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 Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he applicant will be 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 or 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. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, 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 18th day of April, 2005.
The Issue Whether proposed rules 59B-15.001 through 59B-15.007 are an invalid exercise of delegated legislative authority.
Findings Of Fact The State Center for Health Statistics (State Center) within the Agency collects and disseminates data from hospitals and ambulatory surgery centers. One of the responsibilities of the State Center is to produce comparable and uniform health information and statistics through a Comprehensive Health Information System. § 408.05(3), Fla. Stat. The State Comprehensive Health Information System Advisory Council (CHIS) is established within the Agency to assist the State Center in reviewing the Comprehensive Health Information System and to recommend improvements for the system. § 408.05(8), Fla. Stat. In conjunction with CHIS, the agency is to develop and implement a long-range plan for making available performance outcome and financial data that will allow consumers to compare health services. § 408.05(3)(l), Fla. Stat. In 2004, Section 408.061, Florida Statutes, was amended to require health care facilities to submit hospital emergency department data, data on hospital-acquired infections as specified by rule, and data on readmissions as specified by rule. On October 20, 2004, a meeting of CHIS was held, and a discussion was held on the collection and dissemination of data relating to infection rates. A motion was approved to consider the adoption of Surgical Infection Prevention (SIP) measures and to form a Technical Workgroup for Hospital Acquired Infections (Technical Workgroup) to make recommendations to the Agency on how to report SIP measures, to review the current systems of reporting infection rates, and to determine the appropriate infection measures to report. On December 1, 2004, CHIS met and heard recommendations from the Technical Workgroup concerning the collection and reporting of SIP measures. The recommendations included developing draft rules. The agency assigned Carolyn Turner, a Government Analyst II with the Agency, to draft rules relating to the collection of SIP Measures. Ms. Turner began drafting the rules in December 2004. Ms. Turner drafted the Proposed Rules. On January 13, 2005, the Agency held a rule development workshop, which had been noticed in the Florida Administrative Weekly on December 30, 2004. During the workshop and subsequent to the workshop, the Agency received comments and suggestions for modifications to the Proposed Rules, and, as a result, the Agency made some changes to the Proposed Rules. The Proposed Rules were published in the Florida Administrative Weekly on March 11, 2005, and a public hearing was held on the Proposed Rules on April 4, 2005. The Proposed Rules provide: 59B-15.001 Purpose The rules in this section describe the requirements for reporting Surgical Infection Prevention (SIP) Measures to the Agency for Health Care Administration (Agency) for the purpose of providing comparative information to consumers. 59B-15.002 Definitions "Hospital" means an entity that is licensed per Section 395.002(13), Florida Statutes. "Reporting period" means a calendar quarter. "Eligible patient" means a selected surgical patient 18 years of age or older with no prior evidence of infection as specified by the Center for Medicare and Medicaid Services (CMS) in the Specifications Manual for National Hospital Quality Measures available on the CMS website at: www.cms.hhs.gov/quality/hospital. 59B-15.003 Exclusions State-operated hospitals. Psychiatric hospitals with no licensed acute care beds other than licensed psychiatric or substance abuse beds. Specialty rehabilitation as defined in subparagraph 59A-3.52(1)(c)2. F.A.C. Intensive Residential Treatment Programs for Children and Adolescents as defined in paragraph 59A-3.252(1)(d), F.A.C. 59B-15.004 Reporting Requirements Hospitals shall report Surgical Infection Prevention (SIP) Measures to the Agency for Health Care Administration (Agency) quarterly due on or before December 1, 2005 for the period April 1, through June 30, 2005. Thereafter, data shall be reported for each calendar quarter due 150 days following the end of the quarter. Hospitals shall report the following measures for all eligible patients regardless of type of payer. Prophylactic antibiotics received within 1 hour prior to surgical incision; Prophylactic antibiotic selection for surgical patients; Prophylactic antibiotics discontinued within 24 hours after surgery end time. The methodology used to prepare the measures shall meet the standards specified by the Centers for Medicare and Medicaid Services (CMS) in the Specifications Manual for National Hospital Quality Measures available on the CMS website at: www.cms.hhs.gov/quality/hospital. CMS standards include submission of SIP data to the Quality Improvement Organization Clinical Warehouse, providing records required for reabstraction activities, and compliance with other data quality standards as specified by CMS. Hospitals shall use the SIP methodology specified by the CMS for the applicable reporting period to determine the SIP measures reported to the Agency. If the hospital uses sampling, the hospital must follow the sampling protocol specified by CMS. Hospitals shall report the population size, rate numerator value, and denominator value as specified by CMS for each type of surgery to include coronary artery bypass surgery (CABG), cardiac surgery, hip arthroplasty, knee arthroplasty, colon surgery, hysterectomy, vascular surgery, and for all of the above surgeries overall. Hospitals shall report data separately for each location consistent with Rule 59E-7.012, F.A.C. unless reporting separately would be contrary to CMS specifications. If a combined report is submitted, report the name of the hospital and AHCA hospital identification number required in subsection 59B-15.005(1), F.A.C. for each of the hospitals included in the report. The data shall be submitted in a text file, using a tab between each data element. Start a new line for each type of surgery and for each measure. Order the rows of data by type of surgery as listed in subsection (5) with three consecutive rows of data for each measure in subsection (2) above reported for each type of surgery. Each line of data shall state the name of the type of surgery or state all of the above surgeries overall as in subsection (5) above and state the name of the type of surgery or state all of the above surgeries overall as in subsection (5) above and state the name of the type of measure as in (2) above. The rate shall be reported as a decimal number greater than or equal to zero (0) and less than or equal to one hundred (100) using the format X.XX, XX.XX, or XXX.XX as required. Report hospital contact information required in Rule 59B-15.005, F.A.C. in the order specified starting a new line beginning with contact name and contact telephone number. Hospital contact information should be reported at the beginning of the document. (8) Hospitals shall send the SIP measures by electronic mail to SIPReport@ahca.myflorida.com or, if requested in writing by the hospital and approved by the Agency to the Agency's mailing address using a 3.5" diskette or CD- ROM. The mailing address of the Agency is: Agency for Health Care Administration, 2727 Mahan Drive, Mail Stop #16, Tallahassee, Florida 32308 with the statement, "Attention: State Center for Health Statistics." If the hospital has a vendor send the SIP measures to the Agency, the hospital will direct the vendor to copy (cc) the hospital contact when the report is e- mailed to the Agency. 59B-15.005 Hospital Contact Information. Each hospital shall include the following contact information when submitting a report required in this section to the Agency for Health Care Administration: Name of hospital; AHCA hospital identification number; Reporting year in four digits; Reporting quarter as a 1, 2, 3, or 4 where 1 corresponds to the first quarter of a calendar year; Contact name; Contact title; Contact address; Contact direct telephone number; Hospital telephone number; Contact e-mail address; Contact FAX number. The hospital contact information shall be reported in a text file as described in Rule 59B-15.004, F.A.C., using a tab between each data element. 59B-15.006 Certification Each hospital shall provide certification of the accuracy of the Surgical Infection Prevention Measures including all data required in this section as provided in Section 408.061(1)(a), Florida Statutes. The certification shall be submitted to the Agency for Health Care Administration (Agency) using the Certification of Surgical Infection Prevention Measures from SIP-1, dated 2/01/2005, incorporated by reference. The certification shall be submitted to the Agency for Health Care Administration (Agency) quarterly prior to or concurrent with the submission of the Surgical Infection Prevention Measures as provided in Rule 59B-15.004, F.A.C. The Certification of Surgical Infections Prevention Measures Form will be available from the Agency website at www.ahca.myflorida.com. The signed Certification of Surgical Infections Prevention Measures may be submitted electronically to SIPReport@ahca.myflorida.com. using a pdf file with a scanned signature or mailed to the Agency address provided in Rule 59B- 15.004, F.A.C. If a combined report is submitted per subsection 59B-15.004(6), F.A.C., a separate Certification of Surgical Infection Prevention Measures Form SIP-1 must be submitted for each hospital included in the report. 59B-15.007 Administrative Penalties Failure to report as required in this section in whole or in part is subject to administrative fines as provided in Section 408.08(2) and 408.08(5), Florida Statutes, unless the hospital has been granted an extension of up to 30 days by the Agency for Health Care Administration for reasons of extraordinary or hardship circumstances such as a natural disaster or emergency event impacting the hospital. Hospitals must request the extension, in writing, prior to the due date specified in Rule 59B-15.004, F.A.C. The Proposed Rules provide that the specific authority for the promulgation of the Proposed Rules is Subsection 408.06(1)(a)2., Florida Statutes, and the law implemented by the Proposed Rules is Subsection 408.05(3)(l)1., Florida Statutes. Dr. McKalip is a neurological surgeon practicing in St. Petersburg, Florida. He has hospital privileges at Bayfront Medical Center (Bayfront) and St. Anthony's Health Care (St. Anthony's). Both hospitals would be required by the Proposed Rules to report SIP Measures to the Agency. SIP Measures would be required to be reported only on the following surgical categories: coronary artery bypass surgery, cardiac surgery, hip arthroplasty, knee arthroplasty, colon surgery, hysterectomy, and vascular surgery. Dr. McKalip performs vascular surgery of the brain, vascular bypass surgery in the neck, and, as part of his board certification, is required to be able to perform carotid artery surgery in the neck. These procedures would be included under the category of vascular surgery in the ICD-9 codes as other (peripheral) vascular shunt or bypass VASC SHUNT and BYPASS NEC.2 The Proposed Rules do not require Dr. McKalip to report the use of SIP measures; they require the hospitals in which he performs the procedures to report the SIP measures. The Proposed Rules do not require the hospitals to implement SIP measures, merely to report whether the SIP measures were implemented. Some hospitals, including Bayfront and St. Anthony's, have developed policies which require physicians practicing in those hospitals to implement the SIP measures. Data collection relating to SIP measures is not a new concept. The Centers for Medicare and Medicaid Services (CMS) have developed a methodology to collect data on SIP measures, and some hospitals are currently voluntarily reporting the use of SIP measures for certain surgical procedures. The Proposed Rules adopt the methodology developed by CMS. The Proposed Rules are supported by the Florida Hospital Association; Florida Medical Quality Assurance, Inc.; and CMS. The use of SIP measures is supported by many medical societies and organizations. The Agency views the collection of the SIP measures as the first step in a three-step process for collecting and reporting hospital-acquired infection data. The second step will involve the collection of infection rates that are acquired in the inpatient setting, and the third step will involve reporting the infection rates by physicians.
