The Issue Whether the evidence presented by Sarasota Doctors Hospital, Inc., d/b/a Doctors Hospital of Sarasota, established its entitlement to approval of Certificate of Need Application No. 9320 for the addition of 21 acute care beds.
Findings Of Fact The Agency for Health Care Administration (AHCA) is the state agency authorized to administer the certificate of need (CON) program for health care services and facilities in Florida. For the January 2000 batching cycle, AHCA published a fixed need of zero for additional acute care beds in District 8, Subdistrict 6, for Sarasota County. Sarasota Doctors Hospital, Inc., d/b/a Doctors Hospital of Sarasota (Doctors Hospital) applied for Certificate of Need (CON) Number 9320, to add 21 acute care beds to those licensed and in service at its hospital in Sarasota County. If approved, the CON will have, as a condition, Doctors Hospital's commitment to provide 3.8 percent of patient days in the 21 beds to charity/self-pay and 3.2 percent to Medicaid patients. Doctors Hospital is owned and operated by The Health Care Company (HCA), formerly Columbia HCA, the largest investor- owned, for-profit hospital company in the United States. HCA owns and operates two hundred hospitals nationwide, forty-two of those in the State of Florida. Doctors Hospital is licensed to operate 147 acute care beds, in a five-story building. The first floor is used for ancillary, support, and diagnostic functions. These include radiology, cardiovascular and laboratory services, as well as the kitchen, cafeteria, administrative offices and medical records. The second floor is occupied by inpatient and outpatient surgical units, the central processing department, an endoscopy unit and a unit with 16 intensive care beds (ICU). The third floor is largely dedicated to acute care beds in specialty units, including a 9-bed surgical progressive care unit, a 14-bed oncology unit, a 9-bed unit for pediatrics, and a 17-bed obstetrics unit. The fourth floor has 42 licensed acute care beds and an additional 21 unlicensed beds which are used for observation or overflow patients. Observation patients are technically outpatients who occupy inpatient beds for less than 23 hours. From 30 to 50 outpatients use Doctors Hospital daily, although not all of those need acute care beds. In general, post-surgery patients who have moved from the recovery room or patients who require evaluations of their progress for a relatively short period of time occupy observation beds. The 21-bed observation unit, which was previously a licensed substance abuse unit, is the subject of the application at issue in this case. AHCA's expert witness testified that ". . . whenever the hospital is using these unlicensed beds, it is illegal." (Transcript, p. 218). Finally, the fifth floor at Doctors Hospital is used primarily for cardiac care. All of the 40 beds are telemetry monitored, eight of which are grouped together in a cardiac progressive care unit. Doctors Hospital is pursuing a pending application to perform open heart surgery, as a part of its plan to expand cardiac services. Approximately 25 percent of all admissions, the single largest diagnostic group, receive cardiac care. Approximately 800 cardiac catheterizations are performed annually at Doctors Hospital. Doctors Hospital also expects to expand women's' health services, based on increasing levels of inpatient admissions. Obstetrics admissions, for example, increased in volume by eight percent in one year. Doctors Hospital operates an emergency department, which was expected to reach a volume of 24,000 visits, or a three percent increase last year over the prior year. Almost 20 percent of the emergency room visits result in admissions to the hospital, which accounts for approximately 60 percent of total hospital admissions. The proportion of visits as compared to admissions is slightly higher than the subdistrict rate of 16.76 percent. The medical staff at Doctors Hospital is composed of close to 550 Board-certified or Board-eligible physicians who, as required by the hospital's bylaws, live or have offices within the Sarasota area or in southern and eastern areas of Manatee County. Subdistrict occupancy of at least 75 percent; and Rule 59C- 1.038(4)-not normal circumstances if below 75 percent AHCA determined that additional acute care beds are not needed in Sarasota County, partly because the occupancy requirement in the local health plan preference was not met. That requirement, for at least 75 percent average 12-month occupancy in acute care beds in the subdistrict, is substantially the same as that required by rule, to find need under normal circumstances. See Rule 59C-1.038(4)(a), Florida Administrative Code (1999). Four hospitals in Sarasota County have licensed acute care beds. In addition to Doctors Hospital, which is located in eastern Sarasota County, one and a half blocks east of Interstate 75, there are Sarasota Memorial Hospital (Sarasota Memorial), which is six miles to the west, Bon Secours-Venice Hospital (Bon Secours) and Englewood Community Hospital (Englewood), both of which are approximately 25 miles from Doctors Hospital in southern Sarasota County. At the four Sarasota County hospitals, the average annual acute care bed occupancy, calculated by AHCA, was 47.21 percent from July 1998 to June 1999. Average occupancy rates reported for each hospital separately, for that same period of time, for calendar year were as shown below: 1999, and from July 1999 to June 2000, 7/98-6/99 1999 7/99-6/2000 Doctors Hospital 69.95 68.84 68.48 Sarasota Memorial 38.23 40.59 39.68 Bon Secours 46.39 48.24 47.98 Englewood 55.80 63.11 64.98 The average annual occupancy for each hospital in AHCA District 8, subdistrict 6 is below 75 percent. Therefore, no additional acute care beds should be needed under normal circumstances. Hospital occupancy in acute care beds of at least 80 percent; Rule 59C-1.030(2)(a) -need for additional capacity; and Rule 59C-1.038(5) - not normal circumstances if over 80 percent The hospital-specific acute care bed occupancy preference, requiring at least 80 percent occupancy is also not met by Doctors Hospital. AHCA calculated the hospital's occupancy as 70.40 percent for what it termed "the reporting period." Doctors Hospital contends that a more realistic appraisal of the demand for beds requires the exclusion of the beds in the pediatrics and obstetrics units. The obstetrics unit, with 17 beds, is locked to limit access to newborns with limited immune system capabilities and to prevent abductions. Newborns stay in the rooms with their mothers, and it is not practical to use those beds for other medical/surgical patients. Although overflow post-surgical patients are sometimes placed in available beds in the nine-bed pediatric unit, concerns similar to those related to the obstetrics unit limit the use of designated pediatric beds for general acute care patients. Excluding pediatrics and obstetrics, Doctors Hospital has 121 acute care beds. Using only 121 acute care beds, to represent those which are generally available for adult medical/surgical patients, the occupancy rates in those beds were 84.14 percent in 1998, 79.02 percent in 1999, and 79.69 percent in 2000 (from January through September). For 2000, adjusted to include the remaining three months of the year, the occupancy rate is approximately 81 percent. Some of the 121 general adult acute care beds, even when available, are inappropriate for many medical/surgical patients. The 16-bed ICU on the second floor of Doctors Hospital is uncomfortable and unnecessarily costly for the hospital to operate for patients who do not require intensive care. The ICU does not have the same degree of privacy as patient rooms. Toilet facilities are located behind curtains. There are no showers. Lights are turned on almost 24 hours a day. For similar reasons, the surgical progressive care, cardiac progressive care units may be inappropriate for many patients. The oncology unit is not acceptable to some doctors due to the presence of terminally ill patients. There are also financial inefficiencies like those associated with intensive care, due to higher costs for the services provided in units which routinely care for more severely ill patients. Doctors Hospital evaluated occupancy levels excluding the specialty units. The occupancy levels in the remaining 74 acute care beds exceeded 70 percent, more than 80 percent of the time between January and November 2000. The most accurate measure of utilization of the facility, based on the evidence presented by Doctors Hospital, is not the midnight census. Although traditionally used by the hospital industry, in fact, the midnight census is typically the lowest of the day. When taken into account, outpatient and emergency room admissions, often arriving in the morning or during the day and discharged in the afternoon or evening, increase the midnight census at Doctors Hospital by five to ten patients each day. Doctors Hospital reported the effects of daily and seasonal variations on the utilization of acute care beds. From January through March, occupancy levels are higher than any other months. The same is true of weekdays, particularly towards the middle or end of the week, when occupancy levels range from four to seven percent higher than on weekends or at the beginning of the week. With average lengths of stay of four to four and a half days, utilization is uneven and usually at its peak on Thursdays of each week. Average monthly occupancy levels for the first nine months of 2000, ranged from lows of 67.88 percent in September and 70.35 percent in August to highs of 92.96 percent in January and 94.04 percent in February. AHCA rejected the notion that seasonal occupancy is a not normal basis for the approval of additional beds at Doctors' Hospital, because it is typical for all hospitals in Florida to experience higher volumes in winter due to the increase in the population of so-called "snowbirds." That group of older winter residents usually causes an increase in hospital occupancy in the first quarter of each year. AHCA found that additional acute care beds are not needed at Doctors Hospital because occupancy rates are leveling off. What Doctors Hospital projected, in the CON application, was an increase in utilization from 1999 to 2000, despite a historical drop by a little less than 5 percentage points from 1998 to 1999. The historical experience, explained by a temporary loss of a contract with a health maintenance organization is no longer a factor, however, since that contract has been renegotiated and re-instituted. By the end of 2001, Doctors Hospital reasonably projected 85 percent occupancy without the 21 additional acute care beds, and 72 percent with them. For the year 2002, occupancy levels could reach 89 percent without, and 75 percent with 21 more licensed beds included in the inventory. AHCA, by rule, has recognized that 80 percent occupancy is excessive. In order to accommodate unexpected demand, to move patients into appropriate units, and to operate at peak efficiencies, 75 percent occupancy is recommended. 408.035(1)(b) - availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing facilities in the area AHCA found no geographical, financial, or other access problems in Sarasota County. The population growth rate for Sarasota County is slower than that of the rest of District 8 and the State, although the fastest growing areas of the County are the zip codes in the Doctors Hospital service area. AHCA considered Sarasota Memorial a viable alternative to the use of additional beds at Doctors Hospital. Sarasota Memorial is six miles from Doctors Hospital, is larger, and offers the same services. It is also a disproportionate share provider, meaning it delivers a higher percentage of care to Medicaid-funded and other low income patients. AHCA proposed that Doctors Hospital respond to any capacity constraints by transferring patients to other under- utilized hospitals, particularly Sarasota Memorial. There was no issue raised concerning the quality of care at any of the other hospitals. Doctors Hospital may be able to redirect some but not all its inpatient admissions to Sarasota Memorial. Based on the proximity of Interstate 75, the lack of any trauma protocols in the district and federal regulations requiring the receiving hospital to treat some emergency room patients, Doctors Hospital cannot divert many of those patients to Sarasota Memorial. These patients represent 60 percent of total admissions to Doctors Hospital. Although the significant overlap in medical staffs allows the medical staff to respond to any over-crowding at Doctors Hospital, they are not re-directing their patients in sufficient numbers to alleviate the need to use the 21 unlicensed beds at Doctors Hospital. Another alternative to the CON proposal is a reallocation of beds from obstetrics, pediatrics, or other special units to increase the supply for general medical/surgical patients. The physical limitations on the accessibility and appropriateness of obstetrics and pediatrics units which justify their exclusion from any realistic evaluation of demand, also render infeasible any partial reallocation of their beds for general acute care use. Unit sizes based on staffing requirements and the efficient allocation of resources should not be altered as long as those special services are provided. 408.035(1)(l) - probable impact on costs, competition, innovations in financing and delivery of services, quality assurance and cost-effectiveness The 21 beds, which are proposed for acute care licensure are located on the fourth floor of Doctors Hospital. The equipment and staff available for the unit, currently used largely for observation patients, is substantially the same as that for other beds and units in the hospital. The nurse's station, corridors, furniture, bathrooms and medical air and gases are also the same. The only difference is that, unlike the existing acute care beds, most of the 21 beds are in semi- private rather than private rooms. The total estimated building cost for the project is, at most, $123,500 for refurbishing and cosmetic work. No additional fixed costs will be added to the health care system as a result of the approval of this CON application. There is no evidence of any adverse impacts on the other three acute care hospitals in the subdistrict. 408.035(1)(o) - continuum of care in multilevel system Although Doctors Hospital described community relationships and outpatient programs in its CON application, it is not a part of a multilevel health care system. Summary of criteria and prior AHCA decisions On balance, the evidence shows a need for the use of the 21 additional beds for acute care, as proposed in CON application number 9320. Doctors Hospital has demonstrated that it substantially meets all the CON criteria at issue in this proceeding, except the subdistrict occupancy of 75 percent and the operation of a multilevel health care system. In a case concerning Doctors Hospital's application for approval of an open heart surgery program, AHCA agreed that certain constraints on capacity exist at the facility. As described by the Administrative Law Judge and agreed by AHCA, the situation at Doctors Hospital, based on evidence presented in February and March of 1999, was as follows: Doctors' Capacity to Accommodate an OHS Program. Doctors' daily inpatient census has steadily grown since Doctors opened its new facility in 1995 in part because of the changed perception among physicians that the new facility is better able to handle more complex patients. Doctors' daily in-patient census will continue to grow in the foreseeable future as Doctors continues its successful efforts to increase the number of inpatient admissions at its hospital. At times, Doctors currently operates over its licensed bed capacity during the busy season. It has had as many as 188 in- patients in the facility for its 147 beds. Asked at hearing about operating in excess of capacity, Mr. Lievense replied, [B]ut they're not all in beds . . . in the middle of the day . . . you've got people down in the cath labs, . . . in the ORs, you've got them in the PACU, the recovery area . . . scattered all over the hospital. So you can have them . . . moving around like that and they're classified as inpatients, but in terms of the operation of the hospital, we don't look at them as inpatient, we look at them as a patient in process. (Tr. 116). Since opening its new facility, from time to time, Doctors has had to alert the Emergency Medical Services Office of Sarasota County to divert emergency patients from Doctors because of lack of beds. Because of its current constraints, during the busy season, Doctors will not be able to accommodate the incremental increase in daily census of 14 patients that is associated with implementation of an OHS program at Doctors, without operating in excess of its licensed bed capacity, regardless of the efforts of special bed coordinators who attempt to appropriately locate and relocate patients throughout the hospital. Doctors has 16 ICU beds grouped in two 8-bed pods. It plans to use five of them for the open heart patients. A review of Doctors' census shows that two-thirds of the time during the peak season (January through March), Doctors does not have five beds available for the open heart program. The problem is not limited to the peak season. Doctors has critical care capacity problems "year-wide." (Tr. 2082). Doctors' capacity constraints seriously compromise Doctors' ability to operate a high quality OHS program. Doctors does not have adequate numbers of OHS critical care beds to ensure its ability to provide high quality postoperative critical care to fresh OHS patients. At times, the five beds reserved for OHS patients might be occupied by both OHS and general ICU patients. At other times, an ICU bed might not be available for an OHS patient and the patient would have to be in another unit. Mixing OHS patients and general ICU patients is not good practice because it increases the exposure of the OHS patients to infection. Doctors' lack of adequate OHS critical care beds adversely impacts Doctors' ability to provide high quality of care to OHS patients. Doctors' ability to accommodate an OHS program is also compromised by the absence from Doctors' proposal of plans to construct and equip an additional cath lab, which will be necessary to accommodate the anticipated increase in diagnostic cardiac caths and angioplasties that are associated with an OHS program. Punta Gorda HMA, Inc., etc., et al. vs. AHCA, et al., DOAH Case No. 98-1134 (F.O. 2/9/2000; R.O. 9/16/1999). At the final hearing in this case, AHCA's expert attempted to distinguish the OHS case from this case, as follows: Q Did you review the Doctor's Hospital open-heart surgery final order? A Yes. Q What is your understanding of the capacity constraints indicated in the final order for Doctor's Hospital? A That is a final order related to the addition of a new service at an existing provider. And issues of capacity related to their ability to successfully integrate a new service are in play. Q Do you view that as a situation that we are discussing today? A No. Q How does it differ? A Here we are talking about adding beds to a service area where there are many beds of the types already available. Transcript, page 206. Although it does appear that critical care beds are the focus of concern in the open heart surgery case, the findings also clearly demonstrated that AHCA determined that utilization at Doctors Hospital exceeded licensed acute care bed capacity. AHCA's position in this case is not consistent with the evidence in this case or its findings in the prior open heart surgery case. Doctors Hospital also demonstrated some inconsistencies in AHCA's interpretation of subdistrict and hospital occupancy requirements and not normal circumstances for the addition of acute care beds in other recent cases. In its review of CON applications to add acute care beds, AHCA has preliminarily approved 14, since 1997, in which subdistrict occupancies ranged from a low of 36.66 percent in 1998-1999 at a Lake City hospital, to a high of 74.74 percent in 1997-1998 in a Marion County hospital. In 10 of those, the hospital occupancy rate was below the 80 percent standard, ranging from 57.66 percent to 77.61 percent. Although each set of special circumstance is different, in nine of the applications, seasonal demand was, at least, one factor. Hospital specific occupancy levels ranged from 65.9 to 76.29 percent in five of the nine approvals based, in part, on seasonal demand. See Doctors Hospital Exhibits 23, 24, and 25; and Transcript, pages 141-145 and page 209.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered granting the application for Certificate of Need Number 9320 for Sarasota Doctors Hospital, Inc., d/b/a Doctors Hospital of Sarasota to add 21 licensed acute care beds. DONE AND ENTERED this 30th day of March, 2001, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER 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 30th day of March, 2001. COPIES FURNISHED: Richard A. Patterson, Esquire Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308-5403
The Issue Whether Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(8): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the costs and methods of the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
The Issue The issue in this case is whether the Agency for Health Care Administration (AHCA) should grant the application of Wuesthoff Memorial Hospital, Inc. (WUESTHOFF), for a Certificate of Need (CON) (CON 8597) to establish a new 50-bed general acute care hospital in South Brevard County, District 7.
Findings Of Fact WUESTHOFF is a 303-bed, acute care hospital in Brevard County, Florida. In addition to its hospital, WUESTHOFF has three home health locations, eight or nine walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, two freestanding diagnostic centers, and outpatient labs throughout Brevard County. HRMC is a JCAHO accredited, 528-bed, regional, not-for- profit community hospital based in Melbourne, Brevard County, Florida. HRMC is comprised of two acute care campuses: a 468- bed tertiary hospital in Melbourne, and a 60-bed, general acute care hospital in Palm Bay. The Melbourne campus operates a 10-bed, Level II, neonatal, intensive care unit, and 428 general medical and pediatric beds. The Proposed Project WUESTHOFF chose to establish a satellite hospital complex in South Brevard County by applying separately for: (1) a certificate of need (CON) to decertify and de-license 100 general acute care hospital beds and undertake certain renovations and improvements at its existing Rockledge hospital facility; (2) a CON for a medical office building (MOB); (3) a non-reviewability letter for a $35 million diagnostic and treatment center (DTC), which would provide all of the ancillary services for the new satellite hospital; and (4) the CON to establish the 50-bed hospital (CON 8597) which is at issue in this case. In CON 8597, WUESTHOFF has asked AHCA to treat the $35 million DTC as the “sunk” costs of an existing facility, and to review the CON application at issue in this case incrementally— i.e., as consisting of only the inpatient tower and the additional ancillary activities that would take place at the complex, over and above those that would take place at the DTC without the inpatient tower. Viewing CON 8597 in this way, WUESTHOFF presented total project costs of only $13 million. In preparing the financial schedules for CON 8597, WUESTHOFF presented the revenues and expenses of the entire hospital operation (including the DTC), except for the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower, and the revenues and expenses of the entire hospital operation, including the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower. By presenting the financial schedules in this manner, WUESTHOFF never presented the revenues and expenses of the entirety of the new satellite hospital it is proposing to establish, and AHCA has not had the opportunity to review those revenues and expenses. WUESTHOFF planned to build the MOB, the DTC and the inpatient tower in one continual course of construction and to open the entire complex at the same time; the complex, when completed, was planned to function as a single, integrated hospital facility. AHCA granted the first three applications comprising WUESTHOFF’s project but denied CON 8597. In a subsequent batch, WUESTHOFF filed a letter of intent for a single CON application that the combined the DTC and inpatient tower projects at a total cost of approximately $50,000,000. Need In Relation To State And District Health Plans: Section 408.035(1)(a) Florida Statutes State Health Plan The first State Health Plan preference favors applicants who demonstrate that the subdistrict occupancy rate is at or exceeds 75 percent, or in the case of existing facilities, where the occupancy rate for the most recent 12 months is at or exceeds 85 percent. WUESTHOFF failed to meet this preference. For the applicable period, the subdistrict occupancy was approximately 53 percent; however, more recent data shows that occupancy is below 53 percent, which suggests a continuing decline in inpatient occupancy rates in the subdistrict. During the applicable period, the occupancy rate at WUESTHOFF’s Rockledge facility was only slightly more than 45 percent. The second State Health Plan preference favors an applicant with a history of providing a disproportionate share of the subdistrict’s acute care and Medicaid patient days, and further meets the Medicaid disproportionate share hospital criteria. WUESTHOFF failed to meet this preference, as it is not a disproportionate share provider. The third State Health Plan preference favors an applicant that provides or proposes to provide disproportionate share of Medicaid and charity care patient days in relation to other hospitals within the district or subdistrict. WUESTHOFF’s existing facility is not a disproportionate share hospital. (Although WUESTHOFF’s CON application proposes to condition award of the CON setting aside 15 percent of its discharges for Medicaid, charity, and indigent patients, its application does not provide percentages for each category.) The fourth State Health Plan preference considers the current and projected indigent inpatient case load, the proposed facility size, and the case and service mix, WUESTHOFF’s application partially complies with the preference in that it proposes to provide some indigent care. The fifth State Health Plan preference favors proposals that would not negatively affect the financial viability of an existing, disproportionate share hospital. This preference is not applicable in this case. The sixth State Health Plan preference favors applicants with a record of accepting indigent patients for emergency care. WUESTHOFF meets this preference. The seventh State Health Plan preference favors applicants for any type of hospital project if the facility is verified as a trauma center. WUESTHOFF does not meet this preference. WUESTHOFF claims that it operate the emergency room at the proposed facility with “the same level of services as WUESTHOFF’s existing emergency room.” WUESTHOFF does not currently operate a Level II trauma center at its Rockledge campus. The eighth State Health Plan preference favors applicants who can document that they provide a full range of emergency services. WUESTHOFF’s Rockledge facility offers a range of emergency services, but the emergency department at the proposed facility will necessarily offer a limited range of services, as the proposed facility will not be a tertiary care hospital, and emergency patients in need of those services will have to be transferred. The ninth State Health Plan preference favors applicants who can document that it has not been fined by HRS for any violation of the emergency services statutes. WUESTHOFF meets this preference. Local Health Plan Preferences The District 7 Local Health Plan sets forth five preferences to be used in evaluating CON applications for the transfer/relocation/delicensure of acute care beds. The health plan provides that “[p]reference shall be given to applications for transfer of existing acute care beds, delicensure/conversion of existing acute care beds and/or relocation of an entire facility if the applicant can provide substantial documentation of: The need for acute care beds or specialty beds in the service area proposed to receive the beds. Need should address specific populations, access consideration, etc. The impact of the proposed project on the parent facility including projected occupancy declines, curtailing of service effect on operating cost, use of vacated space at the main campus and charge changes. The proposed service improving access by at least 25 minutes to at least 10 percent of the population or a minimum of at least 35,000 people. This should be substantiated by analyses of patient origin to existing providers, physician referral practices and location of physician offices. Commitment to provision of care to both no-pay and low-pay medically indigent patients and Medicaid patients at a minimum of no more than 2 percent below the most recent HCB publication for the District of the charity/uncompensated care percentage of net revenues. Agreement to participate in any indigent care programs which exist in the county or counties proposed to be served. Participation should be at a rate equal to or greater than the average for the general hospitals also serving that area. As to the first preference, WUESTHOFF failed to demonstrate a need for the proposed 50-bed general acute care hospital. Even with the delicensure of 100 acute care beds as a result of WUESTHOFF’s companion application, there still is an oversupply of 215 acute care beds in the county. The evidence presented at the final hearing failed to demonstrate any geographic or other barriers to accessing acute care services that would warrant the expenditure proposed by WUESTHOFF to construct the proposed project. Indeed, WUESTHOFF’s own evidence was clear that every resident of Brevard County has access to a general acute care hospital within a maximum drive time of 30-40 minutes and, in almost all instances, to two different acute care facilities within a 30-40 minute drive time. WUESTHOFF contends that its proposed 50-bed general acute care hospital is needed for four reasons: (1) to provide a high quality alternative inpatient health care provider in south Brevard County; (2) to introduce competition into the south Brevard area; (3) to enhance access to care to Medicaid, charity, and indigent population, as well as to enhance access for the managed care segment of the population; and (4) to enable WUESTHOFF to remain competitive in the marketplace. The evidence is clear that HRMC provides high quality inpatient health care in south Brevard County. See Findings 30- 44, infra. In addition, WUESTHOFF already serves some patients, residing in south Brevard County, and so does Sebastian River Medical Center, located in the adjacent county to the south. The evidence also is clear that there already is competition for inpatient hospital services in south Brevard County. HRMC serves a much greater percentage of those patients primarily due to its location and the high quality and low costs of HRMC’s services. In view of the excess capacity of hospital beds in the county, it does not make sense to add a satellite WUESTHOFF hospital in south Brevard County that would duplicate the services of the existing providers. WUESTHOFF also attempted to show that its proposed acute care hospital was needed in order to provide services for managed care participants. However, WUESTHOFF failed to offer any competent evidence to show that participants in managed care programs are a traditionally underserved population group and did not prove that WUESTHOFF’s ability to participate in managed care networks is a valid basis for determining the need of additional acute care services in south Brevard County. To the contrary, the evidence tended to show that the expansion of managed care programs would result in a decrease in the utilization of inpatient acute care services. Furthermore, there is no barrier to WUESTHOFF’s participating in managed care programs with one or more facilities in the southern portion of Brevard County, and in fact WUESTHOFF has aligned itself with Sebastian River Medical Center in a number of managed care contracts serving residents of southern Brevard County. While WUESTHOFF is offering a larger discount to managed care payers, its charges are higher, resulting in net revenue per managed care case that is still higher than HRMC’s. The price the managed care providers pay to HRMC is actually 14 percent lower than what they pay to WUESTHOFF. Not only does HRMC provide a better “deal” to managed care payers, but HRMC’s managed care volume is also greater than WUESTHOFF’s, indicating HRMC’s willingness to negotiate and work with managed care companies. At the time WUESTHOFF submitted its CON application, the penetration of managed care in Brevard County was approximately 8.6 percent. However, more recent data from 1996 shows a significant increase in the penetration of managed care to 15 percent, without the allegedly needed new hospital. A primary thrust of WUESTHOFF’s case for the need for its proposed project was that patients in the southern portion of Brevard County cannot be admitted into HRMC’s Palm Bay facility because its physicians do not enjoy staff privileges at that facility. Each hospital establishes criterion for staff privileges. In order to be eligible for staff privileges, it is normally required that the physician reside or have his or her office within certain geographic boundaries surrounding the hospital. The primary reason for such requirement is to ensure that the physician is capable of responding to patient needs within a time certain and that the physician will be able to provide coverage for his or her patients admitted into a facility. Dr. Arnold, a physician with staff privileges at WUESTHOFF who operates an office in West Melbourne, conceded that if his physician group associated with a physician living within HRMC’s geographic boundaries who was able to meet response time criteria, the physician group could admit patients into HRMC. Dr. Arnold also conceded that his physician group is not eligible for staff privileges at other Brevard hospitals, based on geographic considerations. The Availability, Quality Of Care, Efficiency, Appropriateness, Accessibility, Extent Of Utilization, And Adequacy Of Like And Existing Health Care Services In The Service District: Section 408.035(1)(b), Florida Statutes. There is no need for another hospital in South Brevard County. The county already has more than enough hospitals. Even in light of a 27-29 percent increase in population, utilization of Brevard County hospitals has dropped 10 percent in the last five years. There has been a marked shift in the Brevard County area away from inpatient services toward outpatient services. That shift is still growing. HRMC is the only hospital in Brevard County which has been nationally recognized for quality care by the National Research Corporation. According to AHCA’s hospital report card, HRMC was shown to be a consistent, low-charge provider, operating within the expected range of outcomes. According to a study done by AHCA, HRMC performs as one of the top five hospitals in Florida for reducing overall C-section births and increasing vaginal births after Cesarean (“VBAC”). This is important because vaginal births are safer for both mother and baby and save approximately $3,000 per delivery when compared with Cesarean births. HRMC has the lowest Cesarean Section rate and the highest VBAC rate in Brevard County and is one of the five lowest charging hospitals in the State for these services. Wuesthoff, on the other hand, has some of the highest costs in the county for these services. HRMC is providing efficient hospital services when compared with WUESTHOFF and other markets where competition is a factor. Of the zip codes addressed in WUESTHOFF’s travel study, there is no zip code in Brevard County that is more than 30 minutes from an existing hospital. Of the fourteen intersections tested, the addition of the proposed project would decrease travel times from only three intersections, with the greatest decrease in travel time being only nine minutes. Thus, the construction of WUESTHOFF’s proposed facility would not significantly increase access for Brevard County patients. HRMC delivers the majority of Medicaid babies in the county and is also a contract provider for Children’s Medical Services. HRMC worked with the Public Health Department to develop a better system for giving prenatal care and delivery to Medicaid and indigent mothers. HRMC offered to subsidize the salary of a doctor, and eventually two midwives, to work with the Public Health Department for this purpose. HRMC’s HOPE programs provides access to Medicaid and indigent patients. HOPE clinic and HOPE van expenses are direct expenses of HRMC. In addition to medical care, the HOPE program also provides free medication to those who cannot afford it. HRMC’s HOPE van provides services to the homeless every Tuesday, seeing as many as 40 patients each visit. Patients are provided with an examination, medications, and referrals to specialists or the hospital, if necessary. This care is provided at no charge to the patient. HRMC’s HOPE program was given the Nova award by the American Hospital Association for its ground-breaking effort in community health improvement. It is the only program in Florida which has been so recognized. The HOPE program has also received the Heartland Award from Governor Chiles for its work at improving the status of life in Florida. HRMC supports a variety of agencies to provide care to indigent AIDS patients. HRMC provides services to a nonprofit outpatient AIDS services organization, which offers reduced-rate and free lab services. HRMC, along with the Public Health Unit, funded a dental clinic for the AIDS organization. The hospitals in Brevard County do a good job in regard to taking care of the patients who are incapable of paying, with HRMC going the extra mile to provide services to the poor. There was no evidence that persons in need of quality, general acute care services are not able to access those services at any existing provider in Brevard County. There is no lack of availability or access to general acute care services based on either geographic or financial grounds. WUESTHOFF’s proposed 50- bed general acute care hospital is not needed to accomplish this. The Ability Of The Applicant To Provide Quality Of Care And The Applicant’s Record Of Providing Quality Of Care: Section 408.035(1)(c), Florida Statutes. It is clear that WUESTHOFF is capable of providing quality inpatient health care services. However, it is found that HRMC is providing higher quality services (and at a lower cost). As shown in AHCA’s hospital report card, WUESTHOFF performed in the lowest 15 percent in the State in 5 of 6 serviced lines where mortality was measured. On the other hand, HRMC was indicated to be consistently a low-charge provider, operating within expected outcomes. HRMC’s C-section rate is significantly lower than WUESTHOFF’s, and its VBAC rate much higher. The results of a low C-section rate are lower lengths of stay and less risk to both mom and baby. The Availability And Adequacy Of Other Health Care Facilities And Services In The District Which May Serve As Alternatives For The Services To Be Provided By The Applicant: Section 408.035(1)(d), Florida Statutes. WUESTHOFF already has three home health locations, 8 or walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, 2 freestanding diagnostic centers, and outpatient labs in Brevard County. In addition, WUESTHOFF plans to construct a new outpatient and diagnostic center in south Brevard County. In addition, inpatient surgeries have shifted to private, for-profit outpatient centers and ambulatory surgery centers that have opened in the last five years in Brevard County. The competent, substantial evidence presented at the final hearing demonstrates that within Brevard County, there are available and adequate alternatives to the inpatient services proposed by WUESTHOFF. First, as discussed above, the existing providers of acute inpatient health care services have capacity to absorb any increase in the utilization of acute care services in the County. Second, data introduced at the final hearing demonstrate that overall utilization for the types of services WUESTHOFF proposes to offer are declining and demonstrate that residents are seeking out alternatives to inpatient hospital services. For example, from 1993-1996, inpatient surgery services in Brevard County showed a marked decline of approximately 20 percent, both in number of patients and procedures. This trend is not unique to Brevard County, but is occurring throughout the state. Health care providers are seeking alternatives to hospitalization, with procedures being performed in physician offices and ambulatory surgical centers. Likewise, there has been a decline in utilization of several other services WUESTHOFF is proposing for its 50-bed hospital. During the period 1993-1996, while the population of Brevard County was growing at a rate of approximately 2.4 percent per year, the rate of obstetric admissions as a percentage of admissions to Brevard hospitals declined. There is excess capacity for pediatric and obstetrical services in Brevard County. The average daily census in obstetrical beds has dropped from approximately 34 patients per day to approximately 29 per day. With 66 reported available obstetrical beds in Brevard County, that means that on any day only 44 percent of the available capacity is being utilized. Likewise, pediatric census has gone from approximately 32 patients per day to only about 25. With 78 reported pediatrics beds, a demand for only 25 beds means that approximately 32 percent of available capacity is utilized. Probable Economies And Improvements In Service That May Be Derived From Operation Of Joint, Cooperative, Or Shared Health Care Resources: Section 408.035(1)(e), Florida Statutes. WUESTHOFF does not propose the operation of a joint, cooperative, or shared program with any other entity. WUESTHOFF contends that its application is consistent with this criterion because it proposes the sharing of certain resources with its main facility. But the construction of a satellite facility will result in the duplication of certain services. It is actually less efficient for a hospital to operate two campuses. The Need in the Service District for Special Equipment and Services Which Are Not Reasonably and Economically Accessible in Adjoining Areas: Section 408.035(1)(f), Florida Statutes. WUESTHOFF’s CON application does not propose to provide special equipment. This criterion is not met. The Need For Research And Educational Facilities, Health Care Practitioners, And Doctors Of Osteopathy And Medicine At The Student, Internship, And Residency Training Levels: Section 408.035(1)(g), Florida Statutes. This need is already being met in the community. WUESTHOFF, HRMC, and other Brevard County hospitals are already active in community training programs through their links with Brevard Community College and the University of Central Florida. HRMC has institutional training programs with the University of Florida, all Children’s Hospital, the local vo- tech, and University of Central Florida, in addition to other community programs. The Immediate And Long-Term Financial Feasibility Of The Proposal: Section 408.035(1)(i), Florida Statutes. The immediate financial feasibility of a proposed project is satisfied by showing that the applicant has adequate financial resources to fund the capital costs of the project and the financial ability to fund short-term operating losses. WUESTHOFF has demonstrated that its proposed project is financially feasible in the short-term. Long-term financial feasibility is established by demonstrating that projected revenues can be attained in light of the projected utilization of the proposed service and average length of stay. WUESTHOFF has not demonstrated that it can achieve its projected revenues by the second year of operation and has, therefore, failed to demonstrate long-term financial feasibility. It is impossible to tell from the information contained in WUESTHOFF’s CON application 8597 what the revenues and expenses of the new hospital will be. Staffing and supply costs associated with the ancillary building, but which will be used by the hospital when constructed and which amount to millions of dollars, are not broken out in the application. The application also does not show the totality of the costs associated with the 50-bed hospital WUESTHOFF seeks to establish. For example, provision for bad debt expense does not appear in the application, nor does the indigent care tax expense. Furthermore, the application does not provide for any administrative staff for the new hospital, nor has all other necessary staff been provided for. If these positions are included under “other,” then the salary expense projected is not enough. Also, the salaries listed on Schedule 6 do not include benefits. The preopening expenses figure shown in WUESTHOFF’s application is reasonable only if the entire facility, the ancillary, outpatient, and inpatient tower would open all at the same time. It is very difficult to analyze the reasonableness of the financial projections because the revenues and expenses do not match. All the revenue from the proposed new facility appears to be included, but not all of the expenses. Schedule 8A shows that daily ancillary expenses are $470 at WUESTHOFF’s existing hospital but only $82 at the new, proposed hospital. It is implausible that the new hospital would have costs this much lower than the existing hospital. WUESTHOFF’s staffing projections do not account for a significant number of nursing and other staff necessary for the operation of the facility as a hospital. The projections only address nursing positions for the 50-bed, inpatient tower. The schedule fails to show those nurses assigned to the ancillary services areas in the outpatient diagnostic center who will be working with inpatients. For example, the scrub nurses in the emergency department who will be working on inpatients are not included in the schedule, and the nurses working in radiology who will be caring for inpatients are not shown. The schedule fails to include a director of nursing at the proposed hospital facility. Although WUESTHOFF claimed that it will assign a director of nursing when patient volumes reach 50%, it failed to include projections for that position in this second year projections, even though patient volumes are projected to reach 50% in the second year. Wuesthoff also failed to include benefits in its computation of salaries on Schedule 6, even though it expects to pay benefits at a rate of 20% of salary. Interest expenses are also significantly understated. The project is financed with 100 percent debt, which should amount to an interest expense of approximately $850,000.00 per year. However, the application shows interest in year one as $197,000.00 and for year two, $393,000.00. It is unusual that interest would be higher in year two than year one. There is no way to tell from looking at the