The Issue Whether Certificate of Need Application No. 8614, filed by Vencor Hospitals South, Inc., meets, on balance, the applicable statutory and rule criteria. Whether the Agency for Health Care Administration relied upon an unpromulgated and invalid rule in preliminarily denying CON Application No. 8614.
Findings Of Fact Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida. The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County. Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities. In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and 40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale. Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that: On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8; Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published; Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996; Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes; Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council. During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate. In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that: "Long term care hospital" means a hospital licensed under Chapter 395, Part 1, F.S., which meets the requirements of Part 412, Subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application. Numeric Need In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules. W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients. Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8. By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU. Statutory Review Criteria Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute. (1)(a) need in relation to state and district health plans. The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care. (1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district. Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units. AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined. AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives. Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions. Vencor also distinguished its patients, who require 7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to 3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units. Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week. Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population. In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes. (1)(c) ability and record of providing quality of care. The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c). (1)(e) probable economics of joint or shared resources; (1)(g) need for research and educational facilities; and (1)(j) needs of health maintenance organizations. The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue. (f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas. Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home. (h) resources and funds, including personnel to accomplish project. Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million. At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable. (i) immediate and long term financial feasibility of the proposal. Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal. needs of entities serving residents outside the district. Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8. probable impact on costs of providing health services; effects of competition. There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8. costs and methods of proposed construction; and (2)((a)-(c) less costly alternatives to proposed capital expenditure. The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area. past and proposed service to Medicaid patients and the medically indigent. Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare. services which promote a continuum of care in a multilevel health care system. While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8. (2)(d) that patients will experience serious problems obtaining the inpatient care proposed. Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor. Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8. DONE AND ENTERED this 3rd day of March, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Kim A. Kellum, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301
The Issue This case concerns four Certificate of Need ("CON") applications ("CONs 9891, 9992, 9893, and 9894") that seek to establish long-term acute care hospitals ("LTCHs") in Miami-Dade County (the "County" or "Miami-Dade County"), a part of AHCA District 11 (along with Monroe County). Promise Healthcare of Florida XI, Inc. ("Promise") in CON 9891, Select Specialty Hospital-Dade, Inc. ("Select-Dade") in CON 9892, and Kindred Hospitals East, L.L.C. ("Kindred"), in CON 9894, seek to construct and operate a 60-bed freestanding LTCH in the County. Miami Jewish Home and Hospital for the Aged, Inc. ("MJH"), in CON 9893, seeks to establish a 30-bed hospital within a hospital ("HIH") on its existing campus in the County. In its State Agency Action Report (the "SAAR"), AHCA concluded that all of the need methodologies presented by the applicants were unreliable. Accordingly, AHCA staff recommended denial of the four applications. The recommendation was adopted by the Agency when it issued the SAAR. The Agency maintained throughout the final hearing that all four applications should be denied, although of the four, if any were to be granted, it professed a preference for MJH on the basis, among other reasons, of a more reliable need methodology. Since the hearing the Agency has changed its position with regard to MJH. In its proposed recommended order, AHCA supports approval of MJH's application. MJH and Promise agree with the AHCA that there is need for the 30 LTCH beds proposed by MJH for its HIH and that MJH otherwise meets the criteria for approval of its application. MJH seeks approval of its application only. Likewise, the Agency supports approval of only MJH's application. Promise, on the other hand, contends that there is need for a 60-bed facility as well as MJH's HIH and that between Promise, Select- Dade and Kindred, based on comparative review, its application should be approved along with MJH's application. Although Promise's need methodology supports need for more LTCH beds than would be provided by approval of its application and MJH's, its support for approval is limited to its application and that of MJH. Like Promise's methodology, Select-Dade and Kindred's need methodologies project need for many more beds than would be provided by the 60 beds each of them seek. Unlike Promise, however, neither Select-Dade nor Kindred supports approval of MJH's application. Each proposes its application to be superior to the other applications; each advocates approval of its respective application alone. Given the positions of the parties reflected in their proposed recommended orders, whether there is need for at least an additional 30 LTCH beds in District 11 is not at issue. Rather, the issues are as follows. What is the extent of the need for additional LTCH beds in District 11? If the need is for at least 30 beds but less than 60 beds, does MJH meet the criteria for approval of its application? If the need is for 60 beds or more, what application or applications should be approved depends on what applications meet CON review criteria and on the number of beds needed (60 but less than 90, 90 but less than 120, 120 but less than 150, 150 but less than 180, 180 but less than 210, and 210 or more) and whether there is health- planning basis not to grant an application even if the approval would meet a bed need and all four applicants otherwise meet review criteria. Finally, based on comparative review, what is the order of approval among the applications that meet CON need criteria? Ultimately, the issue in the case is which if any of the four applications should be approved?
Findings Of Fact The Parties "[D]esignated as the state health planning agency for purposes of federal law," Section 408.034(1), Florida Statutes, AHCA is responsible for the administration of the CON program and laws in Florida. See §§ 408.031, Fla. Stat., et seq. As such, it is also designated as "the single state agency to issue, revoke, or deny certificates of need . . . in accordance with present and future federal and state statutes." § 408.034(1), Fla. Stat. Promise Healthcare of Florida XI, Inc. ("Promise") is a wholly-owned subsidiary of Promise Healthcare, Inc. The applicant for CON 9891, Promise proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Select-Dade, the applicant for CON 9892, proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. It is a wholly-owned subsidiary of Select Medical Corporation ("SMC"). The largest operator of LTCHs in the country, SMC operates 96 LTCHs in 24 states. The Miami Jewish Home and Hospital for the Aged is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. The applicant for CON 9893, MJH proposes the creation of a 30-bed hospital within a hospital (HIH) LTCH by the renovation of a former acute care hospital building on its existing campus in Miami-Dade County, Florida. Kindred is the applicant for CON 9894 and proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Kindred is a wholly-owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 85 LTCHs in the country, eight of which are in the State of Florida. One of the eight is in Miami-Dade County. Twenty-three of Kindred Healthcare's LTCHs are operated by Kindred as well as seven of the eight Florida LTCHs. Kindred has also received CON approval for another LTCH in Florida. It is to be located in Palm Beach County in LTCH District 9. The District and its LTCHs Miami-Dade and Monroe Counties comprise AHCA District The population of Monroe County is 80,000 and of Miami-Dade County, 2.4 million. As to be expected from the population's distribution in the District, the vast majority of the District's health services are located in Miami-Dade County. The greater part of the County's population is in the eastern portion of Miami-Dade County, with population densities there 3-4 times higher than in the western portion of the County. But there is little to no space remaining for development in the eastern portion of the County. Miami-Dade County has an urban development boundary that shields the Everglades from development in the western portion of the County. Still, the bulk of population growth that has occurred recently is in the west and that trend is expected to continue. While the growth rate on a percentage basis is higher in the more-recently developed western areas of the County, the great majority of the population is and will continue to be within five miles of the sea coast on the County's eastern edge. At the time of hearing, there were three LTCHs operating in the District with a total of 122 beds: Kindred- Coral Gables, Select-Miami, and Sister Emmanuel. All three are clustered within a radius of six miles of each other in or not far from downtown Miami. The three existing LTCHs in the District are utilized at high occupancy levels. Kindred's 53-bed facility receives most of its referrals from a within a 10 mile radius. It has operated for the 11-year period beginning in 1995 with an occupancy level from a low of 82.08 percent to a high of 92.86 percent. The occupancy levels for 2004 (82.08 percent) and 2005 (84.90 percent) show occupancy recently at a relatively stable level within the range of optimal functional capacity which tends to be between 80 and 85 percent when facilities are equipped with semi-private rooms. With gender and infection issues in a facility with semi-private rooms, admissions to those facilities are usually restricted above 85 percent. Select operates a 40-bed LTCH on one floor of a health care service condominium building in downtown Miami. It began operation in 2003 as part of legislatively-created special Medicaid demonstration project. Its occupancy levels for the two calendar years of 2004 and 2005 were 83.39 percent and 95.10 percent. Sister Emmanuel Hospital for Continuing Care ("Sister Emmanuel") is a 29-bed HIH located at Mercy Hospital in Miami. It became operational in 2004 with an occupancy level of 82.64 percent, and attained an occupancy level of 85.46 percent in 2005. Kindred's Broward County LTCHs Kindred operates two LTCHs in Broward County (outside of District 11); one is in Ft. Lauderdale, the other in Hollywood. From 1995 to 2003, Kindred-Hollywood's occupancy rate ranged from a low of 65.17 percent to a high of 72.73 percent, generally lower than the state-wide occupancy rate. For the same period, Kindred-Ft. Lauderdale's rate was significantly higher, between 83.69 percent and 91.65 percent. Both LTCHs have experienced occupancy rates significantly lower than the