Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times pertinent to this proceeding, petitioner University Home Foundation, Inc., d/b/a Convalescent Center of Gainesville, was a nursing home providing skilled nursing care to Medicaid eligible patients. Petitioner was certified to participate in the Florida Medicaid Program. Respondent is the agency responsible for the administration and payment of Medicaid funds. An eligible entity is required to maintain adequate business records capable of audit by the respondent. Fiscal Year 1975 Petitioner filed with the respondent its cost report for the fiscal year January 1, 1975 to December 31, 1975, claiming reimbursable expenses of some $737,000. After an audit of the cost report by respondent, petitioner was informed in January of 1979 that adjustments amounting to approximately $131,000 were necessary and that petitioner was responsible for an overpayment of $56,183. Petitioner was advised by the respondent that its accounting records for the 1975 fiscal year were maintained in an incomplete and unsatisfactory manner. At the time petitioner's Administrator, Paul C. Allen, received this audit report, he did not have access to the work papers of the certified public accountant who prepared the cost report, but he did have access to the nursing home's financial records. As noted in the Introduction, petitioner is not contesting all the audit adjustments made by the respondent to its 1975 cost report. It is contesting only those disallowances of expenses relating to two automobiles and a mobile telephone, life and general insurance, a $20,000 bonus to the owner, social security taxes, a directory advertisement, interest, food and depreciation. Automobiles and mobile telephone. While allowing automobile expenses claimed for a 1969 Dodge Dart (used by the kitchen and maintenance staff for purchasing supplies) and a 1973 Ford station wagon (used mainly to transport patients), the respondent's auditor disallowed expenses claimed for a 1973 Cadillac (11 months) and a 1975 Lincoln Continental (1 month), as well as the expenses related to a telephone in these cars. The auditor concluded that these automobiles were used by the owner for personal use, were not related to patient care and that the expenses claimed were not documented. Administrator Paul C. Allen admitted that he drove these cars between the nursing home and his residence located 22 miles away and that he did not keep mileage logs for those vehicles. He estimates that 52 percent of the use of the automobiles was directly related to the nursing home business and patient care, and reimbursement is sought for this amount. This estimate is derived from starting with an average of 25,000 miles per year which the cars were driven, and deducting the 44 mile round trip to and from the Administrator's residence for 260 working days in a calendar year, resulting in 11,440 miles of the car's use for personal purposes. The remaining mileage, 13,560 (52 percent of 25,000) is claimed as being used for nursing home business or patient care. A telephone in these cars was also claimed as a reimbursable expense inasmuch as it was used like a "pager" when the Administrator was not on the nursing home premises. This mobile telephone expense, as well as the interest claimed, was disallowed by the respondent's auditor on the basis that it was an unnecessary cost of running a nursing home and was not directly related to patient care. Insurance. On its cost report, petitioner claimed expenses for a general hospitalization insurance policy on its employees and a life insurance policy on the Administrator. No supporting documentation was offered on the general insurance, and this expense was consequently disallowed because there was no indication that such insurance coverage was ever furnished. According to the Administrator, the mortgage loan commitment for the nursing home required that a $100,000 life insurance policy be maintained on the owner/Administrator to secure repayment of the loan in the event of his death. The documentation for such a requirement was not available to the Administrator because the nursing home was refinanced in 1976. Expenses claimed for life insurance on Mr. Allen was disallowed because the $100,000 life insurance policy constituted a fringe benefit to the owner, and the nursing home was at least an indirect beneficiary of an insurance policy on the Administrator. Bonus to owner and taxes. While petitioner contests the respondent's disallowance of a $20,000 bonus to the owner and $3,893 claimed as expenses related to the payment of social security taxes, no competent evidence was presented by the petitioner on these two items. In fact, Administrator Allen could not recall whether or not he received a bonus in 1975, and petitioner's expert accountant did not know what was actually paid to petitioner's staff in 1975. The $20,000 bonus was adjusted out by the respondent because it exceeded the amount allowable as an owner's salary. The tax expenses disallowed were those which exceeded the comparison between petitioner's general ledger and the payroll tax returns. Food expenses. While the respondent's auditors were able to verify from invoices approximately $63,800 claimed by petitioner as food expenses, there was no supporting documentation for the remaining $848 claimed. Petitioner was unable to provide such documentation at the hearing. Depreciation expense. Normally, an asset is capitalized and expensed or depreciated when it is incurred or installed. The fire sprinkler system for the petitioner's nursing home was capitalized in May of 1974, but payment on the system was expensed again in 1975. The petitioner provided no supporting documentation for this expenditure. Directory advertisement. According to Mr. Allen, the petitioner spent $317 for an advertisement in the yellow pages of a local telephone directory. The ad consisted of a small box to show the address of the facility for the benefit of the families of present and future patients. The ad itself was not produced as evidence at the hearing. Expenses for yellow page advertisements are allowed when the ads inform the public of the services which are provided. Such expenses are not allowed when the contents of the ad are not related to patient care or when the ad is in excess of what other nursing homes in the same geographic location are using. No evidence was produced as to other nursing home directory advertisements in the area. Fiscal Year 1979 Apartment rental. For the 1979 fiscal year, the petitioner claimed as an allowable expense the sum of $1,190 paid as apartment rental for the Administrator's son who performed maintenance duties for the nursing home. The Administrator testified that the apartment was near the facility, that a maintenance person needed to be on call 24 hours a day, and that the rental amount was considered part of the son's compensation for his duties with the nursing home. This expense was disallowed by the respondent inasmuch as there was not sufficient supporting documentation to illustrate that the rental costs were part of the services provided to the nursing home. Since the $1,190 was paid to a related party for the cost of apartment rental, it must be demonstrated that such costs do not exceed the price of comparable services or supplies which could be purchased elsewhere. There was nothing in the rental agreement to indicate that payment of the rent was considered part of the lessee's salary by the nursing home to assure 24 hours of maintenance care, nor was any other documentary evidence adduced to this effect. Travel. In its 1979 cost report, petitioner claimed travel expenses for trips taken by the Administrator and his wife to Hawaii, Mexico and Australia. It was alleged that these trips were taken for educational purposes. While expenses for the Hawaii program were allowed, respondent did not allow $3,528 claimed as expenses for the trips to Australia and Mexico. Petitioner presented an agenda of the program relating to the Australia trip which revealed that the program was in connection with the annual meeting of INTERCARE, an international nonprofit association dedicated to the improved quality of life for the convalescent and chronically ill. No evidence was produced relating to the trip to Mexico. The respondent disallowed expenses relating to the trips to Mexico and Australia taken by the Administrator and his wife on the basis that such expenses were unreasonable and unnecessary. It was not considered prudent for a nursing home administrator to travel this extensively and claim reimbursement in his Medicaid nursing home cost report. Respondent also considered the fact that a portion of the expenses claimed were for a party related to the owner/Administrator. Business entertainment. The respondent disallowed $565 claimed by petitioner as business entertainment, because this amount related to liquor purchased for an employee Christmas party. Expenses claimed for food for that social function were allowed by the respondent. Loss on sale of fixed asset. Petitioner claimed as an expense the loss it realized from a wrecked 1979 Lincoln automobile. It was requested that the loss be added to the cost of the new replacement vehicle, also a 1979 Lincoln, for depreciation purposes and recovered over the useful life of such vehicle through depreciation write-offs. Whether or not either of the 1979 Lincoln's were allowed for reimbursement purposes was not established at the hearing. According to the Health Insurance Manual 15, gains or losses realized from the exchange or trade-in of depreciable assets are not included in the determination of allowable costs. Proprietor's compensation. The respondent disallowed the amount of $15,000 claimed by the petitioner as compensation for the Director of Social Services for the third and fourth quarters of 1979. That position was held by the Administrator's wife, Marjorie Allen, who also was a 95 percent stockholder in the corporation which owned the nursing home. According to Mrs. Allen, the duties she performed as social services director, a full-time position, included the transporting of patients to medical appointments, the taking of social histories from newly admitted patients, working with the patients and their families and working with different organizations and agencies. The petitioner's facility also had an Activities Director in 1979, who assisted in such things as crafts and sewing and cooking classes. The $15,000 was disallowed by respondent because there was no supporting documentation produced that the salary related to patient care, because Mrs. Allen was a related party and because there appeared to be a duplication of services between the Activities Director and the Social Services Director. Medicare adjustment. Adjustments for Medicare can be made to reflect changes resulting from Medicare audits in the year that the differences become known. The recomputation is performed in the provider's cost report for the year in which the difference becomes known. Petitioner did introduce evidence that the Medicare adjustment for 1979 should be $119,398 in lieu of the respondent's adjustment of $123,648. As of the date of the hearing, respondent had not been afforded the opportunity to review the final adjusted Medicare cost report.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that a Final Order be entered finding the petitioner liable for the overpayments set forth in the final audit reports of the petitioner's Medicaid cost reports for 1975 and 1979, less any adjustment required for the 1979 Medicare cost report. Respectfully submitted and entered this 22nd day of June, 1983, 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 22nd day of June, 1983. COPIES FURNISHED: Mitzie Cockrell Austin, Esquire Scruggs & Carmichael One Southeast First Avenue Post Office Drawer C Gainesville, Florida 32602 Joseph L. Shields, Esquire Office of Audit & Quality Control Services Department of Health and Rehabilitative Services Building One, Room 406 1323 Winewood Blvd. Tallahassee, Florida 32301 David Pingree Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301
The Issue The general issue is whether Health Quest is entitled to a Certificate of Need for nursing home beds in Seminole County for the July 1985 batching cycle. The more limited issues on which this case focused are whether July 1985, or July 1987, is the appropriate release date for population data; whether the base period for "current population" is January 1985, or July 1985; and whether the applicant could, at the final hearing, scale down its request for beds to a number substantially less than the 120 beds requested in its July 1985 application.
Findings Of Fact Health Quest Corporation maintains its home office in South Bend, Indiana. As described by its Vice-President for Planning, the company is a moderately-sized, long-term care and assisted living company. Health Quest has been in existence since 1969, under its President and CEO, Larry Garratoni. The Company has approximately twelve facilities, including three Florida facilities: a 120-bed freestanding nursing home, a 107- bed nursing home with 80 attached assisted living units, and a facility in Sarasota with 300 retirement units. In July 1985, Health Quest filed its application for a new 120-bed nursing home in Seminole County, HRS District VII. After an exchange of correspondence and information relating to omissions to the application, the application was deemed complete effective September 30, 1985, and the application was denied on December 17, 1985. At the final hearing, Health Quest presented two exhibits with updated information to support its original 120-bed application, and updated information to support a scaled-down 60-bed Certificate of Need. These two exhibits, Petitioner's Exhibits 10 and 11, were admitted over HRS objection that they constituted amendments to the completed application, prohibited by HRS Rule 10- 5.008(3), Florida Administrative Code. Health Quest argued that the updates were intended to present a more current description of the cost structure and operating structure that Health Quest would be using, and to support partial approval of the original application. The relevance of these documents is addressed in my conclusions of law, below. The basis for HRS' denial of the Health Quest original application is, "... insufficient need for an additional 120 bed nursing home in the subdistrict." (Petitioner's No. 7) A determination of need in this case depends largely upon the proper application of the methodology described in HRS Rule 10-5.011(1)(k), Florida Administrative Code, which provides, in pertinent part: Community Nursing Home Beds. A community nursing home bed is a nursing home bed not located within a life care facility certified under Chapter 651, Florida Statutes. Departmental Goal. The Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds calculated by the methodology described in sub- paragraphs (k)2., 3., and 4., of this rule. Need Methodology. In addition to other relevant statutory and rule criteria to be used in considering the allocation of new or additional community nursing home beds, the Department will determine if there is a projected need for new or additional beds 3 years in the future according to the methodology specified under Sub-subparagraphs through j. This methodology provides for adjustments to current community nursing home bed rates based upon expected changes in the proportion of district residents age 75+ and the current utilization of community nursing home beds in the subdistricts designated by local health councils. In districts with a high proportion of elderly residents living in poverty, the methodology specifies a minimum bed rate. A = (POPA x BA) + (POPB x BB) Where: A is the district's age- adjusted number of community nursing home beds for the review cycle for which a projection is being made. POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future. BA is the estimated current bed rate for the population age 65-74 years in the relevant district. BB is the estimated current bed rate for the population age 75 years and over in the relevant district. BA = LB/(POPC + (6 x POPD) Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. BB 6 x BA SA A x (LBD/LB) x (OR/.90) Where: SA is the preliminary subdistrict allocation of community nursing home beds. LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of appli- cations submitted for the July batching cycle shall be based upon occupancy rate data for the months of October through March pre- ceeding that cycle; appli- cations submitted for the January batching cycle shall be based upon occu- pancy rate data for the months of April through September proceeding the cycle. For the purposes of this rule, the occupancy data to be considered shall be that collected by the Department's Office of Health Planning and Development or a contractor assigned to collect the data. * * * For purposes of applying the methodology, the parties have agreed to the following factors: Occupancy rate (OR) is .9366. Licensed beds in the subdistrict (LBD) is 725. The number of approved beds in the subdistrict is 179 Licensed beds in the district (LB) is 4425. July 1988 is the planning horizon. (Petitioner's Exhibit No. 12, Respondent's Exhibit No. 1, Prehearing Stipulation filed 11/13/87). While the parties have not agreed which figures are applicable, they have stipulated to the population figures for the following periods: (1) January 1, 1988, as of July 1, 1985: Pop A: 93,987 Pop B: 56,612 (2) July 1, 1985, as of July 1, 1985: Pop C: 96,295 Pop D: 58,307 (3) July 1, 1988, as of July 1, 1985: Pop A: 110,788 Pop B: 69,020 (4) January 1, 1985, as of August 1987: Pop C: 96,741 Pop D: 57,545 (5) July 1, 1985, as of August 1987: Pop C: 100, 276 Pop D: 60,133 (6) July 1, 1988, as of August 1987: Pop A: 119, 915 Pop B: 75,704 (Prehearing Stipulation filed 11/13/87) The source of the population figures are the official estimates and projections adopted by the Office of the Governor. These are prepared by the Bureau of Economic and Business Research at the University of Florida and are released periodically. Because better data is available, the July 1987 releases of estimates and projections is more accurate than the July 1985 releases of estimates and projections. The rule does not specify which version must be used. HRS relied on the July 1985 releases that were available at the time the application was first received. HRS did not present evidence to support that policy in this proceeding. HRS does include updated data for other factors in the methodology, for example, occupancy rate and number of licensed beds. Health Quest advocates the use of the July 1987 releases that were available at the time of hearing and presented competent expert testimony from a demographer to support its position. The parties also disagree on the base period for current population, ages 65-74 and 75+ (POPC and POPD). With the exception of the January 1987 batching cycle, HRS' Certificate of Need review staff have consistently applied a three year planning horizon; that is, the base period is considered the date of the batching cycle (here, July 1985). It appears that in its state agency action report, HRS originally used January 1985 as the current population base period. HRS' Office of Comprehensive Health Planning, a separate office within the agency, uses a base period six months prior to the application date in its published semiannual bed need reports. Health Quest advocates use of the earlier base period and argues that it is consistent with good health planning because the earlier period is the midpoint of the six-month occupancy period prescribed by the rule. The rule does not explicitly state that current population is determined as of the batching cycle, but the context strongly supports that interpretation, as discussed in the conclusions of law. Health Quest submitted four iterations of the methodology, including one utilizing the July 1985 base population, a July 1987 release date, and the other values stipulated by the parties. (Petitioner's Exhibit 12). This is adopted as follows, with a resulting bed need of 53.58: NET BED ALLOCATION: SEMINOLE COUNTY, 7/88 PLANNING HORIZON (Using 7/85 base population and the 7/87 population set) 1. BA = LB + 4425 POPC + (6 X POPD) 100,276 + (6 x 60,133) = 4,425 = 9.597 Per 1000 461,074 2. BB = 6 x BA = 6 x 9.597 = 57.582 Per 1000 3. A = (POPA x BA) + (POPB x BB) = (119,915 x 9.597/K) + (75,704 x 57.582/K) = 1,150.82 + 4,359.19 = 5,510.01 4. SA = A x LBD X OR = 5,510.01 x 725 LB .90 4,425 x 0.9366 x 939.48 .90 5. Net Bed Allocation SA - (LBD + (AB x .90) = 939.48 - [725 + (179 x .90)] = 939.48 - 886.10 53.38 The Local Health Council of East Central Florida (District VII,) has adopted a standard that the minimum size of new nursing homes should be 120 beds in all counties, except Osceola, where the minimum size should be 60 beds. (Petitioner's Exhibit 26). Health Quest's expert conceded that a 120-bed home is more efficient to operate. (Transcript, p. 77) It is a generally accepted standard that nursing home units should be organized in groups of 60 beds. Health Quest's expert urged that if a need for 54 beds is found, the approved number should be rounded up to 60 beds. With the exception of need and the above-mentioned policy of the District Health Council, Health Quest's proposed facility (both 120-bed and 60- bed version) meets the applicable criteria for Certificate of Need approval, including quality of care and financial feasibility. In advance of hearing, the parties stipulated that most non-need related criteria were met. (Prehearing stipulations filed 11/13/87 and 11/16/87). In addition, .Health Quest presented perfunctory, unrebutted testimony with regard to the facility's compliance with statutory and rule criteria. Approval of either a 60-bed or 120-bed new nursing home in Seminole County would result in a surplus of beds for the July 1988 planning horizon. Health Quest did not present evidence of special circumstances to justify approval of additional beds, as provided in Rule 10-5.011(1)(k)2.j., Florida Administrative Code.