schedules or assumptions in the application what the utilization of the new hospital will be, or how the patient days break out by payor. Therefore, reasonableness of the financial projections cannot be tested. Without additional information, one cannot determine if the average charges projected are reasonable. There are unusual projections, such as the charges during construction, year one, and year two, in the application which without explanation are not reasonable. The financial projections as to the whole facility are unreasonable. They show that WUESTHOFF, which currently makes $7 or $8 million dollars each year, will lose money once the new facility is open but that, in its second year, the new facility will make $6.9 million. Such a projection is unreasonable. By focusing only on the incremental effect of adding an inpatient tower to a presumed existing DTC, WUESTHOFF’s financial projections are not sufficient to allow a conclusion to be drawn as to the financial feasibility of the new 50-bed hospital. However, it would appear that, if those schedules had been presented, they would have shown the new satellite hospital, taken in its entirety, not to be financially feasible in the long term. The Special Needs Of Health Maintenance Organizations: Section 408.035(1)(j), Florida Statutes. The application is not made on behalf of an HMO, and this criterion is not applicable. The Needs And Circumstances Of Those Entities Which Provide A Substantial Portion Of Their Services Or Resources, Or Both, To Individuals Not Residing In The District: Section 408.035(1)(k), Florida Statutes. The CON application does not address serving a substantial number of persons or providing a substantial portion of services to individuals residing outside the district, and this criterion is not applicable. The Probable Impact Of The Proposed Project On The Costs Of Providing Health Services Proposed By The Applicant, Including The Effect On Competition: Section 408.035(1)(l), Florida Statutes. There is significant competition for managed care services in Brevard County. HRMC seeks and desires to enter into managed care contracts and is as competitive in the managed care arena as WUESTHOFF is. In fact, HRMC’s managed-care, patient volume is higher than WUESTHOFF’s. Managed care penetration in Brevard County has increased over the last five years and especially in the last two years. One particular HMO in Brevard County that is just getting started has received an acceptable managed care offer from HRMC. If they did not receive an acceptable offer from WUESTHOFF. Brevard County does not need another inpatient facility to allow the County to achieve higher levels of managed care penetration. There are no barriers in Brevard County to increasing HMO and other managed care penetration. Even though HRMC has an 82 percent market share in South Brevard County, that by itself does not indicate HRMC is charging non-competitive prices. In fact, HRMC’s charges are much lower than WUESTHOFF’s. Both the State of Florida and the FTC found that HRMC’s merger with Cape Canaveral when Health First was formed did not create an adverse, competitive effect on the marketplace. Because HRMC’s charges are so much lower than WUESTHOFF’s, the addition of the proposed hospital would not introduce price competition into the market. The majority of the proposed hospital’s patients are likely to come from South Brevard County-–an area where HRMC has an 82.5 percent market share. Thus, the bulk of the proposed hospital’s patients will come from HRMC. If the proposed hospital meets its projected utilization, HRMC stands to lose somewhere between $4 and $5 million a year. While that loss may not put HRMC into bankruptcy, it will have a significant adverse effect. The Costs And Methods Of The Proposed Construction And The Availability Of Alternative, Less Costly, Or More Effective Methods Of Construction: Section 408.035(1)(m), Florida Statutes. WUESTHOFF’s proposal to establish a 50-bed, general, acute care hospital entails the construction of a 3-story, 50-bed patient tower adjoining an outpatient diagnostic center. The outpatient diagnostic center, and not the inpatient tower, will encompass virtually all of the ancillary services necessary for WUESTHOFF to obtain a license to operate its facility as a hospital. As more fully discussed below, WUESTHOFF’s proposed 50- bed inpatient hospital will require substantial design modification and increased square footage in order to obtain licensure as a general, acute care hospital. The Applicant’s Past And Proposed Provision Of Health Care Services To Medicaid Patients And The Medically Indigent: Section 408.035(1)(n), Florida Statutes. The evidence showed that all acute care hospitals in Brevard County provide a fair level of Medicaid and indigent care in comparison to the remainder of the state. In its CON application, WUESTHOFF proposes to condition approval of its 50- bed, general, acute care hospital on providing 15 percent Medicaid and charity care, but did not provide a breakdown of each. There was no documented access problems for Medicaid or indigent patients that would warrant a new health care facility. Because indigent care is reported to the State based on a hospital’s charges, WUESTHOFF and HRMC could be doing the same amount of indigent care, but WUESTHOFF could appear to be doing more because its charges are higher. Whether Less Costly, More Efficient, Or More Appropriate Alternatives To The Proposed Inpatient Services Are Available: Section 408.035(2)(a), Florida Statutes. HRMC’s average charges are significantly lower than WUESTHOFF’s on both a per case and per patient day basis. HRMC’s costs are also lower, indicating it is more efficient. Therefore, the addition of another less-efficient, higher- charging WUESTHOFF hospital into the market would be more costly and less efficient than what it is there now. The greater weight of the evidence establishes that denial of WUESTHOFF’s proposed 50-bed, general acute care hospital is the least costly, more efficient, and appropriate alternative. The existing providers of acute care services in Brevard County are operating efficiently and have unused capacity that is available to serve Brevard residents. Data suggests that while the population of Brevard County is growing, there is no corresponding increase in utilization of general, acute care services. While Brevard enjoys a proportionately higher growth rate than the rest of the State, the growth does not translate into higher utilization of general acute care services. Further, the age 65+ population, those most likely to use hospital services, has experienced an annual growth of approximately 3.7 percent between 1990-1996, which is higher than the overall rate of growth for Brevard. While there has been a significant growth in the number of elderly and Medicaid eligible population, only approximately percent of those eligible for Medicaid in the 14 zip codes targeted as the service area of WUESTHOFF’s proposed hospital actually use hospital services. In 1993, the last year of available data, the actual county-wide use rate for Medicaid eligible residents was only 8.4 percent. This is expected to remain constant in subsequent years, as the demand for inpatient acute care services has not increased, but has in fact decreased. There is insufficient utilization of the inpatient acute care services which already exist in Brevard County, with approximately 50 percent of the available beds unoccupied. The addition of another health care facility will not improve access, improve delivery of services, or make services available to a population that is not presently being adequately and appropriately served by existing providers. In a market where inpatient volume is going down, length of stay is going down, and utilization is going down, it does not make sense to spend scarce dollars on new inpatient services. Whether The Existing Facilities Providing Similar Inpatient Services Are Being Used In An Appropriate And Efficient Manner: Section 408.035(2)(b), Florida Statutes. The greater weight of the evidence established that there is available capacity for inpatient services like those proposed by WUESTHOFF at the existing, general, acute care facilities in Brevard County. WUESTHOFF did not demonstrate that any provider is suffering from over utilization or that any patient has not been able to access general acute care services when such services were necessary. On the contrary, there was a consensus among the experts, even WUESTHOFF’s experts, that there is no problem with geographic or financial access to existing providers. Between 1993 and 1996, hospital utilization dropped from 63 percent to 52 percent. AT WUESTHOFF’s Rockledge campus, utilization fell from a high of 63 percent in 1993, to approximately 46 percent in 1996. During this same period, the population of Brevard County grew at a rate of approximately 2.4 percent per year, which was proportionately higher than for the rest of the state. At HRMC, its occupancy dropped, but not quite as dramatically. Between 1993 and 1996, HRMC’s occupancy went from 67 percent to approximately 62 percent. The satellite facility, operated by HRMC in Palm Bay and located in the same service area where WUESTHOFF proposes to construct its 50-bed general acute care hospital, has never experienced occupancy above 31 percent. That Patients Will Experience Serious Problems In Obtaining Inpatient Care Of The Type Proposed, In The Absence Of The Proposed New Service: Section 408.035(2)(d), Florida Statutes. There was no evidence to show that any population group in Brevard County is unable to access quality health care services at any of the subdistrict’s existing facilities. Further, WUESTHOFF failed to establish that its proposed facility was needed to provide general acute care services not currently provided or currently accessible to residents of south Brevard County. WUESTHOFF maintains that participants in managed care contracts may not be able to access WUESTHOFF’s general acute care services without approval of the proposed project, but there was not demonstration that those individuals would not otherwise have access to quality affordable health care in Brevard County. WUESTHOFF also failed to demonstrate that participants in managed care programs are a “traditionally underserved” population group for a determination of need under not normal circumstances. CON Application Content And Procedures: Section 408.037, Florida Statutes And Rule 59C-1.008, Florida Administrative Code. The parties stipulated as to the timeliness of the submission of WUESTHOFF’s Letter of Intent, initial CON application and response to omissions. However, the board resolution required by Section 408.037, Florida Statutes, and Rule 59C-1.008, Florida Administrative Code, is fatally defective. The applicant is required to provide certification that its governing board enacted a resolution to license and operate the proposed facility. In this case, the proposed 50- bed, inpatient tower cannot be licensed by the applicant as a hospital. In order to obtain hospital licensure, the proposed project would necessarily include the $35+ million that WUESTHOFF proposes to spend on its outpatient diagnostic center. WUESTHOFF’s CON application also fails to comply with Section 408.037(2)(c), which requires detailed financial projection including a statement of the revenues and expense for the period of construction and the first two years of operation after completion of the project. The proposed project is a “hospital.” The hospital will report all of the revenues and expenses of the inpatient and outpatients to the state in its actual report, and those same projected revenues and expenses should be in the pro forma of a certificate of need application for a new hospital project. Instead, the projected revenues and expenses in the pro formas take an “incremental” approach and focus only on the 50-bed tower and an unspecified portion of the diagnostic center. WUESTHOFF’s own financial expert admitted that one cannot determine the revenues and expenses of the new hospital from the information contained in the application. AHCA does not have sufficient information with respect to revenues and expenditures in the pro formas to determine the financial feasibility of the hospital project. The pro formas do not meet the statutory requirement contained in 408.037(2)(c), Florida Statutes, and are fatally defective. Neither AHCA nor its predecessor agency ever have approved a CON to establish a hospital without ever seeing projections of the revenues and expenses of the hospital as a whole. Additions to hospitals have been approved on a strictly incremental basis; but, in those cases, the revenues and expenses of the hospital as a whole already had been reviewed and approved. Inpatient cardiac catheterization programs also have been approved, based on a strictly incremental review of the financial impact of converting from an existing outpatient to an inpatient program. But there is a meaningful difference between the approval of a program in a hospital facility that already has been reviewed and approved as a whole and what WUESTHOFF is seeking to have done in this case. There also is a difference between treating the costs of an existing and operating facility or program as being “sunk” and treating the $35 million capital cost and additional operating costs of the proposed DTC in this case as being “sunk.” In the former, the costs have been or are being spent and truly are “sunk”; in the latter, despite WUESTHOFF’s assurances, the DTC money has not been spent, and the DTC has not been established. Indeed, the decision properly before AHCA in this case is whether those expenditures should be made for purposes of establishing a hospital. If not, the hospital should not be approved. If WUESTHOFF still wants to build and operate its proposed $35 million anyway, as it has assured AHCA that it will do, it is free to do so. Criteria Used In Evaluation Of CON Applications: Rule 59C-1.030, Florida Administrative Code. AHCA’s rules set forth additional criteria used to evaluate CON applications which focus on whether there is a need for the proposed service in the population to be served and whether the proposed project is accessible to those in need of the service. The evidence in this case showed that there was no unmet need in Brevard County for inpatient, general, acute care services and that the target population is adequately served by the existing providers of general acute care services. Furthermore, the evidenced showed that the anticipated population growth in Brevard County is not likely to generate additional numbers of inpatient admissions, based on the decline in utilization during a period when Brevard County was experiencing unprecedented annual growth at a rate of 2.4 percent overall and 3.7 percent in the 65+ population. Any attendant increase in demand for inpatient general acute care services can be easily accommodated by the existing providers in Brevard County. The rule also examines the extent to which an applicant provides services to Medicare, Medicaid, and the medically indigent patients. The evidence showed that WUESTHOFF provides a fair amount of general acute care services to Medicare, Medicaid, and charity patients, as do the other existing providers in Brevard County. Hospital Physical Plant Requirements For Licensure: Rule 59A-3, Florida Administrative Code. WUESTHOFF’s 50-bed, general, acute care hospital, as proposed, cannot meet licensure standards without significant adjustment to the design to bring it into compliance with the licensure rules. Rule 59A-3.081(4)(c), Florida Administrative Code, specifically requires that the critical care nurse’s station be situated so that nurses have visual control of each patient from common spaces. The schematics provided by WUESTHOFF indicate that there is no visual control of two patient rooms located in the northwest end of the unit. As to functionality of the space, there is no observation from the nurses station to trauma rooms located at the end of the unit and inadequate proximity to support spaces, such as soiled and clean utility and med prep, to the trauma rooms. Seriously injured patients would necessarily be transported up to surgery through what would be public corridor spaces in order to access elevators and then through additional public spaces on the second floor. Inpatient access to the CT scan room and MRI room appears to be made through a narrow, 5-foot wide corridor. Hospital licensure regulations require inpatient access through an 8-foot corridor. The only 8-foot corridors available for inpatient use, the service corridor off the housekeeping and staff facilities area to the rear of the unit and the corridor located between radiology and dietary, do not appear to be appropriate means for inpatients to access these rooms. On the third floor of the facility, WUESTHOFF proposes to locate an aerobics and exercise room, directly above the second floor patient recovery area and two of the operating rooms. With an exercise area located above such critical areas, there is the possibility that vibrations would transmit to operating room lights, ceiling mounted microscopes, and other instruments. It would be costly to sufficiently stiffen the structure to minimize vibrations. In order to bring the proposed project into compliance with hospital licensure regulations, material changes to the plans must be made, which will necessarily increase the square footage of the facility. The square footage of the facility would likely be increased by approximately 5,000 square feet, and many of the areas would have to be significantly redesigned to accommodate concerns with compliance to ADA and hospital licensure regulations.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter the final order denying WUESTHOFF’s CON 8597. RECOMMENDED this 18th day of July, 1997, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax FILING (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 18th day of July, 1997. COPIES FURNISHED: David C. Ashburn, Esquire Gunster, Yoakley, Valdes-Fauli and Stewart, P.A. 215 South Monroe Street, Suite 830 Tallahassee, Florida 32301 Mark Thomas, Esquire Agency for Health Care Administration Office of the General Counsel 2727 Mahan Drive Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone and Hines, P.A. Post Office Box 1596 Venice, Florida 34284 R. Terry Rigsby, Esquire Blank, Rigsby & Meenan 204 South Monroe Street Tallahassee, Florida 32301 Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308
The Issue Whether the application of Wuesthoff Memorial Hospital, Inc. (CON 8740) for a 50-bed general acute care hospital in South Brevard County should be granted?
Findings Of Fact The Parties Wuesthoff The applicant for CON 8740 is Wuesthoff Memorial Hospital, Inc., a Florida not-for-profit corporation. Wuesthoff operates a general acute care hospital (the "Hospital" or the "Rockledge campus") in Rockledge, Florida. According to the division of the county into three areas (north, central, and south) ascribed to by Wuesthoff, Rockledge is in Central Brevard County. Wuesthoff's parent corporation is a not-for-profit corporation, Wuesthoff Health Systems, Inc. (the "Wuesthoff System"). The Wuesthoff System operates health care providers across the health care spectrum. Among the entities controlled by the Wuesthoff System is Wuesthoff Health Services, Inc., which operates a home health agency, a hospice, a durable medical equipment service and a 114-bed skilled nursing facility. The Wuesthoff Foundation, responsible for fundraising activities for all components of the Wuesthoff System and Care Span, a medical services organization which owns and operates physician practices, are also under the umbrella of the Wuesthoff System. The health care system operated by the Wuesthoff System serves residents in and around Brevard County and, to a limited extent, beyond. Examples of its service throughout Brevard County are the hospice, the durable medical equipment-company, and a reference laboratory. The hospice, for example, is licensed and serves all of Brevard County. The reference laboratory, located in Viera, provides services throughout Broward County and to other counties in Florida. The Wuesthoff System also owns a mobile health unit that travels throughout the county to provide health care services. The Wuesthoff System owns two outpatient clinics or "broad based diagnostic clinics" (Tr. 98) in Brevard County. One is on Merritt Island; the other is located in Sun Tree. Home health services are provided from a base of three different offices in the county. Similar to some of the other services offered by Wuesthoff, its home health services are provided throughout the county. Although it draws patients from throughout the county, most of Wuesthoff's hospital admissions come from Central Brevard County where the Hospital is located. If one defines "Central Brevard County" to include Port St. John and Sun Tree Viera, the sites of the northernmost and southernmost physician practices owned or operated by Care Span, then all of the practices in the Wuesthoff System are within Central Brevard County. Ownership of these practices does not restrict the physicians in them from referring patients for treatment outside the Wuesthoff System. But consolidation of the various services offered by the practices (diagnostic and radiology services, for example) enables Wuesthoff to strengthen its presence in Central Brevard County. The result is "additional volume" (Tr. 164) for the Hospital. The Hospital contains 268 acute care beds, 30 psychiatric beds, and five hospice beds, for a total of 303 beds. (It also contains 10 Level II Neonatal Intensive Care Unit beds.) If the project subject to CON review in this proceeding is ultimately approved, 100 of these beds will be de-licensed, leaving a 203-bed facility. HRMC Holmes Regional Medical Center ("HRMC") is a 528-bed regional, not-for-profit hospital, headquartered in Melbourne, Florida, operating on two acute care campuses under a single hospital license. One campus is the site of a 428-bed tertiary care facility in Melbourne; the other is a 60-bed general acute care community hospital in Palm Bay. Both facilities are in the southern portion of Brevard County. In addition to the 428 general medical and pediatric beds operated at the Melbourne facility, HRMC operates there a 10-bed Level II neonatal intensive care unit. HRMC is accredited by the Joint Commission for Accreditation on Health Care Organizations ("JCAHO"). It operates the only hospice program in the county accredited with commendation by the JCAHO; the only comprehensive community cancer program that has been accredited by the American College of Surgeons; the only American Sleep Disorders Association accredited sleep lab; the only American College of Radiology accredited respiratory therapist department; the only certified pulmonary function lab; and, the only life flight helicopter in Brevard County for hospital transports. As a regional medical center, HRMC provides open heart surgery, tertiary, orthopedic and neurosurgical referrals through a seven-county area, and provides trauma support for the central and south central Atlantic Coast in the State of Florida. It is the only designated trauma center in Brevard County. HRMC was founded 60 years ago by the community and has been a not-for-profit, community-based hospital ever since. The mission of HRMC is to improve, regardless of ability to pay, the health status of every member of the community through collaborative and cooperative agreements with other organizations and agencies it its service area. To represent the community's interests, HRMC's Board is composed of community leaders, educators, and employers. HRMC plays an active role in the community. The program denominated HOPE (Health Outreach Production and Education) is a collaborative effort by the Brevard County Public Health Unit, the American Cancer Society, the School Board, the County Commission and HRMC to solve community health problems. There are currently nine HOPE sites, and three HOPE centers. Among the purposes of the HOPE sites and centers is meeting the unique needs of children with developmental disabilities. Cape Canaveral Hospital, Health First and HFHP Cape Canaveral Hospital, Inc. ("CCH") is the licenseholder for a 150-bed hospital approximately five miles east of Wuesthoff in Cocoa Beach, Florida. Like Wuesthoff, Cocoa Beach is located in Central Brevard County. In August of 1995, HRMC entered into an agreement with CCH to create Health First, Inc. The presidents/chief operating officers of HRMC and CCH are employees of Health First. Similar to the Wuesthoff System, Health First controls the operations of its hospital facilities (HRMC and CCH) and owns and operates physician practices, health clinics, a home health agency, a hospice, and a skilled nursing facility. Health First is the sole shareholder of a Florida not- for-profit corporation known as Health First Health Plans, Inc. ("HFHP"). HFHP is the largest managed care organization in Brevard County operating both a traditional health maintenance organization ("HMO") and a Medicare HMO. Other Nearby Hospitals Parrish Medical Center, operated by a statutorily created tax district, is located in Titusville. If the county is considered to contain three distinct areas (north, central, and south) as proposed by Wuesthoff, Parrish is the only hospital in North Brevard County. Sebastian River Medical Center is located in Indian River County, south of Brevard County. Located in a relatively rural area, it is a small hospital. It provides no tertiary services. It draws some patients from South Brevard County. These patients would otherwise in all probability seek hospital services from a Brevard County hospital. Second Attempt by Wuesthoff Wuesthoff's CON application seeks to establish a new 50-bed general acute care hospital in South Brevard County. This is not the first time Wuesthoff has attempted to obtain such a CON. It applied earlier in CON 8597 for a 50-bed hospital in South Brevard County. In the first attempt, the Agency preliminarily denied the application. Wuesthoff petitioned for a formal administrative hearing. Following receipt of a Recommended Order entered in DOAH Case No. 97-0389 that CON 8597 be denied, Wuesthoff withdrew its application and dismissed its petition for a formal administrative hearing. The Agency entered a "final order" closing its file and dismissing Wuesthoff's petition in light of the application's withdrawal. (Legal proceedings which followed issuance of the order are briefly described in the Preliminary Statement of this Recommended Order.) No New Beds in the Subdistrict Proposed by the Application By the application subject to this proceeding, Wuesthoff does not propose the addition of new beds to Brevard County (the acute care subdistrict at issue, designated by the Agency as Subdistrict 7-1.) In fact, because of Wuesthoff's commitment to delicense 100 beds as a condition of the approval of its application, the granting of the application will result in a net loss of 50 hospital beds in the subdistrict. "[F]ixed need pool[s] only appl[y] to the addition of new beds to a subdistrict." (Tr. 3468). That the fixed need pool resulted in a published need of zero for general acute care hospital beds for the batching cycle in which Wuesthoff's application was filed, therefore, has "no bearing" (Id.) on the issues in this proceeding. For the same reason (that granting Wuesthoff's application will not result in the addition of new general acute care beds in the district) the applicant is not required to prove the existence of "not normal circumstances" to overcome any presumption created by the calculation of the fixed need pool as zero. The Proposed Project The site of the proposed hospital, 43 acres purchased by Wuesthoff for approximately $2.5 million, is on Wickham Road in the city of Melbourne. Twenty of the 43 acres will be devoted to a medical complex of which the 50-bed hospital will be a part. The complex will be "one building that has three very definite components." (Tr. 83). The three components are "an ambulatory and diagnostic center" (Id.), a medical office building, and the 50-bed hospital. The diagnostic center is CON- exempt and the medical office building has been issued a certificate-of-need. Although committed to construct the diagnostic facility and the medical office building at least since March of 1997, at the time of hearing, no construction permits for the property had been obtained nor had any activity on the two components been commenced. Nonetheless, Wuesthoff remains committed toward construction of the diagnostic center and the office building regardless of the outcome in this proceeding. Although the proposed hospital will not provide tertiary services, it will provide all services typically provided in a community hospital. These include obstetrics, pediatrics, and emergency services in a 24-hour emergency department. The services to be offered will not be unique in the subdistrict; all are presently available in the community. In other words, the services to be offered will duplicate services presently offered by existing providers. The estimated cost of the 50-bed hospital proposed in CON 8740 is $38,512,961, a cost that, in the case of a not-for- profit hospital, will ultimately be born by the public "one way or another." (Tr. 2402.) Wuesthoff's application included projections of revenues and expenses attributable to the proposal for the proposed construction period and the first two years of operation. It also included, as required, audited financial statements for two years and a listing of all Wuesthoff's capital projects planned, pending or underway at the time of the filing of the application. A Purpose of CON Law One of the purposes of CON review of an application for a new hospital is "to limit unnecessary, costly duplication of services that are available at other hospitals . . . at least where those services are being provided at reasonable costs." (Tr. 2401-02). Preliminary Agency Action Initially, AHCA Staff intended to recommend denial of Wuesthoff's application. After a meeting with the Director of AHCA, the decision was made to approve the application. The most important factor weighing in favor or approval was one related to competition and costs of hospital services to the ultimate consumer of the services, "[n]amely that . . . large HMO providers have no access to [HRMC] . . . or have been unable to get contractual relationships with [HRMC]." HRMC No. 75, p. 20. The meeting with the Director clarified the Agency's priorities. On July 11, 1997, AHCA issued its State Agency Action Report ("SAAR") containing its determination that the application should be approved. This proceeding was initiated on August 15, 1997, when HRMC filed its Petition for Formal Administrative Hearing on August 15, 1997, in order to challenge the Agency's decision. Need in Relation to the District Health Plan: Section 408.035(1)(a), F.S. The portion of the District 7 Local Health Plan governing the transfer of existing beds includes five parts. Preference is given to applicants that provide documentation of compliance with the five parts. The first part addresses need in the service area proposed to receive the beds. In addressing specific populations, access is one of the considerations. There was no published need for beds to be provided if the application is granted. "[A]t the time the application was filed the Agency's formula showed in excess of 342 beds. [At the time of hearing], the current formula shows an excess of 333 acute care beds for Brevard County." (Tr. 3385). There are no barriers (such as geographic barriers) typically associated with access to acute care services in the subdistrict. Every resident of Brevard County has access to a general acute care hospital within a drive time of 30 minutes usually and 40 minutes at the most. In South Brevard County, Holmes Regional at its two campuses provides high quality inpatient care and excellent medical services. Wuesthoff's hospital in Central Brevard County and Sebastian Medical Center in the adjacent county to the south also serve some of the residents of South Brevard County. Wuesthoff does not receive preference under the first part of the district plan applicable to this proceeding. The second part of the local health plan applicable to this proceeding governs impact to the parent facility including projected occupancy declines, curtailing of service effect on operating cost, use of vacated space at the main campus and charge changes. "[T]here would be minimal utilization decline at the Rockledge facility tied to some redirection of patients from Rockledge to south Brevard." (Tr. 1222). The space that will be vacated will be reused. Wuesthoff receives preference under this part of the district plan. The third part calls for documentation of improvement of access by at least 25 minutes to at least 10% of the population or a minimum of at least 35,000 people. While Wuesthoff's proposal will provide a competitive alternative to substantially more than 10% of the population of South Brevard County, a number in excess of 35,000 people, access to acute care hospital services is presently satisfactory in South Brevard County. Wuesthoff does not receive any preference under this part of the plan. The fourth part relates to the commitment of the applicant to the provision of charity care and care to the medically indigent. Wuesthoff meets this preference based on its commitment that 15% of the discharges from the proposed facility will be Medicaid and charity care. The fifth part addresses the applicant's participation in indigent care programs in the county. Wuesthoff participates in a significant number of community benefit and outreach programs that meet the concerns of this part: There is the We Care Program, . . . a distributed medical access point . . . [and]. . . the United Order of True Sisters, . . .a service group which Wuesthoff supports. Wuesthoff works with a CMS program to provide baby and young children support services. Wuesthoff was involved with the development of the Children's Advocacy Center . . . a community-based program. It's a participant in the Health Start Coalition. And Wuesthoff has also sponsored its own mobile health program with a specific focus and purpose to provide care to [the indigent]. (Tr. 1225). Wuesthoff clearly meets this preference. On balance, despite the lack of an access problem for residents of the subdistrict, Wuesthoff meets the need criteria identified in the applicable portion of the district plan. The Availability, Quality of Care, Efficiency, Appropriateness, Accessibility, Extent of Utilization, and Adequacy of Like and Existing Health Care Services in the Service District: Section 408.035(1)(b),F.S. There is an excess of capacity in acute care beds in Brevard County. Despite an increase in population from 1993 to 1997 of about 2% per year overall and about 3.5% per year in the populace over 65 years of age, the use rate of hospital services declined. In 1993, the use rate was 600 acute care patient days per thousand population. In 1997, the rate was 484 acute care patients per thousand. The occupancy rates for Brevard County hospitals, despite the population increase, is also trending downward. In 1990, overall occupancy of hospital beds in Brevard County was 63%. In 1997, it was approximately 53%. This is due to a number of factors. Managed care penetration has increased; managed care exerts influence to hold down admissions and inpatient days; and there has also been a shift from inpatient surgical procedures to outpatient surgical procedures. The SunTree/Viera area, mid-way between Wuesthoff and Holmes Regional, is the most rapidly growing area of its size in Brevard County. As opposed to areas south of the SunTree/Viera area, where the overwhelming majority of patients use Holmes Regional for hospital services, the SunTree/Viera area is subject to active competition between Wuesthoff and HRMC for patients. Holmes Regional has been shown to be a consistent low charge provider operating within the expected range of outcomes. Furthermore, HRMC has performed as one of the top five hospitals in Florida in reducing overall Cesarean-Section births and increasing vaginal births after Cesarean ("VBAC"). This is important because "unnecessary Cesarean Section presents a real risk for both the mom and the baby . . . [and] the cost to the State for Cesarean Sections performed when vaginal birth would be a desirable alternative added about $3,000 per delivery to the State funded [deliveries]." (HRMC No. 77, p. 1091). Holmes Regional has had the lowest Cesarean Section rate in the county and the highest VBAC rate in the County. The construction of the proposed facility would not significantly increase access to hospital services for Brevard County patients. Holmes Regional delivers the majority of Medicaid babies in the county and is also a contract provider for Children's Medical Services. Ten years ago or so, in recognition of a substantial portion of the population in Brevard County without health insurance, Holmes Regional collaborated with the school board, the public health unit, civic organizations and others to create two school-based community health clinics. "[T]argeted at young families and children" (HRMC No. 77, p. 1063), the clinics provide pro bono health care services. The collaboration was the genesis of the HOPE program. The HOPE program's agenda was expanded to include a mobile clinic to reach those in need of pro bono services who were without transportation to the school-based clinics. The agenda was again enlarged to provide integrated services for children with developmental and cognitive disabilities and delays. Holmes Regional provides direct funding of approximately $1.5 million per year through operational costs of the HOPE program. Holmes Regional not only provides funding to HOPE but it subsidizes salaries of nurses, midwives, and obstetricians directly employed by the Public Health Unit, whose duties include the provision of medical care to the indigent. Dr. Manuel Garcia, Medical Director of the Public Health Unit in Brevard County for over 20 years until his retirement in 1998 offered the following in his testimony in the hearing before Administrative Law Judge Johnston (admitted into evidence in this proceeding as HRMC No. 65) about Holmes Regional's support of the Public Health Unit: "Holmes has always been willing to go the extra mile to help the Health Department with other programs and activities." HRMC No. 65, p. 1211. With regard to the question of which hospital "in Brevard County sets the pace in providing indigent care" (Id.) Dr. Garcia answered: ll the hospitals do a pretty good job . . . [t]here is no doubt that Holmes has been more aggressive in terms of getting into the community to kind of use all the resources available and putting together different organizations and agencies in order to provide more services to the poor in the community. They have been going the extra mile . . . (HRMC Ex. No. 65, pgs. 1211, 1212.) Holmes Regional's efforts in support of the Public Health Unit have continued following Dr. Garcia's tenure. At the same time, "it is true" (Tr. 274) that Wuesthoff, Cape Canaveral, and Parrish Medical Center all "go the extra mile in providing services to the patients that come through the health department." (Id.) Holmes Regional works with the Brevard County Public Health Unit, whose duties include provision of medical care to the poor and indigent patients in the county to develop a better system for giving prenatal care to Medicaid and indigent mothers. In 1998, HRMC provided $10 million of free charity for indigent patients not admitted through HOPE. General community donations and contributions totaled $542,000 and in-kind contributions totaled $714,000. The HOPE program, funded entirely by Holmes Regional, paid $1.1 million in clinical services for staff, pharmacy, services, and supplies to operate its clinics. In addition to these direct dollars, HRMC contributed 2.1 million in uncompensated services to the HOPE program in 1998. The HOPE program has been honored for ground-breaking work in community health improvement and for improving life in Florida through the American Hospital Association's Nova Award and the Heartland Award from the Governor of Florida. Holmes Regional supports a variety of agencies to provide care to AIDS patients. One such clinic is the Comprehensive Health Clinic. In existence since 1991, it currently treats 400 AIDS patients. Its services are mostly paid for through federal programs. Without the assistance of HRMC, the clinic would not be able to provide the quality of services it offers these AIDS patients. Holmes Regional is involved with several children's health programs, including a Healthy Families Program providing in-kind screening assessment. Health Kids Plan subscribers are provided access to managed care insurance products by Health First Health Plans, the managed care company affiliated with Holmes Regional through its parent, Health First, Inc. The company loses "hundreds of thousands of dollars" (Tr. 2108) on the Health Kids segment of its business. There was no evidence presented that persons in need of quality, general acute care services are not able to obtain those services at existing providers in Brevard County. There is no lack of availability or access to general acute care services on either geographic or financial grounds. The ability of the applicant to provide quality of care and the Applicant's Record of Providing Quality of Care: Section 408.035(1)(c), F.S. Wuesthoff is capable of providing quality inpatient health care services and has done so in the past. The Availability and Adequacy of Other Health Care Facilities in the District which may serve as Alternatives to the Health Care Facilities and Health Services to be Provided by the Applicant: Section 408.035(1)(d), F.S. There are available alternatives to the inpatient services proposed by Wuesthoff. The existing providers of acute care services have excess capacity to absorb any increase in the utilization of acute care services in the county. Utilization of the services Wuesthoff proposes, moreover, have been in decline in relation to the earlier part of the decade of the nineties. From 1993 to 1997, inpatient surgery procedures conducted in Brevard County declined approximately 18.8%, a trend consistent with the statewide trend. In 1998, "the number of inpatient procedures pretty much level[ed] off." (Tr. 3410). In contrast, the number of outpatient procedures in the county rose in 1997 from the number conducted in 1993. For each year in the same time period, the number of outpatient surgical procedures conducted in the county far exceeded the number of inpatient ones. In 1997, for example, there were more than twice as many outpatient procedures as inpatient. The move toward outpatient procedures is the result of health care providers seeking alternatives to hospitalization. Among the alternatives in the case of surgical procedures are the provision of those procedures on an outpatient basis performed in physician offices and ambulatory surgical centers. There has been a decline in Brevard County in utilization of other services Wuesthoff proposes for its 50-bed hospital. During the period of 1993-1997, while the population of Brevard County was growing at a rate in excess of 2% per year, obstetric admissions as a percentage of admissions to Brevard hospitals declined. Pediatric admissions did likewise. Not surprisingly, therefore, there is excess capacity for pediatric and obstetrical beds in Brevard County. With 66 reported available beds in Brevard County, the average daily census is about 34 beds. The average daily census for the 86 pediatric beds in the county is about 32 to 35. At the time of hearing, available data for 1998 showed a continued decline in pediatric bed demand and "[b]ased on the annualized data . . . a very slight increase" (Tr. 3402) in obstetric bed demand. The excess capacity demonstrated for the period from 1993 through 1997 remains. Although alternatives are available, they are not adequate for one reason. That reason is a competitive problem which exists in South Brevard County, discussed in Findings of Fact Nos. 91-107, below. Probable Economies and Improvements in Service that May be Derived from Operation of Joint, Cooperative, or Shared Health Care Resources: Section 408.035(1)(e), F.S. Wuesthoff does not propose its new hospital operate a joint, cooperative, or shared program with any entity except its Rockledge facility. It proposes the sharing of resources with its main facility in Rockledge. "The services that are being proposed for the South Brevard hospital [the proposed hospital] are a subset of what's there now." (Tr. 1257). The proposed services, therefore, are a duplication of existing services. There are some economies of scale and benefits enjoyed by a second campus of a hospital by virtue of the first hospital's existence, but generally, it is less efficient for a hospital to operate two campuses. The Need in the Service District for Special Equipment and Services which are not Reasonably and Economically Accessible in Adjoining Areas: Section 408.035(1)(f), F.S. Wuesthoff does not intend to provide equipment that is not available within the county or in adjacent districts. The Need for Research and Educational Facilities, Health Care Practitioners, and Doctors of Osteopathy and Medicine at the Student, Internship and Residency Training Levels: Section 408.035(1)(g), F.S. This need is met in Brevard County. The Brevard County hospitals are active in community training programs in conjunction with Brevard County Community Hospital and the University of Florida. Holmes Regional has institutional training programs with the University of Florida, All Children's Hospital, the local vo-tech, and the University of Central Florida, in addition to other community programs. Immediate and Long-term Financial Feasibility of the Proposal: Section 408.035(1)(i), F.S. a. Immediate Financial Feasibility. Immediate financial feasibility is determined by whether the applicant has adequate financial resources to fund the capital costs of the project and the financial ability to fund short-term operation losses. The project costs projected in Schedule 1 of Wuesthoff's application, taking into account inflation and other factors arising from delays associated with this proceeding, are reasonable and appropriate. Wuesthoff proposes to finance the project with $10.5 million in existing funds and $28 million in debt financing. At the time of hearing, Wuesthoff had $51 million in cash assets on its balance sheet available to cover the $10.5 million proposed to come from existing funds. The $28 million in debt financing was proposed in the application to be provided by "proceeds from a fixed rate bond issue." (Wuesthoff No. 1, Vol. I of II, Schedule 3 Assumptions.) "The interest rate for the debt is expected to be approximately 6.5%." (Id.) As part of its case for immediate financial feasibility, Wuesthoff presented a letter from The Robinson- Humphrey Company, Inc., dated April 6, 1999. In support of the opinion that Wuesthoff would qualify for tax exempt financing, the company wrote: Based on our long relationship and thorough understanding of Wuesthoff and its strategic direction, we believe that