCHITECTURAL DESIGN Architectural design remains at issue in this proceeding. The parties' prehearing stipulation states as follows regarding one of the state health plan allocation factors: Allocation Factor V regarding proposals to construct facilities which provide maximum resident comfort and quality of care is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding statutory review criteria located in Sections 408.035(1)(c) and 408.035(1)(m), Florida Statutes: Subsection (c) relating to quality of care, all parties meet the criteria and it is not at issue as to past quality of care or quality of care proposed in the applications; provided however the parties may use this criteria as a comparative factor, but shall only introduce evidence as to licensure history, JCAHO accreditation, level of service, programs, and staffing and architectural matters. Subsection (m) relating to the costs and methods of proposed construction is at issue in this proceeding. A miscellaneous section of the parties' prehearing stipulation states as follows: The architectural plans and narrative contained in each application may be accepted into evidence without the need for further authentication, corroboration, or foundation. The feasibility, validity and relative merits of each party's architectural plans is at issue and are a basis of comparison between the parties applications. Architecturally, the proposed bathing facilities for residents distinguish the proposals of the applicants. NHC has 58 bathing areas, a substantial majority of which are "in room" showers. LCHRI's proposed facility has 16 bathing facilities. Two of LCHRI's bathing facilities are centralized for the general population's use. Four of LCHRI's bathing facilities are located in areas designated for special programs or patients, i.e., physical therapy, Alzheimer care, adult day care and isolation room. Ten rooms in LCHRI's Medicare certified unit have showers in individual patient rooms. Except for the bathing facilities located in the isolation room and Medicare certified unit, all of LCHRI's bathing facilities are centralized. NHC will have one bathing area for every two residents. LCHRI's ratio of bathing area per resident ranges from 1:2 to 1:40, depending on the type of unit. One of the most important daily functions performed in a nursing home is daily bathing. Good nursing home design incorporates design features that allows residents to retain their dignity while bathing. Private showers in individual rooms are a superior design alternative to enhance patient dignity and quality of life in the nursing home. A comparison of other architectural features between the two applicants is as follows: (a) NHC's total square footage for the entire facility is greater than LCHRI's total square footage; (b) NHC will have more square footage per resident than LCHRI, including LCHRI's adult day care clients; (c) NHC will have 22 private rooms compared to LCHRI's 11 private rooms; (d) NHC will have 49 semi-private rooms compared to LCHRI's 54 semi- private rooms; (e) NHC's resident rooms will be equal in size or larger than any of LCHRI's resident rooms; (f) NHC will have six dining areas compared to LCHRI's four dining areas; (g) LCHRI will have three courtyards compared to NHC's two courtyards; (h) NHC will have two screened porches compared to no screened porches for LCHRI; (i) LCHRI will have six dayrooms, activity rooms and/or lounges for residents compared to three for NCH; and (j) LCHRI will have four lounges, classrooms and/or conference rooms for staff compared to three for NHC. NHC's facility provides for carpeting in the hallways, patient rooms, dining and other common areas. NHC uses wallpaper in patient rooms and ceramic tile in the bathrooms. NHC's corridors are 9 feet wide and have cart alcoves. For heating and air conditioning, NHC uses a water source heat pump, with individual controls in the rooms. NHC's two isolation rooms have a work area between the rooms and the corridors for more separation. NHC's facility is designed to accommodate a future expansion of 120 beds. Therefore, its ancillary areas are on one side of the facility rather than in the middle. Some of NHC's resident rooms are up to 300 feet from the dining area. LCHRI's facility also provides for carpets in the corridors, patient rooms, and many of the common areas. LCHRI uses vinyl in the bathroom. LCHRI has only one isolation room, which is a standard room, not specifically designed for this function. The walls in the patient rooms are painted, except for the patient room headwall and corridors. LCHRI's hallways do not have cart alcoves. For air conditioning, LCHRI uses through-wall heat pump units. LCHRI's facility is not designed for future expansion. Therefore, its ancillary areas are located in the center of the complex, with a service corridor at the rear of the building. The total square footage devoted to dining, recreation, activities, sun porches, ice cream parlors, living rooms for NHC is 7,489 square feet. LCHRI has 7,050 square feet devoted to such spaces. The therapy areas in both plans are essentially the same size. Both facilities have an in-house classroom and training room. NHC's classroom is 888 square feet. LCHRI's classroom is 388 square feet. NHC is proposing a Type 4 construction. LCHRI will use a Type 5 construction. Type 4 construction has a higher rating for fire safety. As to State Health Plan Allocation Factor V, the NHC proposal will provide maximum resident comfort and, on a comparative basis, a better quality of care than LCHRI's proposal. The in-room showers in the NHC center are the superior alternative to the centralized bathing proposed by LCHRI. The same is true in regards to Statutory Review Criteria Section 408.035(1)(c), Florida Statutes. NHC's proposal of in-room showers provides a better quality of care as compared to the LCHRI proposal for centralized bathing. As to Statutory Review Criteria Section 408.035(1)(m), Florida Statutes, NHC's method of construction provides more resident comfort and superior amenities. SERVICE TO RESIDENTS OF THE DISTRICT (ACCESS) The extent to which the services and beds provided by each applicant are available to residents of the district is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding the district health plan allocation factors: Preference should be given to a CON applicant who has a history of providing care, or who will commit to provide care for patients with HIV/AIDS . . . . [This preference, District Health Plan Allocation Factor IV is at issue.] Preference should be given to a CON applicant who agrees to accept patients with HIV/AIDS referred by the public health unit serving the county in which the facility is or is proposed to be located [This preference, District Health Plan Allocation Factor VI is at issue.] The parties prehearing stipulation states as follows regarding statutory review criteria located in Sections 408.035(1)(b), 408.035(1)(h), 408.035(1)(j), 408.035(1)(l), and 408.035(1)(n), Florida Statutes. Subsection (b) is at issue to the extent the parties want to argue that their respective proposals better meet the need for health care services