Findings Of Fact The Parties The Agency For Health Care Administration (AHCA) is responsible for administration of the certificate of need (CON) program pursuant to section 408.034, Florida Statutes. Clearwater Land Company (CLC) is a Florida corporation which owns, operates, and is the license holder of the Regency Oaks Continuing Care Retirement Community (Retirement Community) and Regency Oaks Nursing Center (Regency Oaks) located in Clearwater, Florida. The Johnson Ezell Corporation is a closely held private corporation owned by two shareholders who are also shareholders of CLC. Johnson Ezell provides management, financial services, data processing services, collective purchasing, and other aspects of management for CLC. CLC and Johnson Ezell Corporation are affiliates; two shareholders of Johnson Ezell comprise two out of the four shareholders of CLC. Johnson Ezell is also the contract manager of CLC. Three of the four shareholders of CLC own 100 percent of two other large continuing care retirement communities (CCRC) in Florida. One of these communities, located in Port Charlotte, is known as South Port Square. A second retirement community, Lake Port Square, is in the mid-development stage in Leesburg, Lake County, Florida. Typically, CCRCs offer a broad spectrum of services or a continuum of care ranging from independent living apartments, to assisted living, to skilled nursing which often includes home health care. South Port Square has 440 independent living apartments in which the holders of continuing care agreements reside. South Port also has a 120-bed community skilled nursing facility, originally CON approved in 1984. There are 140 additional units of assisted living. The first phase of the 240 independent living units opened in October of 1987, and the second and final phase of 200 continuing care apartments opened in October of 1990. Lake Port Square currently has 200 continuing care apartments with 205 additional apartments currently under construction. Lake Port also has a 60-bed skilled nursing facility which was originally licensed as a sheltered nursing home facility. It is now a licensed community nursing home. Lake Port also has 35 units of assisted living. Beverly Savana Cay Manor, Inc., is a wholly-owned subsidiary of Beverly Enterprises-Florida, Inc., which is a wholly owned subsidiary of Beverly Enterprises, Inc. The Beverly family of companies operates 838 nursing homes in 48 states. It is the largest provider of long-term care services in the country. Beverly Savana Cay Manor will receive substantial financial, managerial, operational and program support from Beverly Enterprises Florida's regional office. These are specific services which will be available to Beverly's proposed project from its parent's Florida regional office: A nurse consultant who is a former director of nursing will monitor the overall performance of the nursing staff and will assist in maintaining quality assurance and proper staffing patterns; a registered dietician will provide consulting dietary services; and a financial consultant will monitor and assist with the orientation of staff on all financial matters, including implementation of the billing system for Medicare and Medicaid. An area manager who is a licensed nursing home administrator will coordinate the support services. Other consulting services available through the Florida regional office include: an activities consultant, a trained social services consultant, a rehabilitation program coordinator, a rehabilitation clinical coordinator, an accounting-finance department, and a quality assurance department that conducts inspections and reviews the facility's compliance with governmental requirements. The regional maintenance department will oversee the care and maintenance of the physical plant. The regional purchasing department coordinates purchases of food, chemicals, and other items more economically purchased in large volumes. The human resources department assists in the implementation of uniform personnel and wage policies, the training of supervisory and managerial personnel, and the monitoring of facility participation in government programs. CLC Project: Regency Oaks CLC filed two CON applications: In CON Application No. 7503 (now withdrawn), it requested approval of a new 120-bed community nursing home through the conversion of 60 sheltered nursing home beds and the addition of 60 community nursing home beds. CLC also filed CON Application No. 7503P, the subject of this de novo review, to convert Regency Oaks Nursing Center's 60 sheltered nursing home beds to 60 community nursing home beds. CLC's project calls for a reclassification of existing services and assets. There is no capital required, no renovation costs, and no new equipment. The project basically involves moving from one state classification category to another, i.e., sheltered nursing home beds to community nursing home beds. The project under consideration involves Regency Oaks Nursing Center, a 60-bed facility which commenced operations and was licensed in August of 1991. Regency Oaks is a part of a 40-acre campus. The Regency Oaks Retirement Community has approximately 200 units located in a separate five-story structure which also commenced operations in August or September of 1991. There are an additional 201 independent living units in a separate phase that is also located in a separate five-story structure on the campus that is currently under construction. When fully developed, the retirement community's independent living units will be roughly equivalent in size and substantially the same as the operations at its sister communities at Lake Port and South Port. Sheltered nursing home beds are often located in a CCRC. A continuing care provider is authorized to provide a certain number of sheltered nursing home beds based upon the number of independent living apartments that are being constructed, operated and licensed pursuant to Chapter 651, Florida Statutes. Chapter 651 first authorized CCRC's to apply for and receive sheltered nursing home beds in 1986. A CCRC is regulated by statute and markets and provides services pursuant to a continuing care agreement in which the continuing care resident is provided with shelter, food, and some element of health care in exchange for a specified lump sum payment of money and the payment of a monthly maintenance or service fee. The business was largely unregulated until major revisions were incorporated into Chapter 651. Pursuant to section 651.118(4), Florida Statutes, Regency Oaks originally applied for and was granted a CON to construct a 60-bed sheltered nursing home based upon the ratio of one sheltered nursing home bed for every four residential units in the retirement community. The prevailing wisdom in the early 1980's, when Chapter 651 was enacted, held that the 1:4 ratio was appropriate. The underlying assumption was the utilization of the sheltered nursing homes by the residents in the retirement community on a 1:4 ratio should result in a fully occupied and financially feasible nursing center. The ratio also ensured that residents could gain access to nursing home care. In the last half of the 1980's the prevailing wisdom held that the 1:4 ratio was still appropriate but only after allowing for several years of "aging in place" by the residents of the retirement community. To provide needed occupancy during the initial years of operation, subsection 651.118(7) allows the sheltered nursing home to admit residents from outside the resident community for a period of up to five years from the date of the issuance of the original license. For the first five years of operation, the nursing home beds are available to residents and nonresidents of the senior living community. However, at the end of the five year period, the nursing home is not allowed to accept any additional patients from outside the senior living facility because residents alone are expected to need the beds. In 1986, CLC had no intention of converting its CON approved beds to community nursing home beds. For several reasons, including the general health of retirement community residents and their willingness to pay for home health services in order to stay in their own apartment, the 1:4 ratio is no longer a reasonable projection of sheltered nursing home bed need. In the last two years at Regency Oaks, there was an average daily census of 3.5 to 5 patients in Regency Oaks originating from the independent living facility. Of the 200 units, an average daily census of 5 patients converts to a 1:40 ratio rather than the 1:4 ratio that was included in the sheltered bed model. Currently over 90 percent of Regency Oaks' patient days are patients who do not live in the senior housing facility. Without the approval of this project, by September 1996, Regency Oaks will no longer be able to admit outside community residents. Based upon current and projected ratios, this will have an impact on the ability of Regency Oaks to continue to operate in an economical and financially feasible manner. CLC's experience at South Port Square illustrates this problem. The first phase of South Port's independent living apartments has been in operation for 7.5 years. Phase Two has been in operation more than 4.5 years. The demographics of the population area served by Regency Oaks and South Port are almost identical. The South Port community has had 7.5 years to "age in place." For the first ten months of South Port's 1994 fiscal year, 27 percent of the patient days of the South Port's 120-bed skilled nursing center were attributable to contractual requirements of residents of the independent living apartments. Twenty-three percent of the patient days were attributable to campus residents (non- contractual) who were either private pay or some other source of payment. At the top end of the scale, Regency Oaks expects to experience between 25 percent to 30 percent, and up to 40 percent, of its admissions from independent living apartments on campus. CLC does not intend to apply for new sheltered nursing home beds to complement the additional 201 independent living units now under construction. According to its qualified health care planning expert, Mark Richardson, at full build-out, CLC will need to hold (at the high end of the range) 30 beds to fulfill its contractual obligations to its life care residents. (Transcript, pp. 332-3) At full build-out, the approximately 400 independent living units will house 550 to 600 residents, all eligible for nursing home care, when needed, under their continuing care agreements. Beverly's Project: New Crown Beverly proposes a new, 120-bed community nursing home in the Seminole Park area of Pinellas County (New Crown) using 66 beds from the fixed need pool and 54 beds made available from the delicensure of its existing Crown Nursing Center (Old Crown). Granted by CON No. 7505, Old Crown originally was constructed as a motel in the 1940's and has been a nursing home since the 1960's. Although Old Crown currently holds a superior license, the facility is outmoded and is reaching the end of its useful life as a nursing home. There is no room to expand or renovate the existing physical plant, and it is perpetually in need of costly repairs. It is not in compliance with modern building codes and is allowed to continue to operate only by virtue of grandfather clauses. Resident rooms are undersized, and corridors are only 5.5 feet wide rather than the 8 feet currently required. Room doors are narrower than those required in new facilities and will not accommodate moveable beds. Bathroom doors will not accommodate wheelchairs, and there is no central air conditioning. The floor plan also is inconsistent with modern nursing home standards. The building is multistory with outside stairs. This configuration is highly undesirable because it restricts the freedom of movement of residents who are physically impaired, makes it difficult to monitor resident movement, requires extra nursing stations, and slows evacuation in an emergency. Old Crown has one four-bed ward and eight three-bed wards. Space limitations at times require that men and women reside in the same ward. There is no room for specialized services such as adult day care, subacute services or separate Alzheimer's care. Nursing stations are undersized and medical/chemical supplies must be kept in an outdoor shed. Laundry space is inadequate, and linens must be stored outside and in hallways. One room serves as the employee break room, the uniform storage room and the beauty parlor. The kitchen is too small and there is inadequate food storage. The dining area is located in the old motel lobby. Outdoor activities must be conducted in the back parking lot and there is no outdoor ambulation/recreation space. There is only one small space for physical, occupational and speech therapy, requiring that therapies sometimes be administered in hallways or bedside. This arrangement is particularly undesirable for residents receiving speech therapy, as they tend to be self- conscious about their inability to speak, eat and swallow. There is only one activities room, and it is located on the second floor. The second floor contains asbestos, and removal would require the evacuation of the entire second floor. In contrast, New Crown will meet or exceed all existing licensure requirements for construction and safety codes. It will contain 53,310 square feet of space on a single story, and is designed to optimize operational efficiency, minimize institutional effects, and emphasize a home-like atmosphere. All areas within the facility will meet federal guidelines for handicapped accessibility and use. Corridors will be 8 feet wide, and the doors to resident rooms will accommodate moveable beds. These features will eliminate the movement, monitoring and safety shortcomings inherent in Old Crown's two- story motel floor plan. There will be plenty of storage, a modern kitchen and laundry facility. Residents at New Crown will reside only in private and double occupancy semi-private rooms. Each room will feature private toilets, telephone, cable T.V., and individual thermostat controls. Homelike furnishings will be used throughout the facility. There will be two large day rooms adjacent to the nursing stations with access to three enclosed outdoor courtyards, a large restaurant-like dining area, a secured patio and an activity room. The day rooms will have aquariums, large screen televisions and VCRs. A large solarium/greenhouse will be located adjacent to the dining area. AHCA's approval of Beverly's application for New Crown is expressly contingent on the approval of expedited CON application 7505 to delicense Old Crown. This CON has been granted. Beverly will not allow operation of the two facilities to overlap. Old Crown will remain fully operational until New Crown is operational and placement is made for every Old Crown resident. Beverly will transfer Old Crown residents to New Crown, and will assist residents who choose not to move to New Crown in making whatever other arrangements the resident chooses. No resident will be "put out on the street." Compliance With The Local Health Plan The Health Council of West Central Florida, Inc. has identified three preferences, the first of which is a preference to new nursing homes which commit to serve Medicaid patients in proportion to the average number of Medicaid residents in existing nursing homes in the "health service area." That relevant average (subdistrict) is 55.32 percent. Beverly commits to 56 percent total Medicaid days for New Crown; Old Crown is at 59.24 percent; and other Beverly facilities have a high record of Medicaid services (nationally at 68.5 percent, and in Florida an average of 66 percent). CLC commits to 31.58 percent, which is a reasonable expectation since the Medicaid days will be generated primarily, if not exclusively, from patients drawn from the community at large and not from the independent living facility. CLC's Regency Oaks market is dominated by residents and potential residents from a narrow service area with higher financial resources than the southern end of Pinellas County. The second allocation factor gives a preference to applicants who propose specialized services, including adult day care, to meet identified needs. Beverly has conditioned its application on the provision of a wide range of specialized services. New Crown will provide distinct subacute care in a 20-bed Medicare certified subacute unit with four ventilator-dependent beds, and comprehensive rehabilitation in a 3,404 square foot physical therapy site with physical therapy gym, hydrotherapy area, "activities of daily living" room and outdoor ambulation court. It also will provide adult day care services in a 987-square foot Adult Day Care Center, Alzheimer's care in an 18-bed Alzheimer's wing that includes separate dining/activity areas and an enclosed courtyard, respite care services, care to individuals with mental disorders, care to individuals who are HIV+ or who have AIDS, and hospice care. Beverly also will make a $10,000 grant to Florida State University School of Nursing for research into gerontological issues in the nursing home environment and will make its facility available to nursing students for clinical rotations. CLC proposes intensive rehabilitation services, respite care, subacute care, hospice care and care to mental health patients. Its current facility has not provided respite care and it does not propose a separate unit for Alzheimer's patients. The third local health plan allocation factor gives preference to applicants who demonstrate an intent to serve HIV-infected patients. Both applicants commit to provide AIDS and HIV-positive health care. Beverly has documented its experience with these patients at its Old Crown and other facilities. CLC simply has stated that it does not discriminate in admissions of these patients; it also asserts that it has no idea which, if any, of its patients have been HIV-positive or AIDS patients since that information is not disclosed by the patient. Compliance With The State Health Plan The State Health Plan contains twelve allocation factors. Factor 1 gives preference to applicants locating in areas within subdistricts with occupancy rates exceeding 90 percent. Pinellas County's occupancy rate of 90.23 percent qualifies both Beverly and CLC. Allocation Factor 2 gives preference to applicants who propose to serve Medicaid residents at the subdistrict Medicaid average. Exceptions are considered for applicants who propose the development of multi-level care systems. The applicants' Medicaid commitments are addressed above in paragraphs 23 and 24. The applicants' experts disagree on whether the Regency Oaks facility is truly "multi-level," as contemplated by the exception. The availability of different levels of care: independent living, assisted living and nursing home, on a single campus does represent a "multi-level" care system. State Health Plan Allocation Factor 3 gives preference to applicants proposing specialized services to special needs residents, including AIDS and Alzheimer's residents and the mentally ill. Both applicants, as discussed in paragraphs 26-28, above, have described in detail their proposals for specialized services. Beverly's experience in the past and specific plans for discrete subacute, ventilator-dependent and Alzheimer's units lend credibility to its commitment to those specialized services. CLC's commitment is more general. Its proposed staffing is too low to provide the level of care proposed for New Crown's subacute unit, but its staffing would be increased as needed by the patient population. Regency Oaks has 12 Medicare certified skilled nursing beds in the general nursing home population. None can accommodate a ventilator- dependent patient. Allocation 4 encourages a continuum of services, including adult day care and respite care. Both applicants propose to meet this requirement of the State Health Plan. Again, Beverly's commitment is evidenced by a specific description of discrete programs, while CLC's plans are more general. CLC contends that there is "insufficient demand" in the area to support adult day care; Beverly proposes a 987 square foot "Adult Day Care Center" with its own staff, staff office and storage, to accommodate up to 8 guests, 8 a.m. to 6 p.m., five days a week. Day care guests will have an individual care plan prepared by professional staff and will have access to the full facility and its recreational, therapeutic and social services. Beverly will implement a respite program at New Crown and has such programs at its other facilities. CLC offers respite care but has never had a respite care patient. Allocation Factor 5 gives preference to applicants proposing facilities which provide maximum comfort and quality of care. Both applicants qualify for this preference with outstanding designs and programs. Both applicants propose therapeutic programs consistent with Allocation Factor 6. Specialized rehabilitation, restorative care and normalizing training are described in both applications and are committed to by the applicants. Both propose a more aggressive, intensive rehabilitation than other nursing homes in the area. The highest Medicaid per diem rate in Pinellas County is $100.74 (January, 1994). Inflated forward to 1996, the planning horizon, that rate becomes $113.00. New Crown's proposed rate of $100.14, and Regency Oaks' proposed rate of $102.75 (for 1995) do not exceed that highest rate (even when Regency Oaks' rate is inflated 5 percent for 1996). Both applicants are entitled to the preference in Allocation Factor 7. Both applicants qualify for the preference under Allocation Factor 8, as both enjoy the highest (superior) rating. Three of Beverly's four facilities, including Old Crown, currently hold superior licenses, and the fourth has been recommended for a superior license. Regency Oaks was eligible for a superior license shortly after issuance of its original license and actually received the superior license, after some logistical mix-up, in December of 1994. State Health Plan Allocation Factor 9 gives preference to applicants proposing staffing levels which exceed the minimum staffing standards contained in licensure administrative rules. As a well-run existing facility Regency Oaks maintains appropriate staffing levels. The staffing proposed in its application omits one certified nurse assistant (CNA) on the 11:00 to 7:00 shift. The director of nursing monitors the patient population to assure that staff is added when needed. Beverly's proposed staffing plainly meets or exceeds standards, including statutory and regulatory requirements at all levels. Both Beverly and CLC use professionals from a variety of disciplines and both are entitled to the preference described in State Health Plan Allocation Factor 10. Likewise, both applications describe, and the applicants' experience bears out, a respect for residents' rights and privacy and a well- designed quality assurance and discharge planning program, as required in Allocation Factor 11. State Health Plan Allocation Factor 12 gives preference to applicants proposing lower administrative costs and higher resident care costs than the average nursing home costs in the district. As conceded by Beverly's expert health care planner, both applicants meet this preference criteria; however, Beverly's proposed administrative costs are lower, and patient costs are higher, than CLC's. Need and the Availability of Alternatives Nursing home occupancy rates in District V, subdistrict 2, Pinellas County, currently exceed 90 percent, and the need for 68 more nursing home beds in this district is undisputed. Evidence in this proceeding also established the need for such specialized services as subacute care (sometimes referred to as "step down" care), adult day care, HIV/AIDS care, Alzheimer's care and mental health care. Both applicants propose to meet a portion of the numerical need: Beverly with 66 new beds; and CLC with 60 beds converted from sheltered to community beds. Beverly's project more closely meets the numerical need; CLC concedes that some, and perhaps as many as 30, of its beds will be utilized by the residents of its independent living community. Both applicants propose outstanding programs for subacute care and other specialized services. As discussed above, Beverly's actual experience lends greater credibility to its commitment. Maintenance of the status quo in either case is not a viable alternative. Old Crown is only 54 beds; as of 1996, none of Regency Oaks' sheltered beds will be available for new community admissions. Without approval of one application or the other, the 68 bed need will remain wholly unmet. Availability of Resources, Including Staffing and Short-Term Funds Regency Oaks maintains a recruitment and staff development program designed to attract pools of qualified applicants for each personnel vacancy which occurs at the facility. This program has been effective in the recruitment and retention of high quality nurses and other professionals. Regency Oaks also maintains effective staff training and competency enhancement programs. The facility has a solid core staff in place. The parties have stipulated that Beverly will be able to hire the staff it needs at the proposed salaries and that Beverly's proposed recruitment plan career ladder, incentives and opportunities for advancement and efforts to recruit disciplines in short supply are reasonable and capable of being accomplished by the applicant. New Crown has the advantage of access to a statewide network of consultants who will draw from the expertise and resources of the Beverly companies. Since Regency Oaks is already built and in place, very little additional financial resources are needed in the short-term. The incremental project costs of $22,000 filing fee and $15,000 in consulting fees have already been expended. Whether it is a "zero cost" project or whether its cost should include the construction of the facility in 1991 for $2,634,441, as suggested by Beverly, CLC has the financial resources for short-term support of the project. Beverly likewise will be able to finance its total project cost of $6,361,751. Beverly's parent company has committed its substantial resources, including $80 million cash on hand, to finance the project. An issue arose in this proceeding regarding Beverly's failure to include on Schedule 2 of its application three nursing home facilities which it acquired on January 13, 1994. Two facilities, Old Crown and Beach Convalescent Center, were transferred to Beverly from its sister corporation, Petersen Health Care, Inc. The third facility, Clewiston Health Care Center, was transferred to Beverly from its "grandparent," Beverly California Corporation. Change of ownership applications addressing the transfers were filed with AHCA on October 15, 1993. CLC contends that these inter-company transfers involved expenditures that were "capital projects" within the meaning of section 408.037(2)(a), Florida Statutes, and therefore, Beverly should have included them on its Schedule 2. CLC introduced a closing statement and two deeds from the Beach and Old Crown change of ownership files in an attempt to suggest that Beverly had purchased the facilities in exchange for cash payments. Beverly established, however, that it gave no value of any kind in exchange for the transfers, which were accomplished simply by changing the corporate name on each facility's general ledger. Beverly prepared the documents in question only after the AHCA indicated that it would not approve the change of ownership applications until it received closing statements and deeds. No long-term debt was transferred, and each transferred facility had a positive asset value net of accumulated depreciation and amortization. Consequently, the transfers resulted in permanent additions to Beverly's equity (i.e. plant, property and equipment) valued at $3,882,033. Future Beverly audited financial statements will reflect the transfers as additions to paid-in capital. The operational assets of each facility far exceeded the operational liabilities (e.g. accounts payable) of each facility, and Beverly received net working capital in the total amount of $600,116. For reimbursement purposes, the transfers were treated as "related party transfers" and did not result in any change in Medicare or Medicaid reimbursement rates. Beverly California Corporation paid all the incidental expenses associated with the transfers such as application and legal fees. Beverly would not capitalize these expenses. Contrary to CLC's contention, Financial Accounting Standards Board (FASB) statements 11 and 14 do not require that these transfers be treated as "capital expenditures." FASB Statement 11 deals with accounting for contingencies, and does not offer any insight into the proper characterization of the intercompany transfers at issue here. FASB Statement 14 requires that financial statements of a business enterprise include information about its "segments," i.e., operations representing at least 10 percent of the company's total revenues. There is no evidence that Beverly is a "segment," nor does FASB 14 define "expenditure" or "capital expenditure." FASB Statement 14 mentions capital expenditures only once. Paragraph 27 is titled "Other Related Disclosures." Paragraph 27(b) requires that "information for reportable segments shall be made as follows: . . . Disclosure shall be made of the amount of each reportable segment's capital expenditures, i.e., additions to its property, plant and equipment." (Transcript, pp. 623) This passing reference does not define capital expenditures for all purposes, or require that all additions to plant property and equipment be characterized as capital expenditures. Paragraph 27(b) of FASB Statement 14 merely advises accountants that the financial statement of a company must disclose the capital expenditures --- as opposed to expense items --- that a reportable segment of the company has made. Read in context, the reference to additions to plant, property and equipment is meant only as an example of transactions that, under circumstances not defined in FASB 14, might involve a capital expenditure. In the universe of additions to plant property and equipment, some may involve capital expenditures. However, the transfers here at issue demonstrate that a company can obtain additions to plant, property and equipment without incurring any expenditure at all. FASB Statement 6, at paragraph 66, provides that an increase in the equity of a business entity resulting from the transfer to it of something of value to obtain or increase an equity interest in the entity is considered an investment by owners, not an expenditure by the receiving entity. Health Care Financial Management Association Principles and Practices Board Statement No. 12 similarly would characterize the transfers at issue as equity investments by affiliated companies, not expenditures. This is the proper characterization of the transactions between Beverly and its affiliated companies. The equity contributions of its affiliated companies made Beverly a financially stronger and wealthier entity that was more capable of undertaking the proposed project, and did not involve an expenditure of any kind on the part of Beverly, and therefore cannot be characterized as "capital projects" according to credible, competent expert opinion. AHCA's sample Schedule 2 form does not provide a place to list the receipt of equity, but rather asks only for "expenditures." Had Beverly incorrectly included the transfers as "expenditures" in its Schedule 2, it would have had to show them as negative expenditures, thereby reducing the total amount of reported capital projects and improving Beverly's reported financial position. Upon inquiry, AHCA properly advised Beverly that since the transfers did not involve any expenditures by the applicant, it should not disclose them. Accessibility To All Residents of the Service District Regency Oaks has never turned away a Medicaid or other patient based on payor status and affirmatively accepts patients regardless of ability to pay. Regency Oaks also accepts AIDS/HIV patients, Alzheimer's and other specialty needs patients. Beverly also has this type of "open door" policy. Its experience, however, as discussed above, has been more successful in attracting and serving Medicaid patients and patients with special needs. As an integral part of a beautifully designed, upscale retirement community, Regency Oaks has not drawn the payor mix that Old Crown and its sister facilities have served. As the residents of the independent living units age in place and increase in number with completion of the additional units, accessibility to all residents of the service district is diminished, not enhanced, if the conversion from sheltered to community beds is approved for Regency Oaks. Long Term Financial Feasibility Review of financial feasibility of Regency Oaks is simplified by the fact that it has actual operating experience to support its projections. Opened in Fall 1991, the nursing home, as typically expected, showed losses for the first few years. It turned a profit in 1993. Regency Oaks has the necessary resources to continue to operate the continuing care apartments as well as the nursing home with net operating income, including net operating income from the completion and opening of the new 200 independent living units and further supplemented by the resources of the shareholders of CLC. The four CLC shareholders are personal guarantors on the mortgage indebtedness of all the property at Regency Oaks. Their net worth is in excess of $60 million and cash reserve is greater than $10 million. If the CON is approved and Regency Oaks is permitted to accept community bed patients it will be financially healthy. If, however, the facility is restricted in 1996 and the beds will be filled only from its continuing care units, the nursing home will become financially stressed. Neil Ezell, the corporate representative of CLC and chief financial officer for the Johnson Ezell Corporation, acknowledges the difficulty in making a profit in a smaller 60-bed nursing home because of the high fixed administrative costs. If the high-end estimate that 30 beds will be filled from the continuing care facility is accurate, Regency Oaks will be operating at 50 percent capacity in 1996 or shortly thereafter. The contractual obligations to Regency Oaks residents would still be honored in some fashion, but with substantial difficulty. Absent CON approval, Regency Oaks' cost per patient day will increase and will negatively impact Medicare since Medicare is a cost-based reimbursement system for skilled nursing facilities. Beverly's proposal for a new 120-bed facility at New Crown is financially more efficient than either Regency Oaks or the existing 54-bed Old Crown facility, even considering the $6,361,751.00 total project cost. The old facility is too dated and too small to be efficiently operated much longer. The 120-bed proposal meets the need for new beds and effectively puts to rest the old well-used beds. The patients at New Crown will come from the community at large and will also be transferred from the existing Crown facility. The projected utilization is reasonable and the projected pre-tax net income of approximately $299,000.00 at the end of the second year is likewise realistic. The proposal is financially feasible. SUMMARY OF FINDINGS AND BALANCING THE CRITERIA Both applicants presented outstanding proposals. There is no question that they have provided, and will continue to provide, superior quality of care in attractive, well-equipped and well-staffed facilities. Beverly's proposal enjoys the financial "economies of scale" advantage of a larger facility; CLC's proposal is financially appealing because it requires little or no additional start-up expenditures. Beverly effectively countered CLC's assertions that the application was defective for failure to include the three recently-acquired facilities as "capital expenditures". Beverly also appropriately addressed CLC's claim that it failed to consider the transfer of Old Crown residents in its projected utilization of beds at the new 120-bed facility. Approval of Beverly's application for 120 beds will not result in approval of an excess of beds left in the fixed need pool. Approval is conditioned on approval of delicensure. The old and new facilities will not be concurrently licensed. It strains common sense to find that the concurrent approval and delicensure process should somehow result in creating a need in some future planning horizon, rather than the immediate planning horizon. Both applicants avow their commitment to serve Medicaid and specialty needs population and to remain accessible to persons regardless of ability to pay. Beverly's commitment is underscored with an existing record of service and with its willingness to accept conditions of approval. More troubling than the Medicaid and special needs accessibility issue, however, is the concern that CLC's existing 60-bed facility at Regency Oaks will, upon conversion, fall substantially short of meeting the need for 68 beds. Its continuing care community is expanding and the demand for nursing home beds by that population will increase. Somewhere between 10 and 30 beds will be filled, leaving only 30 to 50 beds available to the population at large. CLC's financial dilemma is the result of a considered decision to build 60 sheltered nursing home beds to support a 200 unit continuing care facility. The only explanation in the record for exceeding the 1:4 ratio is that initially the plan was for 240 units. Even with 50, rather than 60 sheltered beds, the facility would have problems, since the prevailing wisdom based on actual utilization experience is that far fewer sheltered beds are needed. Although the anticipated financial dilemma will have some impact on Medicare reimbursement in the Regency Oaks' facility, there is no major health care planning impact from denial of the conversion. The impact is facility- specific and was at least partially foreseeable five years ago. That is, the statute, then as now, provided a fixed 5-year period for the use of sheltered care beds by the community at large. Balancing of the criteria and weighing the evidence results in a finding that Beverly's, rather than CLC's, application should be approved.
