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SOUTH COUNTY MENTAL HEALTH CENTER vs DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 89-006088 (1989)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Nov. 03, 1989 Number: 89-006088 Latest Update: Mar. 28, 1990

Findings Of Fact Crisis Stabilization Units The Legislature dealt comprehensively with the subject of mental health when it enacted Chapter 394, Florida Statutes, in 1971. The Act is officially known as the Florida Mental Health Act, and popularly known as the Baker Act. The Act established programs in the Department to reduce the occurrence, severity, duration and disabling aspects of mental, emotional, and behavioral illness or disorders. The Department was directed to "coordinate the development, maintenance, and improvement of [mental health] receiving and community treatment facilities within the programs" of HRS districts in Florida. The Legislature also required that "the least restrictive means of intervention [i.e., treatment] be employed based on the individual needs of each patient within the scope of available services." Sections 394.451 and 394.453, Florida Statutes (1971). 1/ Mental health services provided by community treatment facilities under the Baker Act may include emergency screening services, mobile crisis response teams, crisis stabilization units, short-term residential treatment centers which provide inpatient care and short-term hospitalization in a psychiatric hospital or psychiatric unit. Long term psychiatric hospitalization is not funded with Baker Act appropriations. Community treatment facilities provided most of their care by purchasing services from hospitals prior to 1979. The rates paid for those hospitalization services had been increasing constantly. Most inpatient psychiatric hospitals now charge patients $300-400 per day. Crisis stabilization units (CSU) were developed as a less costly alternative to psychiatric hospitalization. A CSU was designed to provide treatment to help the individual through an immediate psychiatric crisis, to provide a rapid assessment of the client's needs, and direct the client to appropriate programs, which could include inpatient pay hospital care, if necessary. The time required to stabilize a patient in a psychiatric crisis, to evaluate the patient and determine the most appropriate and least restrictive treatment program is generally about 14-15 days. Short-term residential treatment is provided as an alternative to psychiatric hospitalization for those needing therapy for up to 90 days. Some community treatment facilities established their own inpatient hospital programs about the time CSUs were first established. These psychiatric hospitals are regulated in the same manner as other specialty hospitals under Chapter 395, Florida Statutes. Once a community treatment facility had the approval to establish a hospital, that hospital obtained the ability to bill "third parties," usually insurance companies, for the psychiatric crisis stabilization services they provided. These facilities are able to use that reimbursement to offset, to some extent, any losses incurred in treating Baker Act patients. Most policies of health insurance will not provide reimbursement for crisis stabilization care provided by a CSU, such as South County. On the other hand, Medicaid will not reimburse a free-standing psychiatric hospital such as 45th Street for its services. When CSUs were first organized, they were not regulated by the state. As with hospitals, the size of a CSU is measured by its number of approved beds. Sections 394.878(4) and 395.003(4), Florida Statutes. After their establishment, some units sacrificed quality of care in order to minimize costs, and as a result the Legislature established a program of departmental licensure and regulation for CSUs in 1985. Under those statutes, a CSU may not be licensed for more than 30 beds. South County is licensed as a CSU. HRS District IX includes Palm Beach County. The 45th Street Mental Health Center operates in a portion of Palm Beach County. It was one of the community treatment facilities which established a hospital under Chapter 395, which had 44 beds. It can treat psychiatric patients as inpatients, but as a matter of fact it operates almost solely as a CSU. It takes all indigent patients in psychiatric crises who are brought to them by the police or others, without regard to the patient's ability to pay for the services it renders to them. Licensed CSU facilities, such as South County, also take all patients bought to them. Recently, 45th Street Mental Health Center also licensed a CSU at its hospital with 16 beds. The Legislature has recognized the value of crisis stabilization beds in providing quality, low-cost treatment to citizens suffering from acute bouts of mental illness. It has not, however, directed or specifically funded the establishment of crisis stabilization beds in every HRS district. The Legislature has funded and directed the establishment of a specific number of crisis stabilization unit beds in some HRS districts. These are known as "appropriated beds." The Department also has had the authority to devote some of the money generally appropriated for Baker Act services to establish crisis stabilization beds where it believes they are needed. These are generally known as "unappropriated beds," because they have not been established by specific legislative direction and funding. The Department usually distinguishes between in-patient psychiatric treatment and CSU treatment. CSU beds, short-term residential treatment beds, and in-patient psychiatric hospital beds are usually treated as separate points on the continuum of services available to those with psychiatric problems. Ordinarily, hospital beds are used for longer-term care of patients whose psychiatric illness is such that confinement is the least restrictive means to provide the patient necessary mental health services. A CSU ordinarily limits itself to helping the patient get over his current crisis, evaluating a patient after stabilization, and referring the patient to some other provider for long- term care. The referral may be to out-patient counseling for mild cases of mental illness, to day treatment, to a short-term residential treatment facility, up to hospitalization in a psychiatric unit for serious mental illness. Legislatively appropriated CSU beds are licensed as CSU beds, and not as inpatient psychiatric hospital beds. Appropriated and unappropriated CSU beds are funded at different rates depending on whether or not they were legislatively established, and when they came into existence. The price level adjustment made available in specific appropriation 895 was a legislative effort to reduce the disparity in funding of CSU beds around Florida, since all provide similar services. The Florida Council for Community Mental Health (Florida Council) represents most community treatment facilities before the Legislature. Increased funding for acute Baker Act services, which include CSU beds and inpatient hospital beds, has been a high priority issue for the Florida Council for several years. In 1987, the Florida Council surveyed CSUs to determine their costs for providing services, as distinct from their reimbursement rates. The Florida Council did not obtain additional funding in the 1987 legislative session. In preparation for the 1988 legislative session, the Florida Council conducted a second survey. This survey also distinguished between CSU and in- patient hospital beds, and was intended to gather information on both of those Baker Act services for use in its lobbying activities. The Florida Council summarized the survey results in a chart identified as "Crisis Stabilization Unit Deficiency Distribution" and "Inpatient Baker Act Hospital Deficiency Distribution" (Exhibit 30). The Florida Council's survey results categorized 45th Street as an inpatient hospital, and calculated its reimbursement as $59 per bed per day, but its costs as $160 per bed per day. The reimbursement rate was so low that it was incurring an operating deficit. Independent of the Florida Council's efforts, the Department wanted to identify the Baker Act services that it purchased with public funds throughout the state, and to determine what the Department was paying for those services. The program office in Tallahassee conducted a telephone inventory of CSU beds, by contacting each of the Department's district offices. In response to the survey, the Department's District IX reported sixteen unappropriated CSU beds at South County and no CSU beds, appropriated or unappropriated, at 45th Street. All of 45th Street's inpatient services were reported as "other Baker Act services" in that survey. The survey did not ask District IX officials whether the beds at 45th Street functioned as CSU beds rather than as psychiatric hospital beds. Departmental administrators ultimately produced a spread sheet based on the information derived from its informal, internal telephone survey. It showed 52 unappropriated CSU beds in District IX, which included beds at South County, but none at 45th Street's inpatient psychiatric hospital. 45th Street's beds were shown in a spreadsheet column entitled "number [of] mental health center in-patient beds". (Exhibit 1, Attachment 1, Col. 23.). No funding deficiency was identified by the Department for 45th Street's beds on the spreadsheet. During 1989, the Department's central office was notified that the Legislature might be able to appropriate as much as $2.2 million more for Baker Act services, and the Department was requested to suggest appropriate uses for those funds. The administrators in the Department's central office created a document entitled "Funds needed to increase all CSU beds to $113 per day, Baker Act Funds" (Exhibit 8). The methodology employed by the administrator to produce that spreadsheet did not include any data for inpatient hospital beds; it included only licensed CSU beds. It therefore did not include any of 45th Street's inpatient beds but did include money to increase reimbursement for the 52 unappropriated CSU beds at South County. The Department based its calculations on an estimated split of 75 percent/25 percent in the use of Baker Act funds for the state as a whole between CSU services (75 percent), and other services, including emergency screening, mobile crisis response teams, short- term residential services and inpatient services (25 percent), for fiscal year 1987-88 (the most recent data available). The 25 percent includes inpatient psychiatric hospitalization services which can be provided to clients needing them after stabilization in a CSU. In its calculations, the Department's central office reduced the $2.2 million which the appropriations committee staff had indicated might be available by $717,590 which was needed to increase the funding level for previously appropriated CSU beds to the target level of $1i3 per bed per day. The remaining funds would not be enough to fund all unappropriated CSU beds in the state at the target level of $113 per bed per day, so a plan was devised to prorate the remaining amount over the unappropriated CSU beds. The prorated share for District IX was .2723 of the available funds, which would equal $403,636. These internal calculations made by the Department's central office included no money for 45th Street's inpatient beds. The Department's calculations were ultimately delivered to appropriations staff at the Legislature. This information was not broken down by agency within each district (Tr. 55). The 1989-90 General Appropriations Act appropriated $2 million (not the anticipated $2.2 million) in specific appropriation 895 for crisis stabilization unit beds. $717,590 was allocated for appropriated CSU beds in the same manner suggested by the Department to legislative staff. The remaining $1,282,410 was divided among unappropriated CSU beds. This is 29 percent of the money needed to bring all unappropriated beds up to $113 per bed per day. While the allocations made in the General Appropriations Act are similar to those suggested by the Department (Finding 17), it is impossible to determine from the language in specific appropriation 895 whether the members of the Legislature intended to adopt the methodology implicit in the Department's suggested pro rata distribution. The text of the appropriation proviso does not speak to the distribution of funds within a district. The application of the Department's pro rata formula does yield the same increases specifically allocated by the proviso language to each HRS district. It is by no means clear, however, that the use of that suggested percentage figure for each district was also meant to serve as an appropriation to each CSU provider in each district of the amount of money which can be found in the workpapers prepared by the HRS central office, but which were never sent to the Legislature. For District IX, the pro rata share of .2723 would yield $349,179, the amount which is contained in the proviso language for District IX. The evidence offered fails to prove that the Legislature had any specific will as to the distribution of the monies among providers within a district. The Legislature's focus, to the extent it can be discerned from the proviso language itself, appears to have been the funding of CSU services, without regard to licensure status of those providing the services. The beds at 45th Street provide CSU services. Proviso language for specific appropriation 895 states that the entire $2 million would be used for a "price level increase directly relating to the operation of CSU beds, and not to other Baker Act support services". The proviso language requires the Department to insure that the contracts with providers identify the amounts associated with the operation of CSU beds, as opposed to emergency screening and "other Baker Act services". Chapter 89-253, Law of Florida, specific appropriation 895. Specific appropriation 895 also allocated $291,404 to "community mental health centers that operate licensed psychiatric hospital beds" from general revenue to reimburse them for assessments paid to the Public Medical Assistance Trust Fund. That portion of the proviso language was vetoed by the Governor, and is not significant here. The meaning of the proviso language actually included in specific appropriation 895 has been subjected to varying interpretations, and as would be expected, South County advances the interpretation which would grant it the greatest funding. Actual Distribution of Funds in District IX After the Department received the proviso language for specific appropriation 895, all districts were sent a memorandum (including attachments) which required them to establish a plan for spending the funds made available under specific appropriation 895. The plan each district submitted to the Department was known as its "CSU -Deficiency Funding Distribution Plan". In the Department's memo, Assistant Secretary Ivor Groves stated "this analysis addresses only the funding levels of CSU beds and does not speak to increasing the funding levels of SRT [short-term residential treatment] beds or inpatient beds operated by community mental health centers". (Exhibit 1, pg. 3). The memo noted that funds would be allocated based upon the 75/25 ratio of CSU bed funding to funding for other services, and the memorandum specifically requested information on each district's suggested formula for the equitable distribution of funds to providers which operated unappropriated CSU beds. Each district was asked to identify the amount of money it paid to contractors providing CSU beds. The districts reported separately amounts paid to contractors for "other Baker Act services," which would have encompassed inpatient services. After receiving the Department's memorandum about the CSU price level increase, the program supervisor for District IX handling mental health programs was concerned that the memorandum did not appear to permit funding for inpatient beds from the $2 million special appropriation. She consulted with the Department's program office and local legislators, 2/ and determined that the distinction between CSU beds, and the in- patient beds operated by 45th Street was irrelevant in District IX. This was so because although 45th Street was licensed as an inpatient psychiatric hospital, the beds located at 45th Street functioned as crisis stabilization beds. There is no crisis stabilization unit in the catchment area for District IX other than the 45th Street Mental Health Center. The police and others bring people suffering acute psychiatric crisis to 45th Street for the purpose of crisis stabilization, and ultimate referral to appropriate psychiatric treatment. Generally, 45th Street does not utilize its beds as inpatient short-term psychiatric hospital beds. Instead, they operate exactly as the crisis stabilization unit beds operated by other providers, such as South County, under their CSU licensure under Chapter 394. 45th Street's Baker Act-funded inpatient hospital beds serve as crisis stabilization unit beds. 45th Street was also in need of the special price level increase monies to permit it to continue to operate those beds as the crisis stabilization beds for its catchment area. 45th Street is not the only facility which operates short-term psychiatric beds as crisis stabilization unit beds. It is, however, the only facility licensed as a short-term psychiatric hospital whose reimbursement rates were so low that it already did not recover at least $113 per patient per day for crisis stabilization services. Thus, it is the only facility licensed as a short-term psychiatric hospital under Chapter 395 which would stand to gain any additional funding under specific appropriation 895. In order to deal with this unique circumstance in District IX, a district program supervisor struck out the term "CSU beds" in the form attached in Assistant Secretary Ivor Groves' memorandum (Finding 22), and substituted the all- encompassing term "Baker Act beds" when calculating the CSU deficiency funding distribution plan for District IX. She included in that calculation the funding of the short-term psychiatric inpatient beds at 45th Street, as well as other licensed CSU beds operated by other providers in District IX. In order to determine the increases necessary to bring all "Baker Act" beds up to the same reimbursement rate per bed per day, the District IX mental health program supervisor had to determine the rate at which District IX reimbursed each provider for the CSU services it made available to the Department. She did so by dividing the number of Baker Act patient days for each agency for the previous year into 75 percent of the Baker Act funds the agency received from the Department that year. The .75 multiplier was used to reflect the statewide 75/25 split in the use of Baker Act funds (see Finding 16 above). In performing this calculation for South County, the Department included all Baker Act funds South County had received. When performing the calculation for 45th Street, the Department did not include all funds that 45th Street had received that year; this had the effect of lowering the rate of reimbursement per bed per day computed under the formula, which in turn had the effect of requiring greater allocations of the deficiency appropriation to 45th Street for fiscal year 1989-90 in order to bring it up to the same reimbursement rate received by other providers, such as South County. The funds excluded from 45th Street's calculation were: a special allocation the Department made to it to reduce the $150,000 operating deficit incurred in a prior period. This was not money used to provide Baker Act services during 1988-89, was not recurring money and was properly excluded; $258,776 45th Street had received for CSU beds newly appropriated for 45th Street that year, even though those beds had not yet been opened, (only $59,000 actually was used for start-up costs, the rest also was applied toward 45th Street's operating deficit). The start-up costs were not recurring, and were properly excluded; and any "profits" from third party reimbursement that may have been paid to 45th Street due to its ability to be reimbursed by third party insurers. The amount of such reimbursement, if any, was not proven at the hearing. 45th Street had provided 10,845 days of CSU services for eligible Baker Act patients in 1988-89; its total reimbursement was $619,326. This was multiplied by .75 (see finding 16), to estimate the total CSU reimbursement it had received. This in turn was divided by the 10,845 patient days to yield a reimbursement rate of $42.42 per bed per day in fiscal year 1988- 89. This is obviously a rough approximation of the reimbursement rate, but the methodology used is reasonable. When District IX calculated its distribution of the $349,179 available to providers of CSU services, the District included 30 beds at 45th Street in the formula, even though 45th Street had 44 beds. The volume of its services was such that 45th Street did fill 30 beds all year with Baker Act CSU patients. The Department's distribution of the CSU deficiency money in District IX does permit patients treated in licensed psychiatric inpatient beds at 45th Street to be billed for in- patient services if they have insurance, but will also consider them CSU patients if they are receiving treatment under the Baker Act. There is no proof, however, that any significant number of patients the police or others bring to 45th Street for crisis stabilization have private insurers which 45th Street can bill. No evidence of any such reimbursement was introduced at the hearing. South County complains that the Department's "functional" interpretation, which treats 45th Street's beds as CSU beds, is improper because it did not use this interpretation when it provided data to legislative staff, and that the Department has never utilized this interpretation in any rule, policy or procedure. The record does not indicate that any other CSU deficiency appropriations have been made, however, so there has been no occasion for the Department to face this question before. It is not surprising that no prior rule, policy or procedure dealt with this issue. In addition, the data provided to legislative staff was necessarily general data. Legislative staff sought and received a suggested plan for distribution of funds among districts, not among providers. The Department's suggestion was never intended to account for special or unique situations, such as that in District IX, where 45th Street, while licensed as an inpatient psychiatric hospital, functions as a crisis stabilization unit, but received such a low reimbursement rate per patient per day that it was operating in a deficit. The Department's interpretation means that South County, which has 31 percent of the CSU beds in District IX, will receive only 7 percent of the deficiency appropriation, while 45th Street will receive 83 percent of the deficiency funding. This results from the low reimbursement rate which 45th Street has been receiving, and is consistent with the legislative intent to try to raise all providers of CSU services toward the goal of reimbursement at the rate of $113 per bed per day. 45th Street will receive $68.83 per bed per day under the Department's distribution plan. The Indian River Community Mental Health Center received none of the CSU deficiency distribution funds, because it already was receiving more than $86 per bed per day. After the issue of the Department's interpretation of the proviso language came up, both parties attempted to obtain correspondence from the members of the appropriations committees in the House and Senate giving their view of the proper interpretation of the proviso language. The positions expressed in these letters are irreconcilable. These after-the-fact statements from individual legislators lack evidentiary value.

Recommendation It is RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order dismissing the Petitioner's challenge to the disbursement of monies in District IX under Specific Appropriation 895 of the 1989-90 General Appropriations Act for lack of jurisdiction. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 28th day of March, 1990. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 1990.

Florida Laws (7) 120.52120.57394.451394.453394.463394.875395.003
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MERCY HOSPITAL, INC. vs. HOSPITAL COST CONTAINMENT BOARD, 85-000160RX (1985)
Division of Administrative Hearings, Florida Number: 85-000160RX Latest Update: Jun. 28, 1985

The Issue The issue in this case is whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious? Mercy has also raised one issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.