within the health planning district and as to any special programs proposed by the applicants. Subsection (h) relating [to] the effects [that] the project will have on clinical needs of health professional training programs in the service district; and the extent to which the services will be accessible to schools for health professions in the service district for training purposes if such services are available in a limited number of facilities; [and] the availability of alternative uses of such resources for the provision of other health services; and the extent to which the proposed services will be accessible to all residents of the service district, are at issue in this proceeding. Subsection (j) relating to the special needs of and circumstances of health maintenance organizations is at issue. Subsection (l) relating to the probable impact of the proposed project on the costs of providing health care services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and service to promote quality assurance and cost effectiveness, is at issue in this proceeding. Subsection (n) relating to the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent, is at issue in this proceeding. HIV/AIDS The local health plan includes two preferences which seek to foster the commitment of nursing homes to admit and care for HIV/AIDS patients. LCHRI relies upon the LCCA's history of providing care to patients with HIV/AIDS. LCCA provides approximately 1400 patient days of care per year to HIV/AIDS patients in its Orange Grove Rehabilitation Hospital. LCCA also has a facility in Tennessee that cares for HIV/AIDS patients. In contrast, NHC offers to condition its application on the acceptance of HIV/AIDS patients which are referred by the public health unit serving the Escambia County. In addition, NHC has served at least four HIV/AIDS patients in its Florida nursing homes over the past three years. At the time of the Final Hearing, NHC was providing nursing home care to one HIV/AIDS patient. Medicaid In its Florida facilities, NHC provides 47.84 percent of its patient days to Medicaid patients. Most of NHC's facilities provide more patient days of care to Medicaid patients than is required as a condition of their respective CONs. One of its facilities provides a significant number of Medicaid patient days of care even though there is no such condition on its CON. NHC conditions its application on the provision of 74.5 percent of patient days for care of Medicaid patients. LCCA has Medicaid conditions at other facilities it operates. Only one of the facilities that it is currently operating does not meet the Medicaid condition on its CON. LCHRI conditions its application on the provision of 75 percent of patient days for care of Medicaid patients. Medicare Pursuant to Schedule 7 of the respective applications, NHC proposes to provide 6,058 Medicare days in its second year of operation. LCHRI will provide 4,654 Medicare days in its second year of operation. In addition, NHC proposes to condition its application on implementing a separate subacute unit, which will take care of higher acuity patients. LCHRI's subacute and Medicare patients will be served in a combined unit. Private Pay LCHRI raised concerns over NHC's lack of semi-private rooms for private pay patients. NHC's proformas do not reflect any semi-private room revenue for private pay patients because these patients generally require private rooms. Nevertheless, NHC will make semi-private rooms available to private pay patients. HMO/Insurance NHC proposes to charge health maintenance organizations (HMOs) and insurance companies a rate of $315 a day in the second year of operation. During the same period of time, LCHRI proposes to charge HMOs and insurance companies at the rate of $372.69 per day. NHC has specialized regional case managers to handle HMO patients. Location LCHRI asserts that its facility will be located in north/northeast Escambia County to better serve the whole district. However, LCHRI does not offer to condition its application upon locating in this area. The north/northeast section of Escambia County is already well served with other nursing homes. Many of the nursing homes currently located in the county are clustered in this area. NHC may elect to locate its facility in the same geographic area as proposed by LCHRI if the market and demand conditions continue to justify such a location. As an applicant which is not bound to a site, NHC has the greater ability to respond to existing market demand at construction time. Corporate Resources and Personnel Both applicants have corporate resources to recruit and train personnel to insure quality of patient care. NHC has experience in recruiting personnel in the district through its operation of the Palm Garden of Pensacola facility. LCHRI will utilize its experience at a recently opened Florida facility to recruit personnel. In summary, District Health Plan Factors IV and VI indicate a strong preference for the applicant which indicates a commitment to HIV/AIDS patients. NHC agreed to condition its CON on the provision of care for HIV/AIDS patients. Therefore, NHC is entitled to credit for these preferences. As to Section 408.035(1)(b), Florida Statutes, NHC better meets this statutory review criteria. NHC is proposing to provide two new special programs to residents of the health planning district, a subacute care unit for medically complex patients and a dedicated Alzheimer's care unit. With respect to Section 408.035(1)(h), Florida Statutes, both applicants rely on extensive corporate resources to meet this criterion. They both have well-developed programs for the recruitment and training of qualified associates. However, NHC better meets the statutory review criteria because it will provide the residents of the district with a broader range of accessible service. With respect to Statutory Review Criteria Section 408.035(1)(j), Florida Statutes, NHC demonstrated that it will better meet the needs of HMOs because it will charge the lowest rate. With respect to Statutory Review Criteria Section 408.035(1)(l), Florida Statutes, an award of a CON to either applicant will foster competition in the district by establishing the presence of a new nursing home provider. NHC has a presence in the district through its operation of the Palm Garden of Pensacola facility, but not as an owner. With respect to Statutory Review Criteria Section 408.035(1)(n), Florida Statutes, the parties are essentially equal on this point. Both have comparable past histories in providing Medicaid and charity care. Furthermore, both propose to provide Medicaid care at essentially the subdistrict average. ECONOMIC MATTERS A few economic issues as to project costs, long-term financial feasibility, and economies of scale are at issue. These economic issues clearly distinguish the two applicants. Economies of Scale The parties' prehearing stipulation states as follows regarding Section 408.035(1)(e), Florida Statutes: Subsection (e) relating to probable economies and improvements in service that may be derived from operation of joint, cooperative or shared health care resources is at issue in this proceeding. NHC