Recommendation Based on the foregoing it is hereby RECOMMENDED: That the agency enter its Final Order denying Clearwater Land Company's application for CON #7503P and approving Beverly Savana Cay, Inc.'s application for CON #7508, conditioned upon 56 percent of patient days of care to Medicaid residents, and appropriate specific conditions for a ventilator-dependent unit, respite care, adult day care, Alzheimer's unit, and AIDS/HIV+ care. DONE and ORDERED this 30th day of June, 1995, in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1995. APPENDIX The following constitute specific rulings on the findings of fact proposed by the parties. Clearwater Land Company's Proposed Findings 1. and 2. Adopted in paragraph 2. Adopted in paragraph 3. and 5. Adopted in paragraph 4. 6. and 7. Adopted in paragraph 5. Adopted in paragraph 9. and 10. Rejected as unnecessary. Adopted in paragraph 24. Adopted in paragraph 9. Adopted in paragraph 72. Adopted in substance in paragraph 24. Adopted in paragraph 10. Adopted in paragraph 11. - 19. Adopted in paragraph 12. Adopted in substance in paragraph 13. Adopted in substance in paragraph 14. Rejected as unnecessary. and 24. Adopted in paragraph 15. Adopted in paragraph 64. and 27. Adopted in substance in paragraph 13. Covered in Preliminary Statement. Covered in Conclusions of Law, paragraph 79. and 31. Rejected as unnecessary. Rejected as contrary to the evidence and law. Rejected as contrary to the greater weight of evidence. and 35. Adopted in substance in paragraphs 17 and 22. Adopted in substance in paragraphs 23 and 24. Adopted in substance in paragraph 27. Adopted in substance in paragraph 28. and 40. Adopted in paragraph 29. Adopted in paragraph 30. Adopted in paragraph 31. Adopted in substance in paragraph 32. Adopted in paragraph 33. Adopted in paragraph 34. Adopted in paragraph 35. Adopted in paragraph 36. Adopted in substance in paragraph 37. and 50. Adopted in paragraph 38. Adopted in paragraph 39. - 55. Rejected as cumulative and unnecessary. 56. and 57. Adopted in substance in paragraphs 47 and 64. 58. and 59. Rejected as unnecessary. Rejected as contrary to the weight of evidence. Rejected, as to the comparative conclusion; otherwise accepted generally. - 64. Rejected as unnecessary and cumulative. Adopted in paragraph 62. - 71. Rejected as unnecessary. Adopted in substance in paragraph 64. Adopted in substance in paragraph 64, except as to the impact if Beverly is approved. That finding is rejected as unsupported by the evidence. and 75. Adopted generally in paragraphs 64 and 65. Accepted, as to no impact on existing providers; rejected, as to impact by Beverly. Adopted in paragraph 67 (as to Beverly's cost). - 82. Rejected generally as contrary to the greater weight of evidence. Adopted in paragraph 10. - 86. Rejected as unnecessary. Rejected as contrary to the greater weight of evidence. - 94. Rejected as unnecessary or cumulative. Findings regarding the high quality of care and range of services are addressed above. 95. and 96. Adopted in part in paragraph 37; the one staffing omission was conceded by CLC's director of nursing. 97. - 99. Adopted in substance in paragraph 45. 100. - 117. Rejected as unnecessary or cumulative. 118. Addressed in Preliminary Statement. Beverly's Proposed Findings Addressed in Preliminary Statement. and 3. Rejected as unnecessary. Adopted in paragraph 17. Adopted in paragraph 18. and 7. Adopted in paragraph 19. Adopted in paragraph 20. Adopted in paragraph 21. Adopted in paragraph 26. Adopted in paragraph 22. Adopted in substance in paragraphs 9 and 12. Adopted in paragraph 6. Adopted in paragraph 7. Adopted in paragraph 8. and 17. Rejected as unnecessary. Adopted in summary in paragraph 70. Adopted in paragraph 50. Adopted in paragraph 51. Adopted in paragraph 52. Adopted in substance in paragraph 53, although the testimony was related to both Medicare and Medicaid reimbursement. and 24. Adopted in paragraph 54. Adopted in paragraph 55. Adopted in paragraph 56. Adopted in paragraph 57. and 29. Rejected as unnecessary. Adopted generally in paragraph 24. Adopted generally in paragraph 26. Adopted generally in paragraph 27. Adopted generally in paragraph 28. Rejected as unnecessary. Adopted in paragraph 28. Adopted in paragraph 29. Adopted generally in paragraph 30, although "multi-level" was not defined, and CLC's assertion that it is a "multi-level" facility is generally accepted. Adopted in paragraph 31. - 64. Rejected as cumulative and unnecessary. Rejected as to the characterization of CLC's rate; otherwise adopted in substance in paragraph 35. Adopted in paragraph 36. and 68. Rejected as cumulative and unnecessary. 69. and 70. Adopted in paragraph 38, except as to the conclusion that CLC does not meet the preference. 71. and 72. Adopted in part; rejected in part in paragraph 39. Adopted in paragraphs 40 and 75. - 100. Rejected as cumulative or unnecessary. 101. Adopted generally in paragraphs 72 and 73. COPIES FURNISHED: Robert Griffin, Esq. Charles A. Stampelos, Esq. MCFARLAIN, WILEY, CASSEDY & JONES, P.A. 215 S. Monroe Street, Ste. 600 Tallahassee, FL 32301 Douglas L. Mannheimer, Esq. Michael Manthei, Esq. BROAD & CASSEL 215 S. Monroe Street, Ste. 400 Tallahassee, FL 32302 Samuel D. Bunton, Esq. Agency for Health Care Administration The Atrium Building, Ste. 301 325 John Knox Road Tallahassee, FL 32303 Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, FL 32308 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive Tallahassee, FL 32309 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Bldg. 3, Ste. 3431 2727 Mahan Drive Tallahassee, FL 32308-5403
The Issue The issue in this proceeding is whether DHRS should approve the application for certificate of need of any one or more of the January, 1987, applicants for community nursing home beds in Hillsborough County. STIPULATIONS The parties stipulated to the following facts: All applicants timely filed their respective letters of intent, applications and omission responses with DHRS and the appropriate local health council for the January, 1987, batching cycle. The petitioners each timely filed a petition requesting a Section 120.57(1) hearing and have standing in this proceeding. The parties agree the Division of Administrative Hearings has jurisdiction over this matter and the parties. The CON application content requirements of Section 381.494, Florida Statutes (1985), apply as that was the statute in effect at the time the applications were filed. The review criteria in Section 381.705(1) and (2), Florida Statutes (1987), apply to this proceeding. The following statutory criteria have been met orare not applicable in this proceeding: Section 381.705(1)(d), (f), (g), (j) and (k) and all of Section 381.705(2), Florida Statutes (1987). Except for the effects the project will have on clinical needs of health professional training programs, the extent to which services will be accessible to schools for health professionals and the availability of alternative uses of such resources for the provision of other health services, Section 381.705(1)(h) is in dispute and remains to be litigated.
Findings Of Fact SUMMARY DESCRIPTION OF THE PARTIES. HCR's application (CON Action No. 5000) is to construct a 120-bed nursing home consisting of 40,000 square feet at a cost of $3,964,000.00, or $33,033 per bed (including adult day care; $32,1127 when the cost for day care is excluded.) The HCR application describes special programs and services for Alzheimer's Disease and related disorder patients in a distinct special care unit and an Alzheimer's day care center, both Identified in the plans submitted by HCR showing special design elements. HCR also proposes to offer sub-acute care and respite care. The HCR nursing home will have 2.08 (120/57.6) patients per staff, which includes the assistant director of nursing and occupational therapy and recreational therapy aides listed by HCR in its application. FCP submitted an application for 30 nursing home beds to be constructed as a part of a retirement facility (CON Action NO. 4993). The 30 beds will comprise approximately 17,558 square feet at a cost of $1,549,599.00, or $51,653 per bed. The Florida Country Place application proposes a patient staff ratio of approximately 2.3 (30/13). Palm Court submitted an application for a 60-bed addition to its existing 120-bed facility (CON Action No. 4987). The 60-bed addition would consist of 15,260 square feet at a cost of $1,472,435.00, or $24,571 per bed. The Palm Court facility is located in Plant City in the far eastern portion of Hillsborough County, near the Polk County line. Palm Court proposed a ratio of 2.31 (60/26) patients per nursing staff. Manor Care submitted an application (CON Action No. 5006) to add 60 beds to an approved certificate of need for 60-beds for which construction has not yet begun. The area to be added would consist of 19,000 square feet at a cost of $2,187,045.00, or $36,451 per bed. The Manor Care addition would include a distinct special care unit for Alzheimer's Disease and related disorder victims and the 60-bed addition would provide a patient staff ratio of 1.98 (60/30.3), which includes a half-time physical therapy aide, a half-time recreational therapy assistant and an assistant director of nursing. Forum submitted an application (CON Action No. 4999) to construct a 120-bed nursing home as a part of a retirement complex. The nursing home element will consist of 49,283 square feet at a cost of $5,053,301.00, or $42,111 per bed. Forum proposes a staffing ratio of 3.0 patients per staff FTE. Forum proposed to provide respite care and hospice care, and adult day care and meals on wheels during or after the second year of operation. HHL submitted an application (CON Action No. 4978) for 120-bed nursing home consisting of 37,700 square feet at a cost of $3,900,000.00, or $32,500 per bed. The HHL facility proposes 2.27 (120/52.8) patients per staff, which includes the rehabilitation assistants and the assistant director of nursing listed by HHL. HHL proposes sub-acute care, respite care, programs for Alzheimer's Disease victims (but not a distinct special care unit) and an Alzheimer's adult day care program of from four to six patients. Cypress submitted an application (CON Action No. 5004) to construct a 60-bed nursing home in Sun City Center in southeastern Hillsborough County. The nursing home described in the application would contain 24,069 square feet at a cost of $2,125,000.00, or $35,419 per bed. But Cypress' estimated construction cost per square foot of $49.81 does not account for inflation and is unreasonably low. Median cost of nursing home construction in Florida is $55 per square foot. It is estimated that Cypress' construction cost estimate is 10-15 percent too low. Assuming that the cost estimate is 12.5 percent too low, the cost of construction would increase to approximately $2,274.485 or $37,914 per bed. Cypress did not detail any special programs in its application and proposed 2.45 (60/24.5) patients per staff. However, this ratio is questionable in view of the confusion surrounding Cypress' evidence regarding staffing and the apparent inaccuracy of the staffing presented by the application. DHRS is the state agency that preliminarily reviewed and passed on the applications and is responsible for final agency action on them. DHRS PRELIMINARY REVIEW AND ACTION. HCR, FCP, Palm Court, Manor Care, Forum, HHL, Cypress, and others filed their applications for community nursing home bed certificates of need for Hillsborough County in the January, 1987, batching cycle. On June 18, 1987, DHRS issued its State Agency Action Report (SAAR), in which it denied all of the applications except HCR's, FCP's and VHA/Oxford's (for 120 beds). Review of the SAAR in light of the evidence introduced at the final hearing indicates that DHRS erred in reviewing the applications in at least the following respects: Manor Care. -- The SAAR indicates that DHRS was not cognizant that Manor Care had a final approval for a 60-bed nursing home CON (No. 4155) to which to add the 60 beds applied for in this case, CON Action No. 5006. The SAAR was somewhat critical of the Manor Care proposal for being a two-story structure. It appears that DHRS confused the proposal to add 60-beds (CON Action No. 5006) with a parallel contingent proposal to build a new 120-bed facility (CON Action No. 5005), which Manor Care eventually withdrew during the final hearing. Actually, CON Action No. 5006, added to the approved CON No. 4155 for a new 60-bed nursing home, would result in a one-story 120-bed nursing home. On page 7 of the SAAR, DHRS indicated its understanding that Manor Care had not specified a location for its proposal. Later, on page 11, the SAAR acknowledges the true fact that Manor Care's proposed nursIng home would be located in the Northwest Hillsborough County subdistrict, which is the Local Health Plan's first priority for location of additional nursing home beds in DHRS District 6. HHL. The SAAR (p. 13) states that Convalescent Services, Inc. (CSI), the management corporation HHL and other limited partnerships for which the Kellett Brothers are the general partners, has no other nursing homes in Florida. While technically correct, Kellett limited partnerships do have other nursing homes in Florida. Staffing tables on page 17 of the SAAR are incorrect, attributing no LPNs to the HHL proposal instead of 6 and only 36 aides instead of 38. On page 18 of the SAAR, the table of patient privileges incorrectly states that the HHL applications had no patients' bill of rights. Also on page 18 of the SAAR, DHRS incorrectly omitted adult day care and community outreach from the table of programs provided by HHL. On page 26 of the SAkR, it gives HHL's private pay private room rate ($101) as its semi-private room rate (actually $69.92) The SAAR Review Matrix incorrectly omits adult day care, community outreach and sub-acute care from HHL's proposed programs and omits HHL's patients' bill of rights. Forum. -- The SAAR starts out on page 3 by misidentifying Forum as being affiliated with Hospital Corporation of America. On pages 4, 6 and 15, the SAAR incorrectly fails to recognize that a retirement living center (apartments) is part of the overall development Forum proposes. The semi-private room rate of $110 attributed to Forum's application on page 26 of the SAAR is wrong; it should have been $85. Cypress. -- The Review Matrix in the SAAR failed to identify several services and programs Cypress stated in its application that it would offer. The matrix did not recognize that Cypress would offer social activity functions within the community, would offer rehabilitation, would provide some Alzheimer's type services, (which Cypress called supportive care and mentally frail services) and physically frail services. Cypress also spoke of hospice care and respite care in its application, as well as specialized rehabilitation, physical therapy, and speech therapy. Cypress also spoke of community outreach programs, psychiatric services, home health agencies, and numerous other areas that were not recognized by DHRS in its matrix. However, there are valid reasons for some of these omissions. On May 9, 1988, the first day of the final hearing, VHA/Oxford withdrew its application. On the afternoon of May 17, 1988, DHRS announced it was supporting the grant of Palm Court's application since VHA/Oxford had withdrawn. But the only evidence to support the new DHRS position was through the testimony of Reid Jaffe, DHRS Health Services and Facilities Consultants Supervisor, who did not express a personal opinion but acted as a messsenger to relay the positions taken by others at DHRS who did not testify. NUMERIC NEED. Rule 10.5.011(1)(k), Florida Administrative Code, is a methodology for calculating net numeric need for nursing home beds. Under the methodology, gross numeric need is calculated essentially by multiplying the population of two age cohorts projected on the planning horizon by a use rate. The use rate is calculated by divIding current population by the current number of licensed beds. To obtain net need in a health planning sub-district, the methodology first prorates the gross need in the entire district, using the proportion of current licensed beds in the subdistrict to the current licensed beds in the district, and adjusts the resultant by a current occupancy rate factor (occupancy rate /0.90); then, the number of licensed beds, plus 90 percent of the number of approved beds in the subdistrict, are subtracted from the adjusted gross need in the subdistrict. With three exceptions, the parties agree on how net numeric need is calculated under the rule methodology. The parties disagree only on the current licensed bed count, the current approved bed count, and the occupancy rate at one facility that has both community nursing home beds and sheltered nursing home beds. (Sheltered nursing home beds generally are not factored into the formula.) As for the licensed bed count, the issue is whether The Home Association, a 96-bed facility in Hillsborough County, should be included as a licensed community nursing home facility or excluded as a sheltered facility. At hearing, all of the parties presenting evidence on the issue except Forum counted The Home Association's 96 beds as licensed community beds. Forum excluded The Home Association from the licensed bed count because it was not listed on the Department's Community Nursing Home Report for January 1, 1988. This same report reflects three other facilities in Hillsborough County in which the beds were formerly sheltered but as of August 1, 1987, began to be counted by the Department as community beds. Forum conceded, however, that if the Department recognizes The Home Association as a community facility, then it would be appropriate to include those beds in the licensed bed count under the rule formula. In its proposed recommended order, even Forum agrees that The Home Association beds are included in the licensed bed count. Two issues are presented relating to the inventory of approved beds under the rule formula: the date at which approved beds are to be counted; and whether the 120 beds under Careage CON #4714 and Manor Care's 60 beds under CON #4155 were approved at the pertinent time. On the first question, Forum again stands alone. In the face of a rule which is silent as to the date on which approved beds are to be counted, Forum suggests that they be counted cn the same day licensed beds are counted, December 1, 1986, for this batch. All other interested parties follow the Department's general practice of counting approved beds as of the date the State Agency Action Report for this batch was executed, June 18, 1987. Forum supports its position on the ground that use of the same date for both licensed and approved beds avoids the prospect that beds may be "lost" from the calculation if they are not licensed as of December 1, 1986, but become licensed before June 18, 1987, and therefore are no longer approved beds on that latter date. The argument is meritless. There is no evidence of any "lost" beds under this policy for this batch. Indeed, the evidence is that such beds are not lost: 120 beds at Carrollwood were licensed on December 15, 1986, after the December 1 licensed bed cut-off and before the June 18, 1987, SAAR date. These beds were included in the approved bed inventory on June 18, 1987. The Department's policy under its numeric need rule is to count approved beds as of the execution date of the SAAR. Under this policy, the need for beds in the future is predicated on the number of beds currently or soon to be available to meet the need. When more than seven months can elapse after licensed beds are counted but before the agency decision is formulated, it makes sense to count beds approved during this intervening period. A 120-bed award to Careage in the prior batch was published by DHRS in the Florida Administrative Weekly of January 23, 1987, reflecting approval on January 7, 1987. However, DHRS then received criticism.of the approval, and a new supervisor in charge initiated a second review of the circumstances and of the Careage approval. The second review did not conclude until after June 18, 1987. When it did, DHRS re- affirmed its decision to approve Careage and issued a CON for 120 beds on August 18, 1987. Although the Careage CON was issued after June 18, 1987, DHRS proved that there is a rational basis for including it in the approved bed count under these unusual circumstances. The Careage CON represents 120 beds approved in the batching cycle preceding the one at issue in this case. Counting the 120 beds as approved promotes sound health planning. The projection of net need on the planning horizon is predicated on the most accurate count of approved beds from prior batching cycles that can be anticipated to come on line in the near future. As of June 18, 1987, there were 308 other beds approved but not yet licensed in Hillsborough County. Included among these 308 approved beds are 60 beds awarded to Manor Care under CON 4155 by Stipulation dated March 30, 1987. By mistake, DHRS did not count Manor Care's 60-bed CON in the SAAR. This mistake was not discovered, and DHRS served discovery responses and took a final position on need, as required by prehearing orders, that did not count the Manor Care CON. But this mistake f fact should now be corrected, even if it could have been discovered earlier through the use of due diligence, so that the health planning decision resulting from these de novo proceedings will be predicated on the correct facts. See Gulf Court Nursing Center v. HRS, 483 So.2d 700, 712 (Fla. 1st DCA 1986). It is appropriate to include Manor Care's finally approved 60 beds in the rule formula. Adding Careage's 120 beds, the total approved bed count is 428. The final variation accounting for the differences in the parties' calculations under the formula is the manner in which the occupancy rate should be computed at John Knox Village, a facility containing both community and sheltered beds. The issue is whether the patient days in this mixed facility should be prorated between the two types of beds or whether the full patient days for both types of beds should be used in calculating the occupancy rate in the facility. There is no separate report of occupancy by bed type for this mixed facility. The number of patient days delivered in the community beds at John Knox is not known. If the patient days for the entire facility are prorated according to the percentage the community beds bear to the total number of beds, there is a necessary but wholly unsupported and speculative assumption that the proportion of patient days delivered in community beds is identical to the proportion of community beds. DHRS historically has been unwilling to make this assumption and has always included the total number of beds and patient days in mixed facilities to determine the occupancy rate under the community bed rule. The rationale supporting this policy has been appropriately explicated on the record. The use of prorated patient days to determine occupancy in mixed facilities, as suggested by DHRS for the first time at final hearing, also is a change from the position the Department took when exhibits were exchanged and the prehearing stipulation was executed and then relied on by the parties. Because the Department, as a party litigant, did not prorate in its prehearing submissions, it cannot do so at hearing in the absence of fraud, mistake of fact, or newly discovered evidence. No evidence of any such extenuating circumstances was presented. The only explanation DHRS gave for changing its treatment of the John Knox occupancy data was that more accurate recent data (using daily census data instead of first day of the month census data) furnished by the Local Health Council was prorated. But DHRS just as easily could have prorated the older, less accurate data if it had chosen to take that position at the time the parties were required to take final positions in prehearing procedures. The Department, therefore, is precluded from adopting a posture at hearing relating to the treatment of patient days in mixed facilities which is different from that reflected in the Department's prehearing stipulation and exchanged exhibits. In summary, the appropriate numeric need calculation must include The Home Association in licensed beds, count both Careage's 120-bed CON and Manor Care's 60-bed CON in the approved bed count, and use the full John Knox bed complement and patient days in determining the Hillsborough County occupancy rate. Using these factors in the rule methodology, the net need for community nursing home beds in Hillsborough County for the January, 1990, planning horizon is 231, as reflected in the calculation included in the attached Appendix To Recommended Order, Case Nos. 87-3409, etc. Rule 10-5.011(1)(k), Florida Administrative Code, provides that DHRS normally may not approve more beds than the numeric net need calculated under rule methodology. In this case, none of the circumstances specified in the rule that would justify exceeding the numeric net need were proven by the evidence. At the same time, the rule does not require DHRS to fill all, or as much as possible, of the numeric net need by attempting to "mix and match" applications to come as close as possible to the calculated number. LOCAL GEOGRAPHIC NEED PRIORITIES. The current, 1985 District VI Local Health Plan provides that, after consideration of numeric bed need under the rule need methodology, its "priority need rankings" should be considered in the competitive review for new nursing homes. Hil1sborough County, Northwest, is priority rank number one. HCR, FCP, Manor Care, Forum and HHL all propose to locate their nursing homes there. Cypress proposes to locate in Sun City Center and Palm Court is in Plant City, both in Hillsborough County, Southeast, an area ranked fifth in priority in District VI. Plant City is close to Polk County, which the Local Health Plan designates as the fourth ranked area in priority. Cypress proposes its 60-bed nursing home approximately 1/4 mile down the road from an existing nursing home called Sun Terrace, operated by CSI. Quality of care concerns have arisen due to rapid