The Issue Whether the Department of Management Services ("DMS") or the ("Department") has an unpromulgated rule which states, in effect, that the Department will select the solicitation procurement method known as an Invitation to Negotiate when it is in the Department's best interests to do so even if rule requirements for the selection have not been met? Whether the statement contained in the Invitation to Negotiate (ITN Number-DSGI 00-001) issued in April 2000 by the Division of State Group Insurance ("DSGI") for the purchase of pharmacy benefits management services to the effect that "a late-submitted offer to negotiate will be returned unopened" is an unpromulgated rule? Whether, although not pled, the Petitioner proved at final hearing the existence of other unpromulgated rules?
Findings Of Fact The findings of fact in the Recommended Order in Case No. 00-3900BID are hereby incorporated into this Final Order. In the ITN there is the statement that "PROPOSALS RECEIVED AFTER THE SPECIFIED TIME AND DATE WILL BE RETURNED UNOPENED." It was not proven that Dr. Phillips on behalf of DSGI made the statement to the effect that "DMS will use the Invitation to Negotiate whenever it is in the agency's best interest to do so." Other statements made by DSGI in the context of selection of the ITN as the solicitation method in this case were statements that demonstrated DSGI was not in compliance with an existing DMS Rule, Rule 60A-1.001(2), Florida Administrative Code.
The Issue Whether Petitioners' application for a certificate of need (CON), to construct a 100-bed free-standing psychiatric and substance-abuse hospital in Broward County, Florida, should be granted or denied.
Findings Of Fact I. The Proposed Psychiatric Hospital Florida Psychiatric Centers (FPC), the applicant, is a partnership comprised of six general partners; Larry Levinson, Howard Israel, Ph.D.; Arnold Zager, M.D.; Bruce Jones, M.D.; Gerald Balsam, M.D., and Herbert Schwartz. Ronald Fieve, M.D., is a limited partner. FPC proposes to construct a 100-bed, free-standing psychiatric facility on a 10-acre site in the Plantation area of western Broward County. The total project cost, as stated in the application, is $12,039,299 or approximately $12 million. This figure is based on estimated construction costs of $80 per square foot. Since Mr. Levinson (a contractor), will build the facility at cost, and Dr. Jones, another partner, already owns a suitable site, the project costs should be considerably less. Also, the residential-type design of the facility means it will cost less to construct than a conventional hospital. There will be no heavy x-ray equipment, labs, operating rooms, or CAT Scanners. With industrial revenue bond financing, the project should be able to be built for under $10 million, reflecting a cost of $60-66 per square foot. The FPC facility is financially feasible. Based on the expected demand for psychiatric and substance abuse beds in Broward County, coupled with the unique design and treatment offered by the new facility, FPC can reasonable expect an occupancy rate of 64 percent and a $160,000 profit during the first year with an occupancy rate of only 45 percent. It can be financed either through the issuance of industrial bonds or conventional financing (available at a rate of 13.75 percent for a 30-year period). The FPC partners are financially capable of contributing, or raising, any additional equity funds or operating capital which may be required to build and begin operation of the hospital. Additional factors will contribute to the financial variability of the FPC hospital. Mr. Levinson, through his other related businesses, will provide equipment and supplies to the hospital on a discount basis. Dr. Fieve, a limited partner, can be expected to fill up to 10 beds with research patients, whose costs would be underwritten by pharmaceutical companies. The four partners who are local psychiatrists, Drs. Balsam, Israel, Zager, and Jones, have sizeable local practices; their patients, previously placed in other local hospitals, can be expected to fill many of the available beds at the new facility. FPC proposes 20 substance-abuse beds, 40 geriatric psychiatric beds, 25 adult psychiatric beds, and 15 adolescent psychiatric beds, all of which are short-term. DHRS, in preliminary free-form action, denied the FPC application for alleged failure to satisfy the standardized bed-need methodology for short-term psychiatric and substance abuse beds. DHRS did not explicitly evaluate the quality of psychiatric care being provided by existing facilities or the quality of care to be offered by the proposed facility. Most patients at the proposed FPC facility will be referred by the several psychiatrists who are principals, as will as other psychiatrists in the community. But due to the unique physical design of the facility and its innovative philosophy and treatment plan, it is expected that many patients from outlying counties will be referred by their psychiatrists. Moreover, Dr. Fieve, who practices psychiatry in New York, will refer patients to the proposed facility. Most patients will be private-pay or Medicare, not indigent or Baker Act (involuntary) patients. 5.75 percent of gross patient revenues will be allotted for indigent care. Since this will apply only to 60 beds (40 beds will be allotted for Medicare patients), the actual percentage expended on indigent patients rises to 9.5 percent. Only those patients meeting specific criteria will be admitted to the facility. The primary criteria are that the patients must be voluntary and be able to function within the hospital's unique open milieu. Patients who are homocidal or overtly dangerous to others will not be admitted. A patient who, once admitted, becomes violent or dangerous to others, will be transferred to a facility with a more controlled and restricted environment. Patients requiring acute detoxification services will not be admitted. Because the FPC facility will be a free-standing psychiatric hospital, it will be ineligible for Medicaid reimbursement. This distinction (for Medicaid reimbursement purposes) between attached and free-standing hospitals, is a curious, even confounding, one. The basis for it was not explained at hearing. The FPC facility will charge rates which are competitive, if not lower than, those charged by other psychiatric hospitals in Broward County. The FPC facility will have an admission policy unique among psychiatric hospitals in Broward County. Indeed, this policy - less restrictive than those in force at other hospitals is one of the motivating reasons behind the new hospital. 1/ Under the FPC admission policy, patients (otherwise appropriate for admission) will be admitted on evenings and weekends, regardless of whether the patients' ability to pay can be immediately verified. The FPC facility will serve as a research and training center for students, interns, and resident psychiatrists. Training affiliations will be actively sought with medical and osteopathic schools. Because of the facility's unique design, philosophy, and treatment program, it is reasonable to expect that it will become recognized as a place of innovative treatment for patients suffering from psychiatric illness or substance abuse. The State Health Plan has no application since it does not address the need for psychiatric beds in Broward County and the information in the plan is obsolete. FPC's proposed facility is generally consistent with the District 10 (Broward County) Local Health Plan, although that plan indicates that priorities should be given applicants proposing to convert under-utilized acute care beds to psychiatric beds. 2/ The physical design, philosophy, and treatment approach of the FPC facility will provide a needed alternative to the existing and approved psychiatric facilities in Broward County. The physical design is patterned after the well known Menninger Clinic, in Minnesota, and is designed to be conducive to and complement effective psychiatric care. Each of the four patient groups (geriatric, adolescent, adult, and substance abuse) will be housed in separate free-standing or home-like "villas". These villas will be located on a spacious, attractively landscaped 10-acre wooded site, which will look more like a college campus than a psychiatric hospital. There will be no locked wards or security guards to restrain patients, who will be voluntary and free to leave when they please. They will sleep in their villa rooms. All therapeutic activities will take place on the grounds or in the activity pavilion. There will also be medical and administrative pavilions and a dining pavilion, all of which will be connected to the villas by a network of covered walkways. Patients will freely participate in a spectrum of leisure and recreational activities which - in themselves - have therapeutic benefits. The facility will have a jogging track, swimming pool, tennis court, basketball court, gymnasium, exercise rooms, picnic areas, and a fresh water lake. Patients will be given maximum freedom of movement in an atmosphere designed to be aesthetically pleasing and affect patients in a positive way. It will be the least restrictive environment available in Broward County for providing in- patient psychiatric care. The philosophy and treatment approach of the FPC facility will be new and innovative - significantly different from that provided by existing psychiatric facilities in the county. Diagnosis and treatment activities will be conducted by integrated, interdisciplinary teams of psychiatrists and health care professionals. The various patient groupings will receive specialized psychiatric treatment. The FPC facility will have the only in-patient specialized psychiatric unit for geriatric patients in the county. This will be the first psychiatric hospital in Broward County designed and built, from the outset, solely to serve and treat psychiatric patients. Because of the facility's design and treatment philosophy, patients will be treated with deference, respect, and trust; it will be a place where patients' depleted self-confidence and self-esteem can be gently nurtured. The facility's environment will be hopeful, humane, and - insofar as possible - deinstitutionalized. Patients will not be warehoused, locked in wards, or isolated in smoke-filled day rooms with nothing to do but watch television. Instead, they will be free to engage in a variety of enjoyable and challenging activities. This is described as the holistic approach to psychiatric treatment. It provides patients with milieu environmental therapy - which requires ample space, a variety of engaging activities for patients, and a positive atmosphere which is neither frightening nor intimidating. Unlike patients in acute care hospitals, most psychiatric in-patients, who suffer from acute anxiety or depression, are physically strong and able to actively engage in leisure and recreational activities. When they are able to do so, they receive therapeutic benefits; they experience a sense of accomplishment and self-worth. With positive feelings about themselves, they are more able to face and cope with their problems. These are critical factors to their recovery and return to the community. The basic concepts embraced by the FPC facility have proven successful elsewhere, such as at the Menninger Clinic, Anclote Manor in Tarpon Springs, Florida, and the Florida Mental Health Institute. But there is nothing like it in Broward County. II. Existing Facilities: Quality Because of insufficient space and physical facilities, no existing or approved psychiatric hospital in Broward County - whether attached to a general hospital or free-standing - provides or is capable of providing milieu environmental therapy. All existing psychiatric hospitals are converted nursing homes, motels, or hospital wings. Although most admissions are voluntary, all of the psychiatric wards are locked, except for Ft. Lauderdale Hospital, which has one unlocked unit. Patients have little freedom of movement. Their access to the outdoors is limited and there are virtually no outdoor recreational activities available - although patients are sometimes bussed to nearby beaches and parks. Because the existing free-standing psychiatric hospitals are "locked in" by urban development, they cannot easily expand their facilities to provide outdoor leisure and recreational activities. Even existing parking space is limited. Patients, for the most part, resign themselves to lying in hospital beds (despite their physical vigor) or sitting in smoke-filled day rooms where they do little but watch television. Therapy consists of occasional visits by their psychiatrists and the administration of psychotropic drugs. This institutional environment, which can be harsh, unfriendly, and intimidating to patients, is not conducive to providing the most effective psychiatric care to patients. Prospective patients are often repelled by these conditions and the drab, uninviting atmosphere. As a consequence they refuse to admit themselves to these facilities and their psychiatrists are forced to refer them to facilities outside of Broward County. Psychiatric patients in existing facilities are not segregated and treated in accordance with their age or illness groupings. As a result, adolescents are often mixed with geriatrics - which is not conducive to providing therapy to either group. Specialized treatment programs are not systematically developed and provided patient groupings. Although Broward County has a large and expanding population of people 65 years or older, there is no specialized treatment program for geriatric patients. No existing or approved psychiatric facility in Broward County serves as a research or training center for the treatment of psychiatric patients. There is no evidence that any facility has expended resources for that purpose. III. Existing Facilities: Availability and Accessibility The existing psychiatric hospitals in Broward County are regularly crowded and frequently unavailable for new admissions. These include Hollywood Pavilion, Broward General Medical Center, Florida Medical Center, and Imperial Point Hospital. Existing substance abuse facilities, including Humana Hospital, Starting Place, the See, and the Care Programs at Memorial Hospital and Ft. Lauderdale Hospital are generally full and have patient waiting lists. Broward General Hospital serves as a central receiving hospital for acutely disturbed psychiatric patients. As stated by Dr. John Davison, Director of Emergency Services at Broward General - whose testimony is accepted as unbiased, credible, and persuasive - there is an urgent need for more psychiatric beds in Broward County. At Broward General, it typically takes three days to find a bed for a patient - and there are waiting lists at area hospitals for private/pay patients. Often patients must be strapped to emergency room beds and placed in emergency room hallways - where they sometimes languish for days - because of lack of space at Broward General and other area hospitals. Such treatment of acute psychiatric patients may actually worsen their condition and certainly does little to assist in their recovery. Existing psychiatric hospitals which have beds available are often, in actuality, inaccessible because of financially restrictive admission policies. They refuse to accept patients until insurance and financial ability to pay can be verified. In practice, this policy renders their beds unavailable to most patients (who cannot post immediate cash deposits) during evenings and weekends. IV. Need For The FPC Psychiatric Hospital DHRS normally, absent exceptional circumstances, will not issue a CON unless a need for additional beds is shown by the bed-need formula contained in Rule 10-5.11(25)(d)(3), Florida Administrative Code. This formula computes numerical short-term bed-need by calculating the projected population (the latest mid-range population projected five years into the future by the Bureau of Economic and Business Research of the University of Florida) and allotting 35 beds per 100,000 persons. (Projected 1988 population for Broward County, one of the fastest growing counties in Florida, is 1,252,660.) The number of existing and approved short-term beds is then deducted from the numerical bed need, yielding the number of any new beds needed. DHRS, in preliminarily applying its bed-need formula, deducted an incorrect number of "existing and approved" short-term beds. (DHRS relied on numbers derived largely from figures reported by local hospitals; no independent verification of the figures was made by DHRS.) Instead, the number of existing short-term beds established at hearing as reliable is as follows: Florida Medical Center-58; Hollywood Pavilion-35; and Ft. Lauderdale Hospital-80 (including psychiatric and substance-abuse). Coral Ridge Hospital was incorrectly assigned 74 short-term psychiatric beds and 12 substance-abuse beds. In actuality, Coral Ridge has no short-term beds. It offers a unique long-term care known as "ortho-molecular" treatment to patients, who are drawn from across the nation and abroad. This treatment, given under the guidance of its medical director, Dr. Moke Williams, typically continues for a year or more and is given patients who have not responded to conventional treatment. Few patients at Coral Ride come from Broward County. Short-term patients who seek admission are referred to Imperial Point Hospital or other local facilities. Although Coral Ridge's psychiatric beds are shown on DHRS books as 74 short-term and 12 substance-abuse, the beds are (and have been for sometime) used solely for long- term treatment. There is no evidence DHRS has taken, or will take, any action to force Coral Ridge to use its beds for short-term, as opposed to long-term treatment. DHRS, in initially applying the formula, determined that only 15 additional short-term beds were needed. When the formula is recomputed using the more correct figures (113 fewer short-term psychiatric beds and 12 fewer substance-abuse) a 1988 need in excess of 80 short-term psychiatric and 20 short-term substance abuse beds is shown. Apart from the projected need shown by a rigid mathematical formula, a balanced consideration of the other pertinent criteria of Section 381.494, Florida Statutes (1983), and Chapter 5-10, Florida Administrative Code, including accessibility, adequacy, availability, and quality of care of like existing facilities, indicates that the proposed FPC facility is needed. The statute and rule being implemented should not be used to prevent construction of new health care facilities which will provide innovative treatment which is an alternative to, and of higher quality than, that provided by existing facilities. This is particularly so when existing facilities, in actuality, are shown to be regularly filled, have patient waiting lists, and impose restrictive admission criteria which inflict an unreasonable hardship on those in need of care. Should construction of the FPC facility be allowed, it is likely that, through competitive forces, existing facilities will be spurred to improve the quality of their services. Finally, it has not been shown that, with the increased 1988 population projection, the financial viability of the existing facilities will be significantly affected by the construction of the FPC hospital.
Recommendation Accordingly, it is RECOMMENDED that: Petitioner's application to construct a 100-bed free-standing psychiatric facility (80 short-term psychiatric beds and 20 short-term substance abuse beds) in western Broward County be granted; and That the certificate of need be expressly conditioned upon fulfillment of all representations made in the application, as later amended and clarified at hearing. In particular, the proposed facility must be built on a wooded and attractively landscaped site of at least 10 acres and, from the outset, contain the full spectrum of leisure and recreational facilities described. As promised, the admissions policy must expressly provide that if a physician determines an emergency patient should be admitted, the patient will be admitted without delay, regardless of ability to pay and regardless of the time or day. If, after being admitted, it is determined that a patient lacks ability to pay, the patient will continue to receive treatment until he or she can be transferred to an appropriate facility. DONE and RECOMMENDED this 27th day of September, 1984, at Tallahassee, Florida. DONE and ORDERED this 27th day of September, 1984, in Tallahassee, Leon County, Florida. R. L. CALEEN, JR., Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 27th day of September, 1984.
Findings Of Fact By stipulation of fact, the parties agree that: On July 14, 1983, FHC mailed its letter of intent to file an application for a certificate of need to establish a psychiatric hospital near Orlando. This letter of intent was for an application to be considered in the August 15, 1983, batching cycle. The DHRS deadline for a letter of intent for the August 15, 1983, batching cycle was July 18, 1983. The FHC letter of intent was received by DHRS on July 18, 1983. In mailing a copy of the letter of intent to the Local Health Council of East Central Florida ("Local Health Council") on July 14, 1983, FHC inadvertently and unintentionally failed to enclose a copy of the letter of intent; the Local Health Council therefore received an empty envelope from FHC on July 18, 1983. The handwritten notes on the empty envelope are the notes of Clifton R. Carter, who is the Executive Director of the Local Health Council. Mr. Carter called FHC on July 18, 1983, and indicated that FHC should send to the Local Health Council a copy of its letter of intent by Federal Express. FHC sent a copy of its letter of intent to the Local Health Council via Federal Express on July 18, 1983. The Local Health Council reviewed a copy of FHC's letter of intent on July 19, 1983. DHRS acknowledged receipt of FHC's letter of intent and gave FHC instructions as shown in a letter dated July 20, 1983, from DHRS' Porter to FHC's Jones. Executive Director Carter sent a letter to HRS dated August 2, 1983, where he states that the Local Health Council did not timely receive FHC's letter of intent. FHC timely submitted its certificate of need application on or before August 15, 1983. Other competing applications were also timely filed and are not being processed by DHRS. DHRS' Thomas Porter sent a letter to FHC's Stanley Jones dated September 7, 1983, which advised FHC that its application was being returned and would not be processed in the August 15, 1983, batching cycle. The parties presented evidence which supports the following supplementary findings: At approximately 11:00 a.m. on July 18, 1983, after receiving the empty envelope from FHC, Clifton Carter, Executive Director of the Local Health Council, called FHC and spoke with Betty T. Genereux, the secretary to Stanley G. Jones, Vice President for Development of FHC. Mr. Carter advised her that the envelope from FHC had been received without a letter of intent. Ms. Genereux expressed concern, and asked whether the Local Health Council had telecopier equipment. Mr. Carter had told her that none was available. He also told her that the deadline was that day, but if she would "Federal Express" the letter to him and if he received it the next day, the filing equipment would be met. Pursuant to his instructions, she "Federal Expressed" the letter; the Local Health Council received it at approximately 9:00 a.m. the next day. FHC had an aircraft available to it on July 18, 1983, which could have been used to deliver the letter of intent to the Local Health Council that day. If Mr. Carter had not led Ms. Genereux to reasonably conclude that the filing requirement would be met if the letter was received by Mr. Carter the next day, it is likely that FHC would have used its aircraft or some other means (such as a telegram) to assure delivery on July 18, 1983. FHC reasonably, and in good faith, relied upon the representation made by Mr. Carter to Ms. Genereux on July 18, 1983, concerning the filing requirement. 1/ Since the question concerned the requirement for filing a document with the Local Health Council, Ms. Genereux was reasonable in believing that Mr. Carter, Executive Director of the Local Health Council, had authority to make such a representation; and she was reasonable in acting on such belief. Pursuant to its letter of intent, DHRS sent FHC the required application forms. FHC thereafter devoted substantial resources to preparing its application and filing it on or before August 15, 1983, in order to assure that its application would be reviewed in the August 15, 1983, application batching cycle. FHC was notified of the rejection of its application (because an untimely letter of intent) by letter from Thomas F. Porter, a DHRS Medical Facilities Consultant Supervisor, dated September 7, 1983, postmarked September 13, 1983, and received on September 20, 1983. This rejection was transmitted after the time specified for DHRS to determine the completion of an application. See, Rule 10-5.08(3). Within two days after receiving the rejection, FHC filed its request for a hearing, resulting in this proceeding. No evidence was presented that DHRS or the Local Health Council were prejudiced as a result of FHC's omission of the letter of intent from its July 18, 1983, filing with the Local Health Council, and its follow-up delivery of the missing letter on the next morning.
Recommendation Based on the foregoing, it is RECOMMENDED: That DHRS accept First Hospital Corporation's application (for a certificate of need) as part of the August 15, 1983, application review cycle. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 26th day of October, 1983. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of October, 1983.
