The Issue The ultimate issue is whether the application of Petitioner, University Medical Park, for a certificate of need to construct a 130-bed acute care hospital in northern Hillsborough County, Florida should be approved. The factual issues are whether a need exists for the proposed facility under the Department's need rule and, if not, are there any special circumstances which would demonstrate the reasonableness and appropriateness of the application notwithstanding lack of need. The petitioner, while not agreeing with the methodology, conceded that under the DHRS rule as applied there is no need because there is an excess of acute care beds projected for 1989, the applicable planning horizon. The only real factual issue is whether there are any special circumstances which warrant issuance of a CON. The parties filed post-hearing findings of fact and conclusions of law by March 18, 1985, which were read and considered. Many of those proposals are incorporated in the following findings. As indicated some were irrelevant, however, those not included on pertinent issues were rejected because the more credible evidence precluded the proposed finding. Having heard the testimony and carefully considered the Proposed Findings of Fact, there is no evidence which would demonstrate the reasonableness and appropriateness of the application. It is recommended that the application be denied.
Findings Of Fact General Petitioner is a limited partnership composed almost entirely of physicians, including obstetricians/gynecologists (OB/GYN) and specialists providing ancillary care, who practice in the metropolitan Tampa area. (Tr. Vol. 1, pp. 103-104). Petitioner's managing general partner is Dr. Robert Withers, a doctor specializing in OB/GYN who has practiced in Hillsborough County for over thirty years. (Tr. Vol. 1, pp. 24- 26, 28-29.) Dr. Withers was a prime moving force in the founding, planning and development of University Community Hospital and Women's Hospital. (Tr. Vo1. 1, pp. 26-28, 73; Vol. 4, pp. 547-548.) Petitioner seeks to construct in DHRS District VI a specialty "women's" hospital providing obstetrical and gynecological services at the corner of 30th Street and Fletcher Avenue in northern Hillsborough County and having 130 acute care beds. 1/ (Tr. Vol. 1, pp. 34, 74-75, Vol. 5, pp. 678-679, Northside Ex.-1, pp. 1-2, Ex.-4A.) The proposed hospital is to have 60 obstetrical, 66 gynecological and 4 intensive care beds. (Tr. Vol. 8, P. 1297, Northside Ex.-1 Table 17, Ex.-B.) DHRS District VI is composed of Hardy, Highlands, Hillsborough, Manatee and Polk counties. Each county is designated a subdistrict by the Local Health Council of District VI. Pasco County, immediately north of Hillsborough, is located in DHRS District V and is divided into two subdistricts, east Pasco and west Pasco. If built, Northside would be located in the immediate vicinity of University Community Hospital (UCH) in Tampa, Hillsborough County, Florida. Less than 5 percent of the total surgical procedures at UCH are gynecologically related, and little or no nonsurgical gynecological procedures arc performed there. (Tr. Vol. 4, p. 550.) There is no obstetrical practice at UCH, although it has the capacity to handle obstetric emergencies. The primary existing providers of obstetrical services to the metropolitan Tampa area are Tampa General Hospital (TGH) and Women's Hospital (Women's). (Tr. Vol. 1, p. 79, Northside Ex.-4, Tr. Vol. 7, pp. 1074-1075.) TGH is a large public hospital located on Davis Islands near downtown Tampa. (Tr. Vol. 1, pp. 47-48, Vol. 8, pp. 1356, 1358.) TGH currently has a 35 bed obstetrical unit, but is currently expanding to 70 beds as part of a major renovation and expansion program scheduled for completion in late 1985. (Tr. Vol. 7, pp. 1049, 1095, Vol. 8, pp. 1367-1368, Vol. 10, P. 1674, Northside Ex.- 2, P. 3.) In recent years, the overwhelming majority of Tampa General's admissions in obstetrics at TGH have been indigent patients. (Tr. Vol. 1, P. 61, Vol. 8, pp. 1375- 1379; Vol. 9, P. 1451; TGH Ex.-3.) Tampa General's internal records reflect that it had approximately 2,100 patient days of gynecological care compared with over 38,000 patient days in combined obstetrical care during a recent eleven month period. (TGH Ex.-3..) Women's is a 192 bed "specialty" hospital located in the west central portion of the City of Tampa near Tampa Stadium. (Tr. Vol. 1, pp. 63-64, 66-67; Vol. 10 P. 1564; Northside Ex.-4.) Women's Hospital serves primarily private-pay female patients. (Vol. 1, pp. 79, 88-89; Vol. 6, pp. 892-893.) Humana Brandon Hospital, which has a 16 bed obstetrics unit, and South Florida Baptist Hospital in Plant City, which has 12 obstetric beds, served eastern Hillsborough County. (Tr. Vol. 7, P. 1075; Northside Ex.-2, P. 3; Northside Ex.-4 and Tr. Vol. 1, P. 79; Northside Ex.-4.) There are two hospitals in eastern Pasco County, which is in DHRS District V. Humana Hospital, Pasco and East Pasco Medical Center, each of which has a six bed obstetric unit. Both hospitals are currently located in Dade City, but the East Pasco Medical Center will soon move to Zephyrhills and expand its obstetrics unit to nine beds. (Tr. Vol. 1, pp. 108- 109; Tr. Vol. 7, P. 1075; Vol. 8, pp. 1278-1281; Northside Ex.-4.) There are no hospitals in central Pasco County, DHRS District V. Residents of that area currently travel south to greater Tampa, or, to a lesser extent, go to Dade City for their medical services. (Tr. Vol. 2, pp. 266-267, 271-272; Vol. 7, p. 1038.) Bed Need There are currently 6,564 existing and CON approved acute care beds in DHRS District VI, compared with an overall bed need of 5,718 acute care beds. An excess of 846 beds exist in District VI in 1989, the year which is the planning horizon use by DHRS in determining bed need applicable to this application. (Tr. Vol. 7, pp. 1046-1047, 1163, 1165-66; DHRS Ex.-1.) There is a net need for five acute care beds in DHRS District V according to the Department's methodology. (Tr. Yolk. 7, pp. 1066, 1165; DHRS Ex.-1.) The figures for District VI include Carrollwood Community Hospital which is an osteopathic facility which does not provide obstetrical services. (Tr. Vol. 1, P. 158; Vol. 7, p. 1138; Vol. 8, P. 1291.) However, these osteopathic beds are considered as meeting the total bed need when computing a11 opathic bed need. DHRS has not formally adopted the subdistrict designations of allocations as part of its rules. (Tr. Vol. 7, pp. 1017-1017, 1019; Vol. 8, pp. 1176, 1187.) Consideration of the adoption of subdistricts by the Local Health Council is irrelevant to this application. 2/ Areas of Consideration in Addition to Bed Need Availability Availability is deemed the number of beds available. As set forth above, there is an excess of beds. (Nelson, Tr. Vol. VII, P. 1192.) Tampa General Hospital and Humana Women's Hospital offer all of the OB related services which UMP proposes to offer in its application. These and a number of other hospitals to include UCH, offer all of the GYN related services proposed by Northside. University Community Hospital is located 300 yards away from the proposed site of Northside. UCH is fully equipped to perform virtually any kind of GYN/OB procedure. Humana and UCH take indigent patients only on an emergency basis, as would the proposed facility. GYN/OB services are accessible to all residents of Hillsborough County regardless of their ability to pay for such services at TGH. (Williams, Tr. Vol. IX, P. 1469; Baehr, Tr. Vol. X, P. 1596; Splitstone, Tr. Vol. IV, P. 582; Hyatt, TGH Exhibit 19, P. 21.) Utilization Utilization is impacted by the number of available beds and the number of days patients stay in the hospital. According to the most recent Local Health Council hospital utilization statistics, the acute care occupancy rate for 14 acute care hospitals in Hillsborough County for the most recent six months was 65 percent. This occupancy rate is based on licensed beds and does not include CON approved beds which are not yet on line. This occupancy rate is substantially below the optimal occupancies determined by DHRS in the Rule. (DHRS Exhibit 4; Contis, Tr. Vol. VII, P. 1069.) Utilization of obstetric beds is higher than general acute care beds; however, the rules do not differentiate between general and obstetric beds. 3/ Five Hillsborough County hospitals, Humana Women's, St. Joseph's, Tampa General, Humana Brandon, and South Florida Baptist, offer obstetric services. The most recent Local Health Council utilization reports indicate that overall OB occupancy for these facilities was 82 percent for the past 6 months. However, these computations do not include the 35 C0N-approved beds which will soon be available at Tampa General Hospital. (DHRS Exhibit 4). There will be a substantial excess of acute care beds to include OB beds in Hillsborough County for the foreseeable future. (Baehr, Tr.w Vol. X, pp. 1568, 1594, 1597.) The substantial excess of beds projected will result in lower utilization. In addition to excess beds, utilization is lowered by shorter hospital stays by patients. The nationwide average length of stay has been reduced by almost two days for Medicare patients and one day for all other patients due to a variety of contributing circumstances. (Nelson, Tr. Vol. VII, P. 1192; Contis, Tr. Vol. VII, P. 1102; Baehr, Tr. Vol. X, pp. 1583-84; etc.) This dramatic decline in length of hospital stay is the result of many influences, the most prominent among which are: (1) a change in Medicare reimbursement to a system which rewards prompt discharges of patients and penalizes overutilization ("DGRs"), (2) the adaptation by private payers (insurance companies, etc.) of Medicare type