The Issue Whether Certificate of Need Application No. 8614, filed by Vencor Hospitals South, Inc., meets, on balance, the applicable statutory and rule criteria. Whether the Agency for Health Care Administration relied upon an unpromulgated and invalid rule in preliminarily denying CON Application No. 8614.
Findings Of Fact Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida. The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County. Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities. In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and 40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale. Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that: On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8; Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published; Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996; Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes; Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council. During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate. In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that: "Long term care hospital" means a hospital licensed under Chapter 395, Part 1, F.S., which meets the requirements of Part 412, Subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application. Numeric Need In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules. W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients. Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8. By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU. Statutory Review Criteria Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute. (1)(a) need in relation to state and district health plans. The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care. (1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district. Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units. AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined. AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives. Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions. Vencor also distinguished its patients, who require 7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to 3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units. Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week. Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population. In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes. (1)(c) ability and record of providing quality of care. The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c). (1)(e) probable economics of joint or shared resources; (1)(g) need for research and educational facilities; and (1)(j) needs of health maintenance organizations. The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue. (f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas. Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home. (h) resources and funds, including personnel to accomplish project. Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million. At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable. (i) immediate and long term financial feasibility of the proposal. Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal. needs of entities serving residents outside the district. Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8. probable impact on costs of providing health services; effects of competition. There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8. costs and methods of proposed construction; and (2)((a)-(c) less costly alternatives to proposed capital expenditure. The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area. past and proposed service to Medicaid patients and the medically indigent. Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare. services which promote a continuum of care in a multilevel health care system. While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8. (2)(d) that patients will experience serious problems obtaining the inpatient care proposed. Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor. Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8. DONE AND ENTERED this 3rd day of March, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Kim A. Kellum, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301
Conclusions THE PARTIES have entered into a Stipulated Settlement Agreement which resolves all disputed issues. A copy of that Stipulated Settlement Agreement is attached hereto as Exhibit “A” and the terms thereof are incorporated into this Final Order. The parties are directed to comply with the terms of the attached Stipulated Agreement. Based on the foregoing, these files are CLOSED. DONE and ORDERED on this the igh day of i) erie , 2014, in Tallahassee, Florida. f 4 . fo bf Ty a f og; . f Vif tK—- L OW ELIZABETH DYDEK, SECRETARY Agency for Health Care Administration St. Lucie County, Florida vs. AHCA Consolidated Case Nos. 13-1169; 13-2372; 13-2593; 14-0498; 14-0499; 14-0500; & Case No. 13-2040 Final Order 1 Filed March 17, 2014 2:51 PM Division of Administrative Hearings A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED 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 RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: Beverly H. Smith Assistant General Counsel Agency for Health Care Administration Office of the General Counsel (Interoffice Mail) Gregory T. Stewart, Esquire Carly Schrader, Esquire Nabors, Giblin and Nickerson, P.A. 1500 Mahan Drive, Suite 200 Post Office Box 11008 Tallahassee, Florida 32302 (U.S. Mail) Heather Young, Esquire St. Lucie County, Florida 2300 Virginia Avenue Fort Pierce, Florida 34982 (U.S. Mail) Richard Zenuch, Bureau Chief, Medicaid Program Integrity Finance and Accounting Health Quality Assurance Florida Department of Health St. Lucie County, Florida vs. AHCA Consolidated Case Nos, 13-1169; 13-2372; 13-2593; 14-0498; 14-0499; 14-0500; & Case No. 13-2040 Final Order 2 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by U.S. Mail or other designated method on this the (iz Ty of Kberh , 2014. Richard Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, MS #3 Tallahassee, Florida 32308-5403 (850) 412-3630/FAX (850) 921-0158 St. Lucie County, Florida vs. AHCA Consolidated Case Nos. 13-1169; 13-2372; 13-2593; 14-0498; 14-0499; 14-0500; & Case No. 13-2040 Final Order 3
The Issue The issues in this case are (1) 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 and whether the gross revenue per adjusted admission screen should be adjusted by the geographic price level index adjustment factor? Mercy has also raised an 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 As a part of its responsibilities, the HCCB is required to specify a uniform system of financial reporting for Florida hospitals. Section 395.507(1), Florida Statutes (1984 Suppl.). So that meaningful comparisons of data reported can be made, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.), to provide a method of grouping hospitals. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file a budget with the HCCB for approval. Section 395.509(2), Florida Statutes (1984 Suppl.), requires that the budgets of certain hospitals be automatically approved based upon a comparison of the gross revenue per adjusted admission of hospitals within groups established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The language of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), which requires the HCCB to establish a method of grouping hospitals, is identical to the language of Section 395.507(2), Florida Statutes (1984 Suppl.). The grouping methodology required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), is included in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). This methodology has been incorporated by reference in Sections 4D-1.03 and 4D- 1.12(1) and (2), F.A.C., as the method of grouping hospitals for purposes of the uniform system of financial reporting under Section 395.507, Florida Statutes (1984 Suppl.), and the comparison of gross revenue per adjusted admission for purposes of budget review under Section 395.509, Florida Statutes (1984 Suppl.). After hospitals are grouped, Chapter V, Section C of the Manual provides that the screens used to identify hospitals subject to further review are to be adjusted by adjustment factors. Two adjustment factors are provided; one is a geographic price level index adjustment factor. Mercy is a not-for-profit corporation which operates a general acute care hospital with 550 licensed beds located in Dade County, Florida. Based upon the application of the HCCB's grouping methodology as contained in Chapter V, Section B of the Manual, Mercy was assigned to group 9. Mercy was notified of its assignment by a memorandum dated October 10, 1984. Mercy challenged its group assignment by letter dated November 13, 1984. In its letter, Mercy challenged the grouping methodology used by the HCCB and requested a "more relevant and objective method of establishing the weights utilized in the grouping methodology . . . be developed." Further, Mercy requested that "new weights be applied and that the groups be reformulated," and that "the screening value, Gross Revenue per Adjusted Admission, be adjusted for geographic influences prior to ranking, as has been done in previous budget reviews." Mercy presented its reassignment request before the HCCB on December 13-14, 1984. The HCCB orally rejected Mercy's request. By memorandum dated December 19, 1984, the HCCB denied in writing mercy's request for reassignment. Whether Mercy should be reassigned to a reformulated group depends upon whether Mercy's challenge to Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C. is successful. If that challenge is not successful, the grouping methodology was properly applied to Mercy. The Final Order issued simultaneously with this Recommended Order holds that the grouping methodology is not arbitrary and capricious and therefore, the HCCB's adoption of Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., does not constitute an invalid exercise of delegated legislature authority. Mercy's assignment to group 9 was therefore proper. Based upon the evidence presented at the hearing, it does not appear that the point at which the geographic price level index adjustment factor is to be applied to Mercy has been reached. Despite the fact that the evidence shows that the HCCB has decided not to apply this adjustment factor, even though it is specifically provided for in the HCCB's own Manual, the HCCB has not yet failed to do so in Mercy's case. Therefore, the question of whether the geographic price level index adjustment factor should be applied to Mercy's 1985 budget is premature.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the request for reassignment to a reformulated hospital group and the request to adjust the gross revenue per adjusted admission screen for the geographic price level index adjustment factor be denied. DONE and ENTERED this, 28th day of June, 1985, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of June, 1985. COPIES FURNISHED: John H. Parker, Jr., Esquire PARKER, HUDSON, PAINER DOBBS & KELLY 1200 Carnegie Bldg. 133 Carnegie Way Atlanta, Georgia 30303 James J. Bracher Executive Director Hospital Cost Containment Board Woodcrest Office Park 325 John Knox Road, Building L, Suite 101 Tallahassee, Florida 32303 Douglas A. Mang, Esquire Charles T. Collette, Esquire MANG & STOWELL, P.A. P.O. Box 1019 Tallahassee, Florida 32302 Robert A. Weiss, Esquire PARKER, HUDSON, RAINER, DOBBS & KELLY The Perkins House, Suite 101 118 N. Gadsden Street Tallahassee. Florida 32301
The Issue The issue in this case is whether the Respondent, the Department of Health and Rehabilitative Services (HRS), should grant the application of the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds.