Findings Of Fact Respondent, Randall B. Whitney, is a licensed medical doctor having been issued license number ME 000 8859 by petitioner, Department of Professional Regulation, Board of Medical Examiners. He presently resides in Port Orange, Florida and operates a family planning center in Daytona Beach. Respondent is a 1959 graduate of Tulane University Medical College. After interning at a Jacksonville hospital, he served three years in the U.S. Air Force as a flight medical officer and flight surgeon. He then took a two- year general residency in California. He began private practice in Mount Dora, Florida in 1965, the same year he received his license to practice in Florida. Although he was once board certified in family practice, he is not presently board certified in any specialty. He is not a member of the Florida or American Medical Associations and he does not hold privileges on the staff of any hospital. Prior to the initiation of this proceeding he did apply for emergency room privileges at a hospital in Daytona Beach but his application was denied. Therefore, he cannot admit patients to hospitals. When the events herein occurred, respondent had a financial interest in and was medical advisor to the Childbirth Center (CBC) in Daytona Beach. He also provided medical services on a contract basis to the Woman's Health Center (WHC) in Orlando and Holly Hill and the Aware Woman Clinic, Inc. (AWC) in Cocoa Beach. All four are birthing centers where women receive care and treatment during pregnancy and where the actual labor and delivery occur. Additionally, the facilities provide annual check-ups, IUD services, abortions, and advice for birth control. He divided his time between the four clinics, visiting each place one day of the week except the Orlando clinic, which he visited two days per week. In the spring of 1981, respondent became acquainted with one Eric Niederschmidt, an enlisted man stationed at Patrick Air Force Base who also worked weekends or nights at Aware Woman Clinic as an "assistant". Eric complained of pain in his knee from an internal knee derangement caused by stress and requested a pain medication to ease the pain. Whitney wrote several prescriptions for percocet between March and September, 1981. He also permitted Eric on several occasions to fill out the prescription pad, then bring it to him for review, and then sign the prescription. The evidence is conflicting as to whether respondent kept pre-signed blank prescription forms at the Aware Woman Clinic, which were later used by Niederschmidt to obtain drugs. Although respondent admitted he pre-signed such forms to a Department investigator during an interview in November, 1981, he denied he did so during the final hearing, and it is found the greater weight of credible evidence supports a finding that he did not. The CBC is not equipped to handle emergency situations or to care for "high-risk" pregnancies. Instead, it is designed to handle the routine low-risk pregnancy which has no complications. Indeed, the CBC has no internal monitoring devices, x-ray equipment or cesarean section devices, all of which are needed when complications in preqnancy set in. Its medical equipment consisted primarily of nitrous oxide and oxygen in large H-cylinder tanks with a nasal applicator mask, a fetal Doptone monitor to monitor for fetal heart tones, an Isolette to provide a controlled environment for babies distressed prior to transfer, outlet forceps, intracoths, emergency suction apparatus and the like. A supply of various kinds of medicine, including adrenalyn, ephedrine and pitocin were kept on hand. In 1979, one Joyce Ann Geeson became a patient of respondent at CBC. She was cared and treated for during her pregnancy in the months of June through a part of December, 1979. Around 3:30 a.m. on Saturday, December 8, 1979, Geeson awoke with ruptured membranes. She did not begin labor until almost 22 hours later. After labor pains commenced that night and early Sunday morning, Geeson reported to the CBC at noon on Sunday. After 38 hours of labor with little progress, Whitney ordered that pitocin be administered to Geeson. That drug serves to stimulate contractions of the uterus. However, this drug should only be used in a hospital setting since it can cause a tetanic contraction of the uterus and cut off the blood supply to the baby. It can also cause a rupture of the uterus. Therefore, it was inappropriate for Whitney to use pitocin in his facility. This is confirmed by instructions in the Physicians Desk Reference, 1979 edition, as to the use of the drug as well as uncontradicted expert testimony presented by petitioner. In Geeson's case the pitocin was continued for some 18 hours until a decision was made to transfer the patient to a hospital after the patient had made very little progress. Geeson was finally admitted to the emergency room at Halifax General Hospital around 11:10 p.m. on December 10, 1979. Whitney accompanied her to the hospital. When Geeson's temperature rose to 102.3 around 6:00 a.m. on December 11, she was immediately sent to the operating room where a C-section was performed. An examination of Geeson indicated her membranes had been ruptured for approximately 68 hours prior to admission to the hospital, that the patient had given signs of such a rupture by the excretion of a green tinged fluid (meconium), and that Geeson had stopped progress in delivering the baby some 24 hours prior to the hospital admission. Whitney's failure to recognize and properly handle premature rupture of the membranes, to promptly repond to meconium staining (which is a sign of possible fetal distress), and the use of pitocin in a non-hospitaL setting were deviations from the level of care, skill and treatment that would be recognized by a reasonably similar prudent physician as being acceptable under similar conditions and circumstances. Sandra Vigue was a 33 year old patient of the CBC in the fall of 1979. She first visited the clinic in her third trimester in September, 1979. Vigue told CBC personnel that her last menstrual period was mid-December, 1978 which would have indicated an expected date of confinement (EDC) of mid or late September, 1979. The clinic initially noted her EDC as being late September or early October. A nurse later noted in the records that on September 19 the patient was approximately 35 weeks gestation, or 5 weeks before the due date. When the baby had not come after weekly visits to the clinic in October, a nurse simply placed a question mark next to Vigue's EDC. By this time (42 weeks), according to expert medical testimony the fetus comes at high risk because of post-maturity syndrome. On October 21, 1979, Vigue began labor around 7:00 p.m. Around 8:30 p.m. a nurse noted the presence of a greenish substance being discharged in the vaginal area while performing an examination at Vigue's home. She noted in the patient records that it had the appearance of meconium. The nurse immediately telephoned respondent to report this finding. After a discussion, Whitney discounted the fluid as being cervical and not meconium. Meconium is, of course, an indication of fetal distress and that a membrane has prematurely ruptured. This in turn leads to a high-risk situation in terms of the delivery of the baby. Vigue remained at her home overnight and had no apparent progress in contractions. At approximately 1:00 p.m. the next day (October 22) Whitney requested she come to the clinic. She did so and was evaluated by him at 4:00 p.m. Whitney noted the passing of copious malodorous meconium and asked "why" in the charts. He then sent her to a local hospital where she was admitted at 7:50 p.m. the same day. Upon examination by hospital personnel, they noted premature rupture of the membranes and a discharge of meconium. Before further tests could be run, Vigue's condition deteriorated and she was given an emergency cesarean section. A stillborn infant was delivered. Respondent performed no post-maturity syndrome tests on Vigue that are normally given when a woman reaches an age of 42 weeks pregnancy. These tests are essential since a baby at that age may be under stress from lack of nutrients and oxygen. In this regard, he failed to conform to prevailing community standards for physicians. Vigue was apparently quite firm in not wanting her baby delivered in a hospital setting. However, a physician should advise the patient when high risks set in of the potential danger in not doing so, and if the patient refuses, document his records accordingly. Here, Vigue apparently held off until the last possible moment, but Whitney did not adequately document his records to show that he advised her of the potential dangers. Again, he failed to meet acceptable standards of skill, care and treatment that would be recognized by a reasonably similar prudent physician as being acceptable under similar conditions and circumstances. But since this was not a charge within the complaint, it is irrelevant. Finally, Whitney was negligent in the same respect by failing to recognize the meconium staining that occurred on October 21 and asking the patient for a history of rupture of membranes. In July, 1979, Lida Papa became a patient of CBC. Her estimated date of delivery had been established by CBC personnel as December 11, 1979. Papa suffered a ruptured membrane at 3:00 a.m. on December 22, 1979 or three full days prior to being admitted to a hospital. Her labor commenced on December 23. Because of slow progress, Whitney began administering pitocin to Papa around 7:25 p.m. on December 23 at a rate of 8 drops per minute, or a rate of 2 to 3 times that used initially in a hospital setting. The administering of the drug continued in larger dosages until the afternoon of December 24 when he allowed her to rest. It was restarted at 9:30 p.m. that evening and continued until 11:30 p.m. At the same time, the patient records of Papa reflect signs that the baby may have been in distress. She was also given ampicillin, presumably to counteract chills and fever being experienced around 1:30 a.m. on December 25. When her temperature reached 101 degrees Papa was sent to Halifax Memorial Medical Center, a Daytona Beach hospital. It was noted there that Papa had been at 9 or 10 centimeters dilation for some 18 to 19 hours prior to being transported to the hosptial. This is equivalent to complete dilation, and babies are normally delivered within two hours after complete or near complete dilation. Prudent medical care would have dictated that Whitney transfer Papa to the hospital no later than 24 hours after the membranes were ruptured if delivery had not occurred or was not imminent. This would have required admission to the hospital on December 23 rather than December 25. Whitney was also negligent in using pitocin in a non-hospital setting, and in dosages higher than is normally used. But this conduct was not described within the complaint and accordingly is irrelevant. Whitney failed to recognize that the patient was at high risk in a non-hospital setting because of the use of pitocin and the prolonged rupture of the membranes. In these respects, he deviated from the level of care, skill and treatment that would be recognized by a reasonably similar prudent physician as being acceptable under similar conditions and circumstances. Whitney was employed by the Women's Health Center, Inc. (WHC) in Orlando, Florida on a contract basis in 1978. He generally visited the Center either on Tuesday and Thursdays of each week, or Thursday only, depending on his schedule at other clinics. Whitney did not represent himself to the Center as being a urologist although he routinely performed vasectomy procedures. Daniel Hallman wished to have a vasectomy performed, and after searching through the Yellow Pages, selected the WHC. He talked by telephone with an unidentified lady at the Center and asked if the physician who would perform the vasectomy was a "licensed urologist." He was assured that Whitney was. Hallman then made an appointment to have the procedure performed on Thursday, November 16, 1978. On that afternoon, he visited the Center where he first saw a film on vasectomies which briefly touched on complications, procedures and care of patients. He had some preliminary work performed by a nurse and then met with Whitney. He was never advised by Whitney of the risks associated with the operation or complications that could result from the procedure. Whitney testified that although he normally counseled patients, he thought Hallman had "waived counseling in effect" because he was intelligent and seemed to be well-read on the subject. Whitney was not asked nor did he represent to Hallman that he was a "licensed urologist." After the procedure was performed, Whitney told Hallman he could not ride a bicycle to work for awhile and to avoid intercourse for several days. He did not tell him that swelling, bleeding and fever could occur. Hallman left, went home, slept and then awoke later that night with pain, swelling and bleeding. He called the Center and a nurse advised him to apply ice to stop the bleeding. He did so and went back to sleep. Later on, he awoke in extreme pain and noticed his scrotum had swollen to the size of a grapefruit. He again called the clinic asking for Whitney but was told Whitney lived in Cocoa Beach and was unavailable. The nurse told him to keep applying ice and he would be okay. When Hallman called a third time on Friday morning, the clinic then contacted Whitney who returned Hallman's call later that morning. Whitney told him he could see him if Hallman would drive to Cocoa. Whitney did not recommend he see another physician since he had no "back-up" in the area. Whitney advised Hallman to continue to apply ice and to see him when he visited the Center the following Tuesday. The following Tuesday, the two met and Whitney prescribed a pain killer (darvon), clipped a stitch and squeezed some dry blood out of the area. He noted it was the worst case of swelling he had ever seen. He also advised Hallman to take warm baths. The two never met again. When the pain killer became ineffective, Hallman contacted a urologist the following Saturday who treated him at the emergency room of an Orlando hospital. The physician found Hallman to have a low-grade fever and prescribed an antibiotic and pain killer. When the procedure was performed, Whitney had no local hospital privileges or a "back-up" physician to handle emergencies. Whitney testified he had no post-operative information to give to Hallman to read. He attributed the problem to a "nicked" varicose vein and stated that he has performed approximately 1,000 such operations routinely since 1965 without a patient ever being hospitalized. Had he considered there to be a danger of infection, he would have referred Hallman to an emergency room. Because Whitney had no back-up physician for Hallman to see should post-operative complications have arisen, he failed to meet the standard of care practiced by similarly prudent physicians in the community. The administrative complaint does not allege, and indeed there is no evidence, that the procedure was improperly performed. Respondent has safely delivered at least 1,000 babies during his medical career. He believed that Vigue, Papa and Geeson were carefully monitored and treated, and were timely transported to the hospital once their risk factors had escalated. In the case of Hallman, Whitney stated he would have seen the patient had he realized an emergency existed, and admitted him to an emergency room if necessary. He justified the use of pitocin on the grounds it was safely administered and the Physicians Desk Reference is not binding on physicians in all cases. Whitney no longer performs childbirths and is not associated with any of the clinics in question. Instead, he now confines his practice exclusively to family planning.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of violating Subsection 458.331(t), Florida Statutes, on four occasions as more specifically set out above, and that his medical license be suspended for thirty days, a $2,500 administrative fine imposed, and that he be restricted from performing childbirths except in a hospital setting. All other charges should be dismissed. DONE and entered this 20th day of April, 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 20th day of April, 1984. COPIES FURNISHED: Douglas P. Jones, Esquire John M. Bringardner, Esquire P.O. Box 2174 Tallahassee, Florida 32316 Jack R. Leonard, Esquire 800 North Highland Avenue Suite 202 Orlando, Florida 32803 Frederick M. Roche, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Dorothy Faircloth, Executive Director Board of Medical Examiners 130 North Monroe Street Tallahassee, Florida 32301
The Issue Whether any or all of the following Certificate of Need ("CON") applications for projects in southeastern Duval County, health services planning Subdistrict 4-3, should be approved by the Agency for Health Care Administration: St. Luke's Hospital Association d/b/a St. Luke's Hospital's CON Application No. 9483 to construct at the Mayo Clinic Jacksonville campus on San Pablo Road a new 214-bed replacement hospital to take the place of St. Luke's Hospital; St. Vincent's Medical Center, Inc.'s CON Application No. 9484P for the establishment of a new 135-bed acute care hospital to be located at the site of the existing St. Luke's Hospital; and Southern Baptist Hospital of Florida, Inc.'s CON Application No. 9482 to establish a new 92-bed satellite acute care hospital at the intersection of Old St. Augustine Road and Interstate 95 just north of St. Johns County by transferring 92 beds from Baptist Medical Center in downtown Jacksonville?
Findings Of Fact The Mayo Foundation and its Facilities The Foundation The Mayo Foundation ("Mayo" or the "Mayo Clinic") is considered to be one of the world's preeminent providers of health care services. Although its clinical practice is entirely in this country, Mayo's service area is international; from around the globe it draws patients impressed by the high regard in which its health care services are held. Here at home, Mayo's reputation is not lost on the American populace. Among the nation's many outstanding providers of health care services to the medically complex patient, certainly one of the most recognized, if not the most recognized, is the prestigious "Mayo Clinic." Founded in Rochester, Minnesota toward the end of the 19th Century, with hospital affiliations added eventually in a number of Midwestern states, the Mayo Clinic is the first multi- specialty medical group practice in the United States. Its mission is to provide the highest quality health care by medical professionals practicing all of the known specialties and sub- specialties of medicine in a clinical, unified, multi-campus setting that incorporates medical education and research. Reflective of its status as a physician-led organization, and as important and as essential as they are to the Mayo mission, medical education and research are secondary to Mayo's clinical practice. In the mid to late 1980's, the Mayo Clinic expanded its multi-campus setting to the nation's sunbelt. Mayo Clinic Jacksonville was founded by Mayo in Florida in 1986; the following year, Mayo Clinic Scottsdale was founded in Arizona. Today, Mayo successfully delivers health care services of the highest quality at its two facilities in Florida and Arizona as well as at its principal location in Rochester. Much of its success is due to its approach to health care. An Integrated Approach As a natural outgrowth of its multi-specialty group practice and consistent with its mission, Mayo's model of health care is an integrated team approach. Under the approach, specialists and sub-specialists from a variety of medical disciplines interact for the benefit of the patient. When a patient enters the Mayo system as an outpatient, for example, the patient is assigned a primary physician who serves as "a captain of the ship," so to speak. "[T]hat captain of the ship is responsible for the initial outpatient assessment, establishing what consultations are needed through the course of the patient's visit." (Tr. 80). The primary complaint physician, after initial evaluation "will order consultations with whatever specialists and sub-specialists are perceived as needed in the care of that patient's case." (Tr. 80). In the case of Mayo Clinic Jacksonville, the team will attempt to get the patient through the system in a maximum of five days. Whether outpatient or inpatient, the patient is accompanied by a single medical record through all phases of care by all physicians who participate in the patient's care: primary, treating or consulting. Utilizing consolidated protocols and practice standards, the "integrated" and "team" aspects of the approach enhance Mayo's capability for delivering to the patient comprehensive, coordinated medical care. The Mayo model of care founded on the integrated approach affords greater continuity of care than traditional models. It is especially effective with the patient who has complex medical conditions requiring the services of more than one physician specialist. The reverse of a university setting where "physician focus . . . is primarily on research; second, education; and then, lastly, patient care[,]" (tr. 78), patient care is the primary mission of the Mayo Clinic. Like the providers of care in a university setting, however, Mayo is organized to conduct clinical care, medical education and medical research at the same time. Education and research, therefore, although both secondary to patient care under the Mayo model, remain essential elements of the Mayo mission. There is another aspect of the Mayo model of care that enhances the quality of the health care it provides. Mayo refers to it as an "alignment of interests." Alignment of Interests Mayo has achieved an alignment of its interests, as expressed in its mission statement, with those of its physicians and the facilities at which they practice. There are approximately 2,000 Mayo employed physicians; 1,400 or so are at Mayo Clinic Rochester. The remaining 600 or so are split fairly evenly between Mayo Clinic Jacksonville and Mayo Clinic Scottsdale. They practice all medical specialties and sub-specialties on a fixed salary with direct employment by Mayo. Just as in the case of their employer, Mayo physicians seek principally to provide patient care services consistent with the Mayo mission. Like their employer, too, Mayo physicians aspire to the provision of patient services in an environment that includes teaching and research. Virtually all two thousand Mayo physicians participate in medical education activities and research. Mayo also owns the hospitals that are utilized by the multi-specialty group practices in its various locales. Mayo's control of the scope and direction of the multi- specialty group practice is crucial to the success of the Mayo model. Direct employment of physicians is fundamental to achieving the goals of the Mayo Clinic. So is Mayo ownership and control of the hospitals at which the multi-specialty group practice takes place. For purposes of patient and physician schedules alike, Mayo must be able to control the allocation of hospital resources, such as the availability of beds, operating rooms, and ancillary/support services. Many Mayo patients, for example, travel significant distances to receive services at a Mayo campus. Mayo's control over hospital resources is central to meeting its goal of providing hospital-based services, including surgery or admission, in as short a time frame as possible for the benefit of the patient and the patient's family, and to otherwise best achieve the benefits of integrated, comprehensive care. Closed Staff Facilities The governance of both physicians and facilities used in the Mayo model works best in a "closed-staff" environment, meaning that only Mayo physicians admit patients to, and otherwise practice at, the hospital. Mayo's preference to operate its affiliate hospitals in a "closed staff" environment is based on a number of factors. Mayo physicians practice in a uniform fashion, agreeing as to what the standard of care should be, and following the same protocols and other practice standards. (Non-Mayo physicians in a hospital setting do not practice with the same uniformity, employing approaches to medical care and standards used in that care that may vary.) Variances in practice styles affect how nursing and other hospital support staff conduct their daily responsibilities with regards to both physician and patient interactions. When Mayo physicians practice medicine under uniform protocols and standards and the remainder of the hospital's medical staff practice medicine in their various and different individual ways, confusion among staff is a common result. The difficulties met by nurses, for example, in knowing precisely what to do from one patient to the next is avoided in a Mayo closed staff setting. In a service where quality and safety concerns are paramount, it is important to Mayo to reduce the variation of practice among physicians and staff alike. In an open-staff setting, the ability of the hospital's governing body to control variation, to enforce standards, and to drive standards to the highest level of excellence is much more difficult than in a closed-staff integrated group practice setting. Mayo cannot forge with non-Mayo physicians the alignment of interests it has with Mayo-employed physicians. An open staff setting, moreover, requires that Mayo's administration deal with the struggles of control and politics that are not uncommon in open-staff hospitals. In an open-staff setting, Mayo's ability to control the scope and direction of its integrated group practice, including the ability to timely schedule admissions and surgeries, is subject to interference