state-wide rates in 2004 and 2005. Kindred-Ft. Lauderdale's occupancy in 2004 fell substantially from earlier years to 66.41 percent and then even farther in 2005 to 57.73 percent. Kindred-Hollywood's rates for these two years were also well below the state's at 59.74 percent and 58.04 percent, respectively. Historically used by residents of District 11, the Hollywood facility served 4,292 patients from Miami-Dade County in the eleven year period from 1995 through 2005. For the same period, the Ft. Lauderdale facility served 275 Miami-Dade residents. Kindred assigns its clinical liaisons to hospitals in a territorial manner to minimize competition for referrals between its two facilities in Broward County and Kindred-Coral Gables. LTCHs A "Long-term care hospital" means a general hospital licensed under Chapter 395, which meets the requirements of 42 C.F.R. Section 412.23(e) and seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services. § 408.032(13), Fla. Stat. (2005), and Fla. Admin. Code R. 59C-1.002(28). Under federal rules, an LTCH must have an average Medicare length of stay (LOS) greater than 25 days. LTCHs typically furnish extended medical and rehabilitation care for patients who are clinically complex and have multiple acute or chronic conditions. Patients appropriate for LTCH services represent a small but discrete sub-set of all patients. They are differentiated from other hospital patients in that, by definition, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly, frail, and medically complex and are usually regarded as catastrophically ill although some are young, typically victims of severe trauma. Approximately 85 percent of LTCH patients qualify for Medicare. Generally, Medicare patients admitted to LTCHs have been transferred from general acute care hospitals and receive a range of services at LTCHs, including cardiac monitoring, ventilator support and wound care. In 2004, statewide, 92 percent of LTCH patients were transferred from short-term acute care hospitals. That figure was 98 percent for District 11 during the same period of time. The single most common factor associated with the use of long-term care hospitals are patients who have pulmonary and respiratory conditions such as tracheotomies, and require the use of ventilators. There are three other general categories of LTCH patients as explained by Dr. Muldoon in his deposition: The second group is wound care where patients who are at the extreme end of complexity in wound care would come to [an] LTCH if their wounds cannot be managed by nurses in skilled nursing facilities or by home health care. The third category would be cardiovascular diseases where patients compromise[d by] injury or illness related to the circulatory system would come [to an LTCH.] And the fourth is the severe end of the rehabilitation group where, in addition to rehabilitation needs, there's a background of multiple medical conditions that also require active management. (Kindred Ex. 8 at 10-11). Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services ("CMS") established a new prospective payment system for long term care hospital providers. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by short-term acute care hospitals and by other post acute care providers, such as Skilled Nursing Facilities ("SNFs") and Comprehensive Rehabilitation Hospitals ("CMRs"). The implementation by CMS of categories of payment designed specifically for LTCHs, the "LTC-DRG," indicates that CMS and the federal government recognize the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Under the LTCH reimbursement system, each patient is assigned a Diagnosis Related Group or "DRG" with a corresponding payment rate that is weighted based upon the patient's diagnosis. The LTCH is reimbursed the predetermined payment rate for that DRG, regardless of the costs of care. These rates are higher than what CMS provides for other traditional post-acute care providers. Since the establishment of the prospective pay system for LTCHs, concerns about the high reimbursement rate for LTCHs, as well as about the appropriateness of the patients treated in LTCHs, have been raised by the Medicare Payment Advisory Committee ("MedPAC") and the Centers for Medicaid and Medicare Services. CMS administers the Medicare payment program for LTCHs, as well as the reimbursement programs for acute care hospitals, SNFs, and CMRs. MedPAC's role is to help formulate federal policy on Medicare regarding services provided to Medicare beneficiaries (patients) and the appropriate reimbursement rates to be paid to health care providers. The 2006 MedPAC report reported that LTCHs were making a good margin or profit, and recommended against an annual increase in the Medicare reimbursement rate for the upcoming fiscal year. In 2006, CMS adopted a reimbursement rate rule for LTCHs for 2007 that did not raise the base rate, and made other changes that reflect the ongoing concerns of CMS regarding LTCHs. 42 C.F.R. Part 412, May 12, 2006. In that rule, CMS found that approximately 37 percent of LTCH discharges are paid under the short-stay outliers, raising concerns that inappropriate patients may be being admitted to LTCHs. CMS made other changes to the reimbursement system which, taken as a whole, actually reduced the reimbursement that LTCHs will receive for 2007. Even with the concerns raised by MedPAC and CMS and recent changes in federal fiscal policy related to LTCHs, the distinction between general hospitals and LTCHs and the legitimate place for LTCHs in the continuum of care continues to be recognized by the federal government. One way of looking at recent developments at the federal level was articulated at hearing by Mr. Kornblat. Federal regulatory changes will reduce the reimbursement LTCHs receive when treating short-term patients (short-term outliers). "On the other end of the spectrum, there are patients who stay significantly longer than would be expected on average, long- stay outliers, and the reimbursement for those patients was also modified." Tr. 163. There have been other changes with regard to LTCH patients who require surgery the LTCHs cannot provide and patients with a primary psychiatric diagnosis or a primary rehab diagnosis. Requiring the LTCH to "foot the bill" for surgery that it cannot provide for its patients and the elimination from LTCHs of patients with a primary psychiatric or rehab diagnosis send a strong signal to the LTCH industry specifically and those who interact with it: LTCHs should admit only the medically complex and severely acutely ill patient who can be appropriately treated at an LTCH. Despite recent changes at the federal level and the clear recognition by the federal government that LTCHs have a place in the continuum of health care services, AHCA remains concerned about LTCHs in Florida. AHCA's Concerns Regarding LTCHs In deciding on whether to approve or deny new health care facilities, the Agency is responsible for the "coordinated planning of health care services in the state." § 408.033(3)(a), Fla. Stat. In carrying out this responsibility, AHCA looks to federal rules and reports to assist in making health care planning decisions for the state. Regarding LTCHs, MedPAC has reported, and CMS has noted that, nationwide, there has been a recent, rapid increase in the number of LTCHs: "It [LTCHs] represents a growth industry of the last ten years." Nationwide there has also been a huge increase in Medicare spending for LTCH care from $398 million in 1993 to $3.3 billion in 2004. AHCA has also become concerned about the recent rapid increase in LTCH applications in Florida. From 1997 through 2001 there were 8 LTCHs in the state. Starting in 2002, there was a marked increase in the number of applications for LTCHs and the number of approved LTCHs rose quickly to the current 14 in 2006. In addition, 9 new LTCHs have been approved and are expected to be licensed in the next 1-3 years. When all of the approved hospitals are licensed the number of available beds will rise from 876 to 1,351 (adding the approved 475 beds), over a 50 percent increase in LTCH beds statewide. In addition, AHCA is concerned that the occupancy level of LTCHs over the entire state appears to be falling over the last 11 years. In response to the rise in LTCH applications over the last several years, and given the decrease in occupancy of the current LTCHs, the Agency has consistently voiced concerns about lack of identification of the patients that appropriately comprise the LTCH patient population. Because of a lack of specific data from applicants with regard to the composition and acuity level of LTCH patient populations, AHCA is not convinced that there is a need for additional LTCHs in the state or in District 11. There are several reasons for this concern. First, AHCA believes, like MedPAC, that there may be an overlap between the LTCH patient populations and the population of patients served in other health care settings, such as SNFs and CMRs. Kindred's expert, Dr. Muldoon, noted that length of stay in the general acute care hospital has been shortened over the last few years because there are new more effective medical treatments, and because the "post-acute sector has emerged as the place to carry out the treatment plan that 20 years ago may been provided in its entirety in the short-term hospital." (Kindred Ex. 8 at 23). To AHCA, what patients enter what facilities in this "post-acute sector" is unclear. In the absence of the applicants better identifying the acuity of the LTCH patient population, AHCA has reached the conclusion that there may be other options available to those patients targeted by the LTCH applicants. In support of this view, AHCA presented a chart showing SNFs in District 11 that offer to treat patients who need dialysis, tracheotomy or ventilator care. These conditions are typically treated in LTCHs. In addition, AHCA believes that some long-stay patients can be appropriately served in the short-stay acute care hospitals, rather than requiring LTCH care. The length of stay in 2005 for the typical acute care hospital for most patients is five to six days. (Kindred Ex. 8, Dr. Muldoon Depo, at 23). Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients. Thus, patients who may need LTCH services often have lengths of stay in the acute care hospitals that exceed the typical stay. AHCA believes that these long-stay patients can be as appropriately served in the short stay acute care hospitals as in LTCHs. AHCA'S Denial of the Four Applications and Change of Position with regard to MJH On December 15, 2005, the Agency issued its SAAR after review of the applications. The SAAR recommended denial of all four applications based primarily on the Agency's determination that none had adequately demonstrated need for its proposed LTCH in District 11. In denying the four applications, AHCA relied in part on reports issued the Congress annually by MedPAC that discuss the placement of Medicare patients in appropriate post-acute settings. Appropriate use of long term care hospital services is an underlying concern that we [AHCA] have and had the federal government has as evidenced by their MedPAC reports and the CMS information in its most recent proposed rule on the subject. (Tr. 2486). The June 2004 MedPAC report states the following about LTCHs: Using qualitative and quantitative methods, we find the LTCH's role is to provide post- acute care to a small number of medically complex patients. We also find that the supply of LTCHs is a strong predictor of their use and those acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable. Given these concerns, AHCA looked to the four applicants to prove need through a needs methodology that provides sufficient information on the patient severity criteria to better define the patients that would mostly likely be appropriate candidates for LTCHs. AHCA found the need methodologies of three of the four applicants (Kindred, Promise, and Select) "incomplete" because they lacked specific information on the severity level of the patients the applicants plans to admit, and therefore they "overstate need." AHCA pointed to a former LTCH provider that did provide detailed useful information on the acuity level of its patients, and the acuity level of its patients in reference to similar patients in SNFs. Other then MJH, the applicants presented approaches to projecting need that are based, in one way or another, on long- stay patients in existing acute care hospitals. In the Agency's view these methods "significantly overstate need." The method creates a "candidate pool" for the future long-term care hospital users. But it does not include enough information on severity of