The Issue The issues under consideration are those associated with applications filed by the aforementioned private parties seeking certificates of need for skilled nursing home beds based on a fixed need pool of May, 1989, which identified 261 beds for the January, 1992 planning horizon. The beds are available in HRS District III. The applications are for: CON Action No. 5987 Inverness--20 beds; CON Action No. 5912 Suwannee--60 beds; CON Action No. 5913 McCoy-- 60 beds; CON Action No. 5962 Starke--120 or 60 beds; and CON Action N. 5905 Regency--120 beds.
Findings Of Fact Related to the May, 1989 batching cycle HRS has identified a need for 261 nursing home beds in District III. The applicants accept that determination of the pool of beds, that is to say no applicant has sought beds over and above the 261 beds identified by HRS. Further, the parties have expressed their agreement to allow Regency to be granted CON 5905 to construct a new nursing home facility in Lake County, Florida, which will have 120 beds. The written stipulation sets out the parties belief that all applicable criteria for obtaining a certificate of need as set out in Section 381.705, Florida Statutes, have been met. That stipulation is accepted, provided the following conditions are met in issuing the certificate of need: The annual resident population of the facility shall include at least 62% of Medicaid patient days. Two beds shall be dedicated to the care of Alzheimer and respite care residents. The facility shall be a one story design consisting of 43,000 square feet in size. Likewise, the parties have agreed to allow the issuance of CON 5987 to Inverness to add 20 community nursing beds to its existing facility in Inverness, Florida. That written stipulation points out the agreement by the parties concerning the Inverness compliance with all applicable criteria set out in Section 381.705, Florida Statutes as well as any implementing rules set forth in Chapter 10-5, Florida Administrative Code. The arrangement is one by which existing ACLF beds are converted to nursing home beds. That stipulation is accepted, upon condition that Inverness commit to provide a minimum of 75.2% of total patient days for Medicaid patients. The Inverness stipulation which reiterates Inverness' lack of opposition to the grant of a certificate of need to Regency also withdraws its opposition to McCoy, Starke and Suwannee. By the terms of the stipulation's 140 of the 261 beds in the pool are spoken for. This leaves for consideration the applications of Suwannee, Starke and McCoy. In the absence of subdistricting, District III is divided into seven planning areas. The planning areas are as established by the North Central Florida Health Planning Council, Inc. Planning Area l is constituted of Hamilton, Suwannee, Lafayette, Columbia, Union and Bradford counties. Suwannee intends to place its facility in Suwannee County. Starke intends to place its facility in Columbia County. The expansion of the McCoy facility would occur in Marion County which is the sole county in Planning Area 4. By resort to the North Central Florida Health Planning Council District III Health Plan preferences can be seen concerning the allocation of beds among the applicants within the various planning areas. A copy of that plan is HRS Exhibit No. 2. Under this scheme the McCoy application to add 60 additional nursing home beds to its existing facility in Marion County, Florida, is considered a third priority. A third priority would allow the addition of at least 60 beds and no more than 120 beds. The Suwannee and Starke applications are a fourth priority under the local plan which allows for an addition of up to 60 beds. The McCoy application as presented at hearing responds adequately to all applicable criteria set out in Section 381.705, Florida Statutes, to include the State Health Plan and District III Health Plan. McCoy holds a superior license rating at present and has a proposed capital expenditure for this project of $1,568,000. Taking into consideration the proposed allocation of beds set forth in the local health plan, the distance between the McCoy facility and the proposed facilities in Suwannee and Columbia counties by the applicants Suwannee and Starke and absent proof which clearly identifies that Suwannee and Starke are meaningful competitors against McCoy and its attempt to gain a certificate of need calling for expansion of its facility, the McCoy application should be granted. That grant should be conditioned upon a willingness to serve Alzheimer patients in the proposed 14 bed unit and the commitment to provide Medicaid at a 60% level as a minimum commitment. This arrangement would bring the total number of nursing home beds at McCoy to 120, a desirable number when considering economies of scale. What must be resolved by comparative analysis of the applications of Suwannee and Starke, is which of those competitors for 60 beds out of the 61 beds remaining in the pool should be granted a certificate of need, if any. Starke had noticed its intention to apply for 120 beds and made application for 120 beds and in the alternative for 60 beds. The decision to notice its intent to apply for 120 beds was not misleading nor inconsistent with HRS policy in a circumstance where the application was stated in the alternative for 120 beds or 60 beds. The significant point is that Starke explained its alternatives of 120 beds or 60 beds in detail in the course of the application. HRS perceives that the 120 bed notice of intent took into account a lesser number of beds being applied for on the due date for applications and that perception is reasonable. Suwannee noticed the intent to apply for 60 beds and applied for that many. Both Suwannee and Starke met all procedural requirements for consideration of their applications for nursing home beds. In determining the disposition of the 60 nursing home beds needed for Planning Area l within District III, it is noted that Suwannee and Columbia counties are contiguous. Columbia is east of Suwannee. While the main emphasis by these applicants is to serve the needs of residents within the two counties where the facilities would be located, given their contiguity there is a potential for either applicant to serve needs within both counties. Columbia county is the more populous county. However, in the two counties the age cohorts in the 65 and over group and 75 and over group are similar, especially in the 75 and over group. Occupancy rates in the existing nursing homes within the two counties are also similar. The J. Ralph Smith Health Center in Suwannee County has 107 existing beds and 54 beds approved. Those additional 54 beds were designated for residents of the Advent Christian Village exclusively; however, the residents of that village constitute part of the population base in Suwannee county. Therefore this limited utilization of that resource still benefits citizens within Suwannee county. Surrey Place in Suwannee county has 60 beds and the Suwannee Health Care Center has 120 beds with 60 more approved. The 60 additional beds may not be constructed in that the applicant failed to proceed to construction in the time contemplated by CON 3746 and may lose the beds. Columbia County has Tanglewood Care Center with 95 beds. It has Lake City Medical Center with 5 beds associated with a hospital. Palm Garden of Columbia has approval for 60 beds. On balance there would not appear to be an advantage to placing the 60 beds at issue in either Suwannee or Columbia counties when considering the population to be served, present occupancy rates for existing nursing bomes and geographic accessibility to the proposed nursing homes. Suwannee is a wholly owned subsidiary of Santa Fe Health Care, Inc. The parent corporation filed the application with the permission of Suwannee. The 60 bed nursing home facility is part of an overall project which includes the replacement of an existing 60 bed acute care hospital with a 30 bed acute care hospital. If the proposals are accepted the hospital and 60 bed nursing home would be located on a common parcel. HRS has granted CON 6179 to decertify 30 beds. The approved cost of the delicensure and establishment of the new hospital is $6,752,824. The nursing home component of this project is stated to cost $3,408,100 in the way of capital expenditures with an operating equity in the amount of $300,000. The overall health care delivery system contemplated in the hospital and nursing home project includes the replacement hospital, the new nursing home, an out patient diagnostic center, home health care, hospice and adult day care services. Suwannee has the financial backing of its parent corporation which owns a number of health care facilities including six hospitals, two health maintenance organizations and six other health related corporations. Both Suwannee and the parent corporation Santa Fe Health Care, Inc. are not for profit. The Santa Fe operations are in Florida and its hospital holdings include other rural hospitals in addition to Suwannee which is a rural hospital. Before filing the application for the 60 bed nursing home neither Suwannee nor the Santa Fe parent corporation had any involvement in long term health care delivery. Suwannee intends to serve the needs of Alzheimer patients and to provide services to persons needing subacute care. In its present hospital facility in Suwannee County it has 24 swing beds with which it serves patients needing subacute care and which beds are seen as an alternative to nursing home beds. That alternative has limited utility. Although swing beds may serve nursing home patients they are not an alternative for long term care in lieu of community nursing home beds. To the extent that Suwannee Hospital has tried to place patients in nursing homes needing a high level of skilled care, described as subacute care, it has experienced problems. Existing nursing homes in Suwannee County have not accepted the placement of those patients. It is unclear from the record what portion of subacute care needed in the service area will continue to be met in the hospital proper with the advent of delicensure of 30 beds. There was testimony to the affect that the hospital has the option to request swing beds in its remaining 30 bed hospital facility, but it has not been shown that the hospital will avail itself of that opportunity and through the use of the swing beds be able to render subacute care. The description by Suwannee of the subacute patients that it is contemplating serving through its nursing home are those who require a shorter stay in nursing facilities, who are said to have fragile medical condition and require intensive licensed nursing care. In the application, it states that the Medicare patients contemplated as being served by this prospective nursing home would be the principal users of the subacute care. There patients would have an average length of stay of 15 days with 12 patients per month being served. The Medicare per diem charge of $130 for the first year of operation is said to include the cost of care given to these patients who are said to be heavy users of subacute care. That per diem charge reflects ancillaries such as the various therapies as well. Having considered the explanation of this application, it is less than apparent what the difference would be between the subacute care services now being provided by the hospital in its swing beds and those contemplated by its nursing home application. In a similar vein, it is unclear what the distinction would be between the subacute care rendered in the proposed nursing home when contrasted with the subacute care being provided in swing beds that might be available in the 30 bed replacement hospital. If granted a certificate of need Suwannee is committed to serving AIDS patients. Suwannee intends to serve Medicaid patients and it projects a percentage of patient days attributable to Medicaid patients in the first two years of operation to approximate 73%. This is contrasted with experience statewide of 62%, within District III of 75% and within the planning area of 81%. Projected per diem rate for Medicaid reimbursement within the first year of operation is $68. The financial expert presented by Suwannee said that the applicant could charge as much as $10 to $12 more, making the Medicaid rate $78 to $80 per day. This increase contemplates raising the present caps on reimbursement. The record does not support increases in the caps of $10 to $12 in the relevant planning period. In the first year of operation the private room, private pay per diem rate at Suwannee reflects $97 as the charge and $80 as the charge for semiprivate room, private pay. This is as compared to $130 for Medicare per diem. Although it is unacceptable to charge more for Medicare than private pay, Schedule 12 within the application shows the inclusion of ancillaries for the Medicare patient and the exclusion of ancillaries for private pay. Under the circumstances it is difficult to tell whether the Medicare per diem charges exceed the private pay per diem charges as has been contended by Starke. The inclusion of the therapies as ancillary costs is shown on page 39 at Schedule 12 of the application of Suwannee. On Schedule 17 in the first operating year the therapies as ancillary costs are not broken out as individual items such as physical therapy, speech therapy and occupational therapy separate and apart from routine services. Instead an aggregate figure is given. That precludes an understanding of what portion of the per diem charge for Medicare patients is attributable to those ancillary costs. The circumstance is made more bewildering in that the financial expert presented by Suwannee stated that the $130 per diem charge had application to residents who were receiving subacute care. What portion of the per diem charge for Medicare residents is attributable to the subacute care component is not revealed in the application. Neither, is it explained in the testimony. Notwithstanding the assurance of the Suwannee financial planner that the Medicare rate projected for the first year of operation is in keeping with the Hospital Cost Containment Board's data on the average rate structure, that comment and his other explanations failed to establish the reasonableness of that charge. This is especially true when considering the fact that the Medicaid charges, even accepting an adjusted rate of $80 per day, are also indicated at Schedule 12 as including therapies and are far less than the Medicare per diem. Schedule 17 shows the Medicaid without reference to the therapies as an aggregate item in the same fashion as described with the Medicare category of reimbursement. Further, evidence of the fact that private room, private pay, does not exceed the Medicare per diem charge is related at Schedule 12 where it describes the subacute private room, private pay patient as paying $150 and the semiprivate, room private pay as paying $130. Again, in the Suwannee application in the first year of operation for both Medicaid and Medicare therapies are said to be included in the basic charges of $68 and $130 respectively shown at Schedule 12 and carried forward in the aggregate on Schedule 17. From the explanations stated by the financial planner, the projected costs for therapies by those two categories of patients is not reflected in the ancillary cost centers for physical therapy, speech therapy and occupational therapy found at lines 11-13 of Schedule 18. Instead, they are reflected at line 39 under other costs centers in the amount of $80,900. Moreover the $80,900 is said to include subacute services as well as the therapies. Having considered Schedules 12, 17 and 18 for the first operating year, together with the other evidence presented in the course of the hearing, the estimate at line 39 of Schedule 18 of $80,900 is unreliable. The Suwannee project contemplates a facility of approximately 24,370 square feet. The construction cost estimate is $62.44 per square foot. The total project cost per bed is $56,802. That far exceeds the caps for the property cost component related to Medicaid residents which is presently $30,350 per bed. Put another way, that translates to a differential of $11.64 per patient day above present reimbursement levels for Medicaid residents. That differential cannot be made up by resort to payments for ancillary services for that category of resident. The shortfall attributable to the costs per bed differential in the application of $56,802 compared to $30,350 per bed plus ancillaries is not expected to be made up by resort to other revenue sources within this proposal either, nor can it be properly be. This is particularly true when approximately 70% of the patient days are expected to be provided by Medicaid residents. Even if Suwannee were able to obtain reimbursement for the per bed cost of $56,802, this is much more than the Starke cost per bed which is approximately $30,000 as built. The cap that has been mentioned is the one effective July 1, 1990. Nothing in the testimony would suggest that the caps would approach $56,802 within the planning horizon for this review cycle. In summary, the financial feasibility of the Suwannee proposal has not been established. While the parent corporation, Santa Fe Health Care, Inc., is strong financially and able to sustain Suwannee in its nursing home operation in the short term, even with expected losses, the losses will be extraordinary and the long term feasibility has not been demonstrated either. Simply stated, too much money is being expended to establish this facility and it may not be recouped by resort to the reimbursement scheme identified in the application. Under the circumstances, the nursing home is not perceived as a means of promoting the financial well being of the overall project constituted of the nursing home, relocated hospital and associated services. It is not accepted that the manner and quality of care proposed to be delivered by Suwannee is so superior that it justifies the inordinate expense in delivering the care. In other particulars Suwannee has shown that it meets all applicable criteria for granting it a certificate of need, but the overall costs are so exorbitant that they preclude financial success in the project. In addition, even if the project met the criteria its costs compared to the Starke proposal are so much more that the Suwannee proposal should be rejected in favor of the Starke proposal. It is not accepted that a hospital based nursing home is superior to a freestanding nursing home as urged by the presentation made by Suwannee. Starke had applied for a 120 bed nursing home, with a separate request explaining its proposal to construct a 60 bed nursing home. It is that latter proposal that fits the need in Planning Area I of District III. The total capital expenditure for that alternative proposal is $1,882,713. The cost per square foot is approximately $60 in the 22,500 square foot facility. The per bed costs is in the neighborhood of $30,000. In the first year of operation the private room, private pay is $89; the semiprivate room, private pay rate is $79; the Medicaid rate is $69.50 and the Medicare rate is $69.50. These rates do not include ancillary charges for therapies. The Starke proposal will include a unit for Alzheimer, subacute care, adult day care and respite care. Starke will provide 80% of its patient days for Medicaid residents and 10% of its patient days for Medicare residents. The Medicaid performance exceeds that of Suwannee. That rate is consistent with the experience which Starke has in the operation of its Whispering Pines Care Center in Starke, Florida, a 120 bed nursing home facility which has held a superior license rating over the three years preceding the application. Starke as a corporation would own both the Starke, Florida facility and the proposed Lake City, Florida facility. The principals in that corporation with 50% ownership are J. D. Griffis and George R. Grosse, Jr. The subacute care that is to be provided is in patient rooms which are directly adjacent to the nursing station. It is the intention of the applicant to build these rooms to allow support for medical equipment needed in the treatment of those residents. Although some criticism has been directed to the architectural design of the proposed nursing home facility, Starke has committed itself to meet all applicable codes. Under the circumstances it does not appear that this application presents significant problems associated with resident safety or inordinate costs in making necessary adjustments to comply with applicable codes. The Starke application was prepared by Jerry L. Keach, the then administrator for University Nursing Care Center in Gainesville, Florida, operated by Covenant Care Corporation. By the comments found in the application it was contemplated that the Covenant Care group would manage the Starke facility in Lake City, Florida, which would do business as Lake City Care Center. No contract has been executed between Starke and Covenant Care Corporation to allow the latter entity to manage the Lake City facility assuming the grant of the certificate of need to that applicant. At hearing the principals for Starke indicated that Covenant Care together with other unnamed organizations would be considered as management for the nursing home in Lake City. Although this issue of management is unresolved, reservations about the project are overcome in recognition of the success of the Starke corporation in the operation of the Whispering Pines Care Center in Starke, Florida. That suffices as an indication that Starke is capable of installing appropriate personnel to operate the Lake City facility, and provide quality care. The assumptions concerning the various aspects of the proposals set forth in the Starke application are sufficiently explained in the course of the final hearing and those explanations are accepted. It is reasonable to expect that the nursing home could be constructed, staffed and operated in a manner consistent with the explanations found in the application and through testimony at hearing. A successful outcome is anticipated whether the Covenant Care Corporation is employed to operate the facility or not. The favorable impression of the Starke proposal is held notwithstanding the criticism directed to the financial feasibility by remarks offered by Suwannee. In particular the Suwannee Exhibit No. 11 admitted into evidence questioning the assumptions of the Starke applicant concerning income projections for the first two years have been taken into account. Whispering Pines Care Center presently offers care for Alzheimer patients and subacute services. Therefore problems are not anticipated in the provision of those services in the proposed facility. With due regard for the criticisms that have been directed to the financial ability of Starke to maintain its Whispering Pines Nursing Center and the proposed project in Lake City, Florida, it is found that the applicant has the ability to conduct those businesses. As with the matter of financial feasibility, Starke has satisfied all other applicable criteria for the grant of a certificate of need to construct the 60 bed nursing home.
Recommendation Based upon consideration of the facts found and the conclusions of law reached, it is, RECOMMENDED: That a Final Order be entered which requires all CONs granted to be consistent with the applications and in keeping with that intention: Grants CON 5987 to Inverness for the addition of 20 community nursing home beds to its existing facility upon condition that those beds be constituted of a minimum of 75.2% total patient days for Medicaid patients; Grants CON 5962 to Starke for construction of a nursing home in Columbia County, Florida, constituted of a minimum of 80% total patient days for Medicaid patients, that provides Alzheimer services, subacute care, day care and respite care; Grants CON 5910 to McCoy for the addition of 60 beds upon condition that 60% of the patient days be devoted to Medicaid patients; Grants CON 5905 to Regency for construction of a 120 nursing home facility with 62% of its patient dads being devoted to Medicaid patients, 2 beds dedicated to Alzheimer patients, provision of respite care and that the facility shall be a one-story design consisting of 43,000 gross square feet in size; and Denies the application for a 60 bed nursing home in Suwannee County made by Suwannee under CON Action No. 5912. DONE and ENTERED this 19th day of September, 1990, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of September, 1990. APPENDIX CASE NOS. 90-0043 and 90-0045 The following discussion is given concerning the proposed facts of the parties: Inverness Paragraphs 1 through 3 are subordinate to facts found. Paragraph 4 is not necessary to the resolution of the dispute. Suwannee Paragraphs 1 through 7 are subordinate to facts found. Paragraph 8 is contrary to facts found in that the Starke application can be advanced without a resort to an affiliation with Covenant Care Corporation. Paragraph 9 is accepted; however, those facts do not cause the rejection of the Starke proposal. Paragraphs 10 and 11 are not necessary to the resolution of the dispute. Paragraph 12 is accepted as factually correct; however, this is not crucial in determining the outcome of this case. Concerning Paragraph 13, while the record reveals that Mr. Keach was responsible at a time moratorium had been placed on admissions into University Nursing Care Center in Gainesville, Florida, the record was not detailed enough to ascertain what influence that might have on his ability to act as an administrator at the Starke facility proposed in this instance or his competence in preparing the application. The representations found in Paragraph 14 do not preclude the consideration of the Starke application. Concerning Paragraph 15, the first sentence is rejected as fact. The second and third sentences are not necessary to the resolution of the dispute. Concerning Paragraph 16, those items which are mentioned did not cause the rejection of the Starke application in that Starke is committed to abide by all applicable codes to insure control over the patients. Paragraphs 17 through 21 are contrary to facts found. Concerning Paragraphs 22-24, the Starke proposal is found to be financially feasible. Paragraph 25-27 are subordinate to facts found. Concerning Paragraph 28, notwithstanding economies of scale they will not overcome the inherent extravagance in the costs associated with bringing the Suwannee project on line. Concerning Paragraph 29, while diversification for rural hospitals is desirable, the present attempt by Suwannee is unacceptable. Paragraph 30 is subordinate to facts found. Concerning Paragraph 31 see comment on Paragraph 29. Paragraph 32 is subordinate to facts found. Paragraph 33 is accepted; however, the principal service area would appear to be Suwannee County. The existence of service over to Hamilton, Madison, Lafayette and Columbia Counties does not change the perception of this case. Paragraph 34 is subordinate to facts found. Paragraph 35 is contrary to facts found as are Paragraphs 36 and 37. Concerning Paragraph 38, the affiliation of Suwannee with the Santa Fe Health Care system does not overcome the lack of financial feasibility. Paragraphs 39 and 40 are subordinate to facts found. Paragraph 41 is contrary to facts found. Paragraph 42 is not necessary to the resolution of the dispute. Paragraph 43 is contrary to facts found. Paragraphs 44 and 45 are subordinate to facts found. Paragraph 46 is contrary to facts found. Paragraphs 47-55 are subordinate to facts found. Paragraph 56 is not necessary to the resolution of the dispute. Paragraphs 57-60 are subordinate to facts found. Paragraph 61 is contrary to facts found. Paragraph 62 is subordinate to facts found. Paragraph 63 is contrary to facts found. Paragraph 64 is subordinate to facts found. Concerning Paragraph 65, notwithstanding these observations they do not justify the rate structure or per diem charges set out in the Suwannee application. Paragraph 66 is subordinate to facts found as are the first two sentences of Paragraph 67. The last sentence to Paragraph 67 is rejected. Paragraphs 68 and 69 are contrary to facts found. The first sentence of Paragraph 70 is subordinate to facts found. The second sentence is not relevant. Paragraphs 71 through the first sentence of Paragraph 73 is contrary to facts found. Concerning the last sentence of Paragraph 73, Starke is found to be financially feasible and Suwannee is not. Paragraph 74 is subordinate to facts found. Paragraphs 75 and 76 have been taken into account in deciding that there are no particular advantages to placing the 60 beds in Columbia County as opposed to Suwannee County. Paragraph 77 in all sentences save the last is accepted. The last sentence is contrary to facts found in that subacute care will be rendered in the Starke facility. Paragraphs 78 through 80 are contrary to facts found. Paragraph 81 is subordinate to facts found. Paragraph 82 is accepted in the premise, but use of Suwannee as the facility to serve this population is rejected based upon the lack of financial feasibility. Paragraph 83 is subordinate to facts found with the exception that the subacute patients would not be best placed with Suwannee. Paragraph 84 and 85 are subordinate to facts found. Paragraph 86 is contrary to facts found. Paragraphs 1-5 with the exception of the last sentence in Paragraph 5 are subordinate to facts found. Concerning that latter sentence it is clear that Suwannee would intend to build the nursing home facility together with the hospital or exclusive of the hospital project. Paragraphs 6-8 are not necessary to the resolution of the dispute. Paragraph 9 is subordinate to facts found. Paragraph 10 is accepted and it is acknowledged that the applicants can approximate that average. Paragraphs 11 and 12 are subordinate to facts found. Concerning Paragraph 13 Suwannee did establish its percentage of commitment to Medicaid through proof at hearing. Paragraphs 14 through 23 are subordinate to facts found. Paragraph 24 is contrary to facts found in that Starke offers no greater enhancement than Suwannee in terms of geographic accessibility and is not really a competitor in this criterion with McCoy. Paragraphs 25 through 27 are subordinate to facts found. Paragraph 28 is contrary to facts found in that Suwannee did identify the programs that it intends to offer. Paragraphs 29 through 36 are subordinate to facts found. Paragraph 37 in the first sentence is subordinate to facts found. The second sentence is not necessary to the resolution of the dispute. Paragraph 38 is subordinate to facts found. Paragraph 39 is not necessary to the resolution of the dispute. Concerning Paragraph 40 while it is agreed that swing beds are skilled level of nursing home care they do not constitute reasonable alternatives to long term care. Paragraph 41 is subordinate to facts found in the first sentence. The second sentence in its suggestion that there is no significance to the lack of provision of these types of services under subacute care in area nursing homes is rejected. Paragraph 42 is rejected. Paragraph 43 is subordinate to facts found. Paragraph 44 is contrary to facts found. Paragraphs 45 through 52 are subordinate to facts found. Paragraph 53 is contrary to facts found. Paragraph 54 is subordinate to facts found with the exception that the reason that the Suwannee project is not found to be financially feasible does not include reference to a higher charge for Medicare patients than the charge to private pay patients. Paragraphs 55 through 60 with the exception of the last sentence in Paragraph 60 are subordinate to facts found. The nursing home is intended to be built whether the replacement hospital is built or not. Paragraphs 61 through 65 are subordinate to facts found. Starke Paragraphs 1 through 5 with the exception of the latter two sentences in Paragraph 5 are subordinate to facts found. Concerning the next to the last sentence, it was made clear that the intentions on the part of Suwannee were to build the nursing home. The last sentence to the extent that it is intended to suggest that this applicant is incapable of offering long term care services is rejected. Paragraphs 6 through 8 are not necessary to the resolution of the dispute. Paragraphs 9 through 11 are subordinate to facts found. Concerning Paragraph 12 to the extent that it suggests that Suwannee is not willing to provide services to Medicaid recipients, it is rejected. Paragraphs 13 through 21 are subordinate to facts found. Paragraph 22 is contrary to facts found in that Starke is not seen as enhancing geographic accessibility to a greater extent than Suwannee its true competitor. Paragraphs 23 and 24 are subordinate to facts found. Paragraph 25 is contrary to facts found ih that Suwannee has identified its special programs. Paragraphs 26 through 33 are subordinate to facts found. Paragraph 34 is subordinate to facts found in the first sentence. The second sentence is not necessary to the resolution of the dispute. Paragraph 35 is subordinate to facts found. Paragraph 36 is not necessary to the resolution of the dispute. Concerning Paragraph 37 while it is agreed that swing beds are skilled level of nursing home care they do not constitute reasonable alternatives to long term care. Paragraph 38 is subordinate to facts found in the first sentence. The second sentence in its suggestion than there is no significance to the lack of provision of these types of services under subacute care in area nursing homes is rejected. Paragraph 39 is rejected. Paragraphs 40 and 41 are subordinate to facts found. Paragraph 42 is contrary to facts found. Paragraphs 43 through 50 are subordinate to facts found. Paragraph 51 is contrary to facts found. Paragraph 52 is subordinate to facts found except as it suggests that the difference in rate between Medicaid patients and private pay patients in the Suwannee proposal forms the basis for the criticism that the Suwannee project is not financially sound. Paragraphs 53 through the first two sentence of Paragraph 59 are subordinate to facts found. Related to the latter sentences in Paragraph 59 it is clear that the schematic pertains to the basic design of the Suwannee facility whether attached to a new hospital or free standing. Paragraphs 60 through 64 are subordinate to facts found. McCoy Paragraph 1 is subordinate to facts found. Paragraphs 2 and 3 are not necessary to the resolution of the dispute. Paragraph 4 is subordinate to facts found. Paragraph 5 is not necessary to the resolution of the dispute. Paragraphs 6 through 83 are subordinate to facts found. Regency Paragraph 1 is subordinate to facts found. Paragraph 2 is not necessary to the resolution of the dispute. Paragraphs 3 through 5 are subordinate to facts found. COPIES FURNISHED: Sam Power, Department Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Elizabeth McArthur, Esquire Jeffrey Frehn, Esquire Aurell, Radey, Hinkle and Thomas 101 North Monroe Street, Suite 1000 Post Office Drawer 11307 Tallahassee, FL 32302 W. David Watkins, Esquire Oertel, Hoffman, Fernandez and Cole, P.A. Post Office Box 6507 2700 Blair Stone Road Tallahasee, FL 32314-6507 Leslie Mendelson, Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive Fort Knox Executive Center Tallahassee, FL 32308 James C. Hauser, Esquire F. Phillip Blank, Esquire R. Terry Rigsby, Esquire Julie Gallagher, Esquire F. Philip Blank, P.A. 204-B South Monroe Street Tallahassee, FL 32301 Grafton B. Wilson, II, Esquire 711 North 23rd Avenue, Suite 4 Post Office Box 1292 Gainesville, FL 32602 R. Bruce McKibben, Esquire Dempsey and Goldsmith, P.A. 307 West Park Avenue Tallahassee, FL 32301
Findings Of Fact Petitioner is a nonprofit corporation located in Lehigh Acres, Lee County, Florida, with a membership of approximately 900 persons. The association's goals are to insure that quality health care services, including, but not limited to, long-term care services, are available to that community. The Community Health Association, Inc., was preceded by a non-profit corporation known as Lehigh Acres General Hospital, Inc. This corporation managed and operated the Lehigh Acres General Hospital, located in Lehigh Acres, Florida. In June, 1981, the corporation sold its license to operate this acute care hospital to Hospital Corporation of America (HCA). HCA took over management of the facility July 1, 1981. HCA is currently leasing the facility from Community Health Association, Inc. HCA applied for and received a Certificate of Need to construct a new hospital in Lehigh Acres, Florida. Construction of this hospital is underway and is to be completed on or about January 1, 1984, at which time HCA will turn the old hospital facility back to Community Health Association. At the time of the licensure sale by Community Health Association (Lehigh Acres General Hospital, Inc.) to HCA, the Lehigh Acres General Hospital operated an 88-bed acute care facility which had utilized, since 1970, 20 of the 88 beds as nursing home beds. In July, 1981, Community Health Association, Inc., filed a letter of intent with Respondent for a 60-bed nursing home to be operated in Lehigh Acres, Florida. Respondent advised Community Health Association, Inc., that its application for a CON was premature due to the pending CON issued to HCA to construct a hospital in Lehigh Acres. In early 1982, Community Health Association, Inc., employed Herman Smith & Associates, of Chicago, Illinois, health care consultants, to perform a long-term study concerning need for a nursing home or nursing home beds in the Lehigh Acres area. On the basis of its study, Herman Smith & Associates recommended that Petitioner seek authority to provide 110 nursing home beds in two phases. The first phase of the project would involve converting the 1970 wing of the previous hospital building for use as a 50-bed nursing unit at a cost of approximately $350,000. The second phase consisting of construction of a 60-bed addition, costing $1,380,000 for 15,527 square feet, would be completed in early 1985. The sale of the license to HCA brought Petitioner $1,000,000. These funds will cover the first phase and part of the second phase costs. Petitioner's prior experience in health care delivery and its community support, along with these financial resources, will enable it to construct and operate the proposed nursing facility. There are no existing or approved nursing homes or nursing home beds to be located in Lehigh Acres, Florida. Except as noted below, all existing and approved nursing home beds are located in western Lee County in Ft. Myers, Cape Coral or in other communities located approximately 30 minutes or more by automobile from Lehigh Acres. Upon completion of construction and abandonment of the old Lehigh Acres hospital building by HCA, the new hospital will discontinue the 20 nursing home beds currently operated. Approximately 75 percent of this hospital's patients are Lehigh Acres residents, with few if any patients from Ft. Myers or western Lee County. All the nursing home referrals from the new hospital will be required to leave Lehigh Acres unless Petitioner's proposed nursing home is constructed. Petitioner filed a letter of intent with Respondent, followed by an application for a CON on or about October 1, 1982, proposing the project as recommended by Herman Smith & Associates. Following the submission of the instant application, Respondent adopted Rule 10-5.11(21), Florida Administrative Code (F.A.C.), which became effective on November 9, 1982. That rule establishes the "Methodology to Determine and Calculate the Need for Community Nursing Home Beds" in a service district. About January 29, 1983, Respondent advised Petitioner that its application for a 110-bed nursing home in Lehigh Acres was denied as not consistent with the Section 10-5.11, F.A.C., nursing home bed need methodology. Respondent's State Agency Action Report stated that "A need does not exist to add nursing home beds in Lee County through 1985. There are 347 approved but not constructed beds in the county. The bed need methodology produces an excess of 494 nursing home beds in the county through 1985." The State Agency Action Report reflected 970 existing and approved nursing home beds in Lee County. The report also projected a need for 1,400 community nursing home beds for the year 1985 in Lee County. The testimony of its author established that the same portion of the rule applied to 1986 protected population figures would yield a need for 1,522 beds in Lee County in 1986. At the time Petitioner's application was evaluated by Respondent, nursing homes in Lee County had an average 95.8 percent occupancy rate. Based on the application of the current utilization formula contained in Chapter 10-5.11(21), F.A.C., Respondent calculated that 494 excess nursing home beds in Lee County are licensed or approved. Projected population of persons age 65 and over living in Lee County in 1985 is 60,463 and ir 1986 is 65,708. The application of these population figures to the formula contained in Ch. 10-5.11(21)(b), F.A.C., yields a nursing home bed need in Lee County for 1985 of 1,400 and for 1986 of 1,522. As noted above, there are currently 970 licensed and approved nursing home beds in Lee County. The "Nursing Home Plan Component" of the Local Health Plan of the District Eight Health Council of Sarasota, Florida, of which Lee County is a portion, adopted June 29, 1983, indicates a need for 501 additional beds in Lee County for the year 1986. In applying Rule 10-5.11(21), F.A.C., Respondent's determination was subject to two errors. The first, a mathematical error, caused a miscalculation of beds which could be added in Lee County using current patient count data and avoid falling below the desired 80 percent occupancy rate. The formula, properly applied, indicates there would be 239 excess beds rather than the 494 shown in the State Agency Action Report. The second error concerns Respondent's failure to reconcile and compare the determinations made under the need methodology contained in paragraph (b) of the rule and other portions of the rule, particularly the current utilization sections contained in subparagraphs (d) and (f). Section 10-5.11(21)(f), F.A.C., stated that "consideration of applications for additional nursing home beds will be premised on both the projected need for new bed capacity and current utilization." (emphasis added) The requirement for additional nursing home beds based on the projected need for new bed capacity, as well as current utilization, establishes a need for the 110 beds proposed by Petitioner. Further, the proposed location is consistent with the goal of accessibility and community need in Lehigh Acres.