because of the need to address the needs of non-Mayo physicians. Free of meeting non-Mayo physician needs, the integrated group practice has the opportunity to achieve the high quality of care of the medically complex patient for which it is designed. Mayo Clinic facilities in Rochester and Mayo Clinic Scottsdale are closed staff facilities. Mayo Clinic Jacksonville, for reasons explained below, is not. It is the only "open-staff" facility among Mayo's clinical facilities. Mayo Clinical Facilities and Medical Education/Research Programs In 1987, shortly after the expansion of Mayo operations to Jacksonville through the establishment of Mayo Clinic Jacksonville the year before, St. Luke's was acquired by Mayo. The purpose of the acquisition was to provide the inpatient component for Mayo's Jacksonville operations. Also in 1987, Mayo expanded its operations to the Phoenix-Scottsdale area of Maricopa County, Arizona through the establishment of Mayo Clinic Scottsdale. Similar to the arrangement in Jacksonville, Mayo Clinic Scottsdale has an affiliate hospital nearby. The affiliate is in Phoenix. In keeping with the Mayo-preferred approach, the Phoenix affiliate uses a closed staff. Mayo activities in the three locations require more than 37,000 employees. Mayo personnel comprise several hundred scientists, over 500 clinical and research associates and fellows, over 33,000 administrative and allied health personnel, and over 1,500 medical residents in addition to the more than 2,000 physicians. On a system-wide basis, Mayo has $3.3 billion in annual operating expenditures. Approximately $300 million annually is dedicated to medical research expenses, and approximately $130 million annually is dedicated to medical education expenses. Mayo's medical education activities include the Mayo Medical School for medical students, and the Mayo Graduate School of Medicine, which offers graduate medical education in more than 100 specialties and sub-specialties. Further, the Mayo Graduate School offers Ph.D. programs in several different medical-related areas. Medical research within the Mayo system includes bench research, that is, research primarily in a laboratory. In keeping with the primacy of patient care under the Mayo model, Mayo's medical research also includes clinical research involving direct interaction with patients. Mayo Clinic Jacksonville Located approximately 10 miles east of St. Luke's, Mayo Clinic Jacksonville sits on 400 acres of land that was donated to Mayo. The campus is on San Pablo Road about one-half mile from the road's intersection with J. Turner Butler Boulevard, another half-mile or so to the west of the Intracoastal Waterway flowing between the mainland and the barrier island that is Jacksonville Beach. The campus contains numerous facilities that support clinical, medical education, and medical research activities. Also located on the campus are two hotels for the convenience of patients, their families, and their friends. Mayo Clinic Jacksonville vigorously participates in Mayo's medical education activities, with approximately 155 residents and 65 fellows from the Mayo Graduate School of Medicine, covering numerous specialties, on-site. At the time the St. Luke's application was filed, Mayo Clinic Jacksonville participated in 12 accredited graduate medical education programs and was in the process of adding two more. Mayo Clinic Jacksonville is actively involved in a wide range of both clinical research and bench research programs. All specialties and sub-specialties found within the Mayo system as a whole are represented on the medical staff of over 300 physicians. With the exceptions of some anesthesiologists, family practitioners and transplant physicians who are located at St. Luke's, Mayo Clinic Jacksonville physicians are based at the Mayo Clinic Jacksonville campus. Approximately 50% of Mayo Clinic Jacksonville's outpatients reside in Agency District 4, which includes Baker, Nassau, Duval, Clay, St. John's, Flagler, and Volusia Counties. Approximately 25% of its outpatients come from the remainder of the State of Florida, 22% from the remainder of the United States, and 3% from foreign countries. When Mayo Clinic Jacksonville was established, the campus obtained Florida Development of Regional Impact ("DRI") approval. That DRI approval, effective until 2020, includes approval for a 900-bed hospital to be located on the campus. Mayo's Acquisition of St. Luke's It has long been Mayo's intention to consolidate its hospital operations on the campus of Mayo Clinic Jacksonville. The intention, in fact, had been fully formed at the time Mayo Clinic Jacksonville was established in 1986. Nonetheless, Mayo Clinic Jacksonville did not pursue initially the development of hospital services on campus for two reasons. The first was a regulatory obstacle; CON regulation requires establishment of need for the construction and operation of a hospital in Florida. The second was a logistical opportunity; Mayo was presented with the chance to purchase St. Luke's Hospital at its facility on Belfort Road to which St. Luke's had relocated from the Northside of Jacksonville west of the St. John's River only a few years before. Mayo took advantage of the opportunity with the acquisition of St. Luke's Hospital in 1987. Prior to its affiliation with Mayo, St. Luke's was a local community provider. More than two-thirds of its patients originated from Jacksonville and Duval County. Few patients originated from beyond northeast Florida. Its only tertiary service was adult open-heart surgery. In recognition of its importance as a community provider, the seller of St. Luke's conditioned Mayo's acquisition on the requirement that an open staff be maintained for five years after purchase. St. Luke's acquiesced. St. Luke's Hospital, therefore, promised to be "open-staffed" at least until 1992. With the end in 1992 of the open-staff requirement imposed at sale, concern over community access continued. To address the concern, Mayo committed to continue to keep the staff open at St. Luke's as long as it remained operationally feasible to do so. In keeping with that commitment, today St. Luke's has approximately 700 non-Mayo physicians or community physicians on staff in addition to 300 or so Mayo physicians. The Parties AHCA The Agency for Health Care Administration is the state agency with the authority to review applications for certificates of need and issue certificates of need in Florida. Section 408.034(1), Florida Statutes. St. Luke's Hospital Association St. Luke's Hospital Association, d/b/a St. Luke's Hospital ("St. Luke's") is a private, not-for-profit corporation that operates a general acute care hospital located in AHCA Health Care Planning District 4. Of its 289 beds, 10 are Level II Neonatal Intensive Care ("NICU") beds added to the facility in February 2001. A controlling interest in St. Luke's has been held by Mayo since the 1987 acquisition. Immediately off Interstate 95 near its intersection with J. Turner Butler Boulevard in Duval County, St. Luke's campus is on Belfort Road in southeast Jacksonville. The area, bounded as it is to the west and the north by the St. John's River, is referred to locally as "Southside." Originally founded in 1873 by three women concerned about health care for the destitute in the Jacksonville area, St. Luke's Hospital is the oldest hospital in Florida. Over the years, St. Luke's Hospital has changed locations several times. It moved to its current location in 1983. Since Mayo's acquisition of a controlling interest in St. Luke's, the primary role of St. Luke's in the Mayo organization has been to provide the inpatient component for Mayo Clinic Jacksonville's clinical practice, including the provision of tertiary and quaternary services. With all of Mayo Clinic Jacksonville's inpatient practice at St. Luke's Hospital, all Mayo Clinic teaching components that are related to inpatient care also take place at St. Luke's, as does inpatient-related research activities. St. Vincent's St. Vincent's is a not-for-profit corporation that owns and operates St. Vincent's Hospital and St. Catherine Laboure Manor, a 240-bed long-term care facility. Unlike all the other hospitals operated by parties in this proceeding, St Vincent's Medical Center is not located in Subdistrict 4-3. It is located in Subdistrict 4-2, on the west side of the St. John's River and across the river from "Southside." Vincent's has a three-part mission. The first is to serve the community by providing quality patient care services with special emphasis on care to the poor and vulnerable. Second, St. Vincent's believes in a holistic approach to health care in which the spiritual needs of the patient are just as important as the physical and emotional ones. Third, St. Vincent's mission includes an obligation to advocate and speak on behalf of the poor. St. Vincent's Medical Center is a 528-bed hospital located on Riverside Avenue in Jacksonville. It has a significant obstetrical practice. Among the tertiary services it provides are Level II neonatal intensive care services. It also provides adult open heart surgery and interventional cardiology services. Its staff is closed for diagnostic and interventional catheterizations. St. Vincent's Hospital was established by the Daughters of Charity, a Catholic religious organization, in 1916; its mission then as now to care for the poor. St. Vincent's moved to its current location in 1927. Today, St. Vincent's is associated with Ascension Health, the largest Catholic health care system in the United States and the largest not-for-profit health care system in the United States. Ascension Health has over fifty hospitals in twelve states and a dozen nursing homes. It provides St. Vincent's with various support services such as capital financing, insurance and risk management services, group purchasing and management of the pension program for all employees. Consistent with its mission, St. Vincent's provides a significant amount of care to the uninsured and underinsured. St. Vincent's operates a large family practice residency program staffed by 60 family practice residents and 10-12 faculty members. The family residency program sees about 30,000 patients per year, and approximately 65% of them are either Medicaid or Medicaid-eligible individuals. The family residency program results in approximately 750 inpatient admissions per year to St. Vincent's. In addition to the family residency program, St. Vincent's operates a number of outreach programs, including services to migrant farm workers that work in St. John's and Flagler Counties. These individuals have no means of transportation, are moved from farm to farm by buses, and without St. Vincent's, would have limited access to health care. St. Vincent's has two mobile vans that visit the migrant farm workers. Essentially physician offices on wheels, the vans, the size of large Winnebagos, include a laboratory draw station and radiology unit. Any person who seeks medical care at the vans is provided with medical care. The vans also visit sites accessible to the urban poor. If a patient seen by a physician in one of these vans needs hospitalization, arrangements are made to admit the patient to St. Vincent's. None of the other hospitals in the Jacksonville area have a mobile outreach program similar to St. Vincent's. At the time of hearing, St. Vincent's has been selected to receive an award from the American Hospital Association in recognition of the work of its mobile health ministry. St. Vincent's also operates a parish nurse program in over 50 different churches, the majority of which are low-income and non-Catholic. This program assigns a nurse to a church. When a member of the church is unable to obtain care for a health problem, the nurse arranges for the person's care. Baptist Southern Baptist Hospital of Florida, Inc., d/b/a Baptist Medical Center ("Baptist") is a not-for-profit corporation. It is part of the Baptist Health System, a major healthcare system serving Northeast Florida. Baptist Health System is comprised of three licensed acute care hospitals including Baptist Medical Center ("BMC"), Baptist Medical Center Beaches in Jacksonville Beach ("Baptist Beaches") and Baptist Medical Center Nassau, located in Fernandina Beach. At the time Baptist filed its application, BMC was licensed for 591 beds at its downtown Jacksonville campus. Of these, 455 are acute care beds, 33 are Level II NICU beds, 15 are Level III NICU beds, 63 are adult psychiatric beds, 19 are child/adolescent psychiatric beds and 6 are adult substance abuse beds. Through its three hospitals, Baptist Health System offers a full range of services for medical/surgical patients (including intensive care, open-heart surgery and stem cell transplantation), obstetrical and newborn services (including NICU Level II and III) and psychiatric services. Baptist Medical Center is located in downtown Jacksonville at 800 Prudential Drive. It has an excellent reputation in the community as a provider of high-quality health care services. Founded in 1955, it is committed to providing accessible, affordable health care of high quality to the Jacksonville community. Today, it is a Medicaid disproportionate share provider, second only to Shands Jacksonville in terms of providing Medicaid services to the local community. It operates the largest not-for-profit home health agency in the area. Not currently affiliated with any religious order, the mission of Baptist remains grounded in its faith-based heritage. The distinct nature of its organization within the Jacksonville community is based on four factors. It is faith-based; it is mission-driven to serve the local community rather than owners or shareholders; it is community-focused serving Jacksonville and the five surrounding counties; and finally, it is locally governed. Wolfson Children's Hospital ("Wolfson") operates under Baptist's license. It is a regional tertiary hospital serving northeast Florida and southeast Georgia. It provides all tertiary services for children except for burns. Wolfson provides major pediatric oncology and cardiovascular services. Wolfson is affiliated with Nemours Children's Clinic, located on the other side of I-95 from Baptist Medical Center. The two are connected by a walkover. Nemours is funded in large part by a trust from the DuPont family. It offers 65 specialists and sub-specialists in pediatric medicine surgery. Wolfson houses major educational services for pediatric practitioners. Every nurse trained in Jacksonville receives his or her pediatric training at Wolfson. All the Mayo Clinic Jacksonville family practitioners in pediatrics, as well as University of Florida family program in pediatrics, train at Wolfson. Further confirming Wolfson's role as a regional children's hospital, a new Ronald McDonald House with room for 20 patient families is now under construction in close proximity to the hospital. Baptist's mission is to continue a healing ministry to the community. It is more than just caring for people when they are ill. Baptist emphasizes the promotion of health through preventive measures. It operates a primary care network of more than 60 physicians at 15 sites to serve the community. It also has a mental health network that provides mental health counselors and psychologists throughout the City of Jacksonville. Baptist partners with a multi-service center for at- risk youth in which it helps to see that over 400 children are fed every night. Baptist also partners with a homeless shelter in Jacksonville to provide medical services. Memorial Memorial is a tertiary level care provider of hospital services. It offers a full array of acute care including open heart surgery, interventional cardiology, and Level II Neonatal Intensive Care ("NICU"). Memorial's licensed bed complement consists of 343 acute care beds and 10 Level II NICU beds. Located on University Boulevard in "Southside" Jacksonville, in the same quadrant of the city as St. Luke's Hospital, Memorial is slightly more than 2 miles northwest of St. Luke's. During the 12-month period of July 2000 to June 2001 (the time frame for the January 2002 Hospital Bed Need Projections applicable to the relevant batching cycle), Memorial had an occupancy of 70% for its 343 acute care beds. For the same time period, the occupancy rate for its Level II NICU beds was 55.86%. In order to ensure patient comfort, privacy and satisfaction, Memorial typically will not place two patients in its two-bed semi-private rooms. The practice diminishes the use of the hospital's functional acute care bed capacity. To increase functional capacity, Memorial is in the process of creating a new 32-bed unit consisting entirely of private rooms. The new 32-bed unit is but one aspect of an ongoing multi-phase, two-year expansion project at Memorial at a cost of $67 million. Critical care beds will be increased from 21 to 30. Forty-one semi-private rooms will be converted to private rooms. Memorial's emergency department will be expanded from 20 to 35 bays. The number of operating rooms ("ORs") will be increased from 18 to 20. The cardiac catheterization labs will be increased from 2 to 4. A new special imaging room will be added. The telemetry capability of the hospital will be increased from 117 units to 149 units. There will be substantial addition of new technology and equipment; the addition of a third open heart operating room; the addition of a 2-story 235 space parking garage; and replacement and improvement of roofing, air handling and mechanical systems. These projects will significantly enhance operational efficiencies and acute care functionality and capacity at Memorial. Memorial is under a contract with the Department of Corrections whereby 28 acute care beds are reserved for the care of prisoners. These beds are not available to the general population. The contract expires in April 2003. No evidence was presented as to whether the contract would be renewed or not. For now, the life of the contract presents only the possibility that the 28 beds will become available in the spring of 2003 for the general populace. Memorial recently commissioned the Sullivan Group to evaluate the necessity of adding acute care beds at its facility through the CON application process. The Sullivan Group found that Memorial's current occupancy of 70% did not justify the filing of a CON application for additional beds. It recommended that Memorial continue to expand and improve the hospital. The Sullivan Group also recognized that if its occupancy levels continued their present rate of increase, Memorial would be able to add acute care beds in the near future without CON review. Under a statutory provision, addition of a certain number of beds exempt from CON review is triggered by achievement of an 80% annual occupancy rate. If Memorial experiences such an occupancy rate, it will be able to add 35 beds under the exemption. As part of its ongoing projects, Memorial constructed new square footage for a short stay area. The area was also constructed to accommodate a 3-floor wing of 30-35 beds per floor. The strategy of expanding a facility's licensed bed capacity via the statutory exemption is consistent with the Agency's encouragement of the use of the exemption in preference to CON review. District 4 and Subdistrict 3 District 4, one of eleven "health service planning" districts defined by the Legislature for the State of Florida, is composed of Baker, Nassau, Duval, Clay, St. Johns, Flagler, and Volusia Counties. Section 408.032(5), Florida Statutes. The district is split into five subdistricts by Agency rule. The first three, Subdistricts 4-1, 4-2 and 4-3 contain parts of Duval County as well as at least one other county. Of the hospitals that are parties to this proceeding, only St. Vincent's is not in Subdistrict 4-3. It is located in Subdistrict 4-2, composed of Baker and Clay Counties and certain zip codes in Duval County referred to in Rule 59C- 2.100(3)(a)d.2., Florida Administrative Code, as "southwestern" Duval County. The St. John's River separates Subdistrict 4-2 from Subdistrict 4-3. This proceeding is concerned mainly with Subdistrict 4- 3 in that all three of the proposed projects are to be located in Subdistrict 4-3. Subdistrict 4-3 consists of St. Johns County and "the southeastern portion of Duval County lying within ZIP codes 32207, 32211, 32216, 32217, 32223, 32224, 32225, 32228, 32233, 32246, 32250, 32256, 32257, 32258, 32266, and 32277." Rule 59C-2.100(3)(a)d.2., Florida Administrative Code. There are no major geographic access issues in District With the exception of Baptist Beaches, the hospitals are all in the center core of the county. The roadways and infrastructure in Duval County are well situated for access to existing hospitals. Nonetheless, in Subdistrict 4-3, access to certain services will be enhanced for residents of southern Duval County by the approval of Baptist's application. There is no complaint of financial access issues in this case. Consistent with no financial access problem, Baptist and St. Luke's have not conditioned approval of their applications on the provision of care to a percentage of Medicaid and charity patients. The acute care occupancy rate for all District 4 hospitals was 58.69% for the twelve-month period from July 1, 2000, through June 30, 2001. In Subdistrict 4-3, the rate was 67.57% for the same period. For the last six months of the period, January 1 through June 30, 2000, the acute care occupancy rate of Subdistrict 4-3 was 71.49%, much higher that projected occupancy rate for District 4 of 60.46% and for the State of 55.49%. For medical-surgical beds, a subset of acute care beds, for the first six months of 2001, the occupancy rate for Subdistrict 4-3 was over 73%. These rates reflect a trend nationwide for the last few years of increased occupancy rates and in the Jacksonville area "some hefty increases in patient volumes and user rates over the last few years." (Tr. 2160). Richard Baehr, health planning expert for Memorial, predicts that this trend will naturally subside to the point that "use rates will be fairly stable going forward and utilization, as a result will continue to grow with population." (Tr. 2161). Using these occupancy rates and subtracting the beds not occupied plus beds added in the district and subdistrict between July and December 2001, from a weighted average of licensed acute care beds from July 1, 2000, to June 30, 2001, there were 1,718 acute care beds unused in District 4 and 477 unused in Subdistrict 4-3. Subdistrict 4-3 is expected to experience a 1.8% annual compound growth through rate 2006. At this rate, the aggregate growth rate through 2006 equals 11%. In 2000, there were 175,546 acute care hospital admissions in District 4 with a population of 1,625,780. The use rate, therefore, was 107.98 per 1,000 population. The average length of stay for District 4 hospitals based on acute care admissions is 4.6 days. District 4 hospitals experienced an average daily acute care census of 2,206 patients with an acute care bed capacity according to a December 31, 2001, inventory of 4,068. Assuming an 11% population growth, District 4 will experience an incremental population increase of 162,642 persons in 2006 and 190,142 persons in 2007 above the 2000 population. District 4 hospitals are projected to experience a projected incremental increase of 220 patients in 2006 and 258 patients in 2007. This increase assumes that the district use rate remains constant at 107.68 (a rate adjusted to a 365-day year since the year 2000 was a leap year) and the average length of stay is held constant at 4.6. Based on the population analysis, above (and in consideration of the 34 psychiatric bed at St. Vincent's approved for conversion to acute care beds), the District 4 acute care bed occupancy will be 59.2% in 2006 and 60.1% in 2007. In 2000, District 4 hospitals experienced an additional 45.9 average daily census from patients outside the District. Assuming a constant 45.9 immigration rate through 2007, the District-wide occupancy rate is projected to be 60.3% in 2006 (leaving a surplus of 1,629 beds) and 61.2% in 2007 (a surplus of 1,592 beds). District 4 hospitals, therefore, can accommodate future growth based on current licensed and available beds in the absence of the proposed projects. Even if all three projects at issue in this proceeding are approved, however, there would only be a 5% increase in the number of beds in Subdistrict 4-3 at the same time there is expected to be a population increase of 11%. By the time these projects come on line, if approved, there will likely be adequate demand to support all of the hospitals in Subdistrict 4-3. Still, the five Subdistrict 4-3 hospitals (Memorial, Baptist, Baptist Beaches, St. Luke's, and Flagler) are also well positioned to accommodate future growth based on current licensed beds in the absence of the proposed projects unless seasonality is considered. On the other hand, during the winter season, from time- to-time, it can be difficult to obtain a bed at any of these hospitals. Recent approvals may help. Baptist has recently been approved to add 30 acute care beds, Baptist Beaches eight, St. Luke's four and Flagler 31. Based on 50,300 admissions from a population of 537,182 in 2000, Subdistrict 4-3 realized a use rate of 93.38 per 1,000 population. Utilizing the same analysis as presented above with respect to District 4, Subdistrict 4-3 is projected to achieve an incremental increase in average daily census of 72.6 in 2006 and 85.8 in 2007. When this incremental increase is applied to the current Subdistrict 4-3 acute care complement of 1,398 beds, Subdistrict 3 hospitals will experience a 51.4% occupancy rate (leaving 679 surplus beds) in 2006 and a 52.3% occupancy rate (666 surplus beds) in 2007. In 2000, patients from outside the service area accessing