is the superior applicant as to the statutory review criteria located in Section 408.035(1)(e), Florida Statutes. Adding a facility to NHC's strong regional structure will result in economies and improvements in service in the joint operation of all of its facilities. NHC also demonstrated significant economies of scale in the joint and cooperative clinical ventures with third party health care practitioners and providers. LCCA, which will be the manager for LCHRI's project, does not claim to have a centralized or focused regional management team. Its application specifically describes a decentralized management with the focus on the individual center. LCCA's recently formed regional staff is comprised of only six individuals. Project Costs Project costs remain at issue in this proceeding. The parties' stipulation states as follows regarding estimated project costs, Schedule I: The information contained on each Schedule 1 of the applications is deemed to be correct and true and will not require further proof at hearing; provided, however, the parties may contest individual line items. The parties' stipulation regarding Section 408.035(1)(m), Florida Statutes, states as follows: Subsection (m) relating to the costs and methods of proposed construction is at issue in this proceeding. Line 12 of LCHRI's Schedule I indicates that the construction costs for its project is $5,079,000. In the notes which accompany LCHRI's Schedule 1, the cost of construction per square foot is $95.51 and the square footage is 57,576. When one multiplies these numbers, the result is $5,499,083.76, which is approximately $420,083 higher than the number on line 12 in LCHRI's Schedule 1. LCHRI's witnesses gave no explanation or reconciliation of this obvious arithmetical error. LCHRI criticized NHC's costs in Schedule 1: land costs, site preparation, moveable equipment, financing costs, and start-up costs. These criticisms are not persuasive for the following reasons: Historical Cost LCHRI's criticism is based on a comparison with LCCA's historical costs for these items. NHC provided competent evidence to verify that the costs contained in its Schedule 1 are based on NHC's actual historical costs over dozens of projects. Utilizing past cost experience of an organization is a valid technique for estimating project costs. Land Cost LCHRI plans to pay approximately $125,000 per acre for its land. NHC will pay considerable less at $75,000 per acre. LCHRI's claim that NHC's land cost is low is without merit. NHC demonstrated that its land cost is reasonable. They were determined by obtaining cost estimates from a qualified real estate broker from the Pensacola area. Site Preparation LCHRI will spend $420,000 on site preparation. NHC will spend $17,000 for the same expense. NHC included a substantial portion of its site development costs in its construction cost; these costs are reasonable and appropriate. Movable Equipment The cost of NHC's movable equipment is appropriate based upon its historical experience and as delineated in the notes and assumptions. Financing Costs By virtue of its financing affiliate, NHC is able to achieve savings in the financing of its project. The amount it projects is appropriate based upon NHC's historical experience. Start-up Costs NHC demonstrated that its start-up costs are adequately estimated based on its relevant historical experience. NHC is able to manage this cost efficiently because it uses its regional managerial and clinical staff to do many of the start-up functions and work. As to project costs, NHC demonstrated by substantial competent evidence that its project costs were reasonably determined and appropriate. In contrast, LCHRI's costs contained in arithmetic error, which remains unexplained. Long-Term Financial Feasibility The parties' prehearing stipulation states as follows regarding the statutory review criteria located in Section 408.035(1)(I), Florida Statutes: Subsection (i) relating to the long-term financial feasibility (defined as the ability to operate the facility profitably after the start-up period) is at issue. For purposes of comparative review, AHCA defines financial feasibility as having a positive net profit at the end of the second year operations. Schedule 6 (Staffing) LCHRI's proposed salaries on Schedule 6 are significantly lower than the prevailing market conditions in Escambia County. Therefore, LCHRI has underestimated its labor expense by approximately $435,868. In contrast, NHC has based its proposed salaries on its actual operating experience in the county. As stated above, NHC's Alzheimer unit director, subacute unit director and assistant director of nursing (ADON) are essentially dual designations with RNs or LPNs who are found on the staffing schedule. NHC's staff development coordinator and admissions director are included as administrative staff and the activities director. LCHRS's application does not designate any of these positions except for its ADON who will also serve as the subacute unit director. Additionally, LCHRI intends to retain a dietitian pursuant to a contract on an as-needed basis. LCHRI does not include the dietitian's salary on its Schedule 6. NHC's Schedule 6 includes an annual salary for a registered dietitian in the amount of $43,290. Routine Costs Based on the amount that each applicant will spend on nursing, dietary, other patient care, NHC proposes to spend $993,115 more on patient care than LCHRI. At a minimum, this analysis demonstrates that NHC will provide a higher level of patient care. Medicare Prospective Payment System When the parties filed their applications, the Federal Medicare Program was operating under a "cost-based" reimbursement system. On May 12, 1998, Medicare's reimbursement system changed to a Prospective Payment System (PPS). The PPS system became effective for new nursing homes in the country on July 1, 1998. Under the new system, there are 44 resource utilization groupings (RUGs), which are based upon the level of services consumed by different types of patients. Nursing homes will be required to assess their patients under a diagnostic tool containing questions. Responses to the questions will lead to the assignment of a RUG category for each patient. Each of the RUG categories correlate to a level of reimbursement received per day, regardless of the costs actually incurred by the nursing home. It is undisputed that every new project's Medicare reimbursement will be less under PPS than what it would be under the old system. It is also undisputed that the facility at issue will operate under PPS. LCHRI has been monitoring the development of the PPS system for a number of years. It has voluntarily participated in pilot projects, which utilized the PPS system. As of August 11, 1998, LCHRI had 15 facilities operating under PPS, with another 40 facilities scheduled to change over to PPS by October 1998. LCHRI proposes to use in-house therapists as a cost saving measure under PPS. NHC's application proposes to contract with a subsidiary corporation for therapeutic services. Contracting with a third party provider for rehabilitation services is more costly. LCHRI proposes less Medicare