Recommendation Based on the foregoing, it is RECOMMENDED that Respondent enter a Final Order granting Petitioner's application. DONE and ENTERED this 26th day of September, 1983, in Tallahassee, Florida. R. T. CARPENTER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of September, 1983. COPIES FURNISHED: Ronald A. Labasky, Esquire Robert S. Cohen, Esquire 318 N. Monroe Street Tallahassee, Florida 32302 James M. Barclay, Esquire DeparLment of Health and Rehabilitative Services 1317 Winewood Blvd., Suite 256 Tallahassee, Florida 32301 David H. Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301
Findings Of Fact The Department hereby adopts the findings of fact made by the Hearing Officer but with the significant modification set out and explained in PDCF's Exception (1).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department issue to petitioner Holmes Health Care, Inc., a Certificate of Need for 60 additional community nursing home beds in an addition, to be constructed, to its 60-bed facility now under construction, with permission to use the existing Bonifay Nursing Home facility under the CON until the 60-bed addition is constructed. RECOMMENDED this 8th day of June, 1984, in Tallahassee, Florida. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The OAKLAND Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of June, 1984.
Findings Of Fact NATURE OF THE CONTROVERSY In response to a 144 nursing home bed need for southeast Duval County, Florida, Subdistrict 3, HRS Service District IV, several applicants filed nursing home bed certificate of need applications for the review cycle triggered by a December 5, 1990 deadline, including; CVI for a 60-bed addition to an existing 60-bed facility authorized by Certificate of Need No. 5602; Atrium for an 84-bed facility; Marriott for a 30-bed facility; Health Quest for a 41-bed renovation and conversion of assisted-living facility beds, or 24-bed addition to the existing nursing home. Two other applicants, Health Care and Retirement Corporation of America for a 120-bed facility and Health Care Properties of St. Augustine for a 60-bed facility, did not pursue administrative appeals of their applications. HRS found all of the applications to be complete and all proposals were comparatively reviewed on their merits, with the exception of the MCRI 24-bed proposal which HRS found was untimely. The Department noticed its intent to approve the applications filed by CVI and Atrium. MRCI and HQR are Petitioners contesting the HRS intent because their applications were denied. HQR also claimed standing as an alleged substantially affected existing facility; however, HQR did not present any evidence in support of its standing on these grounds. THE HRS REVIEW HRS required the applicants to submit their proposals on an application form designated "HRS Form 1455, Oct.`88". [CVI Ex. 8; Tr. 2461. This application form is not a rule. [E.D. Tr. 1618]. A work group consisting of HRS and nursing home industry representatives developed the application form and HRS review procedures. [S.G., Q. 14; CVI Ex. 10; ANH Ex. 8]. Criteria at Section 381.705, Florida Statutes, form the basis for 13 goals of the HRS review process. (Id. S.G. pp. 4-15, Q. 14-39; ANH Ex. 8, p. 4). The goals are as follows: The first goal promotes the establishment of facilities to provide services when and where needed, intended to implement Sections 381.705(l) (a), (b), (d), (e), (j), (l), (2)(a), (b), (d) and (e) The second goal promotes special resident programs for special population groups, intended to implement Sections 381.705(1)(a), (b), (c), (f), (j), (l), (2) (a), (b) and The third goal promotes the establishment of continuing care-type communities, intended to implement Sections 381.705(1)(a), (b), (d), (e), (j), (2)(a), (b) and (d). The fourth goal promotes use of professionals in a variety of disciplines to meet resident needs, intended to implement Sections 381.705(1)(b),(c), (f), (g), (h), (j), (1) and (n). The fifth goal promotes the establishment of well-designed, comfortable facilities, intended to implement Sections 381.705(1)(b), (c), (m) and (2)(c). The sixth goal promotes residents' rights and residents' quality of life, intended to implement Sections 381.705(1)(b), (c), (f), (j), (l) and (2)(b). The seventh goal promotes a full range of social services for nursing home residents, intended to implement Sections 381.705(1)(b), (c), (f), (j), (l) and (2)(b) and (d). The eighth goal promotes provision of services to Medicaid eligible residents, intended to implement Sections 381.705(1)(a), (h), (n) and (2) (e) The ninth goal promotes the establishment of nursing homes which do not intend to secure significant profits at the expense of resid ent care programs and facility design, intended to implement Sections 381.705(1)(b), (e), (h), (i), (l), (2)(a), (c) and (e) The tenth goal promotes nursing home locations which achieve a geographic distribution of nursing home beds, intended to implement Sections 381.705(1)(a), (b), (d), (e), (h), (j), (2) (a), (b) and (d). The eleventh goal promotes proper projection of construction costs, intended to implement Sections 381.705(1)(b), (e), (i) , (l), (m) , (2)(a) and (c) The twelfth goal promotes the establishment of nursing homes which have a record of implementing superior resident care programs and providing superior quality of care, intended to implement Sections 38 1.705(1) (b), (c), (f), (h), (j), (l), (n) and (2) (b); and The thirteenth goal promotes nursing home charges consistent with industry trends and Medicaid charges which are within Medicaid upper limits, intended to implement Sections 381.705(1)(b), (e), (h), (i), (l), (m), (2)(a) and (e) The working group identified the goals as representing desirable outcomes under the statute to be attained by successful applicants if specific objectives are achieved. Eight objectives, each relating to one or more of the goals are then utilized, with each operationally defined by several items of information. Scoring points are divided among the various items of information solicited under each objective. [SAG. p. 3, Q. 14, p. 17, 18, Q. 45; A.G. Tr. 1330]. The scoring system is not a rule; HRS utilizes it on a case-by-case basis to aid in decision-making. [A.G. Tr. 1273, 1274; S.G. Q. 43, 45, 46]. An application was measured by assessing the responses provided in the application against the point system. [ANH Ex. 8, p. 4; S.G. Q. 43, 45, 46]. The scoring system is a means to accomplish an evaluation of information--the process of forming, qualifying, verifying, and establishing judgments. Applicants are asked to specify concrete procedures or steps that, when implemented, are likely to result in a clear and predictable outcome. [S.G. Q. 44; A.G. Tr. 1320, 1321]. Thus, both operational features and the implementation process for those features are sought. All of the foregoing evaluation procedures, including the goals, objectives, review protocols and scoring system were disclosed to the applicants prior to application preparation and filing. [S.G. Q. 14; CVI Ex. 10; ANH Ex. 8; J.B. Q. 24]. Two HRS review consultants, a primary and a secondary reviewer, assigned a number to each application item which represented that consultant's assessment of how well the applicant's response addressed the particular item. [S.G. Q. 42, 43, 45; ANH Ex. 8, p. 4]. The ultimate score was calculated by a combination of manual and computer scoring which assigned the points available for each item number. [ANH Ex. 8 p. 4; S.G. Q. 45]. The scores assigned by each of the two consultants were then averaged. [ANH Ex. 8, p. 4; S.G. Q. 45]. A statistical reliability analysis of the consultants' assessments was then conducted before further evaluation proceeded. The work group also established protocols for evaluating the information provided by applicants. [S.G. Q. 14, 45]. The protocols utilized by the HRS provide a methodology which results in predictability, uniformity and commonality of judgment in the review of each application insofar as that is possible with subjective judgments of facts [S.G. Q. 42, 43, 45, 46]. Upon completion of the scoring, a final assessment was conducted by HRS managers who evaluated the overall presentation of information in the application available to make a judgment--the application of functional aspects with program components, whether the integration of the elements was internally consistent, and the likelihood that the proposal will have the success predicted by the applicant. [S.G. Q. 43, 46]. These elements serve as verification of the reviewer's actions and reflect the decision-making that occurs when the preliminary decision is made. Under the HRS evaluation system, there is no particular "passing" score. [S.G. Q. 45, 46]. The scores attained were utilized as an aid to evaluating the applications. [A.G. Tr. 1273, 1274]. The goal is to attain the highest possible percentage score possible based upon a potential base score of 1500 points. A successful applicant should demonstrate a consistently high number on each of the eight rated objectives. Reviewer judgment dictates the score; the score does not dictate the judgment. A display of the scores will quickly reveal weak points and inconsistencies in the application which assist HRS in exercising its decision- making discretion in weighing and balancing the statutory criteria. [A.G. Tr. 1273, 1274]. HRS prepared a "State Agency Action Report" which explained the evaluation, summarized the HRS findings, provided the scoring results, and stated HRS' intent to approve the CVI and ANH applications. [ANH Ex. 8]. 22. The scoring results Primary were: Secondary Average Percent of Reviewer Reviewer Score Maximum Atrium 1196.9 1274.33 1235.61 82.37 CVI 1175.28 1178.77 1177.03 78.47 Health Care & Retirement Corp. 1113.92 1185.4 1149.66 76.64 Health Care 1119.25 Properties of St . Augustine Marriott 1110.58 1150.90 1143.67 1135.08 1127.12 75.64 75.14 Health Quest (41 beds) 1079.46 1109.05 1094.26 72.95 Health Quest 1079.46 (24 beds) 1109.05 1094.26 72.95 The staff consultant with primary review responsibility exercised her professional judgment in reviewing the applications. [A.G. Tr. p. 1272]. /1 There was no evidence that approval of any of the four applicants would have an adverse impact on the costs of providing health services, especially in light of the numeric need and the high occupancy rates within the subdistrict. There were no alternatives within the subdistrict for the providing the type of care required except construction of additional beds or renovation of existing beds of a similar type. Both of these alternatives were presented by the various applicants. THE CVI APPLICATION CVI is a not-for-profit Florida corporation. [CVI Ex. 3, iiia, iiic; J.B. Q. 28; CVI Ex. 8]. It is a local service unit of the National Benevolent Association of the Christian Church (Disciples of Christ), a Missouri not-for-profit corporation. The NBA was founded in 1887, and is one of the general administrative units of the General Assembly of the Christian Church (Disciples of Christ). The NBA provides care at numerous facilities to older adults, children and persons with developmental disabilities. [Id.; L.W. Q. 14]. Through local service units, (not including the CVI project), the NBA currently operates 13 nursing homes in 8 states. [Id.] CVI is developing a 65-acre adult retirement community on a site adjacent to the Mayo Clinic Jacksonville in southeast Duval County. [Id.]. Construction has been completed on all individual residential components of Phase I. [P.R. Tr. 200, 205, 206; K.V. Tr. 53; J.B. Tr. 311, 312; J.B. Q. 19]. The 60 bed addition will be part of Phase 11. [CVI Ex 3, PT 1, p. iiia; J.B. Q. 28]. Phase I consists of independent living apartments, an adult congregate living facility ("ACLF"), a 60-bed skilled nursing facility specifically designed for and dedicated to the care of persons afflicted with Alzheimer's disease and related dementia, and a core service building which contains administrative and other support facilities- [P.R. Tr. 200, 205, 206; K.V. Tr. 53; J.B. Tr. 311, 312; J.B. Q 19; CVI Ex. 3, PT II, p. 50a, supp. after p. 72a]. These elements, as required, have already been granted CON's. Phase I also included a maintenance building which in turn includes a laundry to serve the campus. [Id.; J.B. Q. 78, 79; CVI Ex. 3, PT I, p. 40a]. The Alzheimer's facility was authorized pursuant to Certificate of Need No. 5602 issued to CVI in 1989. [CVI Ex. 9; J.B. Q. 18]. The Alzheimer's facility consists of a 60-bed unit connected to the core service building. The 60 beds proposed by CVI herein will be located in a new nursing unit a.ii so to be /2 connected to the core service center. [Id.; P.R.Q. 12, 13, 14; P.R. Tr. 188, 189]. The Alzheimer's unit will also serve as a research center. [CVI Ex. 3, PT II, p. 71a, 71b; T.W. Q. 46, 47; K.V. Q. 17, 18]. All residents will participate in low-risk research such as diagnostic assessments, tracking the degenerative process through the collection of clinical data, behavioral observation and modification, activity-based therapy, and the use of environmental cues. [Id.; T.W. Q. 13]. Ultimately, dietary and drug therapies will also be the subject of research. [T.W. Q. 13]. The Mayo Clinic Jacksonville has a special Alzheimer's disease research team which will actively participate in the CVI research. [Id.]. CVI will be the only applicant licensed by HRS to operate the Alzheimer's unit. [F.D. Tr. 1565, 1566]. The Alzheimer's unit constitutes the nursing facility to which the proposed 60 nursing unit beds will be added.. [Id.]. CVI PROPOSED NURSING UNIT PROGRAM/QUALITY OF CARE CVI seeks a CON for a 60-bed nursing home addition to the ACLF mentioned above. The majority of the residents for the proposed nursing unit will come from the adult community developed by CVI which will be occupied by residents from within the total district. However, it is not anticipated that the adult community will be a direct source for nursing home residents for at least five years after the nursing unit is opened. [J.B. Q. 52, 103]. The CVI nursing unit will provide nursing care of a more generalized nature compared to the Alzheimer's unit. [J.B. Q. 26; K.V. Q. 28; CVI Ex. 3, PT II, p. iiia]. Consistent with CVI's plan for a continuum of care, the proposed nursing unit beds will also serve residents initially admitted to the Alzheimer's unit but whose disease has progressed to the point where the medical diagnosis becomes primary and, therefore, skilled nursing care becomes the primary need for that resident. [CVI Ex. 3, PT I, iiia; J.B. Q. 26; CVI Ex. 3, PT II, pp. 46a-46c; K.V. Q. 26, 27, 28]. However, utilizing existing Alzheimer's unit resources, these former Alzheimer's unit residents will still receive specialized care and participate in research; CVI Ex. 3, PT II, pp. 71a, 71b; T.W. Q. 46, 47]. CVI defines a "program" as those services designed to correct a resident's problem or condition. [CVII Ex. 3, PT I, p. 46a-46c; K.V. Q. 26, 27, 28]. The CVI nursing unit will offer three different specialized programs: (a) Alzheimer's care offering specific therapies for residents with Alzheimer's disease or related dementias; (b) a medically complex program offering restorative, therapeutic care for residents with acute, medically complex conditions; and (c) an inter-generational enrichment program for the purpose of stimulating nursing residents by daily interaction with children in a structured therapeutic activity. [Id.] Given the experience of the NBA at other local service units, CVI can reasonably be expected to provide excellent quality of care through the support and resources of NBA. [CVI Ex. 3, PT ii, pp. 24a-24c; T.W. Q. 29, 30; K.V. Q. 54]. CVI PROPOSED NURSING UNIT DESIGN SUPPORT FEATURES The nursing unit will comprise 18,720 square feet of new construction, with 28 semiprivate rooms, 3 private rooms, and one isolation room. [CVI Ex. 3, iiia; P.R. Q. 14-16]. The nursing unit will include an activity room, a day room/lounge with an outside activity deck, a nourishment station, and three garden recreation areas. [Id.]. The quality of life and care of the CVI nursing unit resident will be enhanced by resources available in the adjacent core service building which include a kitchen, a large, dividable dining area, activity rooms, physical and occupational therapy areas, beauty and barber shops, administration areas offices, medical treatment rooms, and a visitor lounge. [CVI Ex. 3, PT I, p. iiia; J.B. Q. 28]. Construction of the core service building was completed as part of the construction for the Alzheimer's unit. [P.R. Tr. 205-208]. When HRS reviewed the feasibility of the certificate of need application for the Alzheimer's unit, it also reviewed plans for the core service building. [P.R. 196-203, 207, 208; HQR Ex. 44; J.B. Tr. 255, 256]. The Alzheimer's unit was approved as a 60-bed alternative to a 120-bed nursing home proposed in CVI's earlier application for Certificate of Need No. 5602. [Id.]. Approval of the 60-bed Alzheimer's unit did not change the design nor reduce the total space planned far the core service building. [Id.]. The CVI nursing unit addition will not require the conversion, through renovation or new constructions of any area within the core service building. [P.R. pp. 200-206; J.B. Tr. 311, 312]. After the Alzheimer's unit project construction was underway, HRS allocated 7741 square feet of the core service building to represent the amount of core service area space under HRS nursing home jurisdiction. [P.R. Tr. 196, 199; HQR Ex. 42]. It is unrebutted that this allocated space will be sufficient to support both the proposed nursing unit beds and the Alzheimer's unit. [J.B. Tr. 311, 312; P.R. Tr. 196-203, 205, 206]. The allocated core space includes an allocation for the main dining room. Use of this main dining area is optional for residents of the Alzheimer's unit and the proposed nursing unit, since each unit has its own adequate dining facilities. [P.R. Tr. 188-191, 229; K.V. pp. 59, 60]. CVI will provide child day care for employees, and these children will participate inn the inter-generational enrichment program. [CVI Ex. 3,PT II, pp. 46a, 60a, 60b; K.V. 27, 28, 33, 34]. Ultimately, the child day care center will be located within a new apartment building, but will be temporarily housed in the core service building. [K.V. Tr. 52, 58]. CVI will also eventually construct a chapel to be located on the campus. [CVI Ex. 3, PT II, p. 66b; K.V. Q. 43, 44]. Until then, the nursing home residents will be able to utilize a chapel area located in one of the lounge areas in the existing apartment building. [K.V. Tr. p. 56]. CVI's semiprivate rooms are specially designed to provide a physical separation, through the use of a dividing wall, that approaches the privacy of a single room with the economizes of a semiprivate room, while still allowing each resident to have the very important contact with another person. [CVI Ex. 3, PT I, p. iiia, Appendix 11(4B); P.R. Q. 14-16; P.R. Tr. 182-186]. Each bed will overlook an individual adjacent window. [Id.]. CVI PROJECT COSTS CVI reasonably projects that the nursing unit will involve a total project cost of $3,286,258 - ($301,175 land, $2,174,108 (including $79,880 fixed equipment) building construction, $231,525 moveable equipment, and $571,450 intangible asset and deferred) [CVI Ex. 3, PT I, 24-27c; J.B. Q. 37-39, 41; P.R. Q. 8; T.W. Q. 19-21]. CVI's capital budget also includes the possible development of additional ACLF units on a second floor of the nursing unit building as part of Phase II. [CVI Ex. 3, PT I, pp. 28, 28a; J.B. Q. 42; J.B. Tr. 303, 304]. However, the CVI nursing unit construction cost was conservatively projected on the basis that the nursing unit would, like the Alzheimer's unit, be a one-story building. [P.R. Tr. 193-195]. It thereby accounts for all construction, including the roof, necessary to build the 18,720 square foot nursing unit. [Id.]. CVI's projected construction costs for the proposed nursing unit are reasonable and conservative. [CVI Ex. 3, PT 1, p. 27a; J.B. Q. 38, 39, 40; P.R. Q. 6; P.R. Tr. 210-212; CVI Ex. 34]. In the application, they were premised upon the Alzheimer's unit costs as known at the time the application was submitted. [Id.]. The reasonableness of the proposed nursing unit construction cost projections was again verified by the time of hearing in August, 1991. [J.B. Q. 41]. For construction (labor, materials, overhead, construction management, and profit) CVI projected a cost of $1,825,144, or $97.50 per square foot [CVI Ex. 3 PT 1, p. 27a; J.B. Q. 38, 39, 40; P.R. Q. 6; P.R. Tr. 210-212; CVI Ex. 34]. CVI certified to HRS that the final construction cost for the Alzheimer's unit under Certificate of Need No. 5602, including fixed equipment, was $76.33 per square foot. [CVI Ex. 34]. Adding the construction management fee, the final cost was $81.30 per square foot. [Id.]. If CVI's fixed equipment costs of $79,880 were added to the $1,825,144 projected construction cost for CVI's nursing unit, the result would be $101.74 per square foot. If the comparable Alzheimer's unit cost of $81.30 per square foot was conservatively inflated for a two year period (to allow adequate construction commencement after final agency action, see CVI Ex. 3, PT II, p. 57; P.R. 1. 25, 26) the result of $89.63 per square foot again reveals the reasonableness of CVI's projected construction costs. The CVI proposed nursing unit will occupy approximately 3 acres of the total 65 acre campus. [CVI Ex. 3, PT I, pp. iiia, 27a; J.B. Q. 28,38, 39, 46]. CVI reasonably allocated, pursuant to generally accepted accounting principles, a portion of the land's fair market value and land improvement costs to the proposed nursing unit 60-bed project. [CVI Ex. 3, PT I, p. 27a; J.B. Q. 38, 39; J.B. Tr. 294-296]. CVI's ABILITY TO FINANCE THE PROJECT CVI has the ability to finance the nursing unit project. [ANH Ex. 8, p. 22]. Phase I, including: the Alzheimer's unit, of the CVI campus was financed through a $21,960,000 tax exempt bond issue through the Jacksonville Health Facilities Authority. [CVI Ex. 3, PT I, p. 28a, 1990 Audited: Financial Statement, p. 10; CVI Ex. 8; R.B. Tr. 241, 242]. CVI intends to secure the same type of financing for the proposed nursing unit. [CVI Ex. 3, PT I, pp. 30, 30a; J.B. Q. 44-46; CVI Ex. 3, Appendix 5(2.c.1); L.W. Q. 8-10; R.B. Q. 5-13; R.B. Tr. 241,: 242]. The Jacksonville Health Facilities Authority provided the tax exempt bond issue through the authority of Chapter 159, Part II, Florida Statutes. [CVI Ex. 8, p. 1]. Thus, pursuant to the provisions of the statute, CVI Phase I project in its entirety (which includes the core service building and the ACLF) necessarily was found to be financially feasible. See Section 159.29, Florida Statutes. CVI will be primarily responsible for repayment of the bond proceeds but the NBA will guarantee the bond issue, as it did for Phase I. [Id.; M.G. Q. 26]. The NBA has significant financial strength. In 1988, it had total assets of $145,493,840. [CVI Ex. 8; L.W. Q. 16]. In 1989, the total grew to $168,507,027. [Id.]. In 1988, it realized a net income (revenue over expenditures) of $5,670,754. [Id.]. In 1989, the income increased to $11,563,778. [Id.] The NBA has secured third party financing for its local service units on numerous other occasions. [L.W. Q. 7; R.B. pp. 241, 242]. The most recent occasion involved tax exempt bond financing immediately prior to the hearing, ore July 31, 1991. [L.W. Q. 7]. The investment banking firm which has worked on several tax exempt bond financing projects with the NBA, and which handled the financing for Phase I of CVI, has reviewed the financing proposal for the CVI nursing unit and has found it to be reasonable and achievable. [R.B. Q. 1-13]. Raising charitable funds has been a regular activity of the NBA and its local service units. [L.W. Q. 11, 13]. To date, CVI has raised $4,000,000. [Id.]. As of June 30, 1991, $1,327,589 in cash from donations was still available for the proposed nursing unit. [Id.; J.B.Q. 44-46]. The CVI application revealed $24 million in assets consisting primarily of bond issue proceeds. [CVI Ex. 3, PT I, pp. 28-28(b); J.B. Q. 42, 43]. CVI STAFF AND INDEPENDENT CONTRACTORS The staff proposed for CVI's nursing unit significantly exceeds minimum requirements, and would meet the criteria in Florida for a superior rating. [CVI Ex. 3, PT I, pp. 36, 37, 37a, 38, 39; K.V. Tr. 31, 32, 39, 40; K.V. Q. 49-53; T.W. Q. 23-26; J.B. Q. 54-63]. The superior rating indicates a higher level, and higher quality, of care. [Id.]. Because of the nursing intensity required for Alzheimer's and related dementia patients, the Alzheimer's units staff nursing to patient ratio will be 1:5 or 1:6. [K.V. Tr. 63, 66]. The CVI nursing unit will have a 1:8. The typical ratio for nursing homes in the Jacksonville, Florida area is 1:10. [K.V. Tr. p. 66]. The CVI application presented reasonable levels of anticipated salaries and fringe benefits. [CVI Ex 3, PT I, pp. 36, 37, 37a, 38, 39; K.V. Tr. 31, 32, 39, 40; K.V. Q. 49-53; T.W. Q. 23-26; J.B. Q. 54-63]. CVI accounted for employees, such as the administrator and director of nursing, who were full-time and on a fixed salary. (Id.]. CVI also accounted for those staff who are to be paid on the basis of an hourly wage, such as nurses, calculated according to the number of work hours expected (based on full-time equivalent factors). [Id.]. Under this approach, the CVI salary projections account for vacation, overtime, and sick leave. [Id.; K.V. Tr. 45, CVI did not directly reflect revenues nor expenses attendant to the activities of therapists, pharmacists, dentists, podiatrists, a medical director, for other such consultants because they would serve as independent contractors. [CVI Ex. 3, PT I, pp. 40a, 46b; J.B. Q. 66, Instead, CVI indirectly accounted for the independent contractors by utilizing a "net methodology" pursuant to which the anticipated consulting fees are included within a base rate for private pay residents along with a markup. [Id., Tr. 312-314, 339, 340]. The markup covers the cost to provide the contractual services to Medicaid or Medicare reimbursed residents. [Id.]. In this regard, CV followed the customary accounting approach taken by a not-for-profit nursing home whereby the facility does not attempt to profit from the provision of such contractual services. [Id.] FINANCIAL FEASIBILITY OF CVI'S NURSING; UNIT By the end of the second year of proposed nursing unit operations, it is reasonably anticipated that the 120-bed CVI nursing home will realize a net income of at least $275,300 at 95 percent occupancy. [CVI Ex. 3, PT I, pp. 35 35a, 47-49a (Schedule 18); J.B. Q. 77-81; J.B. Tr. 274, 275]. By the second year of operation, CVI's revenues per patient day will be $99.25, compared to $116.16 for HQR's 24 bed proposal, $117.45 for HQR's 41 bed proposal, $118.15 for Atrium's proposal, and $126.03 for MRCI's proposal. [Comparison of Schedule 18 of applications]. The nursing unit is feasible on an immediate and long-term basis. [J.B. Q. 27]. CVI did not rely upon any non-nursing home revenues to demonstrate feasibility for the nursing unit. [Id.; J.B. Tr. p. 305]. CVI demonstrated nursing home feasibility as a stand-alone project. [Id.] Schedule 18 of the application contains space for the applicant to enter non-nursing home revenues and costs, such as those items associated with the operation of a co-located ACLF. Under HRS policy, the applicant has the option as to whether or not to provide these projections. [E.D. Tr. 1551-1559]. CVI proposes a 35 percent Medicaid utilization condition for the nursing unit which, with a 50 percent rate in the Alzheimer unit, results in a 42.5 percent Medicaid rate for the 120 bed facility. [CVI Ex. 3, PT I, p.iv, p. 46a; H.B. Q. 31, 33, 73-75; A.G. Tr. 1260, 1261, 1320]. Of the completing applicants, only CVI showed all it beds will be Medicaid certified. [J.B. Tr. 263, 265]. It is the financial feasibility of the specific certificate of need being reviewed which is assessed by HRS. [Id.]. HRS does not review the financial feasibility of any other operations of the applicant which are not part of the nursing home certificate of need application. [Id.]. VALIDITY OF CVI'S AUDITED FINANCIAL STATEMENTS The completeness deadline for applications was January 18, 1991. However, the completeness determination for CVI was delayed by approximately one month because, initially, HRS withdrew the CVI application from review. HRS' action was based upon an audited financial statement of CVI covering the first 10 months of 1990. HRS acted upon an apparent non-rule policy that a "combined" audited financial statement would not be `accepted, and the conclusion that the 1990 10-month CVI audit was a "combined" statement. No evidence was adduced at hearing to demonstrate what HRS specifically defined to be a "combined" statement, or specifically why the Department initially felt the 10-month 1990 audit was not an audited financial statement of Cypress Village, Inc. Upon reconsideration, the HRS reinstated the CVI application, specifically finding that another audited financial statement, covering the full 1989. The purpose of an audit is to fairly present, in all material respects, an entity's financial position, results of operations, and cash flows in conformity with generally accepted accounting principles (GAAP). [M.G. Q. 11; M.F. Tr. p. 1813]. This conclusion may be expressed only when the auditor has formed such an opinion on the basis of an audit performed in accordance with general accepted accounting principles which govern auditing standards. [Id.] The certified public accountant has a duty to exercise independent professional judgment with due professional care in preparing the audit and preparing the report. [Id.; M.F., Tr. p. 1811; M.G. Q. 35]. Within the accounting profession, because independent judgment is to be utilized, reasonable persons can disagree on a professional basis as to whether, how, and why certain items should or should not be included in, or appear in, audited financial statements under GAAP for any particular entity. [M.F. Tr. 1918]. The CVI auditors found that `failure to account for all assets, regardless of legal title, exclusively utilized by CVI for its economic benefit would violate the completeness requirement. [M.G. Q. 16, 17, 33]. [M.G.Q. 26]. If CVI's auditors had not reflected the assets to which that liability applies, notwithstanding titled ownership, the audited statements would not have been complete and would not have fairly represented the financial position of CVI. [Id.]. Both CVI audited financial statements meet the test of fairly presenting CVI's financial position results of its operations, and cash flows in conformity with GAAP. [M.G. Q. 1-39]. The CVI auditors exercised independent professional judgment with due care. [Id.; M.G. 34, 36]. Even if reasonable persons disagreed with the results, the application's requirements were met and HRS had information presented to it upon which to base its decision. The balance sheet and income statements contained in both the 1989 and 1990 CVI audited financial statements are based upon the "fund balance" accounting approach. [CVI Ex. 3, p. 9, 1990 audit; M.G. Q. 28, 30; Burcham Q. 11]. Fund balance accounting is unique to not-for- profit and governmental entities. [M.G. Q. 31]. The CVI audit balance sheets and income statements represent the combination of funds from two sources, both directly related to CVI operations and both of which have a material influence upon CVI's financial position, cash flows, and operational results. [M.G. Q. 26, 27, 28, 29, 32, 33, 36]. The 1990 statement is only different from the 1989 audit in terms of the form of presentation and because the passage of time resulted in updated financial information being available to reflect the more mature status of CVI in its development activities. [M.G. Tr. 1536; CVI Ex. 3 1989 & 1990 audits]. The characterization of the audited financial statement as a "combined statement" has no significance from an accounting standpoint because "combined statement" is not a term of art in accounting and has no precise meaning. [Id.; M.F. Tr. 1825, 1826]. To the extent the CVI statements may be deemed "combined", they do portray CVI as a distinct legal entity and do not distort the financial ability of the applicant [M.G.Q. 1-39; M.G.Q. 16, 27-29]. To the extent that CVI's 1990 audited financial statements make a specific reference to "combined financial statements", this reference is not a term of art and does not effect the validity of the audited financial statement. [M.G.Q. 27; Burcham Tr. 330, 331]. The financial statements account for the assets and liabilities shared with the NBA as required by GAAP. [Id.; and M.F. Tr. 1333-1334]. The American Institute of Certified Public Accountant's Technical Division concurs in the type of presentation utilized by CVI's auditors. [I.B.Q. 17]. The Technical Division was asked to comment on an audit for another NBA local which utilized the fund balance presentation. [Burcham Q. 5- 18]. The Division concurred that NBA's assets dedicated to that service unit's retirement program (similar to CVI's) should be included on the audit given the unit's debt and other obligations and economic benefit derived from those assets. [Id.; M.F. Tr. 1744, 1745]. VALIDITY OF CVI'S LETTER OF INTENT NOTICE OF PUBLICATION CVI timely published notice of its letter of intent in the Jacksonville Times Union. The contents of the publication are set forth in Rule 10-5.008(1)(i), Florida Administrative Code. Due to an error which was solely the fault of the newspaper, the newspaper left a zero off the total project costs so that the publication actually said "$30,000.00" instead of $3,000,000. [CVI Ex. 4]. Prior to the application completeness deadline, CVI provided an affidavit to the HRS which revealed that the error was not due to any fault of CVI. [CVI Ex. 4; A.G. Tr. 1266, 1267; E.D. Tr. 1569-1571]. Consistent with its existing policy, HRS found that since the publication error was not the fault of or within the control of the applicant, CVI had satisfied the legal requirements for publication. [Id.; A.G. Tr. 1269-1270]. The rationale for the HRS policy was that it would not be fair to punish an applicant for the `mistake of the newspaper as long as the applicant fulfilled its responsibility to demonstrate that it had no part in creating the error. [Id.]. At the time of the CVI application, this policy had been consistently applied by HRS for numerous other applicants who were found to be in compliance with the law as long as the publication error was not their fault. [Id.]