illness of the patients, in AHCA's view, to give a sense of who might be expected to appropriately use the service. Further, the Agency sees no reason to believe that all long-stay patients in acute care short-stay hospitals are appropriate candidates for long-term hospital services. Lastly, AHCA believes that LTCH applicants should develop an "acuity coefficient or an acuity factor," tr. 2627, to be considered as part of an LTCH need methodology. The need methodology employed by MJH differed substantially from the methodologies of the other three applicants. Because it is more conservative and yields a need "approximately a tenth of what the other three propose," tr. 2500, at the time of hearing AHCA was much more comfortable with MJH's need methodology. By the time AHCA filed its PRO, its comfort with MJH's need methodology had solidified and improved to the point that AHCA changed its position with regard to MJH. Describing MJH's "use rate model" as conservative, see Agency for Health Care Administration Proposed Recommended Order, at 24, AHCA proposed the following finding of fact in support of its conclusion that MJH's application be approved: "Miami Jewish Home projected a reasonably reliable bed need using approved, conservative, but detailed and supportable, need methodologies." Id. at 25. MJH MJH, is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. As recited in the Omissions Response to CON 9893: [MJH's] mission is to be the premier multi- component, not-for-profit charitable health care system in South Florida, guided by traditional Jewish values, dedicated to effectively and efficiently serving a non- sectarian population of elderly, mentally ill, disabled, and chronically ill people with a broad range of the highest quality institutionally-based, community-based and ambulatory care services. MJH Ex. 1. Originally founded in 1945 to provide residential care for Jewish persons unable to access services elsewhere, MJH is now in its 62nd year of operation. MJH enjoys a good reputation within its community. MJH is located at Northeast Second Avenue and 2nd Street in north-central Miami in one of the most densely populated areas of the County. Known as “Little Haiti,” the surrounding community is primarily low income, and is a federally designated “medically underserved area.” A “safety net” provider of health care services, MJH's SNF is the largest provider of Medicaid skilled nursing services in the State of Florida. MJH assists its patients/residents in filing Medicaid applications, and also assists individuals in applying for Medicaid for community-based services. This same kind of assistance will also be provided to patients of the MJH LTCH. A 2004 study conducted by the Center on Aging at Florida International University identified unmet needs among elders living within the zip codes surrounding MJH. The study notes that the greatest predictors of need for home and community-based services are poverty, disability, living alone, and old age. Several of the zip codes within the MJH PSA were found to have relatively large numbers of at risk elders due to poverty and dramatic community changes. The study has assisted MJH in identifying service gaps within the community, and in focusing its efforts to serve this at-risk population. Following its most recent JCAHO accreditation survey, both MJH’s hospital and SNF received a three-year “accreditation without condition,” which is the highest certification awarded by JCAHO. MJH is a national leader in the provision of comprehensive long-term care services. MJH has been recognized on numerous occasions for its innovative long-term and post- acute care programs. The awards and recognitions include the Gold Seal Award for Excellence in Long Term Care, the "Best Nursing Home" Award from Florida Medical Business and "Decade of Excellence Award" from Florida Health Care Association. An indicator of quality of care, AHCA’s “Gold Seal” designation is especially significant. Of the 780 nursing homes in Florida, only 13, including MJH, have met the criteria to be designated as Gold Seal facilities. MJH operates Florida's only Teaching Nursing Home Program. Medical students, interns, and other health professionals rotate through the service program in the nursing home and hospital on a regular basis. Specifically, MJH serves as a student and resident training site for the University of Miami and Nova Southeastern University Medical Schools, and the Barry University, FIU, and University of Miami nursing schools. The LTCH would enhance these capabilities and give physicians in training additional opportunities. Not only will this enhance their education, but also will contribute to the high quality of care to be provided in the MJH LTCH. MJH has been the site and sponsor of many studies to enhance the delivery of social and health services to elderly and disabled persons. Most recently, MJH was awarded a grant to do research on fall prevention in the nursing home. MJH is committed to continue research on the most effective means of delivering rehabilitative and long-term care services to a growing dependent population. The development of an LTCH at MJH will enhance the opportunities for this research. MJH operates Florida’s first and only PACE Center (Program of All-inclusive Care for the Elderly) located on the main Douglas Gardens campus. The program provides comprehensive care (preventive, primary, acute and long-term) to nursing home eligible seniors with chronic care needs while enabling them to continue to reside in their own home as long as possible. MJH was recently approved by the Governor and Legislature to open a second PACE site, to be located in Hialeah. The proposed 30-bed LTCH will be located on MJH’s Douglas Gardens Campus. The Douglas Gardens Campus is the site of a broad array of health and social services that span the continuum of care. These programs include community outreach services, independent and assisted living facilities, nursing home diversion services, chronic illness services, outpatient health services, acute care hospital services, rehabilitation, post-acute services, Alzheimer’s disease services, pain management, skilled nursing and hospice. LTCH services, however, are not currently available at MJH. Fred Stock, the Chief Operating Officer of MJH is responsible for the day-to-day operation of the MJH nursing home and hospital and has 24 years experience in the administration of long-term care facilities. An example of Mr. Stock’s leadership is that when he came to MJH, its hospice program had management issues. He assessed the situation and then made a management change which has resulted in a successful turnaround of the program. There are now 462 skilled nursing beds licensed and operated by MJH at the Douglas Garden’s Campus. All of these beds are certified by Medicare. Community hospitals have come to rely on these skilled nursing beds as a placement alternative for their sickest and most difficult-to-place, post-acute patients. The discharges of post-acute patients in the SNF at Douglas Gardens more than doubled from 350 in FY 2002 to 769 in FY 2005. Dr. Tanira Ferreira is the Medical Director of the MJH ventilator unit. Dr. Ferreira is board-certified in the specialties of Internal Medicine, Pulmonary Diseases, Critical Care Medicine, and Sleep Disorders. Dr. Ferreira will be the Medical Director of the MJH LTCH. In addition to Dr. Ferreira, MJH has five other pulmonologists on its staff. MJH also employs: a full-time Medical Director (Dr. Michael Silverman); three full-time physicians whose practices are restricted to MJH hospital and SNF patients; and four full-time nurse practitioners whose practices are restricted to residents of the SNF. MJH employs two full-time psychiatrists, two full-time psychologists, and seven full-time Master’s level social workers. The MJH medical staff also includes many specialist physicians such as cardiologists, surgeons, orthopedists, nephrologists and opthamologists, and other specialists are called for a consultation as needed. A number of the MJH patients/residents are non-English speakers. However, many of the MJH employees, including all of its medical staff, are bilingual. Among the languages spoken by MJH staff are Haitian, Spanish, Russian, Yiddish, French, and Portuguese. This multi-language capability greatly enhances patient/resident communication and enhances MJH’s ability to provide supportive services. The proposed project is the development of a 30-bed LTCH in Miami-Dade County. The LTCH will be located in renovated space in an existing facility and will conform to all the physical plant and operating standards for a general hospital in Florida. The estimated project cost is $5,315,672. The first patient is expected to be admitted by July 1, 2007. The LTCH will be considered an HIH under Federal regulations 42 CFR Section 412.22(e). The LTCH will comply with these requirements including a separate governing body, separate chief medical officer, separate medical staff, and chief executive officer. The LTCH will perform the hospital functions required in the Medicare Conditions of Participation set forth at 42 CFR Section 482. In addition, fewer than 25 percent of the admissions to the LTCH will originate from the MJH acute care hospital, and less than 15 percent of the LTCH operating expenses will be through contracted services with any other MJH affiliate, including the acute care hospital. The separate LTCH governing body will be legally responsible for the conduct of the LTCH as an institution and will not be under the control of the MJH acute care hospital. Finally, less than five percent of the annual MJH LTCH admissions will be re-admissions of patients who are referred from the MJH SNF or the MJH hospital. Each referral to the LTCH will be carefully assessed using the InterQual level-of-care criteria to ensure that the most appropriate setting is chosen. MJH is also a member of the ECIN (Extended Care Information Network) system. As a member of this system, MJH is able to make referrals and place patients who may not be appropriate for its own programs. Only those patients who are medically and functionally appropriate for the LTCH will be admitted to the LTCH program. Many patients admitted to the MJH LTCH will have complex medical conditions and/or multiple-system diagnoses in one or more of the following categories: Respiratory disorders care (including mechanical ventilation or tracheostomy care) Surgical wound or skin ulcer care Cardiac Care Renal disease care Cancer care Infectious diseases care Stroke care The patient and family will be the focus of the interdisciplinary care provided by the MJH LTCH. The interdisciplinary care team will include the following disciplines: physicians, nurses, social workers, psychologists, spiritual counselors, respiratory therapists, physical therapists, speech therapists, occupational therapists, pharmacists, and dietitians. MJH uses a collaborative care model that will be replicated in the LTCH and will enhance the effectiveness of the interdisciplinary team. The direct care professionals in the LTCH will maintain an integrated medical record, so that each member of the care team will have ready access to all the information and assessments from the other disciplines. Nursing staff will provide at least nine hours of nursing care per patient per day. Seventy-five percent of the nursing staff hours will be RN and LPN hours. Therapists (respiratory, physical, speech and occupational) will provide at least three hours of care per patient day. The MJH medical staff includes a wide array of specialty consultants that will be available to LTCH patients. The specialties of pulmonology, internal medicine, geriatrics and psychiatry will be available to each patient on a daily basis. A complete listing of all of the medical specialties available to MJH patients was included with its application. The interdisciplinary team will meet at least once per week to assess the care plan for each patient. The care plan will emphasize rehabilitation and education to enable the patient to progress to a less restrictive setting. The care team will help the patient and family learn how to manage disabilities and functional impairments to facilitate community re-entry. Approval of the LTCH will allow the MJH to "round out" the continuum of care it can offer the community by placing patients with clinically complex conditions in the most appropriate care setting possible. This is particularly true of persons who would otherwise have difficulty in accessing LTCH services. MJH has committed to providing a minimum of 4.2 percent of its patient discharges to Medicaid and charity patients. However, Mr. Stock