reimbursement, (3) the growing availability and acceptance of alternatives to hospitalization such as ambulatory surgical centers, labor/delivery/recovery suites, etc. and (4) the growing popularity of health care insurance/delivery mechanisms such as health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), and similar entities which offer direct or indirect financial incentives for avoiding or reducing hospital utilization. The trend toward declining hospital utilization will continue. (Nelson, Tr. Vol. VII, pp. 1192-98; Baehr, Tr. Vol. X, pp. 1584-86; etc.) There has been a significant and progressive decrease in hospital stays for obstetrics over the last five years. During this time, a typical average length of stay has been reduced from three days to two and, in some instances, one day. In addition, there is a growing trend towards facilities (such as LDRs) which provide obstetrics on virtually an outpatient basis. (Williams, Tr. Vol. IX, P. 1456; Hyatt, Tr. Vol. IV, P. 644.) The average length of stay for GYN procedures is also decreasing. In addition, high percentage of GYN procedures are now being performed on an outpatient, as opposed to inpatient, basis. (Hyatt, Tr. Vol. IV, P. 644, etc.) The reduction in hospital stays and excess of acute care beds will lower utilization of acute care hospitals, including their OB components, enough to offset the projected population growth in Hillsborough County. The hospitals in District VI will not achieve the optimal occupancy rates for acute care beds or OB beds in particular by 1989. The 130 additional beds proposed by UMP would lower utilization further. (Paragraphs 7, 14, and 18 above; DHRS Exhibit 1, Humana Exhibit 1.) Geographic Accessibility Ninety percent of the population of Hillsborough County is within 30 minutes of an acute care hospital offering, at least, OB emergency services. TGH 20, overlay 6, shows that essentially all persons living in Hillsborough County are within 30 minutes normal driving time not only to an existing, acute care hospital, but a hospital offering OB services. Petitioner's service area is alleged to include central Pasco County. Although Pasco County is in District V, to the extent the proposed facility might serve central Pasco County, from a planning standpoint it is preferable to have that population in central Paso served by expansion of facilities closer to them. Hospitals in Tampa will become increasingly less accessible with increases in traffic volume over the years. The proposed location of the UMP hospital is across the street from an existing acute care hospital, University Community Hospital ("UCH"). (Splitstone, Tr. Vol. IV, P. 542.) Geographic accessibility is the same to the proposed UMP hospital and UCH. (Smith, Tr. Vol. III, P. 350; Wentzel, Tr. Vol. IV, p. 486; Peters, Tr. Vol. IX, P. 1532.) UCH provides gynecological services but does not provide obstetrical services. However, UCH is capable of delivering babies in emergencies. (Splitstone, Tr. Vol. IV, p. 563.) The gynecological services and OB capabilities at UCH are located at essentially the same location as Northside's proposed site. Geographic accessibility of OB/GYN services is not enhanced by UMP's proposed 66 medical-surgical beds. The accessibility of acute care beds, which under the rule are all that is considered, is essentially the same for UCH as for the proposed facility. As to geographic accessibility, the residents of Hillsborough and Pasco Counties now have reasonable access to acute care services, including OB services. The UMP project would not increase accessibility to these services by any significant decrease. C. Economic Accessibility Petitioner offered no competent, credible evidence that it would expand services to underserved portions of the community. Demographer Smith did not study income levels or socioeconomic data for the UMP service area. (Smith, TR. Vol. III, pp. 388, 389.) However, Mr. Margolis testified that 24 percent of Tampa General's OB patients, at least 90 percent of who are indigents, came from the UMP service area. (Margolis, Tr. Vol. X, P. 1695.) The patients proposed to be served at the Northside Hospital are not different than those already served in the community. (Withers, Tr. Vol. II, P. 344.) As a result, Northside Hospital would not increase the number of underserved patients. Availability of Health Care Alternative An increasing number of GYN procedures are being performed by hospitals on an outpatient basis and in freestanding ambulatory-surgical centers. An ambulatory-surgical center is already in operation at a location which is near the proposed UMP site. In fact, Dr. Hyatt, a UMP general partner, currently performs GYN procedures at that surgical center. (Withers, Tr. Vol. I, P. 150; Hyatt, Tr. Vol. IV, pp. 644, 646. Ambulatory surgical centers, birthing centers and similar alternative delivery systems offer alternatives to the proposed facility. Existing hospitals are moving to supply such alternatives which, with the excess beds and lower utilization, arc more than adequate to preclude the need for the UMP proposal. (Nelson, Tr. Vol. VII, P. 1204, 1205, 1206; Williams, Tr. Vol. IX, pp. 1453, 1469; Contis, Tr. Vol. VII, pp. 1154; Contis, Tr. Vol. VII, pp. 1151, 1154.) Need for Special Equipment & Services DHRS does not consider obstetrics or gynecology to be "special services" for purposes of Section 381.494(6)(c)6, Florida Statutes. In addition, the services proposed by UMP are already available in Hillsborough and Pasco Counties. (Nelson, Tr. Vol. VII, pp. 1162, 1210.) Need for Research & Educational Facilities USF currently uses Tampa General as a training facility for its OB residents. TCH offered evidence that the new OB facilities being constructed at Tampa General were designed with assistance from USF and were funded by the Florida Legislature, in part, as an educational facility. (Powers, Tr. Vol. IX, P. 1391; Williams, Tr. Vol. IX, pp. 1453-1455.) The educational objectives of USF for OB residents at Tampa General are undermined by a disproportionately high indigent load. Residents need a cross section of patients. The UMP project will further detract from a well rounded OB residency program at Tampa General by causing Tampa General's OB Patient mix to remain unbalanced. (Williams, Tr. Vol. IX, P. 1458; Margolis, Tr. Vol. X, P. 1695.) UMP offered no evidence of arrangements to further medical research or educational needs in the community. (Nelson, Tr. Vol. VII, P. 1213. UMP's proposed facility will not contribute to research and education in District VI. Availability of Resources Management UMP will not manage its hospital. It has not secured a management contract nor entered into any type of arrangement to insure that its proposed facility will be managed by knowledgeable and competent personnel. (Withers, Tr. Vol. I, p. 142.) However, there is no alleged or demonstrated shortage of management personnel available. Availability of Funds For Capital and Operating Expenditures The matter of capital funding was a "de novo issue," i.e., evidence was presented which was in addition to different from its application. In its application, Northside stated that its project will be funded through 100 percent debt. Its principal general partner, Dr. Withers, states that this "figure is not correct." However, neither Dr. Withers nor any other Northside witness ever identified the percentage of the project, if any, which is to be funded through equity contributions except the property upon which it would be located. (UMP Exhibit 1, p. 26; Withers, Tr. Vol. I, P. 134.) The UMP application contained a letter from Landmark Bank of Tampa which indicates an interest on the part of that institution in providing funding to Northside in the event that its application is approved. This one and one half year year old letter falls short of a binding commitment on the part of Landmark Bank to lend UMP the necessary funds to complete and operate its project and is stale. Dr. Withers admitted that Northside had no firm commitment as of the date of the hearing to finance its facility, or any commitment to provide 1196 financing as stated in its application. (UMP Exhibit I/Exhibit Dr. Withers, Tr. Vol. I, P. 138.) Contribution to Education No evidence was introduced to support the assertion in the application of teaching research interaction between UMP and USF. USF presented evidence that no such interaction would occur. (Tr. Vol. IX, P. 1329.) The duplication of services and competition for patients and staff created by UMP's facility would adversely impact the health professional training programs of USF, the state's primary representative of health professional training programs in District VI. (Tr. Vol. IX, pp. 1314-19; 1322-24; 1331-1336.) Financial Feasibility The pro forma statement of income and expenses for the first two years of operation (1987 and 1988) contained in the UMP application projects a small operating loss during the first year and a substantial profit by the end of the second year. These pro formas are predicated on the assumption that the facility will achieve a utilization rate of 61 percent in Year 1 and 78 percent in its second year. To achieve these projected utilization levels, Northside would have to capture a market share of 75-80 percent of all OB patient days and over 75% of all GYN patient days generated by females in its service area. (UMP, Exhibit 1; Withers, Tr. Vol. I, P. 145, Dacus; Tr. Vol. V, P. 750-755.) These projected market shares and resulting utilization levels are very optimistic. It is unlikely that Northside could achieve these market shares simply by making its services available to the public. More reasonable utilization