. CONFORMITY WITH THE LOCAL HEALTH PLAN All four applicants conformed generally to the applicable local health plan. The applications of CVI and Atrium were determined by HRS to meet the elements of the local plan better than did the applications of Health Quest and MRCI. Atrium and CVI were the only applicants which provided specialized programs for Alzheimer's patients, a preference for applicants in the local health plan. [Atrium/Nelson PF, pp. 20- 28; Atrium Ex. 8, p. 10-11; HRS/Granger PF, pp. 6-8; ANH Ex 16; A.G. Tr. 1323]. Atrium and CVI had the lowest costs per bed of the applicants. [See p. 249 below]. MCRI failed to address the current District Health Plan (1990-91) and instead used the 1989-90 plan. [Atrium/Nelson PF, p.9]. MRCI proposes to serve the lowest percentage of Medicaid patients in proportion to the average subdistrict-wide experience of nursing homes. Health Quest's existing facility, already at 120 beds, would be substantially over optimal size at 161 beds, if its proposed project is approved. Furthermore, Health Quest was not in compliance with regard to special programs and commitment to serve hard-to-place patients. [Atrium/Nelson PF, pp. 9-20; Atrium Ex. 8; HRS/Granger PF, pp.: 9-10]. There was no evidence that approval of any of the four applicants would have an adverse impact on the costs of providing health services, especially in light of the numeric need and high occupancy rates of the subdistrict. ATRIUM'S APPLICATION The proposed Atrium 84-bed nursing home will be constructed in close proximity to The Atrium Retirement Community of Jacksonville, an existing 176 unit retirement and assisted- living community. The Atrium will be a new facility constructed and developed by owners new to construction and operation of health care facilities. The applicant is a "shell" corporation with assets of $50,000.00 owned by Jack and William Deinetree, two brothers, who have also provided financial data and letters from their bank indicating their financial ability and intent to complete this project. The applicant filed an audited financial statement as required by statute although it revealed a shell corporation waiting CON approval for the infusion of dollars by the shareholders, Jack and William Demetree. HRS does not limit an applicant's documentation in demonstrating how it will be able to finance its project, if approved. Atrium's letter of intent was clearly indicated as such within its application. Atrium's application was deemed complete. [Vol. 15, pp. 1616-17; Atrium Ex. 2, p.123; Atrium Ex. 5]. Personal financial statements of the Demetrees, prepared by their longtime CPA, were also included in Atrium's application. [Atrium/Schramm PF, pp. 10-11]. The Demetrees' financial statements were "compiled" statements. [Vol. 16, p. 1678]. A CPA will not even prepare a compiled statement unless he has personal knowledge of the individual involved and his business operations. [Vol. 16, p. 1678]. `The financial statements of the Demetrees were provided as supplementary material. There is no statutory or rule requirement that they be in a certain form. [Vol. 16, p. 1694] After assessing their financial net worth, DHRS concluded that the Demetrees have more than sufficient liquid assets to make the equity contribution required in Atrium's application. It is a matter of the general business philosophy of the Demetrees that they put equity into all their development projects. [Atrium/Schramm PF, p. 11]. The nursing home application form does not require audited financial statements of stockholders in order to support their ability to make equity contributions. Neither the application Form 1455A, October 1988, nor the instructions thereto, dictate such a requirement. [Atrium Ex. 2, p. 24; Healthy Quest Ex. 9, p. 1-6; MRCI/Beiseigel PF, p. 6; Vol. 1, p. 75; Vol. 5, p. 444]. The ability of the Demetrees to obtain construction and permanent financing, as well as contribute substantial equity and operating capital was demonstrated by competent, substantial evidence. The $100,000 note payable to owners that appears in Schedule 15 of Atrium's application will be a line of credit, used for working capital during the first year of operation, before the cash flow picks up. It is fairly customary in the industry to provide such financing during the initial year or so of operations. (Vol. 6, p. 569; Vol. 16, p. 1682). The Atrium will have the resources available to complete the proposed project if the Demetrees provide the financing. Because the Atrium is a shell corporation in which the Demetrees own all the stock, it is logically assumed that they will provide the financing to the extent they are able. [Vol. 16, p. 1682; p. 1716; p. 1723; HRS/Granger PF, p. 13]. Their ability to finance the project is discussed above, and no evidence was introduced to show they could not finance the project. As a shell corporation, the Atrium currently has no other capital projects or expenditures under development or in the planning stage. Because it has very little capital and is totally dependent upon the infusion of capital by the Demetrees, existence of other project and expenditures is absolutely irrelevant. [Atrium/Schramm PF, pp. 5, 7]. Recent borrowings in amounts of from 3 to 8 million dollars by companies in which the Demetrees are major owners indicate their ability to obtain capital at rates from prime plus one-half to prime plus one. [Vol. 16, pp. 1680-1]. In its application, Atrium provided a letter of interest from First Union National Bank to finance the project, if approved. The Demetrees have a long-standing relationship with the bank, which has financed numerous large scale developments for the Demetrees through construction loans, working capital lines and permanent financing. The Demetrees have a 40-year, unblemished lender-borrower relationship with First Union (formerly Atlantic National Bank); there was no competent substantial testimony to the contrary. [Atrium/Schramm PF, pp. 8-9; Vol. 6, p. 549; Atrium Ex. 2, App.; Vol. 16, pp. 1679-81; Vol. 5, p. 445]. The Atrium's proposed plan is designed to develop innovative quality of life enhancements to minimize the institutional setting characteristic of some nursing homes. The plan utilizes a staggered semiprivate room design that increases residents' privacy and allows each resident to have a window to the exterior. The facility will-meet social needs of the residents, as well as their need for privacy. It is supported by a resident room design as well as a variety of activity and support spaces. (Atrium/Bhide PF, p. 3; Atrium Ex. 8, p. 18) The Atrium's proposed design is both appropriate and reasonable in light of state and local construction standards for a freestanding nursing home. (Atrium/Bhide PF, p. 3-7) The projected construction costs are based on Vasant Bhide's experience with designing and working on at least five (5) nursing home projects in the North Florida area in the past two years. According to Bhide, the proposed project cost estimates (construction costs, fees and equipment) are reasonable, and include almost $200,000 in contingency funds. Bhide's representations are disputed by other equally knowledgeable and experienced builders and architects whose costs estimates on similar facilities exceed Bhide's estimates. (Vol. 7, p. 644; Atrium/Bhide PF, p. 4; Atrium Ex. 3, p. 49; Atrium/Downs PF, p. 6-7) The Atrium's project costs compare favorably with HRS experience, and the actual costs may be lower due to the impact of the current recession. (Vol. 5, P. 434). (Vol. 7, p.644; Atrium/Bhide PF, p. 4-7; Atrium Ex. 3, p. 4-7) The total project cost of Atrium, which is just under $4 million, is deemed reasonable. (Atrium/Nelson PF, p. 29; Atrium/Downs PF, p. 6; Vol. 6, p.570, 572; Vol. 6, p. 552; Vol. 16, p. 1699-1703). The Atrium's projected bed utilization for the first two years is both reasonable and appropriate. (Atrium/Nelson PF, p. 6; Atrium/Downs PF, p. 4) The Atrium's proposed patient charges and expenses are reasonable. (Atrium/Nelson PF, p. 29, 31; Atrium/Mitchell PF, p. 4-6) Although acknowledging he had seen Medicare rates as high as $270 per patient day, Mark Fall challenged the Medicare rates projected by Atrium. (Vol. 18, p. 1888) If Mr. Fall's opinion were credited, Atrium's net income in year two would still exceed $260,000. (Atrium Ex. 4, Sch. 18) reasonable and conservative, based on actual recent financing of other Demetree projects. (Atrium/Schramm PF, p.12) The Atrium's assumptions on Schedule 11, especially regarding fringe benefits, were shown to be reasonable. The total dollar amount of salaries and wages and benefits for Schedule 11 were compared to other historical operations, inflated forward, and found to be well within the reasonable range by Joseph Mitchell, Atrium's expert in Medicaid and Medicare reimbursement and nursing home accounting. (Vol. 6, p. 563-565) The Atrium's proforma assumptions, using fringe benefits of 22 percent, were reasonable. (Vol. 6, p. 565) The Atrium's projected Medicare per diem revenues are reasonable considering this is a start up facility. One cannot compare a start up facility's Medicare rates with those of a long-standing facility, as Medicare imposes a limitation on Medicare rates after the first three (3) years of operation. (Vol. 6, p. 568) Atrium's proposed project is feasible in both the short and long term. Mr. Mitchell tested the reasonableness of the proforma assumptions based on his experience working with 125 to 150 nursing homes on an operational basis. (Atrium/Mitchell PF, p. 9; Vol. 6, p. 578) The Atrium's projected debt schedule is reasonable and conservative based upon recent financing of projects by the Demetrees. (Atrium/Schramm PF, p. 12.) The Atrium's design meets all codes, including building and life safety, energy code, handicap accessibility code, etc. (Atrium/Bhide PF, p. 6) HRS' architects ranked Atrium's plans first among the applicants in this hearing. (Atrium Ex. 8, p. 17-19; HRS/Granger PF, p. 14) The Atrium's application notes a willingness to take AIDS patients and will be bringing on-line 84 beds in a high occupancy subdistrict, which will promote better geographic accessibility. [Atrium/Nelson PF, p. 31]. The Atrium proposes to commit to 61% Medicaid, the most of any applicant. This commitment is attainable in light of the actual experience in the subdistrict (62.1% average) and the overall state average (60.6%). [Atrium/Nelson PF, p. 8- 9]. The proposed operations and quality assurance program submitted by Atrium meet or exceed Florida regulatory standards. [Atrium/Fitzpatrick PF, p.5, 14; Atrium/Downs PF, pp. 4-6; HRS/Granger PF, p. 11]. The Atrium's proposed staffing levels are reasonable and meet or exceed Florida standards. [Atrium/Fitzpatrick PF, p. 7; Health Quest Ex. 11]. The Atrium will develop and implement a training/staff development/internship program, to include students residing in Duval County. [Atrium Ex. 4, p. 70 A-C]. The Atrium will also be associated with an existing 176-unit retirement community known as The Atrium Retirement Community of Jacksonville, through their common ownership. The experience gained, in the five years of operating The Atrium Retirement Community of Jacksonville will be beneficial to the Atrium nursing home project, especially in the areas of housing for elderly residents, security, housekeeping, dietary and nutritional services, activities and counseling. (Atrium Ex. 2, p. 24B) Atrium will have established linkages with its sister retirement community and thereby offer a continuum of care. [Atrium Ex. 4, p. 46 A-c; 58A]. Atrium will have a good recruitment and career ladder programs. The Atrium's description of its patient assessment and care plan, utilization review program, quality assurance program, operations and dietary programs were comprehensive and explicit. The Atrium described very good activities programs, family involvement, mental conditions of residents, restoration/normalization programs and quality of life enhancement programs. [Atrium Ex. 8, p. 15; HRS/Granger PF, pp. 11-12]. Overall, the presentation was consistent and thorough and stated the services to be offered by the applicant. [Atrium Ex. 8, p. 15; HRS/Granger PF, pp. 11-12]. However, Atrium has never built or operated a nursing home. The Atrium's inexperience is demonstrated by its failure to properly plan for the cleaning of soiled laundry. The Atrium indicated it may send out the patients' laundry or use the laundry of a nearby retirement community. (T. 171, 549; Atrium Exhibit 4) As additional evidence of its inexperience in operating nursing homes, the Atrium proposes to use a non- wheelchair accessible van for transportation of it's residents, pulling a U-Haul with the wheelchairs. (Atrium Exhibit 4) When the matter was raised at hearing, its representative indicated that Atrium would rent a wheelchair accessible van, and private medical providers might be called on to transport Medicare and Medicaid residents to doctors' appointments, therapy sessions, and related activities. [Atrium Ex. 4, p. 61A; Atrium/Downs PF, p. 9]. Atrium intends to draw upon the management skills of the American Retirement Corporation (ARC) of Nashville, Tennessee. ARC is a national management services company which operates 21 retirement communities in 14 states. Most of the programmatic features set forth in Atrium's application are already utilized successfully at ARC facilities around the country. (Atrium Ex. 2, p. 24 A-B) For more than 10 years, ARC has employed its standard operating methods at a nursing home located at the Burcham Hills Retirement Community in East Lansing, Michigan. (Atrium Exhibit 13, p. 2; T. 520) ARC has been found to be in violation of several nursing home standards at its facility at Burcham Hills, Michigan, including serious failures to provide appropriate care to residents. (Health Quest Exhibit 26, pp. 3-7) The Senior Vice President of Operations for ARC plans to manage Atrium's nursing home using ARC's "`standard operating methods," to describe the programs that would be offered. (Downs PT, pp. 5-12) He asserted that ARC's lack of experience in managing a nursing facility of this size, type, and location is irrelevant because, among other reasons, "a patient is a patient." (T. 618) The Atrium, through its proposed management contract with American Retirement Corporation (ARC), will attempt to provide quality care to its patients. [Atrium/Fitzpatrick PF, p. 3]. MCRI'S APPLICATION FOR CON The MRCI CON is for a 30-bed nursing home. MRCI filed a proper letter of intent and audited financial statement for this CON. (T. 1608, 1609, 1611, 1613). MRCI also filed a CON for a 24 bed nursing home which HRS rejected as incomplete and untimely. Because the completeness issue of the 24 bed CON was undecided, MRCI presented evidence that included the feasibility, etc., of the 24 bed CON. In summary, there were no significant differences between the two CONs, and both were equally feasible. MRCI has developed a prototype facility called "Brighton Gardens". An MRCI Brighton Gardens facility typically includes 30 nursing home beds and 120 ACLF `beds. (Walter PT, p. 5). The concept anticipates carrying for the elderly from their need for an ACLF through nursing home care with minimum disruptions due to changes in environment. MRCI's research has indicated that as people get older, changes become more difficult and residents do not want to transfer back and forth between facilities. (T. 909) MRCI's project minimizes transfer trauma. The more unfamiliar the situation the more serious the transfer trauma. Transfer trauma manifests itself by despair, isolation, a change in a person's behavior and the way they deal with ordinary situations. Some states require transfer trauma plans before a resident is moved out of a facility. (T. 910, 911) At a Brighton Gardens facility, when a resident moves from the ACLF to the nursing home, friends in the ACLF can visit the nursing home on a regular basis. This is particularly beneficial for spouses to be able to visit back and forth without the need for transportation. (T. 907, 908) All of the beds are contained within the same building, although the nursing home is a self-contained unit with its own separate entrance for privacy and ease of access by residents, staff and visitors. (Walter PT, pp. 5, 6). Marriott and Marriott Retirement Communities, Inc. currently own and operate ten retirement centers and manage two other. (Evans PT, p. 4) MRCI operates two Brighton Gardens in Arizona and one in Virginia Beach and one in Houston, Texas. (Evans PT, p. 6) Five retirements communities are currently under construction and are all scheduled to open within 18 months (Evans PT, p. 4). MRCI already operates one facility in Florida which is a full service retirement community and has a superior rating. (Walter PT, p. 18) MRCI has demonstrated that it has the ability to provide superior care at its Brighton Garden facility. MRCI has demonstrated that it can provide the quality and types of programs equal to or exceeding any of the other applicants. MRCI has demonstrated that it can improve the quality of care in existing institutions and successfully operate nursing homes. For example, MRCI began managing a property in Canton, Ohio in June, 1988, when occupancy was less than 50%. When it discontinued management in early 1991, occupancy was approximately 90%. The net loss in income for the property had been reduced substantially from $2.3 million in 1988 to $900,000 in 1990. Reduction in cash loss was even more significant. (T. 874-875) MRCI managed property known as Towne Center, beginning in June, 1988, and discontinued management in early 1991. When MRCI began managing the property occupancy was approximately 55%. Occupancy had increased to over 90% by the time MRCI discontinued management. Efforts to discredit Marriott's management were unsuccessful and rebutted by its representatives. The design of MRCI's proposed project lends itself to quality of care because residents will not be expected to transfer from one entity to another as their needs change and because the small size of the unit allows for more individualized care. (Evans PT, pp. 28, 29; T. 1315) MRCI's proposal provides sufficient staff to provide top quality care. (Evans PT, p. 6) MRCI is proposing to provide 3.0 nursing hours per patient day for the 30-bed project. This does not include direct nursing hours which could be provided by the director of nursing. If you include those hours, direct nursing hours increased to 3.21 nursing hours per patient day. For the 24-bed project, if you include direct nursing hours provided by the director of nursing, 3.25 nursing hours per nursing hours per patient day will be provided. (T. 922-923, 954) There will be a full time administrator on the property of Brighton Gardens of Jacksonville. (T. 872) The administrator will be responsible, for the entire property. (T. 872) MRCI's proposed staffing exceeds the regulations of the State of Florida. In fact, MRCI proposes to provide four licensed nurses five days per week. By regulation, MRCI is required to provide only three licensed nurses. (Evans PT, p. 7) MRCI has an excellent recruitment plan and has designed a variety of enhancement programs for its employees. Some of these programs include a profit sharing program, the employee stock ownership plan, and a benefit trade system. MRCI offers an employee credit union, employee discounts at Marriott Hotels, continuing education, as well as additional training for employees to advance in their areas. MRCI has a working family life program, offers family life-counseling programs and has a guaranteed right to fair treatment policy within the company. MRCI recruitment efforts have been very successful. (Evans PT, p. 10) MRCI has developed a superb quality assurance program which exceeds the federal OBRA requirements and exceeds state requirements for quality assurance committees. (Evans PT, pp. 11, 12, 13-19) The wage assumptions and salary assumptions of both MRCI applications are reasonable projections. (Huber PT, p. 11) The staffing assumptions in both Schedules 11 are reasonable assumptions. The proposed Medicaid rate is reasonable and consistent with the Medicaid requirement in Florida. (Huber PT, p. 13) MRCI has demonstrated that its proposed 30-bed project is a financially feasible project. (Huber PT, p. 6) The proposed capital expenditure is $1,901,507 and first year operating expenses are projected-to be $1,065,108. MRCI has demonstrated that its Jacksonville Brighton Gardens project will be profitable in Year 2 of operation. This is true for the 30-bed application and for the 24-bed application. (Huber PT, pp. 14, 15) The ACLF revenues are a reasonable estimate of revenues for the Duval project. (Huber PT, p. 17) MRCI's land cost is based upon an option contract it entered into in 1989. The land cost for the project is reasonable and based upon a reasonable allocation of cost to the nursing home. (T. 1237, 1238, 12 41) MRCI intends to develop the entire Brighton Gardens of Jacksonville, which includes the ACLF and the nursing home. (T. 800) In conjunction with this type of facility, a nursing home this size is a viable alternative to "optimal sized" facilities because the small complement of beds is offset as part of the larger facility. The data provided attest to the financial feasibility of such a concept. MIRCI does not intend to build a stand-alone 30-bed nursing home. They will only be built in conjunction with the ACLF. (T. 861) The costs of construction for the MRCI proposals are reasonable and are allocated appropriately between the nursing facility and the ACLF. (McPhail PT, p. 20, 21, 22) MRCI allocated the costs of construction of the 30-bed project between the nursing home portions and the ACLF portions. This allocation was performed by determining the cost of the entire Brighton Gardens and conducting an allocation of those costs directly related to the nursing home portion of the building, including construction costs, fixed and movable equipment. Shared area costs, such as those associated with the kitchen, laundry, circulation, beauty-barber, and administrative areas, were allocated on a proportional basis. The kitchen was allocated on a proportion of meals served to the nursing center residents. The construction, site development costs and equipment costs of other shared areas were estimated by function, and these costs were then allocated on the basis of a square footage ratio of the nursing center to the ACLF portion of the building. (McPhail PT, pp. 20, 21) MRCI has three other Brighton Gardens projects which have been constructed. Those projects have been constructed at a cost within 1% of the original cost assumptions prepared at Marriott. (McPhail PT, p. 9) The Brighton Gardens design and schematic plans are consistent with the requirements contained in Chapter 10D-29 and local building codes for the 30-bed project and the 24-bed project. (McDowell PT, p. 5) Marriott has developed a bi-axial room which is one of the best semiprivate rooms available. The residents are situated so that they each have a privacy curtain and each resident still has a window. Semiprivate rooms are more affordable than a private room. Private rooms often lead to a resident feeling isolated, thereby leading to depression. (T. 915, 916, 1012) MRCI's design provides certain advantages for residents of both the ACLF and the nursing components. The bi- axial semiprivate rooms are quite large; there is significant amount of storage space; all resident's bathrooms are handicapped accessible. Residents will be able to take advantage of some of the ACLF common spaces at will, and MRCI's project will have a courtyard which will allow residents to do some secure wandering. The buildings are residential in nature, both in the exterior and interior architecture. (McDowell PT, p. 7) MRCI anticipated that the duration of construction for the Brighton Gardens of Jacksonville will be 12 months. This is a reasonable estimate. (McPhail PT, p. 22) The Brighton Gardens project in Southeast Duval County will be located on an 11 acre parcel on San Jose Boulevard which has ready access to public transportation and is convenient to the elderly population in the service area. (Walter PT, p. 19). MRCI will accept the following conditions on its certificate of need: MRCI will make at least 30% of its patient days available to Medicaid eligible patients, will donate 20 prepared meals per day to a local Meals-on-Wheels program for distribution to elderly residents and will provide respite care at both the nursing home and ACLF levels of care. MRCI will implement its special Homeward Bound Program. (Walter PT, pp. 16, 17, 30; Evans PT, pp. 22, 23,). MRCI has a history of providing nursing care services to Medicaid eligible residents. For example, although MRCI's Calusa Harbour facility carries no Medicaid, condition, approximately 31% of its community patient days were provided to Medicaid residents in 1990. (Walter PT, p. 18). MRCI will provide' services to ACLF residents requiring AIDS care or Alzheimer's care. (Walter PT, p. 19, T 915). MRCI filed an audited financial statement as required by the statute. Nationwide, Marriott has designated approximately $90 million for the development of retirement projects for 1991 and has designated $70 to $80 million for 1992. (T. 1020). Marriott has the resources to fund Brighton Gardens. [Handlon, p. 2]. Schedules 2A and 2B of MRCI's CON application contain a list of other planned capital projects of MRCI. This list of projects changes on a regular basis as projects are either added or rejected from the development process. This list includes projects in the very preliminary stages of planning. (Handlon PT, p. 3). No project has been dropped from Schedule 2 for financial feasibility problem's. (T. 1246). Typically, projects are deleted because of difficulty obtaining suitable property or problems with zoning or other regulatory hurdles. (T. 1253). Furthermore, certain projects listed on the capital project list in Schedule 2 identify expenditures which will occur as late as, or later than, 1998. (T. 798). An omission by MCI of approximately $7 million relating to a Boynton Beach project will have no effect on Marriott's ability to finance these projects. The amount omitted is inconsequential when considering Marriott's total development plans. Furthermore, MRCI has included projects on Schedule 2 which will be financed beyond the' next five years, well after the proposed project is operational and has demonstrated financial feasibility. (Handlon PT, p. 3; T. 1040, 1042). No MRCI or Marriott retirement housing project under construction has been slowed down or stopped for economic reasons. (T. 893). No retirement housing project which has been presented to the Executive Committee of Marriott has been denied or delayed. No project will be delayed once a CON has been issued or if another government timetable requires construction by a particular time. (T. 1223). MRCI is a subsidiary of Marriott Corporation, and the board of MRCI filed a proper letter of intent. Marriott has proven that it is committed to constructing, licensing and operating the project at issue iii this proceeding. MRCI operates five facilities that have had deficiency-free surveys under the new Omnibus Budget Reconciliation Act ("OBRA") guidelines. It is unusual to have no deficiencies found by the survey-team. Under the OBRA guidelines there are 710 elements in the program and surveyors evaluate compliance with the regulations by looking at each item. For each of these facilities, surveyors found that all 710 elements were in compliance with the guidelines and there were no deficiencies. (T. 905, 906). HQR'S APPLICATION Health Quest Realty II, Ltd. ("HQR II") is an Indiana limited partnership, first created prior to March 30, 1987 and authorized to transact business in the State of Florida on July 11, 1991. (HQR II Exhibit 7). HQR II is the authorized licensee of Regents Park of Jacksonville, a 120-bed community nursing home located in Duval County, Florida. HQR II has been the licensee of this facility since it first opened in 1986. HQR II's CON proposes to convert a portion of Regents Woods of Jacksonville, and existing Adult Congregate Living Facility, and thereby add nursing beds to an existing and co-located 120-bed nursing facility licensed as Regents Park of Jacksonville by HQR II. Alternatively, HQR II's CON proposed a 24 beds addition to Regents Park of Jacksonville. The 41-bed addition proposed by HQR II would involve 16,025 gross square feet at an estimated total project cost of approximately $2.6 million. The 24-bed partial request would involve 10,405 gross square feet at an estimated total project cost of $1.76 million. (HQR II App.) Health Quest Management Corporation IV ("HQMC IV") is an Indiana corporation, which filed, on October 3, 1984, a notice of doing business in Jacksonville as Regents Park in compliance with the fictitious name law. On February 12, 1986, HQR II filed a notice under Florida's "fictitious name" law, Section 865.09, Florida Statutes, in the public records of Duval County, Florida, giving notice of doing business as "Regents Park" in Jacksonville. CVI 33 (exhibit indicates document recorded at Duval County Official Records Vol. 6084, Pg. 1948). According to filings in the official records of Duval County, Florida, on September 25, 1987, the persons having an interest in HQR II were Lawrence H. Garatoni, holding a 90% interest, and Judith A. Garatoni,, holding a 10% interest. HQ 41 (exhibit indicates document recorded at Duval County Public Records Vol. 6402, Pg. 1466). An affidavit was filed in the official records of Duval County, Florida, that identified Lawrence H. Garatoni as owning a 190% interest in HQR IV, an Indiana corporation. HQ 40 (exhibit indicates document recorded at Duval County Official Records: Vol. 5860, Pg. 1904). Regents Park of Jacksonville actually is owned by Health Quest Realty XXII, another Indiana general partnership ("HQR XXII") (Krisher 7). The construction of Regents Park was financed by industrial revenue bonds issued by the City of Jacksonville on November 1, 1984. CVI 210. HQR XXII leased the property to HQR IV, which operates the facility. As part of the bond transaction, HQR XXII gave the City of Jacksonville a collateral assignment of its rights as lessor in its lease of the property to HQMC IV. All the Health Quest entities are controlled by one man, Lawrence Garatoni. Mr. Garatoni is the sole general partner of HQR II and owns 90% in that partnership, T. 1908 (Fall); HQ 41. Mr. Garatoni also owns 90% of the stock of HQMC IV, HQ 40, and owns 95% of HQR XXII partnership. T. 1780 (Fall). CVI 32, p. 7. The original CON for Regents Park was issued to HQR II. T. 1381. When Regents Park was first licensed in February of 1986, the license was issued to HQR II. T. 1382 (Krisher). In the process of obtaining renewal of the license for Regents Park in January of 1987 Mr. Krisher realized that the licensee, HQR II, in facet held no interest in the facility; HQR XXII was the owner of the property and HQMC IV the lessee/operator. Mr. Krisher brought this to the attention of Bruce Henderson of the HRS Office of Licensure and Certification ("OLC"). In an attempt to rectify the problem, HQR XXII entered an agreement to retain HQR II, the licensee to provide management services for the facility operated by HQR IV. CVI 23; T. 1382. This agreement was not rescinded. HRS advised that it would not issue a license to HQR II based on HQR II being a management agent because only the owner or lessee of a nursing home was eligible to be licensed. T. 1383. HQR II then approached HRS about obtaining approval for HQR IV to be the licensee of tie facility. HRS indicated to Mr. Krisher that to have the license issued to HQR IV would require a change of ownership. T. 1383. Mr. Garatoni did not want to go through a "change of ownership" since a new licensee could not retain the superior license, which Regents Park had received in December of 1986. T. 1384 (Krisher). In order to enable HQR II to obtain renewal of the license, HQR IV assigned its leasehold to HQR II. T. 1383. However, all profits and losses of Regents Park were recorded in the books of HQR IV because Mr. Garatoni did not wish to change the internal accounting structure of the Jacksonville operation. CVI 32, Wright deposition, p. 25. Conversely, there is only one set of books and records for HQR II, and they related only to the facility located in Merrillville, Indiana. T. 1861 (Fall). Disclosure of all material transactions and circumstances affecting the entity being audited is a key requirement (i.e., "completeness") in order to properly present an audited financial statement under GAAP. (Vol. 14, p. 1534; Vol. 17, p. 1840; Vol. 18, p. 1920). Since the Regents Park began operation in 1986, HQR IV has had and continues to have full operational and financial responsibility for the nursing home. (CVI Ex. 22; Vol. 13, p. 1394; Vol. 14, p. 1455; Vol. 18, p. 1883-4). HQR IV took the benefit of all profits and the risk of all losses from the operation of a nursing home licensed to HQR II and owned by Health Quest Realty XXII. (CVI Ex. 21a, 21b, 21c; Vol. 13, p. 1384, 1407-11; Vol. 14, p. 1430) HQR II claims these circumstances relieved its auditors from any responsibility to even mention, much less adequately disclose, financial data or other disclosure information pertaining to Regents Park. (Vol. 17, p. 1830-1). Neither the 1988 nor 1989 audited financial statements submitted by HQR II with its CON fairly present, in all material respects, the financial position, cash flow and results of operations of Regents Park of Jacksonville under GAAP. To the contrary, both financial statements were the result of a "special audit" of property located in Merrillville, Indiana, which is owned by HQR II and leased to a third party for a retirement community. (HQR II App,.; Vol. 17 p. 1824; Vol. 13, p. 1404-5) Although an audit of the applicant and licensee, HQR II, was presented, the operation of the nursing home upon which determinations of financial feasibility would be based never occurred. When each audit was conducted, HQR II's auditors had no knowledge of the Jacksonville operation. (Vol. 14, p. 1445-46; Vol. 18, p. 1877). The purpose of requiring audited financial statements is to provide HRS with reasonable assurances that an appropriate audit, with all necessary field work, was conducted. (Vol. 15, p. 1563; Vol. 15, p. 1619-22). HQR II did not provide financial statements which reasonably represented and presented the financial status of the applicant because HQR II did not tell the auditors about its Jacksonville operations. If complete field work and independent evaluation by the auditors had been performed, the auditors would have discovered the relationship between Health Quest Realty XXII, HQR II and HQR IV. In considering disclosure of related party transactions, the auditors would have had to reconcile the relationships between the various entities, and present a accurate picture of the finances of the applicant. The Health Quest nursing home has not made a profit in its five years of existence. (Vol. 17, p. 1798, 1799; Vol. 14, p. 1444, 1445) For example, in 1989 it suffered a net loss of $114,000. (Vol. 17, p. 1)98) In 1990, it suffered a net loss of $107,000. (Id.) Health Quest's past history of consistent losses was not disclosed anywhere in its application. (Vol. 14, p. 1444, 1445) Such information is relevant to the financial feasibility of a CON, and is revealed in a proper audited financial statement. (Vol. 12, p. 1324, 1325; Vol. 15, p. 1560- 61) Health Quest projects a profit for its bed addition alternatives. (Health Quest App. Sch. 18) Given the past history of losses, Health Quest did not provide any explanation as to how a profit should now be expected. (Health Quest App.) Health Quest is a foreign limited partnership which did not register to conducts business in the State of Florida until July 11, 1991. (Health Quest Ex. 7) Its petitions for formal administrative proceedings were filed in March and April of this year. Some scores in HRS' s system are objective, i.e., based on specific facts. Other scores in HRS's system are subjective, i.e., based on the reviewer's opinion. On the objective items, Health Quest received 480.3 points, 80% of the possible 602; Atrium received 47911 (80%). MRCI 397.3,7 (66%), and CVI 374.55 (62%). At. 8. On the subjective items, Health Quest received 442.94 points, 68%, of the possible 654; Atrium received 575.61 (88%); MRCI 566.7:5 (87%); and CVI 621.47 (95%). At. 8. Health Quest finished highest among the applicants on the items scored objectively add lowest among the applicants (by a gap of 19% of the maximum s1core available) on the items scored subjectively. Health Quest's is the only nursing home in Duval County that has had a "superior" licensure rating since 1986. Krisher 8. Only about a third of Florida's nursing homes have superior licenses. Brockish 4; HQ 2. Health Quest's facility is considered excellent by local physicians, hospital discharge planners, and home health agencies. HQ 38. The chairman of the District IV Long-Term Care Ombudsman Council described Regent's Park as having a "solid reputation," and as having been identified by the University of Northern Florida as "a model facility and primary site for its newly developed Administrator-in-training program."' 6513, PT 2, Item 3M (1/14/91 letter). A high level of staffing, measured by the ratio of full-time equivalent ("FTE") staff to patients, generally correlates to high quality care. T. 40, 42 (Vroman). Health Quest's existing total direct care staffing pattern, at 3.49 hours per patient day, exceeds the levels proposed by the other applicants. Health Quest's proposed staffing, measured by licensed staff (i.e., RNs & LPNs) or by total direct care staff (i.e., including nursing aides), is higher than that of any other applicant except MRCI's 24-bed proposal. HQ 11. Health Quest provides a broader range of services than most nursing homes, including subacute care such as intravenous antibiotics, respiratory care and tracheostomy care. T. 757, 59 (Janesky). Regents Park provides more physical therapy ("PT") than most nursing homes. Provision of PT is related to Medicare utilization because Medicare residents are the primary recipients of PT in nursing homes. 6513, PT 2, Only one other facility in Duval County provides the type of subacute care which Regents Park provides, and that facility is not an applicant for beds in this cycle, [T. 775 (Janesky), H31] although CVI states that it too will serve high acuity patients. Vroman 6-7. Although the CON application form asks for a description of "specialized programs," HRS has not defined "specialized program" in the application instructions. T. 394 (Gordon-Girvin). HRS gave Health Quest no credit for providing subacute care because subacute care was not considered a "specialized program" although HRS had considered subacute care a specialized program in the past. T. 1286-87 (Granger). The Office of Licensure and Certification, which licenses and monitors nursing homes, recognizes 11 categories of "special care." Regents Park provides all of them. Although Health Quest referred to this in `,its application, HRS gave Health Quest zero points in this category. At. 8 (Ex. B, p. 22). HRS gives the same weight to its consideration of a proposal to provide a particular service and type of care that it gives to actually providing the service or care. The application evaluation process does not differentiate between the promise to perform by a entity which has never engaged in the nursing home business and actual performance by an existing provider with an excellent track record. T. 1295 (Granger). The success of Regents Park in restoring residents to health is objectively demonstrated by the high ratio of patients discharged from Regents Park rather than remaining as residents until death. As reflected in HCCCB reports for 7/89- 6/90, Regents Park discharged 179 patients, i.e., 1.49 times its licensed beds, which was more than twice the rate for all other District IV facilities. 6513, PT 2, p. 43E Health Quest's actual resident care cost per resident day is the highest in the Southeast Duval County, which is considered a favorable factor under State Health Plan Preference #12. Nursing care cost for resident day for Regents Park for fiscal year 1989, per HCCCB reports, at $30.64 was higher than that for any of the other nine Southeast Duval County facilities reporting. 6513, PT 2, p. 45F. Similarly, Regents Park's dietary cost per patient day, at $8.69, exceeded any of the other nine facilities. 6513, PT 2, p. 48C. Health Quest proposes that all but four of its new beds are to be in private rooms. There would be two rooms, each with two beds, sharing an entrance to the hallway but otherwise private. T. 1155. CVI, MRCI and Atrium each plan to provide four to twelve beds in private rooms. HQ 10. Health Quest agreed to condition an approval on the following: The proposed site would be 7130 Southside Boulevard, Jacksonville, Florida. A minimum of 50% of patient days will be devoted to Medicaid patients for the proposed new unit. The facility will continue to use only certified nursing aides ("CNA's"). (Health Quest App.) The conditions, above, to which Health Quest committed are largely redundant. As an existing provider, Health Quest is limited to expansion at its existing site, 7130 Southside Boulevard, and it must use trained personnel. Health Quest listed as special care restraint reduction, and weight maintenance. HRS found that the these programs constitute services which every nursing home must provide, or should provide, as standard care. (Atrium Ex. 8, p. 17; Vol. 8, p. 753-63) Health Quest did not characterize its services to Alzheimer's residents as a special program within its application. (Vol. 12, p. 1288) The care for Alzheimer's patients becomes a special program when it is offered in a discrete unit or when some other unique feature is present, such as a facility design, which specifically takes into account and benefits the needs of residents with Alzheimer's. (Vol. 12, p. 1319, 1323) Health Quest's application did not present any such unique features. Health Quest's willingness to accept hard-to-place patients is reflected its practice of accepting Medicaid residents requiring skilled rather than intermediate care. Per 1989 HCCCB data, the proportion of Medicaid patients receiving skilled care at Regents Park (31.5%) was more than twice the average (11.6%) for other reporting Southeast Duval County facilities. 6513, PT 2, p. 45F. However, the percentage of Medicaid utilization to which Health Quest is committed is ambiguous because its application states: It should be noted that Medicaid residents are to be placed in the facility according to the wishes of the residents themselves, their attending physicians, and the staff. The Agreement on page 6 should not be misconstrued as evidencing an intention to operate the new unit at 50% Medicaid occupancy [sic]. (Health Quest App., Sch. 17, Footnote #16) The reference to "page 6" is the application page wherein the applicant can expressly agree to a particular Medicaid utilization condition. Given its proposal to convert ACLF space, the remoteness of the proposed Health Quest unit from its existing skilled nursing facility will not lend itself to optimal efficiency in utilizing existing nursing home support areas. (Atrium Ex. 8, p. 19) Almost all of the proposed Health Quest beds will be located in private rooms. (Vol. 9, p. 915) The isolation of the elderly in a private room can cause problems with depression. (Id.) Health Quest was deficient in describing how it would measure the outcomes for its programs. (Atrium Ex. 8, p. 21) Health Quest description of its residential quality assurance program was weak. [ANH Ex. 8, pp. 16, 17]. Health Quest was the only applicant proposing renovation rather than new construction. The instructions to the CON application form state: If currently owned land is going to be converted from some other use to be used for this project, the land's original cost plus past improvements made must be included. If the purchase price of the land was previously approved in CON review by this department, it must be excluded when calculating the application fee. * * * The same treatment applies to donated and converted buildings (including partial bed conversion) as apply to donated and converted land, except that cost less accumulated depreciation must be used. Health Quest followed the instructions and included the depreciated cost of the existing ACLF area to be converted to nursing beds. 6513, 6513-P, Sch. 1. HRS in its cost comparisons used the "total cost" figures given by the applicants. Using those figures, the cost per bed were as follows: CON Total Cost Cost Per Bed HQ 41-bed $2,608,646 $63,625 HQ 24-bed $1,765,482 $73,562 CVI $3,286,258 $54,771 Atrium $3,944,324 $46,956 MRCI 30-bed $1,891,507 $63,050 See State Agency Action Report, At. 8, pp. 2-3.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is therefore, RECOMMENDED, in the absence of reconsideration by the Department, that: The application of Health Quest be denied for failure to file a properly audited financial statement and establish its financial feasibility; The CON of Cypress Village be approved for 60 beds; The CON of Atrium be approved for 84 beds; and The beds sought by MRCI should be denied. DONE AND ENTERED this 11 day of February, 1992, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11 day of February, 1992.