Findings Of Fact Introduction. The HCCB and Its Hospital Grouping Function. The HCCB was formed pursuant to Part II of Chapter 395, Florida Statutes (1979). The HCCB was created pursuant to the specific authority of Section 395.503, Florida Statutes (1979), in order to further the accomplishment of legislative intent contained in Section 395.5025, Florida Statutes (1984 Suppl.): It is the intent of the Legislature to assure that adequate health care is affordable and accessible to all the citizens of this state. To further the accomplishment of this goal, the Hospital Cost Containment Board is created to advise the Legislature regarding health care costs; inflationary trends in health care costs; the impact of health care costs on the state budget; the impact of hospital charges and third-party reimbursement mechanisms on health care costs; and the education of consumers and providers of health care services in order to encourage price competition in the health care marketplace. The Legislature finds and declares that rising hospital costs and cost shifting are of vital concern to the people of this state because of the danger that hospital services are becoming unaffordable and thus inaccessible to residents of the state. It is further declared that hospital costs should be contained through improved competition between hospitals and improved competition between insurers, through financial incentives which foster efficiency instead of inefficiency, and through sincere initiatives on behalf of providers, insurers, and consumers to contain costs. As a safety net, it is the intent of the Legislature to establish a program of prospective budget review and approval in the event that competition-oriented methods do not adequately contain costs and the access of Floridians to adequate hospital care becomes jeopardized because of unaffordable costs. As a part of its responsibilities the HCCB is required, "after consulting with appropriate professional and governmental advisory bodies and holding public hearings, and considering existing and proposed systems of accounting and reporting utilized by hospitals," to specify a uniform system of financial reporting for hospitals. Section 395.507(1), Florida Statutes Suppl.) to: In order to allow "meaningful comparisons" of data reported by hospitals under the uniform system of financial reporting, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.) to group hospitals according to characteristics, including, but not limited to, a measure of the nature and range of services provided, teaching hospital status, number of medical specialties represented on the hospital staff, percentage of Medicare inpatient days, average daily census, geographical differences, and, when available, case mix. In providing for grouping of hospital, the HCCB is required to establish ten general hospital groups and additional speciality groups "as needed." Section 395.507(2), Florida Statutes (1984 Suppl.). No hospital group can contain fewer than five hospitals, however. Id. Grouping is to be provided by rule. Id. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file its budget with the HCCB for "approval." The budget is required to be filed on forms adopted by the HCCB and based on the uniform system of financial reporting. Section 395.507(6), Florida Statutes (1984 Suppl.). To determine whether a hospital's budget is to be approved, all hospitals in Florida are to be placed in groups. A hospital's budget is then compared to the budgets of the hospitals assigned to its group. Hospital groups for this purpose are established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The provisions of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), are identical to Section 395.507(2), Florida Statutes (1984 Suppl.). In determining whether a hospital's budget is to be approved, Section 305.509(2), Florida Statutes (1984 Suppl.), establishes two initial "screens" which a hospital must meet based upon the hospital's gross revenue per adjusted admission. The term "gross revenue" is defined as: the sum of daily hospital service charges, ambulatory service charges, ancillary service charges, and other operating revenue. Gross revenues do not include contributions, donations, legacies, or bequests made to a hospital without restriction by the donors. Section 395.502(11), Florida Statutes (1984 Suppl.). "Adjusted admission" is defined by Section 395.502(1), Florida Statutes (1984 Suppl.), as: the sum of acute admissions and intensive care admissions divided by the ratio of inpatient revenues generated from acute, intensive, ambulatory, and ancillary patient services to gross revenues. Gross revenues per adjusted admission (hereinafter referred to as "GRAA") is therefore the total hospital ambulatory and ancillary service charges and other operating revenue for all acute and intensive care admissions divided by the ratio of inpatient revenues from acute, intensive, ambulatory and ancillary patient services to gross revenue; or, stated more simply , inpatient revenue per admission. The "screens" which must be met in order for a hospital's budget to be approved upon initial determination are: (1) the hospital's GRAA must not be in the upper 20th percentile of the hospitals within its group; and (2) the rate of increase in a hospital's GRAA as contained in its current budget compared to the hospital's GRAA as reported in its most recently approved budget must not exceed a "maximum allowable rate of increase" if the hospital's GRAA is in the 50th to 79th percentile of the hospitals in its group. If a hospital's GRAA is in the 49th percentile or less of the hospitals in its group, its budget is automatically approved. In determining whether a hospital's GRAA fails the screens, Section 395.509(2), Florida Statutes (1984 Suppl.), provides: Percentile values for gross operating revenue per adjusted admission shall be determined monthly by the board for each group established pursuant to s. 395.507(2) by ranking projected gross operating revenues per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. In determining the applicability of paragraph (a) or paragraph (b), the board shall consider the basis of the projections by the hospital, including consideration of the following factors: any increase in patient admissions caused by the creation of preferred provider organizations or health maintenance organiza- tions, population increases, changes in the hospital case mix or in services offered, changes in technology, or other similar factors. If a hospital's GRAA fails either of the screens (its GRAA is in the upper 20th percentile of its group or its GRAA rate of increase is excessive and its GRAA is in the 50th to 79th percentile of its group) that hospital's budget must be reviewed by the HCCB "to determine whether the rate of increase contained in the budget is just, reasonable, and not excessive." Section 395.509(5), Florida Statutes (1984 Suppl.). Pursuant to Section 395.509(6), Florida Statutes (1984 Suppl.), the HCCB is authorized, if it first determines under Section 395.509(5), Florida Statutes (1984 Suppl.), that the hospital's rate of increase is not just, reasonable and not excessive, to amend or disapprove any hospital's budget which does not meet the two screens of Section 395.509(2), Florida Statutes (1984 Suppl.), to establish a rate of increase which is "just, reasonable, and not excessive." The HCCB's authority under Section 395.509(6), Florida Statutes (1984 Suppl.), applies only if the HCCB first complies with the following pertinent provisions of Section 395.509(5), Florida Statutes (1984 Suppl.): The board shall disapprove any budget, or part thereof, as excess that contains a rate of increase which is not necessary to maintain the existing level of services of the hospital or, if the hospital increases its existing level of services, any amount not necessary to accomplish that increase. In making such deterioration . . . the board shall consider the following criteria: The efficiency, sufficiency, and adequacy of the services and facilities provided by the hospital. The cost of providing services and the value of the services to the public. The ability of the hospital to improve services and facilities. The ability of the hospital to reduce the cost of services. The ability of the hospital to earn a reasonable rate of return. The accuracy of previous budget submissions by the hospital compared to the actual experience of the hospital the The number of patient days reimbursed by Medicare or Medicaid. The number of patient days attributable to the medically indigent. The research and educational services provided by the hospital if it is a teaching hospital. The projected expenditures or revenues for or from construction of facilities or new services which are subject to regulation under s. 381.494 may not be included in the budget of a hospital until the construction or services are approved or authorized by the state health planning agency. The cost of opening a new hospital, for first 3 years. The Challenged Rules. In carrying out its duty to establish a uniform system of financial reporting, the HCCB adopted Section 4D- 1.03, F.A.C., which provides: The Board, pursuant to Section 395.505, Florida Statutes, hereby adopts and establishes a uniform system for hospitals to file the prior year audited actual data report, the interim report of financial and statistical information. This system is described and the forms, instructions, and definitions therefor are contained in the Board's publication entitled Hospital Uniform Reporting System Manual. The Chart of Accounts adopted pursuant to Section 395.507(1), Florida Statutes, and this Chapter 4D-1, and as hereafter modified, shall be utilized by each hospital for submitting the prior year audited actual data report, the interim report and the budget report. In order to determine whether a hospital's budget should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), the HCCB adopted Section 4D-1.12, F.A.C. Sections 4D-1.12(1) and (2), F.A.C., provide: The staff shall review the budget report based upon the hospital's ranking for gross revenue per adjusted admission within its group and upon its rate of change in gross revenue per adjusted admission in the proposed budget as required in Section 395.507(6), Florida Statutes, and the most recently Board approved budget. As part of the budget report review process, groupings of hospitals shall be established according to the characteristics and methodology as outlined in Chapter V, Section B, Hospital Unit Uniform Reporting System Manual and as outlined in Section 395.507(2), Florida Statutes. Percentile values for gross revenue per adjusted admission shall be determined monthly for each group by ranking projected gross revenue per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. 12. Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., are the rules challenged by Mercy. These rules, as quoted herein, were effective as of November 5, 1984. The rules were originally adopted effective June 30, 1980. The rules were amended to their present wording in response to "major" legislation enacted in 1984 which amended Part II, Chapter 395, Florida Statutes (1983), and granted authority to the HCCB for the first time to approve, disapprove or amend hospital budgets under certain circumstances. Chapter 79-106, Laws of Florida. The challenged rules essentially provide that the HCCB, when grouping of hospitals for purposes of the uniform system of financial reporting and for purposes of reviewing and comparing budgets to determine if they should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), will apply the grouping methodology outlined in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). Section 4D-1.18, F.A.C., also adopted effective November 5, 1984, incorporates by reference the Manual within each rule in Chapter 4D-1, F.A.C., which references the Manual. This rule has not been challenged in this proceeding. The Hospital Grouping Methodology and Its Development. Generally, Chapter V, Section B of the Manual, sets out the objective of the grouping methodology, the procedure for forming groups, a list of the variables considered in forming groups and the weight to be accorded each variable. The goals of the grouping methodology, as provided in the Manual, are to "facilitate comparison of hospitals with similar patient mix and market conditions" and to "develop groups of sufficient size . . . to assure statistically valid comparisons." Based upon the procedure for forming groups contained in the Manual, hospitals are grouped into nine, non-teaching, short-term hospital groups, one Major teaching hospital group and a number of specialty hospital groups. It is the method of grouping hospitals into nine short-term hospital groups which is at issue in this proceeding. Assignment of hospitals to the nine short-term hospital groups is accomplished through the use of the "McQueen's K-means clustering algorithm included in the cluster analysis t computer program package CLAN developed by T.D. Klastorin and Robert Ledingham (June, 1980 version)." A clustering analysis is a method of grouping a set of objects (in this case, hospitals) into relatively homogeneous groups. The goal of a clustering algorithm is to minimize the differences between the members of the group. The objects are grouped based upon a set of variables which are considered significant for purposes of comparing the objects. In order to account for the significance of each variable, the variables are weighted. The variables have a numerical score and after weighing, the weighted sum of the variables for each object is compared and the objects are grouped based upon their variable scores. There are a number of clustering algorithms which can be used to group hospitals. The HCCB chose to use the "McQueen's K-means" clustering algorithm. The use of McQueens K-means clustering algorithm has not bean challenged in this proceeding. Nor does the evidence establish that the selection of McQueen's K-means clustering algorithm is arbitrary and capricious. The clustering algorithm is performed by computer. The computer program utilized by the HCCB to perform the algorithm is called "CLAN" and was developed by T.D. Klastorin and Robert Ledingham. The evidence at the hearing supports a finding that the selection of this computer program is reasonable. Once hospitals are grouped, they are notified of their group designation and allowed to request reconsideration of their group assignment. The request must made within thirty days after notification. Following the creation of the HCCB in 1979, Price Waterhouse & Company was engaged by the HCCB as a consultant to assist in still establishing an appropriate hospital grouping methodology. The HCCB also created an advisory committee to assist the HCCB and Price Waterhouse & Company in developing the grouping methodology. This committee, designated as the Technical Advisory Committee (hereinafter referred to as the "TAC") was comprised of individuals from the hospital industry and academia and certified public accountants. The TAC worked with Price Waterhouse & Company in developing the grouping methodology and the uniform reporting system. Because of time constraints, the TAC's involvement with evaluating the methodology was limited. The HCCB ultimately decided to pattern the grouping methodology it adopted after the grouping methodology then being used by the State of Washington, as recommended by Price Waterhouse & Company. The Washington system was not adopted exactly; a number of changes to Washington's methodology were made to the grouping methodology adopted by the HCCB. Mercy has proposed several findings of fact beginning on page 35 and ending on page 38 of its proposed order concerning the "Differences in Washington Hospital Characteristics and Grouping Methodology Model." Those proposed findings of fact can be and are hereby disposed of by the following finding of fact: because of differences in the hospital industries of the States of Florida and Washington and other differences between the two States, Florida's grouping methodology cannot be justified solely on the basis that Washington's grouping methodology was used as a starting point in developing Florida's grouping methodology. Those differences, however, do not support a finding of fact that Florida's grouping methodology is arbitrary and capricious since the Washington system was not adopted without substantial modifications, including a reduction of Washington's eighteen variables initially to fourteen and ultimately to seven, and the use of unequal weighting of the variables. The TAC reviewed and discussed the grouping methodology initially approved by the HCCB prior to its approval. Some of Mercy's witnesses, who were members of the TAC, indicated during their testimony that the TAC never decided anything because no "vote" was ever taken of TAC members and that the TAC did not advise the HCCB but instead advised the staff of the HCCB. Their testimony in this regard has been given little weight. The fact that no formal "vote" was taken of TAC members does not mean that the TAC did not take a position on matters it discussed. The consensus of the TAC could be, and was, gleaned from its discussions. The staff of the HCCB in fact reported decisions of the TAC to the HCCB verbally and by minutes of TAC meetings. Although the accuracy of staff's reports was sometimes questioned, no question was raised about whether TAC had taken positions. The fact that the HCCB staff reported TAC actions to the HCCB also disputes the testimony to the effect that TAC did not advise the HCCB but instead advised the staff of the HCCB. While it may be true that TAC did not deal directly with the HCCB, its analysis was reported, to the HCCB. The HCCB ultimately adopted rules effective June 30, 1980, which incorporated by reference to the Manual, the general outline of the grouping methodology adopted by the HCCB. The TAC ceased to exist following adoption of the HCCB's initial rules. Two new advisory committees were formed: a Technical Advisory Panel (hereinafter referred to as "TAP") on grouping and a TAP for financial analysis. The grouping TAP was made up of individuals from the hospital industry. The grouping TAP met in November and December of 1980 and reviewed the results of test runs of the grouping methodology initially adopted by the HCCB. The results of the initial run were described as "bizarre." This run used equal weighting of the variables. Equal weighting was abandoned and three to four more test runs were made and reviewed by the grouping TAP. After each run the variable weights were adjusted until the results appeared to be "reasonable." The HCCB also established a committee consisting of members of the HCCB designated as the Research and Development Committee (hereinafter referred to as the "R & D Committee"). The R & D Committee reviewed the results of test runs and also found the final groups reasonable. The HCCB met in January, 1981, and adopted the grouping methodology with the adjusted variable weights arrived at as a result of the test runs for use in establishing hospital groups for use in 1981. The grouping methodology was reviewed every year after its initial adoption in 1980. The methodology was reviewed by the HCCB, HCCB's staff, the TAP's and the R & D Committee each year. Throughout the period from 1980 to the present, criticisms of the grouping methodology have been made. Some of these criticisms were agreed with and others were rejected by the HCCB or its staff. Following review of the grouping methodology by the TAP's and the R & D Committee in 1981, the original fourteen variables were reduced to eight. In January, 1982, the weight of one of the variables was changed and one variable was replaced by another variable. In December, 1982, a variable was deleted; seven variables remained. In 1983, clustering analysis was limited in its application to the formation of short-term acute care general hospital groups. In 1984, following the significant amendment of Chapter 395, Florida Statutes (1983), the HCCB adopted the present challenged rules. The rules were effective November 5, 1984. The only change in the grouping methodology approved by the HCCB was the substitution of the Florida price level index variable for percent of population over age 65. The weight assigned to the Florida price level index was the same as the weight that had been assigned to the percent of population over age 65. The changes made to the grouping methodology in 1984 were first suggested by the staff of the HCCB to the grouping TAP in June of 1984. The grouping TAP met on July 11, 1984 and considered and discussed the proposed changes. A number of problem areas were discussed. Although no test run results were presented at this TAP meeting, they were provided to TAP members before the HCCB adopted the grouping methodology changes. Concerns about the geographic or exogenous variables expressed at the grouping TAP meeting suggested a belief that too much or too little emphasis was being placed on geographic considerations. Mercy has proposed a number of findings of fact beginning on page 33 and ending on page 35 of its proposed order concerning the significance of the changes made by the Legislature in 1984 to Part II of Chapter 395, Florida Statutes (1983). Those proposed findings of fact essentially deal with the fact that the powers of the HCCB after the 1984 amendments may have a more significant impact on hospitals and that, therefore, the grouping methodology is of greater interest to hospitals. Mercy's proposed findings of fact are not, however, relevant in determining whether the challenged rules are arbitrary and capricious. The fact that the effect of the grouping methodology on a hospital may now be different does not mean that the use of the grouping methodology, as modified after the 1984 legislative changes to the law, which was developed when the purpose of grouping was different, is not an appropriate methodology. The evidence does not support such a conclusion. Therefore, to the extent that Mercy's proposed findings of fact under Section II, A, of its proposed order have not already been made, they are rejected as unnecessary. Mercy and the HCCB have proposed findings of fact as to whether Mercy has ever questioned the HCCB's grouping methodology since it was first adopted prior to instituting this proceeding. Those proposed findings of fact are not deemed relevant in determining whether the grouping methodology is arbitrary and capricious. If the grouping methodology is in fact arbitrary and capricious, the fact that Mercy did not challenge the methodology when it was first adopted will not make it any less arbitrary and capricious today. Mercy's Challenge. A. Introduction. Mercy is a not-for-profit, general acute care hospital with 550 licensed beds located in Dade County, Florida. Mercy has raised a number of points in this proceeding and its proposed order in challenging the rules in question. All of those points, according to Mercy, prove that the rules are an invalid exercise of delegated legislative authority. In determining whether the facts support such a conclusion, the following standard must be kept in mind: [I]n a 120.54 hearing, the hearing officer must look to the legislative authority for the rule and determine whether or not the proposed rule is encompassed within the grant. The burden is upon one who attacks the proposed rule to show that the agency, if it adopts the rule, would exceed its authority; that the requirements of the rule are not appropriate to the ends specified in the legislative act; that the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation or that the proposed rule or the requirements thereof are arbitrary or capricious. A capricious action is one which is taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion. Agrico Chemical Company v. State, Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978), cert. denied, 376 So.2d 74 (1979). Additionally, the following must be kept in mind: The well recognized general rule is that agencies are to be accorded wide discretion in the exercise of their lawful rulemaking authority, clearly conferred or fairly implied and consistent with the agencies' general statutory duties. . . . An agency's construction of the statute it administers is entitled to great weight and is not to be overturned unless clearly erroneous. . . . Where, as here, the agency's interpretation of a statute has been promulgated in rulemaking proceedings, the validity of such rule must be upheld if it is reasonably related to the purposes of the legislation interpreted and it is not arbitrary and capricious. The burden is upon petitioner in a rule challenge to show by a preponderance of the evidence that the rule or its requirements are arbitrary and capricious. . . . Moreover, the agency's interpretation of a statute need not be the sole possible interpretation or even the most desirable one; it need only be within the range of possible interpretations. Department of Professional Regulation v. Durrani, 455 So. 2d 515, 517 (Fla. 1st DCA 1984). The witnesses who testified in this proceeding who were accepted as experts were qualified in a number of different areas. Those witnesses qualified as experts in statistical analysis or related areas and health care finance rendered opinions as to the appropriateness of the HCCB's grouping methodology. The method of grouping hospitals adopted by the HCCB is a statistical method. Therefore, the determination of whether the HCCB's methodology is arbitrary and capricious depends largely upon whether the methodology is statistically sound. Mercy and the HCCB therefore presented the testimony of witnesses qualified in the area of statistics: Rick Zimmerman, Ph.D., an expert in statistical analysis and social science statistics (for Mercy), and Duane Meeter, Ph.D., an expert in economics and applied statistical analysis and Frank Fox, Jr., Ph.D., an expert in applied statistics (for the HCCB). All three witnesses were knowledgeable and credible. Dr. Zimmerman testified that the HCCB's grouping methodology was "clearly inappropriate." Dr. Zimmerman's opinion was based upon a three step analysis in which he determined: (1) whether the variables selected by the HCCB are appropriate; (2) whether the weights assigned to the variables by the HCCB are appropriate; and, (3) the effect changing the variables and/or weights would have on hospital groups. The results of Dr. Zimmerman's analysis, which formed the basis for his opinion that the HCCB's grouping methodology is not appropriate, are discussed, infra. Mercy has proposed a number of findings of fact in its proposed order concerning the credibility of Dr. Meeter's and Dr. Fox's testimony. Some of those proposed findings of fact have been considered in determining the weight given to their testimony. Both Dr. Meeter and Dr. Fox were, however, knowledgeable and credible. In addition to the opinion of its statistical expert, Mercy presented the testimony of three witnesses who were accepted as experts in health care finance: Messrs. Lawrence R. Murray, Jerry A. Mashburn and Anthony Krayer. All three are certified public accountants. All testified that it was his opinion that the HCCB's grouping methodology was arbitrary. The bases for their opinions are discussed, infra. Selection of "Seed" Hospitals. In order to use a clustering algorithm, a starting point is needed; the first object (hospital) to be placed in each group must be selected. The first objects selected are called "seed" objects. Mercy has attached the HCCB's method of selecting the nine "seed" hospitals in initially performing the McQueen's K-means clustering algorithm. Mercy has proposed the following findings of fact with regard to this point: While none of the parties challenged the use of McQueen's and the CLAN program, no support was offered during the hearing for the method by which the HCCB had selected the nine seed hospitals as initial clustering points. The HCCB's own statistician criticized the HCCB's selection method. The Rankis-Zimmerman report indicates that the final groupings based upon the HCCB's seed hospitals were vastly different than groupings based upon the utilization of seed hospitals selected on a statistical basis. Both the HCCB's and Mercy's statisticians proposed statistically sound methods for selecting seed hospitals, which had not been employed by the HCCB in the Grouping Methodology. [Citations omitted] These proposed findings of fact are not relevant to this proceeding. The burden is on Mercy to show that the selection of "seed" hospitals was arbitrary and capricious; the HCCB is not required to show "support" for its method of selecting the seed hospitals. Additionally, whether there are other methods of selecting seed hospitals is not the test. The HCCB's interpretation of the statute need not be the sole interpretation or even the most desirable one; it only needs to be within the range of possible interpretations. Durrani, supra. Therefore, even if the Rankis-Zimmerman report does indicate that the final groupings of hospitals of the HCCB were vastly different than groupings based upon other methods of selecting seed hospitals, it does not automatically follow that the HCCB's method of selecting seed hospitals was not "within the range of possible interpretations. The weight of the evidence does not prove that the HCCB's method of selecting seed hospitals was arbitrary and capricious. Selection of the Variables. In delegating legislative authority to the HCCB to establish a grouping methodology, the Legislature provided that the following relevant characteristics are to be taken into account: A measure of the nature and range of services provided; Number of medical specialties represented on the hospital staff; Percentage of Medicare inpatient days; Average daily census; Geographic differences; and Case mix, "when available." In response to the Legislature's mandate, the HCCB has adopted seven variables or characteristics. The variables selected by the HCCB include five hospital- specific (endogenous) variables and two geographic (exogenous variables). The variables are as follows: Endogenous Variables: Average occupied beds. Available services. Physician mix. Number of residents. Percent Medicare days. Exogenous Variables: Florida price level index. Personal income. The following findings of fact are made with regard to each of the specific characteristics required to be taken into account by the Legislature and the variables adopted by the HCCB: 1. A measure of the nature and range of services provided. The HCCB has provided in the Manual that "available services" or a service index will be considered. The specific services considered are listed on Table B, Chapter V, of the Manual. Table B also weights or provides a score for each of the various services listed. Each hospital gets the specified score if it has a particular service available. The available services listed are based upon a survey of hospital administrators and chief financial officers in New York, New York, made in the 1970's. Problems with the list of available services have been pointed out to the HCCB and its staff. The primary problem is that the volume of services provided is not taken into account. The problems with the service index, however, relate to the fact that the service index is a proxy for case mix. To date, there is no alternative available which would be a better proxy for case mix. The Legislature contemplated this fact by providing that a measure of the services provided by a hospital will be considered and that case mix will be taken into account "when available." Therefore, while there are "problems" with the service index, consideration of available services is mandated by the Legislature and there are no acceptable alternatives available use for by the HCCB. 2. Number of medical specialties represented on the hospital staff. 