Findings Of Fact The Applicant and the Application. The applicant, the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), is a 102 bed acute care hospital 1/ located at 6600 Madison Street, New Port Richey, Florida, in the West Pasco County Subdistrict of HRS Service District 5, which also includes Pinellas County and East Pasco County. Included among its complement of beds are 14 obstetrical (OB) beds. There are no existing pediatric beds. Riverside's application is for a certificate of need to spend approximately $2,000,000 to renovate its existing OB unit, add 14 beds to the OB unit, add 11 medical/surgical beds and add six pediatric beds. The addition of the pediatric unit will be accomplished by relatively minor alterations to existing space and existing beds, and the cost attributable to this phase of the application is negligible. Similarly, the 11 additional med/surg beds will be accomplished by adding beds to existing private rooms, to create semi-private rooms, at a cost of only approximately $44,000. (Gas and electric lines for the additional beds already have been run to the headwall of these rooms and can be connected without difficulty or much expense.) Most of the $2 million total capital expenditure proposed in the application is attributable to the cost of modernizing the OB unit, with the addition of 14 beds in the process. The addition of 14 beds to the unit does not add significantly to what the modernization effort would cost without the addition of the 14 beds. The proposed new OB unit would include private rooms, to go along with the semi-private rooms that make up the existing 14-bed unit. In addition, the proposed modernized 28-bed OB unit would consist of the combined labor/delivery/recovery/post-partum (LDRP) rooms now preferred by most patients. Pertinent State Health Plan Provision. The 1989 State of Florida Health Plan states at the outset of a list of preferences to be utilized in comparing applications for additional acute care beds: No additional acute care beds should generally be approved unless the subdistrict occupancy rate is at or exceeds 75 percent, or, in the event of an existing facility, an applicant shall demonstrate that the occupancy rate for the most recent 12 months is at or exceeds 80 percent. The Need Methodology. Using the F.A.C. Rule 10-5.038 methodology, the district and subdistrict would show numeric need of approximately 201 and 230, respectively. See F.A.C. Rule 10-5.038(5). Regardless of the calculated bed need, HRS does not normally approve additional beds in a subdistrict unless the annual average acute care bed occupancy rate is 75 percent or higher during the 12-month base period of July, 1989, through June, 1990. See F.A.C. Rule 10-5.038(7)(d). The 670 licensed beds in the West Pasco Subdistrict reported only 68.92% occupancy during the 12- month base period, resulting in no projected need for additional acute care beds in the subdistrict for the applicable 1996 planning horizon. Even when a subdistricts's need for additional acute care beds projected by the methodology is zero, an application by an existing hospital still may be approved where that hospital's annual average occupancy rate exceeds 75 percent for the 12-month base period (again, in this case, from July, 1989, through June, 1990.) See F.A.C. Rule 10-5.038(7)(e). During the 12-month base period from July, 1989, through June, 1990, Riverside's occupancy averaged 72.40%, not high enough to be approved under F.A.C. Rule 10-5.038(7)(e). Observation Bed Days. Three types of beds days are included in a category of so-called "outpatient observation bed days." First, "twenty-three hour patients" are patients who are not eligible for inpatient services under the Health Care Finance Administration (HCFA) criteria for the Medicare program. Second, "observation patients" are similar non-Medicare patients. Third, some outpatients (or ambulatory surgery patients) also use beds for part of a day. With new cost containment and review/regulation developments in hospital care, more patients are spending up to 23 hours in the hospital before a decision is made that further hospitalization in not needed. As a result, "observation" bed use has increased. Outpatient observation services have been recognized and defined by HCFA. Blue Cross and Blue Shield of Florida (the Medicare intermediary) and the Health Care Cost Containment Board (HCCCB) have addressed issues such as reimbursement, billing and reporting of observation beds. Services are provided to "observation bed" patients under doctor's orders, including diagnostic services, observation and monitoring by nursing personnel and/or medical intervention or treatment. Calculation of occupancy rates under the HRS need methodology does not take into account the so-called "observation bed days." 2/ There was no evidence that any part of District V or the West Pasco Subdistrict are inaccessible geographically. Other Need Factors. The evidence showed that there is a seasonal peak utilization and occupancy of acute care beds in District V and in the West Pasco Subdistrict during approximately October or November through March or April each year. This seasonal peak is reflected by the statistics. As previously stated, Riverside's occupancy averaged 72.40% during the period from July, 1989, through June, 1990. During the first quarter of 1990, occupancy was 86.83%. Riverside's average occupancy for calendar year 1990 was 73.87%. For the period from March, 1990, through February, 1991, average occupancy for Riverside's acute care beds was 71.2%. 3/ For the period from March, 1990, through February, 1991, occupancy for Riverside's obstetrics beds was 92.9%. There is no acute care pediatric unit in the West Pasco subdistrict. Subdistrict residents (as well as others in Riverside's general service area) needing level II pediatric services generally go to a Pinellas County or East Pasco County hospital for them. Given the choice, some but not all of these patients likely would prefer to get these services at Riverside, depending primarily on the severity of the particular medical needs. But the evidence did not quantify the number predicted to switch to Riverside. Also, occupancy of pediatric beds in Pasco county was less than 15% during 1987 and 1988. Medical Care for the Poor. The State Health Plan also notes that the uncompensated care burden on hospitals has grown during the 1980s because of a growing number of low-income persons; simultaneously, the proportion of persons covered by Medicaid has dropped. Numerous statewide studies, moreover, have shown that hospitals' uncompensated care is increasing at the same time that their ability to absorb the cost of care is decreasing. Riverside's predecessor bought the hospital from Pasco County in 1982. As a condition to the purchase, Riverside's predecessor agreed to provide Medicaid and indigent care for Pasco County in perpetuity. When Riverside purchased the hospital on December 29, 1983, it assumed the contractual obligation to provide Medicaid and indigent care in perpetuity. Riverside is a disproportionate share provider within the meaning of the State and local health plans. Approximately, 13% of Riverside's total annual patient days are for Medicaid patients. In 1990, 2,647 of Riverside's obstetrical, and 4,272 of its non-obstetrical patient days, were Medicaid. Riverside's charity care deduction from gross patient revenue for fiscal year 1990 was 1.07% of gross patient revenue. Riverside's Medicaid deduction from gross patient revenue for fiscal year 1990 was 5.96% of gross patient revenue. Approximately, 14.8% of Riversides's services go to Medicaid and indigent patients. Although Riverside has only 14% of the beds in the West Pasco subdistrict, it does more than 90% of the non-emergency, non-OB Medicaid care. Approval of the Riverside application would enable Riverside to spread its administrative and overhead costs over a larger base, thereby reducing average charges. Approval of the Riverside application also would make Riverside more profitable and thereby better able to absorb the cost of the Medicaid and indigent care it provides. If Riverside converts existing acute care beds to pediatric or OB beds, it probably would have to squeeze out paying patients during seasonal occupancy peaks, thereby losing more revenue and profits. Competition. If the Riverside application is approved, Riverside's share of the market represented by the West Pasco subdistrict will rise from approximately 14% to approximately 18%. HCA controls the rest of the market. There are no existing OB beds in the West Pasco subdistrict other than at Riverside. The HCA hospital in New Port Richey had an OB unit which it recently abandoned. As a result of the grant of Bayonet Point's application, CON Action No. 6583, with which Riverside had been in direct competition in this application review cycle, Bayonet Point now is approved for a seven-bed OB unit as part of its bed complement. Upgrading its existing OB unit and adding 14 more OB beds will enable Riverside to capture more private paying patients, which will better enable it to compete with the HCA hospitals. At present, Riverside's OB unit is utilized almost exclusively by indigent and Medicaid patients because of the hospital's contract with Pasco County. This unit now is operating at close to absolute capacity. With the upgrades and additional beds, Riverside can work to capture some private pay patients; without them, Bayonet Point will capture the private pay patients. Financial Feasibility. Riverside operated at a deficit from 1983 essentially to the present. By the end of 1990, Riverside had accumulated a deficit of $8.8 million. Riverside's corporate parent, American Healthcare Management, Inc. (AHM), was funding the deficit. From 1985 through December, 1989, AHM was in Chapter 11 bankruptcy proceedings. During that time period, there was legitimate concern whether AHM would be able to continue to fund Riverside deficits. AHM emerged from bankruptcy in December, 1989, stronger financially. It has since become stronger still. AHM reduced its debt by approximately $88 million. Part of the debt reduction was achieved by the sale of $43 million of underperforming assets. In addition, $45 million of bond debt was exchanged for common stock on September 30, 1991. The interest savings on the bond-for-stock exchange is $6 million a year. As a result, AHM's current debt-to-equity ratio is approximately $160 million to $130 million. AHM's corporate staff has been reduced from about 102 to 65. Its corporate office were transferred from expensive quarters in Dallas, Texas, to less expensive quarters in King of Prussia, Pennsylvania. Corporate expenses have been greatly reduced as a result. Accounts receivable have been reduced by better collection methods, and the $43 million of assets sold to reduce corporate debt had been underperforming. AHM had $21 million cash and short-term investments as of December 31, 1989. As of the date of the final hearing, it had $18 million cash and short- term investments. Riverside's gross margin (profit) for the first nine months of 1991 was $4 million. After depreciation, amortization, and interest and home office costs, Riverside generated approximately $1.2 million for the first nine months of 1991. Internal cash flow generated by AHM and Riverside would be sufficient to finance Riverside's application project. Since the capital costs of Riverside's proposed project are relatively small, financial feasibility is relatively easy to achieve. Besides costing relatively little, the 31 new beds will not increase intercompany interest or management fees significantly. In addition, the 31 new beds would enable Riverside to better compete for private pay patients. Given the expected utilization of the new beds, the proposed project will be to the financial benefit of the applicant. The pro forma bears this out. It projects 75.11% occupancy for the 31 new beds in the second year of operation (July, 1994, to June, 1995). (This projection does not include expected "observation bed days.") A profit of $2,477,199 for the 31 beds is projected for the second year of operation (not counting any portion of the preexisting intercompany interest or management fees).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that HRS enter a final order denying the Riverside application for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds. RECOMMENDED this 28th day of January, 1992, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 January, 1992.