assumptions for purposes of projecting financial feasibility would be 40-50 percent during the first year and 65 percent in the second year. (Margolis, Tr. Vol. X, P. 1700; Baehr, Tr. Vol. X, pp. 1578, 1579, 1601.) UMP omitted the cost of the land on which its facility is to be constructed from its total project cost and thus understates the income necessary to sustain its project. Dr. Withers stated the purchase price of this land was approximately $1.5 million and it has a current market value in excess of $5 million. (Withers, Tr. Vol. I, pp. 139, 140.) Dr. Withers admitted that the purchase price of the land would be included in formulating patient charges. As a matter of DHRS interpretation, the cost of land should be included as part of the capital cost of the project even if donated or leased and, as such, should be added into the pro formas. UMP's financial expert, Barbara Turner, testified that she would normally include land costs in determining financial feasibility of a project, otherwise total project costs would be understated (Withers, Tr. Vol. I, P. 141; Nelson, Tr. Vol. VII, pp. 1215, 1216; Turner, Tr. Vol. X, P. 1714.) In addition, the pro formas failed to include any amount for management expenses associated with the new facility. Dr. Withers admitted UMP does not intend to manage Northside and he anticipates that the management fee would be considerably higher than the $75,000 in administrator salaries included in the application. (Withers, Tr. Vol. I, pp. 143, 144.) Barbara Turner, UMP's financial expert, conceded that the reasonableness of the percent UMP pro formas is predicated on the reasonableness of its projected market share and concomitant utilization assumptions. These projections are rejected as being inconsistent with evidence presented by more credible witnesses. The UMP project, as stated in its application or as presented at hearing, is not financially feasible on the assumption Petitioner projected. VIII. Impact on Existing Facilities Approval of the UMP application would result in a harmful impact on the costs of providing OB/GYN services at existing facilities. The new facility would be utilized by patients who would otherwise utilize existing facilities, hospitals would be serving fewer patients than they are now. This would necessarily increase capital and operating costs on a per patient basis which, in turn, would necessitate increases in patient charges. (Nelson, Tr. Vol. VII, pp. 1217-1219; Baehr, Tr. Vol. X, P. 1587.) Existing facilities are operating below optimal occupancy levels. See DHRS Exhibit 4. The Northside project would have an adverse financial impact on Humana, Tampa General Hospital, and other facilities regardless of whether Northside actually makes a profit. See next subheading below. The Northside project would draw away a substantial number of potential private-pay patients from TGH. Residents of the proposed Northside service area constitute approximately 24 percent of the total number of OB patients served by TGH. The Northside project poses a threat to TGH's plans to increase its non- indigent OB patient mix which is the key to its plans to provide a quality, competitive OB service to the residents of Hillsborough County. (Nelson, Tr. Vol. VIII, P. 1225; Margolis, Tr. Vol. X, P. 1695.) Impact Upon Costs and Competition Competition via a new entrant in a health care market can be good or bad in terms of both the costs and the quality of care rendered, depending on the existing availability of competition in that market at the time. Competition has a positive effect when the market is not being adequately or efficiently served. In a situation where adequate and efficient service exists, competition can have an adverse impact on costs and on quality because a new facility is simply adding expense to the system without a concomitant benefit. (Baehr, Tr. Vol. X, p. 1650.) Competition among hospitals in Hillsborough County is now "intense and accelerating." (Splitstone, Tr. Vol. IV, p. 558.) Tampa General is at a competitive disadvantage because of its indigent case load and its inability to offer equity interests to physicians in its hospital. (Blair, Tr. Vol. VI, pp. 945, 947-948); Powers, Tr. Vol. IX, P. 1405.) Tampa General Hospital is intensifying its marketing effort, a physician office building under construction now at Tampa General is an illustration of Tampa General's effort to compete for private physicians and patients. (Powers, Tr. Vol. IX, pp. 1405-1406.) The whole thrust of Tampa General's construction program is to increase its ability to compete for physicians. (Nelson, Tr. Vol. VII, P. 1224; Powers, Tr. Vol. IX, p. 1442.) The Tampa General construction will create new competition for physicians and patients. (Contis, Tr. Vol. VII, p. 1099.) Patients go to hospitals where their doctors practice, therefore, hospitals generally compete for physicians. (Splitstone, Tr. Vol. IV, P. 563; Blair, Tr. Vol. VI, pp. 898, 928.) Because many of the UMP partners are obstetricians who plan to use Northside exclusively, approval of the Northside project would lessen competition. (Popp, TGH Exhibit 18, P. 11.) It is feasible for Tampa General to attract more private pay OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461.) At its recently opened rehabilitation center, Tampa General has attracted more private pay patients. (Powers, Tr. Vol. IX, pp. 1393-1396.) USF OB residents at Tampa General are planning to practice at Tampa General. (Williams, Tr. Vol. IX, pp. 1460-1461.) The state-of-the-art labor, delivery, recovery room to be used at Tampa General will be an attractive alternative to OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461); Popp, TGH Exhibit 18, p.26) IX. Capital Expenditure Proposals The proposed Northside hospital will not offer any service not now available in Tampa. (Hyatt, TGH Exhibit 19, p. 21).
Recommendation Petitioner having failed to prove the need for additional acute care beds to include OB beds or some special circumstance which would warrant approval of the proposed project, it is recommended that its application for a CON be DENIED. DONE and ORDERED this 25th day of June, 1985, in Tallahassee, Florida STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of June, 1985.
Conclusions THIS CAUSE comes before the Agency For Health Care Administration (the "Agency") concerning Certificate of Need ("CON") Application No. 10131 filed by The Shores Behavioral Hospital, LLC (hereinafter “The Shores”) to establish a 60-bed adult psychiatric hospital and CON Application No. 10132 The entity is a limited liability company according to the Division of Corporations. Filed March 14, 2012 2:40 PM Division of Administrative Hearings to establish a 12-bed substance abuse program in addition to the 60 adult psychiatric beds pursuant to CON application No. 10131. The Agency preliminarily approved CON Application No. 10131 and preliminarily denied CON Application No. 10132. South Broward Hospital District d/b/a Memorial Regional Hospital (hereinafter “Memorial”) thereafter filed a Petition for Formal Administrative Hearing challenging the Agency’s preliminary approval of CON 10131, which the Agency Clerk forwarded to the Division of Administrative Hearings (“DOAH”). The Shores thereafter filed a Petition for Formal Administrative Hearing to challenge the Agency’s preliminary denial of CON 10132, which the Agency Clerk forwarded to the Division of Administrative Hearings (‘DOAH”). Upon receipt at DOAH, Memorial, CON 10131, was assigned DOAH Case No. 12-0424CON and The Shores, CON 10132, was assigned DOAH Case No. 12-0427CON. On February 16, 2012, the Administrative Law Judge issued an Order of Consolidation consolidating both cases. On February 24, 2012, the Administrative Law Judge issued an Order Closing File and Relinquishing Jurisdiction based on _ the _ parties’ representation they had reached a settlement. . The parties have entered into the attached Settlement Agreement (Exhibit 1). It is therefore ORDERED: 1. The attached Settlement Agreement is approved and adopted as part of this Final Order, and the parties are directed to comply with the terms of the Settlement Agreement. 2. The Agency will approve and issue CON 10131 and CON 10132 with the conditions: a. Approval of CON Application 10131 to establish a Class III specialty hospital with 60 adult psychiatric beds is concurrent with approval of the co-batched CON Application 10132 to establish a 12-bed adult substance abuse program in addition to the 60 adult psychiatric beds in one single hospital facility. b. Concurrent to the licensure and certification of 60 adult inpatient psychiatric beds, 12 adult substance abuse beds and 30 adolescent residential treatment (DCF) beds at The Shores, all 72 hospital beds and 30 adolescent residential beds at Atlantic Shores Hospital will be delicensed. c. The Shores will become a designated Baker Act receiving facility upon licensure and certification. d. The location of the hospital approved pursuant to CONs 10131 and 10132 will not be south of Los Olas Boulevard and The Shores agrees that it will not seek any modification of the CONs to locate the hospital farther south than Davie Boulevard (County Road 736). 3. Each party shall be responsible its own costs and fees. 4. The above-styled cases are hereby closed. DONE and ORDERED this 2. day of Meaich~ , 2012, in Tallahassee, Florida. ELIZABETH DEK, Secretary AGENCY FOR HEALTH CARE ADMINISTRATION
The Issue Whether, under Section 381.494-381.499, Florida Statutes, Humana, Inc., d/b/a Kendall Community Hospital, is entitled to a Certificate of Need to construct a 150-bed acute care hospital in the west Kendall area of south Dade County, Florida.