and subacute care to reduce the negative impact of PPS. LCHRI projects that 27.1 percent of its revenue will be from Medicare. NHC projects that 41.79 percent of its revenue will be from Medicare. LCHRI asserted that NHC will not achieve its pro forma Medicare rate under PPS. In response to these claims, NHC presented evidence of ways to adjust its practices to meet the requirements of PPS. NHC intends to transfer therapists currently employed by its rehabilitation subsidiary to the individual center's payroll. This change results in the same level of therapy services, yet provides enough cost savings to comply with PPS. NHC estimates the cost savings at $940,000. PPS will result in providers putting more equity into their projects. Under the cost-based reimbursement system, providers had strong incentives to finance projects with debt so that interest costs could be included in their reimbursement. However, under PPS, there is a strong incentive for providers to reduce their interest expense in projects and use more equity. NHC under this method could save $300,000 in interest expense and still achieve very competitive rates of return on the invested equity. NHC has a history of putting the needed levels of equity into its projects. The strategies of switching rehabilitation staff in- house and the funding of project costs by equity are the primary techniques by which all providers, including NHC, will meet the cost containment required by PPS. NHC will also accrue smaller cost savings available in inhalation therapy, medical supplies and other areas. NHC's project has a significant cash flow cushion before its project becomes financially unfeasible. The cushion is $600,000. Under PPS, NHC will still make a total facility profit of $16,630 and have cash flow of $283,000. It would be unreasonable to assume that NHC will do nothing to reduce costs to comply with PPS. Moreover, LCHRI's financial analysis on this point only reduced the revenue for NHC, but did not allow for any corresponding reduction in expenses. PPS is a new reimbursement system, which will have an impact only on Medicare reimbursement. Medicare is only 15 percent of NHC's anticipated patient days and only 11.6 percent of LCHRI's anticipated patient days. NHC is a financially strong company. Furthermore, NHC has been able to consistently operate its facilities profitably for over 20 years in all environments. NHC has never closed a nursing home and has only sold two or three nursing homes. NHC demonstrated here that it has the necessary management expertise and experience to construct, open, and operate its proposed nursing home after the start-up period. NHC management is aware of PPS and its impact. It is preparing a comprehensive financial analysis and response to the new realities of PPS. Regardless of what a nursing home may have assumed or anticipated during the development of PPS, the earliest that any provider could have prepared a response to the impact of PPS with any certainty was not until May of 1998. NHC began making all of its management and operations personnel aware of the potential impact of PPS in the fall of 1997. Over the course of the winter of 1997 and the spring of 1998, NHC provided several seminars to its personnel to begin preparing for PPS. By contrast, LCCA did not begin holding its formal seminars for its management and operations personnel until May of 1998. While it is undeniable that PPS will effect all providers of nursing home services, NCH demonstrated that it has several viable strategies for responding to PPS. NHC, is a financially strong and well-financed nursing home provider, with the managerial, financial ability and talent to successfully respond to PPS. LCHRI raised the issue of financial feasibility with respect to PPS. It claims that the PPS impact on its proposal will only be $4,000 compared to over a $1,000,000 on NHC. However, further examination reveals that LCHRI has underestimated the impact of PPS as to this particular project. The parties agree that bringing rehabilitation staff in-house is the most effective cost-saving technique under PPS. LCHRI has already taken this step in its application, which was filed under the old Medicare reimbursement program. Therefore, this cost-saving measure under PPS is not available to the LCHRI proposal. LCHRI does not have the ability to put more equity into this project. LCHRI is a thinly capitalized corporation with little or no borrowing ability other than reliance upon LCCA. LCCA is highly mortgaged; it engages in a scheme of financing by which it pulls all of its equity out of its facilities as quickly as it can. LCHRI presented evidence it will be able to achieve RUG reimbursement at the highest level for vitually all of its patients over the entire length of stay at the facility. In contrast, NHC reviewed the anticipated average Medicare reimbursement under the RUGs category. NHC utilized a distribution which is currently being experienced in the FCC Palm Garden of Pensacola facility and also compared it against the national distribution under the pilot project. NHC realistically expects to receive an average Medicare reimbursement under PPS of $262.20. LCHRI's expectation of receiving an average reimbursement of $352.66, which is essentially at the highest RUGs category for all patients for the entire length of stay, is not realistic. According to the anticipated national average, not more than 13 percent of the patient days will be at the highest RUGs category. LCHRI's projection does not demonstrate sufficient verification to allow the LCHRI proposal to be feasible under PPS.
Recommendation Based upon the findings of fact and conclusions of law, it is, RECOMMENDED: That the Agency for Health Care Administration issue a Final Order deeming the application of NHC superior based upon a comparative review and awarding CON No. 8799 for 120 community nursing home bed to NHC. DONE AND ENTERED this 5th day of February, 1999, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of February, 1999. COPIES FURNISHED: Gerald B. Sternstein, Esquire Sternstein, Rainer and Clarke, P.A. 314 North Calhoun Street Tallahassee, Florida 32301 Richard A. Patterson, Esquire Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308-5403 R. Bruce McKibben, Jr., Esquire Post Office Box 1798 Tallahassee, Florida 32302-1798 Sam Power, Agency Clerk Agency for Health Care Administration Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Paul J. Martin, General Counsel Agency for Health Care Administration Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Ruben J. King-Shaw, Jr., Director Agency for Health Care Administration Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308
The Issue Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he 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. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 2005.
The Issue Whether the application of Petitioner Naples Community Hospital, Inc. for a Certificate of Need to add a total of 35 beds to Naples Community Hospital and North Collier Community Hospital should be approved based on peak seasonal demand for acute care beds in the relevant subdistrict.