Recommendation Based upon the foregoing, it is hereby RECOMMENDED: that Health Quest's application for Certification of Need for nursing home beds in Seminole County be denied. that the applications by R. H. Little and Gulf South be dismissed, in accordance with those parties' earlier notices of voluntary dismissal. DONE and RECOMMENDED this 15th day of March, 1988, in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of March, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 86-0136, 86-0355, 86-0638 The following constitute my specific rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Fact Addressed in Preliminary Statement. Addressed in paragraph's 1 and 2. Adopted in paragraph 2. 4-5. Rejected as unnecessary. 6-12. Adopted in substance in paragraph 3. 13-14. Rejected as unnecessary 15-16. Adopted in paragraph 4. 17-72. Rejected as unnecessary, except as summarized in paragraph 14. Rejected as unnecessary Adopted in paragraph 7 and 8. 75-76. Adopted in paragraph 10. 78-80. Adopted in paragraph 7. 81-82. Rejected as unnecessary. Rejected as contrary to the weight of evidence and contrary to the rule. Adopted in paragraph 11, except for the conclusion relating to "rounding-up." Rejected as unnecessary. 86-93. Adopted in substance in paragraph 9. 94. Rejected as argument. 95-96. Rejected as unnecessary. Rejected as cumulative and unnecessary. Rejected as irrelevant. Rejected as contrary to the rule. Rejected as irrelevant. Further, while HRS has used the 3-1/2 year horizon in a single batching cycle, that horizon in CON review has not been accepted by HRS. Rejected as irrelevant. Adopted in paragraph 10. Rejected as contrary to the rule. However, the sentence regarding need calculation in the SAAR is adopted in paragraph 10. Rejected as cumulative and irrelevant. 105-170. Rejected as unnecessary. That Health Quest meets the criteria except those related to need is adopted in summary, in paragraph 14. Respondent's Proposed Findings of Fact Adopted in paragraph 3. Adopted in paragraph 5. Adopted in paragraph 6. Rejected as contrary to the evidence and contrary to the rule. Rejected as contrary to the evidence. Rejected as irrelevant, except as addressed in paragraph 4. Adopted in paragraph 7. Adopted in paragraph 10. Rejected as irrelevant. Adopted in paragraph 15. COPIES FURNISHED: Robert Powell, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Steven W. Huss, Esquire 1017 Thomasville Road Tallahassee, Florida 32303 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700
Findings Of Fact I. BACKGROUND HILL-GUTHRIE, also known as Hill Guthrie Realty Company, is a wholly- owned subsidiary of First American Corporation, in Huntsville, Alabama. During the past 17 years, First American Corporation has developed, owned, and operated approximately 80 nursing homes and health care facilities. On October 15, 1982, HILL-GUTHRIE filed an application with HRS for a CON to construct and operate a community nursing home in the City of Niceville, in Okaloosa County, Florida. The original application sought authorization for a 120-bed nursing home, to be known as "Twin Cities Health Facility." Estimated cost of construction was $3,180,000. By its "State Agency Action Report," dated January 28, 1983, HRS preliminarily denied the application, stating: The proposed project is not consistent with Chapter 10-5.11, Florida Administrative Code, Nursing Home Bed Need Methodology. A need does not exist to add any nursing home beds to Okaloosa County through 1985. There are 70 approved but not constructed beds in the county. The bed need methodology produces an excess of 10 nursing home beds in the county through 1985. (emphasis included) [Respondent's Ex. 3.]. HILL-GUTHRIE contested the denial, resulting in this proceeding. At final hearing, HILL-GUTHRIE amended its earlier application, reducing the number of nursing home beds, from 120 to 60. Other changes to the application were made to reflect the reduction in beds. The estimated cost of construction was reduced from $3,180,000 to $1,780,000. [Petitioner's Ex. 2]. HRS did not seek a continuance or additional time to evaluate the newly amended application. Rather, it represented that it was prepared to proceed. II. APPLICATION OF THE NURSING HOME BED-NEED METHODOLOGY Both parties agree that HILL-GUTHRIE'S application is governed by the licensing criteria contained in Rule 10-5.11(21) Florida Administrative Code, and Section 381.494(6)(c), Florida Statutes. Generally, the rule provides that applications for community nursing home beds will be considered "in context with applicable statutory and rule criteria"; that applications will "not normally [be] approve[d] . . . if approval . . . would cause the number of community beds in that departmental service district to exceed the number of beds calculated by the methodology described in [the rule]"; and that this methodology, consisting of several numerical formulae, will be used to evaluate applications "in addition to relevant statutory and rule criteria." Section 5.11(21)(a), (b), Fla. Admin. Code. The statute being implemented, Section 381.494(6)(c), Florida Statutes, enumerates a myriad of criteria, including availability, accessibility, extent of utilization, quality of care and adequacy of like and existing health care services in the area to be served. Section 381.494(6)(c), Fla. Stat. (1983). It has been construed to require a balanced consideration of these factors. HRS cannot ignore some factors and emphasize others. 1/ The HRS methodology--consisting of formulae which do not take into account all criteria listed in the statute--comports with this requirement by incorporating, by reference, all other relevant statutory or rule criteria, and recognizing that new beds may be permitted even though such approval would cause the number of beds to exceed the number allowed by the formulae. Section 5.11(21)(a), (b), Fla. Admin. Code. The HRS bed need methodology, at least that part consisting of the various formulae, establishes a 3-step analysis. First, theoretical bed need for the relevant district and sub-district is calculated using an area's particular poverty ratio, a statewide bed-need ratio of 27 beds per 1,000 elderly population, and the area's elderly population projected three years into the future. "Existing and approved" beds in the sub-district area are then subtracted to arrive at the number of additional beds needed in the district and sub-district. In the instant case, it is undisputed that this first step in the analysis is satisfied. The formulae, when "run," indicate a 1987 theoretical bed-need of at least 250 additional beds in District 1, the relevant district, and 58 additional beds in Okaloosa County, the relevant sub-district. Respondent's Ex. 1, 2). The remaining two steps involve applying current and prospective utilization formulae. When, as here, both district and subdistrict show a theoretical need for additional beds, a specific bed need/availability relationship is identified, which correlates with specific current and prospective utilization thresholds. Section 5.11(21)(e)1., (f), (g), Fla. Admin. Code. Normally, if both thresholds are satisfied, "need" is indicated and the application approved. If either threshold is not met, thus indicating "no need," HRS must decide whether, on balance, this failure is outweighed by favorable findings under other criteria made relevant by rule or statute. If so, approval is justified, or even required. HRS describes this inquiry as one of determining whether there are unusual, or extenuating and mitigating circumstances in a case which would justify approving an application, notwithstanding failure to satisfy the formulae. In the instant case, the applicable utilization thresholds are that average current utilization rate in the sub-district must exceed 85 percent, and any additional beds must not cause the prospective utilization rate in the sub- district to drop below 80 percent. Section 10-5.11(f), (g), Fla. Admin. Code. [Respondent's Ex. 1.] According to the June, 1984 HRS Semiannual Census Report, the nursing home bed utilization rate for Okaloosa County was 97.1 percent from October, 1983 through March, 1984. More recent nursing home data filed with HRS, on a quarterly basis, indicates a current utilization rate of 96.5 percent. Thus, using either data base, the 85 percent current utilization threshold is satisfied--a conclusion agreed to by both parties. The prospective utilization threshold, however, permits additional beds only to the point at which further beds would drop the sub-district prospective utilization rate below 80 percent. HILL-GUTHRIE, using the HRS Semiannual Census Report, the number of existing and approved beds in the sub-district, and the projected elderly population, concludes that the sub-district (Okaloosa County) could be allowed an additional 16 beds before the prospective utilization falls below 80 percent. HRS, using the quarterly census data, finds need for an additional 13 beds. As conceded by the HRS expert--the 3-bed difference is insignificant. More importantly, as both parties agree, the granting of HILL-GUTHRIE'S 60-bed application would drop the projected utilization rate below the required 80 percent. (A nursing home of less than 60 beds is not considered financially feasible.) Thus, the formulae indicate "no- need" for the proposed 60-bed nursing home. The inquiry, then, must turn to whether failure to satisfy the formulae is, on balance, outweighed by other rule or statutory criteria, or extenuating and mitigating circumstances unique to this case. III. APPLICATION OF OTHER STATUTORY AND RULE CRITERIA The HRS bed-need formulae are useful tools to evaluate CON applications: they are objective, abstract, and can be applied with ease; they enhance consistency, uniformity, and predictability of decision. But these formulae are rudimentary, inexact tools which, though useful, are incomplete. They do not take into account numerous criteria which, by statute and rule, also apply to CON applications. For instance, they do not take into account, in any direct and meaningful way, factors such as financial feasibility, accessibility, quality of care, efficiency, and impact on cost of care. See, Section 10- 5.11(3), (5), (6), and (2)(b), Fla. Admin. Code; Section 381.494(6)(c)1., 2., 9., and 12., Fla. Stat. (1983). It is the measurement of HILL-GUTHRIE'S application by these criteria which is at issue here. The power of HRS to find that failure to satisfy the formulae is outweighed, or overridden, by other factors is not at issue. HRS has, in the past, granted numerous CON's (despite failure to satisfy the formulae) based on favorable findings under other criteria, such as accessibility. Petitioner's Ex.`s 3, 5, 7, 53. Without a bona fide evidentiary basis, agencies cannot treat similarly situated applicants in an inconsistent manner. 2/ A. Accessibility of Existing Nursing Homes To Niceville Area Residents Currently, four nursing homes providing a total of 355 beds--are located in Okaloosa County (the relevant sub-district). The majority of these beds (295) are found in three of the nursing homes located in the more heavily populated and faster growing coastal area of the county. The remaining beds (60) are located in a nursing home in Crestview, a city north of Niceville, in the central part of the county. This nursing home has an additional 60 beds which have been under renovation for a considerable time. HRS has no projected completion date for this renovation. The date of completion is, apparently, a matter within the sole discretion of the nursing home and its contractors. The Crestview nursing home primarily serves residents of the northern and central portion of Okaloosa County. Since it is the northernmost nursing home in the county, it also receives patients from South Alabama. Existing nursing homes in the county have a high rate of utilization. Occupancy rates in the four existing nursing homes average 97.1 percent for the six month period ending March, 1984; 96.5 percent for the six months ending June, 1984. Recent data compiled by the Local Health Council indicate a 98.8 percent utilization rate for the nine months preceding hearing. Nursing home occupancy rates in adjoining counties approach 95 percent, no doubt contributing to the high rate of utilization in Okaloosa County Some nursing homes have lengthy waiting lists. 3/ One patient, although ninth on the waiting list, has waited 3 years for placement in the Westwood Nursing Home, located in the coastal part of the county. The Crestview nursing home has a waiting list of more than 60 persons, making it unlikely that-- even after the renovations are completed--further beds will be available. It is reasonably anticipated that the recently enacted Medicare hospital reimbursement system, based on diagnostic-related guidelines (DRG's), will increase the demand for nursing home beds, thereby aggravating the shortage. With Medicare hospital payments tied to the diagnosis of illness, rather than the length of patient stay, hospitals will have increased economic incentives to discharge patient earlier. Some local hospitals have had to retain patients, who no longer require acute care, because nursing home beds are unavailable. At Crestview Community Hospital, hospital patients have had to wait or face delays of from one week to 63 days during the period from May to August, 1984. During that time period, 43 patients were eligible for nursing home placement. Eleven spent a combined total of 271 hospital days awaiting placement. Three of the 11 were eventually discharged, but (at time of hearing) were still awaiting placement. At Twin Cities Hospital, in Niceville, two or three patients (at time of hearing) required but could not obtain nursing home placement. In August, 1984, five patients were ready for early discharge, but could not be placed in nursing homes because of crowded conditions. In May, 1984, three Twin Cities Hospital patients were placed in a Panama City nursing home, over one and one half hours travel time from Niceville, because of crowded local conditions. Local physicians have had similar difficulties finding nursing home placements during the past year. Robert S. Ellis, M.D., a Niceville physician, could not obtain prompt nursing home placement for from eight to ten of his patients. They faced waits ranging from ten days to two months. Many of his patients were finally placed in nursing homes outside the county; recently, he had no choice but to place a patient in a Gulf Breeze nursing home, approximately 50 miles away. He has never been successful in placing a patient in the Crestview nursing home, primarily because Crestview residents are given priority consideration. His experience is shared by other local physicians. Existing nursing homes in the county are a considerable distance from Niceville. Given the existing road system and traffic conditions in the coastal area, it has become increasingly burdensome for Niceville residents to visit their friends and relatives in coastal nursing homes. Frequent visits and contacts with friends and relatives is recognized as beneficial to nursing home residents. It is important that residents maintain their ties to the community, and their relationships with friends and relatives outside the nursing home. For Niceville residents, it takes 20-30 minutes to drive to nursing homes located in the coastal area, 45 minutes to drive to the Crestview nursing home. This burden, which affects nursing home residents as well as their families and friends, is real and significant. It is established not only by the testimony of area physicians, hospital administrators, and Niceville residents, but it is convincingly corroborated by the testimony of three Niceville city council members, and by petitions signed by over 480 elderly citizens in the Niceville area. [Public Ex.'s 1-3]. The HRS bed-need formulae do not take geographic accessibility of existing nursing homes into account, and no minimum access/travel time has been established by rule. Before adoption of the bed-need formulae, HRS had relied on a 30-minute standard set by the Local Health Council. A health care expert who, in 1982, conducted the HRS public hearing on the HILL- GUTHRIE application concluded that access times (for Niceville area residents) to existing nursing homes bordered on or exceeded this ad hoc 30-minute standard. HRS has not established, by competent evidence, a travel/access standard for use in this proceeding. More importantly, HRS concedes that initial denial of the HILL-GUTHRIE application is due, in large part, to the delay in completing renovations to the Crestview nursing home which, when complete, will provide an additional 60 beds. [Transcript, p. 232]. As conceded by HRS's expert and sole witness, if the 60 renovated beds were available, they would "probably be well utilized." [Transcript, p. 232]. (Given the lengthy witness list, it is likely that, within a short time, the additional 60 beds would be filled.) The expert further concluded that, should the 60 beds be filled, the bed-need formulae would indicate need" and--provided other standards were met--HRS would be able to approve the HILL-GUTHRIE application. [Transcript, p. 234]. B. Financial Feasibility of the Proposed Nursing Home The proposed nursing home is financially feasible, both in the short and long-term. The revised total cost of the nursing home is 51,780,000, which is reasonable, given the nature and size of the project. It will be 100 percent financed through the issuance of industrial revenue bonds at an interest rate of 14 percent over 30 years. The assets of the parent company, First American Corporation, would be available, if needed, to help construct and operate the nursing home. Projected utilization of the nursing home during the first year will be 81 percent Medicaid, 5 percent Medicare, and 14 percent private pay. [Petitioner's Ex. 2]. Occupancy is projected to reach 97 percent by the fifth month of operation, and would be supported, in part, by increased demand for nursing home beds resulting from implementation of DRG's. These projections are based on HILL-GUTHRIE's experience in northwest Florida, and are accepted as reasonable. Pro forma statements for the first and second years of operation show a net operating profit, beginning in the ninth month, and continuing through the second year. For overall operations during the first year, a net loss of $40,082 is projected; in the second year, a net gain of $122,200 is projected. [Petitioner's Ex. 2]. These projections--together with equipment and construction costs, staffing patterns and personnel budget, square footage and space requirements--are accepted as reasonable, and have not been refuted by HRS. If approved, HILL-GUTHRIE's proposed nursing home should be constructed and available for occupancy by the end of 1985. C. Impact (of the Proposed Nursing Home) On Cost of Health Care, and Efficiency and Utilization of Existing Nursing Homes Construction of the proposed nursing home should help relieve the existing financial burden on hospital acute care patients who, because of lack of available nursing home beds, must remain in hospitals, where daily charges far exceed those of nursing homes. Similarly, hospitals would less likely have to absorb the cost of Medicare patients (beyond DRG payment limits) because nursing home beds were unavailable. Hospitals, with their highly specialized staffs, could be used more efficiently, in that patients not requiring acute medical care would not be retained in acute care beds. The proposed nursing home, if constructed, should not adversely impact existing nursing homes in the county. With present occupancy rates in excess of 95 percent, with waiting lists and increasing demand for nursing home beds, no significant drop in occupancy rates should occur. The only evidence HRS presented on possible adverse impact was a conditional statement made by its health care expert: If there were a surplus of beds, nursing homes might be forced to increase the rates to their private `pay' patients . . . they may have to try to cover their expenses. (e.s.) [Transcript, p. 186]. The evidence, however, indicates that there will not be a surplus of beds. Furthermore, at hearing, no opposition to the proposed nursing home was offered by any existing nursing home in the county. D. Balancing the Factors On balance, HILL-GUTHRIE's failure to satisfy all aspects of the bed- need formulae is outweighed by favorable findings made under other criteria equally applicable by rule and statute. In particular, nursing homes in the county are overcrowded, and--without the proposed facility--most likely will continue to be so. There are no nursing homes in Niceville and it is a significant hardship for Niceville residents to visit their friends and relatives in existing nursing homes. Such visits are a positive benefit to nursing home residents. Construction of the proposed nursing home would reduce costs now imposed on hospitals and their patients due to lack of available nursing home beds, and would not adversely impact the occupancy rates of existing nursing homes.
Recommendation Based on the foregoing, it is RECOMMENDED: That HILL-GUTHRIE's application for a CON to build and operate a 60-bed nursing home in Niceville, Florida, be granted. DONE and ORDERED this 16th day of January, 1985, in Tallahassee, Florida. R.L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 FILED with the Clerk of the Division of Administrative Hearings this 16th day of January, 1985
The Issue The ultimate issue, by comparative hearing, is which applicant has submitted an application best meeting the criteria of Section 381.494(6)(c), Florida Statutes and Rule 10-5.11, Florida Administrative Code. STIPULATIONS At the formal hearing, all parties stipulated that, as a matter of law and fact, there are 60 nursing hone beds needed to be allocated to one of the parties in these proceedings; that the criteria in Section 381.494(6)(c)(4), (6), (10), and (11) Florida Statutes were not applicable to this case and that the parties need not demonstrate compliance therewith.