52. The HCCB has provided that a physician specialties mix be considered in grouping hospitals. This physician specialties mix is based upon a list of twenty- six specialties for which a hospital gets a single credit for each specialty available regardless of the number of physician specialists available in each specialty or the volume of patients admitted by a physician. 52. Like the service index, the physician specialties mix is a proxy for ease mix and has problems associated with its use. Also like the service index, consideration of this factor is mandated and there are no acceptable alternatives available for use by the HCCB. 3. Percentage of Medicare inpatient days. 53. The HCCB has provided that "percentage Medicare days be considered in grouping hospitals. Consideration of this variable has not been shown to be arbitrary and capricious. 4. Average daily census. 53. The HCCB has provided that "average occupied beds" is to be considered in grouping hospitals. It does not appear that this variable's use was proper, as discussed, infra. 5. Geographic differences. The HCCB has provided that geographic differences be considered in grouping hospitals by providing for the inclusion of the Florida price level index, by county, and median income, by county, as variables to be considered. The only thing that the evidence established with regard to these variables was that they are not "very good" predictors, that "if" they are intended as a measure of input prices they are "poor substitutes," and that there may be "better" measures of the cost of doing business. The evidence does not, however, show that the use of these variables is arbitrary and capricious. Mercy has proposed a number of findings of fact concerning geographic influences in part II, H of its proposed order. The proposed findings of fact begin on page 29 and end on page 33. Most of these proposed findings of fact are not made in this Final Order because they are not deemed relevant or material and are unnecessary to the resolution of this proceeding. The proposed findings of fact contained in part II, H of Mercy's proposed order purportedly show that the HCCB has inadequately accounted for geographic influences. The evidence does establish that the financial characteristics of Florida hospitals and GRAA are affected by the geographic location of a hospital. This is especially true in Florida because of the impact on parts of the State from tourism, language barriers, the number of elderly residents, the available labor markets, and competition. It is also true that the combined weights of the two geographic variables the HCCB has selected for consideration in the grouping methodology--the Florida price level index and median income--is only one-seventh of the combined weights of all the HCCB's variables. It is also true that the grouping methodology results in hospitals from different areas of the State being grouped together, i.e., Mercy's hospital group includes twenty- three hospitals, four of which are located in Dade County and three of which are located in Escambia County. It does not necessarily follow, however, that the HCCB has been arbitrary and capricious in designating only two variables to take into account geographic differences between hospitals. The evidence also does not support a conclusion that it was not proper for the HCCB to limit the weight of the geographic variables to one-seventh of the total weight of the variables. Nor does the evidence demonstrate that the inclusion of hospitals from different areas of the State in the same group is not a proper result just because geographic influences are important. The fact that a large percentage of Dade County and south Florida hospitals do not qualify for automatic approval of their budgets under Section 395.509(2), Florida Statutes (1984 Suppl.), because they are in the upper 20th and the upper 50th to 79th percentiles does not necessarily prove that geographic influences have not been adequately accounted for either, as suggested be Mercy on page 30 of its proposed order. The evidence simply does not support such a conclusion. Nor does it necessarily follow that because Dade County hospitals are "efficient" in the minds of some of Mercy's witnesses and yet are unable to achieve automatic approval of their budgets that the grouping methodology does not adequately account for geographic influences, as suggested by Mercy on pages 30 and 31 of its proposed order. First, the Legislature has provided that factors other than geographic differences are to be considered, which the HCCB has provided for. It may therefore be that some Dade County hospitals do not achieve automatic approval of their budgets because of the other variables. The fact that not all Dade County hospitals fail to achieve automatic approval of their budgets supports such a conclusion. Also, even though a hospital's budget is not automatically approved it does not necessarily mean that it is considered inefficient. If that were the case, its budget would probably be subject automatically to amendment or disapproval. That is not the case. If a hospital's budget is not automatically approved its budget is subject to further review under Section 395.509(5), Florida Statutes (1984 Suppl.). It may still be determined that the hospital is "efficient" based upon this review. The Legislature, in enacting Part II of Chapter 395, Florida Statutes, did indicate that it intended to promote competition and efficiency among hospitals in order to contain hospital costs. Section 395.5025, Florida Statutes (1984 Suppl.). The grouping methodology and, in particular, the comparison of hospitals' GRAA under Section 395.509(2), Florida Statutes (1984 Suppl.), does not alone achieve that intent. Therefore the opinion of several of Mercy's witnesses that Dade County hospitals and in particular, Mercy, are efficient does not support a conclusion that the methodology is arbitrary and capricious or that geographic influences are not adequately considered. On pages 31 and 32 of its proposed order, Mercy suggests that Dade County hospitals only compete with other Dade County hospitals and therefore grouping hospitals from all sections of the State is illogical. In support of this suggestion, Mercy proposes findings of fact to the effect that the HCCB has recognized that consumers are interested in comparing hospital charges on a regional basis and has provided information about hospital cost on a county-by- county basis in the past. Mercy's proposed findings of fact are not accepted for essentially the same reasons that its proposed findings of fact with regard to the efficiency of hospitals were rejected. These proposed findings of fact do not support a finding that the HCCB's grouping methodology is arbitrary and capricious or that geographic differences have not been adequately taken into account. Mercy's has also proposed findings of fact with regard to geographic differences to the effect that after the Legislature specifically required that "geographic differences" be considered in an amendment to Chapter 395, Florida Statutes (1981), in 1982, the HCCB has not added any additional geographic factors to be considered. Although no additional geographic variables have been added, geographic variables have been reviewed and have been changed since 1982. More importantly, these proposed findings of fact do not prove that the existing variables are not adequate. 6. Case Mix. 66. Case mix is to be taken into account "when available." The evidence does not establish that case mix is available at this time. 7. Other variables. The HCCB is not limited to a consideration of the factors which the Legislature specifically provided are to be considered. Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.). The only other variable the HCCB has provided for consideration is "number of residents." No evidence of significance concerning this variable was presented at the hearing. There was testimony at the hearing that there are other variables which would be appropriate for consideration in grouping hospitals. The evidence does not, however, establish that failure to consider other variables means that the grouping methodology adopted by the HCCB is arbitrary and capricious. Dr. Zimmerman opined that he had determined that the variables selected by the HCCB were not appropriate. Dr. Zimmerman based his opinion upon the fact that he had conducted a "multiple regression analysis." According to Dr. Zimmerman, a "multiple regression analysis is a statistical procedure used to evaluate the relationship of a given set of independent, predictor variables (the HCCB's seven variables) to a single dependent variable (GRAA)." Based upon his application of multiple regression analysis, Dr. Zimmerman concluded that three of the variables used in the HCCB's grouping methodology are not statistically significant predictors of GRAA: available services, average occupied beds and median income. Two of these variables (available services and average occupied beds) are required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), to be taken into account in the grouping methodology. These Sections also require that geographic factors, which median income is, be taken into account. This does not, however, mean that median income must be included as a variable by the HCCB. Dr. Meeter testified that the statistical significance of the HCCB's variables can be determined by the use of "log transformation." Based upon Dr. Meeter's use of log transformation, median income and available services are statistically significant variables; average occupied beds is not statistically significant. Although the HCCB was required to include "average daily census" as a factor in grouping hospitals, the HCCB was not required to use "average occupied beds." Based upon Dr. Zimmerman's and Dr. Meeter's testimony, the use of average occupied beds as a variable was not proper. Whether the use of available services and median income as variables was proper depends upon whether log transformation is a proper method of determining the statistical significance of variables. Although the evidence on this question was in conflict, it appears that the use of log transformation was proper. The inclusion of available services and median income is therefore not arbitrary and capricious. A second problem with the variables used by the HCCB suggested by Dr. Zimmerman involves the correlation between the seven predictor variables or "multicollinearity." The existence of multicollinearity can invalidate a clustering program. Dr. Zimmerman determined that the correlation between the physician mix, available services and average occupied beds variables and between the Florida price level index and median income variables is large enough that there is a "potential" problem. Dr. Zimmerman's determination that there is a "potential" problem was made through two techniques. He first used "paired correlation." Based upon paired correlation, Dr. Zimmerman used a "rule of thumb" that a paired correlation of 0.7 or higher should be looked at closer. Finding a paired correlation between physician mix, available services and average occupied beds of .74 and between the Florida price level index and median income of .71, Dr. Zimmerman then calculated "R squared" to determine if a potential problem did in fact exist. Dr. Zimmerman indicated that the calculation of R squared is the most highly recommended method of determining if multicollinearity is a problem but agreed there are other methods of making such a determination. Dr. Meeter indicated that Dr. Zimmerman's rule of thumb that based upon paired correlations of 0.7 or higher indicates the problem should be looked at more closely is too strict. Other than Dr. Zimmerman's "experience" (which according to Dr. Zimmerman, consisted of a class he took), Dr. Zimmerman did not cite any authority which supported his rule of thumb. The only other source Dr. Zimmerman referred to--the "SPSS" manual--only indicates that the .82-1.0 range indicates that extreme collinearity exists. Another problem raised by Dr. Meeter with Dr. Zimmerman's conclusions as to multicollinearity, involves the use of "variance inflation factors" (hereinafter referred to as VIF is another technique used by statisticians to determine if multicollinearity is a problem. Dr. Zimmerman did not look at VIF. VIF can be determined by transforming R squared: VIF 1/1- R2. A VIF in excess of 5 or 10 is an indication that multicollinearity exists. One source quoted by Dr. Meeter even indicates that a much higher VIF is necessary to conclude that multicollinerity exists. Transforming Dr. Zimmerman's R squared calculations indicates that VIF is in excess of 5 in only one instance. As discussed more fully, infra, Dr. Zimmerman used a number of alternative methods of grouping hospitals which he designated as "Schemes." Based upon Dr. Zimmerman's "Scheme 3," Dr. Zimmerman found an R squared value of .819. The VIF for an R squared value of .819 is in excess of 5. Scheme 3, however, is not an application of the HCCB's grouping methodology; it is a grouping methodology in which the variables are assigned different weights. As indicated by Dr. Meeter, the weights used in grouping can effect the correlation of the variables. Therefore, the fact that Scheme 3 indicates a possible multicollinearity problem does not prove that multicollinearity is in fact a problem with the HCCB's grouping methodology. Based upon the foregoing it is found that multicollinearity does not exist sufficiently to conclude that the variables used by the HCCB are arbitrary and capricious. Dr. Zimmerman only testified that there was a "potential" problem. Additionally, although multicollinearity may invalidate a clustering program, the evidence does not prove that the HCCB's clustering program is in fact invalid because of any existing "potential" problem. In light of the foregoing findings of fact, it is clear that the HCCB's variables are appropriate with the exception of average occupied beds. The fact that this one variable is not statistically significant, however, does not by itself support a finding that the grouping methodology is inappropriate. The Lack of Testing of the Grouping Methodology. A third point raised by Mercy is entitled "Lack of Testing" in its proposed order and includes several proposed findings of fact on pages 17 and 18 of Mercy's proposed order. Mercy has essentially proposed findings of fact that: (1) it had been recommended to the HCCB when it originally adopted its grouping methodology in 1980 that a statistician be hired to test the grouping methodology; (2) that the failure to do so had been criticized in the past; that it had been recommended that the HCCB obtain assistance of individuals knowledgeable in Florida hospital characteristics to evaluate the grouping process but had failed to do so; (4) that the HCCB had not, until just prior to the hearing of this case, hired a statistician; (5) that the HCCB has not used multiple regression analysis or within-cluster co- variance weighting; and, (6) that the State of Washington's State Hospital Commission has employed a statistician to test its methodology and has effectively been advised by individuals knowledgeable with Washington's hospital characteristics. These proposed findings of fact do not establish that the grouping methodology adopted by the HCCB is arbitrary and capricious even if they were all correct findings of fact. All that these proposed findings of fact show is that the HCCB may not have gone about the adoption of its grouping methodology in the most appropriate manner. Any such shortcomings, based upon 20/20 hindsight, in the manner in which the methodology was adopted do not prove that the grouping methodology itself is not appropriate. Additionally, the evidence does not support all of these proposed findings. In particular, as was discussed, supra, the HCCB did in fact look to individuals knowledgeable in Florida hospital characteristics to evaluate its grouping methodology. The Weight of the Variables. The most significant and troublesome challenge made by Mercy to the HCCB's grouping methodology involves the weights assigned to the variables considered in grouping hospitals. The weights assigned by the HCCB to the seven HCCB variables are: Variable Weight Endogenous: Average occupied beds. 1.0 Available services. 2.0 Physician mix. 0.5 Number of residents. 0.5 Percent Medicare days. 2.0 Exogenous: Florida price level index. 0.5 Personal income. 0.5 The determination of whether the weights selected by the HCCB are arbitrary and capricious depends largely upon the evidence presented at the hearing by those witnesses knowledgeable in the field of statistics. Three witnesses were qualified as experts in statistically related fields. All three were well qualified in their fields and were credible and persuasive. According to Dr. Zimmerman, "the weights used currently by the HCCB are clearly inappropriate." In Mercy exhibit 17, Dr. Zimmerman reaches the following conclusion with regard to the HCCB's variable weights: These weights clearly do not reflect the relationship of the various variables to GRAA and thus appear as arbitrary and inappropriate for use in clustering hospitals on the basis of cost-related variables. Dr. Zimmerman's opinion is based upon the use of "multiple regression analysis," which, according to Mercy exhibit 17, "assesses the relationship of each of the predictor variables to the dependent measure (GRAA)." The evidence, however, does not support a finding of fact that multiple regression analysis is the only statistically valid method of establishing weights to be used in clustering analysis. In fact, there are a number of statistically valid methods of establishing variable weights. One of those acceptable methods is the "subjective" method which was used by the HCCB. Doctors Meeter and Fox substantiated this finding of fact. The use of the subjective method involves the participation of individuals knowledgable in the Florida hospital industry in reviewing and commenting on the weights used. The evidence clearly supports a finding that individuals with such knowledge participated in the process of developing the HCCB's grouping methodology including the selection of variable weights. Even one of Mercy's witnesses provided testimony which supports this conclusion: Mr. Kenneth G. McGee testified that "[i] t was just a trial and error process of changing weights until we ended up with something that people considered more reasonable than what had been produced in the past." Mercy has questioned Dr. Meeter's testimony with regard to the use of the subjective method of weighting variables based upon a number of proposed findings of fact. First, Mercy has proposed findings of fact to the effect that Dr. Meeter indicated that the subjective method is "bad" if not carefully applied. What Dr. Meeter actually said was that any method should be applied carefully. Secondly, Mercy has proposed a finding of fact that in a book relied upon by Dr. Meeter in rendering his opinion about the subjective method--John Hardigan's 1975 book, Clustering Algorithms--the author describes the subjective method as an "unsatisfactory" one. What Dr. Meeter's testimony proves is that Hardigan's comment was a tongue- in-cheek comment that there are several appropriate methods of weighting variables all of which are unsatisfactory, including regression analysis (used by Dr. Zimmerman) and the subjective method (use by the HCCB). Dr. Meeter also relied upon other statistical literature in rendering his opinion as to the use of the subjective method in determining variable weights. Finally, Mercy has suggested that Dr. Meeter did not undertake any independent "statistical" analysis which would support his opinions. Based upon the nature of Dr. Meeter's testimony, it does not appear that such a statistical analysis is a prerequisite to concluding that the use of the subjective method is an acceptable method of determining variable weights. Mercy has proposed a finding that the subjective method of weighting is inappropriate based upon Dr. Zimmerman's testimony. Dr. Zimmerman was asked the following questions and gave the following responses concerning the subjective method: Q Now, in your understanding of how the Board arrived at its weights, is it your opinion that that is totally inappropriate methodology for clustering? Yes or no or maybe? A I am looking to counsel for counsel here. MR. PARKER: Do you understand the questions? THE WITNESS: I do understand the question. And let me give you my full answer as I best understand it. The weights -- and I think what I have commented on at great length -- the weights used by the Hospital Cost Containment Board are clearly on statistical grounds inappropriate. There's no question about that. BY MR. COLLETTE: Now, on these clustering grounds, you testified as to your familiarity with clustering grounds, on clustering grounds, are they totally inappropriate? A If the question is -- I wouldn't say that. Hearing that there is no objection, I will continue. I would rule out the use of a purely subjective weighting scheme as a final solution for cluster analysis. I think it might be one that would be considered at a very early step, but never used, as kind of a preliminary idea. However, I would clearly rule out the use of a purely subjective weighting scheme as something to be proud of and actually put into application. So, if that means yes to your question, I guess yes in that specific way. Dr. Zimmerman's responses are not totally clear with regard to whether the subjective method is, in his opinion, an acceptable method of determining variable weights. Nor would his response, if totally clear, overcome the weight of the evidence in support of a conclusion that the HCCB's method of determining variable weights is not arbitrary and capricious. Alternative Methods of Grouping Hospitals. Mercy has proposed a number of findings of fact under a section of its proposed order entitled "Alternative Variables and Weights Indicated by Statistical Analyses." Pages 22 to 29 of Mercy's proposed order. Some of the proposed findings included therein have been dealt with in other portions of this Final Order, including those findings of fact dealing with the use of multiple regression analysis and multicollinearity. In Dr. Zimmerman's report (Mercy exhibit 17) and during his testimony a number of alternative methods of grouping hospitals were tested and evaluated. Dr. Zimmerman concluded that a number of these alternative methods would be preferable to the methodology adopted by the HCCB. Dr. Zimmerman tested twelve different methods (referred to as "Schemes" by Dr. Zimmerman): the HCCB's, the State of Washington's and ten other methods which used some or all of the seven variables designated by the HCCB. Scheme 3 used all seven variables selected by the HCCB but with different weights. Dr. Zimmerman rejected this scheme because of multicollinearity. In Scheme 4, Dr. Zimmerman used only the four variables which he found to be statistically significant: physician specialties mix, number of residents, percent Medicare days and the Florida price level index. Dr. Zimmerman recognized that this Scheme was not acceptable because of the statutory mandate as to the types of factors which must be taken into account. In order to recognize the requirement of Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), that certain variables be taken into account and to alleviate the purported multicollinearity problem, Dr. Zimmerman combined the variables he considered highly correlated into two "scales." "Scale 1" combined physician specialties mix, available services and average occupied beds and "Scale 2" combined the Florida price level index and median income. The weights assigned to these scale were based upon the weights Dr. Zimmerman felt were more appropriate as discussed, supra. Dr. Zimmerman then used multiple regression analysis and a variety of combinations of variables and Scales in Schemes 6-12. Of these Schemes, Dr. Zimmerman testified that Schemes 6 and 10 were preferable, if Scheme 4 could not be used. Scheme 6 involved the use of all of the variables: percent Medicare days, number of residents and Scales 1 and 2. Scheme 10 involved the use of all of the variables except median income: percent Medicare days, number of residents, the Florida price level index and Scale 1. Dr. Zimmerman compared the results of using the HCCB's grouping methodology to the results from using Schemes 3,4,6 and 10. The results showed that more Dade County hospitals had GRAA's, in comparison to the hospitals in the resulting groups under Schemes 3,4,6 and 10, which would result in automatic approval of their budgets than under the HCCB's methodology. Mercy's position within its group also improved as a result of using Schemes 3,4,6 and 10. These proposed findings of and Mercy's proposed findings of fact concerning alternatives considered by Dr. Meeter do not prove that the HCCB's grouping methodology is arbitrary and capricious. As found, supra, six of the seven variables selected by the HCCB are reasonable. The weights assigned to those variables have also been found to be reasonable and Mercy's suggested findings of fact with regard to multicollinearity have been rejected. Mercy has failed to prove that the HCCB's grouping methodology is arbitrary and capricious. Therefore, any alternative methods or Schemes and the results of using such methods cannot and do not overcome such findings. Conclusions. Based upon the foregoing, it is clear that the bases for the opinions that the HCCB's grouping methodology is inappropriate are not supported by a preponderance of the evidence. Dr. Zimmerman's opinion, which was based upon a number of conclusions, was only supported by the fact that one of the variables selected by the HCCB is not proper. The evidence, however, does not support a finding that this fact alone means that the grouping methodology adopted by the HCCB is inappropriate. The facts do not support a conclusion that the grouping methodology adopted by the HCCB is arbitrary and capricious.