District 4 hospitals accounted for an additional 229.6 patient days of Subdistrict 4-3. Holding in-migration constant, Subdistrict 4-3 is expected to have an occupancy rate of 67% in 2006 and 68% in 2007. These rates would be higher, however, if in-migration grows. Approval of the three applications at issue will not result in any change in the district-wide acute care bed inventory. Since none of the applications at issue in this case would result in an increase in the acute care bed inventory of the district, AHCA took the position that numeric need for the acute care beds was not an issue in any of the applications. Memorial disputes the Agency's position on this point at least with regard to St. Vincent's. Unlike the St. Luke's and Baptist's applications (both of which increase neither the bed inventory of the district nor of Subdistrict 4-3), St. Vincent's application will increase the bed inventory of Subdistrict 4-3. If St. Vincent's application is granted the bed inventory of Subdistrict 4-3 will be increased by 70, the 70 beds St. Vincent's hopes to transfer from its facility in Subdistrict 4-2 to the new St. Luke's. The issue is important. If AHCA is correct, St. Vincent's need not demonstrate "not normal" circumstances to support its application; if numeric need is an issue with regard to St. Vincent's then it is required to demonstrate such circumstances because numeric need for the subdistrict is zero. Events Related to the Stipulation in the Comparative Review Cases Case No. 02-0447CON ("Memorial's Case") was initiated by Memorial in its status as an existing provider of acute care hospital services. Its purpose is to challenge AHCA's approval of St. Vincent's partial application. It does not take issue with the approvals of the St. Luke's and Baptist's applications. Unlike Case No. 02-0447CON, the other three cases in this consolidated proceeding were filed by applicants: Baptist, St. Vincent's or St. Luke's. The three cases initiated by the applicants each seek comparative review of the applications. For example, in Case No. 02-0971CON, St. Luke's requests the relief that both St. Vincent's and its applications be granted in lieu of Baptist's. The three cases filed by the applicants, Case Nos. 02- 0882CON, 02-0943CON, and 02-0971CON, (the "Comparative Review Cases") were consolidated with Memorial's case, but Case No. 02- 0882, having been originally assigned to an administrative law judge other than the undersigned, was not consolidated with the rest of the cases until May 3, 2002. On April 22, 2002, Memorial filed a petition to intervene in each of the Comparative Review Cases. On May 3, 2002, the petition was granted subject to Memorial's presentation of proof of standing at final hearing. The Stipulation in the Comparative Review Cases Prior to Memorial's intervention in the Comparative Review Cases, all of the parties to those cases entered a pre- hearing stipulation (the "Stipulation in the Comparative Review Cases.") With the exception of the issues contained in Memorial's Case, the Stipulation in the Comparative Review Cases was ruled binding on Memorial and to have extinguished all issues it settles except for those raised in Memorial's case. The stipulation follows: The parties [AHCA, St. Luke's, St. Vincent's and Baptist] agree that each application, as a matter of fact and law, satisfies the following statutory and rule criteria: Each application was timely filed, complete and satisfies the provisions of Section 408.037, Florida Statutes. CON application 9483 is a replacement application. c. Section 408.035(3), (4), (5), (6)(except for availability of health personnel and management personnel), (8), (10) (including architectural design, movable equipment, and fixed equipment), (11). Section 408.035(12) is not at issue. Rule 59C-1.038(6)(a) and (b), Florida Administrative Code. f. Rule 59C-1.030(2)(a)-(d). (Case Nos. 02-0882CON, 02-0943CON, and 02-0971CON, Joint Pre- hearing Stipulation, 1st Attachment.) Although Memorial did not join in this stipulation, the stipulation preceded Memorial's intervention in the three cases in which the stipulation was entered. In consideration of Memorial taking the cases in which the stipulation was entered as it found them at the time of intervention, the stipulation was ruled to be binding on all parties to the four consolidated cases, including Memorial, although its effect in the consolidated cases was limited because the petition in Memorial's Case was not subject to the stipulation. The issues raised by Memorial's Case that the stipulation extinguished in the Comparative Review Cases, therefore, survived in the consolidated cases by virtue of the petition in Memorial's case. The remainder of the issues (those not raised by Memorial's Case) that were subject to the stipulation were extinguished by the stipulation for purposes of the consolidated cases. Joint Pre-hearing Stipulation A pre-hearing stipulation entered by all parties, including Memorial, contains the following: St. Vincent's application 9484P was timely filed, complete and satisfies the provisions of Section 408.037, Florida Statutes. St. Vincent's and Memorial each have a history of providing high quality of care for inpatient hospital services and have the continued capability of providing high quality of care. Accordingly, the quality of care provided by these parties is not at issue in this proceeding. Additionally, the parties agree that St. Vincent's would be able to provide quality care at St. Luke's Hospital if its application 9484P is approved. St. Vincent's CON application 9484P satisfies the criterion contained in Section 408.035(3), Florida Statutes. The parties agree that St. Vincent's has available management personnel and funds for capital and operating expenditures and therefore satisfies those specific portions of Section 408.035(6), Florida Statutes. The letter contained in CON application number 9484 from Charles J. Barnett, Senior Vice President for Ascension Health to John J. Maher, Chief Executive Officer of St. Vincent's, can be admitted for the truth of the matters asserted without further proof. Also, the letter dated October 12, 2001 for James M. Corrigan, Senior Vice President and Chief Financial Officer of St. Vincent's, to Jeffrey N. Gregg can be admitted for the truth of the matters asserted without further proof. The parties agree that St. Vincent's has a history of providing health care services to Medicaid patients and the medically indigent (Section 408.035(11), Florida Statutes). However, Memorial does not agree that St. Vincent's can meet the levels of charity care proposed in CON Application No. 9484P. Section 408.035(12) is not at issue. (Joint Pre-hearing Stipulation.) Growth at St. Luke's, Mayo's Options The transplant programs at St. Luke's have far exceeded original expectations for the number of patients to be treated. For example, the CON application for the liver program projected 15, 30, and 45 transplants over the first three years of operation. The first liver transplant at St. Luke's occurred in February 1998, and within the first twelve months 75 transplants had taken place at St. Luke's. Last year, 176 liver transplants were performed at St. Luke's making it the fourth largest liver transplant program in the country. Volumes in the kidney, pancreas and lung transplant programs have also greatly exceeded expectations. The increase in volume has generated more competition between community and Mayo physicians for St. Luke's hospital resources and has increased the friction between these two distinct segments of the St. Luke's medical staff. One example of the logistical and political problems that exist at St. Luke's because of the two segments of physicians that practice there is allocation of operating rooms. Somewhere between 65% and 70% of the patient days at St. Luke's are generated by Mayo physicians. Community doctors generate the remainder of patient days (30 to 35%). In settlement of the competition for operating room ("OR") time, ORs at St. Luke's are divided into those dedicated to Mayo Clinic physicians (currently 14 in number) and those dedicated to community doctors (currently 4 in number). When compared to percentages of patient days, the divide in ORs favors Mayo Clinic physicians. Approximately 78% of the ORs are dedicated to Mayo physicians; only 22% to community physicians. A determination of equity in the OR divide is more involved, however, because of the level of acuity of Mayo patients and the level of service provided by Mayo physicians when compared to community doctors. Nonetheless, conflict between community and Mayo physicians over the availability of ORs persists. It is likely to grow worse as inpatient utilization and surgical volume at St. Luke's increases. For the last six years, inpatient utilization at St. Luke's has grown 10% per annum. In addition to this sustained growth, with the increase in the number of transplant programs, St. Luke's is also experiencing a notable increase in the acuity of its patients. Admissions to St. Luke's are affected by seasonality. The first three or four months of the year are the busiest. During that time of year, St. Luke's has experienced occupancies in excess of 100% in its critical care units. As a result of occupancy pressures at St. Luke's there are Mayo patients that are seen at the Mayo Clinic who are not being admitted in a timely fashion. Mayo physicians have had to either delay those admissions or send the patients home or to another facility for treatment. St. Luke's is taking stop-gap steps to limit further growth at St. Luke's because of the growth in patient census. It has recently amended its medical staff bylaws to eliminate courtesy staff privileges. More significantly, St. Luke's is in the process of capping the size of its medical staff, and not allowing any new physicians (Mayo or community) to join the medical staff until such time as another physician leaves the staff. The plan to cap the size of its medical staff in response to that growth has resulted in heightened tensions between the Mayo physicians and the community physicians over their competition for space and resources at St. Luke's. Mayo has examined a number of options for a permanent solution to the problems created by growth. One option considered was expanding the size of St. Luke's so that it can accommodate not only more inpatients but also more space for the teaching and research components of Mayo's mission. Problems with this option include concurrency restrictions associated with further expansion on the St. Luke's site and basic hospital infrastructure limitations related to a facility originally designed and built as a community hospital and not the quaternary or research facility now required. Expansion is not practical. Even if it were practical, expansion does not accomplish consolidation of Mayo's inpatient and outpatient services needed for the Mayo Model to work at an optimal level. Faced with ever-increasing capacity constraints at St. Luke's, the option Mayo has chosen the one proposed by its application: the 214-bed replacement hospital on the Mayo Clinic Jacksonville campus. The approach is supported by St. Vincent's companion application in which it proposes to establish a 135-bed hospital at the Belfort Road location. Under these two applications, most of the Mayo physicians would move their inpatient practices to the replacement hospital while community physicians would continue to admit patients to the hospital on the present St. Luke's site. If these applications are not approved, Mayo will be forced to close the medical staff at St. Luke's to Mayo-only physicians. Elimination of the "community" side of St. Luke's hospital is less than ideal from the Agency's point of view as explained by Jeffery N. Gregg, Chief of AHCA's Bureau of Health Facility Regulation: [The Agency is] aware of the traditional position of St. Luke's Hospital in Jacksonville. It's a very old provider. It's . . . widely recognized as an important part of the community. It has a long tradition and . . . it inspires a considerable degree of . . . affection and loyalty among people who live in Jacksonville. . . . [O]ne of the things that . . . we like about this proposal is that it preserves a spot for an ongoing role for the institution of St. Luke's. If Mayo were to close the staff at the current St. Luke's, what greater Jacksonville has traditionally known as St. Luke's would disappear, in that, . . . it would become the Mayo hospital; the community component would go away. It would have to relocate to other places, and . . ., that would not be an ideal solution . . . . (Tr. 1398, 1399). Closing the staff at St. Luke's would have another aspect besides elimination of the "community" side of the hospital that would be less than ideal. It would not solve the inefficiencies that arise from Mayo physicians having to split time between two different campuses. Consultation among Mayo physicians and comprehensiveness of care in a single setting is facilitated by physician proximity to each other and to shared information systems. Ten miles from the Mayo Clinic Jacksonville campus, the location of St. Luke's presents difficulties for Mayo Clinic physicians and the inpatient care and research components of Mayo's mission. The great majority of the offices of Mayo Clinic physicians are at the Mayo Clinic Jacksonville campus. Mayo physicians see outpatients at their offices but must leave for St. Luke's to treat inpatients. The split between the site of inpatient practice and Mayo Clinic Jacksonville is not merely inconvenient but inefficient. When required to see an inpatient, the typical Mayo Clinic physician must leave the Clinic office, walk to the parking lot, drive the ten miles between the two campuses, re-park, and walk to the hospital. The trek easily takes 20 minutes one way and, depending on traffic, can take as much as half an hour. The thoroughfare that runs between St. Luke's and Mayo Clinic Jacksonville is J. Turner Butler Boulevard. Traffic congestion on the corridor is severe. Approval of St. Luke's application for a replacement facility at the Mayo Clinic Jacksonville campus will eliminate these efficiencies. It will give Mayo Clinic physicians quicker access to inpatients. Conversely, it will give inpatients treated by Mayo Clinic Jacksonville physicians in all their specialties and sub-specialties more efficient treatment from the physicians. While St. Luke's is a modern, well-maintained facility, it was designed as a community hospital and not as a teaching or research institution. The physical plant limits the teaching component of Mayo's mission. For example, while the patient rooms at St. Luke's are sufficient for providing patient care, they are not large enough to properly accommodate teaching rounds by Mayo residency training teams. There is another option for Mayo with regard to St. Luke's: build a replacement facility on the campus of Mayo Clinic Jacksonville and sell St. Luke's to St. Vincent's. Proposed Acquisition of St. Luke's by St. Vincent's St. Vincent's and Mayo have entered into an agreement for the sale of St. Luke's by Mayo and its acquisition by St. Vincent's. The proceeds from St. Vincent's purchase of St. Luke's will provide the majority of the funding for the building of the replacement hospital. The balance of the construction costs for the replacement hospital will come from philanthropic donations that Mayo has largely already secured. A new St. Luke's will also be the result: St. Luke's operated by St. Vincent's rather than by Mayo. The agreement, contingent upon final approval of the St. Vincent's and Mayo CON applications at issue in this proceeding, contemplates two closings. At the Phase I closing, St. Vincent's will purchase the land and the St. Luke's buildings from the Mayo Foundation for $102 million. At the time of the Phase I closing, St. Vincent's will lease back to Mayo the buildings on St. Luke's campus. The leaseback will enable Mayo to continue to operate at St. Luke's while the replacement hospital is under construction. In addition to the $102 million payment, St. Vincent's will reimburse Mayo for capital improvements to be made at St. Luke's Hospital during the term of the lease up to total of $48 million. During the lease period, Mayo will construct the replacement facility on the campus of Mayo Clinic Jacksonville. Upon completion of the construction, a Phase 2 closing will take place. In the fashion of a turnkey operation, St. Vincent's will become the license holder and operator of St. Luke's Hospital at the Phase 2 closing and Mayo will commence hospital operation at the replacement facility. The Phase 2 closing should not cause any interruption to the delivery of services at St. Luke's to the patients of community physicians. Nor should there be any time during any transition from Mayo's operation of St. Luke's to St. Vincent's when St. Luke's is forced to close because of the Phase 2 closing. The agreement between Mayo and St. Vincent's includes a provision for a contingent payment from St. Vincent's to Mayo in 2012 if the net patient revenues of St. Luke's exceed a certain amount in 2011. The contingent payment is not properly considered a project cost required to be listed on Schedule 1 of St. Vincent's CON application. It is speculative as to whether on not a 2011 payment will be required. (Under St. Vincent's forecast, the 2011 net patient revenue projection is below the payment threshold.) If a payment were required, moreover, it would be an operational expense incurred in 2012 rather than a Schedule 1 project cost incurred over the period of construction. Such a payment would not constitute a cost incurred in order to make the hospital operational or a cost to place an asset into service, the kind of cost listed on Schedule 1. Prior to entering into the agreement, St. Vincent's hired Solomon Smith Barney ("Solomon"), one of the world's largest investment banks, to review its terms and help determine an offering price by St. Vincent's. Under the agreement, St. Vincent's is purchasing the entire St. Luke's campus. This includes two medical buildings as well as St. Luke's Hospital. Mayo, moreover, is currently undertaking major construction projects at St. Luke's, including a $7 million expansion of the Emergency Department and a $15 million three-story addition and renovation project. Both are scheduled for completion prior to the Phase 2 closing. As part of its analysis, Solomon visited St. Luke's, looked at comparable transactions and current market values, and attended the negotiating sessions between Mayo and St. Luke's. Afterward, Solomon issued an opinion letter that the purchase price was fair. St. Vincent's entered into the agreement with Mayo because it saw the opportunity to extend its mission into Southside Jacksonville and to enhance the ability of both organizations to fulfill their respective missions. Approval of St. Vincent's application will improve access to care by the poor. While Mayo treats uninsured and underinsured at St. Luke's, its mission and focus are not directed toward service to the poor. St. Vincent's mission and focus, on the other hand, is its charity care policies and programs. They will be implemented at St. Luke's. Implementation of those policies and programs at the new St. Luke's to be operated by St. Vincent's will allow expansion of the geographical area served by St. Vincent's outreach programs. While many of the area's poor are located on the north side of Jacksonville, there are pockets of uninsured and underinsured throughout Duval County. Migrant farms in north St. John's County now served by St. Vincent's two mobile vans are closer to St. Luke's than St. Vincent's. Approval of St. Vincent's application will allow those migrant workers in need of hospitalization to be transported to and treated at St. Luke's rather than the more distant St. Vincent's. Community doctors practicing at St. Luke's support both Mayo's plans for a replacement hospital and St. Vincent's application for a new hospital at St. Luke's. Approval of the applications will open additional space at St. Luke's for the community doctors and allow more of that group to practice at St. Luke's. Approval of the St. Luke's and St. Vincent's applications will significantly further both Mayo's and St. Vincent's distinct missions. Approval of the St. Luke's application will allow Mayo to achieve its long-awaited goal of a Mayo Clinic Jacksonville hospital on the Mayo campus with a closed staff and otherwise specifically designed to accomplish the Mayo mission. Approval of St. Vincent's will ensure the continuation of a full-service community hospital at St. Luke's that is committed to and skilled at serving all patient populations including the poor consistent with the mission of St. Vincent's. It will return St. Luke's to its historical community roots and increase its accessibility to Medicaid patients and other underserved populations. The Proposed Projects St. Luke's The Agency has never previously reviewed or approved an application to establish a replacement hospital where the replaced facility continues to operate as a hospital. Nonetheless, prior to Memorial's intervention into the three cases in which it intervened, the parties stipulated that St. Luke's application is for a replacement hospital. It is clear, moreover, that the hospital St. Luke's seeks to construct on Mayo Clinic Jacksonville's campus is to replace the hospital at St. Luke's for the use of Mayo physicians. The Agency takes the position that the hospital proposed by St. Luke's is a replacement hospital. The St. Luke's replacement hospital will be a state- of-the-art tertiary/quaternary hospital located on the Mayo Clinic Jacksonville campus in eastern Duval County specifically designed to accommodate Mayo Clinic Jacksonville's mission. The total cost of the replacement hospital will be $207 million financed through philanthropic contributions and the sale of the St. Luke's Belfort Road campus. With the exception of obstetrics and Level II NICU, the services presently at St. Luke's will be transferred to the replacement hospital. The outpatient transplant services will also be transferred to the Mayo Clinic Jacksonville campus in order to support the relocated inpatient transplant programs. If the CON application for the replacement hospital and for St. Vincent's to establish a new hospital at Belfort Road are approved and become final with all appeals exhausted, St. Luke's will sell the Belfort Road property, plant, and equipment to St. Vincent's. St. Vincent's will then lease the Belfort Road campus to St. Luke's while the replacement hospital is constructed. When the replacement hospital is completed, in simultaneous actions, the license will be issued for the St. Luke's Replacement Hospital to begin operations at the Mayo Clinic Jacksonville campus. At no time will hospital operations at St. Luke's on Belfort Road cease. St. Luke's and St. Vincent's have constructed the agreement so that services provided to community patients by community physicians at Belfort Road should not be interrupted. The 214 beds proposed for the replacement hospital will be adequate to support the demand for Mayo Clinic Jacksonville services at least for the first few years of operation. The design of the replacement hospital and the lack of any site constraints at the Mayo Clinic Jacksonville campus will easily allow for expansion of the replacement hospital if the need arises. If approved, the replacement hospital will be fully constructed by late 2005. St. Vincent's St. Vincent's seeks authorization to establish a 135- bed hospital at the site of the existing St. Luke's Hospital. The hospital will continue to be known as St. Luke's Hospital. As described earlier, St. Vincent's will become the licensee and operator of St. Luke's at the precise moment in time that Mayo receives its license and begins operations at the replacement hospital, an event expected to occur sometime in 2006 or 2007. The 135-bed hospital proposed by St. Vincent's would be a community hospital. All of the transplant programs now provided at St. Luke's by Mayo would be transferred to the replacement hospital being built at the Mayo Clinic site. In addition to those quaternary programs, the existing adult open heart program at St. Luke's would also be moved to the replacement hospital. Mayo does not plan to offer obstetrical services at the replacement hospital. The obstetricians and the majority of the associated nursing and other support staff for obstetrics and Level II NICU services would remain at the Belfort Road location after the Phase 2 closing. (Whether the Level II NICU program will continue is dependent, however, on the outcome of a separate CON application by St. Vincent's challenged by Memorial in DOAH Case No. 02-0457CON.) St. Luke's is currently licensed for 289 beds. If its application is granted, the transfer of 214 beds will leave 65 acute care and 10 NICU beds behind. In addition to the 65 beds to be de-licensed by Mayo, St. Vincent's proposes to transfer 70 additional beds from St. Vincent's to the "new" St. Luke's Hospital to make up the 135-bed hospital. St. Vincent's is well utilized. The transfer of the 70 beds is therefore, criticized by Memorial as "unwise." (Tr. 2166). St. Vincent's, however, has devised a number of strategies to accommodate the transfer. First, St. Vincent's has recently received approval to convert 34 psychiatric beds to acute care beds, and is in the process of implementing the project. Second, St. Vincent's now uses 35 licensed beds as a pre-ambulatory and post-ambulatory surgical holding area. It is in the process of making those licensed beds available for inpatients. Third, St. Vincent's is building 20 additional examination and holding rooms in its emergency department, and is