Findings Of Fact The controversy Forum Group, Inc. (Forum Group), Hillsborough Healthcare, Ltd. (Hillsborough Healthcare), Health Quest Corporation (Health Quest), and Careage House Healthcare Center (Careage) filed applications for certificates of need for community nursing homes in Hillsborough County, which is a subdistrict of HRS district VI. The applications were filed in the July, 1986, batching cycle, for need in July, 1989, known as the planning horizon. As amended prior to being deemed complete by HRS, Hillsborough Healthcare and Careage sought 120 beds, Health Quest sought 88 beds, and Forum Group sought 60 beds. All of the applications satisfy and are consistent with state and local health plans. The Department's free form preliminary action Ordinarily, the Department's preliminary decision on these applications would have been issued in November or December of 1986. In these cases, the parties were orally advised of the Department's preliminary action in January, 1987, but the state agency action report containing that preliminary decision was not issued until August, 1987. The delay in decision making in this case occurred due to the altered process of free form decision making that was used in this case. Careage filed a number of applications in the July, 1986, batching cycle, in a number of subdistricts. The preliminary review conducted by HRS determined there to be bed need in four of the counties in which Careage had applications: Hillsborough, Polk, Pinellas, and Lee. During free form agency decision making on the applications in this batching cycle, Ms. Marta Hardy was the Deputy Assistant of Regulation and Health Facilities for the Department. T. 1024. Her duties included responsibility to oversee the issuance of certificates of need and develop health planning policies. Id. Ms. Hardy was the direct supervisor of Robert Maryanski, who was the head of the office of community medical facilities, and Robert Sharp, who was the head of the office of comprehensive health planning. T. 1024. Mr. Maryanski was the direct supervisor of Mr. Reid Jaffe who reviewed the applications in Hillsborough county. Preliminary decisions on the applications in this batch were normally due in November, 1986. It was the normal procedure at the Department to review applications for certificates of need in the following manner. First, an employee in the position entitled "medical facilities consultant" reviewed all applications in the batching cycle for a particular district or subdistrict and made recommendations on each application. These recommendations were then reviewed by his supervisor, the medical facilities consultant supervisor. The recommendations of the medical facilities consultant supervisor upon each application then went to Mr. Maryanski. In Hillsborough, Polk, Pinellas, and Lee Counties in the July, 1986, batching cycle, all reviewers found there to be a bed need. In the normal course of business, all reviewers forwarded through Mr. Maryanski and to Ms. Hardy recommendations that did not recommend the award of a certificate of need to Careage in any of these four counties. T. 1057, 1055, 1281-82. Mr. Maryanski told Mr. Jaffe to "find a way" to approve the Careage application in Pinellas County. T. 1283-84. The time of this communication is not in the record. At about the time that Careage applied for certificates of need (August or September, 1986), Ms. Hardy had dinner with the owner of Careage, Mr. Gene Lynn, Mr. Lynn's wife, and Mr. Ralph Haben. T. 1040. At that meeting, the representatives of Careage told Ms. Hardy that Careage operated nursing homes in other states in which care of good quality was provided. T. 1060. Mr. Haben is an attorney, and was then representing Careage. T. 1059. Mr. Haben and Ms. Hardy had been friends since the late 1970's, and in August and September, 1986, they had had lunch or dinner together socially four or five times. T. 1041- 49. In December, 1986, after Departmental staff had preliminarily recommended that Careage's applications be disapproved in the four counties in which was there was need, Ms. Hardy determined to ask Robert Sharp to review applications in the four counties. The result of Mr. Sharp's review was to recommend approval of the Careage application in the four counties. That recommendation was approved by Ms. Hardy. Mr. Sharp was responsible for health planning. He normally had nothing to do with review of certificate of need applications, although he had reviewed some hospital applications in the past. T. 1054. Ms. Hardy had come to the conclusion that Careage provided care of good quality. T. 1063. At the time she formed that opinion, Careage did not operate any nursing homes, and had not done so since 1982. Mr. Sharp understood that Ms. Hardy was impressed with Careage, but did not know the basis for such favorable impression. T. 940. Ms. Hardy told Mr. Sharp that she did not believe that the current method of comparative review of applications was adequate, and used Careage as an example of a best qualified applicant that was overlooked by the current method. T. 940. Mr. Sharp developed a method for comparative review of the applications in the batch for Hillsborough County and the other counties. The method has been referred to in the record as a matrix. Mr. Sharp simply selected certain aspects of the applications for comparison. Two types of information were selected: numerically quantified information, and "program characteristics," which called for a determination whether the selected item existed or did not exist in the proposal. The "matrix" also had a narrative for some of the applicants. Mr. Sharp used Careage as the standard of comparison for all other applicants in the comments section. There was no evidence that the items selected by Mr. Sharp were unreasonable or unfair. The items selected appear to be reasonably related to the task of comparing the virtues of the applicants. The items, for the most part, simply are based on information required by the Department in the application form. The matrix was found in September, 1987, to contain numerous factual errors, and the Department issued a revision. H.Q. Ex. 27. Need pursuant to rule 10-5.011(1)(k) Licensed beds in the district (LB) The number of licensed beds in the district (LB) as of June 1, 1986, was at least 5,964. T. 1706. This figure is derived by adding the 5,557 licensed beds shown on the August 25, 1986, semi-annual nursing home census report, H.Q. Ex. 16, to the 407 additional community nursing home beds that has been erroneously classified as sheltered nursing home beds. None of the other testimony credibly establishes this base figure. There is a dispute as to whether 96 additional beds at the Home Association should be considered licensed community nursing home beds as of June 1, 1986. The Home Association was founded in 1899. It is officially recognized that there was no certificate of need requirement in 1899. The Home Association has never received a certificate of need. Thus, it is inferred that the Home Association was never "issued" beds for "nonrestrictive use." At the time that the Home Association was licensed, there was no license category of "sheltered bed. Prior to 1982, there was no statute defining a "sheltered bed." T 1721-22. Thus, prior to 1979, the Home Association was not 1,issued" beds as "sheltered beds" or "for restrictive use". The Home Association is in the district and in the subdistrict, Hillsborough County. The Home Association had 96 beds in 1972, and had the same number on June 1, 1986. On or about August 20, 1986, HRS sent a letter to the Home Association. HQ Ex. 9. The letter stated that HRS records currently identified the Home Association as a "sheltered nursing home/continuing care facility licensed under Chapter 651, F. S.," but that HRS records did not indicate the date of the initial CON. The letter stated that the specific number of beds allocated to community and sheltered nursing home beds were listed below. At the bottom of the letter, HRS listed 96 beds in the column and line identified as current number of sheltered nursing home beds. The Home Association was told to review the data and make changes and return the letter to HRS. It further stated that a failure to respond would be interpreted as approval of the HRS listed bed allocations. The letter then provided four blanks for the Home Association to respond. The first two provided places to show the "corrected number of beds" both on a line identifying such beds as "community nursing home beds," and a line identify such beds as "sheltered nursing home beds." The Home Association left these lines blank. The third blank asked for the certificate of need number and date. The Home Association typed in: "The Home was founded in 1899; no certificate of need was issued." The fourth blank stated: "Sign Here if Corrections Requested." Initials appear in handwriting in that blank. H.Q. Ex. 9. The response of the Home Association was ambiguous. Having signed the fourth blank, thus seemingly communicating a desire to "correct" the form, the Home Association failed to tell HRS whether it wanted to correct the number of beds or the classification of the beds, or some combination thereof. HRS's need expert admitted that the only way one could settle the question would be to call the Home Association. T. 1724. The problem is further compounded by the way in which the letter from HRS was drafted. The letter did not ask the Home Association to provide information concerning the "historical utilization" of the 96 beds at the Home Association, and thus did not collect any information as to "historical utilization." See the last sentence of section 651.118(8), Fla. Stat. (1987). Instead, it told the Home Association that HRS records identified the Home Association as a sheltered nursing home/continuing care facility licensed under chapter 651. It also told the Home Association that "any nursing home bed located in a continuing care facility and not approved specifically as a sheltered nursing home bed and any nursing home bed located in a life care facility prior to 1979 shall be classified as a community nursing home bed." And the letter appeared to allow the Home Association an opportunity to request a "change in status" only if it had been issued a certificate of need as a community nursing home bed after 1979 and before 1982. It may be that when the Home Association wrote back that it had no certificate of need issued, and that it had been in existence since 1899, the Home Association was simply telling HRS that its beds fell in the category of automatically being community nursing home beds because "located in a life care facility prior to 1979." If the Home Association beds are counted as community nursing home beds, then those 96 beds are added to 5,964, and LB is 6,060. Licensed beds in the subdistrict (LBD) On June 1, 1986, there were 2,612 licensed beds (LBD) in the subdistrict, Hillsborough County. If the 96 beds at the Home Association are counted as community nursing home beds, then LBD is 2,708. Current populations (POPC and POPD) Whether POPC and POPD are the populations on January 1, 1986, or July 1, 1986 HRS divides the regulatory function with respect to certificates of need into two program offices. The office of comprehensive health planning (OCMF) is ordinarily responsible for writing the rules and developing the methodologies for the certificate of need program. It is also responsible for writing the state health plan. The office of community medical facilities (OCMF), which is now called the office of community health services and facilities, is normally responsible for making decisions upon applications for certificates of need. T. 929 (The transcript is in error on line 11; it should read OCMF), 930, 936, 1748, 1251. There are exceptions. T. 937 From 1984 through 1986, the office of comprehensive health planning routinely issued semiannual reports in which it calculated the need for community nursing home beds. H.Q. Exs. 12-18. T. 970-971, 1251. In each of these reports, bed need was projected for an established date. In each of these reports, the "current populations" (the base populations from which the need projection was made) were 3.5 years earlier than the date upon which need was projected. H.Q. Exs. 12-18; T. 1253. From 1984 through 1986, notwithstanding the fact that the semiannual report was based upon a 3.5 year period of need projection, the office of community medical facilities sometimes used a 3.0 year period of projection to actually issue certificates of need. T. 1254. That practice was not uniform within the office of community medical facilities. A number of certificate of need applications were issued based upon the calculations of need in the semiannual nursing home report, which used a 3.5 year period of projection. T. 560-561. It is officially recognized that several formal administrative hearings were settled using a 3.5 year period of projection of need. Health Quest Realty d/b/a Regents Park of Sarasota v. Department of Health and Rehabilitative Services, Final Order issued October 25, 1985 (CON number 3278), DOAH case number 84-3389, which was an exhibit in DOAH case number 86-0050, both cases which were before this Hearing Officer; Health Quest Corporation d/b/a Regents Park of Broward v. Department of Health and Rehabilitative Services, 8 F.A.L.R. 2485, DOAH case number 84- 3297. But even that deviation was not uniform. It is officially recognized that in Manor Care of Hillsborough County v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1102, DOAH case number 86-0051, HRS proposed at the formal administrative hearing to use a 2 year period of projection, using 1986 populations as "current" populations, although the applications were filed in 1985, and need was being projected in 1988. See paragraph 18, findings of fact, of that recommended order, which was written by this Hearing Officer. See also T. 1290. It is also officially recognized that in Forum Group, Inc., et al. v. Department of Health and Rehabilitative Services, et al., 8 F.A.L.R. 5438, 5445, para. 15, the Department used January 1986, as the starting date for a projection to July, 1987, an 18 month period of projection. It would serve no useful purpose to review all the other orders in the files of the Division of Administrative Hearings. It may be concluded from the foregoing that the way in which HRS has interpreted the meaning of "current" populations in its nursing home rule in the period from 1984 to 1986 was inconsistent. In fact HRS did not uniformly use a 3.5 year period of projection as now urged by the Petitioners. Since it has been concluded as a matter of law that the values of POPC and POPD must be determined as of July 1, 1986, no findings of fact will be made as to the populations on January 1, 1986. Whether POPC and POPD are determined from the July 1, 1986, or the May 12, 1987 release of Governor's estimates and projections The Governor's estimates and projections of population are prepared by the Bureau of Economic and Business Research and the University of Florida. T. 240. The Governor's estimates are released twice a year. T. 241. A population estimate, such as POPC or POPD, is an educated guess as to current population size. T. 239. A population projection, such as POPA or POPB, is a mathematical prediction of what a future population size will be. T. 240. The Governor's population estimates are based primarily upon actual data collected with respect to residential electric hookups combined with local information about housing mixes and national data about household size, persons per household, and institutional or group populations. T. 240, 242. The information is gathered each year. T. 242. The Governor's population projections are based upon the most recent population estimate projected forward using assumptions about future migration, mortality, and fertility. T. 240, 242. The May 12, 1987, Governor's population estimates and projections were the official Governor's release on the date of the formal administrative hearing, and were then the most current release. T. 241. The May 12, 1987, Governor's population estimates and projections for July 1, 1986, and July 1, 1989, were more accurate than the release by the Governor on July 1, 1986 for the following reasons: The May 12, 1987, projection of populations on July 1, 1989, is more accurate because the projection only attempts to project two years into the future. The July 1, 1986, release tries to project three years into the future. Extrapolation is more accurate over a shorter period of time because the underlying assumptions upon which the extrapolation is based will be assumed to remain constant for a shorter period of time. Stated another way, fewer things typically go wrong with the assumption that assumptions will remain constant over a short period of time rather than a longer period of time. T. 243-244. The May 12, 1987, projection of populations on July 1, 1989, are based upon actual hard data (electric hookups) for July 1, 1986, projected forward. The July 1, 1986, projection of populations for July 1, 1989, was not based upon a population estimate, but was based upon a population projection as to the population on July 1, 1986, which itself was based upon electric hookup data from an earlier period. T. 244. (This is also the reason that the May 12, 1987, estimate of July 1, 1986, populations, is more accurate than the projection of that population released on July 1, 1986.) The May 12, 1987, projection of populations on July 1, 1989, are based more current (actual 1986) figures upon which the extrapolation is made: actual levels of fertility, mortality, and migration for 1986, as well as 1980 through 1985. The July 1, 1986, release did not have this better data available, and had to rely on figures for only 1980 through 1985. T. 244. The district has grown at about 2.9 percent a year from 1980 to 1986. The July 1, 1986, release projects a rate of growth in each year from July 1, 1986, to July 1, 1989 of only 1.6 percent, or only one-half of the actual observed rate. There is no basis to conclude that the district growth rate in the period 1986-1989 will be one-half the rate observed in the prior six years. T. 245. The July 1, 1986, release bases its projection of July 1, 1989, populations upon an extrapolation based in part upon mortality rates from 1980 mortality tables. However, the mortality rates for the age groups involved, ages 65-74 and 75+, have substantially declined since the 1980 tables were compiled. T. 247-248. Elfie Stamm is Supervisor of the HRS Health Care Facilities and Services office. That office is responsible for all HRS health planning activities, including development of regulations for the certificate of need program, issuance of health policies governing the certificate of need program, and development of the state health plan. Ms. Stamm thought that the May 12, 1987, release of Governor's estimates and projections of populations was more accurate than the July 1, 1986, release because it was based on more up-to-date data. F.G. Ex. 15. The effect of selecting the May 12, 1987, release of populations, rather than the July 1, 1986, release upon the net need projected for the subdistrict in July, 1989, by HRS's rule is exceptionally dramatic: if the July 1, 1986, release is used, the net bed need is 143, and if the May 12, 1987, release is used, the net bed need is 300, assuming other factors are held constant (the projection period and the Home Association beds). HQ Ex. 4. Thus, use of the May 12, 1987, release of populations reveals 100 percent more bed need in 1989 than use of the July 1, 1986, release. HRS presented only one justification or basis for its policy of using the July 1, 1986, release of population estimates and projections: those were the most current estimates and projections at the time the applicants filed their applications and subsequently when the agency conducted its review of the applications in the batching cycle and developed its proposed agency action. T. 1709. The July 1, 1986, release of population estimates and projections was not available, however, when the applicants in this batch had to file their letters of intent. T. 1286. Based upon the Governor's estimates of population released on May 12, 1987, the estimated population on July 1, 1986, for age 65-74 (POPC) was 134,968, and for age 75+ (POPD) was 94,402. H.H. Ex. 6. Projected populations on July 1, 1989, POPA and POPB Based upon the Governor's projections of population released on May l2, 1987, the projected population on July 1, 1989, for age 65-74 (POPA) was 149,771, and for age 75+ (POPB) was 108,400. H.H. Ex. 6. The occupancy rate The occupancy rate for the 2,612 licensed community nursing homes within the subdistrict for October, 1985, through March, 1986, was 94.18 percent. T. 1707. If the 96 nursing home beds at the Home Association are counted as licensed community nursing home beds within the subdistrict, the occupancy rate within the subdistrict for October, 1985, through March, 1986, was 94.29 percent for these 2,708 beds. This is derived by averaging the occupancy rate of the Home Association for the six month period, which is 97.225 percent, see T. 1725, and then factoring the two rates together as follows: (97.225 X 96/2708)) + (94.18 X 2612/2708)= 94.29. The date for determining licensed beds and approved beds for purposes of determining net need in the final calculation The number of approved beds was 368 whether one relies upon the date that the supervisor signed the state agency action report, T. 1708, or August 25, 1986, which is the date of the semiannual nursing home census report and bed need allocations, H.Q. Ex. 16. It appears that all parties agree to use of 368 for AB in the formula. See T. 1708, 437; F.G. Ex. 8. Since that is the case, the following findings of fact are made in the event that the Hearing Officer has overlooked evidence on this point in this voluminous record. HRS relies again on incipient policy for the date of determination of the number of approved beds. That policy is to determine the number of approved beds in the subdistrict on the date that the supervisor signs the state agency action report, a date different from the date that licensed beds are determined. T. 1708, 1716. Pursuant to this policy, the date for determining approved beds will vary, but will always be later than the date of determining licensed beds. T. 1291. The basis for this incipient policy was not explained in this record. T. 1698-1711, 1711-1728, 1291-1295, 1746-1764. Mr. Jaffe, the supervisor in this case, first signed the state agency action report in mid-November, 1986. T. 1295. Subsequently, however there were several superseding state agency action reports, and the report signed originally by Mr. Jaffe was never issued. As a result, the last state agency action report in this case was not issued until August 18, 1987, over one year after the initial applications were filed. This was an irregular procedure, and not the way state agency action reports normally are issued. T. 1714. Moreover, the state agency action report issued in August, 1987, did not have a line or signature for the supervisor, Mr. Jaffe, to sign. T. 1292; F.G. Ex. 5. Changes to the application of Forum Group Forum Group's original application for certificate of need in this case is F.G. Ex. 3. It should be noted that this exhibit contains some revisions to tables that were filed by Forum Group before HRS deemed application to be complete, and thus superseded earlier tables in the same exhibit. At the formal administrative hearing, Forum Group submitted an "update" of its application for certificate of need which was prepared about a year after the initial application, as amended, was filed. The update is F.G. Ex. 6. T. 43. Table 7 of both applications contains Forum Group's plan for utilization by class of pay. Table 7 in the original application was for the first year of operation. Table 7 of the update is for the second year of operation. Table 8 of the application is a list of projected patient charges by reimbursement or charge type. Table 8 of the update is significantly different from the original application. Table 8 of the original application, F.G. Ex. 3, listed charges that were consistent with then current charges at other Forum Group facilities. T. 185. The update is for an effective date two years later. Although Forum Group presented evidence that the charges in the updated table 8 were reasonable, T. 189, it claimed that the above increases were solely due to the two year difference in the tables. T. 195. There is also evidence that the revised charges in table 8 was based upon a telephone survey conducted of subdistrict nursing homes three months prior to the formal administrative hearing. Forum Group was unable to provide any evidence as to whether the charges in the updated table 8 were based upon data that was not available to Forum Group when the original table 8 was prepared; moreover, Forum Group did not prove that the data was such that Forum Group could not, and reasonably should not, have been expected to have gathered for its original application. T. 198. The revisions of table 8 were not based upon ordinary inflation. Forum Group assumed in both the original table 8 and the revised table 8 that the inflation rate impact on charges between the first and second year of operation would be only 3.5 percent, T. 199. Forum Group's expert on charges was of the opinion that the inflation rate for expenses would be about 3.5 percent. T. 200-201. The increases in charges shown on table 8 of the update are much greater than expected inflation. For example, the charge for Medicaid ICF semiprivate rooms increased from $50 to $63, an increase of 26 percent. The charge for private pay ICF private rooms increased from $75 to $115, an increase of 53 percent. Table 10 of the application is a projection of patient days and occupancy percentages for each month over the first two years of occupancy. The revision to table 10, F.G. Ex. 6, were prompted by the delay in the case, resulting in an initial opening date two years later. The revisions to table 10 in the update were also based upon the prior experience of Forum Group and a telephone survey of subdistrict nursing homes to obtain more current fillup and occupancy rates. T. 39, 79-80, 84-87. The telephone survey was conducted after the initial application was deemed to be complete. Table 11 of the application sets forth the "manpower" requirements, specifying full time equivalents and annual salaries. Revised table 11 in F.G. Ex. 6 contains changes both in annual salary levels and in FTE's. The dietary supervisor and maintenance supervisor are new positions in the revised table 11, and would be shared with the retirement living facility. These positions could have been reported in the original table 11. T. 164; F.G. Ex. 6. The revised table 11 reports positions for utility workers, positions not in the original application but which could have been reported in the original table 11. T. 166. The revised table 11 has fewer registered nurses and licensed practical nurses than the original application. This change was based upon Forum Group's decision that this new staffing pattern would be more efficient. While the testimony attributed this to a difference in projected occupancy in the first year (95 percent instead of 74.4 percent), this is not a plausible reason for changing the number of RN FTE's from 5.3 to 4.3, or the number of LPN FTE'S from 3.6 to 2.8, since one would expect a need for more nursing at higher occupancy. The revised staffing pattern could have been contained in the original application. T. 166, 170. The increases in salaries reported in the revised table 11 were caused in part by inflation (a later opening date). T. 161-62. The revision in salaries was based upon a survey of salaries conducted a year after the application was filed, T. 162. Considered in the new survey was new information concerning federal requirements for professionals that was estimated to make the professional hiring shortage even worse. Id. It is concluded that the basis for the revisions to the salaries was market data that could not have been available to Forum Group when it filed its original application. Table 25 of the application covers estimated project costs. Revised table 25, F.G. Ex. 6, contains changes of two types: shifts of costs from one accounting line to another, and new estimates of costs based upon a later date of construction. T. 66-67, 91-94. The new estimates of costs were based upon inflation and the current construction experience off Forum Group, both of which would not have been available to Forum Group when it filed its initial application. T. 66-67. The shifts in costs by accounting line (even though one shift was to operating costs), considered alone, did not substantially change the total project cost. T. 91-94. The construction costs contained in the revised table 25, F.G. Ex. 6, are projected to be $1,654,826, which is 12 percent greater than the $1,466,500 originally projected. This new estimate is based upon inflation, current construction experience, and a decision to reduce some less essential space to lower costs. T. 66-67, 1461-65. The inflation rate is estimated to be higher than 3.5 percent in 1990, and the date of commencement of construction is inferred to be two years later than the date assumed in the original application. The revised projection is also more conservative, based upon Forum Group's analysis of current market data. The revised construction cost is thus adequately based upon new data that was not available to Forum Group when it filed its original application. As a result of inflation, Forum Group decided to reduce some space that was less essential. The reduction of space is reflected in revised tables 17 through 20 of F.G. Ex. 6. Forum Group's initial application (F.G. Ex. 3) did not mention or discuss patient treatment plans, patient rights, patient councils, or Alzheimer's programs. It did, however, list 10 special areas of nursing that it would provide, many of which are in the subacute area. See, e.g., ventilator care and compare T. 150. The revised pro forma of operating expenses projects total operating expenses in the first year of $923,153 and $1,256,991 in the second year. F.G. Ex. 6. The original application, as revised before deemed complete, reported total operating expenses of $659,900 and $740,693, respectively, for these same projected years. The new information in the revised pro forma was explained as based upon a projection of higher use by private pay patients and faster fillup, as well as some inflation. T. 202. The change clearly is not explained as a simple matter of inflation, since the increases are about 50 percent in each of the years. T. 201-202. Changes to the application of Health Quest The original Health Quest application is H.Q. Ex. 1, as amended by H.Q. Ex. 2, and is for an 88 bed community nursing home facility. Health Quest submitted a revised application for 60 beds dated a year later, in September, 1987. H.Q. Ex. 3. Table 8 of the application is the list of projected charges by patient type. The revised application, H.Q. Ex. 3, increased charges from 25 to 34 percent. This new information was not based solely upon inflation assumptions, but was based upon increased assumptions about operating costs, and a decision to make a more conservative projection. T. 629, 690-91. Health Quest did not prove that these assumptions were based upon data not available when the original application was filed. Table 11 of the application lists manpower by position and projected annual salary. The revised table 11, H.Q. Ex. 3, increases the numbers of registered nurses and licensed practical nurses from the original application. The new data is based upon the experience of Health Quest in the year following the filing of the original application. T. 630. The testimony on pages 688-89 of the transcript is not inconsistent with the testimony on page 630. It is evident that a change in planning took place, and that the change in planning was based upon new experience. Table 17 of the revised Health Quest application, H.Q. Ex. 3, does not have six 3 bed rooms which had been planned for the facility in table 17 of the original application, as amended, H.Q. Ex. 2. This new information was not caused by the reduction of the application from 88 beds to 60 beds. Health Quest did not credibly prove that its decision to delete 3 bed rooms from its project was based upon data that it could not have had when it filed its original application. T. 630-31. Table 18 of the revised application, H.Q. Ex. 3, changes the square footage of 1 bed rooms from 150 to 216. Health Quest did not credibly prove that its decision to make this change was based upon data that it could not have obtained when it filed its original application. T. 632-33. Changes to the application of Careage Careage presented new information at the hearing which consisted of Careage Exhibits 18-22 and 24-25. The changes to these exhibits were based solely upon a small (3 percent) inflation rate or a different starting date. T. 1570-85. There was also a decrease in utility rates of an apparent few thousand dollars. Compare C. Ex 25 to C. Ex. 3, attachment 12. T. 1583-85. The new projection of utility rates was shown to be based upon new information from the utility company, and new heating and cooling technology. T. 1584. Changes to the application of Hillsborough Healthcare Hillsborough Healthcare did not submit any changes to its application. The merits of the Careage application Credibility of the Careage application Credibility of Mr. Gentle Russell Gentle is Careage's Vice President for nursing home operations, and is responsible for development of the nursing home at issue in this case, and operation of the facility after it opens, as well as development and operations of other Careage nursing homes. T. 1487. The application filed by Careage in this case was prepared by Mr. Gentle, with the exception of the section on need. T. 1491. Mr. Gentle was called as an expert witness for Careage to provide opinion testimony to substantiate the Careage application and to prove the nature of the facility that Careage states it would build and operate if granted a certificate of need. T. 1491-93. Mr. Gentle testified twice that he had a bachelor's degree with a major in accounting from the Alaska Methodist University. T. 1487, 1493. This testimony was presented in order to have Mr. Gentle qualified as an expert witness. Mr. Gentle was tendered as an expert in several areas, including nursing home finance. T. 1493. Upon voir dire examination, and after it became obvious that counsel conducting the examination had