Florida Laws (4) 120.54120.5690.80290.803
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WINTER PARK HEALTHCARE GROUP, LTD., D/B/A WINTER PARK MEMORIAL HOSPITAL vs AGENCY FOR HEALTH CARE ADMINISTRATION, 95-003335RU (1995)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Jun. 30, 1995 Number: 95-003335RU Latest Update: Apr. 17, 1997
Florida Laws (7) 120.52120.54120.56120.57120.68395.003409.905 Florida Administrative Code (1) 59G-4.150
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COLUMBIA HOSPITAL CORPORATION OF SOUTH BROWARD, D/B/A WESTSIDE REGIONAL MEDICAL CENTER vs AGENCY FOR HEALTH CARE ADMINISTRATION, 01-002891CON (2001)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Jul. 23, 2001 Number: 01-002891CON Latest Update: Oct. 13, 2004

The Issue Whether the Certificate of Need application of the South Broward Hospital District (CON 9459) to establish a 100-bed hospital in Health Planning District 10, Broward County, should be granted by the Agency for Health Care Administration?

Findings Of Fact The Parties AHCA The Agency for Health Care Administration is the state agency with the authority to review and issue Certificates of Need in Florida. SBHD, the Applicant The applicant in this proceeding is South Broward Hospital District ("SBHD" or the "District"). Created by the Legislature in 1947 "at the request of voters to meet the healthcare needs of the South Broward community" (District No. 2, Vol. 1, pg. 7), SBHD is a special taxing district. The District receives tax revenues in order to support SBHD as the health care provider of last resort in South Broward County with a long demonstrated history of serving medically indigent patients. Id. From its inception in 1947 to today with the support of local tax revenue, the mission of SBHD has remained unchanged: to provide health care to all residents of the community regardless of ability to pay. There are three acute care hospitals in the "Memorial Health Care System" operated by SBHD: Memorial Regional, Memorial Pembroke Pines and Memorial West. These three hospitals make the District the dominant provider of health services in south Broward County. The District's market share of admissions to hospitals located in south Broward County is 85%. The other 15% of hospital admissions are to Hollywood Medical Center. (These percentages do not account for admissions of South Broward County residents to hospitals outside of the borders of SBHD.) Memorial Regional Hospital, a Medicaid disproportionate provider, is located 13.6 miles from the proposed Miramar hospital site. Without question, the predominant provider of care to indigent patients in south Broward County, Memorial Regional is licensed for 489 acute care beds. Memorial Regional had an acute care occupancy rate of 76.5% in 2000. From time-to-time in recent years, it has experienced unacceptably high occupancies particularly within individual units. It presently has patient care units that often operate above capacity, resulting in patient flow problems within the hospital. Memorial West Hospital, located 5.7 miles from the proposed Miramar site, is currently licensed for 164 acute care beds. It had an acute care occupancy rate of 88.9% in 2000. Memorial West currently operates 14 "labor-delivery- recovery" observation beds ("LDR" beds) that are not among the hospital's licensed beds. The hospital has recently received a CON for 36 additional beds to be utilized for acute care and further authorization via a CON exemption to add another 16 beds licensed for acute care provided certain occupancy levels are achieved. These additional 52 licensed beds are projected to become operational in 2002. Furthermore, Memorial West is adding 36 additional LDR beds and 20 acute care observation beds and doubling the size of its emergency room. When the expansion is complete, Memorial West will have 216 acute care beds, 20 acute care observation beds and 50 LDR beds. As matters stood at the time of hearing, peak occupancies in some departments at Memorial West such as obstetrics, routinely exceeded 100%. With the additional beds slated for opening in 2002, demand for acute care services in southwest Broward County will continue to produce high occupancy rates at Memorial West. It is reasonably projected that the growth in demand for acute care services in southwest Broward County with the additional beds will cause Memorial West to operate at 87% occupancy in 2005 and 99% occupancy in 2010 unless the hospital proposed by SBHD for Miramar is built. Memorial West opened in 1992 as a 100-bed hospital, in part fulfilling SBHD's vision to expand services into what was then projected to be a rapidly growing southwest part of the county, a suburban area more affluent than the District as a whole. Approved by AHCA's predecessor, SBHD's strategy in opening Memorial West was to gain access to this more affluent suburban market in order to help off-set the rising care of indigent care. The strategy has worked. Memorial West has made a profound contribution to the financial success and viability of the District. In 2001, Memorial Hospital West accounted for almost half of the District's bottom line profit. The profitability of Memorial West has allowed the District to continue to provide growing levels of indigent care, while at the same time decreasing tax millage rates. In fact, the millage rates levied by the District have decreased three times since Memorial West opened. During this same period of decreasing millage rates, the District has been able to increase its ratio of uncompensated care to tax revenues from 3-1 to 5-1. The District's third hospital, Memorial Hospital Pembroke was leased by the District for the first time in 1995. Now leased until June 2005 from HCA, Inc., HCA announced its intention at hearing to re-take the facility so that the District will lose Memorial Pembroke as one of its hospitals at the expiration of the lease. Licensed for 301 beds, Memorial Pembroke is located 10.6 miles from the proposed Miramar site. Memorial Pembroke's occupancy rate from July 1999 to June 2000 was 26.2%. This low rate of occupancy is due, at least in part, to significant physical plant constraints and deficiencies. Although licensed for 301 beds, the physical plant can only reasonably support 149 beds. When its daily census reaches 140 patients, the hospital's operational and support systems begin to fail. Prior to 1995, Memorial Pembroke was operated by a series of for-profit owners. Just as it does now, Memorial Pembroke suffered from chronically low utilization under all prior management. Before the District leased the facility from Columbia-HCA, the hospital had become stigmatized in the community; many patients and physicians were reluctant to use it. Due to a number of factors (some tangible, such as an out-of-date physical plant - others intangible) that stigma continues today. The District has invested considerable management and financial resources to improve the quality of care, the condition of the facility and the community reputation of Memorial Hospital Pembroke. Because the hospital serves as a "safety valve" for the high utilization at the District's other hospitals, especially Memorial West, Memorial Pembroke's census between 1995 and 2000 has been on the rise. Nonetheless, the facility continues to be regarded as a "second tier" hospital and to suffer a stigma within the community. Whatever the source of the stigma afflicting Memorial Pembroke, it is unlikely that occupancy rates at Memorial Pembroke will dramatically improve unless significant and substantial investment is made in the hospital. It does not make sense for SBHD to make such an investment since it will lose the facility in three years. Whether HCA will make the investment required to cure the facilities utilization woes remains an open question. (See paragraphs 103 and 104, below.) Through the three hospitals in the Memorial Healthcare system, Regional, West and Pembroke, and a number of clinics that are off-campus, the District provides a full range of health care services to residents of south Broward County. These include: general acute care; tertiary care; adult and pediatric trauma care under trauma center designation; a specialty children's hospital designated by the state as a Children's Medical Services provider for children with special needs for cardiac care, hematology and oncology, and craniofacial services; outpatient services; and primary care services. The District is the only provider, moreover, of many health care services within the boundaries of the South Broward Hospital District, all of Broward County south of SW 36th Street. (The North Broward Hospital District includes all of Broward County north of SW 36th Street.) These services include obstetrics, pediatrics, neonatal intensive care, adult and pediatric trauma at a Level I trauma center, and teen pregnancy prevention and education. Consistent with its mission, the District also operates the only system of primary care clinics for the indigent in the South Broward Hospital District. The District is clearly the safety net provider of acute care hospital and other services for south Broward residents. In 1999, the District provided 5.9% of its total revenue or approximately $63 million in charity care and 5.4% or approximately $58 million to Medicaid recipients. During the same time period, Cleveland Clinic in terms of total revenue provided 1% charity care and 1.8% to Medicaid recipients while Westside provided 0.6% charity and 2.3% Medicaid. In dollars worth of care devoted to indigent and Medicaid patients, SBHD provides over ten times more Medicaid and indigent care than Cleveland Clinic and Westside combined. Tax revenues, although supportive of the District's ability to maintain its mission, do not come close to compensating the District in full for the care it provides to charity and indigent patients. In fact, the District expends five dollars in uncompensated care for every dollar of tax revenue it receives. Still, as a significant source of income to the District, these tax dollars contribute to SBHD's robust financial health. Cleveland Clinic Cleveland Clinic Hospital is owned by TCC Partners, a partnership between the Cleveland Clinic Foundation and Tenet Healthcare Systems. Originally located in northeast Broward County in Pompano Beach, Cleveland Clinic obtained approval in 1997 to relocate its 150 beds to Weston near the intersection of I-75 and Arvida Parkway. Operation at the site of the relocation began in July of 2001. The new site is within one of the ten-zip codes SBHD has chosen as the proposed primary service area for its new hospital in Miramar, but it is outside the South Broward Hospital District. The new site of Cleveland Clinic is in the North Broward Hospital District, 1.5 miles to the north of the boundary line between the two hospital districts that divides Broward County into two distinct health care markets. Cleveland Clinic has an established history as a regional and national tertiary referral center. It is also an advanced research and education facility that benefits from the outstanding reputation of the Cleveland Clinic Foundation and the hospitals under its umbrella. Cleveland Clinic is not a typical community hospital. It follows a distinctive model of medicine based on a multi- disciplinary approach and a closed medical specialty staff. The medical staff is open to community primary care physicians but not to community specialists or sub-specialists. All of the specialists on its staff are salaried employees of the Cleveland Clinic. This means that physician specialists who are not employees of the Clinic do not have privileges to admit or treat patients at the Cleveland Clinic Hospital. The Cleveland Clinic offers tertiary acute care services, such as kidney transplantation and open-heart surgery. It also provides specialty services in colorectal surgery, voiding dysfunction and limb reattachment. Among its specialty programs are an adult spine program, an acute stroke program, an epilepsy clinic, and an orthopedic center of excellence in sports medicine. At the time of hearing and since opening, Cleveland Clinic's average daily census has been approximately 44 patients. Westside Founded 26 or so years ago in what was then considered western Broward Count from the standpoint of population (hence its name), Westside is a 204-bed acute care hospital. Slightly less than nineteen miles from the proposed Miramar site, the site of the hospital is "now somewhat central [to Broward County]" (Westside No. 39, p. 8), given the location of the population today and the growth that has occurred to the west of Westside. Westside, like Cleveland Clinic, is in the North Broward Hospital District. It is located in the City of Plantation on West Broward Boulevard. Among the variety of acute care services offered by Westside is open heart surgery ("OHS"). The OHS program, implemented two years ago has increased the hospital's occupancy rate to a near 70%. (In 2000, the hospital had an acute care occupancy rate of 69.3%). The occupancy rate is expected to increase as the open heart surgery program expands and matures. Recent capacity constraints in the ICU, for example, led to a capital project to expand the unit "about a year and a half ago." (Id. at 13). With regard to questions about whether the hospital had experienced capacity constraints or "bottlenecks" in units, Michael Joseph, the chief executive officer of Westside, answered this way: We did in tele, and that's when we did the overflow on the fifth floor. So at this time we are -- in the peak season of March, from time to time, sure. But on the annualized basis, we are in the 75 percent occupancy level. And sometimes there [are other issues] that all hospitals go through. (Id., at 14). At the time of Mr. Joseph's deposition, October 23, 2001, for the most recent year the average daily census has been "in the 175 range." (Id.) At present, therefore, Westside's occupancy is close to ideal. Westside is financially strong. It had strong financial performance in 2000 and at the time of hearing was expected to perform strongly in 2001. Replication of West Faced with both the potential loss in 2005 of Memorial Pembroke and the high occupancies at Memorial Regional and Memorial West, SBHD began investigating the opportunity to replicate the Memorial West model of success. During the investigation, the District came to believe what it suspected from obvious signs: there is a large and growing population to be served in the Miramar area. Although land was limited, the District was able to purchase within the City of Miramar a 138-acre parcel. The parcel is the site of the subject under consideration in this proceeding as detailed in CON Application 9459: SBHD's proposed project. SBHD's Proposed Project The District proposes to construct a 100-bed acute care hospital at the intersection of SW 172nd Avenue and Pembroke Road. The site is a large one. It has sufficient land available to serve ultimately as a "health park" with medical office buildings, outpatient facilities, and additional health care related facilities typical of a modern medical campus. If, on the other hand, the District decides it is in its best interest to "sell off balances" (tr. 486) of the property, it retains that option. The hospital will provide basic acute care services and be composed of 80 adult medical/surgical, 8 pediatric, and 12 obstetric beds. On the third floor, the hospital will have 28 observation status beds, in addition to its 100 licensed beds. The design of the hospital is cost efficient. It meets all license and life safety code requirements. All patient rooms are private and meet the square footage requirements of AHCA's license standards. The hospital design, costs, and methods of construction are reasonable. The project has several goals. First, it is intended to provide increased access to affordable and quality health care for the residents of southwestern Broward County. Second, the project will allow Memorial Regional and Memorial West the opportunity to decompress and operate at reasonable and efficient occupancies into the foreseeable future without the operational problems caused by the current over-utilization. Third, the project will replace the loss of Memorial Pembroke. Finally, the project will give the District a second financial "engine that drives the train" (tr. 141) in the manner of Memorial West. The project will enable the District to maintain its financial strength and viability and continue to serve so effectively as the safety net provider for the indigent in South Broward County. Stipulated Facts In their prehearing stipulation, filed on October 31, 2001, the parties stipulated to the following: On January 26, 2001, AHCA published a fixed need pool for zero additional acute care beds in District 10, Broward County, for the January 2001 batching cycle. The South Broward Hospital District ("SBHD" or "District") timely and properly filed a Letter of Intent, initial CON Application, and Omissions Response in the batching cycle. On May 16, 2001, AHCA filed a Notice of Intent to issue the CON together with a State Agency Action Report ("SAAR") recommending approval of the CON for the proposed hospital. AHCA's Notice of Intent to approve the CON for the proposed hospital was challenged by Cleveland Clinic and Westside. Hollywood Medical Center ("HMC") also filed a petition challenging the preliminary approval but later withdrew as a party from these proceedings. Broward County has been divided by the Florida Legislature into two hospital taxing districts. The SBHD includes all areas of the county south of SW 36th Street, and the North Broward Hospital District ("NBHD") includes all areas north of the demarcation line. SBHD, Cleveland Clinic, and Westside each have a history of providing high quality of care. All of SBHD's hospital facilities are JCAHO accredited. Accordingly, the quality of care provided by these parties is not at issue in this proceeding except as it may be impacted by staffing issues. The proposed staffing and salary projections included on Schedule 6 of CON Application No. 9459 are reasonable and are not in dispute, although the parties specifically preserved the right to present evidence concerning the SBHD's ability to recruit the staff projected, and whether the projected salaries will cause or accelerate the loss of staff at existing hospitals. The parties agree that the SBHD has available management personnel and funds for capital and operating expenditures. However, Petitioners assert that the District's use of such resources for this project is neither wise nor prudent and is not in keeping with appropriate health planning principles. The parties agree that the SBHD has a history of providing health care services to Medicaid patients and the medically indigent. (Section 408.035(11), Florida Statutes.) However, Petitioners do not agree that proposed Miramar Hospital can meet the levels of charity care proposed in the application for the Miramar Hospital. With regard to Schedule 1 of the Application, the parties stipulate that the Land Costs (lines 1-11) are reasonable and are not disputed; and the Project Development Costs (lines 26-31) are reasonable and not disputed. The parties agree that Schedule 3 of the Application (sources of funds) is reasonable and not disputed. The SBHD does not contest Petitioners standing in this proceeding. At hearing, the parties stipulated that SBHD has the ability to recruit and retain the staff needed for the proposed hospital. The parties also stipulated that the SBHD has in place the staff recruitment and retention programs described at pages 132-139 of the CON application. The stipulation at hearing did not preclude either Westside or Cleveland Clinic from presenting evidence with respect to the impact of the SBHD's recruitment on other programs and other hospitals. No Numeric Need As indicated by the AHCA Bed Utilization Data for CY 2000, the occupancy rate in Broward County was 48.42%. There is, moreover, a surplus of 1,786 beds. This surplus has been increasing over time and has grown by nearly 60 beds between the January 2001 and July 2001 planning horizons. The hospitals within the District's proposed primary service area had an occupancy rate of 53% in the July 2001 planning horizon and a surplus of 456 beds, a number "somewhat proportionate to the distribution of patient days as well as licensed beds within the district." (Tr. 1639.) If the 152 non- functional beds at Memorial Pembroke are deducted from the surplus then the surplus is 304 beds. Not surprisingly therefore, the Agency's fixed need formula for acute care beds produced a fixed need of zero beds in Health Planning District 10 for the January 2001 batching cycle. (Broward County composes all of Health Planning District 10). The fixed need pool of zero was published by the Agency in January of 2001. Again in July 2001, AHCA published a fixed need for zero acute care beds in Health Planning District 10. In light of the zero fixed need pool, SBHD bases its application for the proposed Memorial Hospital Miramar on "not normal circumstances." Not Normal Circumstances "Not normal circumstances" are not defined or limited by statute or rule. Nonetheless, a number of "not normal" circumstances have been recognized repeatedly by AHCA . These recognized "not normal circumstances" are generally grouped into categories of access, quality and cost-effectiveness. None of them are present in this case. "There [are] no financial access, geographic access or clinical access circumstances [in this case] that rise to the level of not-normal circumstances." (Tr. 1633). Nor are there any quality or cost-effectiveness deficiencies claimed by the District in its application. The District bases its claim of "normal circumstances" on eight factors. They are: 1) explosive population growth; 2) a mal-distribution of beds within the health planning district; the effects of not having a hospital facility in the area proposed; 4) continued and projected high occupancies at nearby hospitals; 5) inability to expand inpatient capacity at the nearby hospitals with high occupancy rates; 6) the limited functionality and uncertain future of one of the hospitals that might serve the area where the new hospital is proposed to be located; 7) the increasing retraction of access for residents to other hospitals; and, 8) the need to assure that the applicant will remain a strong competitor able to fulfill its unique role and mission that would be served by granting the application. Population Growth Broward County is one of the fastest growing counties in the United States. "According to the census 2000 data, [over the last decade] it was the fastest growing county in all of the United States based on total population gain . . . ." (Tr. 617.) The population growth was spurred in the latter part of the previous decade by the devastation wreaked by Hurricane Andrew in 1992. The hurricane's south Dade County victims used insurance proceeds to move to southwest Broward County. This migration helped to produce growth in southwest Broward County at a faster rate than the county as whole in the decade of the nineties. Growth in pockets of southwest Broward during this period of time has been phenomenal. For example, Pembroke Pines population increased 109 percent between 1990 and 2000. For the same time period, the population of Miramar (now the second fastest growing municipality in Florida) increased 78 percent. This growth was more than just steady during the 10 years before 2000; as the decade proceeded, the growth rate accelerated. In short, it is not a misnomer to describe the population increase in southwest Broward County and the Miramar area during the last decade as "explosive." (Tr. 626) With its attendant residential and commercial development, it has transformed southwest Broward County from a rural community into a suburban one. Population growth in southwest Broward County is expected to continue into the future. Substantial land in the area is under development or is available for residential development. By 2006, the population is projected to grow to 337,000, from the 2000 population of 289,000. This rate, while not comparable to the explosive rate in some pockets of the county in the last decade, is not insignificant. By way of contrast, the projected growth rate of 16.7% over the next five years in southwest Broward compares to a projected rate for the county as a whole of 8.4% and for Florida of 7.1%. In and of itself, the projected population growth in southwest Broward County is not a "not normal" circumstance. However one might characterize the projected growth rate in southwest Broward County, moreover, the acute care hospital bed need rule takes population into account in its calculations and projections. But, the bed need formula does not take into account the significant number of beds at Memorial Pembroke that are not functional. Nor does it take into account that Cleveland Clinic is not a typical community hospital. Nor does it take into account other factors such as that Memorial West and Memorial Regional are