The Issue The Petitioner, St. Joseph's Hospital, Inc., d/b/a St. Joseph's Hospital (Petitioner, Applicant, or St. Joseph's) filed Certificate of Need (CON) Application No. 9833 with the Agency for Health Care Administration (Agency or AHCA). The application seeks authority to establish a 90-bed acute care satellite hospital in southeastern Hillsborough County, Florida. St. Joseph's intends to transfer 90 acute care beds from its existing location in Tampa to the new facility. The issue in this case is whether the Agency should approve the CON application.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily denied St. Joseph's CON application No. 9833. The Petitioner is the applicant for the CON in this case. The Petitioner is a not-for-profit organization licensed to operate St. Joseph's Hospital, a general acute care facility located in the urban center of Tampa, Florida. It was originally founded by a religious order and has grown from approximately 40 beds to a licensed bed capacity of 883 beds. St. Joseph's provides quality care in a comprehensive range of services. Those services include tertiary and Level II trauma services. St. Joseph's provides services to all patients regardless of their ability to pay. To meet its perception of the growing healthcare needs of the greater Hillsborough County residents, St. Joseph's has proposed to construct a satellite hospital on a site it purchased in the mid-1980s. According to St. Joseph's, the satellite hospital, together with its main campus, would better address the growing community needs for acute care hospital services. To that end, St. Joseph's filed CON application No. 9833 and seeks approval of its satellite facility. It proposes to transfer 90 of its acute care beds from its current hospital site to the new satellite facility. The main hospital will offer support services as may be necessary to the satellite facility. Tampa General is an 877-bed acute care hospital located on Davis Island in urban Tampa, Florida. Prior to 1997, it was a public hospital operated by the Hillsborough County Hospital Authority but has since been operated and managed by a non- profit corporation, Florida Health Sciences, Inc. Tampa General provides quality care in a wide range of services that include tertiary and Level I trauma. Tampa General addresses the medical needs of its patients without consideration of their ability to pay. It is a "safety net" provider and is the largest provider of services to Medicaid and charity patients in the AHCA District 6/Subdistrict 1. Medicaid has designated Tampa General a "disproportionate share" provider. Tampa General is also a teaching hospital affiliated with the University of South Florida's College of Medicine. Recently, Tampa General has undergone a major construction project that brings on line a new emergency trauma center as well as additional acute care beds, a women's center, a cardiovascular center and a digestive diagnostic and treatment center. Tampa General opposes the CON request at issue. South Bay and Brandon also oppose St. Joseph's CON application. South Bay is a 112-bed community acute care hospital located in Sun City Center, Florida. South Bay has served the community for about 25 years and offers quality care but does not provide obstetrical services primarily because its closest population and patient base is a retirement community restricted to persons over 55 years of age. In contrast, Brandon is an acute care hospital with 367 beds located to South Bay's north in Brandon, Florida. Brandon provides quality care with a full range of hospital services including obstetrics, angioplasty, and open-heart surgery. Brandon also has neonatal intensive care (NICU) beds to serve Level II and Level III needs. It is expected that Brandon could easily add beds to its facility as it has empty "shelled-in" floors that could readily be converted to add 80 more acute care beds. Both Brandon and South Bay are owned or controlled by Hospital Corporation of America (HCA) and are part of its West Florida Division. The Proposal St. Joseph's has a wide variety of physicians on its medical staff. Those physicians currently offer an array of general acute care services as well as medical and surgical specialties. St. Joseph's provides Levels II and III NICU, open heart surgery, interventional radiology, primary stroke services, oncology, orthopedic, gynecological oncology, and pediatric surgical. Based upon its size, reputation for quality care, and ability to offer this wide array of services, St. Joseph's has enjoyed a well-deserved respect in its community. To expand its ties within AHCA's District 6/Subdistrict 1 healthcare community, St. Joseph's affiliated with South Florida Baptist Hospital a 147-bed community hospital located in Plant City, Florida. This location is east of the main St. Joseph Hospital site. Further, recognizing that the growth of greater Hillsborough County, Florida, has significantly increased the population of areas previously limited to agricultural or mining ventures, St. Joseph's now seeks to construct a community satellite hospital located in the unincorporated area of southeastern Hillsborough County known as Riverview. The Petitioner owns approximately 50 acres of land at the intersection of Big Bend Road and Simmons Loop Road. This parcel is approximately one mile east of the I-75 corridor that runs north-south through the county. In relation to the other parties, the proposed site is north and east of South Bay, south of Brandon, and east and south of Tampa General. South Florida Baptist Hospital, not a party, is located to the north and farther east of the proposed site. The size of the parcel is adequate to construct the proposed satellite as well as other ancillary structures that might compliment the hospital (such as medical offices). If approved, the Petitioner's proposal will provide 66 medical-surgical beds, 14 beds within an intensive care unit, and 10 labor and delivery beds. All 90 beds will be "state-of- the-art" private rooms along with a full-service emergency department. The hospital will be fully digital, use an electronic medical record and picture archiving system, and specialists at the main St. Joseph's hospital will be able to access images and data at the satellite site in real time. A consultation would be, theoretically, as close as a computer. In reaching its decision to seek the satellite hospital, St. Joseph's considered input from many sources; among them: HealthPoint Medical Group (HealthPoint) and BayCare Health System, Inc. (BayCare). HealthPoint is a physician group owned by an affiliate of St. Joseph's. HealthPoint has approximately 80 physicians who operate 21 offices throughout Hillsborough County. All of the HealthPoint physicians are board certified. At least five of the HealthPoint offices would have quicker access to the proposed satellite hospital than to the main St. Joseph's Hospital site. The HealthPoint physicians support the proposal so that their patients will have access to, and the option of choosing, a St. Joseph facility in the southeastern part of the county. BayCare is an organization governed by a cooperative agreement among nonprofit hospitals. Its purpose is to assist its member hospitals to centralize and coordinate hospital functions such as purchasing, staffing, managed care contracting, billing, and information technology. By cooperatively working together, its members are able to enjoy a cost efficiency that individually they did not enjoy. The "synergy" of their effort results in enhanced quality of care, efficient practices, and a financial savings to their operations. The proposed St. Joseph's satellite would also share in this economy of efforts. Understandably, BayCare supports the proposal. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: ...If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be 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 or 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. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to St. Joseph's, "need" is evidenced by a large and growing population in the proposed service area (PSA), sustained population growth that exceeds the District and state average, highly occupied and seasonally over capacity acute care beds at the existing providers, highly occupied and sustained increases in demand for hospital services, a scarcity of emergency medical service resources within the PSA compounded by budget cuts, increases in traffic congestion and travel times to the existing hospitals, the lack of a nonprofit community hospital near the proposed site, and the lack of local obstetrical services. In this case the Petitioner has identified the PSA as a 10 zip code area with 7 being designated the "primary" area of service (PSA) and 3 zip codes to the north being identified as the "secondary" area of service (SSA). The population of this PSA is projected to reach 322,913 by the year 2011 (from its current 274,696). All parties used Claritas data to estimate population, the PSA growth, and various projections. Claritas is a conservative estimator in the sense that it relies on the most recent U. S. census reports that may or may not track the most recent growth indicators such as building starts or new home sales. Nevertheless, if accurate, the estimated 17.5 percent population growth expected in the new satellite hospital's PSA exceeds the rate of growth estimated for AHCA District 6 as well as the projected State of Florida growth rate. From the 7 primary zip codes within the PSA alone the area immediately adjacent to the subject site is estimated to grow by 14,900 residents between 2006 and 2011. Over the last 20 years the PSA has developed from rural farming and mining expanses with scattered housing and trailer parks to an area characterized by modern shopping centers, apartment complexes, housing subdivisions, churches, libraries, and new schools. Physicians in the area now see as many as 60 patients per day and during the winter peak months may admit up to 20 patients per week to hospitals. Travel times from the southern portion of the PSA to St. Joseph's Hospital, Tampa General, or Brandon, can easily exceed 30 minutes. Travel times to the same providers during "rush" or high traffic times can be longer. All of the opponent providers have high occupancy rates and experience seasonal over capacity. During the winter months visitors from the north and seasonal residents add significant numbers to the population in Hillsborough County. These "snow birds" drive the utilization of all District 6/Subdistrict 1 hospitals up. Further, increased population tends to slow and congest traffic adding to travel times within AHCA District 6/Subdistrict 1. Both Brandon and Tampa General have recently added beds to address the concerns of increased utilization. Additionally, Tampa General has expanded its emergency department to provide more beds. South Bay has elected to not increase its bed size or emergency department. South Bay has experienced difficulty staffing its emergency department. When faced with capacity problems, South Bay "diverts" admissions to other hospitals. When the emergency rooms of the Opponent providers are unable to accommodate additional patients, the county emergency transport is diverted to other facilities so that patients have access to emergency services. During the winter season and peak flu periods this diversion is more likely to occur. Another hospital in the southeastern portion of the county, within St. Joseph's satellite PSA, would alleviate some of the crowding. More specifically, South Bay's annual occupancy rate in 2006 was 80.1 percent. For the first seven months of 2007, South Bay's average occupancy rate was 88.4 percent. These rates indicate that South Bay is operating at a high occupancy. Operating at or near capacity is not recommended for any hospital facility. Long term operation at or near occupancy proves to be detrimental to hospital efficiencies. Similarly, Brandon operates at 70 percent of its bed capacity. Even though it has recently added beds it intends to add more beds to address continuing increases in admissions. Brandon's emergency room is also experiencing overcrowded conditions. When Brandon's emergency room diverts patients their best option may be to leave District 6/Subdistrict 1 for care. Tampa General is a large complex and its emergency department has been expanded to attempt to address an obvious need for more services. It is unknown whether the new emergency department will adequately cure the high rates of diversion Tampa General experienced in 2007. New beds were added and an improved emergency department was designed and constructed with the expectation that Tampa General's patients would be better served. Based upon Tampa General's expansion and its projected growth, Tampa General could experience an occupancy rate over 75 percent by 2011. If so, Tampa General could easily return to the utilization problems previously experienced. There are no obstetrical services offered south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer obstetrics and has designated a 10-bed unit to accommodate those patients. There are no nonprofit hospitals south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer patients in the PSA with the option of using such a hospital. Section 408.035(2), Florida Statutes (2007), requires the consideration of 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. As previously stated, all of the parties provide quality care to their patients. Although delays in emergency departments may inconvenience patients, the quality of the medical care they receive is excellent. Similarly, hospital services are available and can be accessed in AHCA District 6/Subdistrict 1. The parties provide a full range of healthcare service options that address the medical and surgical needs of the residents of AHCA District 6 Subdistrict 1. An additional hospital would afford patients with another choice of provider in the southeastern portion of the county. The St. Joseph satellite hospital would afford such patients with a hospital option within 30 minutes of the areas within the PSA. This access would promote shorter wait times and less crowded facilities. Section 408.035(3), Florida Statutes (2007), mandates review of CON applications in light of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. As previously stated St. Joseph's has a well-deserved reputation for providing quality care within a wide range of hospital services to its patients. It is reasonable to expect the satellite hospital would continue in the provision of such care. The management team and affiliations established by St. Joseph's will continue to pursue quality care to all its patients regardless of their ability to pay. Section 408.035(4), Florida Statutes (2007), considers the availability of resources for project accomplishment and operation. Resources that must be considered include healthcare personnel, management personnel, and funds for capital and operating expenditures. St. Joseph's has the resources to accomplish and operate the satellite hospital proposed. St. Joseph's has a successful history of recruiting and retaining healthcare personnel and management personnel. The estimates set forth in its CON application for these persons were reasonable and conservative. Salaries and benefits for healthcare personnel and management personnel should be within the estimated provisions set forth in the application. Although there is a nationwide shortage of nursing personnel and physicians in certain specialties, St. Joseph's has demonstrated it has a track record of staffing its facility to meet appropriate standards and provide quality care. There is no reason to presume it will not be similarly successful at the satellite facility. St. Joseph's has also demonstrated it has the financial ability to construct and operate the proposed satellite hospital. The occupancy rates projected for the new hospital will produce a revenue adequate to make the hospital financially feasible. Further, if patients who reside closer to the satellite facility use it instead of the main St. Joseph Hospital, a lower census at the main hospital will not adversely impact the financial strength of the organization. There will be adequate growth in the healthcare market for this PSA to support the new facility as well as the existing providers. It must be noted, however, that construction costs for the satellite hospital will exceed the amounts disclosed by the CON application. Some of the increases in cost are significant. For example, the estimate for the earthwork necessary for site preparation has risen from $417,440 to $1,159,296. Additionally, most of the unit prices for construction have gone up dramatically in the past couple of years. Hurricanes and the resulting increased standards for building codes have also driven construction costs higher. More stringent storm water provisions have resulted in higher construction costs. For this project it is estimated the storm water expense will be $500,000 instead of the original $287,000 proposed by the CON application. In total these increases are remarkable. They may also signal why development in AHCA's District 6/Subdistrict 1 has slowed since the CON application was filed. Regardless, St. Joseph's should have the financial strength to construct and operate the project. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require a CON applicant to demonstrate that the existing acute care providers within the PSA are failing in order to approve a satellite hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a satellite hospital would be appropriate or inappropriate. In fact, AHCA has approved satellite hospitals when residents of the PSA live within 20 minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case the proposed satellite hospital will provide a convenience to residents of southeastern Hillsborough County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the satellite hospital. Patients who would not benefit from the convenience of the proposed satellite hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C- 1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of AHCA District 6/Subdistrict 1 will continue to use the existing providers who offer those services. The approval of the St. Joseph satellite will not adversely affect the tertiary providers in AHCA District 6/Subdistrict 1 in terms of their ability to continue to provide those services. The new satellite will not compete for those services. Tampa General has a unique opportunity to provide tertiary services and will continue to be a strong candidate for any patient in the PSA requiring such services. As a teaching hospital and major NICU and trauma center, Tampa General offers specialties that will not be available at the satellite hospital. If non-tertiary patients elect to use the satellite hospital, Tampa General should not be adversely affected. Tampa General has performed well financially of late and its revenues have exceeded its past projections. With the added conveniences of its expanded and improved facilities it will continue to play a significant roll in the delivery of quality health care to the residents of the greater Tampa area. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new satellite hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The satellite hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. AHCA's District 6/Subdistrict 1 enjoys a varied range of healthcare providers. From the teaching hospital at Tampa General to the community hospital at South Bay, all demonstrate strong financial stability and utilization. A new satellite hospital will promote continued quality and cost-effectiveness. As a member of the BayCare group the satellite will benefit from the economies of its group and provide the residents of its PSA with quality care. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that 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 should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. The costs, however, are not accurate in that most have gone up appreciably since the filing of the CON application. No more effective method of construction has been proposed but the financial soundness of the proposal should cover the increased costs associated with the construction of the project. The delays in resolving this case have worked to disadvantage the Applicant in this regard. Unforeseeable acts of nature, limitations of building supplies, and increases inherent with the passage of time will make this project more costly than St. Joseph's envisioned when it filed the CON application. Further, it would be imprudent to disregard the common knowledge that oil prices have escalated while interest rates have dropped. These factors may also impact the project's cost. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. St. Joseph's has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The satellite hospital would be expected to continue this tradition. Moreover, as a provision of its CON application, St. Joseph's has represented it will provide 12.5 percent of its patient days to Medicaid/Medicaid HMO/Charity/Indigent patients. 57 Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Opposition The SAAR set forth the Agency's rationale for the proposed denial of the CON application. The SAAR acknowledged that the proposal had received 633 letters of support (80 from physicians, 365 from St. Joseph employees, and 191 from members of the community); that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the Applicant meets its projected occupancy levels; that the project would have a marginally positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule "seems to be reasonable" for the project. Notably in opposition to the CON application, the SAAR represented that: It is not clear that projected population growth for this area will outpace the ability of subdistrict facilities to add beds to accommodate population growth. The subdistrict's most recent average utilization rate was 63.40 percent, and an additional facility has already been approved for this applicant in this county for the purpose of handling forecasted growth. Growth projected for females aged 15-44 is not significantly higher for the county than for the district or state, and it is not demonstrated that need exists for obstetric services in the subdistrict. The foregoing analysis did not credit the projected population growth for the PSA applicable to this proposal heavily. The population growth expected for the PSA will support the utilization necessary for the proposed project. Applying the Agency's assessment, all existing hospital providers could add beds to meet "need" for a Subdistrict and thereby eliminate the approval of any satellite community facility that would address local concerns. Also, South Bay has conceded it will not add beds at its location. Additionally, the SAAR stated: While both South Bay Hospital and Brandon Regional Hospital have occupancy rates such that the introduction of a competing facility would not likely inhibit their abilities to maintain operations, the same cannot be stated for Tampa General Hospital, the only designated Disproportionate Share Hospital in this subdistrict. Any impact on Tampa General Hospital as a result of the proposed project would likely be negative, limiting Tampa General's ability to offset its Medicaid and charity care services. The applicant facility does not currently have a significant presence in the proposed market, and would have to gain market share in this PSA in order to meet its projected occupancy levels. Much of the market share gained by the applicant with the proposed facility would likely be at the expense of existing facilities in this area, most notably Tampa General due to its lower occupancy level and higher Medicaid and charity care provisions. In reaching its decision, the Agency has elected to protect Tampa General from any negative impact that the proposed satellite hospital might inflict. Tampa General has invested $300 million in improvements. It is a stand-alone, single venue hospital that has not joined any group or integrated system. It relies on its utilization levels, management skill and economies of practice to remain solvent. Tampa General considers itself a unique provider that should be protected from the financial risks inherent in increased competition. It is the largest provider of services to indigent patients in AHCA District 6/Subdistrict. Brandon opposes the proposed satellite hospital in part because it, too, has expanded its facility and does not believe additional beds are needed in AHCA District 6/Subdistrict 1. Nevertheless when a related facility sought to establish a satellite near the St. Joseph's site, Brandon supported the project. Brandon provides excellent quality of care and has a strong physician supported system. It will not be adversely affected in the long run by the addition of a satellite hospital in St. Joseph's PSA. Similarly, South Bay opposes the project. South Bay will not expand and does not provide obstetric services. It has had difficulty staffing its facility and believes the addition of another competitor will exacerbate the problem. Nevertheless, South Bay has a strong utilization level, a track record of financial strength, and will not likely be adversely impacted by the St. Joseph satellite. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new satellite hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9833 with the conditions noted. DONE AND ENTERED this 13th day of May, 2008, in Tallahassee, Leon County, Florida. J. D. PARRISH 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 13th day of May, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 Tallahassee, Florida 32308 Holly Benson, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Stephen A. Ecenia, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P. A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32304-0551 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire Radey, Thomas, Yon & Clark, P.A. 301 South Bronough Street, Suite 200 Post Office Box 10967 Tallahassee, Florida 32301 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308
The Issue The issue presented is whether the application of Respondent Adventist Health System/Sunbelt, Inc. d/b/a East Pasco Medical Center for a certificate of need to add 24 acute care beds to its existing facility should be approved.