anticipates that the actual percentage will be higher. If approved, MJH has committed to licensing and operating its proposed LTCH. MJH already has a number of the key personnel that will be required to implement its LTCH, including the Medical Director and other senior staff. In addition, MJH has extensive experience gleaned from both its acute care hospital and SNF in caring for very sick patients. In short, MJH has the clinical, administrative, and financial infrastructure that will be required to successfully implement its proposed LTCH. Approval of the MJH LTCH will dramatically reduce the number of persons who are now leaving the MJH PSA to access LTCH services. The hospitals in close proximity to MJH have LTCH use rates that are very low in comparison to other hospitals that are closer to existing LTCHs. Thus, it is likely that there are patients being discharged from the hospitals close to MJH that could benefit from LTCH services, but are not getting them because of access issues or because the existing LTCHs are perceived to be too far away. A number of hospitals located close to MJH are now referring ventilator-dependent patients to MJH, and would also likely refer patients to the MJH LTCH. Because the majority of the infrastructure required is already in place, the MJH HIH can be implemented much more quickly and efficiently than can a new freestanding LTCH. For example, ancillary functions such as billing, accounting, human resources, housekeeping and administration already exist, and the LTCH can be efficiently integrated into those existing operations on campus. MJH will be able to appropriately staff its LTCH through a combination of its current employees and recruitment of new staff as necessary. In addition, MJH will be establishing an in-house pharmacy and laboratory within the next six months, which will also provide services to LTCH patients. On-site radiology services are already available to MJH patients. MJH has an excellent track record of successfully implementing new programs and services. There is no reason to believe that MJH will not succeed in implementing a high quality LTCH if its application is approved. MJH's Ventilator Unit By the time ventilator-dependent and other clinically complex patients are admitted to a nursing home they have often exhausted their 100 days of Medicare coverage, and have converted to Medicaid. Since Medicaid reimbursement is less than the cost of providing such care, most nursing homes are unwilling to admit these types of patients. Thus, it is very difficult to place ventilator patients in SNFs statewide. The problem is further exacerbated in District 11 by the lack of any hospital-based skilled nursing units. With the recent closure of two SNF-based vent units (Claridge House and Greynolds Park) there are now only three SNF-based vent units remaining in District 11. They are located at MJH, Hampton Court (10 beds), and Victoria Nursing Home. MJH instituted a ventilator program in its SNF in early 2004. Many of the patients admitted into the ventilator program fall into the SE3 RUG Code. On July 1, 2005, there were 24 patients in the SE3 RUG code in MJH. Only one other SNF in District 11 has more than four SE3 RUG patients in its census on an average day. Over 60 percent of the Medicare post-acute census at the MJH SNF falls into the RUG categories associated with extensive, special care or clinically complex services. This mix of complex cases is about three times higher than average for District 11 SNFs. Although some of the patients now admitted to the MJH SNF vent unit would qualify for admission to an LTCH, there are also a number of patients who are not admitted because MJH cannot provide the LTCH level of care required. SNF admissions are required to be initiated following a STACH admission. MJH has actively marketed its vent unit to STACHs. Similarly most LTCH admissions come from STACHs and, like MJH’s efforts, LTCHs also market themselves to STACHs. Hospitals providing tertiary services and trauma care will generate the greater number of LTCH referrals, with approximately half of all LTCH patients being transferred from an ICU. The implementation of the MJH ventilator unit required the development of protocols, infrastructure, clinical capabilities and internal resources beyond those found in most SNFs. Dr. Ferreira conducted pre-opening comprehensive staff education. These capabilities will serve as a precursor to the development of the next stage of service delivery at MJH: the LTCH. MJH’s vent unit provides care for trauma victims, and recently received a Department of Health research grant to develop a program for long-term ventilator rehab for victims of trauma. Jackson Memorial Hospital is experiencing difficulty in placing "certain" medically complex patients, who at discharge, have continuing comprehensive medical needs. MJH is the only facility in Dade County that has accepted Medicaid ventilator patients from Jackson. Mt. Sinai Medical Center also has difficulty placing medically complex patients, particularly those requiring ventilator support, wound care, dialysis and/or other acute support services. Mt. Sinai is a major referral source to MJH and supports its LTCH application. MJH has received statewide referrals, including from the Governor's Office and from AHCA, of difficult to place vent patients. Most of these referrals are Medicaid patients. Ten of the MJH vent beds are typically utilized by Medicaid patients. Although MJH would like to accommodate more such referrals, there are financial limitations on the number of Medicaid patients that MJH can accept at one time. Promise Promise owns and operates approximately 718 LTCH beds outside of Florida and employs an estimated 2,000 persons. Promise proposes to develop and LTCH facility in the western portion of the County made up of 59,970 gross square feet, 60 private beds including an 8-bed ICU, and various ancillary and support areas. The projected costs to construct its freestanding LTCH is $11,094,500, with a total project cost of $26,370,885. As a condition of its CON if its application is approved, Promise agrees to provide three percent of projected patient days to Medicaid and charity patients. Select Select-Dade proposes to locate its 60-bed, freestanding LTCH in the western portion of Miami-Dade County. The Agency denied Select-Dade's application because of its failure to prove need. Otherwise, the application meets the CON review criteria and qualifies for comparative review with the other three applicants. Select-Dade proposes to serve the entire District, but it has targeted the entire west central portion of the County that includes Hialeah, Hialeah Gardens, Doral, Sweetwater, Kendall, and portions of unincorporated Miami. This area is west of State Road 826 (the "Palmetto Expressway"), south of the County line with Broward County, north of Killian Parkway and east of the Everglades ("Select's Target Service Area"). To be located west of the Palmetto Expressway, east of the Florida Turnpike, north of Miller Drive and south of State Road 836, the site for the LTCH will be generally in the center of Select's Target Service Area. Approximately 700,000 people (about 30 percent of the County's population) reside within Select-Dade's Target Service Area. This population of the area is expected to grow almost ten percent in the next five years. The rest of the County is expected to grow about five and one-half percent. Kindred Kindred proposes to construct a 60-bed LTCH in the County. It will consist of 30 private rooms, 20 beds in 10 semi-private rooms, and 10 ICU beds. The facility would include the necessary ancillary service, including two operating rooms, a radiology suite, and a pharmacy. Kindred utilizes a screening process before admission of a patient to assure that the patient needs LTCH level care that includes the set of criteria known as InterQual. InterQual categorizes patients according to their severity of illness and the intensity of services they require. Every patient admitted to a Kindred hospital must be capable of improving and the desire to undergo those interventions aimed at improvement. Kindred does not provide hospice or custodial care. In addition, through its reimbursement process, the federal government provides strong disincentives toward LTCH admission of inappropriate patients. Furthermore, every Kindred hospital has a utilization review (UR) plan to assure that patients do not receive unnecessary, unwanted or harmful care. In addition to the UR plan, the patient's condition is frequently reviewed by nursing staff, respiratory staff and by a multi-disciplinary team. Kindred had not selected a location at the time it submitted its application. Kindred anticipates, however, that its facility if approved would be located in the western portion of the County. Stipulated Facts As stated by Kindred in its Proposed Recommended Order, the parties stipulated to the following facts (as well as a few other related to identification of the parties): Each applicant timely filed the appropriate letter of intent, and each such letter contained the information required by AHCA. Each CON application was timely filed with AHCA. Following its initial review, AHCA issued a State Agency Action Report ("SAAR") which indicated its intent to deny each of the applications. Each applicant timely filed the appropriate petition with AHCA, seeking a formal hearing pursuant to Sections 120.569 and 120.57, Fla. Stat. In the CON batch cycle that is the subject of this proceeding, Promise XI proposed to construct a 59,970 square foot building at a total project cost of $26,370,885.00, conditioned upon providing 3 percent of its patient days to Medicaid and charity patients. Select proposes to construct a 62,865 square foot building at a total project cost of $22,304,791.00, conditioned upon providing 2.8 percent of its patient days to Medicaid and charity patients. MJHHA proposes to renovate 17,683 square feet of space at a total project cost of $5,315,672.00, conditioned upon providing 4.2 percent of its patient days to Medicaid and charity patients. Kindred proposes to construct a 69,706 square foot building at a total project cost of $26,538,458.00, conditioned upon providing 2.2 percent of its patient days to Medicaid and charity patients. Long term hospitals meeting the provisions of AHCA Rule 59A-3.065(27), Fla. Admin. Code, are one of the four classes of facilities licensed as Class I hospitals by AHCA. The length of stay in an acute care hospital for most patients is three to five days. Some hospital patients, however, are in need of acute care services on a long- term basis. A long-term basis is 25 to 34 days of additional acute are service after the typical three to five day stay in a short-term hospital. Although some of those patients are "custodial" in nature and not in need of LTCH services, many of these long-term patients are better served in a LTCH than in a traditional acute care hospital. Within the continuum of care, the federal government's Medicare program recognizes LTCHs as distinct providers of services to patients with high levels of acuity. The federal government treats LTCH care as a discrete form of care, and treats the level of service provider by LTCHs as distinct, with its own Medicare payment system of DRGs and case mix reimbursement that provides Medicare payments at rates different from what the Medicare prospective payment system ("PPS") provides for other traditional post-acute care providers. The implementation by the Centers for Medicare and Medicaid Services ("CMS") of categories of payment design specifically for LTCHs, the "LTC-DRG," is a sign of the recognition by CMS and the federal government of the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Joint Pre-hearing Stipulation at 4, 6-7, 9-10. Applicable Statutory and Rule Criteria The parties stipulated that the review criteria in Subsections (1) through (9) of Section 408.035, Florida Statutes (the "CON Review Criteria Statute"), apply to the applications in this proceeding. Subsection (10) of the CON Review Criteria Statute, relates to the applicant's designation as a Gold Seal Program Nursing facility. Subsection (10) is applicable only "when the applicant is requesting additional nursing home beds at that facility." None of the applicants are making such a request. MJH's designation as a Gold Seal Program is not irrelevant in this proceeding, however, since it substantiates MJH's "record of providing quality of care," a criterion in Subsection (3) of the CON Review Criteria Statute. The Agency does not have a need methodology for LTCHs. Nor has it provided any of the applicants in this proceeding with