also building a 20-bed pre-holding and post-holding area for cardiac catheterization patients. These projects will free up licensed beds for inpatients at St. Vincent's. Fourth, St. Vincent's is in the process of implementing a case management program that is focusing on reducing lengths of stay. It is estimated that this program will reduce the average stay by half a day. Such a reduction will make 35 beds available. Fifth, on average, St. Vincent's currently sees 30 patients per day that come from the zip codes that surround St. Luke's. After the Phase 2 closing, St. Vincent's plans to encourage its specialty physicians to care for those patients at St. Luke's and anticipates redirecting 75% of those patients, or 22 patients per day, from St. Vincent's to St. Luke's. This redirection will further increase the number of beds available at St. Vincent's. Should St. Vincent's experience high occupancies following the Phase 2 closing despite implementation of these strategies, St. Vincent's will have the space for additional beds left by the 70 transferred beds. St. Vincent's could add up to 45 beds pursuant to a statutory exemption from CON review provided it meets the statutory threshold for triggering the exemption of annual occupancy at 80% or more. This last approach is not exempt from criticism: "[T]o take beds out of service and get to 80% [occupancy rate so as to trigger the statutory exemption] and say, therefore, I need to get beds back, that seems to be in a sense a certain gaming of the system." (Tr. 2166). St. Vincent's plans to implement the other strategies first, however. Taking advantage of the statutory exemption is a fall-back position should all else fail not a method to take advantage of the system in the first place. In any event, St. Vincent's application does not contemplate any construction by St. Vincent's at St. Luke's in order to implement its proposal. The application contemplates a seamless turnkey transition in which St. Vincent's simply takes over operations at St. Luke's at the Phase 2 closing. Baptist's Baptist proposes to construct a new 92-bed satellite hospital at the intersection of Old St. Augustine Road and I-95 in southern Duval County, just north of the St. Johns County line at a total project cost of $84.4 million. Baptist will transfer 92 acute care beds from its downtown campus to the satellite hospital. The transfer will result in the addition of no new beds to Baptist's license and no new beds to the acute care bed inventory of Subdistrict 4-3. The goal of the project is two-fold: to provide easily accessible, affordable health care to a rapidly growing population in southern Duval and northern St. Johns' Counties and to "decompress" Baptist Medical Center's existing campus in order to allow for modernization and to make it more efficient. The proposed satellite hospital will provide general medical/surgical and obstetrical services. It will offer an active and convenient emergency room and serve patients regardless of ability to pay. The new hospital will be family- focused, with large private rooms where a patient's family can be involved with patient care. Baptist's proposed hospital will pay special attention to the environment, both external and internal, with an emphasis on a healing library available to patients and their families. The 92-bed facility will be comprised of 72 med/surg beds, 8 ICU beds and 12 labor/delivery/recovery beds ("LDR beds") for obstetrical services. The facility will be an attractive five-story building. Although housing only 92 beds, it will have the presence of a larger hospital. Baptist has a contract to purchase a 32-acre parcel of land for the new facility. The purchase is contingent on final approval of its CON application in this case. The proposed site is part of a 900-acre DRI development called Grand Park of Jacksonville. This site has already met all regulatory approvals to build a new hospital, including zoning, land use studies, and DRI requirements. Unprecedented The net effect of approval of St. Luke's, St. Vincent's and Baptist's applications is for three different hospitals to come on line in Sub-district 4-3 at a cost of more than $400 million dollars. Approval of three hospital CON applications in one sub-district at once, as Memorial points out, is unprecedented. The associated costs, moreover, are considerable. On the other hand, a characterization of this proceeding as involving three "new" hospitals is not entirely accurate. While implementation of an approved St. Luke's application will require Mayo to build a "new" hospital, it will be a replacement hospital. Implementation of the approval will simply move an existing volume of business to a new physical plant. St. Vincent's hoped-for situation is, in part, the opposite. The transfer of 70 beds at St. Vincent's to join 65 beds and an existing facility will not entail the building of a new physical plant. Nor will it necessarily entail the capture of a significant number of new patients. The aim is to retain at St. Luke's the volume of its pure community cases and treat at the new St. Luke's facility up to 75% of the patients now treated at St. Vincent's that originate in St. Luke's primary service area. While the hospital will be "new," the facility will not; it will be a facility that has existed for more than 20 years and that continues to be put to its highest and best use. Nor will there be anything new about the treatment of community patients since for those who chose to use it there will not be a break in service at the facility during the shift of its control from St. Luke's to St. Vincent's. Baptist's project is not simply a new hospital either. It will be a satellite of an existing facility from which all its beds will be transferred. It will require a new physical plant, but it will operate under the same license to accommodate patients in the district, some of whom, it might have served at the main campus, had the satellite not been built, in the beds now intended for transfer. The usual aim of the CON law, to prevent the unnecessary duplication of services within a health care planning district will not be defeated by approvals any of the applications. The inventory of beds in District 4 will not increase through approval of the two CONs proposed by St. Luke's and St. Vincent's. Approval of the two, moreover, will allow Mayo to focus on the quaternary health care services, and medical education and research in which it specializes while St. Vincent's will be able to carry on the traditional community hospital care services that have long been provided at St. Luke's. Nor will Baptist be duplicating services since it is doing no more than transferring services within the subdistrict to a satellite sited more advantageously than the original site of the transferred beds. Certainly, there are factors present in the applications that are drawbacks, at least at first blush. With regard to the application for the replacement hospital filed by St. Luke's, there are no Medicaid or charity conditions. Historically, St. Luke's has only provided 1.57% of its patient days to Medicaid patients and has failed to meet indigent care conditions in the past. For fiscal year 2000, St. Luke's only provided slightly less than 9/10th of 1% of gross revenues to charity care patients. Part of the problem is that St. Luke's is located in an area with a population that is relatively affluent with the potential for few Medicaid and indigent patients since St. Luke's does not employ the outreach practices of St. Vincent's. Nonetheless, the Agency agrees with Memorial that the "weak point of the [St.Luke's/]Mayo application is indigent care." (Tr. 1437). Indigent care, however, is not an aspect of health care that Mayo has ever aspired to generally. Its mission is not to treat economically disadvantaged patients in favor of other patients or to treat certain percentages of indigent patients. Its mission is to offer health care services and medical treatment not ordinarily available at most local providers in an environment of research and medical education. As Mr. Walters explained at hearing with respect to Mayo's contribution to health care of the economically disadvantaged: Mayo can provide advances in science in our research initiatives. So as we deal with neuro-degenerative diseases and Alzheimer's, as we deal with finding the cures of cancer, these are advances in science that we believe are going to benefit all people, regardless of their ability to pay. (Tr. 241). Furthermore, St. Vincent's purchase of St. Luke's, with St. Vincent's dedication to serving the poor and history as a disproportionate share provider of Medicaid services offers the potential for the record of service to the indigent at the new St. Luke's to improve over St. Luke's historical record. The potential is enhanced by St. Vincent's practices of reaching out to the poor and the underserved. However one views the lack of indigent care conditions in St. Luke's application, there are certain drawbacks of the three applications. Baptist, for example, projects relatively low occupancy rates of only 37.8% and 48.37% in year 2005 and 2006, respectively. Obstetrics and Level II NICU services will not be provided at the replacement facility. For the Level II NICU services to continue to be provided at the new St. Luke's, if St. Luke's application and St. Vincent's application in this proceeding are granted, a separate CON will have to be approved for St. Vincent's at St. Luke's facility. That CON is subject to a separate proceeding under DOAH Case No. 02-0457CON. Approval of the St. Vincent's application, moreover, will have an impact on Memorial, an existing provider. Before addressing the drawbacks as well as the need for each of the proposals, there is one aspect of the case that must be clearly understood: the linkage between St. Luke's application and St. Vincent's. Linkage With regard to St. Luke's and St. Vincent's application, the issues regarding each must be viewed in the context of the interdependency of the two applications. If St. Luke's is denied, St. Vincent's project, whether approved or not, will not be able to proceed. There can be no sale to St. Vincent's of St. Luke's if the Mayo physicians do not have the facility on the Mayo campus. Likewise, if St. Vincent's application is denied, the effect on St. Luke's, whether its CON is approved or not, is that its project will not go forward. The St. Luke's project depends on the sale of St. Luke's to St. Vincent's for financing the construction of Mayo's replacement hospital. Without the funds from the sale of St. Luke's, the replacement hospital will not be built under the terms of St. Luke's CON application. The two projects are linked and interdependent; neither one can proceed without the way having been cleared for the other. The unusual aspect of the linkage of the St. Luke's and St. Vincent's applications is of central consideration in this case. That aside, as in any CON proceeding, the drawbacks to approval must be weighed and balanced against factors that favor approval within those statutory and rule criteria applicable in CON proceedings to allow a determination as to "need." Need for the Mayo Replacement Hospital Since the affiliation between St. Luke's and Mayo Clinic Jacksonville, St. Luke's, through a number of CON approvals, has added several adult tertiary services - bone marrow transplant, liver transplant, kidney transplant, pancreas transplant, heart transplant, and lung transplant. St. Luke's has also added community service obstetrics. The addition of obstetrics led to further service intensification through CON approval for another tertiary service at St. Luke's - a Level II NICU. The addition of these hospital services coupled with Mayo Clinic Jacksonville's capabilities and patient draw makes St. Luke's a tertiary/quaternary facility. Approximately 65% of the patients admitted to St. Luke's by Mayo physicians come from Duval County and elsewhere in District 4. Eighteen percent of the patients admitted by Mayo physicians come from the remainder of the State of Florida, and 17% come from elsewhere in the United States or from foreign countries. St. Luke's also serves as a teaching hospital in support of Mayo Clinical Jacksonville's medical education activities and by providing the inpatient training for the residency programs. St. Luke's achieved formal recognition as a teaching hospital in 1995, when it was accepted into the Counsel of Teaching Hospitals of the Association of American Medical Colleges. Some Mayo physicians are based at the St. Luke's campus. Those physicians are anesthesiologists, some family practice physicians, and the physicians involved in the solid organ transplant programs. St. Luke's is a modern facility in excellent shape. It has been accepted into the Council of Teaching Hospitals of the Association of American Medical Colleges. Although no evidence was adduced of physical plant requirements for such acceptance, the physical plant limitations of St. Luke's certainly did not impede its acceptance. St. Luke's is in the process, moreover, of seeking designation by the state as a teaching facility. As of the time of hearing that designation had not yet been achieved. Despite the quality of the facility, its recognition as an educational facility and the attempt by St. Luke's to achieve a "state" teaching hospital designation, the simple fact remains: St. Luke's was designed to be a basic community hospital. It remains adequate to support traditional community- focused non-Mayo programs. It has been adequate to support the transplant programs and the Mayo teaching mission and will continue to be so if Mayo closes the staff to Mayo physicians. It was not designed, however, with sufficient space, facilities, and other physical infrastructure to support the presence of both the contingent at its present size of community physicians and the Mayo physicians' rapidly growing clinical practice plus the vigorous medical education and research programs required of a Mayo hospital. St. Luke's is already experiencing capacity problems, with pressure on both its acute care beds and supporting acute care infrastructure produced by an average compound growth rate of 10% per annum over the past five years. St. Luke's will be at full capacity by the time the replacement hospital becomes operational if one uses a conservative growth rate of 5% per year. As Health Planner Mark Richardson put it at the hearing using the conservative 5% rate, "[t]he bottom line is that through the year 2006 and 2007, the expectation is that St. Luke's Hospital will not have enough beds to meet its needs." (Tr. 465). Mayo Clinic Jacksonville cannot maintain the status quo putting St. Luke's at a crossroad. The capacity problems must be addressed. One alternative to a replacement hospital would be closure of the medical staff at St. Luke's. It is not a desirable remedy. It would result in a significant adverse impact to the community physicians and their patients who have supported St. Luke's since its affiliation with Mayo in 1987. It ignores, moreover, St. Luke's original design as a community hospital. While it may be adequate for service as Mayo's clinical component to its Jacksonville base, it was not designed to meet the needs of the tertiary/quaternary facility it has become, nor as a hospital designed to support Mayo's vigorous medical teaching and research. Closure of the medical staff at St. Luke's will inhibit realization of the optimal service delivery approach favored by the Mayo Clinic integrated group practice model and used by Mayo Clinic Jacksonville physicians. Thus, closure of the staff at St. Luke's would have the dual effect that would serve neither the needs of community physicians now at St. Luke's nor Mayo physicians as well as they would be served by the approval of CON 9483. A substantial re-build of St. Luke's is not a practical means to keep the Mayo and community practices together at the hospital or even as a means to provide adequate facilities if the staff at the hospital were closed to Mayo physicians. Physical site restraints and significant local permitting obstacles such as planning and zoning regulations place substantial limitations on significant addition or renovation. Renovation falls short of the realization of the numerous efficiencies and other benefits that will accrue from consolidation of hospital operations on the Mayo Clinic Jacksonville campus. Even if other obstacles were to be overcome, renovation would be inordinately expensive. On balance, "rebuild" dollars would be better spent by preserving St. Luke's as a community hospital operated by St. Vincent's and by addressing Mayo Clinic Jacksonville's needs in the most optimal manner by construction of the Replacement Hospital. The solution proposed by CON application 9483 provides a number of benefits. It resolves the bed and support space limitations at St. Luke's Belfort Road campus. It will provide improvement in the coordination of care achieved by consolidation of all clinical and administrative operations on the Mayo Clinic Jacksonville campus and establishment of a physical plant specifically designed to accommodate Mayo Clinic Jacksonville's mission and growth. Operational efficiencies will be enhanced. At the same time, the transfer of beds proposed by St. Vincent's avoids the abandonment of St. Luke's Belfort Road facility and significant capital invested there if St. Vincent's proposed project is approved with the added benefit of approval of providing an innovative financing mechanism for the replacement hospital. Current staff at St. Luke's is adequate for the staffing of the replacement hospital. If staffing vacancies occur, nonetheless, Mayo should do better than the industry as a whole in filling those vacancies. District 4 Health Plan Preferences St. Luke's gains credit under some of the District 4 Health Plan Preferences. It will meet identified needs by providing services that meet commonly accepted quality standards in the most economical manner in terms of capital and operating expenditures. St. Luke's has access to an adequate supply of appropriate manpower. The replacement hospital with the continued operation of St. Luke's by St. Vincent's will provide a full array of acute care services. St. Luke's has a patient transfer agreement with Duval County Health Department's Primary Care Program. And the transfer of beds to the replacement hospital is necessary to maintain an improved quality of care and is more cost efficient than renovation and an expansion of the existing St. Luke's facility. Mayo: No Longer a Participant in Medicare, Part B A Change in Mayo's Medicare Policy At the time of hearing, Mayo Clinic Jacksonville participated fully in Medicare. It accepted from Medicare patients assignment of all their Medicare claims including those for services provided by Mayo Clinic Jacksonville physicians to them at St. Luke's and for all clinic services provided them on the Mayo Clinic Jacksonville campus. On June 21, 2002 (the day after the conclusion on June 20 of the final hearing), Mayo Clinic Jacksonville announced in its weekly newsletter provided to Mayo Clinic and St. Luke's Hospital staffs an "[u]pcoming change in Medicare billing." (See Exhibit 1 to Memorial's Motion to Reopen the Record Based Upon Newly Discovered Evidence and to Schedule an Evidentiary Hearing.) The announced upcoming change was the decision of the Mayo Clinic Jacksonville's Board of Governors that the Clinic would not participate in Medicare Part B effective January 1, 2003, a change in Mayo's Medicare Policy (the "Medicare Policy Change.") The Medicare Policy Change was the result of at least two factors. First, payment rates for physician services under Medicare Part B have been reduced by the Health Care Financing Administration. Further reductions are expected. Mayo suffers financial losses in the care of Medicare patients as it is. Mayo regards Medicare reimbursement to be inadequate and fears deeper financial losses. Non-participation in Medicare Part B allows Mayo to bill more for physician and clinic services and the possibility of not only staving off financial loss in the treatment of Medicare patients but achieving financial gain. Second, Medicare business, as percentage of all Mayo business, is increasing. In a letter dated July 3, 2002, the Medicare Policy Change and its effects on the Medicare patient were explained by Denis A. Cortese, M.D., Chair of the Board of Governors: Dear Medicare Patient: I'm writing to give you advance notice of an important billing change that will effect all our Medicare patients next year. As you know, Mayo Clinic in Jacksonville accepts payment from Medicare directly on your behalf for Medicare Part B services at the clinic and St. Luke's Hospital. Effective Jan. 1, 2003, Mayo Jacksonville will switch to another Medicare-approved billing system and fee structure. This change means that Medicare will send payments directly to you, and you will be responsible for paying Mayo. You will also pay more out of pocket for our services. This switch concerns only professional and outpatient services covered by Medicare Part B medical insurance, not hospital facility services covered by Medicare Part A hospital insurance. * * * We value your confidence in us, and we realize these billing changes will require adjustments on both out parts. Mayo Clinic is a not-for-profit organization, and our ability to continue to provide quality patient care, education and research rests on prudent financial management. This year, Medicare cut payments to doctors by 5.4 percent, the steepest across-the-board cut in the program's history. Additional cuts totaling 14.2 percent are planned from 2003 through 2005. Continuing to accept such inadequate reimbursement is not responsible business practice and would seriously jeopardize our ability to sustain Mayo- quality services. It's important to note that: Medicare will send payment directly to you. It will be your responsibility to pay Mayo. You may be asked to pay some out- of-pocket expenses at the time of service. Mayo will continue to submit claims to Medicare for you. However, you will have to submit a claim form and necessary paperwork to any supplemental policies you have. * * * (Exhibit 10, attached to Memorial Ex. 54, Deposition of Mary Hoffman). In its September 2002 Practice Team Newsletter, St. Luke's reiterated the news about the Medicare Policy Change: . . . Effective Jan. 1, 2003, we will switch to a different billing system and fee structure, meaning we will no longer "accept assignment." This means that Medicare will send payments directly to patients who will be responsible for paying Mayo. Patients will also pay more out of pocket for these services. This switch concerns only professional and outpatient services covered by Medicare Part B medical insurance, not hospital facility services covered by Medicare Part A hospital insurance. Also excluded from the change in billing procedure are anesthesia, pathology and radiology services provided by Mayo physicians at St. Luke's Hospital for community patients and Emergency Department services for both community and Mayo patients. (Exhibit 14, attached to Memorial Ex. 54, Deposition of Mary Hoffman). On August 2, 2002, Memorial moved to reopen the record in the case and to schedule an evidentiary hearing. The motion was based on the assertion that the Medicare Policy Change poses the potential of reducing the volume at St. Luke's and "significantly impacts the ability of St. Luke's, and in particular, community physicians, to treat patients covered by the Medicare program." Memorial's Motion to Reopen the Record, etc., filed at DOAH Aug. 2, 2002, p. 3. The motion further asserted that "[t]his change could have a profound impact on St. Luke's argument that it needs to relocate its operations to its proposed replacement hospital . . . Memorial should be permitted discovery to ascertain the impact of St. Luke's and Mayo Clinic's decision not to accept assignment for Medicare patients." Id., at 4. The motion was granted. Memorial was permitted to conduct discovery and an evidentiary hearing took place on September 27, 27 and October 8, 2002. Part A; Part B In general, Medicare Part A payments are provided to hospitals for hospital services including skilled nursing care. Payments are made for some additional services, for example, in the case of the disabled, there are payments for some disability services. Medicare Part B payments are for services provided by physicians to the patient, whether as an inpatient in a hospital setting or an outpatient. Medicare Part B payments are also for all services, physician and otherwise, rendered by clinics (such as Mayo Clinic Jacksonville.) Medicare Part B payments also cover the portion of outpatient hospital services attributable to the hospital. For simplicity's sake and for purposes of understanding the issues in this case it makes sense to think of Medicare Part B payments as covering physician and clinic services and Medicare Part A payments as those covering hospital services other than the portion of those services attributable to a physician. As Richard Baehr, Memorial's health planning witness, testified, "And for . . . outpatient services, if . . . in a hospital, there is a facility component which is actually covered by Part B, but it's a hospital service, so there is no[] change as a result of what's going on here." (Tr. 2940). There is a technical component and a professional component to Medicare payments. The technical component covers expenses associated with the technicians, the equipment, the facility and the overhead. The professional component covers none of these. It covers the fees associated with the professional services of the physician. If a service is performed on the campus at Mayo Clinic