the rating agencies, bond insurers and capital markets will react positively to the Hospital's project. In addition, based on the Hospital's ability to secure a competitive insurance bid on its Series 1996 Bonds, the Hospital will be able to secure a new competitive bond insurance policy as well as credit ratings in the "A" category from the rating agencies in conjunction with the financing to help fund a portion of the proposed facility. Based on today's market conditions, the average interest rates available on a 30-year tax-exempt bond issue would be in the range of 5.25% to 5.50% based on an "A" rating category issue and "AAA/Aaa" rated issue with bond insurance, respectively. Although it is difficult to anticipate the interest rate environment throughout 1999, we would expect rates to be in the 5.50% to 5.75% range , using recent interest history as a benchmark. (Wuesthoff No. 3, pgs. 1 and 2). After testimony with regard to the letter by Wuesthoff's witness Rebecca M. Colker, qualified as an expert in health care finance, the following colloquy between Ms. Colker and Wuesthoff's counsel took place at hearing: Now, based on your assessment of the marketplace and your investigation of the marketplace, do you have an opinion as to whether Wuesthoff has the ability to finance the project that it proposed in [its] application . . .? A. Yes, sir, I feel [Wuesthoff] has the ability to finance the project. (Tr. 179). During the hearing, but after Ms. Colker's testimony, allegations surfaced publicly that Wuesthoff had violated the law with respect to its tax-exempt status as a "501(c)(3) organization" under the Internal Revenue Code by engaging in political activity and obtaining private benefit. Proof of the violations exposes Wuesthoff to revocation of its tax-exempt status. At the time of hearing, the IRS had not determined the truth of the allegations. If the IRS determines that the violations occurred, there are penalty options available to the Service short of revocation of Wuesthoff's tax exempt status. These options are referred to as intermediate sanctions. In addition, the IRS may enter a closing agreement with the offender in which an intermediate sanction is accepted in lieu of revocation. Wuesthoff, moreover, can take certain steps in mitigation of any ultimate penalty imposed by the IRS. Wuesthoff presented evidence that "upon a resolution of the allegations of wrongdoing which falls short of revocation of Wuesthoff's tax exempt status, there will be no cloud upon Wuesthoff's ability to obtain the tax exempt debt financing it has proposed." Joint Proposed Recommended Order of Wuesthoff Memorial, Inc., and the Agency for Health Care Administration, p. 39. Such a resolution, if it is the one chosen by the IRS, can reasonably be expected to occur within a single year. In the meantime, whatever the outcome of the IRS' dealing with the allegations, their very existence jeopardizes Wuesthoff's ability to obtain tax exempt debt financing. Given what he had heard and read about the allegations, Mr. Todd Holder, an investment banker who provides "basically the same services that Robinson-Humphrey would provide to a hospital client" (Tr. 3337) testified: At this time, my firm would not underwrite these bonds [proposed by Wuesthoff] and I wouldn't imagine at this time any firm would underwrite these bonds . . . (Tr. 3339). If Wuesthoff's tax exempt status were revoked, its bonds would be in jeopardy of being called to cover loss to existing bond holders. Such action would affect its bond rating. A BBB rating would involve approximately a 3% rise in interest rates. If its rating were to fall below investment grade, the interest rate could rise 5% or more. Based on a $28 million issue, the amount Wuesthoff proposes for financing the new facility, each percentage point rise in interest rate equates to an annual debt service cost of $250,000. Furthermore, a loss of its tax exempt status would make it more difficult to obtain bond insurance. It is by no means certain that the IRS will revoke Wuesthoff's tax exempt status as explained above. When a charitable organization continues to fulfill its charitable obligations, "the IRS has, in practice, not revoked [its] tax- exempt status but tried to exact some other type of penalty." (Tr. 3600). Furthermore, when an offending organization has removed from authority the individuals responsible for the violations, the IRS considers such action to mitigate the penalty it imposes. At bottom, predicting the action of the IRS is speculative. If the IRS does revoke Wuesthoff's tax exempt status, Wuesthoff has enough cash assets on hand to build the proposed facility without resort to financing. If it comes to that, however, Wuesthoff's decision to carry the costs of construction and getting the facility off the ground in the first few years of operation without debt financing has implications for the project's long-term financial feasibility. b. Long-term financial feasibility. Historically, AHCA has defined long-term financial feasibility as at least breaking even, if not making a profit, by the end of the second year of operation. Among other matters Wuesthoff must prove in order to satisfy the test employed by AHCA historically, it must demonstrate that "projected revenues can be attained in light of the projected utilization of the proposed service and average length of stay." OR-1, p. 18. The processes used by Wuesthoff's expert to conclude that the project is financially feasible were conservative. But the processes contained flaws. Wuesthoff, for example, projects that it will have a volume of 8,327 patient days at its South Brevard campus in year one of operation and 11,224 patient days in year two. For the same time periods, it projects volumes of 50,000 patient days at its Rockledge facility for both year one and year two of operation, the same volume it projects at its Rockledge facility for the 12-month period during which the new facility will be built. The projections are not reasonable. Building the new hospital will not increase the demand for hospital services in Brevard County. Rather, patients will be reallocated. The proposed facility will receive patients who otherwise would be hospitalized at Holmes Regional or the Wuesthoff Rockledge campus. It is not reasonable, therefore, for Wuesthoff to project that its patient days at the Rockledge facility will remain the same in years one and two of operation of the new facility as during the year's period of construction. The Agency concurred with Holmes Regional's expert that Wuesthoff's utilization projections were overstated but did not see the overstatement as a problem because "while the applicant may not fully attain what is projected within the application . . . [it] will attain a level which will be successful, especially for a provider that is financially stable at this point in time and has the resources to carry out this project." (Tr. 3474). There are other flaws. Wuesthoff assumed that for the Rockledge facility pro forma all payors' reimbursement increased 4% a year for years one and two of operation resulting in a net revenue increase in excess of 9% for the two-year period. Managed care companies are typically not allowing a 4% per year increase to providers. Medicare reimbursement (the largest single payor source) was not likely to increase 4% per year prior to the Balanced Budget Act of 1997 (see finding of fact no. 86, below). Medicare is the largest payor source currently at Wuesthoff, accounting for in excess of 50% of operating revenues. It is also the largest payor source projected for the proposed project. In the wake of the Balanced Budget Act of 1997, Medicare margins have declined and are expected to continue to decline. Wuesthoff's Medicare revenue in year one of operation were overstated by 4.3% and in year two by 5.7%. Wuesthoff's expert did not assess the impact of the Balanced Budget Act on the Wuesthoff projections at the time they were made since they were made before the effective date of the Act. But he had not assessed the impact of the Act on the pro forma prepared for the new facility as of March 1999, after effects of the Act's impact were observable. Presumably, no such impact analysis was undertaken because Wuesthoff is a hospital that takes action to contain costs, a method for reducing the negative impact of the Act on a hospital's revenue. Other assumptions that underlie projections by Wuesthoff in the application are also not reasonable. Wuesthoff assumed that Medicare HMO would generate higher charges than traditional Medicare, but have a length of stay almost half the time such that the net reimbursement per case would be identical. On a per day basis, Weusthoff assumed that the Medicare and Medicaid HMO patient will generate a greater per diem reimbursement than a traditional Medicare and Medicaid patient, respectively. This is not a reasonable assumption. The assumption that commercial insurance remains a significant payor at the South Brevard campus is critical to the financial viability of the project. If the pro forma had shown a more reasonable managed care percentage and less commercial insurance in the payor mix, net revenue would decrease by approximately $280,000 in year two. The projected costs of operation at the South Brevard campus are unrealistically low because the projected salary expenses have been understated. The nursing staff will comprise almost one-third of the total hospital FTEs for years one and two at the South Brevard campus. There currently exists a nursing shortage such that hospitals in Brevard County are having to pay a several thousand dollar signing bonus when hiring nursing staff. Projected nursing salaries for the first and second year of operation were only minimally higher above what Wuesthoff was paying its nursing staff three years earlier. The Needs and Circumstances of those Entities which Provide a Substantial Portion of their Services or Resources or Both, to Individuals not Residing in the District: Section 409.035(1)(k), F.S. Wuesthoff's application does not address providing a substantial portion of its services or resources to individuals not residing in the District. The Probable Impact of the Proposed Project on the Costs of Providing Health Services Proposed by the Applicants, Including the Effect on Competition: Section 408.035(1)(l), F.S. Brevard County's Unusual Shape Brevard County is relatively narrow from East to West and extremely long from North to South, stretching 72 miles from its northern border to its southern one. Because of its unusual geographic shape, the county is easily divisible into three areas, north, central and south. North Brevard County's population was approximately 68,000 in 1998. Central Brevard County's population was approximately 168,000 and South Brevard County's was approximately 234,700. Since 1970, the share of total county growth has consistently been lowest in North Brevard County, peaking at 13% in 1990, with a projected share of total county growth in 2003 at 10.4%. Next in order, Central Brevard County's share of growth since 1970 has been on the rise but has remained substantially lower than South Brevard County's. Its share of growth in 2003 is expected to be about 38.8%. The County's "growth has been predominantly in [S]outh Brevard." (Tr. 375). In 1971, its share of total county growth was 71.1%. Although "the share of growth in [S]outh Brevard has declined over time . . . it is still about 50%." (Id.) In 2003, South Brevard County's share of total growth is projected to be 51.2%. Consistent with its higher share in total county growth, more than half of Brevard County housing starts have within recent years occurred in South Brevard County and more than half of Brevard County employers and employees are located in South Brevard County. South Brevard, for some time, has been the most populated of the county's three areas. It will continue to be the most heavily populated area for a considerable time in the future. North Brevard has one hospital: Parrish Medical Center. Central Brevard has two hospitals: Wuesthoff and Cape Canaveral Hospital. The two are operated by different hospital systems; Wuesthoff by the Wuesthoff Health System and Cape Canaveral by Health First. South Brevard has two hospital facilities: Holmes Regional Medical Center and Palm Bay Community Hospital. Unlike the situation in Central Brevard the two South Brevard facilities operate under a single hospital license and are part of one system: Health First. Markets, Monopolies, and the Exercise of Monopoly Power A great deal of evidence was introduced by both Wuesthoff and Holmes about whether or not South Brevard County, by itself, constitutes a market for purposes of economic analysis and, if so, whether Health First through its operation of the two South Brevard hospitals has a monopoly on hospital services within the market. Further evidence was introduced about whether Health First, in fact, exercises monopoly power. Wuesthoff posits that South Brevard County, in and of itself, is an economic market for purposes of economic analysis. While there was evidence that indicated that South Brevard County is a market for purposes of economic analysis, none of the experts who testified could ever recall a proceeding in which they had been involved in which an area smaller than a county had ever been found to constitute a market. Wuesthoff's approach, moreover, is problematic in a Certificate of Need proceeding (as distinguished from other types of proceedings that typically employ economic analysis, such as anti-trust proceedings.) Brevard County is one part of AHCA District VII, a district established by the Legislature for health planning purposes. The district is divided into subdistricts. Subdistrict 1 is composed of Brevard County, nothing more and nothing less. But the subdistricts are not further divided for health planning purposes. There is no question (nor any argument from Wuesthoff otherwise) that Health First does not have a monopoly on hospital services over the entire subdistrict, let alone the district. Assuming for the sake of argument that South Brevard County is a market for purposes of this proceeding and that Health First has a monopoly over hospital services in that market, Health First has not exercised its monopoly power as would typically be expected on the basis of net price. First of all, while one might expect that an entity with monopoly power would exercise it, that expectation cannot be assumed in the case of not-for-profit hospitals, such as Holmes Regional. The not-for-profit hospital "can't act like a profit- maximizing organization because of the way it is structured." (Tr. 2958). More importantly, "the economic hallmark of the exercise of monopoly power is a price above the competitive level, one that permits the earning of an above-competitive profit rate." (Tr. 2946). Holmes Regional's average net prices are 90.8% of what would be expected. In contrast, Wuesthoff's are 115.1% of what would be expected. Neither of these is "extraordinarily far from what you would expect." (Tr. 2971). In the final analysis, pricing data with regard to both list prices and net prices, no matter the payor source, does not indicate "the systematic exercise of monopoly power by Holmes . . ." (Tr. 2973), in "[S]outh Brevard County." (Tr. 2975). It is clear, however, that residents of South Brevard do not have convenient access to Brevard County hospitals other than the two Health First hospitals in South Brevard, Holmes Regional and Palm Bay Medical Center. The other Brevard County hospitals are either too far away in distance or require too much travel time to reach by automobile for most of the residents of South Brevard. Consistent with this convenience factor, 82% of the South Brevard County residents discharged from hospitals in the first six months of 1998 were discharged from Holmes Regional and Palm Bay Community. Of the remaining South Brevard County residents discharged from hospitals, the highest percentage (6%) of patients were discharged from Sebastian River Medical Center. Sebastian River, while close to some South Brevard County residents, does not provide a high enough level of services in many cases to be a reasonable substitute for Holmes Regional. Even if it is convenient to use hospital services that are close by, a patient will chose a more inconvenient hospital if the nearby hospital does not provide services of reasonable quality at reasonable prices. The two Health First hospitals provide services of reasonable quality at reasonable prices. Nonetheless, the establishment of Wuesthoff's proposed hospital would substantially increase the accessibility of South Brevard County residents to a non-Health First facility. The presence of Wuesthoff's proposed hospital in South Brevard County would offer residents of South Brevard more of a meaningful choice. In essence, granting Wuesthoff's application would produce a more competitive environment for the hospital services to be offered by Wuesthoff in South Brevard County, whether South Brevard County constitutes a market or not. Wuesthoff presents a greater question for resolution in this proceeding than whether granting the application would simply provide more competition. Even though Holmes Regional's net pricing in general does not indicate that it is exercising monopoly power in South Brevard County, is there, nonetheless, a need for a more competitive environment for hospital services in South Brevard County? The answer to that question is "yes" when one considers competition from the perspective of managed care payors. Need for Competition for Hospital Services in South Brevard County. In general, competition enhances the quality of health care services even when services being provided are of high quality. Competition also provides an incentive for hospitals, including non-profit hospitals to serve patients more efficiently. Competition lowers the costs consumers pay for hospital services. When managed care payors are able to reduce their payments to hospitals, they are able to lower the premiums paid by the "end purchaser." (Tr. 609). If the end purchaser is an employer, the "employer then makes [its] business decision internally as to how much of that cost is passed along to the individual employee." (Id.) This effect of competition is the basis for a number of managed care contractors and employers' vigorous support of Wuesthoff's application, the success of which will create competition in South Brevard County. Wuesthoff's proposed hospital will spur competition which will benefit consumers by lowering Holmes Regional's prices. Managed care helps contain costs and injects price sensitivity into the market. At the same time, higher levels of hospital concentration are associated with lower levels of discounting to managed care companies. Managed care penetration has been increasing in Brevard County. In South Brevard County, managed care penetration has increased but mainly due to increase in enrollment in HFHP, Health First's managed care plan. Managed care penetration in South Brevard County achieved by HFHP "in itself is not the issue." (HRMC No. 75, p. 32.) With only one active HMO in South Brevard County, there is no incentive to achieve better rates for the ultimate consumers especially if the main HMO is part of the same organization as the hospital as in this case. "[I]f you have several large commercial plans . . . they will be able to get better rates from Holmes Regional than if you only have one." (Id., p. 32-33). Commercial HMO inability to contract with HRMC was considered by the agency as the most important factor in approving Wuesthoff's application. Health maintenance organizations, other than HFHP, do not have meaningful competitive ability to compete with HFHP in South Brevard County. In recognition of their inability to use Central Brevard County hospitals or Sebastian River Medical Center as substitutes, and to avoid losses caused by the lack of hospital competition in South Brevard County, Aetna and United, two large managed care payors in Brevard County, have embarked on an exit strategy with regard to South Brevard County. It is difficult for managed care payors to steer south Brevard residents to central Brevard hospitals. Patients are generally unwilling to change physicians when it becomes necessary to enter a hospital. Discharge data demonstrates the lack of overlap in physician privileges between South and Central Brevard. The Central Florida Health Care Coalition, an organization comprised of businesses and formed to address health care issues which includes the largest of Brevard County employers, supports Wuesthoff's application because of the competition it will create and a number of consumers expressed support for the Wuesthoff application based on the need for competition in South Brevard County. In contrast, not a single employer, large or small, testified in support of opposition to the application. Wuesthoff's new hospital would provide an alternative for managed care payors to negotiate hospital prices in South Brevard County. More favorable hospital prices in managed care contracts, in turn, would lead to managed care premiums that would be lower for managed care customers. Lower health care premiums enable larger numbers of consumers to purchase health care coverage, thereby reducing the number of persons who have no source of payments for health care services. The ability of managed care plans to negotiate hospital prices is dependent upon ability to engage in selective contracting, the ability of a managed care plan to refuse to include a hospital in its network of providers. Selective contracting induces hospitals to offer discounted prices to assure participation in a managed care plan's network of hospitals in order to avoid losing the managed care plan's business to other competitive hospitals. Selective contracting can only be an effective strategy if managed care contractors have meaningful choices among hospital providers. In Brevard County, only in the central area do managed care plans have more than one hospital system from which to choose meaningfully and only in Central Brevard County has there been any real competition among hospitals for managed care contracts. Holmes Regional does not face the threat of a loss of business if it refuses to contract with any one managed care plan because South Brevard residents for the most part will not seek hospital services outside South Brevard County. Without the threat of a loss of business, Holmes Regional has little, if any, incentive to offer reduced prices to managed care plans. The lack of incentive for Holmes Regional to reduce prices to managed care plans was demonstrated by several analyses, including one showing that from 1995 through 1998, net prices paid by all managed care contractors to Holmes Regional were on average 32% higher per year than those paid to Wuesthoff, which has competition from another hospital in Central Brevard County Apart from pricing analyses, the lack of competition in the managed care arena for Holmes Regional was demonstrated by its ability to resist entry into any per diem managed care contracts despite efforts by some managed care contractors to negotiate such agreements with Holmes Regional. Per diem contracts are a favored from of contracting by managed care payors because they tend to enable managed care payors to predict the level of hospital payment to which they will be exposed. Such contracts are commonly found where there is competition among hospitals. In contrast, as is to be expected of a hospital in a competitive environment, most of Wuesthoff's contract with managed care payors are per diem contracts. The Applicant's Past and Proposed Provision of Health Care Services to Medicaid Patients and the Medically Indigent: Section 408.035(1)(n), F.S. Wuesthoff has "a history of providing care to the medically indigent population." (Tr. 1244). Its commitment to continue to provide such care at the proposed facility has been discussed. Whether Less Costly, More Efficient, or More Appropriate Alternatives to the Proposed Inpatient Services are Available: Section 408.035(2)(a), F.S. The greater weight of the evidence establishes that denial of the application is less costly and more efficient. The new facility will cost $38 million to build. At the same time, existing providers are operating efficiently and have unused capacity. In fact, there is insufficient utilization of the inpatient acute care services in existence in Brevard County. The subdistrict occupancy rate is "about 54% . . .[with] at least [hundreds of] beds that are unoccupied at any point in time with the county." (Tr. 3385). Whether the alternative of denying the application is more appropriate in light of the cost of the project and efficiency considerations turns on the weight to be given Wuesthoff's case for the need for competition in the managed care arena in South Brevard County. Whether the Existing Facilities Providing Similar Inpatient Services are being Used in an Appropriate and Efficient Manner: Section 408.035(2)(b), F.S. Existing facilities are being used in an efficient manner. Whether the status quo is appropriate, again, turns on the weight to be given Wuesthoff's case for the need for competition. That Patients Will Experience Serious Problems in Obtaining Inpatient Care of the Type Proposed in the Absence of the Proposed New Service: Section 408.035(2)(d), F.S. There was no evidence that patients will experience serious problems in obtaining inpatient care of the type proposed by Wuesthoff for its South Brevard County if the application is not granted. Rule Criteria Rule 59C-1.030, Florida Administrative Code, sets forth "health care access criteria . . . [i]n addition to criteria set forth in Section 408.035, Florida Statutes . . .". Among the criteria are [t]he contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the . . . State Health Plan as deserving of priority." The first State Health Plan preference favors an applicant that provides a disproportionate share of Medicaid and charity care patient days in relation to other hospitals within the subdistrict. Wuesthoff has provided its fair share of Medicaid and charity care patient days in the past and proposes to continue to do so at the new facility if approved. But Wuesthoff is not a disproportionate share provider. As to the second preference which considers the current and projected indigent inpatient case load, the proposed facility size, and the case and service mix, Wuesthoff's application partially complies with preference in that it proposes to provide indigent care. But, Medicaid and indigent members of the population were not shown to have been denied access to hospital services in Brevard County. Approval of the facility, moreover, will not improve access or increase the number of beds since approval will result in a net loss of 50 beds in the county. The fourth preference favors an applicant with a record of accepting indigent patients for emergency care. Wuesthoff meets the preference. The fifth preference favors applicants for a type of hospital project if the facility is verified as a trauma center. Holmes Regional will remain the only verified trauma center in the subdistrict, even if the application is approved. The sixth preference favors applicants who document that they provide a full range of emergency services. The new facility will provide emergency services but not a full range unless the emergency services provided by Wuesthoff at its Rockledge campus are considered. Because the 50-bed hospital will not provide tertiary services nor high-level trauma services, "[t]he complicated or trauma cases will . . . go to Holmes Regional Medical Center" (Tr. 3384), the hospital campus closest to the new facility. The seventh preference favors applicants not fined by AHCA for any violation of emergency service statutes. Wuesthoff meets this preference. The eighth preference favors applicants who demonstrate that the subdistrict occupancy rate is at least 75%, or in the case of exiting facilities, where the occupancy rate for the most recent 12 months is at least 85%. Wuesthoff did not show that it meets this preference. The ninth preference of the State Health Plan favors an applicant with a history of providing a disproportionate share of the subdistrict's acute care and Medicaid patient days and is a Medicaid disproportionate share provider. Wuesthoff does not meet this preference.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that the Agency for Health Care Administration enter a final order denying Wuesthoff Memorial Hospital, Inc.'s application for CON 8740. DONE AND ENTERED this 12th day of July, 2000, 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 12th day of July, 2000. COPIES FURNISHED: Richard A. Patterson, Esquire Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Terry Rigsby, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Stephen K. Boone, Esquire Boone, Boone, Boone & Hines, P.A. Post Office Box 1596 Venice, Florida 34284-1596 David C. Ashburn, Esquire Smith & Ashburn, P.A. 1330 Thomasville Road Tallahassee, Florida 32303 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403
The Issue The issues in these cases are whether Certificate of Need (CON) Application No. 10432 filed by East Florida-DMC, Inc. (DMC), to build an 80-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, or CON Application No. 10433 filed by The Public Health Trust of Miami-Dade County, Florida d/b/a Jackson Hospital West (JW), to build a 100-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, on balance, satisfy the applicable criteria; and, if so, whether either or both should be approved.
Findings Of Fact Based upon the parties’ stipulations, the demeanor and credibility of the witnesses, other evidence presented at the final hearing, and on the entire record of this proceeding, the following Findings of Fact are made: The Parties The Public Health Trust of Miami-Dade County d/b/a Jackson Hospital West and Jackson Health System (JHS) JHS is a taxpayer-funded health system located in and owned by Miami-Dade County. It is governed by The Public Health Trust of Miami Dade-County, Florida (PHT), a seven-member board. JHS owns and operates three acute care hospitals in Miami-Dade County--Jackson Memorial Hospital (JMH); Jackson North Medical Center (JN); and Jackson South Medical Center (JS)--as well as three specialty hospitals: Holtz Children’s Hospital (Holtz); Jackson Rehabilitation Hospital; and Jackson Behavioral Health Hospital. JHS also owns and operates numerous other non- hospital healthcare facilities within Miami-Dade County. JHS’s applicant in this proceeding is JW which, if approved, will be another acute care hospital in JHS. JHS is an academic teaching institution, and the University of Miami (UM) is JHS’s affiliated medical school. Over 1,000 UM residents staff JMH pursuant to an operating agreement with JHS. JN and JS are not academic medical centers. JHS annually receives sales tax and ad valorem tax revenues from Miami-Dade County in order to help fund its operations. JS and JN are community hospitals operated as part of JHS. JS was acquired in 2001. JS is licensed for 226 beds and is also home to a verified Level II trauma center. The JN facility was acquired by JHS in 2006. The facility is licensed for 382 beds. East Florida (DMC) DMC is an affiliate of HCA Healthcare, Inc. (HCA), the largest provider of acute care hospital services in the world. DMC will operate within HCA’s East Florida Division (EFD), which is comprised of 15 hospitals, 12 surgery centers, two diagnostic imaging centers, four freestanding emergency departments, nine behavioral health facilities, and one regional laboratory, along with other related services. There are three HCA-affiliated hospitals in Miami-Dade County: KRMC; Aventura Hospital and Medical Center (Aventura); and Mercy Hospital, a campus of Plantation General Hospital (Mercy). Kendall Regional (KRMC) KRMC, which is located at the intersection of the Florida Turnpike and Southwest 40th Street in Miami-Dade County, is a 417-bed tertiary provider comprised of 380 acute care beds, 23 inpatient adult psychiatric beds, eight Level II neonatal intensive care unit (NICU) beds, and five Level III NICU beds. It is a Baker Act receiving facility. KRMC is a verified Level I trauma center. It also has a burn program. KRMC is also an academic teaching facility, receiving freestanding institutional accreditation from the Accrediting Council for Graduate Medical Education (ACGME) in 2013. KRMC currently has six residency programs including, among others, surgery, internal medicine, podiatry, anesthesia, and surgical critical care. Its teaching programs are affiliated with the University of South Florida, Nova Southeastern University, and Florida International University. KRMC also participates in scholarly and clinical research. In 2017, KRMC had over 82,000 Emergency Department (ED) visits. It treated over 115,000 total inpatients and outpatients that year. There are 850 physicians on KRMC’s medical staff. It offers a full range of medical surgery services, interventional procedures, obstetrics (OB), pediatric, and neonatal care, among many other service lines. KRMC primarily serves southern and western portions of Miami-Dade County but also receives referrals from the Florida Keys up through Broward County, Palm Beach County, and the Treasure Coast. Its main competitors include, but are not limited to: Baptist Hospital; Baptist West; South Miami Hospital; PGH; Hialeah; CGH; JS, and Palm Springs General Hospital. The Tenet Hospitals PGH, Hialeah, and CGH are wholly-owned subsidiaries of Tenet South Florida. These are all for-profit hospitals. PGH is a 368-bed tertiary facility that opened in the early 1970s. It has 297 licensed acute care beds, 48 adult psychiatric beds, 52 ICU beds, and 15 Level II NICU beds. It is located at the Palmetto Expressway and Northwest 122nd Street in Hialeah, Florida. The hospital employs about 1,700 people and has over 600 physicians on its medical staff. PGH is a tertiary-level facility offering a variety of specialty services, including adult open heart surgery, a comprehensive stroke center, and robotic surgery. It has inpatient mental health beds and serves the community as a Baker Act receiving facility. It also offers OB and Level II NICU services with approximately 1,500 births a year. It has approximately 70,000 ED visits and between 17,000 and 18,000 inpatient admissions per year. In addition to its licensed inpatient beds, PGH operates 31 observation beds. PGH is ACGME accredited and serves a significant teaching function in the community. It has approximately 89 residents and fellows. The hospital provides fellowships in cardiology, critical care and interventional cardiology, and also has rotations in neurology and gastroenterology. Residents from Larkin General Hospital also rotate through PGH. PGH generally serves the communities of Opa Locka, Hialeah, Miami Lakes, Hialeah Gardens, Doral, and Miami Springs. In reality, all of the hospitals in the county are competitors, but more direct competition comes from Palm Springs Hospital, Memorial in Miramar, Mount Sinai, Kendall, and even its sister hospital, Hialeah. Hialeah first opened in 1951 and is a 378-bed acute care facility. It has 356 acute care beds, 12 adult psychiatric beds, and 10 Level II NICU beds. The ED has 25 beds and about 40,000 visits per year. It has approximately 14,000 inpatient admissions and 1,400 babies delivered annually. It offers services including cardiac, stroke, robotic surgery, colorectal surgery, and OB services. The hospital has a Level II NICU with 12 beds. CGH is located in the City of Coral Gables and is near the border between Coral Gables and the City of Miami on Douglas Road. It first opened in 1926. Portions of the original structure are still in use. CGH has 245 licensed beds, over 725 employees, 367 physicians, and over 100 additional allied providers on its medical staff. The hospital has a full-service ED. Its service lines include general surgery, geriatrics, urology, treatment of cardiovascular and pulmonary disease, and others. The hospital has eight operating rooms and offers robotic surgery. The ED has 28 beds divided into the main area and a geriatric emergency room. It had about 25,000 ED visits last year, which is lower than prior years, due in part to the presence of over a dozen nearby urgent care centers. CGH has over 8,500 inpatient admissions per year and is not at capacity. While patient days have grown slightly, the average occupancy is still just a little over 40%, meaning, on average, it has over 140 empty inpatient beds on any given day. The hospital is licensed for 245 beds, but typically there are only 180 beds immediately available for use. Agency for Healthcare Administration (AHCA) AHCA is the state health-planning agency charged with administration of the CON program as set forth in sections 408.31-408.0455, Florida Statutes. The Proposals Doral Medical Center (DMC) DMC proposes to build an 80-bed community hospital situated within the residential district of Doral. The hospital will be located in southwestern Doral in zip code 33126 and will serve the growing population of Doral, along with residential areas to the north and south of Doral. The hospital will be located in the City of Doral’s residential district on Northwest 41st Street between Northwest 109th Avenue to the east, and Northwest 112th Avenue to the west. Doral has seen significant growth in the past 15 years and has been consistently included on the list of the fastest growing cities in Florida. The new facility will have a bed complement of 80 licensed acute care beds, including 72 medical/surgical and eight OB beds. The proposed acute care hospital will be fully accredited by the Joint Commission for the Accreditation of Healthcare Facilities and licensed by the State of Florida. No public funds will be utilized in construction of the hospital and it will contribute to the state, county, and municipal tax base as a proprietary corporation. DMC will offer a full range of non-tertiary services, including emergency services, imaging, surgery, intensive care, cardiac catheterization, and women's services, including an OB unit, and pediatric care. DMC will be a general medical facility that will include a general medical component and a surgery component. Although DMC will operate an OB unit, NICU services will not be offered at DMC. If DMC’s patients need more advanced services, including NICU, the EFD hopes they will receive them from KRMC. The open medical staff will be largely community-based, but University of Miami physicians would be welcome at DMC. Before the hospital is built, KRMC will construct and operate a freestanding emergency department (FSED) at the location that will eventually become the ED of DMC. Construction of the FSED is now underway, and Brandon Haushalter, chief executive officer (CEO) of KRMC, estimated that it will open in March or April of 2019. Jackson West JHS proposes to build a community hospital to be known as “Jackson West” near the eastern edge of Doral. The proposed 100-bed general acute care hospital would have medical surgical and obstetrical beds and offer basic acute care services. JHS is a public health system owned by Miami-Dade County. All of JHS’s assets, as well as its debts, belong to the county. JHS is a not-for-profit entity, and therefore does not pay taxes, though it receives hundreds of millions of dollars from property taxes and sales taxes in Miami-Dade County. JHS’s main campus is a large health campus located near the Midtown Miami area in between Allapattah (to the north) and Little Havana (to the south). In addition to JMH, the campus includes Holtz Children’s Hospital, a behavioral health hospital, an inpatient rehabilitation hospital, and several specialty clinics. Bascom-Palmer Eye Institute, a Veterans Administration hospital, and University of Miami Hospital are also located adjacent to Jackson West’s main campus. JMH is a 1,500-bed hospital with a wide array of programs and services, including tertiary and quaternary care, and a Level I trauma program, the Ryder Trauma Center. JMH receives patients from throughout Miami-Dade County, elsewhere in Florida, and internationally. JMH is a teaching hospital and has a large number of residents, as well as professors from the University of Miami, on staff. UM and JMH have had a relationship for many years, and in addition to research and teaching, UM provides physician staffing to JMH. JN is a 342-bed community hospital located in between Miami Gardens and North Miami Beach, just off of I-95 and the Turnpike. JS is a 252-bed community hospital located in the Palmetto Bay area just south of Kendall. It has stroke certification and interventional cardiology, and was recently approved for a trauma program, which began in May 2016. Both JN and JS were existing hospitals that were acquired by JHS. JHS has never built a hospital from the ground up. In 2014, JHS leadership directed its internal planning team to review the healthcare needs of county residents. JHS’s analysis identified a need for outpatient services in western Miami-Dade, the only remaining quadrant of the county in which JHS did not have a hospital or healthcare program at the time. As part of its due diligence, JHS then consulted healthcare firm Kurt Salmon & Associates (KSA) to independently evaluate the data. KSA’s investigation validated a need in the west county for adult and pediatric outpatient services, including need for an FSED. This prompted JHS to explore opportunities for expansion of outpatient services where needed: in the western corridor of Miami-Dade. This was also the genesis of JHS’s long-range plan to first build an FSED in the Doral area, to be followed ultimately by the addition of a general acute care hospital at the site. The JW site is a 27-acre parcel of land located just west of the Palmetto Expressway and north of 25th Street. The site is in an industrial area only a short distance from the western end of the runways at Miami International Airport. The site is located in zip code 33122, which is very sparsely populated. JW proposed a primary service area (PSA) consisting of zip codes 33126, 33144, 33166, 33172/33122, 33174, 33178, and 33182, and a secondary service area (SSA) of zip codes 33155, 33165, 33175, and 33184. JW intends to serve general, acute care non-tertiary patients and OB patients. Detailed below, trends in the JW service area do not demonstrate need for its proposed hospital. The location of the JW site will not contribute to the viability of the proposed hospital. According to 2010 census data, only 328 people live within a one-mile radius of the JW site. Since 2000, only 32 total people have moved into that same area around the JW site--an average of three per year. There are virtually no residences within a one-mile radius of the JW site. From 2000 to 2010, the population within a two- mile radius of the JW site decreased by a rate of 9.4%. The JW health planner projects JW’s home zip code of 33122 will have a total population of only eight (8) people in 2022. From 2012 to 2014, the use rate in the JW service area for non-tertiary patients decreased by 3.9%. That decline continued at a steeper pace of 4.2% from 2014 to 2017. This was largely due to the 65+ age cohort, the demographic of patients that utilize inpatient services the most. The 65+ age cohort is growing at a slower pace in the JW service area than in Miami- Dade or Florida as a whole. Non-tertiary discharges in the JW service area are declining at a greater pace than that of Miami- Dade County--negative 4.2% compared to negative 1.9%. The rate of projected population growth in the JW PSA is decreasing. The projected rate of growth for the JW service area is lower than that of Miami-Dade County and Florida as a whole. The OB patient base JW intends to rely on is projected to remain flat. The inpatient discharges for all ages in the JW service area have declined from 2014 to 2017. For ages 0-17, discharges in the JW service area declined 21.4% during that time period. The discharges for ages 18-44 declined by 4.8%, and the discharges for ages 45-64 declined by 8.9%. The discharges for the important 65+ age cohort declined by 0.1%. Specifically, the discharges for ages 65-74 declined by 6.5%, and the discharges for ages 75-84 declined by 3.3%. The discharges for ages 85+ are the only age cohort that has not declined from 2012 to 2017. Overall, the non-tertiary discharges per 1,000 population (i.e., use rate) for all ages in the JW service area declined from 2012 to 2014 by 6%, and from 2014 to 2017 by 7.8%. Despite these declines in discharges in the JW service area, the health planners who crafted the JW projections used a constant use rate for the 0-17, 18-44, and 45-64 age cohorts. The JW health planners used a declining use rate for the 65+ age cohort. These use rates were applied uniformly across all zip codes, despite wide variance in actual use rates in each zip code. Applying the zip code specific use rates in conjunction with the other assumptions used by the JW health planner demonstrates that the JW projections are unreasonable. For instance, JW’s reliance on a uniform use rate over-projects the number of discharges in JW PSA zip code 33178 by nearly 1,000 patients. This occurs because the population is only growing at a 2% rate in the zip code, but JW’s reliance on service area-wide projections cause the discharges to grow at an extraordinary rate of 8.9% per year. Applying actual use rates across all zip codes causes a drastic change in the JW PSA and SSA definition. Section 408.037(2) requires a CON applicant to identify its PSA and SSA by listing zip codes in which it will receive discharges in descending order, beginning with the zip code with the highest amount of discharges, then proceeding in diminishing order to the zip code with the lowest amount of discharges. The zip codes, which comprise 75% of discharges, constitute the PSA; and the remaining zip codes, which consist of the remaining 25% of discharges, makes up the SSA. However, JW did not project its utilization in this manner. In its application, JW did not define its service area, PSA, and SSA zip codes in descending order by number or percentage of discharges. When this correct adjustment is made, its PSA consists of zip codes 33126, 33172, 33178, 33174, 33144, and 33165; and its SSA consists of zip codes 33175, 33166, 33155, 33182, and 33184. Zip codes 33166 and 33182 were in the original JW PSA, and zip code 33165 was in the original JW SSA. As such, JW’s home zip code should actually be in its SSA. JW health planners call this illogical, but it demonstrates that the JW site is located within a zip code that has almost no population of potential patients. JHS is developing an FSED and outpatient/ambulatory facilities on the JW site regardless of whether its CON application for a hospital is approved. Construction has begun on the JW site, and JHS is actually building a “shelled in” structure intended to house a future hospital, notwithstanding lack of CON approval for the hospital. There is no contingency plan for use of the shelled-in hospital space if CON approval is not obtained. JHS executives unequivocally stated that they intend to continue pursuing CON approval for the JW hospital, even if the proposed DMC hospital is approved. Indeed, JHS has filed third and fourth CON applications for its