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HEALTH QUEST CORPORATION (SARASOTA COUNTY) vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES AND TRECOR, INC., D/B/A BURZENSKI NURSING HOME, 88-001945 (1988)

Division of Administrative Hearings, Florida Number: 88-001945 Latest Update: Mar. 14, 1989

The Issue Whether a certificate of need for an additional 60 nursing home beds to be located in Sarasota County, Florida, in July, 1990, should be granted to any of the four competing certificate of need applicants in these proceedings?

Florida Laws (1) 120.57

# 1

BEVERLY ENTERPRISES-FLORIDA, INC., D/B/A BEVERLY GULF COAST-FLORIDA, INC. vs WILDWOOD HEALTHCARE, INC.; BEVERLY ENTERPRISES-FLORIDA, INC., D/B/A BEVERLY GULF COAST, 94-002452CON (1994)

Division of Administrative Hearings, Florida Filed:Tallahassee, Florida May 03, 1994 Number: 94-002452CON Latest Update: Sep. 15, 1995

Findings Of Fact The Agency For Health Care Administration ("AHCA") is the state agency responsible for the administration of certificate of need ("CON") laws. In this case, AHCA projected a need for an additional 295 community nursing home beds in District 3 for the July 1996 planning horizon, and reviewed the applications submitted in response to the published need. A numeric need for 186 beds remains. CON applications are evaluated according to applicable statutory and rule criteria and, as required by Section 408.035(1)(a), Florida Statutes, the preferences and factors in the state and local health plans. The applicable state plan is Toward A Healthier Future - The 1993 State Health Plan. The applicable local health plan is the District Three Health Plan for 1992, with 1993 Allocation Factors, prepared by the North Central Florida Health Planning Council in Gainesville. AHCA has not promulgated a rule subdividing District 3. However, the local planning council has divided the sixteen counties into nursing home planning areas, as follows: Columbia, Hamilton, Suwannee, Bradford, Union and Lafayette Counties; Alachua, Dixie, Gilchrist, and Levy Counties; Putnam County; Marion County; Citrus County; Hernando County; Lake and Sumter Counties. In this case, one applicant, Dixie Health Care Center, L.P., ("Dixie") proposes to locate in Dixie County in planning area 2 or (b). Hilliard HealthCare, Inc., ("Hilliard"), Unicare Health Facilities, Inc., ("Unicare"), Life Care Centers of America, Inc., ("Life Care") and Beverly Enterprises- Florida, Inc., ("Beverly") propose to construct nursing homes in planning area 7 or (g). Within planning area 7, Hilliard would build a nursing home in Sumter County, while Unicare, Life Care, and Beverly would build in Lake County. The total population in planning area 2 is approximately 230,000, and in planning area 7, approximately 180,000. More relevant to a determination of need for a nursing home, the population age 65 and over in planning area 2 is approximately 25,000, as compared to 49,000 in planning area 7. Within planning area 2, the projected Dixie County population over 65 in the year 2000 is 2,211, while the Sumter County projection is 9,824 residents. The actual 1994 population age 75 and over was 644 in Dixie, and 3,296 in Sumter County, and over 20,000 in Lake County. Currently, there are 1,238 licensed and approved beds in planning area 2, and 1,391 in planning area 7. For planning area 2, which includes Dixie County, there are 22 people age 65 and over for each nursing home bed. In planning area 7, the ratio is 41.1 to one. If 120 beds are added in Lake County, the comparable county ratio will decrease from 41.4 to 37.6 persons 65 and over to a bed. The addition of 60 beds in Sumter County will result in a decline in the county from 39.5 to ratio of 30.7 to 1. The district-wide ratio for District 3 is 34.5 persons 65 and over for every nursing home bed. The local planning council has compared the relative need for nursing home beds by planning area, according to a Planning Area Nursing Home Bed Allocation Matrix ("PANHAM"). Using a comparison of the percent of population age 75 and over to the percent of district beds in each planning area, the local health council describes planning area 7 as high need/moderate occupancy. It is ranked the planning area of greatest need for this CON application cycle. Planning area 2 is described as an area of low need/high occupancy. It also ranked as an area of priority in this cycle, although lower than planning area 7. The local health council has adopted three factors for use in making more specific determinations of locations which will best meet unmet needs within a planning area. Ranked in order of priority, the factors are: the absence of nursing homes in the same county, a location more than 20 miles or 25 minutes drive from any other nursing home, and an area in which nursing homes within a 20 mile radius exceeded 90 percent occupancy for the most recent twelve months or 95 percent for the most recent six months. There is no evidence that construction of new nursing home beds is not needed or that the need is based on any inefficiency or quality of care problems in existing nursing homes. Consideration of the availability, utilization, and adequacy of other nursing homes and alternative health care providers in the district is also mandated by statute. See, e.g. Subsections 408.035(1)(b), (1)(d), (2)(a), (2)(b), (2)(c), and (2)(d), Florida Statutes. In this group of applicants, only Dixie is favored by the first local health council factor for proposing to locate in a county in which there are no existing or approved nursing homes. Dixie does not meet the preference for a location more than 20 miles or a 25 minute drive from the closest nursing home. Dixie's expert witness who believed the drive took more than 25 minutes lacked direct knowledge of the road conditions. By contrast, the deposition testimony of the administrator of Tri-County Nursing Home established that the drive from Tri-County to Cross City takes about 15 minutes, most of it on a four lane highway, U.S. 27. Tri-County in Wilcox near Fanning Springs, and Medic-Ayers in Trenton are both within 20 miles or 25 minutes drive of the proposed Dixie site. Their occupancy rates for the first six months of 1993 were 94.41 percent and 95.85 percent, respectively, or an average of 95.13 percent. Therefore, Dixie is extremely close to meeting the local allocation factor related to existing nursing home occupancies in excess of 95 percent for the January-June 1993. By contrast, there are 12 existing and approved nursing homes in Lake County, and one in Sumter County. Occupancy rates in Lake County averaged 91.7 percent, but the facility in Sumter County reported 99.13 percent occupancy in the 1992-1993 reporting period. Applicants in Lake and Sumter Counties are not favored for proposing locations in counties without nursing homes, or for locations more than 20 miles or 25 minutes drive from existing nursing homes. Lake County applicants also do not meet the preference for an area defined by a 20-mile radius in which average occupancy rates exceeded 95 percent for the most recent six months or 90 percent for the most recent 12 months. The Sumter County applicant, Hilliard, does meet the occupancy requirement for a location in which nursing homes within a 20 mile radius exceeded 90 percent occupancy for the most recent twelve months. Because the state rule methodology results in a positive need calculation, the local health council factor related to special circumstances in the absence of numeric need is inapplicable to this case. Dixie Health Care Center, L.P., Cross City, Dixie County Dixie is seeking AHCA's issuance of CON 7492 to construct a 60-bed nursing home in Cross City, Dixie County, which is in planning area 2. If issued a CON, Dixie offers to be bound by the following conditions: to construct the nursing home on a specific site in Cross City; to provide 80 percent of its total resident days to Medicaid-reimbursed residents by the second year, with all beds certified for Medicaid and 9 beds certified for Medicare reimbursement; to provide rehabilitative, respite, and adult day care, with transportation for some day care participants; and not to deny HIV+ admissions. At the time that Dixie filed the letter of intent for the 60-bed project in Dixie County, it also submitted three others for contiguous areas of District 3. Thus, four legal notices, for projects in Alachua, Gilchrist, Levy and Dixie Counties were submitted by fax and then by mail to the Gainesville Sun newspaper for publication. All four legal notices, when published, referred to Levy County, as the proposed location of the nursing home. The proof of publication sent by the newspaper to the applicant and included in the CON application states that the notice published was for Dixie County, although the notice itself states that the project will be in Levy County. Dixie's health care planning expert requested the publication of a corrected notice, but there is no evidence that one ever appeared in the newspaper. AHCA accepts CON applications, despite publication errors, if the error is made by a newspaper, not by the applicant. Dixie is a partnership formed to file the application for CON 7492. The project will be funded by Smith/Packett Med-Com, Inc. Smith/Packett is owned by James R. Smith, who with Herbert H. Frazier, is a general partner in Dixie Health Care Center, Limited Partnership. Herbert Frazier is an employee of a Florida licensed general contractor, MB Conn Construction, and president of its Frazier Division which oversees the construction of nursing homes. Separately, the two general partners in Dixie own over 20 nursing homes, and jointly own one in Virginia and one in North Carolina. The partners owned, but, in February 1994, sold a Lake City nursing home. The estimated total project cost is approximately $3,000,000, of which the general partners will provide $250,000 in cash for project development costs and initial cash flow requirements, as noted in the application in the schedule 3 assumptions. Dixie included in its application a letter of interest in financing the project from Colonial Bank, Alabama. Dixie has a contract to purchase a two acre site for the project for $33,000. As previously noted, Dixie meets the highest priority local allocation factor for proposing to locate in a county which has no nursing homes, and is close to the factor for over 95 percent average occupancy rates in the nearest nursing homes. Dixie is also favored by the local plan for proposing to construct at least 60 beds, for improving access within the planning area, and for proposing respite care, adult day care, and rehabilitative therapies. Dixie meets state health plan preferences for proposing the following: to locate in a subdistrict with over 90 percent occupancy (93.42 percent for plan- ning area 2); to serve 80 percent Medicaid, which is in excess of the subdistrict average of 79.37 percent in the first six months of 1993, for specialized services to AIDS, Alzheimers' and mentally ill patients, to provide a continuum of services including long term, respite, and adult day care; to construct a well-designed facility to maximize resident comfort and quality or care, which is a reasonable size and meets all licensure requirements; to provide rehabilitative and restorative therapies, to establish a Medicaid reimbursement rate of $91.75 in year one and $94.65 in year two, as compared to the projected subdistrict high of $92.83 in 1995 and $96.54 in 1996 (using an annual 4 percent inflation rate from the January 1994 rate); * * * to offer multi-disciplinary services to residents, with the various therapist, social workers, and counselors; to document protection for residents rights and privacy, and to establish resident's councils, quality assurance and discharge planning programs, as SunQuest and all other nursing homes operating in Florida must do by state laws; to operate with lower administrative costs and higher patient care costs than the average in the district ($21.61 and $51.33 respectively in year two (1996), in contrast to $22.02 and $41.62 in 1992 for the respective average district per diem costs); Questions were raised about Dixie's compliance with state factors (8) for providing superior resident care in existing facilities, and (9) for staffing ratios which exceed minimum state requirements and are appropriate for proposed special services. The proposal is substantially based on the assumption that the applicant will contract with SunQuest for management services. Although the application refers to a management contract with SunQuest, no contract has been executed, which is not unusual prior to the issuance of a CON. At the final hearing, however, Dixie contended that SunQuest is only one of the candidates for a management contract, while conceding that the management policies and procedures in its application are those of SunQuest. In fact, the Dixie application states in response to state allocation factor (9) that SunQuest will be the management company. SunQuest manages 10 and leases an additional 10 long term care facilities in the United States, two in Florida. One of the Florida nursing homes, Bayshore Convalescent Center in North Miami Beach, has a superior license. SunQuest also manages the Lake City Extended Care Center, which was built by the company which employs Mr. Frazier, began accepting residents in December 1993, and was sold by the Dixie general partners in approximately February 1994. The original holder of the Lake City CON became unable to develop the proposal and contacted Mr. Smith and Mr. Frazier just prior to the expiration of the CON. They acquired the CON, financed, designed, and constructed the nursing home. Lake City currently operates with a conditional license, as a result of medical record-keeping deficiencies. The testimony, by Dixie's corporate representative, that SunQuest is merely one management company candidate along with Senior Care Properties, is inconsistent with the totality of the proposal, which renders significantly less reliable the program descriptions in the original application. Dixie's intent to provide van transportation for adult day care participants was also questioned, due to the absence of any provision for the service in the financial schedules to the application. The financial feasibility of Dixie's proposal is also a matter at issue. Although Dixie has a contract to purchase a two acre site, the architect who designed the facility testified he had constructed a 120-bed two-story nursing home on less than two acres, but that two and a half to three acres are generally needed to construct a 60-bed facility. Dixie projected a net loss of $201,813 in the first year of operation and a net profit of $55,123 by the end of the second year. The general partners have committed to provide $250,000 to cover the first year negative cash flow. However, the average annual salaries projected when multiplied by number of full time equivalent ("F.T.E.") positions listed on schedule 6 of its application exceeds salaries listed in the projected income and expenses on schedule 11 by approximately $219,866 in year one and $51,694 in year two. Including the underestimate of related benefits, the loss expected in the second year is $8,759. Dixie maintains that the staffing on schedule 6 cannot be compared to the pro forma, because the staffing and related expenses in the pro forma will increase over the first year as the census increases, while the staffing schedule is a snapshot at the end of the first year. The same is not true for the second year, since the facility is projected to be full after 8 months. Dixie's expert on finance described the second year discrepancy between a $50,000 profit and an $8,700 loss as insignificant in determining the financial viability of a $2 million project which, taking into consideration depreciation, amortization, and noncash related items, still results in a positive cash flow. Dixie's financial feasibility also depends on its reaching 96 percent occupancy by the fourth quarter of the first year. One witness for Dixie has achieved 93 percent occupancy in similar facilities in a county he deemed comparable, but has operated his facilities since 1989. Dixie also has to contend with competition for residents and staff from a relatively new facility within 20 miles and a 25 minute drive, Tri-County Nursing Home. Tri-County Nursing Home in Gilchrist County opened in May 1992, close to the Gilchrist- Dixie line, serving residents of Levy, Gilchrist and Dixie Counties. Approximately 30 of its 60 beds are occupied by Dixie County residents, all of whom rely on Medicaid