experiencing capacity problems or the division of the health planning district into two hospital taxing districts recognized as distinct medical markets, a recognition out of the ordinary for health planning districts in Florida. A geographical fact pertinent to arguments made by Cleveland Clinic and Westside with regard to the location of the population is that Memorial Miramar's proposed primary service area is divided by Interstate 75, a north-south primary travel corridor. On a percentage basis, there is faster population growth projected for areas west of I-75. But for the foreseeable future, the actual number of people populating the area west of I-75 will remain less than the number east of I-75. The area west of I-75, with the exception of one zip code in which a retirement center has been built, has a younger projected population that should produce lower use rates and average lengths of stay in hospitals than the area east of I-75. The support these facts lend to the District's opponent's arguments that bed need is greater east of I-75 than west is diminished by the absence of any hospitals west of I-75 in the South Broward Hospital District and the presence of four hospitals in the hospital district east of the interstate. Distribution of Beds Consistent with the recognition by the Legislature, AHCA, and its predecessor state agency, north and south Broward County are two distinct medical markets demarcated by the division of the county into two hospital districts. There are 3.52 beds per 1000 population in the North Broward Hospital District, 2.35 in the south. A greater number of under-utilized acute care beds are located in the northern half; a greater percentage of highly utilized hospitals are located in the southern half. Of the four hospitals located in south Broward County, both Memorial Regional and Memorial West had average annual occupancies in excess of 80% in the calendar year 2000. By contrast, of the 13 hospitals located in the northern half of the County, none had occupancy in excess of 80%, and only one had an average annual occupancy in excess of 70%. These statistics point toward an over-distribution within the health planning district of beds in the north and an under-distribution in the south. At the same time, beds are distributed between the two hospital districts in approximate proportion to the number of patient days experienced by each. In 2000, NBHD had 71% of the patient days for District 10 and 73% of the acute care beds. As one might expect, therefore, the relationship between patient days and acute care beds during the same period was similar for the SBHD: 28.9% of the patient days for District 10 and 27% of the beds. An analysis of bed to population ratio is only meaningful when occupancy rates are also considered. Occupancy rates are mixed in the south part of the county: very high for some, especially Memorial West, and very low for Memorial Pembroke. This breadth of this disparity is unusual. Effects of No Hospital in Miramar Thirty to 60 minutes to reach an acute care hospital is a reasonable driving time in an urban area. There are five existing acute care facilities within 30 minutes of southwest Broward County. In fact, most of the residents in Memorial Miramar's proposed service area are within 15 minutes or less of an existing acute care facility. Nonetheless, without a hospital in Miramar, residents must leave their immediate community to gain access to acute care services. As a matter of sound health planning, "[n]ot every city, town or hamlet can or should have its 'own' hospital." So correctly posit Cleveland Clinic and Westside. See pgs. 13-14, Cleveland Clinic and Westside PRO. But as the City Manager of Miramar wrote, "[t]he addition of a new hospital is one of the last missing links in the City [of Miramar]'s master plan . . . The city is looking to build the best possible future for its residents." District Ex. 2, Attachment G. A new hospital in Miramar would not only be a featured complement of the City of Miramar's plans for the future, it would also enhance access to acute care services and address access concerns caused by skewed utilization among the SBHD hospitals due to the unusual state of affairs at Memorial Pembroke and the high demand at West. Of great concern is that residents of southwest Broward County in need of emergency services are sometimes not able to gain access to those services at Memorial West, the closest available hospital. Memorial West operates the third busiest Emergency Department in Broward County with 65,000 visits in 2001. In Calendar Year 2000, Memorial West's emergency room went on diversion 123 times, averaging 7.7 hours per diversion. In the first months of 2001, the hospital went on diversion 89 times, with an average diversion time of 16.3 hours. These diversions have a dual effect. They mean that patients wait longer for beds. They also mean that providers of emergency medical services in ambulances are forced out of the community for extended periods of time unable to render services within the community that may be needed during that time. Diversions at Memorial West are becoming more and more problematic. Wait times are getting longer; the total time on diversion is growing. At first blush, the problems appear to be less significant at Memorial West than they might be elsewhere in District 10 because of its low "emergency room visits to hospital admissions" ratio. The Health Planning District average shows that about 20% of emergency room patients are admitted to the hospital. At Memorial West, the ratio is 8.7%, the lowest in the County. While normally this might reflect that patients visiting Memorial West have a lower acuity than patients visiting emergency rooms district-wide, the lower ratio for Memorial West is due, at least in part, to the high volume of pediatric patients seen at West who are transferred to Joe DiMaggio's Children's Hospital. The pediatric transfers, in the words of Frederick Michael Keroff, M.D., a Board-certified emergency physician who has worked in hospital emergency departments in South Florida for 24 years, create a false sense of what is actually being seen on the adult side of the emergency room department. On the adult side . . . [the ratio] varies somewhere between 12 and 16 and a half percent which is comparable with any other facility. . . . [W]hen you mix in such a large pediatric population into the adult population, obviously it dilutes out the number and drops [the ratio] down . . . . (Tr. 2568.) A solution to emergency room diversion at Memorial West and an alternative to the construction of Memorial Miramar proposed by Cleveland Clinic and Westside is more SBHD urgent care centers in the Miramar area. SBHD operates seven urgent care centers. Of these seven, the proposed Miramar PSA has only one. Additional urgent care centers more readily accessible in the 10 zip code area that comprises Memorial Miramar's PSA might reduce the number of visits to the ER at Memorial West. But they might not. Patients don't self-triage when they are presented with a problem. They go to the hospital. [Triage is a medical decision.] Patients usually come to the hospital, even [with] urgent care centers down the block, because they don't know what the problem is and they allow the hospital to make the decision about what the problem is. (Tr. 2571.) Additional urgent care centers would not solve the problem created when diversion is a result of the lack of acute care beds for Memorial West ER patients who need to be admitted to the hospital for treatment beyond that provided in the ER. Cleveland Clinic hospital is not likely to offer much of an alternative. Because of the closed nature of the Cleveland Clinic specialty staff, it will not be a hospital of choice for community physicians in the South Broward Hospital District. Nor will it be a hospital of choice for patients able to elect the hospital at which to seek emergency services. It is apparent from the demand on Memorial West, despite the number of beds and other emergency departments within acceptable reach, that a Memorial West-type facility is what the residents of southwest Broward County prefer and opt for even if it means they have will have to wait for emergency services. In cases of patients transported from southwest Broward County via ambulances forced to go to Cleveland Clinic in Weston to deliver patients in need of emergency services, the transport presents difficulties of their own. It is not efficient management of emergency services due to their very nature to require ambulances to leave their service areas. There are no clear solutions to the problems emergency room diversions present for patients, their families, physicians, and the emergency medical system in general in southwest Broward County other than construction of new acute care hospital in Miramar. Construction of a new acute care hospital in Miramar will help to alleviate the high occupancies and emergency room diversions currently experienced at Memorial West. It will reduce disruptions to Miramar residents and will provide an easily accessible alternative to southwest Broward County residents, thereby enhancing access to emergency services. High Occupancy Rates at West and Regional The current and reasonably-projected high occupancies at Memorial West and Memorial Regional are extraordinary circumstances for a health planning district with as many excess beds as District 10. The calculation under AHCA's formula for hospital bed need for the January 2001 batching cycle yielded an excess of 1,717 beds. Calculation by the Agency using the same formula for the July 2001 batching cycle showed an excess of 1,786 beds or 59 more excess beds than just six months earlier. The import of these results was described at hearing by Scott Hopes, Westside's expert health planner: Obviously when you have a situation like this, the default is a zero published fixed need which is what was published. But the importance here is that there are so many excess beds. And if you look also on the line [of Westside Ex. 23] that deals with occupancy rate, the occupancy rate is about 48 percent, and it hasn't varied much between the six-month period. In fact, the occupancy rate in Broward County has been under 50 percent for some quite sometime. (Tr. 2076-7). It is extraordinary that a health planning district with so many excess beds would also have two hospitals, Memorial West and Memorial Regional, with capacity problems. Memorial West, by any standard, is a successful hospital. Since it opened in 1992, the inpatient volume there has tripled. Opening as a 100-bed facility, Memorial West now has 184 licensed beds, an expansion aimed to meet the demand for its services. As alluded to elsewhere in this order, because there are often not enough available acute care beds at Memorial West, some patients have to wait in the ER six hours or more. It is not unusual for more than 40 patients to wait at one time. Despite these conditions, patients, when offered the opportunity for a transfer to another hospital, rarely accept the offer. More often than not the patients do not wish to go. The reputation of Memorial Hospital West, the loyalty factor, if you will, to Memorial, to the medical staff, the patients want to remain at the facility. (Testimony of Memorial West Administrator Ross, Tr. 152-3.) Memorial West plans expansion but even with its current planned bed expansion, it is reasonable to expect it to reach unacceptably high occupancy rates by 2006 if Memorial Miramar is not built. Furthermore, the only obstetric programs in south Broward are at Memorial West and Memorial Regional. Memorial West performed 4,400 births last year, and its obstetrics unit often operates in excess of 100% occupancy. The only constraint on additional births at West is the limited physical capacity of the facility. Memorial Regional experienced even more births last year than West with about 5,000 deliveries. Memorial Regional is operating at or exceeding its functional capacity in other departments. The current medical/surgical occupancy at Memorial Regional is approximately 80% year round. Some units experience much higher occupancies. The intensive care unit's occupancy frequently exceed 100%, as does the cardiac telemetry unit. In certain medical/surgical units, peak occupancy is as high as 125%. Memorial Regional's capacity to handle its high patient volume is limited by certain factors. Semi-private rooms are limited to use by members of the same sex. As a tertiary facility, there are specialty patients who must be served by nurses trained in that patient's specialty, with appropriate monitoring equipment. Without approval of Memorial Hospital Miramar, Memorial Regional will reach 85% occupancy by 2008 and 88% occupancy by 2010. These occupancy rates create an inefficient and untenable environment in which to deliver the mix of specialized and tertiary services offered by Memorial Regional. The overcrowding at Memorial West and Memorial Regional is dramatic and continuing. There are simply more patients seeking care at these hospitals than the hospitals can serve appropriately. This overcrowding exists despite the excess of acute care beds within the health planning district. In sum, despite the plentiful nature of the number of acute care beds in the health planning district, a need exists to either decompress Memorial Regional and Memorial West by some means such as the proposed new hospital in Miramar or to expand one or both of the two hospitals by way of new construction or conversion of LDR and observation beds. A decompression alternative to the new hospital is to transfer beds from existing hospitals to create a satellite hospital. Because of high occupancy rates at West and Regional and because Pembroke's lease will expire in 2005, transfer of existing beds is not a feasible option. That leaves expansion, as the only alternative to a new hospital in Miramar. Cleveland Clinic and Westside argue there are ample opportunities at the two hospitals for expansion. Expansion New Construction In pre-CON application evaluation, SBHD commissioned a study from Gresham, Smith and Partners, an architecture firm. The firm studied the three Memorial facilities to determine whether expansion of the acute care bed complement at any of them was feasible. In a "Memorial Health System Facility Expandability and Master Plan Review Report" the firm concluded that it was clearly not feasible to expand either Memorial Pembroke or Memorial Regional and there were problems with expanding Memorial West. With significant problems including its aged plant and its uncertain future, expansion at Memorial Pembroke would not be cost-effective. It would cost $31 million in capital improvements to maintain Pembroke's functional capacity at 149 beds. If the present location of nursing administration, hospice and other necessary services were moved out of the hospital, the hospital's function could be expanded to 215 beds. No evidence was presented with regard to the advisability of moving those services or the additional costs associated with this alternative. HCA's willingness to make the investment necessary to renovate the facility at Pembroke was not supported by any specifics. HCA's announced its intention, "to take the hospital back at the end of the lease and run it," (tr. 1511-2) but, in fact, the company has not taken any action to evaluate the potential for assuming operation of the hospital in 2005. Nor has it even begun the process it must go through before final decisions are made. The overarching intention to "re-take the hospital and run it," at this point in time, does not mean HCA will be willing to make the investment necessary to renovate the facility either during the term of SBHD's lease or afterward. It still needs to "do a very detailed discounted cash flow analysis to make a final decision on the investment needed and the return on that investment." (Tr. 1514.) Memorial Pembroke's uncertain future makes it an unlikely candidate for expansion. However unlikely such a result, with the problems that afflict Memorial Pembroke, there is, moreover, no guarantee that HCA's intended analysis will convince it even to continue operation of the hospital. Memorial Regional has different problems from Memorial Pembroke. It takes up an entire block surrounded by residential property and parking garages. There is almost no opportunity for growth on the site. Of the few areas that could be expanded vertically, only one would be conducive to bed addition. "[I]t is so remote, it doesn't tie back to the main nursing care areas." (Tr. 482.) Expansion at Regional would also be plagued with concurrency problems and zoning issues. Of the three hospitals, Memorial West presents the best option for expansion. A facility master plan for Memorial West provides for the addition of a patient tower on the north side of the facility ("the north tower"). The addition of the north tower could add as many as 50 beds to Memorial West at a cost substantially less than the construction of Memorial Miramar. Still, SBHD's architects, Smith and Gresham, concluded that expansion of the size necessary to alleviate the overcrowding at West was not cost-effective. The force of the Smith and Gresham opinion is tempered by the firm's standing to benefit financially to a much more significant degree if Memorial Miramar is built than if the planned-for tower is constructed to add 50 beds to Memorial West. But the opinion is not groundless. Put simply, construction of an additional tower at West is no simple solution to its capacity problems. The tower was planned for maternal services but like the minimal opportunity for expansion at Regional, it would be "remote from the rest of the nursing function . . . [it would, moreover] trigger huge upgrades to the infrastructure." (Tr. 480.) The hospital site is constricted already because of additions that have almost completely built out the campus. A new north tower would add inefficiencies in hospital operations because of the increase in travel distance for materials delivery and meeting the dietary needs of patients. Despite the master plan for growth, an improvement the size of the north tower would begin to turn West into another Memorial Regional: a huge hospital, overdeveloped for its site. The improvement, like every improvement thereafter, would require patient shuffles and disruptions in patient care. Like Memorial Regional, expansion at West, too, would have concurrency issues and could create a land use dispute with neighbors, the outcome of which is uncertain. In light of these obstacles, SBHD prefers the option of constructing the new hospital in Miramar over expansion at West. There is, however, in the view of SBHD's opponents, another option for expansion of existing facilities: conversion of LDR and observation beds. Expansion through conversion of LDR and Observation Beds Cleveland Clinic and Westside contend that another option to relieve overcrowding is conversion of observation and LDR beds to acute care hospital beds. But these beds are used to meet the need of observation and maternity service patients. There are patients who need closely supervised medical care but whose care has not been determined to require admission to the hospital. Observation patients, sometimes referred to as "23 hour" patients, may suffer from various conditions, including chest pain, fever, abdominal pain, rectal bleeding or nausea. Given the high number of births at Memorial West, many obstetrical patients present at the hospital in "false labor" or for antipartum testing, complications of pregnancy, or symptoms that should be treated as observation or on an inpatient basis. It would be impractical for Memorial West to convert observation and maternity service beds, whether existing or still planned for, to inpatient acute care beds. If these beds were converted, Memorial West would find itself once again in its present straits of not enough beds for observation purposes particularly for obstetrical patients for whom there is little choice where to obtain obstetrical services in the South Broward Hospital District. Limited Functionality and Uncertain Future of Memorial Pembroke Memorial Pembroke has undergone seven ownership changes since it first opened. Perceived as a hospital where neither patients nor physicians want to go, it has suffered from a stigma within the community. Even with recent gains in utilization, it achieved an occupancy rate of only 24% in calendar year 2000. Pembroke suffers from physical and infrastructure limitations that reduce its functional bed capacity to 149 beds. Its mechanical and heating, ventilation and air conditioning systems are outdated and inadequate. For example, a primary generator is vented to the outside by a 6-foot hole in the ceiling. The electrical panels are at absolute capacity. The first floor has an outdated, plenum air return with no ducts in the ceiling. The generators have transfer switches that require them to be turned on manually. Facilities management personnel are reluctant to do so for safety reasons. The semi-private patient rooms at Pembroke are too small for modern care and do not have adequate space for the monitors, IV equipment, pumps and other technology required by today's health care delivery system. Many rooms do not have showers. The hospital has a number of three bed wards woefully outdated by the standards of modern care. It would cost $31 million in capital improvements to simply maintain Pembroke's functional capacity at 149 beds, to upgrade the facility to bring it into compliance with existing code and to otherwise modernize inadequacies. Whether Pembroke will continue to operate after 2004 is unknown. While HCA stated its intention to do so, it has not made a final decision to assume operations. It still needs to conduct a financial analysis sufficiently detailed to determine whether the necessary expenditures to bring the hospital up to par are practical. Any capital investment by HCA in excess of $1 million requires the approval of HCA's national office, approval that has not yet been provided. The level of capital investment required at Memorial Pembroke is significant and it cannot be assumed that HCA will make this investment. (See paragraph 89, above.) Increasing Retraction for Access in SW Broward Of the three hospitals located within the ten zip codes that constitute southwest Broward County: Memorial West, Memorial Pembroke and Cleveland Clinic, each poses some manner of access impediment for the residents of the area. Memorial West is overcrowded. Memorial Pembroke's future is uncertain, its present clouded by significant physical plant problems and stigma that keeps its occupancy low. Cleveland Clinic's distinctive character, its closed specialty staff and its regional, national and international draw discourages utilization by southwest Broward residents seeking routine acute care hospital services at a community hospital. The Cleveland Clinic medical staff is open to community primary care physicians. "[W]ith the qualification that if there's a specialty for some reason that is not adequately manned, the clinic can go out and contract with community physicians to provide the services" (District No. 55, p. 39), the Cleveland Clinic medical staff is not open to community specialists or sub-specialists. Its specialty and sub- specialty staff, therefore, is closed. The medical staff building, moreover, located on the campus is also closed to community practitioners even to those primary care physicians with privileges at the hospital to manage their patients care. Like the specialty medical staff, the building is restricted to Cleveland Clinic salaried specialists. Due to the closed nature of the specialty staff at Cleveland Clinic, any patient admitted to the Cleveland Clinic hospital will be seen by a Cleveland Clinic physician. This sets up reluctance on the part of community physicians to use the Cleveland Clinic hospital. As expressed by the hospital's CEO, "it's sometimes difficult to convince a primary care physician that he needs to change his referral patients, so yes, there is some concern [about the willingness of community physicians to utilize the hospital]." Id., p. 40. In multiple prior CON applications approved by AHCA, Cleveland Clinic projected that up to 30% of its patients would come from outside Broward County and that it would draw patients from throughout Broward County, rather than having a more traditional, limited service area typical of a community hospital. Patient origin data for Cleveland Clinic when at its old location in Pompano Beach shows the hospital, unique among Broward County hospitals, has a broad county-wide, regional and national draw. While all other hospitals in Broward County can identify fewer than 25 zip codes that generate the first 75% of patient admissions in 1999, 60 zip codes generated the first 75% of Cleveland Clinic's admissions. Similarly, while all other hospitals in Broward County can identify fewer than 25 zip codes that generate the first 90% of their patient admissions in 1999, the first 90% of patient admissions at