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

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

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

Florida Laws (1) 120.57

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BEVERLY ENTERPRISES-FL., INC., D/B/A BEVERLY GULF COAST-FL., INC. vs UNICARE HEALTH FACILITIES, INC., 92-006656CON (1992)

Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Nov. 05, 1992 Number: 92-006656CON Latest Update: Jul. 25, 1995

Findings Of Fact The Agency for Health Care Administration ("AHCA") is responsible for the administration of the Certificate of Need ("CON") program in Florida, pursuant to Section 408.034, Florida Statutes (1992 supp.) AHCA initially published a need for 313 community nursing home beds in the 16 county area encompassing District III on April 17, 1992, which was subsequently corrected and published as a revised total of 321 net bed need for District III. On September 17, 1992, with a cover letter signed by Elizabeth Dudek, AHCA issued notice that it intended to issue: CON No. 6983P to Unicare Health Facilities, Inc. ("Unicare"), for construction of a 60 bed community nursing home in Hernando County; CON No. 6985 to Beverly Enterprises-Florida, Inc. ("Beverly"), for the construction of a 120-bed community nursing home in Hernando County; and CON No. 6986 to Life Care Centers of America, Inc. ("Life Care"), for the construction of a 120-bed community nursing home in Hernando County; and, intended to deny, among others: CON 6983 to Unicare for the construction of a 120-bed community nursing home in Hernando County; CON No. 6989 to Lake Port Properties ("Lake Port") for either the conversion of 60 sheltered nursing beds to 60 community nursing home beds or the conversion of the 60 beds and the construction of an additional 60 community nursing beds to be located in Lake County; CON No. 6991 to Unicare for the addition of 51 community nursing home beds to New Horizon Rehabilitation Center, in Marion County; CON No. 6992 to Ocala Health Care Associates, G.P., for the addition of 60 community nursing home beds to TimberRidge Nursing and Rehabilitation Center in Marion County; and CON No. 6993 to Southern Medical Associates, Inc. (Southern Medical) for the addition of 60 community nursing beds to Palatka Health Care Center in Putnam County. Prior to the hearing, the parties stipulated that all participants have standing, except Heartland. Additional stipulations, accepted during the hearing, in the absence of a representative for Ocala Health Care Associates, are as follows: subsection 408.035 (1)(m) is not in dispute; proposed project costs and design are reasonable; the applicants' Schedules 1, notes and assumptions, the schematics, and the narrative responses to all of objective 4 in each application are in evidence, not in dispute, and are reasonable. The parties also stipulated to the approval of CON 6991 for Unicare to add 51 beds to its New Horizon Rehabilitation Center in Marion County, and the denial of CONS 6983 and 6983P to Unicare. LIFE CARE Life Care Centers of America, Inc. ("Life Care"), a privately-held corporation established in 1976, by its sole shareholder, Forrest L. Preston, owns, operates or manages 131 nursing homes and 14 retirement centers in 26 states. In Florida, Life Care manages four facilities with superior licenses, located in Altamonte Springs, Punta Gorda, and two in Palm Beach County, Lakeside and Darcy Hall. Life Care also owns, as well as operates, the facility in Altamonte Springs. Life Care owns and operates 28 nursing homes through leases, 6 or 7 of which are capital leases. Under the terms of the capital leases, Life Care is responsible for capital expenditures and projects. Life Care is not responsible for capital expenditures and projects at approximately 91 of its 131 facilities. Life Care proposes to construct and operate a 120-bed nursing home in the southwest section of Hernando County, near Spring Hill, and to finance the total project cost of approximately $5 1/2 million from bank loans. Life Care has not identified a specific site for its facility. Life Care has proposed to accept a CON condition to provide 75 percent of its patient days to Medicaid beneficiaries, to establish a separate 20-bed wing for Alzheimers and related dementia ("ARD") residents, and to provide intravenous therapy, inpatient and outpatient rehabilitative therapy, wound care and adult day care. Life Care's proposed Medicaid condition exceeds the 1991 district average of 73.78 percent, and is consistent with its experience in Altamonte Springs of up to 73 percent Medicaid without a CON condition, and over 80 percent Medicaid in West Palm Beach. The Medicaid percentages indicate that Life Care will offer mainly traditional nursing home services. BEVERLY Beverly Enterprises, Inc., the ultimate corporate parent of the applicant, owns 830 nursing homes, with a total of 89,000 beds in 35 states. Beverly Enterprises-Florida, Inc., the applicant in this proceeding, is a wholly-owned subsidiary of Beverly California Corporation, a wholly owned subsidiary of Beverly Enterprises, Inc. Beverly Enterprises-Florida ("Beverly") owns 41 of the total 68 nursing homes owned in Florida by Beverly-related companies. Of the 40 nursing homes owned by Beverly at the time the application was filed, 31 had superior licenses. Three facilities had moratoria within the preceding 36 months, one a facility built in 1929, another with a two-week moratorium which is now licensed superior, and a third which is still conditional while physical plant improvements are underway. See, Finding of Facts 28, infra. Beverly proposes to construct a 120-bed nursing home in Spring Hill, Hernando County, for $5,213,077, with its CON conditioned on the provision of 74 percent of annual patient days to Medicaid residents and a $10,000 grant for gerontology research at Hernando-Pasco Community College. Beverly proposes four beds for a ventilator-dependent unit, two beds for respite care, 20 beds on a separate wing for ARD residents, and to establish an adult care program. Beverly commits to group patients with ARD or other losses in cognitive functioning together in a 20-bed area, to offer subacute rehabilitative care in a 24 bed Medicare skilled nursing unit, and to provide intravenous therapy. Beverly also intends to establish a dedicated four-bed ventilator unit staffed with at least one registered nurse with a minimum of two years experience in critical care continuously on duty, a separately staffed adult day care program, and respite care. Beverly's would be the first ventilator beds other than in hospitals and the first licensed adult day care program in Hernando County. One of Beverly's existing Florida nursing homes is Eastbrooke which is also located in Hernando County, approximately 10 miles from the proposed Spring Hill site. Beverly expects its experienced personnel from Eastbrooke to train and assist in establishing Spring Hill. Beverly has identified a site for the Spring Hill facility which is across the street from an acute care hospital. Spring Hill is in southern Hernando County, near Pasco County. UNICARE By stipulation of the parties, the Unicare Health Facilities, Inc. ("Unicare") proposal to add 51 beds to New Horizon Rehabilitation Center in Marion County was recommended for approval on May 12, 1993. Unicare withdrew its requests for the approval of CONs 6983P and 6983 in Hernando County. As a result, the parties agreed that the number of beds needed was reduced from 321 beds to 270 beds. LAKE PORT Lake Port is a 60-bed licensed skilled nursing center, with a superior rating, located at the Lake Port Properties Continuing Care Retirement Community, in Leesburg, Lake County. Lake Port Properties is a partnership, for which Johnson Simmons Company serves as the managing general partner. The Lake Port community includes independent living residences, a 66-bed adult congregate living facility, and the 60 sheltered nursing beds. Among the services provided are post-operative care and orthopedic rehabilitative therapy for patients who have had knee or hip replacement surgery or shoulder injuries, neurological therapies for stroke injuries, pain management, subacute, open wound and respite care, and hospice services. Lake Port currently has 11 Medicare certified beds, and has had from 8 to 22 Medicare certified beds at a time. Lake Port has a contract with Hospice of Lake-Sumter County to provide interdisciplinary services to approximately five hospice residents a year. Rehabilitation services are also provided by contract at Lake Port. Lake Port has a relatively high volume of residents who are discharged home following intensive therapy within an average of three weeks. As an indicator of the intensity of therapeutic services, Lake Port has provided 26 percent Medicare, while the Lake/Sumter planning area average was 7.2 percent. Life Care projected a Medicare rate of 6.7 percent, Beverly projected 10 percent Medicare, and the Hernando County average is 9.3 percent. In this proceeding, Lake Port proposes either to convert the existing 60 skilled nursing beds to 60 community nursing beds at no cost, or the 60 bed conversion and the approval to construct an additional 60 community nursing home beds, for a total 120-bed community facility at a cost of $1.4 million. Lake Port proposes to have either CON, if approved, conditioned on the provision of 29.2 percent and 33.81 percent Medicaid, in years one and two, and respite, subacute, and intense rehabilitative care. Historically, the payer mix has included 25-30 percent Medicare and 30-35 percent Medicaid. All of the proposed services are provided currently at Lake Port. The effect of the change in licensure categories is to eliminate the requirement that the facility serve exclusively the retirement community residents after five years in operation, or after August 1995. Lake Port would still be obligated to provide nursing home care to Lake Port community residents at discounted costs, pursuant to the terms of their continuing care contracts. Occupancy levels at Lake Port exceed 95 percent, with 7 to 8 percent of patient days attributable to retirement community, and the remainder to patients in a service area which includes West Lake and Sumter Counties. Lake Port asserts that its financial viability depends on its ability to continue to serve all residents of its service area. SOUTHERN MEDICAL Southern Medical Associates, Inc. ("Southern Medical") is a Florida corporation which owns two nursing homes, one with 60 beds in Okaloosa County and one with 120 beds in Palatka, in Putnam County. Palatka Health Care Center opened with 60 beds in May 1989, added 60 beds in November 1990. Both nursing homes have superior licenses and are managed and staffed by National HealthCorp, L.P., which was founded in 1971, and manages 86 nursing homes, twenty-nine of those in Florida. The management fee is 6 percent of net revenues. In its application for CON number 6993, Southern Medical proposes to add 60 beds to the existing 120-bed nursing home, known as Palatka Health Care Center. Occupancy levels at the Palatka Center ranged between 96 and 99 