reimbursement. Tri-County is also establishing a 25 person adult day care, having completed the required state inspection and awaiting the issuance of its license. After 8 months of operation, 51 of the 60 beds were filled. In June of 1993, Tri-County was full, with 98 percent occupancy. Approximately 40 percent of Tri-County's staff resides in Dixie County. There was testimony that 41 registered nurses reside in Dixie County, but with no information concerning their distribution within the county, current employment, or ages, their availability to work at a new nursing home could not be evaluated. In Gilchrist County, the ratio of persons 65 and over to nursing home beds is 8.7 to 1, in contrast to 31.46 for Levy County, and 34.5 for the district. The data supports the conclusion that Tri-County relies on service to Dixie County residents, clearly has an insufficient population base within Gilchrist County to fill its beds, and even when combined with Levy County is below the district ratio of 34.5 persons over 65 per nursing home bed. AHCA's expert in health planning and nursing home financial feasibility testified that Tri-County has had financial difficulties. On balance, Dixie has failed to demonstrate that it has estimated reasonable land requirements and costs, and that it can meet the required occupancy and staffing levels to survive financially, without adversely affecting Tri-County. Hilliard Healthcare, Inc., Bushnell, Sumter County Hilliard is the applicant for CON 7485 to construct a 60-bed nursing home in Bushnell, Sumter County, which is in planning area 7. Hilliard's CON, if issued, will commit to construction of Osprey Point Nursing Center on a specific five acre site on State Road 475, and to the establishment of a 10-bed Medicare unit, and a 20-bed secure Alzheimers' unit, with all beds Medicare and Medicaid certified. Hilliard commits to providing 64 percent of total resident days for Medicaid. The total estimated project cost is $2,650,000, funded by $650,000 cash from stockholders and $2,000,000 in loans from Bankers First. Hilliard, formed in 1987, currently owns a superior licensed 120-bed facility in Nassau County, having completed a 60-bed expansion in September 1994. The Nassau County nursing home is managed by Health Care Managers ("HCM"), which is owned by Steven Sell, Hilliard's president and founder. Mr. Sell, in partnership with three others, first acquired a 55-bed facility in Jacksonville in 1984, expanded it to 120 beds in 1988, and sold it in 1994 for a profit of approximately $2.5 million. In 1991, Hilliard's president also received a CON to construct a 60-bed nursing home in Clay County, which was sold without a profit, but at a break-even point, while it was under construction. HCM is the intended manager of the Bushnell facility, if the CON is approved. Hilliard submitted a notice of its intent to file a CON application to the Sumter County Times newspaper for publication. The notice, published in November of 1993, stated erroneously that the application would be filed on December 1, 1992, rather than December 1, 1993. Hilliard's president testified that he knows for a fact that he submitted the notice with the correct date, but no document in evidence establishes what Hilliard submitted to the Sumter County Times. Hilliard's proposal does not meet the local health council factors for a location in a county without nursing homes, nor is Bushnell more than a 20 mile radius or 25 minute drive from existing nursing homes. It does merit consideration under the factor which relates to the occupancy of nursing homes within a 20 mile radius, all of which exceeded 90 percent from July 1992 - June 1993, ranging from 90.89 to 99.13 percent. The highest rate was at WeCare, the only other nursing home in Sumter County, which is located in Wildwood, in the northern area of Sumter County. WeCare has two fifteen-bed Alzheimers' units, and unchallenged CON approval to add 30 beds. The approval of the 30 additional beds at WeCare raises the bed to population ratio of Sumter County from 20.2 to 23.5 per 1000, in contrast to the current Lake County ratios of 22.4. With the approval of 60 beds at Hilliard and another 120 beds in Lake County, the ratios are increased to 30.2 in Sumter and 24.7 in Lake County. After approval of WeCare's addition, the need in Sumter County has been decreased. Hilliard, by its proposal to serve central and southern sections of Sumter County, would improve access within the planning area. The occupancy rate for Medicare patients at WeCare was 1.1 percent. Hilliard contends that the relatively low percentage of Medicare services indicates a need for short-term, post-hospitalization rehabilitation services, as proposed in its 10-bed Medicare unit. Hilliard demonstrated that average lengths of hospital stays for Sumter County residents for certain procedures exceed national Medicare reimbursement averages, but there was no comparison to average lengths of stay within the district or the state. Other local health council allocation factors which apply to and favor Hilliard's proposal are those for: establishing a facility of at least 60 beds, improving access within a planning area with over 80 percent occupancy, and serving Alzheimers' and dementia patients. Hilliard's proposal meets state preferences for: locating in a subdistrict exceeding 90 percent occupancy (95.42 percent for planning area 7); * * * providing specialized services to Alzheimers' residents; offering respite care (although limited to hospice services); designing a comfortable facility, with short corridor segments, relatively large therapy areas, and a separate enclosed courtyard for the Alzheimers' unit; proposing occupational, speech and physical therapies, particularly to enhance the functioning of Alzheimers' residents; setting Medicaid rates of $101.90 for 1996 and $104.13 for 1998, in contrast to the highest rates projected for the same time, $107.89 and $113.28, respectively (using 5 percent inflation); providing superior resident care at its existing Nassau County Nursing home; proposing staffing ratios in excess of minimum state requirements, with reasonable salaries; including multi-disciplinary staff, including occupational, speech, and physical therapists, as well as nurses and an activities director; protecting residents' rights and privacy, and developing quality assurance and discharge planning programs; and proposing lower administrative costs ($26.35) with higher patient care costs ($64.30) than the district average of $26.63 and $54.67, respectively (1977 projection with 5 percent inflation). Hilliard does not meet state preference 2 for service to Medicaid proportionate to the subdistrict average, which is 69.95 percent, in contrast to Hilliard's proposed commitment of 64 percent. Under the preference, Hilliard's proposal to emphasize Medicare reimbursed therapies does not relieve it of the obligation to serve a proportionate share of Medicaid. Hilliard's proposal does not meet the specific exceptions allowed in preference 2 for applicants proposing to serve particular ethnic or cultural groups, and those developing multi-level care systems. Hilliard has a commitment letter from Banker's First to provide a $2 million loan for a fee of 1 1/2 to 2 percent of the principal loan amount, or $30,000 to $40,000. In schedule 1 of the application Hilliard's estimate of closing costs in $10,000, with $4,120 in legal fees. Dixie's expert claimed that the closing cost was inconsistent with the Banker's First letter and unreasonably low. By contrast for a $3 million loan, Dixie estimated $10,000 for loan closing costs, $30,000 for legal fees, $10,000 for recording fees and taxes, and $60,000 in loan origination fees. Dixie's expert apparently overlooked an additional $20,000 in origination fees, which was included on Hilliard's schedule 1. Hilliard projects a loss of $177,000 in year one, and income from nursing home operations of $114,690 in year two. In the first year, a loan of $271,660 is expected to cover the losses in year one. In the second year, a pay off of $154,940 on the loan is expected. The financial ability of Hilliard's shareholders to provide the initial $650,000 equity contribution and $271,660 to cover first year losses was questioned. Hilliard's president noted that the shareholders previously raised in excess of $600,000 to develop the Nassau County facility and have received $2.5 million in profits from the sale of the Jacksonville nursing home. Personal financial statements of three of the six stockholders were included in Hilliard's application. The personal financial statements were incomplete, omitting referenced attachments. The statements were also inaccurate or inconsistent, with missing liabilities, discrepancies regarding property values, and including the total value of some property which was not owned by the shareholders individually. Nevertheless, the statements do, according to Dixie's expert, show that the shareholders could provide over $900,000 in capital needed for Hilliard to be financially feasible, although that would take virtually all of the liquid assets, unless they assumed some additional individual debts. On balance, Hilliard has shown that Sumter County is more likely than not in need of additional Medicare-reimbursed subacute services, and that its proposal is financially feasible based on the shareholders' history of being able to raise capital for similar development projects. Lake County Applicants Three applicants in this batch seek to construct new 115 or 120-bed nursing homes in Lake County. Given the remaining numeric need for 186 beds, only one of the applicants can be approved. See, Beverly Enterprises-Florida, Inc., et al. v. AHCA, et al., DOAH Case No. 92-6656 (F.O. 10/17/94). In addition, the District 3 Allocation Factors Report Preferences includes the following guideline: To the extent possible, all planning areas ranked in one of the four categories of priority established in subparagraph d above should be approved to add some new beds. Unicare Health Facilities, Inc., Lady Lake, Lake County Unicare Health Facilities, Inc. ("Unicare") is an applicant for a CON to construct a 120-bed nursing home or to receive a partial award to construct a 115-bed community nursing home in the town of Lady Lake, in northwest Lake County. Unicare proposes to have its CON conditioned on the establishment of a 20-bed Alzheimers' and related dementia unit, an adult day care to accommodate an additional 20 Alzheimers' sufferers for half day care, and on providing 73 percent of total resident days to Medicaid residents. Unicare also plans to include a 10-bed subacute unit, and to offer rehabilitative therapies, respite and hospice care. The total size of the building is 58,700 square feet. Unicare is a subsidiary of United Health, Inc., which is committed to finance the project by providing an equity contribution of 60 percent and drawing on its available line of credit for the remaining 40 percent of the total projected cost of $5,754,983. Unicare owns and operates 45 nursing homes in 7 states, has been in business for 28 years and in Florida since 1982, and currently owns and operates 13 Florida nursing homes. Life Care Centers of America Life Care Centers of America, Inc. ("Life Care") proposes to establish a 120-bed community nursing home of 53,175 square feet, in west central Lake County, in the areas of Lady Lake, Tavares, or Leesburg, for a total project cost of $5,906,000. Life Care's CON, if issued, will include its commitment to provide 73 percent of total resident days to Medicaid residents, to establish a 20-bed Alzheimers/dementia unit, to offer adult day care services, and to include a 20-bed sub-acute unit. Life Care is a privately held company operating 150 nursing homes in 27 states. Life Care owns two and operates three other nursing homes in Florida. Life Care proposes to fund the Lake County nursing home from $206,000 cash-on-hand and $5,700,000 in financing from a non-related company. With its application, Life Care submitted letters of interest from potential lenders with interest rates ranging from 9 to 12 percent, and a 25 year amortization schedule. In reviewing other Life Care applications, AHCA has considered and rejected as incomplete a list of capital projects identical to that included in this Lake County application. Specifically, Life Care listed projects by county name, although the total amount of capital obligations, according to AHCA, was significantly underestimated. Life Care submitted, at hearing, its exhibit 6, a stipulation to certain facts and, through the testimony of its Vice President for Development, established that the facts related to the schedule 2 issues in this case are identical to those considered in Life Care Centers of America, Inc. v. Agency For Health Care Administration, DOAH Case No. 94-2409 (F.O. 10/24/94), which is pending on appeal in the district court. Beverly Enterprises Beverly Enterprises-Florida, Inc. ("Beverly") is a wholly owned subsidiary of Beverly Corporation-California, a subsidiary of Beverly Enterprises, Inc. Beverly proposes to construct a 120-bed community nursing home in Lady Lake or Leesburg, in Lake County, with a commitment to provide 73 percent of total annual resident days for Medicaid, to establish a 20-bed Medicare-certified subacute unit with 4 beds for ventilator-dependent patients, an 18-bed Alzheimers' wing, an adult day care for 8 clients, respite care, and to accept and care for residents who are HIV positive, or have mental health disorders. Beverly also will commit to donate $10,000 for gerontological research. Beverly Enterprises companies operate 720 nursing homes, 70 in Florida. Of the 70, 41 are operated by the applicant. Beverly's proposal to establish Lake Beverly Terrace has a total project cost of $5,421,372, for 48,969 square feet. Existing Nursing Home and Alternatives - Sections 408.035(1)(b), and (2), Florida Statutes. As of January 1994, there were 460 nursing home beds in Leesburg, 142 in Clermont, 236 in Mount Dora and 377 in Eustis. All of the facilities, exceeded the average Lake County occupancy of approximately 92 percent in 1992- 1993, except two, Waterman Hospital Extended Care Center in Eustis and Edgewater in Mount Dora. All of the parties agreed that additional subacute and Alzheimers' beds, and adult day care spaces are needed in Lake County. Local and State Health Plans - Sections 408.035(1)(a), Florida Statutes. Unicare, Life Care, and Beverly propose to locate in Lake County, within planning area 7 for Lake/Sumter Counties. The planning area has a higher priority need ranking than planning area 2, as determined by the local health plan council. Local allocation factors 1 - 5 apply equally, or are inapplicable to the three proposals. There are existing nursing homes in the county, which are within 20 miles or 25 minutes all of the proposed locations, and which exceeded 90 percent occupancy. Unicare distinguishes its proposal based on its intention to locate in the town of Lady Lake, rather than further contributing to the concentration of nursing homes in Leesburg. Lady Lake was, in 1990, the third largest municipality in Lake County, and projected to be the largest in 2000. The 1990- 2000 projected growth rate is over 100 percent, in contrast to 13 percent for Leesburg, 50 percent for Tavares, and 37 percent for the entire county. Lady Lake was also mentioned in the Life Care and Beverly applications as a possible location for their facility, along with other towns in Lake County. Beverly's Vice President has investigated the cost of sites only in Leesburg, Fruitland Park, and Eustis, but concedes that Leesburg is a desirable location due to its proximity to the hospital. Without a CON condition, which AHCA could impose, all three applicants could locate anywhere within Lake County. Although Lady Lake is only 8 miles from Leesburg, Unicare's proposal, all other factors being equal, would be favored as more consistent with local allocation factor 6, which discourages the concentration of nursing homes in one community within a multi- county planning area. The final local allocation factor, 7 (as related to Alzheimers' and adult day care), as well as state health plan factors 3 (as related to Alzheimers') and 4 (as related to adult day care), and subsection 408.035(1)(o), Florida Statutes, favor applicants proposing specialized care or therapies to meet the needs of community and nursing home residents suffering from Alzheimers' and related forms of dementia. Unicare's 20-bed Alzheimers' unit and programs, and half day adult day care for 20 additional Alzheimers' sufferers are consistent with the