Findings Of Fact The Seventh Day Adventist Church owns Respondent Advent-ist Health System/Sunbelt, Inc. That corporation, which occupies a strong financial position, operates not-for-profit hospitals in several states, including Florida. One of the Florida hospitals is East Pasco Medical Center (East Pasco), located in Zephyrhills. Zephyrhills is in eastern Pasco County, which, for health planning purposes, is known as Subdistrict 2 of District 5. East Pasco is an 85-bed acute care hospital which provides most of the common services found in a community hospital. In addition to providing general acute care and obstetrics (OB), it has an intensive care unit (ICU) and offers neurosurgery and kidney dialysis services. East Pasco also has completed but not yet opened an 11-bed skilled nursing unit (SNU) and a 10-bed observation unit. The 11 beds in the SNU and the 10 beds in the observation unit are in addition to the 85 acute care beds for which East Pasco is licensed. For licensure purposes, acute care beds are not divided into types of service. East Pasco's current configuration for its 85 acute care beds is as follows: 68 medical-surgical beds, 8 ICU beds, and 9 OB beds. East Pasco has an active emergency room which experiences up to 30,000 visits per year. East Pasco obtains approximately 55 percent of its in-patient admissions through its emergency room. East Pasco is accredited by the Joint Commission for the Accreditation of Healthcare Organizations (JCAHO). Petitioner Humana of Florida, Inc. d/b/a Humana Hospital Pasco (Humana) is an existing 120-bed acute care hospital in Dade City. It is situated approximately 10 minutes away from East Pasco. Humana provides the same services that East Pasco provides, including medical-surgical, ICU/CCU, OB, kidney dialysis, and neurosurgery. Like East Pasco, Humana is accredited by the JCAHO. However, Humana's accreditation is "with commendation", the highest rating given by the JCAHO. Like East Pasco, Humana has a large medical staff, primarily consisting of physicians who have their offices located in Zephyrhills or Dade City. The medical staff rosters of Humana and East Pasco are virtually identical. Dade City is also located in east Pasco County, and the primary service areas of Humana and East Pasco are virtually identical. Like East Pasco, Humana serves the Medicaid and indigent patient populations. In its fiscal year 1991, Humana provided 6 percent of its patient days to Medicaid patients. In fiscal year 1992, that increased to 8.8 percent, the same as East Pasco. Humana's Medicaid patient days increased substantially with the introduction of OB services at Humana since Medicaid patients receive primarily OB services. East Pasco has been designated as a disproportionate share provider under the State's program to give economic incentives to hospitals serving a certain percentage of Medicaid patients. East Pasco also serves the indigent patient population pursuant to a contract between it and Pasco County. In September, 1991, East Pasco filed its application for a certificate of need (CON) requesting approval for 24 additional medical-surgical beds (acute care beds) for the July, 1996, planning horizon. In January, 1992, the Agency notified East Pasco of its intent to approve the application and issue to East Pasco CON No. 6783. Humana filed this challenge to the Agency's intent to grant the application, and this proceeding ensued. All parties subsequently stipulated that Humana has standing to initiate and maintain this proceeding and that Humana was not obligated to present evidence of its standing. East Pasco has proposed a new unit to house the 24 additional medical- surgical beds to be located on the third floor of a new three-story tower. That third floor would consist of 13,000 gross square feet (GSF), would cost $4,087,810, and would consist of only private rooms with three nurse stations. East Pasco proposes no new services, only additional beds. Construction of the three-story tower has not yet commenced but is awaiting the outcome of this proceeding. The first floor of the new tower will be a wellness center, a project which did not require CON review. The second floor will house a new ICU. East Pasco presented conflicting evidence as to the size of that new ICU. The Agency approved East Pasco's second floor ICU as a 12-bed ICU with a cost below the threshold cost which would have required CON review. In spite of the exemption from review obtained by East Pasco, it is specifically found that East Pasco intends to place a 16-bed ICU on the second floor of the yet-to-be-constructed tower. Thus, East Pasco would achieve its 16-bed ICU by relocating its existing 8-bed ICU and converting other beds to ICU beds. Thus, if the 24 new beds sought are approved they will produce 16 additional medical-surgical beds and 8 additional ICU beds. Resolution of the number of beds proposed for the second floor of the new tower is required in this proceeding for two reasons. First, the cost of this project is impacted. If 8 of the new beds are to be used as ICU beds rather than as medical-surgical beds, they will be more expensive to construct and equip. Second, corporate approval of corporate projects is a prerequisite in Florida's CON process. East Pasco's Board of Directors met on August 14, 1991, to authorize the filing of this application. This application proposes 24 medical-surgical beds, the corporate resolution filed with the Agency authorized 24 acute care beds, but the minutes of the Board's meeting reflect that the Board itself approved 24 beds for ICU and PCU services. Although ICU, PCU, and medical-surgical beds are all acute care beds, they are constructed, equipped, and staffed differently. For the reasons described below, there is no need in District 5 or in the east Pasco County Subdistrict for East Pasco's proposed 24 additional medical-surgical beds. Rule 59C-1.038, Florida Administrative Code, includes the numeric need methodology for projecting acute care bed need. Under that Rule, applications for acute care beds will "not normally" be approved unless there is numeric need. For the September, 1991, application batching cycle, the Agency published a fixed need of zero acute care beds needed in District 5, Subdistrict 2, which is composed of only East Pasco and Humana hospitals. This fixed and published need of zero was not challenged. Per paragraph (7)(d) of the Rule, additional acute care beds will "not normally" be approved unless the subdistrict occupancy is at or exceeds 75 percent. All parties agree that calendar year 1990 is the proper period to ascertain whether this standard is met. In 1990, the acute care bed occupancy rate in the Subdistrict was 55.33 percent. The parties agree that the Rule's occupancy standard is not met. Therefore, no additional beds should normally be approved. There is ample unused capacity in District 5 and in the Subdistrict to meet acute care demand. Humana's occupancy is well below 50 percent. In years and 2 for the proposed unit, East Pasco projects 1,042 and 1,760 patient days, respectively. Humana has sufficient unused capacity to accommodate that projected demand. Utilization trends support the lack of need shown by the need methodology and the occupancy standard. Acute care utilization in the Subdistrict has decreased since 1986. In 1986, the two Subdistrict hospitals generated 42,830 patient days, a 57.2 percent occupancy. In 1991, notwithstanding population growth in the Subdistrict, the two Subdistrict hospitals generated 41,756 patient days, a 55.8 percent occupancy. Clearly, then, there is no increased demand for acute care services, but only a reshuffling of market share between the two hospitals. Contrary to East Pasco's suggestion, first quarter utilization does not show need and has, in fact, been decreasing. For example, the first quarter (January-March) of 1986 generated 13,572 patient days in the Subdistrict, a 73.6 percent occupancy; in the first quarter of 1992, there were 12,482 patient days, a 66.9 percent occupancy, the lowest first quarter utilization in the last 6 years in the Subdistrict. Additionally, the average length of stay (ALOS) in the Subdistrict continues to decline. In the first quarter of 1991, the ALOS was 5.4 days; in the first quarter of 1992, the ALOS was 5.1 days. Accordingly, although East Pasco shows an increased number of admissions over the last several years, the continued decline in the ALOS has resulted in a decreasing number of patient days. The population growth in the Subdistrict is not so substantial as to demonstrate need. Humana relied upon population projections produced by a national firm specializing in demographic analyses. Such a population data source is generally more reliable than a county's own projections, relied upon by East Pasco. The Subdistrict is growing but not at an extraordinary pace. In comparison, the West Pasco Subdistrict is growing faster. There are no geographic access problems to receiving acute care services which would support a finding of need. There are many hospitals available and accessible to residents of the Subdistrict within 30 minutes travel time or less. The entire Subdistrict is within a 30-minute travel time of Humana and of East Pasco. Most of the Subdistrict is also within 30 minutes travel time to other acute care hospitals, including University Community Hospital in Tampa, Lakeland Regional Medical Center in Lakeland, and South Florida Baptist Hospital in Plant City. The Zephyrhills area in particular is within 30 minutes travel time to those other facilities. Humana is an available alternative to the proposed project. Humana is geographically accessible to the entire Subdistrict, provides all the services that East Pasco provides, and provides good quality of care. Humana's medical staff roster includes the same physicians that practice at East Pasco. Humana already serves the same geographic service area that East Pasco serves. Indeed, several East Pasco witnesses testified that patients are transferred to Humana when East Pasco is full, thereby acknowledging Humana as an alternative for Subdistrict residents. Hospitals situated outside the Subdistrict are also available and appropriate alternatives to the proposed project. These hospitals have unused capacity to accommodate the projected demand from the Subdistrict. Notably, residents of the Subdistrict have historically greatly utilized hospitals located outside the Subdistrict. In 1990, 63.7 percent of the Subdistrict's residents went to a hospital other than Humana or East Pasco. Thus, physicians and residents regard hospitals situated outside the Subdistrict as appropriate and viable alternatives. Since East Pasco does not propose to offer any new service, and since there is accessible unused capacity at Humana and these other facilities, there are better alternatives to adding new beds at East Pasco. In addition, although approving more beds at East Pasco would improve availability of services at East Pasco, such is not a planning consideration or a review criterion. East Pasco and Humana provide similar levels of Medicaid care. In calendar year 1991, Medicaid comprised 8.8 percent of all patient days at East Pasco, less than in 1990. From September, 1991, to August, 1992, 8.8 percent of all patient days at Humana were Medicaid days. The two hospitals also provide similar amounts of indigent care. Therefore, Humana is economically accessible to all residents of the Subdistrict. Facilities located outside the Subdistrict also are economically accessible. Physician preferences are not significant in formulating conclusions of need on a District or Subdistrict basis. Physicians may well have their own reasons for doing things which may be contrary to sound health care planning principles. Further, physicians' personal preferences are not relevant to ascertaining how existing resources can be best and most efficiently used. The acute care bed Rule provides that additional beds "may" be approved at a specific facility if its occupancy exceeds 75 percent even though no beds can be authorized pursuant to the mathematical calculations established by the Rule. While East Pasco achieved an occupancy rate of 78.78 percent in calendar year 1990, that statistic merely "opens the door" for an evaluation of whether there are compelling circumstances to justify the approval of beds at a specific facility despite the absence of need demonstrated by the acute bed methodology. There are no factors or circumstances which would justify the approval of 24 additional medical-surgical beds at East Pasco pursuant to the specific facility provision. First, there are accessible and available alternatives for meeting projected demand. The majority of east Pasco County residents outmigrate even when beds are available at East Pasco. There is an excess capacity in the Subdistrict and in the District. Second, East Pasco's application discusses seasonal overcrowding due, in large part, to using in-patient beds for "observation" patients. Observation patients are those with a hospital stay of less than 24 hours. East Pasco has recently completed a new 10-bed observation unit. In 1991, East Pasco averaged observation patients per day; therefore, this new 10-bed unit will ease the strain on East Pasco's in-patient beds. Third, East Pasco's application relies on the "overflow" of patients in the winter season to justify its proposed bed addition. The actual amount of "overflow" is reflected in East Pasco's transfer log, which shows that there were not that many patients transferred in 1991. In fact, there were several months in which there were zero transfers. Fourth, the proposed beds are only intended to handle "seasonal" population demands. The proposed unit would not be open year-round. East Pasco was below 75 percent occupancy from May to October, 1991. East Pasco acknowledges that the proposed beds are only for part of the year and are intended to accommodate the demands of the seasonal population, who are not necessarily residents of the Subdistrict. East Pasco's application in reality requests approval for adding 24 beds at a cost of over $4,000,000 to accommodate, by East Pasco's own projections, an average daily census of three patients the first year and five patients the second year in a unit that would be closed at least six months out of each year. That is an excessive expenditure to provide access to relatively few people, where access to nearby facilities exists. Although East Pasco has shown that on certain days it has exceeded its OB capacity, and although East Pasco maintains that its most common capacity problem is the lack of available ICU beds, East Pasco's application itself does not suggest that it intends to increase the number of OB or ICU beds. Further, although on certain days East Pasco has experienced over 100 percent occupancy and has placed patients in the hallways, that situation can be obviated by referring patients to other hospitals, and the situation will be alleviated when East Pasco soon opens its additional 10-bed observation unit and 11-bed SNU. East Pasco has, therefore, shown that it has an occupancy rate sufficient to entitle it to review despite the lack of need under the acute care bed Rule, but it has shown no other reasons why its application should be approved. The Florida State Health Plan includes various preferences for reviewing CON applications. On balance, the East Pasco application is not consistent with that Plan. The first group of preferences relates to the addition of hospital beds. The first item in that group provides that no additional beds should generally be approved unless the subdistrict occupancy is at or exceeds 75 percent or unless the applicant-facility is at 80 percent. Since calendar year 1990 data was used to calculate the need formula and Subdistrict occupancy standard, it is appropriate to use that same data to determine East Pasco's occupancy for evaluating this preference, rather than using two different time periods as the Agency did. In 1990, the Subdistrict was below 75 percent, and East Pasco's occupancy was below 80 percent. Therefore, this preference is not met. The second item under this group provides that "in the event that acute care bed need is shown", preference shall be given to an applicant who provides a disproportionate share of Medicaid and indigent services in the Subdistrict. This preference is not met since no "acute care bed need is shown". The next group of preferences is entitled "transfer and conversion of acute care beds". Because East Pasco does not propose to transfer or convert acute care beds, East Pasco does not satisfy any of the preferences included under this grouping. The next group of preferences is entitled "indigent care". The first item provides that preference shall be given to an