fill-up of 60 additional beds recently licensed at Sun Terrace and opened in September, 1987. See Findings of Fact 83-87, below. As a result, Sun Terrace has imposed on itself a moratorium on new admissions until quality of care concerns can be addressed. In part as a result of the moratorium, Sun Terrace's occupancy rate at the time of the final hearing was only approximately 65 percent, leaving 42 empty beds. MEDICAID NEED. One of the three major considerations for competitive review of nursing home CON applications in the Longterm Care section of the 1985-1987 State Health Plan is "resource access." Except as reflected in the priority rankings, geographic access is not an issue in this proceeding. (Priority/Policy 7 of the Local Health Plan, setting a goal of providing for nursing home services within 30 minutes travel time of 90 percent of urban residents and within 45 minutes travel time of 90 percent of rural residents, already has been achieved in District VI.) But, to address concern for financial access, Priority/Policy 2 of the Local Health Plan provides that applicants "should commit, at a minimum, to serve Medicaid eligible patients in proportion to the representation of elderly poor in the subdistrict." In Hillsborough County, Northwest, where all but two of the applicants propose to locate, the elderly poverty rate is 18.6; in Hillsborough County, Southeast, where Cypress and Pal:n Court would be located, the elderly poverty rate is 15.6 percent. The applicants propose to commit the following percentages of their nursing home beds to the care of Medicaid- 4 eligible patients: HCR, 70 percent; FCP, 70 percent; Manor Care, 30 percent; HHL, 45 percent; Palm Court, 70 percent; and Cypress, approximately 10 percent. Cypress proposed in its application to commit 10 percent of its beds for Medicaid use. It attempted to update its application to provide for a 15 percent Medicaid commitment. The update was said to have been the result of a decrease in the average age of the residents of Sun City Center, Cypress' proposed primary service area, from 73 to 70. But the percentage was calculated by first estimating 60 percent private pay and "backing down" to a Medicare percentage of 25 percent, leaving 15 percent Medicaid. The evidence was persuasive that this attempted update was not due to extrinsic factors. See Conclusions of Law 20 to 25, below. Forum has committed only to have 50 percent of its beds Medicaid- certified and to meet the requirements of Priority/Policy 2. Although Priority/Policy 2 is written as a minimum Medicaid percentage, no evidence was presented from which to determine how high a percentage of Medicaid commitment is desirable. There was, e.g., no evidence on which to find that a Medicaid percentage as high as four times the elderly poverty rate is more desirable than a percentage approximately equal to or perhaps just a bit higher than the elderly poverty rate. To the contrary, the only evidence on the subject was that DHRS does not now consider the Medicaid percentage to be as important as it was considered to be in the past and that DHRS now just checks to see that the percentage approximates the elderly poor rate in the County. NEED FOR ALZHEIMER'S DISEASE PROGRAMS. Description Of The Disease And The Need. There is a need in Hillsborough County for additional nursing home beds and services for Alzheimer's Disease and related disorder victims. There is no known nursing home in Hillsborough County which provides a distinct care unit for Alzheimer's Disease and related disorder victims. There is an estimated unmet need by Alzheimer's patients for nursing home care in Hillsborough County of approximately 1,271 by July, 1989. DHRS has recommended that "preference should be given to applicants for new nursing home beds which propose the development of special Alzheimer's units" and "greater preference should be given to units that will also provide adult day care and/or respite care." Alzheimer's Disease is a brain disorder that was discovered at the turn of the century. It primarily affects persons over the age of 60. The term "related disorders" is used because some non-Alzheimer's disorders mimic Alzheimer's Disease symptoms and create many of the same needs for specialized care. Typically, Alzheimer's Disease results in gradual memory loss and, as memory loss progresses, results in the need for ever- increasing personal care. In the earlier stages, the victim is often in reasonably good physical condition and simply exhibits signs of recent memory loss. However, as memory loss increases, various activities of daily living are disrupted. Victims encounter more serious physical problems and exhibit symptoms such as wandering, significant weight loss, clumsiness, incontinence and antisocial behavior. In the last stages of the disease, the victim requires increasingly intense medical attention, becomes totally dependent on others, and may eventually require total skilled nursing care. The intensity of care required for the Alzheimer's Disease and related disorder victim increases as the disease progresses. In early stages, the victims are typically cared for at home by a family member. The nature of care required for an Alzheimer's Disease or related disorders victim is very exhausting for the care giver. Toward the end of the first stage of the disease when the victim requires increasing supervision, the victim can be maintained longer in the home if there is available to the care giver some form of occasional rest, such as adult day care or respite care. Adult day care and respite care provide opportunities for the primary care giver to "take a break". See Findings of Fact 133 to 135, below. An Alzheimer's Disease patient usually requires inpatient nursing home care late in the second stage of the disease. If the patient is ambulatory, he often exhibits a wandering behavior. Approximately 50 percent of the Alzheimer's victims admitted to a nursing home have the potential to wander. Ultimately, Alzheimer's victims become bed-ridden and require skilled or sub- acute nursing home care, including tube feedings, cathethers, and artificial life support. Historically, ambulatory Alzheimer's patients in nursing homes have been mixed with other patients. The Alzheimer's victim has often disrupted life in the nursing home because of the victim's wandering, incontinence, confusion, and socially unacceptable behavior. Because of these characteristics, some nursing homes avoid admitting Alzheimer's patients and others control problem behavior with sedation and physical restraint. A separate Alzheimer's care unit enables the nursing home to utilize special techniques to manage the Alzheimer's disease victim and allows the victim to maintain his cognitive capabilities for as long as possible, without restraint and sedation. Nursing home patients who do not suffer from Alzheimer's and related diseases are often agitated and disrupted by the Alzheimer's patients' unacceptable social behavior. A separate unit for Alzheimer's Disease victims accommodates the needs of the non-Alzheimer's patient by eliminating unpleasant, often violent encounters between dementia victims and other patients. Distinct Alzheimer's special care units provide better care for Alzheimer's disease and related disorder victims for several reasons. A separate unit eliminates the tendency of the Alzheimer's disease patient to disrupt the remainder of the nursing home. A separate unit provides a smaller, safer, specially designed area with specially trained staff to address the unique needs of the Alzheimer's disease victim. A separate unit is preferable to mixing Alzheimer's patients with non- Alzheimer's patients. Traditional nursing home programs and activities are often inappropriate and counterproductive for the Alzheimer's patient. HCR's Proposal. The 120-bed nursing home proposed by HCR will help meet the needs in Hillsborough County for adult day care, respite care, sub-acute care and a special care unit for Alzheimer's Disease and related disorder victims. The programs and services will enable the HCR nursing home to provide at one location a complete continuum of care from the least intense level of care in adult day care to total (sub-acute) care. HCR's Alzheimer's special care unit will incorporate special design features, special patient activities and programs and higher staffing levels to meet the unique needs cf Alzheimer's disease victims. These features are intended to compensate for memory loss and provide a safe environment where cognitive capabilities can be maintained for as long as possible while patients enjoy personal freedom without the use of restraints and sedation which have typified the treatment of unmanageable Alzheimer's and dementia patients. The architectural design of the HCR nursing home will accommodate the tendency of Alzheimer's victims to wander by allowing the victims to ambulate in circular patterns through the facility and the adjacent court yard and by providing an electronic warning system to prevent inadvertent exit from the nursing home. Patient bathrooms are specially designed to avoid fright and confusion through the use of automatic lighting fixtures, appropriate coloring and distinctly shaped fixtures and waste baskets. Calming colors, color coding, carefully selected art work, special floor coverings and labeling are provided. Separate dining and activities areas enable the nursing home to provide programs and activities for Alzheimer's disease victims in a more effective and efficient manner than would be possible if the same areas also had to be used for non- Alzheimer's Disease victims. The proposed HCR nursing home includes a discreet area designed for an adult day care center, which will share some resources with the nursing home. The program will accommodate 12 persons and be operated in accordance with adult day care regulations. The physical spaces include an entry separate from the main nursing home entry, a lobby, an office, a therapeutic kitchen for use by the patients, toilet facilities, an activities center, and a lounge with an adjacent covered porch. The adult day care program will be staffed by a nurse director, an assistant and volunteers. The participants in this program will be provided with various activities of daily living in an environment developed for Alzheimer's Disease victiMs. This program is intended to provide placement for persons not yet in need of in-patient care and will provide an alternative to premature nursing home admission. Manor Care's Proposal. Manor Care proposes a dedicated 30-bed specialized unit for persons suffering from Alzheimer's disease and related disorders. In 1985, Manor Care perceived the need to treat Alzheimer's patients in a manner different than patients in the general nursing home population. Manor Care's task force of nurses, administrators, architects, and designers developed an Alzheimer's program which recognizes the special needs of the patient. Manor Care now operates 21 special dedicated Alzheimer's units throughout the country and is planning 16 additional Alzheimer's units. Manor Care's comprehensive Alzheimer's program encompasses five components: (1) environment, (2) staffing and training, (3) programming, (4) specialized medical services, and (5) family support. Environment. The proposed 30-bed Alzheimer's unit will be separate from the rest of the facility and self-contained, with its own dining room, activities room, lounge, quiet/privacy room, nurses sub-station, director's office, and outdoor courtyard. A separate dining room for Alzheimer's residents enables staff to provide individualized attention and special assistance. By providing a simple and separate dining environment, residents are no longer embarrassed by confusion and agitation displayed in the presence of non-Alzheimer's residents during mealtime. A separate lounge area is provided for families to visit with residents. In a typical nursing center, the family must visit a confused resident in the presence of other families; families of Alzheimer's residents can find this embarrassing. A separate lounge makes visitation more desirable for Alzheimer's residents and families. The quiet/privacy room can be used by families as a quiet area to visit with a family member, by residents who want to spend time alone, or by staff persons and residents for individualized programming away from the activity on the unit. The outdoor courtyard, which is enclosed and accessible to the unit through the activities room and hallway door, allows Alzheimer's residents to walk outside freely without wandering off. The Manor Care Alzheimer's unit is specially designed with features which reduce environmental stress by minimizing glare (using parabolic lenses), noise and bold patterns which increase agitation in Alzheimer's residents. Throughout the unit, a residential, uncluttered atmosphere is emphasized, using soft, contrasting colors and textures. The unit also contains visual cues to increase orientation. Furnishings are functional, durable and easy to maintain. Staffing and Training. The Alzheimer's unit has its own specialized staff including a Unit Director, Activities Director, and nursing staff. The unit is staffed at a higher "nurse to resident" ratio than the rest of the facility. Staffing patterns emphasizu continuity to ensure that residents receive individualized care. The nurses become f;i1iar with the behavior and abilities of each resident and are able to render care appropriately. Programming. The goal of programming and activities in the Alzheimer's unit is to improve the quality of life of the Alzheimer's resident. This specialized programming results in reducing the use of medications and restraints necessary to manage the Alzheimer's resident. The Manor Care Alzheimer's activity program is success-oriented; staff provide activities designed to allow Alzheimer's residents to succeed more frequently. (They usually fail when mixed in with the general nursing home population.) specialized Medical Services. The use of consultant medical specialists is an integral part of Manor Care's Alzheimer's Program. Specialists provide diagnostic and treatment services for Alzheimer's residents upon admission to the unit, and thereafter when deemed medically appropriate. Family support. Family support is another important aspect of the Manor Care Alzheimer's program. Families are very supportive of the unit's programming and have benef itted from the understanding and support available to them. The Others' Proposals. None of the other applicants propose specialized units for the care of patients with Alzheimer's disease and related disorders. Alzheimer's sufferers will be treated in an "open unit" at the HHL facility and will be placed as compatibly as possible with other residents. Although these residents will be able to intermingle with other residents, their movements will be monitored by the "wander guard" system and all doors will be equipped with buzzers connected to the nurse's stations. The HHL facility will be designed to incorporate secure courtyards and other areas where residents will be free to wander safely throughout the living areas. The facility's nursing personnel will be specially trained to provide services to Alzheimer's sufferers. The proposed HHL facility will also offer an adult Alzheimer's day care program. Although the program will be small (accommodating between four to six individuals) it will interface with the Alzheimer's program offered to the in-house residents. As with the respite program, the Alzheimer's adult day care program will give the families of Alzheimer's disease sufferers an opportunity to take a breather during the day, and the participants will benefit from the special Alzheimer's programs and activities offered. With its proposed 60-bed addition, Palm Court plans to add a program directed specifically at persons suffering from Alzheimers and related brain disorders. Currently, it does not have one. Neither FCP nor Forum make any particular provision for the care of Alzheimer's patients. FCP points out that its facilities in other states historically have cared for this special category of patient, primarily through use of high quality, thereapy-oriented programs, especially at the earlier stages of the disease. Cypress proposes to locate off of a central core: a 60-bed nursing home, offering both intermediate and skilled care, with its own recreation area and dining, serviced from the central kitchen; (2) a 20-bed assisted living unit (which Cypress also calls "supportive care") for mentally frail and physically strong individuals which has its own outdoor recreation area and dining area; and (3) another 40 assisted living beds broken into two 20-unit wings for mentally strong and physically frail individuals, with their own dining and recreation area, including outdoor recreation. The various levels of care are separate since each of the levels have different needs and methods of treatment. However, Cypress will only accept in the mentally frail, physically strong wing, Alzheimer's-type patients who are in the earlier stages of the disease. QUALITY OF CARE. Priority/Policy 9 of the 1985 Local Health Plan states: "Applicants should be evaluated as to their achievement of superior quality ratings by DHRS and other indications of quality as available." Track Record. At the time of application, three of the nursing homes operated by HCR in Florida had superior licenses and the remaining homes had standard licenses. FCP has one nursing home in Florida. It is rated standard by DHRS. None of the facilities operated by FCP's principals, the Phillipses, has ever been in receivership or had a Medicaid or Medicare certification revoked. The Phillipses have an excellent reputation in Ohio for their operation and management of nursing homes and have remained in positive standing with federal and state certification agencies. Manor Care's proposed 60-bed addition will be owned by Manor Care of Florida, Inc., a wholly-owned subsidiary of Manor HealthCare Corporation. Manor HealthCare Corporation is a publicly-held corporation which owns and operates about 130 nursing homes in various states. Manor Care owns and operates nine nursing homes and three adult congregate living facilities (ACLFs) in Florida. All nine Florida nursing homes exceed DHRS licensure standards; the majority of Manor Care's Florida facilities hold a superior license rating. Manor Care has never had a license denied, revoked, or suspended in Florida. Manor Care has opened three nursing homes in Florida in recent years. All three are superior rated. Palm Court Nursing Home has a superior license, with zero deficiencies, from DHRS' Office of Licensure and Certification with the most recent inspection having occurred between May 2 and May 4 immediately preceding the beginning of the final hearing. It is managed by National Health Corp., Murpheesboro, Tennessee. National Health Corp is an owner-operator of other facilities and either owns or operates some 19 facilities in Florida. It has managed Palm Court Nursing Home since its inception and, if the 60 bed addition is approved, will manage the addition. Forum has never had a license denied, revoked or suspended, nor had a facility placed in receivership. Forum has never had any nursing home placed in receivership at any time during its ownership, management or leasing. Forum has a history of providing quality of care and owns and operates facilities in other states which hold superior ratings. Forum has a corporate policy of seeking to attain a superior rating in those states which have such a system. Forum presently owns and operates one facility in Florida. That facility is rated standard and was acquired by Forum within the past two years. That facility, which only has 35 nursing beds, is not a prototype of what Forum proposes in this case. Seventeen (17) of the twenty-one (21) nursing homes currently managed by CSI are located in states which utilize a superior rating system. Of the facilities that are eligible to receive superior licenses, CSI maintains superior ratings in over 80 percent of its beds. CSI's Sun Terrace in Sun City Center was the subject of an extensive survey issued by the Office of Licensure and Certification, an arm of DHRS, in April, 1988, that cited numerous deficiencies in the areas of quality of care, staffing, and programs at the Sun Terrace facility. The licensure survey also cited violations of state and federal laws in the handling of controlled substances and problems with resident care plans at the facility. The findings of DHRS in its licensure survey of Sun Terrace appear to be serious matters, the resolution of which is clearly within the control of CSI. Following the opening of the second 60 beds at Sun Terrace in September, 1987, the facility experienced a shortage of nursing personnel which necessitated a greater use of agency personnel to staff the facility. The problems cited by DHRS at Sun Terrace were largely the result of the increased use of agency personnel, lack of documentation, a newly licensed administrator, and the unexpected resignation of the director of nursing. Even before the DHRS licensure survey, CSI had taken affirmative action to address the problems at Sun Terrace, including a voluntary moratorium on new admissions. In response to the recent problems at Sun Terrac, CSI has moved toward more centralized management of its facilities. CSI now requires administrators to adhere very closely to the corporate policies and procedures. Further, the addition of a second full-time nurse/consultant will double the frequency of quality of care monitoring visits at CSI facilities. The problems experienced at Sun Terrace are atypical of CSI-managed facilities. When CSI's policies and procedures are properly followed, the result is excellent nursing care and services. But the problems at Sun Terrace are examples of what can happen when an organization attempts to expand operations more rapidly than it should. In this connection, CSI has received seven CONs since July 1984. Two of the seven are preliminary approvals that have been challenged and have not yet gone to hearing. One was the 60-bed addition to Sun Terrace which is now licensed. Another is a 73-bed nursing home in Brevard County which is expected to open within the next several months, and another is a 21-bed addition project in Collier County. Cypress has never operated a nursing home and has no track record. Staffing. Staffing arrangments are important considerations in assessing the quality of care to be expected from a proposal, but there is not necessarily a proportional correlation between staffing and quality. How staffing affects quality also depends on the breadth and types of programs to be offered. For example, Alzheimer's programs and sub-acute care will require higher staffing ratios. HCR, FCP, Manor Care, Palm Court and Forum all propose staffing arrangments that meet or exceed state requirements. See Findings Of Fact 1-5, above. Cypress' application, on the other hand, leaves much to be desired in its proposed staffing. The staffing plan presented by Cypress on its Updated Table 11 fails to meet the requirements of Rule 10D-29, F.A.C. Specifically, no provision has been made for an activity director (10D-29.116), a medical director (10D-29.107), a pharmacy consultant (10D-29.112), or a medical records consultant (10D-29.118), all of which are required by rule. (Cypress attempted to explain that it would have a pharmacy consultant on contract who would bill patients separately.) Further, no provision has been made for utilization review to monitor the appropriateness of the placement of residents, as required by Rule 10D-29. Cypress' Updated Table 11 provides for LPNs of 1.5 FTEs on the first shift and night shift and 6.0 FTEs on the second shift. The second shift LPN coverage is over-staffed by 4 1/2 FTEs which will result in inefficiency. Rule 10D-29.108, F.A.C., requires staffing of nursing assistants on all shifts. The Cypress staffing plan makes no provision for nursing assistants on the second shift. In testimony, Cypress attempted to explain that Table 11 was wrong and that the second shift LPNs should have been aides. The proposes Cypress nursing home will not offer 24-hour RN coverage. The third shift has no RN coverage. Based upon the proposed staffing pattern appearing in Cypress' Updated Table 11, its proposed facililty would not qualify for licensure under Florida regulations, much less qualify for a superior rating. Cypress has not secured or identified the day-to-day management of the proposed nursing home. No medical director has been secured or identified. Quality Assurance programs. All of the applicants except Cypress have existing quality assurance (QA) programs that are adequate to assL're quality of care. From the evidence HCR's, Manor Care's, HHL's and Forum's QA programs are comparable and are the best among the applicants. Palm Court has had results comparable to or better than the others , which is itself evidence of an adequate QA program. Meanwhile, CSI, despite an evidently superior QA program, has experienced quality programs due to rapid fill-up of its 60 additiional beds at Sun Terrace. Cypress has no experience operating a nursing home. Not surprisingly, it professes to desire quality and to plan to implement stringent QA programs. But its plans at this stage are not as developed and detailed as the existing QA programs being used by the other applicants at other facilities. Other Factors. Whether Therapies Are In-House or Contracted. Assuming a need for it, and reasonable cost of providing it, provision of therapies--e.g., physical therapy, occupational therapy and speech therapy-- in-house generally is preferable to providing them by contracts with third parties. From an operational and administrative perspective, there are advantages to providing physical therapy services (PT) on an in- house basis. Contracted physical therapy staff tend to be available only for scheduled treatments; in-house staff are always available to assist staff and perform unscheduled maintenance therapy. In-house physical therapy staff work regularly with the nursing home staff. They are present within the facility anc learn the operation