investigated Mr. Gentle's academic credentials, 1493, Mr. Gentle admitted that he did not have a degree in accounting, but that his degree had been in science. T. 1496. A motion was made to have Mr. Gentle precluded from testifying as a witness due to his untruthful testimony. T. 1497-98. The motion for the sanction of preclusion of testimony was denied, but the tender of expertise was denied for lack of credible evidence in the record as to expert credentials. T. 1499, 1504, 1512-13, 1514-16. Since the witness had intentionally lied about his college education, a matter of importance in determining expertise, the remainder of the witness's testimony as to his experience and expert credentials was tainted and not credible. There was no independent evidence of the training and experience of the witness, other than from his own testimony. The tender of expertise thus was denied for lack of credible evidence of expertise in the record. If Mr. Gentle's testimony concerning his experience in nursing home development had been credible, the evidence of such experience was not sufficient to qualify Mr. Gentle as an expert in nursing home development. Since 1985, he had been fully responsible for development of only two nursing homes, and assisted in the development of five others. T. 1509, 1489, 1514-15. If Mr. Gentle's testimony concerning his experience in nursing home operation and administration had been credible, the evidence of such experience was not sufficiently detailed to qualify him as an expert in nursing home operation and administration. T. 1513-15. Mr. Gentle had never served as a nursing home administrator. T. 1494. Mr. Gentle testified that in 1972 he went to work for the State of Alaska as an auditor in the Department of Health and Social Services. He further testified that he worked his way up through the sections and became chief Medicaid auditor for the state of Alaska. T. 1487. The employment record for Mr. Gentle, however, from the State of Alaska was admitted into evidence without objection. H.H. Ex. 33. That record shows a starting date of work in 1973, not 1972. More important, it does not show continuous employment consistent with the claim of having worked "up through the sections." The record shows no employment of Mr. Gentle by the State of Alaska for 2 and 1/2 years, from July, 1973, through March, 1976, and the only employment is in temporary positions, not in permanent positions expected to have been in the "sections" Mr. Gentle "worked up through." Finally, the employment record only shows Mr. Gentle in a position as an accountant IV (temporary) for a 9 month period in 1976. Mr. Gentle's testimony that he obtained the position of chief Medicaid auditor for the State of Alaska after working his way up through the sections is not credible. Mr. Gentle testified that C. Ex. 15 was an excerpt from the magazine "Contemporary Long-Term Care," and that this excerpt was the section of the magazine that included an award. T. 1541-42. He testified that all of the narrative in the exhibit was part of the magazine and the award. T. 1542. This is testimony was incorrect. The last page of the exhibit contains narrative that is advertisement prepared by Careage. The typeset is identical to that in the interior pages as well. Thus, pages 2-4 of the exhibit are not excerpts from the magazine. Mr. Gentle did not choose his words with care as he testified. Table 11 (projected salaries and FTE's) is a part she original application filed with HRS in July of 1986. Mr. Gentle testified that in part the projected salaries were based upon salaries that "Careage is paying to its existing staff." T. 1557. At that time, Careage did not operate any nursing home. Mr. Gentle could have meant that these were salaries in nursing homes leased out by Careage, but his choice of words was misleading. Whether Careage will operate the facility Careage was started in 1962, and since that time it has constructed more than 270 new hospitals, nursing homes, and related facilities. Generally, Careage has built facilities for others to operate. T. 1516-17. A few of these (seven were named, T. 1520) may have been operated by Careage, but the vast majority were not. T. 1591-1520. In 1982, Careage ceased all nursing home operations. T. 1592. From 1982 through 1985, Careage did nothing but hospital development. T. 1519. In 1985, Careage decided to build and operate nursing homes, and in March 1985, hired Mr. Gentle to set up the operating arm of the corporation with respect to nursing homes. T 1513, 1518. In July, 1986, when Careage filed its application for a certificate of need, Careage did not operate any nursing homes in the country. T. 1595. It appears that the first nursing home now operated by Careage was opened in December, 1986. T. 1610. At the time of the formal hearing, Careage operated and managed three nursing homes on its own, and jointly managed three others. (Another was said to be "jointly operated by others.") T. 1519-20. All of these facilities are in western states. In the letter of intent, Gene D. Lynn, the proposed owner of the proposed facility, and the sole owner of Careage, stated his intent to operate the proposed nursing home in Hillsborough County. C. Ex. 3, attachment 8. The application, C. Ex. 3, asserts on page 4-24: Each community and situation is unique. There are times in which we operate directly through Healthco Management (a wholly owned subsidiary). In all cases, we establish the operating procedures and pro forma and closely monitor each facility. This strategy has generated such a successful program that, in twenty-four years of business, we can boast at never having missed a debt service payment nor have we had a single incident of governmental intervention into our operations. (E.S.) The clearly intended implication of the foregoing portion of the application is that for 24 years, Careage has either operated its nursing homes (which in the majority of cases was untrue) or, if it did not operate its nursing homes, it "closely monitored each facility." The statement in the application that Careage closely monitors each facility is not true, at least with respect to currently leased facilities. Mr. Gentle, who is in charge of nursing home operations for Careage, does not routinely review state licensure survey reports for leased facilities. T. 1842. Leased facility reports may be reviewed by the Careage leasing section, which is separate from nursing home operations. T. 1842. The only monitoring that Careage does with respect to leased facilities is to step in if there is government intervention. T. 1843. Careage has retained the contractual right to intervene in the operations of a leased facility only "in cases of severe problems in a facility." (E.S.) T. 1518. The statement in the application, P. 4-24, concerning the history of Careage as to operation or supervision of nursing homes is misleading. As will be discussed ahead, Careage representatives were either confused about the operation of nursing homes by Careage (Dr. Etten) or used words in a manner that misrepresented the operational status of Careage (Mr. Gentle and representatives of Careage at a dinner meeting with Ms. Hardy). These misleading statements, coupled with the prior history generally of not operating nursing homes, lead to the conclusion that Careage has not proved that it will operate the proposed nursing home in Hillsborough County by a preponderance of the credible evidence. Substantive aspects of the application General provisions Careage's original application proposed to construct 120 beds, 10 of which would be a subacute unit, 21 of which would be an Alzheimer's unit, and the remaining 89 beds would be general SNC/ICF (skilled/intermediate) nursing care beds. C. Ex. 3, P. 2-1. Four of the ten subacute unit beds would be designated for neonates and technology dependent children. C. Ex. 3, P. 3-6; T. 1522. The 10 bed subacute unit is proposed to provide 24 hour nursing care patients who are recovering from strokes, craniotomy patients, comatose victims of accidents, and others suffering serious chronic maladies. T. 1212. Nursing services to be provided include tube feedings, ventilators, tracheostomies, continuous intravenous infusion, hyperalimentation, total parenteral nutritional care, and inhalation therapy. T. 1213. The program proposed by Careage conforms to professional standards for such a program. Id. The 21 bed Alzheimer's disease unit is designed and intended to provide an environment adapted for the special needs of those patients. The design and program emphasizes low stimulation, safe ambulation, and simplicity to minimize confusion. The design is considerably more therapeutic for such patients than commingling such patients among other patients in an ordinary nursing home setting. T. 1206-12, 1432, 1474-75. The precise number of skilled and intermediate care nursing beds is unclear. At least 39 beds will be skilled nursing, and 21 beds for the Alzheimer's patients. T. 1136. Careage intends to concentrate on skilled nursing care rather than intermediate care. T. 1523, 1678. Careage does not intend to serve the market for intermediate care. Id.; C. Ex. 3, attachment 8. Careage did not include adult day care in its application, T. 1142, 1592, because it takes the position that adult day care does not require a certificate of need. T. 1592. Careage in fact will not offer adult day care. T. 1192. Careage intends to provide respite care at the facility. T. 1531. Careage estimates that 37 percent of its patients will be Medicaid patients. T. 1361. Quality assurance The nursing quality assurance programs described in the application of Careage are adequate, and would be adequate if implemented by Careage. T. 1221. Dr. Etten testified for Careage concerning her visit to two nursing homes owned by Careage. She did not express an opinion that the Careage quality assurance program in fact would be implemented based upon these visits. She did not describe the current operation of any Careage quality assurance program. She simply stated that she was favorably impressed by the physical environment in those two nursing homes. T. 1221-26. One of the facilities was in Salt Lake City, Utah, and there is no evidence in the record that Careage operates that facility. See T. 1519-20. Indeed, Dr. Etten later admitted on cross examination that she knew the Utah facility was not operated by Careage. T. 1234. Throughout the application process, Careage tended to misrepresent its status as an existing operator of nursing homes providing care of good quality. As discussed above, in the meeting in August or September, 1986, attended by Mr. and Mrs. Lynn, Mr. Haben, and Ms. Hardy, Careage's representatives told Ms. Hardy that Careage operated nursing homes in other states in which care of good quality was provided. T. 1060. The application, at page 4-24, appeared to assert that Careage had 24 years of experience operating nursing homes. Mr. Gentle represented that proposed salaries were based upon salaries in nursing homes currently operated by Careage. These statements were not true. Careage leased facilities, but did not operate any facilities at that time of the application, and its history had been primarily in the development of health care facilities for operation by others. Careage did not exercise close operational control of the leased facilities. And Dr. Etten seemed unconcerned as to what entity was operating the Utah nursing home that she visited. Her failure to do so caused her testimony to appear to be representative of the quality of care actually provided at Careage operated nursing homes. For these reasons, Careage did not prove by a preponderance of the credible evidence that it has had a history of operation of nursing homes, that it has had a significant history of providing nursing care of good quality, that it has had substantial experience in management of quality assurance programs, or that it would in fact implement the quality assurance program reviewed by Dr. Etten. Staffing Staffing, particularly nursing staffing, is established based upon the assumption that most of the beds at the Careage facility will be at least skilled nursing care beds, and some will be Alzheimer's disease beds or subacute beds, including beds for technology dependent children. Attachment 14, Ex. 3. The nursing staffing proposed by Careage is adequate. T. 1216. Other staffing proposed by Careage is based upon staffing at other facilities owned by Careage and standards in HRS rules. T. 1557, 1559. It is concluded that other staffing is adequate. The projected annual salaries for staff are reasonable. T. 1648, 1656, 1680-81. The objection to this testimony, taken under advisement, was overruled. T. 1687. The witness amply demonstrated expertise with regard salary levels. Construction and facility design The building proposed by Careage would be one story and have 45,500 square feet for 120 residents, or a total of 379.17 gross square feet per bed. T. 1133. The application represents that the net square foot area for living space in 2 bed (semiprivate) rooms is 283 to 295 square feet. C. Ex. 3, table This was an exaggeration. The actual square footage was shown to be substantially less upon cross examination: 213.75 square feet of living space for semiprivate rooms. This figure is based upon the fact revealed upon cross examination that the length of the room for purposes of calculating gross square feet is 23.5 feet instead of 24 feet, 4 inches. This correction reduces gross living square footage for the living area to 305.5, and net to 213.75. The floor plan, site plan, and space programs in the proposed design are adequate and will meet or exceed all requirements of Florida law. T. 1137. The nursing home floor plan does not include a space for adult day care. T. 1142. Careage projects that construction costs will be $56.77 per square foot. This estimate is in line with estimates of other applicants and is reasonable. T. 1176-78. Construction costs equate to $21,526 per bed. Careage did not include an estimate of costs for equipment for technology dependent children, but plans to cover this with funds estimated for contingencies. T. 1195. The amount of such costs is not in evidence. Id. The estimate of overall project costs, table 25 of the application, Ex. 3, is reasonable. T. 1171-76. Total project costs are estimated to be $4,150,000, or $34,583 per bed. The project cost includes $515,000 for 3 to 5 acres of land. T. 1546. The adequacy and appropriateness of the proposed equipment for the facility was not established by expert testimony. See T. 1179. Availability of resources Gene D. Lynn has an extensive history in successfully financing and constructing health care facilities, including nursing homes. T. 1516-17. Gene D. Lynn has more than adequate lines of credit to obtain complete financing for this project. T. 157 6- /7 Existing lines of credit, including SeaFirst, are available up to at least $9 million. T. 1576. The objection as to hearsay, which was sustained, was sustained only as to what unnamed persons with Washington Mutual "indicated." The remainder is not hearsay. It is testimony of the existing state of facts within the personal knowledge of the witness. The foregoing findings of fact are based upon testimony of Mr. Gentle, whose credibility as a witness was partially impeached as discussed in findings of fact above. Mr. Gentle's credibility problems, however, are not sufficient to compel the disregard of his testimony as to the general financial condition of the Lynns and Careage. Mr. Gentle demonstrated that his testimony as to his own expert qualifications was unworthy of belief, and he demonstrated that some portions of his testimony concerning the features of the proposed facility were exaggerated or incorrect. But this is not sufficient evidence to conclude that his testimony as to general financial resources of Careage is an untruth. It is noted that there is no evidence in this record to suggest in any manner that Gene Lynn does not have the net worth set presented in his unaudited financial statement. That net worth is over $45 million. If this were a substantial untruth, surely one of these highly competitive applicants would have presented evidence on the point. Financial feasibility The proposed project is financially feasible in the short term. T. 1632-39, 1686. Careage's projections as to patient mix (by payor type) and expected fillup (utilization) are reasonable. T. 1640- 42 The charges proposed by Careage are reasonable. T. 1642-45. Careage's projections as to operating expenses are reasonable. T. 1648, 1656-57. The proposed project is financially feasible in the long term. T. 1647, 1649-50, 1686. The Forum Group application General provisions Forum Group is a national company which owns and operates 11 retirement living centers and 22 nursing homes in a number of states. The retirement living centers are independent rental apartments which do not require entry fees. T. 20; F.G. Ex. 3. The Forum Group proposal is to construct and operate a 60 bed community nursing home in conjunction with a retirement living facility of 120 apartments and an adult congregate living facility of 30 units. F.G. Ex. 3, attachment 1. The community nursing home section would offer all services required for provision of skilled nursing care, intermediate nursing care, respite care, and adult daycare. T. 27. Forum Group does not propose to provide a separate Alzheimer's disease unit. The estimated total cost of the nursing home portion of the project is $2,673,084. F.G. Ex. 6, table 25. This is $44,551 per nursing bed. Forum Group will accept Medicare and Medicaid patients. T. 27, 210. Quality assurance Forum Group has never had a license denied, revoked, or suspended, and it has never had one of its facilities placed into receivership. T. 158. The proposed facility would provide 24 hour supervision by either a registered nurse or a licensed practical nurse, or by both. T. 140. The staffing levels proposed in the original application are adequate. T. 153. Staffing levels would vary according to the needs of the residents. T. 134. Medications would be distributed by unit dose. T. 139. Forum Group would implement an adequate plan for quality assurance audits. T. 141-43. The plan is in writing, is in use in other Forum Group nursing homes, and covers all aspects of the operation of the nursing home that are relevant to the quality of care received by nursing home residents. Forum Group would check staff qualifications prior to employment and would provide ongoing staff training. T. 149. Forum Group would provide residents with written statements of patients' rights upon admission to the facility, and would have an independent patients' rights council. T. 147- 48 Forum Group provides reasonably adequate nursing care in its existing nursing homes, and would do so in the proposed nursing home. T. 31-32, 158. Staffing The staffing proposed for the facility, and projected salaries, are reasonable and adequate. T. 151-154. Forum Group reviews the qualifications of applicants to insure that applicants are qualified for the job. T. 149. Construction and facility design Forum Group's community nursing home facility will have about 24,500 square feet. This is reduced from the original 27,000 due to inflation in costs. Patient room areas were not changed. T. 1453. This is 408 total gross square feet per bed. The net living area square footage allocated to semiprivate 2 bed rooms is 228 square feet. F.G. Ex. 3. The square footage allocated in both versions is reasonable. T. 1445, 1453. The building would be wood frame with brick veneer. It would have heavy roof insulation, double glazed windows, and a heat pump to conserve energy and to operate with less utility expense. T. 1454. The construction costs, including equipment costs, estimated for the revised project, F.G. Ex. 6, table 25, paragraph d., are reasonable. T. 1453. The costs as originally projected were also reasonable. T. 1446. The proposed facility would comply with state and federal standards for construction. T. 1456. The 60 bed community nursing home would require two to three acres of land. T. 1455. The $400,000 estimated to be needed to acquire a suitable site is reasonable for location in the northwest portion of Hillsborough County. T. 54, 59. Availability of resources Forum Group will attract suitable health care professionals, despite the shortage in Hillsborough County, by offering attractive fringe benefits, including attractive work schedules and continuing education. T. 156-57. Forum Group has the financial resources to construct and begin the initial operation of the facility. T. 182-84. Financial feasibility The project is financially feasible in the short term. T. 182-84. Due to its corporate size and current operation of a number of nursing facilities, as well as the size of the combined planned facility in Hillsborough County, Forum Group will be able to purchase supplies and other operational necessities at a favorable low cost, thus saving on operational expenses. T. 156. The estimated fillup rate in the original application was about 75 percent occupancy after the first year and about 86 percent occupancy after the second year. T. 37. Given the recent experience in Hillsborough County of occupancy around 95 percent and very fast fillup rates for new nursing homes, T. 116-18, a projection of 86 percent occupancy in the second year is probably too low. For purposes of determining financial feasibility, it is reasonable but conservative. T. 37. The project is financially feasible in the long term based upon the pro forma contained in the original application. T. 186-88; F.G. Ex. 3. The merits of the Hillsborough Healthcare application General provisions Hillsborough Healthcare, Ltd., is a Georgia limited partnership owned by Stiles A. Kellett, Jr. and Samuel B. Kellett. Hillsborough Healthcare, Ltd., would own the proposed facility. T. 419. The facility would be managed by Convalescent Services, Inc., (CSI) which is also owned by Stiles A. Kellett, Jr. and Samuel B. Kellett. CSI was formed in 1978 to own and operate extended care facilities owned or controlled by the Kelletts. T. 420. CSI currently operates 21 nursing homes and 3 retirement homes in 7 states. Six of the nursing homes and 2 retirement centers are in Florida. Id. Centralized management is provided by regional offices in Sarasota, Houston, Texas, and Huntsville, Alabama. T. 420. The long range plan of CSI is to acquire and develop nursing facilities in locations where CSI already has a management structure nearby. T. 421. Hillsborough Healthcare proposes to construct and operate a single story combination nursing home, consisting of 120 beds, and an adult congregate living facility, consisting of 60 beds. H.H. Ex. 1; T. 423. The 120 nursing beds would consist of 60 skilled nursing beds and 60 intermediate care beds. The 60 skilled nursing beds includes a distinct 24 bed unit for Alzheimer's disease patients. Id. The application estimates the total project cost to be $5,032,475, with $3,367,668 of that cost attributed to the nursing facility portion of the project. H.H. Ex. 1. This is $28,063.90 per nursing bed for 120 beds. The facility would have a rehabilitation program, activities, and social services programs. T. 423. The Hillsborough Healthcare facility intends to make its facility available as a training facility for medical and nursing schools. T. 461. The facility would participate in both the Medicare and Medicaid programs, and estimates about 30 percent Medicaid utilization. T. 423. Hillsborough Healthcare would accept partial approval of only 60 nursing home beds. T. 490. In that event, the 60 bed nursing facility (combined with the 60 bed adult congregate living facility) would offer the same services, including the 24 bed Alzheimer's disease unit. T. 390, 473. Access as a patient to the facility will be on an equal basis, without distinction as to race, religion, or sex. The facility will be constructed to provide handicapped access. T. 462-63. At least 30 percent of the patients served by the Hillsborough Healthcare facility would be Medicaid patients, and the percentage may well be higher. Currently, 17 of the 21 CSI nursing homes participate in state Medicaid programs, and all of the Florida nursing homes have Medicaid patients. All new nursing homes developed by CSI participate in both Medicaid and Medicare. Many of the 17 nursing homes were not Medicaid certified prior to acquisition by Hillsborough Healthcare, but are now certified and participate. CSI has never decertified one of its nursing homes as a Medicaid provider. T. 424. Existing CSI managed facilities in Florida are currently experiencing a 40 percent Medicaid utilization, which includes at least one in Hillsborough County. T. 1798. B. Quality assurance Sixteen of the 21 CSI managed nursing homes are in states that use a licensure rating system, and of these, 14 are have achieved the highest rating. T. 422. No CSI facility has ever had its licensed revoked or has ever been fined. Id. One-half (three) of CSI managed Florida facilities are rated superior. T. 319. Centralized management and location of facilities so that management resources can be shared should enhance the quality of care at the proposed nursing facility. The quality assurance program will be guided by a lengthy policies and procedures manual that is in use in other Florida CSI managed nursing homes. H.H. Ex. 11; T. 313. CSI employs a full time Florida registered nurse to make visits at least once a month to CSI facilities in Florida as a part of the quality assurance program. T. 316. The nurse conducts quality of care inspections, using measuring instruments developed by the CSI quality assurance program, and teaches new methods to improve the quality of health care. T. 317. Hillsborough Healthcare will have an adequate quality assurance program. T. 310. C. Services and programs CSI would provide programs for care of Alzheimer's disease patients, respite care, and adult day care. Respite care is temporary nursing care, for 16 days or less, to give the family a temporary rest from home care, and to improve the condition of the patient. T. 300. Adult day care is care only during the day to enable a family member to work. T. 301. Both types of care provide an opportunity for the elderly patient to receive nursing services, including the programs and medical care available at the nursing home, while giving home care providers a rest or needed free time. The Alzheimer's disease unit of 24 intensive care nursing beds would have operational and design features to meet the special needs of those patient. The medical director is to be board certified with a specialty in geriatrics and training with respect to Alzheimer's disease. Activities will be altered to accommodate the limitations of those patients. Staffing will be at a higher level, and staff will be specially trained to meet the needs of those patients. The facility will be designed with a secure courtyard, special dining room, and wander guard, to allow movement without physical or chemical intervention or restraints. T. 299, 289. CSI varies the activities programs at its facilities to match the needs of patients. T. 270. Activities for Alzheimer's patients, adult day care and respite care residents are designed within the limitations of those patients. T. 289-90. CSI typically provides activities that provide small and large group interaction, socialization, mental and physical activity, recreation, and religious activities. T. 270. The activities that have been implemented or suggested for CSI facilities are innovative, varied, and appear to be the result of much thoughtful work. T. 273-74; H.H. Ex. 1, pp. 115-123 H.H. Ex. 8. Some of CSI staff involved in activities have received awards for their work. T. 288. The proposed facility would provide activities similar to the activities provided at other CSI facilities. T. 274. CSI has employed an expert in community relations and activities programming to coordinate community relations, activities, and the volunteer program at all CSI nursing homes, including the proposed facility. That expert is the author of pp. 114-121 of the application, H.H. Ex. 1. The expert would recruit and train activities and community relations directors at the proposed facility. T. 287. CSI publishes a newsletter containing an exchange of program information, and encourages each nursing home to publish its own newsletter. Some do. H.H. Ex. 10; T. 284-85. Volunteers are encouraged to participate in nursing home activities. 272. CSI has compiled a package of volunteer information for use in development of a volunteer program at each nursing home. H.H. Ex. 9. Volunteers increase resident participation in programs, bring fresh ideas, and causes there to be a greater variety of activities and programs for residents. T. 281. Association of the nursing facility with an adult congregate living facility is a useful way to provide continuity of care and lessens the trauma to the resident of the initial move into a nursing facility. In some cases, a spouse may live in the adult congregate living facility and thus be closer to the spouse who must be in a nursing facility. CSI currently manages Sun Terrace Nursing Center, a 120 bed nursing home, and Lake Towers Retirement Center, both in Hillsborough County. Consequently, CSI has already in existence a network of relationships that would benefit residents at the proposed facility. Existing relationships include a system for patient referrals from local hospitals, transfer agreements with local hospitals for acute and emergency care, and agreements with local providers for ancillary services, such as physical therapy, diet therapy, occupational therapy, speech therapy, opthalmology, dental care, podiatry, x- ray, and pharmacy services. T. 302-304. Similar agreements for the proposed facility could be established. Such agreements are cost effective because used only as needed. T. 304. CSI would provide all the ancillary services listed in figure 1, page 14, H.H. Ex. 1. T. 304. Staffing The proposed staffing of the facility, including the 24 bed Alzheimer's disease unit, is adequate. T. 308. The proposed salaries are reasonable and adequate. T. 309. Hillsborough Healthcare will be able to recruit adequate staff. T. 309. Hillsborough Healthcare will provide a reasonable staff development program. T. 309. This program will aid in the retention of staff. T. 310. Construction and facility design The 120 bed nursing section is designed to include 4 private rooms and 58 semiprivate (double occupancy) 4 rooms. T. 355. The design includes the services and departments listed on table 12 of H.H. Ex. 1. It is proposed that the total gross square feet will be 33,996, or 283 square feet per bed. H.H. Ex. 1 The square footage allocated by the design to net living space in patient bedrooms and gross area of the nursing unit, tables 18 and 19, H.H. Ex 1, are reasonable. T. 355. Semiprivate (2 bed) rooms would have 185 net square feet of living space. The Hillsborough Healthcare design has several cost saving features. Sharing ancillary services and spaces (kitchen, administrative areas, and laundry) with the adult congregate living facility of 60 beds reduces the overall construction and equipment cost and operational cost per bed. Use of a modular "T" configuration, with straight line walls and corridors for units, results in a savings in construction cost. T. 360-61. The compact design, accompanied by extensive roof over hangs and insulating materials, will reduce energy requirements. T. 357 The floor plan could easily be altered by alteration of the arrangement of the modular wings to fit on different sites. T. 358. Nurses' stations are located in the middle of wings, giving good visibility down corridors, but no visibility into rooms. The nurses' station is 7 rooms from the most distant room on any wing. H.H. Ex. 1, p. 103. The Alzheimer's disease unit is in a separate portion of one wing, and is contiguous to an interior space that will be fenced to make a secure courtyard. T. 357; H.H. Ex. 1, p. 103. The construction cost includes additional wheelchairs and walkers, and includes $4,500 for a wander guard system for the 24 bed Alzheimer's disease unit. T. 364. The projected construction cost includes fixed equipment. T. 356. The construction cost of $2,331,418 is reasonable. T. 356. All of the costs estimated in table 25, H.H. Ex. 1, p. 33 (estimated project costs) are reasonable. T. 345-466, 356, 455-56. Availability of resources Through available equity and long term debt, adequate resources exist for Hillsborough Healthcare to construct and initially operate the proposed facility. T. 396-402. Financial feasibility The proposed facility is financially feasible in the short term. T. 396-402; H.H. Exs. 15, 16, 1. The projected charge rates, table 8, H.H. Ex. 1, are reasonable. T. 379-80, 400, 452. The projected percentages of patient utilization by payor class, table 7, H.H. Ex. 1, are reasonable. T. 450, 393. The projected number of expected patient days in the first two years of operation, tables 10 and 7, H.H. Ex. 1, reasonable. T. 488-49. The projections of total revenue, table 7, H.H. Ex. 1, are reasonable. T. 400-01. The projections of expenses and net income for the first two years of operation are reasonable. H.H. Ex. 1, pp. 100-01; T. 401-02. The 120 community nursing home bed version of Hillsborough Healthcare's application is financially feasible in the long term. T. 402. If the Department partially approves the Hillsborough Healthcare application for 60 beds, to be operated in conjunction with the 60 bed adult congregate living facility, the projection will be financially feasible in both the short and long term. T. 402. The project would be financially feasible with a higher Medicaid participation. T. 424. The merits of the Health Quest application General provisions Since critical portions of the 60 bed application, H.Q. Ex. 3, were impermissible changes to the 88 bed application, and thus not admitted into evidence, only the 88 bed application will be discussed. Health Quest proposes to construct and operate 88 community nursing home beds in conjunction with an adult congregate living facility of 124 units. H.Q. Ex. 2. The total cost of the nursing portion of the facility is estimated to be $3,054,466, or $34,719 per bed. H.Q. Ex. 2. Health Quest has entered into an agreement with a group of 129 physicians, organized as the University Community Physicians Association of Tampa. That association comprises the bulk of the physicians who practice at University Community Hospital in northern Tampa. T. 585. The agreement is that Health Quest would build and manage the nursing home, and the physicians would provide medical oversight and referrals. T. 579. The physicians would contribute to equity and share in operating profits and losses. T. 624. The share is 25 percent. T. 694-95. Other details are not in evidence. The negotiations for the agreement with the University Community Physicians Association of Tampa took several months, and the agreement itself did not come into being until August, 1987. T. 581. The University Community Physicians Association of Tampa is not named as an applicant in the original application since the agreement came into being after the application was filed. Health Quest intends to construct the proposed nursing home and adult congregate living facility near the present location of the University Community Hospital. T. 583. Health Quest intends to serve approximately 30 percent Medicaid patients. T. 841, 1102. Quality Assurance Health Quest has nursing homes in Florida, Indiana, and Illinois. Health Quest has a reputation in Indiana and Illinois for providing good health care. T. 599-609. Health Quest has three nursing homes in Florida. Of those three, two had been open long enough at the time of the hearing to have received a Florida rating. Both were rated superior. T. 610. Health Quest has a nursing home in Jacksonville, Florida, and the quality assurance program and services at that facility are representative of the type of care and services at other Health Quest facilities, as well as what is intended for the proposed Health Quest facility in Hillsborough County. T. 1077, 1102. All findings of fact which follow that reference the quality of care or scope and nature of services at the Jacksonville facility are thus also findings of fact that these quality assurance programs and services are intended to exist at the Hillsborough facility. The Jacksonville facility maintains a resident care plan on each resident. Health Quest would provide health care of good quality at its proposed facility. Services and programs The Jacksonville facility provides a number of services that require skilled nursing or arguably fall within the category of "subacute" care. The term "subacute" care is not a formal definition, and there is no Florida licensure category for that phrase. The Jacksonville facility provides intravenous therapy, parenteral nutrition, and tracheostomy care. T. 848-51. It also provides care for comatose patients (accident or stroke victims) regardless of age, and care of post-craniotomy patients. T. 851-53, 855-56. Health Quest does not intend to care for neonates (sick infants less than two weeks old). Neonates require care that is distinct from the care required for the elderly, thus requiring staff with different training. Neonates also can be at substantial risk from respiratory and urinary infections commonly present among the elderly in a nursing home. T. 859-61. The Jacksonville facility provides physical therapy, speech therapy, and occupational therapy. The physical therapist is a full time position. T. 871. The Jacksonville facility provides counseling to residents and families with a full time social worker on staff. T. 864. The Jacksonville facility provides music therapy, outside trips, and other activities, such as family night, the artist in residence program, and use of the facility for community programs. T. 866, 888, 892. Some of these programs are conducted jointly with the adult congregate living facility. Volunteers are used in the activities programs as well. T. 869. The quality of the activities program is directly related to the numbers of staff persons involved in the program. T. 871. The Jacksonville facility provides respite care of about two weeks in duration, although it could be longer. T 872. The adult congregate living facility that would be a part of the Health Quest facility would have tee same beneficial consequences as the adult congregate living facility proposed by Hillsborough Healthcare. T. 902-04. The Jacksonville facility is often used as a place for continuing nursing education for high schools or the local nursing association. T. 906-07. Staffing Health Quest proposes a total of 59.75 FTE's or .679 FTE per bed. H.Q. Ex. 2, table 11. Health Quest acknowledged that the staffing proposed for the 88 bed facility was adequate in 1986 when prepared, but by 1987, it was experiencing the need for more licensed personnel, and that it would increase licensed personnel for the 88 bed facility now. T. 630. No evidence was presented as to the specific changes that would be made. T. 632. Construction and facility design Health Quest proposed in its application to construct 34 two bed rooms, 6 three bed rooms, and 2 one bed rooms. H.Q. Ex. 2, table 17. Health Quest wants to change its design, if built, to make the three bed rooms into two bed rooms. T. 631. Health Quest proposes to provide 240 square feet of net living space for semiprivate two bed rooms. H.Q. Ex. 2. Health Quest proposes to provide a total of 37,263 square feet for the 88 bed facility, or 423 square feet per bed. H.Q. Ex. 2. Health Quest estimates that the project will need 3 to 4 acres of land, and projects that it can acquire the land for about $320,000. H.Q. Ex. 2; 634. This estimate is reasonable in comparison to the estimates of all other applicants. Health Quest has constructed three nursing homes in Florida, and others in Indiana and Illinois, and thus has substantial experience in construction. Photographs of the nursing homes constructed and now operated by Health Quest show that those nursing homes are reasonably attractive and appear to be hospitable places in which to live. H.Q. Ex. 22. Availability of resources Health Quest has access to sufficient funds to construct the project and initially operate it. T. 586-87. Financial feasibility The Health Quest proposal is financially feasible in the short term and the long term. T. 593 Summary of comparative data The space and costs associated with the four proposals may be compared as follows: Appl. Cost/Bed NetFt/Bed TotFt/bed Cost/NetFtBed Cost/TotFtBed Careage $34,583 214 306 $162 $113 Forum $44,551 228 408 $195 $109 HealthQ $34,719 240 423 $147 $ 82 HillsH $28,063 185 283 $152 $ 99 The proposed staffing of the four proposals may be compared as follows: Applicant Total FTE RN FTE LPN FTE RN Asst FTE No. Beds Careage 96.0 11.9 7.4 42.1 120 Forum 37.6 5.3 3.6 14.00 60 HealthQ 60.75 4.8 2.2 25.00 88 HillsH 64.65 2.92 8.78 36.61 120 Staffing per proposed bed may further be compared as follows: TotalFTE Applicant Per Bed PN FTE Per Bed RN & LPN FTE Per Bed Total Nursing FTE Per Bed Careage .80 .10 .16 .51 Forum .63 .08 .15 .38 HealthQ .69 .05 .08 .36 HillsH .54 .02 .10 .40 Comparison of the Careage staffing to other applicants is difficult because Careage proposes primarily to serve patients needing skilled nursing care who thus require more nursing staff per bed. Forum Group, Hillsborough Healthcare, and Health Quest are relatively the same with respect to anticipated efficiencies and continuity of care due to the association of adult congregate living facility beds with the proposed nursing home. Forum Group plans only 30 ACLF beds, but also plans 120 independent living apartments. Hillsborough proposes to provide 60 ACLF beds, and Health Quest proposes to have 124 ACLF beds. There is no evidence in the record to determine the optimum mix of ACLF beds to nursing home beds. Conclusions of Law The Division of Administrative hearings has jurisdiction of the parties and subject matter of this proceeding. The Department's free form preliminary decision The free form decision of the agency is ordinarily not dispositive since a formal administrative hearing is intended to formulate agency action, and is not intended to review prior action. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). The reasoning of the agency in its free form decision, however, ordinarily is a significant matter to be considered in the formal hearing. Findings of fact with respect to the free form decision-making upon the applications in this batching cycle have been made for two reasons: the assertion that the free form decision was influenced by considerations other than objective merit of the applications, and therefore not entitled to any persuasive effect upon this formal hearing, and representations in the free form stage made by Careage relevant to evaluation of the application of Careage. The free form decision in this case had the appearance of having been influenced in part by considerations other than the objective merit of the applications. For this reason, the free form decision with respect to these applicants has been disregarded as having no persuasive weight. Need calculated pursuant to rule 10-5.001(1)(k)2 Need for community nursing home beds is calculated pursuant to the need methodology set forth in rule 10- 5.011(1)(k)2, Fla. Admin. Code. The text of the rule is not in evidence, but comparison of the text of the rule referenced in proposed recommended orders indicates that the parties appear to agree that the rule promulgated on November 24, 1986, should govern this case. It is that rule that will be used in this recommended order. All parties agree that July 1, 1989, is the date upon which subdistrict need for community nursing home beds is to be determined. The first step in the need calculation pursuant to the rule is to determine BA. BA is defined by subparagraph 2a of the rule as the estimated bed rate for the population age 65-74 years in the relevant district. Subparagraph 2b of the rule provides: BA= LB/(POPC + (6 X POPD)) Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. LB is at least 5,964, and is 6,060 if the 96 beds at the Home Association are, on this record, classified as community nursing home beds. Section 651.118(8), Fla. Stat. (1987) provides in part: This section shall not preclude a continuing care provider form applying to the Department of Health and Rehabilitative Services for a certificate of need for community nursing home beds or a combination of community and sheltered nursing home beds. Any nursing home bed located in a continuing care facility that is or has been issued for nonrestrictive use shall retain its legal status as a community nursing home bed unless the provider requests a change in status. Any nursing home bed located in a continuing care facility and not issued as a sheltered nursing home bed prior to 1979 shall be classified as a community bed. The Department of Health and Rehabilitative Services may require continuing care facilities to submit bed utilization reports for the purpose of determining community and sheltered nursing home bed inventories based on historical utilization by residents and nonresidents. (E.S.) The first sentence of this statutory section does not apply to the Home Association because it has not applied for a certificate of need. The second sentence does not apply because there is no evidence in the record that the nursing home beds at the Home Association were "issued" by anyone. The third sentence applies because the 96 nursing home beds at the Home Association were "not issued as a sheltered nursing home bed prior to 1979." The Home Association has existed since 1899 with its 96 nursing home beds, and never had a certificate of need. There was no statutory authority or definition for the issuance of a "sheltered nursing home" prior to 1979. By operation of law (the third sentence quoted above), the 96 beds are community nursing home beds. The fourth sentence appears to be directly in conflict with the third sentence. The fourth sentence states that HRS can conduct a study of historical utilization "for the purpose of determining community and sheltered nursing home bed inventories based on historical utilization by residents and nonresidents." The third sentence automatically confers community nursing home bed status upon certain beds based solely upon three criteria (located in a continuing care facility, located there before 1979, and not "issued" as a sheltered nursing home bed). Community nursing home bed status is thus conferred solely upon the three criteria, and historical utilization is irrelevant to the third sentence. If that is so, the fourth sentence, which allows HRS to "determine" community nursing home status based only upon historical utilization, is in direct conflict with the third sentence. This seemingly irreconcilable dilemma is not at issue in this case, however, because there is insufficient credible evidence in the record as to the "historical utilization" of the 96 beds at the Home Association. As discussed in the findings of fact, there is no credible evidence in this record as to how the 96 beds at the Home Association have in fact been "utilized" since 1899. Indeed, the only logical inference on this ambiguous record is that the Home Association has not felt itself constrained by any definitional categories, given its longevity in the Tampa Bay area. It thus is concluded as a matter of law, pursuant to the third sentence of section 651.118(8), Fla. Stat. (1987), that the 96 beds at the Home Association are community nursing home beds, and thus should be counted in the licensed beds in the district and subdistrict, LB and LBD. Thus, the correct value for LB in this case as of June 1, 1986, is 6,060. Next, the values of POPC and POPD must be determined Two issues arise with respect to ascertainment of the values of POPC and POPD. The first is whether the values of POPC and POPD should be determined on January 1, 1986, or on July 1, 1986. The second is whether the values of POPC and POPD should be determined based upon the Governor's estimates and projections of populations released on July 1, 1986, or on May 12, 1987. The first issue is governed by the clear language of the existing rule. The second issue has no clear guidance in the existing rule, and thus depends upon analysis of the record basis of the agency's incipient policy. With respect to the first issue, the parties urge that POPC and POPD are the populations on January 1, 1986, rather than on July 1, 1986. The basis of this argument is the inconsistent behavior of HRS over the last three years and in the January, 1987, batching cycle, wherein the values of POPC and POPD were often effectively determined on a date six months prior to the commencement of the batching cycle, a date which was the midpoint in the occupancy rate months. Notwithstanding the inconsistent manner in which HRS has interpreted its rules, a fundamental principle of law is that if the rule is clear, the agency must follow it. Kearse v. Department of Health and Rehabilitative Services, 474 So.2d 819, 820 (Fla. 1st DCA 1985); Woodley v. Department of Health and Rehabilitative Services, 505 So.2d 676, 678 (Fla. 1st DCA 1987);. There is no deference to the agency's interpretation of law (in this case, the conflicting interpretation of the office of comprehensive health planning) where the construction is based upon common meanings. Schoettle v. State of Florida, Department of Administration, Division of Retirement, 513 So.2d 1299, 1301 (Fla. 1st DCA 1987); Roberts v. Department of Professional Regulation, Construction Industry Licensing Board, 509 So.2d 1227 (Fla. 1st DCA 1987). In this case the Department has elected to follow the clear mandate of its own rule. This is not an occasion where the inconsistency of the agency with respect to incipient policy implicates questions of fairness to those regulated. Here, despite the arguable unfairness to the applicants in this batching cycle, the agency should follow its own clear rules. The populations POPC and POPD are clearly intended by the rule to be determined as of the date of the applications for certificate of need and the date of commencement of the batching cycle. The rule unequivocally calls for a projection of need "three years" into the future. T. 1254, 1250. There is no disagreement that the end date of that projection is July 1, 1989. What ends must have had a beginning. A three year period that ends on June 1, 1989, begins on July 1, 1986. Moreover, the rule clearly establishes the value of LB, licensed beds, as of June 1, 1986. The bedrate, the driving force in determining need, is the ratio of licensed beds as of June 1, 1986, to POPC and POPD, populations of elderly persons assumed to be using the beds. If LB was determined on June 1, 1986, but POPC and POPD determined on January 1, 1986, the ratio would be incongruent. The Department undoubtedly intended there to be a correlation between beds and people in existence at the same time since the result is supposed to be a model of need. Selection of the numerator from one date and the denominator for another date results in a fractured reality having little bearing upon the issue of whether the elderly in Hillsborough County will have enough or too may nursing home beds in July, 1989. Finally, the definition "current" populations POPC and POPD was established by the final order in Manor Care of Hillsborough County v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1102, DOAH case number 86-0051. The final order in that case, entered on February 7, 1987, determined that POPC and POPD must be the populations current on the date of application for the certificate of need. For these reasons, POPC and POPD should be the populations on July 1, 1986. The next issue is the source of those population estimates. HRS argues that POPC and POPD must be derived from the July 1, 1986, release of the Governor's estimates and projections of populations. HRS has failed to establish guidance in this area by rule, and instead has chosen to rely upon evolving agency policy as the basis for selecting the source off POPC and POPD. An agency need not adopt all policy as a rule, but to the extent that it relies upon non-rule incipient policy as a basis for decision and that decision is challenged in a formal administrative hearing, the agency has the burden to establish in the record "adequate support for its decision." Florida Cities Water Company v. Florida Public Service Commission, 384 So.2d 1280, 1281 (Fla. 1980); Baxter's Asphalt and Concrete, Inc. v. Department of Transportation, et al., 475 So.2d 1284, 1286 (Fla. 1st DCA 1985); McDonald v. Department of Banking and Finance, 346 So.2d 569, 582-584 (Fla. 1st DCA 1977). The only support offered by HRS for its incipient policy to use population releases available at the time of certificate of need application was that those releases were the only ones available at such time, and thus necessarily the agency's preliminary decision had to be based upon the earlier release. This may be a permissible construction of the enabling statutes, and might pass muster as an agency rule, but HRS has in this case elected to defend its policy on a case by case basis. On this record, it is clear that the policy has not been adequately supported and is unreasonable. While reliance upon the population release available at this time of preliminary agency action is obviously reasonable at that time, since it is then the most current release, the mere fact that it is the only release-then available is an inadequate reason for continuing to use that release at the de novo formal administrative hearing that follows. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). Moreover, the inadequacy of HRS's basis for its incipient policy has been demonstrated in this record. The May 12, 1987, release is substantially more accurate than the release a year earlier. The May 12, 1987, release is much closer to observed population growth in the subdistrict than the earlier release. These facts were not rebutted. To underscore the inadequacy of HRS's incipient policy, it bears repeating that use of the July 1, 1986, population release underestimates the net need for community nursing home beds in Hillsborough County in July, 1989, by 100 percent. This indicates that something is dramatically wrong with the incipient policy. For these reasons, the values of POPC and POPD should be taken from the May 12, 1987, release of population estimates. POPC is 134,968 and POPD is 94,402. The calculation of the bed rate, BA, thus is as follows: BA= LB/(POPC + (6 X POPD)) BA= 6,060/134,968 + (6 X 94,402)) BA= 0.0086401 The next step in the calculation is to calculate BB, which is defined as the estimated bed rate for the population age 75 years and over in the relevant district. The calculation is provided in subparagraph 2c of the rule: BB= 6 X BA BB= 6 X 0.0086401 BB= 0.0518406 Subparagraph 2a of the rule then requires calculation of A, which is gross need for the horizon year: A= (POPA X BA) + (POPB X BB) Where: A is the district's projected age-adjusted total number of community nursing home beds for the review cycle for which a projection is being made. POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future. For the reasons discussed with respect to selection of the date of the proper release of Governor's population estimates and projections with respect to POPC and POPD, POPA and POPB should be obtained from the May 12, 1987, Governor's release. POPA is 149,771 and POPB is 108,400. Therefore, continuing the calculation: A= (POPA X BA) + (POPB X BB) A= (149,771 X 0.0086401) + (108,400 X 0.0518406) A= 1,294.0364 + 5,619.521 A= 6,913.5574 The next step is to calculate SA, which is the preliminary subdistrict allocation of community nursing home beds pursuant to paragraph 2d of the rule: SA A X (LBD/LB) x (OR/.90) Where: * * * LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average occupancy rate for all licensed community nursing home beds within the subdistrict of the relevant district. Review of the applications submitted for the July batching cycle shall be based upon occupancy rate data for the months October- March preceding that cycle . . . * * * LBD is 2,708 since the 96 beds at the Home Association were community nursing home beds in Hillsborough County on June 1, 1986. OR is 94.29 Therefore, SA is calculated: SA= A X (LBD/LB) x (OR/.90) SA= 6,913.5574 x (2,708/6,060) x (.9429/.90) SA= 6,913.5574 X 0.4468646 X 1.0476666 SA= 3,236.6863 SA= 3,237 In the last sentence of subparagraph 2 of the rule, the "poverty adjustment" is described as follows: "In districts with a high proportion of elderly residents living in poverty, the methodology specifies a minimum bed rate." In this case, all parties agree that when the numbers are assigned to the values in the formula contained in subparagraph 2e of the rule, the poverty adjustment operates to reduce rather than enlarge the net bed need. Thus, in this case, strict application of the A formula found in subparagraph 2e fails to produce the intended "minimum" bed rate. HRS construes the rule, in this instance, to mean that the poverty adjustment does not apply, T. 1280, and all parties agree. This will be treated as a stipulation by all parties that the poverty adjustment is not an issue in this case. For this reason, the poverty adjustment will not be used in the calculations in this recommended order. The final step in the need calculation is defined by subparagraph 2i of the rule, and that is to calculate the net bed allocation for the subdistrict. Subparagraph 2i provides: The net bed allocation for a subdistrict, which is the number of beds available for Certificate of Need approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant departmental subdistrict from the bed allocation determined under subparagraphs through I. unless the subdistrict's average estimated occupancy rate for the most recent six months is less than 80 percent, in which case the net bed allocation is zero. All parties agree that the number of licensed beds within the subdistrict is determined as of June 1, 1986, for this batching cycle. That number for purposes of determining net need is 2,708. The number of approved beds for purposes of determining net need is 368. Net need for community nursing home beds in the subdistrict for July 1, 1989, is thus determined: Net Need = SA - (LBD + (.9 X AB)) Net Need = 3,237 - (2,708 + (.9 X 368)) Net Need = 3,237 - 3,039.2 Net Need = 197.8 Net Need = 198 Thus, on July 1, 1989, the subdistrict, Hillsborough County, will need 198 community nursing home beds. Evidence of "not normal" need Rule 10-5.011(k)2.j. provides criteria for approval of community nursing home certificates of need "in the event that the net bed allocation [pursuant to the rule formula] is zero . . ." The net bed allocation pursuant to the rule method is not zero in this case. Subparagraph 2j thus does not apply. The Petitioners did not present any evidence of need pursuant to the special criteria of subparagraph 2j of the rule. Rule 10-5.011(k)1. Provides: 1. Department Goal. The Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds in the subdistricts designated by local health councils. (E.S.) Many other HRS need rules have the same "not normal" loophole, and in all of these other cases, the applicants are thereby given the opportunity to show exceptional circumstances justifying the grant of additional beds by consideration of various aspects of the statutory criteria. Since subparagraph 2j does not apply, the provisions of subparagraph 1 do apply to grant a similar opportunity. The only other credible or competent evidence presented by the Petitioners as to a "not normal" condition of need was evidence concerning the numbers of elderly residents in the subdistrict and the occupancy rates of existing community nursing homes. These factors have already been accounted for in the rule formula, and cannot be counted again. Health Quest Realty, XII v. Department of Health and Rehabilitative Services, 477 So.2d 576, 578-79 (Fla. 1st DCA 1985) Amendment or update of applications Rule 10-5.008(3), Fla. Admin. Code, provides that "[s]ubsequent to an application being deemed complete by the Office of Health Planning and Development, no further information or amendment will be accepted by the Department." (E.S.) The rule states that the Department will accept no information after the application is deemed complete. The words used are not ambiguous or unclear. Thus, if normal rules of construction were to be followed, the conclusion would be drawn that the Department is bound by its own clear rule, and cannot, by interpretation, add exceptions. But an equally valid rule of construction is that absurd results must be avoided. Certificate of need cases, particular ones like the case at bar, are highly competitive and complicated. The review of these applications by HRS was delayed for months beyond the normal review period. Further delay has occurred in discovery and preparation for the lengthy formal administrative hearing. Time changes all, and over this period of time, new data has come to the attention of all parties. It would be absurd `to require the applicants to prove applications that have become erroneous due to the passage of time. It is highly probable that rule 10-5.008(3) was originally drafted with only the free form review of an application for a certificate of need in mind, and that the application (or non-application) of the rule to an administrative hearing a year or more later was not considered by those who drafted the rule. Indeed, prior to August, 1985, the Department and all litigants uniformly followed the McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977) principle of Florida administrative law that formal administrative hearings are de novo, and that new information pertaining to the application is admissible. In August, 1985, the case of Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, et al., 483 So.2d 700 (Fla. 1st DCA 1986) was decided. While the Gulf Court decision was concerned only with the competitive status of applicants with respect to bed need, in the aftermath of that decision, the Department elected to construe rule 10- 5.008(3) as forbidding practically all new information, even information that had nothing to do with bed need. This undoubtedly was an overreaction to the Gulf Court decision, but the Department, after all, has always had the authority to establish rules governing the processing of applications for certificates of need, including the number and timing of amendments to such applications. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). Given the fact that the rule is so clear, the better route would have been to amend the rule. As discussed above, conventional rules of statutory construction could easily support the legal conclusion that the rule must be applied as it is written, without further interpretation. Nonetheless, the Department for this case has chosen the other route, to interpret rather than to amend its rule. While the question is a close one, the Hearing Officer has concluded that it would be better to ignore the clear words of the rule, and attempt to apply the evolving interpretative policy of the Department to avoid an absurd result. The following appear to be the existing final orders of the Department interpreting rule 10-5.008(3), and its predecessor, published in the Florida Administrative Law Reports. Health Care and Retirement Corporation of America, d/b/a Heartland of Palm Beach, 8 F.A.L.R. 4650 (September 24, 1986); Arbor Health Care Company, Inc., d/b/a Martin Health Center, Inc., v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 709 (October 13, 1986); Mease Hospital and Clinic v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 159 (October 13, 1986); Health Care and Retirement Corporation of America, d/b/a Heartland of Collier County v. Department of Health and Rehabilitative Services, 8 F.A.L.R. 5883 (December 8, 1986); Health Care and Retirement Corporation of America, d/b/a Nursing Center of Highlands County, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1081 (December 8, 1986); Manatee Mental Health Center, Inc. d/b/a Manatee Crisis Center v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1430 (February 2, 1987); Health Care and Retirement Corporation of America, d/b/a Heartland of Hillsborough, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1630 (February 5, 1987); Manor Care, Inc. v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1628 (March 2, 1987); Psychiatric Institutes of America, Inc., d/b/a Psychiatric Institute of Orlando v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1626a (March 5, 1987); Manor Care, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2139 (March 24, 1987); Wuesthoff Health Services, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2110 (April 17, 1987); Hialeah Hospital, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2363 (May 1, 1987); Palms Residential Treatment Center, Inc., d/b/a Manatee Palms Residential Treatment Center v. Department of Health and Rehabilitative Services, et al., 10 F.A.L.R. 1425 (February 15, 1988) These final orders contain the following statements concerning the Department's interpretation of rule 10-5.008(3) and its evolving policy with respect to changes to applications for certificates of need during section proceedings and admissibility of new information not contained in the original applications: Health Care and Retirement, supra, 8 F.A.L.R. at 4651: During 120.57 proceedings, an application may be updated to address facts extrinsic to the application such as interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories. An applicant is not allowed to update by adding additional services, beds, construction, or other concepts not initially reviewed by HRS. Manatee Mental Health Center, supra, 9 F.A.L.R. at 1431: . . . HRS has authority by statute to issue a CON for an identifiable portion of project. Section 381.494(8)(c), Florida Statutes. MMHC's "amended" proposal reduced the number of beds sought, and was properly considered during the 120.57 proceedings. Manor Care. Inc., supra, 9 F.A.L.R. at 2141-42: The amended applications [amended to address needs of Alzheimer's disease patients] changed the scope and character of the proposed facilities and services and thus, must be reviewed initially at HRS . . . [Gulf Court] . . . limited the de novo concept by requiring that evidence of changed circumstances be considered only if relevant to the application. Hialeah Hospital, Inc., 9 F.A.L.R. at 2366: It is recognized that more than a year may pass between the free form decision by HRS and the final 120.57 hearing and this passage of time may require updating an application by evidence of changed circumstances such as the effect of inflation on interest and construction costs. For the sake of clarity HRS would avoid the use of the word "amendment" to describe such updating. Such evidence of changed circumstances beyond the control of the applicant is relevant to the original application and is admissible at the 120.57 hearing. Taking the easiest first, those items explicitly listed by the Department in the first Health Care and Retirement case, "interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories," which change after the application is initially filed, are permitted. Not permitted are "additional services, beds, construction, or other concepts not initially reviewed by HRS." The remainder of the Department's incipient policy, as presently articulated, is extremely obscure. The word "extrinsic" without the list of examples is of little guidance. The application is only an idea on paper. Anything new, other than the bare words on the paper as originally filed, is literally "extrinsic" thereto. The concept of whether the new information changes the "scope and character of the facilities and services" originally reviewed in free form action by the Department is similarly of little guidance because the phrase "scope and character" can mean practically anything. Of fundamental difficulty is whether this phrase is intended to select substantial changes to the original application, or all changes. For example, if the original application proposes separate shower stalls and tubs for double rooms, but the amended application proposes a combination shower and tub, has the "scope and character" of the "facilities and services" changed? The phrase "additional services, beds, construction, or other concepts not initially reviewed by HRS" is similarly vague. What is a service or construction or a concept not originally reviewed? Would this include the change in bathing equipment discussed above? The concept of "control" of the applicant over the information that goes into the original application is the only phrase that gives applicants any guidance. The word "control" probably is intended as a "knew or reasonably should have known" standard. If the applicant reasonably should have known about the information and should have provided the Department with the information as a part of its original application, then the new information cannot be considered during the formal administrative hearing. The Hearing Officer will be guided, thus, by the explicit list of items provided by the Department in the Health Care and Retirement case, and by the concept of "control" provided by the Hialeah case. New information submitted by Forum Group Table 7 of the Forum Group update is for the second year of operation. There was no projection of utilization by class of pay for the second year of operation in Forum Group's original application, and Forum Group presented no evidence to explain why its original application did not or could not forecast utilization by class of pay for the second year of operation. Table 7 of the update, F.G. Ex. 6, thus constitutes an attempt to add matters to the original application which could have been a part of the original application as filed. Pursuant to rule 10-5.008(3), Fla. Admin. Code, it is now excluded from evidence because it is irrelevant. Table 8 of the Forum Group update was not proven by Forum Group to be based upon ordinary inflation. It appears that the revised charges in table 8 were based in part upon a telephone survey of subdistrict nursing homes conducted after Forum Group filed its original application. Forum Group did not prove that it could not reasonably have conducted such a telephone survey before it filed its original application. Thus, table 8 of F.G. Ex. 6 contravenes rule 10-5.008(3) and now is excluded from evidence because it is irrelevant to the original application. Table 10 of the Forum Group update was precisely the kind of new information allowed by the incipient policy of the Department. The old table 10 had an opening date of January, 1988, a date that was obviously in error due to the delay in decision in these cases. The new information was simply the old information altered by current occupancy and fillup rates in the subdistrict, data that could not have been acquired when the original application was filed. "Current occupancies" is explicitly listed by HRS as permissible new data in the Health Care and Retirement case, supra. Table 10, F.G. Ex. 6, is admitted into evidence. The revised table 11 contains positions for a dietary supervisor, maintenance supervisor, and utility workers, all of which could have been reported in the original table 11. These portions of table 11 are excluded from evidence. The revised table 11 contains changes in the FTE's for registered nurses and licensed practical nurses. These changes could have been in the original table 11 and are excluded from evidence. The revised table 11 contains changes in salaries that were adequately shown to be the result of inflation and new market data not available at the time the application was deemed complete. These portions of revised table 11 are admitted into evidence. Table 25 of the revised application, F.G. Ex. 6, which summarizes estimated project costs, including construction costs, contains new information permitted by the Department's evolving policy. The new table contains no changes of substance except changes caused by inflation and current construction experience. The bottom line, except to that extent, has not changed in substance. Table 25 of F.G. Ex. 6 is admitted into evidence in its entirety. Revisions to tables 17-20, F.G. Ex. 6, were driven entirely by inflation in construction costs. Surely if the Department allows an applicant to respond to inflation by projections of new costs, the Department's policy would also allow the applicant to respond to inflation by projections of new methods to reduce new costs caused by inflation. These revisions are admitted into evidence. The revised pro forma statement of total operating expenses has not been proven by a preponderance of the evidence. First, the revision was explained as being based upon changes in utilization by class of pay, but that data, table 7 of the revision, was not admitted into evidence. Moreover, the changes in total operating expenses resulted from impermissible changes in the numbers of FTE's which have been excluded from evidence. It is not possible on this record to determine how much of the revised pro forma statement of total operating expenses has been shown to be a credible projection, given the lack of these fundamental sources of the projection. Moreover, the revision to total operating expenses in the revised pro forma, F.G. Ex. 6, has not been credibly shown to be based upon matters that Forum Group could not have known at the time it originally filed its application. This conclusion flows from the fact that the original application did not project utilization by class of pay in year 2. Absent this projection, the revision of total operating expenses must necessarily be based upon data that was absent from the original application. The same is true with respect to changes in FTE's in the revision. For these reasons, the revision to total operating expenses in the revised pro forma, F.G. Ex. 6, constitutes an impermissible offer of new data precluded by rule 10-5.008(3). New information submitted by Health Quest Table 8 of the revised application of Health Quest, H.Q. Ex. 3, was based upon information that Health Quest could have obtained when it filed its original application. Table 8 of H.Q. Ex. 3 is thus excluded from evidence. Table 11 of the revised application was based upon the actual experience acquired after the original application was filed. Table 11 of H.Q. Ex. 3 is admitted into evidence. Table 17 of the original application projected that the facility would have six three-bed rooms, but the revised application deleted all 3 bed rooms. Since Health Quest failed to show that this new information would have been unavailable to it when it filed its original application, the change as to 3 rooms is not admissible. The ineluctable result, therefore, is that all of revised table 17 is inadmissible since the proper mix of beds has not been proven. The change of square footage of 1 bed room to 216 in the revised table 18 is inadmissible because it contravenes rule 10-5.008(3). Evidence as to the agreement with the University Community Physicians Association of Tampa is admissible as matters which did not exist and could not have been a part of the original application. The objections to that testimony, T. 579- 80, are overruled. New information submitted by Careage The changes to the Careage application, C. Exs. 18-23 and 24-25, were shown to be based upon information not reasonably obtainable by Careage when it filed its original application, and thus are admitted into evidence over the objections made that these exhibits were barred by rule 10-5.008(3). New information submitted by Hillsborough Healthcare Hillsborough Healthcare did not submit any changes to its application. Comparative review of the applications Careage failed to prove two essential portions of its application. It did not prove by a preponderance of the credible evidence that it would in fact operate the proposed facility if the certificate of need were granted, and it did not prove by credible evidence that it would provide care of good quality. For these reasons, the Careage application should be denied. The other applicants proved by credible evidence all essential portions of their applications. The only remaining task, therefore, is to determine the proper allocation