specialized services that are needed. Life Care also proposes, as conditions for its CON, that it will establish a 20-bed Alzheimers/dementia unit and an adult day care center to accommodate 10 participants a day, between 7:00 a.m. and 6:00 p.m. Beverly proposes to provide services in an 18-bed Alzheimers' wing, and an 8-person adult day care program. State health plan allocation factors met by all of the Lake County applicants include the following: locating in a subdistrict exceeding 90 percent occupancy (approximately 92 percent for planning area 7 for January-June 1993); see, also Subsection 408.035(1)(b), (d), and (2) (a) - (d); proposing to serve 73 percent Medicaid- reimbursed residents in comparison to the subdistrict average of 72.65 percent in the first six month of 1993; and * * * (11) documenting measures and procedures to protect resident's rights and privacy, and the use of resident councils, quality assurance and discharge planning programs. The Lake County applicants' proposals differ more when compared in accordance with state health plan factors and related statutory criteria, for: services to AIDS residents and the mentally ill; respite care, adult day care, and other services in a continuum of care (Sections 408.035(1)(o), F.S.); facilities with designs which maximize residents' comfort and the quality of care, and the costs and methods of construction (Sections 408.035(l)(m), F.S.); innovative therapeutic programs to enhance mental and physical functioning; charges which do not exceed the highest Medicaid per diem rate in the subdistrict (Sections 408.035(2)(e), F.S.); a record of providing superior care in existing nursing homes (Sections 408.035)(1)(c), F.S.); staffing in excess of minimum requirements, with the highest ratio of registered and licensed practical nurses to residents (Sections 408.035)(1)(h), F.S. - availability of staff and personnel); use of professionals from a variety of disciplines; and * * * (12) administrative cost which are lower patient care costs which are higher than the district average. State health plan preference 3 is given to applicants for care to AIDS residents and the mentally ill, and state health plan 4, in part, applies to respite care. Beverly points to its increase in service to HIV positive patients from 39 patients for 124 patient days in 1993 to 3500 patient days in 1994. Unicare also has served AIDS residents. All of the Lake County applicants plan to offer respite care. Beverly offers a wider array of specialized services. By providing a range of levels of care to inpatients and outpatients, including adult day care and respite care, the applicants also, in part, meet the criterion of subsection 408.035(1)(o), Florida Statutes. Nursing homes with more features to enhance resident comfort and quality of care are given state health plan preference 5. Unicare's 58,720 square foot plan, includes semi-private patient rooms designed for the placement of the heads of residents' beds on opposite walls, each side with a window, rather than the alignment of beds next to each other, typical of semi-private hospital rooms. The plan includes indoor wandering space for Alzheimers' residents in a loop around an activity and recreation area, separated by a 3 to 4 foot wall. The Alzheimers' unit has a separate dining room with access to a secured courtyard, which, in turn, connects with the day care center. AHCA's architectural report notes that the construction cost of $60 per gross square foot is below the median cost projection, because Unicare will use a design/build contract. The design/build contract provides for one contractor to provide all of the services, including architectural and design, engineering and construction management, which saves time and money. Unicare's contractor, KM Development Corporation, has been in business since 1977, and has renovated and enlarged Unicare's facilities in Florida without cost overruns, and has done residential construction in the state. Unicare's design, based on the AHCA architectural review and the contractor's testimony, meets requirements for licensure and safety, and is a one-hour fire safety protected structure with a stucco finish, and brick and wood trim. Although skeptical and concerned that the design/build contract can be manipulated to cut corners to stay within budget, AHCA's expert in architecture testified that it is possible for Unicare to build the facility at the projected cost, but he would expect a cost over- run. Life Care's 53,175 square foot building will cost $75 a square foot. AHCA's architects described it as wings organized around a central courtyard, providing good visual control of short corridors. Life Care's design also includes a gift shop, library, and ice cream parlor. A separate wing for Alzheimers residents is adjacent to the adult day care center, with a separate dining room and courtyard. The institutional effect of corridors is decreased by using recessed entrances and doors to residents' rooms. There were no concerns expressed by architectural experts with the appropriateness of the design for the functions in each wing, the adequacy of the project cost, or the safety of the structure. Beverly's construction cost per gross square feet, listed as $63 on line I in response to question 4A was challenged as too low by Life Care's experts. Beverly's construction cost plus a 10 percent contingency or $70 a square foot for 48,969 square feet is considered reasonable by AHCA, although that eliminates the availability of the contingency for unknown conditions on an unselected site. Beverly's design is organized generally around a core area of courtyards with therapy space in the center. Beverly's Alzheimers' unit has a separate courtyard which allows wandering residents to exit a door near one end of the corridor and return by a door near the opposite end. AHCA's architectural review concludes that Beverly's design meets licensure and safety requirements. In general, Unicare's design better meets the preference for enhancing resident comfort and quality of care with rooms over 30 percent larger than required, four outside landscaped areas, physical therapy rooms, and three staff lounges, and an in-service training area, but its cost may be underestimated. Life Care's design is second in terms of accommodating program needs with space arrangements. Adult day care clients with Alzheimers, for example, are located adjacent to the area for Alzheimers residents' programs and activities. Life Care's projected construction costs are also the highest. Innovative therapeutic programs effective in enhancing physical and mental functions are favored in state health plan preference 6. Unicare will provide physical, occupational, and speech therapy and has developed special programs to serve Alzheimers's and related dementia residents and day care clients. Life Care and Beverly will offer IV therapy, wound care, and ventilator and respiratory therapy in addition to other therapies offered by Unicare. Beverly's therapy programs are more innovative and intense, based on the staffing and level of detail provided in describing the proposed services. Preference 7 is given for proposed charges not exceeding the highest Medicaid per diem in the subdistrict. Unicare proposes a Medicaid per diem rate for $86.57 for 120 beds in the second year while at least one provider in the subdistrict for 1997 will be charging $95.27. Unicare computed projected future rates by using 9.1 percent inflation of the Medicaid rate at one facility, which is not necessarily the highest existing provider, which results in a $98.44 rate. Unicare criticized Beverly's use of a 5 percent inflation rate of the highest current provider resulting in a projected rate of $99.47. The highest Medicaid rate in the district, inflated forward to 1997, was $99.31 at the time the application was submitted, so that Beverly's proposed charge of $99.00 is lower, as is Life Care's projected $97.11 and Unicare's $86.57. Preference 8 and subsection 408.035(1)(c) require a comparison of the applicants' records in terms of the quality of care provided in their existing nursing homes, as indicated partly by licensure ratings over the last 36 months. During that time, Unicare's 13 nursing homes have had 468 months of operation at approximately 63 percent superior, 29 percent standard, and 9 percent conditional. Beverly has had a total of 976 months of operations, 67 percent superior, 25 percent standard, and 7 percent conditional. Beverly has also paid a fine to the State of Oregon to settle claims related to patient care problems. The two Florida nursing homes owned by Life Care are rated standard, one in Citrus County opened in November, 1994 and is not yet eligible for a superior license. The other, in Altamonte Springs has been in operation for over 36 months, 29 of those with a superior licensure rating. The three applicants generally have operated and have the capacity to continue to operate superior facilities. Preference 9, on proposed staffing ratios and preference 10 related to the use of varied professional staff are also indications of the quality of care. AHCA requires one registered nurse on the day shift and none on the night shift in a 120-bed nursing home. All of the applicants exceed the minimum. The number of nursing hours per patient day will be 3.2 at Unicare, 3.35 at Life Care, and 3.85 at Beverly. One of four registered nurses on the day shift at Beverly will always be in the subacute unit. However, the ratio outside the unit, for the remaining 100 residents, still exceeds the minimum and meets the preference requirements. All three companies have existing Florida facilities available to provide training and, if needed, transfers of experienced staff to a new nursing home. They currently use and are proposing to continue to use professional staff from a variety of disciplines to meet residents' and clients' needs. Average administrative costs in the district, inflated forward, will be $24.58 and average patient care costs will be $49.49. The applicants report their comparable projections on Schedule 11. Unicare's projected costs are $27.80 and $50.59, respectively. Life Care's costs are $24.84 and $65.94, respectively. Beverly's are $24.44 and $62.30, respectively. With erroneously omitted laundry costs added to administrative costs, Beverly's administrative costs increase to $26.52. All three applicants propose higher administrative costs than the district average, but Life Care's are the lowest. All three have higher than average patient care costs, with Life Care favored as the highest. The following subsections of the CON statutory review criteria do not apply, in this case, to distinguishing among the Lake County applicants: - availability or adequacy of alternatives, such as outpatient care or home care; - economics of joint or shared resources; - need for equipment or services not accessible in adjoining areas; * * * - special needs of health maintenance organizations; - needs of entities which provide substantial services beyond the district; and - impacts on costs and effects of competition. Subsection 408.035(1)(g) - research and educational facilities needs Unicare and Life Care have established foundations to foster education and research in gerontology and health care. Beverly will commit, as a condition for the issuance of its CON, to providing a $10,000 research grant for a gerontological studies to Florida State University. All three companies assist in providing clinical experiences for nursing and therapy students in technical schools, community colleges, and universities, and benefit by recruiting employees from the programs. Subsection 408.035(1)(h) - availability of funds to establish and operate project, and Subsection 408.045(1)(i) - immediate and long-term financial feasibility Unicare has $5 million in available cash and a $30 million line of credit. Unicare, using costs from other facilities adjusted to take into consideration geographical differences, projects a net loss of $250,672 in the first year and a profit of $50,482 in the second year. Unicare failed to include $3,000 in housekeeping equipment in its projected expenses, but can more than cover that omission with a $75,000 contingency. Life Care had a net worth of $50 million in 1993. For calendar year 1992, its audited financial statement shows over $10 million in net earnings and $4.5 million in cash on hand. Life Care projects a net loss of $548,190 in year one and a net profit of $236,022 in year two. Beverly has access to over $200 million for project development, combining its cash, cash equivalents, commercial paper and lines of credit. Beverly projects a pre-tax loss of $314,000 in the first year and a net profit of $214,000 in the second year. Beverly's figures were questioned based on its use of the experience of a Tampa area facility to determine some costs and expenses, its assumption that Medicare will be 13 percent of its patient mix, and its projected lengths of stay and revenues from Medicare. Beverly's use of unit-costs from existing facilities with modifications to fit the specific proposal is reasonable. Although the district Medicare rate is 5.7 percent and Lake County's is 6.1 percent, Beverly's higher proportion of Medicare is consistent with the level of subacute services it proposes in 20 of its 120 beds. After the maximum of 100 days of Medicare coverage, Beverly will have weaned or will transfer ventilator patients who do not have private insurance. Subsection 408.035(1)(n) - past and proposed Medicaid participation Unicare has no nursing homes with CON conditions requiring a specified level of Medicaid participation, having purchased older, existing facilities in Florida. Nevertheless, eleven of its thirteen facilities exceed the Medicaid average in their respective subdistricts. For the first six months of 1993, Life Care's Medicaid resident days were 78 percent in Altamonte Springs (with no CON condition), 70 percent in Punta Gorda, 88 percent and 68 percent, respectively, in the two West Palm Beach nursing homes. Beverly's percent of patient days for Medicaid increased 63.3 percent to 66.8 percent from 1993 to 1994 for facilities in Florida. Beverly paid a $1500 fine to the state for falling below its Medicaid commitment in one of 17 state facilities with such conditions, Coral Trace in Lee County. AHCA agreed to reduce the Coral Trace medicaid condition from 78 percent to 53.3 percent to reflect the subdistrict average. In 1994, at Coral Trace, 49.5 percent of total patient days were Medicaid. All three Lake County applicants have demonstrated strong compliance with Medicaid participation criterion. Comparison of Lake County Applicants On balance, the Lake County applications are all more in compliance than not with statutory review criteria, with varying strengths and weaknesses. They are financially sound, experienced nursing home owners and operators. Unicare will improve access within the planning area. The demographic data on the municipality of Lady Lake shows significant growth. Unicare also will build a better designed and larger facility, and will focus its programs on meeting the needs of Alzheimers' residents and day care participants. Unicare's weaknesses are AHCA's architect's expectation that it will experience cost- overruns and the absence of ventilator services. Unicare relies on its actual experience with Florida construction projects to support the reasonableness of its projections. Unicare also projects the lowest Medicaid per diem rate. Life Care proposes to offer a wider range of specialized programs and therapies than Unicare, a design second to Unicare's in terms of size and residential amenities. Life Care's project costs are the highest of the Lake County applicants, but Life Care, when operational, will have the highest proportion of its costs applied to patient care. Beverly offers a range of programs comparable to those offered by Life Care, with greater emphasis on subacute care, and less emphasis than Unicare on Alzheimers' services. Beverly will build the smallest nursing home at the lowest cost, but is highest in projected Medicaid per diem rate. Unicare is recommended for CON approval due to its superior design, and superior Alzheimers' and day care services, and proposed location. Because the proposed location is a factor in Unicare's favor, it is recommended that Unicare's CON be conditioned on its obtaining a site in Lady Lake. Absent Unicare's agreement to a condition on location, Beverly is recommended for approval based primarily on its lower project cost, scope and intensity of subacute of services, and higher staffing levels.