Findings Of Fact HUMANA is an investor-owned, multi-institutional hospital system which owns and operates more than 90 hospitals, most of which are medical/surgical facilities. (DHRS Ex.1, p.10). HUMANA applied for a Certificate of Need from DHRS to construct a 150- bed acute care community hospital in the west Kendall area of south Dade County, Florida. The specific area to be served is bounded on Miller Drive to the north, southwest 177th Avenue to the west, Coral Reef Drive to the south, and Calloway Road to the east. The proposed 150-bed hospital includes 100 medical/surgical beds, 20 pediatric beds, 20 Level II obstetric beds, 10 intensive care/critical beds, and a Level II nursery in conjunction with the obstetric unit. (TR 277). The proposal includes a 24-hour, physician-staffed emergency room and a "dedicated" outpatient surgery department, with separate recovery room. Surgery suites are specifically designed and reserved only for outpatient surgery, thereby facilitating outpatient scheduling and efficient operations. (TR 279). The outpatient surgery unit is intended to reduce the costs of health care by providing a cost-effective alternative modality of health care delivery. (TR 278). Finally, the proposal contemplates a full-body CT Scanner, digital radiography and general state-of-the-art ancillary equipment. (TR 278). If built, it would be the westernmost hospital in south Dade County. It is a "community" hospital, designed to provide hospital care to the rapidly growing population of the west Kendall area, but not serve as a major referral center for patients living elsewhere. (DHRS Ex. 1, pp. 32-34; TR 250, 280). The local health planning agency, then the Health Systems Agency ("HSA") of South Florida, Inc., 1/ reviewed HUMANA's application for a Certificate of Need, along with four other similar applications, and recommended that all five be denied because of asserted inconsistency with the HSA's Health System Plan. ("HSP") 2/ (DHRS Ex. 1, TR 77). The applications were then submitted to DHRS, the single state agency empowered to issue or deny Certificates of Need. 381.493(3)(a) and 381.494(8), Fla.Stat. (Supp. 1982). DHRS reviewed the HSA recommendation, conducted its own evaluation, and then denied all five applications, including HUMANA's. DHRS concluded: None of the five proposed projects are in compliance with the adopted Goals, Criteria, Standards and Policies of the Health Systems Agency of South Florida, as stated in the Health Systems Plan (HSP) and Annual Implementation Plan (AIP). A need to add acute care hospital beds to Dade County does not exist at the present time. The proposed projects would add to excess capacity and underutilization of hospital beds that now exist in Dade County. There are only five hospitals in Dade County that are at the recommended occupancy level of 80 percent based on licensed beds (none of which are located in South Dade), and the number of beds per 1000 population. The primary alternative would be not to construct any of the proposed projects. While all of the proposed projects represent some degree of financial feasibility, none are felt to be cost effective because increased bed capacity would result in costs and revenue higher than those projected for existing "High Cost" hospitals in 1984 as determined by the Hospital Cost Containment Board. (DHRS Ex. 1, p. 404) Thereafter, HUMANA timely instituted Section 120.57(1) proceedings challenging DHRS's denial; HUMANA's standing to do so is uncontested. HUMANA's position, maintained throughout, is that its proposed 150-bed hospital satisfies every legal criterion for the issuance of the applied-for Certificate of Need. Intervenor Baptist Hospital Intervenor BAPTIST HOSPITAL will be substantially affected if HUMANA is granted a Certificate of Need. BAPTIST is a fully licensed and accredited 513- bed, general acute care hospital located within HUMANA's proposed service area, at 8900 North Kendall Drive, Miami, Florida. (STIP-para. 8). If the proposed hospital is built, it would significantly and adversely affect the patient census and revenues of BAPTIST HOSPITAL. (TR 16, VOL 4). In 1982, BAPTIST drew 36.7 percent of its patients from HUMANA's proposed service area. (TR 15, 16, VOL 4). Fifty percent of the residents of the proposed service area (who were admitted to hospitals in Dade County) were admitted to BAPTIST HOSPITAL. (TR-440). It is estimated that BAPTIST would lose 15,047 patient days to the new HUMANA hospital and would experience significant adverse economic impacts. (TR 88-89, VOL 5). The proposed hospital would also adversely impact BAPTIST's ability to hire and retain nursing and technical personnel. BAPTIST has experienced difficulty in hiring and retaining these personnel. (TR 18, 60-73, VOL 4). Historically, the opening of a new hospital has adversely affected the hiring and retention of such personnel in nearby hospitals. (TR 72-73, VOL 4). Here, approximately 84 percent of BAPTIST's nurses live near HUMANA's proposed cite, thus increasing the likelihood that BAPTIST will be adversely affected in this manner. (TR 135, VOL 5). BAPTIST opposes the issuance of a Certificate of Need for HUMANA's proposed hospital, and supports DHRS's initial denial. Intervenor American Hospital Similarly, intervenor AMERICAN HOSPITAL would be significantly affected if the proposed HUMANA hospital is built. AMERICAN is a fully licensed and accredited 513-bed, general acute care hospital located and operated within HUMANA's proposed service area, at 11750 Bird Road, Miami, Florida, (STIP-para 8). AMERICAN currently draws 41 percent of its patients from HUMANA's proposed service area. The proposed hospital will cause AMERICAN to lose an estimated 5,300 patient days. (TR 76, VOL 5). This translates into an approximate loss of $4.1 million in potential revenues, based upon HUMANA's achieving a 75 percent occupancy rate and 41,000 patient days. (TR 75-76, VOL 5). Such a revenue loss may result in higher costs, which in the health care system, are normally translated into higher patient charges. (TR 86, VOL 5) HUMANA's proposed hospital would also aggravate AMERICAN's continuing shortage in nursing personnel. (Currently AMERICAN has approximately 50 full- time registered nurse vacancies.) (TR 134, VOL 5). It is reasonable to expect that HUMANA will hire a significant number of its nurses away from nearby hospitals. Over a six-month period, HUMANA's four existing hospitals in south Florida hired 112 registered nurses, 32.1 percent of whom were hired away from other hospitals in the area. (TR 783). AMERICAN, likewise, opposes the issuance of a Certificate of Need to HUMANA, and supports DHRS's initial denial. II. STATUTORY CRITERIA FOR CERTIFICATES OF NEED Section 381.494(6)(c) and (d), Florida Statutes (Supp. 1982), prescribes standards for evaluating applications for Certificates of Need. Those standards pertinent to HUMANA's application include: The need for the health care facilities and services . . . being proposed in relation to the applicable district plan, annual implementation plan, and state health plan adopted pursuant to Title XV of the Public Health Service Act, except in emergency circumstances which pose a threat to the public health. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services . . . in the applicant's health service area. 7. The availability of resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation; the effects the project will have on clinical needs of health professional training programs in the service area; the extent to which the services will be accessible to schools for health professions in the service area for training purposes if such services are available in a limited number of facilities; the availability of alternative uses of such resources for the provision of other health services; and the extent to which the proposed services will be accessible to all residents of the service area. 11. The probable impact of the proposed project on the costs of providing health services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and service to promote quality assurance and cost-effectiveness. In considering HUMANA's application, specific consideration must also be given to whether: . . .less costly, more efficient, or more appropriate alternatives to such inpatient services are . . . available and the development of such alternatives has been studied and found not practicable. . . . existing inpatient facilities providing inpatient services similar to those proposed are being used in an appropriate and efficient manner. . . . alternatives to new construction, for example, modernization or sharing arrangements, have been considered and have been implemented to the maximum extent practicable. . . . patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new service. 381.494(6)(d) Fla.Stat. (Supp. 1982). The controversy here is whether in 1988 (using a five-year planning horizon) there will be a need for HUMANA's proposed 150-bed hospital in the west Kendall area of south Dade County. DHRS, BAPTIST, and AMERICAN say that there will be no need: that existing hospitals serving the area have excess capacity and are underutilized--and that this condition will persist through 1988. HUMANA contends otherwise. As the applicant for a license, the burden of proving entitlement rests squarely upon HUMANA. 