of the 198 beds needed in July, 1989, among these three applicants. The space and costs associated with the remaining proposals may be compared as follows: Appli Cost/Bed NetFt/Bed TotFt/Bed Cost/NetFtBed Cost/TotFtBed Forum $44,551 228 408 $195 $109 HealthQ $34,719 240 423 $147 $ 82 HillsH $28,063 185 283 $152 $ 99 The cost per net square foot per bed (Cost/NetFtBed) is derived by dividing the cost per bed by the net square feet of living space per bed. Likewise, the cost by total square feet (gross) per bed (Cost/TotFtBed) is derived by the same division. Health Quest is preferable to the other two applicants when these cost and space figures are considered. It provides more space at a lower cost per square foot. The differences between Hillsborough Healthcare and Forum Group are not sufficiently significant to give one preference over the other. Hillsborough Healthcare is the less expensive proposal, but suffers from being the least spacious proposal in comparison to Forum Group. Moreover, the record does not contain guiding policies to determine whether there is a need in Hillsborough County for cheaper, less spacious, nursing homes, or for more expensive, more spacious nursing homes. The proposed staffing of the remaining proposals may be compared as follows: Applicant TotalFTE RN FTE LPN FTE RN Asst FTE No. Bed Forum 37.6 5.3 3.6 14.00 60 HealthQ 60.75 4.8 2.2 25.00 88 HillsH 64.65 2.92 8.78 36.61 120 Staffing per proposed bed may further be compared as follows: Total FTE Applicant Per Bed RN FTE Per Bed RN & LPN FTE Per Bed Total Nursing FTE Per Bed Forum .63 .08 .15 .38 HealthQ .69 .05 .08 .36 HillsH .54 .02 .10 .40 The total nursing FTE per bed for each applicant is relatively equal, with Hillsborough Healthcare having the highest ratio and Health Quest the lowest. Forum Group has significantly more RN's and LPN's per bed than Health Quest, but the overall nursing staffing is comparable. Hillsborough Healthcare is the lowest when only RN's and LPN's are considered, and the lowest total FTE per bed. The differences noted in staffing do not appear to be sufficient to draw meaningful conclusions. Hillsborough Healthcare's facility may be staffed at a less costly level, but whether this is due to substitution of nursing assistants for RN's and LPN's, or a result of efficiencies due to the larger number of beds (120), or reflects less than optimum staffing cannot be determined on this record. Hillsborough did not present evidence as to staffing patterns for a 60 bed facility. Other features of the proposals of the three applicants provide little to distinguish or rank them in priority. All three propose to associate the nursing facility with an adult congregate living facility, resulting in cost efficiencies and better continuity of care. All three have a substantial track record in the operation of a nursing homes, and can be expected to provide care of good quality. All three have very substantial resources and prior experience in the development and initial operation of a nursing home. If any distinction were to be made, perhaps it would be to favor the Hillsborough Healthcare application over the Forum Group application. Hillsborough Healthcare plans to serve the needs of Alzheimer's patients, and Forum Group does not. Hillsborough Healthcare's application is, relative to the Forum Group proposal, less expensive. On the other hand, the Alzheimer's disease unit is only a marginal factor since there is no qualified evidence in this record of need for that type of unit in 1989 in Hillsborough County. One can only infer that the need is probably going to be there, and it might be better to prefer Hillsborough over Forum Group for that reason. The "luxury" vs. "austerity" comparison is similarly not of ultimate persuasive weight since, as discussed above, there is no credible evidence in the record as to what the proper mix should be. Of course, it is safe to conclude that the need for less expensive nursing care is greater than the need for care that only a few can afford, but that conclusion does not necessarily result in the total denial of the Forum Group application. In summary, with respect to the question as to which applicant should be favored with approval of the most number of beds from the projected bed need, there is no major issue to adequately distinguish between the three applicants. For this reason, each applicant should be treated as equally as possible consistent with the application it submitted and the evidence it presented in support of that application. The Department appears to have several relatively reasonable ways to allocate bed need among the three applicants. It might simply divide the beds equally among the three. This alternative is less reasonable because it would ignore the detailed proof that has been presented by both Forum Group and Health Quest in support of proposed facilities of 60 beds and 88 beds respectively, and would result in implementation of facilities having staffing and design configuration that would be altered from that proof. A second alternative would be to award partial approval to Health Quest for 78 beds, to award full approval to Hillsborough Healthcare for 120 beds, and to deny the application of Forum Group. A third alternative would be to award partial approval to Health Quest for 78 beds, to award partial approval to Hillsborough Healthcare for 60 beds, and to award full approval to Forum Group for 60 beds. This third alternative is more reasonable and will be recommended by this order. This alternative has the advantage of fostering the most future competition in Hillsborough County by approving three competitors rather than two. Of the three applicants, Health Quest proposed the most space, relatively speaking, for the least cost. The staffing proposed by Health Quest is reasonable in comparison to the other two applicants. Reduction of the Health Quest proposal to 78 beds from 88 beds is a relatively minor reduction; stated another way, the proof provided by Health Quest as to the specifics of an 88 bed facility is likely to be changed only slightly for a 78 bed facility. Forum Group proved all of the details of its 60 bed proposal, and thus approval of those beds would be entirely consistent with its application and proof in this record. Hillsborough Healthcare did not prove the specifics of a 60 bed partially approved facility except that such a facility would contain the full sized Alzheimer's patient unit proposed in its 120 bed facility. It would be fairer to approve Hillsborough for that 60 bed facility than to approve Hillsborough for 120 beds, leaving Forum Group with denial of its application, given the lack of a compelling clear choice between the two applicants. Recommendation It is therefore recommended that the Department of Health and Rehabilitative Services enter its final order partially granting the application of Health Quest for 78 community nursing home beds, partially granting the application of Hillsborough Healthcare for 60 community nursing home beds, fully granting the application of Forum Group for 60 community nursing home beds, and denying the application of Careage. DONE and ORDERED this 30th day of June, 1988, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1988. APPENDIX TO RECOMMENDED ORDER IN CASE NOS. 87-0670, 87-0671, and 87-0774 The following are rulings upon proposed findings of fact which have either been rejected or which have been adopted by reference. The numbers used are the numbers used by the parties. Statements of fact contained in this appendix are adopted as findings of fact. Findings of fact proposed by HRS: 1-2. These proposed findings of fact are' subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The classification of the Home Association beds has been thoroughly discussed in the findings of fact and conclusions of law. The correct population figures are discussed in the findings of fact. 9-13. These are matters of law, and thus not appropriate as proposed findings of fact. 15. The changes to table 7 were not the result of a telephone survey. T. 51. 17. Defining "extrinsic circumstances" as not inclusive of economic or market changes that occurred after the original application was deemed to have been complete, or otherwise not reasonably obtainable or knowable by the applicant when the original application was filed, is contrary to HRS policy embodied in final orders, sketchy as it may be. 18, 23-25. Rejected as explained in the findings of fact. 26, 28. Rejected with respect to table 11 as explained in the findings of fact. 30. This finding of fact, while true, is not made because Health Quest made no such change to its 88 bed application. Rule 10-5.008(1) simply states that the application for a certificate of need must be filed on form 1455. Table 12 of the form has no instructions for what must be contained therein. Since HRS has not demonstrated on this record that table 12 in the original application was supposed to have listed these items, it cannot be said that the listing of these items in the new table 12 is a change. It is noted that spaces to take showers, baths, store linen, and for nursing stations would be assumed for any nursing home, and ought not be presumed to have been excluded by the failure of an applicant to list them. Moreover, it is further noted that from a review of the original application H.Q. Ex. 1 that table 12 does include nursing administrative space, patient lounges, a central supply space, general storage, housekeeping, and laundry. Moreover, the amendment, H.Q. Ex. 2, shows the following spaces on the space diagram: laundry, shower, patient lounge, and medication room (med). Any bed room could be used for isolation. Table 20 does include a chapel. H.Q. Ex. 1. Not supported by the record cited. Findings of fact proposed by Forum Group: 1-4, 9, 13. These are matters of law, and thus not appropriate as proposed findings of fact. 5. LB of 5,964, as proposed by the Department, is most credible as the beginning figure, without considering the beds at the Home Association. 7-8, 10. Incorrect value for LB. 11. OR should be 94.29 with the Home Association beds. 18. Incorrect values for LB and OR. 21. The denial occurred orally in January, 1987. The update has been discussed in findings of fact and conclusions of law. These are matters of law, and thus not appropriate as proposed findings of fact. It is true that there is need and the need must be satisfied. 29-33. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 34. The phrase "homelike atmosphere" is too vague to be a finding of fact. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The record does not contain sufficient evidence to make a finding as to the history of Forum Group with respect to the quality of care provided at Forum Group facilities. 49-50. The update with respect to financial feasibility is not relevant since essential parts of the update with respect to financial feasibility were not admitted into evidence. 60, 65, 67, 68, 74, and 80. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 66. This is not relevant. Ms. Kennedy testified that she had authority from Hillsborough Healthcare to accept a certificate of need for a 60 bed nursing home. There is no credible evidence to contradict this statement under oath. The lack of a written partnership authorization in evidence does not negate this statement. 76. Had there been any credible evidence in theme cases that the amount of need in Hillsborough County was minimal and that, consequently, the pro formas for 60 bed nursing-homes must be closely scrutinized for long term financial feasibility, then it would be relevant that CSI did not explain in detail the pro forma for a 60 bed nursing home. CSI did, however, present expert opinion that a 60 bed nursing home would be financially feasible, and on this record, the opinion is very credible. Forum Group and Health Quest have shown the long term financial feasibility of a 60 bed nursing home, and there is a large amount of need. Moreover, existing nursing homes are experiencing very high occupancy rates and fill up rates. For these reasons, this proposed finding of fact, while true, is not relevant. Hillsborough did show that its design was modular. Scaling down the project simply means deletion of one wing. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The witness specifically addressed two portions of the state health plan. T. 777. The testimony was competent and substantial evidence. The inference that the certificate of need was "about to expire" is inappropriate since the witness's testimony leads to the inference that Health Quest intends to proceed with that project. T. 641. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 98-99. These proposed findings of fact are true, but insufficient to support a finding that Health Quest lacks the resources to construct and operate this project in the short term. 101, 105-07. These proposed findings of fact are true, but do not lead to the conclusion that the construction cost estimates are unreasonable. See T. 590. Mr. Krisher had sufficient expertise in health planning, nursing home development, and financial feasibility, to testify generally as to these matters. T. 501-516. No party presented any independent evidence to seriously question these estimates. 102. This proposed finding of fact is incorrect since the expected Medicaid rate in Boca Raton is different from the expected rate in Tampa. T. 785. 111. Not supported by the record cited. 114-116, 118-120. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. True, but insufficient to show lack of resources to make the project financially feasible in the short term. Irrelevant. The existence of lines of credit was proved by Mr. Gentle. Irrelevant. The staffing was shown to be reasonable by the testimony of other competent witnesses. 125-27. True, but insufficient to show back of financial feasibility. 129. True, but irrelevant. It would be unreasonable and a waste of health care resources for an applicant to have to buy five expensive acres of urban land to be qualified to apply for a certificate of need. 130-31. Irrelevant. The delay and inflation rates are negligible. Findings of fact proposed by Hillsborough Healthcare: 1. This is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 5. The phrasing of the first and second sentences is rejected for lack of evidence. 7. The evidence is not sufficient to show actual bias by a preponderance of the evidence. 8-9, 19-20, 22-23. These proposed findings of fact are subordinate to findings of fact that have been adopted. These proposed findings of fact are true, however, and are adopted by reference. 21. Irrelevant. 24. True, but not relevant. These matters are covered by the numeric need rule. 29. The evidence does not show that CSI managed facilities offer "superior" activities. 32, 33 (fifth and sixth sentences), 35 (last sentence), 38(a)-(i), 40,42 (first sentence), 39, 45 (second and third sentences), 46 (all but the first sentence), 49 (first two sentences), 53, 56 (all but the first two sentences), and 60-72. These proposed findings of fact are subordinate to findings of fact that have been adopted. These proposed findings of fact ace true, however, and are adopted by reference. 51. The preponderance of the evidence does not credibly show that the floor plan promotes patient safety and convenience, or that travel distances are minimal. 54. Not supported by the record cited. These proposed findings of fact are irrelevant. A finding of fact that the criminal offense of perjury was committed cannot be made since there is no evidence of a criminal conviction by a court of competent jurisdiction. The testimony of Ms. Etten was not limited to those programs. The documents used in cross examination were never properly authenticated, and are hearsay. Thus, a finding of fact that the documents are in fact surveys of Careage facilities by other agencies in other states cannot be made based upon the documents. For this reason, the remainder of the proposed finding is not relevant. Ms. Etten credibly testified that nursing staffing was generally adequate. Her opinion was not ultimately limited to special programs. T. 1216. The inability of other witnesses to testify on this point is not relevant. The ability of Careage to recruit staff was adequately proved by other parties. There is no credible evidence in this record to believe that any applicant fail to recruit adequate staff. The recruitment plans of Careage appear to be quite reasonable. T. 1562-64. On pages 1686-87 of the transcript, the Hearing Officer ruled that the expert opinion of Ms. Krueger would be allowed even though it was based on hearsay. This was a correct ruling. Section 90.704, Fla. Stat. (1987). The sentence immediately following that ruling is incorrect as stated, and directly contradicts the initial correct ruling. That is, an expert opinion is admissible and may be relied upon even though based upon evidence, such as hearsay, which in itself may not be admissible. Further, the opinion of an expert in an administrative proceeding is a proper basis for a finding of fact even though the opinion is based upon hearsay, and even though hearsay alone in an administrative hearing, absent nonhearsay evidence on the point, is not sufficient as a basis for a finding of fact. The second sentence in the transcript was intended to state that hearsay evidence alone will not be the basis of a finding of fact, setting aside for the moment the issue of expert opinion. For these reasons, these proposed findings of fact are rejected to the extent that they urge that short term financial feasibility was not established because the opinion was premised upon hearsay evidence. With respect to the unaudited financial statement question, Ms. Krueger was not asked whether experts in her field reasonably rely upon unaudited financial statements. She was only asked which type was more worthy of belief and whether her profession feels they can rely on audited statements. She was never asked whether her profession feels it cannot rely upon unaudited statements. Ms. Krueger stated that she was aware of the existence of fraudulent audited statements, implying that the question leads to answers that are not that useful. T. 1652. In fact, Ms. Krueger, who was a thoroughly credible witness, explaining her opinions in a lucid and reasonable manner, relied upon unaudited statements, as well as her conversations with several of the chief executive officers of Careage. Based on this record, a finding cannot be made that experts in this field do not reasonably rely from time to time upon unaudited financial statements. The authenticity of the letter from SeaFirst is irrelevant since that line of credit was established by the direct testimony of Mr. Gentle. T. 1576. Ms. Krueger's lack of personal knowledge as to the existence of a binding commitment for a loan for this project is irrelevant due to Mr. Gentle's direct testimony. The evidence in the record from all parties indicates that land is generally available in Hillsborough County in the 3 to 5 acre range, that 3 to 5 acres is about what is needed for any of the projects, and that the cost is from $300,000 to $600,000. The Careage facility will bring in over $3 million in gross revenue per year in all years beyond the first few. A few hundred thousand dollars can be amortized over the life of a nursing home, and will not be a significant factor in long range financial feasibility. All of the applicants have access to credit to buy land at market rates. There is essentially no reasonable dispute as to land acquisition and cost in this case. The testimony related to equipment , not floor space, for technology dependent children. Those children would be served in the subacute beds. Space for Alzheimer's patients was included in the floor plan and the 45,500 square feet. T. 1136-37. Mr. Cushing testified that the Means reference book might project a cost per square foot in the "60's." He did not adopt that as his opinion. T. 1185-86. Delay in construction for 8 months is not such delay as to necessarily result in substantial increases in construction cost. The last sentence is true but does not account for the fact that Mr. Cushing consulted the Means reference book for labor rates. That is sufficient. The remainder of the reasoning of this proposed finding of fact was rejected in paragraph 85 above. Rejected as described in the preceding paragraphs. Ms. Krueger's expertise with respect to salaries was established perhaps more completely than any other expert witness. She not only had first hand knowledge from her work reviewing salaries in nearby counties, but she consulted expert reference materials. Her inability to remember the name of the book referenced does not seriously undermine her expertise. The ruling at T. 1324 sustained an objection to a question. It was not a ruling upon the admissibility of portions of the document. Ms. Krueger prepared the long range plan section of C. Ex. 3, P. 3-7, and the under served groups section, p. 3-8, in conjunction with Mr. Gentle. T. 1322. This is sufficient predicate for her testimony as to these matters. 91-92. The telephone survey was not a needs survey. It only surveyed existing services. The survey has essentially been discounted because of lack of response and lack of statistical reliability. These proposed findings ace adopted by reference. Since none of this testimony has been relied upon in this recommended order, the proposed findings of fact are irrelevant. These proposed findings of fact are irrelevant. The testimony as to lines of credit and resources of the Lynns was enough to establish the availability of working capital. These proposed findings of fact are irrelevant. Rejected as explained in the findings of fact. These proposed findings of fact are irrelevant. 101. The continuing objection was allowed, not granted. T. 595-96. Otherwise, these proposed findings of fact are true and are adopted by reference. 102-103. These proposed findings of fact are true and are adopted by reference. 104. Essentially irrelevant as explained with respect to proposed findings of fact concerning the land acquisition and preparation costs of other applicants. 105-107. These proposed findings of fact are true and are adopted by reference, except the last clause of the last sentence of proposed finding of fact 105. Absent quantitative data and a study of salaries showing the estimates to be substantially in error, the foregoing proposed findings of fact are not sufficient to show an error affecting financial feasibility. 108-109. These proposed findings of fact are irrelevant since the 60 bed application was not a permissible amendment. These proposed findings of fact are true and are adopted by reference. These proposed findings of fact are irrelevant since these are different health districts having different patient payor mixes. Findings of fact proposed by Health Quest: 4, 5, 7-10. These are matters of law, and thus not appropriate as proposed findings of fact. 11-17. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The rationality of the OCHP's policy is irrelevant since it conflicts with the rule and other policies are also rational. A finding of a consistent pattern with respect to base date populations in the award of certificates of need cannot be made as discussed in the findings of fact. Mr. Sharp understood his position, and Mr. Jaffe well understood the inconsistencies. 22-23. True but irrelevant. Disadvantage often occurs to some person when the law is correctly applied. 24-28. Rejected as discussed at length elsewhere in this order. 33. Not supported by the record cited. 36.a. Mr. Gentle did not work with Careage in these years and could not be expected to have detailed memory on these points. He named seven such facilities. 38. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 40.b. (ii). There is no evidence that CHP is the same as Careage. 40.c.(v). Health Quest has operated since 1969. 42. Both could be true. 43.a.(ii). Mr. Gentle was not sure because this was not within his area of responsibility. T. 1603. 44. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Dr. Etten's unfamiliarity with the fact that the Health Quest facility in Jacksonville provides IV therapy and total parenteral nutrition does not demonstrate exaggeration or lack of expertise. The record does not clearly demonstrate that other Health Quest nursing homes provide these specific services. The evidence is only that services are generally the same. T. 1077. The testimony concerning Medicaid patients in the subacute unit was elicited on cross examination, and was not presented by the witness as an intended representation by Careage on direct. Ms. Krueger's understanding simply was wrong, not misleading. T. 1367. The remainder of this proposed finding of fact is similarly a red herring. Careage did not project anything more than 37 percent Medicaid utilization. C. Ex. 3, table 7B. It is one thing to expect 37 percent utilization, and another thing to represent that the facility will not discriminate. A promise to not discriminate inherently contains the caveat that a facility will not pursue that noble goal to bankruptcy. The Hearing Officer would not find that to be the case with respect to Careage any more than with respect to Health Quest. Mr. Gentle did not testify that the number of nurses aides in the Alzheimer's unit would be higher in comparison to other sections of the facility. He testified that the number would be "higher" in comparison to professional licensed staff, which would be lesser. T. 1525. 54. Irrelevant. Mr. Gentle said that day care would probably be at a location nearby. T. 1593. 57. None of the parties addressed site size with the specificity proposed by these findings of fact. Lack of such specificity has no real bearing on credibility. The record cited, T. 1526, does not support the proposed finding that equipment for technology dependent children is "substantial and expensive." Thus, the remainder of these proposed findings are rejected. It is true, however, that the application fails to itemize such equipment, and that the contingency is relied upon. There is no evidence that Careage proposes to employ a gerontological nurse practitioner. C. Ex. 3, table 11. The testimony of Dr. Etten simply describe the skills of that form of nurse practitioner. She was never asked whether such professional would be employed by Careage. T. 1217-19. The failure to tie in the testimony is only a human error, and does not show a lack of credibility. Proposed finding of fact 62.a. is not supported by the record. Dr. Etten was not asked to describe the care given an Alzheimer's patient in an ACLF. She was asked to describe the care given a "resident" of an adult congregate living facility. Her comment about such residents not being "bed patients for any period of time" is not a dodge of a question about an Alzheimer's disease patient. Moreover, she credibly and directly testified that Alzheimer's disease manifests itself so many different ways she could not say whether it would be appropriate to have such patients living in an adult congregate living facility. Next, Mr. Gentle's testimony as to the medical characteristics and needs of Alzheimer's patients is insufficient as a basis for findings of fact because Mr. Gentle was not accepted as a medical expert. Health Quest presented no credible evidence to show that an Alzheimer's patient can be treated either in an adult congregate living facility or a conventional nursing home. Absent such evidence, the failure of other parties to rebut the nonexistent negative, given the clear affirmative evidence that Alzheimer's disease patients greatly benefit from special care, is unpersuasive. These proposed findings of fact are irrelevant. These children would be served as subacute care patients. Precise identification of the area set aside for these children would have been only of marginal relevance. To the extent not adopted elsewhere in this recommended order, these proposed findings are adopted by reference. Careage's expert was clearly aware of the need to review site specific conditions in the preparation of construction plans. T. 1177. He has built nursing homes in many states. His competence to prepare adequate construction plans for Hillsborough County conditions was clearly established in the record. It is true that he had not yet prepared the final construction plans. But no party has presented final construction plans, and thus the lack of such plans is irrelevant on this record. Irrelevant on this record. Irrelevant. The amount of working capital is well within the resources available to Careage. There is no evidence in the record that a variation one way or the other by $100,000 would make the project not financially feasible. Careage's credibility was not discredited by the fact that Ms. Krueger was not aware of the mix of skilled and intermediate beds. True, but irrelevant. There is no evidence that such expenses were not accounted for, or if missing, the amount and importance. The staffing was shown by expert opinion to be adequate. T. 1216. One presumes that adequacy refers to adequate health care since the witness was only qualified in that area of expertise. The Careage design was not unique. The Careage use of the word "unique" to describe its design has been disregarded in this order. 78.c.(i)-(iii). These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 78.c.(vi). Not supported by the record cited. 78.c.(vii). The testimony cited is not competent opinion. There was no predicate for testimony as to the knowledge of Mr. Haben, and the objection to a similar question just preceding was sustained on that basis. 87-96, 100-101, 103-128. These proposed findings of fact are irrelevant for the reasons stated in Health Quest's proposed finding of fact 76. 135. These are matters of law, and thus not appropriate as proposed findings of fact. 146. Not relevant since the 60 bed proposal is not in evidence. 149. Without evidence as to what is included in the definition of "subacute" care, a finding as to "virtually all" cannot be made. 151 and 158. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 166, 169, 170 and 172. Not relevant since the 60 bed proposal is not in evidence. 168. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Findings of fact proposed by Careage: The first sentence implies that Careage has operated nursing homes for 25 years. Careage has built nursing homes fob that length of time for operation by others, for the most part. The second sentence is true, but subordinate, and is adopted by reference. Mr. Griffin testified that the decision to adhere to the recommendations made by staff before he assumed his duties at HRS was not his decision. T. 705-06, 703. His testimony reflect very little personal participation in the evaluation of the competing applications. T. 697-705. 6. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 8. There was no credible evidence in this record as to how many Alzheimer's patients need specialized services. The evidence was simply that if such patients exist, such patients need specialized services. Thus, the first sentence is rejected. 8 (second sentence) -12. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. A comparison of staffing is not possible since Careage intends to serve primarily persons in need of skilled nursing care, and hence it cannot be determined if Careage in fact has proposed nursing staff that is more generous relative to patient need than Hillsborough. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Since insufficient credible evidence has been presented to conclude that Careage will operate the proposed facility, this finding of fact is rejected. The proposed finding concerning intent to provide adult day care is not supported by the record cited. 19-20. Irrelevant since insufficient credible evidence has been presented to conclude that Careage will operate the proposed facility. 21. The first sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 22-23, 25 (all but first sentence), 26, 17 (third, fourth, and seventh sentences), 29. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 24. It is concluded that associating a nursing home with an adult congregate living facility will in fact result in cost efficiencies. The remainder of this proposed finding of fact, noting the relatively higher costs of Health Quest compared to Careage, is true, but does not disprove the conclusion that cost efficiencies would exist. It is true that the Hillsborough Healthcare Medicare mix projection may be somewhat high, but the fiscal consequences of that conclusion was not demonstrated. The second sentence is rejected because Ms. Krueger was not accepted as an expert with respect to appropriate levels of staffing. T. 1686-88. 31. The second sentence is based upon hearsay. It is also based upon the opinion of Mr. Gentle which was inadmissible. T. 1577. The fourth and fifth sentences are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 32-33. These portions of the Forum Group amended application, F.G. EX. 6, were not admitted into evidence, and thus these proposed findings of fact are not relevant. 