Florida Laws (8) 120.57, 408.031, 408.035, 408.037, 408.039, 408.040, 408.045, 95.13 Florida Administrative Code (1) 59C-1.008

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FLORIDA HEALTH FACILITIES CORPORATION (OF POLK COUNTY), D/B/A IMPERIAL VILLAGE CARE CENTER vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 86-000047 (1986)

Division of Administrative Hearings, Florida Number: 86-000047 Latest Update: Mar. 02, 1987

Findings Of Fact On or before July 15, 1985 Petitioner timely filed an application for a certificate of need (CON No. 4179) to add 42 beds to an existing nursing home in Lee County, Florida. Petitioner's application was denied by Respondent, subject to the right to a hearing, by letter dated December 6, 1985 for the sole stated reason that: Application of Chapter 10-5.11(21), Florida Administrative Code, to Lee County shows no need for additional beds in the County through 1988. The letter further states that the "basis of the above decision" is contained in the State Agency Action Report. Petitioner timely sought a Section 120.57(1), Florida Statutes, hearing concerning Respondent's notice of its intention to deny this application. The parties filed a Pre-Hearing Stipulation on December 3, 1986 which states that the only statutory criteria at issue in this proceeding are those contained in Sections 381.494(6)(c)1, 2 and 12, as well as the criterion at Section 381.494(6)(c)9, Florida Statutes, insofar as it relates to the need for the proposed additional nursing home beds. Further, the parties stipulated that the only rule criteria at issue are found at Rules 10-5.11(1), (3) and (6), as well as the criterion at Rule 10-5.11(5), Florida Administrative Code, insofar as the long-term financial feasibility of the project is related to the need for the services being proposed. It is readily apparent that the parties have stipulated to issues in this proceeding which may be beyond the scope of the sole reason for denial of this CON application set forth in Respondent's letter of December 6, 1985. The parties' stipulation has been accepted, however, and will therefore define the issues to be determined in this case. Petitioner has an existing 78 bed nursing home in the vicinity of Ft. Myers, Florida. This is located in Respondent's District 8, Subdistrict Lee- County. Previously, Petitioner received approval to construct 120 beds at this facility but was only licensed to use 78 beds. In fact, Petitioner has already constructed, equipped and furnished the additional 42 beds, and now seeks approval to use these beds. No additional capital expenditures would be necessary to place these beds in service. The methodology for calculating need for community nursing home beds is set forth in Rule 10-5.l1(21)(b)1-9, Florida Administrative Code. As more particularly set forth in Findings of Fact 7 through 23, this methodology can be summarized as follows: Determine the planning horizon to which an application is directed. Determine the district's age adjusted number of beds in the horizon year by applying the current bed rates for population age groups 65-74 and 75 + to the district's horizon year population. Determine the gross allocation of beds to the applicable subdistrict by multiplying the district's age adjusted number of beds by the ratio of licensed beds in the subdistrict to licensed beds in the district, and also by the ratio of the average occupancy rate in the subdistrict to .90. For purposes of this calculation in this case, licensed beds are determined as of June 1, 1985 and occupancy rates are those that existed from October, 1984 to March, 1985. Determine the net allocation of beds to the applicable subdistrict by subtracting the total number of licensed beds in the subdistrict at the time of hearing plus 90 percent of approved beds in the subdistrict at the time of hearing from the subdistrict gross allocation. The first step in calculating need pursuant to Respondent's methodology set forth in Rule l0-5.11(21)(b)1-9, Florida Administrative Code, is to establish a planning horizon. Subparagraph (b) of the rule states: the Department will determine if there is a projected need for new or additional beds three years into the future according to the methodology specified under subparagraphs 1 through 10. (Emphasis supplied.) The Respondent interprets this to mean that the planning horizon is established by counting three years into the future from the filing deadline, established by rule, for a particular application. This is a reasonable interpretation and is consistent with the plain meaning of the rule. Thus, in this case the planning horizon to which Petitioner's application is addressed is July 15, 1988. The next step in applying the need methodology is to determine what is meant by "current population" as that term is used in Rule 10-5.11(21)(b)2. The Respondent interprets this to mean the population current on the application filing deadline which in this case was July 15, 1985. This is also a reasonable construction of the rule, and is therefore accepted. However, the Respondent further contends that the "current population" estimates to be used in applying the rule methodology are those that were available from the Office of the Governor when this application was submitted, and that more recent updates of those estimates should not be considered. Since all population estimates and projections are only approximations, rather than actual counts, it is more reasonable to use updated revisions of "current population" which may be available at the time of hearing. These are still estimates of the population current as of the date an application is filed (in this case July, 1985), but they can reasonably be expected to be more accurate than the prior estimate. In the same manner, estimates of the planning horizon year population (July, 1988) available at the time of hearing should also be used rather than July, 1985 estimates of that population. Respondent's interpretation which is hereby rejected and which would require the use of population estimates available when the application was submitted, excluding all revisions and updates, is not set forth by rule. Additionally, Respondent offered only the testimony of its consultant, Joyce Farr, to explicate this "incipient policy" but she was neither involved in, nor part of, the decision making process which lead to this announced policy. Further, the position advocated by Farr is at variance with Respondent's prior application and interpretation of its rule, and is contrary to the interpretation used when Petitioner submitted this application. At the time of hearing, Farr did not know of any Final Order of Respondent, nor was any policy memoranda introduced, which set forth and adopted the interpretation she espoused as Respondent's policy. The only explanation offered for her interpretation was that she had been told by her supervisor that Respondent would take this position in all cases as a result of the Recommended Order in Case Number 86-0051, dated October 10, 1986, but not yet acted upon by Respondent at the time of hearing. No other evidence was presented by Respondent in support of Farr's interpretation, or to otherwise explicate this non-rule policy. Before applying the need methodology rule, a determination must also be made as to how "occupancy rates" will be measured, as used in Rule 10- 5.11(21)(b)4. As recently as May 8, 1986, Respondent's Administrator of Community Medical Facilities concurred in an interpretive memo prepared by Reid Jaffe, consultant supervisor, which indicated that at the time of hearing the latest available six months occupancy rates would be used. Yet, at hearing Joyce Farr again announced a change of policy to freeze everything, including occupancy rates, to the time of the original application. Under this interpretation, "occupancy rate" in this case would be based on the six months' data for October, 1984 through March, 1985. Petitioners urge the use of "occupancy rate" data from April, 1986 to September, 1986, the latest six months' occupancy data available at the time of hearing. The interpretation announced by Farr at hearing is reasonable, and although in apparent conflict with the interpretive memo dated May 8, 1986, it is consistent with the plain meaning of Rule 10-5.11(21)(b)4 which requires the review of applications submitted for the July batching cycle (in this case July, 1985) to "be based upon occupancy rate data for the months of October through March preceding that cycle" (October, 1984 through March, 1985). Petitioner's position regarding the data to be used in determining "occupancy rate" is therefore rejected as contrary to, and inconsistent with, the plain meaning of the applicable rule. Next, the number of "licensed beds" in District 8 for purposes of subparagraphs (b)2 and 4 of the need methodology calculation must be determined. The district licensed bed figure is explained by Rule 10-5.11(21)(b)7 as follows: Review of applications submitted for the July batching cycle should be based upon the number of licenses (sic) beds (LB and LBD) as of June 1 preceding that cycle; applications for the January batching cycle shall be based upon the number of licensed beds (LB and- LBD) as of December 1 preceding that cycle. Petitioner urges that licensed beds be based on June, 1986 data and Respondent urges data from June 1, 1985. Petitioner's position is again contrary to the plain meaning of the rule, and is therefore rejected. For purposes of subparagraphs (b)2 and 4, LB and LBD are determined as of June 1, 1985. Petitioner contends that its 78 community nursing home beds previously authorized by CON 1616 were licensed on May 31, 1985, and should therefore be counted as "licensed beds." Respondent's witness testified that these beds were actually licensed on June 3, 1985, and therefore should not be considered "licensed beds" for purposes of applying subparagraphs (b)2 and 4 of the need methodology calculation in this case. Petitioner has the burden of proof, but has not offered competent substantial evidence to support its position. It has not established that these 78 beds should be considered "licensed beds" for purposes of subparagraphs (b)2 and 4 since it has not been established that they were actually licensed on or before June 1, 1985. The provisions of Rule l0-5.1l(21)(b)1-4 and 7 can therefore be applied to calculate gross bed need for Lee County using July 15, 1988 as the applicable planning horizon, updated estimates of "current population" for July 15, 1985 and for the planning horizon which were introduced by Petitioner, the "occupancy rate" as determined by data from October, 1984 through March, 1985 which was introduced through exhibit by Respondent, and the number of "licensed beds" in District 8 and the Lee County subdistrict on June l, 1985, as also introduced through exhibit by Respondent. The first step in the calculation of gross need for the horizon year is to derive BA, the current bed rate for the age group 65-74. This rate is defined by subparagraph (b)2 of Rule 10-5.11(21) as follows: BA = LB / (POPC + (6 x POPD) Where: LB is the number of community nursing home beds in the relevant district. POPC is the current population age 65-74. POPD is the current population age 75 years and over. The district licensed bed figure (LB) is then defined by subparagraph (b)7 as follows: Review of applications submitted for the July batching cycle should be based upon the number of licenses (sic) beds (LB and LBD) as of June 1 preceding that cycle; applications - for the January batching cycle shall be based upon the number of licensed beds (LB and LBD) as of December 1 preceding that cycle. Application of the methodology prescribed by subparagraph (b)2 to this case produces the following calculation: BA = LB / (POPC + (6 x POPD) BA = 4,005 / (131,642 + (6 x 79,661) BA = 4,005 / (131,642 + 477,966) BA = 4,005 / 609,608 BA = .0065698 The second step in the calculation of gross need for the horizon year is to derive "BB", the current bed rate for the population age group 75 and over. This methodology is defined by subparagraph (b)3, and calculated in this case as follows: BB = 6 x BA BB = 6 x .0065698 BB = .0394188 The third step in the calculation of gross need for the horizon year is to derive "A", the district's "age-adjusted number of community nursing home beds" at the horizon year. This methodology is defined by subparagraph (b)1 as follows: A = (POPA x BA) + (POPB x BB) Where: POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future . . . Application of the methodology prescribed by subparagraph (b)1 to this case produces the following calculation: A = (POPA x BA) + (POPB x BB) A = (142,791 x .0065698 + (90,467 x .0394188) A = 938.10831 + 3,566.1006 A = 4504 The final step in the calculation of gross need in the horizon year is to derive "SA", the "preliminary subdistrict allocation of community home beds" (gross bed need in this case). This calculation is defined by subparagraph (b)4 as follows: SA = A x (LBD/LB) x (OR/.90) Where: LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of applications submitted for the July batching cycle shall be based upon occupancy rate data for the months of October through March preceding that cycle . . . . The subdistrict licensed bed figure (LBD) is defined, consistently with LB, by subparagraph (b)7, supra. Application of the methodology prescribed by subparagraph (b)4 to this case produces a gross need in July 1988 of beds, as follows: SA = A x (LBD/LB) x (OR/.90) SA = 4504 x (808/4005) x (.9689/.90) SA = 4504 x .20174 x 1.0766 SA = 978. The final step in the numeric need methodology is to derive net need from gross need. According to subparagraph (b)9, this need is derived as follows: The net bed allocation for a subdistrict, which is the number of beds available for Certificate of Need approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant depart- mental subdistrict from the bed allocation determined under sub- paragraphs 1 through 9 (sic 8). . . (Emphasis added.) In order to apply subparagraph (b)9 and thereby determine "net" need, it is necessary to decide on what date the licensed bed inventory should be calculated. Respondent asserts that "licensed beds" for purposes of subparagraph (b)9 is the same as LB and LBD used in subparagraph (b)2 and 4, as defined in (b)7. The rule, however, is silent as to how licensed bed inventory should be calculated for purposes of subparagraph (b)8. Respondent did not explicate the reasons for its interpretation. Respondent's position that subparagraph (b)7 defines licensed bed inventory for subparagraph (b)9 ignores not only the clear link between (b)7 and the gross need methodology, but also the plain language and purpose of subparagraph (b)9 which is to derive a realistic estimate of net (or actual) need in the horizon year. Since all licensed and approved beds from previous batching cycles will serve at least a portion of the horizon population, it is only reasonable to include these beds when calculating net need. It would be unreasonable not to count any beds licensed or approved after June 1, 1985 in the calculation of net need. In fact, subparagraph (b)9 itself addresses "the total number" of licensed and approved beds, not just beds that existed on June 1 1985. Petitioner's 78 beds should therefore be counted as "licensed" for purposes of applying the net need methodology calculation in subparagraph (b)9 of Rule 10-5.11(21), and the 143 beds reserved pursuant to the decision in-Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, 483 So.2d 700 (Fla. 1st DCA 1985) should be counted as "approved beds". Net need is then calculated under subparagraph (b)8 as follows: Subdistrict allocation for Lee County = 978 Less Licensed beds = 996 Less 90 percent of 143 approved beds = 129 Surplus in Lee County = 148 Therefore, according to Respondent's need methodology as established in Rule 10-5.11(21)(b) there is a surplus of beds in Lee County for the planning horizon to which Petitioner's application is directed. Petitioner has not established that there is a need for the beds sought in CON 4179 under review in this case. The source in the record of the data used in the above calculations is as follows: LB, LBD, OR - Respondent's Exhibits 1,2 POPC, POPD, POPA, POPS - Petitioner's Exhibit 4 It has not been established that persons using existing and like services are in need of nursing home care but are unable to access services currently available. The need for services which have been denied has not been documented by attending physicians' plans of care or orders, or assessments by either Respondent or attending physicians, as required by Rule 10-5.11(21)(b)10. Petitioner has not established that a geographic or economic accessibility problem exists in Lee County which would warrant approval of this application notwithstanding the lack of need under the methodology of Rule 10- 5.11(21)(b).

Florida Laws (1) 120.57

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MERIDIAN, INC.; MERIDIAN NURSING CENTERS, INC.; AND BREVARD MERIDIAN LIMITED PARTNERSHIP vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 86-000064 (1986)

Division of Administrative Hearings, Florida Number: 86-000064 Latest Update: Nov. 13, 1986

Findings Of Fact The facts in this case are uncontroverted. Meridian's original application for a 120-bed nursing home was updated to seek instead approval for a 60-bed freestanding nursing home. This facility will be located at the southern end of the county, near the communities of Palm Bay and Malabar. The applicant has agreed to provide services to Medicaid-eligible persons at a percentage reflecting the previous year's county average, up to a rate of 50 percent of patient days. HRS' computation of nursing home bed need for Brevard County projects a need for 68 beds in July 1988, the relevant planning horizon. The witnesses for both parties concur that the application, as updated, meets all relevant criteria for approval. Although the latest financial statement relates to the company's fiscal year ending August 31, 1985, the firm commitments and the pro formas included within the application leave no question as to the financial feasibility of the proposed facility. Meridian maintains a good line of credit to handle cash flow at start up and reasonably projects a positive net income for the second year of operation.