Cleveland Clinic's hospital were generated by no less than 287 zip codes. Cleveland Clinic presented evidence of its intention to be available to the local community. It has marketed in Broward County by means of newspaper and television advertisements and various community programs. It has also conducted outreach and training programs with the emergency medical service providers in the Broward County area, not only to improve the quality of care for the patients of Broward County but also to educate the emergency medical service providers about Cleveland Clinic. The patient origin data for Cleveland Clinic's first three months of operation in Weston, however, verifies its continued broad draw. This data shows that within Broward County, only 30% of patients originated within the 9 southwest Broward zip codes that Cleveland Clinic identifies as its "immediate service area"; the other 70% of its patients come from outside the immediate service area. Cleveland Clinic is not a typical community hospital. Its previous CON applications have been granted in part on its unique characteristics. Whether its image or persona will change with the move to Weston to attract more patients from southwest Broward County is an open question. Given its nature and the focus of the health care it is likely to deliver, however, it is not likely that it will be utilized regularly by residents of southwest Broward County seeking routine hospital care either because not their hospital of choice or because of community physician referral patterns. h. Assurance that SBHD Can Fulfill its Mission The final "not normal" circumstance relied on by SBHD relates to the affluence of the patients in southwest Broward County and the profits that are reasonably expected to be generated by virtue of the proposed hospital's location in this affluent area. The expected profits will both subsidize SBHD's charity care and support its ability to be competitive. The importance of SBHD remaining competitive and able to serve the indigent in Broward County was explained at hearing by Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation: [A]s a major indigent care provider for the State of Florida, [SBHD is] providing a service that extends far and wide that benefits everyone. In our state we have indigent care concentrated in relatively few facilities … [I]t is a very important resource that needs to be nurtured and protected to the greatest extent possible because it is fragile and vulnerable. We have many uninsured people in the state, somewhere between two and three million. It is reasonable to expect now with the economic downturn that we are going to be seeing an increase in uninsured people, so the value of hospitals that function as safety net providers is . . . very important. (Tr. 1240-1). This rationale supported the District's CON application for Memorial West. Because of SBHD's financial success to which Memorial West has been a major contributor, SBHD has achieved a significant degree of financial stability in this day of decreasing reimbursements, managed care, and increased health care costs. It is not contested that its financial position is sound. For fiscal year 2002, SBHD was running ahead of revenue and profit projections at the time of hearing. Nonetheless, if hospitals are constrained and the payor mix becomes less favorable, financial conditions can change quickly. Only three years ago, the District posted an $18 million debt. The capacity constraints at Memorial West will limit its ability to generate additional profits. At the same time, the District must accept all charity care patients. This requirement coupled with capacity constraints has the potential for an unfavorable payor mix for the District. The addition of Memorial Miramar will help to ensure that the District maintains its strong market position and will sustain a favorable payor mix. The profits expected to be generated by Memorial Miramar will ensure that the District can continue to provide care to the indigent without raising, and perhaps by lowering, the tax rate for the tax payers of Broward County. The Proposed Primary Service Area The District's proposed primary service area ("PSA") is a 10 zip code area in southwest Broward County. It excludes zip codes in Dade County that might have been included as well as the eight easternmost zip codes in south Broward County. Usually a set of contiguous towns or minor subdivisions or zip codes that represent a substantial majority of a hospital's patients, there is no single way of defining a hospital's primary service area. Some health planners use a region from which 75% of the patients come but a range of 60 to 80 percent is not unreasonable. There are other approaches to defining primary service areas: zip codes, for example, in which a threshold level of market share was achieved or that account for a minimum percentage of the hospital's patients. While one method may be more usual than another, any of a number of ways of defining a PSA may be reasonable. Cleveland Clinic's health planner, Ms. Patricia Greenberg sees Dr. Finarelli's PSA for the Miramar hospital as not rational from the perspective of health planning. The zip codes Dr. Finarelli chose include a number that are to the east of Memorial West. Ms. Greenberg asserts that it is unlikely that patients will drive from the east past Memorial West in order to reach Memorial Miramar. It would have made much more sense, in her view, for the PSA to have included three zip codes to the north of the PSA in western Broward County: zip codes 33327, 33326 and 33325. But these zip codes, entirely within North Broward Hospital District, are not South Broward Hospital District zip codes. Nor are three other zip codes that Ms. Greenberg sees for the Miramar PSA as more rational choices than zip codes east of Memorial West that Dr. Finarelli chose. Ms. Greenberg's other choices outside Dr. Finarelli's PSA are not only not in the hospital district, they are not in AHCA Health Planning District 10. They are in Dade County. Determinations of bed need do not always rise and fall on the selection of the primary service area. To the contrary, as Dr. Finarelli stated at hearing, "[h]ow and where the boundaries are drawn between the primary and secondary service area is less important [than] making sure that any analysis of bed need and demand incorporates both the primary and secondary service areas." (Tr. 724). This statement loses its potency, however, and the import of the choice of the primary service area is raised in light of the population-based bed need projections made by Dr. Finarelli within the PSA in support of the application. Population Based Bed Need Projections within the PSA Dr. Finarelli conducted a standard population based bed need analysis to determine the gross bed need within the PSA selected for the proposed hospital. His bed need calculations were computed separately for adult medical, surgical, pediatric and obstetric beds. The assumptions used by Dr. Finarelli were reasonable and appropriate. The level of detail in Dr. Finarelli's model was described by another of SBHD's expert health planners who testified in this case, Mr. Balsano and who has been qualified as an expert in health planning and health care financial feasibility approximately 20 times over the last decade, as the most detailed model he had ever seen. Dr. Finarelli's analysis accounted for the current and projected population as well as the current and projected hospital discharge rate per 1000 population within the PSA. Multiplying the population (in thousands) by the discharge rate yields the total number of current and projected hospital discharges by PSA residents for the planning horizon. The total number of hospital discharges was then multiplied by an appropriate average length of stay ("ALOS") to determine the total number of current and projected patient days by PSA residents. The total patient days were divided by 365 (days in the year) to arrive at the current and projected hospital average daily census ("ADC"). Finally, the ADC was divided by the desired 75% occupancy rate to arrive at a gross bed need for the PSA. The calculations result in a projected need in the 2006 planning horizon for a total of 457 acute care beds; including 386 adult medical surgical, 25 pediatric, and 46 obstetric beds. Based only on projected population growth within the PSA, there will be an incremental gross bed need for 75 acute care beds; 67 medical/surgical, 3 pediatric and 5 obstetric. Existing Inventory and Bed Supply The three hospitals located within the 10 zip code PSA have a total of 667 licensed acute care beds, existing or approved. Including the 36 approved and 16 conditionally approved beds at West, Memorial West has 216 beds. Memorial Pembroke has 301 and there are 150 licensed beds at Cleveland Clinic. This total, however, is "simply not a reasonable or realistic measure of how many beds in those three hospitals are truly available to the residents of Southwest Broward County . . . ." (Tr. 837-8.) Patient origin statistics and representations made by Cleveland Clinic in its certificate of need applications bear out that it is not a typical community hospital. Appropriate to its mix of tertiary services and its focus on education and research, it has a broad service area reaching far beyond Broward County. Consistent with the nature of the hospital, in its first three months of operation at Weston, 35% of its patients came from outside Broward County and only 16% have come from southwest Broward County or the 10 zip code PSA used by SBHD in its application for the Miramar hospital. Based on available data and information, it is reasonable to project that Cleveland Clinic will draw approximately 26% of its patients from within Memorial Miramar's PSA. It is reasonable, therefore, to allocate 26% of Cleveland Clinic's 150 beds to meet the population based demand for adult medical surgical beds in the PSA, for a net contribution of approximately 40 beds. With its functional capacity of 149 beds, it is not reasonable to consider all of the 301 beds at Memorial Pembroke. Fifty-four percent of its patients come from within the Memorial Pembroke PSA. The product of 149 beds multiplied by 54% is approximately 80 beds available to meet the population-based demand of the residents of southwest Broward County. There is, moreover, some doubt about whether any beds will be available at Memorial Pembroke after the expiration of SBHD's lease with HCA. Given the stigma Memorial Pembroke suffers and its uncertain future, an estimate of 80 beds is a reasonable projection for the number of beds at the hospital available to meet the needs of the residents of southwest Broward County. With 65% of its patients coming from within the proposed PSA for the Miramar Hospital, Memorial West is the hospital of choice for the residents of the proposed PSA. With 186 adult medical surgical beds, 120 meet the needs of patients coming from Miramar's PSA. Thus, there are approximately 240 adult medical surgical beds (120 at West, 80 at Pembroke and 40 at Cleveland Clinic) available to meet the projected need of 386 adult medical surgical beds in the 2006 planning horizon. Subtracting the 240 beds from the 386 needed yields a net need of 146 beds to serve residents of the Miramar PSA. Although some patients will continue to seek services outside the PSA, Dr. Finarelli's projection that there is a sufficient net need to support the 80 adult medical surgical beds proposed at Memorial Miramar is reasonable. Building Memorial Miramar will help reduce the percentage of people who leave the area for acute inpatient adult medical surgical services from its current level of about 50% to approximately 25%. This will improve access to health care for the residents of southwest Broward County. Memorial West is the only provider of obstetrical services in southwest Broward County, and only one of two in all of south Broward (the other being Memorial Regional). Both Memorial West and Memorial Regional are operating above capacity in their obstetrical units. In calendar year 2000, Memorial West's 24-bed obstetric unit operated at 130% occupancy. Hollywood Medical Center recently closed its obstetric unit thereby increasing the pressure on Memorial Regional and Memorial West to provide services to area patients. With a projected gross need for 46 obstetric beds in the planning horizon, there is a net need for at least 22 more obstetric beds. The proposed 12-bed unit at Memorial Miramar will help to meet that need. Memorial Hospital West's 6-bed pediatric unit is the only unit of its kind in southwest Broward County. The only other provider of pediatric services in all of south Broward is Memorial Regional's Joe DiMaggio Children's Hospital. Dr. Finarelli reasonably projects that one-half of the pediatric patient beds needed in southwest Broward would continue to be filled by Joe DiMaggio's Children Hospital. This leaves a net need for at least 7 pediatric beds in southwest Broward; the proposed 8-bed unit at Memorial Miramar will fill that need. Patient Days, Utilization and Market Share Projections To project utilization and market shares for the proposed hospital, Dr. Finarelli used a geographic area comprised of 28 zip codes that represent the primary and secondary service areas of the proposed hospital. The areas are expected to account for 90% of the hospital's admissions. The 28 zip codes were divided by Dr. Finarelli into four geographic clusters: the 10 zip code PSA or "Southwest Broward", 9 zip codes in "Other South Broward", 3 zip codes in "North Broward" and 6 zip codes in north Dade County or "Select North Dade." Based on historical and current data and market trends, Dr. Finarelli assigned current and projected inpatient market shares in each zip code cluster to each hospital in south Broward County and to select hospitals in north Broward County and north Dade County, with and without the existence of Memorial Hospital Miramar. He also assigned market shares and projected patient days separately by service category for adult medical/surgical, obstetric and pediatric services. Dr. Finarelli's market share assumptions for the proposed hospital were as follows: for Southwest Broward County in the Adult Service Category, 6% and 18%, in OB, 7% and 20%, in Pediatrics, 7% and 20%, all for the years 2005 and 2010, respectively; for Other South Broward County, in the Adult Service Category, 0.3% and 1%, for OB, 0.3% and 1%, for pediatrics, 0% and 0%, all for the years 2005 and 2010, respectively; for North Broward in the Adult Service Category, 0.6% and 2%, for OB, 0.8% and 3% and for pediatrics, 0.8% and 3%, all for the years 2005 and 2010, respectively; and for Select North Dade, in the Adult Service Category, 0.8% and 2.5%, for OB, 1% and 3%, and for pediatrics, 0.8% and 2.5%, all for the years 2005 and 2010, respectively. Taking into account available data and projected trends in each of the zip code clusters, these market share projections are reasonable. Dr. Finarelli applied his market share assumptions to overall projections of hospital discharges for each zip code cluster to arrive at the projected number of discharges for the proposed hospital in its first and second year of operation. He included an additional 9% to 10% in projected discharges to account for patients admitted from outside the 28 zip codes, such as patients from areas elsewhere in Broward, Dade, other parts of Florida and out of state. It is typical for hospitals in Broward County to receive approximately 10% of patients from outside of their primary and secondary service areas. By multiplying the projected number of hospital discharges by a reasonable length of stay for each category of service, Dr. Finarelli arrived at his projections of patient days. His "average length of stay" assumption was less than the District average. These calculations demonstrate that Memorial Miramar will have total acute care utilization of 19,958 patient days in its first full year of operation, and 25,503 patient days in its second full year of operation. Dr. Finarelli's projections of market shares, admissions and patient days for the new hospital appear to be reasonable. The Statutory Criteria Section 408.035, Florida Statutes, provides the review criteria for CON applications. The parties agree that subsections (3) and (4) are not in dispute. Section 408.035(1) concerns whether the proposed project is supported by and consistent with the applicable district health plan (the "Plan"). The Plan contains recommendations, preferences and priorities. The majority of the preferences and priorities contained in the Plan are not applicable to this application. The Plan recommends that there should be a reduction of licensed beds in Broward County until a ratio of 4.0 beds per 1,000 population is less than 4.0 beds per thousand and/or an overall occupancy rate of 85% is achieved. Although the bed population ratio is less than 4.0 beds per thousand, the annual occupancy rate is below 50%. This criterion, quite obviously, is not met by SBHD. But its importance diminishes in light of the "not normal" circumstances in support of the application, particularly the overcrowding at Memorial West and Regional. The Plan states that "priority consideration for initiation of new acute care services or capital expenditures shall be given to applicants with a documented history of providing services to medically indigent patients or a commitment to do so." SBHD promises to provide 3.21% of gross revenue for charity care and 4.14% of its patient days for Medicaid patients at Memorial Pembroke. These figures are not unattainable. Memorial West provided 3.2% of its revenues toward charity care in the most recent year. The effect of the expiration of SBHD' lease without renewal at Memorial Pembroke may increase pressure on Memorial Miramar's charity care services. On the other hand, in light of Memorial West's history in meeting its charity care commitment and the relative affluence of the Miramar's PSA, there is some question as to whether Memorial Miramar can meet the commitment contained in the application. West has fallen far short of its 7.0% commitment. Less than 1% of its admissions were charity care admissions between 1997 and 2000 and only 2.6% of its gross revenues were for charity care in 1999, for example. Whatever West's experience bodes for Miramar's future, it is clear that SBHD has a documented history of providing services to the medically indigent. It is committed, moreover, to do so throughout the hospital district whether it achieves its commitment at Memorial Miramar or not. The preferences of the Plan related to the provision of care for the indigent is clearly met by SBHD. Section 408.035(2) addresses the availability, quality of care, accessibility and extent of utilization of existing health care facilities and health services in the service district of the applicant. There is no problem with quality of care in the district. The extent of utilization of all the facilities in the district is not high. Nonetheless, there is an access problem that constitutes not normal circumstances. Memorial West, in particular, is overcrowded. A new hospital in Miramar will enhance access for the residents of the hospital district who want to access one of the District's hospitals and so directly meets the criterion in Section 408.035(7), the "extent to which the proposed services will enhance access to health care for residents of the service district." Section 408.035(5) addresses the needs of research and educational facilities including facilities with institutional training programs and community training programs for health care practitioners at the student, internship and residency training levels. The District's affiliation with medical schools provides some satisfaction with this criterion but on balance, SBHD receives little credit under this criterion. Section 408.035(6), Florida Statutes is "[t]he availability, of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation." The parties stipulated that SBHD has the ability to recruit and retain the staff needed for the proposed hospital. Cleveland Clinic and Westside argue that SBHD's recruitment of staff will have a detrimental impact on existing providers. A shortage of skilled nurses and other allied professionals exists nationally, in Florida and in Dade and Broward Counties. The nursing shortage has intensified in recent years due to the decline in the number of licensed nurses further compounded by a drop in the number of nurses enrolled in nursing schools. As a result it has become increasingly difficult for hospitals to fill nursing vacancies. In order to ensure adequate staffing in the midst of the nursing shortage, especially during the peak season of late fall and the winter months, Westside and Cleveland Clinic are forced to utilize "agency" or "pool" nursing personnel. These nurses command higher wages than non-agency nursing personnel. The District's application projects a need for 128 registered nurses who will be full-time employees ("FTE"s). This need increases to 167. New hospitals are usually able to attract staff from other facilities who prefer to work with new equipment in a new setting. Recruitment of personnel to staff the Miramar Hospital will come at the expense of existing providers such as Cleveland Clinic and Westside. Subsection (8) of the Review Criteria is "[t]he immediate and long-term financial feasibility of the proposal." The District has the financial resources to construct the hospital and meet start-up costs. There was no challenge to SBHD's demonstration of short-term financial feasibility. Projections of revenues and expenses were based on SBHD experience at Memorial West and its other hospitals. These projections are reasonable. Based on Dr. Finarelli's patient day projections, showing a net profit of $1.6 million in year 2, the project is feasible in the long-term. Subsection (9) of the Review Criteria is "[t]he extent to which the proposal will foster competition that promotes quality and cost-effectiveness." Aside from the impact the new facility will have on Cleveland Clinic and Westside's ability to recruit and retain staff, the evidence failed to show that either Cleveland Clinic or Westside would suffer significant impact if SBHD's application is approved. No matter which experts projections of lost case volume are accepted, both Cleveland Clinic and Westside should generate substantial net profits. The future of Memorial Pembroke, after the expiration of the current lease, is too speculative to factor into the impact to HCA. Subsection (10) of the Review Criteria relates to the costs and methods of the proposed construction. The District satisfies this criterion. (See paragraph 34, above). Subsection (11) addresses the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. As stated above, while there is legitimate doubt whether or not SBHD can meet the conditions it proposes in its application, there is no question about its past provisions of services to Medicaid patients and the medically indigent. Rule Criteria There are two rule criteria that relate to the application. Rule 59C-1.038, acute care bed priority considerations and Rule 59C-1030, additional review criteria. Under the Rule 59C-1.038 there are two priorities, only the first of which (documented history of providing services to medically indigent patients or a commitment to do so) is applicable. Stated in the disjunctive, just as its corollary statutory criterion, SBHD clearly meets the criterion based on its documented history regardless of the case Cleveland Clinic and Westside present relative to doubts based on the history of condition compliance at Memorial West. The criteria in Rule 59C-1.030 generally address the extent to which there is a need for a particular service and the extent to which the service will be accessible to underserved members of the population. The application did not identify an underserved segment of the population that is in need of the services proposed for Memorial Miramar. As for the remainder of the criteria under the rule, there is a need for the proposed project as concluded below in this order's conclusions of law.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration grant South Broward Hospital District's CON Application 9459 to establish a 100-bed acute care hospital in southwest Broward County. DONE AND ENTERED this 3rd day of July, 2002, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 3rd day of July, 2002. COPIES FURNISHED: C. Gary Williams, Esquire Michael J. Glazer, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 F. Philip Blank, Esquire Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Post Office Box 11068 Tallahassee, Florida 32302-3068 George N. Meros, Jr., Esquire Michael E. Riley, Esquire Gray, Harris & Robinson, P.A. Post Office Box 11189 Tallahassee, Florida 32302 Gerald L. Pickett, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 William Roberts, Acting General Counsel Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Virginia A. Daire, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403