3/ The most accurate and reliable method for determining bed-need in this case, the historical demand-based method, requires the following: (1) identify planning area boundaries; (2) from historical population data, project population for the planning area using the five-year horizon for hospital services; (3) calculate a hospital use rate or the rate at which patients in the service area have used hospitals in terms of patient days per thousand; (4) project patient days by multiplying the use rate times the area population, and divide by 365 to yield a projected bed need; (5) compare projected bed-need with the licensed bed capacity of area hospitals and, using an appropriate occupancy standard, determine whether there will be an excess or shortage of hospital beds in the proposed planning area. (TR 55, VOL 5). Selecting a Health Planning Area The first step in determining whether a new hospital will be needed is selection of the appropriate health planning area. In 1982, the now-defunct HSA of South Florida adopted a Regionalization Plan for south Florida dividing HSA IX, a region, into five districts. (AM Ex. 4). Although not specifically mentioning hospitals, this plan implies that hospital bed-need determinations should be made on a district basis. The Kendall area, extending east and west, generally is denominated as "District D," and is, in turn, subdivided into three subdistricts. "D-1" encompasses Coral Gables and South Miami; "D-2" and "D-3" include Weschester, Kendall, Killian, and the west central Dade areas, the boundaries of which are U.S. 1 and the Palmetto Expressway on the east, Coral Reef Drive and Eureka Drive on the south, conservation area on the west, and the East-West Expressway, and Tamiami Trail on the north. (HU Ex. 4). HUMANA chose "D-2" and "D-3" as the appropriate health care planning area for determining need for its proposed hospital. District "D," however, is a more appropriate and reasonable area to use in determining need for the proposed HUMANA hospital. (TR 203, 258; 145-146, VOL 4; 56-57, VOL 5). The entire area of District "D" may be traversed, by car, in approximately 30 minutes, the roads are adequate, and there are numerous hospitals in the district which are easily accessible to its residents. (TR 57-58, 66, 77-78, VOL 5). Hospitals located in one part of District "D" are readily accessible to patients who reside in other areas of the District. HUMANA's bed-need analysis fails to adequately take into account hospitals within "D-1" or which are outside the District but are readily accessible (within 30-minutes driving time) to the majority of residents in "D- 2" and "D-3." (TR 145-146, VOL 4). Existing hospitals which are readily accessible to residents of a proposed service area cannot be reasonably excluded merely because they are located outside a theoretical boundary line. (TR 145- 146, VOL 4). A health planning area should be the area where most of the residents seek health care. (TR 615; 78-79, VOL. 5). Hence, a proposed health planning area should be tested against the actual hospital use of its residents and the accessibility of existing hospitals to those residents. The residents of District "D" travel freely within District "D" in seeking hospital care. South Florida Hospital Association Utilization and Patient Origin Program ("HUPOP") data show that approximately 60 percent of the patients residing in subdistricts "D-2" and "D-3" seek inpatient hospital care elsewhere. (TR 72, VOL 5; 616; AM Ex. 7 p. 19). 4/ There is a corresponding inflow of residents from outside "D- 2" and "D-3" who seek hospital care within "D-2" and "D-3". (TR 72, VOL 5). In comparison, approximately 70 percent of the residents of District "D" seek hospital care within the boundaries of the District and--of all the districts within the region-- District "D" has the highest percentage of residents who seek in-district hospital care. (TR 72-73, 79, VOL 5; AM Ex. 7, p. 19). In actual practice, then, the residents of District "D" heed the District boundaries but largely disregard subdistrict "D-2" and "D-3" boundaries. The residents of "D-2" and "D-3" have ready access to numerous hospitals providing a broad range of medical services. (TR 78, VOL 5). BAPTIST is a large general hospital with tertiary, secondary, and primary care services. With the exceptions of a burn center and a Level III neotology unit, virtually all health care services are provided. BAPTIST, AMERICAN, Coral Reef, South Miami, and Larkin hospitals provide health care services to residents of "D-2" and "D-3," within a 20-minute travel time. (BH Ex. 10, p. 1-13-19; BH Ex. 5 and 7). The few specialized services not available at these hospitals are provided at Jackson Memorial Hospital, within a 30-minute travel time. (BH Ex. 10, p. 1- 13). Accessibility of Existing Acute Care Hospitals Section 381.494(6)(c)(2), Florida Statutes (Supp. 1982), requires examination of the accessibility of existing health care facilities providing similar services to the same health service. The generally accepted standard for determining accessibility, found appropriate here, is whether general hospital beds are available to the service area's population within 30-minutes travel time by automobile, under average traffic conditions and for non- emergency purposes. This standard is used by HSAs and DHRS is used by federal health care planners, and is widely used by professional health care planners. (DHRS Ex. 1; BH Ex. 10, p. 1-10-13; TR 90, 123, 144, 166, 193; 85, 133-134, VOL 4; 58, 77, VOL 5). Applying this standard, seven hospitals are reasonably accessible to residents of HUMANA's proposed service area: AMERICAN, BAPTIST, Coral Reef Hospital, South Miami Hospital, Larkin Hospital, Doctors' Hospital, and Jackson Memorial Hospital. District "D" contains eleven hospitals, with a total of 2,882 licensed beds. (AM 3, p. 41; 4, p. D-3). Moreover, five of these, AMERICAN, BAPTIST, Coral Reef, Larkin, and South Miami, are even closer, within 20-minutes average travel time. (BH 5, p. 11). There is no evidence that the residents of "D-2/D-3", or District "D," as a whole, have any difficulty using or gaining access to these hospitals. Beds are available. The five hospitals closest to HUMANA's proposed service area, AMERICAN, BAPTIST, Coral Reef, South Miami, and Larkin, have a total of 1,825 licensed beds, 326 of which are not in service; of the 1,499 beds in service, 109 are not used. So there are 435 licensed beds, within 20-minutes of "D-2/D-3," not in service or not in use due to lack of demand. (BH Ex.10, p. I- 26, 5, 7, 10, p. I-26-28). Occupancy Standard for Determining Need The generally accepted occupancy standard for hospitals, used in deciding if additional beds are needed, is the 80 percent average annual occupancy rate. This standard is included in the 1981 Florida State Health Plan, is used by DHRS and HSAs, and is widely used by professional health care planners. Its use is appropriate here. (AM 135, VOL 2; TR 90-91; 95-97, 118, 132, 140, 165, 172, 313, 469; 141, VOL 4). In application, it means that additional hospitals should not be built until existing hospitals providing acceptable care to the proposed service area are operating at or above an 80 percent occupancy rate--the level at which hospitals, generally, operate most efficiently. In 1982, none of the eleven hospitals in District "D" met the 80 percent occupancy standard. (DHRS Ex. 1, AM Ex. 3, p. 7). In 1981, the five hospitals closest to HUMANA's proposed site had an average annual occupancy rate of 60.9 percent. (BH Ex. 10, p. I-24). Moreover, this excess is sufficient to meet the future health care needs of residents of "D-2/D-3" and District "D," as a whole. BAPTIST and AMERICAN will not achieve 80 percent occupancy until after 1988; AMERICAN is projected to have an occupancy of only 63.61 percent in 1990. (AM Ex. 3, p. 8; BH Ex. 10, p. 10, I-24). Availability of Resources to Build and Support Proposed Hospital Section 381.494(6)(c)(7) also requires consideration of whether there will be available adequate resources to support a new hospital, including manpower and financial resources. The evidence establishes, without contradiction, that HUMANA has sufficient funds to construct and operate its proposed hospital. The projected cost of the hospital, including equipment, is $29,175,500--70 percent to be funded by debt, the remainder by equity funds. HUMANA has, on hand, approximately $225 million in cash and cash equivalents. (TR 709, HU Ex. 2). The design of the proposed hospital will be based on HUMANA's "prototype" 150-bed facility, developed from years of experience in hospital design construction, and operation. The design is efficient and economical, and will permit a 50-bed expansion without further construction. (TR 714-716, 720, 719, HU Ex. 9). The parties agree that HUMANA has the ability to enlist or employ sufficient physicians and management personnel to staff the proposed hospital. (STIP, para. 3). HUMANA also has the ability to hire and retain an adequate nursing and technical staff. It recruits such personnel, routinely, on a national basis and transfers employees within its hospital system. Moreover, it has a mobile nurse corps, a group of nurses which are available on an as-needed basis, to help staff its south Florida hospitals during peak winter months. Historically, HUMANA has successfully recruited and retained nurses in its south Florida hospitals. (TR 772, 776-777, 781-782, 801-802, VOL 4). Projected Population of Service Area As already mentioned, under the preferred demand-based bed-need methodology, population is projected over a five-year planning horizon, for hospital facilities. This is because an increase in a service area's population will generate a need for more beds. The population of the Kendall area of south Dade County has been growing rapidly, and is expected to continue to do so through 1990. This population is younger than the population of Dade County or HSA IX, as a whole. The population projections for District "D" (the appropriate health planning area for the proposed hospital) by age groups are: District D 1987 1990 Under 15 92,301 96,506 15 to 64 357,567 327,652 65 and over 52,188 55,822 TOTAL (AM 3; TR 59-61, VOL 5; 488 VOL 3) 502,056 529,980 I. Hospital Use Rate Under the demand-based methodology, found acceptable here, once the planning area is designated and the population projected over a five-year planning horizon, a hospital "use rate" is calculated. The "use rate" is the rate at which people use hospitals, expressed in terms of the number of patient days per thousand residents residing in the health service area. This rate can be derived using various factors. Those factors most appropriate for use in this case are "age" and "service-specific" uses. (TR 66 VOL 5; 497-498 VOL 3). "Age-specific" use rates, reflecting historic hospital use rates by age group, are applied to the projected population to determine total patient days. This factor takes into account the fact that people 65 or older utilize hospitals at a rate three to four times that of people under 65. This is particularly significant here since the Kendall area population is younger than the population of Dade County, HSA IX, or the state, as a whole. (TR 58-59, VOL 5; AM 3, p. 12). In 1981, the age-specific use rate for HSA IX reflects a use rate of 1,524.6 patient days per thousand population. (AM 3, p. 63). "Service-specific" use rates are derived from