Findings Of Fact Naples Community Hospital, Inc., ("NCH") holds the license for and operates Naples Community Hospital ("Naples"), a 331 bed not-for-profit acute care hospital, and North Collier Community Hospital ("North Collier"), a 50 bed acute care hospital. NCH also operates a 22 bed comprehensive rehabilitation facility and a 23 bed psychiatric facility. NCH is owned by Community Health Care, Inc., "(CHC"). Both Naples and North Collier are located within Agency for Health Care Administration ("ACHA") district 8 and are the only hospitals within subdistrict 2 of the district. Naples is located in central Collier County. North Collier is (as the name implies) located in northern Collier County approximately 2-3 miles from the county line. NCH's primary service area is Collier County from which approximately 85-90 percent of its patients come, with a secondary service area extending north into Lee County. Neither Naples nor North Collier are teaching hospitals as defined by Section 407.002(27), Florida Statutes (1991). NCH is not proposing a joint venture in this CON application. NCH has a record of providing health care services to Medicaid patients and the medically indigent. NCH proposes to provide health care services to Medicaid patients and the medically indigent. Neither Naples nor North Collier are currently designated by the Office of Medicaid as disproportionate share providers. NCH has the funds for capital and initial operating expenditures for the project. NCH has sufficient financial resources to construct and equip the proposed project. The costs and methods of the proposed construction are reasonable. The Agency for Health Care Administration ("AHCA") is the state agency charged with responsibility for administering the Certificate of Need program. Southwest Florida Regional Medical Center ("Southwest") is a 400 bed for-profit acute care hospital located in Fort Myers, Lee County. Lee County is adjacent to and north of Collier County. Southwest is owned by Columbia Hospital Corporation ("Columbia"), which also owns Gulf Coast Hospital in Fort Myers, and two additional hospitals in AHCA District 8. Southwest's primary service area is Lee County. Although Southwest asserts that it would be negatively impacted by the addition of acute care beds at NCH, the greater weight of the credible evidence fails to support the assertion. The primary market services areas of NCH and Southwest are essentially distinct. However, the facilities are located in such proximity as to indicate that secondary service areas overlap and that, at least during peak winter season periods, approval of the NCH application could potentially impact Southwest's operations. Southwest has standing to participate in this proceeding. Southwest offered evidence to establish that it would be substantially affected by approval of the NCH application. The NCH length-of-stay identified in the Southwest documents is inaccurate and under-reports actual length-of-stay statistics. The documentation also includes demographic information from a zip code (33912) which contributes an insignificant portion of NCH patients, and relies on only two years of data in support of the assertion that utilization in the NCH service area is declining. Southwest's chief operating officer testified that he considers Gulf Coast Hospital, another Columbia-owned facility, to offer more competition to Southwest that does NCH. Further, a physician must have admitting privileges at a hospital before she can admit patients to the facility. Of the physicians holding admitting privileges at Southwest, only two, both cardiologists, also have admitting privileges at NCH. Contrary to Southwest, NCH does not have an open heart surgery program. Accordingly, at least as to physician-admitted patients, approval of the NCH application would likely have little impact. On August 26, 1991, NCH submitted to AHCA a letter of intent indicating that NCH would file a Certificate of Need ("CON") application in the September 26, 1991 batching cycle for the addition of 35 acute care beds to the Naples and North Collier facilities. The letter of intent did not specify how the additional beds would be divided between the two facilities. The determination of the number of beds for which NCH would apply was solely based on the fact that the applicant had 35 observation beds which could be readily converted to acute care beds. The observation beds NCH proposes to convert are equipped identically to the acute care beds at NCH and are currently staffed. The costs involved in such conversion are minimal and relatively insignificant. Included with the letter of intent was a certified corporate resolution which states that on July 24, 1991, the NCH Board of Trustees authorized the filing of an application for the additional beds, authorized NCH to incur related expenses, stated that NCH would accomplish the proposed project within time and budget allowances set forth in the application, and that NCH would license and operate the facility. By certification executed August 7, 1991, the NCH secretary certified that the resolution was enacted at the July 24, 1991 board meeting and that the resolution did not contravene the NCH articles of incorporation or bylaws. Article X, Sections 10.1 and 10.1.3 of the NCH bylaws provides that no CON application shall be legally effective without the written approval of CHC. On September 26, 1991, NCH filed an application for CON No. 6797 proposing to add 31 acute care beds to Naples and 4 acute care beds to North Collier. The CON application included a copy of the NCH board resolution and certification which had been previously submitted with the letter of intent as well as the appropriate filing fee. NCH published appropriate public notice of the application's filing. As of the date of the CON application's filing, CHC had not issued written approval of the CON application prior to the action of the NCH Board of Directors and the filing of the letter of intent or the application. On October 2, 1992, four days prior to the administrative hearing in this case, the board of CHC ratified the actions of NCH as to the application for CON at issue in this case. The CHC board has previously ratified actions of the NCH in such fashion. There is uncontroverted testimony that the CHC board was aware of the NCH application and that no reservation was expressed by any CHC board member regarding the CON application. Although NCH's filing of the CON application without appropriate authorization from its parent company appears to be in violation of the NCH bylaws, such does not violate the rules of the AHCA. There is no evidence that the AHCA requested written authorization from the CHC board. After review of the application, the AHCA identified certain deficiencies in the application and notified NCH, which apparently rectified the deficiencies. The AHCA deemed the application complete on November 8, 1991. As required by statute, NCH included a list of capital projects as part of the CON application. The list of capital projects attached to the application was incomplete. The capital projects list failed to identify approximate expenditures of $370,000 to construct a patio enclosure, $750,000 to install an interim sprinkler system, $110,000 to construct emergency room triage space, and $125,000 to complete electrical system renovations. At hearing, witnesses for NCH attempted to clarify the omissions from the capital projects list. The witnesses claimed that such omitted projects were actually included within projects which were identified on the list. When identifying the listed projects within which the omitted projects were supposedly included, the witnesses testified inconsistently. For example, one witness testified that the patio project was included in the emergency room expansion project listed in the application. Another witness claimed that the patio enclosure was