Florida Laws (3) 120.569408.035408.039
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DEPARTMENT OF HEALTH, BOARD OF NURSING vs MARLA GUNDERSON, 01-004817PL (2001)
Division of Administrative Hearings, Florida Filed:Fort Myers, Florida Dec. 13, 2001 Number: 01-004817PL Latest Update: Jul. 30, 2002

The Issue The issues are whether Respondent withdrew controlled substances from the narcotics dispensing system and failed to document the administration or wastage of those substances; if yes, whether this conduct fails to conform to minimum acceptable standards of prevailing nursing practice; and, if yes, what penalty should be imposed on Respondent's license as a registered nurse.

Findings Of Fact The Department is the state agency charged with regulating the practice of nursing in the State of Florida. Respondent Marla Gunderson ("Respondent") is, and has been at all times material hereto, a licensed registered nurse in the State of Florida, having been issued license number 2832622 by the Florida Board of Nursing in 1994. Respondent was employed by Lee Memorial Health Care System Rehabilitation Hospital ("Lee Memorial") as a registered nurse from about January 29, 2001, until about March 22, 2001. During the first three or four weeks of Respondent's employment, she participated in a full-time training program through Lee Memorial's education department. A part of this training included training in the administration of medications to patients. After completing the three or four-week training program, Respondent began working directly with patients. From about mid-February 2001 through early-March 2001, Respondent had no problems with documenting the administration of medications to patients. Some time in or near the middle of March 2001, Melanie Simmons, R.N. ("Simmons"), Lee Memorial's Nursing Supervisor, received a complaint from the night nurse following Respondent's shift. The complaint alleged that a patient's wife reported that the pain medication her husband was given by Respondent was not the Codeine that had been ordered by the physician. Pursuant to Lee Memorial's policies and procedures, Simmons conducted an investigation into the allegations of the above-referenced complaint regarding the Respondent. Lee Memorial's policies and procedures set out a specific method for conducting investigations regarding the administration of medications to patients. First, the physician's orders are checked to see what medications have been ordered for the patient. Next, the Pyxis records are pulled to determine if and when medications were withdrawn for administration to patients. The Pyxis system is a computerized medication delivery system. Each nurse has an assigned user code and a password, which must be entered before medication can be withdrawn from the Pyxis system. Then, medication administration records (MARs), the documents used by nurses to record the administration of medications to patients, are checked to verify whether the nurse documented the administration of the medications to the patients for whom they were withdrawn. Finally, the Patient Focus Notes, the forms used by nurses to document non-routinely administered medications, are also checked to determine if, when, and why a medication was given to a patient. If after comparing the physician's orders, Pyxis records, MARs, and Patient Focus Notes, it is determined that medications were not properly administered or documented, the nurse making the errors is advised of the discrepancy and given an opportunity to review the documentation and explain any inconsistencies. Simmons' investigation, which included comparing the physician's orders, Pyxis records, MARs and Patient Focus Notes, revealed discrepancies in medications withdrawn by Respondent and the MARs of the three patients under her care. The time period covered by the investigation was March 12 through March 17, 2001. Of the six days included in the investigation period, Simmons determined that all the discrepancies had occurred on one day, March 13, 2001. Nurses are required to record the kind and amount of medication that they administer to patients. This information should be recorded at or near the time the medication is administered. It is the policy of Lee Memorial that should a nurse not administer the medication or the entire amount of the medication dispensed under his or her password, that nurse should have another nurse witness the disposal of the medication. The nurse who serves as a witness to the disposal of medication would then enter his or her identification number in the Pyxis. As a result of that entry, the nurse who observed the disposal of the medication would be listed on the Pyxis report as a witness to the disposal of the medication not administered to patients. Such excess medication is termed waste or wastage. The physician's order for Patient F.R. indicated that the patient could have 1 to 2 Percocet tablets, to be administered by mouth, as needed every 3 to 4 hours. On March 13, 2001, at 14:06 Respondent withdrew 2 Percocet tablets for Patient F.R. However, there was no documentation in the patient's MAR, focus notes, and other records which indicated that Respondent administered the Percocet tablets to Patient F.R. The physician's order for Patient G.D. indicated that 1 to 2 Percocet tablets could be administered to the patient by mouth as needed every 4 to 6 hours. On March 13, 2001, at 11:18 Respondent withdrew 2 Percocet tablets and on that same day at 17:16, Respondent withdrew another 2 Percocet tablets for Patient G.D. However, there was no documentation in the patient's MAR, focus notes, or any other records which indicated that Respondent administered the Percocet tablets to Patient G.D. The physician's order for Patient T.G. indicated that 1 to 1.5 Lortab/Vicodin tablets could be administered to the patient by mouth as needed every 4 to 6 hours. On March 13, 2001, Respondent withdrew 2 Lortab/Vicodin tablets for Patient T.G. However, Respondent failed to document on the patient's MAR, focus notes, or other records that the medication had been administered to Patient T.G. With regard to the above-referenced medications withdrawn by Respondent on March 13, 2001, there is no documentation that any of the medications were wasted. All the medications listed in paragraphs 13, 14, and 15 are narcotics or controlled substances. Because Respondent did not document the patients' MARs or focus notes after she withdrew the medications, there was no way to determine whether the medications were actually administered to the patients. Proper documentation is very important because the notations made on patient records inform nurses on subsequent shifts if and when medications have been administered to the patients as well as the kind and amount of medications that have been administered. Without such documentation, the nurses taking over the subsequent shifts have no way of knowing whether medication has been administered, making it possible for affected patients to be overmedicated. Respondent has been a registered nurse since 1994 and knows or should have known the importance of documenting the administration of medications to patients. Respondent does not dispute that she did not document the administration and/or wastage of the narcotics or controlled substance she withdrew from the Pyxis system on March 13, 2001, for the patients identified in paragraphs 13, 14, and 15. Moreover, Respondent provided no definitive explanation as to why she did not properly document the records. According to Respondent, she "could have been busy, called away, [or] got distracted." Following Simmons' investigation of Respondent relating to the withdrawal and/or administration of medications, Respondent agreed to submit to a drug test. The results of the drug test were negative. Prior to being employed by Lee Memorial, all of Respondent's previous experience as an R.N. had been in long- term care. Except for the complaint which is the subject of this proceeding, there have been no complaints against Respondent's registered nurse's license.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health enter a Final Order (1) imposing an administrative fine of $250; (2) requiring Respondent to remit the Agency's costs in prosecuting this case; (3) requiring Respondent to complete a continuing education course, approved by the Board of Nursing, in the area administration and documentation of medications; and (4) suspending Respondent's nursing license for two years. DONE AND ENTERED this 1st day of April, 2002, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of April, 2002. COPIES FURNISHED: Reginald D. Dixon, Esquire Agency for Health Care Administration General Counsel's Office-Practitioner Regulation Post Office Box 14229 2727 Mahan Drive Tallahassee, Florida 32317-4229 Marla Gunderson 1807 Northeast 26 Terrace Cape Coral, Florida 33909 Ruth R. Stiehl, Ph.D., R.N. Executive Director Board of Nursing Department of Health 4080 Woodcock Drive, Suite 202 Jacksonville, Florida 32207-2714 Mr. R. S. Power, Agency Clerk Department of Health 4052 Bald Cypress Way, Bin A02 Tallahassee, Florida 32399-1701 William W. Large, General Counsel Department of Health 4052 Bald Cypress Way, Bin A02 Tallahassee, Florida 32399-1701

Florida Laws (2) 120.57464.018
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COVENANT HOSPICE, INC. vs REGENCY HOSPICE OF NORTHWEST FLORIDA, INC., AND AGENCY FOR HEALTH CARE ADMINISTRATION, 07-001657CON (2007)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Apr. 11, 2007 Number: 07-001657CON Latest Update: Feb. 07, 2008

Conclusions THIS CAUSE comes before the AGENCY FOR HEALTH CARE ADMINISTRATION (the "Agency") concerning Certificate of Need ("CON") Applicatian No. 9971, filed by REGENCY HOSPICE OF NORTHWEST FLORIDA, INC. (hereinafter "Regency") in the Second Batching Cycle of 2006, requesting a CON to establish a hospice program, which application was approved, Thereafter, Covenant Hospice, Inc. (hereinafter “Covenant”), an existing provider, timely filed at the Division of Administrative Hearings ("DOAH") a Petition for Administrative Hearing with respect to the approval. Non-approved applicants also filed petitions challenging Regency’s initial approval. On| August 27, 2007, Covenant filed its voluntary dismissal of the DOAH case. On |August 27, 2007, an Order Closing File was issued by DOAH as a result of the voluntary dismissal. It ig therefore ORDERED and ADJUDGED: 1. The voluntary dismissal by Covenant and the Order Closing File by DOAH|are hereby acknowledged and accepted. 2. CON Application No. 9971, which was initially approved by AHCA, remains in litigation. 3. The above-styled case is hereby closed. DONE and ORDERED this 4 day of February 2008, in Tallahassee, Florida. ANDREW C. AGWUNOBI, M.D., Secretary AGENCY FOR HEALTH CARE ADMINISTRATION ° NOTICE OF RIGHT TO JUDICIAL REVIEW A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW, WHICH SHALL BE INSTITUTED BY FILING THE ORIGINAL NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A COPY ALONG WITH THE FILING FEE PRESCRIBED BY LAW |WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE |A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF THE RENDITION OF THE ORDER TO BE REVIEWED. CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing Final Order has been furnished by U.S. or interoffice mail to the persons named below on this _S day of RICHARD J. SHOOP, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308 (850) 922-5873 COPIES FURNISHED TO: Charles A, Stampelos Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 Robert A.|Weiss, Esquire Karen A. eh Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Attorneys| for Covenant Hospice, Inc. Jay Adams, Esquire Broad and Cassel Post Office Box 11300 Tallanassee, Florida 32302 Attorney for United Hospice of West Florida, Inc. Mark A. Emanuele, Esquire Amy S. Towle, Esquire Panza, Maurer, & Maynard, P.A. Bank of America Building, Third Floor 3600 North Federal Highway Fort Lauderdale, Florida 33308 Attorneys |for Odyssey Healthcare of Northwest Florida, Inc. Smith and Associates 2873 Remington Green Circle Tallahassee, Florida 32308 Attorney for Regency Hospice of Northwest Florida, Inc. Smith end Smith, Esquire Sandra E./Allen, Esquire Assistant General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building 3, MS #3 Tallahassee, Florida 32308 (Interoffide Mail) Elizabeth Dudek Deputy Secretary Agency for Health Care Administration 2727 Mahan Drive, Building 1, MS #9 Tallahassee, Florida 32308 (Interoffice Mail) Janice Mills Facilities Intake Agency for Health Care Administration 2727 Mahan Drive, Building 3, MS #3 Tallahassee, Florida 32308 (Interoffi¢e Mail)

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FIRST HOSPITAL CORPORATION vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 84-003768RX (1984)
Division of Administrative Hearings, Florida Number: 84-003768RX Latest Update: Oct. 24, 1985

Findings Of Fact Based on the stipulations 3/ and admissions of the parties, the exhibits received in evidence, and the testimony of the witnesses at hearing, I make the following findings of fact: FIRST HOSPITAL's address is the World Trade Center, Suite 870, Norfolk, Virginia 23510. CHARTER GLADE HOSPITAL is a freestanding psychiatric hospital located in Fort Myers, Lee County, Florida. CHARTER GLADE has (80) licensed psychiatric beds, and twenty-four (24) licensed substance-abuse beds. The service area served by CHARTER GLADE includes Collier, Lee, and Charlotte Counties. The address of HRS is 1317 Winewood Boulevard, Tallahassee, Florida 32301. HRS is responsible for the administration of the "Health Facilities and Health Services Planning Act," Section 381.493, et seq., Florida Statutes (the Act), and has implemented its provisions through the adoption of rules set forth in Chapter 10, Florida Administrative Code. FIRST HOSPITAL applied to HRS for a certificate of need (CON) for the establishment of a freestanding specialty hospital in Naples, Florida. Pursuant to the Act, a CON is required before FIRST HOSPITAL can establish its specialty hospital. FIRST HOSPITAL's application was denied by HRS. FIRST HOSPITAL appealed the denial of its application to the Division of Administrative Hearings, DOAH Case No. 84-1835. CHARTER GLADE has intervened in DOAH Case No. 84-1835. In this proceeding, Petitioner has challenged the validity of Rule 10- 5.11(25) and (26), Florida Administrative Code, asserting that the rule is arbitrary and capricious and, therefore, invalid. By virtue of the fact that CHARTER GLADE is an existing facility located in the same service area in which Petitioner proposes to construct and operate its facility, and further by virtue of its participation in DOAH Case No. 84-1835, at least in part, on the basis of the provisions of Rule 10 15.11(25) and (26), Florida Administrative Code, CHARTER GLADE is substantially affected by the issues presented for determination in this cause and should be allowed to participate as a party. The Act contemplates rule adoption by HRS of specialty bed-need methodologies for psychiatric services. See, e.g., Subsection 381.494(8)(g), Florida Statutes (1983). Toward this end, HRS has adopted Rules 10-5.11(25) and (26), Florida Administrative Code. Rule 10-5.11(25), cited as the basis for denying FIRST HOSPITAL's CON application, addresses need for short-term psychiatric beds; Rule 10-5.11(26) purports to address need for long-term psychiatric beds. FIRST HOSPITAL's substantial interest in establishing its proposed specialty hospital has been determined by both of these rules. In particular, Rule 10-5.11(25), Florida Administrative Code, was applied by HRS in the denial of FIRST HOSPITAL's CON application. In addition, FIRST HOSPITAL alleges that Rules 10-5.11(25) and (26) combined fail to assess the need for intermediate inpatient specialty psychiatric services, one of the types of psychiatric services proposed by FIRST HOSPITAL. FIRST HOSPITAL's CON application proposes intermediate inpatient specialty psychiatric services. Rules 10-5.11(25) and (26), Florida Administrative Code, were adopted in early 1983. The adoption process began in the summer of 1982 when HRS assigned to one of its employees, Elfie Stamm, the task of developing a bed-need rule for psychiatric services. Ms. Stamm, at that time, was a planner in the Office of Comprehensive Health Planning of HRS. Ms. Stamm has been a planner with HRS for several years and had been responsible for the development of the State Health Plan and for the development of various rules used in the CON process. She had also been employed in the Mental Health Program Office of HRS, where her responsibilities included the development of a state plan with regard to alcoholism and mental health. She was also responsible for monitoring statewide mental health programs. Upon being assigned the task of developing the subject rules, Ms. Stamm made a thorough review of all information available to HRS with regard to the number of existing psychiatric beds and programs throughout Florida. She also evaluated all available local health plans and spoke with various individuals who had been involved in health planning, particularly those with interest in mental health planning. Ms. Stamm surveyed the available literature on health planning emphasizing mental health planning and bed-need methodologies for psychiatric beds. Ms. Stamm wrote the initial draft of Rule 10-5.11(25) based upon her collection and evaluation of data regarding existing and approved psychiatric beds in Florida and her review of literature, both Florida specific and national. A primary feature of the drafts, as well as of the adopted version, of Rule 10-5.11(25) is a fixed bed-to-population ratio of .35/1000, meaning that normally there should be no more than .35 short-term psychiatric beds for each 1,000 persons. Ms. Stamm was instructed to develop rules to assess the need for inpatient psychiatric services. As finally adopted, short-term care is defined in Rule 10-5.11(25) as care not exceeding three months and averaging a length of stay of 30 days or less for adults and 60 days or less for children and adolescents, and long-term care is defined in Rule 10-5.11(26) as care averaging a length of stay of 90 days. Neither rule defines the term "intermediate care." The documents contained in HRS Composite Exhibit IX and reviewed by Ms. Stamm are a representative sample of the literature available in the field and the level of knowledge among health planners as of the date of the promulgation of the subject rules. The documents are a reasonable cross-section of the literature available in the area of psychiatric bed-need assessment. In terms of the literature that was available at the time of the rule adoption in the area of psychiatric bed-need assessment, there is nothing missing from these documents which would have been important to a health planner in developing a psychiatric bed-need methodology. There is discussion in those documents of all the basic methodologies for determining psychiatric bed need. After reviewing all of the available materials, the HRS established a range of from .35 to .37 beds per 1,000 population and from that point made a policy decision to establish a figure of .35 to use in the bed-need formula. In promulgating the subject rules HRS invited and received comment from a broad cross-section of the public, with particular emphasis on those persons and organizations with special knowledge and interest in the provision of mental health services and the determination of psychiatric bed need. HRS conducted a workshop to which it invited a broad cross-section of individuals and organizations with particular knowledge about psychiatric bed need, including representatives of the Florida Hospital Association, Florida Psychiatric Association, Florida Council for Community Mental Health, Florida State Association of District Mental Health Boards, Florida League of Hospitals, Florida Association of Voluntary Hospitals, and the Florida Alcohol and Drug Abuse Association. The comments and results of the workshop were considered by Ms. Stamm and HRS in the promulgation of the subject rules. In response to several requests, HRS conducted a public hearing in accordance with Section 120.54(3), Florida Statutes, to receive comments from interested persons on the subject rules. More than fifteen (15) people representing various hospitals and organizations concerned with psychiatric services entered appearances and made comments at the public hearing. In addition to the oral comment presented at the public hearing, various persons and organizations submitted numerous written comments expressing their opinion with regard to the proposed rules. The comments, both oral and written, were all considered by Ms. Stamm and HRS prior to the promulgation of the subject rules. The process engaged in by HRS, primarily through Ms. Stamm, in the development of the subject rules was extensive and reasonably calculated to invite substantive public comment and to procure the knowledge on the part of HRS necessary to write workable and rational rules concerning psychiatric bed need. The knowledge acquired by HRS through this process with regard to the assessment of psychiatric bed-need methodologies was reasonably sufficient to allow it to knowledgeably draft and promulgate the subject rules. Consideration of this substantive public comment led to several changes in the subject rules as originally drafted. As originally promulgated, Rules 10-5.11(25) and (26) were challenged pursuant to Section 120.54, Florida Statutes, in various petitions filed with the Division of Administrative Hearings. In settling these proposed rule challenges, HRS modified the rules to provide for even greater flexibility in their application. HRS Composite Exhibits I through XII constitute all written matters considered or produced by HRS in the rule adoption process with regard to the subject rules. All of those documents and papers have been maintained in the records of HRS since the promulgation of the subject rules. The statutory criteria for reviewing CON applications are set out in Sections 381.494(6)(c) and (d), Florida Statutes. Rule 10-5.11, Florida Administrative Code, sets forth the rule criteria against which CON applications are evaluated. Subsections (1) through (12) and (25) of Rule 10-5.11 are the rule criteria against which applications for CONs for short-term hospital inpatient psychiatric services are to be evaluated. Subsections (1) through and (26) of Rule 10-5.11 are rule criteria against which applications for CONs for long-term psychiatric services are to be evaluated. Rule 10-5.11(25) sets forth certain criteria specifically for the evaluation of CON applications for short term hospital inpatient psychiatric services. Short-term services are in part defined as services averaging a length of stay of thirty (30) days or less for adults and a stay of sixty (60) days or less for children and adolescents under eighteen (18) years. Rule 10- 5.11(25) in its adopted form provides in relevant part as follows: Short Term Hospital Inpatient Psychiatric Services. Short term hospital inpatient psychiatric services means a category of services which provides a 24-hour a day therapeutic milieu for persons suffering from mental health problems which are so severe and acute that they need intensive, full-time care. Acute psychiatric inpatient care is defined as a service not exceeding three months and averaging a length of stay of 30 days or less for adults and a stay of 60 days or less for children and adolescents under 18 years. Short term hospital inpatient psychiatric services may be provided in specifically designated beds in a hospital holding a general license, or in a facility holding a specialty hospital license. Applications for proposed short term hospital inpatient psychiatric services will be reviewed according to relevant statutory and rule criteria. A favorable need determination for proposed general acute care psychiatric inpatient services will not normally be given to an applicant unless a bed need exists according to paragraph (25)(d) of this rule. A favorable Certificate of Need determination may be made when the criteria, other than as specified in (25)(d), as provided for in Section 381.494(6)(c), Florida Statutes, and paragraph (25)(e) of this rule, demonstrate need. Bed allocations for acute care short term general psychiatric services shall be based on the following standards: A minimum of .15 beds per 1,000 population should be located in hospitals holding a general license to ensure access to needed services for persons with multiple health problems. These beds shall be designated as short term inpatient hospital psychiatric beds. .20 short term inpatient hospital beds per 1,000 population may be located in specialty hospitals, or hospitals holding a general license. The distribution of these beds shall be based on local need, cost effectiveness, and quality of care considerations. The short term inpatient psychiatric bed need for a Department service district five years into the future shall be calculated by subtracting the number of existing and approved beds from the number of beds calculated for year x based on a bed need ratio of .35 beds per 1,000 population projected for year and based on latest mid-range projections published by the Bureau of Economic and Business Research at the University of Florida. These beds are allocated in addition to the total number of general and acute care hospital beds allocated to each Department District established in Rule 10-5.11(23). Occupancy Standards. New facilities must be able to project an average 70 percent occupancy rate for adult psychiatric beds and 60 percent for children and adolescent beds in the second year of operation, and must be able to project an average 80 percent occupancy rate for adult beds and 70 percent for children and adolescent short term psychiatric inpatient hospital beds for the third year of operation. No additional short term inpatient hospital adult psychiatric beds shall normally be approved unless the average annual occupancy rate for all existing adult short term inpatient psychiatric beds in a service district is at or exceeds 75 percent for the preceding 12 month period. No additional beds for adolescents and children under 18 years of age shall normally be approved unless the average annual occupancy rate for all existing adolescent and children short term hospital inpatient psychiatric beds in the Department district is at or exceeds 70 percent for the preceding 12 2 month period. Hospitals seeking additional short term inpatient psychiatric beds must show evidence that the occupancy standard defined in paragraph six is met and that the number of designated short term psychiatric beds have had an occupancy rate of 75 percent or greater for the preceding year. Unit size. In order to assure specialized staff and services at a reasonable cost, short term inpatient psychiatric hospital based services should have at least 15 designated beds. Applicants proposing to build a new but separate psychiatric acute care facility and intending to apply for a specialty hospital license should have a minimum of 50 beds. Other standards and criteria to be considered in determining approval of a Certificate of Need application for short term hospital inpatient psychiatric beds are as follows: . . . . 7. Access standard. Short term inpatient hospital psychiatric services should be available within a maximum travel time of 45 minutes under average travel conditions for at least 90 percent of the service area's population. There are three basic types of methodologies generally accepted in the field of health planning as valid for determining the need for psychiatric hospital beds. The first type is a need-based methodology which evaluates the need for services. The second is a demand or utilization-based method, which utilizes current or projected utilization statistics for a particular service. The third is a fixed-ratio method which involves the use of a ratio, or rate, of service to population to determine projected need for that service in the future. All three of these methodologies are generally accepted and utilized by health planners throughout the United States. Each has its advantages and disadvantages, but all are valid. The fixed ratio methodology is that which HRS has employed in Rule 10 5.11(25). The ratio of .35 beds per thousand population is a reasonable ratio with a rational basis in fact. It is not arbitrary and capricious as a measure of short-term psychiatric bed need. The National Institute of Mental Health developed draft guidelines in the late 197Os suggesting a range of .15 beds to .40 beds per thousand population as an appropriate fixed-bed ratio program for psychiatric short-term acute-care programs. At least four other states presently or in the past have utilized a fixed bed-need ratio in planning for health care needs. They are Massachusetts, Indiana, Michigan and Georgia. Some of those states used fixed-bed ratios less than .35 per thousand. Ms. Stamm, in developing this rule methodology for HRS, considered and balanced the different approaches relating to the establishment of need. One of her concerns on behalf of HRS, in developing the methodology was to strike a proper balance between need and demand since not everyone who needs psychiatric care will choose to seek that care or can afford to seek that care. In 1982, during the time of the rule adoption process, the ratio of existing short-term psychiatric beds per thousand population in Florida was .29 per thousand. Ms. Stamm selected .35 per thousand, in part, to allow for growth in the number of psychiatric beds for reasons other than just population growth. The current rate of existing licensed short-term psychiatric beds in Florida in 1985 is .28 beds per thousand. However, the ratio for currently existing short-term psychiatric beds, plus CON approved beds not yet licensed in 1985, is .39 beds per thousand. The fact that the existing and approved inventory of psychiatric beds is greater than the .35 ratio specified in the rule demonstrates that HRS has applied Rule 10-5.11(25) in a flexible manner as envisioned by the "not normally" language in the rule. A theoretically ideal way to determine psychiatric bed need would be for HRS to go into each community and conduct epidemiological surveys to identify the people who actually need mental health care. While such a survey, properly conducted, might produce momentarily reliable date, it is not a realistic method for statewide planning purposes because of several problems attendant to such a methodology. Such a survey would be very expensive and very time-consuming and is not practical for use on a statewide basis in a state the size of Florida. Because of the time-consuming nature of such a methodology, if applied on a statewide basis, some of the data would be stale before all of the data was gathered. Further, the rapidly changing population in Florida would require that such a survey be continually updated. The allocation of short-term beds between general and specialty hospitals set forth in subsections (d)1 and 2 of Rule 10-5.11(25) has a rational basis in fact and is not arbitrary. There are many patients who simultaneously need medical as well as psychiatric care. To have those patients located in a specialty hospital, away from a general hospital, would be inappropriate. There are also patients who have acute episodes of psychiatric illness and who need to be treated very rapidly. Because there are many more general hospitals than there are freestanding psychiatric specialty hospitals, it is appropriate to ensure that psychiatric beds are available to general hospitals to fill the particular episodic acute needs. Further, there are many patients in Florida who can afford health care only through Medicaid. Because Medicaid does not provide funding of mental health inpatient services in psychiatric specialty hospitals, it is appropriate to include in the methodology an incentive for the location of some psychiatric beds in general hospitals where psychiatric services can be funded by Medicaid. The specific allocation of the .35 per thousand bed need ratio set forth in Rule 10-5.11(25)(d)(1) and (2) is that .15 beds per thousand "should" be associated with general hospitals and .20 beds per thousand "may" be associated with specialty hospitals. This allocation was designed to be flexible so that, in any given circumstance, an allocation other than the .15 and .20 guideline could be applied. The occupancy rate standards set forth in Rule 10 5.11(25) specify that normally, additional beds should not be approved unless the average occupancy of all existing beds in a service district exceeds 75 percent for adults and 70 percent for children and adolescents. The occupancy rate standards set forth in Rule 10- 5.11(25) were not arrived at in an arbitrary fashion and are reasonable in themselves. The occupancy rates are designed to ensure that a reasonable number of beds in each facility are filled. Hospitals with a substantial number of empty beds are not cost effective. Therefore, it is reasonable to project occupancy rates in the range of those projected in the subject rule. Indeed, the occupancy rates in the rule are liberal in terms of minimum occupancy levels, compared with those in the past and those recommended by others in the industry. With regard to the travel access standard in the rule, the Task Force for Institutional Care recommended a 60 minute travel standard for 90 percent of the population in the district. The 45 minute standard is reasonable. The rule does not exclude from within the travel standard area other facilities providing the same service. At the time of the final hearing, there were sixty five (65) existing hospital facilities in Florida which had psychiatric bed services. Of those sixty-five (65) facilities, sixty-one (61), or 93 percent, had more than fifteen (15) psychiatric beds, and fifty-five (55), or 84 percent, had more than twenty (20) psychiatric beds. In the exceptional event that the average occupancy rate for a particular district did not accurately reflect the availability of beds, the language of Rule 10-5.11(25)(d)5, which says that no additional beds shall "normally" be approved unless the occupancy rates are met is sufficiently flexible to account for the exceptionality. The methodology set forth in Rule 10-5.11(25) is designed to identify and express a need for short-term psychiatric inpatient beds for the overall population of Florida. The rule was intended to be sufficiently flexible that, when balanced with the other criteria set forth in Rule 10-5.11(1) through (12), it would allow substantive input from the district and community levels with regard to the need for beds by subpopulation groups such as child, adolescent, adult, and geriatric. The "national guidelines" referred to by Ms. Stamm were proposed hut never adopted. They recommended fixed bed ratios between .15/1000 and .40/1000. The guidelines were based on a 1978 survey by the National Institute of Mental Health (NIMH), which indicated that .15/1000 was the 25th percentile and .40/1000 was the 75th percentile of 1978 existing short-term psychiatric beds nationwide. The NIMH report stated that selection of an appropriate ratio for a particular state depended on the development of the state's mental health system and recognized that special consideration was necessary for traditionally underserved groups such as children, adolescents, and geriatrics. In the context of inpatient psychiatric care, there has been a trend over the last twenty years, and more particularly over the last five years, toward the development of specialty treatment programs, separately planned for children, adolescents, adults, and geriatrics. In recent years in Florida there has also been a trend toward the provision of alternatives to inpatient psychiatric services in facilities such as residential care. In 1982, Ms. Stamm considered evidence that children, adolescents, and geriatrics were not being adequately served by Florida's mental health facilities. Nevertheless, she did not plan for these subgroups in the rule because in her judgment decisions about allocation of services to subpopulation groups were best made at the district level by the local health councils.