proposed JW hospital. The budget for the JW campus is $252 million. Sixty to $70 million is being funded from a bond issuance approved by voters in Miami-Dade County. Notably, the bond referendum approved by voters made no mention of a new hospital. The remaining $180 to $190 million is being funded by JHS, which has chosen to only keep 50 days cash-on-hand, and put any surplus toward capital projects. This is well below the number of days cash-on-hand ws advisable for a system like JHS. The specific programs and services to be offered at JW have not been finalized, but it is clear that JW will be a small community hospital that will not offer anything unique or different from any of the existing hospitals in the area, nor will it operate NICU beds. Patients presenting to JW in need of specialized or tertiary services will need to be transferred to another hospital with the capability of serving them, most likely JMH. The Applicants’ Arguments Doral Medical Center (DMC) DMC’s arguments in support of its proposed hospital may be summarized as follows: Geographic features surrounding Doral create transportation access barriers for the residents of the area; Doral is a densely-populated community that is growing quickly and lacks a readily accessible hospital; KRMC, which is the provider of choice for Doral residents, is a growing tertiary facility that cannot sufficiently expand to meet its future demands. DMC will serve much of the same patient population currently served by KRMC and help decompress KRMC’s acute care load so KRMC can focus on its tertiary service lines; From a geographic standpoint, the Doral community and its patients are isolated from much of Miami-Dade County to the north, west, and east, and the nearest hospitals. East Florida-DMC is a subsidiary of HCA and would be a part of the HCA EFD. Michael Joseph is the president of the EFD, which includes 15 hospitals and other facilities from Miami north through the Treasure Coast. Mr. Joseph authorized the filing of the DMC CON application, which proposes an 80-bed basic acute care hospital that includes 72 medical surgical and eight OB beds. As noted, there will be neither unique services at DMC nor any tertiary services, such as a NICU. HCA anticipates that DMC patients needing tertiary services would be referred and treated at KRMC. The proposed hospital would be built on 41st Street, between Northwest 109th Avenue and Northwest 112th Avenue. This site is located on the western edge of Doral, just east of the Everglades. When the consultants were retained to write the first DMC CON application, HCA had already made the decision to go forward with the project. Mr. Joseph described Miami-Dade County as one of the most competitive markets in the country for hospital services. There is robust competition in the Miami-Dade market from the standpoints of payors, physicians, and the many hospitals located in the county, including Jackson, HCA, Tenet, Baptist and others. HCA is not proposing this project because any of the existing hospitals in the area do not provide good quality care. HCA is currently building an FSED on the DMC site that will open regardless of whether the DMC hospital is approved. Mr. Joseph acknowledged that there is a trend toward outpatient rather than inpatient care. Inpatient occupancy of acute care hospitals in Miami-Dade County has been declining in recent years. Managed care has added further pressure on reducing inpatient admissions. Surgical advances have also resulted in fewer inpatient admissions. Surgeries that formerly required an inpatient stay are now often done on an outpatient basis. Mr. Joseph agreed that 30 minutes is a reasonable travel time to access an acute care hospital. The home zip code for the proposed DMC hospital is 33178. KRMC’s market share for that zip code is 20%. Individuals in that zip code are currently accessing a wide variety of hospitals. PGH is only 6.7 miles away and has the fourth highest market share in that zip code. HCA’s healthcare planning expert, Dan Sullivan, acknowledged that, if approved, DMC would likely have an adverse financial impact on KRMC and other area hospitals. Several witnesses testified that the travel time from the DMC site to KRMC is about 10 minutes, and that an ambulance could do it in as little as five minutes. As to the argument that the residents of Doral face geographic access barriers, the evidence did not indicate that there is anything unique about Doral from a traffic standpoint compared to other parts of Miami-Dade County. People come in and out of Doral on a daily basis in significant numbers for work and other reasons via various access points. Witnesses agreed that 25 to 30 minutes is a reasonable drive time for non-tertiary acute care services, and the evidence showed that residents of Doral, and the DMC service area, are well within 30 minutes of multiple hospitals providing more intensive services than are proposed by DMC. Indeed, many residents of DMC’s service area are closer to other hospitals than to the DMC site. None of the DMC witnesses were able to identify any patient in Doral who had been unable to access acute care services, or had suffered a bad outcome because of travel from Doral to an area hospital. The evidence did not establish that there currently exists either geographic or financial access barriers within the service area proposed to be served by DMC. Jackson West As in its Batch One application, JW advances six arguments as to why its proposed hospital should be approved. They are: It will serve a significant amount of indigent and Medicaid patients. JHS already serves residents of the proposed service area, which JW characterizes as “fragmented,” in that residents go to a number of different hospitals to receive services. Development of the freestanding ED and ambulatory center is under way. JW would provide an additional opportunity to partner with UM and FIU. There is physician and community support for the project. JW will add to the financial viability of JHS and its ability to continue its mission. JW presented very little analysis of the types of factors typically considered in evaluating need for a new hospital. JW did not discuss existing providers and their programs and services, the utilization of existing hospitals, and whether they have excess capacity, or other important considerations. Instead, JW advanced the six arguments noted above, for approval of its proposed hospital, none of which truly relate to the issue of need. First, JW states that its proposed hospital will serve a significant level of Medicaid and indigent patients. While it is true that JHS serves a significant amount of Medicaid and indigent patients, there are a number of reasons why this is not a basis to approve its proposed hospital. As an initial matter, JW treads a fine line in touting its service to Medicaid and indigent patients, while also targeting Doral for its better payer mix and financial benefit to JHS. JHS also receives an enormous amount of tax dollars to provide care to indigent and underserved patients. While other hospitals in Miami-Dade County provide care to such patients, they do not receive taxpayer dollars, as does JHS, although they pay taxes, unlike JHS. Also, Medicaid is a good payer for JHS. With its substantial supplement, JHS actually makes money from Medicaid patients, and it costs the system more for a Medicaid patient to be treated at a JHS hospital than elsewhere. More significantly, there is not a large Medicaid or indigent population in Doral, nor evidence of financial access issues in Doral. Second, JW argues that its CON application should be approved because JHS already serves patients from the Doral area, which JW characterizes as “fragmented” because area residents go to several different hospitals for care. This so- called “fragmentation” is not unique to Doral, and is not unusual in a densely-populated urban market with several existing hospitals. The same phenomenon occurs in other areas of Miami-Dade County, some of which actually have a hospital in the localized area. The fact that Doral residents are accessing several different hospitals demonstrates that there are a number of existing providers that are accessible to them. As discussed in greater detail below, residents of the Doral area have choices in every direction (other than to the west, which is the Everglades). JHS itself already serves patients from the Doral area. If anything, this tells us that patients from Doral currently have access to the JHS hospitals. Third, JW argues that its CON application should be approved because development of the JW campus is under way. This is irrelevant to the determination of need, and is simply a statement of JHS’s intent to build an FSED and outpatient facilities on a piece of land that was acquired for that purpose, regardless of CON approval. Fourth, JW argues for approval of its proposed hospital because it would provide an additional opportunity to partner with UM and Florida International University (FIU). However, the statutory criteria no longer addresses research and teaching concerns, and JHS’s relationship with UM or FIU has no bearing on whether there is a need for a new hospital in the Doral area. Moreover, JW did not present any evidence of how it would partner with UM or FIU at JW, and there does not seem to be any set plans in this regard. Fifth, JW claims that there is physician and community support for its proposed hospital, but it is very common for CON applicants to obtain letters in support for applications. Indeed, the DMC application was also accompanied by letters of support. Sixth and finally, JW argues that its proposed hospital will add to the financial viability of HSA and allow it to continue its mission. However, JW provided no analysis of the projected financial performance of its proposed hospital to substantiate this. The only financial analysis in the record is from KSA, a consulting firm that JHS hired to analyze the programs and services to be developed at JW. The KSA analysis posits that the JW FSED project will lose millions of dollars and not achieve break-even unless there is an inpatient hospital co-located there so that JW can take advantage of the more lucrative hospital-based billing and reimbursement. The sixth “need” argument relates to the issue of JHS’s historical financial struggles, which bear discussion. Only a handful of years ago, the entire JHS was in dire financial trouble, so much so that selling all or parts of it was considered. Days cash-on-hand was in the single digits, and JHS fell out of compliance with bond covenants. JHS’s financial difficulties prompted the appointment of an outside monitor to oversee JHS’s finances. Price Waterhouse served in that role, and made several recommendations for JHS to improve its revenue cycle, make accounting adjustments, and improve its staffing and efficiency. As a result of these recommendations, JHS went through a large reduction in force, and began to more closely screen the income and residency of its patients. As a result of these measures, overall financial performance has since improved. Despite its improved financial position, JHS still consistently loses money on operations, including a $362,000,915 loss as of June 30, 2018. JHS clearly depends upon the hundreds of millions of non-operating tax-based revenues it receives annually. JHS’s CEO expressed concerns over decreases in the system’s non-operating revenue sources, and claimed that JHS needs to find ways to increase its operating revenue to offset this. JW is being proposed as part of this strategy. However, JHS’s chief financial officer testified that “the non-operating revenues are a fairly stable source of income.” In fact, JHS’s tax revenues have gone up in the last few years. JHS sees the more affluent Doral area as a source of better paying patients that will enhance the profitability of its new hospital. Beyond this aspiration however, there is no meaningful analysis of the anticipated financial performance of its proposed hospital. This is a glaring omission given that a significant impetus for spending millions of public dollars on a new hospital is to improve JHS’s overall financial position. The KSA analysis referenced above determined that changes to the Hospital Outpatient Prospective Payment System rule would result in the JW campus losing hundreds of millions of dollars and never reaching “break even,” absent an inpatient hospital on the campus for “hospital based” billing and reimbursement. Though a financial benefit to the system, the increased reimbursement JHS would receive by having an inpatient hospital on the JW campus would be a financial burden on the healthcare delivery system since it would cost more for the same patient to receive the same outpatient services in a hospital- based facility. Reports by KSA also state that a strategic purpose of JW is to attract patients that would otherwise go to nearby facilities like PGH and Hialeah, and to capture tertiary or higher complexity cases which would then be sent to JMH. JW’s witnesses and healthcare planning experts fully expect this to happen. In 2015, and again in 2017, JHS conducted a “Community Health Needs Assessment,” which is required by law to be performed by public safety net hospitals. The assessments were conducted by gathering responses to various questions from a wide array of community leaders and stakeholders, including the CEOs of JHS’s hospitals, about the healthcare needs of the community. The final Community Health Needs Assessment documents are lengthy and cover a variety of health-related topics, but most notable for this case is that: (1) nowhere in either the 2015 or 2017 assessment is the development of a new hospital recommended; and (2) expansion into western Miami-Dade County scored by far the lowest on a list of priorities for JHS. In its application and at hearing, JW took the position that JW can enter the Doral area market without impacting existing providers to any meaningful extent. While JW acknowledges that its proposed hospital would impact the Tenet Hospitals, it argues that the impact is not significant. The evidence established that the financial impact to the Tenet Hospitals (calculated based upon lost contribution margin) would total roughly $3 million for lost inpatients, and $5.2 million including lost outpatients. While these losses will not put the Tenet Hospitals in financial peril, they are nonetheless significant and material. The Existing Healthcare Delivery System Miami-Dade County is home to 18 freestanding acute care hospitals, comprising a total of 7,585 licensed and approved acute care beds. With an average annual occupancy of 53.8% in calendar year 2017, there were, on average, approximately 3,500 unoccupied acute care beds in the county on any given day. While the countywide occupancy rate fluctuates from year to year, it has been on a downward trend in the past several years. As pointed out by several witnesses, the lack of a hospital in Doral is not itself an indication of need. In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. The population of Doral currently is only about 59,000 people. It is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. As set forth in JW’s CON application, the better payer mix in Doral was a significant factor behind its decision to file its CON application. Although there is not a hospital within the Doral city limits, there are a number of healthcare providers in Doral and several hospitals nearby. PGH and Palm Springs Hospital are just north of Doral. KRMC is just south of Doral. Hialeah is northeast of Doral. CGH, Westchester General, and NCH are southeast of Doral. JMH and all of its facilities are east of Doral. And there are others within reasonable distance. KRMC is only six miles due south of the proposed DMC site, and PGH is just eight miles north of the DMC site. As to the JW site, PGH is 6.9 miles distant, CGH is 8.6 miles distant, and Hialeah is 7.4 miles distant. Residents of the Doral area have many choices in hospitals with a wide array of services, and they are accessing them. The parties to this case, as well as other existing hospitals, all have a share of the Doral area market. JW calls this “fragmentation” of the market and casts it in a negative light, but the evidence showed this to be a normal phenomenon in an urban area like Miami, with several hospitals in healthy competition with each other. Among the experts testifying at the hearing, it was undisputed that inpatient acute care hospital use rates are on the decline. There are different reasons for this, but it was uniformly recognized that decreasing use rates for inpatient services, and a shift toward outpatient services, are ongoing trends in the market. Recognizing the need for outpatient services in the Doral area, both JW and DMC (or, more accurately, their related entities) have proposed outpatient facilities and services to be located in Doral. Kendall Regional Medical Center KRMC is currently the dominant hospital provider in the Doral area. Regarding his motivation for filing the DMC application, Mr. Joseph readily admitted “it’s as much about protecting what I already currently provide, number one.” KRMC treats Medicaid and indigent patients. KRMC has never turned away a patient because it did not have a contract with a Medicaid-managed care company. The CEO agreed that there is no access problem for Medicaid or charity patients justifying a new hospital. It was argued that KRMC is crowded, and the DMC hospital would help “decompress” KRMC, but the evidence showed that KRMC has a number of licensed beds that are not being used for inpatients. In addition, its ED has never gone on diversion, and no patient has ever been turned away due to the lack of a bed. Moreover, the census at KRMC has been declining. It had 25,324 inpatient admissions in 2015, 24,649 admissions in 2016, and 23,301 in 2017. The most recent data available at the time of hearing reflected that KRMC has been running at a little less than 75% occupancy, before its planned bed additions. KRMC is between an eight to 10 minute drive from Doral, and currently has the largest market share within the applicants’ defined service areas. KRMC is readily available and accessible to the residents of Doral. KRMC currently has a $90 million dollar expansion project under way. It involves adding beds and two new floors to the West Tower--a new fifth floor which will add 24 ICU beds and 24 step-down beds, and a new sixth floor which will house the relocated pediatric unit and 12 new medical-surgical beds. KRMC is also adding a new nine-story, 765 parking space garage and other ancillary space. This expansion will reduce the occupancy rate of KRMC’s inpatient units, and in particular its ICUs. These bed additions, in conjunction with increasing emphasis on outpatient services and the resultant declining inpatient admissions, will alleviate any historical capacity constraints KRMC may have had. There are also a number of ways KRMC could be further expanded in the future if needed. The West Tower is designed so it could accommodate a seventh floor, and the East Tower is also designed so that an additional floor could also be added to it. In addition, KRMC recently completed construction of a new OR area that is built on pillars. The new construction includes a third floor of shelled-in space that could house an additional 12 acute care beds. Moreover, this new OR tower was designed to go up an additional two to three floors beyond the existing shelled-in third floor. It is clear that KRMC has implemented reasonable strategies for addressing any bed capacity issues it may have experienced in the past. Decompression of KRMC is not a reason to approve DMC. Palmetto General Hospital Evidence regarding PGH was provided by its CEO Ana Mederos. Ms. Mederos is a registered nurse and has lived in Miami-Dade County for many years. She has a master of business education from Nova University and has worked in several different hospitals in the county. Specifically, she was the chief operating officer (COO) at Cedars Medical Center, the CEO at North Shore Medical Center, the CEO at Hialeah Hospital, and has been the CEO at PGH since August of 2006. Ms. Mederos is one of the few witnesses that actually lives in Doral. She travels in and out of the area on a daily basis. Her average commute is only about 15 minutes, and she has multiple convenient options in and out of Doral. PGH is located just off the Palmetto Expressway at 68th Street. It opened in the early 1970s and has 368 licensed beds, including 52 ICU beds. The hospital employs about 1,800 people and has over 600 physicians on its medical staff. PGH’s occupancy has declined from 79.8% in 2015 to 64% in 2016, and even further to 56.7% in 2017. There are many reasons for this decline, including pressure from managed care organizations, the continued increase in the use of outpatient procedures, improvements in technology, and increased competition in the Miami-Dade County market. Ms. Mederos expects that inpatient demand will continue to decline into the foreseeable future. PGH recently activated 31 observation beds to help improve throughput and better accommodate the increasing number of observation patients. PGH offers high-quality care and uses various metrics and indicators to measure and monitor what is going on in the hospital. The hospital has also been recognized with numerous awards. Through its parent, Tenet, PGH has contracts with just about every insurance and managed care company that serves the community. The hospital treats Medicaid and indigent patients. PGH’s Medicaid rate of $3,580 per patient is significantly lower than the rate paid to JMH. PGH has an office dedicated to helping patients get qualified for Medicaid or other financial resources, which not only helps the hospital get paid for its services, it also assists patients and families to make sure that they have benefits on an ongoing basis. Roughly 9-10% of PGH’s patients annually are completely unfunded. PGH only transfers patients if there is a need for a service not provided at the hospital, or upon the patient’s request. PGH does not transfer patients just because they cannot pay. PGH pays physicians to take calls in the ED which also obligates those physicians to provide care to patients that are seen at the hospital. PGH is a for-profit hospital that pays income taxes and property taxes, and does not receive any taxpayer subsidies like those received by JHS. Ms. Mederos reviewed the applications of JW and DMC, and articulated a number of reasons why, in her opinion, neither application should be approved. She sees no delays in providing care to anyone in the area, as there are hospitals serving Doral in every direction. There are a multitude of FSEDs available and additional FSEDs are being built in Doral by both applicants. There is another FSED being built close to PGH by Mount Sinai Medical Center. NCH has also opened an FSED that has negatively affected the volume of pediatric patients seen at PGH. There are also multiple urgent care centers. It was Ms. Mederos’ firm belief that persons living in Doral have reasonable geographic access to both inpatient and outpatient medical services. Ms. Mederos’ testimony in this regard is credited. There are no programs or services being proposed by either applicant that are not already available in the area. Ms. Mederos also noted that there is currently no problem with access to OB services in the area. However, she has a particular concern in that both applicants propose to offer OB services, but neither is proposing to offer NICU services. The evidence showed that most all of the hospitals that provide OB services to the Doral area offer at least Level II and some Level III NICU services. Thus, in terms of OB care, both proposed hospitals would be a step below what has developed as the standard of care for OB patients in the county. Ms. Mederos acknowledged that PGH does not have a huge market share in the zip codes that the applicants are proposing to serve, but that does not mean that the impact from either would not be real and significant. If a hospital is built by either applicant, it will need physicians, with some specialists in short supply. There are tremendous shortages in certain medical fields, such as orthopedics and neurology. In addition, there will be additional competition for nurses and other staff, which will increase the cost of healthcare. The loss of $1.3 to $2 million in contribution margin, as projected by Tenet’s healthcare planner, is a negative impact on PGH as hospital margins become thinner, and those numbers do not include costs like those needed to recruit and retain staff. PGH is again experiencing a nursing shortage, and losing nurses, incurring the higher cost for contract labor, paying overtime, and essentially not having the staff to provide the required services is a serious potential adverse impact from either proposed new hospital. JHS also tends to provide more lucrative benefits than PGH, and a nearby JW hospital is a threat in that regard. As a final note, Ms. Mederos stated that her conviction that there is no need for either proposed hospital in Doral is even more resolute than when she testified in the Batch One Case. With continued declines in admissions, length of stay and patient days, the development of more services for the residents of Doral, the shortages of doctors and nurses, the ever increasing role of managed care that depresses the demand for inpatient hospital services and other factors, she persuasively explained why no new hospitals are needed in the Doral area. Coral Gables Hospital (CGH) Maria Cristina Jimenez testified on behalf of CGH, where she has worked in a variety of different capacities since 1985. She was promoted to CEO in March 2017. She has lived in Miami her entire life. Ms. Jimenez has been involved in initiatives to make her hospital more efficient. She is supportive of efforts to reduce inpatient hospitalizations and length of stay, as this is what is best for patients. Overall, the hospital length of stay is dropping, which adds to the decreasing demand for inpatient services. CGH is accredited by the Joint Commission, has received multiple awards, and provides high-quality care to its patients. It also has contracts with a broad array of managed care companies as do the other Tenet hospitals. CGH treats Medicaid patients, and its total Medicaid rate is less than $3,500 per inpatient. The hospital has a program similar to PGH to help patients get qualified for Medicaid and other resources. CGH also provides services to indigent patients, and self-pay/charity is about 6% of the hospital’s total admissions. The hospital does not transfer patients just because they are indigent. Physicians are compensated to provide care in the emergency room and are expected to continue with that care if the patients are admitted to the hospital, even if they do not have financial resources. CGH also pays income and property taxes, but does not receive any taxpayer support. CGH generally serves the Little Havana, Flagami, Miami, and Coral Gables communities, and its service area overlaps with those of the applicants. In order to better serve its patients and to help it compete in the highly competitive Miami-Dade County marketplace, CGH is developing a freestanding ED at the corner of Bird Road and Southwest 87th Avenue, which is scheduled to open in January 2020. This will provide another resource for patients in the proposed service areas. Ms. Jimenez had reviewed the CON applications at issue in this case. She does not believe that either hospital should be approved because it will drain resources from CGH, not only from a financial standpoint, but also physician and nurse staffing. CGH experiences physician shortages. Urologists are in short supply, as are gastrointestinal physicians that perform certain procedures. Hematology, oncology, and endocrinology are also specialty areas with shortages. The addition of another hospital will exacerbate those shortages at CGH. While CGH does not have a large market share in the proposed PSA of either applicant, anticipated impact from approval of either is real and substantial. A contribution margin loss of $1.2 to $2.2 million per year, as projected by Tenet’s healthcare planner, would be significant. The drain on resources, including staff and physicians, is also of significant concern. Hialeah Hospital Dr. Jorge Perez testified on behalf of Hialeah. Dr. Perez is a pathologist and medical director of laboratory at the hospital. More significantly, Dr. Perez has been on the hospital’s staff since 2001 and has served in multiple leadership roles, including chair of the Performance Improvement Council, chief of staff; and since 2015, chair of the Hialeah Hospital Governing Board. Hialeah offers obstetrics services and a Level II NICU with 12 beds. Approximately 1,400 babies a year are born there. Hialeah’s occupancy has been essentially flat for the past three years, at below 40%, and it clearly has ample excess capacity. On an average day, over 200 of Hialeah’s beds are unoccupied. Like other hospitals in the county, Hialeah has a number of competitors. The growth of managed care has affected the demand for inpatient beds and services at Hialeah. Hialeah treats Medicaid and indigent patients. Approximately 15% of Hialeah’s admissions are unfunded. As with its sister Tenet hospitals, Hialeah is a for- profit hospital that pays taxes and does not receive tax dollars for providing care to the indigent. Dr. Perez succinctly and persuasively identified a variety of reasons why no new hospital is needed in Doral. First and foremost, there is plenty of capacity at the existing hospitals in the area, including Hialeah. Second, both inpatient admissions and length of stay continue trending downward. Care continues to shift toward outpatient services, thereby reducing the demand for inpatient care. According to Dr. Perez, if a new hospital is approved in Doral it will bring with it adverse impacts on existing hospitals, including Hialeah. A new hospital in Doral will attract patients, some of which would have otherwise gone to Hialeah. Moreover, Doral has more insured patients, meaning the patients that would be lost would be good payors. There would also be a significant risk of loss of staff to a new hospital. Dr. Perez’s testimony in this regard is credible. Statutory and Rule Review Criteria In 2008, the Florida Legislature streamlined the review criteria applicable for evaluating new hospital applications. Mem’l Healthcare Grp. v. AHCA, Case No. 12- 0429CON, RO at 32 (Fla. DOAH Dec. 7, 2012). The criteria specifically eliminated included quality of care, availability of resources, financial feasibility, and the costs and methods of proposed construction. Lee Mem’l Health System v. AHCA, Case No. 13-2508CON, RO at 135 (Fla. DOAH Mar. 28, 2014). The remaining criteria applicable to new hospital projects are set forth at section 408.035(1), Florida Statutes. Section 408.035(1)(a): The need for the healthcare facilities and health services being proposed. Generally, CON applicants are responsible for demonstrating need for new acute care hospitals, typically in the context of a numeric need methodology adopted by AHCA. However, AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. Florida Administrative Code Rule 59C-1.008(2)(e) provides that if no agency need methodology exists, the applicant is responsible for demonstrating need through a needs assessment methodology, which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory and rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Both applicants propose to build small community hospitals providing basic acute care and OB services in the Doral area of western Miami-Dade County. Both applicants point to the increasing population and the lack of an acute care hospital in Doral as evidence of need for a hospital. The DMC application focuses largely on geographic access concerns, while the JW application is premised upon six arguments as to why JHS contends its proposed JW hospital should be approved. The lack of a hospital in Doral is not itself an indication of need.3/ In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals, and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. Doral is in the west/northwest part of Miami-Dade County, in between the Miami International Airport (to the east) and the Everglades (to the west). It is surrounded by major roadways, with US Highway 27/Okeechobee Road running diagonally to the north, US Highway 836/Dolphin Expressway running along its southern edge, US Highway 826/Palmetto Expressway running north-south to the east, and the Florida Turnpike running north- south along the western edge of Doral. To the west of the Turnpike is the Everglades, where there is minimal population and very limited development possible in the future. The City of Doral itself has an area of about 15 square miles, and is only two or three times the size of the Miami International Airport, which sits just east of Doral. Much of Doral is commercial and industrial, with the largest concentration of residential areas being in the northwest part of the city. While there is unquestionably residential growth in Doral, the population of Doral is currently only about 59,000 people. Doral is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. JW proposes to locate its hospital on the eastern side of Doral, just west of Miami International Airport, while the DMC site is on the western side of Doral, just east of the Everglades. JW’s site is located in an industrial area with few residents, while the DMC site is located in an area where future growth is likely to be limited. Both sites have downsides for development of a hospital, with both applicants spending considerable time at hearing pointing out the flaws of each other’s chosen location. Both applicants define their service areas to include the City of Doral, but also areas outside of Doral. Notably, the entire DMC service area is contained within KRMC’s existing service area, with the exception of one small area. While the population of Doral itself is only 59,000 people, there are more concentrated populations in areas outside of Doral (except to the west). However, the people in these areas are closer to existing hospitals like PGH, Hialeah, KRMC, and others. For the population inside Doral, there are several major roadways in and out of Doral, and area residents can access several existing hospitals with plenty of capacity within a 20-minute drive time, many closer than that. It was undisputed that inpatient acute care hospital use rates continue to decline. There are different reasons for this, but it was uniformly recognized that decreasing inpatient use rates, and a shift toward outpatient services, are ongoing trends in the market. These trends existed at the time of the Batch One Case. As observed by Tenet’s healthcare planner at hearing: “The occupancy is lower today than it was two years ago, the use rates are lower, and the actual utilization is lower.” Both applicants failed to establish a compelling case of need. While there is growth in the Doral area, it remains a relatively small population, and there was no evidence of community needs being unmet. Sound healthcare planning, and the statutory criteria, require consideration of existing hospitals, their availability, accessibility, and extent of utilization. These considerations weigh heavily against approval of either CON application, even more so than in the prior case. Section 408.035(1)(b): The availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the service district of the applicant; and Section 408.035(1)(e): The extent to which the proposed services will enhance access to healthcare for residents of the service district. As stated above, there are several existing hospitals in close proximity to Doral. Thus, the question is whether they are accessible and have capacity to serve the needs of patients from the Doral area. The evidence overwhelmingly answers these questions in the affirmative. Geographic access was a focal point of the DMC application, which argued that there are various barriers to access in and around Doral, such as a canal that runs parallel to US Highway 27/Okeechobee Road, train tracks and a rail yard, industrial plants, and the airport. While the presence of these things is undeniable, as is the fact that there is traffic in Miami, based upon the evidence presented, they do not present the barriers that DMC alleges. Rather, the evidence was undisputed that numerous hospitals are accessible within 20 minutes of the proposed hospital sites, and some within 10 to 15 minutes. All of Doral is within 30 minutes of multiple hospitals. These are reasonable travel times and are not indicative of a geographic access problem, regardless of any alleged “barriers.” In addition, existing hospitals clearly have the capacity to serve the Doral community, and they are doing so. Without question, there is excess capacity in the Miami-Dade County market. With approximately 7,500 hospital beds in the county running at an average occupancy just over 50%, there are around 3,500 beds available at any given time. Focusing on the hospitals closest to Doral (those accessible within 20 minutes), there are hundreds of beds that are available and accessible from the proposed service areas of the applicants. KRMC is particularly noteworthy because of its proximity to, and market share in, the Doral area. The most recent utilization and occupancy data for KRMC indicate that it has, on average, 100 vacant beds. This is more than the entire 80-bed hospital proposed in the DMC application (for a service area that is already served and subsumed by KRMC). Moreover, KRMC is expanding, and will soon have even more capacity at its location less than a 10-minute drive from the DMC site. From a programmatic standpoint, neither applicant is proposing any programs or services that are not already available at numerous existing hospitals, and, in fact, both would offer fewer programs and services than other area hospitals. As such, patients in need of tertiary or specialized services will still have to travel to other hospitals like PGH, KRMC, or JMH. Alternatively, if they present to a small hospital in Doral in need of specialized services, they will then have to be transferred to an appropriate hospital that can treat them. The same would be true for babies born at either DMC or JW in need of a NICU. Similarly, there are bypass protocols for EMS to take cardiac, stroke, and trauma patients to the closest hospital equipped to treat them, even if it means bypassing other hospitals not so equipped, like JW and DMC. Less acute patients can be transported to the closest ED. And since both applicants are building FSEDs in Doral, there will be ample access to emergency services for residents of Doral. This criterion does not weigh in favor of approval of either hospital. To the contrary, the evidence overwhelmingly established that existing hospitals are available and accessible to Doral area residents. Section 408.035(1)(e), (g) and (i): The extent to which the proposed services will enhance access to healthcare, the extent to which the proposal will foster competition that promotes quality and cost-effectiveness, and the applicant’s past and proposed provision of healthcare services to Medicaid patients and the medically indigent. It goes without saying that any new hospital is going to enhance access to the people closest to its location; but as explained above, there is no evidence of an access problem, or any pressing need for enhanced access to acute care hospital services. Rather, the evidence showed that Doral area residents are within very reasonable travel times to existing hospitals, most of which have far more extensive programs and services than either applicant is proposing to offer. Indeed, the proposed DMC service area is contained within KRMC’s existing service area, and KRMC is only 10 minutes from the DMC site. Neither applicant would enhance access to tertiary or specialized services, and patients in need of those services will still have to travel to other hospitals, or worse, be transferred after presenting to a Doral hospital with more limited programs and services. Although it was not shown to be an issue, access to emergency services is going to be enhanced by the FSEDs being built by both applicants. Thus, to the extent that a new hospital would enhance access, it would be only for non-emergent patients in need of basic, non-tertiary level care. Existing hospitals are available and easily accessible to these patients. In addition, healthy competition exists between several existing providers serving the Doral area market. That healthy competition would be substantially eroded by approval of the DMC application, as HCA would likely capture a dominant share of the market. While approval of the JW application might not create a dominant market share for one provider, it would certainly not promote cost-effectiveness given the fact that it costs the system more for the same patient to receive services at a JHS hospital than other facilities. Indeed, approval of JW’s application would mean that the JW campus will have the more expensive hospital-based billing rates. Florida Medicaid diagnosis related group (DRG) payment comparisons among hospitals are relevant because both DMC and JW propose that at least 22% of their patients will be Medicaid patients. Data from the 2017-18 DRG calculator provided by the Medicaid program office was used to compare JHS to the three Tenet hospitals, KRMC, and Aventura Hospital, another EFD hospital in Miami-Dade County. The data shows that JHS receives the highest Medicaid rate enhancement per discharge for the same Medicaid patients ($2,820.06) among these six hospitals in the county. KRMC receives a modest enhancement of $147.27. Comparison of Medicaid Managed Care Reimbursement over the period of fiscal years 2014-2016 show that JHS receives substantially more Medicaid reimbursement per adjusted patient day than any of the hospitals in this proceeding, with the other hospitals receiving between one-third and one-half of JHS reimbursement. In contrast, among all of these hospitals, KRMC had the lowest rate for each of the three years covered by the data, which means KRMC (and by extension DMC) would cost the Medicaid program substantially less money for care of Medicaid patients. Under the new prospective payment system instituted by the State of Florida for Medicaid reimbursement of acute care hospital providers, for service between July 1, 2018, and March 31, 2019, JHS is the beneficiary of an automatic rate enhancement of more than $8 million. In contrast, KRMC’s rate enhancement is only between $16,000 and $17,000. Thus, it will cost the Medicaid program substantially more to treat a patient using the same services at JW than at DMC. Furthermore, rather than enhance the financial viability of the JHS system, the evidence indicates that the JW proposal will be a financial drain on the JHS system. Finally, JHS’s past and proposed provision of care to Medicaid and indigent patients is noteworthy, but not a reason to approve its proposed hospital. JW is proposing this hospital to penetrate a more affluent market, not an indigent or underserved area, and it proposes to provide Medicaid and indigent care at a level that is consistent with the existing hospitals. JHS also receives the highest Low Income Pool (LIP) payments per charity care of any system in the state, and is one of only a handful of hospital systems that made money after receipt of the LIP payments. HCA-affiliated hospitals, by comparison, incur the second greatest cost in the state for charity care taking LIP payments into consideration. Analysis of standardized net revenues per adjusted admission (NRAA) among Miami-Dade County acute care hospitals, a group of 16 hospitals, shows JHS to be either the second or the third highest hospital in terms of NRAA. KRMC, in contrast, part of the EFD/HCA hospitals, is about 3% below the average of the 16 hospitals for NRAA. DMC’s analysis of standardized NRAA using data from 2014, 2015, and 2016, among acute care hospitals receiving local government tax revenues, shows JHS receives more net revenue than any of the other hospitals in this grouping. Using data from FY 2014 to FY 2016, DMC compared hospital costs among the four existing providers that are parties to this proceeding and JMH as a representative of JHS. Standardizing for case mix, fiscal year end, and location, an analysis of costs per adjusted admission shows that the hospitals other than JMH have an average cost of between a half and a third of JMH’s average cost. The same type of analysis of costs among a peer group of eight statutory teaching hospitals shows JHS’s costs to be the highest. It should also be noted that if JW were to fail or experience significant losses from operations, the taxpayers of Miami-Dade County will be at risk. In contrast, if DMC were to fail financially, EFD/HCA will shoulder the losses. When the two applications are evaluated in the context of the above criteria, the greater weight of the evidence does not mitigate in favor of approval of either. However, should AHCA decide to approve one of the applicants in its final order, preference should be given to DMC because of its lower costs per admission for all categories of payors, and in particular, the lower cost to the Florida Medicaid Program. In addition, the risk of financial failure would fall upon EFD/HCA, rather than the taxpayers of Miami-Dade County. Rule 59C-1.008(2)(e): Need considerations. Many of the considerations enumerated in rule 59C- 1.008(2)(e) overlap with the statutory criteria, but there are certain notable trends and market conditions that warrant mention. Specifically, while the population of Doral is growing, it remains relatively small, and does not itself justify a new hospital. And while there are some more densely populated areas outside of the city of Doral, they are much closer to existing hospitals having robust services and excess capacity. Doral is a more affluent area, and there was no evidence of any financial or cultural access issues supporting approval of either CON application. The availability, utilization, and quality of existing hospitals are clearly not issues, as there are several existing hospitals with plenty of capacity accessible to Doral area residents. In terms of medical treatment trends, it was undisputed that use rates for inpatient hospital services continue trending downward, and that trend is expected to continue. Concomitantly, there is a marked shift toward outpatient services in Miami-Dade County and elsewhere. Finally, both applicants are proposing to provide OB services without a NICU, which is below the standard in the market. While not required for the provision of obstetrics, NICU backup is clearly the most desirable and best practice. For the foregoing reasons, the considerations in rule 59C-1.008(2)(e) do not weigh in favor of approval of either hospital.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Healthcare Administration enter a final order denying East Florida-DMC, Inc.’s CON Application No. 10432 and denying The Public Health Trust of Miami-Dade County, Florida, d/b/a Jackson Hospital West’s CON Application No. 10433. DONE AND ENTERED this 30th day of April, 2019, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of April, 2019.