applicant who provides a disproportionate share of Medicaid and charity care in relation to other hospitals in the District or Subdistrict. This preference is not met. Although East Pasco has historically provided more Medicaid and indigent care than Humana, there is no showing that East Pasco will provide disproportionately more Medicaid and indigent care for medical-surgical services specifically. Most of East Pasco's Medicaid participation is for OB and newborn services, not medical- surgical services. Both Humana and East Pasco provide less than 1 percent of their gross revenues for indigent care. Given that most of the Subdistrict population is elderly, indigent care is not a major issue. Also, it was stipulated that East Pasco does not know how much indigent care it provides for medical-surgical services only. The second item under this group relates to whether CON approval would negatively affect the financial viability of a disproportionate share hospital. This preference is not relevant to East Pasco's application. The third group of preferences is entitled "emergency services". The first item relates to the applicant's record of accepting indigent patients for emergency care. East Pasco presented no information on this in its application except for its proof that it has a contractual obligation to do so. The second item relates to whether the facility/applicant is a trauma center. East Pasco is not a designated trauma center. The third item relates to whether the applicant demonstrates a full range of emergency services. East Pasco did not address this in its application. The fourth item addresses whether the facility has ever been fined by HRS for violations of emergency services statutes. East Pasco did not address this item in its application. Therefore, East Pasco does not meet the preferences in this group. The fourth group of preferences is entitled "teaching, research, and referral hospitals". The application does not address these particular preferences, and East Pasco does not hold itself out as a teaching, research or referral hospital. Therefore, East Pasco does not satisfy the items under this grouping. The fifth group of preferences is entitled "specialized services". East Pasco does not propose to provide any specialized services and, therefore, items under this grouping are not satisfied. The District 5 Local Health Plan includes recommendations for reviewing CON applications. On balance, the East Pasco application does not satisfy that plan. The first preference relates to whether the applicant provides a disproportionate share of Medicaid and charity care. For the reasons indicated above regarding the State Health Plan, this preference is not met. Further, East Pasco's application does not suggest that the 24 medical-surgical beds sought will enhance its Medicaid or indigent participation. The second recommendation provides that "if a numeric bed need exists as shown by the state bed methodology", preference is given to an applicant who has generated certain occupancy levels. Because no numeric bed need was shown per the Rule methodology, this recommendation is not met. The third recommendation relates to the transfer of existing acute care beds. Because East Pasco does not propose a transfer of beds, its application is not consistent with this recommendation. The fourth recommendation gives preference to applicants who document the cost-effectiveness and efficiency of their project. East Pasco does not satisfy this preference. East Pasco failed to show any cost efficiencies for its project. East Pasco proposes to spend over $4 million to serve, on the average, 3 to 5 patients per day in years 1 and 2. That is cost-inefficient. East Pasco did not prove that the charges or costs of providing medical-surgical services would be any less than what it currently charges. East Pasco's application includes two pro formas: a hospital-wide pro forma and an incremental pro forma for the proposed 24-bed unit. The person who prepared those pro formas did not testify, and the person who did testify did not participate in preparing the pro formas. Further, the witness only testified to the reasonableness of the incremental pro forma; he did not testify, directly or indirectly, regarding the hospital-wide pro forma. An incremental pro forma alone does not demonstrate long-term financial feasibility, even if the incremental pro forma were reasonable. An incremental pro forma alone does not reflect the project as a whole. At East Pasco, there are several projects and activities on-going or planned that must be evaluated. In addition to the existing 85 beds, East Pasco has underway: (1) opening a 10-bed observation unit; (2) opening an 11-bed SNU; (3) a planned wellness center on the first floor of the proposed 3-story tower; and (4) the planned relocation and enlargement of its ICU to the second floor of the proposed tower. Those projects add expenses, put strains on cash, and require debt. Without considering all the activity at the hospital, one cannot reasonably ascertain whether the proposed $4.1 Million third-floor project is financially feasible. For example, a small project could show an incremental profit but the hospital as a whole could lose money. East Pasco simply assumes that its 24-bed unit will be financially feasible in 1994 and 1995, years 1 and 2 of the project. The health care field is too dynamic and volatile for such assumptions. For example, East Pasco had an operating loss in 1990 but did well in 1991. By not analyzing the hospital-wide pro forma and proving its reasonableness, East Pasco did not show the required financial feasibility. It only demonstrated the results of one component of an entire operation. East Pasco has left unanswered the question of whether the facility as a whole will be able to finance this project in conjunction with all its other requirements. Further, the application lacked sufficient and clear presentation of the assumptions underlying the hospital-wide pro forma. Restated, the hospital-wide pro forma is not self-explanatory. The incremental pro forma, showing the proposed revenues and expenses for the 24-bed medical-surgical unit for years 1994 and 1995, is not reasonable. The projected revenues are overstated, and the projected expenses are understated. The assumptions underlying the financial projections are unreasonable. Further, the profit projections are unrealistic; in year two, East Pasco projects a profit of about $615,000 on an average daily census of less than 5 patients per day. On its face, that is unrealistic. In 1991, East Pasco generated 24,517 patient days, which was virtually the same as its 1990 utilization. In 1993, East Pasco projects 26,220 days. In year 1 of this project (1994), East Pasco projects 27,262 days hospital-wide, including the 1,042 incremental days associated with this project. Thus, in just a 3-year period, East Pasco projects almost 3,000 additional patient days, and even more for year 2 (1995). It is not reasonable to assume such an increase in utilization since utilization during the first quarter of 1992 declined from first quarter 1991. Therefore, patient day projections are overstated, thereby causing overstated projected gross revenue. East Pasco's projected daily charge is based on the hospital-wide average charge. It is not based on historical charges for medical-surgical services specifically. It is unreasonable to use charges for hospital services as a whole when the proposed project is for medical-surgical services only. Because the underlying assumption is invalid, projected revenues lack credibility. In calculating deductions from gross revenues, East Pasco assumed the hospital-wide payor mix and did not specifically ascertain the payor mix (and, therefore, the deductions) for medical-surgical services specifically. Again, this is an unreasonable assumption. Deductions from gross revenue should have been analyzed for medical-surgical services specifically. Due to the invalid assumption, the deductions from revenue figures lack credibility. East Pasco projects 5.8 FTEs for year 1 and 6.0 FTEs for year 2. East Pasco proposes to operate the 24-bed unit as an independent unit. These staffing levels are insufficient. East Pasco's proposed utilization equates to a 4.8 average daily census, which requires two nurses at all times. By East Pasco's admission, to staff a unit with two persons at all times throughout the year requires 9.2 paid nursing FTEs in addition to ward clerks and other support personnel. If the volume fluctuated and the census exceeded 7 or 8, more than two nurses would be needed. Thus, the 5.8 and the 6.0 FTE numbers are too low. The proposed staffing does not allow one RN to be on the floor at all times. To maintain one RN on the floor at all times throughout the year requires 4.2 FTEs; East Pasco budgeted for one. East Pasco does not have excess RNs available from its existing staff to cover the proposed addition. The supplies expense shown on the incremental pro forma was based on a hospital-wide average. The proposed project is for a specific service, and one cannot reasonably use a hospital-wide average instead. Accordingly, the calculation of expense for supplies is not reasonable. The pro forma includes an expense item entitled "other". East Pasco offered no explanation for that expense. Also, the pro forma did not include a line-item for the HCCCB indigent care tax, which is 1.5 percent of net revenue. East Pasco's proposed 24-bed medical-surgical unit will cover 13,000 GSF and will cost more than $4.1 million. All rooms will be private. The unit will have three nurse stations. According to East Pasco, the unit is to be a basic medical-surgical floor and is not intended to be a progressive care unit (PCU). This proposed design is not reasonable and is excessively large by at least 30 percent. This design is inefficient and, in reality, is not the design of a basic medical-surgical unit, but is instead the design of a PCU. There are three main reasons why the design is excessive. First, it is not necessary or reasonable to have all private rooms. A regular medical- surgical unit should have about an equal split of semi-private rooms. Notably, East Pasco's new 11-bed SNU has 5 private and 3 semi-private rooms for patients who will require hospitalization for up to 90 days. Second, these private rooms are almost twice the minimum size required by state licensure regulations. Third, three nurse stations are unnecessary; only one nurse station is needed for a basic 24-bed medial-surgical unit. East Pasco currently has 68 medical- surgical beds on 2 units, and each such unit has only 1 nurse station. The existing 68 medical-surgical beds at East Pasco average about 360 GSF per bed. The proposed 24 beds will average 542 GSF per bed. All private rooms and 3 nurse stations are, clearly, the design for a PCU. A PCU is a step- down unit from an ICU, which has high staff-to-patient ratios thereby requiring more nurse stations. East Pasco's projected construction cost for the 24-bed medical- surgical unit is $142.91 per GSF. This is unreasonably understated. It is uncontroverted that an SNU is less costly to construct than a medical-surgical unit. According to its projections, East Pasco's 11-bed SNU cost $171 per GSF in 1992. Clearly, that SNU cost is substantially greater than East Pasco's projected construction cost at issue. This inconsistency was never explained by competent evidence. In evaluating East Pasco's estimates, the Agency's architect relied upon 1991 Means construction cost data. He averaged the Means' medium figure ($123 per GSF) with the high figure ($172 per GSF) to derive a 1991 estimate of $147.50 per GSF. To that, one must add a 10 percent contingency factor, inflation, and an architectural fee. That totals $187.69 per GSF. The $187.69 projected figure is consistent with the 1992 SNU cost figure of $171. Thus, for construction costs alone, East Pasco underestimated by $44.77 per square foot, which is about $582,000. East Pasco proposed to construct a three-story tower; the third floor will house the proposed 24 medical-surgical beds. The second floor will house a 16-bed ICU, comprised of relocating the existing 8 ICU beds and converting 8 other acute care beds. East Pasco's application project costs only cover the third floor; East Pasco maintains the second floor is exempt from CON review and thus its cost is not relevant. As described below, East Pasco unreasonably failed to include costs of the second floor in its application. A hospital project costing $1,000,000 or more (other than an out- patient project) requires CON review. In its letter for exemption East Pasco states that the second floor would contain 12 ICU beds and cost $975,000 (calculated by multiplying 6,500 GSF by $150/foot). That letter is erroneous for several reasons: (1) the $150/foot is in 1992 dollars and does not include inflation; (2) the $150/foot does not include a 10 percent construction contingency fee, which is necessary and reasonable; (3) the $150/foot does not include an 8.4 percent architectural/engineering fee, which is necessary and reasonable; and (4) the $150/foot does not include any debt or financing fee. Including these necessary amounts alone shows that the second floor, in truth, exceeds the $1,000,000 threshold. Also, the cost for equipping an ICU bed is $45,000 per bed; for 16 beds, that is $720,000 for equipment. Surely the size and cost of a 16-bed ICU is different from and greater than a 12-bed ICU. East Pasco stated in its exemption request letter that the second floor would have 12 beds even though East Pasco intends 16 beds. East Pasco and the Agency correctly argue that the exemption given to East Pasco by the Agency for its second-floor ICU project is not part of the instant application and cannot be considered in this proceeding. However, the accuracy and reasonableness of the costs projected by East Pasco attendant to the 24 additional beds it seeks are an integral part of this proceeding, as is the scope of the project being reviewed and challenged. The second and third floor projects are, in truth, one project. It is East Pasco's intention to add 16 medical-surgical beds and 8 ICU beds to its facility. To establish the 16-bed ICU unit, East Pasco needs additional acute care beds; East Pasco does not have 8 available beds among its existing bed complement to convert to ICU purposes. The OB beds often run at 100 percent occupancy and, during the peak season, the medical-surgical beds run high occupancy. Thus, East Pasco cannot fully implement the second floor without approval of the proposed 24 new beds. There will be no community benefits in terms of charges if this application is approved. "Net revenues" must be the basis for comparing charges between facilities. Net revenues refers to what third party payors (such as Medicare, Medicaid, HMO/PPOs and most insurors) actually pay for hospital services as opposed to what hospitals charge. Few patients ever pay gross charges, particularly in the elderly East Pasco Subdistrict. In 1991, Humana's average net revenue per day was lower than East Pasco's. Humana's actual net revenue per admission in its fiscal year 1992 was $4,180. East Pasco's projected 1992 net revenue per admission is $5,301. Thus, for 1992, third party payors paid, on behalf of their patients, less per admission at Humana than at East Pasco. In its application, East Pasco projects an 8 percent per year increase in charges. An annual increase of 8 percent is not promoting charge-efficiency. East Pasco's application did not demonstrate cost-efficiencies resulting from approval, but rather, cost-inefficiencies. First, Humana would lose patient volume should East Pasco be approved. Humana currently receives transfers and direct admissions when East Pasco is full. Loss of patient volume would increase operating costs per patient day at Humana. Second, there is no need for additional beds in the Subdistrict. There is already excess capacity in the Subdistrict. Exacerbating excess capacity promotes cost-inefficiency. East Pasco admits the unit will not even be open six months out of the year because there is no need for it then. Third, East Pasco projects very low census in years 1 and 2, about 3 patients per day in year 1 and less than 5 patients per day in year 2. Spending over $4,000,000 to accommodate such low utilization is inefficient and unreasonable. Approval of East Pasco's application would not promote positive competition. There is competition now in the Subdistrict between Humana and East Pasco. East Pasco already captures a larger market share of the Subdistrict than Humana. Approving this application would only tip the scales more in favor of East Pasco and would adversely impact Humana's already poor financial condition. The quality of care delivered