percent in 1992-1993. Total project costs of $2.1 million will be financed by or through National HealthCorp. Southern Medical proposes that its CON be conditioned on the establishment of a 20-bed distinct Alzheimer's wing and the provision of 74 percent of total patient days to Medicaid patients. Southern Medical provides rehabilitation services in a 14-bed Medicare certified unit, antibiotic intravenous therapy, hospice and respite care. It exceeds the 73 percent Medicaid condition of its CON. SUBSECTION 408.035(1)(a) - NEED IN RELATION TO STATE AND LOCAL HEALTH PLANS The Florida State Health Plan includes 12 preferences to consider in reviewing nursing home CON applications, most of which overlap statutory review criteria in Section 408.035, Florida Statutes. Preference 1 encourages more nursing homes beds in subdistricts with 90 percent or higher occupancy in existing beds. District 3 is not subdistricted, but its nursing home bed occupancy rate was 91 percent in 1991. Therefore, all applicants for nursing homes in District 3 meet the preference. District 3 has been divided into planning areas by the local health council. The applications filed in this proceeding coincide with the planning areas for Hernando, Putnam, and Lake/Sumter Counties. In 1991, occupancy rates averaged 92 percent for Hernando, 96 percent for Putnam, and 93 percent for Lake/Sumter planning areas. Each applicant meets preference 1 using planning areas as substitutes for subdistricts. Preference 2 favors applicants whose Medicaid commitments equal or exceed the subdistrict-wide average. In the absence of subdistricts, the district wide average is used, which is 73.78 percent. Beverly's 74 percent commitment, Life Care's 75 percent commitment, and Southern Medical's 74 percent commitment, entitle them to be favored under preference 2. In addition, Beverly cites its 76.9 percent Medicaid patient days in 1991 at Eastbrooke, but it has failed to achieve its Medicaid commitment at one Florida nursing home in Cape Coral. Lake Port committed to provide a minimum of 33.81 percent Medicaid patient days and argued that it meets the exception to the preference for providing multi-level care. As described in the 1989 Florida State Health Plan, multi-level health systems offer a continuum of care which may range from acute care and ambulatory surgery centers to home health and education, including traditional nursing care. Special emphasis is placed on short-term intensive rehabilitation programs. Although Lake Port's proposal includes some of the features of a multi-level system, such as post-operative rehabilitative therapy and respite care, the Medicaid exception is inappropriate for Lake Port, because the same services are also proposed by Beverly and Southern Medical. See, also, Section 408.035(1)(n), Florida Statutes. Preference 3 relates to providing specialized services, including acquired immune deficiency syndrome ("AIDS") services to residents, ARD residents, and the mentally ill. This preference is met by Beverly, Life Care, and SMA, particularly for ARD patients for which all three applicants proposed to establish separate 20-bed units. The preference is also met by Lake Port, particularly with its emphasis on specialized, intense rehabilitative services. See, also Subsection 408.205(1)(f), Florida Statutes. Preference 4 supports applicants proposing to provide a "continuum of services to community residents," including respite and adult day care. Beverly and Life Care propose to offer both respite and adult day care. Lake Port and Southern Medical propose to provide respite and hospice care. Preference 5, for the construction of facilities which provide maximum comfort and quality of care, was stipulated as being met by all the parties. The applicants also stipulated that project costs and construction plans are reasonable. See, also, Subsection 408.035(1)(m),(2)(a) and (2)(c), Florida Statutes. Preference 6 is met by all of the applicants: . . . proposing to provide innovative therapeutic programs which have been proven effective in enhancing the residents' physical and mental functional level and which emphasize restorative care. Life Care, Beverly and Southern Medical propose to offer specialized services to ARD residents. Lake Port and Southern Medical emphasize physical rehabilitation. All of the applicants meet the requirements for preference 6. Preference 7 is for applicants whose charges do not exceed the highest Medicaid per diem rate in the subdistrict, which, for District 3, is $74.05, or $93.49 inflated at 6 percent to 1996. Life Care Care's proposed Medicaid charges are $93.69 for year 1, and $94.46 for year 2. Beverly projected that the average Medicaid per diem rate in the subdistrict will be $93.49 in 1996, its charge will be $95.00, but it will expect Medicaid reimbursement to be $93.30 for that year. Lake Port projected proposed charges to Medicaid patients as $90 to $93.92 in year one and $93 to $97.37 in year two, for the full 120 beds or the partial 60 beds, respectively. Southern Medical's Medicaid charges will be $90.22 in year one and $94.28 in year two. Preference 8 applies to applicants with a history of providing superior resident care programs, as indicated by licensure ratings. Of Beverly's 40 Florida facilities, 31 held superior licenses at the time the application was filed. Of the nine Beverly nursing homes with conditional ratings, six are now superior. Renovations or, in the case of one facility built in 1929, construction of a replacement building, are underway at the three others. Life Care, Southern Medical and Lake Port have histories of consistently superior license ratings. See, also, Subsection 408.035(1)(c), Florida Statutes. Preference 9 favors applicants proposing staffing levels exceeding minimum standards. Due to the ventilator, intravenous and rehabilitative services proposed, Beverly will staff in excess of that required by the state, with at least one registered nurse with a minimum of two years experience on all shifts and a full-time physical therapist. It intends to rely on its current Hernando County facility, Eastbrooke's relationship with Hernando-Pasco Community College, for recruitment and training of staff, although Beverly has not opened a new nursing home in Florida since 1987. Life Care similarly intends to rely on a CON approved facility in adjacent Citrus County. Southern Medical employs St. Augustine Vocational College students who are certified nurse assistants training to become licensed practical nurses, and licensed practical nurses training to become registered nurses are employed at Palatka, which also has internships for health sciences students from the University of North Florida. Its occupational, speech and physical therapists are full-time employees. Lake Port's staffing ratios will also exceed the minimums, in order to provide intensive rehabilitative therapies. See, also Subsection 408.035(1)(h), Florida Statutes. Each applicant meets preference 10 based on their proposed or current use of a variety of professional disciplines. See, Finding of Fact 29. Preference 11 seeks to ensure resident rights and privacy as well as implementing plans for quality assurance and discharge planning. All of the applicants were shown to follow well established residents' rights and privacy policies, and to have effective quality assurance programs. Pre-admission screening programs include discharge planning. Beverly has the most highly standardized corporate structure of incentives to maintain quality. Preference 12 relates to applicants proposing lower administrative costs and higher resident care costs compared to the average nursing home in the District. Average costs in District III are expected to be $54.79 for resident care and $13.97 for administrative overhead by 1996. Life Care expects resident care costs of $51.97 a day and administrative costs of $17.43 a day. Beverly projects its resident care to cost $61.89, with administrative costs of $8.86. Southern Medical proposes administrative costs of $19.88 per patient day and patient care costs of $46.23 per patient day. Lake Port's administrative costs are expected to be $27.80 for 60 beds or $22.12 for 120 beds, with patient care costs of $43.04 for 60 beds or $45.08 for 120 beds. Beverly, best meets the preference and expects enhanced economics and efficiency from combining some overhead for the operation of two nursing homes in Hernando County. Life Care, however, notes that its proposal enhances competition in view of the existence of one Beverly facility in Hernando County. See, Subsection 408.035(1)(e),(1)(h) and (1)(l), Florida Statutes, which also relate to costs, resources, and competition. District III includes 16 west central Florida counties, from Hamilton, Columbia, Union Bradford and Putnam in the North to Hernando, Sumter and Lake in the south. The allocation factors in the plan for District III are prepared by the North Central Florida Health Planning Council, the local health council for the district. The district has not been subdivided by agency rule. Using its planning areas, the local health council has given priority rankings for applicants in certain areas of the district. Dixie, Lafayette and Union Counties, which have no nursing homes, are favored by the local plan. If, as in this case, there are no applicants from these counties, Hernando should be favored, followed by Putnam County. No priority was given to Lake County. The council also quantified bed need by planning area for the January 1995 planning horizon, with additional beds needed, ranging from 120 to 180 in Hernando, and up to 60 in Putnam. The parties agree generally that the council may establish planning areas in the discharge of its duties, but they disagree whether the establishment of upper limits, or caps in numeric need by planning area is authorized by law. Section 408.034, Florida Statutes, requires a uniform need methodology, which the agency has established by enacting the nursing home rule, Rule 59C-1.036(1)(c), Florida Administrative Code. Once the agency determines numeric need for a district and the district driving time standard, the local plan cannot alter these determinations. The local plan also includes certain fundamental principles for the allocation of new beds: (1) to promote geographic access, (2) to consider the locations of at-risk population need factors, and (3) to increase supply based on demand. In order of importance, the local plan lists three allocation factors (1) for counties without nursing homes, (2) for new nursing homes 20 miles or 25 minutes drive from existing or approved beds, and (3) for locations without approved beds and with existing nursing homes averaging occupancy levels at least 95 percent for the most recent six month or 90 percent for the most recent 12 months. With respect to the specific allocation factors, Life Care, Beverly, Southern Medical and Lake Port are in areas with over 90 percent average occupancy within a 20 mile radius. Life Care, Beverly and Southern Medical are proposing to establish facilities in areas of greater need than that in the area of Lake Port. Hernando and Putnam Counties also