Findings Of Fact The stipulations immediately above are adopted in toto as a finding of fact. (See January 30, 1984 Order herein). It is typically more cost-efficient to add 60 beds to an existing nursing home than to construct a free-standing 60-bed nursing home. In comparing competing projects' costs, total cost per bed (including financing, development, and construction costs) is a more accurate indicator of true financial cost of a project than is cost per square foot. Also, cost per bed is more accurate reflection of what the community must pay for a nursing facility than cost per square foot, since cost per bed takes into account the financing, developing, and construction costs. By comparison, BEVERLY's cost per bed is $19,000, FLC's cost per bed is 21,083 and FLNC's cost per bed is .$18,335. 1/ BEVERLY is a for-profit corporation. By its revised CON application, it proposes a 60-bed addition to its existing 120-bed nursing home, Longwood Health Care Center, located in Seminole County, Florida. BEVERLY has operated the Longwood facility for only 3 years. It is operated under an assumption of lease. Dan Bruns, Director of Acquisitions and Development for BEVERLY, testified that the corporate resolution (B-3) is the authorization for BEVERLY's CON application but that exhibit does not reference the revised 60 bed CON application. Upon the lease terms at Longwood and the corporate resolution, BEVERLY's authority to carry through with a 60 bed addition is suspect. FLC is a six-person investment group which has as yet selected no site and has no firm commitment to a specific site or geographic area within Seminole County for its project. Indeed, the entity which will own the FLC project's physical plant has not yet been created. FLC's revised CON application proposes construction of a 120-bed facility with 60 skilled nursing home beds and 60 beds dedicated for an "adult congregate living facility" (ACLF). ACLFs are exempt from Florida statutory and Florida Administrative Code requirements of qualifying for a CON through Respondent HRS. An effect of this exemption is to make FLC's 60/60 plan generally cost-competitive in light of this order's Fact Paragraph 2, above. 2/ FLC's ACLF portion is designed to comply with all regulations for a skilled nursing facility. FLNC, is a not-for-profit corporation. FLNC is within the health and educational hierarchy of the Seventh Day Adventist faith. Under a recent lease, FLNC is currently operated by Sunbelt Health Care Systems, which operates 26 hospitals and 4 nursing homes, two of which are in Florida. FLNC proposes a 60- bed addition on the same level as its existing 104-bed nursing home in Forest City, Seminole County, Florida. This is to be accomplished by constructing on the north side of the existing nursing home a two story structure with 60 nursing beds on the second floor and the bottom or first floor to be shelled-in space. Shelled-in space in nursing homes is permitted by HRS policy and FLNC proposes this bottom or first floor will be designed to meet all construction and fire codes for a nursing home as well as for an ACLF. Since FLNC's property falts off severely to the north, this proposal constitutes the best and highest use of the property owned by FLNC from an architectural and design point of view. The roofing concept is energy-efficient and the top floor or proposed 60-nursing bed area will be accessible from the existing facility without ever leaving covered or heated space. There will be no significant emergency evacuation problem resulting from this FLNC design and no undue inconvenience to visitors utilizing the parking lot. FLC's and FLNC's proposals have the potential advantage for future "CON competitions" of conversion space if HRS ever allocates more nursing beds to Seminole County in the future. This aspect is immaterial to the issues presented by the present CON applications. BEVERLY is the largest nursing home corporation in the United States and encourages the inference to be drawn that its centralized management has the plus of "corporate giant" purchasing power enabling it to obtain best prices for commodities and to obtain the choicest of staff applicants. FLC asserts similar superiority in national recruitment and hiring practices although upon a much narrower base. Neither of these applicants' assertions was established as a significant variable by competent substantial evidence. FLNC makes no similar assertions. FLC further asserts that it is in an advantageous position with regard to quality of care because it is able to transfer nurses and much of its other staff from facility to facility among its several nursing homes. This assertion has some merit but its financial advantage is offset by FLC's pattern of staffing at a higher level than necessary, the costs of which must eventually be passed on to the patients. As to affirmatively demonstrating superior quality of care, it has limited weight as applied to the facts of this case. BEVERLY's projected total cost for the 60-bed addition is $1,140,000. On a per bed basis, that computes to $19,000 per bed. BEVERLY's total construction cost (including labor, material, contingency, and inflation) is $804,000 but an unknown amount per square foot. By this finding, BEVERLY's premise that its total projected construction cost computes at $50.77 per square foot and the other parties' contention that BEVERLY's cost is $61.84 per square foot are both specifically rejected. 3/ FLC's projected total cost of its facility is $2,300,000. BEVERLY's premise with regard to a contingency fund for FLC was not affirmatively demonstrated, but FLC somewhat arbitrarily allocates 55 percent of its total (or $1,265,000) to the 60-bed nursing home segment. On a per bed basis, this is $21,083 per bed contrary to FLC's assertion of $19,166 per bed. FLC's projected total construction cost of the total proposed facility (nursing wing and ACLF) is $1,488,800, which FLC breaks down as $818,840 or $44.82 per square foot within the nursing home segment/wing. This testimony is, however, somewhat suspect because FLC's architect, Monday, admitted he had not personally prepared these construction costs and because the figure set aside by FLC for land/site acquisition is pure speculation in light of FLC's failure to commit to a specific geographical location. Real property prices and availability are clearly notstatic, known factors, and fluctuations in price have not been adequately accounted for by this FLC estimate. Further, FLC admits its figures on the basis of 55 per cent, are not as accurate as using dollar figures. FLNC's projected total cost for its 60-bed nursing home segment/wing addition is $1,100,113. On a per bed basis, that computes to $18,335 per bed. FLNC's total construction cost is $854,913 or a projected $51.00 per square foot within the new nursing segment/wing addition. FLNC is the only applicant whose projected cost per square foot falls within the HRS' experience concerning average cost per square foot of nursing homes. BEVERLY's premise that FLNC should have allowed a contingency fund for adjustments in design and construction so as to comply with local ordinances, for sewerage connection, for drainage, for retainage walls and for a variety of other purely speculative construction problems which BEVERLY failed to affirmatively demonstrate would inevitably develop from FLNC's existing site or proposed project is specifically rejected. Also rejected hereby is BEVERLY's suggestion that FLNC's method of calculating fixed and moveable equipment costs together somehow camouflages FLNC's construction costs. While that may be the ultimate result of this method in some situations, both HRS regulations and good accounting practices permit fixed equipment to be broken out as either construction or equipment costs. It is not appropriate for the finder of fact to adjust a reasonably allowable calculation of an applicant in the absence of clear evidence rendering such reasonably allowable calculation inappropriate to specific circumstances. BEVERLY provided only an outline of its existing Longwood building on the site. It gives no elevations. (B-13) FLC submitted a schematic drawing (FLC-12) but did not submit a site plan. FLNC submitted both a site plan and a schematic drawing of its existing facility as well as its proposed facility (FLNC-11). Further, FLNC-2 (Table 16) shows FLNC's ancillary areas as adequate and available to that applicant's proposed 60 nursing bed addition. 4/ As stated, BEVERLY did not submit floor or site plans for its existing 120 nursing bed facility. Without such plans, it is difficult to analyze the existing ancillary areas or the proposed room relationships/configuration which will result from construction of the new 60 bed nursing segment/wing. BEVERLY proposes to add 60 beds to the Longwood facility by "repeating" a patient wing. The existing facility currently consists of right and left patient wings branching off from an ancillary area hub. The new 60-bed segment wing is planned to contain 28 semi-private (2 bed) rooms and four private (1 bed) rooms, but since there is no architect's design schematic drawing, blueline, etc., to establish precisely how the rooms will be laid out, to a degree, the configuration must be conjectured on whether a left or right wing is the wing repeated. Because of the lack of a clear architectural plan, there is no resolution of much conflicting evidence offered by BEVERLY's own expert witnesses including total square footage. Also, for its new proposed segment/wing, BEVERLY only submitted a site plan drawing so that particularly wanting is any valid method by which the undersigned may compare BEVERLY's application and proposed plans for its bathroom facilities to be located in the new 60 nursing bed segment/wing proposed for the BEVERLY Longwood facility with bathroom facilities proposed by the other two CON applicants. BEVERLY's architect, Fletcher, testified there will be two central baths in the new wing to serve the private rooms, but even he could not confirm the number of baths in the new wing. Therefore, much information concerning bathroom facilities is missing from BEVERLY's revised application. FLC's nursing home segment will amount to 18,270 square feet of new construction which computes to 305 gross square feet per bed unless the shared ancillary areas are considered. Because ancillary areas must be considered, the foregoing figures are reduced by 5,500 square feet to 12,770 square feet or a low of 212.8 gross square feet per bed in FLC's proposed nursing home segment/wing. FLNC's proposed 60 nursing bed segment/wing will amount to 16,763 square feet, or 279 gross square feet per bed. FLNC's existing ancillary facilities will also adequately and efficiently service the proposed 60 nursing bed segment/wing. One reason for this is that FLNC's existing ancillary facilities space is excessive by current licensure requirements. For instance, modern regulations require only 9 square feet per bed for the dining area. Due to Hill-Burton grant standards requiring 30 square feet when FLNC's existing facility was built, this and all other existing ancillary areas at FLNC were built considerably larger than if the existing facility were being constructed today solely to comply with HRS licensure requirements. FLNC's proposal takes advantage of this situation to reduce construction costs. FLC's floor plan is a "cookie-cutter" concept already successfully applied by this corporate applicant in several locations. In particular, it differs from BEVERLY's plan (or lack of plan) and FLNC's plan because it contemplates allocating four beds instead of two beds per toilet and provides a communal shower layout for the same four beds. FLNC's application plans contemplate 26 semiprivate (2 bed) rooms and eight private (single bed) rooms. Each room, regardless of designation, will have its own toilet. At FLNC, the maximum number of patients obliged to share a toilet or lavatory will be two. All three applicants meet the state minimum requirements of ratio of toilets to beds, but it is axiomatic that the two persons per toilet ratio as apparently proposed by BEVERLY and as definitely proposed by FLNC is a preferable factor in rating quality of care than is the four persons per toilet proposed by FLC. FLC's plan is less desirable for encouraging privacy, dignity, and independence of nursing home patients than are the other two plans. BEVERLY's proposed wing will be 100 per cent financed by a bank letter of credit with an interest rate of 13 percent over 20 years, however, this letter only references BEVERLY's original 120 new-bed CON application and is silent as to its subsequent (revised) 60-bed application. In short, its financing commitment is dependent upon BEVERLY's being named the successful CON applicant. FLC's financing situation involves a combination of equity and bank financing and is not firm. Its investment group will seek a loan for 90 percent of the amount needed from Barnett Bank. Financing is not solidly committed as to loan amount, loan term, or interest rate and is therefore inadequate. Analyses of "creditworthiness" of an applicant and "financial feasibility" pronouncements by a lending institution do not equate with a firm commitment to loan amount, term and interest. FLNC's financing is guaranteed up to $1,300,000 by a letter of commitment from the Florida Conference Association of Seventh Day Adventists at 12 per cent interest for 20 years. The background of FLNC's relationship with this denominational financial "parent" provides an encouraging prognosis for long range as well as immediate success and stability of FLNC's project if it is the successful CON applicant. The projected Medicaid and Medicare utilization figures of all three of the applicants contain elements of speculation. 5/ Moreover, after a facility has been opened for 5 or 6 years there is a greater incentive to seek private pay patients because the reimbursement is higher than Medicaid. However, the actual commitment figures provided by the parties does provide a valid comparison factor. BEVERLY's commitment to Medicare is 2 percent. BEVERLY has not committed and is not prepared to commit a specific percentage of the stipulated 60 beds to Medicaid participation. Although BEVERLY's application projects 33 percent Medicaid in the second year of operation, its Director of Acquisitions and Development, Dan Bruns, could not definitely commit to continue admission of 83 percent Medicaid beds in the 120 + 60-bed configuration using Longwood. FLC has committed 10 percent of the total stipulated 60 beds to Medicare., FLC has committed 52 percent of the stipulated 60 beds to Medicaid participation, but in light of FLC's withdrawal from Medicaid participation at one of its facilities and subsequent transfer of Medicaid patients, FLC's commitment here may be viewed as revocable as well. Although FLNC does not project strong Medicare involvement, FUN will be Medicaid and Medicare certified and has committed 50 per cent (50 percent) of the beds in the total facility [existing beds (104) + proposed beds if it is the successful CON applicant (60) for a total commitment of 164/2 = 84 beds] to Medicaid participation. FLNC intends only to enlarge Medicare beds in its existing 104 bed facility. FLNC intends to seek Veteran's Administration Certification. Moreover, FLNC's existing facility was principally funded with Hill-Burton grant money and FLNC annually repays its original loan through delivery of free service to indigent persons. Among the three applicants, FLNC's Hill-Burton obligation, enforced by financial considerations, demonstrates both a strong (14 years) "track record" of FLNC's accessibility to the medically indigent and traditionally underserved in the community as well as a strong indicator of continued accessibility to this segment of the community. FLNC has the lowest charge rate of all three applicants while spending more dollars on patient care than the respective averages of the other two applicant's facilities and this ratio is significant in assessing and comparing both quality of care and availability to the medically underserved of the Seminole County "community." BEVERLY's existing Longwood facility has been a BEVERLY operation less than three years (since August, 1982) and has had a "standard" rating up through the date of hearing. FLC plans to construct an entirely new facility and so has no current license to review. All of its existing homes have standard ratings. FLNC's existing facility has been operating 14 years and has had a "standard" or equivalent rating except for a three months "conditional" rating before return to "standard". BEVERLY staffs all of its beds for skilled patients and commingles its skilled and intermediate patients. FLC staffs all its beds for skilled patients. Although HRS encourages "higher" staffing, this policy can increase costs to patients. FLNC's plan is to create a discreet intermediate wing which, although licensed for skilled beds, will be primarily used for intermediate level patients. Except as indicated infra geographic location of BEVERLY's Longwood facility and of FLNC within Seminole County is not a significant variable. FLC cannot be compared geographically because it has not yet selected a site. FLC proposes one administrator for the combined ACLF and nursing home. The administrator's salary will be allocated between the ACLF and the nursing home. FLC does not specify the proportion of salary attributable to the ACLF. FLNC has had the same administrator for fourteen years BEVERLY's Longwood facility and FLNC have established monthly in- service training for staff members. All three applicants project in-service training and volunteer activity programs if granted the CON. FLC has demonstrated its other existing nursing homes have the most varietal and aggressive patient activity programs utilizing outside community volunteers This and its in-service programs are part of an internal quality control system labelled "Quest for quality". FLC also embraces the idea of using numerous visiting contract consultants in a variety of disciplines such as psychology and nutrition. FLC nursing homes also are active members of a number of national quality control professional groups. By contract, the Orange County Board of Education uses FLNC's existing nursing home as a laboratory for nurses' aide training for the Apopka High School. Also, FLNC permits use of its existing facility as a laboratory for the geriatric training program of Florida Hospital's Licensed Practical Nurse School. These programs could be extended to include the proposed segment/wing and are symbiotic relationships significantly benefiting the quality of care of nursing home patients as well as the student interns. FUC participates with HRS in a program for those adjudicated to do community service in Seminole County. BEVERLY's recent creation of an assistant to the president slot to oversee quality of patient life is commendable, but located at the highest corporate level, and in another state, this benefit will be somewhat diluted at the point of delivery in Seminole County, Florida. This individual's first responsibility is to the corporate shareholders not to a specific nursing home's patients and staff. As to all three applicants, administrative complaints by themselves are both irrelevant and immaterial to this de novo proceeding. Particularly, complaints are immaterial unless they result in an adjudication. Dismissals and settlements without adjudication or admission of guilt are of no probative value. Moreover, in light of testimony of the HRS licensure representative that there is no nursing home in Florida which has not been cited at least once, deficiency ratings brief in duration in proportion to many years of operation are of little significance or probative value. 6/ BEVERLY and FLC contended that FLNC's affiliation with the Christian religious denomination of Seventh Day Adventists somehow diminishes FLNC's application. This position was not established by direct credible evidence on any of the strategic tangents it took at the formal hearing. Admission data provided for the existing FLNC facility indicates that whether measured by policy and statistics or by admissions, FLNC is not restricted by religious faith or affiliation. By this finding of fact, a convenient "draw" of FLNC from a nearby Seventh Day Adventist retirement center has not been ignored nor has evidence that many of the admissions drawn from this retirement community appear to be "repeaters" at the existing FLNC nursing home been ignored, but this corollary may be attributed to the natural proclivity of the retired and elderly to account for a large percentage of the nursing home beds consumed in any locality, and upon this analysis the 15 per cent to 20 per cent (15-20 percent) draw of FLNC from this source could be as much geographically as religiously induced. Failure to repeat attempts at placement of patients at FLNC color the credibility of the testimony of most witnesses who infer a religious barrier to placement of patients at FLNC. Teresa S. Shaw is Director of Social Services, Florida Hospital, Altamonte. In light of that acute care hospital being Part of the Seventh Day Adventist faith's health and educational hierarchy, somewhat greater weight might be placed on her analysis if she felt religion played a part in FLNC's acceptance or rejection of patients. However, she testified she did not know of FLNC's affiliation. This, together with the actual admissions data provided by FLNC, supports this finding of no religious barrier. Unavailability of beds at FLNC has no probative value for charges of religious discrimination either. 7/ Suggestions that the Seventh Day Adventist dietary restrictions against consumption of animal-protein and caffeine and against tobacco-smoking in its nursing homes somehow reduces the quality of nursing home care at FLNC are rejected as unproved. First, it was never established that smoking benefits quality of care, but in any case, FLNC, like all certified nursing homes, complies with the requirement of providing a smoking area. Second, consumption of caffeine and animal-protein can obviously create numerous health and sanitary problems for those incontinent patients who often comprise a large percentage of any nursing home population. Third, it was never established that caffeine or animal-protein benefits the quality of nursing home care. Moreover testimony of FLNC's administrator clearly indicates that at FLNC patients' diets are established by the attending physician and that patients' families may bring in items not normally served by FLNC if this supplementation is permitted on the diet prescribed by the attending physician. It is the physician, not the nursing home, that has ultimate dietary authority.
Recommendation After considering all submissions of counsel, and upon the foregoing findings of fact and conclusions of law determined after reviewing those submissions, it is, RECOMMENDED: That HRS issue a certificate of need for a 60-bed addition to FLORIDA LIVING NURSING CENTER, INC's Seminole County facility, with total project cost not to exceed $1,100,113.00 and area not to exceed 16,763 square feet and deny the other applications. DONE and ENTERED this 8th day of May, 1985 in Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of May, 1985.
Findings Of Fact Suburban Nursing and Mobile Homes, Inc., of Ohio, at all material times, wholly owned the stock of G & J, an owner of land, buildings and equipment of two nursing homes, Krestview Nursing Home and Towne House Convalescent Center located in Miami, Florida. Suburban was a holding company which owned the stock of numerous subsidiary corporations engaged in the nursing home or mobile home park business. Among its subsidiaries was B & K Investments, Inc. (hereafter "B & K") a Florida corporation. All of the stock of Suburban was controlled by Gerald D. Keller. On May 5, 1977, at the request of the Department, B & K became the licensed provider for Krestview and Towne House and G & J became the landlord. Both landlord and tenant were wholly owned by the same parent corporation. Since Medicaid rules and regulations prohibited the payment of rent by a provider to a related-party landlord, Keller arranged in May of 1977, for the sale of the stock of B & K to unrelated parties in an arm's-length transaction. Petitioner's assignor, B & K, entered into written provider agreements with the Department for the operation of the two nursing homes. That provider agreement states, in pertinent part, that: In instances of non-payment or underpayment conditions due to error(s) not attributable to provider who has furnished nursing home services and care to persons properly certified and eligible, the single state agency (HRS) shall make payment to the provider upon receipt of properly completed claims documents. (Petitioner's Exhibit 13, 13a.) (Emphasis added.) During 1978 and 1979, the Department set reimbursement rates for B & K inconsistently. During this period of time, B & K experienced at least eight different retroactive increases or decreases in a period of less than twelve months. Additionally, the relationship between the parties was increasingly strained during 1978, as evidenced by Petitioners Exhibit 18, in which a medicaid audit evaluation and review analyst, in considering cost factors at Krestview, speculated that the "Ohio group would get out of the business in Florida." In August, 1979, the independently owned B & K d/b/a Krestview Nursing Home and Towne House Convalescent Center, filed a petition in bankruptcy. Among its creditors were G & J, the landlord, which filed a secured claim in excess of $300,000 for unpaid rents. At that time B & K had not yet filed cost reports for its fiscal year ending May 31, 1979, and had filed no cost reports for the period May 31 through August 31, 1979. The trustee made a determination to file those cost reports on behalf of the bankrupt if the cost reports could be prepared. The trustee requested B & K's former accountant to prepare the cost reports. When it became apparent that the accountant was unwilling to prepare the reports without a substantial advance payment and that no funds were available to pay for such services, the trustee looked elsewhere. Keller's holding company, Suburban, owned the stock of Nursing Home Consultants, Inc., an Ohio corporation engaged in the business of providing accounting services to health care organizations. Keller had an obvious interest in offering the services of his corporation on a contingent basis since he had a $300,000 secured claim against the bankrupt whose only visible asset was the monies it asserted were due from the Department as a result of reimbursable expenses. The proposal advanced by Keller was accepted by the trustee in bankruptcy, Jennette E. Tavormina, and Judge, Thomas C. Brutton, bankruptcy judge. The court entered an order appointing Nursing Home Consultants to prepare the cost reports. Nursing Home Consultants attempted to obtain the accountant's work papers to begin preparing the cost reports, however, it was not until December, 1980, when faced with possible action from the court, that the accountant made his papers available and the time-consuming tasks of matching checks to invoices, verifying patient records and documenting expenses began. In July of 1981, Nursing Home Consultants completed the first of the cost reports and forwarded it to the trustee. The trustee in turn filed the cost report with the Department. It was returned to Nursing Home Consultants because the person who had certified the reports was not a certified public accountant in Ohio. Nursing Home Consultants had the returned cost report recertified by an independent firm of certified public accountants in Ohio. Considerable time elapsed and as of July, 1982, the cost reports for the second facility had not been completed. Both the trustee and the bankruptcy judge desired to close the estate and ascertain what, if any, assets were present. G & J made a written offer to the trustee to purchase the trustee's right, title and interest and claims, if any, in and to the Medicare/Medicaid cost reports of the bankrupt. In consideration, G & J offered the sum of $5,000 together with the waiver of its claim for rents due and owing from B & K and any and all claims against the estate for the costs and expenses incurred in the preparation of the cost reports. A hearing was held on September 23, 1982, after notice to all creditors, concerning whether G & J's offer should be accepted. The Department appeared at the hearing and opposed the sale. The offer was accepted by the trustee and ratified and approved by the court on September 24, 1982. The objection entered by the Department to the sale was specifically denied. No appeal of the court's order was taken by the Department. On February 7, 1983, G & J, as assignee, under the bankruptcy court's order, filed the cost reports with the Department for review and audit. The Department returned the cost reports outlining its reasons by letter dated March 25, 1983, and set forth above. The cost reports for the period May 5, 1977 through May 31, 1978, were initially submitted by B & K and accepted by the Department on November 1, 1978. The final audit of those reports was not completed until December 26, 1979, for Krestview, and February 15, 1980, for Towne House, after B & K had filed for bankruptcy. While the audit was being conducted, B & K was granted extensions of time for the filing of the 1978-1979 cost reports. After the trustee in bankruptcy was appointed and began the process of attempting to prepare the cost reports, the Department conducted a final audit of the 1977-1978 cost reports. The Department failed to provide either B & K or the trustee with a copy of any proposed audit adjustments. No evidence was presented that B & K or the trustee was given an exit conference where the audit findings were discussed and explained. Instead, the Department distributed the final audit but failed at that time to advise B & K, the trustee or the Bankruptcy Court of any right to challenge the audit pursuant to Section 120.57, Florida Statutes.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Department enter a Final Order accepting for audit the cost reports submitted by the Petitioner G & J Investments Corporation, Inc., for B & K Investments, Inc., for the periods May, 1977 through August 1979. DONE and ENTERED this 6th day of February, 1984, in Tallahassee, Florida. SHARYN L. SMITH 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 6 day of February, 1984. COPIES FURNISHED: Patricia A. Peoples, Esquire R. Stuart Huff, Esquire 330 Alhambra Circle Coral Gables, Florida 33134 Joseph L. Shields, Esquire Department of Health and Rehabilitative Services 1317 Winewood Boulevard Tallahassee, Florida 32301 David H. Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 Alicia Jacobs, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
The Issue [Case No. 79-2407] Whether the Department is entitled to reimbursement of certain Medicaid funds previously paid to a nursing home owner in the amount of $118,061.00, based upon a recommendation by the Department and subsequent determination by the U.S. Department of Health, Education and Welfare, under Section 1122, Social Security Act, that Federal reimbursement of expenses attributable to the purchase of the nursing home should be withheld due to the Owner's lack of timely notice of intent to acquire the nursing home; [Case No. 80-467] Whether, based on the Section 1122 determination, the Department wrongfully disallowed and withheld payment to the nursing home owner, certain medicaid reimbursement funds in the amount of $101,348.00. Conclusions and Recommendation: Conclusions: Here, each party has the burden of presenting a preponderance of evidence in support of its affirmative claim. Each claim rests on the propriety or impropriety of imposition of Section 1122 penalties against the nursing home. Since the Department failed to present sufficient evidence justifying the imposition of Section 1122 penalties and the nursing home failed to establish the Section 1122 penalties were erroneously imposed, neither party sustained its burden of establishing entitlement to the relief requested. Recommendation: That the Department's Medicaid overpayment claim against the nursing home owner, in the amount of $118,061.00 be DENIED, and the nursing home owner's claim against the Department for $101.348.00 in Medicaid underpayments be DENIED. Background: On April 26, 1979, and May 2, 1979, Petitioner/Respondent, Department of Health and Rehabilitative Services ("Department") notified Respondent/Petitioners, Lakeview Nursing Home, Robert Becht and R. B. Care, Inc., d/b/a Lakeview Manor and d/b/a Intercoastal Nursing Manor ("Owner") that a desk review of the annual cost report for the Lakeview Nursing Home (a/k/a Lakeview Manor) indicated that the nursing home had been overpaid $18,900.00 by the Department's Medicaid Program during the eight months, ending June 30, 1978, and that such overpayment should be returned to the Department. On October 8, 1979, the Department notified the nursing home Owner that, pursuant to a "Notice of Determination Under Section 1122" issued by the U.S. Department of Health, Education and Welfare ("HEW") the Department had recalculated the nursing home's historic per diem rates and determined that the Owner had been overpaid $61,155.00 in Medicaid funds during the period ending June 30, 1978. On November 19, 1979, the nursing home Owner requested a formal hearing, under Section 120.57(1), Florida Statutes, to challenge the validity of the Department's overpayment claim. On November 30, 1979, the Department forwarded the Owner's request for a hearing to the Division of Administrative Hearings. [DOAH Case No. 79-2407] On January 10, 1980, the Department notified the nursing home Owner that an additional $56,906.00 should be repaid to the State of Florida--based upon alleged overpayment to the nursing home during the period ending June 30, 1979. On February 14, 1980, the nursing home Owner filed a Petition with the Department alleging numerous wrongful and negligent Department actions resulting in the withholding and underpayment of Medicaid funds to which the nursing home was entitled, demanding full payment, and requesting a formal Section 120.57 hearing. On March 12, 1980, the Department forwarded the nursing home Owner's Petition to the Division of Administrative Hearings for assignment of a Hearing Officer. [DOAH Case No. 80-467] By Notice of Hearing, dated April 11, 1980, Case No. 80-467 was set for final hearing on May 29, 1980. By agreement of the parties, the two cases were subsequently consolidated for final hearing. At final hearing, the Department called John T. Donaldson, and offered Respondent's Exhibit Nos. 1 through 9, into evidence, each of which was received. The nursing home Owner called as its witnesses, William McCaulley, Leonard Cordes, and Linda Zarecki, and offered Petitioner's Exhibit Nos. 5, (Composite) and 6, each of which was received. At the request of the nursing home, and without objection by the Department, official recognition was taken of Rule 10C-7.48(6)(c), Florida Administrative Code. The nursing home further stipulated that the only allegations which it would pursue in the administrative hearing concerned whether the Department wrongfully withheld from the nursing home certain Medicaid funds to which its was entitled. Neither party submitted post-hearing proposed Findings of Fact or Conclusions of Law.