of the nursing home facility better than outside agencies. Manor Care proposes to provide in-house physical therapy staff, as opposed to employing outside physical therapy staff on a contract basis. The evidence was that the other applicants plan to provide all of these therapies through third- party contracts. Palm Court has one full-time PT assistant who works under the direction of a licensed physical therapist who now divides time among three 120- bed nursing homes managed by National Health Corp. The service of this licensed physical therapist is provided as part of National Health Corp's management services. Having to cover another 60 beds at Palm Court will spread the service even thinner. In addition, Palm Court's administrator conceded that the single PT assistant in Palm Court's application will not be enough once 60-beds are added to the facility; two will be required. Of course, the trade-off (implied in Finding of Fact 102, above) for providing in-house therapy is that it is less efficient if full use of the services is not required. De-institutionalization. FCP, Forum and Cypress have made special efforts to "de- institutionalize" nursing home care at their proposed facilities. All three proposals emphasize the provision of nursing care within aresidential development--a combination of retirement apartments, assisted living accommodations and nursing home. (See also this concept's impact on Continuum of Care concerns, Findings of Fact 114-127, below.) FCP's proposed facility is designed with a residential appearance to facilitate and implement the philosophy of de-institutionalization co:tained in its application. It reflects FCP's modular approach to care with residential units in wings tied to a common area of support services. The support services are extensive. There are activities areas, craft areas, exercise rooms, therapy areas, a beauty salon and barber shop, men's and women's recreational areas, private dining rooms, a community dining room, screened patios and porches, a newsstand, a bank, a post office, a library, a chapel, a screened-in gazebo, and a swimming pool. The exterior amenities of the design include a pond, an exercise course, a sitting deck, and a putting green. The center core and its recreation and therapy programs are designed to encourage interact ion among the residents in all the different levels of care. Although the third floor, where the nursing home is located, also has a secondary lounge and supplemental dining area, the primary dining area, as well as all of the other amenities, are on the first floor to enhance the interaction. The 30-bed size of FCP's proposed nursing home unit is a part of the original Phillips concept of a de- institutionalized setting, enabling the provision of more personalized care. Where there are fewer residents to care for, a better rapport between the residents and the care givers and a more family-type, personal atmosphere are achieved. This 30-bed concept previously has been approved by the Department in Lee and Polk Counties. Those projects are operationally, structurally, and physically identical to this proposed project. The symmetrical, 3-story design minimizes the amount of travel distance for the resident at the farthest unit to the amenities of the center core and its services. The nursing unit is on the third and smallest floor so that the distance by elevator to the central core for the nursing home iesidents is at a minimum'while still providing those residents with the greatest opportunity for quiet time. Privacy is an essential element in achieving high quality of care. The semi-private room plan utilized in this proposal is a unique approach to maximizing privacy for each resident. A permanent partial partition separating the two beds in each room effectively creates two private rooms. This provides a private space for each resident with his or her own thermostat, window, storage space, television, and telephone accommodation, and heightened auditory privacy. There will be equal access to and control of the vestibule and bathroom for each resident. The 585 gross square feet per bed in the FCP proposal is approximately one-third greater than standard nursing home room configuration. Forum's proposal's chief effort in furtherance of the goal of deinstitutiona1izationother than the continuum of care concept and overall residential appearance--is in the relatively large and "up-scale" living areas. The Cypress facility will include a central core dividing the two 60- bed portions of the project. The central core will include an administrative area, a chapel, a beauty and barber shop, enclosed courtyard, physical and occupational therapy, dining, a central kitchen, and a laundry area. One trade-off for de-institutionalization is cost. Both FCP and Forum generally cost more than the others. Cypress claims not to, but its projected construction cost of $49 per square foot is unrealistically low. See Findings of Fact 147 and 149, below. PROGRAMS (OTHER THAN ALZHEIMER'S). Continnum of Care. As just alluded to, several of the proposals emphasize the placement of their nursing home within a larger community of persons needing different levels of care. FCP. FCP proposes the construction of a 30-bed nursing unit as part of a family owned and operated, 120-unit, full continuum of care facility for the elderly. The facility also contains 60 independent living apartments and 30 adult congregate living units. The full continuum of care is proposed in a uniquely designed, de-institutionalized, home-like atmosphere. FCP offers a therapeutic community offering individualized, personalIzed care in small self- contained units, each specializing in various levels of care ranging from day care and respite care, through apartments for the elderly and assisted living, to skilled, post-hospital rehabilitation. The continuum of care will provide a homogeneous environment through which residents can move as their medical and personal needs change. Forum. Forum Group, Inc., is a national company which owns, develops and operates retirement living centers in a number of states. Forum's proposed nursing home will be part of a total retirement living center containing two other levels of care, assisted living (or ACLF units) and independent apartment units. Forum's proposal calls for provision of a continuum of care, from independent living to assisted living to nursing care, all on the same campus. Cypress. Cypress Total Care would be part of an overall medical project known as Cypress Park. The corporation was formed and a master plan was created, to be developed in two phases. Phase I is a 120-bed nursing facility consisting of 60 skilled and intermediate nursing beds, the subject of these proceedings, and 60 personal care units. Phase II would consist of a 290-unit adult congregate living facility (ACLF) and 143 units of independent villa housing on a golf course with nature trails and other amenities. Also proposed in Phase II would be units of medical offices and commercial health-related facilities to support the community. The area selected by Cypress is adjacent to the Sun Hill Medical Arts Building and the Community Arts Building, as well as a hospital owned by Hospital Corporation of America known as Sun City Hospital. These components would be worked into the overall master plan proposed by Cypress. Cypress proposes a multi-level assessment program. The 120-bed Cypress Park Community facility will have an independent level one facility in Sun City Center which will admit healthy elderly residents. These elderly may have canes, but no walkers or wheelchairs, and they will function normally in their activities of daily living. These individuals may prepare two meals a day in their apartments, or have them in the dining room. The main meal will be in the dining room. Social services and activities will be provided and recommended to the independent living residents to enhance their lifestyles. A home health agency is planned as a part of the center so that house calls can be made to insure that any necessary medications are taken and that residents receive the services they might need from time to time. (Cypress has not yet applied for a CON for its home health agency.) The next level of living is for patients who need more assistance. These are residents who require 24-hour companion service. These patients do not require skilled nursing care and do not require the institutional environment of a nursing home. Some of these paients may be in the first stage of Alzheimer's, or they may be physically frail, but not enough to require skilled nursing care. This level is primarily for those individuals who are physically frail and mentally strong or mentally frail and physically strong. The physically frail and mentally strong may have limited ambulatory capabilities, need assistance in activities of daily living, need medication, or need all their meals prepared. As noted above, this level of services also will be provided to individuals who are physically strong but mentally frail. The majority of these people will be Alzheimer's residents, they must be carefully monitored 24 hours a day and receive strong psychological support. The next level of care offered is for individuals who require some nursing care and no longer qualify for the level two care described above. This will be intermediate nursing care and will consist of care from certified nursing aides and licensed practical nurses. These individuals do not require skilled nursing care. Rehabilitation is the key to this portion of the plan, and the rehabilitative center will be involved to constantly push these individuals to the point of rehabilitation where they can reenter an independent lifestyle. If individuals progress further, they can move into the skilled nursing care center in which they will receive care not only from nursing aides and licensed practical nurses, but also from registered nurses. The final level would be acute hospital care which would be provided by the existing Sun City Hospital. The medical staff who are involved in the Cypress project also are on the medical staff of the Sun City Hospital and will be working and consulting with individuals both in the acute hospital care and the nursing home setting to provide appropriate levels of care to the individuals who need it. The nursing home will share IV teams, work with tracheotomy patients, A.D.A. dieticians, accounting services, and other services with the existing hospital in Sun City Center. Palm Court. Palm Court, while currently a free-standing 120- bed nursing home, is located on property where construction of a 360-bed adult congregate living facility (ACLF) is now starting. In addition, Palm Court has transfer agreements with area hospitals including Plant City Hospital, South Florida Baptist Hospital, Brandon Humana Hospital and Lakeland Regional Medical Center. It also has formal working relationships with home health agencies and with elderly programs in the area. The Others. The other applicants--HCR, Manor Care and HHL-- propose free-standing nursing homes. But all can be expected to make efforts to achieve transfer and other agreements with local hospitals, home health agencies and providers of care for the elderly where reasonable and appropriate. Sub-Acute Care. The HCR nursing home will be staffed and equipped to provide sub- acute care. The sub-acute care services provided by HCR will include high tech services such as ventilator care, IV therapy, pulmonary aids, tube feeding, hyperalimentation, and short and long term rehabilitation. HCR currently provides a wide variety of these sub-acute services in its existing nursing homes. CSI currently provides sub-acute nursing services at its existing Florida facilities. Those services include ventilators, hyperalimentation, intravenous therapy, Clinitron beds, heparin pumps, nosogastric and Jejunoscopy tube feedings, subclavian lines, and Hickman catheters. These service will be provided at HHL's proposed facility. Forum will provide skilled and intermediate care, and the following services will be offered at the proposed facility: Sterile dressing changes for decubitus care. Brittle diabetics on sliding scale insulin. Continuous administration of oxygen. Sterile case of tracheotomies. Ventilators. Continuous bladder irrigation. Hyper-alimentation or N-G feeding. IV treatment. Special medication monitoring (e.g. heparin, comadin). New post-operative cases facing hospital discharge as a result of D.R.G. reimbursement. The skilled nursing services to be provided by FCP include parenteral nutrition, internal nutrition, tracheostomy care, respirator care, skin wound decubitus care, ostomy care, and head trauma care. Palm Court also will provide sub-acute care. Adult Day Care Adult day care is a part of the specialized Azfleimer's program HCR proposes. In addition, HHL, FCP and Forum offer adult day care. Respite Care. HCR and Manor Care offer respite care as part of their Alzheimer's programs. Both will have no minimum length of stay and no extra charge over the regular daily rate for nursing home care. All the others except Palm Court also offer respite care, but Cypress' proposal for respite care is sketchy. HHL says it will offer respite care at no extra charge. D. Hospice. Only HCR, Forum and HHL offer hospice care as part of their nursing home programs. F. Rehabilitation and Community Outreach. All of the applicants propose rehabilitative (or restorative) care and some kind of community outreach programs. The distinctions among the ideas expressed by the applicants are not particularly competitively significant. However, the manner in which the therapies are delivered can be significant. See Finding of Facts 102 to 105, above. HOW SOON THE PROJECT BECOMES OPERATIONAL. Because there is a shortage of nursing home beds in Hillsborough County, there is a valid concern how long it would take for the holder of a CON to get its facility operational. Priority/Policy 3 of the 1985 Local Health Plan gives expression to this concern as follows: In competitive reviews, preference should be given to applicants with a documented history of implementing certificates of need within the statutory time frames. Of the applicants who have developed nursing homes in the past (i.e., excluding Cypress), all but Palm Court have a history of timely implementing their CONs. Palm Court had to request an extension of time in implementing its existing 120-bed facility. But Palm Court bought the CON for that project from the original owners in 1982 or 1983. Palm Court then had to secure another, more suitable location, re-design the facility, get construction financing and enter into a construction contract before construction could begin. This delayed the project and resulted in administrative litigation to decide whether Palm Court should lose the CON for failure to timely implement it or be given an extension of time. Palm Court prevailed, and the facility opened in September, 1985. HHL, through CSI, also has a history of timely implementing CONs but recent expansion in Florida raises some question whether it can continue to be as timely in implementing this CON, along with the others. See Findings of Fact 82-87,98, and 100, above. Generally, an addition of beds to an existing nursing home can be constructed more quickly than a new facility, giving Palm Court an advantage in potential speed of implementation. similarly, Manor Care, which is prepared to begin construction on its finally approved 60-bed CON, has an advantage over the others, as well as a potential construction cost savings over Palm Court. See Findings of Fact 146, below. COST OF CARE. Cost of Construction And Development. Advantage of Additions. Within limits placed on recovery of capital costs under the Medicaid and Medicare reimbursement programs now in place (which, to some extent, are emulated by private health care insurers and employers' health benefit plans), construction and development costs generally are reflected in the charges patients pay for nursing home care. Additions, such as Palm Court's and Manor Care's proposals, have a cost advantage over the other proposals. Construction sites already have been prepared, and it is not ncessary to duplicate some features already incorporated in the original structure, such as the kitchen, laundry and building plant. Due to delays in finalization of its approved CON for 60 beds, Manor Care has the fortuitous additional potential cost advantage of being able to construct both the "original facility" and the 60-bed "addition" at the same time. Quality vs. Cost Trade-Off. Other than the cost advantage of adding on, and of saving the contractor's fee by using an in-house construction team (as HCR does), reduced cost of construction generally will reflect reduced quality. For example, some of the quality features incorporated in the proposals of Forum, FCP and Cypress will cost more. See Finding of Fact 113, above. Put another way, lower costs may result in lower patient charges but also may result in lower quality, everything else being equal. The costs of construction of the various proposals may be found in Findings of Fact 1 to 7, above. It should also be noted at this point that Cypress' facility design has features--primarily unusual wall and roof angles and one water heater requiring larger pipe sizing-- which make its construction costs appear lower than they should be. Cost Overruns. The applicants' respective records for cost overruns in implementing CONs mirror their records for timeliness. See Findings of Fact 138-143, above. Cypress has no track record; all the others except Palm Court have experienced no cost overruns; Palm Court's $1.3 million cost overrun was precipitated by the need to secure another site and re-design the facility after it acquired the CON for 120 beds; and CSI, which would be responsible for implementing HHL's proposal, is involved in recent expansion which could affect its ability to bring all of its' CONs on line within budget. Cost of Operations. Economies of Scale--Size of Facility. In addition to construction and development costs, cost of operations are reflected in patient charges. It generally is accepted that a 120-bed nursing home is the optimal size for operational efficiencies. In this respect, the proposals by HCR, Forum and HHL have an advantage over the others. Manor Care has the advantage of proposing to expand a less efficient 60-bed nursing home to an optimally efficient 120-bed facility. To some extent, the generally accepted principle that 120-bed nursing homes are more desirable may have become dated. Two of the proposals--FCP's and Cypress'--combine some of the operating efficiencies of a 120-bed nursing home with the continuum of care and quality of care that can be achieved in a 120-bed living complex that incorporates a smaller nursing unit with other living units of different levels of care. By c(Jmparison, these type facilities are less institutionalized than a 120-bed nursing home, whether free-standing or incorporated within a larger complex with other living units. See Findings of Fact 106 to 113, above. Economies of Scale--Size of Organization. Economies of scale also can be realized from the size of the organization that owns or manages a nursing home. The proposals of all of the applicants except Cypress benefit from this principle, Palm Court to a lesser extent than the others, including in the area of quality assurance, nurse training and nurse recruiting. At the time of hearing, HCR operated nine nursing homes in Florida. HCR has approximately twelve nursing homes scheduled to begin construction in Florida within the next year. Nationwide, HCR operates more than 125 facilities containing approximately 16,000 beds. HCR has designed and built over 200 nursing homes and related health care facilities. HCR realizes substantial savings by using national contracts for the purchase of furniture, equipment, hardware and other operating supplies. Forum, as a national company, has the experience and purchasing power to cut operational costs through national purchase contracts and through economies and improvements experienced at the local level with a total retirement facility all on one campus. The Manor Care Florida Regional Office offers the services of a Regional Director, a Regional Nurse, a Nurse Recruiter, and a Comptroller to work with the corresponding departments of the Manor Care Florida nursing homes. FCP's long term plans are to develop homes in clusters, currently concentrating on the central west coast area of Florida. FCP has previously been granted certificates of need in Lee County and Polk County and has been recommended by the Department for a certificate of need in Hillsborough County. This cluster will operate under a unified local administration and share rehabilitative, medical, social, dietary and transportation personnel, enhancing economies of operation. CSI was formed in 1978 for the purpose of operating extended care facilities, including nursing homes and retirement centers. Since that time, the company has grown to its current operations of twenty-one (21) nursing homes, two (2) retirement centers and one (1) home for the aged located in seven states. Historically, much of this growth has occurred through the acquisition of existing facilities, although more recently the focus has shifted to the development of new facilities. Because CSI has established "national accounts" for the acquisition of movable equipment CSI can purchase nursing home equipment and furnishings and other operating supplies for HHL at reduced prices. (3) Patient Charges. The applicants propose the following room charges for semi-private rooms. Applicant Medicaid Medicare Private Pay HCR 60.94 76.00 75.00 FCP 60.00 65.00 80.00 Manor Care 1/ 69.37 ---- 72.57 HHL 66.30 109.33 2/ 72.76 Forum 67.18 80.67 79.50 Palm Court 77.00 100.00 77.00 Cypress 58.00 65.00 69.00 However, Cypress' charges are suspect; they probably are unrealistically low. Palm Court's charges also are suspect. It is difficult to understand from the evidence whether they are charges or Medicaid reimbursements. It also is difficult to tell if they are current or projected. In any event, they do not relate to the information in Palm Court's pro forma. As previously alluded to, patient charges do not necessarily proportionately reflect construction and development and operating efficiencies. They also are affected by programs and quality. BUILDING DESIGN AND ENERGY FEATURES. Patient Care and Safety. Overall, HCR's design is excellent. Functional elements are effectively inter-related, the building is designed to be open to landscaping, sunlight and court yards, and there is a wide range of amenities. Cypress' patient rooms are smaller than allowed under state requirments. The state minimum in Chapter 10D-29, Florida Administrative Code, is 80 net square feet per bed for multi-bed and 100 net square feet in a single room. Cypress' proposal only has approximately 65.58 gross square feet per bed. Cypress' building design also has rooms that are approximately 130 feet from the nurses' stations and clean utility and soiled utility rooms, 10 feet over the state maximum under Rule 10D-29.121(24), Florida Administrative Code. Forum's :4 floor plan also violates this standard. Rule 10D-29.121(6), Florida Administrative Code, requires a 20 foot clear view out room windows. Cypress' design also violates this standard. Manor Care's floorplan is the most compact one- story design. It has four compact wings off a central core. Forum proposes a two-story structure, creating a potential increased hazard for patients with reduced mobility. But DHRS rules provide for nursing homes of more than one floor, and required safety features, which Forum will provide, keep the potential to an insignificant minimum. FCP proposes a three-story facility with the nursing home on the third floor adjacent to the elevators connecting it to the first floor central core and amenities. FCP, too, adequately addresses DHRS safety concerns and actually could be more convenient to more nursing home patients than a one-story structure. Energy Conservation Features. All of the applicants propose to insulate their facilities for energy efficiency, some, e.q., HHL, somewhat better than others. Building design itself also affects energy consumption. Cypress' high exterior building surface area makes it a less energy-efficient design; Manor Care's compact design aces it a more energy-efficient design. FCP's three-story design also is a more energy-efficient design. Cypress' design incorporates only one water heater. This will produce line loss and lower energy efficiency, as well as potential total loss of hot water. (Cypress also has only one electrical plant.) Other Unique Design Features. Several unique features in FCP's room design helps "de- institutionalize" the facility and contributes to overall quality of care. Similarly, residents at FCP will be able to offer their guests refreshments from the kitchen at any time of the day or nights and children, spouses, and entire families will be encouraged to join residents for meals as often as they wish, assisting in the maintenance of ties with the community. Dining may be either communal or in the several lounge areas and private dining rooms. One of Cypress' unique design features is of the bizarre and morbid variety--a room designed to store deceased residents. FINANCIAL FEASIBILITY. The short-term and long-term feasibility of the proposals of HCR, FCP, Manor Care, Forum and HHL was never seriously questioned and was easily proven. Not so with Palm Court and Cypress. Palm Court. The duty to defend the immediate and long term financial feasibility of Palm Court's project rested with Steve Jones. Mr. Jones, who was not involved in the preparation of the application, offered his opinion that the Palm Court 60-bed addition would be feasible in the immediate and long terms. In giving his opinion of the project's financial feasibility, Mr. Jones stated he believed the pro forma in years 1 and 2 relate back to the corresponding tables in the application; but acknowledged he performed no analysis of his own, but rather he took the information provided him at face value. The pro forma is