The Issue Whether the application of Delray Community Hospital for a certificate of need to add 24 acute care beds meets, on balance, the applicable criteria for approval.
Findings Of Fact The Agency For Health Care Administration ("AHCA") administers the state certificate of need ("CON") program for health care services and facilities. In August 1994, AHCA published a numeric need of zero for additional acute care beds in District 9, Subdistrict 5, for southern Palm Beach County. In September 1994, NME Hospitals, Inc. d/b/a Delay Community Hospital, Inc. ("Delray") applied for a certificate of need ("CON") to add 24 acute care beds in District 9, Subdistrict 5, for a total construction cost of $4,608,260. AHCA published its intent to approve the application and to issue CON No. 7872 to Delray, on January 20, 1995, in Volume 21, No. 3 of the Florida Administrative Weekly. By timely filing a petition, Bethesda Memorial Hospital, Inc. ("Bethesda"), which is located in the same acute care subdistrict, challenged AHCA's preliminary decision. Bethesda also filed a petition challenging Rule 59C-1.038, Florida Administrative Code, the acute care bed need rule, which resulted in a determination that the need methodology in the rule is invalid. Bethesda Memorial Hospital, Inc. v. AHCA and NME Hospital, Inc., DOAH Case No. 95-2649RX (F.O. 8/16/95). Delray and Bethesda are in a subdistrict which includes five other hospitals, Wellington Regional Medical Center ("Wellingon"), West Boca Medical Center ("West Boca"), Palm Beach Regional Medical Center ("Palm Beach Regional"), J. F. Kennedy Medical Center ("JFK"), and Boca Raton Community Hospital ("BRCH"). The hospitals range in size from 104 to approximately 400 beds. Wellington, West Boca, and Palm Beach Regional have fewer, and Bethesda, JFK and BRCH have more than Delray's 211 beds. Bethesda, located in Boynton Beach, is accredited by the Joint Commission for the Accreditation of Hospital Organizations ("JCAHO") for the maximum time available, 3 years. Bethesda has 330 beds, and offers obstetrics, pediatrics, and emergency room services. An average of 10 patients a month are transferred, after their condition is stabilized, from the emergency room at Bethesda to other hospitals, and most are participants in the Humana health maintenance organization ("HMO"), which requires their transfer to an Humana- affiliated hospital. Approximately one patient a month is transferred for open heart surgery or angioplasty after stabilization with thrombolitic therapy at Bethesda. Bethesda has a 12-bed critical care unit, a 12-bed surgical intensive care unit, and a telemetry or progressive care unit. From October to April, Bethesda also opens a 10-bed medical intensive care unit. Even during this "season," when south Florida experiences an influx of temporary winter residents, Bethesda's critical care beds are very rarely full. Only one time during the 1994-1995 season was a patient held overnight in the emergency room waiting for a bed at Bethesda. Only diagnostic cardiac caths are performed at Bethesda due to the absence of back-up open heart surgery. Delray is located on a medical campus with Fair Oaks Hospital, a 102 bed psychiatric facility, and Hillhaven Convalescent Center, which has 108 beds. Delray is physically connected to Pinecrest Rehabilitation Hospital, which has 90 beds. The campus also includes a medical mall, with outpatient services, a home health agency, and medical office buildings. Delray has a medical staff of 430 physicians. Delray is a for-profit hospital owned and operated by NME Hospitals, Inc., a wholly owned subsidiary of National Medical Enterprises, which after merging with American Medical International, does business as Tenet Health Care Corporation ("Tenet"). Tenet owns, operates, or manages 103 facilities, including Fair Oaks and Pinecrest Rehabilitation Hospital. Delray owns Hillhaven Convalescent Center, but it is managed by the Hillhaven nursing home management company. NME Hospitals, Inc., also owns West Boca Medical Center, which is approximately 10 to 12 miles from Delray. South Florida Tenet Health System is an alliance of the Tenet facilities, which has successfully negotiated managed care contracts offering the continuum of care of various levels of providers within one company. AHCA published a numeric need of zero for additional acute care beds in the southern Palm Beach County subdistrict, for July 1999, the applicable planning horizon. Delray's application asserts that special circumstances exist for the approval of its application despite the absence of numeric need. AHCA accepted and reviewed Delray's application pursuant to the following section of the acute care bed need rule: (e) Approval Under Special Circumstances. Regardless of the subdistrict's average annual occupancy rate, need for additional acute care beds at an existing hospital is demonstrated if a net need for beds is shown based on the formula described in paragraphs (5)(b), (7)(a), (b), (c), and (8)(a), (b), (c), and provided that the hospital's average occupancy rate for all licensed acute care beds is at or exceeds 75 percent. The deter- mination of the average occupancy rate shall be made based on the average 12 months occupancy rate made available by the local health council two months prior to the begining of the respective acute care hospital batching cycle. The need methodology referred to in the special circumstances rule indicated a net need for 1442 additional beds in District 9. All parties to the proceeding agree that the net need number is unrealistic, irrational, and/or wrong. That methodology was invalidated in the previously consolidated rule challenge case. Delray also met the requirement of exceeding 75 percent occupancy, with 75.63 percent from January through December 1993. In 1994, Delray's occupancy rate increased to 83 percent. In 1993, occupancy rates were 55.6 percent in District 9 and 52.5 percent in subdistrict 5. At individual hospitals, other than Delray, occupancy rates ranged from lows of 25.5 percent at Wellington and 35 percent at Palm Beach Regional to highs of 58 percent at BRCH and JFK. A study of four year trends shows declining acute care occupancy at every subdistrict hospital except Delray. Delray points to occupancy levels in intensive care units as another special circumstance for adding new beds. Currently, Delray has 8 beds in a trauma intensive care unit ("TICU"), 8 in a surgical intensive care unit ("SICU"), 7 in a critical or coronary care unit ("CCU"), 7 in a medical intensive care unit ("MICU"), and 67 beds in a telemetry or progressive care unit ("PCU"). For the fiscal year ending May 31, 1994, occupancy rates were 80 percent in the PCU, 91 percent in CCU, and 128 percent in SICU. If the CON is approved, Delray plans to allocate the 24 additional beds to increase the PCU by 10, CCU by 7, and the SICU by 7 beds. Expert testimony established 75 percent to 80 percent as a range of reasonable occupancy levels for intensive care units. A PCU, telemetry, or step down unit serves as a transition for patients leaving ICUs who require continued heart rate monitoring. PCU staffing ratios are typically 1 nurse to every 4 patients. CCU is used for patients who have had heart attacks or other serious cardiac problems and continue to need closer personal monitoring. SICU is used primarily for post-surgery open heart patients. The TICU is used for patients with neurological injuries and those in need of neurosurgery. When the ICUs are full, overflow patients are placed in holding areas of the ICU, the emergency room ("ER"), telemetry unit, or in a medical holding unit behind the emergency room. During the season, from November to April, from 20 to 55 patients are in holding areas, most of whom would otherwise be in an ICU or PCU bed. Critical care nurses are moved to the holding areas to care for critical patients. Additional staffing requirements are met, in part, by using contract nurses from an agency owned by Tenet, called Ready Staff. Other temporary or traveling nurses go through a three day orientation and are paired with regular staff mentors. Traveling nurses have three to six month contracts to work at various hospitals throughout the county, as needed. Intensive care nurses are cross-trained to work in any of the ICUs, but the same nurses usually are assigned to open heart and trauma patients. Since May 1991, Delray has been the state-designated level II trauma center for southern Palm Beach County, as is St. Mary's Hospital for the northern areas of the County. Trauma patients are transported by ambulance or helicopter, and treated in two designated trauma rooms in the emergency department. The state designation requires Delray to have one of its eight trauma surgeons, trauma nurses, anesthesiologists, and certain other ancillary services available in the hospital at all times. Delray also must have a bed available in its TICU. CON Review Criteria By supplemental prehearing stipulation, the parties agreed that Delray's CON application includes the information and documents required in Section 408.037, Florida Statutes. The parties also stipulated that the project is financially feasible in the short term, and that proposed construction costs and methods, and equipment costs are reasonable. Based on prehearing stipulations, the statutory review criteria in dispute are as follows: 408.035(1)(a) - need in relation to district and state health plans; 408.035(1)(b) and (1)(d) - availability, accessibility, efficiency, and adequacy of other hospitals; 408.035(1)(b) and (1)(c) - quality of care at other hospitals and the applicant's ability to provide and record of providing quality of care; 408.035(1)(h) - availability of critical care nurses; and 408.035(1)(i) - long term financial feasibility. State and District Health Plans The 1993 Florida State Health Plan has a preference for approving additional acute care beds in subdistricts with at least 75 percent occupancy, and at facilities equal to or in excess of 85 percent occupancy. Subdistrict 5 and Delray do not meet the preference. See, Finding of Facts 9 and 10. The state health plan also includes a preference for hospitals which are disproportionate share Medicaid providers. Delray does not meet the preference, and notes that 70 percent of its patients are over 65 years old and entitled to Medicare reimbursement. In fact, there are no disproportionate share providers in the subdistrict. Delray meets the state plan preference for proposing a project which will not adversely affect the financial viability of an existing, disproportionate share provider. The state health plan also has four preferences related to emergency services, for accepting indigent patients in ER, for a trauma center, for a full range of ER services, and for not having been fined for ER services violations. Delray meets all four preferences related to emergency services. The 1990 District 9 Health Plan, with a 1993 CON Allocation Factors Report, favors applicants who serve Medicaid/Indigent, handicapped, and underserved population groups. In 1992 and 1993, approximately 2.5 percent of the patients at Delray were in the Medicaid program. Delray also provided 3 percent indigent and charity care for 1993. The hospital's 1992 financial reports do not indicate that it provided any indigent or charity care. In 1993- 1994, Delray had the lowest percentage of Medicaid and charity patients at a state designated level II trauma center. AHCA proposes to condition approval of CON 7872 on Delray's providing 2.4 percent of total annual patient days to Medicaid and 1 percent of total annual patient days to charity care, as projected by Delray in Table 7 of the application. Under the district health plan, priority is given for applicants who document cost containment. One example of cost containment, according to the plan, is sharing services with other area hospitals to enhance efficient resource utilization and avoid duplication. Delray describes its patient- focused care model as an example of cost containment. In response to rising labor cost, the underutilization of certain required categories of employees, and the large number of staff interacting with each patient, Delray created the model which emphasizes cross-training of staff to work in teams led by a registered nurse. Delray has not proposed sharing services with other hospitals, and has not documented cost containment as that is described in the district health plan. Availability, Accessibility, Efficiency and Adequacy of Other Hospitals Additional acute care beds at Delray will not meet any demonstrated numeric, geographic, or financial need. Acute care beds are available in adequate numbers in the subdistrict. Roughly half, or 800, of the subdistrict's 1700 beds were empty most days in 1993 and 1994. Bethesda's expert in health care planning and financial feasibility testified that some available, more appropriate alternatives to the approval of additional beds at Delray are the transfer of patients to other subdistrict hospitals, including Tenet's West Boca, the transfer of unused bed capacity from one area of the hospital to another, or the transfer of unused bed capacity from West Boca to Delray. Bethesda also contends that Delray could find alternatives to placing outpatient surgery and outpatient cardiac cath patients in inpatient beds from four to twenty-three hours for observation and care. In support of Delray, AHCA's expert testified that institution-specific demand, in Delray's case, has reached the level of community need, because other subdistrict hospitals are not adequate or available to treat the type of patients treated at Delray. All of Delray's patients come from areas of the county which overlap the service areas of other hospitals, which shows the absence of any geographic access barriers. A diagnostic related group, or DRG, analysis shows that most of the categories of diagnosed illnesses or injuries treated at Delray are also treated at other subdistrict hospitals. The DRGs exclusively treated at Delray are related to trauma. Others treated in the subdistrict only at Delray and JFK are related to angioplasty and open heart surgery. Of the state level II trauma centers, Delray reported the highest percentage, 96.5 percent, of discharges of all patients were urgent or emergent cases. By comparison, the lowest were 65.6 percent at St. Joseph's Hospital in Tampa and 66 percent at West Florida Regional Medical Center, and the next highest was 94.2 percent at Bayfront Medical Center. Bethesda's expert suggested that the number was too high and could result from miscoding. Approximately 70 to 90 trauma patients are treated each month at Delray and approximately 50 percent of those are admitted to the hospital. One Bethesda witness, a doctor on the staff at both Bethesda and Delray, testified that he was called in once when Delray refused to go on "by-pass status," to send an incoming trauma patient to St. Mary's, knowing the patient was likely to need a CT scan. At the time, Delray's main scanner inside the hospital was inoperable or undergoing repairs. The patient who arrived by helicopter was taken by ambulance to another scanner on the campus, approximately 1000 yards away from the hospital. The same doctor also complained that ER patients who are upgraded to trauma status cannot be downgraded by trauma surgeons. There was no evidence how often the inside CT scan is unavailable and, consequently, no showing that altering this practice would result in an appreciable decline in the demand for trauma services at Delray. Similarly, there was no evidence of any impact on hospital admissions resulting from upgrading emergency patients to trauma patients. Trauma victims seldom require open heart surgery. Therefore, a different category of patients served only in the subdistrict at JFK and Delray is open heart surgery patients. Because of its location in an area with a large population over age 65 and due to the services it provides, one Delray witness described Delay, as a "cardiac" hospital. Delray has no pediatric or obstetric services. The percentage of residents over 65 in Delray's service area is about 35 percent, in contrast to a statewide level approaching 20 percent. Delray began an open heart surgery program in August, 1986. There are now approximately 50 cardiologists on staff, 19 performing cardiac catheterizations ("caths") and angioplasties, and three performing open heart surgeries. In fiscal year 1993, approximately 1900 cardiac caths, and 450 open heart surgeries were performed at Delray. In fiscal year 1994, that increased to approximately 2100 patients cathed and 540 open heart surgeries. Through April 1995, or 11 months into the fiscal year, there were approximately 2300 caths and 526 open heart surgeries. The cath labs are available twenty-four hours a day, seven days a week, within forty-five minutes notice. By comparison, the cath lab at Bethesda operates on weekdays until 3:30 p.m. Ten to twelve physicians use Delray's two cardiac cath labs and a third overflow lab, if needed. The cath labs at Delray and Bethesda are considered "open" because any qualified staff physician is eligible to receive privileges to use the lab. A backlog occurs in the Delray cath lab when critical care beds are not available for patients following caths. Delray has three open heart surgery operating rooms and three open heart surgeons, with the capacity to perform 1000 open heart surgeries a year. Within the subdistrict, approximately 11 miles from Delray, JFK also provides cardiac cath, angioplasty, and open heart surgery services. JFK has 369 beds and is equipped with two cardiac cath labs, each with the capacity to accommodate 2000 procedures a year. In fiscal year 1994, approximately 3200 caths were performed at JFK. The cath lab is "closed," meaning JFK has entered into an exclusive contract for services with one group of invasive cardiologists. JFK's medical staff has relatively little overlap, approximately 10 to 15 percent, with the medical staff at Delray. Across all patients and all diagnoses, there is also relatively little geographic overlap. JFK, by and large, serves the central area and Delray serves the southern area of Palm Beach County. The average census in thirty critical care beds at JFK was 16.5 patients in 1994, and 18.4 in the first six months of 1995. A high range of 70 percent to 80 percent occupancy in JFK's critical care beds is reached during the peak season. Although JFK's thirty critical care beds are not officially divided into different types of intensive care services, a de facto designation has developed. Depending on the patient mix, the same 16 beds are generally used for cardiac critical care. The average daily census for cardiac critical care was 13.4 in March 1994 and 23.4 in February 1995. Overall, there is no excess capacity in the district in critical care beds during the height of the season. The average occupancy of all critical care beds in southern Palm Beach County was 104 percent in February 1992, 98 percent in February 1993, and 93.5 percent in February 1994. Open heart surgery and angioplasty are more frequently than not scheduled up to a week ahead of time. Most cardiac patients can be admitted to any emergency room and stabilized with thrombolytic therapy before transfer to another hospital for an angioplasty or open heart surgery, without compromising their conditions. However, at Delray, cardiac patients are more likely to be emergent or urgent cases, remaining in the hospital for stabilization, scheduled for surgery within 24 hours, and remaining in SICU an average of forty-eight hours following surgery. The older patients are more difficult to transfer because they tend to have more consulting specialists on the staff of the hospital in the service area where they reside. Transferring open heart surgery patients from Delray to JFK is not beneficial as a health planning objective during the season, when JFK operates at reasonable levels of 70 percent to 80 percent occupancy in critical care beds and exceeds the capacity of its de facto cardiac critical care beds. Delray's emergency department can accommodate 23 patients at one time. Over the past three years, ER visits have increased by approximately 1,000 each year. Approximately 20 percent to 25 percent of patients treated in its emergency room, excluding trauma patients, are admitted to Delray. During the winter season, there are also more emergency room patients who do not have local physicians, most complaining of cardiac and respiratory problems. By federal law, certain priority categories of emergency patients must be taken to the nearest hospital. Federal law also prohibits patient transfers to a different hospital unless a patient's medical condition is stable, the patient consents, and the other hospital has an available bed and a staff doctor willing to take the patient. Patient condition and consent are major factors preventing transfers of elderly residents of the Delray service area to other hospitals. Delray also reasonably expects an increase in patients due to an increase in its market share, managed care contracts, and population in its service area. Managed care contracts, usually for 3 year terms, are not alone a reliable basis for making long term community health planning decisions. Combining trends in growth, population aging, declining lengths of stays in hospitals, market share and the greater consumption of inpatient services by people over 65, however, Delray reasonably expects an incremental increase of 1667 discharges by 1999. At 80 percent occupancy, the incremental patients attributable to population growth alone, according to Delray's expert, justifies an additional 34 beds. For a substantial part of 1994, ICU, CCU and medical/surgical beds at Delray exceeded reasonable occupancy standards. In the first four months of 1995, medical/surgical occupancy levels ranged from 96.7 percent to 119.4 percent. Given those levels and the projected growth, transfer of beds from medical/surgical units is not a reasonable option for increasing the supply of critical care beds. Delray is small when compared to all other high volume open heart surgery and level II trauma hospitals in Florida. Another option suggested by Bethesda's expert was the transfer of beds from West Boca to Delray. Because the beds have already been built, a transfer would not reduce capital or fixed costs at West Boca. The only effect that was apparent from the evidence in this case would be a statistical increase in subdistrict utilization. In addition, with 171 beds, West Boca is relatively small and in a growing area of Palm Beach County. Bethesda's contention that Delray could stop using inpatient beds for the four to twenty-three hour outpatients was not supported by the evidence. There was no showing that the physical plant or space exists for the construction of observation beds near an ambulatory surgery center. Given the testimony that all hospitals use inpatient beds for certain outpatients, and that Delray averages five to seven outpatients in inpatient medical/surgical beds at any time, there is no evidence of a practical alternative with any significant impact on the overcrowding at Delray. Bethesda also challenged the need for critical care for fractures, cellulitis, and fever of unknown origin, which were among the diagnoses listed for patients in the ER hold. However, Bethesda's expert also acknowledged that some patients in ER hold at Delray were waiting for medical/surgical beds not only ICU beds. Patients are placed in holding areas whenever assignment to an appropriate bed is not possible within thirty minutes of the issuance of orders to admit the patient. Delray proved that it is unique in the subdistrict in treating trauma patients and cardiac patients in a service area with minimal geographic and medical staff overlap with that of JFK. The transfer of such patients to other hospitals in the subdistrict is often not practical or possible. Delray also demonstrated that other subdistrict hospitals are not available alternative intensive care providers when their ICUs are also full or over optimal levels of occupancy, during the season. In addition, the demographic characteristics of Delay's service area support projected increases in inpatient days due to increased market share, population aging and growth. All of these factors indicate that Delray cannot, as Bethesda suggests, control its own growth, transfer, or redirect patients. Quality of Care and Availability of Critical Case Nurses Delray is JCAHO accredited. There is no evidence that quality of care affects hospital utilization in southern Palm Beach County. Open heart surgery mortality rates from 1990 to 1994 were 1.9 percent at JFK and 3 percent at Delray, but the data is not adjusted to take into consideration "case-mix," meaning the severity of illnesses, and is, therefore, meaningless as a comparison. A 1994 Medicare case mix index report shows Delray treating the sickest patients followed by JFK, then Bethesda. The sicker, older patients, exert more pressure on ICUs. Because ICU nursing ratios are one-nurse-to-one-patient or, more typically, one-to-two and PCU ratios are one-to-four, PCUs provide a step down from ICUs. PCU beds are used for patients who no longer need ICU care, but require more intense monitoring than that provided on the medical/surgical floors with nurse/patient ratios of one-to-twelve or one-to-twenty. In PCU or telemetry beds, radio signals transmit data to heart monitors. However, if PCU beds are not available, patients are left in the ICUs longer than necessary, aggravating the backlog cause by crowded ICUs. Critical care is a resource-intensive service, and Bethesda argues that Delray cannot increase the service because of the shortage of critical care nurses in Palm Beach County. However, the testimony presented by Bethesda is not consistent. Bethesda's expert in critical care nursing and critical care unit management testified that vacancies are difficult to fill, that there is a shortage of critical care nurses, but that Bethesda does not experience a shortage of critical care staff. There is no explanation why Bethesda has no shortage, but Delray would if its CON is approved. Delray's director of neuroscience and critical care testified that she maintains a file of available critical care nurses and can recruit the additional staff needed due to Delray's competitive salaries and benefits. Long Term Financial Feasibility There are no revenues or expenses during construction of the 24 beds, just construction costs. After the beds are in service, Delray projects net income of $1,951,164 in 1997 and $2,003,769 in 1998. In projecting revenues and expenses for the beds, Delray used its historical percentages of patients in each unit receiving a particular type of care and the historical cost of that care, and assumed that the same breakdown in the 24 new beds. Using the historical financial experience, Delray constructed a pro forma for the 24 beds, with an expected average daily census of 21.6 patients. If the 24 new beds are used only for existing holding area patients then, as Bethesda contends, Delray's pro forma should show a shift of revenues and expenses to the new beds, and the same amounts deducted from the remainder of the hospital. Delray already charges holding area patients based on the intensity of nursing care provided, even though the patients are not physically located in an ICU. The ER hold patients accounted for 2,210 patient days in 1994, which are reallocated to ICU beds in the pro forma. However, Delray also projected an incremental increase of 7,865 patient days which, contrary to Bethesda's claim, does not include or double- count the ER hold patient days. Of these, 54 percent of incremental patient days are projected to be in the ICUs or PCU. The additional patients will, therefore, spend 46 percent of total patient days in medical/surgical beds. Routine revenue estimates of $492 a day in year one were criticized as too low for the projected 54 percent ICU/46 percent medical/surgical mix. However, $492 a day is a reasonable estimate of incremental routine revenues for the hospital as a whole. In 1994, patients at Delray spent 44 percent of total days in medical/surgical beds as compared to the projection of 46 percent for new patients. There is no material variation from 44 percent to 46 percent, therefore $492 a day is a reasonable projected incremental routine revenue. Delray has demonstrated, in an incremental analysis, the financial feasibility of adding 24 critical care beds for existing and additional patients. Delray has also considered the financial impact of additional patients in all categories of beds. Although criticized by Bethesda for this approach, Delray explained that a critical care bed generates revenues from a medical/surgical bed when patient's condition is downgraded. The financial analysis is reasonable, particularly since Medicare pays a flat rate by DRG regardless of how a patient's total days are divided between ICUs and medical/surgical beds. Bethesda questioned whether the use of new beds for new patients will eliminate the use of holding areas. The movement of patients in and out of ICUs will be enhanced by having more ICU and PCU beds, even if the additional beds do not eliminate entirely the use of holding areas during the peak season. Projected average occupancies are expected to reach 98 percent in March 1997 and 1998. Delray also demonstrated that the share of its projected increased admissions which would have otherwise gone to Bethesda is approximately 150 patients, representing a net decline in revenue to Bethesda of approximately $257,000, in comparison to Bethesda's net income of $9 million in 1994. Bethesda also will no longer receive a county tax subsidy of $1 million in income and $3.5 million in restricted funds, after 1994.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered issuing Certificate of Need 7872, approving the addition of 24 acute care beds, to NME Hospital, Inc., d/b/a Delray Community Hospital, conditioned on the provision 2.4 percent of total annual patient days to Medicaid and 1 percent of total annual patient days to charity care. DONE AND ENTERED this 7th day of November, 1995, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of November, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-0730 To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner, Bethesda Memorial, Proposed Findings of Fact. Accepted in Findings of Fact 14. Accepted in or subordinate to Findings of Fact 2, 7, and 10. Accepted in or subordinate to Findings of Fact 23 and 27. Accepted in or subordinate to Findings of Fact 21 and 23. Accepted in Findings of Fact 22. 21. 43. Accepted in or subordinate to Findings of Fact 21. Accepted in Findings of Fact 23. 8,9. Accepted in Findings of Fact 19 and 20. 10. Accepted except first sentence in Findings of Fact 15. 11-12. Accepted in Findings of Fact 16. Accepted in Findings of Fact 18. Rejected in Findings of Fact 15-18. 15-17. Accepted in or subordinate to Findings of Fact 21 and 22. Accepted in Findings of Fact 35. Rejected first sentence in Findings of Fact 30. Accepted in part and rejected in part in Findings of Fact 23-29. Accepted in or subordinate to Findings of Fact 14. Subordinate to Findings of Fact 14 and accepted in Findings of Fact 23-25. Accepted in or subordinate to Findings of Fact 4. 26. Rejected in Findings of Fact 27. 27-28. Accepted in Findings of Fact 30. Accepted in Findings of Fact 21. Rejected first sentence in Findings of Fact 38-43. 31-32. Rejected in or subordinate to Finding of Fact 43. 33. Accepted in Findings of Fact 40. 34-35. Accepted in or subordinate to Findings of Fact 39-41. 36. Accepted in Findings of Fact 37. 37(1). Accepted in Findings of Fact 40 and 41. 37(2). Accepted in Findings of Fact 11. 37(3). Accepted in Findings of Fact 39 and 43. 38-39. Accepted in part and rejected in part in Findings of Fact 40 and 40-48. Rejected in part in Findings of Fact 40 and 41. 49-51. Rejected in Findings of Fact 41. Subordinate to Findings of Fact 41. Rejected in Findings of Fact 38-42. 54(A). Rejected in Findings of Fact 33. 54(B). Accepted in or subordinate to Findings of Fact 33. 54(C). Rejected 54(D-E). Subordinate to Findings of Fact 34. 54(F). Accepted in Findings of Fact 19. 54(G). Subordinate to Findings of Fact 38. 54(H). Accepted in Findings of Fact 22. 54(I). Subordinate to Findings of Fact 34. 54(J). Subordinate to Findings of Fact 30. 54(K). Subordinate to Findings of Fact 28. 54(L). Rejected as speculative in Findings of Fact 35. 54(M). Subordinate to Findings of Fact 7 and 34. 54(N). Conclusions rejected. See Findings of Fact 16. 54(O-P). Conclusions rejected. See Findings of Fact 24. 54(Q). Accepted in Findings of Fact 21. 54(R). Conclusions rejected. See Findings of Fact 24. Accepted in Findings of Fact 12. Accepted in Findings of Fact 21 and 23. Accepted in preliminary statement. Accepted in Findings of Fact 12. Accepted in relevant part in Findings of Fact 29. Accepted in Findings of Fact 35. Accepted in or subordinate to Findings of Fact 26. 62-63. Accepted in part in Findings of Fact 27-29. Accepted in Findings of Fact 23, 27 and 28. Subordinate to Findings of Fact 26. Subordinate to Findings of Fact 30 Subordinate to Findings of Fact 26. Subordinate to Findings of Fact 30. Subordinate to Findings of Fact 26. Subordinate to Findings of Fact 27. Subordinate to Findings of Fact 27. Subordinate to Findings of Fact 26 and 27. Accepted in part in Findings of Fact 28. Accepted in Findings of Fact 23. Accepted in or subordinate to Findings of Fact 6. Accepted in Findings of Fact 26. Accepted in Findings of Fact 35-37. Accepted in Findings of Fact 27. 79-81. Accepted in or subordinate to Findings of Fact 27 and 28. 82-85. Accepted in or subordinate to Findings of Fact 28. Accepted in Findings of Fact 10. Accepted in or subordinate to Findings of Fact 27. Subordinate to Findings of Fact 28 and rejected in Findings of Fact 35. Rejected in general in Findings of Fact 27 and 28. Subordinate to Findings of Fact 27. Subordinate to Findings of Fact 28. Rejected in Findings of Fact 35. Accepted in Findings of Fact 30. 94-98. Accepted in part or subordinate to Findings of Fact 28 and 29. 99-100. Rejected in or subordinate to Finding of Fact 28 and 29. 101. Subordinate to Findings of Fact 35. 102-104. Subordinate to Findings of Fact 27, 28 and 35. 105. Accepted in Findings of Fact 28. 106-107. Subordinate to Findings of Fact 35. 108-111. Accepted in or subordinate to Findings of Fact 27. Subordinate to Findings of Fact 26. Subordinate to Findings of Fact 27. Accepted in Findings of Fact 35. Accepted in Findings of Fact 27. Subordinate to Findings of Fact 16. 117-122. Accepted in Findings of Fact 5 and 35. Rejected in Findings of Fact 37. Accepted in part and rejected in part in Findings of Fact 44. Respondent, AHCA, Proposed Findings of Fact. Accepted in or subordinate to preliminary statement. Accepted in or subordinate to Findings of Fact 1. Accepted in Findings of Fact 4. Accepted in Findings of Fact 13 and 25. 5-6. Accepted in or subordinate to Findings of Fact 1 and 8-10. Accepted in Findings of Fact 4 and 26. Accepted in or subordinate to Findings of Fact 24 and 31. Accepted in or subordinate to Findings of Fact 35. Subordinate to Findings of Fact 22. Accepted in Findings of Fact 21. Accepted in Findings of Fact 22. Accepted in part and rejected in part in Findings of Fact 8, 9 and 34. Respondent, NME, Proposed Findings of Fact. Accepted in Findings of Fact 2. Accepted in Findings of Fact 11. Accepted in Findings of Fact 4 and 6. Accepted in or subordinate to Findings of Fact 26. Accepted in Findings of Fact 6. 6-10. Accepted in or subordinate to Findings of Fact 24-26. Accepted in Findings of Fact 35. Subordinate to Findings of Fact 16. 13-14. Accepted in or subordinate to Findings of Fact 8-13 and 23-34. Accepted in Findings of Fact 9 and 10. Accepted in Findings of Fact 10. Accepted in Findings of Fact 5, 12 and 34. Accepted in Findings of Fact 9 and 10. Accepted in Findings of Fact 30. Subordinate to Findings of Fact 9. Accepted in or subordinate to Findings of Fact 13, 23 and 35. Accepted in or subordinate to Findings of Fact 11-12 and 28. Accepted in Findings of Fact 11. Accepted in or subordinate to Findings of Fact 11. Accepted in Findings of Fact 14 and 34. Accepted in or subordinate to Findings of Fact 25. Rejected. Accepted in Findings of Fact 35. Accepted in Findings of Fact 13 and 31. Accepted in Findings of Fact 24. Accepted in Findings of Fact 13. Accepted in Findings of Fact 36. Subordinate to Findings of Fact 12 and 13. Accepted in Findings of Fact 23 and 29. Accepted in Findings of Fact 29. 36-43. Accepted in or subordinate to Findings of Fact 11 and 12. 44-50. Accepted in or subordinate to Findings of Fact 22 and 23-29. Subordinate to Findings of Fact 6. Accepted in or subordinate to Findings of Fact 34. Accepted in or subordinate to Findings of Fact 28. Accepted except last sentence in Findings of Fact 24. 55-56. Accepted in or subordinate to Findings of Fact 22 and 33. Accepted in or subordinate to Findings of Fact 27 and 28. Accepted in Findings of Fact 22. Accepted in Findings of Fact 24. Accepted in Findings of Fact 26. Accepted in or subordinate to Findings of Fact 35. Accepted in Findings of Fact 23. 63-65. Accepted in or subordinate to Findings of Fact 30. 66-67. Accepted in or subordinate to Findings of Fact 31. 68-72. Accepted in or subordinate to Findings of Fact 7 and 30. 73-76. Accepted in or subordinate to Findings of Fact 8 and 9. Accepted in Findings of Fact 34. Accepted, except last phrase in Findings of Fact 15-20. Accepted in or subordinate to Findings of Fact 21-22. Accepted in or subordinate to Findings of Fact 22. Accepted in or subordinate to Findings of Fact 22-34. Subordinate to Findings of Fact 22. 83-86. Accepted in Findings of Fact 12 and 35-37. 87-89. Accepted in Findings of Fact 35-37. Accepted in Findings of Fact 30. Accepted in Findings of Fact 38 and 39. Accepted in Findings of Fact 38. Accepted in Findings of Fact 41. Subordinate to Findings of Fact 38. 95-99. Accepted in or subordinate to Findings of Fact 38-42. Accepted, except first sentence, in or subordinate to Findings of Fact 44. Subordinate to Findings of Fact 22. 102-104. Accepted in or subordinate to Findings of Fact 16 and 19. 105-106. Accepted in or subordinate to Findings of Fact 7. 107-108. Issue not reached. See Findings of Fact 14. 109-114. Accepted in or subordinate to Findings of Fact 44. COPIES FURNISHED: John Gilroy, Esquire Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Kenneth Hoffman, Esquire W. David Watkins, Esquire OERTEL, HOFFMAN, FERNANDEZ & COLE 2700 Blair Stone Road Tallahassee, Florida 32301 Michael J. Glazer, Esquire C. Gary Williams, Esquire MACFARLANE, AUSLEY, FERGUSON & MCMULLEN Post Office Box 391 Tallahassee, Florida 32302 R. S. Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Tom Wallace Assistant Director Agency For Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403
The Issue This case concerns four Certificate of Need ("CON") applications ("CONs 9891, 9992, 9893, and 9894") that seek to establish long-term acute care hospitals ("LTCHs") in Miami-Dade County (the "County" or "Miami-Dade County"), a part of AHCA District 11 (along with Monroe County). Promise Healthcare of Florida XI, Inc. ("Promise") in CON 9891, Select Specialty Hospital-Dade, Inc. ("Select-Dade") in CON 9892, and Kindred Hospitals East, L.L.C. ("Kindred"), in CON 9894, seek to construct and operate a 60-bed freestanding LTCH in the County. Miami Jewish Home and Hospital for the Aged, Inc. ("MJH"), in CON 9893, seeks to establish a 30-bed hospital within a hospital ("HIH") on its existing campus in the County. In its State Agency Action Report (the "SAAR"), AHCA concluded that all of the need methodologies presented by the applicants were unreliable. Accordingly, AHCA staff recommended denial of the four applications. The recommendation was adopted by the Agency when it issued the SAAR. The Agency maintained throughout the final hearing that all four applications should be denied, although of the four, if any were to be granted, it professed a preference for MJH on the basis, among other reasons, of a more reliable need methodology. Since the hearing the Agency has changed its position with regard to MJH. In its proposed recommended order, AHCA supports approval of MJH's application. MJH and Promise agree with the AHCA that there is need for the 30 LTCH beds proposed by MJH for its HIH and that MJH otherwise meets the criteria for approval of its application. MJH seeks approval of its application only. Likewise, the Agency supports approval of only MJH's application. Promise, on the other hand, contends that there is need for a 60-bed facility as well as MJH's HIH and that between Promise, Select- Dade and Kindred, based on comparative review, its application should be approved along with MJH's application. Although Promise's need methodology supports need for more LTCH beds than would be provided by approval of its application and MJH's, its support for approval is limited to its application and that of MJH. Like Promise's methodology, Select-Dade and Kindred's need methodologies project need for many more beds than would be provided by the 60 beds each of them seek. Unlike Promise, however, neither Select-Dade nor Kindred supports approval of MJH's application. Each proposes its application to be superior to the other applications; each advocates approval of its respective application alone. Given the positions of the parties reflected in their proposed recommended orders, whether there is need for at least an additional 30 LTCH beds in District 11 is not at issue. Rather, the issues are as follows. What is the extent of the need for additional LTCH beds in District 11? If the need is for at least 30 beds but less than 60 beds, does MJH meet the criteria for approval of its application? If the need is for 60 beds or more, what application or applications should be approved depends on what applications meet CON review criteria and on the number of beds needed (60 but less than 90, 90 but less than 120, 120 but less than 150, 150 but less than 180, 180 but less than 210, and 210 or more) and whether there is health- planning basis not to grant an application even if the approval would meet a bed need and all four applicants otherwise meet review criteria. Finally, based on comparative review, what is the order of approval among the applications that meet CON need criteria? Ultimately, the issue in the case is which if any of the four applications should be approved?