Findings Of Fact Pursuant to an agreement with HEW, the Department administers the Medicaid Program within Florida which includes allocation and payment of Medicaid funds to nursing homes which provide health care to patients qualifying for Medicaid benefits. (Testimony of Donaldson, Petitioners Exhibit 5; Respondent's Exhibit 9) On November 1, 1977, Robert Becht, on behalf of R. B. Care, Inc. ("Owner") purchased a nursing care facility located at 208 Lakeview Avenue, West Palm Beach, Florida, known as Intercoastal Nursing Manor. No evidence was presented to establish the purchase price paid for the facility. Subsequent to its purchase, the name of the nursing home was changed to Lakeview Manor, although Department correspondence frequently refers to it as Lakeview Nursing Home. (Testimony of Donaldson, McCaulley, Respondent's Exhibits 1, 2, 5, 9 [Composite]) On January 9, 1978, a representative of the Regional Health Care Planning Agency--Health Planning Council, Inc.--advised the Department's Bureau of Community Medical Facilities of an apparent change in ownership of the Intercoastal Nursing Home, noted that the new owner had not "sought, applied for, or received the necessary Certificate of Need for this change of ownership transaction," and asked for Department assistance in determining the present status of the nursing facility. (Testimony of Donaldson, Respondent's Exhibit 1) In response to the Health Planning Council's letter, the Department's Office of Medical Facilities sent a letter to the Nursing Home Owner, dated January 26, 1978. That letter enclosed Department rules which provided that, when certain expenditures have been incurred by a health care facility without prior notice of such expenditure being given to the designated planning agency (Office of Medical Facilities), that agency should notify the health care facility that such obligation was subject to review, that timely notice of the proposed expenditure was not given, and that the Agency proposed to recommend to the Secretary of HEW that the expenditure be disapproved. The nursing home was given 30 days to reply, or file the necessary application for approval of the expenditure (acquisition of the nursing home). The letter closed with the following: "You should understand that we must report the purchase of Intercoastal Nursing Manor to the Department of Health, Education and Welfare on a no timely notice and that it may affect depreciation, interest, and fair returns on the project and reimbursement on the project." (Respondent's Exhibit 2) By letter dated March 22, 1978 (with copy to the nursing home Owner), the Department's Office of Community Medical Facilities subsequently informed the regional office of HEW that notice had been given the nursing home Owner concerning the need to file an application for review of the November 1, 1977, acquisition of and change in ownership of the nursing home, but that it had failed to respond. The recommendation of the Office of Community Medical Facilities was attached to the transmittal letter; however, that recommendation was not offered into evidence by the Department. The letter of transmittal concluded that, because no application for approval was submitted by the nursing home Owner, there was "no indication on the HRA-45 of the amount of capital expended for the acquisition." (Respondent's Exhibit 3) During April, 1978, the Regional Health Administrator of HEW issued a "Notice of Determination under Section 1122--Reimbursement to be Excluded." The Notice was addressed to the nursing home Owner and concluded that reimbursement for expenses related to the capital expenditure (acquisition of the nursing home facility) would be excluded from payment for services provided under the Social Security Act based upon the finding that (1) the expenditure was subject to Section 1122, and (2) Notice of Intent to make the expenditure had not timely been given. By way of explanation, the regional administrator added that reimbursement would be "withheld for an indefinite period" because the State had been unable to make a finding that the expenditure conformed to applicable plans, standards, and criteria due to the failure to submit an application. (Respondent's Exhibit 4) By separate agreements entered into by the Department and the nursing home Owner on November 2, 1977, October 30, 1978, and September 5, 1979 (which enabled the nursing home to participate in Florida's Medicaid Program) the nursing home Owner expressly agreed to comply with state and federal laws and rules applicable to the Medicaid Program. The Owner also agreed that Medicaid cost reporting would be governed by the procedures and methods contained in the Medicare Provider Reimbursement Manual (HIM-15). The agreements relieve the nursing home from responsibility in "those instances of overpayment due to Agency [Department] errors in eligibility investigation and determination. . ." (Respondent's Exhibit 9 [Composite]) Section 2422 of HIM-15 describes the requirements concerning approval of capital expenditures imposed by Section 1122 of the Social Security Act. The Manual cautions providers desiring to make or having made expenditures subject to Section 1122 to familiarize themselves with the regulations and direct questions concerning its implementation to the designated planning agency. (Respondent's Exhibit 8) Notwithstanding having been sent repeated notices by the Department and HEW concerning the requirements of Section 1122, the nursing home Owner has not filed an application for approval of the capital expenditure associated with acquisition of the nursing home; neither has it contended that such capital expenditure does not fall within the ambit of Section 1122 and implementing HEW and Department rules. (Testimony of McCaulley, Donaldson) Despite the Department's withholding and disallowal of payment to the nursing home of expenses relating to the acquisition of the facility (due to the federal Section 1122 determination), the nursing home continued to qualify for and participate in the Medicaid Program. The nursing home provided efficient and satisfactory medical care to Medicaid patients during 1978, and 1979, and the Department does not assert otherwise. The three Medicaid participation agreements entered into during 1977, 1978, and 1979, do not directly address or purport to relieve health care facilities from compliance with Department rules and Section 1122. (Testimony of Donaldson, McCaulley, Respondent's Exhibit 9 [Composite]) It is probable that the nursing home received actual notice of the requirement that certain capital expenditures by health care facilities must receive Section 1122 approval. Although the nursing home Owner's secretary since June, 1978, does not recall receiving the HEW Section 1122 Notice, she was not employed by the nursing home during the time the notice was issued, and she admitted that she could not testify that the owner had not received the HEW Notice. Moreover, her testimony did not address the earlier Department correspondence to the Owner concerning the need to obtain State and Federal Section 1122 approval, including the Department's Section 1122 recommendation to HEW. (Testimony of Zarecki, Donaldson, Respondent's Exhibits 2, 3, 4, 5, 6) Between 1977 and 1979, the Department overpaid the nursing home $118,061.00 (which includes the $18,900.00 claimed by the Department in its May 2, 1979, letter) in per diem patient reimbursements which the nursing home was not entitled to under the Section 1122 Notice and Penalty. This overpayment was caused by the Department's failure to exclude that portion of per diem patient reimbursements attributable to the Owner's acquisition of the nursing home property. (Testimony of Donaldson, Respondent's Exhibits 5 and 7) If the Section 1122 penalty was incorrectly recommended by the Department, and imposed by the HEW, the Department has withheld between November 1, 1977, and December 31, 1979, $101,348.00 which is now due and owing to the nursing home Owner. (Testimony of McCaulley, Petitioner's Exhibit 6) Since January 2, 1979, the Owner has no longer owned or operated the nursing home in question. (Testimony of McCaulley, Cordes)
The Issue Whether Rule 59C-1.036 constitutes an invalid exercise of delegated legislative authority, and; Whether the Agency's application form and scoring system utilized in the review of nursing home batch certificate of need applications constitute rules of the Agency as the term "rule" is defined in Section 120.52(16), employed in violation of Section 120.535, Florida Statutes (1993) and; Whether the disputed form and scoring system constitute an invalid exercise of delegated legislative authority.
Findings Of Fact The disputed rule in this case is Rule 59C-1.036(1), Florida Administrative Code, which provides in pertinent part: The community nursing home beds subject to the provisions of this rule include beds licensed by the agency in accordance with Chapter 400, Part I, Florida Statutes, and beds licensed under Chapter 395, Florida Statutes, which are located in a distinct part of a hospital that is Medicare certified as a skilled nursing unit. All proposals for community nursing home beds will be comparatively reviewed consistent with the requirements of Subsection 408.39(1), Florida Statutes, and consistent with the batching cycles for nursing home projects described in paragraph 59C-1.008(1)(l), Florida Administrative Code. The challenged rule is entitled "Community Nursing Home Beds," and also includes the "need methodology" for determining the need for community nursing home beds and specifically: regulates the construction of new community nursing home beds, the addition of new community nursing home beds, and the conversion of other health care facility bed types to community nursing home beds... Also pertinent to this case, the challenged rule provides: The Agency will not normally approve applications for new or additional community nursing home beds in any agency service subdistrict if approval of an application would cause the number of community nursing home beds in that agency subdistrict to exceed the numeric need for community nursing home beds, as determined consistent with the methodology described in paragraphs (2)(a), (b), (c), (d), (e), and (f) of this rule. The challenged rule has the effect of, among other things, requiring nursing homes and hospitals who seek to operate skilled nursing facility beds to file applications for community nursing home beds in the same batching cycle, compete against each other for those beds in nursing home subdistricts and be subject to the need methodology applicable to nursing home beds. The Agency has not developed a need methodology specifically for Medicare certified distinct part skilled nursing units. In 1980, the Agency's predecessor, the Department of Health and Rehabilitative Services, attempted to promulgate rules with the same effect of the rules challenged in this case. In Venice Hospital, Inc. v. State of Florida, Department of Health and Rehabilitative Services, 14 FALR 1220 (DOAH 1990) 1/ the Hearing Officer found the challenged rule in that case to be invalid and concluded, as a matter of law, that, with respect to the previous proposed rule: The competent, substantial evidence shows that these proposed rules are not reasonable or practical and will lead to an illogical result. There exists an inadequate factual or legal basis to support the forced inclusion of hospital-based skilled nursing beds into the community nursing bed inventory. In the 1990 challenge to the previously proposed rule, the Hearing Officer concluded that the proposed rule in question was an invalid exercise of delegated legislative authority, but also found that, from a health planning standpoint, reasons existed for and against the inclusion of hospital-based skilled nursing units within the nursing home bed inventory. In the instant proceedings, the Agency concedes that the challenged rule and the previous proposed rule are substantially identical. In this case, the parties defending the challenged rule presented several facts, many of which seek to establish changed circumstances since 1990, as evidence of a rational basis for the inclusion of hospital-based skilled nursing units within the nursing home bed inventory. Facts Established Which Arguably Support the Validity of the Challenged Rule Although the term "subacute care" does not have a generally accepted definition, this term is often applied to that care provided patients in skilled nursing units. Subacute care is an emerging and developing area of care which covers patients whose medical and clinical needs are higher than would be found in a traditional nursing home setting, but not so intense as to require an acute medical/surgical hospital bed. Subacute care is a level of care that is being developed to bridge a gap between hospital and traditional nursing home care and to lower the cost of care to the health delivery system. Both hospitals and nursing homes operate Medicare-certified distinct part skilled nursing facility units. The same criteria, including admissions criteria, staffing requirements and reimbursement methodologies, apply to such skilled nursing units, in hospitals and freestanding nursing homes. The patient population served in such units is primarily a population which comes to either a hospital or nursing home-based unit from an acute care hospital stay. This population group has a short length of stay in the Medicare distinct part unit and can be rehabilitated within a certain period of time. Skilled nursing units in hospitals and those in freestanding nursing homes are competing for the same patient population. Both hospitals and nursing homes are aggressively entering the subacute care market. There are some nursing homes which provide a level of subacute care equal to that provided by hospitals. As a general rule, the staffing, clinical programs, patient acuity and costs of care for patients do not substantially vary between skilled nursing units in hospitals and such units in freestanding nursing homes. In the past two or three years, the number of Florida nursing homes which compete for skilled unit patients has increased. In applications for skilled nursing unit beds, the services proposed by hospitals and those proposed by nursing homes are generally similar. Medicare-certified distinct part units in both freestanding nursing homes and hospitals are certified to provide the same nursing services. The types of services and equipment provided by hospital skilled nursing units and nursing home skilled nursing units are similar. There has been an increase in subacute care in the past five years. The average length of stay for patients treated in Medicare-certified distinct part nursing units in hospitals and in such units located in freestanding nursing homes is similar. The federal eligibility requirement for Medicare patients in hospital- based and in freestanding nursing home distinct part skilled nursing units are the same. Some skilled nursing units which are located in nursing homes have historically received patient referrals from hospitals. When these referring hospitals develop distinct part Medicare certified skilled nursing units, the nursing home skilled nursing units tend to experience a decline in occupancy. Uniform need methodology is developed in part based upon demographic characteristics of potential patient population. Nursing home bed need methodology utilizes changes in population by age groups over age 65 to project need for beds. Both hospital-based skilled nursing units and nursing home-based units serve substantial numbers of Medicare-eligible patients who are 65 years of age and older. Population health status is also utilized in developing uniform need methodologies. The health status of service population for Medicare units in freestanding nursing homes is, as a general rule, the same as the health status of population served in such units located in hospitals. The intent behind the process of reviewing CON applications from hospitals seeking skilled nursing unit beds and nursing homes seeking such beds is to reduce the risk of overbedding and duplication of services. Overbedding and duplication of services have the tendency to result in excessive costs and can result in deterioration of quality of care. Medicare admissions to nursing homes and Medicare revenue to nursing homes have increased in the past several years. Data also indicates that nursing homes are beginning to provide more intensive care for patients in skilled nursing units. The prevalence of freestanding nursing home Medicare-certified skilled nursing units has substantially increased in the past three years and this growth trend is expected to continue. Facts Established Which Demonstrate That the Challenged Rule Should be Declared Invalid The challenged rule requires a hospital seeking Medicare-certified skilled nursing unit beds to be comparatively reviewed with nursing home applications seeking all types of nursing home beds. There is no separate nursing home licensure bed category for skilled nursing unit beds. The Agency's inventories of freestanding nursing home beds do not identify Medicare-certified skilled nursing beds. Once an applicant to construct a nursing home opens the nursing home, the applicant does not need a separate CON to designate beds as a Medicare- certified skilled nursing unit. According to the AHCA's own witness, a freestanding nursing home can internally change its categories at any time without CON review. Pursuant to statute and agency rule, however, hospitals must obtain a CON to change the category of even one bed. 2/ Although a hospital seeking hospital licensed Medicare-certified skilled nursing beds is compelled by Rule 59C-1.036(1), Florida Administrative Code, to compete against all nursing home applicants and all nursing home beds in a batched review, it faces totally different standards of construction, operation and staffing after approval. Rule 59C-1.036(2), Florida Administrative Code, is the nursing home bed need formula. This formula does not result in an estimate of need for skilled nursing unit beds and projects need for total community nursing home beds only. There is currently no bed need methodology (hospital or nursing home) to ascertain the need for Medicare certified skilled nursing unit beds. The Agency's inventories of freestanding nursing home beds do not separately identify Medicare-certified skilled nursing home beds in nursing homes. All that is shown is whether the beds are "community nursing home beds" or "sheltered nursing home beds." The Agency has not established how, under this inventory and regulatory scheme, it controls overbedding in Medicare- certified skilled nursing units within a specific district or subdistrict since the only such beds shown on the inventories are those in hospitals. It is unreasonable and illogical to compare the need for hospital- based Medicare-certified skilled nursing unit beds with the need for all community nursing home beds. Under the present circumstances a reasonable comparison might be drawn between need for hospital-based skilled nursing unit beds and freestanding nursing home skilled nursing unit beds, but the AHCA rules do not currently provide for such a comparison. Determining the need for hospital-based skilled nursing unit beds by comparing such beds to all nursing unit beds constitutes poor health planning. Such hospital-based skilled nursing units do not provide similar services to similar patients when compared to all community nursing home beds and it is neither logical or reasonable to comparatively review the need for such services. The challenged rule also requires hospital applicants for skilled nursing unit beds to compete with nursing homes within the nursing home subdistrict. The Agency by rule divides districts differently for nursing homes than for hospitals. Thus, some hospitals' skilled nursing unit beds are comparatively reviewed against nursing home beds of all kinds and against hospital skilled nursing beds which are not within the same hospital subdistrict. As a general statement, the treatment profiles for patients in Medicare-certified skilled nursing units in hospitals and those for patients in nursing homes skilled nursing units are similar. There is, however, a distinct part of such patient population which must be treated in a setting which provides immediate access to emergency care. The provision of immediate emergency care is not typically available in nursing homes and nursing home patients in need of such care usually have to be readmitted to hospitals. Care available in hospitals (physicians and registered nurses on duty at all times, laboratory and radiation services available on premises) is sufficiently different to demonstrate that Medicare-certified skilled nursing units are not comparable to such units in freestanding nursing homes in all aspects. This distinction is clearly significant to patients who need emergency services because of age, multiple illnesses, and other conditions. Chapter 395, Florida Statutes, is the hospital licensure statute. Section 395.003(4), Florida Statutes, provides: The Agency shall issue a license which specifies the service categories and the number of hospital beds in each category for which a license is received. Such information shall be listed on the face of the license. All which are not covered by any specialty-bed-need methodology shall be specified as general beds. The Agency equates "acute care" beds with general beds. By rule, the Agency has excluded from the definition of "acute care bed": neonatal intensive care beds comprehensive medical rehabilitation beds hospital inpatient psychiatric beds hospital inpatient substance abuse beds beds in distinct part skilled nursing units, and beds in long term care hospitals licensed pursuant to Part I, Chapter 395, Florida Statutes. By Agency rule, a hospital specialty need methodology exists for all categories of hospital beds excluded from the acute care bed definition except category (e) beds in distinct part skilled nursing units and (f) long term care beds. The Agency is currently drafting a specialty hospital bed need methodology for long term care beds. The only licensed bed category for which the Agency has developed no specialty bed need methodology (existing or in process) is hospital beds in distinct part skilled nursing units. At hearing, the Agency presented the testimony of Elfie Stamm who was accepted as an expert in health planning and certificate of need policy analysis. Through Ms. Stamm's testimony, the Agency attempted to establish that the numeric need methodology established by the challenged rule includes a calculation of the need for both nursing home and hospital-based distinct part skilled nursing units. This testimony was not persuasive on this point. Indeed, Ms. Stamm acknowledged that the disputed rule does not result in an estimate of need for skilled nursing units or beds. The parties to this proceeding have attempted to establish that Medicare admission statistics in Florida support either the validity or invalidity of the challenged rule. Based upon the Medicare-related statistical data placed in the record in this case, it is more likely than not that, as of 1992, in excess of 90 percent of utilization of hospital-based skilled nursing units is Medicare covered and that the percentage of Medicare (as opposed to Medicaid) patient days in all freestanding nursing home beds was only seven percent. In this respect, it is not logical or reasonable to comparatively review the need for hospital-based Medicare-certified skilled nursing unit beds with all community nursing home beds. 47. The Agency lists Sections 408.15(8), 408.34(3)(5), 408.39(4)(a) and 400.71(7), Florida Statutes, as specific statutory authority for the challenged rule. None of the cited statutory provisions provides specific authority for the Agency to require hospitals seeking hospital licensed beds in Medicare- certified skilled nursing units to be reviewed against all community nursing home beds. There is no evidence of record in this case of any federal law requiring such review and no evidence to suggest that Medicare reimbursement is affected by such a review one way or the other. In this case, the competent, substantial evidence shows that the disputed rule is not reasonable or rational. The Agency has not developed a specific numerical need methodology providing for a reasonable and rational basis to comparatively review the need for Medicare-certified skilled nursing unit beds in hospitals or in nursing homes. There exists an inadequate factual or legal basis to support the forced inclusion of hospital-based skilled nursing units into the inventory of all community nursing home beds. Form 1455A Agency Form 1455A and the scoring methodology are used by the Agency in the review of applications for community nursing home beds and for skilled nursing facilities within distinct parts of a hospital. Various parties in this proceeding assert the Form 1455A and the scoring methodology constitute unpromulgated rules which are invalid pursuant to Section 120.535, Florida Statutes. Any party filing a letter of intent concerning community nursing home beds receives from the Agency an application package including Form 1455A and instructions. The instructions are an integral part of the application. Also included as part of the application are 34 pages of instructions on how the Agency scores the application. Form 1455A has general applicability to all applicants for community nursing home beds and for skilled nursing home facilities within distinct parts of a hospital. Form 1455A contains numerous provisions of mandatory language which facially provides that it must be submitted with applications for CON. The Agency acknowledges that such mandatory language predated the passage of Section 120.535, Florida Statutes, and considers the language obsolete. The Agency intends, in the future, to edit the form to strike "misleading language". Form 1455A is not incorporated in any rule of the Agency and has not been promulgated as a rule. Applications are reviewed based upon questions in Form 1455A. Applications are also reviewed against a numerical scoring system developed with the form. The form requires that the applicant certify that it will obtain a license to operate a nursing home. The form also requires certification that the applicant participate in Medicaid services which are not applicable to hospitals. These and other portions of the form are not rationally or reasonably related to the operation of a hospital-based distinct part skilled nursing unit. In the review and analysis of the applications at issue, a "scoring methodology" is used by the Agency. The scoring matrix is utilized to put numerous applications filed in the same agency district in perspective in terms of numerical ranking and how the applications compare to each other. The State Agency Action Report is the end product of the Agency review of the applications. The scoring system is used in the review proceedings and is utilized and included in at least some of the State Agency Action Reports. Form 1455A and the scoring methodology are utilized by the Agency in a manner that has general application and which forms significant components of a process which creates rights, and which implements, interprets, and prescribes law and Agency policy. At the final hearing, the Agency presented the testimony of Ms. Elizabeth Dudek, the Agency Chief of the Certificate of Need and budget review offices. Ms. Dudek was accepted as an expert in CON policy and procedure. Ms. Dudek provided an overview of the process whereby the challenged form and scoring system are used by the Agency in analyzing CON applications. Ms. Dudek testified that the Agency does not believe the form and scoring system meet the requirements of a rule. Ms. Dudek considers the form and system to be tools used to elicit responses in a standardized format. The fact that an application receives a high score based on the scoring matrix does not mean that the application will be approved. Ms. Dudek is of the opinion that the form and scoring system do not competitively disadvantage hospitals competing with nursing homes. Ms. Dudek cited the most recent batch cycle in which twelve hospitals were awarded distinct part nursing units, although these hospitals' applications did not receive the highest scores. Ms. Dudek's testimony was not persuasive in the above-referenced areas. As currently structured and utilized by the Agency, the form and the scoring system at issue are not reasonable or rational. There is not an adequate factual or legal basis to support the use of the form or the scoring system in analyzing applications for CON files by hospitals for distinct part Medicare-certified skilled nursing units.