have lower ratios of nursing home beds to population than Lake County. The local health council's determination of the greatest need in Hernando County, was confirmed by expert testimony, based on analyzing licensed and approved beds, occupancy rates, distribution of population ages 65 and older, and 75 and older, and most importantly, projected growth of population 65 and older, and of 75 and older. The bed to population ratio for Hernando was, in 1992, 15.5 percent for 65 and older, and 44.9 percent for the population 75 and older, both of which are below the ratios for any other planning areas in the District. The projected increase in population 75 and older for the state is 12 percent, in contrast to the projected increase of 38 percent for Hernando County. Expert testimony for Beverly supported the addition of up to 300 beds in Hernando County to bring Hernando County's bed distribution in line with that of the entire district. The only approved provider in the county, Hernando Health Care, has surrendered its CON to add 18 nursing home beds in Hernando County. On the contrary, Heartland's expert calculated numeric need of only 119 additional beds in Hernando County. AHCA, however, gave no consideration to the effect on occupancy, fill- up rates, or financial feasibility of it preliminarily approving all new beds in Hernando County. The experience was compared, by Southern Medical's expert, to that in Clay County, in which 555 beds were 95 percent occupied, prior to the opening of two 120-bed facilities, one in December 1989, and the other in April 1990. At the end of the first year of operation, the facility that opened first was 48.5 percent occupied, the second was 21.7 percent occupied, and district occupancy was 77.7 percent. At the end of the second year, the rates were 81 percent, 55.6 percent, and 85.6 percent. However, by 1992, the nursing homes in that subdistrict averaged 93 percent occupancy. Opponents to the AHCA proposal to locate all new facilities in Hernando County, contend that the bed-to- population ratio or "parity" approach used to support the approval of 240 beds in that county does not take into account demographic variables among the counties in the district. While the bed-to-population ratio is not reliable in and of itself, alternative analyses for the determination of the location of greatest need within the district support the same conclusions. Those analyses relied upon current nursing homes occupancy levels, poverty, and population migration trends and available alternatives to distinguish among the various proposed locations. Based on occupancy levels, the District III counties of greatest need for additional beds are Putnam, Lake and Sumter, and Hernando, in that order. Putnam County residents are being placed in facilities outside the county due to the lack of available nursing home beds. In terms of poverty level and mortality levels, the figures for Putnam and Marion Counties indicated their populations were less healthy than those in Hernando and Lake. Hernando had 6.05 percent of its over 65 population, which is 85 and older, as compared to 9.34 percent in Lake, 8 percent in Putnam, and 8.28 percent as the district average. Hernando and Putnam Counties also had lower percentages of people 75 and older than did Lake and Marion Counties. ALTERNATIVES AND EXISTING NURSING HOMES IN DISTRICT 3 Subsections 408.035(1)(b) and (d) require consideration of other like and existing facilities in the district, as well as health care services which are alternatives to nursing homes. Currently, there are 4 nursing homes in Hernando County, and 12 in Lake County. In Putnam County, there are 3 nursing homes and 15 additional "swing beds," which may be used for acute care or long term care, approved for Putnam Community Hospital. Those beds are not available to serve Medicaid patients and are not included on the inventory of community nursing home beds. In the 511 existing nursing home beds in Hernando, there is an average daily census of 45 beds occupied by residents originating from other counties, while 23 Hernando residents constituted the average daily census leaving the County. Hernando cannot expect to retain in-migrating patients with the development of nursing homes in those residents' counties of origin, particularly, Citrus and Pasco. Given the decrease in nursing home patient days form 1991 to 1992, there is also no reason to expect any significant increase in use rate for the population in Hernando. The most compelling support for need in Hernando County is that the rate of growth of its over 75 population, which is more than three times that of the State. Putnam County has the lowest migration and a greater demand for nursing home services for the population age 85 and older. Putnam County nursing homes exceed 95 percent occupancy. Lake County area nursing homes were 93 percent occupied for the same period of time, and with the relinquishment of an approved CON for 60 beds by Leesburg Regional Hospital, that occupancy rate rises to approximately 95 percent. The award to Leesburg Regional established a need for 60 beds in Lake County, but there is also an approved CON for a 120-bed facility in Mount Dora. According to Lake Port's expert witnesses, the Mount Dora nursing home will not alleviate the need for beds in western Lake County. That facility, owned by the Adventist health group, is expected to be a referral facility from the nearby Adventist Hospital in Orlando and Sanford. Based on the alternative considerations of occupancy levels, poverty and morality rates, the need for additional beds in Putnam County is greater than the need in Lake County. Projected population increases and the limited alternatives also support the conclusion that a greater need exists in Hernando than in Lake County. Heartland of Brooksville ("Heartland"), is an existing 120-bed community nursing home in Brooksville, which is licensed superior. Heartland contends that the virtually simultaneous establishment of both Beverly and Life Care will adversely impact Heartland, and make it difficult for the new nursing homes to meet their projected utilizations. The trend of twice as many people migrating to, as there are leaving Hernando County for nursing home services, will be reversed as more nursing homes are established in surrounding counties. See, Finding of Fact 45. Heartland reasonably expects gradually to lose up to 30 percent of its residents who came from the Spring Hill area, where Beverly and Life Care intend to build new nursing homes. Heartland also reasonably expects to lose Medicare patients among the group from Spring Hill. Medicare residents average 9.3 percent of the total mix in the county, but account for 15 percent of the patient mix at Heartland. Heartland will be adversely affected for at least the first two years if both Life Care and Beverly are approved. See, Finding of Fact 40, supra. FINANCIAL FEASIBILITY Heartland, Southern Medical and Lake Port assert that Beverly will be successful in Hernando County, but that Life Care will not. Beverly is already established in the county, will provide services not currently available in nursing homes, and will open its facility seven months before Life Care. Life Care projected a net loss of $589,042 in year one, and a net gain of $254,991 in year two of operation. Life Care's projections fail to consider the company's 6.5 percent management fee, income taxes, and Medicaid reimbursement rate ceilings. By contrast to the other proposals and to the Hernando County average of 9.3 percent, Life Care is relying on a payor mix of only 6.7 percent Medicare, the group for which competition will be most intense. That mix parallels its Florida experience, which has historically allowed it to achieve a profit margin of 16 to 22 percent of net revenues in the third year of operation. Life Care's experience and audited financial statements support its contention that it can borrow essentially 100 percent of the funds necessary to support the project and complete the proposed project, a debt arrangement it has successfully used in the past, without defaulting on loans. Life Care's resources are also potentially subject to a $12 to $18 million judgment, due to litigation which is on appeal. Life Care has a contingency fund of $8 million to satisfy the judgment and has sufficient equity in its properties to pay the balance through refinancing. The deficiencies in Life Care's pro forma and its potential liabilities are off-set by the size and strength of the company, and its Hernando County project is financially feasible in the short and long terms. Beverly projects opening at Spring Hill 15 1/2 months after issuance of a CON, reaching 90 percent utilization within 15 months of opening. Beverly reasonably expects an after tax profit of $239,489 in the second year of operation. Beverly estimates project costs of $5.2 million, financed by the parent corporation, Beverly-California. Beverly-California has from $35 to 45 million available to contribute a 40 percent ($2 million) equity investment, and a $35 million loan commitment from which it will draw the balance to finance the project. Southern Medical has a letter of interest for financing of the total project costs of $2.1 million at 12 percent rate of interest by National HealthCorp. During the construction period, Southern Medical estimates that the existing 120 beds will remain 94 percent full, and that the new beds once open will fill at a rate of 10 percent a month, which is consistent with the experience of the management company, National HealthCorp. Southern Medical's actual experience in Palatka was, in fact, better. The first 60 beds were filled after 5 months while the additional 60 beds were filled in 7 to 8 months. Projected revenues of $290,000 during construction, $323,000 after year one, and $488,000 after year two are reasonable. Southern Medical's balance sheet shows short term debt of approximately $1.4 million attributable to the construction of the Okaloosa nursing home. Although Southern Medical secured a $3 million loan commitment for the Okaloosa facility, it has drawn from that account $473,000. That debt will be refinanced and recategorized as long term debt. Southern Medical's project is financially feasible in the short and long term, based on its actual experience in the existing 120-bed facility. Lake Port has the financial resources to construct 60 additional beds for $1.4 million. Lake Port's proposed conversion of the licensure category for its existing 60 beds is at no cost, except for approximately $37,000 in filing and consultants fees. In its third year of operation, Lake Port has achieved 97 percent occupancy. At present, delays of up to a week may be experienced in transfering patients from acute care hospitals to nursing homes in the Leesburg area. From October to May, due to the influx of northerners, beds are generally not available in the Leesburg area of western Lake and Sumter Counties. Lake Port's projections of occupancy and its financial ability to complete either 60-bed conversion and/or 60-bed addition make either proposal financially feasible in the short or long term.