Recommendation Based upon the foregoing, it is RECOMMENDED that a Final Order be entered granting a certificate of need to Meridian for a 60-bed nursing home in Brevard County and reflecting the voluntary dismissal of the petition filed by Beverly Enterprises in this consolidated proceeding. DONE and RECOMMENDED this 13th day of November 1986, in Tallahassee, Florida. MARK 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 13th day of November 1986. COPIES FURNISHED: Robert D. Newell, Jr., Esquire 200 South Monroe Street Suite B Tallahassee, Florida 32301 Richard A. Patterson, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard 4th Floor Tallahassee, Florida 32399-0700 E. G. Boone, Esquire Robert T. Klingbeil, Jr., Esquire 1001 Avenida del Circo P. O. Box 1596 Venice, Florida 34284 William Page, Jr. Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301

Florida Laws (1) 120.57

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INVERNESS HEALTH CARE, A LIMITED PARTNERSHIP vs REGENCY HEALTH CARE CENTERS, INC., 90-000043 (1990)

Division of Administrative Hearings, Florida Filed:Inverness, Florida Jan. 04, 1990 Number: 90-000043 Latest Update: Sep. 19, 1990

The Issue The issues under consideration are those associated with applications filed by the aforementioned private parties seeking certificates of need for skilled nursing home beds based on a fixed need pool of May, 1989, which identified 261 beds for the January, 1992 planning horizon. The beds are available in HRS District III. The applications are for: CON Action No. 5987 Inverness--20 beds; CON Action No. 5912 Suwannee--60 beds; CON Action No. 5913 McCoy-- 60 beds; CON Action No. 5962 Starke--120 or 60 beds; and CON Action N. 5905 Regency--120 beds.

Findings Of Fact Related to the May, 1989 batching cycle HRS has identified a need for 261 nursing home beds in District III. The applicants accept that determination of the pool of beds, that is to say no applicant has sought beds over and above the 261 beds identified by HRS. Further, the parties have expressed their agreement to allow Regency to be granted CON 5905 to construct a new nursing home facility in Lake County, Florida, which will have 120 beds. The written stipulation sets out the parties belief that all applicable criteria for obtaining a certificate of need as set out in Section 381.705, Florida Statutes, have been met. That stipulation is accepted, provided the following conditions are met in issuing the certificate of need: The annual resident population of the facility shall include at least 62% of Medicaid patient days. Two beds shall be dedicated to the care of Alzheimer and respite care residents. The facility shall be a one story design consisting of 43,000 square feet in size. Likewise, the parties have agreed to allow the issuance of CON 5987 to Inverness to add 20 community nursing beds to its existing facility in Inverness, Florida. That written stipulation points out the agreement by the parties concerning the Inverness compliance with all applicable criteria set out in Section 381.705, Florida Statutes as well as any implementing rules set forth in Chapter 10-5, Florida Administrative Code. The arrangement is one by which existing ACLF beds are converted to nursing home beds. That stipulation is accepted, upon condition that Inverness commit to provide a minimum of 75.2% of total patient days for Medicaid patients. The Inverness stipulation which reiterates Inverness' lack of opposition to the grant of a certificate of need to Regency also withdraws its opposition to McCoy, Starke and Suwannee. By the terms of the stipulation's 140 of the 261 beds in the pool are spoken for. This leaves for consideration the applications of Suwannee, Starke and McCoy. In the absence of subdistricting, District III is divided into seven planning areas. The planning areas are as established by the North Central Florida Health Planning Council, Inc. Planning Area l is constituted of Hamilton, Suwannee, Lafayette, Columbia, Union and Bradford counties. Suwannee intends to place its facility in Suwannee County. Starke intends to place its facility in Columbia County. The expansion of the McCoy facility would occur in Marion County which is the sole county in Planning Area 4. By resort to the North Central Florida Health Planning Council District III Health Plan preferences can be seen concerning the allocation of beds among the applicants within the various planning areas. A copy of that plan is HRS Exhibit No. 2. Under this scheme the McCoy application to add 60 additional nursing home beds to its existing facility in Marion County, Florida, is considered a third priority. A third priority would allow the addition of at least 60 beds and no more than 120 beds. The Suwannee and Starke applications are a fourth priority under the local plan which allows for an addition of up to 60 beds. The McCoy application as presented at hearing responds adequately to all applicable criteria set out in Section 381.705, Florida Statutes, to include the State Health Plan and District III Health Plan. McCoy holds a superior license rating at present and has a proposed capital expenditure for this project of $1,568,000. Taking into consideration the proposed allocation of beds set forth in the local health plan, the distance between the McCoy facility and the proposed facilities in Suwannee and Columbia counties by the applicants Suwannee and Starke and absent proof which clearly identifies that Suwannee and Starke are meaningful competitors against McCoy and its attempt to gain a certificate of need calling for expansion of its facility, the McCoy application should be granted. That grant should be conditioned upon a willingness to serve Alzheimer patients in the proposed 14 bed unit and the commitment to provide Medicaid at a 60% level as a minimum commitment. This arrangement would bring the total number of nursing home beds at McCoy to 120, a desirable number when considering economies of scale. What must be resolved by comparative analysis of the applications of Suwannee and Starke, is which of those competitors for 60 beds out of the 61 beds remaining in the pool should be granted a certificate of need, if any. Starke had noticed its intention to apply for 120 beds and made application for 120 beds and in the alternative for 60 beds. The decision to notice its intent to apply for 120 beds was not misleading nor inconsistent with HRS policy in a circumstance where the application was stated in the alternative for 120 beds or 60 beds. The significant point is that Starke explained its alternatives of 120 beds or 60 beds in detail in the course of the application. HRS perceives that the 120 bed notice of intent took into account a lesser number of beds being applied for on the due date for applications and that perception is reasonable. Suwannee noticed the intent to apply for 60 beds and applied for that many. Both Suwannee and Starke met all procedural requirements for consideration of their applications for nursing home beds. In determining the disposition of the 60 nursing home beds needed for Planning Area l within District III, it is noted that Suwannee and Columbia counties are contiguous. Columbia is east of Suwannee. While the main emphasis by these applicants is to serve the needs of residents within the two counties where the facilities would be located, given their contiguity there is a potential for either applicant to serve needs within both counties. Columbia county is the more populous county. However, in the two counties the age cohorts in the 65 and over group and 75 and over group are similar, especially in the 75 and over group. Occupancy rates in the existing nursing homes within the two counties are also similar. The J. Ralph Smith Health Center in Suwannee County has 107 existing beds and 54 beds approved. Those additional 54 beds were designated for residents of the Advent Christian Village exclusively; however, the residents of that village constitute part of the population base in Suwannee county. Therefore this limited utilization of that resource still benefits citizens within Suwannee county. Surrey Place in Suwannee county has 60 beds and the Suwannee Health Care Center has 120 beds with 60 more approved. The 60 additional beds may not be constructed in that the applicant failed to proceed to construction in the time contemplated by CON 3746 and may lose the beds. Columbia County has Tanglewood Care Center with 95 beds. It has Lake City Medical Center with 5 beds associated with a hospital. Palm Garden of Columbia has approval for 60 beds. On balance there would not appear to be an advantage to placing the 60 beds at issue in either Suwannee or Columbia counties when considering the population to be served, present occupancy rates for existing nursing bomes and geographic accessibility to the proposed nursing homes. Suwannee is a wholly owned subsidiary of Santa Fe Health Care, Inc. The parent corporation filed the application with the permission of Suwannee. The 60 bed nursing home facility is part of an overall project which includes the replacement of an existing 60 bed acute care hospital with a 30 bed acute care hospital. If the proposals are accepted the hospital and 60 bed nursing home would be located on a common parcel. HRS has granted CON 6179 to decertify 30 beds. The approved cost of the delicensure and establishment of the new hospital is $6,752,824. The nursing home component of this project is stated to cost $3,408,100 in the way of capital expenditures with an operating equity in the amount of $300,000. The overall health care delivery system contemplated in the hospital and nursing home project includes the replacement hospital, the new nursing home, an out patient diagnostic center, home health care, hospice and adult day care services. Suwannee has the financial backing of its parent corporation which owns a number of health care facilities including six hospitals, two health maintenance organizations and six other health related corporations. Both Suwannee and the parent corporation Santa Fe Health Care, Inc. are not for profit. The Santa Fe operations are in Florida and its hospital holdings include other rural hospitals in addition to Suwannee which is a rural hospital. Before filing the application for the 60 bed nursing home neither Suwannee nor the Santa Fe parent corporation had any involvement in long term health care delivery. Suwannee intends to serve the needs of Alzheimer patients and to provide services to persons needing subacute care. In its present hospital facility in Suwannee County it has 24 swing beds with which it serves patients needing subacute care and which beds are seen as an alternative to nursing home beds. That alternative has limited utility. Although swing beds may serve nursing home patients they are not an alternative for long term care in lieu of community nursing home beds. To the extent that Suwannee Hospital has tried to place patients in nursing homes needing a high level of skilled care, described as subacute care, it has experienced problems. Existing nursing homes in Suwannee County have not accepted the placement of those patients. It is unclear from the record what portion of subacute care needed in the service area will continue to be met in the hospital proper with the advent of delicensure of 30 beds. There was testimony to the affect that the hospital has the option to request swing beds in its remaining 30 bed hospital facility, but it has not been shown that the hospital will avail itself of that opportunity and through the use of the swing beds be able to render subacute care. The description by Suwannee of the subacute patients that it is contemplating serving through its nursing home are those who require a shorter stay in nursing facilities, who are said to have fragile medical condition and require intensive licensed nursing care. In the application, it states that the Medicare patients contemplated as being served by this prospective nursing home would be the principal users of the subacute care. There patients would have an average length of stay of 15 days with 12 patients per month being served. The Medicare per diem charge of $130 for the first year of