The Issue The issue to be determined in this case is whether Respondent, Department of Health and Rehabilitative Services, should grant the application of Health Care and Retirement Corporation of America, d/b/a Heartland of Hillsborough (HCR), Petitioner in Case No. 85-3217, or Forum Group, Inc., sponsor of Retirement Living of Hillsborough County (Forum), Petitioner in Case No. 85-3376, or both, for a certificate of need to construct and operate a 60-bed nursing home in Hillsborough County. Paddock Meadows Convalescent Centers, Florida Convalescent Centers, Inc., and Angel1 Care, Inc., petitioners in Case Nos. 85-3362, 85-4124 and 86-0905, respectively, voluntarily dismissed their petitions shortly before the final hearing in this case. (Health Quest Corporation and Health Quest Realty (Hillsborough County), petitioners in Case No. 85-2923, voluntarily dismissed their petition on or about April 1, 1986.
Findings Of Fact The HCR Proposal. Health Care and Retirement Corporation of America, d/b/a Heartland of Hillsborough (HCR), Petitioner in Case No. 85-3217, has been in the business of nursing home construction and operation for over 20 years. HCR currently operates approximately 10,000 beds in 17 states. It has developed over 200 facilities. HCR's proposed project would benefit financially to some extent from economies of scale of having a network of similar facilities. HCR originally applied for a certificate of need to construct and operate a 120-bed nursing home in Hillsborough County. During the pendency of this proceeding, HCR down-sized its proposed project to 60 beds and made other amendments. The down-sizing and amendments are reflected in a supplemental application which was served on Respondent, Department of Health and Rehabilitative Services (HRS), but was not filed with the local health council. It is not clear whether the supplemental application was filed with HRS's Office of Community Medical Facilities. The supplemental application adopts by reference but does not re-type certain portions of the original application. Those portions of the original application were not introduced in evidence or otherwise made a part of the record of this proceeding. In HCR's supplemental application, the down-sized 60-bed nursing home is accompanied by a 60-bed adult congregate living facility housed in the part of the building originally proposed to house another 60 nursing home beds. In addition, the supplemental application reflects a new emphasis on treatment of patients with Alzheimer's and related diseases (dementia). HCR proposes a facility which will include a 60-bed nursing home, an adult congregate living facility, and an adult day-care component. The facility will offer programs specially designed for Alzheimer's disease victims, and, in its adult day care and assisted living areas, will provide programs which are designed to delay institutionalization as long as possible. The facility will provide staffing and special capabilities to accommodate the unique characteristics of dementia (Alzheimer's) patients, to allow the wandering Alzheimer's patient more freedom, and to shelter the non-dementia (non-Alzheimer's) patient from unnecessary contact with the dementia (Alzheimer's) patient. Alzheimer's disease is a progressive, organic brain disease which causes brain cells to die at a rate much more rapid than in the normal aging process. As the brain slowly dies and degenerates, other functions of the body dependent upon the brain's messages begin to deteriorate. The initial effects of the disease, such as forgetfulness and disorientation, are subtle, but the disease progresses through several stages where, increasingly, the disease victim is unable to perform normal daily functions or care for himself and, ultimately, loses the ability to control basic bodily functions and becomes bedridden. Alzheimer's disease is a disease of the elderly victims at two levels of the disease require inpatient care. Some victims develop psychiatric manifestations of the disease and short-term hospitalization or stabilization to enable the family caregiver to manage the patient still in the home setting. As victims reach the later stages of the disease, caregivers must consider institutional placement in a setting where there is a 24-hour-a-day care, seven days a week. In these later stages, the patients require total care which usually cannot be managed on a full-time basis at home, particularly by persons without significant resources. The primary caregiver of Alzheimer's disease patients is an older spouse, but in some instances it may. be an adult child. Ideally, inpatient programs for Alzheimer's disease victims would be designed with a continuum of care to minimize frequent changes in the victim's environment. In other words, the Alzheimer's care program would offer a range of care for patients who move through the various stages of Alzheimer's disease, from ambulatory to bed bound. Day care is an important component of the continuum development of Alzheimer's components for day-care programs in of care in an Alzheimer's program, because it offers rest to the family by placing the victim in a special care facility for a full day. The State of Florida allocated resources for the 1985 legislative session. Sophisticated, high-tech nursing care is required for patients in the later stages of the disease who have lost the ability to swallow, feed themselves, and perform other necessary/ bodily functions. Providing care from day care through high-tech care in the same facility minimizes frequent relocation of the Alzheimer's patient and facilitates the family coming to terms with the final outcome of the disease, where the family must relinquish total care to an institution. Alzheimer's disease victims in the middle and late stages of the disease who are still ambulatory exhibit the tendency to wander aimlessly. Nursing home care for such victims must provide a safe and secure environment in which the Alzheimer's patients may wander without endangering themselves or others. Otherwise, these patients will wander away from the facility and get lost or wander into dangerous traffic situations. Alzheimer's victims often disrupt the routine of non- Alzheimer's patients and the staff of the facilities by their constant wandering and by entering other patients' rooms and going through other patients' belongings. Special Alzheimer's units expect this behavior and make provisions to control it without physical or chemical constraint. In state-of-the-art Alzheimer's care, the physical nature of the decor and design of a nursing home appropriate for Alzheimer's care ideally would provide a safe and secure environment for the wandering, unstable Alzheimer's victim and provide a pleasant, therapeutic environment which copes with the patient's lost ability to synthesize data. Fixtures in the nursing home would be appropriately designed to enable the Alzheimer's patient to distinguish between significant fixtures, such as commodes, sinks, and wastebaskets. Ideally, activity areas for Alzheimer's patients would be separate from other nursing home patients, because of the Alzheimer's patient's disruptive wandering, absence of inhibitions and short attention spans which require a variety of activities and programs to accommodate. The staff of an Alzheimer's care program must be able to deal with the Alzheimer's patient. The staff will seldom see any improvement in the condition of the patient and will seldom get any positive feedback from the patient. Staffing patterns in Alzheimer's programs need to be more intense than average because the staff must deal with patients who have lost the ability to care for themselves. There is a need for closer supervision than is needed by the typical nursing home patient. Such a program also requires a social worker to develop the individual treatment plan for the patient and an occupational therapist to teach the patients those functions which the patients are continually losing. An Alzheimer's program within an adult congregate living facility is within the continuum of care required for some patients. The care provided here is less intense than that provided in a nursing home. However, once the victim loses basic bodily functions and begins wandering, the adult congregate living facility is no longer able to deal with these patients. Adult congregate living facilities and boarding homes in Hillsborough which accept Alzheimer's victims are frequently required to discharge such victims when the care becomes too difficult. In Hillsborough County, there are no nursing homes which provide state-of-the-art inpatient care designed for the care and treatment of Alzheimer's disease patients. Although there are two adult congregate living facilities in Hillsborough County which accept Alzheimer's disease patients, these facilities do not have safeguards for the wandering patient. Nursing homes traditionally deal with wandering Alzheimer's patients by physically restraining the patients or by chemically restraining the patients through the use of drugs. A state-of-the-art program designed to meet the special needs of Alzheimer's disease victims eliminates or reduces the need for physical and chemical restraints. HCR intends to offer a service, from day care through inpatient nursing care, that is designed for the needs of the typical Alzheimer's patient. In addition to the Alzheimer's patient, many patients not diagnosed as Alzheimer's disease victims but who are cognitively impaired (suffering from dementia) would also benefit from the service designed for the Alzheimer's patient. The adult day-care portion of the facility will allow the Alzheimer's victim to remain at home much of the day but allow the family and the well spouse to have time to provide for their own personal needs. The assisted living (adult congregate living) portion of the facility would be available for Alzheimer's victims not requiring advanced nursing care and would be available as a facility where the well spouse and the Alzheimer's victim could live together and both benefit from support services. The nursing home portion of the facility would offer special designs and programs to meet the needs of a maximum of 15 Alzheimer's patient in the middle stages, where wandering is a particular problem, as well as the needs of patients in the latter stages and death. The care available for the Alzheimer's disease victim in the latter stages of the disease (high-tech care) will also be available and appropriate for patients discharged from acute care hospitals who still need nursing care prior to returning home. The level of staffing provided in the HCR facility is higher than one would expect to find in the typical nursing home. The staffing proposed assumes that 15 of the patients will be Alzheimer's wanderers. HCR proposes a staffing higher than the typical nursing home because of the personal attention required for state-of-the-art Alzheimer's patient care and HCR's intent to reduce the amount of medication and physical restraint imposed upon the Alzheimer's patient. Increased staffing will encourage the Alzheimer's patient to retain whatever cognitive capabilities they have for as long as possible and will reduce the disruption experienced in a normal nursing home when the Alzheimer's disease patients wander, disrupt other patients, and generally disrupt the nursing home. The HCR facility will provide an area for wandering patients and a fenced courtyard which will allow wandering patients to have outside activity without danger of leaving the facility. The facility includes a therapeutic kitchen important to the Alzheimer's patient who retains some cognitive recognition of kitchen activities. A separate dining room for the Alzheimer's patient will be provided in order to accommodate the increased spillage experienced by Alzheimer's patient and the risk of incontinence, which is very disruptive and disturbing to non-Alzheimer's patients. wandering patients will be continuously monitored through the use of an electronic wristband which will prevent the patient from wandering outside of the facility and those areas where the wandering patient could cause problems. Dementia patients are now being cared for and treated in existing nursing homes in Hillsborough County. There was no persuasive evidence that patients have been denied access to nursing home beds in Hillsborough County. The features proposed in HCR's supplemental application would allow HCR to provide better quality care and treatment for those patients. However, HCR has only committed to treat up to 15 Alzheimer's patients in the "wandering" stage. That degree of commitment and the extent to which those special features for the care and treatment of dementia patients are needed would not themselves justify the proposed project absent an overall need for additional nursing home beds. HCR is in the process of purchasing four existing. nursing homes from Care Corporation. HCR did not prove that it has studied whether renovation of those facilities to accommodate special features for the care and treatment of Alzheimer's patients would not be less costly, more efficient or more appropriate alternatives to this proposed project or that they are not practicable. The project proposed in HCR's supplemental application is immediately and long-term financially feasible. HCR is a subsidiary of Owens-Illinois. On December 31, 1985, Owens- Illinois had total assets of approximately $3.3 billion, total current assets of approximately $903 million, and cash of approximately $47 million. Meanwhile, current liabilities were approximately $723 million and total shareholders' equity was approximately $1,559,000,000. In addition, HCR proved that it would be able to finance the approximately $2.2 million total project costs by borrowing 75% at favorable interest rates and funding the remaining 25% out of HCR's equity. Making reasonable, conservative assumptions--including an 11.5% interest rate, a January 1989 opening of the facility, and 40% Medicaid utilization on a patient day basis--the project can be anticipated to break even during year two of operation and earn approximately $158,000 during year two of operations. The nursing home portion of the facility and the day- care element adjacent to the nursing home portion will comprise 25,000 square feet; the nursing home portion alone will contain 23,000 gross square feet, or 383 gross square feet per bed. The construction costs for the nursing home and day-care portion of the facility will be $1,458,000, or $58.32 per square foot for the 25,000 square foot area; the cost of construction for the 23,000 gross square foot for the nursing home portion is $1,341,360. The cost per bed for construction of the nursing home portion of the facility is $22,356. The total project costs for the facility estimated by HCR and the cost per bed of the facility includes both the nursing home and adult day-care portion of the facility; when the adult day-care portion of the facility (8 percent of the construction costs) is taken into consideration, the total project cost becomes $2,083.360, at a cost per bed of $34,722. The estimated project cost for the nursing home portion of HCR's proposed facility is as follows: Feasibility studies $15,000; legal and accounting fees $32,000; plan review $8,000; subtotal of project development costs (the foregoing three items) $55,000; costs for financing $120,000; architectural and engineering fees $15,000; site survey and soil investigation $5,000; subtotal of the foregoing professional services $20,000; construction costs $1,458,000 (which includes the day-care portion of the facility but would be reduced to $1,341,360 for the nursing home portion alone); equipment costs $222,000; land acquisition costs $200,000; interest during construction $125,000; total project costs $2,200,000 ($2,083,360 when the adult day-care portion of the facility is excluded). All 60 of the nursing home beds in HCR's proposed facility will be certified both for Medicare and Medicaid utilization. However, in its supplemental application, HCR limits its commitment to serve Medicaid patients to 40% of its patient days. The increased cost of special features for Alzheimer's patients influenced HCR's financial decision not to commit to a higher percentage of Medicaid utilization. HCR has received approximately 13 certificates of need to develop nursing homes in Florida. HCR has completed three nursing homes, and HCR has seven projects under construction. Various difficulties prevented HCR from initiating construction of three projects for which it received certificates of need in 1981 and 1982. HCR has experienced no problems in initiating construction of its certificates of need obtained since that time, and its experience in Florida renders it unlikely that its previous failure to commence construction of facilities will reoccur. HCR acknowledges that it has previously sold and does not now operate nursing homes for which it had obtained certificates of need in Florida. However, these sales were facilities in the same building as the nursing home. A dietician and central kitchen and central laundry will serve all three levels. Housekeeping, building supervision, building plant, and other building maintenance operations will be centralized, saving some expenses. The Forum Proposal. Forum Group, Inc., sponsor of Retirement Living of Hillsborough County (Forum), Petitioner in Case No. 85-3376, is a general partner in a Florida partnership named Retirement Living of Hillsborough County. Forum originally applied for and continues to apply for a certificate of need to construct and operate a 60-bed nursing home. Like the project proposed in HCR's supplemental application, Forums proposal includes aspects in addition to the nursing home. Forum's proposed nursing home would be connected to a 15-bed wing of private rooms for patients who need assistance in their personal care and access to some of the capabilities of a nursing home on an intermittent basis but do not need nursing home care full-time. This is-bed wing would have separate dining facilities. This "personal care unit" will cost patients approximately $40 to $60 a day. In Forum's proposed nursing home, three wings, like the "personal care unit," would radiate from a hub where the nursing station would be located. Twenty of the sixty beds would be in private rooms occupied by private patients. Ten of those beds would be designated for skilled nursing care and ten for intermediate care. Of the 40 beds located in 20 semi-private rooms, 36 would be certified for Medicaid use, leaving 4 to be certified for Medicare use. Eighteen of the 40 beds would be for intermediate care, and 22 of the 40 beds would be for skilled nursing care. Forum's skilled nursing care would include "hi- tech" skilled nursing comparable to HCR's. A central corridor with central kitchen facilities and building maintenance facilities connects the three nursing home wings and the personal care unit wing with a retirement living center. The retirement living center will be able to accommodate 120 residents. Residents will be under a one year lease arrangement instead of an endowment-type arrangement. Monthly lease payments will probably fall between $950 and $1700 per month. The rental includes one meal a day in the retirement living center's dining room, weekly house cleaning, 24-hour security, transportation by automobile to appointments, banks, and doctor's offices and by mini-bus to shopping and theatres, availability of an on-call nurse, utilities, taxes, and the. services of a social director. The retirement living center will be marketed as a luxury facility to elderly persons approximately 75 years of age with an annual income of between $15,000 and $35,000. Forum projects initial utilization of all 36 Medicaid certified beds by Medicaid patients, resulting in 60% Medicaid utilization by patient day. However, that percentage would change with time. At first, residents of the retirement living apartments would not be expected to move immediately to the nursing home portion of the facility. The projected fill-up for the nursing home portion initially would not be derived from the initial fill-up of the retirement living apartments. Eventually, however, 10 to 15% of the residents of the retirement living apartments would require nursing home care, and approximately 50% of the patients in the nursing home will be, former residents of the retirement living section. In 10 to 12 years, the percentage of Medicaid utilization can be expected to drop, with a floor of approximately 45% Medicaid utilization by patient day. Like HCR's proposed project, Forum's proposal will benefit financially to some extent from the location of other facilities in the same building as the nursing home. A dietician and central kitchen and central laundry will serve all three levels. Housekeeping, building supervision, building plant, and other building maintenance operations will be centralized, saving some expenses. Like HCR, but probably not to the same extent, Forum would be able to benefit financially to some extent from the economies of scale of having a network of similar facilities (including approximately 11 facilities like the proposed project and approximately 20 free-standing nursing homes.) Location of the retirement center and the personal care unit in the same building with the nursing home will afford Forum some advantages in caring for its nursing home patients. First, some of the patients can be expected to use two or all three of the levels of care available in the complex as their medical condition worsens or, in some cases, improves. This would aid in the continuity of Forum's care and reduce the emotional strain of changing levels of care (since the patients do not have to move to a totally new location and environment.) Second, to the extent nursing home patients continue to have an independent means to pay to reside in the retirement living center or the personal care unit, those patients will have an incentive to improve their health so as to be able to move back to the retirement living center or personal care unit from the nursing home unit. (Obviously, these benefits would not apply to Medicaid patients in the nursing home.) Third, general education in health and hygiene of persons residing in the retirement living center and personal care unit will help to some degree in keeping them out of the nursing home or aiding their recovery if in the nursing home for short-term care. Like HCR, Forum also has the ability to provide quality nursing home care. However, Forum's proposal does not have the special features for care of Alzheimer's disease and other dementia patients proposed by HCR in its supplemental application. While some of those state-of-the-art special features could be incorporated by Forum during construction of its proposed nursing home, others could not, and Forum does not have