included in an equipment purchase category. Based on the testimony, it is more likely that the patio enclosure was neither a part of an emergency room expansion nor equipment purchase, but was a separate construction project which was omitted from the CON application. Similarly inconsistent explanations were offered for the other projects which were omitted from the capital projects list. The testimony was not credible. The capital projects omitted from the list do not affect the ability of NCH to implement the CON sought in this proceeding. The parties stipulated to the fact the NCH has sufficient financial resources to construct and equip the proposed project. As part of the CON application, NCH was required to submit a pro forma income statement for the time period during which the bed additions would take place. The application failed to include a pro forma statement for the appropriate time period. Based on the stipulation of the parties that the costs and methods of the proposed construction are reasonable, and that NCH has adequate resources to fund the project, the failure to include the relevant pro forma is immaterial. Pursuant to applicable methodology, the AHCA calculates numeric acute care bed need projections for each subdistrict's specific planning period. Accordingly, the AHCA calculated the need for additional acute care beds in district 8, subdistrict 2 for the July, 1996 planning horizon. The results of the calculation are published by the agency. The unchallenged, published fixed need pool for the planning horizon at issue in this proceeding indicated that there was no numeric need for additional acute care beds in district 8, subdistrict 2, Collier County, Florida, pursuant to the numeric need methodology under Rule 59C-1.038 Florida Administrative Code. The CON application filed by NCH is based on the peak seasonal demand experienced by hospitals in the area during the winter months, due to part-time residents. NCH asserts that the utilization of acute care beds during the winter months (January through April) results in occupancy levels in excess of 75 percent and justifies the addition of acute care beds, notwithstanding the numerical need determination. Approval of the CON application is not justified by the facts in this case. The AHCA's acute care bed need methodology accounts for high seasonal demand in certain subdistricts in a manner which provides that facilities have bed space adequate to accommodate peak demand. The calculation which requires that the average annual occupancy level exceed 75 percent reflects AHCA consideration of occupancy levels which rise and fall with seasonal population shifts. The applicant has not challenged the methodology employed by the AHCA in projecting need. Peak seasonal acute care bed demand may justify approval of a CON application seeking additional beds if the lack of available beds poses a credible threat of potentially negative impact on patient outcomes. The peak seasonal demand experienced by NCH has not adversely affected patient care and there is insufficient evidence to establish that, at this time, such peak demand poses a credible threat of potential negative impact on patient outcomes in the foreseeable future. There is no dispute regarding the existing quality of care at Naples, North Collier, Southwest or any other acute care hospital in district 8. The parties stipulated that NCH has the ability to provide quality of care and a record of providing quality of care. In this case, the applicant is seeking to convert existing beds from a classification of "observation" to "acute care". The observation beds NCH proposes to convert are equipped identically to the acute care beds at NCH. Approval of the CON application would result in no net increase in the number of licensed beds. NCH offered anecdotal evidence suggesting that delays in transferring patients from the Naples emergency room to acute care beds (a "logjam") was caused by peak seasonal occupancy rates. There was no evidence offered as to the situation at the North Collier emergency room. The anecdotal evidence is insufficient to establish that "logjams" (if they occur at all) are related to an inadequate number of beds identified as "acute care" at NCH facilities. There are other factors which can result in delays in moving patients from emergency rooms to acute care beds, including facility discharge patterns, delays in obtaining medical test results and staffing practices. NCH asserted at hearing that physicians who refer patients to NCH facilities will not refer such patients to other facilities. The evidence fails to establish that such physician practice is reasonable or provides justification for approval of CON applications under "not normal" circumstances and further fails to establish that conditions at NCH are such as to result in physicians attempting to locate other facilities in which to admit patients. The rule governing approval of acute care beds provides that, prior to such approval, the annual occupancy rate for acute care beds in the subdistrict or for the specific provider, must exceed 75 percent. This requirement has not been met. Applicable statutes require that, in considering applications for CON's, the AHCA consider accessibility of existing providers. The AHCA- established standard provides that acute care bed accessibility requirements are met when at least 90 percent of the residents in an urban subdistrict are within a 30 minute automobile trip to such facilities. At least 90 percent of Naples residents are presently within a 30 minute travel time to NCH acute care beds. The number of acute care beds in the subdistrict substantially exceed the demand for such beds. Additional beds would result in inefficient utilization of existing beds, would further increase the current oversupply of beds, would delay the time at which need for additional beds may be determined and, as such, would prevent competing facilities from applying for and receiving approval for such beds. The financial feasibility projections set forth in the CON application rely on assumptions as to need and utilization projections which are not supported by the greater weight of the evidence and are not credited. Accordingly, the evidence fails to establish that the addition of 35 acute care beds to NCH facilities is financially feasible in the long term or that the income projections set forth in the CON application are reasonable. As to projections related to staffing requirements and costs, the beds are existing and are currently staffed on a daily, shift-by-shift basis, based on patient census and acuity of illness. There is reason to believe that the staffing patterns will remain fairly constant and accordingly the projections, based on historical data, are reasonable. Generally stated, where there is no numeric or "not normal" need for the proposed addition of 35 acute care beds in the relevant subdistrict, it could be predicted that the addition of acute care beds would exacerbate the oversupply of available beds and could cause a slight reduction in the occupancy levels experienced by other providers. In this case, the market service areas are sufficiently distinct as to suggest that such would not necessarily be the result. However, based on the lack of need justifying approval of the CON application under any existing circumstances, it is unnecessary to address in detail the impact on existing providers. The state and district health plans identify a number of preferences which should be considered in determining whether a CON application should be approved. The plans suggest that such preferences are to be considered when competing CON applications are reviewed. In this case there is no competing application and the applicability of the preferences is unclear. However, in any event, application of the preferences to this proposal fail to support approval of the application.