one of the key components of an application, as literally the heart of the application ties directly or indirectly into developing the pro forma, including Tables 1, 2, 3, 7, 8, 10, 11 and 25, as well as the amortization schedule. It is a required component of the application. Section 381.494(4)(e), F.S. (1985). Mr. Jones was asked to render an opinion on the reasonableness of Tables 8, 10, 11 and 25, which he did. On cross examination, however, Mr. Jones acknowledged he did not evaluate existing staff at Palm Court to determine the reasonableness of the pro forma. He did not verify the projected management fee and, in fact, stated he didn't know if it was included as a line item under "administration and general" on the pro forma nor how the management fee was computed. Mr. Jones, who has never prepared all the financial information in a CON application, also admitted he didn't know what current nursing salaries were in Hillsborough County, or any other salaries for that matter. He further acknowledged that he could not testify that the application's hourly wage times the number of working hours in a year would give you the stated nursing salaries. In sum, Mr. Jones admitted his opinion of the project's feasibility was based solely on his review of Tables 8, 11, 20 and 25 and his firm's involvement in the preparation of Palm Court's two most recent cost reports and not on the pro forma filed with Palm Court's application. Mr. Jones' accounting firm, in preparing Palm Court's cost reports, does not conduct an audit or express any opinion relating to the reasonableness of the statement of revenues and expenses. Joseph Lennartz, an expert in financial feasibility analysis, gave persuasive testimony outlining the inconsistencies in Palm Court's application. Palm Court's total revenue projections appearing in Table 7 for years 1 and 2 do correspond to the daily room and board revenues appearing in the pro forma, yet none of the Table 7 revenue projections correspond to the projected charges on Table 8. Assuming the salaries on Table 11 do not include fringe benefits, all FTE's and salaries on Table 11 are not accounted for in the pro forma. The pro forma salaries are significantly lower than on Table 11: RNs ,- understated by $12,426 LPNs - understated by $30,518 CNAS -understated by $239,541 Social Worker - understated by $2,983 Dietary - understated by $3,009 Maintenance - understated by $10,165 Activities - understated by $4,486 Housekeeping - understated by $6,365 Laundry & Linen - understated by $6,498 Admin & General - understated by $2,560 Palm Court's salary information on Table 11 is in 1987 dollars and needs to be inflated forward at least two to three years. Palm Court's current average salaries exceeded the proposed salaries on Table 11--including the administrator's salary, proposed at an annual salary of just over $31,000 when it actually was over $50,000 in 1987. Based on Palm Court's answers to interrogatories, Palm Court's management fee is not accurately reflected in the pro forma and is $44,559 too low in year 2; the projected dietary expense is understated by $112,386 in year 2; the projected housekeeping expense is understated by $46,609 in year 2; the projected laundry expense is understated by $35,308 in year 2; and plant expenses are understated by $100,116 in year 2. The terms of debt financing appearing on Table 2 of Palm Court's application do not conform to the amortization table, causing the interest expense line item on the pro forma to be understated. Cypress. As previously alluded to, the reasonableness of Cypress' projected Medicaid and Medicare rates appearing on its Updated Table 8 has not been established by competent substantial evidence. The Cypress pro forma fails to make provision for interest expense, depreciation, and property tax expense. These omissions represent an understatement of expenses as follows: YEAR ONE YEAR TWO INTEREST $177,818 $176,186 DEPRECIATION $110,000 $100,000 PROPERTY TAXES 2,200 25,000 (at assessed value 75 percent of market) TOTAL $290,018 $301,186 When interest, depreciation, and property taxes are included in the Cypress pro forma, the result is a loss of $90,000 in year one and $80,000 in year two. Furthermore, from a cash flow perspective, Cypress will incur a cash loss of $2,037 in year one and a cash gain of just $6,342 in year two. If property taxes are based on an assessed value at 100 percent of fair market value, there would be a $2,000 cash loss even in year two. It is not unusual for a nursing home to experience a negative cash flow in its first year of operation due to its low occupancy. However, it is unusual for a nursing home to experience a negative cash flow, as the Cypress facility will, while operating at optimal occupancy (95 percent). Cypress' owner/investors are willing to proceed with the project because they expect to be able to use some of the approximately $90,000 per year tax loss in years one and two to offset personal income, resulting in a cash on cash return of approximately $23,000 or 5.4 percent. Cypress' Table 1, "source of funds" states that the applicant has $425,000 "in hand". In fact, Cypress does not have those funds in hand. They are in the hands of the Cypress owner/investors. So far they have contributed $90,000 to the venture and will have to contribute not only an additional $425,000 to fund the nursing home but also an unspecified larger sum to fund Cypress planned ACLF and other projects. The evidence suggests that at least $425,000 more of equity contribution would be required for the rest of the project. Cypress did not prove that its proposed facility is financially feasible, either in the immediate or long term. BALANCED CONSIDERATION. Giving a balanced consideration to all of the statutory and rule factors addressed in the preceding findings, it is found that there is a net need for 231 community nursing home beds in Hillsborough County, that the applications of HCR, FCP and Manor Care should be granted and that the other applications should be denied.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the Department of Health and Rehabilitative Services enter a final order granting the applications of HCR (CON Action No. 5000), FCP (CON Action No. 4993) and Manor Care (CON Action No. 5006) and denying the applications of Forum (CON Action No. 4999), HHL (CON Action No. 4978) Palm Court (CON Action No. 4987) and Cypress (CON Action No. 5004). RECOMMENDED this 14th day of November, 1988, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 14th day of November, 1988.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received, the stipulations of the parties and the entire record complied herein, I hereby make the following findings of fact: THE STIPULATIONS OF THE PARTIES The parties stipulated to the following facts: Forum timely filed its letter of intent and application with DHRS and the District IX Local Health Council for the July 1986 batching cycle. DHRS ultimately deemed the application complete and, following review, published its notice of intent to deny the application. Forum timely filed a petition requesting a formal administrative hearing pursuant to Section 120.57(1), Florida Statutes. The sole issue is whether there is a need for Forum's proposed services; additionally, it is DHRS's position that a lack of need for the project results in the project not being financially feasible in the short or long term. All other statutory and rule criteria were satisfied, at least minimally, except proof of need pursuant to Rule 10-5.011(1)(k) [formerly 10-5.11(21)(b)], Florida Administrative Code, and financial feasibility as it relates to need. FORUM'S PROPOSAL Forum is a publicly held health services company which owns, develops and operates retirement living centers and nursing homes on a national basis. Forum proposes to develop a retirement living center in Palm Beach County that would consist of 120 to 150 apartment units for independent living, a separate personal care unit (known in Florida as an adult congregate living facility), and a 60-bed nursing home component certified for skilled and intermediate care. Palm Beach County is in HRS Service District IX, Subdistrict 4. All three components of Forum's retirement living center would be physically connected and share some operational functions, such as dietary facilities and the heating plant. Such a design provides for an efficient operation as well as an economic distribution of costs facility wide. No specific site has been selected , although Forum has narrowed its focus to the eastern half of Palm Beach County. It is not economically feasible to acquire property or pay for an option on property until after receiving CON approval. The projected total cost of Forum's proposed 60-bed nursing home is $2,329,800. Forum has the necessary resources for project accomplishment and operation. Forum proposes to seek Medicare certification and will provide up to 25 of its beds for Medicaid patients. FINANCIAL FEASIBILITY Forum is a national company, with substantial experience in developing and operating nursing homes and retirement living centers. If need for the facility is shown, Forum would be able to capture a sufficient share of the nursing home market to render its proposed nursing home financially feasible while at the same time having no material negative impact on existing providers in the district. NUMERIC NEED Need for new or additional community nursing home beds in Florida is determined, preliminarily, by use of the methodology found in Rule 10- 5.011(1)(k), Florida Administrative Code. Additional beds normally are not approved if there is no need for beds as calculated under the rule. Pursuant to the rule, need for a defined nursing home subdivision is projected to a three- year planning horizon, in this case July 1989. The need methodology prescribed in the rule is as follows: A (POPA x BA) + (POPB x BB) or: The District's age-adjusted number of community nursing home beds for the review cycle for which a projection is being made [A] (The population age 65-74 years in the relevant departmental districts projected three years into the future [POPA] x the estimated current bed rate for the population age 65-74 years in the relevant district [BA]) + (The population age 75 years and older in the relevant departmental district projected three years into the future [POPB] x the estimated current bed rate for the population age 75 years and over in the relevant district [BB].) BA LB/(POPC) + (6 x POPD) or: The estimated current bed rate for the population age 65-74 years in the relevant district [BA] (The number of licensed community nursing home beds in the relevant district [LB]/the current population age 65-74 years [POPC] + (6 x the current population age 75 years and over [POPD]) BB 6 x BA or: The estimated current bed rate for the population age 75 years and over in the relevant district [BB] 6 x the estimated current bed rate for the population age 65-74 years in the relevant district [BA]. SA A x (LBD/LB) x (OR/.90) or: The preliminary subdivision allocation of community nursing home beds [SA] The district's age-adjusted number of community nursing home bids for the review cycle for which a projection is being made [A] x (The number of licensed community nursing home beds in the relevant subdistrict [LBD]/the number of licensed community nursing home beds in the relevant district [LB]) x (The average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district [OR]/.90) Rule 10-5.011(1)(k)(2)(i), Florida Administrative Code, provides that: The new bed allocation for a subdistrict, which is the number of beds available for CON approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant departmental subdistrict from the bed allocation determined under subparagraphs a. through i., unless the subdistrict's average estimated occupancy rate for the most recent six months is less than 80 percent, in which case the net bed allocation is zero. The appropriate planning horizon for the instant case is July 1989, corresponding to the review cycle which began July 15, 1986, and the subdistrict is Palm Beach County. THE NUMBER OF LICENSED COMMUNITY NURSING HOME BEDS IN THE RELEVANT DISTRICT (LB)/THE NUMBER OF LICENSED COMMUNITY NURSING HOME BEDS IN THE RELEVANT SUBDISTRICT (LBD) Rule 10-5.011(1)(k) requires that "review of applications submitted for the July batching cycle shall be based upon the number of licensed beds (LB and LBD) as of June 1 preceding this cycle..." On June 1, 1986, there were 5,459 licensed community nursing home beds in District XI (LB) and 4,084 licensed community nursing home beds in subdistrict 4 (Palm Beach County LBD). These figures include 220 licensed beds that were previously categorized as sheltered. In the instant case, the appropriate figure for LB is 5,459, and the appropriate figure for LBD is 4,084. APPROVED BEDS WITHIN THE RELEVANT DEPARTMENTAL SUBDISTRICT DHRS's interpretation of the rule is to include in the count of approved beds, those approved up to the date of the supervisor's signature on the State Agency Action Report (SAAR). In this case, there were 640 approved beds in Palm Beach County at that time. As of June 1, 1986, the same date as the licensed bed cutoff, there were 640 approved beds in the subdistrict. In Dr. Warner's opinion, approved beds should be determined as of the same time period as licensed beds in order to have consistency and avoid anomalies in the formula. This opinion is reasonable and appropriate. In the instant case, the figure to be applied in the formula for approved beds in the subdistrict is 640 approved beds. THE POPULATION AGE 65-79 YEARS IN THE RELEVANT DEPARTMENTAL DISTRICT PROJECTED THREE YEARS INTO THE FUTURE (POPA). THE POPULATION AGE 75 YEARS AND OVER IN THE RELEVANT DEPARTMENTAL DISTRICT PROJECTED THREE YEARS INTO THE FUTURE (POPB). The rule provides that the three year projections of population shall be based upon the official estimates and projections adopted by the Office of the Governor. For the purposes of calculating need, DHRS utilizes at the final hearing the figures for estimated population obtained from data available at the time of initial application and review. The set of population projections which were available when Petitioner's application was filed and reviewed were those published on July 1, 1986. Based on this data, which is reasonable to use, POPA 170,639; and, POPB 122,577. THE CURRENT POPULATION AGE 65-74 YEARS (POPC)/THE CURRENT POPULATION AGE 75 YEARS AND OVER (POPD). In calculating POPC and POPD, DHRS also utilizes at final hearing the most current data available at the time of initial application and review, in this case the July 1, 1986, release. Based on that data, POPC 153,005 and POPD 112,894. In the opinion of Dr. Warner, Forum's expert, the base for POPC and POPD should correspond to the period for which the average occupancy rate (OR) is calculated. For the July batching cycle, OR is based upon the occupancy rates of licensed facilities for the months of October through March preceding that cycle. According to Warner, January 1, 1986, as the midpoint of this time period, is the appropriate date to derive POPC and POPD in this case. The formula mandated by the rule methodology for calculating the estimated current bed rate requires that the "current population" for the two age groups be utilized. It is reasonable and appropriate for the base for POPC and POPD to correspond to the period for which the average occupancy rate is calculated. Supportive of Dr. Warner's opinion are the past practices of DHRS. Between December 1984 and December 1986, DHRS routinely used a three and one half year spread between the base population period and the horizon date in determining "current population" in its semiannual nursing home census report and bed need allocation. In the January 1987 batching cycle, which cycle immediately followed the cycle at issue in this case, DHRS utilized a three and one half year spread between the base population period and the horizon data for "current population" when it awarded beds. DHRS offered In this case, it proposed to use a three year spread between the base population period and the horizon dated for "current population" in calculating POPC and POPD. Using the July 1986 population release, POPC for January 1986 is 149,821 and POPD for January 1986 is 98,933. THE AVERAGE OCCUPANCY RATE FOR ALL LICENSED COMMUNITY NURSING HOMES WITHIN THE SUBDIVISION OF THE RELEVANT DISTRICT (OR). The rule requires the use of occupancy data from the HRS Office of Health Planning and Development for the months of the previous October through March when calculating a July batch of nursing home applicants. However, the rule is not instructive as to how one calculates this number. In this case, DHRS computed average occupancy rates based on the existing occupancy rates at applicable facilities on the first day of each month. Based on this occupancy data, which includes the data for the 220 previously sheltered beds in the subdistrict, occupancy rates for the July 1986 batch of Palm Beach County nursing home applicants is 83.75 percent. Forum's witness, Dr. Warner, determined that the correct occupancy rate was 85.46 percent for Palm Beach County for the period October 1985 to March 1986. Dr. Warner arrived at this figure by including paid reservation days. A paid reservation day is a day which is paid for by the patient or the patient's intermediary during which the patient is not physically in the bed. Typically, the patient will either be in the hospital, visiting relatives or otherwise away from the facility and will continue to pay for the nursing home bed, so that they will be able to return and not have someone occupy the bed. One of the goals and objectives of the District IX Local Health Plan is that paid reservation days be considered when bed need calculations are made. Calculating prepaid reservation days is consistent with the Rule because such beds are no longer available to the public and are therefore in use. Dr. Warner determined that during the applicable period, 1.25 percent of the licensed beds in the subdistrict were paid reservation days. Although taking paid reservation days into account would not be inconsistent with the rule, Forum failed to demonstrate that the 1.25 percent figure arrived at is valid for the applicable period, i.e., October 1985 to March 1986. Dr. Warner merely calculated a two-year average number of paid reservation days, broke this figure down to a six-month average and applied this average to the six-month period specified in the Rule. Gene Nelson, an expert called on behalf of Forum, calculated the occupancy rate as 88.72 percent in Palm Beach County for the appropriate period called for in the Rule. Nelson used the average monthly occupancy data obtained from medicaid cost reports for some facilities rather than first-day of the month data as used by DHRS. In addition, Nelson did not factor in the occupancy date of licensed beds in the extreme western portion of the County based on his belief that the District IX Local Health Plan mandates that the western area not be considered in any way with the eastern coast section of Palm Beach County for purposes of determining competitiveness. While the use of average full-month occupancy data is generally more reliable than using first-day of the month data, it is best, from a health planning prospective, to be able to use either all full-month data or all first- day of the month data. In making his calculations, Mr. Nelson mixed the two types of data, using full-month data when available and in other cases using first-day of the month data when full-month data was not available. It is inappropriate to fail to consider licensed beds in the extreme western portion of the County based solely on the local health plan. Among other reasons, the rule does not provide for exclusions for any of the subdistricts licensed facilities from the methodology. The appropriate and most reasonable occupancy rate (OR) in the instant case for the applicable time period is 83.75 percent. NET NEED Applying the above-referenced variables to the Rule formula produces the following results. July, 1986. District Allocation BA LB (POPC + (6 x POPD) - 5459 [149,821 + (6 x 98,833)] - .007349 BB - 6 x BA .044094 (.007349) July, 1989 Allocation (POPA x BA) + (POPB x BB) - (170,639 x .007349) + (122,577 x .044094) - 6659 Subdivision Allocation and Need SA A x (LBD / LB) x (OR 1.9) - 6659 x (4084 / 5459) x (.8375/.9) - 6659 x .74812236673 x .93055555555 4636 Subdistrict Allocation for Palm Beach County 4084 (Licensed Beds) 576 (90 percent of 640 Approved Beds) -24 (Bed Surplus)
Recommendation Based on the foregoing Findings of Fact, and Conclusions of Law, it is, RECOMMENDED that the application for certificate of need filed by Forum be Denied. DONE AND ORDERED, this 4th day of April, 1988, in Tallahassee, Florida. W. MATTHEW STEVENSON 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 4th day of April, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-0704 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Rulings on Proposed Findings of Fact Submitted by the Petitioner Adopted in substance in Finding of Fact 2. Adopted in substance in Finding of Fact 3. Adopted in substance in Finding of Fact 4. Adopted in substance in Finding of Fact 5. Adopted in substance in Finding of Fact 5. Adopted in substance in Finding of Fact 6. Adopted in substance in Finding of Fact 6. Adopted in substance in Finding of Fact 7. Adopted in substance in Finding of Fact 9. Sentence 1 is rejected as contrary to the weight of the evidence. Rejected as subordinate and/or unnecessary. 11. Adopted in substance in Finding of Fact 9. 12. Adopted in substance in Finding of Fact 9. 13. Adopted in substance in Finding of Fact 10. 14. Adopted in substance in Finding of Fact 12. 15. Adopted in substance in Finding of Fact 1. 16. Adopted in substance in Finding of Fact 14. 17. Adopted in substance in Finding of Fact 21. 18. Adopted in substance in Finding of Fact 20. 19. Adopted in substance in Finding of Fact 22. 20. Adopted in substance in Finding of Fact 22. 21. Adopted in substance in Finding of Fact 18. Adopted in substance in Finding of Fact 15. Adopted in substance in Finding of Fact 17. Adopted in substance in Finding of Fact 17. Adopted in substance in Finding of Fact 23. Rejected as a recitation of testimony and/or unnecessary. Rejected as subordinate and/or unnecessary. Adopted in substance in Finding of Fact 24. Rejected as a recitation of testimony and/or unnecessary. Adopted in substance in Finding of Fact 25. Rejected as a recitation of testimony and/or subordinate. Adopted in substance in Finding of Fact 25. Adopted in substance in Finding of Fact 21. Rejected as contrary to the weight of the evidence. Rejected as not supported by the weight of the evidence and/or unnecessary. Rejected as subordinate and/or unnecessary. Rejected as subordinate and/or unnecessary. Adopted in substance in Finding of Fact 27. Adopted in substance in Finding of Fact 28. Adopted in substance in Finding of Fact 27. Adopted in substance in Finding of Fact 28. Rejected as a recitation of testimony and/or subordinate. Rejected as misleading and/or subordinate. Rejected as subordinate and/or unnecessary. Rejected as contrary to the weight of the evidence. Rejected as contrary to the weight of the evidence. Rulings on Proposed Findings of Fact Submitted by the Respondent Adopted in substance in Finding of Fact 1. Adopted in substance in Finding of Fact 1. Adopted in substance in Finding of Fact 9. Adopted in substance in Finding of Fact 3. Rejected as contrary to the weight of evidence. Adopted in substance in Finding of Fact 13. Adopted in substance in Finding of Fact 18 and 19. Adopted in substance in Finding of Fact 16. Adopted in substance in Finding of Fact 23. Addressed in Conclusions of Law. Addressed in Conclusions of Law. Rejected as subordinate and/or unnecessary. COPIES FURNISHED: Thomas W. Stahl, Esquire 102 South Monroe Street Tallahassee, Florida 32301 R. Terry Rigsby, Esquire 325 John Knox Road Building C, Suite 135 Tallahassee, Florida 32303 Richard Patterson, Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive Tallahassee, Florida 32308 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32399-0700 John Miller, Esquire Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32399-0700 Sam Power HRS Clerk Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32399-0700 =================================================================
Findings Of Fact 1-2. Rejected as a statement of the issues and not a Finding of Fact. Accepted and incorporated in Finding of Facts 8 and 9. Incorporated in Finding of Fact 9. Accepted. Incorporated in Finding of Facts 6 - 9. Incorporated in Finding of Fact 7. Incorporated in Finding of Fact 16. Incorporated in Finding of Fact 17. Irrelevant. Incorporated in Finding of Fact 5. Incorporated in Finding of Fact 6. 13-14. Irrelevant. Cumulative. Incorporated in Finding of Fact 7. Incorporated in Finding of Fact 11. Irrelevant. Incorporated in Finding of Fact 22. Incorporated in Finding of Fact 14. Irrelevant. Incorporated in Finding of Facts 4 and 5. COPIES FURNISHED: W. David Watkins, Esquire Oertel & Hoffman 2700 Blairstone Rd. Suite C Tallahassee, Florida 32301 R. Bruce McKibben, Jr. Assistant General Counsel Department of HRS 1323 Winewood Boulevard Jonathan S. Grout, Esquire 307 W. Tharpe Avenue Tallahassee, Florida 32302 Thomas Beason, Esquire Suite 100 118 N. Gadsden Street Tallahassee, Florida 32301 William Page, Jr. Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is therefore RECOMMENDED that the applications for a CON to construct either a 60 or 120-bed nursing home in Brevard County, Florida, submitted by Wuesthoff Health Services, Inc. and Florida Convalescent Centers, Inc., be denied. RECOMMENDED this 8th day of October, 1986, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway The Oakland Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of October, 1986. APPENDIX TO RECOMMENDED ORDER IN CASE NOS. 84-1976; 85-1310; 85-1506 The following constitutes my specific findings pursuant to Section 120.59(2), Florida Statutes, on all Proposed Findings of Fact submitted by the parties to this case.