the overall emphasis or commitment to provide those special features that HCR does. The total cost of Forum's nursing home proposal is approximately $2,200,000. This includes no interest cost during construction since Forum has decided to, and has the financial ability to, pay for the construction entirely out of its cash reserves. Forum has approximately $40,272,000 in cash assets. It has approximately $69,210,000 worth of current assets and only approximately $23,192,000 worth of current liabilities. Its total assets are approximately $290,747,000 and it has approximately $151,155,000 worth of common shareholders' equity. Its net income for the fiscal year ending March 31, 1986, was approximately $15,012,000. As a result, Forum's nursing home proposal is immediately financially feasible. Making reasonable, conservative assumptions including 13% interest on borrowed capital, late 1987 or early 1988 occupancy and 60% Medicaid utilization by patient day, Forum's nursing home proposal probably will break even in mid-year two and will earn approximately S69,000 net income in year two of operations. The following are Forum's final project development costs: feasibility studies $20,000, legal and accounting fees $30,000, development expenses $10,000, subtotal of the foregoing three categories $60,000; architectural and engineering fees $70,000, site survey and soil investigation $15,000, for a total cost for professional services total of $85,000; site preparation work $40,000, construction costs of $1,345,598, and contingency fees of $45,661, for a total construction cost of $1,390,258; fixed equipment cost of $65,998, moveable equipment cost of $128,850, tax-freight contingency and escalation provisions of $44,160 for a subtotal of equipment costs of $239,000; land acquisition of costs of $400,000, no interest costs during construction, pre-opening expenses' of $25,000, and, finally, a total project cost of $2,199,258. The expected construction cost per bed comes to approximately $23,171, and the total cost per bed comes-to approximately $36,165. HRS Rule Need Methodology. Rule 10-5.11(21)(b), Florida Administrative Code, provides the HRS bed need rule methodology for determining projected need for new or additional community nursing home beds. The methodology provided in Rule 10-5.11(21) is as follows: Departmental Goal. The Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds calculated by the methodology described in subsections (21)(b), (c), (d), (e), (f), (g), and (h) of this rule. Need Methodology. In addition to other relevant statutory and rule criteria to be used in considering the allocation of new or additional community nursing home beds, the Department will determine if there is a projected need for new or additional beds three years into the future according to the methodology specified under subparagraphs 1 through 10. This methodology provides for adjustments to current community nursing home bed rates based upon expected changes in the proportion of district residents age 75 + and the current utilization of community nursing home beds in the subdistricts designated by local health councils. In districts with a high proportion of elderly residents living in poverty, the methodology specifies a minimum bed rate. A = (POPA X BA) + (POPB X BB ): Where: A is the district's age-adjusted Number of community nursing home beds for the review cycle for which a projection is being made. POPA is the population age 65-74 years in relevant departmental district projected three years into the future. BA is the estimated current bed rate for the population age 65-74 years and over in the relevant district. BB is the estimated current bed rate for the population age 75 years and over in the relevant district. BA=LB/POPC + (6 X POPD): Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. BB = 6 X BA SAA X (LBD/LB) X (OR/.90): Where: SA is the preliminary subdistrict allocation of community nursing home beds. LBD is the number of licensed community Nursing beds in the relevant subdistrict. Or is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of applications submitted for the July batching cycle shall be based upon occupancy rate data for the months of October through March preceding that cycle; applications submitted for the January batching cycle shall be based upon occupancy rate data for the months of April through September preceding that cycle. For the purposes of this rule, the occupancy data to be considered shall be that collected by the Department's Office of Healthcare Planning and Development or a contractor assigned to collect the data. In departmental districts where the percentage of persons age 65 and older living in poverty, according to the latest available U.S. census, exceeds the statewide average poverty rate for the 65 and older population and the sum of the currently licensed and certificate of need approved beds for community nursing homes within a district is less than 27 beds per thousand residents age 65 and older, the district shall be allocated a total of 27 community nursing home beds per thousand residents age 65 and older in the current year. This allocation is expressed as follows: If (Ls + AB ) /POPE is less than 27/1000 and PBD is greater than PBS, then: PA(27 X POPE)/1000 Where: AB is the number of certificate of need approved beds for community nursing homes in the relevant district. PBD is the percentage of persons age 65 and older below the poverty level within the district. PBS is the percent of persons age 65 and older below the poverty level within the state. PA is the poverty-adjusted number of beds in the relevant district. POPE is the sum of POPC and POPD. * * * 9. The net bed allocation for a sub-district which is the number of beds available for Certificate of Need approval, is determined by subtracting the total number of licensed and 90% of the approved beds within the relevant departmental subdistrict from the bed allocation determined under subparagraphs 1 through 9 unless the subdistrict's average estimated occupancy rate for the most recent six months is less than 80%, in which case the net bed allocation is zero. Prior to August 20, 1985, HRS had a long-standing policy interpreting the methodology as requiring use of population and occupancy rate at the time of the formal administrative hearing, if any, as the current population (POPC and POPD) and occupancy rate (OR) in the formula. HRS also subtracted the number of nursing home beds licensed and approved as of the date of the formal administrative hearing, if any, from the gross number of nursing home beds needed to determine the net need for nursing home beds proposed in a pending certificate of need application. Since the decision in Gulf Court Nursing Center vs. Department of Health and Rehabilitative Services, 483 So. 2d 700 (Fla. 1st DCA 1985), modified on rehearing (Fla. 1st DCA 1986), HRS adopted a new policy interpreting its rule methodology and the Gulf Court decision. HRS now interprets Gulf Court's reference to a "fixed pool of beds.' available in a given certificate of need application batching cycle to fix the health planning horizon in the rule methodology at three years into the future from the filing deadline for the certificate of need application batching cycle in question. Accordingly, POPA and POPB under the rule methodology represents the most current projection of population in the respective age cohorts on the fixed planning horizon. As before the Gulf Court decision, all other elements of the methodology including the figures for POPC, POPD, and OR are updated to the time of the formal administrative proceeding. Under its policy interpreting the rule methodology and the Gulf Court decision, HRS obtains the subdistrict occupancy rate (OR), by taking the average occupancy rate during the most recent six-month period for which data is available--in this case, from October 1, 1985 through March 31, 1986. However, the current population figures (POPC and POPD) HRS uses are the figures available closest to the date of the formal administrative hearing in this case on July 1, 1986. Under its policy, the occupancy rate (OR) does not relate to the figures for current population (POPC and POPD) to which it logically should relate. HRS did not satisfactorily explain the rationality of its policy. Meanwhile, there was ample evidence supporting the rationality of using as POPC and POPD the population at the midpoint of the time period used force determining occupancy rate (OR). In this case, since occupancy rate (OR) is determined by averaging the occupancy rates during the period from October 1, 1985 through March 31, 1986, the current population (POPC and POPD) should be the populations of the respective age cohorts on January 1, 1986. Otherwise, HRS' policy interpreting its rule methodology and the Gulf Court decision is a rational effort to reconcile the Gulf Court decision with the certificate of need statute, other conflicting court decisions and principles of sound health planning. It suffices here to say that, notwithstanding the Gulf Court decision, the evidence in this case does not establish the existence of a "fixed pool" of needed nursing home beds for which the applicants in this case applied. See Conclusions of Law 1 through 13 below. In addition, sound health planning not only dictates the use of the most recently available population projections (POPA and POPB) and the most current data (POPC, POPD, and OR) for determining current bed rates (BA and BB) under the rule methodology, but also would counsel against relying on state or district health plan determinations of a "fixed pool of beds" based upon inferior data and evidence. Departure from these sound health planning principles is likely to result in certificates of need for nursing home beds that are not needed or, in some cases, the denial of certificates of need for nursing home beds that are needed. See Appendix, paragraph B.4, below. For purposes of calculating need under the HRS rule need methodology, the appropriate health planning district is District VI, and the appropriate subdistrict is Hillsborough County. There currently are 5,617 licensed nursing home beds in District VI (LB). The District VI population for persons aged 65 to 74 on January 1, 1986 (POPC) is 131,501. The District VI population for persons aged over 75 for January 1, 1986 (POPD) is 91,433. The bed rate for the portion of the current population aged 65 to 74 (BA) is 0.008259. The bed rate for the portion of the current population aged over 75 (Bs) is 0.049554. The projected District VI population for persons aged 65 to 74 on January 1, 1988 (POPA) is 139,903. The projected District VI population for persons aged over 75 on January 1, 1988 (POPD) is 100,175. Using the bed rates for the two age cohorts (BA and BB) and the projected populations for those age cohorts on January 1, 1988 (POPA and POPB), the gross projected District VI nursing home bed need for January 1, 1988 (A) is 6,119.6. The occupancy rate for District VI nursing home beds between October 1, 1985 and March 31, 1986 (OR) was 93.3646%. This was the most current figure available at the time of the hearing. At the time of the formal administrative hearing, there were 2,512 licensed beds in Hillsborough County (LBD). At the time of the formal administrative hearing, there were 368 approved nursing home beds for the Hillsborough County subdistrict (AB). Using the figures for projected District VI bed need (A), licensed beds in District VI (LB), licensed beds for the Hillsborough County subdistrict (LBD) and the occupancy rate (OR), the allocation of nursing home beds for the Hillsborough County subdistrict (SA), is 2,839. The beds that will be available in Hillsborough County on January 1, 1988, is 2,843 (LBD plus .9 AB), leaving a surplus of 4 nursing home beds in Hillsborough County on January 1, 1988 under the HRS rule need methodology, as properly interpreted. In District VI, the percentage of persons aged 65 and older living in poverty, according to the latest available. U.S. census, exceeds the statewide average poverty rate for the 65 and older population, but the sum of the currently licensed and certificate of need approved beds for community nursing homes within District VI is approximately equal to 27 beds per thousand persons aged 65 and older, and no poverty adjustment is required under Rule 10-5.11(21)(b)5., Florida Administrative Code. State Health Plan. The State Health Plan endorses the concept of an integrated continuum of long-term care services. Forum's proposal integrates retirement living with minimal skilled nursing care needs, skilled and intermediate nursing care in a nursing home setting, and personal assistance care a middle ground between the two. Similarly, HCR's proposal integrates (1) adult congregate living with minimal requirement for skilled nursing care to limited nursing care provided to an Alzheimer's patient being primarily cared for by a spouse, and (2) skilled and intermediate nursing care in a nursing home setting, and (3) a range of specialized nursing services for the Alzheimer's patient in the second and third stages of the disease. The HCR proposal also integrates day care and respite services for Alzheimer's patients being cared for primarily for by relatives in their own homes. Addressing a related concern, the State Health Plan also endorses pre-admission screening to determine the level of care needed by a potential nursing home patient. This serves to foster a system of health care that seeks to promote "wellness" and independence of the patient. Both applicants will have some type of pre-admission screening process. Both applicants' proposals include on-site non-nursing home living facilities, and a decision would have to be made which of those two environments are appropriate for a particular patient. Forum also has personal assistance care which would require more precise screening, and Forum appeared more intent on establishing effective pre-admission screening procedures and cooperating with the state-sponsored CARES (Comprehensive Assessment and Review for Extended services) program aimed at diverting potential patients who do not truly need nursing home services. Both proposals also seek to promote "wellness" and independence of the patient. Both include less restrictive settings than nursing home care for patients who do not yet need full-time nursing services. For some patients, the less restrictive setting can serve as an incentive to recover from illnesses and shorten short-term nursing home stays. Again, Forum's proposal, with its three levels of care and more attractive retirement living setting, better fosters these objectives. Finally, the State Health Plan highlights the elderly's need for information on providers' charge structures and acceptance of Medicaid/Medicare assignment. It expresses a goal of availability of services to the medically indigent, and recommends adherence to the applicable local health plan's expectations. See Finding Of Fact 61 below. District VI Health Plan. As its second priority, the District VI Health Plan states that applicants for a certificate of need for nursing home services in the Northwest subdivision of the Hillsborough County subdistrict should commit, at minimum, 18.6% of its services to the care of Medicaid eligible patients. Forum's application commits 60% of its patient days to Medicaid during the first year of operation. HCR's commitment is only 40%. However, HCR's commitment is on a permanent basis, and Forum's actual Medicaid utilization can be expected to drop over the first ten years of operation with a floor of approximately 45%. The actual percentage of Medicaid days for the period January to March 1986, for Hillsborough County was 70%. The District VI Health Plan also ranks the Northwest subdivision of the Hillsborough County subdistrict as the first priority for location of new or additional nursing home services when needed in District VI. Both applicants propose to locate their projects in the Northwest subdivision of the Hillsborough County subdistrict. Another priority in the District VI Health Plan is to give preference to applicants with a documented history of implementing their certificates of need within the statutory time frames. Forum had no history in Florida but a good record of follow-through elsewhere. HCR has a history of mixed results in Florida but offered good explanations for the instances of delay in implementing certain certificates of need in earlier years, and the evidence was not persuasive that either Forum or HCR should be given a competitive advantage regarding this priority. The District VI Health Plan sets a 90% occupancy threshold for the continuous period of six months before additional beds are approved. This threshold has been met in Hillsborough County for at least three years. Current occupancy in Hillsborough County is 93.3646%. The District VI Health Plan states that applications for additional nursing home beds in a subdistrict should be considered against the availability of alternative forms and settings for long-term care. In this case, there was no evidence of alternatives to nursing home services other than the alternatives within the proposed projects. However, neither of the applicants will go forward with the retirement living or personal assistance care or adult congregate living alternatives without the attached nursing home. No specialized state-of-the- art Alzheimer's disease programs are now available in District VI. See Finding Of Fact 71 below. The District VI Health Plan states that applications should be reviewed with the goal that nursing home services be within 30 minutes travel time of 90% of urban residence and 45 minutes of 90% of rural residents. There was no evidence in this case regarding geographic access of the urban and rural populations or that the proposed projects would make Finally, the District VI Health Plan states that applicants should be evaluated as to their achievement of superior quality ratings by HRS and other indications of quality as available. Both applicants adequately establish that they will be able to provide quality nursing home services. It can be anticipated that both will seek and obtain a superior rating for its proposed facility. Other Pertinent Criteria. Both applicants propose projects which will be accessible to schools for health professions in Hillsborough County, such as colleges and trade schools for training and teaching purposes. In addition to its Medicaid utilization commitment previously discussed. Forum will establish a $10,000 fund, to be replenished annually, for indigent patients to draw upon as necessary for payment of nursing home services. This fund is intended to address, for example, the circumstance that could arise if a private pay nursing home patient runs out of money and all 36 Medicaid-certified nursing home beds are occupied. Unless the fund pays for the patient, the patient would have to be transferred to another nursing home. However, Forum does not yet nursing home services accessible to residents now outside the applicable travel time have any guidelines or criteria for the operation of the fund. Both Forum and HCR propose facilities to provide nursing home services. Neither applicant seeks to justify the need for its proposed nursing home on need for services that can be provided other than through a nursing home. No applicant in this batching cycle seeks to add beds as an alternative to new construction. Existing nursing home beds are alternatives to the proposals only if there is no need for additional nursing home beds. There is no existing alternative to the special Alzheimer's program proposed by HCR. Existing nursing homes serve Alzheimer's patients but not with state-of-the-art nursing home care. However, renovation of facilities HCR is in the process of purchasing from Care Corporation to accommodate special features for the treatment of Alzheimer's patients might be an alternative to the construction of a new nursing home for the purpose of providing those services. HCR did not prove that it has studied those alternatives and found either that they would not be less costly, more efficient or more appropriate or that they would not be practicable. Both HCR and Forum, through their network of retirement centers and nursing homes, generate economies of scale in centralized operations and management functions and in acquisition of equipment. As a larger nursing home company, HCR's economies of scale would be greater than Forum's. In addition, by combining different levels of care on one campus, both applicants can enjoy further economies in dietary, laundry, medical supply and bookkeeping operations. Both HCR and Forum can adequately meet manpower requirements for their proposed facilities with a combination of in-house transfers and recruiting from the local community. There was no evidence that approval of a new 60-bed nursing home facility in Hillsborough County would have a significant negative impact on the financial viability of existing nursing homes. Current occupancy rates are high, reducing patients' choice in the selection of a nursing home. The last 240 nursing home beds opened to patients in Hillsborough County quickly were absorbed by the demand for those services. Neither HCR nor Forum now own or operate a nursing home in the Tampa Bay area. However, HCR is in the process of acquiring four nursing homes from Care Corporation. As a result, HCR would have more control over the market than Forum and would have the potential eventually to use its market power to decrease competition. But at this time, it can be anticipated that either proposal would foster competition and promote quality assurance and effectiveness. Balanced Consideration of the Criteria. HCR and Forum are worthy applicants who have conceived and proposed nursing home projects worthy of consideration. However, balancing consideration of all of the criteria, and giving due weight to the HRS rule need methodology, it is found that there is no need at this time for a new 60-bed nursing home in Hillsborough County. There is no numeric need under the rule, and no special circumstances were proved by documentation of denied access to currently licensed but unoccupied beds or of need exceeding the number of licensed unoccupied and currently approved nursing home beds. Meanwhile, the special Alzheimer's program HCR proposes does not independently support construction of a new 60-bed nursing home. Renovation of the four nursing homes HCR is in the process of purchasing from Care Corporation might be a less costly, more efficient and more appropriate alternative to construction of a new 60-bed nursing home to provide special Alzheimer's programs in Hillsborough County. However, if there were a need for 60 additional nursing home beds, HCR's Alzheimer's program would be enough to give it a competitive advantage over Forum's proposal.