The Issue Whether the Agency for Health Care Administration should approve or deny Certificate of Need Application No. 7973, Holy Cross Hospital’s application for conversion and delicensure of 34 acute care beds in order to establish a 24-bed hospital-based skilled nursing unit? Whether the Agency for Health Care Administration should approve or deny Certificate of Need Application No. 7976, Northwest’s application to establish a 13 bed hospital-based skilled nursing unit through the conversion of 13 acute care beds and the concurrent delicensure of an additional five acute care beds?
Findings Of Fact The Parties Located within the city limits of Fort Lauderdale in the northeast section of Broward County, Holy Cross is a not-for- profit, Catholic-affiliated acute care hospital. Its 587 licensed beds make it the third largest acute care hospital in AHCA District 10. A secondary and tertiary health care facility offering many of the specialties in the field of medicine, it is accredited by the Joint Commission on Accreditation of Health Care Organizations, ("JCAHO"). In addition to its 43 tertiary comprehensive medical rehabilitation beds accredited by the Commission on the Accreditation of Rehabilitation Facilities, ("CARF"), it has a 9-bed Level II neonatal intensive care unit, provides adult cardiac catheterization and adult open heart surgery and care of the patients with cancer as a major component of its services. It operates a Medicare-certified home health agency as an adjunct service. Northwest is a full service 150-bed community acute care hospital located in the city of Margate in the northwest quadrant of Broward County. Fully accredited by JCAHO, Northwest offers a wide range of acute care services, including gastro-intestinal, cardiology, oncology, hematology, pediatrics, obstetrics, inpatient and outpatient surgery, telemetry, intensive and critical care and emergency medical services. These services are complemented with outpatient services and other programs such as the wound care center and the diabetic center located in the medical office buildings immediately adjacent to the hospital. In addition to these programs, Northwest, like Holy Cross, operates a Medicare-certified home health care agency. The Agency for Health Care Administration is "designated as the single state agency to issue . . . or deny certificates of need . . . in accordance with the district plans, the statewide health plan, and present and future federal and state statues." Section 408.034(1), F. S. The Service Planning Area The applicable Service Area is District 10 which consists entirely of Broward County. Since the district is but one county, it is not divided into subdistricts. Within the Service Area there are 18 hospitals with acute care beds. Five have skilled nursing units: Broward General Medical Center, with 20 beds; Memorial Regional Hospital, 26 beds; North Broward Medical Center, 18 beds; North Ridge Hospital, 12 beds; and Columbia University Hospital, 20 beds. Background The Applications On January 17, 1995, Holy Cross filed CON application number 7973 to delicense 34 general acute-care beds and to establish a 24-bed skilled nursing unit as a distinct part of its hospital in Fort Lauderdale. On the same day, Northwest filed CON application number 7976 to delicense 13 general acute care beds and to establish a 13-bed skilled nursing unit as a distinct part of its hospital in the City of Margate in the northwest quadrant of Broward County. Each of the two applications were filed in the second 1994-95 batching cycle for nursing home proposals. The health planning horizon applicable to the cycle is July 1997. A considerable motivating factor for the filing of the applications is the financial advantage created by the Medicare prospective payment system for a hospital to be able to discharge a patient from an acute bed, for which the hospital receives a flat fee, to a hospital skilled nursing bed "sub-acute" bed for which Medicare reimburses the hospital on the basis of cost. Numeric Need and Tarpon Springs Several months prior to the filing of the applications, AHCA determined that the "fixed need" for the July 1997 planning horizon for community nursing home beds in AHCA District 10, Broward County, was zero. Published October 14, 1997, the fixed need determination was not challenged. At the time fixed need was determined for the July 1997 planning horizon, the term "community nursing home beds" was defined in Rule 59C-1.036(1), to include beds in hospital-based skilled nursing units. Rule 59C-1.036(1), Florida Administrative Code, however, has since been determined to be invalid and the determination has been upheld in an appeal to the First District Court of Appeal in Health Care and Retirement Corporation of America v. Tarpon Springs Hospital Foundation, Inc., 671 So.2d 217 (Fla. 1st DCA 1996). Stipulations, Effect of Tarpon Springs The parties stipulated that Rule 59C-1.030, Florida Administrative Code is applicable to this proceeding. They were unable to stipulate as to the applicability of Rule 59C-1.036, however, because of differences of opinion on the effect of Tarpon Springs on this proceeding. Holy Cross and Northwest maintain that the invalidation of Rule 59C-1.036(1) in the Tarpon Springs case renders the fixed need pool determination of "zero" inapplicable to this case. The Agency, in contrast, maintains that the fixed need pool determination, not having been challenged, became final and that Tarpon Springs has no effect on that determination. The determination, therefore, in the view of the Agency, is of full force and effect in this proceeding. Disagreement as to the effect of Tarpon Springs did not prevent the parties from stipulating as to other issues. The parties agree that both applicants satisfy the CON application completeness provisions of sections 408.037 and 408.039, Florida Statutes (1995). They also agree that the following paragraphs of Section 408.035(1) Florida Statutes are satisfied or are not applicable to this proceeding: (c), (e), (f), (g), (h), (j), (k), (m) and (o). The Agency agrees that Holy Cross' application satisfies Section 408.035(1)(i), Florida Statutes, which concerns the immediate and long-term financial feasibility of the project. The stipulation of the parties leaves the following statutory criteria at issue with respect to both parties: Section 408.035(a), (b), (d), (l), (n) and Section 408.035(2). In addition, Section 408.035(1)(i), the financial feasibility provision, remains at issue with respect to Northwest. Aside from the legal effect of the Tarpon Springs decision, there are three major issues in the case: (1) the extent to which the beds and services Holy Cross and Northwest hope to provide are already available in existing hospital-based skilled nursing units or freestanding nursing homes; (2) related issues arising under Section 408.035(2), Florida Statutes; and, (3) whether special circumstances exist which, despite a zero fixed need determination, justify approval of the beds under relevant criteria. These three issues overlap to some degree but arise under discrete sections of CON law. The availability issue falls under paragraphs (b) and of Section 408.035(1), Florida Statues, "[t]he availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services . . . in the service district of the applicant," and "[t]he availability and adequacy of other health care facilities and services . . . in the service district, which may serve as alternatives for the health care facilities and services to be provided by the applicant." Section 408.035(2), Florida Statutes, sets criteria in "cases of capital expenditures proposals for the provision of new health services to inpatients," for example, in paragraphs (a) and (d): "[t]hat less costly, more efficient, or more appropriate alternative to such inpatient services are not available . . . " and "[t]hat patients will experience serious problems in obtaining inpatient care of the type proposed , in the absence of the proposed new service." The issue of "special circumstances," in the face of an unchallenged zero fixed need determination arises under Rules 59C-1.036(2)(h) and 59C-1.030(2), Florida Administrative Code. These three issues occupy the bulk of the contest in this proceeding. But there are other issues that arise from the applicability of other legal criteria over which the parties disagree. These issues are approached somewhat differently by the applicants because of the difference in the two applications. Furthermore, financial feasibility, stipulated to in the case of Holy Cross, remains at issue in the case of Northwest. Northwest The Margate area served by Northwest is a heavily populated geriatric community. Persons 65 years of age older make up over 60% of Northwest's admissions compared to the district average of 42%. As a result the majority of patients admitted to Northwest are older senior citizens often presenting to the hospital for treatment associated with chronic disease as is typical for the age cohort "65 and older." Medicare is the primary payer for patients in this age cohort. Obligated by law to treat emergency room patients regardless of whether they are Medicaid, indigent or in some other payor category, Northwest also follows physicians' orders in caring for patients regardless of payor mix. It currently serves, therefore, both indigent and Medicaid patients. Northwest's goal is to provide high quality health care utilizing a multi-disciplinary approach throughout a patient's entire episode of care in a cost effective manner for both the patient and the facility. Northwest's application provides a number of special features upon which it agrees its CON, if granted, should be conditioned. In addition to a specific site, it agrees that 100% of the admissions to the skilled nursing facility will be generated from Northwest's acute care discharges and that it will accept a rate of 2.5% patients who are "Charity/Bad Debt/Indigent/Medicaid." (Northwest Ex. No. 1, Omissions Response, p. xiv.) Furthermore, the application states as a condition, that it will provide "Special programs, listed as: Care for Patients Community Nursing Homes do not currently provide care for including but not limited to the following conditions: Ventilator Care Telemetry Patients with highly contagious diseases Patients with MRSA Infections Emergency "Stat" Blood Gases Continuous Positive Airway Pressure Isolation with HEPA Filtration Emergency Lab & X-Rays 24 Hour Respiratory and Pharmacy TPN Level 5 Pain Mgmt. Administered by anesthesiologists Patients with multiple medically complex sub-acute needs (I.e. Wound care with daily hydro-therapy and monitoring of unstable Diabetes) Id. The application also represented "Care for Patients who test positive to the HIV virus", and "Medical education", as special features upon which the CON would be conditioned. Id. Feasibility Study Northwest conducted a feasibility study which confirmed the need for a 13-bed hospital-based skilled nursing unit for the elderly