Findings Of Fact On or about July 15, 1986, Petitioner filed an application with Respondent to construct a 60 bed community nursing home with a 45 bed adult congregate living facility (ACLF) in Highlands County, Florida. This application was identified as CON 4700. After preliminary review, Respondent denied this application on or about December 23, 1986, and Petitioner timely filed its petition for formal administrative hearing. Highlands County is in Respondent's Service District VI, Subdistrict IV. The parties stipulated that there was a net bed need in the July, 1989 planning horizon for Highlands County of an additional 28 community nursing home beds, based upon the bed need calculation set forth in Rule 10-5.011(1)(k), Florida Administrative Code. It was further stipulated by the parties that Petitioner's original application met all statutory and rule criteria for the issuance of a CON, but for the issue of need. Since the parties did stipulate to a need for 28 community nursing home beds, Petitioner sought, at hearing, to offer evidence in support of only an "identifiable portion" of its original application. Thus, Petitioner offered no evidence in support of the application it filed with Respondent, and which was preliminarily denied on December 23, 1986. Rather, Petitioner sought consideration and approval of either 28 nursing home beds with 32 ACLF beds, or 30 nursing home beds with 30 ACLF beds. Since the stipulation of the parties could not cover the financial feasibility of either alternative because they were presented for the first time at hearing, Petitioner offered evidence to establish the financial feasibility of these alternatives. Based upon the testimony of Herbert E. Straughn, it is found that Respondent does not normally approve nursing home CON applications for less than 60 nursing home beds. However, Respondent has approved a CON application for 30 nursing home beds in association with 30 ACLF beds or some other similar service when the need for 30 nursing home beds was shown to exist. Respondent has also approved a CON for less than 30 nursing home beds in connection with an existing 60 bed facility when the stipulated need did not reach 30. In this case, Petitioner's original application was for 60 community nursing home and 45 ACLF beds, and it was at hearing that Petitioner sought to down-size its application to meet the stipulated need of 28 nursing home beds. There are no accessibility problems with regard to special programs or services, or any other problems of accessibility, in District VI, Subdistrict IV. Petitioner's request for partial consideration and approval of its application, which was presented at hearing, would not introduce any new services or construction not originally contemplated in its application, although the size of the project and number of beds sought would be reduced. In its original application, Petitioner proposed a nursing home with two 30-bed units, and now seeks approval for only one 28 or 30-bed unit. From a health planning standpoint, nursing home bed units usually occur in multiples of 60 due to staffing and equipment considerations. No evidence was offered to show why the Respondent should deviate from its usual practice in this case, other than the fact that a need for only 28 beds exists. At hearing, Petitioner introduced revised pro formas for 28 and 30 nursing home beds, associated with 32 and 30 ACLF beds, respectively. These revised pro formas were based on the same ratios of patients by payor class as in the original pro forma. The equity to loan ratios in the revised pro formas to finance the project remained the same as in the original application. The revised pro formas combine revenue and expenses for nursing home and ACLF beds. However, if revenue and expenses for nursing home beds is segregated from ACLF beds, it is found that a 30 bed nursing home facility would not be financially feasible in either 1989 or 1990, and a 28 bed nursing home facility would be even less financially feasible than a 30 bed facility. When revenues and expenses for the ACLF component of the project are considered along with nursing home bed income and expenses, the project shows only a marginal profit in the second year of operation with the 30 nursing home bed-30 ACLF bed alternative. It is barely break-even in the second year under the 28 nursing home bed-32 ACLF bed alternative. Thus, under either alternative, the project is not financially feasible in 1989, and the nursing home component of this project, standing alone under either alternative presented at hearing, is not financially feasible in either 1989 or 1990. The 30 nursing home bed-30 ACLF bed alternative is more financially feasible than the 28-32 alternative since the 28-32 alternative is barely break even in the second year of operation. Specifically, under the 28-32 alternative, pretax income of less than $9000 is projected in the second year of operation with total revenues of approximately $1.321 million and total expenses of approximately $1.312 million.
Recommendation Based upon the foregoing, it is recommended that Respondent enter a Final Order denying Petitioner's application for CON 4700. DONE AND ENTERED this 7th day of January, 1988, in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of January, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-0667 Rulings on Petitioner's Proposed Findings of Fact: Adopted in Findings of Fact 1, 2. Adopted in Finding of Fact 2. Rejected as unnecessary. Adopted in Finding of Fact 4. Adopted in Findings of Fact 5, 6. Adopted in Finding of Fact 8. Adopted in Findings of Fact 5, 6, 9. 8-10 Adopted in Finding of Fact 10. Rejected as simply a statement of position and not a proposed finding of fact. Adopted in Finding of Fact 6. 13-16 Rejected as conclusions of law and not proposed findings of fact; this legal argument has been considered in the preparation of conclusions of law contained in this Recommended Order. Adopted in part in Findings of Fact 8, 9, 10. However the last sentence in the proposed finding of fact is rejected as unclear. Rejected as unnecessary. Rejected as not based on competent substantial evidence, although from a health planning viewpoint a 30 nursing home bed unit is more functional and cost effective than a 28; it is also more financially feasible in this case. Adopted in Finding of Fact 11. Adopted and Rejected in part in Findings of Fact 9, 11, and otherwise rejected as unnecessary and cumulative. Rejected as not based on competent substantial evidence, although adopted in part in Findings of Fact 9, 11. Rulings on Respondent's Proposed Findings of Fact: 1 Adopted in Findings of Fact 1, 2. 2 Adopted in Finding of Fact 2. 3 Adopted in Finding of Fact 3. 4 Adopted in Finding of Fact 4. 5 Adopted in Finding of Fact 6. 6 Adopted in Findings of Fact 5, 6. 7 Adopted in Finding of Fact 11. 8-9 Adopted in Finding of Fact 7. COPIES FURNISHED: Jay Adams, Esquire 215 East Virginia Street Tallahassee, Florida 32301 Richard A. Patterson, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 John Miller, Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700
Findings Of Fact Based on the stipulations of the parties, on the testimony of the witnesses, and on the exhibits received in evidence, I make the following findings of fact. By application dated April 15, 1983, Beverly Enterprises-Florida, Inc., (hereinafter "Beverly" or "Petitioner") applied to the Department of Health and Rehabilitative Services for the issuance of a certificate of need for the construction of a new 120-bed nursing home in Marco Island, Collier County, Florida. The application was deemed by HRS to be complete effective September 15, 1983. (Pet. Ex. 1) By letter dated December 5, 1983, HRS advised Beverly that its application was denied. (Pet. Ex. 2) The letter included the following reasons for denial: The proposed project is not consistent with Chapter 10-5.11(21), Florida Administrative Code, nursing home bed need methodology. With a six month occupancy of 58.2 percent in the subdistrict of Collier County, the utilization threshold of 90 percent developed from the application of Chapter 10-5.11(e), (f), and (h), Florida Administrative Code, is not satisfied and no further bed need is demonstrated for this subdistrict. There are 97 approved but unlicensed beds in the subdistrict which, when added to the existing licensed bed supply, should effectively maintain the county-wide occupancy at a reasonable level through 1986. Further explication was contained in the State Agency Action Report which accompanied the HRS letter of December 5, 1983. Florida Administrative Code Rule 10-5.11(21)(a), adopted by HRS, reads as follows: Departmental Goal. The Department will consider applications for community nursing home beds in context with the applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds calculated by the methodology described in subsections (21)(b), (c), (a), (f), (g), and (h) of this rule. (Pet. Ex. 3) A step-by-step application of the methodology described in Rule 10- 5.11(21)(b) through (h) to the facts in this case is as follows. Under the formula, bed need is determined by first looking at the poverty level in District VIII and in Collier County (Pet. Ex. 5, Tr.252). The poverty level is computed by comparing the number of elderly living in poverty in the district, which is 8.61, to the number of elderly living in poverty in the State, which is 12.70, resulting in a poverty ratio of .68 (Tr.252). The bed need ratio is computed by multiplying the poverty ratio of .68 times 27 beds per thousand population 65 or older, which results in a bed need ratio of 18.3 beds per thousand residents 65 years or older (Tr.252). When the bed need ratio is applied to the 65 and over population in District VIII, the total bed need is 3,858. The bed need for the subdistrict of Collier County is 514 beds (Tr.252). The number of licensed and approved beds in the district is 4,618 and the number of licensed and approved beds in the subdistrict is 429 (Tr.252). When the need for beds is subtracted from the total number of licensed and approved beds, there is a surplus of 760 beds in District VIII, but a need for 85 beds in the subdistrict of Collier County (Tr.253). When a need for beds exists in the subdistrict but not the district as a whole, subsection (g) of the rule allows new beds to be added only if existing beds are being utilized at a 90 percent or greater occupancy rate (Pet. Ex. 5, Tr.253-255). The current utilization rate for nursing home beds in Collier County is 61.1 percent (Pet. Ex. 7, Tr.255). Since the current utilization rate is less than 90 percent, no additional beds are needed in Collier County (Tr.256). Approval of the Beverly application to construct a 120-bed nursing home in Marco Island would, in the words of the applicable rule, "cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds calculated by the methodology described in subsections (21)(b), (c), (d), (e), and (h) . . . " of Rule 10-5.11(21), Florida Administrative Code. (Pet. Ex. 2, 5, 6, and 7; testimony of expert witnesses Mr. Knight and Ms. Dudek.) HRS is presently considering the adoption of amendments to the nursing home need methodology provisions presently found in Florida Administrative Code Rule 10-5.11 (21)(b) through (h). If the present form of the tentative amendments to Rule 10-5.11(21)(b) through (h) were to be adopted and become effective soon enough to be applicable to Beverly's application in this case the result would be the same as under the current rule. Approval of Beverly's application would cause the number of community nursing home beds in HRS District VIII to exceed the number of community nursing home beds calculated by the methodology of both the existing rule and the tentative amendments to the rule. (Testimony of expert witness Knight.) Florida Administrative Code Rule 10-17.020(2)(b), adopted by HRS, reads as follows: (2) Policies and Priorities. In addition to the statewide criteria against which applications are evaluated, applications from District 8 will be evaluated against the following local criteria: a. * * * b. Nursing home services should be available within at least one hour typical travel time by automobile for at least 95 percent of all residents of District 8. (Pet. Ex. 3) HRS District VIII consists of seven counties. The current population estimate of these seven counties is 679,019. According to the most recent census information, the permanent population of Marco Island is 8,605. Four community nursing homes are located in Naples, which is also in Collier County. Typical travel time by automobile from the center of Marco Island to the center of Naples is approximately 30 to 45 minutes, depending on the season of the year. (Tr.59-60, 83, 118, and 151) In arriving at the current utilization rates for purposes of applying the need determination methodology, HRS relied on the latest available quarterly nursing home census reports. (Pet. Ex. 7; Tr.255-256) In compiling the Collier County average occupancy rate for purposes of applying the need determination methodology, HRS counted as existing beds all of the licensed beds of all of the community nursing homes in Collier County, which included 114 beds licensed for Gulf Drive Residence, Inc., and 120 beds for Americana Healthcare Center. (Pet. Fx. 2)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that the Department of Health and Rehabilitative Services enter a final order in this case DENYING the application of Beverly Enterprises-Florida, Inc., for a certificate of need to construct a new community nursing home in Marco Island, Collier County, Florida. DONE and ORDERED this 20th day of September, 1984 in Tallahassee, Florida. MICHAEL M. PARRISH Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 20th day of September, 1984.
The Issue Whether there is a need for a 120 bed nursing home in Manatee County?
Findings Of Fact HCR is a health care corporation. Its sole business is designing and constructing nursing homes. During the twenty years it has been in the business, HCR has built approximately 180 nursing homes. HCR currently operates approximately 10,000 nursing home beds in twelve states including Florida. HCR filed an application for a certificate of need to construct a 120 bed nursing home in Manatee County. The Department denied this request. The only issue in this case is whether there is a need for a 120 bed nursing home facility in Manatee County. If such a need exists, the Department has agreed that HCR "meets all applicable statutory and rule criteria." The need for nursing home beds is determined under Rule 10-5.11(21), Florida Administrative Code. Rule 10-5.11(21)(a), Florida Administrative Code, contains the following Department goal: The Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds calculated by the methodology described in subsections (21)(b), (c), (d), (e), (f), (g), and (h) of this rule. Rule 10-5.11(21)(b), Florida Administrative Code, provides for a determination of bed need three years into the future "according to the methodology specified under subparagraphs 1 through 10." Under the methodology provided in subparagraphs 1 through 10, need is determined on a subdistrict basis if a departmental service district has been divided into subdistricts. Manatee County is located in District 6. District 6 has been divided into subdistricts for purposes of determining nursing home bed need. Manatee County has been designated as a subdistrict. Rule 10-17.018, Florida Administrative Code. Therefore, nursing home bed need is to be determined under the methodology of Rule 10-5.11(21), Florida Administrative Code, for Manatee County. The parties have agreed and the evidence proves that there is no need for nursing home beds in Manatee County based upon an application of the methodology of Rule 10-5.11(21), Florida Administrative Code (hereinafter referred to as the "Formula"). In fact, an application of the Formula indicates that there will be an excess of 105 nursing home beds in Manatee County three years into the future based upon the following: 876 nursing home beds needed - (765 existing beds + 90 percent of 240 approved beds) = (105). Based upon an application of the Formula, there is clearly no need for any additional nursing home beds in Manatee County. This determination, however, does not totally resolve the issue in this case. Rule 10-5.11(21)(b), Florida Administrative Code, provides that the Department is to determine bed need according to the Formula "[i] n addition to other statutory and rule criteria . . . " Also, Rule 10-5.11(21)(b)10, Florida Administrative Code, provides in relevant part, the following: In the event that the net bed allocation is zero, the applicant may demonstrate that circumstances exist to justify the approval of additional beds under the other relevant criteria specifically contained in the Department's Rule 10-5.11. Based upon these provisions of the Department's rules, it appears clear that if no nursing home bed need is shown to exist based upon an application of the Formula, other statutory and rule criteria should be considered, i.e., are there adequate like and existing services in the subdistrict? Rule 10-5.11(21)(b)10, Florida Administrative Code, however, goes on to provide: Specifically, the applicant may show that persons using existing and like services are in need of nursing home care but will be unable to access nursing home services currently licensed or approved within the subdistrict. Under this provision, the applicant must demonstrate that those persons with a documented need for nursing home services have been denied access to currently licensed but unoccupied beds or that the number of persons with a documented need exceeds the number of licensed, unoccupied and currently approved nursing home beds. Existing and like services shall include the following as defined in statute or rule, adult congregate living facilities, adult foster homes, homes for special services, home health services, adult day health care, adult day care, community care for the elderly, and home care for the elderly. Patients' need for nursing home care must be documented by the attending physicians' plans of care or orders, assessments performed by staff of the Department of Health and Rehabilitative Services, or equivalent assessments performed by attending physicians indicating need for nursing home care. As discussed under the Conclusions of Law, infra, this portion of the Department's rule (hereinafter referred to as the "Specific Exception") is not the only alternative method of demonstrating a need for nursing home beds when there appears to be no need based upon an application of the Formula. A need for nursing home beds can be demonstrated even if there is no need indicated under the Formula and the Specific Exception is not complied with based upon a consideration of other statutory and rule criteria. The Specific Exception is, however, the only method by which an applicant can demonstrate the need for a new nursing home facility based upon an access problem in the relevant service district. HCR has attempted to prove there is a need for its proposed 120 bed facility based in part upon a consideration of Rule 10-5.11(3)(a)-(d), Florida Administrative Code. This rule provides generally for a consideration of the extent to which all residents of the service area and, in particular, low income persons, the elderly and others, can access existing nursing home beds. In particular, HCR has attempted to prove that there is a need for a 120 bed nursing home because of alleged access problems under Rule 10- 5.11(3)(a)-(d), Florida Administrative Code, during the "peak season" in Manatee County and alleged access problems of Medicaid patients, Alzheimer patients and respite care patients. As discussed under Conclusions of Law, infra, HCR has failed to comply with the Specific Exception in attempting to demonstrate need for its proposal under Rule 10- 5.11(3)(a)-(d), Florida Administrative Code. Therefore, any evidence concerning access problems cannot be considered. HCR has also attempted to demonstrate need for its proposal based upon an application of Rules 10-5.11(4) and (6), Florida Administrative Code. These rules require a consideration of the availability of alternative, less costly, or more effective methods of providing the proposed health services and the availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services. In particular, HCR has attempted to prove that like and existing services in Manatee County are not meeting the needs of Alzheimer patients and respite care patients and that there are no alternative, less costly or more effective methods of providing HCR's proposed services. If HCR had succeeded in demonstrating need for its proposal under these rules, a certificate of need would have been recommended even though the Specific Exception was not complied with. HCR has agreed that its proposed facility will meet the alleged need for Medicaid patients, Alzheimer patients and respite care patients in Manatee County by dedicating a thirty- bed wing to the care of Alzheimer patients, a thirty-bed wing to respite care patients and guaranteeing access to fifty percent of its beds to Medicaid patients. The following findings of fact are made with regard to the specific categories of persons allegedly in need of nursing home care. Although HCR's proposed findings of fact concerning access problems of these groups are not relevant because of its failure to comply with the Specific Exception, findings are made in an abundance of caution in case the Department or a Court ultimately determines that need can be demonstrated based upon access problems even when the Specific Exception is not complied with. Medicaid Patients. Manatee County generally experiences a "peak season" from November to March during which time nursing home bed use increases. The peak season in 1984-1985, however, was only about seven weeks. During the peak season there is some difficulty in placing Medicaid patients in nursing home beds in Manatee County. Between January, 1985 and March, 1985, the Department's Manatee County office placed twenty-two Medicaid patients in nursing home beds located outside of Manatee County. Some Medicaid patients have also been placed in adult congregate living facilities even though such placements are contrary to the prohibition against placing patients in need of skilled nursing home services in such facilities. L. W. Blake Memorial Hospital has also had to place patients in nursing homes on a temporary basis outside of Manatee County. During the past year, only twenty-four patients were placed in nursing homes outside Manatee County. The evidence does not establish how many of those patients were Medicaid patients, however. Alzheimer Patients. Alzheimer's disease is a disease which primarily afflicts persons in their 50's and 60's. It can, however, afflict younger persons also. The disease progresses through three stages and has no cure. During the first stage, the afflicted person experiences forgetfulness, impairment of judgement and inability to perform routine tasks. During the second stage, the afflicted person begins to wander. During the third and final stage, the afflicted person becomes dependent and incontinent. Currently there are approximately 160 