Recommendation Based upon the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that Respondent, Department of Health and Rehabilitative Services, enter a final order denying the applications of both Health Care and Retirement Corporation of America, Petitioner in Case No. 85-3217, CON Action No. 3818, and Forum Group, Inc., Petitioner in Case No. 85-3376, CON Action No. 3817, for a certificate of need to construct and operate a new 60-bed nursing home in Hillsborough County. RECOMMENDED this 3rd day of November, 1986, in Tallahassee, Florida. J. LAWRENCE JOHNSTON, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day November, 1986.
Findings Of Fact The Agency for Health Care Administration ("AHCA") is responsible for the administration of the Certificate of Need ("CON") program in Florida, pursuant to Section 408.034, Florida Statutes (1992 supp.) AHCA initially published a need for 313 community nursing home beds in the 16 county area encompassing District III on April 17, 1992, which was subsequently corrected and published as a revised total of 321 net bed need for District III. On September 17, 1992, with a cover letter signed by Elizabeth Dudek, AHCA issued notice that it intended to issue: CON No. 6983P to Unicare Health Facilities, Inc. ("Unicare"), for construction of a 60 bed community nursing home in Hernando County; CON No. 6985 to Beverly Enterprises-Florida, Inc. ("Beverly"), for the construction of a 120-bed community nursing home in Hernando County; and CON No. 6986 to Life Care Centers of America, Inc. ("Life Care"), for the construction of a 120-bed community nursing home in Hernando County; and, intended to deny, among others: CON 6983 to Unicare for the construction of a 120-bed community nursing home in Hernando County; CON No. 6989 to Lake Port Properties ("Lake Port") for either the conversion of 60 sheltered nursing beds to 60 community nursing home beds or the conversion of the 60 beds and the construction of an additional 60 community nursing beds to be located in Lake County; CON No. 6991 to Unicare for the addition of 51 community nursing home beds to New Horizon Rehabilitation Center, in Marion County; CON No. 6992 to Ocala Health Care Associates, G.P., for the addition of 60 community nursing home beds to TimberRidge Nursing and Rehabilitation Center in Marion County; and CON No. 6993 to Southern Medical Associates, Inc. (Southern Medical) for the addition of 60 community nursing beds to Palatka Health Care Center in Putnam County. Prior to the hearing, the parties stipulated that all participants have standing, except Heartland. Additional stipulations, accepted during the hearing, in the absence of a representative for Ocala Health Care Associates, are as follows: subsection 408.035 (1)(m) is not in dispute; proposed project costs and design are reasonable; the applicants' Schedules 1, notes and assumptions, the schematics, and the narrative responses to all of objective 4 in each application are in evidence, not in dispute, and are reasonable. The parties also stipulated to the approval of CON 6991 for Unicare to add 51 beds to its New Horizon Rehabilitation Center in Marion County, and the denial of CONS 6983 and 6983P to Unicare. LIFE CARE Life Care Centers of America, Inc. ("Life Care"), a privately-held corporation established in 1976, by its sole shareholder, Forrest L. Preston, owns, operates or manages 131 nursing homes and 14 retirement centers in 26 states. In Florida, Life Care manages four facilities with superior licenses, located in Altamonte Springs, Punta Gorda, and two in Palm Beach County, Lakeside and Darcy Hall. Life Care also owns, as well as operates, the facility in Altamonte Springs. Life Care owns and operates 28 nursing homes through leases, 6 or 7 of which are capital leases. Under the terms of the capital leases, Life Care is responsible for capital expenditures and projects. Life Care is not responsible for capital expenditures and projects at approximately 91 of its 131 facilities. Life Care proposes to construct and operate a 120-bed nursing home in the southwest section of Hernando County, near Spring Hill, and to finance the total project cost of approximately $5 1/2 million from bank loans. Life Care has not identified a specific site for its facility. Life Care has proposed to accept a CON condition to provide 75 percent of its patient days to Medicaid beneficiaries, to establish a separate 20-bed wing for Alzheimers and related dementia ("ARD") residents, and to provide intravenous therapy, inpatient and outpatient rehabilitative therapy, wound care and adult day care. Life Care's proposed Medicaid condition exceeds the 1991 district average of 73.78 percent, and is consistent with its experience in Altamonte Springs of up to 73 percent Medicaid without a CON condition, and over 80 percent Medicaid in West Palm Beach. The Medicaid percentages indicate that Life Care will offer mainly traditional nursing home services. BEVERLY Beverly Enterprises, Inc., the ultimate corporate parent of the applicant, owns 830 nursing homes, with a total of 89,000 beds in 35 states. Beverly Enterprises-Florida, Inc., the applicant in this proceeding, is a wholly-owned subsidiary of Beverly California Corporation, a wholly owned subsidiary of Beverly Enterprises, Inc. Beverly Enterprises-Florida ("Beverly") owns 41 of the total 68 nursing homes owned in Florida by Beverly-related companies. Of the 40 nursing homes owned by Beverly at the time the application was filed, 31 had superior licenses. Three facilities had moratoria within the preceding 36 months, one a facility built in 1929, another with a two-week moratorium which is now licensed superior, and a third which is still conditional while physical plant improvements are underway. See, Finding of Facts 28, infra. Beverly proposes to construct a 120-bed nursing home in Spring Hill, Hernando County, for $5,213,077, with its CON conditioned on the provision of 74 percent of annual patient days to Medicaid residents and a $10,000 grant for gerontology research at Hernando-Pasco Community College. Beverly proposes four beds for a ventilator-dependent unit, two beds for respite care, 20 beds on a separate wing for ARD residents, and to establish an adult care program. Beverly commits to group patients with ARD or other losses in cognitive functioning together in a 20-bed area, to offer subacute rehabilitative care in a 24 bed Medicare skilled nursing unit, and to provide intravenous therapy. Beverly also intends to establish a dedicated four-bed ventilator unit staffed with at least one registered nurse with a minimum of two years experience in critical care continuously on duty, a separately staffed adult day care program, and respite care. Beverly's would be the first ventilator beds other than in hospitals and the first licensed adult day care program in Hernando County. One of Beverly's existing Florida nursing homes is Eastbrooke which is also located in Hernando County, approximately 10 miles from the proposed Spring Hill site. Beverly expects its experienced personnel from Eastbrooke to train and assist in establishing Spring Hill. Beverly has identified a site for the Spring Hill facility which is across the street from an acute care hospital. Spring Hill is in southern Hernando County, near Pasco County. UNICARE By stipulation of the parties, the Unicare Health Facilities, Inc. ("Unicare") proposal to add 51 beds to New Horizon Rehabilitation Center in Marion County was recommended for approval on May 12, 1993. Unicare withdrew its requests for the approval of CONs 6983P and 6983 in Hernando County. As a result, the parties agreed that the number of beds needed was reduced from 321 beds to 270 beds. LAKE PORT Lake Port is a 60-bed licensed skilled nursing center, with a superior rating, located at the Lake Port Properties Continuing Care Retirement Community, in Leesburg, Lake County. Lake Port Properties is a partnership, for which Johnson Simmons Company serves as the managing general partner. The Lake Port community includes independent living residences, a 66-bed adult congregate living facility, and the 60 sheltered nursing beds. Among the services provided are post-operative care and orthopedic rehabilitative therapy for patients who have had knee or hip replacement surgery or shoulder injuries, neurological therapies for stroke injuries, pain management, subacute, open wound and respite care, and hospice services. Lake Port currently has 11 Medicare certified beds, and has had from 8 to 22 Medicare certified beds at a time. Lake Port has a contract with Hospice of Lake-Sumter County to provide interdisciplinary services to approximately five hospice residents a year. Rehabilitation services are also provided by contract at Lake Port. Lake Port has a relatively high volume of residents who are discharged home following intensive therapy within an average of three weeks. As an indicator of the intensity of therapeutic services, Lake Port has provided 26 percent Medicare, while the Lake/Sumter planning area average was 7.2 percent. Life Care projected a Medicare rate of 6.7 percent, Beverly projected 10 percent Medicare, and the Hernando County average is 9.3 percent. In this proceeding, Lake Port proposes either to convert the existing 60 skilled nursing beds to 60 community nursing beds at no cost, or the 60 bed conversion and the approval to construct an additional 60 community nursing home beds, for a total 120-bed community facility at a cost of $1.4 million. Lake Port proposes to have either CON, if approved, conditioned on the provision of 29.2 percent and 33.81 percent Medicaid, in years one and two, and respite, subacute, and intense rehabilitative care. Historically, the payer mix has included 25-30 percent Medicare and 30-35 percent Medicaid. All of the proposed services are provided currently at Lake Port. The effect of the change in licensure categories is to eliminate the requirement that the facility serve exclusively the retirement community residents after five years in operation, or after August 1995. Lake Port would still be obligated to provide nursing home care to Lake Port community residents at discounted costs, pursuant to the terms of their continuing care contracts. Occupancy levels at Lake Port exceed 95 percent, with 7 to 8 percent of patient days attributable to retirement community, and the remainder to patients in a service area which includes West Lake and Sumter Counties. Lake Port asserts that its financial viability depends on its ability to continue to serve all residents of its service area. SOUTHERN MEDICAL Southern Medical Associates, Inc. ("Southern Medical") is a Florida corporation which owns two nursing homes, one with 60 beds in Okaloosa County and one with 120 beds in Palatka, in Putnam County. Palatka Health Care Center opened with 60 beds in May 1989, added 60 beds in November 1990. Both nursing homes have superior licenses and are managed and staffed by National HealthCorp, L.P., which was founded in 1971, and manages 86 nursing homes, twenty-nine of those in Florida. The management fee is 6 percent of net revenues. In its application for CON number 6993, Southern Medical proposes to add 60 beds to the existing 120-bed nursing home, known as Palatka Health Care Center. Occupancy levels at the Palatka Center ranged between 96 and 99 percent in 1992-1993. Total project costs of $2.1 million will be financed by or through National HealthCorp. Southern Medical proposes that its CON be conditioned on the establishment of a 20-bed distinct Alzheimer's wing and the provision of 74 percent of total patient days to Medicaid patients. Southern Medical provides rehabilitation services in a 14-bed Medicare certified unit, antibiotic intravenous therapy, hospice and respite care. It exceeds the 73 percent Medicaid condition of its CON. SUBSECTION 408.035(1)(a) - NEED IN RELATION TO STATE AND LOCAL HEALTH PLANS The Florida State Health Plan includes 12 preferences to consider in reviewing nursing home CON applications, most of which overlap statutory review criteria in Section 408.035, Florida Statutes. Preference 1 encourages more nursing homes beds in subdistricts with 90 percent or higher occupancy in existing beds. District 3 is not subdistricted, but its nursing home bed occupancy rate was 91 percent in 1991. Therefore, all applicants for nursing homes in District 3 meet the preference. District 3 has been divided into planning areas by the local health council. The applications filed in this proceeding coincide with the planning areas for Hernando, Putnam, and Lake/Sumter Counties. In 1991, occupancy rates averaged 92 percent for Hernando, 96 percent for Putnam, and 93 percent for Lake/Sumter planning areas. Each applicant meets preference 1 using planning areas as substitutes for subdistricts. Preference 2 favors applicants whose Medicaid commitments equal or exceed the subdistrict-wide average. In the absence of subdistricts, the district wide average is used, which is 73.78 percent. Beverly's 74 percent commitment, Life Care's 75 percent commitment, and Southern Medical's 74 percent commitment, entitle them to be favored under preference 2. In addition, Beverly cites its 76.9 percent Medicaid patient days in 1991 at Eastbrooke, but it has failed to achieve its Medicaid commitment at one Florida nursing home in Cape Coral. Lake Port committed to provide a minimum of 33.81 percent Medicaid patient days and argued that it meets the exception to the preference for providing multi-level care. As described in the 1989 Florida State Health Plan, multi-level health systems offer a continuum of care which may range from acute care and ambulatory surgery centers to home health and education, including traditional nursing care. Special emphasis is placed on short-term intensive rehabilitation programs. Although Lake Port's proposal includes some of the features of a multi-level system, such as post-operative rehabilitative therapy and respite care, the Medicaid exception is inappropriate for Lake Port, because the same services are also proposed by Beverly and Southern Medical. See, also, Section 408.035(1)(n), Florida Statutes. Preference 3 relates to providing specialized services, including acquired immune deficiency syndrome ("AIDS") services to residents, ARD residents, and the mentally ill. This preference is met by Beverly, Life Care, and SMA, particularly for ARD patients for which all three applicants proposed to establish separate 20-bed units. The preference is also met by Lake Port, particularly with its emphasis on specialized, intense rehabilitative services. See, also Subsection 408.205(1)(f), Florida Statutes. Preference 4 supports applicants proposing to provide a "continuum of services to community residents," including respite and adult day care. Beverly and Life Care propose to offer both respite and adult day care. Lake Port and Southern Medical propose to provide respite and hospice care. Preference 5, for the construction of facilities which provide maximum comfort and quality of care, was stipulated as being met by all the parties. The applicants also stipulated that project costs and construction plans are reasonable. See, also, Subsection 408.035(1)(m),(2)(a) and (2)(c), Florida Statutes. Preference 6 is met by all of the applicants: . . . proposing to provide innovative therapeutic programs which have been proven effective in enhancing the residents' physical and mental functional level and which emphasize restorative care. Life Care, Beverly and Southern Medical propose to offer specialized services to ARD residents. Lake Port and Southern Medical emphasize physical rehabilitation. All of the applicants meet the requirements for preference 6. Preference 7 is for applicants whose charges do not exceed the highest Medicaid per diem rate in the subdistrict, which, for District 3, is $74.05, or $93.49 inflated at 6 percent to 1996. Life Care Care's proposed Medicaid charges are $93.69 for year 1, and $94.46 for year 2. Beverly projected that the average Medicaid per diem rate in the subdistrict will be $93.49 in 1996, its charge will be $95.00, but it will expect Medicaid reimbursement to be $93.30 for that year. Lake Port projected proposed charges to Medicaid patients as $90 to $93.92 in year one and $93 to $97.37 in year two, for the full 120 beds or the partial 60 beds, respectively. Southern Medical's Medicaid charges will be $90.22 in year one and $94.28 in year two. Preference 8 applies to applicants with a history of providing superior resident care programs, as indicated by licensure ratings. Of Beverly's 40 Florida facilities, 31 held superior licenses at the time the application was filed. Of the nine Beverly nursing homes with conditional ratings, six are now superior. Renovations or, in the case of one facility built in 1929, construction of a replacement building, are underway at the three others. Life Care, Southern Medical and Lake Port have histories of consistently superior license ratings. See, also, Subsection 408.035(1)(c), Florida Statutes. Preference 9 favors applicants proposing staffing levels exceeding minimum standards. Due to the ventilator, intravenous and rehabilitative services proposed, Beverly will staff in excess of that required by the state, with at least one registered nurse with a minimum of two years experience on all shifts and a full-time physical therapist. It intends to rely on its current Hernando County facility, Eastbrooke's relationship with Hernando-Pasco Community College, for recruitment and training of staff, although Beverly has not opened a new nursing home in Florida since 1987. Life Care similarly intends to rely on a CON approved facility in adjacent Citrus County. Southern Medical employs St. Augustine Vocational College students who are certified nurse assistants training to become licensed practical nurses, and licensed practical nurses training to become registered nurses are employed at Palatka, which also has internships for health sciences students from the University of North Florida. Its occupational, speech and physical therapists are full-time employees. Lake Port's staffing ratios will also exceed the minimums, in order to provide intensive rehabilitative therapies. See, also Subsection 408.035(1)(h), Florida Statutes. Each applicant meets preference 10 based on their proposed or current use of a variety of professional disciplines. See, Finding of Fact 29. Preference 11 seeks to ensure resident rights and privacy as well as implementing plans for quality assurance and discharge planning. All of the applicants were shown to follow well established residents' rights and privacy policies, and to have effective quality assurance programs. Pre-admission screening programs include discharge planning. Beverly has the most highly standardized corporate structure of incentives to maintain quality. Preference 12 relates to applicants proposing lower administrative costs and higher resident care costs compared to the average nursing home in the District. Average costs in District III are expected to be $54.79 for resident care and $13.97 for administrative overhead by 1996. Life Care expects resident care costs of $51.97 a day and administrative costs of $17.43 a day. Beverly projects its resident care to cost $61.89, with administrative costs of $8.86. Southern Medical proposes administrative costs of $19.88 per patient day and patient care costs of $46.23 per patient day. Lake Port's administrative costs are expected to be $27.80 for 60 beds or $22.12 for 120 beds, with patient care costs of $43.04 for 60 beds or $45.08 for 120 beds. Beverly, best meets the preference and expects enhanced economics and efficiency from combining some overhead for the operation of two nursing homes in Hernando County. Life Care, however, notes that its proposal enhances competition in view of the existence of one Beverly facility in Hernando County. See, Subsection 408.035(1)(e),(1)(h) and (1)(l), Florida Statutes, which also relate to costs, resources, and competition. District III includes 16 west central Florida counties, from Hamilton, Columbia, Union Bradford and Putnam in the North to Hernando, Sumter and Lake in the south. The allocation factors in the plan for District III are prepared by the North Central Florida Health Planning Council, the local health council for the district. The district has not been subdivided by agency rule. Using its planning areas, the local health council has given priority rankings for applicants in certain areas of the district. Dixie, Lafayette and Union Counties, which have no nursing homes, are favored by the local plan. If, as in this case, there are no applicants from these counties, Hernando should be favored, followed by Putnam County. No priority was given to Lake County. The council also quantified bed need by planning area for the January 1995 planning horizon, with additional beds needed, ranging from 120 to 180 in Hernando, and up to 60 in Putnam. The parties agree generally that the council may establish planning areas in the discharge of its duties, but they disagree whether the establishment of upper limits, or caps in numeric need by planning area is authorized by law. Section 408.034, Florida Statutes, requires a uniform need methodology, which the agency has established by enacting the nursing home rule, Rule 59C-1.036(1)(c), Florida Administrative Code. Once the agency determines numeric need for a district and the district driving time standard, the local plan cannot alter these determinations. The local plan also includes certain fundamental principles for the allocation of new beds: (1) to promote geographic access, (2) to consider the locations of at-risk population need factors, and (3) to increase supply based on demand. In order of importance, the local plan lists three allocation factors (1) for counties without nursing homes, (2) for new nursing homes 20 miles or 25 minutes drive from existing or approved beds, and (3) for locations without approved beds and with existing nursing homes averaging occupancy levels at least 95 percent for the most recent six month or 90 percent for the most recent 12 months. With respect to the specific allocation factors, Life Care, Beverly, Southern Medical and Lake Port are in areas with over 90 percent average occupancy within a 20 mile radius. Life Care, Beverly and Southern Medical are proposing to establish facilities in areas of greater need than that in the area of Lake Port. Hernando and Putnam Counties also have lower ratios of nursing home beds to population than Lake County. The local