operation is said to include the cost of care given to these patients who are said to be heavy users of subacute care. That per diem charge reflects ancillaries such as the various therapies as well. Having considered the explanation of this application, it is less than apparent what the difference would be between the subacute care services now being provided by the hospital in its swing beds and those contemplated by its nursing home application. In a similar vein, it is unclear what the distinction would be between the subacute care rendered in the proposed nursing home when contrasted with the subacute care being provided in swing beds that might be available in the 30 bed replacement hospital. If granted a certificate of need Suwannee is committed to serving AIDS patients. Suwannee intends to serve Medicaid patients and it projects a percentage of patient days attributable to Medicaid patients in the first two years of operation to approximate 73%. This is contrasted with experience statewide of 62%, within District III of 75% and within the planning area of 81%. Projected per diem rate for Medicaid reimbursement within the first year of operation is $68. The financial expert presented by Suwannee said that the applicant could charge as much as $10 to $12 more, making the Medicaid rate $78 to $80 per day. This increase contemplates raising the present caps on reimbursement. The record does not support increases in the caps of $10 to $12 in the relevant planning period. In the first year of operation the private room, private pay per diem rate at Suwannee reflects $97 as the charge and $80 as the charge for semiprivate room, private pay. This is as compared to $130 for Medicare per diem. Although it is unacceptable to charge more for Medicare than private pay, Schedule 12 within the application shows the inclusion of ancillaries for the Medicare patient and the exclusion of ancillaries for private pay. Under the circumstances it is difficult to tell whether the Medicare per diem charges exceed the private pay per diem charges as has been contended by Starke. The inclusion of the therapies as ancillary costs is shown on page 39 at Schedule 12 of the application of Suwannee. On Schedule 17 in the first operating year the therapies as ancillary costs are not broken out as individual items such as physical therapy, speech therapy and occupational therapy separate and apart from routine services. Instead an aggregate figure is given. That precludes an understanding of what portion of the per diem charge for Medicare patients is attributable to those ancillary costs. The circumstance is made more bewildering in that the financial expert presented by Suwannee stated that the $130 per diem charge had application to residents who were receiving subacute care. What portion of the per diem charge for Medicare residents is attributable to the subacute care component is not revealed in the application. Neither, is it explained in the testimony. Notwithstanding the assurance of the Suwannee financial planner that the Medicare rate projected for the first year of operation is in keeping with the Hospital Cost Containment Board's data on the average rate structure, that comment and his other explanations failed to establish the reasonableness of that charge. This is especially true when considering the fact that the Medicaid charges, even accepting an adjusted rate of $80 per day, are also indicated at Schedule 12 as including therapies and are far less than the Medicare per diem. Schedule 17 shows the Medicaid without reference to the therapies as an aggregate item in the same fashion as described with the Medicare category of reimbursement. Further, evidence of the fact that private room, private pay, does not exceed the Medicare per diem charge is related at Schedule 12 where it describes the subacute private room, private pay patient as paying $150 and the semiprivate, room private pay as paying $130. Again, in the Suwannee application in the first year of operation for both Medicaid and Medicare therapies are said to be included in the basic charges of $68 and $130 respectively shown at Schedule 12 and carried forward in the aggregate on Schedule 17. From the explanations stated by the financial planner, the projected costs for therapies by those two categories of patients is not reflected in the ancillary cost centers for physical therapy, speech therapy and occupational therapy found at lines 11-13 of Schedule 18. Instead, they are reflected at line 39 under other costs centers in the amount of $80,900. Moreover the $80,900 is said to include subacute services as well as the therapies. Having considered Schedules 12, 17 and 18 for the first operating year, together with the other evidence presented in the course of the hearing, the estimate at line 39 of Schedule 18 of $80,900 is unreliable. The Suwannee project contemplates a facility of approximately 24,370 square feet. The construction cost estimate is $62.44 per square foot. The total project cost per bed is $56,802. That far exceeds the caps for the property cost component related to Medicaid residents which is presently $30,350 per bed. Put another way, that translates to a differential of $11.64 per patient day above present reimbursement levels for Medicaid residents. That differential cannot be made up by resort to payments for ancillary services for that category of resident. The shortfall attributable to the costs per bed differential in the application of $56,802 compared to $30,350 per bed plus ancillaries is not expected to be made up by resort to other revenue sources within this proposal either, nor can it be properly be. This is particularly true when approximately 70% of the patient days are expected to be provided by Medicaid residents. Even if Suwannee were able to obtain reimbursement for the per bed cost of $56,802, this is much more than the Starke cost per bed which is approximately $30,000 as built. The cap that has been mentioned is the one effective July 1, 1990. Nothing in the testimony would suggest that the caps would approach $56,802 within the planning horizon for this review cycle. In summary, the financial feasibility of the Suwannee proposal has not been established. While the parent corporation, Santa Fe Health Care, Inc., is strong financially and able to sustain Suwannee in its nursing home operation in the short term, even with expected losses, the losses will be extraordinary and the long term feasibility has not been demonstrated either. Simply stated, too much money is being expended to establish this facility and it may not be recouped by resort to the reimbursement scheme identified in the application. Under the circumstances, the nursing home is not perceived as a means of promoting the financial well being of the overall project constituted of the nursing home, relocated hospital and associated services. It is not accepted that the manner and quality of care proposed to be delivered by Suwannee is so superior that it justifies the inordinate expense in delivering the care. In other particulars Suwannee has shown that it meets all applicable criteria for granting it a certificate of need, but the overall costs are so exorbitant that they preclude financial success in the project. In addition, even if the project met the criteria its costs compared to the Starke proposal are so much more that the Suwannee proposal should be rejected in favor of the Starke proposal. It is not accepted that a hospital based nursing home is superior to a freestanding nursing home as urged by the presentation made by Suwannee. Starke had applied for a 120 bed nursing home, with a separate request explaining its proposal to construct a 60 bed nursing home. It is that latter proposal that fits the need in Planning Area I of District III. The total capital expenditure for that alternative proposal is $1,882,713. The cost per square foot is approximately $60 in the 22,500 square foot facility. The per bed costs is in the neighborhood of $30,000. In the first year of operation the private room, private pay is $89; the semiprivate room, private pay rate is $79; the Medicaid rate is $69.50 and the Medicare rate is $69.50. These rates do not include ancillary charges for therapies. The Starke proposal will include a unit for Alzheimer, subacute care, adult day care and respite care. Starke will provide 80% of its patient days for Medicaid residents and 10% of its patient days for Medicare residents. The Medicaid performance exceeds that of Suwannee. That rate is consistent with the experience which Starke has in the operation of its Whispering Pines Care Center in Starke, Florida, a 120 bed nursing home facility which has held a superior license rating over the three years preceding the application. Starke as a corporation would own both the Starke, Florida facility and the proposed Lake City, Florida facility. The principals in that corporation with 50% ownership are J. D. Griffis and George R. Grosse, Jr. The subacute care that is to be provided is in patient rooms which are directly adjacent to the nursing station. It is the intention of the applicant to build these rooms to allow support for medical equipment needed in the treatment of those residents. Although some criticism has been directed to the architectural design of the proposed nursing home facility, Starke has committed itself to meet all applicable codes. Under the circumstances it does not appear that this application presents significant problems associated with resident safety or inordinate costs in making necessary adjustments to comply with applicable codes. The Starke application was prepared by Jerry L. Keach, the then administrator for University Nursing Care Center in Gainesville, Florida, operated by Covenant Care Corporation. By the comments found in the application it was contemplated that the Covenant Care group would manage the Starke facility in Lake City, Florida, which would do business as Lake City Care Center. No contract has been executed between Starke and Covenant Care Corporation to allow the latter entity to manage the Lake City facility assuming the grant of the certificate of need to that applicant. At hearing the principals for Starke indicated that Covenant Care together with other unnamed organizations would be considered as management for the nursing home in Lake City. Although this issue of management is unresolved, reservations about the project are overcome in recognition of the success of the Starke corporation in the operation of the Whispering Pines Care Center in Starke, Florida. That suffices as an indication that Starke is capable of installing appropriate personnel to operate the Lake City facility, and provide quality care. The assumptions concerning the various aspects of the proposals set forth in the Starke application are sufficiently explained in the course of the final hearing and those explanations are accepted. It is reasonable to expect that the nursing home could be constructed, staffed and operated in a manner consistent with the explanations found in the application and through testimony at hearing. A successful outcome is anticipated whether the Covenant Care Corporation is employed to operate the facility or not. The favorable impression of the Starke proposal is held notwithstanding the criticism directed to the financial feasibility by remarks offered by Suwannee. In particular the Suwannee Exhibit No. 11 admitted into evidence questioning the assumptions of the Starke applicant concerning income projections for the first two years have been taken into account. Whispering Pines Care Center presently offers care for Alzheimer patients and subacute services. Therefore problems are not anticipated in the provision of those services in the proposed facility. With due regard for the criticisms that have been directed to the financial ability of Starke to maintain its Whispering Pines Nursing Center and the proposed project in Lake City, Florida, it is found that the applicant has the ability to conduct those businesses. As with the matter of financial feasibility, Starke has satisfied all other applicable criteria for the grant of a certificate of need to construct the 60 bed nursing home.