Findings Of Fact The Parties "[D]esignated as the state health planning agency for purposes of federal law," Section 408.034(1), Florida Statutes, AHCA is responsible for the administration of the CON program and laws in Florida. See §§ 408.031, Fla. Stat., et seq. As such, it is also designated as "the single state agency to issue, revoke, or deny certificates of need . . . in accordance with present and future federal and state statutes." § 408.034(1), Fla. Stat. Promise Healthcare of Florida XI, Inc. ("Promise") is a wholly-owned subsidiary of Promise Healthcare, Inc. The applicant for CON 9891, Promise proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Select-Dade, the applicant for CON 9892, proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. It is a wholly-owned subsidiary of Select Medical Corporation ("SMC"). The largest operator of LTCHs in the country, SMC operates 96 LTCHs in 24 states. The Miami Jewish Home and Hospital for the Aged is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. The applicant for CON 9893, MJH proposes the creation of a 30-bed hospital within a hospital (HIH) LTCH by the renovation of a former acute care hospital building on its existing campus in Miami-Dade County, Florida. Kindred is the applicant for CON 9894 and proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Kindred is a wholly-owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 85 LTCHs in the country, eight of which are in the State of Florida. One of the eight is in Miami-Dade County. Twenty-three of Kindred Healthcare's LTCHs are operated by Kindred as well as seven of the eight Florida LTCHs. Kindred has also received CON approval for another LTCH in Florida. It is to be located in Palm Beach County in LTCH District 9. The District and its LTCHs Miami-Dade and Monroe Counties comprise AHCA District The population of Monroe County is 80,000 and of Miami-Dade County, 2.4 million. As to be expected from the population's distribution in the District, the vast majority of the District's health services are located in Miami-Dade County. The greater part of the County's population is in the eastern portion of Miami-Dade County, with population densities there 3-4 times higher than in the western portion of the County. But there is little to no space remaining for development in the eastern portion of the County. Miami-Dade County has an urban development boundary that shields the Everglades from development in the western portion of the County. Still, the bulk of population growth that has occurred recently is in the west and that trend is expected to continue. While the growth rate on a percentage basis is higher in the more-recently developed western areas of the County, the great majority of the population is and will continue to be within five miles of the sea coast on the County's eastern edge. At the time of hearing, there were three LTCHs operating in the District with a total of 122 beds: Kindred- Coral Gables, Select-Miami, and Sister Emmanuel. All three are clustered within a radius of six miles of each other in or not far from downtown Miami. The three existing LTCHs in the District are utilized at high occupancy levels. Kindred's 53-bed facility receives most of its referrals from a within a 10 mile radius. It has operated for the 11-year period beginning in 1995 with an occupancy level from a low of 82.08 percent to a high of 92.86 percent. The occupancy levels for 2004 (82.08 percent) and 2005 (84.90 percent) show occupancy recently at a relatively stable level within the range of optimal functional capacity which tends to be between 80 and 85 percent when facilities are equipped with semi-private rooms. With gender and infection issues in a facility with semi-private rooms, admissions to those facilities are usually restricted above 85 percent. Select operates a 40-bed LTCH on one floor of a health care service condominium building in downtown Miami. It began operation in 2003 as part of legislatively-created special Medicaid demonstration project. Its occupancy levels for the two calendar years of 2004 and 2005 were 83.39 percent and 95.10 percent. Sister Emmanuel Hospital for Continuing Care ("Sister Emmanuel") is a 29-bed HIH located at Mercy Hospital in Miami. It became operational in 2004 with an occupancy level of 82.64 percent, and attained an occupancy level of 85.46 percent in 2005. Kindred's Broward County LTCHs Kindred operates two LTCHs in Broward County (outside of District 11); one is in Ft. Lauderdale, the other in Hollywood. From 1995 to 2003, Kindred-Hollywood's occupancy rate ranged from a low of 65.17 percent to a high of 72.73 percent, generally lower than the state-wide occupancy rate. For the same period, Kindred-Ft. Lauderdale's rate was significantly higher, between 83.69 percent and 91.65 percent. Both LTCHs have experienced occupancy rates significantly lower than the state-wide rates in 2004 and 2005. Kindred-Ft. Lauderdale's occupancy in 2004 fell substantially from earlier years to 66.41 percent and then even farther in 2005 to 57.73 percent. Kindred-Hollywood's rates for these two years were also well below the state's at 59.74 percent and 58.04 percent, respectively. Historically used by residents of District 11, the Hollywood facility served 4,292 patients from Miami-Dade County in the eleven year period from 1995 through 2005. For the same period, the Ft. Lauderdale facility served 275 Miami-Dade residents. Kindred assigns its clinical liaisons to hospitals in a territorial manner to minimize competition for referrals between its two facilities in Broward County and Kindred-Coral Gables. LTCHs A "Long-term care hospital" means a general hospital licensed under Chapter 395, which meets the requirements of 42 C.F.R. Section 412.23(e) and seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services. § 408.032(13), Fla. Stat. (2005), and Fla. Admin. Code R. 59C-1.002(28). Under federal rules, an LTCH must have an average Medicare length of stay (LOS) greater than 25 days. LTCHs typically furnish extended medical and rehabilitation care for patients who are clinically complex and have multiple acute or chronic conditions. Patients appropriate for LTCH services represent a small but discrete sub-set of all patients. They are differentiated from other hospital patients in that, by definition, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly, frail, and medically complex and are usually regarded as catastrophically ill although some are young, typically victims of severe trauma. Approximately 85 percent of LTCH patients qualify for Medicare. Generally, Medicare patients admitted to LTCHs have been transferred from general acute care hospitals and receive a range of services at LTCHs, including cardiac monitoring, ventilator support and wound care. In 2004, statewide, 92 percent of LTCH patients were transferred from short-term acute care hospitals. That figure was 98 percent for District 11 during the same period of time. The single most common factor associated with the use of long-term care hospitals are patients who have pulmonary and respiratory conditions such as tracheotomies, and require the use of ventilators. There are three other general categories of LTCH patients as explained by Dr. Muldoon in his deposition: The second group is wound care where patients who are at the extreme end of complexity in wound care would come to [an] LTCH if their wounds cannot be managed by nurses in skilled nursing facilities or by home health care. The third category would be cardiovascular diseases where patients compromise[d by] injury or illness related to the circulatory system would come [to an LTCH.] And the fourth is the severe end of the rehabilitation group where, in addition to rehabilitation needs, there's a background of multiple medical conditions that also require active management. (Kindred Ex. 8 at 10-11). Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services ("CMS") established a new prospective payment system for long term care hospital providers. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by short-term acute care hospitals and by other post acute care providers, such as Skilled Nursing Facilities ("SNFs") and Comprehensive Rehabilitation Hospitals ("CMRs"). The implementation by CMS of categories of payment designed specifically for LTCHs, the "LTC-DRG," indicates that CMS and the federal government recognize the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Under the LTCH reimbursement system, each patient is assigned a Diagnosis Related Group or "DRG" with a corresponding payment rate that is weighted based upon the patient's diagnosis. The LTCH is reimbursed the predetermined payment rate for that DRG, regardless of the costs of care. These rates are higher than what CMS provides for other traditional post-acute care providers. Since the establishment of the prospective pay system for LTCHs, concerns about the high reimbursement rate for LTCHs, as well as about the appropriateness of the patients treated in LTCHs, have been raised by the Medicare Payment Advisory Committee ("MedPAC") and the Centers for Medicaid and Medicare Services. CMS administers the Medicare payment program for LTCHs, as well as the reimbursement programs for acute care hospitals, SNFs, and CMRs. MedPAC's role is to help formulate federal policy on Medicare regarding services provided to Medicare beneficiaries (patients) and the appropriate reimbursement rates to be paid to health care providers. The 2006 MedPAC report reported that LTCHs were making a good margin or profit, and recommended against an annual increase in the Medicare reimbursement rate for the upcoming fiscal year. In 2006, CMS adopted a reimbursement rate rule for LTCHs for 2007 that did not raise the base rate, and made other changes that reflect the ongoing concerns of CMS regarding LTCHs. 42 C.F.R. Part 412, May 12, 2006. In that rule, CMS found that approximately 37 percent of LTCH discharges are paid under the short-stay outliers, raising concerns that inappropriate patients may be being admitted to LTCHs. CMS made other changes to the reimbursement system which, taken as a whole, actually reduced the reimbursement that LTCHs will receive for 2007. Even with the concerns raised by MedPAC and CMS and recent changes in federal fiscal policy related to LTCHs, the distinction between general hospitals and LTCHs and the legitimate place for LTCHs in the continuum of care continues to be recognized by the federal government. One way of looking at recent developments at the federal level was articulated at hearing by Mr. Kornblat. Federal regulatory changes will reduce the reimbursement LTCHs receive when treating short-term patients (short-term outliers). "On the other end of the spectrum, there are patients who stay significantly longer than would be expected on average, long- stay outliers, and the reimbursement for those patients was also modified." Tr. 163. There have been other changes with regard to LTCH patients who require surgery the LTCHs cannot provide and patients with a primary psychiatric diagnosis or a primary rehab diagnosis. Requiring the LTCH to "foot the bill" for surgery that it cannot provide for its patients and the elimination from LTCHs of patients with a primary psychiatric or rehab diagnosis send a strong signal to the LTCH industry specifically and those who interact with it: LTCHs should admit only the medically complex and severely acutely ill patient who can be appropriately treated at an LTCH. Despite recent changes at the federal level and the clear recognition by the federal government that LTCHs have a place in the continuum of health care services, AHCA remains concerned about LTCHs in Florida. AHCA's Concerns Regarding LTCHs In deciding on whether to approve or deny new health care facilities, the Agency is responsible for the "coordinated planning of health care services in the state." § 408.033(3)(a), Fla. Stat. In carrying out this responsibility, AHCA looks to federal rules and reports to assist in making health care planning decisions for the state. Regarding LTCHs, MedPAC has reported, and CMS has noted that, nationwide, there has been a recent, rapid increase in the number of LTCHs: "It [LTCHs] represents a growth industry of the last ten years." Nationwide there has also been a huge increase in Medicare spending for LTCH care from $398 million in 1993 to $3.3 billion in 2004. AHCA has also become concerned about the recent rapid increase in LTCH applications in Florida. From 1997 through 2001 there were 8 LTCHs in the state. Starting in 2002, there was a marked increase in the number of applications for LTCHs and the number of approved LTCHs rose quickly to the current 14 in 2006. In addition, 9 new LTCHs have been approved and are expected to be licensed in the next 1-3 years. When all of the approved hospitals are licensed the number of available beds will rise from 876 to 1,351 (adding the approved 475 beds), over a 50 percent increase in LTCH beds statewide. In addition, AHCA is concerned that the occupancy level of LTCHs over the entire state appears to be falling over the last 11 years. In response to the rise in LTCH applications over the last several years, and given the decrease in occupancy of the current LTCHs, the Agency has consistently voiced concerns about lack of identification of the patients that appropriately comprise the LTCH patient population. Because of a lack of specific data from applicants with regard to the composition and acuity level of LTCH patient populations, AHCA is not convinced that there is a need for additional LTCHs in the state or in District 11. There are several reasons for this concern. First, AHCA believes, like MedPAC, that there may be an overlap between the LTCH patient populations and the population of patients served in other health care settings, such as SNFs and CMRs. Kindred's expert, Dr. Muldoon, noted that length of stay in the general acute care hospital has been shortened over the last few years because there are new more effective medical treatments, and because the "post-acute sector has emerged as the place to carry out the treatment plan that 20 years ago may been provided in its entirety in the short-term hospital." (Kindred Ex. 8 at 23). To AHCA, what patients enter what facilities in this "post-acute sector" is unclear. In the absence of the applicants better identifying the acuity of the LTCH patient population, AHCA has reached the conclusion that there may be other options available to those patients targeted by the LTCH applicants. In support of this view, AHCA presented a chart showing SNFs in District 11 that offer to treat patients who need dialysis, tracheotomy or ventilator care. These conditions are typically treated in LTCHs. In addition, AHCA believes that some long-stay patients can be appropriately served in the short-stay acute care hospitals, rather than requiring LTCH care. The length of stay in 2005 for the typical acute care hospital for most patients is five to six days. (Kindred Ex. 8, Dr. Muldoon Depo, at 23). Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients. Thus, patients who may need LTCH services often have lengths of stay in the acute care hospitals that exceed the typical stay. AHCA believes that these long-stay patients can be as appropriately served in the short stay acute care hospitals as in LTCHs. AHCA'S Denial of the Four Applications and Change of Position with regard to MJH On December 15, 2005, the Agency issued its SAAR after review of the applications. The SAAR recommended denial of all four applications based primarily on the Agency's determination that none had adequately demonstrated need for its proposed LTCH in District 11. In denying the four applications, AHCA relied in part on reports issued the Congress annually by MedPAC that discuss the placement of Medicare patients in appropriate post-acute settings. Appropriate use of long term care hospital services is an underlying concern that we [AHCA] have and had the federal government has as evidenced by their MedPAC reports and the CMS information in its most recent proposed rule on the subject. (Tr. 2486). The June 2004 MedPAC report states the following about LTCHs: Using qualitative and quantitative methods, we find the LTCH's role is to provide post- acute care to a small number of medically complex patients. We also find that the supply of LTCHs is a strong predictor of their use and those acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable. Given these concerns, AHCA looked to the four applicants to prove need through a needs methodology that provides sufficient information on the patient severity criteria to better define the patients that would mostly likely be appropriate candidates for LTCHs. AHCA found the need methodologies of three of the four applicants (Kindred, Promise, and Select) "incomplete" because they lacked specific information on the severity level of the patients the applicants plans to admit, and therefore they "overstate need." AHCA pointed to a former LTCH provider that did provide detailed useful information on the acuity level of its patients, and the acuity level of its patients in reference to similar patients in SNFs. Other then MJH, the applicants presented approaches to projecting need that are based, in one way or another, on long- stay patients in existing acute care hospitals. In the Agency's view these methods "significantly overstate need." The method creates a "candidate pool" for the future long-term care hospital users. But it does not include enough information on severity of illness of the patients, in AHCA's view, to give a sense of who might be expected to appropriately use the service. Further, the Agency sees no reason to believe that all long-stay patients in acute care short-stay hospitals are appropriate candidates for long-term hospital services. Lastly, AHCA believes that LTCH applicants should develop an "acuity coefficient or an acuity factor," tr. 2627, to be considered as part of an LTCH need methodology. The need methodology employed by MJH differed substantially from the methodologies of the other three applicants. Because it is more conservative and yields a need "approximately a tenth of what the other three propose," tr. 2500, at the time of hearing AHCA was much more comfortable with MJH's need methodology. By the time AHCA filed its PRO, its comfort with MJH's need methodology had solidified and improved to the point that AHCA changed its position with regard to MJH. Describing MJH's "use rate model" as conservative, see Agency for Health Care Administration Proposed Recommended Order, at 24, AHCA proposed the following finding of fact in support of its conclusion that MJH's application be approved: "Miami Jewish Home projected a reasonably reliable bed need using approved, conservative, but detailed and supportable, need methodologies." Id. at 25. MJH MJH, is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. As recited in the Omissions Response to CON 9893: [MJH's] mission is to be the premier multi- component, not-for-profit charitable health care system in South Florida, guided by traditional Jewish values, dedicated to effectively and efficiently serving a non- sectarian population of elderly, mentally ill, disabled, and chronically ill people with a broad range of the highest quality institutionally-based, community-based and ambulatory care services. MJH Ex. 1. Originally founded in 1945 to provide residential care for Jewish persons unable to access services elsewhere, MJH is now in its 62nd year of operation. MJH enjoys a good reputation within its community. MJH is located at Northeast Second Avenue and 2nd Street in north-central Miami in one of the most densely populated areas of the County. Known as “Little Haiti,” the surrounding community is primarily low income, and is a federally designated “medically underserved area.” A “safety net” provider of health care services, MJH's SNF is the largest provider of Medicaid skilled nursing services in the State of Florida. MJH assists its patients/residents in filing Medicaid applications, and also assists individuals in applying for Medicaid for community-based services. This same kind of assistance will also be provided to patients of the MJH LTCH. A 2004 study conducted by the Center on Aging at Florida International University identified unmet needs among elders living within the zip codes surrounding MJH. The study notes that the greatest predictors of need for home and community-based services are poverty, disability, living alone, and old age. Several of the zip codes within the MJH PSA were found to have relatively large numbers of at risk elders due to poverty and dramatic community changes. The study has assisted MJH in identifying service gaps within the community, and in focusing its efforts to serve this at-risk population. Following its most recent JCAHO accreditation survey, both MJH’s hospital and SNF received a three-year “accreditation without condition,” which is the highest certification awarded by JCAHO. MJH is a national leader in the provision of comprehensive long-term care services. MJH has been recognized on numerous occasions for its innovative long-term and post- acute care programs. The awards and recognitions include the Gold Seal Award for Excellence in Long Term Care, the "Best Nursing Home" Award from Florida Medical Business and "Decade of Excellence Award" from Florida Health Care Association. An indicator of quality of care, AHCA’s “Gold Seal” designation is especially significant. Of the 780 nursing homes in Florida, only 13, including MJH, have met the criteria to be designated as Gold Seal facilities. MJH operates Florida's only Teaching Nursing Home Program. Medical students, interns, and other health professionals rotate through the service program in the nursing home and hospital on a regular basis. Specifically, MJH serves as a student and resident training site for the University of Miami and Nova Southeastern University Medical Schools, and the Barry University, FIU, and University of Miami nursing schools. The LTCH would enhance these capabilities and give physicians in training additional opportunities. Not only will this enhance their education, but also will contribute to the high quality of care to be provided in the MJH LTCH. MJH has been the site and sponsor of many studies to enhance the delivery of social and health services to elderly and disabled persons. Most recently, MJH was awarded a grant to do research on fall prevention in the nursing home. MJH is committed to continue research on the most effective means of delivering rehabilitative and long-term care services to a growing dependent population. The development of an LTCH at MJH will enhance the opportunities for this research. MJH operates Florida’s first and only PACE Center (Program of All-inclusive Care for the Elderly) located on the main Douglas Gardens campus. The program provides comprehensive care (preventive, primary, acute and long-term) to nursing home eligible seniors with chronic care needs while enabling them to continue to reside in their own home as long as possible. MJH was recently approved by the Governor and Legislature to open a second PACE site, to be located in Hialeah. The proposed 30-bed LTCH will be located on MJH’s Douglas Gardens Campus. The Douglas Gardens Campus is the site of a broad array of health and social services that span the continuum of care. These programs include community outreach services, independent and assisted living facilities, nursing home diversion services, chronic illness services, outpatient health services, acute care hospital services, rehabilitation, post-acute services, Alzheimer’s disease services, pain management, skilled nursing and hospice. LTCH services, however, are not currently available at MJH. Fred Stock, the Chief Operating Officer of MJH is responsible for the day-to-day operation of the MJH nursing home and hospital and has 24 years experience in the administration of long-term care facilities. An example of Mr. Stock’s leadership is that when he came to MJH, its hospice program had management issues. He assessed the situation and then made a management change which has resulted in a successful turnaround of the program. There are now 462 skilled nursing beds licensed and operated by MJH at the Douglas Garden’s Campus. All of these beds are certified by Medicare. Community hospitals have come to rely on these skilled nursing beds as a placement alternative for their sickest and most difficult-to-place, post-acute patients. The discharges of post-acute patients in the SNF at Douglas Gardens more than doubled from 350 in FY 2002 to 769 in FY 2005. Dr. Tanira Ferreira is the Medical Director of the MJH ventilator unit. Dr. Ferreira is board-certified in the specialties of Internal Medicine, Pulmonary Diseases, Critical Care Medicine, and Sleep Disorders. Dr. Ferreira will be the Medical Director of the MJH LTCH. In addition to Dr. Ferreira, MJH has five other pulmonologists on its staff. MJH also employs: a full-time Medical Director (Dr. Michael Silverman); three full-time physicians whose practices are restricted to MJH hospital and SNF patients; and four full-time nurse practitioners whose practices are restricted to residents of the SNF. MJH employs two full-time psychiatrists, two full-time psychologists, and seven full-time Master’s level social workers. The MJH medical staff also includes many specialist physicians such as cardiologists, surgeons, orthopedists, nephrologists and opthamologists, and other specialists are called for a consultation as needed. A number of the MJH patients/residents are non-English speakers. However, many of the MJH employees, including all of its medical staff, are bilingual. Among the languages spoken by MJH staff are Haitian, Spanish, Russian, Yiddish, French, and Portuguese. This multi-language capability greatly enhances patient/resident communication and enhances MJH’s ability to provide supportive services. The proposed project is the development of a 30-bed LTCH in Miami-Dade County. The LTCH will be located in renovated space in an existing facility and will conform to all the physical plant and operating standards for a general hospital in Florida. The estimated project cost is $5,315,672. The first patient is expected to be admitted by July 1, 2007. The LTCH will be considered an HIH under Federal regulations 42 CFR Section 412.22(e). The LTCH will comply with these requirements including a separate governing body, separate chief medical officer, separate medical staff, and chief executive officer. The LTCH will perform the hospital functions required in the Medicare Conditions of Participation set forth at 42 CFR Section 482. In addition, fewer than 25 percent of the admissions to the LTCH will originate from the MJH acute care hospital, and less than 15 percent of the LTCH operating expenses will be through contracted services with any other MJH affiliate, including the acute care hospital. The separate LTCH governing body will be legally responsible for the conduct of the LTCH as an institution and will not be under the control of the MJH acute care hospital. Finally, less than five percent of the annual MJH LTCH admissions will be re-admissions of patients who are referred from the MJH SNF or the MJH hospital. Each referral to the LTCH will be carefully assessed using the InterQual level-of-care criteria to ensure that the most appropriate setting is chosen. MJH is also a member of the ECIN (Extended Care Information Network) system. As a member of this system, MJH is able to make referrals and place patients who may not be appropriate for its own programs. Only those patients who are medically and functionally appropriate for the LTCH will be admitted to the LTCH program. Many patients admitted to the MJH LTCH will have complex medical conditions and/or multiple-system diagnoses in one or more of the following categories: Respiratory disorders care (including mechanical ventilation or tracheostomy care) Surgical wound or skin ulcer care Cardiac Care Renal disease care Cancer care Infectious diseases care Stroke care The patient and family will be the focus of the interdisciplinary care provided by the MJH LTCH. The interdisciplinary care team will include the following disciplines: physicians, nurses, social workers, psychologists, spiritual counselors, respiratory therapists, physical therapists, speech therapists, occupational therapists, pharmacists, and dietitians. MJH uses a collaborative care model that will be replicated in the LTCH and will enhance the effectiveness of the interdisciplinary team. The direct care professionals in the LTCH will maintain an integrated medical record, so that each member of the care team will have ready access to all the information and assessments from the other disciplines. Nursing staff will provide at least nine hours of nursing care per patient per day. Seventy-five percent of the nursing staff hours will be RN and LPN hours. Therapists (respiratory, physical, speech and occupational) will provide at least three hours of care per patient day. The MJH medical staff includes a wide array of specialty consultants that will be available to LTCH patients. The specialties of pulmonology, internal medicine, geriatrics and psychiatry will be available to each patient on a daily basis. A complete listing of all of the medical specialties available to MJH patients was included with its application. The interdisciplinary team will meet at least once per week to assess the care plan for each patient. The care plan will emphasize rehabilitation and education to enable the patient to progress to a less restrictive setting. The care team will help the patient and family learn how to manage disabilities and functional impairments to facilitate community re-entry. Approval of the LTCH will allow the MJH to "round out" the continuum of care it can offer the community by placing patients with clinically complex conditions in the most appropriate care setting possible. This is particularly true of persons who would otherwise have difficulty in accessing LTCH services. MJH has committed to providing a minimum of 4.2 percent of its patient discharges to Medicaid and charity patients. However, Mr. Stock anticipates that the actual percentage will be higher. If approved, MJH has committed to licensing and operating its proposed LTCH. MJH already has a number of the key personnel that will be required to implement its LTCH, including the Medical Director and other senior staff. In addition, MJH has extensive experience gleaned from both its acute care hospital and SNF in caring for very sick patients. In short, MJH has the clinical, administrative, and financial infrastructure that will be required to successfully implement its proposed LTCH. Approval of the MJH LTCH will dramatically reduce the number of persons who are now leaving the MJH PSA to access LTCH services. The hospitals in close proximity to MJH have LTCH use rates that are very low in comparison to other hospitals that are closer to existing LTCHs. Thus, it is likely that there are patients being discharged from the hospitals close to MJH that could benefit from LTCH services, but are not getting them because of access issues or because the existing LTCHs are perceived to be too far away. A number of hospitals located close to MJH are now referring ventilator-dependent patients to MJH, and would also likely refer patients to the MJH LTCH. Because the majority of the infrastructure required is already in place, the MJH HIH can be implemented much more quickly and efficiently than can a new freestanding LTCH. For example, ancillary functions such as billing, accounting, human resources, housekeeping and administration already exist, and the LTCH can be efficiently integrated into those existing operations on campus. MJH will be able to appropriately staff its LTCH through a combination of its current employees and recruitment of new staff as necessary. In addition, MJH will be establishing an in-house pharmacy and laboratory within the next six months, which will also provide services to LTCH patients. On-site radiology services are already available to MJH patients. MJH has an excellent track record of successfully implementing new programs and services. There is no reason to believe that MJH will not succeed in implementing a high quality LTCH if its application is approved. MJH's Ventilator Unit By the time ventilator-dependent and other clinically complex patients are admitted to a nursing home they have often exhausted their 100 days of Medicare coverage, and have converted to Medicaid. Since Medicaid reimbursement is less than the cost of providing such care, most nursing homes are unwilling to admit these types of patients. Thus, it is very difficult to place ventilator patients in SNFs statewide. The problem is further exacerbated in District 11 by the lack of any hospital-based skilled nursing units. With the recent closure of two SNF-based vent units (Claridge House and Greynolds Park) there are now only three SNF-based vent units remaining in District 11. They are located at MJH, Hampton Court (10 beds), and Victoria Nursing Home. MJH instituted a ventilator program in its SNF in early 2004. Many of the patients admitted into the ventilator program fall into the SE3 RUG Code. On July 1, 2005, there were 24 patients in the SE3 RUG code in MJH. Only one other SNF in District 11 has more than four SE3 RUG patients in its census on an average day. Over 60 percent of the Medicare post-acute census at the MJH SNF falls into the RUG categories associated with extensive, special care or clinically complex services. This mix of complex cases is about three times higher than average for District 11 SNFs. Although some of the patients now admitted to the MJH SNF vent unit would qualify for admission to an LTCH, there are also a number of patients who are not admitted because MJH cannot provide the LTCH level of care required. SNF admissions are required to be initiated following a STACH admission. MJH has actively marketed its vent unit to STACHs. Similarly most LTCH admissions come from STACHs and, like MJH’s efforts, LTCHs also market themselves to STACHs. Hospitals providing tertiary services and trauma care will generate the greater number of LTCH referrals, with approximately half of all LTCH patients being transferred from an ICU. The implementation of the MJH ventilator unit required the development of protocols, infrastructure, clinical capabilities and internal resources beyond those found in most SNFs. Dr. Ferreira conducted pre-opening comprehensive staff education. These capabilities will serve as a precursor to the development of the next stage of service delivery at MJH: the LTCH. MJH’s vent unit provides care for trauma victims, and recently received a Department of Health research grant to develop a program for long-term ventilator rehab for victims of trauma. Jackson Memorial Hospital is experiencing difficulty in placing "certain" medically complex patients, who at discharge, have continuing comprehensive medical needs. MJH is the only facility in Dade County that has accepted Medicaid ventilator patients from Jackson. Mt. Sinai Medical Center also has difficulty placing medically complex patients, particularly those requiring ventilator support, wound care, dialysis and/or other acute support services. Mt. Sinai is a major referral source to MJH and supports its LTCH application. MJH has received statewide referrals, including from the Governor's Office and from AHCA, of difficult to place vent patients. Most of these referrals are Medicaid patients. Ten of the MJH vent beds are typically utilized by Medicaid patients. Although MJH would like to accommodate more such referrals, there are financial limitations on the number of Medicaid patients that MJH can accept at one time. Promise Promise owns and operates approximately 718 LTCH beds outside of Florida and employs an estimated 2,000 persons. Promise proposes to develop and LTCH facility in the western portion of the County made up of 59,970 gross square feet, 60 private beds including an 8-bed ICU, and various ancillary and support areas. The projected costs to construct its freestanding LTCH is $11,094,500, with a total project cost of $26,370,885. As a condition of its CON if its application is approved, Promise agrees to provide three percent of projected patient days to Medicaid and charity patients. Select Select-Dade proposes to locate its 60-bed, freestanding LTCH in the western portion of Miami-Dade County. The Agency denied Select-Dade's application because of its failure to prove need. Otherwise, the application meets the CON review criteria and qualifies for comparative review with the other three applicants. Select-Dade proposes to serve the entire District, but it has targeted the entire west central portion of the County that includes Hialeah, Hialeah Gardens, Doral, Sweetwater, Kendall, and portions of unincorporated Miami. This area is west of State Road 826 (the "Palmetto Expressway"), south of the County line with Broward County, north of Killian Parkway and east of the Everglades ("Select's Target Service Area"). To be located west of the Palmetto Expressway, east of the Florida Turnpike, north of Miller Drive and south of State Road 836, the site for the LTCH will be generally in the center of Select's Target Service Area. Approximately 700,000 people (about 30 percent of the County's population) reside within Select-Dade's Target Service Area. This population of the area is expected to grow almost ten percent in the next five years. The rest of the County is expected to grow about five and one-half percent. Kindred Kindred proposes to construct a 60-bed LTCH in the County. It will consist of 30 private rooms, 20 beds in 10 semi-private rooms, and 10 ICU beds. The facility would include the necessary ancillary service, including two operating rooms, a radiology suite, and a pharmacy. Kindred utilizes a screening process before admission of a patient to assure that the patient needs LTCH level care that includes the set of criteria known as InterQual. InterQual categorizes patients according to their severity of illness and the intensity of services they require. Every patient admitted to a Kindred hospital must be capable of improving and the desire to undergo those interventions aimed at improvement. Kindred does not provide hospice or custodial care. In addition, through its reimbursement process, the federal government provides strong disincentives toward LTCH admission of inappropriate patients. Furthermore, every Kindred hospital has a utilization review (UR) plan to assure that patients do not receive unnecessary, unwanted or harmful care. In addition to the UR plan, the patient's condition is frequently reviewed by nursing staff, respiratory staff and by a multi-disciplinary team. Kindred had not selected a location at the time it submitted its application. Kindred anticipates, however, that its facility if approved would be located in the western portion of the County. Stipulated Facts As stated by Kindred in its Proposed Recommended Order, the parties stipulated to the following facts (as well as a few other related to identification of the parties): Each applicant timely filed the appropriate letter of intent, and each such letter contained the information required by AHCA. Each CON application was timely filed with AHCA. Following its initial review, AHCA issued a State Agency Action Report ("SAAR") which indicated its intent to deny each of the applications. Each applicant timely filed the appropriate petition with AHCA, seeking a formal hearing pursuant to Sections 120.569 and 120.57, Fla. Stat. In the CON batch cycle that is the subject of this proceeding, Promise XI proposed to construct a 59,970 square foot building at a total project cost of $26,370,885.00, conditioned upon providing 3 percent of its patient days to Medicaid and charity patients. Select proposes to construct a 62,865 square foot building at a total project cost of $22,304,791.00, conditioned upon providing 2.8 percent of its patient days to Medicaid and charity patients. MJHHA proposes to renovate 17,683 square feet of space at a total project cost of $5,315,672.00, conditioned upon providing 4.2 percent of its patient days to Medicaid and charity patients. Kindred proposes to construct a 69,706 square foot building at a total project cost of $26,538,458.00, conditioned upon providing 2.2 percent of its patient days to Medicaid and charity patients. Long term hospitals meeting the provisions of AHCA Rule 59A-3.065(27), Fla. Admin. Code, are one of the four classes of facilities licensed as Class I hospitals by AHCA. The length of stay in an acute care hospital for most patients is three to five days. Some hospital patients, however, are in need of acute care services on a long- term basis. A long-term basis is 25 to 34 days of additional acute are service after the typical three to five day stay in a short-term hospital. Although some of those patients are "custodial" in nature and not in need of LTCH services, many of these long-term patients are better served in a LTCH than in a traditional acute care hospital. Within the continuum of care, the federal government's Medicare program recognizes LTCHs as distinct providers of services to patients with high levels of acuity. The federal government treats LTCH care as a discrete form of care, and treats the level of service provider by LTCHs as distinct, with its own Medicare payment system of DRGs and case mix reimbursement that provides Medicare payments at rates different from what the Medicare prospective payment system ("PPS") provides for other traditional post-acute care providers. The implementation by the Centers for Medicare and Medicaid Services ("CMS") of categories of payment design specifically for LTCHs, the "LTC-DRG," is a sign of the recognition by CMS and the federal government of the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Joint Pre-hearing Stipulation at 4, 6-7, 9-10. Applicable Statutory and Rule Criteria The parties stipulated that the review criteria in Subsections (1) through (9) of Section 408.035, Florida Statutes (the "CON Review Criteria Statute"), apply to the applications in this proceeding. Subsection (10) of the CON Review Criteria Statute, relates to the applicant's designation as a Gold Seal Program Nursing facility. Subsection (10) is applicable only "when the applicant is requesting additional nursing home beds at that facility." None of the applicants are making such a request. MJH's designation as a Gold Seal Program is not irrelevant in this proceeding, however, since it substantiates MJH's "record of providing quality of care," a criterion in Subsection (3) of the CON Review Criteria Statute. The Agency does not have a need methodology for LTCHs. Nor has it provided any of the applicants in this proceeding with a policy upon which to determine need for the proposed LTCH beds. The applicants, therefore, are responsible for demonstrating need through a needs assessment methodology of their own. Topics that must be included in the methodology are listed Florida Administrative Code Rule 59C-1.008(2)(e)2., a. through d. Subsection (1) of the CON Review Criteria: Need Not only does AHCA not have an LTCH need methodology in rule or a policy upon which to determine need for the proposed LTCH beds, it did not offer a methodology for consideration at hearing. This is the typical approach AHCA takes in LTCH cases; demonstration of LTCH need through a needs assessment methodology is left to the parties, a responsibility placed upon them in situations of this kind by Florida Administrative Code Rule 59C-1.008(2)(e)2. MJH's Need Methodology Unlike the other three applicants, all of whom used one form or another of STACH long-stay methodologies, MJH utilized a use-rate analysis which projects LTCH utilization forward from District 11's recent history of increased utilization. A use-rate methodology is one of the most commonly used health care methodologies. The MJH use-rate methodology projected need based upon all of District 11. The methodology projected need for 42 LTCH beds in 2008, with that number growing incrementally to 55 beds by 2012. Because statewide LTCH utilization data is not reliable when looking at any particular district, MJH developed a District 11 use-rate, by age cohort, to yield a projection of LTCH beds needed. The use-rate is derived from the number of STACH admissions compared to the number of LTCH admissions, by age cohort. Projected demographic growth by age cohort was applied to determine the number of projected LTCH admissions. The historic average LTCH LOS in District 11 was applied to projected admissions and then divided by 365 to arrive at an ADC. That ADC was then adjusted for an occupancy standard of 85 percent, which is consistent with District 11. A number of states have formally adopted need methodologies that use an approach similar to MJH's in this case. Kindred has used a shortcut method of the use rate model in other states for analyzing proposed LTCHs "when there is not much data to work with." Tr. 1744. The methodology used by MJH was developed by its expert health planner, Jay Cushman. The methodology developed by Mr. Cushman was described by Kindred's health planner as "a couple of steps beyond" Kindred's occasionally-used shortcut method. Kindred's health planner described Mr. Cushman's efforts with regard to the MJH need methodology as "a very nice job." Tr. 1745. Mr. Cushman created a use-rate by examining the relationship between STACH admissions and LTCH admissions. The use-rate actually grows as it is segmented by age group, and thus the growth in the elderly population incrementally increases the utilization rate. MJH’s application demonstrated how LTCH utilization has varied greatly statewide, and how the District 11 market has a significant history of utilizing LTCH services. For planning purposes the history of District 11 is a significant factor, and the MJH methodology is premised upon that history, unlike the other methodologies. MJH demonstrated a strong correlation between STACH and LTCH utilization in District 11, where 98 percent of LTCH admissions are referred from STACHs. MJH also demonstrated that the south and western portions of Miami-Dade have overlapping service areas from the three existing LTCHs, while northeastern Miami-Dade has only one provider with a similar service area, Kindred Hollywood in neighboring District 10. This peculiarity explains why the LTCH out-migration trend is much stronger in northeastern portions of the District. The area most proximate to MJH would enjoy enhanced access to LTCH services, including both geographic and financial access, if its program is approved. In short, as AHCA, now agrees, MJH demonstrated need for its project through a thorough and conservative analysis. All parties agree that the number of LTCH beds yielded by MJH's methodology are indeed needed. Whether more are needed is the point of disagreement. For example, Mr. Balsano plugged the 2003 use rate into MJH's methodology instead of the 2004 used by MJH. Employment of the 2003 use rate in the calculation has the advantage that actual 2004 and 2005 data can serve as a basis of comparison. Mr. Balsano explained the result: "The number of filled beds in 2005 in District 11 would exceed by 33 beds what the use rate approach would project as needed in 2005." Tr. 370. The reason, as Mr. Balsano went on to explain, is that the use-rate changed dramatically between 2002, 2003, and 2004. Thus MJH's methodology, while yielding a number of beds that are surely needed in the District, may yield a number that is understated. This is precisely the opposite problem of the need assessment methodologies of the other three applicants, all of which overstated LTCH bed need in the District. The Need Methodologies of the Other Three Applicants The need methodologies presented by the other applicants vary to some degree. All three, however, are based on STACH long-stay data. Long-stay STACH analyses rely upon a number of assumptions, but fundamentally they project need forward from historic utilization of STACHs. The methodologies used by each of these three applicants identify patients in STACHs whose stays exceeded the geometric mean of length of stay plus fifteen days (the "GMLOS+15 Methodologies"), although the extent of the patients so identified varied depending on the number of DRGs from which the patients were drawn. Each of the proponent’s projects would serve only a relatively small fraction of