at Humana is very good. The JCAHO rates all acute care hospitals, and its rating is widely recognized in the hospital industry. The JCAHO evaluates many factors and components of a hospital. Humana is accredited "with commendation", the highest rating given. Only 5-6 percent of all acute care hospital in the country receive that highest ranking. Humana maintains a good utilization management program. Humana implements an excellent quality improvement plan, including soliciting and reviewing patient satisfaction comments. Mortality statistics cannot, by themselves, meaningfully measure the quality of care delivered at a hospital. Although the Health Care Finance Administration (HCFA) produces such a report for Medicare patients, the report itself represents that it is not intended to measure quality of care, and the American Hospital Association does not view HCFA mortality statistics as a measure of quality of care. There are many factors which influence mortality statistics at a hospital and, even more importantly, mortality is only one clinical outcome resulting from a hospital admission. When East Pasco is full, there is no medical problem or complication resulting from transferring patients to Humana or from directly admitting patients at Humana. There is no diminution of care or loss of continuity of care in transferring to or directly admitting to Humana. Emergency medical services are available in the Subdistrict, and, therefore, transfer is not a problem. Also, driving to Humana or to a hospital outside the Subdistrict is neither a problem nor an unusual circumstance. The large seasonal population drive to Florida in the winter, and, therefore, it is a mobile patient population. Most of its residents seeking hospital services receive them outside the Subdistrict. Subdistrict residents currently leave the Subdistrict to receive a variety of hospital services, including: in-patient cardiac cath, open heart surgery, Level II NICU, psychiatric services, substance abuse services, and comprehensive rehabilitation services. Thus, there is no merit to the suggestion that transferring patients from East Pasco to Humana or elsewhere is problematic. There would not be community benefits regarding Medicaid/indigent care by approving this application. As indicated, for all hospital services, Humana and East Pasco provide similar amounts of Medicaid and indigent care, although indigent care at both facilities is relatively insignificant. Therefore, access to Medicaid and indigent care does not provide a basis for approving East Pasco's application. Also, East Pasco's payor mix in its application was based on hospital-wide averages. East Pasco has not shown the amount of Medicaid or indigent care which would be specifically provided to, or which is needed for, medical-surgical patients. Finally, East Pasco's Policy and Procedure Manual includes several provisions requiring deposits upon in-patient admission absent verification of third party payor coverage. Such provisions are inconsistent with the proposition that East Pasco accepts all patients regardless of ability to pay. In Florida, an application for a CON must include a certified copy of an authorizing resolution of the applicant's Board of Directors. East Pasco included its corporate resolution in its CON application, that resolution being adopted at an August 14, 1991, meeting. That resolution clearly states, among other things, authorization to file an application for up to 24 additional acute care beds. The minutes of that meeting clearly reflect the Board's approval for 24 beds for ICU and PCU. The application itself requests approval of 24 medical-surgical beds. PCU, ICU, and medical-surgical beds are all types of acute care beds. Accordingly, East Pasco did file a proper corporate resolution consistent with the minutes and consistent with the application. The minutes and the application, however, are inconsistent. Although the corporation resolution is technically correct and fulfills the requirements for a CON application, the inconsistency among the corporate resolution, the minutes, and the application raised questions about the actual intent of East Pasco. The intent became more questionable during the final hearing when East Pasco's witnesses contradicted each other as to the number of beds to be placed in the to-be-constructed ICU on the second floor of the to-be-constructed 3-story tower. It is clear that the Agency only approved the construction of a 12-bed ICU on the second floor. It is also clear that East Pasco in fact intends to construct a 16-bed ICU on that second floor. It is also clear that East Pasco intends to construct a "medical-surgical" unit on the third floor in accordance with a design for a PCU. While the corporate resolution technically complies with the requirements for a CON application, the questionable nature of its accuracy, when considered in conjunction with the conflicting evidence of the scope of this project, raises concern as to East Pasco's projections regarding revenue, expenses, staffing, and the actual services to be made available in the Subdistrict. The lack of clarity as to East Pasco's proposal is a compelling reason to deny East Pasco's application. East Pasco's occupancy rate is quite high. It is higher even during the "peak season," i.e., November through April. The projections contained in East Pasco's application are based upon the historic high occupancy rate experienced at East Pasco. Those projections, however, do not take into account, nor did the Agency consider in reviewing East Pasco's application, the fact that East Pasco now has more than the 85 beds which formed the basis for its historic occupancy rate and its projections related to this project. Construction has been completed on the 10-bed observation unit and the 11-bed SNU. East Pasco already has an expanded capacity in place which should alleviate some of its occupancy problems. For example, East Pasco has experienced an increased number of out-patient observation days. With its new observation unit, the beds previously used for observation days are now available for in-patients which, in turn, will likely alleviate East Pasco's most common capacity problem-the lack of available ICU beds. Similarly, the SNU beds will also be available for in-patients.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered denying East Pasco's application for Certificate of Need No. 6783. DONE and ENTERED this 9th day of February, 1993, at Tallahassee, Florida. LINDA M. RIGOT 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 9th day of February, 1993. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 92-1497 Petitioner's proposed findings of fact numbered 1-32, 34-82, and 84-96 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 83 has been rejected as being unnecessary for determination of the issues herein. Petitioner's proposed findings of fact numbered 33 and 97 have been rejected as not constituting findings of fact but rather as constituting recitation of the testimony, argument of counsel, or conclusions of law. The Agency's proposed findings of fact numbered 2-6, 8, 13, 14, 27, 28, 31-33, 37, 40, 41, 43, 44, 47, 49, 51, and 90 have been adopted either verbatim or in substance in this Recommended Order. The Agency's proposed findings of fact numbered 20, 21, 34, 45, 52, 54, 56-58, 68, 71, 73, 82, and 89 have been rejected as being unnecessary for determination of the issues herein. The Agency's proposed finding of fact numbered 1 has been rejected as not constituting a finding of fact but rather as constituting recitation of the testimony, argument of counsel, or a conclusion of law. The Agency's proposed findings of fact numbered 7, 9, 19, 26, 48, 59, 61, 62, and 64 have been rejected as being irrelevant to the issues under consideration herein. The Agency's proposed finding of fact numbered 46 has been rejected as being subordinate to the issues involved in this proceeding. The Agency's proposed findings of fact numbered 10-12, 15-18, 22-25, 29, 30, 35, 36, 38, 39, 42, 50, 53, 55, 60, 63, 65-67, 69, 70, 72, 74-81, 83-88, and 91-93 have been rejected as not being supported by the weight of the credible, competent evidence in this cause. East Pasco's proposed findings of fact numbered 1-3, 5-7, 10, 13, 16- 18, 20, 22-24, 37, 38, 40, 45, 46, 48, 62, 63, 66-69, 73, 78, 79, 81, 82, 85, 89, 118, 119, 131, 135, 140, 174, 178-180, and 192 have been adopted either verbatim or in substance in this Recommended Order. East Pasco's proposed findings of fact numbered 15, 25, 26, 55, 56, 70, 83, 90, 92, 94, 95, 100, 121, 127-129, 145, 146, 163, 164, 171-173, 176, 177, 184-189, 191, and 194 have been rejected as being unnecessary for determination of the issues herein. East Pasco's proposed findings of fact numbered 19, 87, and 88 have been rejected as not constituting findings of fact but rather as constituting recitation of the testimony, argument of counsel, or conclusions of law. East Pasco's proposed findings of fact numbered 4, 8, 9, 11, 12, 14, 21, 30, 31, 33-36, 39, 41, 51, 61, 86, 96-98, 102, 103, 105, and 154 have been rejected as being irrelevant to the issues under consideration herein. East Pasco's proposed finding of fact numbered 84 has been rejected as being subordinate to the issues involved in this proceeding. East Pasco's proposed findings of fact numbered 27-29, 32, 42-44, 47, 49, 50, 52-54, 57-60, 64, 65, 71, 72, 74-77, 80, 91, 93, 99, 101, 104, 106-117, 120, 122-126, 130, 132-134, 136-139, 141-144, 147-153, 155-162, 165-170, 175, 181-183, 190, and 193 have been rejected as not being supported by the weight of the credible, competent evidence in this cause. COPIES FURNISHED: Edward G. Labrador, Esquire Agency for Health Care Administration 2727 Mahan Drive, Suite 103 Tallahassee, Florida 32308 James C. Hauser, Esquire Messer, Vickers, Caparello, Madsen, Lewis, Goldman & Metz Post Office Box 1876 Tallahassee, Florida 32302-1876 Darrell White, Esquire William Wiley, Esquire McFarlain, Wiley, Cassedy & Jones 215 South Monroe Street Suite 600 Tallahassee, Florida 32301 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303
Findings Of Fact Introduction Tampa General Hospital is a 530-bed short-term general acute care hospital. Hillsborough County Hospital is a 157 bed-general acute-care hospital. Both are divisions of Hillsborough County Hospital Authority, a public hospital system located in Tampa, Florida. T. 25; Hearing Officer Ex. 1. Tampa General Hospital and Hillsborough County Hospital filed timely petitions for formal administrative hearings, and have standing to seek such hearings. Tampa General Hospital and Hillsborough County Hospital historically have provided high levels of uncompensated indigent care. T. 26. If Tampa General Hospital prevails on the RPICC issue and the sales tax issue, it will be due a total of $4,713,108, subject to a final adjustment factor. Hearing Officer Ex. 1, ex. C-4. If Tampa General Hospital prevails only upon the RPICC issue as reported in its April 23, 1987, correction to its fiscal year 1986 actual report, it will be due a total redistribution of $3,806,371, subject to the final adjustment factor. Hearing Officer Ex. 1, ex. C-1. If Tampa General Hospital prevails only upon the sales tax issue, by comparison of exhibits C-1 and C-4 to Hearing Officer Ex. 1, the total redistribution due will be increased by the difference between the two amounts in the last two paragraphs, or by $906,737. The Hospital Cost Containment Board's proposed agency action is contrary to the position urged by Tampa General Hospital on the two issues, and the proposed agency action would result in a total distribution of $3,015,907, subject to the final adjustment factor. T. 29; Hearing Officer Ex. 1, ex. C-5. If Hillsborough County Hospital prevails on the single issue that pertains to it, the sales tax issue, its total redistribution will be $315,543, subject to the final adjustment factor. Hearing Officer Ex, 1, ex. D-2. The preliminary determination of the Hospital Cost Containment Board is that Hillsborough County Hospital should receive $247,883 as a total redistribution, subject to the final adjustment factor. Hearing Officer Ex. 1, ex. D-1. Relevant definitions from the FBURS manual Account 5940, "contractual adjustments-other," of the FHURS manual, providers in part that: These accounts must be used to report the differential (if any) between the amount, based on the hospital's full established rates, of contractual patients' charges for hospital services which are rendered during the reporting period and are covered by the contract, and the amount received and to be received from third-party agencies in payment of such charges, including adjustments made at year end, based upon cost reports submitted. * * * In any instance in which the difference between the amount of a patients' [sic] bill and the payment received by the hospital from a third-party agency is recoverable from the patient, any resulting uncollected amounts should be reported in the appropriate bad debt or uncompensated care category and should not be reported in contractual adjustments. (E.S.) Account 5960, "charity/uncompensated care-other," of the FHURS manual, provides in part that: Account 5960 shall be used to report the differential between the amount, based on the hospital's full established rates, of bills for hospital services to charity/ uncompensated care patients and the amounts to be received from patients or on behalf of patients (including amounts received from voluntary agencies or government agencies on behalf of specific indigent patients) in payment for such services. (E.S.) Account 5960 further requires that the hospital have a verifiable process for determining indigency for each individual patient. Indigency is defined generally as a family income for the preceding 12 months less than 150 percent of the federal poverty guidelines. The instructions for account 5960 further provide that: When the hospital receives lump-sum grants or subsidies (rather than specific payments for individual patient's bills) from governmental or voluntary agencies for the care of medically indigent patients, the amount of the lump-sum grant or subsidy must be reported under "Restricted Donations and Grants for Indigent Care." (Account 5970). (E.S.) Account 5970, "Restricted Donations and Grants for Indigent Care," of the FHURS manual, provides: This account is used to report voluntary and governmental agency grants or subsidies for the care of non-specified medically indigent patients during the current reporting period. (E.S.) Account 9130, "Unrestricted Tax Revenue and Appropriated Funds," of the FHURS manual, provides: This account contains the revenue obtained from assignment of unrestricted tax revenue and funds appropriated by governmental entities. The RPICC issue, Tampa General Hospital The April 23, 1987, revision to Tampa General Hospital's 1986 actual report Tampa General Hospital's fiscal year ends on September 30th. On January 29, 1987, Tampa General Hospital filed its prior year report of its fiscal year 1986 actual experience. P. Ex. 2. As originally filed, Tampa General Hospital reported the following on worksheet C-2: $14,466,596 on line 11 as contractual adjustments-other; nothing on line 13, charity/uncompensated care-other; and ($2,633,338) on line 14, restricted donations and grants for indigent care. Id. Included in the amounts on line 11 of the report as a contractual adjustment-other were the total charges for all patients served by the RPICC program at Tampa General Hospital in fiscal year 1986, and included in line 14 as restricted donations and grants for indigent care were all the amounts received by Tampa General Hospital in fiscal year 1986 from the RPICC program. T. 38. Prior to July 1, 1987, the Hospital Cost Containment Board accepted corrections to prior year reports of actual experience. Dep. (James Bracher), p. 6. On about April 23, 1987, Tampa General Hospital filed a revision to worksheet C-2 of its 1986 report of actual experience. P. Ex. 3. The revision reported $2,067,928 on line 11 as contractual adjustments-other, $32,104,116 on line 13, charity/uncompensated care-other, and made no change to line 14. (A negative $2,633,338 was still reported on line 14 as restricted donations and grants for indigent care.) Id. The April 23, 1987, revision moved the RPICC charges from line 11, contractual adjustment-other, to line 13, charity/uncompensated care-other. There was no change to line 14 since Tampa General Hospital had already reported all amounts received from the RPICC program on line 14 as restricted donations and grants for indigent care. T. 39-40. The fortieth day from April 23, 1987, was June 2, 1987. In the 40 days that followed April 23, 1987, and including a reasonable time thereafter for filing