Florida Laws (1) 120.57

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FLORIDA CONVALESCENT CENTERS, INC. (WEST PASCO) vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 84-001454 (1984)

Division of Administrative Hearings, Florida Number: 84-001454 Latest Update: Dec. 06, 1984

Findings Of Fact Petitioner, Florida Convalescent Centers, Inc. (FCC), filed an application with respondent, Department of Health and Rehabilitative Services (HRS), on October 14, 1983, seeking a certificate of need authorizing the construction of a 120-bed nursing home facility in Pasco County, Florida. An amendment of an undisclosed nature was filed by FCC on August 22, 1984, but did not change the number of beds applied for. After reviewing the original application, HRS issued its proposed agency action on February 28, 1984, in the form of a state agency action report in which it advised petitioner that it intended to deny the application. The transmittal letter denying the application offered the following reasons: The nursing homes in Pasco County are being used in an appropriate and efficient manner as demonstrated by an annual occupancy rate of 90.7 percent from March through September, 1983. However, there are 240 nursing home beds that have been approved but have not been constructed at the present time. These beds, when added to the existing nursing home bed supply in Pasco County, will serve to maintain a reasonable subdistrict occupancy level through 1986. The basis for the above decision is contained in the State Agency Action Report. The service area in which FCC proposes to construct its new facility is the Pasco County subdistrict of HRS District 5. In order to determine need, HRS has adopted Rule 10-5.11(21), Florida Administrative Code, which contains a formula (or methodology) for determining need at both the district and subdistrict level. Under that formula, HRS is required to utilize the "most recent 6 month nursing home utilization in the subdistrict." In this regard, HRS prepares on an on-going basis an internal document entitled "Quarterly Report" which contains the latest available data over a six-month period. In this proceeding, HRS used a report containing data for the period October, 1983 through March, 1984. This was the most current and complete available data at the time of hearing. According to the methodology in Rule 10-5.11(21), there is a gross need in District 5 for 5,331 nursing home beds. However, there are presently 7,322 licensed and 791 approved beds in the District. Therefore, this results in an excess of 2,782 nursing home beds through the year 1987. In the event there are excessive beds on a district-wide basis, the rule provides a means for establishing a need on a subdistrict level under certain conditions. Additional beds can be added within the subdistrict if the licensed beds in the subdistrict have an average current utilization of 90 percent or higher. If they do not, additional beds cannot be authorized even if a mathematical need is shown under the rule methodology. FCC has computed need requirements for the subdistrict by eliminating the beds of two nursing homes just opened within the last six months, and by using census figures for the month of June, 1984. Based upon these calculations, it results in a need for 99 additional beds and a current utilization rate of 95.7 percent, which exceeds the 90 percent threshold requirement. However, the rule makes no provision for the use of more current data on a selective basis, or the exclusion of such beds from the calculation. FCC also contends Pasco County has an "abnormal" situation caused by an excessive availability of beds in neighboring counties (Pinellas and Hillsborough). It also points out that Pasco is far below the state average for beds per 1000 elderly population. But, again, these factors are taken into account in the agency's rule, and do not constitute special circumstances that would require an exception to the rule.