patients of Broward County. In reaching this conclusion, the applicant used a variation of the high probability DRG method established by the American Hospital Association as a method of calculating the potential utilization of its proposed unit based on the hospital's existing acute care discharges. The Agency has previously accepted the methodology used in the study to justify approval of at least 11 hospital-based skilled nursing units across the state, including the Broward County hospital-based skilled nursing units at University, North Broward and Broward General. Northwest's projection of need for a 13-bed unit is founded upon patients actually treated at Northwest and determined to have needed sub-acute care during the acute care stay. The experience of physicians practicing at Northwest confirms that Northwest will generate a sufficient number of patients to fully utilize Northwest's 13-bed unit if approved. State Health Plan Preferences It is difficult to apply to Northwest the first state health plan allocation factor which provides a preference for a nursing homes proposing to locate in areas within the subdistrict with occupancy rates exceeding 90 percent. First of all, Northwest is not a nursing home. Secondly, there are no subdistricts in District 10. Nonetheless, the Agency gave Northwest full credit for the preference since the hospital-based skilled nursing beds were included in the same pool as all nursing home beds and since the occupancy rate in the district exceeded 90%. (The agency did not give preference to Holy Cross, however, even though it too is in District 10 because it is in Fort Lauderdale, a geographic area in which nursing homes have an occupancy rate of 87.4%. See Finding of Fact 63, below.) At all times material to this case, the nursing home occupancy rate for Broward County exceeded 90%. Beverly, the nursing home closest to Northwest and the only nursing home located in Margate, has consistently enjoyed occupancy rates in excess of 98%. The State Agency Action Report awarded Northwest full credit for this preference. State allocation factor number two gives preference to applicants proposing to serve Medicaid residents in proportion to the average sub-district wide percentage of nursing homes. It further provided that preference will also be given to applicants that propose the development of multi-level care systems. The Agency has stipulated that Northwest's skilled nursing unit would promote a continuum of care in a multi-level health care system. Accordingly, Northwest is entitled to preference under this allocation factor. As for the preference for serving Medicaid residents in proportion to the average sub-district wide percentage of nursing homes, the agency conceded in testimony that a hospital-based skilled nursing unit, realistically, could never be expected to serve the average sub-district percentage for Medicaid. The third state health plan allocation factor provides a preference to an applicant proposing specialized services to special care residents, including AIDS residents, Alzheimer's residents and the mentally ill. Northwest currently treats persons with AIDS and has conditioned its application on treatment of AIDS patients. The Agency's reviewer criticized Northwest's application for failure to quantify the number of Alzheimer's and mentally ill patients it will serve. The unit, however, is not designed to treat patients for Alzheimer's or mental illness. The unit is designed for those in need of subacute care as follow-up to an acute episode. Northwest will treat any patients in need of subacute care in its proposed skilled nursing unit including Alzheimer's and mentally ill patients if their medical condition warrants a stay in the unit. The criticism is unfounded in view of the nature of the proposal. Since Northwest will provide treatment to both Alzheimer's and mentally ill patients it deserves preference under the third allocation factor. The fourth state health plan allocation factor provides a preference to an applicant proposing a continuum of services to community residents including, but not limited to, respite care and adult day care. Respite care and adult care are designed to give the primary caregiver a reprieve from caring for homebound family members. Typically, these patients are not medically complex and not appropriate for a hospital-based skilled nursing unit. Community nursing homes and other organizations such as United Way and church organizations are the primary providers of respite care and adult day care patients. The Agency reviewer recognized that Northwest's proposal should not be compared to these type of caregivers. Nonetheless, Northwest has documented its willingness to provide both respite and adult day care. Additionally, the Agency has stipulated that Northwest's proposed unit would promote a continuum of care and services to community residents. Accordingly, Northwest is entitled to preference under this allocation factor. There is no dispute that Northwest's proposal is designed to provide maximum resident comfort and quality of care in conformance with the fifth state health plan allocation factor. The sixth state health plan allocation factor provides a preference for an applicant proposing innovative therapeutic programs which have proven effective in enhancing the residents physical and mental functioning level and which emphasize restorative care. Northwest's proposed unit will provide innovative restorative programs designed to achieve medical stability and the discharge of patients to their home. These programs include the following: ventilator programs, CVA program, orthopedic rehab program, restorative/general rehab program, pain management program, pharmacy program and respiratory program. An inter- disciplinary team of specialists will develop an individual patient treatment plan for each patient designed to achieve maximum functioning and independence. Northwest conforms to this preference. It is undisputed that Northwest meets the seventh health plan allocation factor providing preference for an applicant proposing charges which do not exceed the highest Medicaid per diem rate in the subdistrict. The eighth state health plan allocation factor provides preference to an applicant with a history of providing superior resident care programs. Northwest conforms to this preference because it enjoys full JCAHO accreditation. Superior ratings are attributable to nursing homes not hospitals. The ninth state health plan allocation factor relates to applicants proposing clinical staffing levels which exceed the Agency's minimum acceptable level. Preference nine is met by Northwest because it proposes to provide a minimum of 7 nursing hours per patient per day, at least half of which will be provided by a registered nurse. The tenth state health plan allocation factor provides a preference for an applicant who will use professionals from a variety of disciplines to meet the residents' needs for social services, specialized therapies, nutrition, recreational activities, and spiritual guidance. Northwest will provide the patients treated in its proposed unit with direct access to a full spectrum of clinical professionals and services. Northwest was appropriately awarded full credit for this preference by the Agency. Northwest also meets the eleventh state health plan allocation factor providing preference for an applicant that ensures the residents' rights and privacy and that implements a well designed quality assurance and discharge planning program. The final state health plan allocation factor provides a preference to an applicant proposing lower administrative costs and higher resident care costs. Northwest's pro-formas established that Northwest meets this preference in that total administrative costs per patient day were $29 compared to $137 in patient care costs per patient day. Northwest receives full credit for this preference. Local Heath Plan Northwest meets the first district allocation factor giving preference to applications proposing to convert unused medical/surgical beds to intermediate or skilled nursing home beds. Northwest is in compliance because it is converting 18 underutilized medical/surgical beds to construct a skilled nursing unit that will be highly utilized. The second district allocation factor pertaining to applicants that propose to expand existing facilities which reflect average annual occupancy rates which meet or exceed 90% does not apply to Northwest since it relates to nursing homes. The third district allocation factor awards preference to applicants proposing to co-locate nursing home facilities near other existing health care facilities. Northwest's unit will be located on the second floor of its hospital. As such the unit will have immediate access to the full spectrum of acute care and support services offered by Northwest. The fourth and fifth allocation factors are not applicable to hospital-based skilled nursing units. The sixth district allocation factor gives preference to applicants which propose to care for the medically indigent. Northwest has conditioned its application on 2.5% charity/Medicaid cases. The seventh allocation factor gives preference to applicants with superior ratings for nursing home services. Northwest conforms to this preference in spirit, as well as the ninth district allocation factor, through its full JCAHO accreditation, a credential at least comparable to a nursing home superior rating. The eighth district allocation factor gives preference to applicants which document formalized patient transfer mechanisms with proper informational flow between related levels of care. Northwest meets this preference. Allocation factor number 10 gives priority to those applicants offering services to HIV patients. Northwest's proposal meets this preference. Northwest meets district allocation factor number 11 because it participates in the data collection activities of the Broward Regional Health Planning Council. Financial Feasibility 54 Northwest will fund the project cost of $283,000 from corporate cash concentration accounts guaranteed from its parent company, Columbia Healthcare Corporation. This commitment was documented in its application. The $8,965,721 of capital projects identified on Northwest's schedule 2 are complete and have been entirely funded. Northwest is able to fund the project through internal operating funds without any guaranty from its parent corporation. Northwest's after tax profit in 1994 was $1,728,717. In 1995, its after-tax profit was $3,154,336. Northwest has shown its ability to fund the project as well as its other projects either approved, planned or underway. There is little doubt that Northwest's proposal will be financially feasible in the long term. There are sufficient patients at Northwest in an acute care setting that could be in a sub-acute setting to justify a 13-bed unit. While Medicare will reimburse Northwest for costs associated with patient care in its proposed unit, it will not reimburse the hospital for