historical use of particular hospital services, such as psychiatry, obstetrics, pediatrics, and medical-surgical. (AM 3, pp. 14-15, 70-72). The 1981 service-specific use rate, covering all services, for HSA IX was 1,524.6 patient days per thousand--a figure equal to the age-specific use rate. (AM 3, p. 14-15, 71). J. Calculation of Future Bed Need for District "D" In 1982, there were 2,882 licensed non-federal beds in District "D." Taking into account an 80 percent occupancy rate, and applying the HSA age- specific use rate to the projected population of District "D" yields a need for only 2,282 beds per day in 1987, and 2,419 beds per day in 1990. Hence, there will be an excess of 600 beds in District "D" in 1987; 554 in 1988; and 463 in 1990. (AM 3, p. 41, 69; TR 63, VOL 5). Similarly, applying the HSA IX service- specific use rate to the projected District "D" population results in a bed excess of 232 beds in 1987 and 87 in 1990. (AM 3, p. 74). Significantly, these projected bed excesses are, if anything, understated. This is because the HSA IX hospital use rate was utilized. Hospital use is greater in HSA IX, with its older population, than in District "D," where the population is younger and less likely to be hospitalized. (TR 61-62, VOL 5). HUMANA, in its analysis, applied age and service-specific use rates to the projected population of "D-2/D-3," concluding that there would be a need for 238 additional beds in 1988. This conclusion, however, is unconvincing since "D-2/D-3" is unduly restrictive and the 235 unused beds of South Miami and Larkin Hospitals, both located in "D-1," are not fully considered. (DHRS 1, p. 370; AM 3, p. 18). (Both hospitals are within a 20-minute average travel time from selected points in "D-2/D-3.") (TR 544, VOL 3; 612, VOL 4). By failing to properly account for empty beds at nearby hospitals, and by unreasonably limiting its planning area, HUMANA overstates the need for additional hospital beds in District "D." Moreover, even assuming the propriety of "D-2/ D-3," HUMANA failed to properly take into account the 260 beds of Coral Reef Hospital, a "D-2" hospital. If Coral Reef Hospital beds are correctly included within "D-2/D-3," HUMANA's projected bed-need decreases from 238 to 129 beds in 1988. (TR 80, VOL 5). Finally, Thomas W. Schultz, HUMANA's health care planning expert, admitted that a figure of 1,038 patient days per thousand patients would be "useful" in establishing bed-need for "D-2/D-3." (TR 501, VOL 3). Applying that use rate, and correctly including Coral Reef Hospital, results in a projected "D-2/D-3" need of 36 additional beds in 1988. (TR 83-84, VOL 5). HUMANA does not propose to construct a 36-bed hospital and such a hospital has not been shown to be feasible.
Recommendation Based on the foregoing, it is RECOMMENDED: That HUMANA's application for a Certificate of Need to construct a hospital in the west Kendall area of Dade County, Florida, be denied. DONE and ENTERED this 25th day of May, 1983, in Tallahassee, Florida. R. L. CALEEN, 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 25th day of May 1983.
The Issue Whether Rule 59C-1.038, the acute care bed need rule, is an invalid exercise of delegated legislative authority. Whether this rule challenge should be dismissed as an untimely attack on a published fixed need pool.
Findings Of Fact In August 1994, the Agency for Health Care Administration ("AHCA") published a numeric need of zero for additional acute care beds in AHCA District 9, Subdistrict 5, for southern Palm Beach County. Pursuant to Subsection 408.034(3), Florida Statutes, AHCA is the state agency responsible for establishing, by rule, uniform need methodologies for health services and facilities. In September 1994, NME Hospitals, Inc. d/b/a Delray Community Hospital, Inc. ("Delray") applied for a certificate of need ("CON") to add 24 acute care beds for a total construction cost of $4,608,260. AHCA published its intent to approve the application on January 20, 1995, in Volume 21, No. 3 of the Florida Administrative Weekly. By timely filing a petition, Bethesda Memorial Hospital, Inc. ("Bethesda") challenged AHCA's preliminary decision in DOAH Case No. 95-0730. Bethesda is also located in AHCA District 9, Subdistrict 5. On May 24, 1995, Bethesda also filed the petition in this case challenging Rule 59C-1.038, Florida Administrative Code, the acute care bed need rule. Pursuant to the acute care bed need rule, AHCA's August 1994 notice published its finding that zero additional acute care beds will be needed in the southern Palm Beach County subdistrict by July, 1999. The data, formulas, and calculations used in arriving at the number zero were not published. AHCA and Delray argue that the publication put persons on notice to inquire into the population data, occupancy rates, or the calculations leading to the published need number. An AHCA rule bars a person from seeking, and AHCA from making, any adjustments to the fixed need pool number if the person failed to notify AHCA of errors within ten days of publication. Still another rule defines "fixed need pool" as the " . . . numerical number, as published. " Bethesda is not contesting and, in fact, agrees that the fixed need pool number as published, zero, is correct. Using AHCA's definition of the fixed need pool, Bethesda's challenge is not barred because it failed to notify AHCA of an error in the fixed need pool number within 10 days of publication. Bethesda is challenging as irrational and invalid subsections (5), (6), and (7) of the acute care bed need rule. Subsection (5) directs the local health councils to determine subdistrict bed need consistent with the methodology for determining district bed need. Under that provision, total projected patient days of acute care needed in a district is calculated by adding together the projected patient care days needed in medical/surgical, intensive care, coronary care, obstetric, and pediatric beds. Each of these separate bed need projections is computed, in general, by multiplying projected population in the district for the appropriate age or gender group times a factor which is the product of the statewide discharge rate and the average length of stay for that particular type of care. After the total projected acute care patient days for district residents is computed, the number is adjusted to reflect historical patient flow patterns for acute care services, for out-of-state residents served in the district, for residents of other districts served in the district, and for residents of the district served outside the district. The rule includes specific percentages to apply for each patient flow group for each of the eleven districts. After the total number of beds needed in the district is derived, that number is decreased by the number of existing licensed or approved beds to get the number of additional acute care beds needed in the district, if any. Bethesda is challenging subsections (7)(a), (b), and (c) of the acute care rule, which authorize adjustments to the calculations from subsections (5) and (6) to achieve desired occupancy levels, based on historic utilization of acute care beds in a district. Bethesda is also seeking a determination that subsections 7(d) and (e) are invalid. Each of those subsections of the rule refer to (5)(b), although AHCA's expert witness testified that they should refer to (6)(b). Subsection (7)(d) requires at least 75 percent occupancy in all hospitals in the district before new acute care beds normally are approved, regardless of the net need projected by the formulas. Subsection (7)(e) allows approvals under special circumstances if net need is projected by the formulas and the applicant facility's occupancy rate equals or exceeds 75 percent. Subsection (7)(e), the provision directly related to the Delray application, is as follows: (e) Approval Under Special Circumstances. Regardless of the subdistrict's average annual occupancy rate, need for additional acute care beds at an existing hospital is demonstrated if a net need for beds is shown based on the formula described in paragraphs (5)(b), (7)(a), (b), (c), and (8)(a), (b), (c), and provided that the hospital's average occupancy rate for all licensed acute care beds is at or exceeds 75 percent. The determination of the average occupancy rate shall be made based on the average 12 months occupancy rate made available by the local health council two months prior to the beginning of the respective acute care hospital batching cycle. Phillip C. Rond, III, Ph.D., was the primary architect of the rule, beginning in 1981. The rule was initially published in 1982, and adopted in 1983. Constants in the rule formulas, including use rates, average lengths of stay, occupancy standards and patient flow patterns were taken from a 1979 survey of some state hospitals. Because data used for the constants in the formulas was expected to change, subsection (6) also provides, in pertinent part, that: Periodic updating of the statewide discharge rates, average lengths of stay and patient flow factors will be done as data becomes available through the institution of statewide utilization reporting mechanisms. Patient flow factors were updated in March 1984 to reflect a change in the realignment of counties in Districts 5 and 8. No other constants have been updated since the rule was adopted in June 1983. More current data is available. The Hospital Cost Containment Board ("HCCB") began collecting statewide hospital inpatient discharge data in the fourth quarter of 1987, which became available by the fall of 1988. AHCA now collects the data. Using the rule, the projected net need for acute care beds in 1999 in District 9 is 1,442 additional beds. By contrast, with the factors updated by Dr. Rond, the projected net need is a negative 723 or, in other words, District 9 has 723 more acute care beds than it will need in 1999. The updated formulas show a need for a total of 3,676 beds in District 9, which already has 4,399 licensed or approved acute care beds. Since 1983, hospital utilization has declined in both rates of admissions or discharges, and in average lengths of stay. Although the occupancy goals in the rule are 75 to 80 percent, depending on the type of hospital service, the occupancy rate achieved by using the number of beds projected by the rule methodology is 45 to 52 percent. The statewide occupancy rate in acute beds