a policy upon which to determine need for the proposed LTCH beds. The applicants, therefore, are responsible for demonstrating need through a needs assessment methodology of their own. Topics that must be included in the methodology are listed Florida Administrative Code Rule 59C-1.008(2)(e)2., a. through d. Subsection (1) of the CON Review Criteria: Need Not only does AHCA not have an LTCH need methodology in rule or a policy upon which to determine need for the proposed LTCH beds, it did not offer a methodology for consideration at hearing. This is the typical approach AHCA takes in LTCH cases; demonstration of LTCH need through a needs assessment methodology is left to the parties, a responsibility placed upon them in situations of this kind by Florida Administrative Code Rule 59C-1.008(2)(e)2. MJH's Need Methodology Unlike the other three applicants, all of whom used one form or another of STACH long-stay methodologies, MJH utilized a use-rate analysis which projects LTCH utilization forward from District 11's recent history of increased utilization. A use-rate methodology is one of the most commonly used health care methodologies. The MJH use-rate methodology projected need based upon all of District 11. The methodology projected need for 42 LTCH beds in 2008, with that number growing incrementally to 55 beds by 2012. Because statewide LTCH utilization data is not reliable when looking at any particular district, MJH developed a District 11 use-rate, by age cohort, to yield a projection of LTCH beds needed. The use-rate is derived from the number of STACH admissions compared to the number of LTCH admissions, by age cohort. Projected demographic growth by age cohort was applied to determine the number of projected LTCH admissions. The historic average LTCH LOS in District 11 was applied to projected admissions and then divided by 365 to arrive at an ADC. That ADC was then adjusted for an occupancy standard of 85 percent, which is consistent with District 11. A number of states have formally adopted need methodologies that use an approach similar to MJH's in this case. Kindred has used a shortcut method of the use rate model in other states for analyzing proposed LTCHs "when there is not much data to work with." Tr. 1744. The methodology used by MJH was developed by its expert health planner, Jay Cushman. The methodology developed by Mr. Cushman was described by Kindred's health planner as "a couple of steps beyond" Kindred's occasionally-used shortcut method. Kindred's health planner described Mr. Cushman's efforts with regard to the MJH need methodology as "a very nice job." Tr. 1745. Mr. Cushman created a use-rate by examining the relationship between STACH admissions and LTCH admissions. The use-rate actually grows as it is segmented by age group, and thus the growth in the elderly population incrementally increases the utilization rate. MJH’s application demonstrated how LTCH utilization has varied greatly statewide, and how the District 11 market has a significant history of utilizing LTCH services. For planning purposes the history of District 11 is a significant factor, and the MJH methodology is premised upon that history, unlike the other methodologies. MJH demonstrated a strong correlation between STACH and LTCH utilization in District 11, where 98 percent of LTCH admissions are referred from STACHs. MJH also demonstrated that the south and western portions of Miami-Dade have overlapping service areas from the three existing LTCHs, while northeastern Miami-Dade has only one provider with a similar service area, Kindred Hollywood in neighboring District 10. This peculiarity explains why the LTCH out-migration trend is much stronger in northeastern portions of the District. The area most proximate to MJH would enjoy enhanced access to LTCH services, including both geographic and financial access, if its program is approved. In short, as AHCA, now agrees, MJH demonstrated need for its project through a thorough and conservative analysis. All parties agree that the number of LTCH beds yielded by MJH's methodology are indeed needed. Whether more are needed is the point of disagreement. For example, Mr. Balsano plugged the 2003 use rate into MJH's methodology instead of the 2004 used by MJH. Employment of the 2003 use rate in the calculation has the advantage that actual 2004 and 2005 data can serve as a basis of comparison. Mr. Balsano explained the result: "The number of filled beds in 2005 in District 11 would exceed by 33 beds what the use rate approach would project as needed in 2005." Tr. 370. The reason, as Mr. Balsano went on to explain, is that the use-rate changed dramatically between 2002, 2003, and 2004. Thus MJH's methodology, while yielding a number of beds that are surely needed in the District, may yield a number that is understated. This is precisely the opposite problem of the need assessment methodologies of the other three applicants, all of which overstated LTCH bed need in the District. The Need Methodologies of the Other Three Applicants The need methodologies presented by the other applicants vary to some degree. All three, however, are based on STACH long-stay data. Long-stay STACH analyses rely upon a number of assumptions, but fundamentally they project need forward from historic utilization of STACHs. The methodologies used by each of these three applicants identify patients in STACHs whose stays exceeded the geometric mean of length of stay plus fifteen days (the "GMLOS+15 Methodologies"), although the extent of the patients so identified varied depending on the number of DRGs from which the patients were drawn. Each of the proponent’s projects would serve only a relatively small fraction of the District 11 patients purported by the GMLOS+15 Methodologies to be in need of LTCH services. The lowest projected need of the three was produced by Promise: 393 beds in 2010. Promise's methodology is more conservative than that of Kindred and Select. Unlike the latter two, Promise reduced the number of potential projected admissions to be used in its calculation. The reduction, in the amount of 25 percent of the projection of 500 beds, was made because of several factors. Among them were anticipation that MedPAC's suggestions for ensuring that patients were appropriate for LTCH admission, which was expected to reduce the number of LTCH admissions, would be adopted. The methodologies proposed by Kindred and Select-Dade did not include the Promise methodology's reduction potentially posed by the impact of new federal regulation. Kindred's methodology projected need for 509 new LTCH beds in District 11; Select-Dade's methodology projected need for 556 beds. One way of looking at the substantial bed need produced by the GMLOS+15 Methodologies used by Promise, Select and Kindred was expressed by Kindred. As an applicant proposing a new hospital of 60 beds, when its need methodology yielded a need in the District for more than 500 beds, Kindred found the methodology to provide assurance that its project is needed. On the other hand, if the methodology was reliable then the utilization levels of the two Kindred hospitals in Broward County in relative proximity to a populated area of District 11 would have been much higher in 2004 and 2005, given the substantial out-migration to those facilities from District 11. The Kindred and Select methodologies are not reliable. Their flaws were outlined at hearing by Mr. Cushman, MJH's expert health planner who qualified as an expert with a specialization in health care methodology. Mr. Cushman attributed the flaws to Promise's methodology as well but as explained below, Promise's methodology is found to be reliable. Comparison of the projections produced by MJH's use rate methodology with the projections produced by the other three methodologies results in "a tremendous disconnect," tr. 1233, between experiences in District 11 upon which MJH's methodology is based and the GMLOS+15 Methodologies' bed need yield "that are three or four or five times as high as have actually been expressed in the existing system." Id. One reason in Mr. Cushman's view for the disconnect is that the GMLOS+15 Methodologies identify all long-stay patients in STACHs as candidates for LTCH admission when "there are many reasons that patients might stay for a long time in an acute care facility that are not related to their clinical needs." Tr. 1234. This criticism overlooks the limited number of long-stay patients in STACHs used by the Promise methodology but is generally applicable to the Select and Kindred methodologies. Mr. Cushman performed detailed analysis of the patients used by Kindred in its projection to reach conclusions applicable to all three GMLOS+15 Methodologies. Mr. Cushman's analysis, therefore, related to actual patients. They are based on payor mix, discharge status, and case mix. The analysis showed that the GMLOS+15 Methodologies are "disconnected from the fundamental facts on the ground," tr. 1240, in that the methodologies produce tremendous unmet need not reconcilable with actual utilization experience. Some of the gaps based on additional case mix testing were closed by Kindred's expert health planner. The additional Kindred test, however, did not completely close the gap between projected unmet need and actual utilization experience. Mr. Cushman summed up his basis for concluding that the GMLOS+15 Methodologies employed by Kindred, Select-Dade and Promise are unreliable: [W]e have an untested method that's disconnected from actual utilization experience on the ground. And it provides projections of need that are way in excess of what the experience would indicate and way in excess of what the applicants are willing to propose and support [for their projects.] So for those reasons, I considered [the GMLOS+15 method used by Kindred, Select-Dade and Promise] to be an unreliable method for projecting the need for LTCH beds. Tr. 1243-44. The criticism is not completely on point with regard to the Promise methodology as explained below. Furthermore, at hearing, Mr. Balsano made adjustments to the Promise GMLOS+15 Methodology ("Promise's Revised Methodology"). Although not sanctioned by the Agency, the adjustments were ones that made the Agency more comfortable with the numeric need they produced similar to the Agency's comments at hearing about MJH's methodology. For example, if the number of needed beds were reduced by 50 percent (instead of 25 percent as done in Promise's methodology) to account for the effect of federal policies and alternative providers and if an 85 percent occupancy rate were assumed instead of an 80 percent occupancy rate, the result would be reduce the LTCH bed need yielded by Promise's methodology to 200. These adjustments make Promise's Revised Methodology more conservative than Select's and Kindred's. In addition, Promise's methodology commenced with a much fewer number of STACH patients because Promise based on its inquiry into the patient population that is "using LTCHs in Florida right now." Tr. 351. Examination of AHCA's database led to Promise's identification of patients in 169 DRGs currently served in Florida LTCHs. In contrast, Select-Dade and Kindred, used 483 and 390 DRGs respectively. Substantially the same methodology was used by Promise in Promise Healthcare of Florida III, Inc. v. AHCA, Case No. 06-0568CON (DOAH April 10, 2007). The methodology, prior to the 25 percent reduction to take into account the effects of new federal regulations, was described there as: Long-stay discharges were defined using the following criteria: age of patient was 18 years or older; the discharge DRG was consistent with the discharge DRGs from a Florida LTCH; and the ALOS in the acute care hospital was at the GMLOS for the specific DRG plus 15 days or more. Applying these criteria reduced the number of DRGs used and the potential patient pool. Id. at 19 (emphasis supplied.) The methodology in this case produced a number that was then reduced by 25 percent, just as Promise did in its application in this case. The methodology was found by the ALJ to be reliable. If the methodology there were reliable then Promise's Revised Methodology (an even more conservative methodology) must be reliable as well as the numeric need for District 11 LTCH beds it yields: 200. Such a number (200) would support approval of MJH's application and two of the others and denial of the remaining application or denial of MJH's application and approval of the three other applications. Neither of these scenarios should take place. However high a number of beds that might have been projected by a reasonable methodology, no more than two of the applications should be granted when one takes into consideration