some amenities Northwest plans to provide the unit's patients. Consequently, Northwest will experience an excess of expenses over revenues if its application is approved. This loss, however, is more than offset by the shifting of patients from a high cost acute care setting who have exceeded the average length of stay for their DRG to the lower cost, less intensive setting sub-acute setting, where the hospital will be reimbursed by Medicare on a cost reimbursement system. While Northwest's schedule 11 shows an anticipated loss of $27,000 in year one and $30,000 in year 2, the hospital will realize an incremental profit of $778,000 in year 1 and $850,000 in year 2 through savings realized by the transfer of patients from the acute care setting to the sub-acute care setting. Thus while the proposed unit standing alone appears to be not feasible financially, a conclusion drawn by the Agency, the granting of the application is clearly in the interest of the applicant financially. To say the project is not financially feasible because its expenses exceeds its revenue in years one and two ignores the reality of the tremendous savings to the hospital created by granting the applicant savings which far exceed the losses the unit sustains when viewed in isolation from the remainder of the applicant's operations at the hospital. The financial reviewer for the agency concluded that Northwest was in a weak financial position because its balance sheet for September 1, 1994, showed a retained deficit of $4,600,000. Northwest's audited financial statement for fiscal year 1994 reveals that the retained deficit was reduced by approximately $700,000. This figure had been reduced to a total of $837,000 in the fiscal year ending December 21, 1995, thereby indicating the financial strength of the hospital contrary to what had been indicated by the balance sheet the year before. Past and Proposed Services to Medicaid and Indigent Patients The vast majority of patients meeting the criteria for admission to Northwest's proposed unit will be Medicare patients. Northwest's condition of accepting 2.5% charity/Medicaid patients is nearly three times the statewide average for hospital-based skilled nursing units and proportional to the hospital's payor mix. Holy Cross Need Methodologies In its application and through expert testimony at final hearing, Holy Cross projected need for its proposed unit based on two methodologies. The "MDC Methodology" resulted in a low estimate of 31 beds and a high estimate of 52 beds necessary to serve subacute care patients with certain diseases and disorders. The "DRG" methodology substantiated a need for a low of 23 beds and a high of 44 beds directed to certain DRGs. Both methodologies were tested using calendar year 1995 patient discharge data. State and District Health Plans As discussed above, both the State and District Plans contain preference criteria relating to nursing home facilities. The criteria apply to hospital-based skilled nursing beds since they have been included in the pool for community nursing beds. As a result, in some cases the letter of the criteria do not clearly apply to Holy Cross yet Holy Cross seems to meet the spirit of the criteria. State Health Plan Preferences The first state plan preference applies to "an applicant proposing to locate a nursing home in areas within the subdistrict with occupancy rates exceeding 90%." Respondent's Ex. No. 2, E.,1c.,1. To make up for District 10's lack of subdistricts, Holy Cross divided the county into north and south sections both of which had nursing home occupancy rates in excess of 90%. Holy Cross' location in the northern area of District 10, where nursing home occupancy rates exceed 90%, would confirm its consistency with the first preference of the plan if the northern section of the county were a subdistrict. At the same time, Holy Cross is located in Fort Lauderdale. Fort Lauderdale has an occupancy rate for nursing homes of 87.04%. The agency chose to regard Fort Lauderdale as the "subdistrict," and therefore did not give Holy Cross preference under the first allocation factor. The difficulty of applying the preference is apparent. Holy Cross is not a nursing home. There are no subdistricts in District 10. The Agency's choice of Fort Lauderdale as a subdistrict when none in fact exists and use of the occupancy rates for Fort Lauderdale nursing homes to defeat preference for Holy Cross under this allocation factor is perplexing in light of its award of full credit to Northwest which used its own division of the county to establish preference based on occupancy rates in another non-existent subdistrict. Creation of a subdistrict under these circumstances should not be allowed to defeat preference under this allocation factor. Holy Cross proposes a Medicare-certified unit which will primarily serve Medicare beneficiaries, many of whom will be Medicaid recipients. Holy Cross meets the second preference of the state plan. Holy Cross meets the preference regarding specialized services because it proposes to serve AIDS, Alzheimer's and mentally ill patients in need of subacute services. Holy Cross satisfies the preference regarding provision of a continuum of services to community residences. As part of a continuum of services, it will provide respite care, Hospice care and geriatric screening, all types of services from which community residents will benefit. Holy Cross meets the fifth preference in that its unit will provide for maximum patient and family comfort and quality of care. 71 Holy Cross satisfied the sixth preference. It intends to provide innovative therapeutic programs in its unit. The seventh preference is not applicable to Holy Cross' application. Holy Cross, while not a nursing home, satisfies the spirit of the seventh preference in light of its JCAHO and CARF accreditations. Holy Cross' proposed staffing levels exceed minimum staffing levels by a wide margin and thus satisfy preference nine. Holy Cross satisfies the tenth preference in that it will use a multi-disciplinary staff, including a physical therapist, occupational therapist, dietary manager, nursing staff, and social service staff. The eleventh preference is satisfied by Holy Cross. Its application provides documentation regarding the manner in which it will ensure residents' rights and privacy. Holy Cross will comply with federal guidelines. It will include the review of the skilled nursing unit in its current Quality Assurance Program. Discharge planning will also be used for patients admitted to the unit. The twelfth preference is not applicable to Holy Cross. District Health Plan Preferences Holy Cross clearly meets the priority for conversion of unused medical/surgical beds to skilled nursing beds since that is precisely what it proposes in its application. The priority given to applicants requesting expansion of facilities with a 90% occupancy rate does not apply to Holy Cross. Holy Cross satisfies the priority given applicants that propose to locate nursing home facilities within or adjacent to existing health care facilities since its unit is proposed to be located within the hospital. The fourth and fifth allocation factors do not apply to hospital-based skilled nursing units. Holy Cross satisfies the sixth priority because it committed to provide charity care in its proposed unit and to provide a service level of intensity not provided elsewhere in the community. Holy Cross meets the spirit of factor no. seven and the letter of factor no. nine because it is accredited by JCAHO and CARF. Holy Cross complies with the eighth priority. It has transfer agreements with nursing homes, hospitals and home health agencies, as well as with other rehabilitation hospitals in the District. It also has a formal mechanism for the transfer of information at the time of discharge of the patient. The tenth priority is satisfied in light of Holy Cross' commitment to the treatment of patients with HIV and AIDS. Holy Cross routinely provides planning data to the Local Health Council and thus satisfies the eleventh priority. Past and Proposed Provision of Services to Medicaid and Indigent Patients In 1993, Holy Cross served over 7,000 patient days which were reimbursed by Medicaid in the amount of over $18 million. The hospital provided almost $2 million in charity care. Additionally, Holy Cross has agreed to provided 2 percent of its patient days to Medicaid in order to assure access for the Medicaid patient and a quarter of 1 percent for charity care. Projected Utilization Holy Cross' projected utilization of its proposed beds is reasonable. The testimony of its physicians confirms that it will achieve high levels of occupancy in its proposed unit. Project Cost The total project cost of $847,055 is reasonable. Adverse Impact No existing providers of skilled nursing facilities, whether hospital-based or in a free-standing nursing home, intervened in this proceeding. Whatever adverse impact the granting of these applications may produce, therefore, is not likely to be substantial. Availability of Like and Existing Services The most difficult issue in this case is whether nursing homes providing skilled nursing beds should be considered "like and existing" services to hospital-based skilled nursing units. Holy Cross and Northwest maintain that nursing home skilled nursing units are not an option because they do not provide the intensity of care needed by medically complex sub- acute care patients. The Agency maintains otherwise. The 1995 legislature created the Panel for the Study of Skilled Nursing Care as a response to proposals by Florida's three hospital associations to exempt hospitals from Certificate of Need regulation for the establishment of skilled nursing beds. The nine-member panel, comprised of three members representing hospitals, three representing nursing homes, one appointed by the Senate and one by the House, and a ninth elected by the other eight, issued its report in December of 1995. By the narrowest margin possible, a five-to-four vote, the panel recommended that CON regulation be retained. The report shows, "that hospital-based and freestanding nursing facilities provide similar services and treat patients that are comparable." (Tr. 871). The report recognized that hospital-based units provide a "considerably wider range of services." (Tr. 875). For example, hospitals are able to provide "nuclear medicine," (Tr. 909), in a subacute setting while subacute units in nursing homes do not. Nonetheless, examination of the type of patients treated and services provided in hospital-based units and in nursing home skilled beds revealed that "they were very similar." (Tr. 875). While there was testimony in this case about difficulty and problems with various patients discharged from acute settings in placing them in skilled nursing beds in nursing homes, it does not appear from this record that skilled nursing beds in District 10 are not available or inadequate generally. At times, however, individual cases have encountered serious difficulty. For