is approximately 50 percent in 49,215 licensed beds. The formulas in the rule show a statewide net need for 6,000 more beds in 1999, but updated constants in the same formulas result in a total statewide need for approximately 36,000 acute care beds in 1999, or 13,000 fewer beds than currently exist. Statewide utilization of acute care hospital beds declined from 1187.2 days per 1000 population in 1983 to 730.5 days per 1,000 in 1993, despite increases in the percentage of the elderly population. By 1987, AHCA's predecessor realized that the need methodology in the rule was grossly overestimating need and inconsistent with its health planning objectives. Subsection (7)(d) was added to the rule to avoid having a published fixed need based on the outdated methodology in subsections (5), (6) and 7(a)- (c). The occupancy data is also, as the 1987 amendment requires, that reported for the most recent 12 months, available 2 months before the scheduled application cycle. In August 1994, AHCA published a numeric need of zero for District 9, Subdistrict 5, rather than 1,442, the calculated net need predicted by the formulas in the rule, because all subdistrict hospital occupancy rates did not equal or exceed 75 percent. Elfie Stamm of AHCA, who is responsible for the publication of fixed need pools, confirmed that the 1987 amendment to the rule was an efficient and cost-effective way to avoid publishing need where there was no actual need. She confirmed Dr. Rond's conclusions that the formulas are no longer valid and produce excessive need numbers, as in projecting a need for 6,000 or 7,000 more acute care beds in the state. She also confirmed that none of the constants in the formula have been updated as required by subsection 6. Ms. Stamm claims that the information needed to update the formulas cannot be obtained easily from any statewide utilization reporting mechanism. One problem, according to Ms. Stamm, is the possibility of including patients in acute care beds with comprehensive rehabilitation, psychiatric, or substance abuse problems, although it is not lawful for acute care providers to place patients with these primary diagnoses in licensed acute care beds and all data bases have some miscoding of diagnoses. She also testified that some factors required in the formulas are not included in HCCB data base. In addition, she testified that AHCA is in the process of filing a notice to repeal the acute care bed need rule. The filing of the notice of repeal, published in Volume 21, Florida Administrative Week, pp. 4179-4180 (6/23/95) was confirmed by Bethesda's Request For Official Recognition, which was filed on July 20, 1995, and is granted. Ms. Stamm also noted that rules for other need-based health services have facility-specific special circumstances provisions, which are not tied to numerical need, otherwise the special circumstances are not really facility- specific. Need rules make no sense, according to Ms. Stamm, without an exception in the absence of a determination of need. Subsection (7)(e) of the acute care rule requires a finding of numeric need and a 75 percent occupancy rate at the applicant facility. Ms. Stamm's records indicate that AHCA's predecessor adopted the facility-specific provisions tied to net need at the same time it adopted the 75 percent average district occupancy standard to overcome the problems with the net need formula. AHCA asserts that the admittedly irrational need methodology when combined with the 1987 amendment achieves a rational result. Because the need methodology always over estimates numeric need, facilities exceeding 75 percent occupancy have an opportunity to demonstrate special circumstances. Daniel Sullivan, Delray's expert, also testified that problems exist in extracting acute care bed from specialty bed utilization data, in hospitals which have both. He also agreed with Ms. Stamm that the 1987 amendment corrects the erroneous projections of the formula to give a rational outcome from the rule as a whole when not all hospitals in a subdistrict equal or exceed 75 percent occupancy and when one hospital, over 75 percent occupancy, attempts to establish a special circumstance, despite the fact that the need methodology itself is always wrong in projecting numeric need. Ms. Stamm testified that one district is approaching 75 percent occupancy in all hospitals. Mr. Sullivan testified that, if and when that occurs, then the formula is intended to, but does not, reflect the number of additional beds needed. An alternative methodology is required to determine bed need. AHCA, with its responsibility for the data base formerly collected by the HCCB, receives discharge data and financial worksheets from every hospital in the state. The claim that AHCA cannot update the formulas because its data may be unreliable is rejected as not credible. The data now available is more reliable than the 1979 data used in developing the rule, which was not collected from a formalized statewide reporting system, but from a sample of hospitals. The claim that AHCA cannot use its data base from mandatory statewide reporting mechanisms to extract the data needed to update the formulas is also rejected. The rule contemplated ". . .the institution of statewide utilization reporting mechanisms." Dr. Rond's work to update the formulas before the final hearing began on May 23, 1995. Dr. Rond used a total of approximately 1.5 million acute care discharges from the AHCA (formerly, HCCB) data base for the 1992 calendar year. At the time of the final hearing, Dr. Rond had not separated days of care for medical/surgical, intensive and coronary care. The data can be taken from hospital financial data, including detailed budget worksheets which are submitted to AHCA. Separate data are anticipated in the formula because the computation of need for the different bed categories is based on different occupancy goals. For medical/surgical and intensive care beds, the goal is 80 percent occupancy, but it is 75 percent for coronary care for persons age 0 to 64. For persons 65 and older, the rule applies a combined occupancy standard of 79.7 percent for all three bed categories, which assumes that approximately 4 percent of the combined days of older patients will be spent in coronary care. Dr. Rond reasonably applied the 79.7 percent occupancy standard to the combined days for persons under 65, in arriving at the total district bed need for 3,676 beds. To check these results and to assume a worse case scenario of all patient days attributable to coronary care beds, for which more beds are needed to maintain a lower occupancy, Dr. Rond worked the formula using 75 percent occupancy as the goal for medical/surgical, intensive and care coronary care beds combined. Although the base number increased by 100, the calculations and adjustments in the rule yielded the same number of total acute care beds needed in the district, 3,676. That reliably confirms that the maximum number of acute care beds needed in District 9 is 3,676 by 1999. AHCA could use its data base to update formulas and achieve rational results in the rule by using the hospital financial data to distinguish coronary care days for patients 0-64 to include in the formula, or by using a rational blended occupancy standard in a rule amending the existing methodology. AHCA demonstrated that the 1987 amendment overrides the exaggerated numeric need number to yield a rational published fixed need pool in the absence of 75 percent occupancy in all acute care beds in a subdistrict. AHCA also demonstrated that because the projected need is always excessive under the formula, hospitals are allowed to demonstrate special circumstances, although it is absurd to include a requirement of numeric need in a provision for special circumstances. AHCA's claim that the excessive need projection is, therefore, irrelevant is rejected. Net need under the rule formula fails to give any rational indication of the number of beds needed when all hospitals in a subdistrict reach 75 percent occupancy.
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.
Findings Of Fact On the basis of the stipulation of counsel, respondent's testimony, and certain records stipulated into evidence, it was established that respondent began injecting herself with Demerol on December 26, 1976, while she was working as a registered nurse at Lake Seminole Hospital in the intensive care ward. Between December 26, 1976, and January 4, 1977, respondent gave herself intravenous injections of Demerol, while at work, on eight to ten occasions. On some, but not all, of these occasions, she used medicine for herself that had been entrusted to her for administration to patients in her care, in order to relieve their suffering. Before this matter was discovered, in January of this year, respondent did competent work as a registered nurse and was well-regarded by her supervisors in the various hospitals in which she has been employed. She has also worked as a registered nurse since, without incident.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner revoke respondent's license as a registered nurse. DONE and ENTERED this 19th day of September, 1977, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Mr. Julius Finegold, Esquire 1005 Blackstone Building Jacksonville, Florida 32202 Joseph S. Dumbacher, Esquire Post Office Box 8215 Maderia Beach, Florida
Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the 2{, U, day of - J lJ_h (2 ---' 2014, m Tallahassee, Florida. ELIZ RETARY Agency for Health Care Administration A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BYLAW. WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: Shena Grantham, Esquire Agency for Health Care Administration 2727 Mahan Drive, MS#3 Tallahassee, Florida 32308 Peter A. Lewis, Esquire Law Offices of Peter A. Lewis, P.L. 3023 North Shannon Lakes Drive, #101 Tallahassee, Florida 32303 (U.S. Mail) CERTIFICATE OF SERVICE == ' I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to ------==-- the above named addressees by U.S. Mail on this th f 2014. Richard Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403
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 Department of Health and Rehabilitative Services ("HRS") Rules 10- and 10-17.005 (originally published as 10-16.001, 10-16.005), Florida Administrative Code, constitute an invalid exercise of delegated legislative authority.