of the April 23, 1987, revision, Tampa General Hospital was given no written notice by the Hospital Cost Containment Board that the April 23, 1987, revision to its fiscal year 1986 report did not conform to the Hospital Uniform Reporting System Manual requirements, or did not otherwise conform to rule or statute. T. 42; Dep. (James Bracher), p. 27. Such written notice was not given until October 28, 1987. James Bracher, Executive Director to the Hospital Cost Containment Board, testified that it was his "understanding" that "we did discuss the possibility with the hospital of having, conducting a site visit to review this information." Dep. (James Bracher), p. 19. But on cross examination, Mr. Bracher qualified the implications of that statement. He was asked: "You earlier testified about some discussions with unnamed hospital people about a site visit on the RPICC issue. When did those discussions occur?" Mr. Bracher testified: "I don't recall that I said I discussed with them. I think I said I discussed with HCCB staff about the need to make site visits as a result of the April submission by Tampa General." (E.S.) Id. at pp. 51-52. The examination continued: Q. So you're not aware of any discussions between staff and the hospital? A. I did not participate in any direct discussions, no. Q. And you're not aware of any? A. I could not give you a date on any specific ones. The only other witness who testified as to oral communications to Tampa General Hospital concerning the issues in dispute in this case was Bill Summers. Mr. Summers was under going examination only with respect to the sales tax issue, not with respect to the RPICC issue. T. 181. Mr. Summers was asked "[W]hat did you do before October 13th, in reviewing this issue. Anything?" He answered in pertinent part: "I made a visit to the facility and reviewed their patient accounting records, in terms of determining medical indigency. I have had numerous conversations with hospital personnel, Mr. Powers, and others." T. 182. In summary, the testimony of Mr. Summers did not clearly pertain to either the April 23, 1987, revision or the RPICC issue. Thus, even if there had been visits or discussions with Tampa General Hospital, there is no evidence that the position of the Hospital Cost Containment Board concerning the RPICC issue was orally conveyed to Tampa General Hospital. Moreover, Mr. Summers provided no dates of such visits or discussions. On this record, one cannot determine if the visits and discussions occurred near the October 13, 1987, the end date used in the question, or in the 40 days following April 23, 1987. Similarly, Mr. Bracher's testimony is insufficient to determine when the Hospital Cost Containment Board orally notified Tampa General Hospital that the April 23, 1987, revision was nonconforming, or, indeed, that such notification in fact did occur. Consequently, there is no credible evidence to infer that within forty days after April 23, 1987, the Hospital Cost Containment Board orally notified Tampa General Hospital that its April 23, 1987, revision was nonconforming. On July 17, 1987, the Hospital Cost Containment Board determined the amount of redistribution due Tampa General Hospital pursuant to section 12, chapter 87-92, Laws of Florida, and advised Tampa General Hospital of its decision by a memorandum of that date. P. Ex. 4. The memorandum states that the redistribution has been determined "based on 1986 actual audited data." The redistribution formula attached to the first page of the memorandum shows the redistribution calculation. One factor accepted by the Hospital Cost Containment Board for its determination of redistribution was the amount of charity care ($32,104,116) contained in Tampa General Hospital's April 23, 1987, revision to its 1986 actual audited data. Id.; T. 40-41. Thus, the initial calculation of redistribution by the Hospital Cost Containment Board was based upon the accounting classifications contained in the April 23, 1987, revision to Tampa General Hospital's 1986 actual report. As a general policy, if, after July 1, 1987, a hospital did not attempt to correct its fiscal year 1986 actual report, the redistribution to that hospital would have been calculated upon the prior actual report of the hospital. T. 174-76. In the case of Tampa General Hospital, however, the magnitude of the change prior to July 1, 1987, was the reason that at some time after July 17, 1987, the staff of the Hospital Cost Containment Board decided to subject the change to scrutiny. The prior year report of actual experience contains two parts. The first is a detailed report containing worksheets and must be prepared pursuant to the uniform financial accounting system of the FHURS manual. The first report is not certified by a certified public accountant. See e.g., P. Ex. 2. The second is a summary report certified by the hospital's certified public accountant. Worksheet C-2 is contained in the first report which is not certified by a certified public accountant. Dep. (James Bracher), p. 4-5; P. Ex. 2. The April 23, 1987, revision to the original 1986 prior year report filed by Tampa General Hospital on April 23, 1987, was only a revision to worksheet C-2, and thus was only a revision to the first detailed report. Consequently, the April 23, 1987, revision was a revision to a report that did not require certification by the hospital's certified public accountant. The Hospital Cost Containment Board has a policy that when a hospital requests that a correction be made to a prior year actual report, the staff of the Hospital Cost Containment Board asks the hospital to have the correction reviewed by its CPA firm to determine why the correction better conforms to the accounting definitions in the FHURS manual. This policy has been in existence for approximately one year preceding December 1987. Dep. (James Bracher), p. 6. The basis for the policy was not explained in the record. Certification by a CPA, however, is not deemed to be sufficiently reliable to result in automatic approval of the proposed change. Dep. (James Bracher), p. 7. The Hospital Cost Containment Board did not apply this policy to Tampa General Hospital until after forty days from the date the April 23, 1987, revision was filed. The policy was not applied until about August 3, 1987. On that date, Mr. Bracher sent a letter to Newell France, Tampa General Hospital's chief executive officer. The letter stated that "the revised worksheets for your 1986 actual report have been received." P. Ex. 6. At that point, the only "revised worksheets" for the 1986 actual report were the April 23, 1987, revisions. Mr. Bracher's letter stated that the revision had to be verified "by the independent auditor who originally prepared the audited financial report for the fiscal year in question." In response to the letter of August 23, 1987, from Mr. Bracher, by letter dated September 28, 1987, Tampa General Hospital filed a revised worksheet C-2 certified by Price Waterhouse, certified public accountants. Price Waterhouse was the independent certified auditor for Tampa General Hospital for fiscal year 1986. T. 89. The amount of a negative $2,633,338, as "restricted donations and grants for indigent care" on line 13 was the same on both the September 28, 1987, and April 23, 1987, revisions. As discussed above, this amount represented the receipts from the RPICC program in 1986. The amount of "charity/uncompensated care-other" reported on the September 28, 1987, worksheet C-2, line 13, changed to $11,457,248. P. Ex. 6. (It was $32,104,116 on the April 23, 1987, report.) Nonetheless, it is clear from the record that the amount of $11,457,248 on the September 28, 1987, revision contained the RPICC charges for 1986 as reported in the April 23, 1987, revision. First, the parties stipulated that exhibit C-3 to Hearing Officer Ex. 1 contained "Tampa General's 9/28/87 submission, which continues to include the RPICC classification." Exhibit C-2 contains $11,457,248 as "charity care," thus reconciling to the September 28, 1987, worksheet C-2. The amount of $11,457,248 of "charity care" could not "continue to include the RPICC classification" unless it contained the same report and classification of RPICC charges as was contained in the immediately preceding report, which was the April 23, 1987, revision. Moreover, having been given the opportunity to deny such continuity, witnesses for the Hospital Cost Containment Board seemed to agree that the September 28, 1987, revision did not change the amounts and classifications of RPICC charges and receipts from the April 23, 1987, revision. T. 200-201; Dep. (James Bracher), p. 64. As a part of the September 28, 1987, revision Price Waterhouse submitted a letter dated September 25, 1987, to Mr. Bracher that stated that it had been asked by Tampa General Hospital to "review the Hospital's original and amended HCCB 1986 Actual Report for its method of presenting deductions from revenue." (E.S.) P. Ex. 6. The letter appended to the September 28, 1987, revision from Price Waterhouse then explicitly states that "the $11,457,248 reclassified from Contractual Adjustments-Other to Charity/Uncompensated Care- Other is arithmetically accurate and represents a correction to the original submission in order to comply with the definitions contained in . . . the FHURS Manual definitions of account numbers 5940 and 5960." (E.S.) The letter from Price Waterhouse further states on page 2 that the RPICC reclassification relates to "unpaid portion of gross bills for services rendered to patients economically eligible for the RPICC grant funds," and demonstrates that this amount, which has been placed into the Charity/Uncompensated Care-Other category, is $6,141,002. In the same calculation, the review shows that Tampa General Hospital received $2,633,338, in RPICC grants in fiscal year 1986. P. Ex. 6. Upon consideration of findings of fact 24 through 27, it is further concluded that on September 28, 1987, Price Waterhouse, as certified public accountants, independently verified and approved the accounting classifications contained in the April 23, 1987, revision. b. The proper FHURS manual accounting classifications of RPICC charges and receipts: characteristics of the RPICC program The RPICC (Regional Perinatal Intensive Care Center) program is a state program administered by the Children's Medical Services (CMS) program office of the Department of Health and Rehabilitative Services. The program is established to provide state funding of services at designated hospitals for high risk pregnant women and infants. These patients typically have long (45 to 50 day) stays in the hospital. T. 29-30. RPICC funds are grant funds. P. Ex. 11; sections 383.17, 383.171, 383.18, and 383.19, Fla. Stat. (1987). RPICC funds do not constitute restricted or unrestricted revenues provided to a hospital by local governments or tax districts. Persons eligible for RPICC services must be indigent, and must be individually qualified. P. Ex. 11, attachment I; T. 75-77. The hospital has to maintain logs of specific patients in the RPICC program, and the patients have to meet certain criteria. Dep. (James Bracher), p. 44. The hospital must maintain detailed records containing information specific to each RPICC patient served. By statute, the procedures for disbursement of RPICC funds must be pursuant to and according to the terms of contracts. Sections 383.117, 383.18, and 383.19(3), Fla. Stat. (1987). These contractual agreements must provide "that parents or guardians of those patients who are financially eligible to participate in the RPICC program shall not be additionally charged for treatment and care which has been contracted for by the [Department of Health and Rehabilitative Services]." Section 383.18, Fla. Stat. (1987). Thus, no hospital bills may be sent to RPICC patients or to their guardians, and these persons may not be charged by the hospital. Tampa General Hospital did not send any bills to its RPICC patients, or to the guardians of those patients. By statute and by contract, a hospital that participates in the RPICC program must serve all patients eligible, regardless of-funding from HRS. T. 35. Tampa General Hospital entered into a contract with HRS to be a Regional Perinatal Intensive Care Center, and received RPICC funds during fiscal year 1986 pursuant to that contract. P. Ex. 11. By contract, Tampa General Hospital was promised what the contract called a "fixed price," subject to availability of state funds. P. Ex. 11. Contracts for administration of RPICC grants do not in effect have a fixed contract price, but provide instead a lump sum that is the maximum amount promised, to be paid according to the conditions of attachment I to the contract. P. Ex. 11, attachment I. Attachment I further provides that the "grant funds" specified in lump sum amount "will be disbursed and accounted for according to the approved RPICC neonatal care (NCG) payment system for hospital services . . . The "payment schedule" requires submission by the hospital of the "expenditure report" which is the form marked exhibit K, P. Ex. 11. Tampa General Hospital was by contract entitled to receive each month the lesser of the prorated portion of the grant or the "total expenditures" for that month. P. Ex. 11. The hospital is normally paid a fixed prorated share of the total grant amount each month. T. 31. The monthly payment does not fluctuate by numbers of patients seen in that month. T. 33-34, 80-81. The RPICC program does not make payments for specific services rendered to specific patients, and does not make payments for specific bills of patients, and thus is not like the Medicaid or Medicare programs, or an HMO contract. Dep. (James Bracher), pp. 47, 60. Instead, the RPICC program has a provision that if certain minimum levels of service are not reached, the total amount of funds will not be disbursed to the hospital. Id. Even when all RPICC funds are not "earned," the result is not patient-specific. Funds which are not earned must, pursuant to the RPICC contract, be paid back to HRS at the end of the year. T. 86; P. Ex. 11, attachment I, paragraph D.1.d. The hospital also has the option of having the shortfall applied to funds due in the next fiscal year. Dep. (James Bracher), pp. 48, 53. The RPICC program requires the submission of a cost report at the end of the year, but monthly payments are not made by cost reports. Dep. (James Bracher), p. 25; T. 32. Medicaid reimbursement is based on cost reports at the end of the fiscal year. T. 33. Under the RPICC program, there is no relationship between actual costs and payments made. Id. With Medicaid and Medicare, the more patients the hospital treats, the more money the hospital receives. The same is true for HMO contracts. Payment is thus made for services rendered to specific patients for these programs. Dep. (James Bracher), p. 47. This is not true in the RPICC program. Although Tampa General was obligated by law and its contract to serve all RPICC eligible patients, the maximum that it would be paid was the fixed price stated in its contract. Tampa General Hospital applied the payments it received from HRS in the RPICC program to its general ledger accounts, not to specific patient accounts. T. 120. A grant may have a contract involved for administration of the grant. Dep. (James Bracher), pp. 44, 46. It is not unusual for a governmental agency that administers a grant program to require the recipient of the grant to substantiate that it used the grant for the purposes intended by the grant program. T. 122. Tampa General Hospital's charges associated with RPICC patients have historically far exceeded the state funding of this program. T. 81; P. Ex. 12. In fiscal year 1986, RPICC charges at Tampa General Hospital were $10,067,448, and Tampa General Hospital received only $2,633,338 in RPICC payments. T. 34; Ex. 12. Tampa General Hospital thus has never had to return overpayments due to unearned funds. The sales tax issue Introduction Pursuant to chapters 84-373 and 85-555, Laws of Florida, Hillsborough County was authorized to enact a 1/4 cent sales tax, the proceeds of which could be allocated to health care providers for certified indigent patients who were residents of the county. Pursuant to this authority, Hillsborough County enacted ordinance 85-2, levying a tax from April 1, 1985, through March 31, 1987. P. Ex. 14. In fiscal year 1986, Hillsborough County Hospital and Tampa General Hospital received funds from this 1/4 cent sales tax. The funds were appropriated to the Hillsborough County Hospital Authority for allocation to both hospitals. Revisions submitted by Hillsborough County Hospital. Hillsborough County Hospital submitted its fiscal year 1986 report of actual experience on January 29, 1987. P. Ex. 22. On worksheet C-2 of that report, Hillsborough County Hospital reported the difference between patient charges and funds received on line 7, bad debts, (FHURS account 5900). T. 52. On about June 9, 1987, Hillsborough County Hospital filed a revision to its fiscal year 1986 report, changing the manner in which the sales tax charges and receipts were accounted on worksheet C-2 of the original prior year report. P. Ex. 23; T. 52. The revision still reported the charges for services provided with sales tax funds on line 7, provision for bad debts, but did not deduct the receipts associated with those services as reported in the original fiscal year 1986 report. Instead, receipts of $647,543 were classified as "unrestricted tax revenue and appropriated funds," FHURS account 9130 (line 39a, worksheet C-4) and were moved to worksheet line 29, non-operating revenue. T. 52. As a result, both lines 7 and 29 increased by $647,543 on the revised worksheet C-2. 