example, Northwest discharges acute care patients to over 20 nursing homes. Of these, only four have skilled nursing units. The nursing home closest to Northwest, for which patients and their families often have a preference because of its proximity, does not have a subacute unit and is not superior rated. One or two patients a month discharged to this unit return to Northwest because of medical complications. In two recent cases, the patients returned within 3 days. Such a quick return is "significant to patient care to that patient, to family, to their overall length of stay." (Tr. 103). In the cases of these patients, it clearly would have been better over the long run for them to have been discharged from the acute care setting to skilled nursing unit in the hospital to which they soon returned. This evidence, however, is merely anecdotal. Moreover, it is not clear whether the two patients would have been discharged into a skilled nursing bed in the hospital in the first place since they were apparently considered well enough to be discharged into a nursing home without a subacute unit. These same patients returned through the emergency room. There they received aggressive care at high cost. Section 408.035(2)(a), (b) and (d) Hospital-based skilled nursing beds are at least $150 per day more costly than skilled nursing beds in nursing homes. For the reasons stated in the testimony of Ms. Elfie Stamm, the Agency's expert in health planning, it was not shown that skilled nursing beds in nursing homes are not available to serve patients who would be served in the units proposed by Northwest and Holy Cross or that patients will experience serious problems in obtaining inpatient care of the type proposed in the absence of approval of Northwest or Holy Cross' application. Special Circumstances Rule 59C-1.036(2)(h), Florida Administrative Code allows an applicant to demonstrate "special circumstances" to approve beds despite a bed need allocation of zero: In the event that the bed need allocation is zero, the applicant may demonstrate that circumstances exist to justify the approval of additional beds under the other relevant criteria specifically contained in subsection 59C-1.030(2), Florida Administrative Code. Among the criteria listed in Rule 59C-1.030(2) is: The need that the population served or to be served has for the health . . . services proposed . . . and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The occupancy rates for nursing homes in District 10 is over 90%. The occupancy rates for skilled beds in nursing homes was not proven. The agency, in view of now-invalidated Rule 59C-1.035(1), Florida Administrative Code, did not collect data for nursing home skilled bed occupancy in time for use in this proceeding. District 10/Statewide Comparison As of January 1, 1994, District 10 had the lowest ratio of community nursing home beds to "65 and older" ("elderly") population of any district in Florida: 15.6 beds per 1,000 elderly residents. The statewide average was 28.7 beds per 1,000 elderly. Although District 10 had 10.5 percent of the state's population of elderly, it had only 5.7 of the community nursing home beds. According to the AHCA July 1998 Nursing Home Fixed Need Pool Book, statewide, there are .59 hospital-based skilled nursing (HBSNF) beds per 1,000 elderly. In District 10, there are only .35 such beds per 1,000 elderly. Excluding District 10 from the calculation yields a statewide average of .62 HBSNF beds per 1,000 elderly, nearly double that of District 10. (Northwest Ex. 3, p. 4, Tr. 282.) In District 10, only 25% of the hospitals have HBSNU's, compared to 35% for the rest of the state, and 40% for districts, like District 10, with the highest elderly population. The reason for the relatively low number of hospital- based skilled nursing beds in District 10 was explained by Sharon Gordon-Girvin, Holy Cross' expert in health care planning: [Broward County will] continue to have the lowest number of beds because the way the formula works . . . produces a number of beds that is based on the allocation of beds. So when an existing district . . . has a low number of beds, that formula is going to continue to predict a low number of bed[s] relative to the population. It's an artifact of the formula in the way the formula works in allocating beds. (Tr. 552). Because of high occupancy rates, the existing hospital-based skilled nursing units are relatively inaccessible for patients discharged from Holy Cross or Northwest but still in need of subacute care. Precisely how many skilled beds in nursing homes are available to pick up the need is not determinable from this record.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Agency for Health Care Administration enter its final order granting CON No. 7973 to Holy Cross Hospital, Inc., and CON No. 7976 to Northwest Regional Hospital, Inc., d/b/a Northwest Regional Hospital. DONE AND ENTERED this 5th day of May, 1997, in Tallahassee, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 5th day of May, 1997. COPIES FURNISHED: Richard M. Ellis, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 William B. Wiley, Esquire Charles A. Stampelos, Esquire H. Darrell White, Esquire McFarlain, Wiley, Cassedy & Jones, P.A. 215 South Monroe Street, Suite 600 Tallahassee, Florida 32301 Stephen A. Ecenia, Esquire Thomas W. Konrad, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Tallahassee, Florida 32301 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Jerome W. Hoffman, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403
The Issue The issues in this case are whether the statement contained in Respondent's letter dated September 9, 1997 (1997 Letter), establishing a $24.00 payment for hospital outpatient services billed as revenue code 451 constitutes a rule as defined by Subsection 120.52(15), Florida Statutes (2010),1 and, if so, whether Respondent violated Subsection 120.54(1), Florida Statutes, by not adopting the statement in accordance with applicable rulemaking procedures.
Findings Of Fact AHCA is the state agency responsible for the administration of the Florida Medicaid Program. § 409.902, Fla. Stat. Petitioners are acute care hospitals that are and were enrolled as Medicaid providers of outpatient services in Florida, at all times relevant to this proceeding. On September 9, 1997, AHCA issued a letter to hospital administrators, which provided the following: This letter is to inform you that Medicaid coverage for hospital emergency room screening and examination services is now in effect. Hospitals will be reimbursed a $24.00 flat fee for providing these services to Medipass and Medicaid fee-for-service recipients who do not require further treatment beyond the screening and examination services. This policy is retroactive to July 1, 1996. The letter further provides that the $24.00 reimbursement would be billed under the revenue code 451. The statement in the letter applies to hospitals which are Medicaid providers and, therefore, is a statement of general applicability. The statement meets the definition of a rule. AHCA concedes that the statement, which provides "payment of a $24 rate for Medicaid Hospital Outpatient Services billed under Revenue Code 451, constitutes a rule under s. 120.52(16), Fla. Stat." AHCA concedes that the statement has not been adopted as a rule by the rule adoption procedures provided in Section 120.54, Florida Statutes. AHCA has discontinued all reliance on the challenged statement.
The Issue The ultimate issue is whether the application of Petitioner, University Medical Park, for a certificate of need to construct a 130-bed acute care hospital in northern Hillsborough County, Florida should be approved. The factual issues are whether a need exists for the proposed facility under the Department's need rule and, if not, are there any special circumstances which would demonstrate the reasonableness and appropriateness of the application notwithstanding lack of need. The petitioner, while not agreeing with the methodology, conceded that under the DHRS rule as applied there is no need because there is an excess of acute care beds projected for 1989, the applicable planning horizon. The only real factual issue is whether there are any special circumstances which warrant issuance of a CON. The parties filed post-hearing findings of fact and conclusions of law by March 18, 1985, which were read and considered. Many of those proposals are incorporated in the following findings. As indicated some were irrelevant, however, those not included on pertinent issues were rejected because the more credible evidence precluded the proposed finding. Having heard the testimony and carefully considered the Proposed Findings of Fact, there is no evidence which would demonstrate the reasonableness and appropriateness of the application. It is recommended that the application be denied.
Findings Of Fact General Petitioner is a limited partnership composed almost entirely of physicians, including obstetricians/gynecologists (OB/GYN) and specialists providing ancillary care, who practice in the metropolitan Tampa area. (Tr. Vol. 1, pp. 103-104). Petitioner's managing general partner is Dr. Robert Withers, a doctor specializing in OB/GYN who has practiced in Hillsborough County for over thirty years. (Tr. Vol. 1, pp. 24- 26, 28-29.) Dr. Withers was a prime moving force in the founding, planning and development of University Community Hospital and Women's Hospital. (Tr. Vo1. 1, pp. 26-28, 73; Vol. 4, pp. 547-548.) Petitioner seeks to construct in DHRS District VI a specialty "women's" hospital providing obstetrical and gynecological services at the corner of 30th Street and Fletcher Avenue in northern Hillsborough County and having 130 acute care beds. 1/ (Tr. Vol. 1, pp. 34, 74-75, Vol. 5, pp. 678-679, Northside Ex.-1, pp. 1-2, Ex.-4A.) The proposed hospital is to have 60 obstetrical, 66 gynecological and 4 intensive care beds. (Tr. Vol. 8, P. 1297, Northside Ex.-1 Table 17, Ex.-B.) DHRS District VI is composed of Hardy, Highlands, Hillsborough, Manatee and Polk counties. Each county is designated a subdistrict by the Local Health Council of District VI. Pasco County, immediately north of Hillsborough, is located in DHRS District V and is divided into two subdistricts, east Pasco and west Pasco. If built, Northside would be located in the immediate vicinity of University Community Hospital (UCH) in Tampa, Hillsborough County, Florida. Less than 5 percent of the total surgical procedures at UCH are gynecologically related, and little or no nonsurgical gynecological procedures arc performed there. (Tr. Vol. 4, p. 550.) There is no obstetrical practice at UCH, although it has the capacity to handle obstetric emergencies. The primary existing providers of obstetrical services to the metropolitan Tampa area are Tampa General Hospital (TGH) and Women's Hospital (Women's). (Tr. Vol. 1, p. 79, Northside Ex.