36. Irrelevant since the Health Quest 60 bed application is an impermissible amended application. COPIES FURNISHED: Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 DEPARTMENT OF HRS Edgar Lee Elzie, Jr., Esquire Guyte P. McCord, III, Esquire McFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 CAREAGE HOUSE HEALTH Robert S. Cohen, Esquire Haben and Associates Post Office Box 10095 Tallahassee, Florida 32302 FORUM GROUP, INC. R. Terry Rigsby, Esquire Post Office Box 11188 Tallahassee, Florida 32302 HILLSBOROUGH HEALTHCARE LTD. W. David Watkins, Esquire Oertel & Hoffman, P. A. Post Office Box 6507 Tallahassee, Florida 32314-6507 HEALTH QUEST CORP. Charles N. Loeser, Esquire Assistant General Counsel 315 W. Jefferson Blvd. South Bend, IN 46601 Steven W. Huss, Esquire 1017 Thomasville Road Suite C Tallahassee, Florida 32303 HEALTH CARE AND RETIREMENT CORPORATION OF AMERICA Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, as well as the stipulations of the parties, the following relevant facts are found: Surrey and Careage each timely filed their letters of intent and applications for Certificates of Need to establish 120-bed nursing homes in Polk County in the July 1986, batching cycle. Pursuant to the nursing home need methodology rule, there is a numeric need for 168 nursing home beds in Polk County in July of 1989. A Stipulation and Settlement Agreement enter into prior to the final hearing resulted in the award of 40 beds to other applicants, thus leaving a numeric need for 128 beds for the planning horizon addressed by the applications at issue in this proceeding. No evidence of numeric need beyond that established by the nursing home need methodology rule was presented by Surrey or Careage. Health Care Associates (HCA) is owned by John A. McCoy and Stanford L. Hoye and was formed in 1977 to develop, design, build and manage skilled nursing facilities and retirement facilities throughout the country. It currently owns, operates or is developing approximately 18 skilled nursing facilities in the State of Florida, including a 120-bed nursing home in Winter Haven, known as Brandywine. All HCA licensed nursing home facilities in Florida hold a "Superior" rating. HCA has a documented history of implementing its Certificates of Need within the statutory time frame. HCA now proposes to establish a second 120-bed skilled nursing home in Winter Haven to be known as Surrey Place of Polk County. The two HCA facilities in Winter Haven will be independent and competing facilities, through there will be a shared utilization of training programs. This proposed facility is to be built in conjunction with a 60-bed personal care facility (an adult congregate living facility) which will share common services, such as administration, laundry and dietary services. The costs related to the personal care facility are not included in Surrey's Certificate of Need application. Surrey has determined that the project will be located on one of two sites in Winter Haven. Both sites are properly zoned, and Surrey already owns one of the sites. The projected total project cost for the proposed Surrey 120-bed skilled nursing home facility is $3,000,000. The costs associated with land acquisition and site development, furniture, fixtures and equipment and architectural fees appear reasonable and are in line with HCA's past experiences in developing nursing homes in Florida. The construction cost for building the facility--$2,146,000 or $48.70 per square foot--is low because HCA owns the company which will construct the facility. Construction will be done at cost and at no separate profit to HCA. The Surrey proposal results in a construction cost per bed figure of $17,883; an equipment cost per bed figure of $2,084; and an operating cost per bed figure of $20,031.75. The total project cost of $3,000,000 results in a cost per bed of $25,000. Surrey proposes to obtain financing for 87% of the total project cost, or $2,600,000, and to provide owner equity for the remaining $400,000. Meritor Savings is ready, willing and able to finance the project and Dr. McCoy and Mr. Hoye, the owners of HCA, have the financial ability to make the equity contribution. Surrey's facility will contain 44,000 gross square feet and will be comprised of 8 private rooms and 56 semiprivate rooms. The schematic drawing contained in the application is now somewhat outmoded compared to how HCA is currently building nursing facilities. In its newer facilities, the patient rooms have vaulted ceilings and bathing units on outside walls with cubical glass which admits more light. HCA's existing nursing home facility in Winter Haven enjoys a good reputation amongst physicians who are on the staff of Winter Haven Hospital and refer patients to that facility. At the proposed facility, Surrey intends to offer a continuum of care by providing independent living units adjacent to the nursing home. In addition to providing skilled and intermediate level nursing services, Surrey intends to offer various programs including physical therapy, speech therapy, hearing and occupational therapy, social services, recreational programs and agreements with other organizations to ensure the highest quality of discharge planning and follow-up services. While not listed in its application, Surrey intends to provide services to Alzheimer patients, though not in a separate and distinct unit. As a part of its social and recreational services, Surrey intends to provide programs such as pet therapy, creative writing, senior olympics and a grandchild program. In addition, Surrey intends to offer adult day Dare and respite care within the confines of the personal care living facility. Surrey does not intend to offer subacute care services at the proposed facility. The total staffing of 72.4 for the proposed Surrey facility includes 5.5 full-time equivalent registered nurses, 5.5 full-time equivalent licensed practical nurses and 34 full-time equivalent nurse's aides. This equates to a ratio of 1 registered nurse per 21.8 patients, 1 licensed practical nurse per 21.8 patients and 1 aide per 3.5 patients. As a means of attracting nursing staff, Surrey offers recruitment seminars at nursing schools and has associated with Polk Community College to aid in training and recruitment. All HCA facilities have accreditation programs for certified nursing assistants (CNAs), and its existing Winter Haven facility is utilized by Polk Community College for the on-site training of CNAs. In order to aid its recruitment efforts, HCA is enhancing its benefit package and also is building child day care centers as an additional benefit for staff members. These centers are also available to visitors to the nursing home. The cost of the child care centers is not included within Surrey's total project cost. HCA's director of quality assurance works with the assistant directors of nurses in each facility to design and promote continuing education programs for the professional nursing staff. HCA has a history of providing services to Medicare and Medicaid patients in its Florida facilities. Surrey proposes to devote 49% of its patient days to Medicaid patients, 15% to Medicare patients, 1% to V.A. patients and 35% to private pay patients. These calculations are based upon HCA's experience in other existing facilities. The elderly poverty rate in Polk County is 16.6%. Upon opening, Surrey proposes the following per diem charges: $53.00 for Medicaid and V.A. patients, $65.00 for Medicare patients, $90.00 for private pay patients in a private room, and $62.00 for private pay patients in a semiprivate room. In answers to interrogatories served in November of 1987, Surrey listed its projected charges as $70.00 for private pay, $76.00 for Medicare and $64.00 for Medicaid patients. The figures used in Surrey's pro forma are based upon the actual experience of HCA in developing similar facilities. The pro forma projections are based upon Surrey's expectation of a 97% occupancy rate at the end of year one and throughout year two. Other than the Administrator's salary being admittedly low, the pro forma projections appear reasonable. Surrey anticipates a net loss in the first year of operation of $349,120 and a net profit in the second year of $121,150. In terms of cash flow, Surrey projects a negative cash flow of $143,440 at the end of its first year and a positive cash flow of $326,770 at the end of its second year of operation. Surrey's proposal is consistent with the goals, objectives and policies contained in the nursing home and long-term care components of the District VI Health Plan and the State Health Plan. Careage Investment, Inc., owned by Gene D. Lynn, has been in existence since May 1, 1962, and has developed and constructed over 250 medical complexes, hospitals, and nursing homes throughout the United States and Puerto Rico. Careage currently has four operating nursing homes, with a fifth having recently been opened. These nursing homes include a 59-bed facility in Coupeville, Washington, a 99-bed facility in Tracy, California, a 232-bed facility in Phoenix, Arizona, a 114-bed facility in Oroville, California, and the new facility of 144 beds in Chico, California. Careage proposes a 120-bed skilled nursing home to be located in Lakeland. The facility will include a separate and distinct 21-bed unit for Alzheimer patients and a 10-bed subacute care unit. While Careage does not presently own property for the proposed facility, it has identified several available four-acre sites which have utilities and direct access to public streets. Its $515,000 figure proposed for land acquisition appears reasonable. The total cost of the proposed Careage project is $4,150,000. The cost of constructing the 45,500 gross square foot facility is $2,583,125 and equates to a construction cost per square foot of $56.77 and a construction cost per bed of $21,526. Careage proposes equipment costs of $420,000 or $3,500 per bed. Its operating cost per bed is $23,395. The overall project cost of $4,150,000 equates to a cost of $34,583 per bed. Careage proposes to obtain 100% financing of the total project cost at an interest rate of 10%, with the term of the loan being 30 years. Based upon Mr. Lynn's personal financial statement and Careage's past ability to obtain financing for other nursing home facilities, these expectations appear reasonable. The architect retained by Careage to design the proposed facility in Lakeland received an award from the Contemporary Long Term Care magazine in 1986 for another nursing home designed and constructed in Bakersfield, California. The proposed Lakeland facility will contain 45,500 square feet, which translates into 379 gross square feet per bed. Its patient room arrangements include two isolation rooms, 7 private rooms, 45 semiprivate rooms and a 21-bed special Alzheimer unit with 10 semiprivate rooms and one private room. The facility will be a one-story building, with aquariums visible from the reception area and the dining room. The design includes a beauty and barber shop, a chapel, a gift shop, recreation areas, a private dining room area and outside courtyards. Each patient room will have a bathroom with a sink, as well as a sink in the outer room in semiprivate rooms. Also, in semiprivate rooms, the beds will be placed on opposite head walls to allow each resident to have a view of the window when the other pulls the curtain. Each room will have its own temperature control. The facility will also have occupational and physical therapy rooms. In order to afford more patient privacy, the service areas are located away from the ancillary spaces. Careage's quality assurance program will include a utilization review committee, a safety committee, an infection control committee, a pharmaceutical committee, a resident advisory council, a community advisory council and employee advisory groups. A corporate representative visits all Careage nursing homes on an interim basis to review the day-to-day operations, facility maintenance and physical environment. As noted, Careage proposes to offer a 10-bed subacute care unit. This unit will provide services for the care of technology dependent children, many of whom are recovering from automobile accidents, severe illness, neuromuscular disease or congenital disorders. The subacute unit will also offer such services as hyperalimintation, IV infusion, morphine drip, use of Hickman catheters and other services traditionally performed in the acute care hospital setting. Alzheimer Disease is a fatal illness evidenced by a progressive deterioration of mental, motor, cognitive, physical, social and psychological processes. The problems suffered by Alzheimer patients include nutritional problems, communication problems, disorientation, loss of memory, problems with elimination and basic personal care, agitation, catastrophic reactions, wandering and problems with safety. The Careage approach in offering a separate and distinct Alzheimer unit is to provide behavioral and environmental care. When more skilled nursing care is required than behavioral or environmental care, the Alzheimer patient is then moved to another skilled bed. The separate Alzheimer unit will utilize a specially trained staff and a team approach to any required changes in treatment. The separate 21-bed unit will provide security and will have its own dining room and recreation area. The decor will be designed to promote less agitation. Careage will provide a separate outdoor exercise courtyard for its Alzheimer patients along with various activity programs, such as short reminiscent programs and music therapy. Careage will also offer family and community education programs regarding the needs and care of Alzheimer patients, and encourages the use of volunteers to help adapt the Alzheimer residents to daily living as much as possible. The advantages of providing a separate and distinct Alzheimer unit include the safety features, the ability to utilize a trained staff and a team approach to patients who may have a wide variety of symptoms, less disruption to other residents in the nursing home, and the provision of a more appropriate decor and specialized programs for the Alzheimer patient. Careage proposes to offer respite care services on a space-available basis. Adult day care services will also be offered in a separate entity adjoining the nursing home facility, but the cost associated with that is not a part of Careage's application for a Certificate of Need. Careage proposes to staff the Lakeland facility with 96 full-time equivalent positions. These include 11.9 registered nurses, 7.4 licensed practical nurses and 42.1 certified nurses aides, which equates to a ratio of 1 registered nurse per 10.1 patients, 1 licensed practical nurse per 16.2 patients, and 1 aide per 2.9 patients. Careage intends to offer three hours of nursing care per patient day for the Alzheimer's and skilled areas, and at least six hours per patient day for the subacute and Medicare-certified residents. The staffing proposed meets and exceeds the requirements of Florida regulations. In recruiting staff for its new facilities, Careage advertises in advance of opening in newspapers and periodicals and contacts are made with nursing schools. It offers a liberal fringe benefit package, competitive salaries, in-service training, continuing education assistance and child day care services in adjoining portions of the nursing home. Careage also attempts to use the elderly both as volunteers and staff members. It intends to utilize its facility as a clinical site for schools of nursing, schools of dentistry and other programs within the medical community. Gene D. Lynn, the owner of Careage, has endowed a program in rural nursing at Seattle University. In its first and second years of operation, Careage proposes a payor mix of 40% Medicaid, 4% Medicare, 6% subacute, 3% VA and 47% private pay. Its philosophy with regard to care for medically underserved groups is to serve all populations, regardless of age, sex, religion, national origin or payor status. The payor mix anticipated by Careage is consistent with that being experienced in other facilities in Polk County. The patient charges proposed by Careage are based upon the experience of other providers within Polk County and Careage's own experience in its other facilities. Careage proposes a Medicaid per diem charge of $57.50, a Medicare all inclusive charge of $105.00, a private and VA per diem charge of $60.00 and a subacute charge of $125.00. The assumptions contained in the Careage financial pro forma are based partly upon the experience of existing nursing homes in Polk County and the experience of Careage in other facilities, and appear reasonable. At the end of its first-year of operation, Careage projects a net loss of $161,994.20. A net income of $127,936.61 is projected for the end of the second year of operation. The Careage proposal conforms with the goals and priorities of the District VI Health Plan's nursing home component as well as the goals and objectives of the Florida State Health Plan. Overall occupancy rates in existing nursing homes in Polk County exceed 90 percent. More than half of the Polk County nursing homes currently have waiting lists for admission. In February of 1985, Winter Haven Hospital opened 100 beds that are classified as subacute beds and are reimbursed as skilled nursing beds. For calendar year 1987, the average occupancy rate of the Winter Haven Hospital subacute unit was 65 or 66%. As of the date of the hearing, the census was 78. Higher utilization throughout the Hospital is typically experienced in the first quarter of the calendar year. While the Administrator of Winter Haven Hospital did not feel there was a need for more subacute beds in Polk County, he also felt that the Careage proposal for 10 subacute beds would have a minimal effect upon Winter Haven Hospital. According to a telephone survey, no nursing homes in Polk County currently accept ventilator dependent patients, pediatric or neonatal patients or technology dependent children. It is estimated that between 3 and 22 technology dependent children will need services in Polk County in 1989. Only five nursing homes in Polk County accept patients on IV therapy. Only one nursing home facility in Polk County has a separate and distinct unit for Alzheimer residents. It is estimated that 1,660 persons with Alzheimer Disease will require nursing home services by the year 1989. When conducting its initial review of the competing applications for nursing home beds in Polk County, as well as other counties, HRS staff attempted to compare the applicants by utilizing a "matrix" which compiled the data and information presented in the respective applications. The information initially displayed revealed numerous errors and omissions. The matrix was then revised and information was again compiled to make it an accurate tool for comparative purposes. With few exceptions, all of the data elements in the matrix are items included in the application forms. After balancing the various items, such as facility size, proposed programs, project and construction costs, per diem charges, payor mix, and levels of staffing, HRS initially determined that Careage was the superior applicant. At the final hearing, additional errors were discovered in the display of information contained in the matrix. The errors were corrected and did not change the opinion of HRS's health planning expert that Careage was the superior applicant.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of Surrey to establish a 120-bed nursing home in Polk County be DENIED, and that the application of Careage be GRANTED, conditioned upon the inclusion of a 21-bed separate Alzheimer unit, a 10-bed subacute care unit and the provision of at least 40 percent of patient days to Medicaid patients. Respectfully submitted and entered this 6th day of June, 1988, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of June 1988. APPENDIX (Case NO. 87-0680) The parties' proposed findings of fact have been fully considered and are accepted and/or incorporated in this Recommended Order, with the following exceptions: SURREY 9. Last two sentences rejected. The first is irrelevant and immaterial to the project under review. The last is refuted by the greater weight of the evidence. 17-19. Rejected as contrary to the evidence. 23. Rejected as contrary to the evidence. 28. Rejected as argumentative and not a proper factual finding. 29,30. Rejected as not being supported by competent, substantial evidence. Rejected as contrary to the evidence. Last sentence rejected as unsupported by competent, substantial evidence. 57. Rejected as contrary to the greater weight of the evidence. First sentence rejected as hearsay and conclusiory. Rejected as to "methods of construction," as not supported by competent, substantial evidence. CAREAGE 2. Factually accepted, but not included as irrelevant. 15. Accepted with reservation. It is unclear from the evidence as to whether adult day care is a part of the nursing home project. Partially rejected insofar as it is argumentative and a mere recitation of testimony. Last sentence rejected as unsupported by the evidence. HRS 11. Rejected. Since Surrey does not intend to use the plans submitted in the application; the net living space cannot be determined. Accepted only if the words "on paper" are added to the end of the sentence. First sentence accepted if "on paper" added. 24. Accepted but not included, as there was no way to make a similar comparison with the Surrey facility. 41. Rejected as legal argument as opposed to factual finding. 42,43. Rejected as irrelevant and immaterial to the issues in dispute. COPIES FURNISHED: Reynold Meyer F. Phillip Blank, P.A. 204-B South Monroe Street Tallahassee, Florida 32301 Edgar Lee Elzie, Jr. MacFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 Robert S. Cohen Haben & Culpepper, P.A. Post Office Box 10095 Tallahassee, Florida 32302 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
The Issue The broad issue in this proceeding is whether either of the petitioners should be granted a community nursing home CON. The parties disagree as to the appropriate application of the need methodology described in Rule 10-5.011(1)(k), F.A.C. Both Petitioners argue that the approved bed inventory should be determined as of December 1, 1986, at the same time that the number of licensed beds was determined for the January 1987 batching cycle. HRS computed approved beds as of the date that the supervisor signed its State Agency Action Report (SAAR), in May 1987. The parties further disagree as to the effect of subsequent changes to a Final Order in Wuesthoff Health Services, Inc., et al. v. HRS, cited above, originally entered in April 1987.
Findings Of Fact BMI's application number 5010, and Manor's application number 5022, were timely filed for review by HRS in the January 1987 batching cycle. Both applications were denied in HRS' State Agency Action Report (SAAR) dated May 19, 1987. BMI previously received a CON for 73 nursing home beds in Brevard County. Its current application is for 47 additional beds, to create a single 120-bed facility. The entire facility is currently under construction, with the intention that the portion unlicensed as nursing home beds will be utilized as a distinct section of adult congregate living facility (ACLF) beds. Manor also previously received a CON for 60 nursing home beds in Brevard County. CON number 3828 was granted in a prior batching cycle after the current application for 120 beds was filed. At the final hearing, Manor explained that it is now seeking only 60 more beds as it intends to construct a 120-bed facility in Brevard County. In their pre-hearing stipulation the parties agreed that if numeric need is demonstrated, numeric need would first be met through partial or total approval of BMI's application. If the need exceeds 47 beds, the excess should be applied toward determination of approval of Manor's application. The parties also stipulated that all criteria, except those directly related to numeric need for the projects, have either been satisfied by both applicants or are not applicable to this proceeding. In calculating bed need for Brevard County, the parties have agreed, through their exhibits and testimony, that the first portion of the need methodology in Rule 10-5.011(1)(k), F.A.C., yields a subdistrict allocation of 1560 community nursing home beds. It is further undisputed that the relevant number of licensed beds for the period in question is 1,180 beds. The version of Rule 10-5.011(1)(k) F.A.C. in effect at the time of review requires that licensed beds be counted as of December 1, 1986, for the January 1987 batching cycle. The rule is silent as to when approved beds should be counted. Both applicants argue that approved beds should be counted at the same time as licensed beds for consistency and planning purposes. The current version of Rule 10-5.011(1)(k) F.A.C., known as the fixed pool rule, establishes a bed need for each batching cycle, thus providing the certainty and consistency sought by Petitioners' health planners. Prior to its adoption of the fixed pool rule, HRS experimented with various policies as to the determination of "current" data utilized in the need methodology. At the time of the January 1987 batching cycle, HRS' non-rule policy regarding approved beds was to count those beds as of the date that health services and facilities consultant supervisor signs off on the SAAR. In this case, that individual was Reid Jaffe, and the date was May 11, 1987. At the hearing, Mr. Jaffe explained the policy was an attempt to reach a balance between deriving a proper number of beds and minimizing the duplication of services and overbedding. Because the need for future beds is partially predicated on how many beds have already been approved, the Department felt it necessary to take into consideration all those beds which had been approved up until its decision time. Generally the difference between the number of beds published in initial projections of need by HRS' Office of Comprehensive Health Planning and the number of approved beds considered at the time of the decision, are those beds which were approved in final orders issued during that period. Contrary to Petitioners'assertions, those beds which became licensed after the December 1st cut-off date, but before the SAAR sign off, were not lost, but rather were computed by HRS as "approved" beds under the policy. The policy described by Reid Jaffe in his testimony at final hearing is also reflected in HRS' Final Order in Broward Healthcare, Ltd., d/b/a Broward Convalescent Center v. Department of Health and Rehabilitative Services, 9 FALR 1974 (DOAH #86- 2708, Order dated March 21, 1987), aff. per curiam, without opinion, January 21, 1988, 1st DCA case no. BT-258. Utilizing the HRS policy of counting approved beds at the time the supervisor signs the SAAR yields the following total: Approved Facilities Beds Date Approved West Melbourne Health Care 60 7/27/84 Unicare Health Facility of Brevard 120 5/30/86 Brevard Medical Investors 73 9/02/86 Meridian 60 2/ /87 Palm Bay Care Center 60 4/17/87 Forum Group 60 4/17/87 Courtney Springs 36 4/17/87 Total 469 In its SAAR, HRS neglected to include the 60 beds approved for Meridian. These beds were properly included by the applicants' health care planner in her adjustment to the SAAR count and HRS agrees the beds should be included. (See transcript, p. 20 and HRS proposed finding of fact #6.) In June 1985, Courtney Springs received a CON for 36 beds in Broward County. The action was challenged, and the proceeding was consolidated with challenges by other applicants who were denied CONs in the same batching cycle. Wuesthoff Health Services, Inc., et al. v. Department of Health and Rehabilitative Services and Courtney Springs, consolidated cases #85-2868, 85- 2936, 85-2934, 85-3243, 85-3322, 85-3365, 85-3366. In its Final Order, filed on April 17, 1987, HRS granted 60 beds each to Palm Bay Care Center, Forum Group and Courtney Springs. The Final Order was corrected on May 19, 1987, to provide that the award to Courtney Springs was 36, rather than 60 beds, as there was no intent to award the facility more beds than originally provided. In all other respects the final order of April 17, 1987, remained in full force and effect. On July 6, 1987, another order was entered and styled "Amended Final Order." The stated purposes of the amendment were to correct a scrivener's error in failing to serve the final order on a moving party, Brevard Medical Investors, Ltd., (BMI) and to give that party an "opportunity to exercise its right to judicial review." The Amended Final Order addressed BMI's lack of standing for failure to file a timely petition to intervene in the consolidated Wuesthoff cases. This is the only subject of the amended final order. The original final order, dated April 17, 1987, did not address this subject. It is not at all clear that the "Amended Final Order" dated July 6, 1987, amends the April 17, 1987, Final Order, since it references only an April 9th Final Order, not the April 17th Final Order. The record in this proceeding does not include a subsequent correction of "scriveners error", if indeed the referenced date was an error. The applicants argue that the 120 beds awarded to Forum Group and Palm Care should not be regarded as ?approve even under HRS' policy, since the amended final order was dated in July 1987, well after the SAAR was signed by Reid Jaffe in May. Application of this theory would result in 349 approved beds, and a net bed need of 66 beds in the January 1990 planning horizon. (Manor Care, exhibit #5) Application of Petitioners' theory that approved beds should be counted on December 1, 1986, results in 289 approved beds, and a need for 120 beds in the January 1990 planning horizon. HRS' application of its policy regarding the time at which approved beds are to be counted results in 469 approved beds, and a surplus of 42 beds in the January 1990 planning horizon. There is no evidence in this proceeding of circumstances which would justify the approval of beds in excess of a net bed allocation derived through the bed need methodology in Rule 10-5.011(1)(k), F.A.C.
Recommendation Based on the foregoing, it is, hereby RECOMMENDED: That the CON applications by BMI and Manor for nursing home beds in Brevard County be denied DONE and RECOMMENDED this 1st day of April, 1988, in Tallahassee, Florida. MARY CLARK 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 1st day of April, 1987. APPENDIX TO RECOMMENDED ORDER The following reflect on my specific rulings on the findings of fact proposed by the parties: Petitioners' Proposed Findings Adopted in paragraph 1. Adopted in paragraph 5. Adopted in paragraph 4. Rejected as unnecessary. Rejected as contrary to the weight of evidence. Reid Jaffe testified that need for 12 beds exists, but this conclusion did not include the 60 beds approved for Meridian in February 1987. Rejected as contrary to the weight of evidence and to the legal effect of the changes to HRS' April 1987 Final Order. Adopted, as to the characterization of applicants' position, in paragraph 7. Adopted in paragraph 7. Rejected as contrary to the weight of evidence. Rejected as unnecessary. 11-12. Adopted in paragraph 8. Rejected as contrary to the evidence and law. Rejected as contrary to the evidence. Rejected as unnecessary. Rejected as immaterial. Rejected as irrelevant. 18-19. Rejected as immaterial. Adopted in paragraph 7. Adopted in paragraph 3. 22-26. Rejected as immaterial and irrelevant. Respondents' Proposed Findings 1-2. Adopted in paragraph 1. Adopted in paragraph 3. Adopted in paragraph 2. Addressed in paragraph 11. Adopted in paragraphs 9 and 10. Adopted in paragraph 8. Adopted in paragraph 10. 9-11. Rejected as unnecessary. Adopted in paragraph 6. Adopted in paragraph 9. Adopted in paragraph 15. COPIES FURNISHED: W. David Watkins, Esquire Oertel & Hoffman, P. A. Post Office Box 6507 Tallahassee, Florida 32314-6507 Donna H. Stinson, Esquire Moyle, Flanigan, Katz, Fitzgerald & Sheehan, P. A. The Perkins House Suite 100 118 North Gadsden Street Tallahassee, Florida 32301 Theodore E. Mack, Esquire Department of Health and Rehabilitative Services Regulation and Health Facilities 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 =================================================================
Findings Of Fact 1-2. Rejected as a statement of the issues and not a Finding of Fact. Accepted and incorporated in Finding of Facts 8 and 9. Incorporated in Finding of Fact 9. Accepted. Incorporated in Finding of Facts 6 - 9. Incorporated in Finding of Fact 7. Incorporated in Finding of Fact 16. Incorporated in Finding of Fact 17. Irrelevant. Incorporated in Finding of Fact 5. Incorporated in Finding of Fact 6. 13-14. Irrelevant. Cumulative. Incorporated in Finding of Fact 7. Incorporated in Finding of Fact 11. Irrelevant. Incorporated in Finding of Fact 22. Incorporated in Finding of Fact 14. Irrelevant. Incorporated in Finding of Facts 4 and 5. COPIES FURNISHED: W. David Watkins, Esquire Oertel & Hoffman 2700 Blairstone Rd. Suite C Tallahassee, Florida 32301 R. Bruce McKibben, Jr. Assistant General Counsel Department of HRS 1323 Winewood Boulevard Jonathan S. Grout, Esquire 307 W. Tharpe Avenue Tallahassee, Florida 32302 Thomas Beason, Esquire Suite 100 118 N. Gadsden Street Tallahassee, Florida 32301 William Page, Jr. Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is therefore RECOMMENDED that the applications for a CON to construct either a 60 or 120-bed nursing home in Brevard County, Florida, submitted by Wuesthoff Health Services, Inc. and Florida Convalescent Centers, Inc., be denied. RECOMMENDED this 8th day of October, 1986, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway The Oakland Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of October, 1986. APPENDIX TO RECOMMENDED ORDER IN CASE NOS. 84-1976; 85-1310; 85-1506 The following constitutes my specific findings pursuant to Section 120.59(2), Florida Statutes, on all Proposed Findings of Fact submitted by the parties to this case.
Findings Of Fact Petitioner, Florida Convalescent Centers, Inc. (FCC), filed an application with respondent, Department of Health and Rehabilitative Services (HRS), on October 14, 1983, seeking a certificate of need authorizing the construction of a 120-bed nursing home facility in Pasco County, Florida. An amendment of an undisclosed nature was filed by FCC on August 22, 1984, but did not change the number of beds applied for. After reviewing the original application, HRS issued its proposed agency action on February 28, 1984, in the form of a state agency action report in which it advised petitioner that it intended to deny the application. The transmittal letter denying the application offered the following reasons: The nursing homes in Pasco County are being used in an appropriate and efficient manner as demonstrated by an annual occupancy rate of 90.7 percent from March through September, 1983. However, there are 240 nursing home beds that have been approved but have not been constructed at the present time. These beds, when added to the existing nursing home bed supply in Pasco County, will serve to maintain a reasonable subdistrict occupancy level through 1986. The basis for the above decision is contained in the State Agency Action Report. The service area in which FCC proposes to construct its new facility is the Pasco County subdistrict of HRS District 5. In order to determine need, HRS has adopted Rule 10-5.11(21), Florida Administrative Code, which contains a formula (or methodology) for determining need at both the district and subdistrict level. Under that formula, HRS is required to utilize the "most recent 6 month nursing home utilization in the subdistrict." In this regard, HRS prepares on an on-going basis an internal document entitled "Quarterly Report" which contains the latest available data over a six-month period. In this proceeding, HRS used a report containing data for the period October, 1983 through March, 1984. This was the most current and complete available data at the time of hearing. According to the methodology in Rule 10-5.11(21), there is a gross need in District 5 for 5,331 nursing home beds. However, there are presently 7,322 licensed and 791 approved beds in the District. Therefore, this results in an excess of 2,782 nursing home beds through the year 1987. In the event there are excessive beds on a district-wide basis, the rule provides a means for establishing a need on a subdistrict level under certain conditions. Additional beds can be added within the subdistrict if the licensed beds in the subdistrict have an average current utilization of 90 percent or higher. If they do not, additional beds cannot be authorized even if a mathematical need is shown under the rule methodology. FCC has computed need requirements for the subdistrict by eliminating the beds of two nursing homes just opened within the last six months, and by using census figures for the month of June, 1984. Based upon these calculations, it results in a need for 99 additional beds and a current utilization rate of 95.7 percent, which exceeds the 90 percent threshold requirement. However, the rule makes no provision for the use of more current data on a selective basis, or the exclusion of such beds from the calculation. FCC also contends Pasco County has an "abnormal" situation caused by an excessive availability of beds in neighboring counties (Pinellas and Hillsborough). It also points out that Pasco is far below the state average for beds per 1000 elderly population. But, again, these factors are taken into account in the agency's rule, and do not constitute special circumstances that would require an exception to the rule.
Recommendation Based on the foregoing findings of fact and conclusion of law, it is RECOMMENDED that the application of Florida Convalescent Centers, Inc., for a certificate of need to construct a 120-bed nursing home facility in Pasco County, Florida be DENIED. DONE and ORDERED this 15th day of October, 1984, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 1984. COPIES FURNISHED: Donna H. Stinson, Esquire The Perkins House, Suite 100 118 North Gadsden Street Tallahassee, FL 32301 John F. Gilroy, Legal Intern P.O. Drawer 11300 Tallahassee, FL 32302-3300 David Pingree, Secretary Dept. of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32301
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED That Manor Care be issued a CON for the construction of a 60 bed nursing home; Palm Bay Care Center be awarded a CON for the construction of a 60 bed nursing home; Forum Group be awarded a CON for a 40 bed nursing home and Courtenay Springs be awarded a CON for 36 nursing home beds. RECOMMENDED this 26th day of January, 1987, at Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-99675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of January, 1987. COPIES FURNISHED: William Page, Jr., Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 Jean Laramore, Esquire Kenneth Hoffman, Esquire 325 North Calhoun Street Tallahassee, Florida 32301 Thomas B. Smith, Esquire Post Office Box 633 Orlando, Florida 32802 John Grout, Esquire Post Office Box 180 Orlando, Florida 32802 Donna H. Stinson, Esquire Suite 100 Perkins House 118 North Gadsden Street Tallahassee, Florida 32301 Susan G. Tuttle, Esquire 402 South Florida Avenue Tampa, Florida 33602 Robert D. Newell, Jr., Esquire Suite B 200 South Monroe Street Tallahassee, Florida 32301 John F. Gilroy, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 APPENDIX The following constitutes my specific rulings pursuant to Section 120.57(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties herein. 1-13 Accepted. 14 & 15 Accepted. 16-18 Rejected as a recitation of the evidence. 19-23 Accepted. 24 Accepted. 25-29 Accepted. 30 & 31 Accepted. 32 Irrelevant. 33-34 Accepted. 35-37 Accepted. 38-46 Accepted. 47 & 48 Accepted. 49 & 50 Accepted. 51 Discussion, not Finding of Fact. 52-56 Accepted. Rejected as a recitation of the evidence. Accepted. Accepted to the fact that there were no sheltered beds in existence. Irrelevant. 61-63 Accepted but not of substantial positive value. 64 & 65 Accepted. Opinion not Finding of Fact. Accepted. 68-75 Accepted. 76-80 Irrelevant based on part operation and evidence shows facility is to be sold. 81-85 Irrelevant - see next 86-90 Rejected as a conclusion of law and not a Finding of Fact. 91 Not a Finding of Fact. 92-94 Accepted. 95 Irrelevant as to local district. 96-103 Accepted. 104-105 Rejected as contrary to the weight of the evidence. Accepted as to what Dr. Hoffman supported. Accepted as to what Dr. Hoffman indicated. 108-110 Accepted. Rejected as contrary to the weight of the evidence. Accepted. Not a Finding of Fact. 114-118 Accepted. 119&120 Not a Finding of Fact. 121&122 Accepted. 123 Accepted as to the one facility currently operated. 124-127 Accepted. Speculation insufficient to support a Finding of Fact. Argument, not a Finding of Fact. Accepted. 131-133 Accepted. 134 Not a Finding of Fact. 135-137 Accepted. 138 Not supported by the weight of the evidence. 139-147 Accepted. 148&149 Not a Finding of Fact. 150-164 Accepted. Rejected as a summary of testimony, not a Finding of Fact. Irrelevant. 167-176 Accepted. Rejected as contrary to the weight of the evidence Rejected as a summary of testimony. Accepted. 180&181 Accepted. 182 Irrelevant. 183&184 Accepted. 185 Rejected as a conclusion. 186&187 Rejected as contrary to the weight of the evidence. As to Manor Care 1 Accepted. 2&3 Rejected as not a part of the case. 4 Accepted. 5-7 Accepted. Accepted. Accepted. 10-11 Accepted. 12 Accepted. 13-19 Accepted. 20-22 Accepted. As to Forum 1-13 Accepted. 14-16 Accepted. 17-22 Accepted. 23&24 Accepted. 25-27 Accepted. 28-31 Accepted. 32 Accepted. 33-35 Accepted. 36 Rejected as speculation. 37-42 Accepted. 43 Accepted. 44-47 Accepted. 48&49 Accepted. 50-55 Accepted. Rejected as a conclusion not consistent with the evidence. Accepted. 58&59 Accepted. 60-64 Accepted. 65-69 Accepted. 70&71 Irrelevant. 72&73 Accepted. 74-76 Accepted. Accepted as to the first sentence. Second sentence is not a Finding of Fact. Accepted. As to PBCC 1&2 Accepted. 3 Rejected as a Conclusion of Law. 46 Accepted. Accepted. Rejected as contrary to the weight of the evidence. Accepted. 10-12 Accepted. Rejected as contrary to the weight of the evidence except for the first sentence which is accepted. Rejected. 15-20 Accepted. 21-27 Accepted. 28 Rejected as an overstatement and not supported by the evidence. 29&30 Accepted. 31 Rejected as contrary to the weight of the evidence. 32-38 Accepted. 39-43 Accepted. 44-50 Accepted. 51-57 Accepted. Accepted except for the first sentence which is unsupported by credible evidence of record. Accepted. Rejected. Accepted. As to Courtenay This party failed to number or otherwise identify its Findings of Fact individually. Therefore, no specific ruling as to each Finding of Fact is hereby made. In light of the ultimate recommendation of the Hearing Officer that the party's CON be approved, no prejudice to this party can be said to have occurred. As to DHRS 1-4 Accepted 5 Summary of testimony and not a Finding of Fact. 6-1 Is an argument of the party's position, not a Finding of Fact. 12-14 Rejected as matters not a part of the party's position at hearing. Accepted. Accepted. Accepted. Accepted. 19-22 Accepted. Rejected as a summary of testimony and not a Finding of Fact. Accepted. 25-28 Accepted. 29-31 Accepted.