Recommendation Based on the foregoing findings of fact and conclusion of law, it is RECOMMENDED that the application of Florida Convalescent Centers, Inc., for a certificate of need to construct a 120-bed nursing home facility in Pasco County, Florida be DENIED. DONE and ORDERED this 15th day of October, 1984, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 1984. COPIES FURNISHED: Donna H. Stinson, Esquire The Perkins House, Suite 100 118 North Gadsden Street Tallahassee, FL 32301 John F. Gilroy, Legal Intern P.O. Drawer 11300 Tallahassee, FL 32302-3300 David Pingree, Secretary Dept. of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32301

Florida Laws (1) 120.57

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KENSINGTON MANOR, INC. vs DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 90-003665 (1990)

Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Jun. 13, 1990 Number: 90-003665 Latest Update: Mar. 14, 1991

Findings Of Fact The department hereby adopts and incorporates by reference the findings of fact set forth in the Recommended Order.

Recommendation It is recommended that a Final Order be entered granting Kensington Manor Inc. CON No. 6430 to construct a 120 bed nursing home and to rehabilitate the existing 147 bed nursing home to an 87 bed nursing home in Sarasota County. RECOMMENDED this 14th day of March, 1991, in Tallahassee, Florida. K. N. AYERS Hearing Officer Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-3665 Petitioner's proposed findings are accepted, except #5. Sentence stating "There are no laundry facilities in the nursing home." is rejected as inconsistent with proposed finding #7. Respondent's proposed findings are also accepted. Most of the defects in the application which Respondent finds to be not in compliance with the statutory requirements were corrected by the testimony at this hearing. COPIES FURNISHED: Alfred W. Clark, Esquire 1725 Mahan Drive Tallahassee, FL 32308 Richard Patterson, Esquire 2727 Mahan Drive Tallahassee, FL 32308 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Linda Harris General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 =================================================================

Florida Laws (2) 395.003, 400.062

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APOLLO HEALTH AND REHABILITATION CENTER vs AGENCY FOR HEALTH CARE ADMINISTRATION, 09-005214 (2009)

Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Sep. 22, 2009 Number: 09-005214 Latest Update: Jun. 21, 2010

The Issue The issue in the case is whether the Agency for Health Care Administration (Respondent) used the correct nursing home bed capacity in calculating the Medicaid per diem rate for Apollo Health and Rehabilitation Center (Petitioner) for the rate period beginning July 1, 2009.

Findings Of Fact The Respondent is the state agency responsible for administering the Florida Medicaid (Medicaid) program. The Petitioner operates a Florida-licensed nursing home and participates as an institutional provider in the Medicaid program. The Medicaid program pays nursing home operators based on a prospective per diem rate which is calculated using cost reports submitted to the Respondent by the nursing home providers. The cost reports are filed pursuant to the "Florida Title XIX Long-Term Care Reimbursement Plan" (the Plan), which the Respondent has adopted by rule. The Plan incorporates guidelines and policies regarding reimbursement and accounting principles set forth by the federal Centers for Medicare and Medicaid Services (CMS) in "CMS Publication 15-1." The Plan establishes the manner in which cost reports are submitted to the Respondent, provides an explanation of allowable costs, and sets forth the methodology by which cost reports are used to establish nursing home per diem rates. The rates are effective for a period of time referred to as the "rate semester." The Respondent's Division of Health Quality Assurance (HQA) is responsible for Certificate of Need (CON) programs, related regulations and procedures, licensure determinations, and identification of licensed bed capacity. Bed capacity is one of the factors used to determine per diem rates. The calculation of the per diem rate is affected by various cost limitations, including a ceiling based, in part, on the classification of the facility by bed capacity. Neither the Plan nor the cost report instructions identify how to calculate the quantity of nursing home beds to be stated in a cost report. The Respondent has historically utilized the number of beds listed on a Medicaid provider's license at the start and the close of the cost reporting period to establish the bed count applicable to calculation of the per diem reimbursement rates. The cost reporting period relevant to this proceeding was calendar year 2008. At all times during calendar year 2008, the Petitioner's licensed bed capacity was 120 beds. In May 2008, Lexington Health and Rehabilitation Center (Lexington), an existing nursing home operator affiliated with the Petitioner, applied through the CON process to expand its facility by 21 beds, from 134 beds to 155 beds. Lexington is not a party to this proceeding. A statutorily-adopted moratorium in effect at all times material to this case prohibited the licensure of new nursing home beds. Because of the moratorium on new beds, Lexington was required to procure the transfer of 21 licensed beds from an existing nursing home operator in order to proceed with the proposed expansion. The Petitioner agreed to transfer 21 beds to Lexington. The Lexington CON application was approved on August 22, 2008. The approval was unchallenged and became final on September 26, 2008. On September 20, 2008, the Respondent issued a renewal license to the Petitioner for a 120-bed facility, valid through September 19, 2010. Based on the approval of the Lexington CON application, the Petitioner began to reduce capacity by removing beds from service. The beds that were removed from service were no longer ready for immediate occupancy and could not be made so within a 48-hour period. The Petitioner initiated alterations to the physical plant to reflect the reduced number of beds, and such alterations precluded meeting minimum space requirements for the 21 beds. The Petitioner's patient census began to decline as the beds were decommissioned to that which would be anticipated given the reduction in available beds. As included in the CON application, the Lexington plans were "approved for construction" by letter dated October 23, 2008, from the Respondent's Office of Plans and Construction (OPC). The OPC had the responsibility to review, and approve or deny, construction plans. The OPC also had final authority to determine, post-construction, whether the facility met applicable requirements and was ready for occupancy. The OPC's October 23, 2008, letter required that all local permits and approvals be obtained prior to commencement of construction and stated that the project would be considered abandoned and the approval terminated if construction had not commenced within one year. On October 27, 2008, both the Petitioner and Lexington applied to amend their respective licenses to the post-transfer bed capacities, 155 beds at Lexington and 99 beds at the Petitioner. Both applications identified the effective date of the amendments as "[u]pon final approval by Plans and Construction," referencing the Respondent's OPC. The Respondent's "approval for construction" on October 23, 2008, of the plans included in the Lexington CON was not sufficient to constitute the "final approval by Plans and Construction" referenced in the applications filed October 27, 2008. Through the removal of beds from service, the Petitioner's actual nursing home bed capacity on December 31, 2008, was 99 beds. According to a Licensed Bed Service Memorandum ("Bed Memo") dated January 22, 2009, the Lexington project was essentially complete and ready for occupancy on that date. On February 10, 2009, the Respondent issued an amended license to the Petitioner to decrease the bed capacity to 99 beds and an amended license to Lexington to increase the bed capacity to 155 beds. By letter dated February 24, 2009, the Respondent advised Lexington that based on the January 22, 2009, inspection, the Lexington project was "approved for its intended purpose." On August 17, 2009, the Petitioner filed an amended cost report for the year ending December 31, 2008, wherein the Petitioner stated a "Total Bed Capacity" of 120 beds at the beginning of the period and 99 beds at the end of the period. The Respondent initially calculated the per diem rate based on the Petitioner's representation of a 99-bed capacity; however, on August 19, 2009, the Respondent issued an amended notice of per diem rates, indicating that the Petitioner's reimbursement rate had been calculated to reflect a capacity of 120 licensed beds at the end of the 2008 calendar year. The impact of reducing the Petitioner's licensed bed capacity from 120 to 99 beds is to reduce the prospective per diem reimbursement rate by $4.34 due to the impact of a cost limitation based on capacity.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a final order identifying the Petitioner's nursing home bed capacity on December 31, 2008, as 99 beds and making the appropriate adjustment to the per diem rate calculations for the relevant rate semester. DONE AND ENTERED this 5th day of May, 2010, in Tallahassee, Leon County, Florida. S WILLIAM F. QUATTLEBAUM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of May, 2010. COPIES FURNISHED: Kelly Ann Bennett, Esquire Sheryl Rosen, Legal Intern Agency for Health Care Administration Fort Knox Building 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Peter A. Lewis, Esquire Law Offices of Peter A. Lewis, P.L. 3023 North Shannon Lakes Drive, Suite 101 Tallahassee, Florida 32309 Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Thomas W. Arnold, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308

Florida Laws (4) 120.569, 120.57, 400.021, 408.806

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HILL-GUTHRIE PROPERTIES vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 83-000610 (1983)

Division of Administrative Hearings, Florida Number: 83-000610 Latest Update: Apr. 18, 1985

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

Florida Laws (3) 120.52, 120.57, 120.68

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IRVING AND LOUISE LAMPERT AND GARY LAMPERT vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 77-002284 (1977)

Division of Administrative Hearings, Florida Number: 77-002284 Latest Update: Jun. 20, 1978

Findings Of Fact Petitioners' application for a certificate of need to construct a 60- bed skilled nursing home was recommended for approval by the Health Planning Council, the health systems agency (HSA) for the five counties of Martin, Palm Beach, Volusia, Okeechobee and St. Lucie, but was denied by the Department of Health and Rehabilitative Services (HRS), Office of Community Medical Facilities. The latter agency has the ultimate responsibility for granting certificates of need. In recommending the granting of a certificate of need, HSA considered available beds in existing facilities in lieu of licensed beds, found 89.6 percent occupancy of available beds equal to or greater than 90 percent occupancy of licensed beds prescribed by the State Plan for Hospitals and Related Medical Facilities (Exhibit 2), used its own population forecasts rather than State population forecasts, and failed to consider certificates of need approval recently granted to five nursing homes in Palm Beach County, some of which were already under construction. HSA, at the time of this application had Palm Beach County divided into four regions (which has now been expanded to five) and the proposed facility is located in region three. At the time of the application there were three existing nursing homes in region three and two additional facilities had been granted certificates of need in this region. HSA normally uses licensed beds to determine the percentage of occupancy, but for reasons not explained at this hearing, HSA used available beds to determine the percentage of occupancy. Using available beds HSA found the three nursing homes in region three of Palm Beach County to have an 89.6 percent rate of occupancy. Had licensed beds been used, the percentage of occupancy would have been 83. The Office of Community Medical Facilities, in determining the need for additional medical facilities, has divided the State into 60 health care service areas and Palm Beach County is one of those areas. No evidence was submitted to indicate that the service areas so established are not reasonable. At the time of Petitioners' application, there were 1981 licensed nursing home beds in Palm Beach County; and applications had been approved, or recommended for approval and subsequently approved, for an additional 460 beds in Palm Beach County. The projected need in the State Plan for 1977 (Exhibit 2) for nursing home beds for Palm Beach County by 1982 is 2038. Accordingly, at the time of this hearing, nursing homes in Palm Beach County had received approval for 2441 beds which is 403 more nursing home beds than the forecast need for the year 1982. In determining the need for medical and health provider facilities, the usage rate of existing facilities is first determined from actual usage of the facilities. The Projected Average Daily Census is then determined by multiplying the use rate by the forecast population and dividing by 365 days per year. From this figure the bed need is determined by dividing the Projected Average Daily Census by .85 and adding 10. In this manner, HRS determined in the 1977 State Plan for Construction of Hospitals and Related Medical Facilities that Palm Beach County would have a need for 2038 nursing home beds in 1982. At the time Petitioners' application was recommended for approval by HSA, additional certificates of need had been granted for an additional 160 nursing home beds in region three of Palm Beach County. These facilities are designated as Life Care Centers because they are attached to condominiums from which their primary source of patients is expected to come. However, these facilities are essentially nursing homes and provide the same services as nursing homes. Had these authorized additional beds been included in computing the percentage of occupancy of nursing homes in region three the rate would have been approximately 60 percent, assuming no population change when these facilities become operational.

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