Jacksonville, because Medicare Part B covers all services of a clinic, both technical and professional, then Mayo bills Medicare Part B for the entire procedure including both components, technical and professional. "It's called a global fee." (Memorial Ex. 54, p. 40). If a Mayo physician is involved in a service performed at St. Luke's then the billing is split. Mayo bills Medicare Part B for the professional services of the physician only. It does not bill for any of the technical services associated with the facility. To use an example, if an MRI is conducted on campus at Mayo Clinic Jacksonville for a Medicare patient, then Mayo bills Medicare Part B for the global fee covering both the technical components attributable to the facility and the professional components attributable to the interpreting imaging specialist. If the same MRI is conducted at St. Luke's, then Mayo bills Medicare Part B for the interpreting physician's fees but not for the technical component. The technical component is covered by Medicare Part A for the MRI conducted at St. Luke's. Impact to Medicare Patients at St. Luke's There is a definite impact of the Medicare Policy Change to St. Luke's patients of Mayo physicians. As Dr. Cortese informed Medicare patients, for Mayo physician services provided at St. Luke's "there will be now a different rate of payment and a different method of payment." (Tr. 2940). That impact did not exist before the change. Prior to adoption of the change, St. Luke's under assignment of the patient's right to the Medicare payment would have billed Medicare and any co-insurer directly for the Mayo physician's services at the payment rate acceptable to Medicare for the service. The patient would never see a bill. Once the patient assigned Medicare benefits to the participating physician, there would be no impact to the patient, either in terms of having to file additional paperwork with Medicare or in terms of having to pay out-of-pocket expenses. After the effective date of Mayo's decision to no longer participate in Medicare Part B, there is a two-fold impact to the Mayo physician's patient at St. Luke's. First, there is a paperwork burden. The patient must seek Medicare reimbursement for the non-participating physician's fees by filing the necessary forms with Medicare. Second, there is an expense burden. The patient will be left with an additional out-of- pocket expense not covered by Medicare or co-insurance. Medicare reimburses 80% of a Medicare Allowed Amount to the claimant (the patient or, in the case of an assignment, the assignee who files the claim for Medicare reimbursement). In the case of assignment, the assignee can also bill the remaining 20% of the Allowed Amount for participants from the patient's co- insurer. The assignee is capable of being paid 100% of the Medicare Allowed Amount for participating physicians. This arrangement satisfies entirely the Medicare patient's responsibility for the charge. The patient with co-insurance need file no paperwork with Medicare and suffers no out-of-pocket expense. For the patient of non-participating physicians, the double impact will occur. The Medicare Allowed Amount for non- participating physicians is set at 95% of the Medicare Allowed Amount for participating physicians. In the absence of an assignment, a non-participating physician can send a Medicare patient a bill up to 15% higher than the Allowed Amount for a service by non-participating physicians. For a non-participating physician who chooses to maximize the allowable billing for a Medicare patient, then, the bill sent to the patient is higher than the total amount that would have been claimed from Medicare and any co-insurer under assignment by a participating physician. To illustrate the financial impact if Mayo's Medicare Policy Change to a Medicare patient of a non-participating physician, Memorial's Health Planner, Richard Baehr gave an example of a physician service for which $100 is set by Medicare as the Allowed Amount for a participating physician: In the past [prior to Mayo's decision to not participate], [Medicare] would have paid 80 percent of that [$80], and 20 percent would have been [covered] by co-insurance [$20, for a total of $100, the Allowed Amount for participating physicians]. * * * [After the Medicare patient receives health services from a participating Mayo physician,] [t]he Mayo Clinic physicians accept assignment. They are participating [in Medicare Part B]. And what happens is the patient has a service and basically goes home. Everything is billed by the physician, both for the $80 [to be paid by Medicare under Medicare Part B] and [for] the $20, [the physician] bill[s] the insurance company. As a result of this change [Mayo's decision to no longer participate], instead of $100 being the amount that Mayo could charge for the physician component, it is now $109 roughly. [To be precise, it is $109.25, $95 (95% of the Medicare Allowed Amount of $100 for participating physicians) plus $14.25 (115% of the Allowed Amount of $95 for non- participating physicians.)] But Medicare now recognizes only $95 as the [Allowed] [A]mount because [Mayo] is nonparticipating. * * * So the difference between $95 and $109[.25] is now patient responsibility. Before [the decision not to participate, patient responsibility] . . . would have been zero. Now it is $14[.25]. So you can multiply . . . if the bill is $2000, then [the patient's responsibility] is 20 times that $14[.25, i.e., $284]. (Tr. 2945, 2946). Non-participating physicians have the option of choosing to accept assignment for any particular patient. If assignment is accepted, the non-participating fee schedule or Allowed Amount (95% of the participating fee schedule or Allowed Amount) is still applicable to the non-participating physician's services. In the case of an assignment, however, the non- participating physician cannot bill the patient for anything beyond the 20% of the amount Medicare pays even if the charge is the maximum. The patient does not have the additional out-of- pocket expense incurred from the billing of a non-participating physician who does not accept assignment. Drawing on Mr. Baehr's example, for a non- participating physician who accepts assignment, the charge may be $109.25. The Medicare payment will be $76 (80% of $95, the Allowed Amount for a non-participating physician) and the patient or the co-insurer will only have to pay the physician $19 (20% of $95). The remainder of the $109.25 charge ($14.25) cannot be billed to the patient because the non-participating physician (or clinic) has chosen to accept assignment of the patient's Medicare claim. Affected Patients at St. Luke's At St. Luke's, Mayo's Medicare Policy Change will affect mainly those patients admitted by Mayo physicians. The impact to patients admitted by community physicians will be slight. After the effective date of the change, a patient admitted by a community physician and treated exclusively by community physicians will not be affected. A patient admitted by a community physician and treated by a Mayo physician rendering services in four specialties of medicine (radiology, pathology, anesthesia or emergency) will not be affected. Mayo will accept non- participating assignment for its physicians with regard to those patients. It chose to accept assignment for non-participating physicians in these four areas with the hope of minimizing the effect of the Medicare Policy Change on patients admitted by community physicians. The only community physician admitted patients who will be affected by the Medicare Policy Change are those that involve a consultation by Mayo physicians in specialties other than the four for which non-participating assignment is accepted. The impact was explained by Mayo Clinic Jacksonville's Chief Financial Officer: [Mayo has] looked into the number of occurrences where a request is made for a Mayo physician to consult on the community patient. Our statistics show that this is a relatively . . . small number of requests. . . . [T]hose occurrences approximate 110 times for all patients, with Medicare patients being approximately half of that. So on an annual basis we're talking about 50, 60 patients [who are Medicare beneficiaries]. And we have various options available to continue to evaluate so that we can fully support the community practice. * * * One of those options is for us to take assignment on those handful of consults. If we do that, there will no financial impact or balance billing occurring for those Medicare patients. If upon our further evaluation we determine that we want to bill those as a nonparticipating physician and balance bill, we have looked at our fees for consultations, . . . level five is the highest level that we can bill for consultation. For the Medicare program that fee approximates $200. So for those 50 to 60 [community physician admitted] patients, . . . they would incur an additional out-of- pocket expense of approximately 20 to $30. (Memorial Ex. 54, p. 46, 47). The decision had not yet been made as to whether to accept assignment in the case of these patients. Whatever the decision, this segment of Medicare patients will experience the paperwork burden of filing with Medicare. The Medicare Policy Change will impose the paperwork and financial burdens on patients admitted to St. Luke's by Mayo physicians for the physician components of those services. The Medicare Policy Change is likely to have some impact on the volume of Medicare business at St. Luke's because the added paperwork and financial burdens will likely discourage some number of the Medicare patients admitted by Mayo physicians (however small that number may be) from using St. Luke's. Memorial presented a sensitivity analysis showing the effect on patient day volume at St. Luke's using two assumptions deemed by its health care planner to be realistic reductions in Medicare volume as a result of the Medicare Policy Change: 10% and 20%. There were three bases for the selection of 10% and 20%: first, analysis in a Mayo Task Force report; second, a reference to expected impact made by Mayo Clinic Jacksonville's Chief Financial Officer in deposition testimony; and third, "the nature of the state, the nature of the population affected and the unique nature of this change . . . ." (Tr. 3001). 1. The Task Force Analysis. Mayo conducted a "Net Revenue Sensitivity Analysis" for 2001 showing dollar increases or decreases with Medicare volume reductions of 1%, 2.5%, 5%, and 10%. The analysis appears twice in the Mayo Clinic Jacksonville Medicare Participation Task Force Report and Recommendations, May 2002. (See I. A. p. 9 and D. p. 4 of Exhibit 8 attached to Memorial Ex. 54, Deposition of Mary Hoffman). The Task Force Report also showed that the impact on revenue would be neutral at a 4% reduction in Medicare volume. It would lead to an increase of $3.7 million in net revenue to the clinic and the hospital with a 10% loss of Medicare volume if there was 100% replacement of the lost volume with patients with commercial or managed care health insurance. Because of the use of 10% by Mayo in the report, Memorial's health planner adopted 10% as the minimum volume reduction. There is no evidence, however, that Mayo projected that there would be a 10% reduction (or any other reduction) in Medicare volume in the wake of the Medicare Policy Change. Mr. Baehr, himself, recognized as much. With the caveat, that "hospital management doesn't always provide the worst-case scenarios to hospital boards," (tr. 3037), Mr. Baehr agreed that he didn't think the "unique purpose [of the analysis] was to identify a specific point estimate of what was likely to be the negative impact . . . on number of Medicare patients." (Tr. 3036). The Task Force reveals only the effect on net revenues if certain reduction up to and including 10% were to occur. To the contrary of projecting an estimate of a 10% loss of Medicare patients, in fact, the Task Force Report concluded that dropping Medicare assignment should not significantly reduce the demands for complex tertiary care and may not reduce the use of primary and secondary care. The task force was concerned about minimizing negative media responses to the Medicare Policy Change and patient perceptions that might arise to media reports and the change, itself. It concluded, however, at p. 4 of the Executive Summary in Part B, "Marketing Report-Focus Groups", after conducting and analyzing focus group responses: If the situation is explained well to patients, dropping Medicare assignment is unlikely to have a dramatic impact on Medicare patient volumes at Mayo Clinic Jacksonville. In fact, after patients saw an example of the financial impact that the change would have on them, very few, if any, of the patients in the focus groups would leave Mayo Clinic Jacksonville. Rather than shopping around when they require expensive procedures, some patients might consider seeing another physician if they had a cold or for other primary care needs, but most would not even consider doing that. Several of the patients mentioned that they chose to live in Jacksonville because Mayo Clinic is located there. It will take more than this change to cause them to seek care elsewhere. (Ex. 8 attached to Memorial Ex. 54, Deposition of Mary Hoffman.) While the Task Force's expectations of de minimis impact may be wishful thinking or the product of not providing worst-case scenarios to the Mayo Board of Governors as alluded to by Mr. Baehr, it is not in Mayo's interests to misjudge the impact to Medicare volumes. Levels of volumes are required to sustain many of the tertiary and quaternary procedures provided by Mayo, the procedures that have driven the demand at St. Luke's that supports Mayo's case for need for the replacement hospital in the first place. As the Task Force recommended, it was essential prior to the Medicare Policy Change that Mayo "[f]eel comfortable that dropping Medicare assignment will not significantly reduce Medicare patients' demands for complex, tertiary care . . . ." (Id., at p. 6 of B.) The Task Force analysis does not support Mr. Baehr's selection of 10% or any higher percentage as a reasonable reduction in volume. To the extent that the Task Force attempted to project a volume reduction it concluded that there was not likely to be significant reduction. The use of 10% in the sensitivity analysis showed only what the financial impact of such a reduction would be; it did not project that such a reduction would occur. 2. The Testimony of MCJ's CFO Ms. Mary Hoffman is the Chair for the Department of Financial Services at Mayo Clinic Jacksonville, the clinic's Chief Financial Officer. Financial activities at both the clinic and at St. Luke's are within the scope of her duties. Before assuming the position she had occupied a similar position at Mayo Clinic Scottsdale for 10 years. She served as the point person for the Task Force that reviewed Mayo's Medicare policies and made recommendations that led to the Medicare Policy Change. When asked why the Task Force Sensitivity Analysis used a range of 1% to 10% reduction in Medicare volume, Ms. Hoffman answered, "Our assessment is the majority of the Medicare patients will continue to seek care at Mayo Clinic Jacksonville." (Memorial Ex. 54, p. 126). Ms. Hoffman did not testify as to what constituted a "majority" in terms of a percentage. Ms. Hoffman went on to explain that "if" (id.,) there were Medicare patients that "may" (id.,)consider not coming it would be those with primary care needs. Those with specialty care and ultimately hospitalization, she opined, were likely to seek services at St. Luke's. Mayo, moreover, she asserted, did not believe that there would be a significant reduction in volume and if there were any reduction it would ultimately be filled by growth in non-Medicare volume. There is nothing in Ms. Hoffman's testimony to suggest that she thought there would be a minimum reduction in Medicare volume of 10% or that any analysis by a qualified expert had been undertaken to project such a percentage reduction. Her testimony cannot serve as a basis for the conclusion that there would be a reduction of 10% or higher. The Nature of Things The third basis for Memorial's health planner's selection of a 10 to 20% reduction is "the nature of the state, the nature of the population affected and the unique nature of this change." Florida is a state with a significant population of Medicare beneficiaries. The Duval County Medicare population is not affluent generally. Mayo's Medicare Policy Change is unique, "nobody else in the state has done this." (Tr. 3001.) As Mr. Baehr testified, "[t]his is a situation where you're going from A to B. The impact is unknown. How significantly the reaction will be by Medicare patients, by community doctors, that's an unknown. All right. I can't specifically tell you that I think the number will be X. What I can say is because of the nature of the change, and the nature of the population affected, and the fact that demographically this is not a generally affluent Medicare community, the potential impact is more severe here than it might be in some other community where the population, the Medicare population was more affluent, where a smaller percentage of the patient population was served in the local community. (Tr. 3001, 3002). There is no expectation in Memorial's analysis that there will be any refill of Medicare patients lost as the result of the Medicare Policy Change. In the time frames shown in the application, any Medicare patients lost could be refilled by additional demand. Need for St. Vincent's Proposal Occupancy St. Vincent's projected that it would have an 84% occupancy for the first year of its operation at St. Luke's. The projection was overstated because of error in the analysis, however. It employed a base population of 511,089 in 2000 to project population growth when it should have used 537,182 as the base population for the year 2000. There is a second error in the St. Vincent methodology for projecting first year occupancy. It included psychiatric and substance abuse cases among the number of patients originating in Subdistrict 4-3 that use St. Vincent's in Subdistrict 4-2 for hospital services. The new St. Luke's will not provide psychiatric and substance abuse services. St. Vincent's was also criticized by Memorial for inflating the number of normal newborn admissions by double counting the mother and the baby as separate cases. Ms. Sharon Gordon-Girven adjusted for the errors and the criticism in testimony. In so doing, she discovered that zip codes for St. Johns County had been inadvertently excluded from the St. Vincent's analysis. Adjusting for the errors, the exclusion and the criticism reduces the average daily census for the hospital proposed by St. Vincent's from 114 to 108. An average daily census of 108 in a 135-bed hospital constitutes an 80% occupancy rate. St. Luke's is conveniently located near the intersection of two major highways in Jacksonville. Its emergency department is a busy one. At the time of hearing, an ER expansion project was underway to increase the size and number of the bays so the hospital could accommodate more patients. It is reasonable to assume the one-half of the ER volume currently associated with Mayo physicians would remain at St. Luke's because it will remain the closest facility for many patients. Currently, a significant number of patients leave Subdistrict 4-3 to go to St. Vincent's in Subdistrict 4-2. They utilize St. Vincent's primarily because of a referral to a specialty physician practicing at St. Vincent's. After the Phase 2 closing, St. Vincent's will encourage these specialty physicians to join the medical staff of St. Luke's and to see and care for patients who reside in Subdistrict 4-3 at St. Vincent's at St. Luke's. It is reasonable to assume that St. Vincent's will be able to direct 75% of these patients to St. Luke's after the Phase 2 closing. There is an adequate basis for Ms. Gordon-Girven's opinion that there is a need based on projected occupancies to retain a community hospital at St. Luke's Belfort Road campus. Staffing The parties stipulated that the staffing projections contained in St. Vincent's application were reasonable with two exceptions: the reasonableness of the projected salaries for nurses and St. Vincent's ability to recruit staff for the new hospital. The salary projections for nurses in St. Vincent's application were based on the midpoint of St. Vincent's pay grade for nurses at the time the application was prepared plus an estimated inflation factor of 3% per year. The midpoint represents the middle of the pay grade, not the average salary. The average salary is typically lower that the midpoint, and new staff are not hired near the midpoint salary unless they have considerable experience. St. Vincent's salary projections are reasonable. There is a shortage of skilled nurses and allied professionals in District 4. St. Vincent's has been successful in combating the shortage. St. Vincent's vacancy rate for nurses is lower that the state and national average. The lower rate is due, in part, to St. Vincent's effort to recruit and retain nurses. St. Vincent's has four nursing recruiters. It has recruited nurses from overseas, including four nursing schools in the Philippines, and has the ability to recruit from other hospitals in Ascension Health's national network. In addition, it sponsors a number of internship programs for other allied health professionals, including pharmacy interns, radiology technologist, a nuclear medicine program, and an ultrasound school. St. Vincent's is also involved in a number of educational initiatives, including relationships with high schools and local community colleges. Finally, St. Vincent's emphasizes a strong connection between employees and their immediate supervisors to create a nurturing environment for new staff. At the time of hearing, St. Vincent's had a zero- vacancy rate for pharmacists and respiratory therapists and only a single opening for a physical therapist, a position not difficult to fill. St. Vincent's established that it would be able to staff St. Luke's after the Phase 2 closing. First, Mayo will have more staff at St. Luke's that it will need for operation of the replacement hospital. After Mayo staffs the replacement hospital, there will be additional Mayo staff available to work for St. Vincent's at St. Luke's. While the replacement hospital will no doubt be an appealing place to work for many of the current St. Luke's staff, it is reasonable to assume that some staff currently at St. Luke's will prefer to remain at St. Luke's under St. Vincent's. Second, some existing staff at St. Vincent's now will be available for recruitment for any additional staff that St. Vincent's needs for St. Vincent's at St. Luke's. Third, both Mayo and St. Vincent's will be able to achieve efficiencies if both projects are approved. Mayo will achieve efficiencies through the location of all staff on one campus. St. Vincent will be able to achieve staff efficiencies because some supervisory roles can be filled by one individual overseeing staff at both St. Luke's and St. Vincent's. Fourth, St. Vincent's has a history of successful recruitment and retention of staff even through the recent nursing shortage; there is nothing to suggest that its efforts in the past will not continue to succeed. Finally, none of the applicants are proposing the addition of any new beds to the District. Statutory and Rule Criteria Section 408.035(1) - District Health Plan Section 408.035(1) addresses the need for the project being proposed in relation to the applicable district health plan (the Plan). The Plan contains five generic preferences and seven preferences specific to acute care services. The first generic preference is for applicants who demonstrate they will meet identified needs by providing services which meet commonly accepted quality standards in a most economical manner in terms of capital and operating expenditures. St. Vincent's ability to provide quality care at St. Luke's was stipulated to by the parties. That St. Luke's Hospital is already licensed, functional, and in excellent condition for a community hospital will permit St. Vincent's to initiate operations at that facility with efficiency. In addition, there are various operational efficiencies that will be realized by a two-hospital system with the hospitals in proximity to each other. Senior staff, educational programs, PRN staff and other operational systems can be shared by both hospitals. The Plan's second generic preference is for applicants who demonstrate that they can alleviate a current or potential geographic access problem. The closure of St. Luke's staff will not create a geographic access problem. Nonetheless, if these applications are not approved, the closure of St. Luke's medical staff to Mayo-only physicians would severely limit St. Luke's Hospital as a community resource and reduce choice for access of physicians and patients to hospital facilities. St. Luke's excellent location enhances access to hospital services. The third preference is for applicants who demonstrate that the proposed service has access to an adequate supply of appropriate health manpower. St. Vincent's will be able to obtain the necessary manpower for its project. The fourth preference is for applicants who demonstrate that new or expanded bed capacity will not have a significant negative impact on other health care facilities. For the reasons stated below regarding consistency with Section 408.035(2), approval of the Mayo and St. Vincent's applications will adversely affect Memorial although the weight of that impact is slight. The fifth preference, which is for applicants who commit to maximizing service to rural county residents, is not applicable. As noted above, the Plan