the District 11 patients purported by the GMLOS+15 Methodologies to be in need of LTCH services. The lowest projected need of the three was produced by Promise: 393 beds in 2010. Promise's methodology is more conservative than that of Kindred and Select. Unlike the latter two, Promise reduced the number of potential projected admissions to be used in its calculation. The reduction, in the amount of 25 percent of the projection of 500 beds, was made because of several factors. Among them were anticipation that MedPAC's suggestions for ensuring that patients were appropriate for LTCH admission, which was expected to reduce the number of LTCH admissions, would be adopted. The methodologies proposed by Kindred and Select-Dade did not include the Promise methodology's reduction potentially posed by the impact of new federal regulation. Kindred's methodology projected need for 509 new LTCH beds in District 11; Select-Dade's methodology projected need for 556 beds. One way of looking at the substantial bed need produced by the GMLOS+15 Methodologies used by Promise, Select and Kindred was expressed by Kindred. As an applicant proposing a new hospital of 60 beds, when its need methodology yielded a need in the District for more than 500 beds, Kindred found the methodology to provide assurance that its project is needed. On the other hand, if the methodology was reliable then the utilization levels of the two Kindred hospitals in Broward County in relative proximity to a populated area of District 11 would have been much higher in 2004 and 2005, given the substantial out-migration to those facilities from District 11. The Kindred and Select methodologies are not reliable. Their flaws were outlined at hearing by Mr. Cushman, MJH's expert health planner who qualified as an expert with a specialization in health care methodology. Mr. Cushman attributed the flaws to Promise's methodology as well but as explained below, Promise's methodology is found to be reliable. Comparison of the projections produced by MJH's use rate methodology with the projections produced by the other three methodologies results in "a tremendous disconnect," tr. 1233, between experiences in District 11 upon which MJH's methodology is based and the GMLOS+15 Methodologies' bed need yield "that are three or four or five times as high as have actually been expressed in the existing system." Id. One reason in Mr. Cushman's view for the disconnect is that the GMLOS+15 Methodologies identify all long-stay patients in STACHs as candidates for LTCH admission when "there are many reasons that patients might stay for a long time in an acute care facility that are not related to their clinical needs." Tr. 1234. This criticism overlooks the limited number of long-stay patients in STACHs used by the Promise methodology but is generally applicable to the Select and Kindred methodologies. Mr. Cushman performed detailed analysis of the patients used by Kindred in its projection to reach conclusions applicable to all three GMLOS+15 Methodologies. Mr. Cushman's analysis, therefore, related to actual patients. They are based on payor mix, discharge status, and case mix. The analysis showed that the GMLOS+15 Methodologies are "disconnected from the fundamental facts on the ground," tr. 1240, in that the methodologies produce tremendous unmet need not reconcilable with actual utilization experience. Some of the gaps based on additional case mix testing were closed by Kindred's expert health planner. The additional Kindred test, however, did not completely close the gap between projected unmet need and actual utilization experience. Mr. Cushman summed up his basis for concluding that the GMLOS+15 Methodologies employed by Kindred, Select-Dade and Promise are unreliable: [W]e have an untested method that's disconnected from actual utilization experience on the ground. And it provides projections of need that are way in excess of what the experience would indicate and way in excess of what the applicants are willing to propose and support [for their projects.] So for those reasons, I considered [the GMLOS+15 method used by Kindred, Select-Dade and Promise] to be an unreliable method for projecting the need for LTCH beds. Tr. 1243-44. The criticism is not completely on point with regard to the Promise methodology as explained below. Furthermore, at hearing, Mr. Balsano made adjustments to the Promise GMLOS+15 Methodology ("Promise's Revised Methodology"). Although not sanctioned by the Agency, the adjustments were ones that made the Agency more comfortable with the numeric need they produced similar to the Agency's comments at hearing about MJH's methodology. For example, if the number of needed beds were reduced by 50 percent (instead of 25 percent as done in Promise's methodology) to account for the effect of federal policies and alternative providers and if an 85 percent occupancy rate were assumed instead of an 80 percent occupancy rate, the result would be reduce the LTCH bed need yielded by Promise's methodology to 200. These adjustments make Promise's Revised Methodology more conservative than Select's and Kindred's. In addition, Promise's methodology commenced with a much fewer number of STACH patients because Promise based on its inquiry into the patient population that is "using LTCHs in Florida right now." Tr. 351. Examination of AHCA's database led to Promise's identification of patients in 169 DRGs currently served in Florida LTCHs. In contrast, Select-Dade and Kindred, used 483 and 390 DRGs respectively. Substantially the same methodology was used by Promise in Promise Healthcare of Florida III, Inc. v. AHCA, Case No. 06-0568CON (DOAH April 10, 2007). The methodology, prior to the 25 percent reduction to take into account the effects of new federal regulations, was described there as: Long-stay discharges were defined using the following criteria: age of patient was 18 years or older; the discharge DRG was consistent with the discharge DRGs from a Florida LTCH; and the ALOS in the acute care hospital was at the GMLOS for the specific DRG plus 15 days or more. Applying these criteria reduced the number of DRGs used and the potential patient pool. Id. at 19 (emphasis supplied.) The methodology in this case produced a number that was then reduced by 25 percent, just as Promise did in its application in this case. The methodology was found by the ALJ to be reliable. If the methodology there were reliable then Promise's Revised Methodology (an even more conservative methodology) must be reliable as well as the numeric need for District 11 LTCH beds it yields: 200. Such a number (200) would support approval of MJH's application and two of the others and denial of the remaining application or denial of MJH's application and approval of the three other applications. Neither of these scenarios should take place. However high a number of beds that might have been projected by a reasonable methodology, no more than two of the applications should be granted when one takes into consideration the ability of the market to absorb new providers all at once. Tr. 518-520. Nonetheless, such a revised methodology would allow approval of MJH and one other of the applicants. Furthermore, there are indications of bed need greater than the need produced by MJH's methodology. Market Conditions, Population and History The large majority of patients admitted to LTCHs are elderly, Medicare beneficiaries. Typically, elderly persons seek health care services close to their homes. This is often because the elderly spouse or other family members of the patient cannot drive to visit the patient. This contributes to the compressed service areas observed in District 11. Historic patient migration patterns show that for STACH services, there is nine percent in-migration to Miami- Dade, and only five percent out-migration from Miami-Dade, a normal balance. Most recent data for LTCH service, however, shows an abnormal balance: three percent in-migration and 22 percent out-migration. The current utilization of existing LTCHs in District 11 and the high out-migration indicates that additional LTCH beds are needed. Notably, of the 400 District 11 residents who accessed LTCH care in Broward County in 2004, 114 (over 25 percent) lived in the 15 zip codes closest to MJH. MJH’s location will allow its LTCH to best impact and reduce out- migration from District 11 for LTCH services. Neither Kindred nor Promise has a location selected, and while Select-Dade has a “target area,” its actual location is unknown. None of the existing LTCHs in District 11 or in District 10 have PSAs that overlap with the area around MJH. For example, the Agency had indicated that there was no need in the case which led to approval of the Sister Emmanuel LTCH at Mercy Hospital. It was licensed in July of 2002, barely half a year after the Select-Miami facility was licensed. Both facilities were operating at or near optimal functional capacity less than two years from licensure without adverse impact to Kindred-Coral Gables. The utilization to capacity of new LTCH beds in the District indicate a repressed demand for LTCH services. The demand for new beds, however, is not limited to the eastern portion of the County. The demand exists in the western portion as well where there are no like and existing facilities. Medicare patients who remain in STACHs in excess of the mean DRG LOS become a financial burden on the facility. The positive impact on them of an LTCH with available beds is an incentive for them to refer LTCH appropriate patients for whom costs of care exceeds reimbursement. There were a total of 1,231 adult discharges from within Select-Dade's targeted service area with LOS of 24 or more days in calendar year 2004. Medical Treatment Trends in Post-Acute Service The number of LTCHs in Florida has increased substantially in recent years. The increase is due, in part to the better treatment the medically complex, catastrophically ill, LTCH appropriate patient will usually receive at an LTCH than in traditional post acute settings (SNFs, HBSNUs, CMR, and home health care). The clinical needs and acuity levels of LTCH- appropriate patients require more intense services from both nursing staff and physicians that are available in an LTCH but not typically available in the other post acute settings. LTCH patients require between eight to 12 nursing hours per day and daily physician visits. CMS reimbursement at the Medicare per diem rate would not enable a SNF to treat a person requiring eight to 12 hours of nursing care per day. CMR units and hospitals are inappropriate for long- term acute care patients who are unable to tolerate the minimum three hours of physical therapy associated with comprehensive medical rehabilitation. The primary focus of an LTCH is to provide continued acute care and treatment. Patients in a CMR are medically stable; the primary focus is on restoration of functional capabilities. Subsection (2): Availability, Quality of Care, Accessibility, Extent of Utilization of Existing Facilities There are 27 acute care hospitals dispersed throughout the County. Only three are LTCHs. The three existing LTCHs, all in the eastern portion of the County, are not as readily accessible to the population located in the western portion as would be an LTCH in the west. Approval of an application that will lead to an LTCH in the western portion of the County will enhance access to LTCH services or as Ms. Greenberg put it hearing, "if only one facility is going to be built, the western part of the county is where that needs to go." Tr. 2101. See discussion re: Subsection (5), below. In confirmation of this opinion, Dr. Gonzalez pointed out several occasions when he was not able to place a patient at one of the existing LTCHs due to family member reluctance to place their loved one in a facility that would force the family to travel a long distance for visits. LTCH appropriate patients are currently remaining in the acute care setting with Palmetto General and Hialeah Hospital among the busiest of the STACHs in the County. Both are within Select-Dade's targeted service area. From 2002 to 2005 the number of LTCH beds in the District increased from 53 to 122. During the same period, the number of patient days increased from 18,825 to 37,993. Recently established LTCH facilities in District 11 have consistently reached high occupancy levels, approaching 90 percent at the time of hearing. From 2001 to 2004, the use rate for LTCH services grew from 3.07 per 1,000 to 6.51 per 1,000. The increase in use rate for those aged 65 and over was even more significant; from 19.32 per 1,000 to 41.67 per 1,000. Kindred's Miami-Dade facility is licensed at 53 beds; of those seven are in private rooms; the facility has 23 semi- private rooms. As far back as 2001, the facility has operated at occupancy rates in excess of 85 percent; in 1998 and 1999 its occupancy rate exceeded 92 percent and 93 percent, respectively. More recently, it has operated at an ADC of 53 patients; 100 percent capacity. Several physicians and case managers provided support to Kindred's application by way of form letters, indicating patients would benefit from transfers to LTCHs and "an ever growing need for (these) services." Kindred's daily census has averaged 50 or more patients since 2004. Unlike an acute care hospital, Kindred has not experienced any seasonal fluctuations in its census, running at or above a reasonable functional capacity throughout the year. Taking various factors into consideration, including the number of semi-private beds, the facility is operating at an efficient occupancy level. Looking ahead five years, the capacity at Kindred's facility cannot be increased in order to absorb more patients. As designed, the facility cannot operate more efficiently than it has at 85 percent occupancy. Select's facility, located in a medical arts building, houses 34 private and six semi-private beds. In 2005, Select's facility operated at an average occupancy of almost 88 percent. Unlike Kindred, Select can add at least seven more beds to its facility by converting offices. As a hospital within a hospital, Sister Emmanuel's 29-bed facility is subject to limits on the percentage of admissions it can receive from "host" Mercy Hospital; even with such restrictions, its 2005 occupancy rate was 84.6 percent. Because of gender mix and infection opportunities, among other reasons, it is difficult to utilize semi-private beds. Only three District facilities offer ventilator care: MJHHA, HMA Hampton Court, and Victoria Nursing Home. Other health care facility settings do not serve as reasonable alternatives to the LTCH services proposed here. In 2004, roughly one quarter of District 11 residents, (nearly 400 patients), requiring LTCH services traveled to District 10 facilities. In 2005 that number fell to 369, or about 22 percent. Although there is a correlation between inpatient acute care services and LTCH services, the out-migration of patients requiring LTCH services indicated above differs markedly from the out-migration numbers generated by acute care patients. The primary north-south road configurations in the county are A1A, U.S. 1 and I-95 on the east and the Palmetto Expressway on the west. The primary east-west road configurations are composed of the Palmetto Expressway extension, S.R. 112; the Airport Expressway feeding into the Miami International Airport area and downtown Miami, S.R. 836 to Florida's Turnpike, and the Don Shula Expressway in the southwest. Assuming no delays, a trip by mass transit, used by the elderly and the poor, from various areas in Miami-Dade to the nearest LTCH outside District 11 (Kindred Hollywood) runs two to four hours one way. These travel times pose a special hardship to the elderly traveling to a facility to receive care or visit loved ones. While improvements in the system are planned over the next five years, they will not measurably change the existing travel times. These factors, along with high occupancy levels in District 11 LTCHs, indicate the demand for LTCH services in the District exceeds the existing bed supply. The three existing LTCHs have recently operated at optimal functional capacity or above it. On December 31, 2005, Select Specialty Hospital-Miami was operating with 95 percent occupancy. Subsection (3): Ability of the Applicant to Provide Quality of Care and the Applicant's Record of Providing Quality of Care As discussed above, MJH has the ability to provide high quality of care to its LTCH patients and an outstanding record of providing quality of care. Select-Dade has the ability to provide quality of care to its LTCH patients and a record providing quality of care. In treating and caring for LTCH patients, Select-Dade will use an interdisciplinary team of physicians, dieticians, respiratory therapists, physical therapists, occupational therapists, speech therapists, nurses, case managers and pharmacists. Each will discipline will play an integral part in assuring the appropriate discharge of the patient in a timely manner. The Joint Commission on Accreditation of Hospital Organizations (JCAHO) has accredited all Select facilities that have been in existence long enough to qualify for JCAHO accreditation. Both Select and Promise use various tools, including Interqual Criteria, to assure patients who need LTCH services are appropriately evaluated for admission. All Promise facilities are accredited by JCAHO. Promise has developed and implemented a company-wide compliance program, as well as pre-admission screening instruments, standards of performance and a code of conduct for its employees. Its record of providing quality of care was shown at hearing with regard to data related to its ventilator program weaning rate and wound healing rates. None of the parties presented evidence or argument that any of the other applicants was unable to provide adequate quality of care. The Agency adopted its statements from the SAAR at pages 43 through 45. The SAAR noted the existence of certain confirmed complaints at the two existing LTCH providers in Florida Select and Kindred. The number of confirmed complaints is relatively few. Kindred, for example, had 12 confirmed complaints with the State Department of Health at its seven facilities during a three-year period, less than one complaint per Kindred hospital every two years. Each applicant satisfies this criterion. Subsection (4): Availability of Resources, Health and Management Personnel, Funds for Capital and Operating Expenditures, Project Accomplishment and Operation The parties stipulated that all applicants have access to health care and management personnel. Select-Dade, Kindred and MJH all have funds for capital and operating expenditures and project accomplishment and operation. In turn, each of these three contends that Promise did not demonstrate the availability of funds for its project. This issue is dealt with below under the part of this order that discusses Subsection (6) of the Statutory CON Review Criteria. Subsection (5): Access Enhancement The applicants stipulated that "each of the applicants' projects will enhance access to LTCH services for residents of the district to some degree." All four applicants get some credit under this subsection because approval of their application will enhance access by meeting need that all of the parties now agree exists. Select-Dade and Promise propose to locate their projects in the western portion of the County. Kindred did not indicate a location. Location of an LTCH in the western portion of the County will enhance geographic access. MJH's location is in an area that has reasonable geographic access to LTCH services. But approval of its application, given the unique nature of its operation, chiefly its charitable mission, will enhance access to charity and Medicaid recipients. Approval of Select-Dade's application will also enhance cultural access to the Latin population in Hialeah. A substandard public transportation system for this population makes traveling to visit hospitalized loved ones an insurmountable task in some situations. Select-Dade has achieved a competent cultural atmosphere in its LTCH opened in the County in 2003. It has in excess of 100 multi-lingual employees, many of whom communicate in Spanish. The staff effectively communicates with patients with a variety of racial, cultural and ethnic backgrounds. Every new LTCH must undergo a qualifying period to establish itself as an LTCH for Medicare reimbursement. Specifically, the average LOS for all Medicare patients must meet or exceed 25 days. During the qualifying period the LTCH is reimbursed by Medicare under the regular STACH PPS, that is paid on a DRG basis as if the patient were in an ordinary general acute care hospital with its lower reimbursement. Upon initiation of their LTCH services, Promise, Kindred and Select all intend to restrict or suppress admissions to ensure longer LOS to meet the Medicare 25 day average LOS requirement, and to “minimize the costs” of obtaining LTCH certification and reimbursement. MJH will not be artificially restricting its LTCH admissions during the initial 6 month Medicare qualification period, even though the cost of providing services during this period will likely exceed the STACH Medicare reimbursement. MJH’s opening without suppressing admissions (as in the case of Sister Emmanuel), will enhance access by patients in need of these services during the initial qualification period. Subsection (6): Immediate and Long-term Financial Feasibility a. Short-Term Financial Feasibility Short-term financial feasibility is the ability of an applicant to fund the project. None of the parties took the position that the MJH project was not financially feasible in the short term. MJH's current assets are equal to current liabilities, a short-term position found by AHCA to be weak but acceptable. The financial performance of MJH, however, has been improving in the past three years. Expansion of existing services, improved utilization of services, and the development of new programs have all contributed to a significant increase in operational revenue and total revenue during that period. MJH has a history of receiving substantial charitable gifts (ranging from $6.2 million to $13.2 million annually during the past three years) and can reasonably expect to receive financial gifts annually of between $4-5 million in the coming years. However, MJH is moving away from reliance on charitable giving, and toward increasing self-sufficiency from operations. Approval of the LTCH will play a major role in achieving that goal. In addition, MJH has total assets, including land and buildings, of approximately $150 million. The cost to implement the proposed MJH LTCH is $5,319,647. The projected cost is extremely conservative in the sense of overestimating any potential contingency costs that could be incurred. MJH has the resources available to fund the project through endowments and investments (currently $41 million) as well as from operating cash flow and cash on hand. Select-Dade has an adequate short-term position and Kindred a good short-term position. None of the parties contest the short-term financial feasibility of either Select-Dade or Kindred. In contrast, both Select-Dade and Kindred contested the short-term financial feasibility of Promise. In accord is MJH's position expressed in its proposed recommended order: "Promise did not demonstrate the availability of funds for its project." Miami Jewish Home & Hospital For the Aged, Inc.'s Proposed Recommended Order, at 37. Promise's case for short-term financial feasibility rests on the historical relationship between the principals of Promise, Sun Capital Healthcare, Inc., and Mr. William Gunlicks of Founding Partners Capital Management Company ("Founding Partners.") The relationship has led to great success financially over many years. For example, through the efforts of Mr. Gunlicks, Sun Capital has generated over $2 billion in receivable financing. Founding Partners is an investment advisor registered with the Security Exchange Commission, the Commodity Futures Trading Commission, the National Futures Association and the State of Florida. As a general partner, it manages two private investment funds: Founding Partners Stable Value Fund and Founding Partners Equity Fund. Founding Partners also manages an International Fund for non-U.S. investors. Its base is composed of approximately 130 individuals with high net worth and access to capital. Founding Partners provided Promise with a "letter of interest" dated October 12, 2005, which indicated its interest in providing the "construction, permanent, and working capital financing for the development of a 60 bed long-term acute care hospital to be located in Dade County, Florida." Promise Ex. 3, Exhibit Promise XI, Gunlicks 4, 6-27-06. The letter makes clear, however, that it is not a commitment to finance the project: "The actual terms and conditions of this loan will be determined at the time of your loan request is approved. Please recognize this letter represents our interest in this project and is not a commitment for financing." Id. Testimony at hearing demonstrated a likelihood that Promise would be able to fund the project should it's application be approved. Mr. Balsano opined that this is sufficient to meet short-term financial feasibility: "[I]t's not required at this point that firm funding be in place. . . . [W]e have an appropriate letter from Mr. Gunlicks' organization that they're interested and willing to fund the project. It kind of goes to the second issue, which is, well, what if there were some issue in that regard? Would this project be financed. And I guess I would just have to say bluntly that in doing regulatory work for the last 20-some years, that if an applicant has a certificate of need for a given service, most lending institutions view that as a validation that the project is needed and can be supported. My experience has been that I have never personally witnessed a project that was approved that could not get financing. Tr. 392. Other expert health planners with considerable experience in the CON regulatory arena conceded that they were not aware of a CON-approved hospital project in the state that could not get financing. Despite the proof of a likelihood that Promise's project would be funded if approved, however, Promise failed to demonstrate as MJH, Select-Dade and Kindred continue to maintain, that funds are, indeed, available to fund the project. In sum, Promise failed to demonstrate the short-term financial feasibility of the project. The projects of MJH, Select-Dade and Kindred are all financially feasible in the short-term. b. Long-Term Financial Feasibility Long-term financial feasibility refers to the ability of a proposed project to generate a positive net revenue or profit at the end of the second full year of operation. MJH’s projected patient volumes are both reasonable and appropriate, given its current position in the community, the services it currently provides, and the need for LTCH services in the community. MJH’s projected payor mix was largely based upon the historical experience of the three existing LTCHs in the District, with the exception of the greater commitment to charity and Medicaid patients. The higher commitment to Medicaid/charity is consistent with MJH’s historical experience and status as a safety net provider. Sister Emmanuel is a 29-bed LTCH located within Mercy Hospital. As a similarly-sized HIH, a not-for-profit provider, and an entity with the same kind of commitment to Medicaid/charity patients, Sister Emmanuel is the best proxy for comparison of the financial projections contained in the MJH application. MJH projected its gross revenues based upon Sister Emmanuel’s general charge structure, adjusted for payor mix and inflated at 4 percent per year. The staffing positions, FTEs and salaries contained on Schedule 6 of each of the applications were stipulated to represent reasonable projections. MJH’s Medicaid net revenues were calculated by determining a specific Medicaid per diem rate using the Dade County operating cost ceiling and 80 percent of the capital costs. Given that many LTCH patients exhaust their allowable days of Medicaid coverage, 70 percent of the revenue associated with MJH’s Medicaid patient days were “written off” in total. Similarly, patient days associated with charity care and bad debt reflected no net revenue. MJH's Medicare net revenues were determined using the specific diagnosis (DRG) of each projected patient. For the first six months of operation it was assumed that MJH would receive the short-stay DRG reimbursement, and in the second 6 months and second year of operation would receive the LTCH DRG payment. Net revenues for the remaining payor categories were based upon the historical contractual adjustments of MJH. MJH’s projected gross and net revenues for its proposed LTCH are conservative, reasonable and achievable. However, if MJH has in fact understated the net revenues that it will actually achieve, the impact will be an improved financial performance and improved likelihood of long-term financial feasibility. MJH’s staffing expense projections were derived from its Schedule 6 projections (which were stipulated to be reasonable) with a 28 percent benefit package added. Non- ancillary expense costs were based upon MJH’s historical costs, while ancillary expenses (lab, pharmacy, medical supplies, etc.) were based upon the Sister Emmanuel proxy. Capitalized project costs, depreciation and amortization were derived from Schedule 1 and the historical experience of MJH, as were the non- operating expenses such as G&A, plant maintenance, utilities, insurance and other non-labor expenses. MJH’s income and expense projections are reasonable and appropriate, and demonstrate the long-term financial feasibility of MJH’s proposed LTCH. John Williamson is an Audit Evaluation and Review Analyst for AHCA. He holds a B.S. in accounting and is a Florida CPA. Mr. Williamson conducted a review of the financial schedules contained in each of the four applications at issue. In conducting his review, Mr. Williamson compared the applicants’ financial projections with the “peer group” of existing Florida LTCHs. With regard to the MJH projections, Mr. Williamson noted: Projected cost per patient day (CPD) of $1,087 in year two is at the group lowest value of $1,087. Projected CPD is considered efficient when compared to the peer group with CPD falling at the lowest level. The apparent reason for costs at this level are the low overhead costs associated with operating a hospital-within- a-hospital. MJH Ex.34, depo Ex. 4, Page 3 of 5. Mr. Williamson further concluded that MJH presented an efficient LTCH project, which is likely to be more cost- effective and efficient than the other three proposals. In its application, Kindred projected a profit of $16,747 at the end of year two of operation. Schedule 8A listed interest expense "as a way of making a sound business decision." Tr. 1458. Interest expense, however, is not really applicable because Kindred funds new projects out of operation cash flows. If the interest expense is omitted, profit before taxes would roughly $1.5 million. Taking taxes into consideration, the profit at the end of year two of operation would be roughly $1 million. Promise's projections the facility will be financially feasible in the long term are contained in its Exhibit 2, Schedules 5, 6, 7 and 8A and related assumptions. The parties agreed the information contained in Promise's Schedule 5, and the supporting assumptions, were reasonable. Schedule 5 indicates Promise projects an occupancy rate in Year 2 of 76.1 percent, based on 16,660 patient days and an ADC of 45.6 patients. To reach projected occupancy rates, Promise would have to capture roughly 15-17 percent of the LTCH market in Year 2. AHCA concluded Promise's project would be financially feasible in the long term. Only Select questioned Promise's projected long term financial feasibility. The attack, evidenced by Select Exhibits 12 and 14, was composed of a numbered of arguments, considered below: The estimated Medicare revenue per patient projected by Promise was high, and among other factors, erroneously assumed Medicare would increase reimbursement by an average of 3 percent per year. In determining a project's long-term financial feasibility, AHCA looks to the facility's second full year of operation, and, assuming reasonable projections, determines if there is a net positive profit. The analysis AHCA uses to determine the reasonableness of an applicant's projections in Schedules 7A and 8A begins with a comparison of those figures against a standardized grouping developed over the years and consistently applied by the agency as a policy. In this instance, the grouping consisted of all LTCHs operating in Florida in 2004; a total of 11 facilities; eight operated by Kindred and three operated by Select. The analysis is based on Revenue Per Patient Day (RPPD). Promise estimated it would generate an average RPPD of $1,492 in Year 2, and a net profit for the same period of $2,521.327. Using the above process, AHCA concluded that Promise's projected net income per patient day appeared reasonable. At the time of hearing, other Promise facilities were receiving an average RPPD higher than $1,400; compared to the projected "somewhat over" $1,500 it would expect to receive in Year 2 of its Miami-Dade facility. Approximately half of the existing Promise facilities (including West Valley and San Antonio) received Medicare RPPDs in excess of $1,500. As opposed to total revenue per patient, revenue on a per patient day is the one figure associated with the expenses generated to treat a patient on a given day. A comparison of net RPPDs projected by Promise with those of other applicants and the state median indicate Promise's revenue projections are reasonable. While Medicare recently opted not to increase the rate of LTCH reimbursement for the 2006-07 fiscal year, it is the first year in four that the program has done so. Compared to Promise's assumption that Medicare reimbursement would increase yearly by 3 percent on average, Select assumed a rate of 2.4 percent. The ALOS projected by Promise was too long. In projecting need, Select projected an ALOS similar to Promise's projection. Compared with the statewide ALOS of 35 days, Select's is about 28 days. This is the result of a combination of managing patients and their acuity. Assuming Promise's ability to manage patients in a manner similar to Select and achieve a like ALOS, Promise would have room available to admit more patients. There is no reason to assume Promise could not attain a similar ALOS with a similar population than that served by Select; others have done so. Like other segments of the health care industry, LTCH providers will manage patient care to the reimbursement received from payors. The CMI projected by Promise was too high. The prospective payment system is based to a great extent on how patients' diagnoses and illnesses are "coded," or identified, because the information is translated into a DRG, which, in turn, translates directly into the amount of reimbursement received. Each DRG has a "weight." By obtaining the DRG weight for each patient treated in a hospital, one can obtain the average weight, which will correspond to the average cost of care for the hospital's patients. The term for this average is Case Mix Index (CMI). Each year Medicare determines the rate it will pay for treatment of patients in LTCHs, adjusted for each market in the U.S. to account for variations in labor costs. Mr. Balsano assumed the new facility would experience an average CMI of 1.55 and that Medicare would reimburse the facility based on existing rates with an annual inflation of 3.0 percent. Mr. Balsano then reduced the estimated Medicare RPPD generated by those assumptions by 15 percent. While Select's expert criticized Promise's projected CMI adjusted reimbursement rate for Medicare patients (approximately $50,000) as to high, Select's own Exhibit 12, p. 8, indicates a projected reimbursement of $41,120.44 based on an average CMI of 1.0. However, at hearing it was verified that Select's Miami facility operated at an average CMI of 1.23. Applying a CMI of 1.23 generates an average projected Medicare reimbursement of $50,618 per patient, a number similar to that projected by Mr. Balsano. Select Ex. 14, pages 9-16, contains data on, among other things, the CMI of 161 DRGs used by Promise's expert. The data was taken from each of the existing LTCHs in Florida. In 2004, the statewide average CMI was 1.231. Also in 2004, four of 11 LTCHs in Florida experienced an average CMI of 1.4 or higher. Other Florida facilities have experienced an average CMI at or above 1.59. Indeed, other Florida facilities have experienced average CMIs and ALOS similar to that of the Select facility. While Promises operates no facility with an average CMI of 1.55, it has several with average CMIs of 1.3 or 1.4. Promise expects Medicare will take future steps to restrict the admission of patients with lower CMIs' the effect being more complex patients will access LTCHs than currently do, increasing the average CMI in LTCHs. Reducing the number of lower acuity patients admitted to LTCHs in future years will likely increase the CMI of those admitted. There is a direct correlation between CMI and ALOS. If, in fact, the CMI experienced by Promise's facility is less than 1.55, it will in turn generate a lower ALOS. Applying the reduction in reimbursement advanced by Promise's witness (15 percent) would in turn reduce the projected CMI in Promise's facility from 1.55 to 1.05. Because reimbursement coincides with acuity and ALOS, a representation that reducing one of the three does not likewise affects the others is not realistic. Whatever the CMI and ALOS for LTCHs will be in the future will be governed to a great extent by the policies established by the federal government. The federal government's reimbursement system will drive the delivery of patient services and the efficiencies the system provides, so that, in fact, the providers of care manage patients to the reimbursement provided. Whether the average CMI at Promise's facility reaches 1.55 in the future is subject to debate; however, it is reasonable that the status quo will not likely continue; thus, regardless of a facility's current CMI, more complex patients will access the facility in the future. Various sensitivity analyses generated to test the reliability of Select's criticisms in this area do not indicate any material change in the projected Medicare reimbursement. The interest rate on the loaned funds was 9 percent, rather than 7 percent. The estimated expenses did not include sufficient funds to pay the following: the necessary ad valorem taxes the required PMATF assessment the premiums to obtain premises insurance physician fees housekeeping expenses in Year 1 Using the same standardized "grouping" analysis, AHCA calculated Promise's projected costs per patient day and found them reasonable. Because the projected increase in ad valorem taxes and the PMATF assessment will not be payable until 2010, it is not necessary to borrow additional funds to meet these obligations. Select's expert concluded that, depending on a number of scenarios, the result of the appropriate calculations would produce a loss to Promise's project of between $624,636 and $902,361 of year 2. Assuming they represented sensitivity analyses which included various assumptions based on criticisms from Select. The impact of Select's suggested adjustments, reduced by overstated costs in Promise's application Schedule 8A, increased Promise's projected Year 2 net income from the initial estimate of $2,521,327 to $2,597.453. Even if the 15 percent reduction previously included in Mr. Balsano's assumptions on Medicare reimbursement were not considered, and assuming a lower CMI consistent with the existing statewide average (1.43 vs. 1.23), or that Promise's experience in District 11 will be similar to Select's, Promise's facility would still be financially feasible. Select's witness conceded that if Promise's facility experienced a lower ALOS, the demand for additional LTCH services is high enough to allow the facility to admit additional patients ("backfill"). While assuming a lower reimbursement due to lower acuity patients admitted to Promise's facility, Select's witness did not similarly assume any reduction in expenses associated with treatment of such lower acuity patients. In reality, if revenues are less than expected a facility reduces expenses to generate profits. Select's witness also conceded that Promise could reduce the management fee to reduce costs and generate a profit. The testimony of Promise's Chairman, Mr. Baronoff, established the company would take measures to reduce expenses to assure the profitability, including reducing the facility's corporate allocation. Such a reduction by itself would reduce expenses by between $1 million and $1.5 million. Reduction in corporate allocation has occurred before to maintain the profitability of a Promise facility. With regard to Select-Dade, its forecasted expenses, as detailed on Schedules 7A and 8A of its application are consistent with Select-Miami's historical experience in Miami. Evaluation of the revenues and expenses detailed in Select-Dade's Schedules 7A and 8A (and drawing comparison with SMC's 96 other hospitals, with particular attention paid to the Select-Miami facility), its profitability after year one indicates that Select-Dade's project will be financially feasible in the long term. In sum, all four applicants demonstrated long-term financial feasibility. Subsection (7): Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost-effectiveness Competition benefits the market. It stimulates providers to offer more programs and to be more innovative. It benefits quality of care generally. Competition to promote quality and cost-effectiveness is generally driven by the best combination of high quality and fair price. The introduction of a new LTCH providers to the market would press Sister Emmanuel, Kindred-Coral Gables and Select-Miami to focus on quality, responsiveness to patients and would drive innovations. Approval of any of the applications, therefore, as the Agency recognizes, see Agency for Health Care Administration Proposed Recommended Order, at 36, will foster competition that promotes quality and cost-effectiveness. Competition that promotes quality and cost- effectiveness will best be fostered by introduction to the market of a new competitor: either MJH or Promise. Between the two, Promise's application for 60 rather than 30 beds proposed by MJH, if approved, would capture a larger market share and promote more competition. On the other hand, MJH's because of its long-standing status as a well-respected community provider, particularly in the arenas of cost-effectiveness and quality of care, would be very effective in fostering competition that would promote both quality and cost-effectiveness. Kindred and Select dominate LTCH services in Florida with control over 86 percent of the licensed and approved beds: Kindred has eight existing LTCHs and one approved LTCH yet to be licensed; Select has three existing LTCHs and six approved projects in various stages of pre-licensure development. In 2005 the District 11 LTCH market shares were: Kindred-Coral Gables: 42 percent; Select-Miami: 35 percent; and Sister Emmanuel: 23 percent. Approval of Promise would only slightly diminish Select-Miami’s market share and would reduce Sister Emmanuel to a 16 percent share. A Select-Dade approval would give the two Select facilities a combined 54 percent of the market. A Kindred approval would give its two Miami-Dade facilities a combined 57 percent market share. An MJH approval would give it about 16 percent of the market, Sister Emmanuel would decline to 19 percent and Select-Miami and Kindred-Coral Gables would both have market shares above 30 percent. MJH's application is most favored under Subsection (7) of the Statutory Review Criteria. Subsection (8): Costs and Methods of Proposed Construction The parties stipulated to the reasonableness of a number of the project costs identified in Schedule 1, as well as the Schedule 9 project costs. All parties stipulated to the reasonableness of the proposed construction schedule on Schedule 10 of the application. Those additional costs items on Schedule 1 of the respective applications that were not stipulated to were adequately addressed through evidence adduced at final hearing. Given the conceptual-only level of detail required in the schematic drawings submitted as part of a CON application, and based on the evidence, it is concluded that each of the applicants presented a proposed construction design that is reasonable as to cost, method, and construction time. Each applicant demonstrated the reasonableness of its cost and method of construction. Accordingly each gets credit under Subsection (8) of the CON Statutory Review Criteria. But under the subsection, MJH's application is superior to the other three applications. The subsection includes consideration of "the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction." § 408.035(8), Fla. Stat. As an application proposing an HIH rather than a free-standing facility, not only can MJH coordinate its operations with other types of service settings at expected energy savings, its application involves less construction and substantially less cost that the other three applications. Subsection (9): Past and Proposed Provision of Services to Medicaid and Indigent Patients A provider's history of accepting the medically indigent, Medicaid and charity patients, influences patients and referral sources. Success with a provider encourages these patients on their own or through referrals to again seek access at that provider. As a safety net provider, MJH has a history of accepting financially challenged patients, many of whom are medically complex. Its application is superior to the others under Subsection (9) of the Statutory Review Criteria. Promise does not have a history of providing care in Florida. It has a history of providing health care services to Medicaid and the medically indigent at some of its facilities elsewhere in the country. As examples, its facility in Shreveport, Louisiana, provides approximately 7 percent of its care to Medicaid patients and a facility in California provides about 20 percent of its service to Medicaid patients. MJH committed to the highest percentage of patient days to Medicaid: 4.2 percent. Promise proposes a 3.0 percent commitment; Select-Dade and Kindred, 2.8 percent and 2.2 percent, respectively. Select-Dade's proposed condition is structured so as to allow it to include Medicaid days from a patient who later qualifies as a charity patient, thus accruing days toward the condition without expanding the number of patients served. Select-Dade's targeted service area, moreover, has fewer proportionate Medicaid beneficiaries identified (13 percent) as potential LTCH patients than identified by the methodologies used by the applicants (21 percent), indicating that Select's targeted area is generally more affluent than the rest of the County. Kindred does not have a favorable history of providing care to Medicaid and charity patients. For example, during FY 2004, Sister Emmanuel provided 6.1 percent of its services to Medicaid and charity patients. During this same period, Kindred-Coral Gables provided only 1.08 percent of its services to Medicaid and charity patients. Of all four applicants, Kindred proposes the lowest percentage of service to such patients: 2.2 percent. It has not committed to achieving the percentage upon its initiation of services. Its proposed condition and poor history of Medicaid and indigent care merit considerably less weight than the other applicants and reflects poorly on its application in a process that includes comparative review. MJH's proposed condition, although the highest in terms of percentage, is not the highest in terms of patient days because the facility it proposes will have only half as many beds as the facilities proposed by the other three applicants. Nonetheless, the proposal coupled with its past provision of health care services to Medicaid patients and the medically indigent, which is exceptional, makes MJH the superior applicant under Subsection (9) of the Statutory Review Criteria. Subsection (10) Designation as a Gold Seal Program None of the applicants are requesting additional nursing home beds. The subsection is inapplicable to this proceeding.