Florida Laws (8) 120.57, 408.032, 408.034, 408.035, 408.037, 408.039, 6.05, 90.108 Florida Administrative Code (3) 59C-1.008, 59C-1.036, 59C-1.037

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ARBOR HEALTH CARE CO., INC., D/B/A ALACHUA HEALTH CENTER vs. HILLCREST NURSING HOME AND DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 87-000667 (1987)

Division of Administrative Hearings, Florida Number: 87-000667 Latest Update: Jan. 07, 1988

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.

Florida Laws (1) 120.57

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HEALTH CARE ASSOCIATES, INC., D/B/A SURREY PLACE OF MARION COUNTY vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 87-000680 (1987)

Division of Administrative Hearings, Florida Number: 87-000680 Latest Update: Jun. 08, 1988

Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, as well as the stipulations of the parties, the following relevant facts are found: Surrey and Careage each timely filed their letters of intent and applications for Certificates of Need to establish 120-bed nursing homes in Polk County in the July 1986, batching cycle. Pursuant to the nursing home need methodology rule, there is a numeric need for 168 nursing home beds in Polk County in July of 1989. A Stipulation and Settlement Agreement enter into prior to the final hearing resulted in the award of 40 beds to other applicants, thus leaving a numeric need for 128 beds for the planning horizon addressed by the applications at issue in this proceeding. No evidence of numeric need beyond that established by the nursing home need methodology rule was presented by Surrey or Careage. Health Care Associates (HCA) is owned by John A. McCoy and Stanford L. Hoye and was formed in 1977 to develop, design, build and manage skilled nursing facilities and retirement facilities throughout the country. It currently owns, operates or is developing approximately 18 skilled nursing facilities in the State of Florida, including a 120-bed nursing home in Winter Haven, known as Brandywine. All HCA licensed nursing home facilities in Florida hold a "Superior" rating. HCA has a documented history of implementing its Certificates of Need within the statutory time frame. HCA now proposes to establish a second 120-bed skilled nursing home in Winter Haven to be known as Surrey Place of Polk County. The two HCA facilities in Winter Haven will be independent and competing facilities, through there will be a shared utilization of training programs. This proposed facility is to be built in conjunction with a 60-bed personal care facility (an adult congregate living facility) which will share common services, such as administration, laundry and dietary services. The costs related to the personal care facility are not included in Surrey's Certificate of Need application. Surrey has determined that the project will be located on one of two sites in Winter Haven. Both sites are properly zoned, and Surrey already owns one of the sites. The projected total project cost for the proposed Surrey 120-bed skilled nursing home facility is $3,000,000. The costs associated with land acquisition and site development, furniture, fixtures and equipment and architectural fees appear reasonable and are in line with HCA's past experiences in developing nursing homes in Florida. The construction cost for building the facility--$2,146,000 or $48.70 per square foot--is low because HCA owns the company which will construct the facility. Construction will be done at cost and at no separate profit to HCA. The Surrey proposal results in a construction cost per bed figure of $17,883; an equipment cost per bed figure of $2,084; and an operating cost per bed figure of $20,031.75. The total project cost of $3,000,000 results in a cost per bed of $25,000. Surrey proposes to obtain financing for 87% of the total project cost, or $2,600,000, and to provide owner equity for the remaining $400,000. Meritor Savings is ready, willing and able to finance the project and Dr. McCoy and Mr. Hoye, the owners of HCA, have the financial ability to make the equity contribution. Surrey's facility will contain 44,000 gross square feet and will be comprised of 8 private rooms and 56 semiprivate rooms. The schematic drawing contained in the application is now somewhat outmoded compared to how HCA is currently building nursing facilities. In its newer facilities, the patient rooms have vaulted ceilings and bathing units on outside walls with cubical glass which admits more light. HCA's existing nursing home facility in Winter Haven enjoys a good reputation amongst physicians who are on the staff of Winter Haven Hospital and refer patients to that facility. At the proposed facility, Surrey intends to offer a continuum of care by providing independent living units adjacent to the nursing home. In addition to providing skilled and intermediate level nursing services, Surrey intends to offer various programs including physical therapy, speech therapy, hearing and occupational therapy, social services, recreational programs and agreements with other organizations to ensure the highest quality of discharge planning and follow-up services. While not listed in its application, Surrey intends to provide services to Alzheimer patients, though not in a separate and distinct unit. As a part of its social and recreational services, Surrey intends to provide programs such as pet therapy, creative writing, senior olympics and a grandchild program. In addition, Surrey intends to offer adult day Dare and respite care within the confines of the personal care living facility. Surrey does not intend to offer subacute care services at the proposed facility. The total staffing of 72.4 for the proposed Surrey facility includes 5.5 full-time equivalent registered nurses, 5.5 full-time equivalent licensed practical nurses and 34 full-time equivalent nurse's aides. This equates to a ratio of 1 registered nurse per 21.8 patients, 1 licensed practical nurse per 21.8 patients and 1 aide per 3.5 patients. As a means of attracting nursing staff, Surrey offers recruitment seminars at nursing schools and has associated with Polk Community College to aid in training and recruitment. All HCA facilities have accreditation programs for certified nursing assistants (CNAs), and its existing Winter Haven facility is utilized by Polk Community College for the on-site training of CNAs. In order to aid its recruitment efforts, HCA is enhancing its benefit package and also is building child day care centers as an additional benefit for staff members. These centers are also available to visitors to the nursing home. The cost of the child care centers is not included within Surrey's total project cost. HCA's director of quality assurance works with the assistant directors of nurses in each facility to design and promote continuing education programs for the professional nursing staff. HCA has a history of providing services to Medicare and Medicaid patients in its Florida facilities. Surrey proposes to devote 49% of its patient days to Medicaid patients, 15% to Medicare patients, 1% to V.A. patients and 35% to private pay patients. These calculations are based upon HCA's experience in other existing facilities. The elderly poverty rate in Polk County is 16.6%. Upon opening, Surrey proposes the following per diem charges: $53.00 for Medicaid and V.A. patients, $65.00 for Medicare patients, $90.00 for private pay patients in a private room, and $62.00 for private pay patients in a semiprivate room. In answers to interrogatories served in November of 1987, Surrey listed its projected charges as $70.00 for private pay, $76.00 for Medicare and $64.00 for Medicaid patients. The figures used in Surrey's pro forma are based upon the actual experience of HCA in developing similar facilities. The pro forma projections are based upon Surrey's expectation of a 97% occupancy rate at the end of year one and throughout year two. Other than the Administrator's salary being admittedly low, the pro forma projections appear reasonable. Surrey anticipates a net loss in the first year of operation of $349,120 and a net profit in the second year of $121,150. In terms of cash flow, Surrey projects a negative cash flow of $143,440 at the end of its first year and a positive cash flow of $326,770 at the end of its second year of operation. Surrey's proposal is consistent with the goals, objectives and policies contained in the nursing home and long-term care components of the District VI Health Plan and the State Health Plan. Careage Investment, Inc., owned by Gene D. Lynn, has been in existence since May 1, 1962, and has developed and constructed over 250 medical complexes, hospitals, and nursing homes throughout the United States and Puerto Rico. Careage currently has four operating nursing homes, with a fifth having recently been opened. These nursing homes include a 59-bed facility in Coupeville, Washington, a 99-bed facility in Tracy, California, a 232-bed facility in Phoenix, Arizona, a 114-bed facility in Oroville, California, and the new facility of 144 beds in Chico, California. Careage proposes a 120-bed skilled nursing home to be located in Lakeland. The facility will include a separate and distinct 21-bed unit for Alzheimer patients and a 10-bed subacute care unit. While Careage does not presently own property for the proposed facility, it has identified several available four-acre sites which have utilities and direct access to public streets. Its $515,000 figure proposed for land acquisition appears reasonable. The total cost of the proposed Careage project is $4,150,000. The cost of constructing the 45,500 gross square foot facility is $2,583,125 and equates to a construction cost per square foot of $56.77 and a construction cost per bed of $21,526. Careage proposes equipment costs of $420,000 or $3,500 per bed. Its operating cost per bed is $23,395. The overall project cost of $4,150,000 equates to a cost of $34,583 per bed. Careage proposes to obtain 100% financing of the total project cost at an interest rate of 10%, with the term of the loan being 30 years. Based upon Mr. Lynn's personal financial statement and Careage's past ability to obtain financing for other nursing home facilities, these expectations appear reasonable. The architect retained by Careage to design the proposed facility in Lakeland received an award from the Contemporary Long Term Care magazine in 1986 for another nursing home designed and constructed in Bakersfield, California. The proposed Lakeland facility will contain 45,500 square feet, which translates into 379 gross square feet per bed. Its patient room arrangements include two isolation rooms, 7 private rooms, 45 semiprivate rooms and a 21-bed special Alzheimer unit with 10 semiprivate rooms and one private room. The facility will be a one-story building, with aquariums visible from the reception area and the dining room. The design includes a beauty and barber shop, a chapel, a gift shop, recreation areas, a private dining room area and outside courtyards. Each patient room will have a bathroom with a sink, as well as a sink in the outer room in semiprivate rooms. Also, in semiprivate rooms, the beds will be placed on opposite head walls to allow each resident to have a view of the window when the other pulls the curtain. Each room will have its own temperature control. The facility will also have occupational and physical therapy rooms. In order to afford more patient privacy, the service areas are located away from the ancillary spaces. Careage's quality assurance program will include a utilization review committee, a safety committee, an infection control committee, a pharmaceutical committee, a resident advisory council, a community advisory council and employee advisory groups. A corporate representative visits all Careage nursing homes on an interim basis to review the day-to-day operations, facility maintenance and physical environment. As noted, Careage proposes to offer a 10-bed subacute care unit. This unit will provide services for the care of technology dependent children, many of whom are recovering from automobile accidents, severe illness, neuromuscular disease or congenital disorders. The subacute unit will also offer such services as hyperalimintation, IV infusion, morphine drip, use of Hickman catheters and other services traditionally performed in the acute care hospital setting. Alzheimer Disease is a fatal illness evidenced by a progressive deterioration of mental, motor, cognitive, physical, social and psychological processes. The problems suffered by Alzheimer patients include nutritional problems, communication problems, disorientation, loss of memory, problems with elimination and basic personal care, agitation, catastrophic reactions, wandering and problems with safety. The Careage approach in offering a separate and distinct Alzheimer unit is to provide behavioral and environmental care. When more skilled nursing care is required than behavioral or environmental care, the Alzheimer patient is then moved to another skilled bed. The separate Alzheimer unit will utilize a specially trained staff and a team approach to any required changes in treatment. The separate 21-bed unit will provide security and will have its own dining room and recreation area. The decor will be designed to promote less agitation. Careage will provide a separate outdoor exercise courtyard for its Alzheimer patients along with various activity programs, such as short reminiscent programs and music therapy. Careage will also offer family and community education programs regarding the needs and care of Alzheimer patients, and encourages the use of volunteers to help adapt the Alzheimer residents to daily living as much as possible. The advantages of providing a separate and distinct Alzheimer unit include the safety features, the ability to utilize a trained staff and a team approach to patients who may have a wide variety of symptoms, less disruption to other residents in the nursing home, and the provision of a more appropriate decor and specialized programs for the Alzheimer patient. Careage proposes to offer respite care services on a space-available basis. Adult day care services will also be offered in a separate entity adjoining the nursing home facility, but the cost associated with that is not a part of Careage's application for a Certificate of Need. Careage proposes to staff the Lakeland facility with 96 full-time equivalent positions. These include 11.9 registered nurses, 7.4 licensed practical nurses and 42.1 certified nurses aides, which equates to a ratio of 1 registered nurse per 10.1 patients, 1 licensed practical nurse per 16.2 patients, and 1 aide per 2.9 patients. Careage intends to offer three hours of nursing care per patient day for the Alzheimer's and skilled areas, and at least six hours per patient day for the subacute and Medicare-certified residents. The staffing proposed meets and exceeds the requirements of Florida regulations. In recruiting staff for its new facilities, Careage advertises in advance of opening in newspapers and periodicals and contacts are made with nursing schools. It offers a liberal fringe benefit package, competitive salaries, in-service training, continuing education assistance and child day care services in adjoining portions of the nursing home. Careage also attempts to use the elderly both as volunteers and staff members. It intends to utilize its facility as a clinical site for schools of nursing, schools of dentistry and other programs within the medical community. Gene D. Lynn, the owner of Careage, has endowed a program in rural nursing at Seattle University. In its first and second years of operation, Careage proposes a payor mix of 40% Medicaid, 4% Medicare, 6% subacute, 3% VA and 47% private pay. Its philosophy with regard to care for medically underserved groups is to serve all populations, regardless of age, sex, religion, national origin or payor status. The payor mix anticipated by Careage is consistent with that being experienced in other facilities in Polk County. The patient charges proposed by Careage are based upon the experience of other providers within Polk County and Careage's own experience in its other facilities. Careage proposes a Medicaid per diem charge of $57.50, a Medicare all inclusive charge of $105.00, a private and VA per diem charge of $60.00 and a subacute charge of $125.00. The assumptions contained in the Careage financial pro forma are based partly upon the experience of existing nursing homes in Polk County and the experience of Careage in other facilities, and appear reasonable. At the end of its first-year of operation, Careage projects a net loss of $161,994.20. A net income of $127,936.61 is projected for the end of the second year of operation. The Careage proposal conforms with the goals and priorities of the District VI Health Plan's nursing home component as well as the goals and objectives of the Florida State Health Plan. Overall occupancy rates in existing nursing homes in Polk County exceed 90 percent. More than half of the Polk County nursing homes currently have waiting lists for admission. In February of 1985, Winter Haven Hospital opened 100 beds that are classified as subacute beds and are reimbursed as skilled nursing beds. For calendar year 1987, the average occupancy rate of the Winter Haven Hospital subacute unit was 65 or 66%. As of the date of the hearing, the census was 78. Higher utilization throughout the Hospital is typically experienced in the first quarter of the calendar year. While the Administrator of Winter Haven Hospital did not feel there was a need for more subacute beds in Polk County, he also felt that the Careage proposal for 10 subacute beds would have a minimal effect upon Winter Haven Hospital. According to a telephone survey, no nursing homes in Polk County currently accept ventilator dependent patients, pediatric or neonatal patients or technology dependent children. It is estimated that between 3 and 22 technology dependent children will need services in Polk County in 1989. Only five nursing homes in Polk County accept patients on IV therapy. Only one nursing home facility in Polk County has a separate and distinct unit for Alzheimer residents. It is estimated that 1,660 persons with Alzheimer Disease will require nursing home services by the year 1989. When conducting its initial review of the competing applications for nursing home beds in Polk County, as well as other counties, HRS staff attempted to compare the applicants by utilizing a "matrix" which compiled the data and information presented in the respective applications. The information initially displayed revealed numerous errors and omissions. The matrix was then revised and information was again compiled to make it an accurate tool for comparative purposes. With few exceptions, all of the data elements in the matrix are items included in the application forms. After balancing the various items, such as facility size, proposed programs, project and construction costs, per diem charges, payor mix, and levels of staffing, HRS initially determined that Careage was the superior applicant. At the final hearing, additional errors were discovered in the display of information contained in the matrix. The errors were corrected and did not change the opinion of HRS's health planning expert that Careage was the superior applicant.

Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of Surrey to establish a 120-bed nursing home in Polk County be DENIED, and that the application of Careage be GRANTED, conditioned upon the inclusion of a 21-bed separate Alzheimer unit, a 10-bed subacute care unit and the provision of at least 40 percent of patient days to Medicaid patients. Respectfully submitted and entered this 6th day of June, 1988, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of June 1988. APPENDIX (Case NO. 87-0680) The parties' proposed findings of fact have been fully considered and are accepted and/or incorporated in this Recommended Order, with the following exceptions: SURREY 9. Last two sentences rejected. The first is irrelevant and immaterial to the project under review. The last is refuted by the greater weight of the evidence. 17-19. Rejected as contrary to the evidence. 23. Rejected as contrary to the evidence. 28. Rejected as argumentative and not a proper factual finding. 29,30. Rejected as not being supported by competent, substantial evidence. Rejected as contrary to the evidence. Last sentence rejected as unsupported by competent, substantial evidence. 57. Rejected as contrary to the greater weight of the evidence. First sentence rejected as hearsay and conclusiory. Rejected as to "methods of construction," as not supported by competent, substantial evidence. CAREAGE 2. Factually accepted, but not included as irrelevant. 15. Accepted with reservation. It is unclear from the evidence as to whether adult day care is a part of the nursing home project. Partially rejected insofar as it is argumentative and a mere recitation of testimony. Last sentence rejected as unsupported by the evidence. HRS 11. Rejected. Since Surrey does not intend to use the plans submitted in the application; the net living space cannot be determined. Accepted only if the words "on paper" are added to the end of the sentence. First sentence accepted if "on paper" added. 24. Accepted but not included, as there was no way to make a similar comparison with the Surrey facility. 41. Rejected as legal argument as opposed to factual finding. 42,43. Rejected as irrelevant and immaterial to the issues in dispute. COPIES FURNISHED: Reynold Meyer F. Phillip Blank, P.A. 204-B South Monroe Street Tallahassee, Florida 32301 Edgar Lee Elzie, Jr. MacFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 Robert S. Cohen Haben & Culpepper, P.A. Post Office Box 10095 Tallahassee, Florida 32302 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================

Florida Laws (1) 120.57

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BEVERLY ENTERPRISES-FLORIDA, INC., D/B/A BEVERLY-GULF COAST (COLUMBIA COUNTY) vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 85-002884 (1985)

Division of Administrative Hearings, Florida Number: 85-002884 Latest Update: Sep. 09, 1986

Findings Of Fact The semi-annual census report by DHRS for District. III dated December 1, 1984, (Exhibit 23) indicated a need for 615 additional nursing home beds for the January 1985 review cycle. Although this report cautioned that changes in reporting and pending litigation or appeals could change the count of approved beds, nevertheless, most of the applicants for beds in the January 1985 batching cycle relied on this report as the basis for their applications. At the time this report was submitted, District III was subdivided into seven sub districts, and the need for each sub district was separately listed. Prior to the completion of the review of the applications in the January 1985 batching cycle, some 500 nursing home beds in District III were allocated to applicants in earlier batching cycles whose applications had been denied for lack of need, and who were in the process of appealing those denials. Many of these applications had been updated and those beds were issued by DHRS pursuant to its then-current policy of issuing beds on a first come-first served basis. As a result, only some beds were allocated to those applicants in the January 1985 batching cycle before the pool of available beds was depleted. Furthermore, rule changes became effective before the January 1985 batching cycle applications were reviewed which eliminated sub districts in District III. Largely because of the allocation of beds to applicants in earlier batching cycles, but also due to population based changes in District III, the bed need methodology, using data current at the time of the hearing and computing need to January 1988, shows there will be an excess of 342 nursing home beds in District III in 1988. (Exhibit 33) Eustis Limited Partnership The initial application of Eustis was for 8 additional beds which involved construction costs. The amended application which was considered in this hearing is for three (3) beds with costs allocated only for the equipment and furniture needed to add a bed to three existing rooms. As amended, Eustis' application is very similar to the application of Oakwood Nursing Center who was granted a CON for the addition of three (3) beds without construction costs. At the time Oakwood's CON was granted, DHRS was in the process of granting CONs for 103 beds. At the time Eustis submitted its application, all of the 615 beds initially available had been dispensed and there was no need for additional beds. At this hearing, Eustis produced no evidence to show a need for the three (3) beds for which Eustis applied. The evidence submitted by Eustis primarily showed that by simply adding a bed to three existing rooms, the cost per bed added was far less than would be the cost of constructing new facilities. Inverness Convalescent Center (ICC) ICC proposes to construct and operate a 120-bed nursing home in Citrus County at a cost of $3,400,000. (Exhibit 15) Citrus County has four licensed nursing homes with a total of 430 beds and an average occupancy rate of less than 90% during the last reported six-month period. (Exhibit 17)- During the last quarter of 1985, the occupancy rate in Citrus County nursing homes was the lowest of the planning areas in District III, and in the first quarter of 1986, it was second lowest. ICC contends the need formula doesn't apply to their application because they propose to serve special needs of the elderly, such as institutionalized patients, head trauma patients, etc. However, the only testimony presented indicating a need in Citrus County for such special services came from ICC owners and employees who live in New Jersey. ICC further contends that since there are less than 27 nursing home beds in Citrus County per 1,000 residents over age 65, that an additional nursing home is needed in Citrus County. However, the 27-beds per 1,000 population is but one factor considered in determining need for nursing home beds. In short, ICC presented no evidence to show that need exists in Citrus County for the proposed facility. Beverly Enterprises Beverly's application is for a CON to add 60 beds to an existing 120-bed nursing home in Live Oak, Suwannee County, Florida, at Suwannee Health Care Center. This facility was opened in 1983 and reached full capacity in seven to nine months. There are two nursing homes in Suwannee County; Suwannee Health Care Center, (HCC) and Advent Christian Village, Dowling Park (ACV). The latter is a church owned retirementc ~B community of 550 residents which provides a continuum of care on five levels. Although Advent Christian is not licensed as a life care community, it gives priority of admission to its 107 licensed nursing home beds to residents of the life care community. As a result, there are few vacancies available for persons living outside the retirement community. Advent - Christian has a waiting list of 32 on the active waiting list and ~20 on an inactive waiting list. People on waiting lists are told the wait is from one to five years for admission. Suwannee HCC has an occupancy rate approaching 100% and a waiting list of approximately 50. As a result, the vast majority of Suwannee County residents needing nursing home care are sent to a nursing home outside Suwannee County, usually in Gainesville, some 65 miles from Live Oak. The planning area in which Suwannee County is located, formerly sub district 1 in District III, has five nursing homes with an average occupancy rate for the last three months of 1985 and the first three months of 1986, ranging from 96.91% to 99.75%. During the first three months of 1986, the occupancy rate of three of these nursing homes was greater than 99%' one as 98.7% and the lowest, Advent Christian, was 96.91% (Exhibit 17). The patient mix at Suwannee ACC is over 80% Medicaid and approximately one-third black. The black population is about 30% of the total population in Suwannee County. Suwannee HCC has had several superior ratings (Exhibits 9, 10), takes patients in order on the waiting list regardless of whether they are Medicaid or private pay, and has a very good reputation in the area for service. DHRS personnel who approve Medicaid placement of patients, hospital employees who have the duty of placing patients in nursing homes, nursing home personnel, and private citizens with relatives in nursing homes, all confirmed the critical access problems of Suwannee County residents for local nursing home placement. Live Oak residents, for example, who need placement in a nursing home are usually sent outside Suwannee County, have their names added to waiting lists at nursing homes in Live Oak, and nursing homes closer to Live Oak than the nursing home in which they are placed, and move to the closer nursing home when a vacancy occurs. As a result, most of the vacancies at Suwannee HCC are filled by patients who were, first transferred outside Suwannee County for nursing home placement, and got on the waiting list at Suwannee HCC. There are very few patients from Suwannee County who are initially placed in a Suwannee County nursing home. Southern Medical Associates (SMA) SMA proposes to construct and operate a free standing, 60-bed, skilled nursing home in Palatka, Putnam County, Florida, at a cost of $1,692,400. (Exhibit 19) When SMA's application was submitted the computation of bed need in Suwannee County under the sub district rule in effect when the application was submitted, showed 30 beds needed in Putnam County. This calculation included 36 beds earlier approved but not yet licensed. At the time of this hearing those approved 36 beds had been revoked by reason of not beginning construction in a timely fashion. The medical consultant who reviewed these applications and prepared most of the State Agency Action reports, (Exhibit 30) initially recommended that SMA'S application be granted. The two existing nursing homes in Putnam County have an occupancy rate in excess of 98 percent for the latest reported 3 month period. (Exhibit 17) 85 to 90 percent of these patients are Medicaid patients. The one nursing home in Palatka, Putnam Memorial Nursing Home, is a 65-bed nursing home with an occupancy rate in excess of 99 percent for the past year, and on the date of hearing had 18 people on the waiting list for a bed. The turnover in this nursing home is about 50 percent each year, with most vacancies resulting from the death of a patient. Two HRS employees whose job it is to determine eligibility of residents of Putnam County for Medicaid reimbursement for nursing home care, testified that they very, seldom see a patient go to Putnam Memorial Nursing Home, that over half of the patients they qualify for eligibility are sent out of the county, and of those placed in the county, almost all are placed at Lakewood Nursing Home which is located 18 miles from Palatka. The only hospital in Putnam County discharges 5 to 6 patients per month who need additional nursing care after discharge. Most of these patients are sent to nursing homes in St. Augustine, Florida, a few are sent to Lakewood, but for very few is a bed available in Palatka.