-4, Tr. Vol. 7, pp. 1074-1075.) TGH is a large public hospital located on Davis Islands near downtown Tampa. (Tr. Vol. 1, pp. 47-48, Vol. 8, pp. 1356, 1358.) TGH currently has a 35 bed obstetrical unit, but is currently expanding to 70 beds as part of a major renovation and expansion program scheduled for completion in late 1985. (Tr. Vol. 7, pp. 1049, 1095, Vol. 8, pp. 1367-1368, Vol. 10, P. 1674, Northside Ex.- 2, P. 3.) In recent years, the overwhelming majority of Tampa General's admissions in obstetrics at TGH have been indigent patients. (Tr. Vol. 1, P. 61, Vol. 8, pp. 1375- 1379; Vol. 9, P. 1451; TGH Ex.-3.) Tampa General's internal records reflect that it had approximately 2,100 patient days of gynecological care compared with over 38,000 patient days in combined obstetrical care during a recent eleven month period. (TGH Ex.-3..) Women's is a 192 bed "specialty" hospital located in the west central portion of the City of Tampa near Tampa Stadium. (Tr. Vol. 1, pp. 63-64, 66-67; Vol. 10 P. 1564; Northside Ex.-4.) Women's Hospital serves primarily private-pay female patients. (Vol. 1, pp. 79, 88-89; Vol. 6, pp. 892-893.) Humana Brandon Hospital, which has a 16 bed obstetrics unit, and South Florida Baptist Hospital in Plant City, which has 12 obstetric beds, served eastern Hillsborough County. (Tr. Vol. 7, P. 1075; Northside Ex.-2, P. 3; Northside Ex.-4 and Tr. Vol. 1, P. 79; Northside Ex.-4.) There are two hospitals in eastern Pasco County, which is in DHRS District V. Humana Hospital, Pasco and East Pasco Medical Center, each of which has a six bed obstetric unit. Both hospitals are currently located in Dade City, but the East Pasco Medical Center will soon move to Zephyrhills and expand its obstetrics unit to nine beds. (Tr. Vol. 1, pp. 108- 109; Tr. Vol. 7, P. 1075; Vol. 8, pp. 1278-1281; Northside Ex.-4.) There are no hospitals in central Pasco County, DHRS District V. Residents of that area currently travel south to greater Tampa, or, to a lesser extent, go to Dade City for their medical services. (Tr. Vol. 2, pp. 266-267, 271-272; Vol. 7, p. 1038.) Bed Need There are currently 6,564 existing and CON approved acute care beds in DHRS District VI, compared with an overall bed need of 5,718 acute care beds. An excess of 846 beds exist in District VI in 1989, the year which is the planning horizon use by DHRS in determining bed need applicable to this application. (Tr. Vol. 7, pp. 1046-1047, 1163, 1165-66; DHRS Ex.-1.) There is a net need for five acute care beds in DHRS District V according to the Department's methodology. (Tr. Yolk. 7, pp. 1066, 1165; DHRS Ex.-1.) The figures for District VI include Carrollwood Community Hospital which is an osteopathic facility which does not provide obstetrical services. (Tr. Vol. 1, P. 158; Vol. 7, p. 1138; Vol. 8, P. 1291.) However, these osteopathic beds are considered as meeting the total bed need when computing a11 opathic bed need. DHRS has not formally adopted the subdistrict designations of allocations as part of its rules. (Tr. Vol. 7, pp. 1017-1017, 1019; Vol. 8, pp. 1176, 1187.) Consideration of the adoption of subdistricts by the Local Health Council is irrelevant to this application. 2/ Areas of Consideration in Addition to Bed Need Availability Availability is deemed the number of beds available. As set forth above, there is an excess of beds. (Nelson, Tr. Vol. VII, P. 1192.) Tampa General Hospital and Humana Women's Hospital offer all of the OB related services which UMP proposes to offer in its application. These and a number of other hospitals to include UCH, offer all of the GYN related services proposed by Northside. University Community Hospital is located 300 yards away from the proposed site of Northside. UCH is fully equipped to perform virtually any kind of GYN/OB procedure. Humana and UCH take indigent patients only on an emergency basis, as would the proposed facility. GYN/OB services are accessible to all residents of Hillsborough County regardless of their ability to pay for such services at TGH. (Williams, Tr. Vol. IX, P. 1469; Baehr, Tr. Vol. X, P. 1596; Splitstone, Tr. Vol. IV, P. 582; Hyatt, TGH Exhibit 19, P. 21.) Utilization Utilization is impacted by the number of available beds and the number of days patients stay in the hospital. According to the most recent Local Health Council hospital utilization statistics, the acute care occupancy rate for 14 acute care hospitals in Hillsborough County for the most recent six months was 65 percent. This occupancy rate is based on licensed beds and does not include CON approved beds which are not yet on line. This occupancy rate is substantially below the optimal occupancies determined by DHRS in the Rule. (DHRS Exhibit 4; Contis, Tr. Vol. VII, P. 1069.) Utilization of obstetric beds is higher than general acute care beds; however, the rules do not differentiate between general and obstetric beds. 3/ Five Hillsborough County hospitals, Humana Women's, St. Joseph's, Tampa General, Humana Brandon, and South Florida Baptist, offer obstetric services. The most recent Local Health Council utilization reports indicate that overall OB occupancy for these facilities was 82 percent for the past 6 months. However, these computations do not include the 35 C0N-approved beds which will soon be available at Tampa General Hospital. (DHRS Exhibit 4). There will be a substantial excess of acute care beds to include OB beds in Hillsborough County for the foreseeable future. (Baehr, Tr.w Vol. X, pp. 1568, 1594, 1597.) The substantial excess of beds projected will result in lower utilization. In addition to excess beds, utilization is lowered by shorter hospital stays by patients. The nationwide average length of stay has been reduced by almost two days for Medicare patients and one day for all other patients due to a variety of contributing circumstances. (Nelson, Tr. Vol. VII, P. 1192; Contis, Tr. Vol. VII, P. 1102; Baehr, Tr. Vol. X, pp. 1583-84; etc.) This dramatic decline in length of hospital stay is the result of many influences, the most prominent among which are: (1) a change in Medicare reimbursement to a system which rewards prompt discharges of patients and penalizes overutilization ("DGRs"), (2) the adaptation by private payers (insurance companies, etc.) of Medicare type reimbursement, (3) the growing availability and acceptance of alternatives to hospitalization such as ambulatory surgical centers, labor/delivery/recovery suites, etc. and (4) the growing popularity of health care insurance/delivery mechanisms such as health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), and similar entities which offer direct or indirect financial incentives for avoiding or reducing hospital utilization. The trend toward declining hospital utilization will continue. (Nelson, Tr. Vol. VII, pp. 1192-98; Baehr, Tr. Vol. X, pp. 1584-86; etc.) There has been a significant and progressive decrease in hospital stays for obstetrics over the last five years. During this time, a typical average length of stay has been reduced from three days to two and, in some instances, one day. In addition, there is a growing trend towards facilities (such as LDRs) which provide obstetrics on virtually an outpatient basis. (Williams, Tr. Vol. IX, P. 1456; Hyatt, Tr. Vol. IV, P. 644.) The average length of stay for GYN procedures is also decreasing. In addition, high percentage of GYN procedures are now being performed on an outpatient, as opposed to inpatient, basis. (Hyatt, Tr. Vol. IV, P. 644, etc.) The reduction in hospital stays and excess of acute care beds will lower utilization of acute care hospitals, including their OB components, enough to offset the projected population growth in Hillsborough County. The hospitals in District VI will not achieve the optimal occupancy rates for acute care beds or OB beds in particular by 1989. The 130 additional beds proposed by UMP would lower utilization further. (Paragraphs 7, 14, and 18 above; DHRS Exhibit 1, Humana Exhibit 1.) Geographic Accessibility Ninety percent of the population of Hillsborough County is within 30 minutes of an acute care hospital offering, at least, OB emergency services. TGH 20, overlay 6, shows that essentially all persons living in Hillsborough County are within 30 minutes normal driving time not only to an existing, acute care hospital, but a hospital offering OB services. Petitioner's service area is alleged to include central Pasco County. Although Pasco County is in District V, to the extent the proposed facility might serve central Pasco County, from a planning standpoint it is preferable to have that population in central Paso served by expansion of facilities closer to them. Hospitals in Tampa will become increasingly less accessible with increases in traffic volume over the years. The proposed location of the UMP hospital is across the street from an existing acute care hospital, University Community Hospital ("UCH"). (Splitstone, Tr. Vol. IV, P. 542.) Geographic accessibility is the same to the proposed UMP hospital and UCH. (Smith, Tr. Vol. III, P. 350; Wentzel, Tr. Vol. IV, p. 486; Peters, Tr. Vol. IX, P. 1532.) UCH provides gynecological services but does not provide obstetrical services. However, UCH is capable of delivering babies in emergencies. (Splitstone, Tr. Vol. IV, p. 563.) The gynecological services and OB capabilities at UCH are located at essentially the same location as Northside's proposed site. Geographic accessibility of OB/GYN services is not enhanced by UMP's proposed 66 medical-surgical beds. The accessibility of acute care beds, which under the rule are all that is considered, is essentially the same for UCH as for the proposed facility. As to geographic accessibility, the residents of Hillsborough and Pasco Counties now have reasonable access to acute care services, including OB services. The UMP project would not increase accessibility to these services by any significant decrease. C. Economic Accessibility Petitioner offered no competent, credible evidence that it would expand services to underserved portions of the community. Demographer Smith did not study income levels or socioeconomic data for the UMP service area. (Smith, TR. Vol. III, pp. 388, 389.) However, Mr. Margolis testified that 24 percent of Tampa General's OB patients, at least 90 percent of who are indigents, came from the UMP service area. (Margolis, Tr. Vol. X, P. 1695.) The patients proposed to be served at the Northside Hospital are not different than those already served in the community. (Withers, Tr. Vol. II, P. 344.) As a result, Northside Hospital would not increase the number of underserved patients. Availability of Health Care Alternative An increasing number of GYN procedures are being performed by hospitals on an outpatient basis and in freestanding ambulatory-surgical centers. An ambulatory-surgical center is already in operation at a location which is near the proposed UMP site. In fact, Dr. Hyatt, a UMP general partner, currently performs GYN procedures at that surgical center. (Withers, Tr. Vol. I, P. 150; Hyatt, Tr. Vol. IV, pp. 644, 646. Ambulatory surgical centers, birthing centers and similar alternative delivery systems offer alternatives to the