the ability of the market to absorb new providers all at once. Tr. 518-520. Nonetheless, such a revised methodology would allow approval of MJH and one other of the applicants. Furthermore, there are indications of bed need greater than the need produced by MJH's methodology. Market Conditions, Population and History The large majority of patients admitted to LTCHs are elderly, Medicare beneficiaries. Typically, elderly persons seek health care services close to their homes. This is often because the elderly spouse or other family members of the patient cannot drive to visit the patient. This contributes to the compressed service areas observed in District 11. Historic patient migration patterns show that for STACH services, there is nine percent in-migration to Miami- Dade, and only five percent out-migration from Miami-Dade, a normal balance. Most recent data for LTCH service, however, shows an abnormal balance: three percent in-migration and 22 percent out-migration. The current utilization of existing LTCHs in District 11 and the high out-migration indicates that additional LTCH beds are needed. Notably, of the 400 District 11 residents who accessed LTCH care in Broward County in 2004, 114 (over 25 percent) lived in the 15 zip codes closest to MJH. MJH’s location will allow its LTCH to best impact and reduce out- migration from District 11 for LTCH services. Neither Kindred nor Promise has a location selected, and while Select-Dade has a “target area,” its actual location is unknown. None of the existing LTCHs in District 11 or in District 10 have PSAs that overlap with the area around MJH. For example, the Agency had indicated that there was no need in the case which led to approval of the Sister Emmanuel LTCH at Mercy Hospital. It was licensed in July of 2002, barely half a year after the Select-Miami facility was licensed. Both facilities were operating at or near optimal functional capacity less than two years from licensure without adverse impact to Kindred-Coral Gables. The utilization to capacity of new LTCH beds in the District indicate a repressed demand for LTCH services. The demand for new beds, however, is not limited to the eastern portion of the County. The demand exists in the western portion as well where there are no like and existing facilities. Medicare patients who remain in STACHs in excess of the mean DRG LOS become a financial burden on the facility. The positive impact on them of an LTCH with available beds is an incentive for them to refer LTCH appropriate patients for whom costs of care exceeds reimbursement. There were a total of 1,231 adult discharges from within Select-Dade's targeted service area with LOS of 24 or more days in calendar year 2004. Medical Treatment Trends in Post-Acute Service The number of LTCHs in Florida has increased substantially in recent years. The increase is due, in part to the better treatment the medically complex, catastrophically ill, LTCH appropriate patient will usually receive at an LTCH than in traditional post acute settings (SNFs, HBSNUs, CMR, and home health care). The clinical needs and acuity levels of LTCH- appropriate patients require more intense services from both nursing staff and physicians that are available in an LTCH but not typically available in the other post acute settings. LTCH patients require between eight to 12 nursing hours per day and daily physician visits. CMS reimbursement at the Medicare per diem rate would not enable a SNF to treat a person requiring eight to 12 hours of nursing care per day. CMR units and hospitals are inappropriate for long- term acute care patients who are unable to tolerate the minimum three hours of physical therapy associated with comprehensive medical rehabilitation. The primary focus of an LTCH is to provide continued acute care and treatment. Patients in a CMR are medically stable; the primary focus is on restoration of functional capabilities. Subsection (2): Availability, Quality of Care, Accessibility, Extent of Utilization of Existing Facilities There are 27 acute care hospitals dispersed throughout the County. Only three are LTCHs. The three existing LTCHs, all in the eastern portion of the County, are not as readily accessible to the population located in the western portion as would be an LTCH in the west. Approval of an application that will lead to an LTCH in the western portion of the County will enhance access to LTCH services or as Ms. Greenberg put it hearing, "if only one facility is going to be built, the western part of the county is where that needs to go." Tr. 2101. See discussion re: Subsection (5), below. In confirmation of this opinion, Dr. Gonzalez pointed out several occasions when he was not able to place a patient at one of the existing LTCHs due to family member reluctance to place their loved one in a facility that would force the family to travel a long distance for visits. LTCH appropriate patients are currently remaining in the acute care setting with Palmetto General and Hialeah Hospital among the busiest of the STACHs in the County. Both are within Select-Dade's targeted service area. From 2002 to 2005 the number of LTCH beds in the District increased from 53 to 122. During the same period, the number of patient days increased from 18,825 to 37,993. Recently established LTCH facilities in District 11 have consistently reached high occupancy levels, approaching 90 percent at the time of hearing. From 2001 to 2004, the use rate for LTCH services grew from 3.07 per 1,000 to 6.51 per 1,000. The increase in use rate for those aged 65 and over was even more significant; from 19.32 per 1,000 to 41.67 per 1,000. Kindred's Miami-Dade facility is licensed at 53 beds; of those seven are in private rooms; the facility has 23 semi- private rooms. As far back as 2001, the facility has operated at occupancy rates in excess of 85 percent; in 1998 and 1999 its occupancy rate exceeded 92 percent and 93 percent, respectively. More recently, it has operated at an ADC of 53 patients; 100 percent capacity. Several physicians and case managers provided support to Kindred's application by way of form letters, indicating patients would benefit from transfers to LTCHs and "an ever growing need for (these) services." Kindred's daily census has averaged 50 or more patients since 2004. Unlike an acute care hospital, Kindred has not experienced any seasonal fluctuations in its census, running at or above a reasonable functional capacity throughout the year. Taking various factors into consideration, including the number of semi-private beds, the facility is operating at an efficient occupancy level. Looking ahead five years, the capacity at Kindred's facility cannot be increased in order to absorb more patients. As designed, the facility cannot operate more efficiently than it has at 85 percent occupancy. Select's facility, located in a medical arts building, houses 34 private and six semi-private beds. In 2005, Select's facility operated at an average occupancy of almost 88 percent. Unlike Kindred, Select can add at least seven more beds to its facility by converting offices. As a hospital within a hospital, Sister Emmanuel's 29-bed facility is subject to limits on the percentage of admissions it can receive from "host" Mercy Hospital; even with such restrictions, its 2005 occupancy rate was 84.6 percent. Because of gender mix and infection opportunities, among other reasons, it is difficult to utilize semi-private beds. Only three District facilities offer ventilator care: MJHHA, HMA Hampton Court, and Victoria Nursing Home. Other health care facility settings do not serve as reasonable alternatives to the LTCH services proposed here. In 2004, roughly one quarter of District 11 residents, (nearly 400 patients), requiring LTCH services traveled to District 10 facilities. In 2005 that number fell to 369, or about 22 percent. Although there is a correlation between inpatient acute care services and LTCH services, the out-migration of patients requiring LTCH services indicated above differs markedly from the out-migration numbers generated by acute care patients. The primary north-south road configurations in the county are A1A, U.S. 1 and I-95 on the east and the Palmetto Expressway on the west. The primary east-west road configurations are composed of the Palmetto Expressway extension, S.R. 112; the Airport Expressway feeding into the Miami International Airport area and downtown Miami, S.R. 836 to Florida's Turnpike, and the Don Shula Expressway in the southwest. Assuming no delays, a trip by mass transit, used by the elderly and the poor, from various areas in Miami-Dade to the nearest LTCH outside District 11 (Kindred Hollywood) runs two to four hours one way. These travel times pose a special hardship to the elderly traveling to a facility to receive care or visit loved ones. While improvements in the system are planned over the next five years, they will not measurably change the existing travel times. These factors, along with high occupancy levels in District 11 LTCHs, indicate the demand for LTCH services in the District exceeds the existing bed supply. The three existing LTCHs have recently operated at optimal functional capacity or above it. On December 31, 2005, Select Specialty Hospital-Miami was operating with 95 percent occupancy. Subsection (3): Ability of the Applicant to Provide Quality of Care and the Applicant's Record of Providing Quality of Care As discussed above, MJH has the ability to provide high quality of care to its LTCH patients and an outstanding record of providing quality of care. Select-Dade has the ability to provide quality of care to its LTCH patients and a record providing quality of care. In treating and caring for LTCH patients, Select-Dade will use an interdisciplinary team of physicians, dieticians, respiratory therapists, physical therapists, occupational therapists, speech therapists, nurses, case managers and pharmacists. Each will discipline will play an integral part in assuring the appropriate discharge of the patient in a timely manner. The Joint Commission on Accreditation of Hospital Organizations (JCAHO) has accredited all Select facilities that have been in existence long enough to qualify for JCAHO accreditation. Both Select and Promise use various tools, including Interqual Criteria, to assure patients who need LTCH services are appropriately evaluated for admission. All Promise facilities are accredited by JCAHO. Promise has developed and implemented a company-wide compliance program, as well as pre-admission screening instruments, standards of performance and a code of conduct for its employees. Its record of providing quality of care was shown at hearing with regard to data related to its ventilator program weaning rate and wound healing rates. None of the parties presented evidence or argument that any of the other applicants was unable to provide adequate quality of care. The Agency adopted its statements from the SAAR at pages 43 through 45. The SAAR noted the existence of certain confirmed complaints at the two existing LTCH providers in Florida Select and Kindred. The number of confirmed complaints is relatively few. Kindred, for example, had 12 confirmed complaints with the State Department of Health at its seven facilities during a three-year period, less than one complaint per Kindred hospital every two years. Each applicant satisfies this criterion. Subsection (4): Availability of Resources, Health and Management Personnel, Funds for Capital and Operating Expenditures, Project Accomplishment and Operation The parties stipulated that all applicants have access to health care and management personnel. Select-Dade, Kindred and MJH all have funds for capital and operating expenditures and project accomplishment and operation. In turn, each of these three contends that Promise did not demonstrate the availability of funds for its project. This issue is dealt with below under the part of this order that discusses Subsection (6) of the Statutory CON Review Criteria. Subsection (5): Access Enhancement The applicants stipulated that "each of the applicants' projects will enhance access to LTCH services for residents of the district to some degree." All four applicants get some credit under this subsection because approval of their application will enhance access by meeting need that all of the parties now agree exists. Select-Dade and Promise propose to locate their projects in the western portion of the County. Kindred did not indicate a location. Location of an LTCH in the western portion of the County will enhance geographic access. MJH's location is in an area that has reasonable geographic access to LTCH services. But approval of its application, given the unique nature