Alzheimer patients in the five existing nursing homes in Manatee County. None of these nursing homes has a special program designed for Alzheimer patients. The evidence does not, however, support a finding that Alzheimer patients are not being adequately cared for. The evidence also does not establish how many persons in Manatee County are afflicted by Alzheimer's disease or the number of persons so afflicted who are in need of nursing home care. Generally, it is not until the third stage of the disease that nursing home care becomes necessary. Even then some Alzheimer patients are cared for in the home, private boarding facilities, or mental hospitals. The evidence does establish that no person afflicted with Alzheimer's disease has been refused admittance to a nursing home bed in Manatee County. The evidence also establishes that there is a 303 bed nursing home located in neighboring Hillsborough County which treats only Alzheimer patients. Hillborough County is located in District 6. Finally, the evidence demonstrates that Alzheimer patients would benefit from a special wing dedicated to the care of Alzheimer's disease in its final stages. Respite Care Patients. Respite care is the placement of a person in need of care under the supervision of another person for a short period of time. One purpose of this care is to free-up the primary care giver for a short period of time. The patient needs supervision or may need skilled nursing care. The length of the care can vary from a few hours to several weeks. HCR has proposed to establish a thirty-bed wing in its proposed facility that will be dedicated solely to the care of respite care patients in need of skilled nursing care for a period of one to eight weeks. None of the existing nursing homes in Manatee County provides the type of specialized wing HCR in proposing. The evidence establishes that there is a need for such a service in Manatee County. The evidence does not establish, however, how many nursing home beds are needed. There was testimony that there was a need for fifty nursing home beds. This testimony was, however, purely a "guess". Additionally, this estimate was not limited to the type of respite care HCR proposes to provide; the respite care giving rise to this guess included respite care for as short a period as three to five days. Short-term respite care needs are currently being met by existing programs in Manatee County. DHRS Exhibit 4 does not corroborate the fifty bed estimate because it is not at all clear what the data on this Exhibit means. Based upon the foregoing, there is a need for nursing home beds for Medicaid patients during the "peak season" and for respite care patients in need of skilled nursing care for a period of one to eight weeks because of an access problem. The need of these patients, however, has not been properly demonstrated pursuant to the Specific Exception and therefore cannot be considered. If this need could be considered even though the Specific Exception has not been complied with, the evidence fails to demonstrate how many additional beds are needed. Additionally, two new nursing homes have been approved for construction which will add 240 nursing home beds in Manatee County. The addition of these beds will eliminate some, if not all, of the need of Medicaid patients. There is a need for nursing home beds for respite care patients in need of skilled nursing care for a period of one to eight weeks because of the lack of adequate like and existing services. HCR has, however, failed to prove that this need is sufficient to justify its proposal. The evidence fails to demonstrate a need for Alzheimer patients sufficient to justify HCR's proposal based upon the care presently being given to Alzheimer patients in Manatee County. Although the ability of Alzheimer patients to access beds is not relevant because of HCR's failure to comply with the Specific Exception, the evidence also fails to demonstrate any access problem of Alzheimer patients. Alzheimer patients would benefit from a dedicated nursing home wing. This finding, however, based upon the other findings of fact in this case, does not justify HCR's proposal. Even if it were concluded that HCR does not need to comply with the Specific Exception in this case, the evidence does not support a finding that a 120 bed facility should be approved. The only evidence as to the total number of nursing home beds allegedly needed in Manatee County was presented by Mr. Jay Cushman, an expert in the field of health planning. According to Mr. Cushman there is a need for a minimum of 193 additional nursing home beds in Manatee County. Mr. Cushman's opinion was based upon the criteria of Rules 10- 5.11(3)(a)-(d), (4) and (6), Florida Administrative Code. In particular, Mr. Cushman relied upon the effect on nursing home bed use of Manatee County's peak season and the needs of Alzheimer patients, respite care patients and Medicaid patients. Mr. Cushman's opinion was based upon his determination that there is a need for a total of 1,174 nursing home beds in Manatee County. This figure was arrived at by adding Mr. Cushman's projected need for Medicaid patients (40 beds), Alzheimer patients (121 beds), respite care patients (50 beds) and the current peak census of nursing homes in Manatee County (718 beds). The sum of these figures was multiplied by 1.137 (to account for population growth in Manatee County over the next three years) and the result was divided by ninety percent (to account for a maximum occupancy rate of ninety percent). Mr. Cushman's determination of need, to the extent his figures are based upon purported access problems associated with Medicaid patients, Alzheimer patients, respite care patients and persons in need of care during the peak season, should not and cannot be considered because of the lack of compliance with the Specific Exception. Since Mr. Cushman did take into account alleged access problems without complying with the Specific Exception in arriving at his conclusion that 193 nursing home beds are needed in Manatee County, Mr. Cushman's opinion of need is rejected. Even if it was proper for Mr. Cushman to consider access problems despite the failure to comply with the Specific Exception, the weight of the evidence does not support Mr. Cushman's opinion. In arriving at his estimate of the need for Medicaid patients, Mr. Cushman relied in part upon the fact that twenty-four patients (twenty-five according to Mr. Cushman) had been placed in nursing homes located out of Manatee County by L. W. Blake Memorial Hospital personnel. The evidence, however, does not prove that all of these patients were Medicaid patients. Mr. Cushman's determination that 50 beds are needed for respite care patients was based upon on the opinion of Mr. Russell Kitching. Mr. Kitching's estimate was rejected, supra. The most significant problem with Mr. Cushman's determination of bed need is his estimate of the need for Alzheimer's patients. The evidence does not support a conclusion that there is a need for additional nursing home beds for Alzheimer's patients. The evidence proved that no Alzheimer's patient in Manatee County has been denied access to a nursing home. Finally, Mr. Cushman's opinion is contrary to, and did not take into account, the fact that Manatee County is projected to have an excess of 105 nursing home beds under the Formula. Based upon the foregoing, it is concluded that HCR has failed to prove that there is a need for a 120 bed nursing home in Manatee County.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the certificate of need application filed by HCR for a 120-bed nursing home to be located in Manatee County be denied. DONE and ENTERED this 2nd day of August, 1985, in Tallahassee, Florida. LARRY J. SARTIN 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 2nd day of August, 1985. COPIES FURNISHED: Jean Laramore, Esquire G. Steven Pfeiffer, Esquire LARAMORE & CLARK, P.A. The Bowen House 325 N. Calhoun Street Tallahassee, Florida 32301 John F. Gilroy, Esquire CULPEPPER, TURNER & MANNHEIMER P. O. Drawer 11300 Tallahassee, Florida 32302 David Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
Findings Of Fact Procedural history In July, 1985, each Petitioner submitted an application for a certificate of need to build a 120 bed community nursing home in Manatee County, Florida. Manatee County is subdistrict 2 of Department of Health and Rehabilitative Services District VI. The application of Meridian was assigned certificate of need number 4154, the application of Manor Care was assigned certificate of need number 4153, and the application of Forum Group was assigned certificate of need number 4159. The applications were comparatively reviewed by HRS. After initial review, all applicants were denied. The state agency action report does not discuss the availability, accessibility or adequacy of existing licensed community nursing homes in Manatee County. Each applicant requested a formal administrative hearing upon the proposed denials of their applications, and those cases were assigned the above cases numbers and consolidated for comparative review and formal administrative hearing. Prior to the hearing, each applicant filed an updated application. M Ex. 1; MC Ex. 1; FG Ex. 2. HRS objected to admission of evidence concerning updated applications, and particularly objected to evidence from Manor Care concerning services to Alzheimer's disease patients, but did not ask that the applications be remanded for further consideration by HRS. The Petitioners' letters of intent, applications, and requests for formal administrative hearing were all timely filed. T. 16-17. The Petitioners agreed that if need exists for 180 beds or more, each applicant would agree to receive certificates of need for one-third of such need. Need The applications of the Petitioners were received in the July, 1985, batching cycle, and the correct planning horizon for determining bed need pursuant to rule 10-5.0011(1)(k), the community nursing home bed rule, is July, 1988. T. 856. Craig Thornton testified as to need on behalf of the Petitioners. Mr. Thornton's calculation of need pursuant to the numeric need rule resulted in a net need of 187 community nursing home beds by July, 1988, in subdistrict 2 (Manatee County) of District VI. T. 814. Mr. Thornton's calculation of need used the following statistics (using the same abbreviations as used in the rule): Licensed beds in the District (LB) of 5,557 as of June 1, 1986, rather than 1985. T. 837. Licensed beds in the subdistrict 2 (LBD) of 1,005 as of June 1, 1986. T. 840. Approved beds in the District (AB) of 508 was as of August 1, 1986. T. 838. Approved beds in subdistrict 2 (AB) as June 1, 1986, was zero. T. 840-41. POPE of 243,978 was July I, 1986 estimates of July 1, 1986 population of persons age 65 and older in District VI. T. 838, 840. The poverty rate in District VI for persons age 65 and older (PBD) is higher than the poverty rate for the same age group for the state (PBS). T. 811. Using these statistics, Mr. Thornton made the following calculations: He calculated the second portion of the test in subparagraph e of the rule to determine whether the poverty adjustment should apply. That calculation, (LB + AB)/POPE, results in 0.02486, rounded. Since the last calculation was less than 27/1000, and since the poverty rate in District VI is higher than the rate statewide, Mr. Thornton next calculated PA, which is the poverty-adjusted number of beds in the District. This calculation pursuant to the rule is (27 X POPE)/1000. The result is 6,587 beds using Mr. Thornton's statistics. Following the next step in the rule, Mr. Thornton calculated SPA, which is the final subdistrict community nursing home allocation where a poverty adjustment is made. SPA pursuant to the rule is (LSD/LB) X PA. Using the above figures already obtained from Mr. Thornton's statistics, SPA is 1,192. T. 813. Finally, Mr. Thornton calculated net bed need by subtracting LSD and 90% of AB in the subdistrict (which was 1,005, using his statistics) from SPA. The result is a net bed need of 187 beds in subdistrict 2. The calculation of net bed need performed by Mr. Thornton is not correct as a matter of law, which will be discussed in the conclusions of law. There were 5,270 licensed community nursing home beds (LB) in District VI as of June 1, 1985. HRS Ex. 3 and 4; T. 863, 866. There were 765 licensed community nursing home beds (LBD) in subdistrict 2 of District VI (Manatee County) as of June 1, 1985. HRS Ex. 3 and 4; T. 866. The July 1, 1985, estimate of population of persons in District VI who were 65 to 74 years of age on July 1, 1985, (POPC) was 126,792, and the July 1, 1985, estimate of population of persons in District VI who were 75 years of age and above on July 1, 1985 (POPD) was 84,723. HRS Ex. 3 and 6; T. 872-73. The total of these two populations is 211,515 (POPE). HRS Ex. 3. The July 1, 1985, estimate of population of persons in District VI who were 65 to 74 years of age on July 1, 1988, (POPA) was 135,921, and the July 1, 1985, estimate of population of persons in District VI who were 75 years of age and above on July 1, 1988 (POPB) was 94,434. HRS Ex. 3 and 6; T. 873. The occupancy rate (OR) for subdistrict 2 (Manatee County) for the period from October, 1984, to March, 1985, was 94.6%. T. 866; HRS Ex. 3 and 4. HRS has a policy of counting beds as approved if approved before the supervisor signs the State Agency Action Report (SAAR) initially determining whether to grant or deny an application. This policy is not applicable to this case since no such beds were approved in the period between June 1, 1985, and the date of signature upon the state agency action report. Additionally, HRS has a policy of counting as approved all beds licensed after the cutoff date for counting licensed beds (here, June 1, 1985) but before the date the supervisor signs the SAAR. HRS Ex. 3, explanation on P. 2; T. 869. Pursuant to the above policy, there were 755 approved beds (AB) in District VI and 240 approved beds (AB) in subdistrict 2. Id. It should be noted that these numbers would be the same if these beds had been counted as approved if approved on June 1, 1985. Thus, application of the policy in this case is unnecessary. Based upon the statistics set forth above, the preliminary subdistrict allocation (5A) of community nursing home beds for July, 1988, is 889. HRS Ex. 3. Based upon the statistics set forth above, the poverty adjustment contained in subparagraph e of the rule does not apply, even though the District VI poverty rate is higher than the statewide rate, because licensed beds (LB) plus approved beds (AS) in District VI divided by the July 1, 1985 estimate of population in the District on July 1, 1985, of age 65 and above (POPE) is more than 27/1000. HRS Ex. 3, step 5. Based upon the statistics set forth above, there is no need for any portion of any of the projections proposed by the Petitioners. The final net bed need for subdistrict 2, pursuant to subparagraph i of the rule, is a surplus of 92 beds. HRS Ex. 3, step 6; T. 862. Suncoast Nursing Center is the former name of the Center at Manatee Springs. T. 879. Suncoast Nursing Center had 120 approved community nursing home beds on March 24, 1984, and these 120 beds became licensed on July 17, 1985. HRS Ex. 5; T. 868. It is located in Bradenton (Manatee County), Florida, J. Ex. 1, pp. and 6, and opened in September, 1985. Id. at p. 6. The Center at Manatee Springs currently provides services only to patients suffering from traumatic brain injury. J. Ex. 1, P. 7. The current operational goal of the Center at Manatee Springs is to seek out patients suffering from traumatic brain injury and that diagnosis is currently one of the Center's admission criteria. Id. at p. 9, 10, 16; J. Ex. 2, p. 10. The Center has expanded its marketing efforts to the entire nation. Id. at p. 26. It recently ordered new brochures to advertise itself for the purposes discussed above. Id. at p. 27. Traumatic brain injury is caused by trauma to the head from the outside, and does not include injuries originating internally, such as due to stroke. J. Ex. 2, pp. 5-6. On December 1, 1986, the Center had 36 traumatic brain injured patients in its 120 beds, and the average age of these patients was 26. Id. None of the patients were over age 65. Id. at p. 7. The Center at Manatee Springs does not currently consider itself to be in competition with community nursing homes in the area. J. Ex. 1, p. 16. The Center has purchased certain kinds of equipment specifically for treatment of traumatic brain injured patients (such as a brain atlas, ventilators for comatose patients, and special audiology equipment for speech pathology and memory loss). J. Ex. 1, p. 10-11. A lot of new equipment is in the process of being ordered. Id. This equipment is usually not found in a community nursing home. Purchase of certain new equipment is in the planning stage, Id. at p. 9, but has been delayed because the census has not yet been that strong. Id. at p. 12. The facility has not been remodeled in any way. Id. at p. 23. The Center is specially staffed to care for patients having traumatic brain injury. J. Ex. 1, p. 13. The Center has a high percentage of nurses on its staff, and has therapists of all types, speech pathologists, and neuropsychologists. Id. at p. 14. The Center informally contacted HRS and obtained approval from HRS to try to increase its occupancy by admitting traumatic brain injured patients. T. 901; J. Ex. 1, p. 22. HRS apparently views the practice of the Center of not taking conventional community nursing home patients as a "problem," and HRS's expert witness was of the opinion that absent permission from HRS, the Center would have to provide services to conventional community nursing home patients. T. 900-01. HRS does not have a rule governing the procedure to be followed in this situation, however, and has proceeded on informal policy. Id. If the Center were to continue indefinitely to refuse to provide services to conventional community nursing home patients, HRS would view that as a significant problem. T. 903. For the long term, the Center has not decided what the patient mix should be, and is still studying the question whether it can continue to provide services only to traumatic brain injured patients. Id. at p. 15. The Center is not limited by its license to treat only traumatic brain injured patients, and could admit community nursing home patients. T. 900. If the census of the Center does not improve, it is possible that it will then broaden its marketing efforts and admit more usual nursing home patients. Id. at p. 23. That has not yet happened, however. The current marketing intent of the Center is to admit only traumatic brain injured patients. The Center at Manatee Springs is currently not operated as a community nursing home, and is currently not accessible to persons needing conventional community nursing home services. The statewide licensed nursing home bed to population ratio was 23.18 beds per 1,000 persons as of the summer of 1986. The ratio in District VI is 24.44, and is higher than the statewide ratio. But the ratio in Manatee County is 20.47, lower than both the District and statewide ratios. T. 54. If 120 additional community nursing home beds were added to Manatee County, its ratio would be 22.92, and thus would still be lower than both the District and statewide ratios. Id. In the planning horizon (the summer of 1988), accounting for both licensed beds and all beds currently approved, the statewide ratio would be 25.46, the District ratio would be 24.86, and the Manatee County ratio would be 19.26, which would increase to 21.56 if 120 additional beds were added to Manatee County. M. Ex. 7; T. 55. HRS has previously granted a certificate of need for a nursing home where the existing numeric need rule showed little or no need and one licensed nursing home in the county was not generally accessible to conventional nursing home patients due to restrictive admission policies and low occupancy rates. T. 1018, 1032-33. The applicability of this as precedent in the case at bar is clouded by the fact that in that case the local health plan explicitly mentioned the problem, and recommended approval of new beds in that county as the first priority. T. 1030. That circumstance does not exist in this case. Moreover, it is unknown in that case pursuant to the then existing rule whether disregarding the nonaccessible beds resulted in a net numeric need sufficient to justify approval of the certificate of need. See T. 1020. The vast majority of persons using community nursing home beds in Florida are age 65 or more. Persons younger than 65 years of age using nursing home services in Florida recently constituted 7.36 percent of the total, and 8.25 percent of the total in District VI. T. 992. Since the 120 licensed community nursing home beds at the Center of Manatee Springs are not available to conventional community nursing home patients in Manatee County, or in District VI, and there is no evidence in this record to conclude that they will be available to such persons in the near future, those 120 beds should be treated as not available for purposes of determining the net bed need in the horizon year. It should be noted that the 120 beds at the Center of Manatee Springs appears in the numeric need rule only as approved beds, not as licensed beds. Thus, deletion of these beds within the context of the numeric rule would not involve deletion from either LB or LBD, and therefore would not give rise to an opportunity to witness the rather bizarre inverse mathematical relationship in the rule between the number of existing beds and "need." If the 120 approved beds at the Center at Manatee Springs are disregarded in the numeric rule, the following consequences occur: The 120 approved beds would be subtracted from the 755 approved beds in the District in step 5, concerning the poverty adjustment, but the result would still be more than 27/1000. The result would be 5,905/211,515 = 0.0279. Thus, the poverty adjustment still would not apply. Ninety percent of the 120 approved beds in the subdistrict would be deleted from the amount to be subtracted in step 6, resulting a net bed need of 16 beds, instead of a net bed surplus of 92 beds. HRS Ex. 3; T. 880-81. Sixteen beds would not be sufficient need to grant any portion of any Petitioner's application. T. 881. Petitioners argue that the 120 beds at the Center should be disregarded in another way external to the numeric need formula. Mr. Nelson, testifying as an expert for the Petitioners, was of the opinion that the problem of the 120 beds at the Center at Manatee Springs was solely an accessibility issue, and not an issue giving rise to an alteration within the numeric need calculation. T. 81-2. He reasoned that since the Center was presumptively needed at one time (because it was approved for a certificate of need for a community nursing home) but is now in fact not accessible to persons needing it, the 120 beds it represents should be replaced. Id. Mr. Nelson's method has been rejected in the conclusions of law. There is no need for any portion of any of the projects proposed by any Petitioner. No findings of fact have been made with respect to the comparative aspects of the three projects since there is no need.