health council's determination of the greatest need in Hernando County, was confirmed by expert testimony, based on analyzing licensed and approved beds, occupancy rates, distribution of population ages 65 and older, and 75 and older, and most importantly, projected growth of population 65 and older, and of 75 and older. The bed to population ratio for Hernando was, in 1992, 15.5 percent for 65 and older, and 44.9 percent for the population 75 and older, both of which are below the ratios for any other planning areas in the District. The projected increase in population 75 and older for the state is 12 percent, in contrast to the projected increase of 38 percent for Hernando County. Expert testimony for Beverly supported the addition of up to 300 beds in Hernando County to bring Hernando County's bed distribution in line with that of the entire district. The only approved provider in the county, Hernando Health Care, has surrendered its CON to add 18 nursing home beds in Hernando County. On the contrary, Heartland's expert calculated numeric need of only 119 additional beds in Hernando County. AHCA, however, gave no consideration to the effect on occupancy, fill- up rates, or financial feasibility of it preliminarily approving all new beds in Hernando County. The experience was compared, by Southern Medical's expert, to that in Clay County, in which 555 beds were 95 percent occupied, prior to the opening of two 120-bed facilities, one in December 1989, and the other in April 1990. At the end of the first year of operation, the facility that opened first was 48.5 percent occupied, the second was 21.7 percent occupied, and district occupancy was 77.7 percent. At the end of the second year, the rates were 81 percent, 55.6 percent, and 85.6 percent. However, by 1992, the nursing homes in that subdistrict averaged 93 percent occupancy. Opponents to the AHCA proposal to locate all new facilities in Hernando County, contend that the bed-to- population ratio or "parity" approach used to support the approval of 240 beds in that county does not take into account demographic variables among the counties in the district. While the bed-to-population ratio is not reliable in and of itself, alternative analyses for the determination of the location of greatest need within the district support the same conclusions. Those analyses relied upon current nursing homes occupancy levels, poverty, and population migration trends and available alternatives to distinguish among the various proposed locations. Based on occupancy levels, the District III counties of greatest need for additional beds are Putnam, Lake and Sumter, and Hernando, in that order. Putnam County residents are being placed in facilities outside the county due to the lack of available nursing home beds. In terms of poverty level and mortality levels, the figures for Putnam and Marion Counties indicated their populations were less healthy than those in Hernando and Lake. Hernando had 6.05 percent of its over 65 population, which is 85 and older, as compared to 9.34 percent in Lake, 8 percent in Putnam, and 8.28 percent as the district average. Hernando and Putnam Counties also had lower percentages of people 75 and older than did Lake and Marion Counties. ALTERNATIVES AND EXISTING NURSING HOMES IN DISTRICT 3 Subsections 408.035(1)(b) and (d) require consideration of other like and existing facilities in the district, as well as health care services which are alternatives to nursing homes. Currently, there are 4 nursing homes in Hernando County, and 12 in Lake County. In Putnam County, there are 3 nursing homes and 15 additional "swing beds," which may be used for acute care or long term care, approved for Putnam Community Hospital. Those beds are not available to serve Medicaid patients and are not included on the inventory of community nursing home beds. In the 511 existing nursing home beds in Hernando, there is an average daily census of 45 beds occupied by residents originating from other counties, while 23 Hernando residents constituted the average daily census leaving the County. Hernando cannot expect to retain in-migrating patients with the development of nursing homes in those residents' counties of origin, particularly, Citrus and Pasco. Given the decrease in nursing home patient days form 1991 to 1992, there is also no reason to expect any significant increase in use rate for the population in Hernando. The most compelling support for need in Hernando County is that the rate of growth of its over 75 population, which is more than three times that of the State. Putnam County has the lowest migration and a greater demand for nursing home services for the population age 85 and older. Putnam County nursing homes exceed 95 percent occupancy. Lake County area nursing homes were 93 percent occupied for the same period of time, and with the relinquishment of an approved CON for 60 beds by Leesburg Regional Hospital, that occupancy rate rises to approximately 95 percent. The award to Leesburg Regional established a need for 60 beds in Lake County, but there is also an approved CON for a 120-bed facility in Mount Dora. According to Lake Port's expert witnesses, the Mount Dora nursing home will not alleviate the need for beds in western Lake County. That facility, owned by the Adventist health group, is expected to be a referral facility from the nearby Adventist Hospital in Orlando and Sanford. Based on the alternative considerations of occupancy levels, poverty and morality rates, the need for additional beds in Putnam County is greater than the need in Lake County. Projected population increases and the limited alternatives also support the conclusion that a greater need exists in Hernando than in Lake County. Heartland of Brooksville ("Heartland"), is an existing 120-bed community nursing home in Brooksville, which is licensed superior. Heartland contends that the virtually simultaneous establishment of both Beverly and Life Care will adversely impact Heartland, and make it difficult for the new nursing homes to meet their projected utilizations. The trend of twice as many people migrating to, as there are leaving Hernando County for nursing home services, will be reversed as more nursing homes are established in surrounding counties. See, Finding of Fact 45. Heartland reasonably expects gradually to lose up to 30 percent of its residents who came from the Spring Hill area, where Beverly and Life Care intend to build new nursing homes. Heartland also reasonably expects to lose Medicare patients among the group from Spring Hill. Medicare residents average 9.3 percent of the total mix in the county, but account for 15 percent of the patient mix at Heartland. Heartland will be adversely affected for at least the first two years if both Life Care and Beverly are approved. See, Finding of Fact 40, supra. FINANCIAL FEASIBILITY Heartland, Southern Medical and Lake Port assert that Beverly will be successful in Hernando County, but that Life Care will not. Beverly is already established in the county, will provide services not currently available in nursing homes, and will open its facility seven months before Life Care. Life Care projected a net loss of $589,042 in year one, and a net gain of $254,991 in year two of operation. Life Care's projections fail to consider the company's 6.5 percent management fee, income taxes, and Medicaid reimbursement rate ceilings. By contrast to the other proposals and to the Hernando County average of 9.3 percent, Life Care is relying on a payor mix of only 6.7 percent Medicare, the group for which competition will be most intense. That mix parallels its Florida experience, which has historically allowed it to achieve a profit margin of 16 to 22 percent of net revenues in the third year of operation. Life Care's experience and audited financial statements support its contention that it can borrow essentially 100 percent of the funds necessary to support the project and complete the proposed project, a debt arrangement it has successfully used in the past, without defaulting on loans. Life Care's resources are also potentially subject to a $12 to $18 million judgment, due to litigation which is on appeal. Life Care has a contingency fund of $8 million to satisfy the judgment and has sufficient equity in its properties to pay the balance through refinancing. The deficiencies in Life Care's pro forma and its potential liabilities are off-set by the size and strength of the company, and its Hernando County project is financially feasible in the short and long terms. Beverly projects opening at Spring Hill 15 1/2 months after issuance of a CON, reaching 90 percent utilization within 15 months of opening. Beverly reasonably expects an after tax profit of $239,489 in the second year of operation. Beverly estimates project costs of $5.2 million, financed by the parent corporation, Beverly-California. Beverly-California has from $35 to 45 million available to contribute a 40 percent ($2 million) equity investment, and a $35 million loan commitment from which it will draw the balance to finance the project. Southern Medical has a letter of interest for financing of the total project costs of $2.1 million at 12 percent rate of interest by National HealthCorp. During the construction period, Southern Medical estimates that the existing 120 beds will remain 94 percent full, and that the new beds once open will fill at a rate of 10 percent a month, which is consistent with the experience of the management company, National HealthCorp. Southern Medical's actual experience in Palatka was, in fact, better. The first 60 beds were filled after 5 months while the additional 60 beds were filled in 7 to 8 months. Projected revenues of $290,000 during construction, $323,000 after year one, and $488,000 after year two are reasonable. Southern Medical's balance sheet shows short term debt of approximately $1.4 million attributable to the construction of the Okaloosa nursing home. Although Southern Medical secured a $3 million loan commitment for the Okaloosa facility, it has drawn from that account $473,000. That debt will be refinanced and recategorized as long term debt. Southern Medical's project is financially feasible in the short and long term, based on its actual experience in the existing 120-bed facility. Lake Port has the financial resources to construct 60 additional beds for $1.4 million. Lake Port's proposed conversion of the licensure category for its existing 60 beds is at no cost, except for approximately $37,000 in filing and consultants fees. In its third year of operation, Lake Port has achieved 97 percent occupancy. At present, delays of up to a week may be experienced in transfering patients from acute care hospitals to nursing homes in the Leesburg area. From October to May, due to the influx of northerners, beds are generally not available in the Leesburg area of western Lake and Sumter Counties. Lake Port's projections of occupancy and its financial ability to complete either 60-bed conversion and/or 60-bed addition make either proposal financially feasible in the short or long term.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED That AHCA issue CON 6985 to Beverly Enterprises-Florida, Inc. to construct a 120-bed nursing home in Hernando County, conditioned on the provision of 74 percent of total annual patient days to Medicaid residents, and the operation of a 4-bed ventilator-dependent unit, 2 beds for respite care, an adult day care program, and a 20-bed separate unit for residents with Alzheimer's and related dementia. That AHCA issue CON 6986 to Life Care Centers of America, Inc. to construct a 120-bed nursing home in Hernando County, conditioned on the provision of a minimum of 75 percent of total annual patient days to Medicaid residents, the operation of a 20-bed dedicated wing for residents with Alzheimer's and related dementia, and the operation of an adult day care. That AHCA issue CON 6993 to Southern Medical Associates, Inc. for the addition of 60 community nursing home beds at Palatka Health Care Center in Putnam County, conditioned on the provision of 74 percent of total annual patient days to Medicaid residents, and the establishment of a 20-bed district Alzheimer's wing. That AHCA deny CON 6989P and CON 6989 to Lake Port Properties. DONE AND ENTERED this 20th day of July, 1994, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of July, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-6656 To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact: Petitioner, Beverly Enterprises-Florida, Inc., d/b/a Beverly Gulf Coast-Florida, Inc.'s Proposed Findings of Fact. 1. Accepted in Preliminary Statement and Finding of Fact 3. 2-9. Accepted in or subordinate to Findings of Fact 8-10, 24 and 25. 10. Accepted in Preliminary Statement. 11-15. Accepted in relevant part in Finding of Fact 33. 16-19. Accepted in part in Findings of Fact 9, 20-21, 37-39. 20-23. Accepted in Findings of Fact 19-32. 24-30. Accepted in Findings of Fact 9, 23, 24, 29 or 30. 31. Accepted in Findings of Fact 19-32. 32-38. Accepted in Findings of Fact 9, 23, 24, 29 or 30. 39-42. Accepted in or subordinate to Finding of Fact 28. 43-48. Accepted in or subordinate to Findings of Fact 29-31. 49. Accepted in or subordinate to Findings of Fact 29-30. 50-56. Accepted in or subordinate to Findings of Fact 50-51. 57-62. Accepted in or subordinate to Findings of Fact 29 or 30. 63-64 Accepted in or subordinate to Findings of Fact 32, 39 and 46-47. Accepted in Finding of Fact 25. Accepted in Finding of Fact 22. 67-68. Accepted in Findings of Fact 9-10. 69. Subordinate to Finding of Fact 6. 70-71. Accepted in or subordinate to Findings of Fact 6, 7 and 10. 72-75. Accepted in or subordinate to Findings of Fact 5-7, 8-10 and 48-51. 76. Accepted in Finding of Fact 32. 77-79. Accepted in or subordinate to Findings of Fact 48-49. Petitioner, Southern Medical's, Proposed Findings of Fact 1-2. Accepted in Finding of Fact 16. Accepted in Finding of Fact 34. Accepted in Findings of Fact 16 and 17. 5-14. Subordinate to preliminary statement. 15. Accepted in Finding of Fact 2. 16-17. Accepted in Finding of Fact 20. 18-19. Accepted in Finding of Fact 17. 20-22. Rejected in conclusions of law 4. 23. Accepted in Finding of Fact 36. 24-41. Accepted in or subordinate to Findings of Fact 21 and 33-45. Accepted in Finding of Fact 19. Accepted in Findings of Fact 20-21. Accepted in Finding of Fact 22. Accepted in Finding of Fact 23. Accepted in Finding of Fact 24. Accepted in Finding of Fact 25. Accepted in Finding of Fact 26. Accepted in Finding of Fact 27. Accepted in Finding of Fact 28. Accepted in Finding of Fact 29. Accepted in Finding of Fact 30. Accepted in Finding of Fact 31. Accepted in part in Finding of Fact 32. Accepted in part in Findings of Fact 19-32. 56-57. Accepted in part in Findings of Fact 43-45. 58-60. Accepted in or subordinate to Finding of Fact 28. 61-62. Accepted in Findings of Fact 18, 22 and 28. Subordinate to Finding of Fact 28. Accepted in Finding of Fact 28. 65-69. Accepted in or Subordinate to Finding of Fact 34 and 43-45. 70-72. Accepted in Findings of Fact 17-18 and 22-23. 73-74. Accepted in Findings of Fact 29-30. 75. Accepted in Finding of Fact 24. 76-77. Accepted in Finding of Fact 29. 78-96. Accepted in Findings of Fact 52-53. Accepted in Finding of Fact 25. Accepted in Finding of Fact 22. Rejected in Findings of Fact 34-39 and 45. 100-101. Rejected in Findings of Fact 41-42 and 45. 102. Accepted in relevant part in Findings of Fact 43-45. 103-109. Rejected in relevant part and accepted in relevant part in Findings of Fact 41-45. 110-112. Rejected in Finding of Fact 45. Accepted in Findings of Fact 48 and 49. Rejected in Finding of Fact 45. Accepted in conclusions of law 60. 116-120. Accepted in relevant part in Findings of Fact 48 and 49. 121. Rejected in Finding of Fact 5. 122-123. Rejected in Findings of Fact 39 and 40. 124-125. Issue not addressed at hearing. Accepted in relevant part in Finding of Fact 48. Rejected in Finding of Fact 29. Petitioner, HCR Limited Partnership I d/b/a Heartland of Brooksville's Proposed Findings of Fact Accepted in part in Findings of Fact 8-10. Accepted in part in Findings of Fact 5-7. Accepted in part in Findings of Fact 12-14. Accepted in part in Findings of Fact 16-18. Accepted in Preliminary Statement and Findings of Fact 2 and 11. Accepted in Finding of Fact 40. Accepted in Finding of Fact 33. Accepted in Finding of Fact 34. 9-16. Accepted in Findings of Fact 34-38. 17. Accepted in Findings of Fact 21 and 43. 19-22. Accepted in Findings of Fact 21, 42 and 43. 23-33. Accepted in Findings of Fact 38, 42 and 43. Rejected in Finding of Fact 45. Accepted in Finding of Fact 39. 36-41. Accepted in or Subordinate to Findings of Fact 45 and 47. 42-44. Rejected in Finding of Fact 5. 45. Accepted in Findings of Fact 45, 48 and 49. Petitioner, Lake Port Properties's Proposed Findings of Fact Accepted in Finding of Fact 2. Accepted in Finding of Fact 3. Accepted in Findings of Fact 3 and 40. Accepted in preliminary statement. Accepted in Findings of Fact 4 and last sentence rejected in preliminary statement. Accepted in Preliminary Statement. 7-28. Accepted in Findings of Fact 12-15. 29. Rejected in Finding of Fact 45. 30-34. Accepted in Findings of Fact 39-43 and 46. 35. Rejected in Finding of Fact 46. 36-38. Accepted in Findings of Fact 12-15. 39-42. Facts accepted, conclusions rejected in Findings of Fact 44-46. 43-47. Accepted in Findings of Fact 33-39. 48. Rejected in Finding of Fact 39. 49-54. Conclusion in first sentence rejected in Finding of Fact 39. Facts accepted in Findings of Facts 39-45. 55-60. Not solely relied upon but not disregarded. Facts generally accepted in Findings of Fact 39-45. 61-74. Accepted in part and rejected in part in Findings of Fact 19-32. 75-82. Accepted in part in Findings of Fact 33-38. 83-93. Accepted in or subordinate to Findings of Fact 28-29. 94-100. Accepted in Findings of Fact 54-55. 101-103. Accepted in Findings of Fact 15 and 54. 104. Accepted in Finding of Fact 31. 105-106. Accepted in Finding of Fact 22. 107-111. Rejected first sentence in Findings of Fact 39 and 40. Remainder of 107-111 accepted in Findings of Fact 8-10 and 19-38. 112-113. Conclusion rejected in Findings of Fact 45, 48, and 49. 114-117. Accepted in Findings of Fact 45, 48 and 49. Rejected in Findings of Fact 45, 48 and 49. Accepted in Finding of Fact 6. 120-121. Subordinate to Finding of Fact 7. 122-125. Accepted in Findings of Fact 7 and 48. 126-130. Rejected in Finding of Fact 5. Respondent, Life Care Centers of America, Inc.'s, Proposed Findings of Fact. 1-9. Accepted in Findings of Fact 33-43. 10-12. Accepted in Findings of Fact 12-15. 13. Rejected in Finding of Fact 12. 14(a-d)-20. Accepted in Findings of Fact 33-40. 21(a-d). Accepted in Findings of Fact 19-32. 22. Accepted in Finding of Fact 34. 23-28. Accepted in Findings of Fact 44-47. Accepted in Finding of Fact 7. Accepted in Finding of Fact 39. Accepted in part or subordinate to Findings of Fact 43-45. Subordinate to Finding of Fact 45. Subordinate to Finding of Fact 17. 34-40. Accepted in relevant part or subordinate to Findings of Fact 5-7. 41(a-c). Accepted in Findings of Fact 8-10 and 29. 42. Rejected in relevant part in Finding of Fact 12. 43-45. Subordinate to Finding of Fact 17. Subordinate to Finding of Fact 17. Subordinate to Finding of Fact 17. Rejected in Findings of Fact 44. 47-48. Subordinate to Finding of Fact 45. 49-50. Accepted in Findings of Fact 5-7. 51-54. Subordinate to Finding of Fact 29. 55-62. Accepted in Findings of Fact 48-49. 63-64. Accepted in Finding of Fact 29. 65-69. Accepted in Findings of Fact 48-49. Subordinate to Findings of Fact 54-55. Subordinate to Finding of Fact 52. Subordinate to Finding of Fact 29. 73-74. Accepted. 75. Accepted in Finding of Fact 4. 76-77. Accepted in Findings of Fact 40-43. 78-79. Accepted in Finding of Fact 29. Subordinate to Finding of Fact 52. Accepted in Finding of Fact 25. 82-85. Accepted in or subordinate to Finding of Fact 22. Subordinate to Finding of Fact 47. Accepted in conclusions of law. Accepted in preliminary statement. Issue not reached. Subordinate to preliminary statement. Conclusion rejected in Finding of Fact 16. Respondent, AHCA's Proposed Findings of Fact Accepted in or subordinate to preliminary statement and Findings of Fact 1-3. Accepted in preliminary statement. Accepted in Findings of Fact 2 and 21 and conclusions of law 66. Accepted in Finding of Fact 2 and 21. Accepted in Finding of Fact 2 and 4. Accepted in preliminary statement and Finding of Fact 3. Accepted in Findings of Fact 12-15. Accepted in Findings of Fact 16-18.8. Accepted in Findings of Fact 8-10. Accepted in Findings of Fact 5-7. Subordinate to preliminary statement and Finding of Fact 3. Accepted in relevant part in Findings of Fact 5-7 and 19-33. Relevant as to availability due to occupancy ratio in Findings of Fact 37-45. Accepted in Finding of Fact 28. Accepted in Findings of Fact 48-49. Accepted, except first sentence in Findings of Fact 8-10 and 19-32. Accepted in Findings of Fact 19-20 and 44. Accepted in Findings of Fact 8-10 and 19-32. Accepted in Findings of Fact 50-51. Accepted in Findings of Fact 33-39. Conclusions rejected in Findings of Fact 19-32. Accepted facts in 19-20 and 44. Accepted in Findings of Fact 8-10. Accepted in Findings of Fact 52-53. Accepted in Findings of Fact 12-15 and 19-32. Rejected in Findings of Fact 19 and 20. Accepted in Finding of Fact 28. Accepted in Findings of Fact 54 and 55. COPIES FURNISHED: Douglas L. Manheimer, Attorney Dennis LaRosa, Attorney Broad & Cassel 215 South Monroe Street Post Office Box 11300 Tallahassee, Florida 32302 Alfred W. Clark, Attorney at Law Post Office Box 623 Tallahassee, Florida 32308 James C. Hauser, Attorney Lachlin Waldoch, Attorney Messer, Vickers, Caparello, Madsen Lewis, Goldman & Metz, P.a. Post Office Box 1876 Tallahassee, Florida 32301 Gary Anton, Attorney Stowell, Anton & Kraemer Post Office Box 11059 Tallahassee, Florida 32302 Edward Labrador, Attorney Richard Patterson, Attorney Agency for Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 W. David Watkins, Attorney Robert Downey, Attorney Oretel, Hoffman, Fernandez, et al. 2700 Blair Stone Road, Suite C Post Office Box 6507 Tallahassee, Florida 32314-6507 R. Bruce McKibben, Jr., Attorney Pennington & Haben, P.A. Post Office Box 10095 Tallahassee, Florida 32302 R. S. Power, Agency Clerk Agency for Health Care Administration Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Harold D. Lewis, Attorney Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303