of its operation, chiefly its charitable mission, will enhance access to charity and Medicaid recipients. Approval of Select-Dade's application will also enhance cultural access to the Latin population in Hialeah. A substandard public transportation system for this population makes traveling to visit hospitalized loved ones an insurmountable task in some situations. Select-Dade has achieved a competent cultural atmosphere in its LTCH opened in the County in 2003. It has in excess of 100 multi-lingual employees, many of whom communicate in Spanish. The staff effectively communicates with patients with a variety of racial, cultural and ethnic backgrounds. Every new LTCH must undergo a qualifying period to establish itself as an LTCH for Medicare reimbursement. Specifically, the average LOS for all Medicare patients must meet or exceed 25 days. During the qualifying period the LTCH is reimbursed by Medicare under the regular STACH PPS, that is paid on a DRG basis as if the patient were in an ordinary general acute care hospital with its lower reimbursement. Upon initiation of their LTCH services, Promise, Kindred and Select all intend to restrict or suppress admissions to ensure longer LOS to meet the Medicare 25 day average LOS requirement, and to “minimize the costs” of obtaining LTCH certification and reimbursement. MJH will not be artificially restricting its LTCH admissions during the initial 6 month Medicare qualification period, even though the cost of providing services during this period will likely exceed the STACH Medicare reimbursement. MJH’s opening without suppressing admissions (as in the case of Sister Emmanuel), will enhance access by patients in need of these services during the initial qualification period. Subsection (6): Immediate and Long-term Financial Feasibility a. Short-Term Financial Feasibility Short-term financial feasibility is the ability of an applicant to fund the project. None of the parties took the position that the MJH project was not financially feasible in the short term. MJH's current assets are equal to current liabilities, a short-term position found by AHCA to be weak but acceptable. The financial performance of MJH, however, has been improving in the past three years. Expansion of existing services, improved utilization of services, and the development of new programs have all contributed to a significant increase in operational revenue and total revenue during that period. MJH has a history of receiving substantial charitable gifts (ranging from $6.2 million to $13.2 million annually during the past three years) and can reasonably expect to receive financial gifts annually of between $4-5 million in the coming years. However, MJH is moving away from reliance on charitable giving, and toward increasing self-sufficiency from operations. Approval of the LTCH will play a major role in achieving that goal. In addition, MJH has total assets, including land and buildings, of approximately $150 million. The cost to implement the proposed MJH LTCH is $5,319,647. The projected cost is extremely conservative in the sense of overestimating any potential contingency costs that could be incurred. MJH has the resources available to fund the project through endowments and investments (currently $41 million) as well as from operating cash flow and cash on hand. Select-Dade has an adequate short-term position and Kindred a good short-term position. None of the parties contest the short-term financial feasibility of either Select-Dade or Kindred. In contrast, both Select-Dade and Kindred contested the short-term financial feasibility of Promise. In accord is MJH's position expressed in its proposed recommended order: "Promise did not demonstrate the availability of funds for its project." Miami Jewish Home & Hospital For the Aged, Inc.'s Proposed Recommended Order, at 37. Promise's case for short-term financial feasibility rests on the historical relationship between the principals of Promise, Sun Capital Healthcare, Inc., and Mr. William Gunlicks of Founding Partners Capital Management Company ("Founding Partners.") The relationship has led to great success financially over many years. For example, through the efforts of Mr. Gunlicks, Sun Capital has generated over $2 billion in receivable financing. Founding Partners is an investment advisor registered with the Security Exchange Commission, the Commodity Futures Trading Commission, the National Futures Association and the State of Florida. As a general partner, it manages two private investment funds: Founding Partners Stable Value Fund and Founding Partners Equity Fund. Founding Partners also manages an International Fund for non-U.S. investors. Its base is composed of approximately 130 individuals with high net worth and access to capital. Founding Partners provided Promise with a "letter of interest" dated October 12, 2005, which indicated its interest in providing the "construction, permanent, and working capital financing for the development of a 60 bed long-term acute care hospital to be located in Dade County, Florida." Promise Ex. 3, Exhibit Promise XI, Gunlicks 4, 6-27-06. The letter makes clear, however, that it is not a commitment to finance the project: "The actual terms and conditions of this loan will be determined at the time of your loan request is approved. Please recognize this letter represents our interest in this project and is not a commitment for financing." Id. Testimony at hearing demonstrated a likelihood that Promise would be able to fund the project should it's application be approved. Mr. Balsano opined that this is sufficient to meet short-term financial feasibility: "[I]t's not required at this point that firm funding be in place. . . . [W]e have an appropriate letter from Mr. Gunlicks' organization that they're interested and willing to fund the project. It kind of goes to the second issue, which is, well, what if there were some issue in that regard? Would this project be financed. And I guess I would just have to say bluntly that in doing regulatory work for the last 20-some years, that if an applicant has a certificate of need for a given service, most lending institutions view that as a validation that the project is needed and can be supported. My experience has been that I have never personally witnessed a project that was approved that could not get financing. Tr. 392. Other expert health planners with considerable experience in the CON regulatory arena conceded that they were not aware of a CON-approved hospital project in the state that could not get financing. Despite the proof of a likelihood that Promise's project would be funded if approved, however, Promise failed to demonstrate as MJH, Select-Dade and Kindred continue to maintain, that funds are, indeed, available to fund the project. In sum, Promise failed to demonstrate the short-term financial feasibility of the project. The projects of MJH, Select-Dade and Kindred are all financially feasible in the short-term. b. Long-Term Financial Feasibility Long-term financial feasibility refers to the ability of a proposed project to generate a positive net revenue or profit at the end of the second full year of operation. MJH’s projected patient volumes are both reasonable and appropriate, given its current position in the community, the services it currently provides, and the need for LTCH services in the community. MJH’s projected payor mix was largely based upon the historical experience of the three existing LTCHs in the District, with the exception of the greater commitment to charity and Medicaid patients. The higher commitment to Medicaid/charity is consistent with MJH’s historical experience and status as a safety net provider. Sister Emmanuel is a 29-bed LTCH located within Mercy Hospital. As a similarly-sized HIH, a not-for-profit provider, and an entity with the same kind of commitment to Medicaid/charity patients, Sister Emmanuel is the best proxy for comparison of the financial projections contained in the MJH application. MJH projected its gross revenues based upon Sister Emmanuel’s general charge structure, adjusted for payor mix and inflated at 4 percent per year. The staffing positions, FTEs and salaries contained on Schedule 6 of each of the applications were stipulated to represent reasonable projections. MJH’s Medicaid net revenues were calculated by determining a specific Medicaid per diem rate using the Dade County operating cost ceiling and 80 percent of the capital costs. Given that many LTCH patients exhaust their allowable days of Medicaid coverage, 70 percent of the revenue associated with MJH’s Medicaid patient days were “written off” in total. Similarly, patient days associated with charity care and bad debt reflected no net revenue. MJH's Medicare net revenues were determined using the specific diagnosis (DRG) of each projected patient. For the first six months of operation it was assumed that MJH would receive the short-stay DRG reimbursement, and in the second 6 months and second year of operation would receive the LTCH DRG payment. Net revenues for the remaining payor categories were based upon the historical contractual adjustments of MJH. MJH’s projected gross and net revenues for its proposed LTCH are conservative, reasonable and achievable. However, if MJH has in fact understated the net revenues that it will actually achieve, the impact will be an improved financial performance and improved likelihood of long-term financial feasibility. MJH’s staffing expense projections were derived from its Schedule 6 projections (which were stipulated to be reasonable) with a 28 percent benefit package added. Non- ancillary expense costs were based upon MJH’s historical costs, while ancillary expenses (lab, pharmacy, medical supplies, etc.) were based upon the Sister Emmanuel proxy. Capitalized project costs, depreciation and amortization were derived from Schedule 1 and the historical experience of MJH, as were the non- operating expenses such as G&A, plant maintenance, utilities, insurance and other non-labor expenses. MJH’s income and expense projections are reasonable and appropriate, and demonstrate the long-term financial feasibility of MJH’s proposed LTCH. John Williamson is an Audit Evaluation and Review Analyst for AHCA. He holds a B.S. in accounting and is a Florida CPA. Mr. Williamson conducted a review of the financial schedules contained in each of the four applications at issue. In conducting his review, Mr. Williamson compared the applicants’ financial projections with the “peer group” of existing Florida LTCHs. With regard to the MJH projections, Mr. Williamson noted: Projected cost per patient day (CPD) of $1,087 in year two is at the group lowest value of $1,087. Projected CPD is considered efficient when compared to the peer group with CPD falling at the lowest level. The apparent reason for costs at this level are the low overhead costs associated with operating a hospital-within- a-hospital. MJH Ex.34, depo Ex. 4, Page 3 of 5. Mr. Williamson further concluded that MJH presented an efficient LTCH project, which is likely to be more cost- effective and efficient than the other three proposals. In its application, Kindred projected a profit of $16,747 at the end of year two of operation. Schedule 8A listed interest expense "as a way of making a sound business decision." Tr. 1458. Interest expense, however, is not really applicable because Kindred funds new projects out of operation cash flows. If the interest expense is omitted, profit before taxes would roughly $1.5 million. Taking taxes into consideration, the profit at the end of year two of operation would be roughly $1 million. Promise's projections the facility will be financially feasible in the long term are contained in its Exhibit 2, Schedules 5, 6, 7 and 8A and related assumptions. The parties agreed the information contained in Promise's Schedule 5, and the supporting assumptions, were reasonable. Schedule 5 indicates Promise projects an occupancy rate in Year 2 of 76.1 percent, based on 16,660 patient days and an ADC of 45.6 patients. To reach projected occupancy rates, Promise would have to capture roughly 15-17 percent of the LTCH market in Year 2. AHCA concluded Promise's project would be financially feasible in the long term. Only Select questioned Promise's projected long term financial feasibility. The attack, evidenced by Select Exhibits 12 and 14, was composed of a numbered of arguments, considered below: The estimated Medicare revenue per patient projected by Promise was high, and among other factors, erroneously assumed Medicare would increase reimbursement by an average of 3 percent per year. In determining a project's long-term financial feasibility, AHCA looks to the