Recommendation For these reasons, it is recommended that the Department of Health and Rehabilitative Services enter its final order denying the applications of Meridian, Inc., Meridian Nursing Centers, Inc., and Manatee Meridian Limited Partnership, Manor Care of Manatee County, and Forum Group, Inc., sponsor of Retirement Living of Manatee County, for certificate of need numbers 4154, 4153, and 4159, respectively. DONE and ORDERED this 12th day of May, 1987, in Tallahassee, Florida. WILLIAM C. SHERRILL, 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 12th day of May, 1987. APPENDIX The following are rulings upon proposed findings of fact which have been rejected in this Recommended Order. The numbers used correspond to the numbers of the findings of fact proposed. Findings of fact proposed by Meridian Inc.: Subordinate to primary findings of fact, and not needed. The second sentence is not relevant. 4. That last sentence is not relevant. The second sentence is not supported by the record. The witness was testifying to his current census, not historical experience. Irrelevant. Irrelevant. The words "intensely" and "full-time" are not supported by the record cited. The words "sole purpose" are not supported by the record cite. The witness only testified that its was necessary for that purpose. Subordinate. The word "exclusively" is not supported by the record cited. Cumulative. Cumulative. Cumulative and subordinate. 20. An issue of law, not fact. The words "demographically similar" are not supported by the record cited. The first sentence and last sentence are rejected because, due to lack of numerical need and lack of other legally relevant evidence of a "not normal" condition, reference to only the bed ratios cited is not a sufficient basis for concluding that it would not be unreasonable to add 120 more beds to Manatee County. The numeric need rule already accounts for population growth, so this finding of fact is legally irrelevant. Subordinate. The second sentence is irrelevant. The third and fourth sentences are issues of law, and have been rejected in the conclusions of law. The example provided by M. Ex. 18 is not relevant because the 120 beds at the Center at Manatee Springs appear in the numeric need formula as approved beds, not licensed beds. While this proposed finding of fact is true, it is legally irrelevant since the applicant has the burden of proof of showing a "not normal" condition in Manatee County, and has the burden of proof of showing need for the proposed project. The third sentence is not relevant because it stops short of the relevant issue: whether the deletion of the Moose Haven Health Center beds resulted in sufficient net bed need to grant the beds to Beverly. It is very probable that the "miniscule amount of numerical need" plus the Moose Haven beds resulted in sufficient net beds to grant Beverly's application. 35-77. No findings of fact have been made with respect to the comparative aspects of the three projects since there is no need. Findings of fact proposed by Manor Care: Irrelevant. The fact that the Department published a rule change to calculate the poverty adjustment on populations that are "projected three years into the future," instead of as now in the rule, "current," and stated that the proposed amendment "clarifies" the existing provisions of the rule, and then withdrew the proposed amendment, is too ambiguous to rely upon as argued by the Manor Care. One cannot tell from this whether the Department was carelessly using the word "clarify," as agencies often do in a euphemistic way, or actually thought that the word "current" was unclear. Moreover, the fact that the proposed amendment was withdrawn raises another set of unknowns: whether the Department withdrew the amendment because it had second thoughts and decided the word "current" was clear, or because it affirmatively rejected the adoption of a poverty adjustment as the Petitioners would have it on this record. Rejected as explained in the last paragraph. The Department does not rely upon its actions with respect to the proposed amendment to the rule as a basis for its decision in this case, and thus does not have to explicate it on this record. Rejected as more fully explained in the conclusions of law. 11-42. No findings of fact have been made with respect to the comparative aspects of the three projects since there is no need. Findings of fact proposed by Forum Group: 1-21. No findings of fact have been made with respect to the comparative aspects of the three projects since there is no need. 22-23. The lack of a need calculation in the state agency action report has no relevance to the correctness of the need calculation now offered by HRS. 24. The word "authoritative" must be rejected since the method was not legally correct. 27. Irrelevant since the error was corrected at the formal hearing, and the result of lack of need would not change, in any event. 30. Irrelevant. The prior policy contravened the rule. 34. Irrelevant. Growth in population is already contained in the numeric need rule as a factor. 38-66. No findings of fact have been made with respect to the comparative aspects of the three projects since there is no need. Findings of fact proposed by HRS: 4-5. Issues of law, not fact. 7. The first sentence is an issue of law, not fact. The first sentence is an issue of law, not fact. An issue of law, not fact. The second sentence is an issue of law, not fact. No findings of fact have been made with respect to the comparative aspects of the three projects since there is no need. Manor Care has presented evidence concerning its plan to treat Alzheimer's disease patients only in support of the comparative aspects of its project in relation to the projects of the other two applicants. It has not presented such evidence to show need, i.e., evidence that patients having Alzheimer's disease (either specifically or generally) need the services that Manor Care proposes. See proposed findings of fact 14-19 by Manor Care. Thus, it is unnecessary to reach the factual and legal issue raised by HRS as to whether Manor Care may present evidence concerning services to Alzheimer's disease patients. COPIES FURNISHED: Robert D. Newell, Jr. Robert D. Newell, Jr., P.A. 102 South Monroe Street Tallahassee, Florida 32301 Donna H. Stinson, Esquire Moyle, Flanigan, Katz Fitzgerald and Sheehan, P.A. The Perkins House, Suite 100 118 North Gadsden St. Tallahassee, Florida 32301 R. Terry Rigsby, Esquire Moffitt, Hart, Rigsby & Herron, P.A. 215 S. Monroe St. Suite 800 Tallahassee, Florida 32301 Richard A. Patterson, Esquire Department of Health and Rehabilitative Services 1323 Winewood Blvd. Building One, Room 407 Tallahassee, Florida 32399-0700 John Miller Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Findings Of Fact Heritage Hall is a partnership, domiciled in the State of Virginia, which owns and operates ten nursing homes in that state. Heritage Hall did not, at the time of the close of this record, own or operate, nor have under completed construction, any nursing home in Florida. Heritage Hall filed a "letter of intent to construct, own and operate a 60-bed nursing home in the counties of Collier, DeSoto, Highlands, and Lee. On July 15, 1983, Heritage Hall filed the specific Certificate of Need application at issue with HRS, requesting authorization to construct a 60-bed freestanding nursing home in DeSoto County. That application was deemed complete on September 15, 1983, and a free form decision was made to grant it by HRS on December 1, 1983. The proposed nursing home would be located in the vicinity of Arcadia, in DeSoto County, a subdistrict of HRS District VIII. Diversicare Corporation, Inc. d/b/a DeSoto Manor Nursing Home (DeSoto Manor), (Diversicare), owns and operates DeSoto Manor Nursing Home, an existing 60-bed nursing home facility located in Arcadia, DeSoto County, Florida. On November 3, 1983, Diversicare filed a Letter of Intent with HRS announcing its intention to seek a Certificate of Need for an addition to its DeSoto County facility. It ultimately filed an application seeking authorization for a 36-bed nursing home addition on January 12, 1984. No additional information was requested by HRS and the application became complete by operation of law on March 15, 1984. That application is thus in a separate and later batch for purposes of Rule 10-5.08, Florida Administrative Code, and thus was not comparatively reviewed with the application in the case at bar as a competing application. On May 1, 1984, HRS notified Diversicare of its intent to deny its application for the 36-bed addition. Heritage Hall proposes to construct a 60-bed nursing home at a total cost of $1,597,293. This specific cost of construction, not including land acquisition cost, is proposed to be $1,070,740. The nursing home's cost of construction allocated on a per bed basis would be $26,622. Heritage Hall proposes to finance this project to a tax-exempt bond issue in an aggregate amount of $1,436,075, carrying a 10 percent interest rate with a 30-year maturity. Additionally, the Heritage Hall partnership would invest $161,218. Heritage Hall projects that once it begins operation of the proposed new nursing home, that a 97 percent occupancy level for the proposed 60 beds would be reached within six months. Included within that projection, Heritage Hall projects that 49 percent of the patient revenues would come from Medicaid reimbursement, that 10 percent would come from Medicare reimbursement, and that 40 percent of its revenues would be attributable to private paying patients, not included within any relevant government entitlement programs. The remaining one per cent of its patient revenue base would be charged off and attributable to bad debt, or indigent patients. Heritage Hall proposes charges for its Medicare and Medicaid patients to constitute $62.39 per day, and its charges for private paying patients would be $68.00 a day for a private room, and $65.00 per day for a semiprivate room. It proposes to staff its facility with five registered nurses, six licensed practical nurses (LPN), 17 nurses aides, and an administrative and miscellaneous employee staff of 16, for a total staff for a 60- bed nursing home of 44 employees. DeSoto Manor's present patient population is largely composed of Medicaid and Medicare patients, such that 84 percent of its revenue is derived from Medicaid and Medicare sources. Its private paying patients are a small minority contributing 16 percent of its total patient revenues. DeSoto Manor has consistently experienced 99 - 100 percent occupancy for all of 1983 and 1984, upon which is earned a net income for fiscal year 1983 of approximately $15,000. DeSoto Manor presently employs on its staff 2.2 registered nurses, 5.6 LPN's, 17.1 aides, and 17.4 administrative and miscellaneous employees, those figures being expressed in terms of full-time equivalent employees in those categories. DeSoto Manor's application filed in a later batch is not at issue in this proceeding, in terms of comparative review for the purpose of determining whether Heritages Hall or DeSoto Manor is entitled to a Certificate of Need for DeSoto County nursing home beds as a result of this proceeding. Such a proposal, however, to add additional beds to an existing nursing home, is worthy of consideration as an alternative means of providing nursing home services to the public in District VIII, and specifically the subdistrict of DeSoto County, pursuant to authority cited infra. In that vein, DeSoto Manor proposes to add 36 additional beds at a total cost of $767,337, including involving a construction cost of $541,280, which is equivalent to a $21,260 cost per bed for the proposed 36-bed addition. DeSoto Manor would require the equivalent of 17.3 full time additional staff members, if such an addition (a 36-bed addition) were approved and built. DeSoto Manor charges will be (on January 1, 1985) $45.56 a day for Medicaid and Medicare patients, and $47.00 a day for its private pay patients. If its 36-bed addition were installed, it would charge $49.31 per day for Medicaid and Medicare patients, and $53.00 a day for private paying patients. DeSoto County is a relatively small county geographically, located inland from the counties bordering the Gulf of Mexico in District VIII. It is a rural county in character, as that term relates to its economic base being largely agriculture, and its low population density, with its population center being in the only sizable community of Arcadia, the county seat, located approximately in the geographic center of the county. It is surrounded by Sarasota, Charlotte, Highlands, and Hardee Counties. Highlands and Hardee Counties are in District VI, with Sarasota, Charlotte and DeSoto Counties being in District VIII, as are Lee, Collier, Glades and Hendry Counties. In 1987, DeSoto County is expected to have a population of 3,749 persons age 65 and over. The county is not experiencing a significant rate of growth at this time, nor is it expected to through 1987, the pertinent "horizon" year. Pursuant to Rule 10-5.11(21), Florida Administrative Code, the nursing home bed need methodology, HRS computes a need for additional nursing home beds in its health care districts and sub-districts, first by determining "actual need" or the "area specific bed need allocation." The actual need for additional nursing home beds is computed by means of a population based formula embodied in that rule. The second step of the need/availability determination process involves determining how many beds above or below the actual need determined may be added before the utilization in the district or subdistrict falls below 80 or 85 percent. The actual need or "area specific allocation" is determined by multiplying the poverty ratio for the district or subdistrict by the statewide nursing home bed need ratio of 27 per 1,000 persons age 65 and older, and the population of the district or subdistrict age 65 and older, and then subtracting from this computation the number of existing nursing home beds within the district or subdistrict. Within District VIII, the poverty ratio equals 8.61 divided by 12.70, the relevant population of the district for the applicable year being 213,561, with the population for DeSoto County, as a subdistrict, being 3,749 persons age 65 and older. There were 3,671 licensed nursing home beds in District VIII at the time of the hearing, and there were 1,130 beds approved, but not yet licensed or open in the district. There were 60 licensed and operating nursing home beds in DeSoto County. There were 3,904 actually "needed" or allocated beds in District VIII, which, when added to those beds approved but not yet licensed and operating, total an aggregate of 4,801 licensed and approved beds in the district. Thus, there are 997 excess nursing home beds over and above those actually needed in District VIII by 1987, according to the population based formula used in the first part of the need/availability determination process embodied in the above-cited rule. There is an actual need in DeSoto County alone of nine additional nursing home beds by 1987, based upon the subdistrict actual need allocation determined by the first part of the above methodology process of 69 beds. The second part of the need/availability determination process computes how many additional beds can be added to a district or subdistrict before the occupancy rates of nursing home beds in the district or subdistrict fall below the applicable rule mandated percentage. In DeSoto County, the applicable percentage is 80 per cent, because the subdistrict of DeSoto County indicates some need for additional beds, although the district as a whole has excess beds with no additional actual bed need shown. Thus, based upon the entire applicable computation, 15 beds may be added to DeSoto County before utilization of nursing home beds in the county will drop below the threshold of 80 percent. It has thus been established that if 60 beds are added to the bed supply in DeSoto County, for instance by a grant of the instant application, the utilization of nursing home beds will decline to approximately 50 percent. Under the above rule methodology, HRS, in adhering to the requirements of that rule, would not normally grant a certificate of need when only a small number of additional nursing home beds are computed to be available under that formula, that is, for a new freestanding nursing home facility. It is undisputed that construction of a new nursing home of less than 60 beds is not considered to be financially feasible. That rule of thumb does not apply, however, to the addition of beds to an existing, already-built parent facility, and it is undisputed that the addition of needed beds to an existing facility is more cost-effective in terms of construction costs and staffing, than the construction of a new facility. In its review process, with regard to the instant application and proceeding, HRS did not consider the alternative of adding new needed beds to the existing facility operated by Diversicare (DeSoto Manor), since the Diversicare application was not filed in the same batching cycle as the application at bar filed by Heritage Hall. Although the nursing home bed need determination formula reveals a maximum need of 15 beds for DeSoto County by 1987, HRS proposes to approve 60 beds in conjunction with the Heritage Hall application. In its review process, HRS took into account the fact that DeSoto and surrounding counties in District VIII were experiencing high occupancy rates as to existing licensed beds, and took the position then and in this proceeding that residents of DeSoto County needing nursing home care would have difficulty finding available nursing home beds. HRS failed to take into consideration, in its review process, the additional number of nursing home beds which had been approved in surrounding counties (as pertinent hereto, the surrounding counties of District VIII), but which were not yet licensed and actually operating. Thus, at the time of hearing there were 301 approved but not yet opened beds in Charlotte County, 97 approved but not yet operating beds in Collier County, 222 approved but not yet opened beds in Lee County and 597 approved but not yet operating beds in Sarasota County. Thus, the approved but not yet licensed and operating beds will result in an increase of 1,217 beds available, when open, to the residents of DeSoto and the adjacent counties of District VIII. 1/ The applicant and HRS seek to justify the approval of 60 additional beds in DeSoto County by reference to the high utilization rates being experienced in adjacent counties. As pertinent hereto, Charlotte County was experiencing an occupancy rate of 99 percent, Sarasota was at 88 percent occupancy, Lee County at 91.5 percent, with Collier County at 64.5 percent. Those figures do not take into account the latest nursing home District VIII occupancy figures as of June 29, 1984 which reflect the above-discussed additional approved, but not yet opened beds, and which result in the occupancy rates in these counties falling substantially. Thus, Charlotte is now experiencing only an 80.4 percent occupancy, for instance, with Sarasota County falling to a 78.5 per cent occupancy, with lowered occupancy rates resulting in Lee and Collier County as well with the addition of the approved, but not yet opened beds. These lowered occupancy rates resulting from the opening of these approved, but not yet licensed beds, were not considered by HRS at the time of its initial review, and free form grant of the certificate of need at issue. The opening of these hundreds of additional beds will continue to reduce occupancy in those counties and provide available beds to residents of District VIII and to residents of DeSoto County, to the extent those beds in the other counties are deemed accessible. HRS admitted at hearing that the availability of beds has increased in the district since its first review of the application. The financial feasibility of the Heritage Hall proposal depends upon an assumed 97 percent occupancy in its sixth month of operation, and projects that 40 percent of the revenues will be derived from private, paying patients. The 97 percent occupancy is an optimistic projection however, because only nine beds are shown to be actually needed in the county by 1987, and only 15 beds can be added before occupancy will drop below 80 percent. The addition of 60 beds would drop occupancy at DeSoto Manor and the proposed Heritage Hall facility, if built, to 50 percent. The Heritage Hall projection for revenues from private, paying patients which is 40 percent, is substantially more than the current revenue source from private, paying patients experienced by DeSoto Manor of 16 percent. In order to achieve such an occupancy rate in such a short time, and such a higher percentage of private, paying patient revenues, Heritage Hall must aggressively market its new facility and nursing home service so as to attract private, paying patients. Based upon historical evidence of record, it is likely that the patient base in DeSoto County itself will not support such a high percentage of private, paying patients and such patients will doubtless have to come from other areas or counties in the district, specifically the counties lying along the coast of District VIII. There is no evidence to establish that nursing home patients in the coastal counties have any inclination to seek nursing home care in DeSoto County, particularly because those coastal counties are already experiencing lowered occupancy rates, and nursing homes there need more patients. There is thus no demonstration that residents of the coastal counties in District VIII (or other adjacent counties for that matter) would travel to DeSoto County for nursing home care when there are empty beds available to them closer to their homes or the homes of their families in those counties. Heritage Hall proposes to recruit its staff from DeSoto County and the surrounding geographical area. DeSoto Manor however, itself is currently experiencing severe problems in recruiting registered nurses for its facility, in spite of repeated advertising and recruitment attempts. Potential staff members share a reluctance in becoming employed at DeSoto Manor, which lies in an isolated, rural area, and which must compete with the many nursing homes lying in the coastal areas in the other counties of District VIII for staff, and which areas offer more living amenities in general, than does the isolated, rural, small community setting in which DeSoto Manor is located. Indeed, other District VIII nursing home administrators have contacted the administrator of DeSoto Manor, in her capacity as administrator, as well as in her capacity as president of the Florida Health Care Association for District VIII, seeking assistance in obtaining additional staff for their facilities. Approval of the Heritage Hall application will, in effect, double the competition for staff members for nursing homes in DeSoto County, and will concomitantly, increase DeSoto Manor's present difficulties in obtaining and retaining appropriate employees. In calculating the financial impact which an additional 60-bed nursing home would have on the existing DeSoto Manor facility, DeSoto Manor assumed that the number of nursing home beds said to be available before occupancy dropped below 80 per cent, which includes the proposed 15 additional beds, would be full of patients and that these patients would be evenly split between the two nursing homes in the county. Thus, each nursing home would have approximately 37.5 patients in its respective 60-bed facility. In this event, and taking into account the concomitant reduction in staff, salaries and other per patient expenses because of a reduction in the number of patients, the proposed Heritage Hall facility would likely experience a net loss of approximately $232,587 for the first year of operation of its additional facility. DeSoto Manor's Medicaid reimbursement revenues would fall $31,722 below DeSoto Manor's actual cost of providing Medicaid patient care. Thus, in order to recover lost revenues and achieve a break-even profit and loss status, a significant increase in patient charges over existing charges would be necessary. The weight of such increase in patient charges would have to fall upon the private, paying patients in the revenue mix of each nursing home, because of the inflexible nature of the current Medicaid reimbursement scheme. In evaluating the DeSoto County population's accessibility to nursing home services, HRS admittedly did not take into account the provisions of Rule 10-17.020(2)(b), Florida Administrative Code, which is the local health plan as it relates to nursing home planning adopted in the most current HRS rules. This local health plan provides for nursing home services to be available within a one hour travel time by automobile for at least 95 percent of the residents of District VIII. The president of the District VIII chapter of the Florida Health Care Association, who is the administrator of DeSoto Manor, is aware of at least ten nursing homes within a one hour drive of Arcadia and at least three others within that radius which are under construction, a significant number of which are in District VIII. Arcadia is located in the center of DeSoto County. All counties surrounding DeSoto County in District VIII have substantial numbers of approved beds which have not yet been opened and at least Sarasota and Charlotte Counties, which are adjacent to DeSoto County have occupancy rates in the neighborhood of 80 percent or less. The applicant did not establish, in furtherance of its attempted justification of 60 additional beds for DeSoto County, the lack of accessibility to DeSoto County nursing home patients of beds in the adjoining counties of District VIII, especially Charlotte and Sarasota, inasmuch as it was not established that those nursing homes in those coastal counties are more than an hour's driving time from the center of DeSoto County. Although, as witness Straughn for HRS established, Sarasota or the more westerly parts of Sarasota County, are approximately 49 miles and roughly an hour driving time from DeSoto County, it was not established that there are not nursing homes available in closer parts of Sarasota County which are accessible in less than an hour's driving time to DeSoto County residents and/or patients. Indeed, witness Porter testifying after the hearing by deposition, established that most of the nursing homes in the coastal counties involved in this proceeding, are within "40 some miles" from the present DeSoto Manor facility and the proposed Heritage Hall facility. Indeed, witness Porter established that Port Charlotte, in the immediate vicinity of which are several nursing homes, and which county is experiencing now an 80.4 percent occupancy rate (with the above-mentioned numbers of approved but not yet installed beds) is only 25 miles from the proposed Arcadia location. Thus, the criteria of the above rule which HRS witnesses failed to take into account, encompasses nursing home beds available or approved in the coastal counties referred to, which are accessible to patients in DeSoto County.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the relevant legal authority, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the Department of Health and Rehabilitative Services enter a Final Order DENYING the application of Heritage Hall to construct a new 60-bed nursing home facility in DeSoto County, Florida. DONE and ENTERED this 28th day of January, 1985, in Tallahassee, Florida. P. MICHAEL RUFF, 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 28th day of January, 1985.
The Issue The issue is whether a certificate of need should be issued to permit Tamarac Hospital, Inc. d/b/a University Community Hospital (Tamarac) to convert 10 acute care medical/surgical beds to skilled nursing facility beds. Based on their presentations at the final hearing and their proposed findings of fact and conclusions of law, the central issue is whether there is a need for the proposed nursing home beds.
Findings Of Fact Tamarac proposes to convert 10 currently licensed medical/surgical acute care beds into skilled nursing facility beds. The skilled nursing beds would be available at the hospital to treat patients who no longer require acute hospital care but do require skilled nursing services beyond those required by ordinary nursing home patients. (Tr. 15-16) 1/ The capital cost of the project would be approximately $20,000 for renovation to provide a private bathroom in the existing group of hospital rooms which would be converted to use as the skilled nursing facility (Tr. 25). The testimony of the petitioner with respect to the financial feasibility of the project was undisputed (Tr. 25, PX 1, p.14). Tamarac has encountered problems in placing patients who no longer require acute hospital care in nursing homes in HRS District 10, Broward County, when those patients require more than normal nursing home services. These patients, due to their diagnosis or treatment, require more skilled nursing care, more technical assistance, supplies or more frequent checking than traditional nursing home patients (Tr. 15). These are patients with infectious diseases or draining wounds who require isolation; patients requiring ongoing intravenous administration of medications including antibiotics and narcotics; patients on chronic ventilator support; patients with tracheostomies requiring respiratory support, suctioning or oxygen; patients with naso-gastric feeding tubes and patients receiving total parenteral nutrition (PX 1, application, p. 2). Tamarac introduced a study it had conducted concerning discharge delays for the one year period prior to its application which included 70 patients (Tr. 12, PX 3). The study is anecdotal in nature. The director of social services for Tamarac, who is in charge of discharge planning coordination, testified that the 70 cases were representative and randomly sampled (Tr. 12, 21). There was no specific evidence of the sampling methodology, however. In the absence of better evidence of the sampling methodology it is not possible to determine what inferences validly may be drawn from the information presented in PX 3. For example, the evidence fails to show whether the 70 cases included represent 1 percent or 100 percent of the instances where a discharge was delayed. All that is known is that in 53 percent of those 70 cases studied the discharge delay occurred because the patient could not be placed in a nursing home (Tr. 12). These 37 patients might have been served at Tamarac if a skilled nursing facility had been in operation. Due to the limited evidence of how the sample was chosen, the study has been given little weight. In addition, the application and Tamarac's study focuses solely on the experience of Tamarac in attempting to place patients who no longer required acute care in a nursing home. There is no basis for determining whether there is a general community need for the project proposed. The narrowness of the proof offered is apparently due to the restriction Tamarac made in the application that "this project is for [Tamarac] hospitalized patients only". Application, PX 1, page 6 paragraph 4. Tamarac also conducted a survey of Broward nursing homes to determine what services they provide, PX 4. That survey indicates that there are some specialized nursing services that are not available in nursing homes in Broward County, e.g., services for patients on chronic ventilators and patients with acquired immune deficiency syndrome (although Tamarac did not indicate that it proposed to offer services to AIDS patients). There are also services which are not commonly available. Many nursing homes will not accept patients on intravenous medication in the form of chemotherapy or narcotics or patients with draining wounds, and the few that do generally require no pathogenic organism be present as shown by negative culture test. Even when some nursing home in Broward County provides a specific service, a bed at that nursing home may not be available to a patient in Tamarac Hospital ready for discharge from acute care when the bed is requested (Tr. 14- 15). Tamarac's placement problem is made more difficult because it is to some extent in competition with other Broward County hospitals for the available nursing home beds for patients needing skilled, subacute nursing services (Tr. 16). This generalized evidence of competition does not rise to the level of demonstrating a need in HRS Service District 10 for the proposed skilled nursing facility. Tamarac has attempted to persuade existing nursing homes to expand services to accept on a routine basis patients needing the type services which Tamarac proposes to provide, but has been unsuccessful (Tr. 16). The bed need calculation methodology set out in Rule 10-5.11(21), Florida Administrative Code, for the July 1988 planning horizon shows a surplus of 92 nursing home beds in Broward County (RX 1 and 2, Tr. 32-44). Approximately 258 nursing home beds are unoccupied in Broward County on a daily basis, assuming 100 percent occupancy actually could be achieved (Tr. 39). The availability of empty nursing home beds in the district does not necessarily mean that beds are available for a particular patient at Tamarac Hospital who needs more than normal nursing services on a specific day (Tr. 55). Individual patients requiring subacute care may remain in the hospital (Tr. 18). Patients ready for discharge from acute care are not eligible for Medicare coverage (Tr. 17), and are potentially liable for their hospital costs incurred awaiting placement. If they were transferred to a skilled nursing facility such as that proposed by Tamarac, those patients would be eligible for the Medicare benefits for the first 20 days, with an additional 80 days of co- insurance reimbursement thereafter (Tr. 26). The average hospital room, board, and ancillary charges at Tamarac is $900 per patient and per day. The charge to be made in Tamarac's proposed skilled nursing facility would be $115 per day (Tr. 26). According to the application (PX 1, table 7, utilization by the class of pay), 65.6 percent of its patient days of service are provided by Tamarac to Medicare patients. Tamarac would recover approximately $115 per patient per day for patients utilizing its skilled nursing facility, rather than writing off, as it does now, approximately $900 per day for those Medicare patients requiring subacute care who remain in Tamarac due to an inability to identify an appropriate skilled nursing facility in Broward County to accept them when their care requirements are greater than that normally provided by Broward County nursing homes (Tr. 29). Few Medicaid patients utilize the services of Tamarac because of the nature of the population surrounding the hospital. Referring again to the evidence of utilization by class of pay, only one tenth of one percent of the patient days spent at Tamarac during the period January 84 through December 84 were days spent by Medicaid patients. There would be no restriction on access to the skill nursing facility unit if one of the rare Medicaid patients at Tamarac Hospital required those services (Tr. 27-28).
Recommendation It is recommended that the application of Tamarac Hospital, Inc., d/b/a University Community Hospital to convert 10 medical/surgical beds to skilled nursing facility beds be denied. DONE AND ORDERED this 20th day of October 1986 in Tallahassee, Leon County, Florida. WILLIAM R. DORSEY, 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 20th day of October, 1986.