55. The June 9, 1987, revision by Hillsborough County Hospital was accompanied by a certification by Price Waterhouse, certified public accountants, verifying the changes in classifications of sales tax patient charges and receipts on worksheet C-2 for Hillsborough County Hospital. P. Ex. Although the verification was submitted by Price Waterhouse in connection with a main penalty issue, the verification concerned only the June 9, 1987, revision as an amendment to the fiscal year 1986 actual report. The verification pertained to the amended report, which itself has multiple uses, including the redistribution at issue in this case. In sum, the verification was not limited to main penalty issues. The Price Waterhouse verification of June 9, 1987, stated that the sales tax funds received by Hillsborough County Hospital were from the special county sales tax that had been appropriated to the Hillsborough County Hospital Authority, and then allocated among both Hillsborough County Hospital and Tampa General Hospital. On June 30, 1987, counsel for Hillsborough County Hospital sent to counsel for the Hospital Cost Containment Board a letter with numerous attachments. P. Ex. 14. The letter was sent in connection with the main penalty issue concerning Hillsborough County Hospital, but generally addressed the sales tax issue from the perspective of the Hillsborough County Hospital Authority, and expressly mentioned both Hillsborough County Hospital and Tampa General Hospital. The documents were received by the Hospital Cost Containment Board shortly after June 30, 1987. Hillsborough County Hospital filed two revisions to worksheet C-2 after June 9, 1987. P. Exs. 25 and 26. Both revisions were filed by Hillsborough County Hospital at the request of staff of the Hospital Cost Containment Board and both contained accounting classifications for the sales tax issue with which Hillsborough County Hospital then disagreed. The September 28, 1987, revision as to the sales tax issue was filed under protest. P. Ex. Likewise, the revision of October 12, 1987, was filed under protest. P. Ex. 26. As to the sales tax issue, neither revision is a revision adopted by, or a revision of, Hillsborough County Hospital. When the September 28, 1987, revision was filed under protest, Price Waterhouse did not renew its verification of the sales tax accounting because the September 28, 1987, submission was incorrect, in its opinion, and because Price Waterhouse believed the June 9, 1987, submission to be correct. P. Ex. 25; T. 91-95. Price Waterhouse has not verified the accounting methods for the sales tax funds in the October 12, 1987, revision, and did not testify during the hearing that those methods are correct. Thus, the Price Waterhouse verification of June 9, 1987, of the classification of sales tax charges and receipts has never changed and remains as the verification of the June 9, 1987, revision relevant to this case. By letter dated October 28, 1987, the Hospital Cost Containment Board notified Hillsborough County Hospital that it rejected Hillsborough County Hospital's method of accounting for sales tax receipts. The letter stated that the FHURS manual required that the difference between indigent patient charges and sales tax receipts be reported as charity/uncompensated care-other, FHURS account 5960. P. Ex. 27. There remains the question of when did the Hospital Cost Containment Board first advise either of the Petitioners that their method of reporting the sales tax issue did not conform to the FHURS manual. Mr. Summers and Mr. Bracher were the only members of the staff of the Hospital Cost Containment Board who worked on the calculations to determine the initial distribution of Public Medical Assistance Trust Fund monies and to review corrections filed by hospitals to their 1986 prior year reports. T. 146-47. No one else testified for the Hospital Cost Containment Board. Thus, their testimony on this issue should be examined closely. Mr. Summers testified that in the middle of the summer he told both hospitals that the sales tax charges and receipts should be "grossed up" rather than "netted down." T. 150. He had previously defined "grossing up" in the context of the sales tax as reporting patient charges on line 13 of worksheet C- 2 (charity/uncompensated care-other) and reduction of those charges by a negative amount on line 14 (restricted donations and grants for indigent care) T. 147. Although the communication did take place, the timing of this communication by Mr. Summers is not supported by the preponderance of the evidence in the record. On September 28, 1987, Hillsborough County Hospital filed the first revision under protest. The amount reported in line 7, worksheet C-2, in the September 28, 1987, revision, was the same as reported in the original fiscal year 1986 actual report filed January 29, 1987, less $148. Compare P. Ex. 22 to P. Ex. 25. The letter transmitting the September 28, 1987, revision stated that the sales tax accounting remained "netted in total deductions from revenue," which is the case since the net was still contained on line 7. The letter of transmittal stated that Hillsborough County Hospital filed the September 28, 1987, revision because "of the position that you and your staff have taken on this issue." It was not until sometime between September 28, 1987, and October 12, 1987, that Mr. Summers changed his position, and told Hillsborough County Hospital to "gross up." P. Ex. 26. In summary, from the testimony of Mr. Summers it is unclear as to when he told Hillsborough County Hospital that its June 9, 1987, revision did not conform to the FHURS manual. Mr. Bracher was asked if he was aware of any written notice to either of the Petitioners that anything in the reports submitted June 9, 1987, was not conforming. He answered that he was not aware of any specific notice. He said he thought the issue was wrapped up in the main penalty case, and would be resolved when that case was heard. Dep. (James Bracher), p. 28-29. It is concluded that there is no evidence that within the forty days following June 9, 1987, the Hospital Cost Containment Board communicated written notice to either Petitioner that the June 9, 1987, revision with respect to sales tax associated charges and receipts was not in conformance with the FHURS manual. Nonetheless, on June 30, 1987, counsel for Hillsborough County Hospital sent a letter to counsel for the Board transmitting a package of information concerning the sales tax. P. Ex. 14. It is inferred from the efforts of counsel for Hillsborough County Hospital that there was disagreement between the parties at this stage. It is also inferred that the package of explanatory documents was sent to the Hospital Cost Containment Board by Hillsborough County Hospital on June 30, 1987, because Hillsborough County Hospital and the Hillsborough County Hospital Authority then knew that the Board disagreed with the June 9, 1987, revision. Moreover, on July 17, 1987, the Hospital Cost Containment Board transmitted to Hillsborough County Hospital its initial calculation of the redistribution. The amount of charity care shown on the accompanying calculation ($2,559,133) is obviously from line 7, worksheet C-2, of the original fiscal year 1986 actual report. P. Exs. 22 and 24. From this it is clear that as of July 17, 1987, the Hospital Cost Containment Board had rejected the accounting on that line contained in the June 9, 1987, revision. Thus, from these activities, it is inferred that within forty days of receipt of the June 9, 1987, revision, the Hospital Cost Containment Board did orally communicate to both Petitioners its disagreement with the June 9th revision with respect to the sales tax question. Revisions submitted by Tampa General Hospital Tampa General Hospital originally reported the differential between charges for patients associated with the sales tax funds and receipts of sales tax funds on line 7, of worksheet C-2, FHURS account 5900, "provision for bad debts." T. 52. On September 28, 1987, Tampa General Hospital filed a "revision" to its fiscal year 1986 actual report. P. Ex. 6. The cover letter from Mr. Powers stated that the sales tax monies "remain netted in total deductions from revenue (lines 7-17)." However, the letter made it clear that Tampa General Hospital disagreed with this accounting method, and that the report was submitted "because of the position that you and your staff have taken on this issue." Like the September 28, 1987, "revision" filed by Hillsborough County Hospital, which was submitted with an identical cover letter, the September 28, 1987, report by Tampa General Hospital was not adopted by Tampa General Hospital. Also as discussed above, the September 28, 1987, revision by Tampa General Hospital as to the sales tax issue was not verified by the hospital's certified public accountant. Thus, it is clear that Tampa General Hospital did not file its own formal written revision to its fiscal year 1986 report with respect to sales tax funds within the ninety-day period following July 1, 1987. Nonetheless, it is inferred from the evidence that the Hospital Cost Containment Board was aware that Tampa General Hospital was seeking within 90 days of July 1, 1987, to change its sales tax reporting in the same manner as Hillsborough County Hospital. This inference is based upon the following: The initial revision submitted by Hillsborough County Hospital on June 9, 1987, contained a discussion by Price Waterhouse, and in that discussion of the nature of the sales tax funds, Price Waterhouse stated that the funds were appropriated to the Hillsborough County Hospital Authority and allocated to both Hillsborough County Hospital and Tampa General Hospital. The letter from Price Waterhouse further stated that Price Waterhouse were the auditors for the Authority. It was thus evident from the June 9, 1987, submission that the sales tax issue applied to the Hillsborough County Hospital Authority, and thus applied equally to Hillsborough County Hospital and to Tampa General Hospital. The letter of June 30, 1987, from counsel for Hillsborough County Hospital to counsel for the Hospital Cost Containment Board, while concerned with the main penalty and Hillsborough County Hospital, stated that the funds went to the Authority, and noted that the Authority was composed of both hospitals. Much of the communication between the parties in this case was with Paul Powers, who is the Chief Financial Officer for the Authority and for both hospitals. As previously discussed, it is evident that staff of the Hospital Cost Containment Board orally advised representatives of the hospitals that the Board disagreed with the June 9, 1987, revision. Both hospitals filed revisions dated September 28, 1987, showing that both hospitals were actively discussing the matter during this period with the Hospital Cost Containment Board. After the September 28, 1987, revisions were filed, staff of the Hospital Cost Containment Board advised both hospitals to resubmit worksheets C- 2, "grossing up" the monies by reporting charges for sales tax patients on line 13, and receipts on line 14. T. 54-57. (Staff of the Hospital Cost Containment Board later determined this advice to have been erroneous.) Both hospitals complied under protest. P. Exs. 7 and 26. Further, while Price Waterhouse did not on June 9, 1987, formally certify that the sales tax funds should be accounted for by Tampa General Hospital in the same manner as reported by Hillsborough County Hospital in its June 9, 1987, revision, the identity of the issues discussed above for both hospitals causes that result in effect. The June 9, 1987, certification made it clear that the funds were appropriated to the Authority, and thus the character of the funds, for accounting purposes, would be the same for both hospitals that compose the Authority. Moreover, certification as to the exact dollar amounts involved in the reclassification for Tampa General Hospital was made by Price Waterhouse during the de novo formal administrative hearing. In sum, the record contains a certification by a certified public accountant as to the sales tax accounting change sought by Tampa General Hospital, both as to amount and as to classification. The proper FHURS manual accounting for sales tax funds: characteristics of the sales tax funds In fiscal year 1986, both Hillsborough County and the Hillsborough County Hospital Authority budgeted and appropriated sales tax funds to Tampa General Hospital and Hillsborough County Hospital for indigent care. T. 44, 101-102. Hillsborough County is a governmental agency. As an appropriation, these sales tax funds were set aside for a specific purpose, indigent care, by Hillsborough County. T. 96-100. The method of distribution of sales tax funds was not specified by statute or by contract. T. 79. As discussed above, the enabling statutes simply stated that the funds were to be used for indigent patients who were county residents. The record does not contain any credible evidence to explain how the fiscal year 1986 sales tax appropriations were supposed to have been distributed to the two Petitioners. It might have originally been based on specific patient bills, or it might have been lump sum distribution, but there is no evidence. At least this is known: the sales tax money was not available until ad valorem appropriations were spent, and those appropriations were not being spent because there were insufficient numbers of patients meeting the ad valorem eligibility requirements. T. 66-67. Midway through the fiscal year, it was determined by Hillsborough County that the appropriated funds were not being transferred to the two Petitioners as originally intended. 