Findings Of Fact Standing Humana is a corporation engaged in the business of constructing and operating hospitals in Florida. It has applied to HRS for a certificate of need to construct and operate a 100-bed acute care hospital to be located south of the St. Johns River in the area known as Mandarin, in Duval County, Florida. The challenged Subdistrict Rule places this area in Subdistrict 3 of HRS District IV. Humana's (Mandarin) application for a certificate of need (CON) was denied by HRS on February 23, 1983, and Humana requested a formal Section 120.57(1), hearing. The case was then transferred to the Division of Administrative Hearings and assigned Case Number 83-934. The final hearing in that CON case began on September 6, 1983, and recessed on September 7, 1983. In the instant case--on Humana's request, and without objection by HRS--official recognition was given to the transcript of that hearing, as filed with the Division of Administrative Hearings. Prior to the CON hearing in Case Number 83-934, on August 12, 1983, HRS published proposed Rules 10-16.001 and 10-16.005 ("Subdistrict Rule") at Volume 9, Number 32, pages 1952 through 1957, Florida Administrative Weekly. (Petitioner's Exhibit No. 1) After the CON hearing recessed, and after a public hearing on the proposed Subdistrict Rule, HRS published changes to the rule on September 23, 1983, at Volume 9, No. 38, page 2475-2476, Florida Administrative Weekly. These changes were made in response to comments which HRS received at a public hearing held on the proposed rule. (Petitioner's Exhibit No. 2) On September 26, 1983, HRS filed the Subdistrict Rule with the Department of State for adoption, effective October 16, 1983. (Petitioner's Exhibit No. 3) Thereafter, the Bureau of Administrative Code, Department of State, informed HRS that since other rules were already numbered in Chapter 10-16, Florida Administrative Code, the Subdistrict Rule would be published in Chapter 10-17, Florida Administrative Code. (Petitioner'S Exhibit No. 28) At the CON hearing, Humana attempted to introduce evidence which HRS challenged as inconsistent with Rule 10-5.11(23) the state-wide acute care bed- need rule, and the Subdistrict Rule--then a proposed rule not yet adopted by HRS. The presiding hearing officer, acknowledging the "proposed rule" status of the Subdistrict Rule, sustained HRS objections to the admission of evidence proposing a methodology, or subdistrict bed-need allocations, inconsistent with those contained in the (proposed) Subdistrict Rule. He did, however, rule that the two non-agency parties could offer evidence for the purpose of showing that HRS, or the local health council in conjunction with HRS, had developed bed-need formula or techniques for subdistricts beyond, or inconsistent with, the proposed Subdistrict Rule and the underlying local health council's district plan. (DOAH Case No. 83-934, pp. 220-221, Transcript of Hearing). II. The Rule Adoption Process In response to Section 381.494(7)(b), Florida Statutes (1983), requiring local health councils to develop district plans using a "uniform methodology," HRS transmitted to the councils written guidelines for designating and allocating bed-need among various subdistricts. (Petitioner's Exhibit Dos. 9 and 10) The statute does not express or imply that the word, "methodology" should be given a meaning other than that assigned by ordinary and common usage. Webster's Seventh New Collegiate Dictionary defines the term as: "a body of methods, rules and postulates; a particular procedure or set of procedures." A methodology is not necessarily a mathematical formula. These guidelines, transmitted to the local health councils in early 1983, describe the relationship between HRS and the councils, the format and content elements of district health plans, and the requirements for stating district health care policies and priorities. Examples are provided. The guidelines require that local plans contain a district health profile--an overview of the area's population characteristics, community health status and prevailing health related attitudes and behaviors. Components are also required, including detailed information on the district's health care resource inventories, costs and utilization patterns, analysis of local services as well as recommendations and priorities for future health systems development. For at least three types of existing health care facilities--acute care hospitals, nursing homes, and psychiatric specialty hospitals information must be provided on current capacity, physical status, service areas, and recommendations for future developments. A time frame is imposed for accomplishing each phase of the plan development, with the final phase adoption of the local health plan--to be accomplished by December, 1983. Finally, the guidelines, at page 15, point out the statutory requirement that HRS adopt, by rule, those elements of the approved district plans necessary for review of applications for certificates of need: Adoption Into Rules Section 7(b) of Chapter 381.493 states that "Elements of an approved district plan necessary to the review of any certificate of need application shall be adopted by the Department as a part of its rules." This should be kept in mind through- out the plan development process. Local policies and priorities are the items most pertinent to certificate of need review since information on bed need and capacity are either determined at the state level or must be updated to the time of certificate of need application, review and appeal. There- fore, the local health council will be ex- pected to develop a separate submission of their policies and priorities in the proper format for rule promulgation within thirty days of the adoption of the local health plan. State agency staff will assist in the development and refinement of these documents. (Petitioner'S Exhibit No. 9) HRS interpreted its responsibility under Section 381.494, as one of assuring that district health plans were consistent with the state-wide uniform bed-need methodology prescribed in Rule 10-5.11(23). Under subparagraph "d" of that rule, local health plans must designate subdistricts according to HRS guidelines. Subparagraph "e" requires that beds be allocated to designated subdistricts consistent with the total number of beds allocated to the district under the rule, and consistent with subparagraph "i," which contains geographic accessibility standards. Rule 10-5.11(23) * * * * * Acute Care Service Subdistrict Designation. Acute care service sub- district designations shall be adopted, as necessary, by each Local Health Council as an element of its local health plan according to guidelines developed by the State Health Planning Agency. Designations will become effective for the purposes of this rule upon the filing of the adopted local health plan acute care subdistricting elements with the Secretary of State. Subdistrict Bed Allocations. Subdistrict bed allocations by type of service shall be made by the Local Health Councils consistent with the district total acute care bed allocation as determined by the methodology contained in paragraph (f) below, as well as any adjustments to the allocation as determined by the provisions of paragraphs and (h) below. Such allocations shall also be consistent with the provisions 9f paragraph (i) and the requirements of Section 381.494(7)(b) , Florida Statutes. * * * * * Geographic Accessibility Considerations. Acute care hospital beds should be available and accessible within an automobile travel time of 30 minutes under average travel conditions to at least 90 percent of the population residing in an urban area subdistrict. Acute care hospital beds should be available and accessible within a maximum automobile travel time of 45 minutes under average travel conditions to at least 90 percent of the population residing in a rural area sub- district. The elements of the District IV health plan contained in the Sub- district Rule are consistent with the uniform methodology prescribed in Rule 10-5.11(23) and HRS guidelines. In response to these guidelines, the District IV health council adopted and transmitted to HRS, on July 7, 1983, the acute care component of the district health plan. After the district council approved this component and allocated beds to the various subdistricts, HRS supplied updated population figures resulting in an increase in the total number of beds allocated to the district. The council's staff then adjusted the number of beds allocated to the subdistricts on a pro rata basis. These adjustments were consistent with the council's policy, as reflected by its approval of the acute care component. No evidence has been presented to show that the council's staff lacked authority to make these adjustments. (Petitioner's Exhibit No. 7) In addition to allocating district wide bed-need among the subdistricts of District IV, the acute care component contains detailed information and analysis concerning acute care bed-need. This information is pertinent but not necessary to the review of CON applications in District IV. (Petitioner's Exhibit No 7) The challenged Subdistrict Rule simply designates subdistricts and allocates bed-need among them; other data and analysis contained in the acute care component are not included. HRS, however, is now drafting an addition to the Subdistrict Rule (Section 10-17.005), titled "subsection (3), Acute Care Policies and Priorities," which incorporates additional portions of the district plan for use in reviewing CON applications in District IV. This draft rule allows exceptions based on local conditions: When there are more than one widely separated hospital service areas located within a single subdistrict, such as St. Augustine in South Duval Subdistrict 3, Bunnell and Daytona Beach in Subdistrict 4, and unforeseen growth, change and makeup of population, or other circumstances cause a significant increase in the demand for inpatient care within one of the service areas, the State should make exception to the District Health Plan when it is reasonable and logical to do so. (Petitioner'S Exhibit No. 34) This provision was contained in the district plan at the time HRS adopted the Subdistrict Rule. (Petitioner'S Exhibit No. 7) The Subdistrict Rule, with the exception of St. Lukes' Hospital, allocates beds among the subdistricts on the basis of the number of patient-days currently utilized by the hospitals in each subdistrict, projected for 1988. St. Lukes' Hospital, now located on the north side of the St. John's River in Subdistrict 1, will move to the south side of the St. John's River in Subdistrict 3, the subdistrict where Humana seeks to build its Mandarin hospital. This move from north to south is accounted in the subdistrict allocation by assuming that 34 percent of the current (north) St. Lukes' Hospital patient-days will come with the hospital when it moves from Subdistrict 1 to Subdistrict 3, and that the remainder will come from Subdistrict 3 (south) patients. With 66 percent of St. Lukes' bed capacity allocated for Subdistrict 3, there will be no additional bed-need in that subdistrict for years. HRS prepared an economic impact statement (EIS) in connection with its adoption of the subdistrict rules, including the Subdistrict Rule under challenge. The EIS addresses the agency's cost to implement the proposed rules, the cost or economic benefit to persons directly affected, and the affect on competition. The data and methods used in preparing the EIS are also briefly summarized.