also has seven preferences specific to applications for acute care beds. The first of these is for applicants who propose to convert licensed unused beds or use existing space rather than new construction. St. Vincent's application clearly meets this preference. While St. Vincent's is proposing to establish a new hospital, the application does not propose any new construction, but rather the use of the existing St. Luke's facility. Beds are also being "left behind" by Mayo and "transferred" from St. Vincent's. The second preference is for applicants who demonstrate that they provide a full array of acute care of services, including medical-surgical, intensive care, pediatric and obstetrical services within the market for which they are applying. St. Vincent's application proposes a full array of services; therefore, its application meets this preference. The third preference is for existing facilities where the number of beds to be awarded is 50 beds or less. The applicant's proposal meets this preference because it is not proposing the addition of any new beds to the district. The fourth preference is for applicants proposing to acquire or consolidate facilities where it can be demonstrated that services will be improved and costs to the public will be reduced. Costs to the public will not be reduced but services will be improved over what they would be without approval. The fifth preference is for applicants who submit in their CON application copies of their current written transfer agreements with the county health department primary care program. St. Vincent's did not submit written transfer agreements. Still, St. Vincent's routinely works with the county health unit to provide access to care, including prenatal care, obstetrical services, primary care and children's care, along with prevention, education and health promotion. For example, St. Vincent's works with the Duval County Health Department to identify where its mobile vans should go to provide its mobile health services to the urban poor. In addition, St. Vincent's hires physicians arranged through various county departments of health for its family practice residency program. The sixth preference is for applicants who demonstrate that the transfer of beds is necessary to maintain or improve care. The transfer of the beds from St. Vincent's will maintain a substantial part of the care now provided by community physicians at St. Luke's. St. Vincent's application meets this preference. The seventh preference is for applicants that demonstrate that the transfer of beds is more cost efficient than the renovation and expansion of an existing facility. St. Vincent's application meets this preference because it proposes the transfer of beds from St. Vincent's without any need to expand or renovate the existing St. Luke's Hospital campus. The Plan's last preference is for an applicant that proposes to locate transferred beds in an area that would improve access to Medicaid and indigent patients. In its application, St. Vincent's has committed to significantly expand the volume of Medicaid and indigent care provided at St. Luke's. Although the population in the primary service area of St. Luke's is an affluent one, given its mission, history and outreach programs to Medicaid and charity care patients, approval of St. Vincent's application will increase access for Medicaid patients, indigent patients and underserved populations. Section 408.035(2) - Availability, Accessibility, and Extent of Utilization of Existing Facilities The dual character of St. Luke's as a national and regional referral center for Mayo Clinic Jacksonville and as a community hospital to serve the local population cannot continue indefinitely. Unless the Mayo and St. Vincent's applications are approved, Mayo will be forced to close the medical staff at St. Luke's to Mayo-only physicians and the community physicians and their patients will be forced out of that facility. If this is allowed to occur, the accessibility of St. Luke's to the local community will be significantly diminished. Section 408.035(3) - Quality of Care By stipulation of the parties, it was agreed that St. Vincent's has a demonstrated history of providing quality of care and the ability to do so at St. Luke's. Sections 408.035(4) & (5) - Need for Special Services; Needs of Education and Research Institutions The parties stipulated that Mayo's application satisfies the statutory criteria contained in Sections 408.035(4) and (5). St. Vincent's application does not itself propose special services that are not available in adjoining areas. As to Section 408.035(5), St. Vincent's provides continuing medical and professional training, and otherwise meets the criteria contained in that statute. Section 408.035(6) - Availability of Resources In the Prehearing Stipulation, the parties agreed that St. Vincent's has sufficient management personnel, and funds for capital and operating expenditures to accomplish the proposed project. At final hearing, the parties further stipulated to the reasonableness of the full-time employees ("FTEs") projected in the application. While the parties did not stipulate to the salary projections, based on the greater weight of the evidence the salary projections are reasonable. Although evidence was presented as to the current nursing shortage, St. Vincent's demonstrated that it has the ability to recruit the necessary staff for its proposed facility. Section 408.035(7) - Enhancing Access Approval of St. Vincent's application will enhance access to health care for all residents of District 4. St. Vincent's is committed to serving all residents, including but not limited to Medicaid patients, Medicare patients, and charity care patients. The community doctors are also committed to St. Luke's 135-year tradition of providing care that is accessible to all members of the Jacksonville Community. If St. Vincent's application is denied, the accessibility of St. Luke's for these groups will be reduced because Mayo will be forced to close the medical staff of the facility to community doctors, and the "community" portion of St. Luke's dual character will be lost. Approval of the application, on the other hand, will ensure that Florida's oldest hospital founded out of concern for care of the poor remains open, committed to its original mission. Subdistrict 4-3 has experienced and is projected to continue to experience significant population growth. Approval of St. Vincent's application will enhance access for this growing population. Section 408.035(8) - Financial Feasibility The parties stipulated that St. Vincent's has the available funds for capital and operating expenditures. The applicant demonstrated the immediate financial feasibility of the project. St. Vincent's demonstrated the long term financial feasibility by the greater weight of the evidence. The projected payor mix was reasonably estimated based upon the patients in the primary service area (excluding those services that will not be provided at St. Luke's). St. Vincent's volume projections are reasonable. Likewise, its projections of revenues and expenses are also reasonable and conservative. The applicant has reasonably projected a profit beginning with the first year of operation. The evidence demonstrated long term financial feasibility. Section 408.035(9) - Fostering Competition The impacts of competition will not have any negative effect on quality of care or cost effectiveness of any existing provider including Memorial. Even if all three applications at issue in this proceeding are approved, Memorial will continue to prosper. There was no evidence to suggest that approval would cause Memorial to close, or affect its ability to operate efficiently. On the other hand, if Mayo closes the medical staff of St. Luke's Hospital, Jacksonville would lose a community hospital that offers competition to Memorial and the other providers in the subdistrict and district. St. Vincent's accepts a wide range of payors, including both managed care providers and traditional indemnity. For this reason, approval will not only preserve but increase choice for both physicians and patients. Section 408.035(10) - Costs and Methods of Construction Memorial characterizes the expenditures for the acquisition of St. Luke's and the construction of the Mayo hospital as separate costs and an exorbitant amount. However, the same dollars used to buy one hospital are also used to build the other. This can also be viewed as a creative use of limited resources. Memorial's financial witness contended that code upgrade costs of up to $80-Million should have been included as part of St. Vincent's projected project costs. However, since code upgrades are not required, (see "Construction Code Issue" Section, below,) those costs will not be incurred and therefore were properly excluded by St. Vincent's. St. Vincent's does not propose any construction or renovations being made to St. Luke's. Therefore, the criteria contained in Section 408.035(10) are satisfied. Section 408.035(11) - Provision of Indigent Care The parties stipulated that St. Vincent's has a demonstrated history of providing health care services to Medicaid patients and the medically indigent. Therefore, there is no question about its commitment to providing services to the poor and disadvantaged. The proposed commitment to charity patients contained in the application (7.37% of patient days to self-pay, 6.68% to Medicaid patients) is reasonable. It is based on the assumption that St. Vincent's at St. Luke's would realize the average payor mix of all hospitals in Subdistrict 4-3. It would not have been appropriate for St. Vincent's to assume that its payor mix would realize the payor mix of any one hospital in Subdistrict 4-3. For example, St. Luke's has provided 2.26% of its patient days to self pay (including charity/indigent patients) and 1.57% of its patient days to Medicaid patients, relatively low percentages. St. Vincent's with its superior history of care to the medically indigent is likely to provide much higher percentages. Given the variability among hospitals in the subdistrict, it was reasonable for St. Vincent's to propose commitments based on the average payor mix of all hospitals in the district. Rule Criteria There are two rule criteria that relate to this application. They are Rule 59C-1.038, acute care bed priority considerations, and Rule 59C-1.030, additional review criteria. Under the Rule 59C-1.038 there are two priorities, only the first of which (documented history of providing services to medically indigent patients or a commitment to do so) is applicable. St. Vincent's application satisfies this priority. The criteria in Rule 59C-1.030 generally address the extent to which there is a need for a particular service and the extent to which the service will be accessible to underserved members of the population. Approval of St. Vincent's application will increase the accessibility of St. Luke's to underserved groups. Approval of St. Vincent's application will promote access to health care. It will ensure that a community hospital in existence since 1873 and at its current location since 1983, will continue. When Mayo opens the replacement hospital, there will be an average daily census of approximately 90 "community" patients left behind who will continue to need "community" hospital care. Approval will ensure that the community physicians currently practicing at St. Luke's will be able to continue at the Belfort Road facility without interruption. This option is foreclosed if Mayo closes the staff at St. Luke's. St. Vincent's has a significant number of contracts with different managed-care providers, both HMOs and PPOs, and traditional indemnity providers. St. Vincent's at St. Luke's will provide the community with a wider array of payors from which to chose. Approval will foster competition and give patients greater choice. Given St. Vincent's mission and historical record of care, approval should also increase access for Medicaid patients and other traditionally underserved groups. Construction Code Issue St. Vincent's application and St. Luke's application are predicated upon a condition related to the building and life safety requirements applicable to the construction of a new hospital (and a new NICU, the subject in DOAH Case No. 02- 0457CON). The requirements will not be imposed by AHCA on St. Vincent's licensure and operation at St. Luke's provided that there is no break in hospital operations at St. Luke's hospital between the time of St. Luke's operation of the hospital to the time that St. Vincent's commences operations there. The State Agency Action Reports ("SAARs") on CON Applications Nos. 9484P (St. Vincent's) and 9481 (St. Luke's) provide as follows: CONDITIONS * * * (6) provided there is no break in licensure, the building requirements associated with the establishment of a new hospital shall not be imposed by AHCA. St. Luke's Exhibit 18, p. 90; St. Vincent's Exhibit 5, p. 34. St. Vincent's application does not involve the construction of a new facility. Nor does it call for the conversions of one type of facility to another. St. Vincent's application does not call for designing, constructing, erecting, altering, modifying, repairing or demolishing a hospital as part of its application. The application proposes that the condition be met; it proposes no break in operation at the facility when control is transferred from St. Luke's to St. Vincent's. Need for Baptist's Proposal Baptist targeted the extreme southern part of Duval County to site its proposed project as an area in need of emergency services and with potential for growth of outpatient services. The proposed site is at the center of where development is occurring, where jobs are going and where homes are being built. Today, approximately 3500 people work in the Grand Park commercial development. A number of other job centers are moving to southern Duval County. The population base and the employment base are moving south from central Duval County. The 2001 population for Baptist's proposed service area, unchallenged in this proceeding, was over 121,000 and is projected to exceed 147,000 by 2010. The proposed site will be at the center of significant highway expansion that already exists or is presently underway in the area. The site is visible from Interstate 95. The interstate is six-laned through the southern part of the county to the St. Johns County line. A new interchange has been approved and all funding committed for this site. The site is proximate to the I-295 Beltway, with a connector road known as 9- A under construction. A second connecting road, 9-B, will be constructed just south of the new site. This road has been funded and construction will commence in the near future. Old St. Augustine Road, on which the hospital will be located, will be expanded to four lanes from Interstate 295 to Interstate 95. The funding for this project is part of the Better Jacksonville Plan, a $2.2 billion long-term plan already approved by area voters and funded through a half-penny sales tax. The hospital proposed by Baptist is needed to support the healthcare needs of a dynamically growing service area. There is a vacuum of hospital services in the area; the closest hospital is 25 miles away. The proposed project will be operated under the same license as Baptist downtown from which its 92 beds will be transferred making it a satellite hospital. There will be significant integration of services so as to avoid duplication of such areas as information service management, human resource management, materials management and supply handling, laundry and others. Prior to filing its application, Baptist evaluated the bed capacity of the downtown campus and determined it could safely transfer 92 beds without creating a drain on the resources of that facility. There is no dispute that Baptist has the excess capacity to transfer the 92 beds as proposed. At 92 beds, the proposed Baptist hospital is almost identical in size to the 90-bed Baptist Beaches hospital. While Baptist Beaches serves a different market with different demographics, the Baptist System has experience in successfully operating this size hospital in an area served by a similar population volume. Baptist already operates a life flight helicopter transport as a part of Baptist Health System. The proposed new hospital will have a helipad in order to provide rapid movement of patients needing tertiary services offered at the downtown campus. Prior to pursuing this application, Baptist retained experts in architecture and construction to advise the hospital of its options with regard to these same 64 beds. All parties reached the conclusion that replacing the 64 beds at the downtown campus was not a viable option. If its application is not approved, it will be difficult for Baptist to bring the 64 beds back on line due to a lack of space and the fact that construction costs will be very expensive. Baptist's experts have advised the costs will not be significantly more to build a new 92-bed hospital than to bring the 64 beds back on line at the downtown campus. Baptist has been unable to find a way to replace the 64 beds without making a congested situation even worse. AHCA's decision to approve Baptist's proposal was based on several key factors. Baptist is a traditional urban Medicaid disproportionate share provider that has an aging physical plant and finds itself with excess capacity at its downtown campus. Baptist seeks to relocate beds to an area projected to experience significant population growth. The proposal will allow Baptist to more efficiently use existing beds to support the overall indigent care mission of the hospital. In general, it is good health planning to support a disproportionate share provider seeking to move existing beds that are underutilized at its current urban location to a suburban location so that the project will enable that provider to continue the fragile, safety-net mission that it has historically provided. Baptist is such a provider. Baptist has a 27% market share of the proposed new service area. This fact amply supports its projected fill rate. Overall, occupancy of acute care beds in Subdistrict 4-3 is quite high at 71.5%, compared with the statewide average of 55%. At the same time, the number of beds per 1,000 population is lower in Subdistrict 4-3 compared with either the state average or the average in District 4 as a whole. As such, Subdistrict 4-3 experiences a higher use rate of acute care services but has a lower supply of beds. With the exception of Baptist Beaches, the remaining hospitals in Duval County are concentrated in the center core of the county. St. Johns County's only hospital, Flagler Hospital, is located in the southern part of the county, almost 25 miles from the Duval County line. Approval of Baptist's application will enhance access to certain acute care hospital services for residents of south Duval County. Growth in Baptist's proposed new service area is significant. The area's population is already approximately the same size as that surrounding Baptist Beaches. The nearby Mandarin area is a large-scale residential development that is already built out. Its population is approximately 45,000. The area surrounding the proposed site contains a number of Development of Regional Impact (DRI) projects. The DRI process involves a needs analysis that must be done in each case to demonstrate that the population projections that are shown for a particular planning area are consistent with the supply of residential and commercial activity to be provided. Each DRI is required to submit an annual monitoring report that lists all activity, all housing starts, school starts, and population growth, both actual and projected. DRI projects have projected build-out populations as follows: Bartram Park (4,000), Julington Creek (15,000), World Golf Village (15,000 to 20,000), Marshal Creek (5,000), West Born and East Born (10,000 to 12,000), and Nocatee (36,000). The majority of these projects are family-oriented, residential communities, which means children will live there and need convenient access to emergency services. At this time, it often entails less congestion for area residents to drive south 25 miles to Flagler Hospital than it is to travel north to Jacksonville to hospitals half that distance. Likewise, the proposed site will be easier to access for the residents of Mandarin than the existing providers to the North. The proposed site falls between two interstate roadways and is adjacent to two arterial roadway systems. The current and near term transportation network surrounding this area allows for very efficient access to the hospital site. The combination of the unprecedented growth in this area coupled with the transportation network, both existing and planned, provides an extremely efficient access to the medical services proposed by Baptist. The Jacksonville area economy is doing well. Jacksonville was recently named the hottest market in America for business relocation and expansion by Expansion Management after it conducted a survey of 75 site location consultants across the nation. Baptist has received strong support from a broad spectrum of the local community in support of this project. Dozens of letters of support from community physicians, local governmental leaders, the Chamber of Commerce and major area businesses were filed as part of Baptist's application. In addition, Baptist conducted a survey of its medical staff and found there was a remarkably positive response for the satellite hospital. Significantly, Baptist received a letter of support from Flagler Hospital System in St. Augustine, which operates Flagler Hospital, the only hospital in St. Johns County. Orange Park Medical Center, an HCA hospital located in Clay County, is not a reasonable alternative in terms of access to the service area Baptist seeks to serve in southern Duval County, including the Mandarin area. Orange Park is located on the opposite side of the St. Johns River, which serves as a natural barrier to health care access. Approval of this application will have a positive impact on BMC and its mission to provide medical services to Medicaid patients and the medically indigent. Hospitals in Duval County are well utilized, and continue to grow. According to a recent study done on behalf of Memorial, it has experienced a significant increase in utilization of beds over the past three years. Its occupancy is approaching 80%. There is also continued growth in the Jacksonville market that will place additional demands on the bed capacity of Memorial. Availability of Health Personnel and Management There are a number of public and private sector initiatives being undertaken to address the problem of the heath care staffing shortage. On the public side, the Florida Legislature recently passed HB 519 to promote increased recruitment and retention of nurses. Local governments are also providing incentives to attract more interest in the nursing profession. On the private side, providers have come forward with innovative proposals to assist in dealing with this problem. Baptist has undertaken a number of projects to address the staffing shortage. Hugh Greene, CEO of Baptist, sponsored an initiative to bring together other hospital CEO's in the community to partner with the University of North Florida to establish additional capacity for nursing students. The area hospitals have committed to collectively contribute over one million dollars for this project. Annually, this program will add 50 nurses to the nursing pool. Baptist projects it will have to hire less than 100 new employees to staff its new hospital. Relocating existing staff from other Baptist facilities will fill the remainder of the proposed staff needs. Given the time to open their respective facilities, the three hospital proposals will each have an opportunity to ramp up to meet staffing needs. Based on the applications filed, the three hospital projects would be phased in over several years, with Baptist's project coming on-line in approximately two years and the St. Vincent's/St. Luke's projects taking almost four years to open their doors. The increased demand for staff, especially nursing staff, if all three applications are approved, will have some impact on other hospitals within the community. The issue is not unique to Jacksonville. Nor will it affect Memorial any more than other hospitals in the area. Notwithstanding the issue of a healthcare staffing shortage, overall, the three proposals at issue should have a positive impact on the community. Each of the parties to this proceeding conducts extensive, ongoing recruitment of nurses. It includes international recruiting, recruitment at job fairs and local schools, and proactively seeking to work more closely with local technical programs. Baptist is also very involved with the local Chamber of Commerce and its strategic initiatives to enhance education and training of potential healthcare work force. The Jacksonville Chamber has six full-time staff dedicated to work force development including healthcare. The Chamber is actively involved in recruiting not just companies, but employees, too. It is working with a company called NationJob, which has a national website system to help fill local job needs. No nursing shortage is permanent because the nursing labor market behaves like any free market. Ultimately, supply and demand are managed in a free market by offering higher wages and increasing other benefits to address the profession. Baptist has developed a variety of strategies for recruiting, training and retaining nurses. It plans to use these at the facility it proposes in its application. Strategies include local open houses at the hospital, emphasis on regional and national market searches, using the Internet, and targeting