Recommendation Based on the foregoing Findings of Fact and Conclusion of Law it is RECOMMENDED that the Agency for Health Care Administration issue a final order that: approves Miami Jewish Home and Hospital for the Aged, Inc.'s CON Application No. 9893; approves Select Specialty Hospital-Dade, Inc.'s CON Application No. 9892; denies Promise Healthcare of Florida XI, Inc.'s CON Application No. 9891; and, denies Kindred Hospitals East LLC's CON Application No. 9894. DONE AND ENTERED this 17th day of May, 2007, in Tallahassee, Leon County, Florida. S 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 17th day of May, 2007. COPIES FURNISHED: Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration Fort Knox Building III, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Associates, P.A. 3051 Highland Oaks Terrace, Suite D Tallahassee, Florida 32317-5828 Sandra E. Allen, Esquire Agency for Health Care Administration Fort Knox Building 3, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308-5403 F. Philip Blank, Esquire Robert Sechen, Esquire Blank & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Mark A. Emanuele, Esquire Panza, Maurer & Maynard, P.A. 3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street, Fifth Floor Tallahassee, Florida 32302-1110
Findings Of Fact HRS is a state agency responsible for the administration of the Florida Medicaid Program provided for in Title XIX of the Social Security Act. The medicaid program was implemented through Section 409.902, Florida Statutes. The peer review aspect of the Florida Medicaid Program involves the responsibility of insuring that hospitals comply with state and federal utilization review requirements. The Petitioner, at all times material hereto, was the treating facility for the four patients involved in the issues in this case. It is assigned Medicaid Provider No. 011976800. The medicaid/medical benefits program for the State of Florida administered by HRS under Title XIX of the Social Security Act reimburses hospitals for "medically necessary" in-patient hospital care provided to medicaid beneficiaries. See Rule 10C-7.039, et. seq. The determination of "medical necessity" is to be made by the hospitals' utilization review committee and by the utilization and quality control PRO which is under contract to provide that service with HRS. Utilization review is defined as "regular prescribed program for the review of each recipient's need for services to insure efficient provision of care". HRS has established procedures for determining the medical necessity and appropriateness of care for use by hospitals and by the PRO's. The procedures include a review of medical record documentation against a list of criteria published by HRS. These criteria are popularly called ISD criteria. "ISD" is an acronym signifying severity of illness, intensity of service, and "discharge screens." Each medicaid recipient must meet ISD criteria for severity of illness before being admitted to a hospital. They must also meet the intensity of service ISD criteria for continued hospitalization. Once a patient meets one of the ISD discharge screens (standards), there is the indication that the patient is ready to be discharged. The ISD criteria are to be used as a "basis for professional determinations of the medical necessity of acute care hospitalizations" by the hospital utilization review (UR) committee and the PRO. These criteria are not an absolute measure of medical necessity. They may be balanced or overridden by a physician during the review process. The severity of illness (SI) criteria are acknowledged by HRS to be set at a high level. The SI criteria need not be met to justify an admission, however. "If treatment has been rendered and the intensity of service criteria are met, or if evidence relevant to more than one severity of illness indicator is available, lower levels than those specified in the criteria may justify certifying the admission. A case presenting marginal findings for certifying an admission will be referred to the physician advisor." See Respondent's Exhibit 4, page 6. According to the policy expressed in the HRS manual for hospitals providing services to medicaid beneficiaries, the hospital UR committee may consider "other supporting data as the committee deems appropriate" and contact the attending physician when determining medical necessity. Similarly, when medical necessity is an issue at the PRO level of review, the attending physician is to be contacted by the PRO and given an opportunity to speak to the physician advisor of the PRO so as to provide additional information going to the question of medical necessity. If the PRO denies coverage, HRS then accepts the PRO determination and does not conduct any independent review. HRS, having charged the hospital UR committee and the PRO with the evaluation of medical necessity, does not conduct its own review of the medical record or undertake any independent evaluation of medical necessity before notifying the relevant physician and hospital if reimbursement is denied. The Petitioner is in compliance with the medicaid program concerning utilization review. The hospital has established a UR plan which has been approved by the PRO and by HRS. The UR plan utilizes the same ISD criteria as the PRO. The UR committee was monitored to make sure that it was complying with the utilization review requirements. The five cases at issue were reviewed by five different physicians on the Center's UR committee and were felt to meet the criteria and to be medically necessary as appropriate admissions and appropriate lengths of stay. The PRO, however, disagreed with the UR committee. The attending physician was contacted by the PRO and asked to call a physician advisor to discuss these cases and to provide additional information to the advisor. The attending physician followed those instructions and attempted numerous times to contact the physician advisor with additional information concerning the cases but was never given the opportunity to do so. These PRO denials included one admission denial following a suicide attempt, despite the fact that "suicide attempt" is included in the ISD criteria as justification for admission. This denial of admission itself is clearly in error. Although this proceeding is a de novo one and not a proceeding designed to simply review the appropriateness and legal efficacy of the HRS initial decision, it is noteworthy, to the extent that HRS' position relies heavily on the PRO review of the patient admissions and lengths of stay in question, that the PRO's work product is of marginal credibility. This is because the PRO which was responsible for the UR and reviewed these cases lost its designation as an approved PRO and became involved in criminal litigation concerning a failure to carry out medical reviews properly. The PRO was unable to meet payroll obligations for its nursing and physician reviewers. The records of the PRO reviews of the five cases at issue in this proceeding were not available to HRS. Consequently, HRS had no information concerning the underlying data or facts relied upon by the PRO nor whether the PRO actually consulted the attending physician or whether its physician advisor did. Thus, the testimony of the attending physician, to the effect that he attempted to contact the physician advisor but was not permitted to as to any of these cases, is uncontraverted. The approved UR committee, in conducting its procedure at the Center, determined that the admission and lengths of stay of the five patients involved was medically necessary and compensable as determined by five physicians taking part in that process. The PRO, although it informed the physicians that they had the right to speak to a physician advisor, did not actually afford them that opportunity. The PRO determination was accepted by HRS without any HRS personnel speaking to the attending physician. Although HRS later allowed one day of an admission immediately following a suicide attempt, it upheld the other PRO determinations without actually knowing or reviewing any underlying information which might have been relied upon by the PRO and without HRS personnel conferring with the attending physician or affording him the opportunity to provide them with additional information. If the PRO, its physician advisor and HRS had given the attending physician the opportunity to explain and provide additional information concerning medical necessity, perhaps this dispute could have been resolved without the necessity and expense of formal proceedings. This is a de novo proceeding and, therefore, the information from the attending physician which was not utilized by the PRO or HRS in the review of these cases can be brought forward at this time providing the attending physician's testimony and evidence is deemed relevant, material, competent and credible. The attending physician named above, in fact, testified in this proceeding. His testimony is deemed competent and credible on the material issues and is not refuted by the Respondent. Based upon the attending physician's testimony, which is accepted, especially since no other physician with knowledge of the facts concerning these patients testified, the following findings of fact are made: Patient M.D.: This patient was treated at the emergency room following a suicide attempt on August 19th and transferred by the police to the Center where she was then admitted. She had previously sought out-patient treatment unsuccessfully. The initial examination showed her to be moderately depressed, avoiding eye contact, showing psycho-motor retardation, and crying easily. She made the statement that her two children would be better off if she were dead. She was placed on the medication prozac but after several days remained depressed and crying and complaining of insomnia. She was then given "Pamelor" which caused some adverse side effects, but she appeared to respond to the medication as to her depression. During her stay, she received an intensive rehabilitation program of at least three encounter therapies per day. On the basis of the medical record alone, patient M.D. met the following criteria: AK11-A (suicide attempt); AK57-B (treatments). These criteria do not require that the patient remain suicidal or admit to being suicidal during the in- patient stay in order to justify further treatment. The HRS representative testified that nursing notes indicated that the patient could perform some self- care functions during her hospitalization ("activities of daily living" or "ADL's"). Because of this and because the physician noted that the patient was denying suicidal ideations, she interpreted that circumstance to mean that the discharge "screen" or standard of "able to function in a non-hospital environment" was met after August 20th, the day of admission. However, HRS also admitted that whether the patient could function in a non-hospital environment was a medical decision to be made on the hospital level and the PRO level. The attending physician testified that records of self-care in a restricted hospital environment do not mean that the patient could function in a non-hospital setting. He further testified that the patient in this instance required treatment and did not meet the discharge standard or "screen" of being "able to function in a non-hospital environment" before August 30th. He testified that the services could not be effectively provided on an out-patient basis prior to August 30th. That testimony is accepted and the fact established. The ISD criteria and explanatory bulletins promulgated by HRS do not contain requirements that a patient remain suicidal during a stay nor a discharge criteria that equates self-care in the hospital environment with the ability to care for oneself safely and adequately in a non-hospital environment. On the basis of the evidence presented, the in-patient admission of M.D. from August 20th to August 30th met the criteria for admission and continued stay. The services provided were shown by unrefuted testimony to be medically necessary and the discharge screens or criteria were not satisfied until August 30, 1991. Patient M.D. (Admission of September 21, 1990 through September 29, 1990): Nineteen (19) days after her first discharge, patient M.D. again attempted suicide. She had been referred for out-patient care after her previous hospitalization but did not follow up and obtain that care and did not continue to take her medication. She wrote a suicide note on the second attempt and was treated in an intensive care unit for three days before being re- admitted to the Center. Throughout her hospitalization, she received intensive rehabilitation therapy as before and remained in a highly-restricted, locked unit, where suicide precautions were in effect. She was assigned to a counselor for "one-on-one" therapy in addition to her group therapy. Her attending physician did not consider her able to function in a non-hospital environment prior to September 29th, and his testimony so establishes. The HRS witness, when asked whether she had an opinion when the patient should have been released, stated a date prior to the actual discharge based upon her opinion that the patient was able to function in a non-hospital environment. That decision, however, is a medical decision which the witness was not qualified to make. In any event, the fact that a patient might be able to perform some "ADL" functions in a highly-supervised, protective hospital setting does not mean that the patient is well enough and responsible enough to perform those functions adequately and safely on her own outside a supervised hospital setting. In summary, based upon the unrefuted evidence presented, particularly the testimony of the attending physician, the in-patient admission of M.D. on September 21, 1990 met the ISD criteria for admission and continued stay. The services were medically necessary and the patient was not appropriately ready for discharge until September 29, 1991. Patient W.P. (Admission of April 11, 1990 to April 16, 1990): This patient suffered a severe psychotic episode a month before her admission and then presented to an emergency room stating that she was "about to lose it" and that it was only her religious beliefs which prevented her from committing suicide. This alarmed the attending physician concerning her suicidal ideation and possibility. The patient had been married five times and was then seeing a married man and also allegedly contemplating a lesbian relationship with that man's wife. She had been blamed by her family for the death of her grandchild. Upon her admission, it took her approximately three days to become aware that she was in a locked psychiatric unit. This indicated to the physician that she did not fully comprehend where she was or what she was doing in terms of her orientation as to reality of time and place. She was severely depressed, out of touch with reality, and not able to perform the affairs of daily living (ADL's). She exhibited anorexia and insomnia at the time of admission. She indicated merely that she was not eating as much as she had previously. She was placed on prozac, to which she responded in approximately five days. The services provided to her after her admission met the intensity of service criteria for a continued stay. The physician testified that she did not meet discharge standards prior to the actual discharge date whereupon she was referred to out-patient care for follow-up treatment. The physician's testimony establishes that necessary medical services could not have been effectively or safely provided on an out-patient basis prior to the discharge date. The physician's testimony establishes that in the artificial environment of a hospital, the notations in medical records that a patient is eating and sleeping does not mean that she is able to perform those functions outside of the hospital safely and adequately or will consistently do so if left to her own devices. The HRS witness admitted that not eating and not sleeping is relevant to the question of whether a patient can perform normal ADL's. The later contention by HRS that inability to perform ADL's requires a patient to be in a "nearly vegetative" state is simply unsupported by medical testimony nor by any definition in evidence. The unrefuted testimony of the attending physician establishes that the in-patient admission of patient W.P. on April 11, 1990 met the ISD criteria for admission and continued stay and that the services were medically necessary. The patient was not recovered sufficiently for appropriate discharge until April 16, 1990. Patient D.G. (Admission of May 4, 1990 to May 11, 1990): This patient had a recent history of heavy drug usage and criminal convictions near the time of her admission. HRS had removed her children from her custody, which created an additional crisis in her life, as did the fact that her husband was then in prison. The attending physician stated that the patient was exhibiting acute withdrawal symptoms from drug usage and delirium tremors from the drugs upon her admission. She was at a high risk of resuming her heroin use and threatened suicide if she did not get help for her addiction. A urine screen performed was positive upon her admission for drug usage and withdrawal symptoms. Impending delirium tremors were exhibited at that time. She was depressed and required acute medication, being placed on a high dose of both librium and anti- depressants. D.G. could not be treated in a de-toxification unit because of her suicidal ideation and attendant depression. She received intensive therapy consisting of three sessions per day while she was hospitalized. Her depression responded to the medication and discharge planning began on her third day of admission, with a view toward placing her in a de-toxification unit. She was discharged to complete her de-toxification as soon as a placement was available. The HRS witness opined that because D.G. was not "comatose" or "impending comatose", she did not meet the admission standards for substance abuse and because she was able to sleep, eat, and dress herself in the hospital, she did not meet the admission criteria concerning performance of ADL's. The attending physician testified, however, that she was in withdrawal from heroin use, needed de-toxification, and could not be admitted to a de-toxification program until her other psychiatric problems had been stabilized. The attending physician, by his training, his experience, and by his personal contact with and treatment of the patient, is best able to evaluate the patient's medical circumstance, need for admission and treatment and the length of treatment required. Consequently, his testimony as to this patient and all the others is accepted over that of the non-physician HRS witness. Based upon the evidence presented at hearing, the in-patient admission and stay of D.G. was medically necessary and could not have been provided effectively in a less-restrictive or out-patient setting. Patient S.R. (Admission of June 20, 1990 to June 29, 1990): Upon this patient's admission, she related not having slept for two months and not having eaten for five days. She had then undergone approximately three years of out- patient treatment unsuccessfully and had no family or community-support system in the area where she lived. She related that her ex-husband had been abusive and had recently abducted her daughter and vandalized her home. She related that her ex-husband had threatened her daughter's life and had had S.R. arrested and supposedly transported to the Palm Beach County Women's Stockade. She testified that she was unable to sleep or eat and was taking 10 to 12 baths per day. She complained of being unable to remember simple tasks, to take care of simple matters such as paying her rent, and was in the habit of wearing the same clothes from three to five days in a row without changing or washing, or being unable to remember whether she had washed or not. The patient was also taking a high dosage of a chronic asthma medication, which includes steroids. This can cause serious problems with depression. The patient was severely depressed and had recently started smoking. The patient met the ADL admissions criteria and while she was in the hospital, she received services which met the intensity of services criteria. The HRS witness admitted that the medical record note which stated "past two months she had not slept at all" constitutes insomnia and the record note "is not eating, has gone five days without food" constitutes anorexia. Based upon the evidence submitted at hearing, the in-patient treatment of S.R. from June 20, 1990 to June 29, 1990 met the criteria for admissions and continued stay and was shown by the treating physician's testimony to be medically necessary. The services could not have been safely and adequately provided on an out-patient basis, and the discharge standards were not satisfied as to this patient until June 29, 1990, when she was discharged.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is therefore
The Issue Whether Department of Health and Rehabilitative Services ("HRS") Rules 10- and 10-17.005 (originally published as 10-16.001, 10-16.005), Florida Administrative Code, constitute an invalid exercise of delegated legislative authority.
Findings Of Fact Standing Humana is a corporation engaged in the business of constructing and operating hospitals in Florida. It has applied to HRS for a certificate of need to construct and operate a 100-bed acute care hospital to be located south of the St. Johns River in the area known as Mandarin, in Duval County, Florida. The challenged Subdistrict Rule places this area in Subdistrict 3 of HRS District IV. Humana's (Mandarin) application for a certificate of need (CON) was denied by HRS on February 23, 1983, and Humana requested a formal Section 120.57(1), hearing. The case was then transferred to the Division of Administrative Hearings and assigned Case Number 83-934. The final hearing in that CON case began on September 6, 1983, and recessed on September 7, 1983. In the instant case--on Humana's request, and without objection by HRS--official recognition was given to the transcript of that hearing, as filed with the Division of Administrative Hearings. Prior to the CON hearing in Case Number 83-934, on August 12, 1983, HRS published proposed Rules 10-16.001 and 10-16.005 ("Subdistrict Rule") at Volume 9, Number 32, pages 1952 through 1957, Florida Administrative Weekly. (Petitioner's Exhibit No. 1) After the CON hearing recessed, and after a public hearing on the proposed Subdistrict Rule, HRS published changes to the rule on September 23, 1983, at Volume 9, No. 38, page 2475-2476, Florida Administrative Weekly. These changes were made in response to comments which HRS received at a public hearing held on the proposed rule. (Petitioner's Exhibit No. 2) On September 26, 1983, HRS filed the Subdistrict Rule with the Department of State for adoption, effective October 16, 1983. (Petitioner's Exhibit No. 3) Thereafter, the Bureau of Administrative Code, Department of State, informed HRS that since other rules were already numbered in Chapter 10-16, Florida Administrative Code, the Subdistrict Rule would be published in Chapter 10-17, Florida Administrative Code. (Petitioner'S Exhibit No. 28) At the CON hearing, Humana attempted to introduce evidence which HRS challenged as inconsistent with Rule 10-5.11(23) the state-wide acute care bed- need rule, and the Subdistrict Rule--then a proposed rule not yet adopted by HRS. The presiding hearing officer, acknowledging the "proposed rule" status of the Subdistrict Rule, sustained HRS objections to the admission of evidence proposing a methodology, or subdistrict bed-need allocations, inconsistent with those contained in the (proposed) Subdistrict Rule. He did, however, rule that the two non-agency parties could offer evidence for the purpose of showing that HRS, or the local health council in conjunction with HRS, had developed bed-need formula or techniques for subdistricts beyond, or inconsistent with, the proposed Subdistrict Rule and the underlying local health council's district plan. (DOAH Case No. 83-934, pp. 220-221, Transcript of Hearing). II. The Rule Adoption Process In response to Section 381.494(7)(b), Florida Statutes (1983), requiring local health councils to develop district plans using a "uniform methodology," HRS transmitted to the councils written guidelines for designating and allocating bed-need among various subdistricts. (Petitioner's Exhibit Dos. 9 and 10) The statute does not express or imply that the word, "methodology" should be given a meaning other than that assigned by ordinary and common usage. Webster's Seventh New Collegiate Dictionary defines the term as: "a body of methods, rules and postulates; a particular procedure or set of procedures." A methodology is not necessarily a mathematical formula. These guidelines, transmitted to the local health councils in early 1983, describe the relationship between HRS and the councils, the format and content elements of district health plans, and the requirements for stating district health care policies and priorities. Examples are provided. The guidelines require that local plans contain a district health profile--an overview of the area's population characteristics, community health status and prevailing health related attitudes and behaviors. Components are also required, including detailed information on the district's health care resource inventories, costs and utilization patterns, analysis of local services as well as recommendations and priorities for future health systems development. For at least three types of existing health care facilities--acute care hospitals, nursing homes, and psychiatric specialty hospitals information must be provided on current capacity, physical status, service areas, and recommendations for future developments. A time frame is imposed for accomplishing each phase of the plan development, with the final phase adoption of the local health plan--to be accomplished by December, 1983. Finally, the guidelines, at page 15, point out the statutory requirement that HRS adopt, by rule, those elements of the approved district plans necessary for review of applications for certificates of need: Adoption Into Rules Section 7(b) of Chapter 381.493 states that "Elements of an approved district plan necessary to the review of any certificate of need application shall be adopted by the Department as a part of its rules." This should be kept in mind through- out the plan development process. Local policies and priorities are the items most pertinent to certificate of need review since information on bed need and capacity are either determined at the state level or must be updated to the time of certificate of need application, review and appeal. There- fore, the local health council will be ex- pected to develop a separate submission of their policies and priorities in the proper format for rule promulgation within thirty days of the adoption of the local health plan. State agency staff will assist in the development and refinement of these documents. (Petitioner'S Exhibit No. 9) HRS interpreted its responsibility under Section 381.494, as one of assuring that district health plans were consistent with the state-wide uniform bed-need methodology prescribed in Rule 10-5.11(23). Under subparagraph "d" of that rule, local health plans must designate subdistricts according to HRS guidelines. Subparagraph "e" requires that beds be allocated to designated subdistricts consistent with the total number of beds allocated to the district under the rule, and consistent with subparagraph "i," which contains geographic accessibility standards. Rule 10-5.11(23) * * * * * Acute Care Service Subdistrict Designation. Acute care service sub- district designations shall be adopted, as necessary, by each Local Health Council as an element of its local health plan according to guidelines developed by the State Health Planning Agency. Designations will become effective for the purposes of this rule upon the filing of the adopted local health plan acute care subdistricting elements with the Secretary of State. Subdistrict Bed Allocations. Subdistrict bed allocations by type of service shall be made by the Local Health Councils consistent with the district total acute care bed allocation as determined by the methodology contained in paragraph (f) below, as well as any adjustments to the allocation as determined by the provisions of paragraphs and (h) below. Such allocations shall also be consistent with the provisions 9f paragraph (i) and the requirements of Section 381.494(7)(b) , Florida Statutes. * * * * * Geographic Accessibility Considerations. Acute care hospital beds should be available and accessible within an automobile travel time of 30 minutes under average travel conditions to at least 90 percent of the population residing in an urban area subdistrict. Acute care hospital beds should be available and accessible within a maximum automobile travel time of 45 minutes under average travel conditions to at least 90 percent of the population residing in a rural area sub- district. The elements of the District IV health plan contained in the Sub- district Rule are consistent with the uniform methodology prescribed in Rule 10-5.11(23) and HRS guidelines. In response to these guidelines, the District IV health council adopted and transmitted to HRS, on July 7, 1983, the acute care component of the district health plan. After the district council approved this component and allocated beds to the various subdistricts, HRS supplied updated population figures resulting in an increase in the total number of beds allocated to the district. The council's staff then adjusted the number of beds allocated to the subdistricts on a pro rata basis. These adjustments were consistent with the council's policy, as reflected by its approval of the acute care component. No evidence has been presented to show that the council's staff lacked authority to make these adjustments. (Petitioner's Exhibit No. 7) In addition to allocating district wide bed-need among the subdistricts of District IV, the acute care component contains detailed information and analysis concerning acute care bed-need. This information is pertinent but not necessary to the review of CON applications in District IV. (Petitioner's Exhibit No 7) The challenged Subdistrict Rule simply designates subdistricts and allocates bed-need among them; other data and analysis contained in the acute care component are not included. HRS, however, is now drafting an addition to the Subdistrict Rule (Section 10-17.005), titled "subsection (3), Acute Care Policies and Priorities," which incorporates additional portions of the district plan for use in reviewing CON applications in District IV. This draft rule allows exceptions based on local conditions: When there are more than one widely separated hospital service areas located within a single subdistrict, such as St. Augustine in South Duval Subdistrict 3, Bunnell and Daytona Beach in Subdistrict 4, and unforeseen growth, change and makeup of population, or other circumstances cause a significant increase in the demand for inpatient care within one of the service areas, the State should make exception to the District Health Plan when it is reasonable and logical to do so. (Petitioner'S Exhibit No. 34) This provision was contained in the district plan at the time HRS adopted the Subdistrict Rule. (Petitioner'S Exhibit No. 7) The Subdistrict Rule, with the exception of St. Lukes' Hospital, allocates beds among the subdistricts on the basis of the number of patient-days currently utilized by the hospitals in each subdistrict, projected for 1988. St. Lukes' Hospital, now located on the north side of the St. John's River in Subdistrict 1, will move to the south side of the St. John's River in Subdistrict 3, the subdistrict where Humana seeks to build its Mandarin hospital. This move from north to south is accounted in the subdistrict allocation by assuming that 34 percent of the current (north) St. Lukes' Hospital patient-days will come with the hospital when it moves from Subdistrict 1 to Subdistrict 3, and that the remainder will come from Subdistrict 3 (south) patients. With 66 percent of St. Lukes' bed capacity allocated for Subdistrict 3, there will be no additional bed-need in that subdistrict for years. HRS prepared an economic impact statement (EIS) in connection with its adoption of the subdistrict rules, including the Subdistrict Rule under challenge. The EIS addresses the agency's cost to implement the proposed rules, the cost or economic benefit to persons directly affected, and the affect on competition. The data and methods used in preparing the EIS are also briefly summarized.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The petitioner Brookwood Medical Center of Lake City, Inc., d/b/a Lake City Medical Center (hereinafter referred to as LCMC) is a 75-bed acute care hospital, which presently has 65 medical/surgical beds and 10 alcohol treatment beds. Plans are under way to convert 10 of the medical/surgical beds to a psychiatric unit with 10 beds. LCMC primarily serves Columbia County, a primarily rural community with a population of 34,625, and derives 74 percent of its patients therefrom. The remaining 261 of its admissions come from the surrounding counties of Hamilton, Lafayette and Suwannee. Approximately 60 percent of its patients are sixty years of age or older. The source of reimbursement for the year 1980 was 40 percent Medicare, 8 percent Medicaid, 8 percent indigent or bad debt, and the remaining portion from other third-party payors. The current occupancy rate at LCMC is approximately 502 or 37.5 patients per day. Seasonal trends cause this figure to vary between 32 and 37.5. The daily census is expected to increase over the next year due to the planned addition of four new programs. These include the ten-bed psychiatric unit for which a Certificate of Need application is pending, an industrial medical and occupational health program which would provide on-site care to employees and their family members, the recruitment of an internist/cardiologist and the recruitment of an ophthalmologist. It is projected that the proposed new psychiatric unit will add eight patients to LCMC's daily census, the industrial health program will add 2.5 patients per day as well as outpatients, and that the internist/cardiologist will generate five patients per day. Psychiatric beds are less likely to generate intensive care patients than medical/surgical beds. It is expected that LCMC's program of expansion will change the mix of the primary and secondary service areas and will increase the average daily census to 42.5 by the end of 1981. Petitioner presently has a nursing staff of 48 and a medical staff of Of its medical staff, 13 are listed as active, 4 as courtesy, 4 as consulting and one with temporary privileges. LCMC has one operating room, no emergency room, and no intensive care/cardiac care unit (also referred to as IC/CCU). On an average basis, it is estimated that from ten to twelve surgical procedures per week are performed at LCMC. In 1980, 468 surgical procedures were performed. For the first quarter of 1981, the busiest time of the year, 156 surgical procedures were performed. Petitioner does have a step-down unit or a progressive care unit (also referred to as PCU) with four beds. The current utilization of the PCU is 2.7 patients per day, with a 50 percent medical component and a 50 percent surgical component. If petitioner's application for a Certificate of Need were granted, LCMC's PCU would be converted to an IC/CCU with invasive monitoring capabilities and patients who currently receive treatment in the PCU would be treated in the new IC/CCU. The current patient charge for the PCU is $111.00 per day. LCMC proposes an IC/CCU charge of $250.00 per day. Petitioner estimates that 8 percent of its patients would need and use an IC/CCU, and that, for the first year of operation, the IC/CCU would have a daily census of 3.5 patients. For the second year of operation, a daily patient census of 4.5 is projected. The projected daily utilization of over 50 percent is not consistent with actual utilization achieved in the IC/CCUs of other hospitals in the area. The prime concept of an IC/CCU is to provide more intensive nursing care and monitoring capabilities for unstable medical and surgical patients. The majority of admissions to an IC/CCU come from the emergency room and the second largest source is from the operating room after surgery. While some physicians feel that no physician or acute care facility should be without an IC/CCU, that all post-operative patients should be monitored in an ICU and that it is not good practice to transport an unstable patient under any circumstances, others disagree. These physicians, while agreeing that all hospitals need some form of life support capability, feel that for general routine surgery, only a very small percentage of patients are in need of an intensive care unit. It is possible to reduce the need for an intensive care unit by screening patients prior to surgery. A recovery room and/or a progressive care unit can provide the routine noninvasive monitoring and more intensive nursing care and observation needed by many medical and surgical patients. The use of a recovery room for critical care patients does pose serious problems due to the exposure to additional commotion and the potential mixing of well surgical patients with septic unstable patients. It is better medical practice to have separate personnel for infectious and noninfectious patients. The transfer of an unstable patient to another facility can pose serious risk to the patient. The intervenor Lake Shore Hospital (also referred to as LSH) is located approximately 1.5 miles from the petitioner. Lake Shore Hospital is a full- service, acute care, public hospital with 128 beds, an emergency room and a 9- bed IC/CCU. LSH has had an IC/CCU since 1970 or 1971. More than 50 percent of its intensive care patients come from its emergency room. Approximately 1600 surgical operations per year are performed at LSH. The IC/CCU at LSH provides basic noninvasive monitoring equipment connected to the patient's bedside and the nurses' stations. It does not presently have Swans-Ganz monitoring equipment, an invasive device which measures a patient's hemodynamics. The wiring and other equipment for two such monitoring capabilities are in place and, with the addition of a module and transducer for each unit, two units can be installed for a cost of approximately $4,400.00. At the present time, no one in Lake City has the extensive training required to utilize the Swans-Ganz monitoring equipment. LSH is in the recruitment process and plans to purchase and install this equipment when a cardiologist or other trained specialist is recruited. The IC/CCU at LSH experiences an occupancy rate of 3.5 patients per day, or 35 percent of its capacity. It has only achieved full capacity on two occasions in the ten years of its existence. Lake Shore Hospital presently charges $275.00 per day for the use of its IC/CCU. If it were to lose one patient per day, LSH would lose approximately $100,000.00 per year in revenue. Such a loss could result in either increased taxes or increased patient charges. In spite of the fact that several major admittors to LCMC and LSH have their offices at LCMC, It was their testimony that were a Certificate of Need granted to LCMC for an IC/CCU, they would continue to admit and refer patients to both facilities. Lake Shore Hospital has a medical staff of 22 or 23 specialists and nonspecialists. Of this number, all but one are also on the staff of Lake City Medical Center. The PCU at LCMC and the IC/CCU at LSH are presently comparable. While the nursing staff at Lake Shore's IC/CCU is better trained, at least one physician who practices at both hospitals felt that the same level of care could presently be obtained at LCMC's PCU as at LSH's IC/CCU. This is due to the fact that LSH does not now have the invasive monitoring capabilities felt to be essential to an IC/CCU. The traditional difference between a PCU and an IC/CCU is the degree of training of the nursing staff and the sophistication of the equipment. Underutilization of an IC/CCU can have an adverse effect upon the quality of care provided. One of the most important aspects of an intensive care unit is superior trained personnel. A reduction in patient use obviously reduces the personnel's exposure to complications and skills become dull. Thus, a reduction in patients reduces the quality of care. There is presently a shortage of nurses in the Lake City area. Lake Shore Hospital presently has 8 nursing vacancies and has been actively recruiting to fill those vacancies. In order to operate its proposed IC/CCU, LCMC would have to employ two full-time equivalent nurses with training in that area. The petitioner projects the cost of its requested IC/CCU to be $240,000.00. In 1979, LCMC ran a deficit of $1 million, the sixth largest loss in the State. In 1980, the deficit was $390,000.00. LCMC is presently experiencing a positive cash flow for 1981. It appears that LCMC anticipates the proposed IC/CCU to be a profit-making venture and projects that, if its presumptions are true with respect to patient use, the project will be financially feasible. At the time of the hearing, negotiations were under way for the sale of petitioner to another entity. The reviewing Health Systems Agency, the North Central Florida Health Planning Council, Inc. (NCFHPC), unanimously denied the petitioner's request for an IC/CCU at every level of the review process. The 1981-1985 Health Systems Plan for the NCFHPC contains certain criteria and standards for intensive and coronary care units which should he met within five years of operation. Two of the criteria are that an IC/CCU should have an average annual occupancy rate of 80 percent and that an IC/CCU should be available within one hour's (one-way) travel time of 95 percent of the region's residents. As noted above, LSH is approximately 1.5 miles away from LCMC. Lake City is 45 miles from Gainesville and 65 miles from Jacksonville with interstate highways connecting these cities. With an optimal utilization rate of 80 percent, it is projected that 8.5 IC/CCU beds are needed in the planning area in 1980, and, by 1985, there will be a need for 9 beds. There are presently 15 IC/CCU beds in the Level 2 planning area, which includes Lafayette, Suwannee, Hamilton and Columbia Counties. Of the licensed 212 acute care medical/surgical hospitals in Florida, 22 or 10 percent do not have intensive or coronary care units. The approximate bed size of most of these facilities is 50.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that petitioner's application for a Certificate of Need to construct and operate an intensive care/coronary care unit at Lake City Medical Center be DENIED. Respectfully submitted and entered this 7th day of August, 1981, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of August, 1981. COPIES FURNISHED: John H. French, Jr. Messer, Rhodes and Vickers Post Office Box 1876 Tallahassee, Florida 32301 Donna H. Stinson General Counsel Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301 Jon Moyle and Thomas Sheehan, III Moyle, Jones and Flannagan, P.A. 707 North Flagler Drive Post Office Box 3888 West Palm Beach, Florida 33402 Honorable Alvin J. Taylor Secretary, Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301