Recommendation RECOMMENDED that a Final Order be entered DENYING the application of Naples Community Hospital, Inc., for Certificate of Need 6797. DONE and RECOMMENDED this 19th day of March, 1993 in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM 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 19th day of March, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1510 To comply with the requirements of Section 120.59(2), Florida Statutes, the following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3-4, 6-8, 16-20, 29-36, 38, 41, 44, 47, 49-61, 80, 88, 95-96, 100, 104, 108, 117-119, 122-125, 127, 134-138. Rejected as unnecessary. 15. Rejected as irrelevant. Peak seasonal demand is accounted for by the numeric need determination methodology. There is no credible evidence which supports a calculation of three years of four month winter occupancy to reach a 12 month average occupancy rate. 21-27, 37, 42-43, 62-64, 66, 97, 99, 101-103, 105-107, 109, 120-121, 126. Rejected as not supported by the greater weight of credible and persuasive evidence. 28. Rejected as not supported by the greater weight of credible and persuasive evidence and contrary to the stipulation filed by the parties. Rejected as not supported by greater weight of credible and persuasive evidence which fails to establish that the transfer of patients from emergency room to acute care beds is delayed due to numerical availability of beds. Rejected as not supported by greater weight of credible and persuasive evidence which fails to establish that the alleged lack of acute care beds is based on insufficient number of total beds as opposed to other factors which affect bed availability. Rejected as immaterial and contrary to the greater weight of the evidence Rejected as immaterial and contrary to the greater weight of the evidence which fails to establish reasonableness of considering only a four month period under "not normal" circumstances where the period and the peak seasonal demand are included within the averages utilized to project bed need. 86. Rejected as cumulative. 114. Rejected as unsupported hearsay. Respondent/Intervenor The Respondent and Intervenor filed a joint proposed recommended order. The proposed order's findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 6, 45, 51, 53, 59-67, 69-70, 94-113. Rejected as unnecessary. 16. Rejected as to use of term "false", conclusion of law. 58. Rejected as not clearly supported by credible evidence. 71-93, 114-124. Rejected as cumulative. COPIES FURNISHED: Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Harold D. Lewis, Esquire Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 W. David Watkins, Esquire Oertel, Hoffman, Fernandez, & Cole Post Office Box 6507 Tallahassee, Florida 32314-6507 Edward G. Labrador, Esquire Thomas Cooper, Esquire Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 John D.C. Newton, II, Esquire Aurell, Radey, Hinkle, Thomas & Beranek Monroe Park Tower, Suite 1000 101 North Monroe Street Post Office Drawer 11307 Tallahassee, Florida 32302
The Issue Whether Department of Health and Rehabilitative Services ("HRS") Rules 10- and 10-17.005 (originally published as 10-16.001, 10-16.005), Florida Administrative Code, constitute an invalid exercise of delegated legislative authority.
Findings Of Fact Standing Humana is a corporation engaged in the business of constructing and operating hospitals in Florida. It has applied to HRS for a certificate of need to construct and operate a 100-bed acute care hospital to be located south of the St. Johns River in the area known as Mandarin, in Duval County, Florida. The challenged Subdistrict Rule places this area in Subdistrict 3 of HRS District IV. Humana's (Mandarin) application for a certificate of need (CON) was denied by HRS on February 23, 1983, and Humana requested a formal Section 120.57(1), hearing. The case was then transferred to the Division of Administrative Hearings and assigned Case Number 83-934. The final hearing in that CON case began on September 6, 1983, and recessed on September 7, 1983. In the instant case--on Humana's request, and without objection by HRS--official recognition was given to the transcript of that hearing, as filed with the Division of Administrative Hearings. Prior to the CON hearing in Case Number 83-934, on August 12, 1983, HRS published proposed Rules 10-16.001 and 10-16.005 ("Subdistrict Rule") at Volume 9, Number 32, pages 1952 through 1957, Florida Administrative Weekly. (Petitioner's Exhibit No. 1) After the CON hearing recessed, and after a public hearing on the proposed Subdistrict Rule, HRS published changes to the rule on September 23, 1983, at Volume 9, No. 38, page 2475-2476, Florida Administrative Weekly. These changes were made in response to comments which HRS received at a public hearing held on the proposed rule. (Petitioner's Exhibit No. 2) On September 26, 1983, HRS filed the Subdistrict Rule with the Department of State for adoption, effective October 16, 1983. (Petitioner's Exhibit No. 3) Thereafter, the Bureau of Administrative Code, Department of State, informed HRS that since other rules were already numbered in Chapter 10-16, Florida Administrative Code, the Subdistrict Rule would be published in Chapter 10-17, Florida Administrative Code. (Petitioner'S Exhibit No. 28) At the CON hearing, Humana attempted to introduce evidence which HRS challenged as inconsistent with Rule 10-5.11(23) the state-wide acute care bed- need rule, and the Subdistrict Rule--then a proposed rule not yet adopted by HRS. The presiding hearing officer, acknowledging the "proposed rule" status of the Subdistrict Rule, sustained HRS objections to the admission of evidence proposing a methodology, or subdistrict bed-need allocations, inconsistent with those contained in the (proposed) Subdistrict Rule. He did, however, rule that the two non-agency parties could offer evidence for the purpose of showing that HRS, or the local health council in conjunction with HRS, had developed bed-need formula or techniques for subdistricts beyond, or inconsistent with, the proposed Subdistrict Rule and the underlying local health council's district plan. (DOAH Case No. 83-934, pp. 220-221, Transcript of Hearing). II. The Rule Adoption Process In response to Section 381.494(7)(b), Florida Statutes (1983), requiring local health councils to develop district plans using a "uniform methodology," HRS transmitted to the councils written guidelines for designating and allocating bed-need among various subdistricts. (Petitioner's Exhibit Dos. 9 and 10) The statute does not express or imply that the word, "methodology" should be given a meaning other than that assigned by ordinary and common usage. Webster's Seventh New Collegiate Dictionary defines the term as: "a body of methods, rules and postulates; a particular procedure or set of procedures." A methodology is not necessarily a mathematical formula. These guidelines, transmitted to the local health councils in early 1983, describe the relationship between HRS and the councils, the format and content elements of district health plans, and the requirements for stating district health care policies and priorities. Examples are provided. The guidelines require that local plans contain a district health profile--an overview of the area's population characteristics, community health status and prevailing health related attitudes and behaviors. Components