44-45, 65-67. In fact, no funds had been transferred by June, 1986, the ninth month of the fiscal year. P. Exs. 17 and 18. Hillsborough County then determined to spend the money by a method other than what was originally envisioned. It did so by arbitrarily and substantially loosening eligibility requirements and expanding the distribution to other programs. T. 67, 69-71, 45. Since there is no clear evidence in the record as to how the sales tax program was originally intended to have operated, and since the only clear evidence in the record is that the County chose drastically to alter the method of transferring the sales tax appropriated funds to the two Petitioners, it must be concluded as a matter of fact that for accounting purposes, the only relevant facts are those facts showing how the sales tax program was changed midway through the fiscal year. In particular, due to the change made by the County, references to earlier plans to transfer the money in the May 22, 1985, minutes of the Board of County Commissions, exhibit 3, P. Ex. 14, are not relevant. It is important to note that the change in the manner of transferring the sales tax appropriations to the Petitioners was caused solely by the fact that the original method did not work. Thus, the County had no underlying basis to determine how to loosen eligibility requirements and to select new programs to cover. Requirements were loosened and new programs were covered until the prior appropriated funds were transferred. The only requirement was that the funds pay for patients who were medically indigent. T. 108. Thus, the method of selection of requirements to loosen and programs to cover was essentially arbitrary. T. 69-74, 103-104, 45, 47-48. At least 25 percent of the sales tax funds was paid on a per diem basis, based upon specific patients and days elapsed. T. 72, 68. But not all was based on per diem, contrary to the testimony of Mr. Summers. T. 152. At least 25 percent of the sales tax funds paid for the specific charges of specific patients who suffered catastrophic illnesses (charges in excess of 125 percent of annual income). T. 72-73. Other sales tax funds paid for amounts not paid (funds exhausted or not yet available) in the RPICC program, the tuberculosis program, the Medicaid program, and the Medicare kidney program. T. 45-46. In fact, payments were superficially made based upon charges submitted by specific patients in all cases, although payment was limited to a set per diem rate for those patients who qualified based upon the original indigency criteria. T. 73-74. Although the method of transfer of sales tax funds to the Petitioners was superficially by payments for charges associated with specific patients, that observation does not go far enough. The context of the payments cannot be ignored. Specific patient charges were identified in the transfer process only to give the County assurance that the money was going for indigent services. T. 109. Moreover, the payments were made for specific charges solely pursuant to the arbitrary change in the sales tax program discussed above, which was motivated solely by the desire of the County to expend all of the sales tax funds (the entire lump sum) previously appropriated to the two Petitioners. T. 73-74. Neither of the two Petitioners had any preexisting contract with the County that establish a system of payment of charges for specific patients. Nor is there any evidence that the County itself, as it shifted gears midway in the fiscal year, established a program to pay charges for specific patients based on reasoned criteria for identification of such patients. Instead, as discussed above, the choices of programs and eligibility requirements was driven only by the desire to spend a prior determined lump sum amount. The observed effect was the transfer to the Petitioners of the entire appropriated amount in only three months, the last three months of the County's fiscal year. P. Exs. 17 and 18. In context, then, the payments for charges associated with specific patients was not fundamentally a series of discrete payments of charges for specific patients, but was merely the mode of transfer of a lump sum payment. Exhibit 12, P. Ex. 14, initially relied upon by Board staff, contains a mixture of payments made by the County from ad valorem tax funds and sales tax funds. Compare to P. Ex. 17 and 18. Thus, for this reason, in addition to the discussion above, one cannot conclude from this exhibit that sales tax funds were transferred to the Petitioners as specific payments for specific patients. The proper accounting classification for the sales tax monies (or the RPICC funds, for that matter) depends upon the nature of the payment mechanism. T. 145. Mr. Summers was of the opinion that if Hillsborough County determined to distribute the sales tax funds by an arbitrary method, totally changing the prior method, with the only criteria that the funds pay for services to indigent patients, then receipts from the sales tax funds should be reported on line 14 of worksheet C-2, FHURS manual account 5970, "restricted donations and grants for indigent care." T. 189-90. That is in fact what occurred. The distribution to the Petitioners with respect to the sales tax issue will be the same whether the receipts of sales tax funds are classified on line 29 or on line 14 of worksheet C-2. T. 94-95.
Recommendation For these reasons, it is recommended that the Hospital Cost Containment Board enter its final order: Confirming that the April 23, 1987, revision by Tampa General Hospital to its 1986 actual report conforms to the FHURS manual by operation of rule 27J- 1.010(3). Due to the definition of charity care in section 12, chapter 87-92, Laws of Florida, denying to Tampa General Hospital recalculation of distribution from the Public Medical Assistance Trust Fund with respect to the RPICC program. Correcting the 1986 actual reports of Tampa General Hospital and Hillsborough County Hospital with respect to sales tax funds, reporting charges on line 13, "charity/uncompensated care-other," and receipts on line 14, "restricted donations and grants for indigent care," and recalculating the redistribution due the two hospitals based upon these corrections. (The result appears to be stated in findings of fact 6 and 8.) DONE and ENTERED this 9th day of March, 1988. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of March 1988. APPENDIX TO RECOMMENDED ORDER IN DOAH CASE NUMBERS 87-5207H AND 87-5208H The following are rulings upon findings of fact proposed by the parties which have been rejected or adopted by reference in this Recommended Order. The numbers correspond to the numbers of the proposed findings of fact as used by the parties. Findings of fact proposed by the Petitioner: 9. The last half of the paragraph is an issue of law, not fact. All but the first sentence are cumulative and unnecessary. Irrelevant. 17. The motive of the county is irrelevant. 19. Not supported by the record cited. Mr. Bracher qualified his testimony with the phrase "I guess," and then qualified his opinion. Dep. (James Bracher), p. 27. 24. Irrelevant since the April 23, 1987, revision is operative. These findings of fact are adopted by reference. Irrelevant. The first two sentences are true, but are subordinate to findings of fact adopted in the recommended order. These findings of fact, however, are adopted by reference. The first sentence is not supported by the record. The first sentence is rejected in the conclusions of law. The first sentence is rejected in the conclusions of law. The first sentence is rejected in the conclusions of law. The existence or absence of cost reports is not persuasive that account 5940 is or is not applicable. The phrase "cost reports" in the FHURS manual with respect to account 5940 only appears in a parenthetical, "including adjustments made at year end." As such, it is inclusive of circumstances where adjustments are made at year end based on cost reports, but is not necessarily limited to that circumstance. 38. Blue Cross accounting occurs in account 5930, and thus reference thereto is irrelevant for this case. 40 and 41. Irrelevant. A formal administrative hearing is intended to formulate agency action, not to review prior action. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). 42 and 43. These proposed findings of fact are true but are not relevant. A formal administrative hearing is intended to formulate agency action, not to review prior action. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). 44. This is an issue of law, not fact. 50. The last sentence is true, but is subordinate to findings of fact adopted in the recommended order. This finding of fact, however, is adopted by reference. The second sentence is irrelevant. A failure to make the recalculation by October 15, 1987, while a technical violation of the statute, could hardly have been intended by the Legislature to result in no recalculation at all. The last portion of the sentence is incompetent as legislative history. 59. The distributions were initially and superficially calculated on specific patients' charges, but were not ultimately "based" thereon, as discussed in the findings of fact. 63. The second through fifth paragraphs are true, but are subordinate to findings of fact adopted in the recommended order. These findings of fact, however, are adopted by reference. 63-64. These proposed findings of fact are true, but are subordinate to findings of fact adopted in the recommended order. These findings of fact, however, are adopted by reference. Irrelevant for lack of sufficient credible evidence showing identity of-circumstance to justify the comparison. Irrelevant for lack of sufficient credible evidence showing the lack of identity of circumstance to justify the comparison. 68-70. These proposed findings are issues of law, not fact. 71-72. Irrelevant. Findings of fact proposed by the Respondent: 2-4. These are issues of law, not fact. The second sentence is contrary to the record. T. 52, 55-56; P. Exs. 7 and 26. The remainder is irrelevant. These proposed findings have been rejected in findings of fact 79-86. The first four sentences, while true, are not adopted as findings of fact because of little help in resolving the question of which expert to believe. Both parties have submitted proposed findings of fact concerning the shifting bases of expert opinion. About all that can be concluded from these proposed findings, all of which are true, is that the accounting definitions are so unclear and loose that experts have difficulty finding their way. The next sentence is true, and is adopted by reference. Although the testimony cited would lead to the finding that the Petitioners originally classified the sales tax differential on line 13, this is in conflict with testimony at T. 52 that the differential was originally reported in bad debts, line 7. Moreover, there is no entry on line 13 on the original submission. P. Exs. 2 and 22. The proposed finding to this extent is rejected for these reasons. While the basis for Mr. Summer's ultimate opinion is relevant to this case, the path he took to that opinion is not. The formal hearing is de novo, and Mr. Summer's opinion at the hearing is the only one relevant. While the proposed finding of fact is true, and is adopted by reference, the ultimate conclusion has been rejected because the payment mechanism was, in effect, by lump sum. The first paragraph is cumulative to other findings of fact, and thus not necessary. 21. There is not sufficient evidence in the record to adopt the proposed finding that the original RPICC accounting by Tampa General Hospital was "consistent with the manner in which other hospitals report it." This paragraph is an issue of law, not fact. The proposed finding that the Hospital Cost Containment Board notified Tampa General Hospital that it "intended to review Petitioner's records" has been rejected by findings of fact 19-21. Moreover, notice of intent to review records is irrelevant. The notice required by the rule is notice that the report of April 23, 1987, did not conform to FHURS manual accounting classifications. While it is true that the July 17, 1987, memorandum was a preliminary document with respect to the amount of distribution that might be received ultimately by a hospital, it was preliminary only with respect to changes that might occur due to corrections filed by individual hospitals that elected to file such a change pursuant to the opportunity afforded by section 12 chapter 87-92, Laws of Florida. There was no reason for it to be preliminary with respect to reliance by the Hospital Cost Containment Board upon the fiscal year 1986 actual reports filed by hospitals that were already final and would not be changed by a new correction. All sentences after the first two are true, but are subordinate to findings of fact adopted in the recommended order. These findings of fact, however, are adopted by reference. However, the proposed finding that the RPICC cost reports were "like those required by Medicare and Medicaid" is rejected because the RPICC cost reports were not used to settle up at the end of the year. The sentences in this paragraph are true, but are subordinate to findings of fact adopted in the recommended order. These findings of fact, however, are adopted by reference. The record in this case does not explain how the NCG system works. Thus, this proposed finding of fact must be rejected. These proposed findings of fact are not supported by the record. It appears that cost reports were not used to settle up or in the manner used by cost reports in the Medicaid and Medicare programs. 34 and 35. These proposed findings accurately reflect the assumed facts that underlie the opinions at the hearing of Mr. Summers and Mr. Bracher, and are adopted by reference. This is not, however, an adoption as fact of the matters which form the basis of opinions. 36. These proposed findings are essentially arguments of law that have been considered in the conclusions of law. COPIES FURNISHED: John H. Parker, Jr., Esquire 1200 Carnegie Building 133 Carnegie Way Atlanta, Georgia 30303 Gary Walker, Esquire Hospital Cost Containment Board 325 John Knox Road Building L, Suite 101 Tallahassee, Florida 32303 James J. Bracher Executive Director Hospital Cost Containment Board 325 John Knox Road Building L, Room 101 Tallahassee, Florida 32303 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue Whether Certificate of Need Application No. 8614, filed by Vencor Hospitals South, Inc., meets, on balance, the applicable statutory and rule criteria. Whether the Agency for Health Care Administration relied upon an unpromulgated and invalid rule in preliminarily denying CON Application No. 8614.
Findings Of Fact Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida. The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County. Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities. In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and 40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale. Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that: On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8; Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published; Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996; Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes; Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council. During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate. In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that: "Long term care hospital" means a hospital licensed under Chapter 395, Part 1, F.S., which meets the requirements of Part 412, Subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application. Numeric Need In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) provides in pertinent part: If no agency policy exists, the applicant will be 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 or 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. Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules. W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients. Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8. By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU. Statutory Review Criteria Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute. (1)(a) need in relation to state and district health plans. The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care. (1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district. Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units. AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined. AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives. Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions. Vencor also distinguished its patients, who require 7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to 3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units. Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week. Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population. In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes. (1)(c) ability and record of providing quality of care. The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c). (1)(e) probable economics of joint or shared resources; (1)(g) need for research and educational facilities; and (1)(j) needs of health maintenance organizations. The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue. (f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas. Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home. (h) resources and funds, including personnel to accomplish project. Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million. At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable. (i) immediate and long term financial feasibility of the proposal. Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal. needs of entities serving residents outside the district. Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8. probable impact on costs of providing health services; effects of competition. There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8. costs and methods of proposed construction; and (2)((a)-(c) less costly alternatives to proposed capital expenditure. The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area. past and proposed service to Medicaid patients and the medically indigent. Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare. services which promote a continuum of care in a multilevel health care system. While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8. (2)(d) that patients will experience serious problems obtaining the inpatient care proposed. Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor. Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8. DONE AND ENTERED this 3rd day of March, 1998, 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 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Kim A. Kellum, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301
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.