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ST. JOSEPH`S HOSPITAL, INC. vs AGENCY FOR HEALTH CARE ADMINISTRATION, 94-006236CON (1994)

Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Nov. 04, 1994 Number: 94-006236CON Latest Update: Mar. 18, 1997

The Issue The central issue for disposition is whether Certificate of Need no. 7750, for 24 hospital-based skilled nursing unit beds should be awarded to Petitioner, St. Joseph’s Hospital, Inc. (St. Joseph’s). To resolve that issue it is necessary to resolve factual issues regarding the need for the proposed beds and a legal issue regarding the impact of Health Care and Retirement Corp. of America v. Tarpon Springs Hospital Foundation, Inc. 671 So.2d 217 (Fla 1st DCA 1996) (Tarpon Springs) on the fixed need pool published in the first nursing home batching cycle of 1994 in Hillsborough County, District 6, Subdistrict 1.

Findings Of Fact The Parties St. Joseph’s Hospital, Inc. (St. Joseph’s) is a not- for-profit hospital which has operated in the Tampa, Florida area for over fifty years. It is currently licensed for 883 acute- care beds; it owns John Knox Village, which includes an adult congregate living facility and medical center nursing home; and it offers other services in a continuum of health care. St. Joseph’s also has a 19-bed, in-hospital skilled nursing care unit which became operational in early 1995. The Agency for Health Care Administration (agency or AHCA) is the state agency responsible for administering and enforcing the certificate of need (CON) process described in sections 408.031 through 408.045, Florida Statutes (“the Health Facility and Services Development Act”). The Process The fixed need pool published by AHCA in vol. 20, number 15, April 15, 1994, Florida Administrative Weekly, projected a need for 94 additional nursing home beds in Hillsborough County, District 6, Subdistrict 1, for the January 1997 planning horizon. There is no evidence that this fixed need pool was challenged. Approximately eleven health care providers, including St. Joseph’s, responded to the fixed need pool notice with applications for CON’s ranging from 10 to 94 beds. Some of those applicants, like St. Joseph’s, were hospitals seeking hospital- based skilled nursing beds. After comparative review of the applications, AHCA issued its state agency action report (SAAR) on September 16, 1994, denying some and granting others, and explaining the basis for its intended actions. Some of the beds were awarded for a hospital-based skilled nursing unit; St. Joseph’s application for 24 in-hospital beds was denied in the comparative review that determined St. Joseph’s application was inferior to others in meeting statutory and rule criteria. The applicants’ petitions for formal hearing were forwarded to the Division of Administrative Hearings by AHCA and were consolidated in a single proceeding relating to the 94 beds in District 6, Subdistrict 1. On October 19, 1995, during the pendancy of appeal of the DOAH Final Order in Tarpon Springs, all of the parties in the consolidated cases executed and filed a stipulation which disposes of 93 out of the 94 available beds in the fixed need pool. The stipulation provides that all of the applicants, except St. Joseph’s, withdrew their petitions for formal hearing. As to St. Joseph’s, the stipulation provides: St. Joseph’s has previously withdrawn its opposition to the applications of all other parties to this proceeding by its Notice of Voluntary Dismissal of Petitions for Administrative Hearing and Notice of Lack of Opposition, dated September 13, 1995. St. Joseph’s and AHCA stipulate that Case No. 94-6236, wherein St. Joseph’s challenged the denial of its application for certificate of need 7750 to add 24 skilled nursing unit beds, should be held in abeyance pending the final judicial determination of Tarpon Springs Hospital Foundation, et al. v. Agency for Health Care Administration, et al. (Proceeding below DOAH Case Nos. 94-0958RU and 94-1165RU, reported at 16 FALR 3420, presently on appeal before the First District Court of Appeal). St. Joseph’s acknowledges that the terms of this settlement will deplete the fixed bed need pool determined to be available for this application cycle, assents to the same, and maintains its position that its application should be approved notwithstanding the lack of availability of community nursing home beds within the fixed bed need pool. All other parties to this agreement except for AHCA hereby withdraw their petitions filed in this proceeding in opposition to the application of St. Joseph’s for certificate of need 7750 and waive any challenge or protest that they may have to the issuance of certificate of need 7750. St. Joseph’s hereby agrees not to oppose the transfer of up to seven (7) beds from this application cycle to TGH. After remand of all of the consolidated cases except St. Joseph’s (DOAH no. 94-6236), AHCA entered its final order on December 13, 1995, awarding CON’s for 93 beds to various of the applicants. Some of those 93 beds were awarded for hospital- based skilled nursing units. This final order depleted the fixed need pool of all but one bed. In their prehearing stipulation filed on August 29, 1996, AHCA and St. Joseph’s admitted these relevant facts: The appropriate planning area is Hillsborough County; The appropriate planning horizon for the application is January 1997. Rule 59C-1.036, Florida Administrative Code was appropriately used in determining the bed need for Hillsborough County, District 6, Subdistrict 1, for the first nursing home batching cycle of 1994; and The numbers used to derive the project pool of 94 beds in Hillsborough County, District 6, Subdistrict 1 for the January 1997 planning horizon were accurate and appropriate. At the hearing and in its proposed recommended order, St. Joseph’s concedes that it did not apply for beds under “not normal” circumstances. The Project St. Joseph’s proposes to establish a 24 bed, hospital- based skilled nursing unit in an area of its main hospital building by converting 24 acute care beds to this use. The project involves 19,600 square feet of renovation at a total project cost of $684,731, including conversion costs of $331,940. Actual out-of-pocket costs for the project are $352.791. The skilled nursing beds within the hospital facility are intended to contribute to St. Joseph’s goal of providing a full continuum of care for its patients, with services provided at different levels for a medically-appropriate and cost- effective outcome. St. Joseph’s anticipates that the patient using the skilled nursing (also called “subacute care”) unit would be one coming from the acute care setting and requiring less-acute care, but a more intensive level of care and a shorter length of stay than generally offered in a typical nursing home. All ancillary services and therapies will be available at the hospital seven days a week. Rehabilitative services, which are critical to the patient likely to use the skilled nursing beds, include physical therapy, occupational therapy, speech and language therapy, and recreation therapy. Need Analysis/Impact on Existing Programs Virtually all of the referrals to the proposed new beds will come from within St. Joseph’s. This is the experience of the new 19 bed unit. The hospital’s doctors and their patients prefer to not transfer to an outside facility and they plan in advance, as part of their treatment goals, that the subacute rehabilitative phase of treatment will be in St. Joseph’s own skilled nursing unit. The multi-discipline health care team evaluates and identifies patients who will benefit from such treatment; patients are not automatically shifted down to the unit. The existing unit enjoys a near-100 percent occupancy rate and has a waiting list for patients. Sometimes patients are held in an acute care bed while awaiting transfer to a vacant bed in the skilled nursing unit. This is an inappropriate use of the acute care bed. Few, if any patients would come from other hospitals. Since many hospitals now have their own skilled nursing units, there is little exchange of patients. In the experience of St. Joseph’s staff, other hospitals generally fill their own units from within in their own “continuum of care” system. John Knox Village is not an alternative for patients who need to “step-down” from acute to subacute care. John Knox is eleven miles from St. Joseph’s and does not provide the intensity of care that is offered in the hospital-based skilled nursing unit. There are subacute care, or skilled nursing care, beds in Hillsborough County in free-standing, not hospital-based units. These alternative facilities are not all fully occupied and some offer similar services and treat patients comparable to those treated in the hospital-based units. Evidence that the free-standing skilled nursing facilities are not appropriate alternatives to St. Joseph’s new beds was largely anecdotal. Although Dr. Wasylik, St. Joseph’s chief of orthopedics, is generally familiar with facilities in which he has patients, his observation that transfer of patients from St. Joseph’s would not be appropriate is based on his concern that the “continuity of care” would be disrupted. In other words, even before surgery and admission to an acute care bed, a “critical pathway” in the patient’s rehabilitation is developed. Another facility might have a different pathway that would disrupt the rehabilitative process. Better continuity of care, in Wasylik’s view, translates into quicker, and thereby more cost-effective, recovery. Financial Considerations Although the agency found some inconsistencies in the financial data included in St. Joseph’s application, those inconsistencies affected only the scoring of the application in a competitive batching cycle. The agency witness who provided financial review of the application conceded there was no problem with funding the project, and due to the small size of the project in relation to the size of St. Joseph’s, the project would not have a significant impact on the cost of other services provided by St. Joseph’s. The proposed project would generate a positive financial return for St. Joseph’s. In the proforma financial statement included with the application, the hospital used an occupancy rate of 74%; the actual occupancy rate experienced in the new 19 bed unit is higher. Some of the problems the agency found when reviewing St. Joseph’s application were adequately explained at hearing. For example, the actual cost of the project is less than what the agency found in the financial projections in the application. Also, if, as the agency contends, St. Joseph’s has over-stated its projection of Medicaid patients, a lower Medicaid utilization rate will actually inure to the benefit of St. Joseph’s, since the Medicaid reimbursement rate is lower than for other payor sources. While not obvious on the face of the application, the financial assumptions provided by St. Joseph’s were sufficient to extrapolate valid projected salary expenses in the second year of operation. In summary, a CON application, by necessity, includes estimates and projections of expenses and revenue generated by the proposed project. St. Joseph’s now has the experience, which it did not have when the application was prepared, of the actual expenses and revenue from its 19 bed unit. That actual experience helps validate its prediction of financial feasibility for the proposed 24 beds. Architectural Issues At hearing, St. Joseph’s clarified its intent to not delicense nor relocate acute care beds to make room for the proposed 24 bed skilled nursing unit. Nor does it intend to “phase in” the skilled nursing beds, if approved. Neither of these intentions is clear from the face of the application and the architectural review by the agency raised questions on these issues. The questions affected St. Joseph’s overall standing in a competitive review process, but are not serious enough to foreclose approval if the application is considered on its own merit. The application states that the new beds would be co- located with the existing 19 beds. But if there is not sufficient room, as long as St. Joseph’s can accomplish the project at or below the approved project cost, and as long as St. Joseph’s obtains agency approval for placing the beds elsewhere (which approval is routinely granted), the precise location of the beds within St. Joseph’s facility is not a problem. The beds may not, nor are they intended to be, co-mingled with acute care beds in the hospital. Upon construction, the 24 beds will meet all of the licensure, building code and other regulations applicable to a skilled nursing unit within an acute care hospital. Balancing the Criteria and Summary of Findings There is little dispute that St. Joseph’s has the financial resources to complete the approved project and to operate it successfully. Nor is quality of care, either in the existing facility and projected in the future, an issue of dispute. The questions raised in the financial review and architectural review are not impediments to approval. There are two significant problems with St. Joseph’s proposal. St. Joseph’s serves the entire planning district, and the impact of new beds must be considered in that district-wide health-planning perspective. St. Joseph’s generates enough patients from within its own hospital to fill the beds close to capacity. Other facilities providing similar services in the district are not at full capacity. The possibility of those existing facilities serving as an alternative to new beds was not adequately explored by St. Joseph’s, but was rejected out of an abundance of pride in its own fine services, or physician and patient loyalty. Patient and physician preference does impact “real world” utilization of health care facilities but cannot drive the health planning decisions that are made in the CON process. The second, and most significant impediment to St. Joseph’s application is that only one bed remains in the fixed need pool established for the relevant planning horizon. As discussed below, Tarpon Springs did not invalidate that fixed need pool. St. Joseph’s application does not reflect a willingness to accept any fewer than the requested beds, much less an award of only one single bed. (See, Respondent’s Exhibit 12, CON application, p. 34)