are also required, including detailed information on the district's health care resource inventories, costs and utilization patterns, analysis of local services as well as recommendations and priorities for future health systems development. For at least three types of existing health care facilities--acute care hospitals, nursing homes, and psychiatric specialty hospitals information must be provided on current capacity, physical status, service areas, and recommendations for future developments. A time frame is imposed for accomplishing each phase of the plan development, with the final phase adoption of the local health plan--to be accomplished by December, 1983. Finally, the guidelines, at page 15, point out the statutory requirement that HRS adopt, by rule, those elements of the approved district plans necessary for review of applications for certificates of need: Adoption Into Rules Section 7(b) of Chapter 381.493 states that "Elements of an approved district plan necessary to the review of any certificate of need application shall be adopted by the Department as a part of its rules." This should be kept in mind through- out the plan development process. Local policies and priorities are the items most pertinent to certificate of need review since information on bed need and capacity are either determined at the state level or must be updated to the time of certificate of need application, review and appeal. There- fore, the local health council will be ex- pected to develop a separate submission of their policies and priorities in the proper format for rule promulgation within thirty days of the adoption of the local health plan. State agency staff will assist in the development and refinement of these documents. (Petitioner'S Exhibit No. 9) HRS interpreted its responsibility under Section 381.494, as one of assuring that district health plans were consistent with the state-wide uniform bed-need methodology prescribed in Rule 10-5.11(23). Under subparagraph "d" of that rule, local health plans must designate subdistricts according to HRS guidelines. Subparagraph "e" requires that beds be allocated to designated subdistricts consistent with the total number of beds allocated to the district under the rule, and consistent with subparagraph "i," which contains geographic accessibility standards. Rule 10-5.11(23) * * * * * Acute Care Service Subdistrict Designation. Acute care service sub- district designations shall be adopted, as necessary, by each Local Health Council as an element of its local health plan according to guidelines developed by the State Health Planning Agency. Designations will become effective for the purposes of this rule upon the filing of the adopted local health plan acute care subdistricting elements with the Secretary of State. Subdistrict Bed Allocations. Subdistrict bed allocations by type of service shall be made by the Local Health Councils consistent with the district total acute care bed allocation as determined by the methodology contained in paragraph (f) below, as well as any adjustments to the allocation as determined by the provisions of paragraphs and (h) below. Such allocations shall also be consistent with the provisions 9f paragraph (i) and the requirements of Section 381.494(7)(b) , Florida Statutes. * * * * * Geographic Accessibility Considerations. Acute care hospital beds should be available and accessible within an automobile travel time of 30 minutes under average travel conditions to at least 90 percent of the population residing in an urban area subdistrict. Acute care hospital beds should be available and accessible within a maximum automobile travel time of 45 minutes under average travel conditions to at least 90 percent of the population residing in a rural area sub- district. The elements of the District IV health plan contained in the Sub- district Rule are consistent with the uniform methodology prescribed in Rule 10-5.11(23) and HRS guidelines. In response to these guidelines, the District IV health council adopted and transmitted to HRS, on July 7, 1983, the acute care component of the district health plan. After the district council approved this component and allocated beds to the various subdistricts, HRS supplied updated population figures resulting in an increase in the total number of beds allocated to the district. The council's staff then adjusted the number of beds allocated to the subdistricts on a pro rata basis. These adjustments were consistent with the council's policy, as reflected by its approval of the acute care component. No evidence has been presented to show that the council's staff lacked authority to make these adjustments. (Petitioner's Exhibit No. 7) In addition to allocating district wide bed-need among the subdistricts of District IV, the acute care component contains detailed information and analysis concerning acute care bed-need. This information is pertinent but not necessary to the review of CON applications in District IV. (Petitioner's Exhibit No 7) The challenged Subdistrict Rule simply designates subdistricts and allocates bed-need among them; other data and analysis contained in the acute care component are not included. HRS, however, is now drafting an addition to the Subdistrict Rule (Section 10-17.005), titled "subsection (3), Acute Care Policies and Priorities," which incorporates additional portions of the district plan for use in reviewing CON applications in District IV. This draft rule allows exceptions based on local conditions: When there are more than one widely separated hospital service areas located within a single subdistrict, such as St. Augustine in South Duval Subdistrict 3, Bunnell and Daytona Beach in Subdistrict 4, and unforeseen growth, change and makeup of population, or other circumstances cause a significant increase in the demand for inpatient care within one of the service areas, the State should make exception to the District Health Plan when it is reasonable and logical to do so. (Petitioner'S Exhibit No. 34) This provision was contained in the district plan at the time HRS adopted the Subdistrict Rule. (Petitioner'S Exhibit No. 7) The Subdistrict Rule, with the exception of St. Lukes' Hospital, allocates beds among the subdistricts on the basis of the number of patient-days currently utilized by the hospitals in each subdistrict, projected for 1988. St. Lukes' Hospital, now located on the north side of the St. John's River in Subdistrict 1, will move to the south side of the St. John's River in Subdistrict 3, the subdistrict where Humana seeks to build its Mandarin hospital. This move from north to south is accounted in the subdistrict allocation by assuming that 34 percent of the current (north) St. Lukes' Hospital patient-days will come with the hospital when it moves from Subdistrict 1 to Subdistrict 3, and that the remainder will come from Subdistrict 3 (south) patients. With 66 percent of St. Lukes' bed capacity allocated for Subdistrict 3, there will be no additional bed-need in that subdistrict for years. HRS prepared an economic impact statement (EIS) in connection with its adoption of the subdistrict rules, including the Subdistrict Rule under challenge. The EIS addresses the agency's cost to implement the proposed rules, the cost or economic benefit to persons directly affected, and the affect on competition. The data and methods used in preparing the EIS are also briefly summarized.