military-trained nurses through job fairs. Baptist offers scholarships and has helped the local school board create an academy for students interested in health careers, as well as partnered with the DuPont Foundation and the Ounce of Prevention to create a model for mentoring. Baptist offers these young people jobs in the summertime in some healthcare arena to encourage them to enter the healthcare field. Baptist has followed a multi-pronged approach to recruiting new healthcare workers while at the same time maintaining an environment to retain the staff it already has. An adequate, qualified workforce is a key strategic goal for Baptist. In 2001, Baptist was voted one of Jacksonville's top 25 family-friendly companies in a poll taken by Jacksonville Magazine. In 2000, Baptist commissioned research on the subject of its workforce and developed a leadership model called the "Spirit of Caregiving," which is an initiative to work closer with staff and attempt to prevent burnout which has become a problem in the industry. It also established "Flex Choice," a means to address compensation, scheduling, intensity of work and relationship with management as the four key drivers for maintaining nurse satisfaction. Baptist also created its own flex team to replace the need to use local staffing agencies to staff its hospitals. Baptist has established a relationship with H*Works, which is a consulting arm of the Healthcare Advisory Board, a national think tank research-based program headquartered in Washington, D.C. An extensive research effort was undertaken by Baptist to determine how best to recruit and retain its employees. Implementing this program has reduced Baptist's turnover and vacancy rates in nursing. Other proactive programs instituted by Baptist include developing a relationship with Lutheran Social Services to employ displaced individuals who have moved to the Jacksonville area from Bosnia. As yet another example of how it has made efforts to be proactive in staffing, Baptist changed its model for how pharmacists interact with the medical staff, allowing them to have more interaction with the clinical staff in terms of patient care. This change has been well received. While some staffing will need to be duplicated at the proposed facility due to the need for core staff at both campuses, there are a number of counterbalancing efficiencies. For example, efficiencies flow from sharing the same governing board and some of the managerial staff, in such areas as human resources, risk management, accounting functions and quality improvement functions. Approval of the new facility could actually have a slight positive effect on the staffing issue. One of the main reasons nurses leave their profession is to seek a less physically demanding one. Modernization of facilities to make them less physically demanding can help to keep some nurses in the profession. Granting Baptist's application will lead to two modernized facilities: a renovated Baptist Medical Center campus and a brand new Baptist South facility. Baptist South will be staffed by first offering existing staff at its other two hospitals in Duval County the opportunity to transfer to the new satellite facility. Over 900 current Baptist staff who work at the downtown campus were identified as living in the area surrounding the proposed site. Not all employees who transfer from the downtown facility will need to be replaced at their former workplace, as Baptist projects that a number of current patients will be redirected from the downtown campus to the Baptist South location, given its proximity to their places of residence. As previously noted, the three hospitals at issue will be phased in over several years. This will allow adequate time for the applicants to ramp up in meeting the staffing needs of their new projects without necessitating a sudden increase in patients. Memorial's expert acknowledged that as a brand new facility, it would take Baptist South several years to get established in terms of building up its patient census. Each of the applicants, while acknowledging the challenge, demonstrated the commitment to attract and maintain competent staff to run the three proposed hospital projects at issue. The average age of the work force in Jacksonville is relatively young compared to the rest of Florida. Jacksonville is more a working area than a retirement one, with strong working-age demographics compared with other parts of the state. It is reasonable to expect Baptist will be able to staff its proposed project with an impact on Memorial that Memorial can sustain. When a hospital does not have sufficient staff to take additional EMS patients, it has to go on "advisory status." In 2002, Memorial has been on advisory status proportionately less than in 2001 because it has been utilizing more creative measures to staff beds than in previous years. Baptist already has a management team in place to operate properly and effectively the proposed satellite facility once approved. As previously noted, the Baptist Health System already operates BMC, which includes the Wolfson Children's Hospital, as well as Baptist Beaches and Baptist Nassau. In addition to its existing management team, Baptist has identified Ron Robinson as the administrator who will oversee the day-to-day operation of the new hospital. He presently is employed by Baptist Medical Center as a vice president. Mr. Robinson holds a master's degree in health administration and has experience as the chief operating officer of a community hospital. Enhanced Access Accessibility is a key part of Baptist's mission. Enhancing geographic distribution of beds to an area it believes is underserved is obviously consistent with its mission. Baptist is there for the community and seeks to provide care closer to where people live. The key to access is the ability to get to a facility or service. Baptist sought a proposed site that would be easily accessible to the residents of southern Duval and northern St. Johns Counties. The Interstate 95 interchange at Old St. Augustine Road is ready to be bid and will have an 18-month construction schedule, allowing it to open prior to the commencement of operation at the new hospital, if approved. Approval of Baptist's application will address what is currently an unmet need in the area, ready access to medical services. Cost-Effectiveness The estimated cost of construction to replace the 64 beds off-line at the downtown campus is $275 per square foot. The cost to construct the proposed 92-bed satellite hospital is $190 per square foot. As noted above, there will also be savings from operating the proposed facility as a satellite of the downtown campus. Accreditation and Quality of Care BMC scored a 97 on its most recent JCAHO accreditation survey, and currently holds an Accreditation and Commendation from the Joint Commission on Accreditation of Healthcare Organizations. Baptist's laboratory is accredited by the Commission on Laboratory Accreditation of the College of American Pathologist. Over a number of years, BMC has been chosen as the consumers' choice preferred hospital for Jacksonville, based on research by the National Research Corporation. Similarly, BMC was voted Best Medical Center in Jacksonville Magazine's 2001 pool. Decompression of Downtown Campus Notwithstanding the awards and accreditation for its operational excellence, Baptist's downtown campus' location is fraught with problems. The campus is bounded by four barriers. To the south is I-95; to the east, railroad tracks and bridges; to the west, the St. Johns River; and, to the north, Prudential Drive. Prudential Drive includes the corporate offices of Aetna Insurance in a large commercial office building. Although essentially landlocked, Baptist was recently able to purchase a small parcel of land (less than two acres) on the north side of Prudential Drive. While it will offer some relief, it is too small and has building height restrictions such that it is not a viable alternative to address all the space needs of the downtown campus. There are currently 64 beds that are off-line; another 88 beds need to be replaced in order to have enough room for Wolfson Children's Hospital to expand. One of the benefits of choosing to decompress by relocating beds to the south is that all the main campus renovations can then be sequenced so the hospital is not severely disrupted during renovation. This is critical, as Baptist is expecting to see nearly 90,000 patient visits in its emergency room this year alone. Baptist has sought to alleviate the congestion on its main campus by moving outpatient programs to nearby properties. Baptist's Regional Cancer Institute provides radiation therapy and chemotherapy for oncology patients, and the Baptist Eye Institute houses eye surgery and diagnostic services. Also housed off-campus is a diagnostic center with CT scans and MRI, as well as orthopedic surgery. Further expansion is precluded by the lack of available land on or near the site. The absence of space on the campus currently requires Baptist to lease space off-campus for various non-clinical support functions, such as accounting and bookkeeping. The downtown campus also has infrastructure problems. Several of the buildings on Baptist's downtown campus are nearly 50 years old. The "main building" was built in 1955. The inpatient areas in this building have shared bathrooms. It has significant mechanical and electrical problems. The life span for this building has expired and something must be done now to address how it will be replaced. The "One Southeast Building," also on the downtown campus, was built over 20 years ago as a temporary building, but has never been replaced. A critical problem at the downtown site is inadequate parking. As part of its ongoing patient satisfaction program, Baptist routinely takes surveys of its patients. The number one complaint from patients, their families and physicians on staff is the lack of adequate parking at the downtown hospital. To help alleviate this problem, Baptist has purchased off-site parking and runs a shuttle service for over 500 employees so that patients and visitors can better access on- site-parking. Redirecting existing patients who reside closer to the new satellite facility will contribute to relief of parking inadequacy downtown. Memorial contends Baptist's proposed hospital is premature. Baptist counters that it must take action to either relocate the 64 off-line beds or find a way to bring them back on-line at the main campus. While they are off-line, it makes more sense from a health planning perspective to relocate the beds to an area where there is population growth rather than simply bring the beds back on-line at the congested downtown campus. Establishment of the satellite hospital will decompress the downtown campus and serve the dynamic growth in southern Duval and northern St. Johns Counties. Relocation Need Criteria Although AHCA has a rule to determine the need for new or additional beds, it does not have a rule specifying a methodology for evaluating a proposal to relocate existing licensed beds within the subdistrict. The acute care bed calculation methodology in Rule 59C-1.038(4), Florida Administrative Code, therefore, is not applicable to Baptist's application. Rule 59C-1.038(6)(a), Florida Administrative Code, contains a preference for applicants proposing a capital expenditure on acute care beds that have documented a history of providing services to medically indigent patients. The Agency interprets subpart (6)(a) to be applicable to acute care bed relocations. Baptist's proposal earns this preference. Baptist Medical Center has the lowest average occupancy of the subdistrict hospitals on a licensed bed basis, and can easily afford to transfer 92 beds to its proposed south project. Baptist's proposal will enhance competition. While there will likely be some competitive impact to local area hospitals if approved, it will not materially compromise the operations of any other hospital in Duval or St. Johns Counties. In fact, officials at Flagler Hospital, located in St. Johns County, submitted a letter of support for this project. Local Health Plan Preferences Baptist is deemed to meet the first general preference relating to meeting identified needs by providing quality services in an economical manner. Baptist is deemed to meet the second general preference by addressing potential geographic access problems, especially access to emergency room services. Baptist meets the third general preference in terms of demonstrating that it has access to an adequate supply of health manpower. Baptist's application sets forth a well thought-out proposal to address the issue of staffing. The fourth general preference concerning adverse impact to existing providers does not apply to Baptist as it is not adding beds or a new service. The fifth general preference focuses on maximizing services to rural county residents. Duval County is not a rural county and this provision is really not applicable to any of the applicants in this case. While Baptist's proposal will not significantly enhance access to Medicaid and indigent patients in southern Duval County, approval of the project does enable Baptist to maintain its mission as a disproportionate share provider of Medicaid and indigent services. Baptist consciously chose not to condition this application on a set Medicaid percent. It is historically on record as providing both charity/indigent care and Medicaid services as a disproportionate share provider. Baptist will continue to provide health care services regardless of ability to pay. In addition to general preferences, the local health plan also contains preferences that relate specifically to acute care beds. The first acute care preference gives priority to proposals to convert licensed, unused bed space rather than undergo new construction. This preference applies to projects seeking "new" beds and is not applicable to what Baptist is proposing. The second acute care preference concerns applicants who demonstrate that they will provide a full array of acute care services. Baptist meets this preference. The third and fourth preferences are not applicable to Baptist's proposed project. The fifth acute care preference relates to applicants who have written patient transfer agreements with the county health department. Baptist does not technically meet this preference; nonetheless, as in the case of St. Vincent's, it complies with the spirit of the concern. Baptist is a disproportionate share provider and provides access to indigent patients. The sixth acute care preference speaks to applicants who demonstrate that the transfer of beds is necessary to maintain or improve care. Baptist meets this both by decompressing its downtown campus and by enhancing accessibility to acute care and emergency services to the southern county residents. Baptist meets the seventh acute care preference in that it is more cost-efficient to transfer the beds than to add to the congestion of its landlocked downtown campus. Finally Baptist meets the eighth acute care preference to the extent that approval of the transfer of these 92 beds will enable Baptist to continue its mission of providing health care to Medicaid and medically indigent patients. On balance, Baptist's proposal is clearly consistent with the preferences of the local health plan. Impact on Memorial 1. From St. Luke's and Baptist's Memorial is a financially strong provider, as its parent company, HCA. It will continue to grow and do well if all three applications are approved. Memorial's acute care beds are highly utilized. In the first six months of 2001 the occupancy rate was over 73%. It is projected to reach 80% occupancy before 2006. On an operating basis, Memorial is highly profitable, both historically and as projected. Memorial's earnings before interest, taxes, depreciation and amortization ("EBITDA") approximated $58 million in 2001 and $49 million the year before. Approval of St. Luke's application, alone (that is, without consideration of St. Vincent's application and its linkage with St. Luke's), will not have an adverse impact on Memorial. The replacement hospital will not be a community hospital but a tertiary/quaternary facility specifically designed to further all three components of Mayo's mission, unique within the health services planning district. The replacement hospital's unique character, its closed physician staff, the absence of obstetrical services and its regional, national and international draw will result in few local residents going to the facility for routine acute care hospital services offered at Memorial. In addition, the replacement hospital will be located approximately 10 miles east from St. Luke's, and thus further away from Memorial than St. Luke's is now. The approval of Baptist's application is not likely to have an adverse impact on Memorial. At final hearing, Memorial acknowledged that Baptist's approval would have the least consequence on its operations. Memorial calculated that the impact of approval of Baptist's application on its operations would be a net margin contribution loss in a range between $619,000 and $1.5 million. Such an impact does not weigh heavily in favor of denial of Baptist's application given Memorial's EBITDA of approximately $49 million in 2000 and $58 million in 2001. In making its analysis, moreover, Memorial did not assume any growth in its operations between 2201 and Baptist's projected second year of operation. Memorial's analysis did not take into consideration the location of the satellite hospital. In fact, the impact of approval of Baptist's application will have less of an impact on Baptist than leaving at Baptist's downtown campus the 92 beds to be transferred to the satellite hospital. The impact on Memorial from approval of either or both St. Luke's (without consideration of its linkage to St. Vincent's) and Baptist's application is so slight as to be not meaningful. 2. From St. Vincent's If zip codes making up at least 1% of admissions are used to define "primary service area," there is significant overlap between the primary service areas of Memorial and St. Vincent's at St. Luke's. If St. Vincent's application is approved, the St. Vincent's at St. Luke's primary service area will directly overlap with those zip codes from which Memorial receives the majority of its patients. The St. Vincent's at St. Luke's proposed primary service area is also concentrated within fewer zip codes than St. Luke's existing primary service area. St. Vincent's at St. Luke's will need to aggressively draw patients from its proposed primary service area in order to meet volume projections of 84.21% in 2006 and 86.52% in 2007. Financial Impact If the St. Luke's application to consolidate the Mayo operations on one campus stood alone, Memorial's health planner would not find the application "that problematic." (Tr. 2253). In fact, he agreed during cross-examination that the collocation of Mayo's clinical services with its other services creates an advantageous opportunity to share resources and achieve economies that would constitute "not normal" circumstances weighing in favor of approval of the St. Luke's application in the absence of numeric need. (Id.) Nonetheless, Memorial's health planner objected to the approval of St. Luke's application in conjunction with approval of St. Vincent's application for among other reasons the financial impact to Memorial when the two are considered together. St. Luke's projects 54,677 patient days for the St. Luke's at Mayo facility during the second year of operation (2007). St. Vincent's projects 42,632 patient days for the new St. Vincent's at St. Luke's facility during 2007 for a total projected patient days of 97,309 generated by the two new hospitals. Absent approval of its application, St. Luke's projects it will experience 70,139 patient days at the existing St. Luke's during 2007. Accordingly, there will be a net increase in patient days of 27,170 in the Subdistrict as a result of approval of the St. Luke's/St. Vincent's projects. An increase of 27,170 patient days divided by 365 days yields an incremental average daily census increase of 74.4 in 2007 in the Subdistrict that would otherwise be served by existing hospitals absent approval of the two new hospitals. Memorial experiences a 22.7% market share for non- tertiary services in Subdistrict 3. When the 22.7% market share is applied to the 74.4 incremental increase in the average daily census, Memorial can expect a loss of 6,167 patient days and a loss in average daily census of 16.9 patients during 2007. Memorial can be expected to lose 1,259 cases during the second year of operation of the new St. Vincent's at St. Luke's and the new St. Luke's at Mayo when the total lost 6,167 patient days is divided by Memorial's 4.9 average length of stay for non-tertiary services. The existing St. Vincent's projects it will treat 3,093 total patients from Subdistrict 3 in 2007 absent approval of the St. Vincent's at St. Luke's project. Therefore, St. Vincent's contends 10,695 patient days and 2,320 cases will be redirected from the existing St. Vincent's to the St. Vincent's at St. Luke's new facility based on the assumption it will capture 75% of the total volume bypassing St. Luke's to access St. Vincent's. This translates to an average daily census of 29.3 patients when the 10,695 patient days expected to be captured by St. Vincent's at St. Luke's is divided by 365 days a year. With St. Vincent's at St. Luke's capturing 75% of the subdistrict volume currently accessing St. Vincent's, the 74.4 incremental increase in average daily census projected above will be reduced by the 29.3 average daily census remaining in the St. Vincent's system. This yields a 45.1 net incremental average daily census increase in the subdistrict. Memorial will lose an average daily census of 10.2 patients per day applying Memorial's 22.7% market share to the incremental increase of 45.1 average daily census that other existing hospitals would otherwise treat assuming St. Vincent's meets the 75% transfer rate. A 10.2 loss per day multiplied by 365 days a year equates to a loss at Memorial of 3,739 patient days. Divided by Memorial's 4.9 average length of stay yields a potential loss of 763 cases in 2007. Mr. Beiseigel performed an impact analysis calculating a range of financial impact Memorial will incur assuming both 1,259 and 763 lost cases. Memorial will suffer a $3,092,775 net contribution margin loss assuming 1,259 lost cases in 2007. Assuming 763 lost cases, the contribution margin loss is $1,874,335 for 2007. The financial impact suffered by Memorial will more likely approach $3,092,775. This loss does not include losses in subsequent years. Memorial may benefit financially by the capture of some community physician open heart surgery and interventional cardiology volume due to the discontinuation of open heart surgery at the St. Vincent's at St. Luke's facility. But the benefit is not likely to be substantial. Memorial has experienced a decline in adult open heart surgery volume at its facility due in part to approvals of two new open heart programs in Georgia. Additionally, Flagler Hospital has also been approved for an adult open heart surgery program which is likely to result in lost open heart surgery and cardiology volume at Memorial. Any incidental cardiology volume realized by Memorial as a result of moving the open heart program to St. Luke's at Mayo is not likely to significantly offset the adverse impact to Memorial should the St. Vincent's, and St. Luke's projects be approved. Managed Care St. Vincent's at St. Luke's is also likely to take a significant level of managed care volume from Memorial. Managed care (HMO/PPO) accounts for 40.41% of Memorial's patient days compared to 20.7% at St. Luke's and 26% at St. Vincent's. St. Vincent's at St. Luke's projects that 40.42% of its patient days will be attributable to managed care. St. Vincent's at St. Luke's would be compelled to target managed care payors that currently contract with Memorial in order to meet its managed care projections. There currently exists adequate competition for managed care contracts within the District. Memorial has recently lost a managed care contract with United resulting in a 10 patient drop in Memorial's daily census. St. Vincent's at St. Luke's aggressive pursuit of managed care contracts as reflected in their projections will have an impact on Memorial.
Recommendation In consideration of the statutory and rule criteria, on balance, all three CON applications at issue in these consolidated cases should be approved by AHCA. DONE AND ENTERED this 5th day of February, 2003, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of February, 2003. COPIES FURNISHED: Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Kathryn F. Fenske, Esquire Agency for Health Care Administration 8355 Northwest 53rd Street Miami, Florida 33166 Michael J. Cherniga, Esquire Sean M. Frazier, Esquire Greenberg Traurig, P.A. 101 East College Avenue Tallahassee, Florida 32301 Stephen A. Ecenia, Esquire Thomas W. Konrad, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Stephen C. Emmanuel, Esquire Michael J. Glazer, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302-0391 R. Terry Rigsby, Esquire Law Office of R. Terry Rigsby, P. A. 215 South Monroe Street, Suite 505 Tallahassee, Florida 32301 Donna H. Stinson, Esquire Broad and Cassel 215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32302
The Issue The issue for consideration in this case is whether Petitioner should be granted an exemption from disqualification from working with residents or patients of nursing homes, home health agencies, homemaker-companion-sitter services, or nursing registries, because of the matters set out in the Agency’s letter of denial dated June 29, 1998.