Recommendation Based on the foregoing, it is hereby, RECOMMENDED: that the Agency for Health Care Administration enter its final order denying CON number 7750 to St. Joseph’s Hospital, Inc. DONE and ENTERED in Tallahassee, Leon County, Florida, this 23rd day of January 1997. MARY CLARK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of January, 1997. COPIES FURNISHED: Ivan Wood, Esquire Baker & Hostetler Suite 2000 100 Louisiana Houston, Texas 77002 Steven A. Grigas, Esquire Agency for Health Care Administration Building 3 2727 Mahan Drive Tallahassee, Florida 32308-5403 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Jerome W. Hoffman, Esquire General Counsel 2727 Mahan Drive Tallahassee, Florida 32308-5403

Florida Laws (5) 120.57, 408.031, 408.035, 408.039, 408.045 Florida Administrative Code (5) 59C-1.002, 59C-1.008, 59C-1.030, 59C-1.036, 59C-1.044

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WUESTHOFF HEALTH SERVICES, INC. vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 85-002868 (1985)

Division of Administrative Hearings, Florida Number: 85-002868 Latest Update: Jan. 26, 1987

Florida Laws (1) 120.57

# 7

FLORIDA CONVALESCENT CENTERS vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 84-001456 (1984)

Division of Administrative Hearings, Florida Number: 84-001456 Latest Update: Dec. 14, 1984

Findings Of Fact Petitioner, Florida Convalescent Centers, Inc. (FCC), filed an application with respondent, Department of Health and Rehabilitative Services (HRS), on October 14, 1983, seeking a certificate of need authorizing the construction of a 120-bed skilled and intermediate care nursing home facility in Manatee County, Florida. /1 The proposed project carries an estimated cost of $3,530,000. After reviewing the application, HRS issued its proposed agency action on February 21, 1984, in the form of a state agency action report in which it advised petitioner that it intended to deny the application. The report stated in part that "(e)xisting and approved bed capacity in Manatee County... is sufficient to satisfy projected need for 1986," that 240 nursing home beds had just been approved for the county, and when added to the existing nursing home supply, would "maintain a reasonable subdistrict occupancy level through 1986 and satisfy the need for additional beds in Manatee County." The service area in which FCC proposes to construct its new facility is the Manatee County subdistrict of HRS District 6. That district contains five counties, including Manatee. In order to determine need, HRS has adopted Rule 10-5.11(21), Florida Administrative Code, which contains a formula (or methodology) for determining need at both the district and subdistrict level. Under that formula, HRS is required to utilize the "most recent 6 month nursing home utilization in the subdistrict." In this regard, HRS prepares on an on- going basis an internal document entitled "Quarterly Report" which contains the latest available data over a six-month period. In this proceeding, HRS used a report containing data for the period October, 1983, through March, 1984. This was the most current and complete available data at the time of hearing. According to the methodology in Rule 10-5.11(21), there is a gross need in District 6 for 7,336 nursing home beds. At the same time, there are presently 4,910 licensed and 960 approved beds in the District. Therefore, this results in a district-wide shortage of 1,466 nursing home beds through the year 1987, which is the three year planning horizon used by HRS in determining need. Evidenced introduced by HRS indicated there are presently 765 licensed and 240 approved beds in Manatee County. Under the rule, the methodology reflects a need for 1,518 beds, or a subdistrict deficiency of 513 beds through the year 1987. But even if beds are mathematically required under the formula at the subdistrict level, the rule requires that the current utilization of existing facilities be at least 85 percent, and the prospective utilization rate exceed 80 percent. If they do not, no additional beds may be authorized. The current utilization rate in Manatee County is 91.7 percent which meets the 85 percent threshold. However, the prospective utilization rate for the existing and approved operating nursing homes within the county is 69.8 percent, or substantially less than the minimum threshold of 80 percent called for by the rule. If petitioner's proposed beds are added to the calculation, the prospective utilization rate drops to 62.9 percent, or far below the requisite minimum rate. Therefore, there is no need for additional beds in Manatee County. FCC points out that special circumstances are present which justify a deviation from the rule. These include the allocation under the rule of only 15 percent of the district beds to Manatee County even though 21 percent of the elderly population (over 65 years) resides within the county, and the fact that Manatee has the highest percentage of people over 75 years of age of any county within the district. FCC also contends that the county has more persons in poverty than the statewide average, and that it will dedicate some 50 percent of its beds to Medicaid patients if the application is approved. However, these factors are taken into account in the formula devised by HRS, and do not constitute special circumstances that would warrant a departure from the need calculation encompassed in the rule.

Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Florida Convalescent Centers, Inc., for a certificate of need to construct a 120-bed skilled and intermediate care nursing home facility in Manatee County, Florida be DENIED. DONE and ORDERED this 31st day of October, 1984, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 31st day of October, 1984.

Florida Laws (1) 120.57

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AMEDEX INTERNATIONAL CORPORATION vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 87-000713 (1987)

Division of Administrative Hearings, Florida Number: 87-000713 Latest Update: Feb. 25, 1988