Florida Laws (4) 120.54120.56120.57120.68
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HOSPICE OF THE PALM COAST, INC. vs AGENCY FOR HEALTH CARE ADMINISTRATION, 06-001268CON (2006)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Apr. 12, 2006 Number: 06-001268CON Latest Update: Dec. 25, 2024
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VENCOR HOSPITALS SOUTH, INC. vs AGENCY FOR HEALTH CARE ADMINISTRATION, 97-004419RU (1997)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Sep. 19, 1997 Number: 97-004419RU Latest Update: Nov. 18, 1998

The Issue Whether the Agency for Health Care Administration has a policy regarding the determination of the need for long term care beds which constitutes a rule and, if so, whether rulemaking is feasible and practicable.

Findings Of Fact Vencor Hospitals South, Inc. (Vencor), applied for a certificate of need (CON No. 8614) to establish a 60-bed long term care hospital in Agency for Health Care Administration (AHCA) District 8, for Fort Myers, Lee County, Florida. AHCA is the state agency authorized to administer the CON program for health care services and facilities in Florida. AHCA reviewed and preliminarily denied Vencor's application for CON No. 8614. The reasons for AHCA's actions on this or any other CON application are memorialized in documents called State Agency Action Reports (SAARs). Vencor alleges that the following statement generally describes AHCA's policy in regard to the review of CON applications for long term care hospitals: Long term care is not a separate category of health service, but is instead merely an allowable form of reimbursement pursuant to Medicare regulations. The care provided in acute care hospitals, hospital based skilled nursing beds, "subacute" care in nursing homes, and care at rehabilitation facilities, are all equivalent to the care provided at long term care hospitals. Therefore, in evaluating the need for long term care hospital beds, AHCA will assess the availability of other categories of beds and services to meet the need for the services proposed by the applicant for long term care hospital beds. Need for long term care beds is determined on a regional basis. Prior to 1994, long term care hospitals were not regulated separately and were considered comparable to general acute care hospitals. In 1994, AHCA amended the CON rules to establish long term care beds and hospitals as separate categories of health care providers. In 1994, AHCA defined and continues to the present to define long term care hospital as follows: "Long term care hospital" means a hospital licensed under Chapter 395, Part I, F.S., which meets the requirements of Part 412, subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Rule 59C-1.002(29), Florida Administrative Code. In the federal regulations referenced by the AHCA rule, long term care hospital is more specifically defined as a hospital with an independent governing structure, an average length of stay greater than 25 days, referral of at least 75 percent of total patients from separate hospitals, and which meets the requirements for Medicare participation. 42 CFR Ch. IV, Subch. B, Pt. 412, Subpt. B, s. 412.23. AHCA also distinguishes long term care in its rules governing the conversions from one type of health care provider to another. The applicable conversion rules provide: "Conversion from one type of health care facility to another" means the reclassification of one licensed facility type to another licensed facility type, including reclassification from a general acute care hospital to a long term care hospital or specialty hospital or from a long term care hospital or specialty hospital to a general acute care hospital. Rule 59C-1.002(14), Florida Administrative Code (emphasis added); and "Conversion of beds" means the reclassification of licensed beds from one category to another including, for facilities licensed under Chapter 395, F.S., conversion to or from acute care beds, neonatal intensive care beds, hospital inpatient psychiatric beds, comprehensive medical rehabilitation beds, hospital inpatient substance abuse beds, distinct part skilled nursing facility beds, or beds in a long term care hospital; and, for facilities licensed under Chapter 400, Part I, F.S., conversion to or from skilled beds and intermediate care beds in a facility that is not certified for both skilled and intermediate nursing care if such conversion effects a change in the level of care of 10 beds or 10 percent of the total bed capacity of the facility within a 2-year period, or conversion to or from sheltered beds and community beds. Rule 59C-1.002 (15), Florida Administrative Code (emphasis added). AHCA also defined "substantial change in health services" to include: The conversion of a general acute care or specialty hospital licensed under Chapter 395, Part I, F.S., to a long term care hospital. Rule 59C-1.002(41)(c), Florida Administrative Code. Taken together AHCA's rules recognize long term care hospitals or beds as a separate and distinct category. Elfie Stamm was responsible for the development of the rules and is currently the chief of the CON and Budget Review Office at AHCA. Ms. Stamm testified in a 1994 rule challenge case, when AHCA was drafting a rule with a numeric need methodology for long term care beds, that: long term care hospitals serve patients who cannot be cost effectively treated in an acute care hospital, who do not have the same needs for the same types of service; it would not be fair for an applicant for the new construction of a long term care hospital to be compared to an acute care hospital; comprehensive medical rehabilitation (CMR) services are different than services in a long term care hospital; a long term care hospital with an average length of stay of 25 days or more is different from an acute care hospital that generally has a length of stay of 5 to 6 days but provides a full range of services; the patient populations in long term care hospitals are different from those in an acute care hospital in terms of overall patient characteristics, including older than average age, higher percentage of patients with particular diagnoses, such as ventilator dependency, higher overall mortality rates than acute care hospitals, and a much higher percentage of admissions by referrals from acute care hospitals. [T. 262-283]. See also Tarpon Springs Hospital Foundation, etc. v. AHCA, et al., DOAH Case No. 94-0958RU (R.O. 8/2/94). On behalf of AHCA, Ms. Stamm testified in this proceeding that: AHCA has changed its mind on whether or not it is appropriate to leave a patient in an acute care setting rather than transfer to long term care, specifically with regard to cost-effectiveness. [T. 373]. AHCA has not changed its mind and still says acute care hospitals and long term care hospitals should be reviewed separately, because if they would be reviewed comparatively, . . . there would be no chance for any [long term] beds ever because we don't show any need for acute care beds anywhere in the state. [T. 376]. But in evaluating Vencor's application for long term care hospitals in District 8 that would be located in Lee County, the Agency viewed hospital-based skilled nursing units, community nursing home subacute beds and comprehensive medical rehab beds throughout the entire district as existing and like potential alternatives to the proposed project. [T. 389]. AHCA does not necessarily agree that CMR services are different from long term care hospital services. [T. 265]. AHCA does not have a clearly identified population group for whom long term care would be more cost-effective, or to determine a numeric need methodology. [TR. 324]. Although there is a population that does need services that exceed 25 days or prolonged ventilator service, AHCA is not sure what is the most appropriate setting for their care because of inadequate data on comparative costs and outcomes. [TR. 327-8]. AHCA attributes its change in position to the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Lewin-VHI, Inc. The document is commonly referred to as the Lewin Report. The Lewin Report concludes that long term care hospitals serve patients who are also served in other subacute settings, including CMR beds and hospitals, acute care hospital skilled nursing units, and skilled nursing units in freestanding nursing homes. As a result of the conclusions in the Lewin Report, AHCA maintains that it is unable to develop a numeric need methodology without an identifiable patient population. AHCA has not, however, repealed the rules establishing long term care as a separate type of health care service. Rather, the agency intends to wait for additional studies, including one being conducted for Vencor. The Medicare prospective payment system (PPS) for acute care hospitals created the market for subacute and long term care. Under the PPS, acute care hospitals receive a fixed payment based on the patient's diagnosis or diagnostic related group (DRG). Upon discharge to a subacute or long term setting, the patient's care is no longer reimbursed on a fixed basis, but at actual, reasonable costs. AHCA maintains that financial pressures created the current system, but without cost/benefit or outcomes analyses to demonstrate the appropriateness of using long term care hospitals. Therefore, AHCA considered the occupancy levels of acute care hospitals and available nursing home beds in determining the need for Vencor's project. AHCA has no rule defining subacute care, no inventory of subacute care units in nursing homes, and no reporting requirements from which it can determine the level of care or services provided in hospital based skilled nursing units. AHCA has no reports on specific levels or types of services provided in CMR beds. AHCA, nevertheless, presumed that the services are like those provided in long term care beds based on the Lewin Report. In rejecting Vencor's attempts to distinguish itself from other types of health care providers, AHCA relied, in part, on its finding that 1995 District 8 acute care hospital occupancy averaged 47.69 percent and peaked at 60.26 percent. By not adopting rules for determining the numeric need for long term care, AHCA also failed to establish the appropriate service area for determining need. AHCA considers the need for long term care services on a regional basis. In support of AHCA's decision to deny a long term care hospital application in District 9, Ms. Stamm's predecessor, Elizabeth Dudek, testified that long term care is a regional service. As further evidence of AHCA's position, the SAARs issued by AHCA on long term care hospital applications, have examined available services beyond the limits of the district. AHCA contends that long term care is regional, but determines its need by comparison to available hospital based skilled nursing units and subacute beds in community nursing homes, which are evaluated on a subdistrict basis, and CMR services which are tertiary but evaluated on a district-wide basis. See Finding of Fact 22. Since November 1995, AHCA has preliminarily denied all CON applications for long term care hospitals. Its policy of comparing the need for long term care to available beds in nursing homes and other types of hospitals is consistently repeated in the portions of the SAARs which address need. In analyzing the need for long term care hospitals in AHCA District 1, the SAAR dated January 10, 1997, includes the following statements: Vencor Hospitals South, Inc. defines its patient population as those currently being treated in ICUs and belonging to roughly 10 DRGs (which account for approximately 83% of Vencor patients. . . .) However these DRGs could also [be] appropriate for acute care, hospital based freestanding skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to residents of District 1. and The applicant [Baptist Health Affiliates Inc.] also discusses the differences between its proposed patient population and that of an acute care hospital, nursing home and those treated at home. However, there is no documentation provided which demonstrates the applicant's potential patients could not receive appropriate care in the District's existing rehabilitation facility, hospital based or nursing home skilled subacute nursing units. . . . Vencor Exhibit 12, pages 3-4 and 8. AHCA reviewed a CON application filed by Columbia of Pinellas County, Inc., to convert acute care beds to a long term care hospital in District 5, and concluded: The patient population represented by the DRGs listed above (by the applicant) are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 13, page 8. The SAAR issued on the Columbia of Pinellas County CON application continued with an extensive discussion of the Lewin Report. The SAAR reported AHCA's finding that CMR hospitals are alternatives since they admit patients who do not fit federal guidelines for CMR admissions (being able to tolerate three hours of therapy a day), and who might otherwise be in long term care hospitals. In the SAAR issued after the review of long term care applications for District 7, the same statement appears: The patient population represented by the DRGs listed above [by Orlando Regional Hospital] are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 14, page 11. Finally, in reviewing applications from Palm Beach County in District 9, AHCA concluded again: The applicant states that generally speaking the long term care hospital patients have respiratory complications, . . . tracheostomies, . . . chronic diseases, an infectious process requiring antibiotic therapy, . . . skin complications . . . need a combination of rehabilitation and complex medical treatment or are technology dependent individuals requiring high levels of nursing care. However, these patients could also [be] appropriate for acute care, hospital based skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to the residents of District IX. Vencor Exhibit 15, page 4. AHCA relies on the statutory review criteria in Subsection 408.035(1)(b), Florida Statutes, as authority for its consideration of all beds and facilities which may serve the same patients. That provision requires consideration of: (b) The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care facilities and health services in the service district of the applicant. The expert witness for AHCA, however, distinguished between "like and existing" services for purposes of determining numeric need and the statutory criteria. She noted that once numeric need is established and published for nursing beds or CMR beds, for example, that same category of beds outside the appropriate health service planning subdistrict or district is not considered "like and existing." Similarly, within the district or subdistrict, there is a factual issue in each case but no presumption that beds of a different category are "like and existing." AHCA contends that it has no policy related to long term care and any comparable services. Since 1995, long term care CON applicants, according to AHCA, have failed to meet the requirements of Rule 59C-1.008(e), which provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. (Emphasis added). AHCA's argument ignores the fact that its expert witness provided competent, substantial evidence that it has redefined and expanded the meaning of "like services" for purposes of demonstrating need through a needs assessment methodology. It also ignores the fact that AHCA has expanded the comparison of need beyond the geographical limits of the district. AHCA's argument that it is waiting for additional data before adopting a need methodology, including data from a Vencor study, is to no avail since AHCA has already changed its policy. After reviewing a total of eighteen CON applications for long term care hospitals, AHCA has issued two CONs, one as part of a settlement agreement and the other approving an application filed by St. Petersburg Health Care Management, Inc. (St. Petersburg), for CON 8213. The St. Petersburg application demonstrated need using an identical methodology prepared by the same health planner as Vencor in this case. Referring to CON 8213, AHCA's expert witness candidly admitted . . . "I want to make clear that particular application was actually submitted and approved prior to the Lewin study." (T. 393). Subsequent to the Lewin study, AHCA has consistently denied applications for long term care beds or hospitals.

Florida Laws (6) 120.52120.54120.56120.68408.034408.035 Florida Administrative Code (2) 59C-1.00259C-1.008
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