proposed facility. Existing hospitals are moving to supply such alternatives which, with the excess beds and lower utilization, arc more than adequate to preclude the need for the UMP proposal. (Nelson, Tr. Vol. VII, P. 1204, 1205, 1206; Williams, Tr. Vol. IX, pp. 1453, 1469; Contis, Tr. Vol. VII, pp. 1154; Contis, Tr. Vol. VII, pp. 1151, 1154.) Need for Special Equipment & Services DHRS does not consider obstetrics or gynecology to be "special services" for purposes of Section 381.494(6)(c)6, Florida Statutes. In addition, the services proposed by UMP are already available in Hillsborough and Pasco Counties. (Nelson, Tr. Vol. VII, pp. 1162, 1210.) Need for Research & Educational Facilities USF currently uses Tampa General as a training facility for its OB residents. TCH offered evidence that the new OB facilities being constructed at Tampa General were designed with assistance from USF and were funded by the Florida Legislature, in part, as an educational facility. (Powers, Tr. Vol. IX, P. 1391; Williams, Tr. Vol. IX, pp. 1453-1455.) The educational objectives of USF for OB residents at Tampa General are undermined by a disproportionately high indigent load. Residents need a cross section of patients. The UMP project will further detract from a well rounded OB residency program at Tampa General by causing Tampa General's OB Patient mix to remain unbalanced. (Williams, Tr. Vol. IX, P. 1458; Margolis, Tr. Vol. X, P. 1695.) UMP offered no evidence of arrangements to further medical research or educational needs in the community. (Nelson, Tr. Vol. VII, P. 1213. UMP's proposed facility will not contribute to research and education in District VI. Availability of Resources Management UMP will not manage its hospital. It has not secured a management contract nor entered into any type of arrangement to insure that its proposed facility will be managed by knowledgeable and competent personnel. (Withers, Tr. Vol. I, p. 142.) However, there is no alleged or demonstrated shortage of management personnel available. Availability of Funds For Capital and Operating Expenditures The matter of capital funding was a "de novo issue," i.e., evidence was presented which was in addition to different from its application. In its application, Northside stated that its project will be funded through 100 percent debt. Its principal general partner, Dr. Withers, states that this "figure is not correct." However, neither Dr. Withers nor any other Northside witness ever identified the percentage of the project, if any, which is to be funded through equity contributions except the property upon which it would be located. (UMP Exhibit 1, p. 26; Withers, Tr. Vol. I, P. 134.) The UMP application contained a letter from Landmark Bank of Tampa which indicates an interest on the part of that institution in providing funding to Northside in the event that its application is approved. This one and one half year year old letter falls short of a binding commitment on the part of Landmark Bank to lend UMP the necessary funds to complete and operate its project and is stale. Dr. Withers admitted that Northside had no firm commitment as of the date of the hearing to finance its facility, or any commitment to provide 1196 financing as stated in its application. (UMP Exhibit I/Exhibit Dr. Withers, Tr. Vol. I, P. 138.) Contribution to Education No evidence was introduced to support the assertion in the application of teaching research interaction between UMP and USF. USF presented evidence that no such interaction would occur. (Tr. Vol. IX, P. 1329.) The duplication of services and competition for patients and staff created by UMP's facility would adversely impact the health professional training programs of USF, the state's primary representative of health professional training programs in District VI. (Tr. Vol. IX, pp. 1314-19; 1322-24; 1331-1336.) Financial Feasibility The pro forma statement of income and expenses for the first two years of operation (1987 and 1988) contained in the UMP application projects a small operating loss during the first year and a substantial profit by the end of the second year. These pro formas are predicated on the assumption that the facility will achieve a utilization rate of 61 percent in Year 1 and 78 percent in its second year. To achieve these projected utilization levels, Northside would have to capture a market share of 75-80 percent of all OB patient days and over 75% of all GYN patient days generated by females in its service area. (UMP, Exhibit 1; Withers, Tr. Vol. I, P. 145, Dacus; Tr. Vol. V, P. 750-755.) These projected market shares and resulting utilization levels are very optimistic. It is unlikely that Northside could achieve these market shares simply by making its services available to the public. More reasonable utilization assumptions for purposes of projecting financial feasibility would be 40-50 percent during the first year and 65 percent in the second year. (Margolis, Tr. Vol. X, P. 1700; Baehr, Tr. Vol. X, pp. 1578, 1579, 1601.) UMP omitted the cost of the land on which its facility is to be constructed from its total project cost and thus understates the income necessary to sustain its project. Dr. Withers stated the purchase price of this land was approximately $1.5 million and it has a current market value in excess of $5 million. (Withers, Tr. Vol. I, pp. 139, 140.) Dr. Withers admitted that the purchase price of the land would be included in formulating patient charges. As a matter of DHRS interpretation, the cost of land should be included as part of the capital cost of the project even if donated or leased and, as such, should be added into the pro formas. UMP's financial expert, Barbara Turner, testified that she would normally include land costs in determining financial feasibility of a project, otherwise total project costs would be understated (Withers, Tr. Vol. I, P. 141; Nelson, Tr. Vol. VII, pp. 1215, 1216; Turner, Tr. Vol. X, P. 1714.) In addition, the pro formas failed to include any amount for management expenses associated with the new facility. Dr. Withers admitted UMP does not intend to manage Northside and he anticipates that the management fee would be considerably higher than the $75,000 in administrator salaries included in the application. (Withers, Tr. Vol. I, pp. 143, 144.) Barbara Turner, UMP's financial expert, conceded that the reasonableness of the percent UMP pro formas is predicated on the reasonableness of its projected market share and concomitant utilization assumptions. These projections are rejected as being inconsistent with evidence presented by more credible witnesses. The UMP project, as stated in its application or as presented at hearing, is not financially feasible on the assumption Petitioner projected. VIII. Impact on Existing Facilities Approval of the UMP application would result in a harmful impact on the costs of providing OB/GYN services at existing facilities. The new facility would be utilized by patients who would otherwise utilize existing facilities, hospitals would be serving fewer patients than they are now. This would necessarily increase capital and operating costs on a per patient basis which, in turn, would necessitate increases in patient charges. (Nelson, Tr. Vol. VII, pp. 1217-1219; Baehr, Tr. Vol. X, P. 1587.) Existing facilities are operating below optimal occupancy levels. See DHRS Exhibit 4. The Northside project would have an adverse financial impact on Humana, Tampa General Hospital, and other facilities regardless of whether Northside actually makes a profit. See next subheading below. The Northside project would draw away a substantial number of potential private-pay patients from TGH. Residents of the proposed Northside service area constitute approximately 24 percent of the total number of OB patients served by TGH. The Northside project poses a threat to TGH's plans to increase its non- indigent OB patient mix which is the key to its plans to provide a quality, competitive OB service to the residents of Hillsborough County. (Nelson, Tr. Vol. VIII, P. 1225; Margolis, Tr. Vol. X, P. 1695.) Impact Upon Costs and Competition Competition via a new entrant in a health care market can be good or bad in terms of both the costs and the quality of care rendered, depending on the existing availability of competition in that market at the time. Competition has a positive effect when the market is not being adequately or efficiently served. In a situation where adequate and efficient service exists, competition can have an adverse impact on costs and on quality because a new facility is simply adding expense to the system without a concomitant benefit. (Baehr, Tr. Vol. X, p. 1650.) Competition among hospitals in Hillsborough County is now "intense and accelerating." (Splitstone, Tr. Vol. IV, p. 558.) Tampa General is at a competitive disadvantage because of its indigent case load and its inability to offer equity interests to physicians in its hospital. (Blair, Tr. Vol. VI, pp. 945, 947-948); Powers, Tr. Vol. IX, P. 1405.) Tampa General Hospital is intensifying its marketing effort, a physician office building under construction now at Tampa General is an illustration of Tampa General's effort to compete for private physicians and patients. (Powers, Tr. Vol. IX, pp. 1405-1406.) The whole thrust of Tampa General's construction program is to increase its ability to compete for physicians. (Nelson, Tr. Vol. VII, P. 1224; Powers, Tr. Vol. IX, p. 1442.) The Tampa General construction will create new competition for physicians and patients. (Contis, Tr. Vol. VII, p. 1099.) Patients go to hospitals where their doctors practice, therefore, hospitals generally compete for physicians. (Splitstone, Tr. Vol. IV, P. 563; Blair, Tr. Vol. VI, pp. 898, 928.) Because many of the UMP partners are obstetricians who plan to use Northside exclusively, approval of the Northside project would lessen competition. (Popp, TGH Exhibit 18, P. 11.) It is feasible for Tampa General to attract more private pay OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461.) At its recently opened rehabilitation center, Tampa General has attracted more private pay patients. (Powers, Tr. Vol. IX, pp. 1393-1396.) USF OB residents at Tampa General are planning to practice at Tampa General. (Williams, Tr. Vol. IX, pp. 1460-1461.) The state-of-the-art labor, delivery, recovery room to be used at Tampa General will be an attractive alternative to OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461); Popp, TGH Exhibit 18, p.26) IX. Capital Expenditure Proposals The proposed Northside hospital will not offer any service not now available in Tampa. (Hyatt, TGH Exhibit 19, p. 21).
Recommendation Petitioner having failed to prove the need for additional acute care beds to include OB beds or some special circumstance which would warrant approval of the proposed project, it is recommended that its application for a CON be DENIED. DONE and ORDERED this 25th day of June, 1985, in Tallahassee, Florida STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of June, 1985.