Findings Of Fact The parties' stipulation The parties have stipulated to the following facts: Forum and Amedex timely filed their respective letters of intent and applications with the Department and the District Local Health Council for the July 1986 batching cycle. The Department ultimately deemed the applications complete and, following review, published its notice of intent to deny the applications. Forum and Amedex each timely filed a petition requesting a formal hearing on the denial of their application. With regard to the Forum application, the Department contends that there is no need for the proposed facility, that such lack of need will render Forum's project financially unfeasible, that the project is not the best use of Forum's resources, and that Forum fails to meet the local health plan priority relating to the construction of freestanding facilities with a minimum capacity of 120 beds. All other statutory and rule criteria are satisfied, at least minimally, based on Forum's 60-bed proposal. With regard to the Amedex application, the Department contends that there is no need for the proposed facility, that such lack of need will render Amedex's project financially unfeasible, and that the project is not the best use of Amedex's resources. The Department further contends that Amedex has not demonstrated that it can provide quality of care, that it has not demonstrated that its project is financially feasible in the short or long term, that it has not provided long range plans and that, even assuming minimal need, the size of Amedex' proposed project will cause difficulty in meeting projected utilization needs based on Broward County's past utilization rates. All other statutory and rule criteria are satisfied, at least minimally, based on Amedex' 240-bed proposal. As between the applicants, they agree that a comparative review is appropriate to determine the best applicant. Further, they agree for purposes of this proceeding that the other meets all statutory and rule criteria, at least minimally, except the following: need beyond 60 beds, ability to provide quality of care, and availability of funds for project accomplishment and operation. The parties have further agreed that there are no special circumstances existent in this case upon which a certificate of need is being sought. The Amedex Proposal In July 1986 Amedex filed an application with the Department for a certificate of need to construct a 240-bed skilled and intermediate care nursing home in Broward County, Florida. The total project cost is projected to be $9,040,228. At hearing, Amedex failed to offer any competent proof to demonstrate the immediate and long-term financial feasibility of its proposed project, that it could provide quality care, or that it had available the necessary funds for project accomplishment and operation. 1/ While the Department contended that the proposed project was not the best use of Amedex's resources, it offered no proof to demonstrate what other health services would be a more appropriate use of the resources. The Forum Proposal In July 1986, Forum also filed an application with the Department for a certificate of need to construct a skilled and intermediate care nursing home in Broward County, Florida. Forum's application sought leave to construct a 60-bed facility. The estimated cost for construction of Forum's proposed nursing home is $2,39,800. Forum has the necessary resources for project accomplishment and operation. While the Department contended that the proposed project was not the best use of Forum's resources, it offered no proof to demonstrate what other health service would be a more appropriate use of such resources. Forum is a publicly held health services company which owns, develops, and operates retirement living centers and nursing homes on a national basis. Pertinent to this case, Forum proposes to develop a retirement living center in Broward County that would consist of 120 apartments for independent living, a 30-bed adult congregate living facility, and the proposed 60-bed skilled and intermediate care nursing home. Forum has packaged its centers to provide these three levels of service to meet the desires of retired persons they hope to attract to their retirement community. Each of the three components which comprise Forum's retirement living center are physically connected and share some operational functions, such as a central kitchen and heating plant. Such design provides for an efficient operation, as well as an economical distribution of costs facility wide. The nursing facility proposed by Forum would offer a wide range of services for its residents including: 24-hour skilled and intermediate nursing care, physical therapy services, and other restorative services. Additionally, Forum proposes to offer, as needed, subacute services such as: intravenous care, continuous bladder irrigation, oxygen therapy, nastrogastric tube feeding, ventilator care, insulin treatment, sterile dressing changes, and sterile care of tracheotomies. Forum also proposes to offer in the future, if need is identified and if any necessary agreements can be reached, respite care, adult day care, meals on wheels and hospice care. Forum proposes to seek medicare and medicaid certification, and will dedicate 25 of its beds to medicaid patients. Forum has a history of providing quality care at its existing facilities, and will provide quality care at the proposed facility. Forum has demonstrated the immediate and long term financial feasibility of its proposed project. Forum is a national company, with substantial experience in developing and operating nursing homes and retirement living centers. Due to the excellent growth potential in Broward County for retirement living centers, Forum should be able to capture a sufficient share of the nursing home market to render its proposed nursing home financially feasible. However, in view of the lack of numeric need for such facility as discussed infra, Forum's success will be to the detriment of existing and approved facilities. Numeric need The Department has established by rule the methodology whereby the need for community nursing home beds in a service district shall be determined. Rule 10-5.011(1)(k)2, Florida Administrative Code. The first step in calculating need pursuant to the rule methodology is to establish a "planning horizon." Subparagraph 2 of the rule provides: Need Methodology ... the Department will determine if there is a projected need for new or additional beds 3 years into the future according to the methodology specified under subparagraphs a. through i... The Department interprets subparagraph 2, and the applicants concur, as establishing a "planning horizon" in certificate of need proceedings calculated from the filing deadline for applications established by Department rule. This interpretation is consistent with the numeric methodology prescribed by subparagraph 2, and with the decision in Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, 483 So.2d 700 (Fla. 1st DCA 1986). Applying the Department's interpretation to the facts of this case, establishes a "planning horizon" of July 1989. Pertinent to this case, subparagraphs 2 a-d provide the methodology for calculating gross bed need for the district/subdistrict (in this case the district and subdistrict are the same--Broward County) in the horizon year. The first step in the calculation of gross need for the horizon year is to derive "BA," the estimated bed rate for the population age-group 65-74. This rate is defined by subparagraph 2b as follows: BA = LB/ (POPC + (6 x POPD) Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. The parties concur that the district licensed bed figure (LB) is calculated based on the number of licensed community nursing home beds as of June 1, 1986, and that there were 3,226 licensed beds in the district on that date. 2/ The parties do not, however, agree as to the date on which POPC and POPD should be derived. The formula mandated by the rule methodology for calculating BA requires that the "current population" for the two age groups be utilized. The rule does not, however, prescribe the date on which the "current population" is to be derived. Forum contends that the appropriate date to establish the "current population" for POPC and POPD is January 1, 1986. The Department contends that the appropriate date is the date of application. In the opinion of David Warner, which opinion is credited, 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. January 1, 1986, as the midpoint of that date, is the appropriate date to derive POPC and POPD. Supportive of Dr. Warner's opinion are the past practices of the Department. Between December 1984 and December 1986, the Department routinely used a three and one half year spread between the base population period and the horizon date for "current population" in its semiannual nursing home census report and bed need allocation. That three and one half year spread was adopted by the Department for the same reasons expressed by Dr. Warner. In the batching cycle of January 1987, which cycle immediately followed the cycle at issue in this case, the Department utilized a three and one half year spread between the base population period and the horizon date for "current population" when it awarded beds in that cycle. The Department offered no explanation of why, in this case, it proposed to use a three year spread between the base population period and the horizon date for "current population" in calculating POPC and POPD. Application of the methodology prescribed by subparagraph 2b to the facts of this case produces the following calculation: BA = 3,226 / (158,878 + (6 x 110,217) BA = 3,226 / (158,878 + 661,302) BA = 3,226 / 820,180 BA = .0039332 The second step in the calculation of gross need for the horizon year is to derive "BB," the estimated bed rate for the population age group 75 and over. This methodology is defined by subparagraph 2c, and calculated in this case as follows: BB = 6 x BA BB = 6 x .0039332 BB = .0235992 The third step in the calculation of gross need for the horizon year is to derive "A," the district's "age-adjusted number of community nursing home beds" at the horizon year. This methodology is defined by subparagraph 2a as follows: A = (POPA x BA) + (POPB x BB) Where: POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future. The parties concur that POPA and POPB are, respectively, 165,533 and 128,250 for the horizon year. Accordingly, application of the methodology prescribed by subparagraph 2a produces the following calculation: A = (165,533 x .0039332) + (128,250 x .0235992) A = 651.07439 + 3,026.5974 A = 3,677.67 The final step in the calculation of gross need in the horizon year is to derive "SA," the "preliminary subdistrict allocation of community nursing home beds" (gross bed need in this case. 3/ This calculation is defined by subparagraph 2d as follows: SA = A x (LBD/LB) x (OR/.90) Where: LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average 6 month occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Occupancy rates established prior to the first batching cycle shall be based upon nursing home patient days for the months of July 1 through December 31; occupancy rates established prior to the second batching cycle shall be based upon nursing home patient days for the months of January 1 through June 30. The batching cycle in which these applications were filed occurred before the Department amended its rule to include the fixed need pool concept. Accordingly, the parties agree that the six month period on which the average occupancy rate is calculated is not as set forth in subparagraph 2d, but, rather is defined by former rule 10-5.11(21)(b)4 as follows: OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of applications submitted for the July batching cycle shall be based upon occupancy data for the months of October through March preceding that cycle... In Broward County (District X) LB and LBD are the same since the county has not been divided into subdistricts. Application of the foregoing methodology to the facts of this case produces a gross need in July 1989 of 3,453 beds, computed as follows: 4/ SA = 3,677.67 x (3226/3226) x (.845/.9) SA = 3,677.67 x 1 x .938888 SA = 3452.92 The net need calculation The final step in the numeric need methodology is to derive net reed from gross need. According to subparagraph 2i, this need is calculated as follows: The net bed need allocation for a subdistrict, which is the number of beds available for certificate of need approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant departmental sub- district from the bed allocation determined under subparagraphs 2.a. through f. Notably, former rule 10-5.11(21)(b)9 comports with the new rule in all material respects. While the rule requires that net need be calculated by subtracting "the total number of licensed and 90 percent of the approved beds" in the subdistrict from the gross need previously calculated, it is silent as to the date that inventory should be calculated. The Department asserts, through application of "policy," that the number of licensed beds should be calculated as of June 1, 1986 (the date established by former rule 10-5.11(21)(b)7 for calculating LB and LBD), and the number of approved beds as of December 1, 1986 (the date the Department's supervisory consultant signed the state agency action report). Forum would likewise calculate licensed beds as of June 1, 1986, but would also calculate approved beds as of that date. The Department offered no proof to expose and elucidate its policy choice. As discussed below, the dates used by the Department and Forum for purposes of calculating net need were facially unreasonable. 5/ The inventory of licensed and approved beds under subparagraph 2i, as well as former rule 10-5.11(21)(b)9, are inextricably linked. As approved beds are licensed, the approved bed inventory decreases and the licensed bed inventory increases. The Department's policy choice concerning the dates at which licensed and approved beds are to be counted is neither logical nor rational since it could result in some nursing home beds not being counted as either licensed or approved. For example, if beds were approved and not yet licensed in June 1, 1986, but licensed before the supervisory consultant signed the state agency action report (SAAR), they would not be counted in either inventory. Since the purpose of subparagraph 2i is to calculate a realistic estimate of the net bed need for the horizon year, it is appropriate to use the most current inventory of licensed and approved beds at the point a decision is rendered on an application. This assures, to the greatest extent possible, that the horizon population will not be over or underserved. In those circumstances where the SAAR becomes final agency action, the Department's approach of calculating inventory on the date the supervisory consultant signs the SAAR, assuming that inventory includes licensed and approved beds on that date, might be reasonable. However, where, as here, the SAAR constitutes only preliminary agency action, and a de novo review of the application is undertaken, there is no rational basis for subsuming that inventory. The rule methodology considered, the only rational conclusion is that net need be derived on the date of de novo review, and that it be calculated by reducing the gross need calculation by the inventory of licensed and approved beds, from previous batching cycles, existent on that date. As of the date of administrative hearing, there were 3,226 licensed beds and 695 approved beds in the district/subdistrict. Applying the methodology prescribed by subparagraph 2i to the facts of this case calculates a surplus of 399 community nursing home beds in the district for the June 1989 planning horizon. Consistency with State and local health plans The parties have stipulated that both proposals are consistent with the State and local health plans except for Forum's facial failure to comply with the local health plan priority relating to the construction of freestanding facilities with a minimum capacity of 120 beds. Pertinent to this issue, the local health plan provides: In addition to controlling capacity in order to discourage the construction of unneeded beds, the certificate of need program addresses cost containment by encouraging efficiencies in operation as a criteria to certificate of need approval. A number of operational models have historically proven to be positive influences on efficiency. Licensure laws, for instance, require nursing home staffing patterns to be structured in minimum modules of 30 bed configurations. As a result, the construction of nursing homes with beds totalling numbers not divisible by 30, has the capability of encouraging over staffing. Similarly, experience has shown that freestanding nursing homes constructed at less than 120 beds also are less cost efficient compared to larger facilities. Likewise, since construction and corresponding debt service retirement is greater for freestanding facilities than for new construction on existing facilities, expansion and conversion as an alternative to new construction frequently acts to reduce costs. The basis for the 120-bed minimum size for a "freestanding" facility in the local health plan is to insure efficiency and economy of scale. The 60- bed project proposed by Forum is not "freestanding" but is an integral part of a retirement center which also includes 120 independent living units and a 30-bed adult congregate living facility. Under the circumstances, the economies and efficiencies contemplated by the local health plan will be achieved, and Forum's proposal is consistent with such plan. The local health plan also provides, as a recommendation, that: ... applications for certificates of need to construct additional nursing home beds should be approved so as to support the State policy of 27 beds/1000 population over age 65 in Broward County. Considering the population over age 65 at the applicants' planning horizon, as well as the number of licensed and approved beds in the district, calculates a 14.36 beds/1000 population over age 65 for July 1989. Accordingly, the applicants' proposal is consistent with state and local health plans regarding bed to population ratio. Comparative Review As between the competing applicants, the proof demonstrates that Forum is the superior applicant, and that were the award of a certificate of need appropriate in this case that its application would be the one of choice. Under no circumstance does the proof support an award to Amedex, since it failed to demonstrate the immediate and long-term financial feasibility of its project, failed to demonstrate that it would provide quality care, and failed to demonstrate that it had sufficient resources for project accomplishment and operation. The criteria on balance In evaluating the applications of Amedex and Forum, none of the criteria established by Section 381.705, Florida Statutes (1987), or Rule 10- 5.011(k), Florida Administrative Code, have been overlooked. In the case of Amedex, the lack of need in the district, as well as its failure to demonstrate compliance with relevant criteria as discussed in paragraph 46, demonstrates that, on balance, its application should be denied. In the case of Forum, its application meets all relevant statutory and rule criteria except need. Need is the key criteria in the instant case. Forum's failure to satisfy that criterion by proof of numeric need or special circumstances is dispositive of its application for licensure, and such failure is not outweighed by any other, or combination of any other, criteria.

Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the applications for certificate of need filed by Amedex and Forum be DENIED. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of February, 1988. WILLIAM J. KENDRICK 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 25th day of February, 1988.

# 9

EVERGREEN NURSING HOME OF PALM BEACH, INC. vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 83-001891 (1983)

Division of Administrative Hearings, Florida Number: 83-001891 Latest Update: Jan. 25, 1984

The Issue Whether petitioner should be granted a certificate of need to build a 120- bed nursing and extended care facility in West Palm Beach, Florida.

Recommendation Based on the foregoing, it is RECOMMENDED: That the application be denied for failure to meet licensing criteria contained in Rule 10-5.11(21), Florida Administrative Code. DONE and ENTERED this 8th day of December, 1983, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of December, 1983.

Florida Laws (1) 120.57

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