facility's second full year of operation, and, assuming reasonable projections, determines if there is a net positive profit. The analysis AHCA uses to determine the reasonableness of an applicant's projections in Schedules 7A and 8A begins with a comparison of those figures against a standardized grouping developed over the years and consistently applied by the agency as a policy. In this instance, the grouping consisted of all LTCHs operating in Florida in 2004; a total of 11 facilities; eight operated by Kindred and three operated by Select. The analysis is based on Revenue Per Patient Day (RPPD). Promise estimated it would generate an average RPPD of $1,492 in Year 2, and a net profit for the same period of $2,521.327. Using the above process, AHCA concluded that Promise's projected net income per patient day appeared reasonable. At the time of hearing, other Promise facilities were receiving an average RPPD higher than $1,400; compared to the projected "somewhat over" $1,500 it would expect to receive in Year 2 of its Miami-Dade facility. Approximately half of the existing Promise facilities (including West Valley and San Antonio) received Medicare RPPDs in excess of $1,500. As opposed to total revenue per patient, revenue on a per patient day is the one figure associated with the expenses generated to treat a patient on a given day. A comparison of net RPPDs projected by Promise with those of other applicants and the state median indicate Promise's revenue projections are reasonable. While Medicare recently opted not to increase the rate of LTCH reimbursement for the 2006-07 fiscal year, it is the first year in four that the program has done so. Compared to Promise's assumption that Medicare reimbursement would increase yearly by 3 percent on average, Select assumed a rate of 2.4 percent. The ALOS projected by Promise was too long. In projecting need, Select projected an ALOS similar to Promise's projection. Compared with the statewide ALOS of 35 days, Select's is about 28 days. This is the result of a combination of managing patients and their acuity. Assuming Promise's ability to manage patients in a manner similar to Select and achieve a like ALOS, Promise would have room available to admit more patients. There is no reason to assume Promise could not attain a similar ALOS with a similar population than that served by Select; others have done so. Like other segments of the health care industry, LTCH providers will manage patient care to the reimbursement received from payors. The CMI projected by Promise was too high. The prospective payment system is based to a great extent on how patients' diagnoses and illnesses are "coded," or identified, because the information is translated into a DRG, which, in turn, translates directly into the amount of reimbursement received. Each DRG has a "weight." By obtaining the DRG weight for each patient treated in a hospital, one can obtain the average weight, which will correspond to the average cost of care for the hospital's patients. The term for this average is Case Mix Index (CMI). Each year Medicare determines the rate it will pay for treatment of patients in LTCHs, adjusted for each market in the U.S. to account for variations in labor costs. Mr. Balsano assumed the new facility would experience an average CMI of 1.55 and that Medicare would reimburse the facility based on existing rates with an annual inflation of 3.0 percent. Mr. Balsano then reduced the estimated Medicare RPPD generated by those assumptions by 15 percent. While Select's expert criticized Promise's projected CMI adjusted reimbursement rate for Medicare patients (approximately $50,000) as to high, Select's own Exhibit 12, p. 8, indicates a projected reimbursement of $41,120.44 based on an average CMI of 1.0. However, at hearing it was verified that Select's Miami facility operated at an average CMI of 1.23. Applying a CMI of 1.23 generates an average projected Medicare reimbursement of $50,618 per patient, a number similar to that projected by Mr. Balsano. Select Ex. 14, pages 9-16, contains data on, among other things, the CMI of 161 DRGs used by Promise's expert. The data was taken from each of the existing LTCHs in Florida. In 2004, the statewide average CMI was 1.231. Also in 2004, four of 11 LTCHs in Florida experienced an average CMI of 1.4 or higher. Other Florida facilities have experienced an average CMI at or above 1.59. Indeed, other Florida facilities have experienced average CMIs and ALOS similar to that of the Select facility. While Promises operates no facility with an average CMI of 1.55, it has several with average CMIs of 1.3 or 1.4. Promise expects Medicare will take future steps to restrict the admission of patients with lower CMIs' the effect being more complex patients will access LTCHs than currently do, increasing the average CMI in LTCHs. Reducing the number of lower acuity patients admitted to LTCHs in future years will likely increase the CMI of those admitted. There is a direct correlation between CMI and ALOS. If, in fact, the CMI experienced by Promise's facility is less than 1.55, it will in turn generate a lower ALOS. Applying the reduction in reimbursement advanced by Promise's witness (15 percent) would in turn reduce the projected CMI in Promise's facility from 1.55 to 1.05. Because reimbursement coincides with acuity and ALOS, a representation that reducing one of the three does not likewise affects the others is not realistic. Whatever the CMI and ALOS for LTCHs will be in the future will be governed to a great extent by the policies established by the federal government. The federal government's reimbursement system will drive the delivery of patient services and the efficiencies the system provides, so that, in fact, the providers of care manage patients to the reimbursement provided. Whether the average CMI at Promise's facility reaches 1.55 in the future is subject to debate; however, it is reasonable that the status quo will not likely continue; thus, regardless of a facility's current CMI, more complex patients will access the facility in the future. Various sensitivity analyses generated to test the reliability of Select's criticisms in this area do not indicate any material change in the projected Medicare reimbursement. The interest rate on the loaned funds was 9 percent, rather than 7 percent. The estimated expenses did not include sufficient funds to pay the following: the necessary ad valorem taxes the required PMATF assessment the premiums to obtain premises insurance physician fees housekeeping expenses in Year 1 Using the same standardized "grouping" analysis, AHCA calculated Promise's projected costs per patient day and found them reasonable. Because the projected increase in ad valorem taxes and the PMATF assessment will not be payable until 2010, it is not necessary to borrow additional funds to meet these obligations. Select's expert concluded that, depending on a number of scenarios, the result of the appropriate calculations would produce a loss to Promise's project of between $624,636 and $902,361 of year 2. Assuming they represented sensitivity analyses which included various assumptions based on criticisms from Select. The impact of Select's suggested adjustments, reduced by overstated costs in Promise's application Schedule 8A, increased Promise's projected Year 2 net income from the initial estimate of $2,521,327 to $2,597.453. Even if the 15 percent reduction previously included in Mr. Balsano's assumptions on Medicare reimbursement were not considered, and assuming a lower CMI consistent with the existing statewide average (1.43 vs. 1.23), or that Promise's experience in District 11 will be similar to Select's, Promise's facility would still be financially feasible. Select's witness conceded that if Promise's facility experienced a lower ALOS, the demand for additional LTCH services is high enough to allow the facility to admit additional patients ("backfill"). While assuming a lower reimbursement due to lower acuity patients admitted to Promise's facility, Select's witness did not similarly assume any reduction in expenses associated with treatment of such lower acuity patients. In reality, if revenues are less than expected a facility reduces expenses to generate profits. Select's witness also conceded that Promise could reduce the management fee to reduce costs and generate a profit. The testimony of Promise's Chairman, Mr. Baronoff, established the company would take measures to reduce expenses to assure the profitability, including reducing the facility's corporate allocation. Such a reduction by itself would reduce expenses by between $1 million and $1.5 million. Reduction in corporate allocation has occurred before to maintain the profitability of a Promise facility. With regard to Select-Dade, its forecasted expenses, as detailed on Schedules 7A and 8A of its application are consistent with Select-Miami's historical experience in Miami. Evaluation of the revenues and expenses detailed in Select-Dade's Schedules 7A and 8A (and drawing comparison with SMC's 96 other hospitals, with particular attention paid to the Select-Miami facility), its profitability after year one indicates that Select-Dade's project will be financially feasible in the long term. In sum, all four applicants demonstrated long-term financial feasibility. Subsection (7): Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost-effectiveness Competition benefits the market. It stimulates providers to offer more programs and to be more innovative. It benefits quality of care generally. Competition to promote quality and cost-effectiveness is generally driven by the best combination of high quality and fair price. The introduction of a new LTCH providers to the market would press Sister Emmanuel, Kindred-Coral Gables and Select-Miami to focus on quality, responsiveness to patients and would drive innovations. Approval of any of the applications, therefore, as the Agency recognizes, see Agency for Health Care Administration Proposed Recommended Order, at 36, will foster competition that promotes quality and cost-effectiveness. Competition that promotes quality and cost- effectiveness will best be fostered by introduction to the market of a new competitor: either MJH or Promise. Between the two, Promise's application for 60 rather than 30 beds proposed by MJH, if approved, would capture a larger market share and promote more competition. On the other hand, MJH's because of its long-standing status as a well-respected community provider, particularly in the arenas of cost-effectiveness and quality of care, would be very effective in fostering competition that would promote both quality and cost-effectiveness. Kindred and Select dominate LTCH services in Florida with control over 86 percent of the licensed and approved beds: Kindred has eight existing LTCHs and one approved LTCH yet to be licensed; Select has three existing LTCHs and six approved projects in various stages of pre-licensure development. In 2005 the District 11 LTCH market shares were: Kindred-Coral Gables: 42 percent; Select-Miami: 35 percent; and Sister Emmanuel: 23 percent. Approval of Promise would only slightly diminish Select-Miami’s market share and would reduce Sister Emmanuel to a 16 percent share. A Select-Dade approval would give the two Select facilities a combined 54 percent of the market. A Kindred approval would give its two Miami-Dade facilities a combined 57 percent market share. An MJH approval would give it about 16 percent of the market, Sister Emmanuel would decline to 19 percent and Select-Miami and Kindred-Coral Gables would both have market shares above 30 percent. MJH's application is most favored under Subsection (7) of the Statutory Review Criteria. Subsection (8): Costs and Methods of Proposed Construction The parties stipulated to the reasonableness of a number of the project costs identified in Schedule 1, as well as the Schedule 9 project costs. All parties stipulated to the reasonableness of the proposed construction schedule on Schedule 10 of the application. Those additional costs items on Schedule 1 of the respective applications that were not stipulated to were adequately addressed through evidence adduced at final hearing. Given the conceptual-only level of detail required in the schematic drawings submitted as part of a CON application, and based on the evidence, it is concluded that each of the applicants presented a proposed construction design that is reasonable as to cost, method, and construction time. Each applicant demonstrated the reasonableness of its cost and method of construction. Accordingly each gets credit under Subsection (8) of the CON Statutory Review Criteria. But under the subsection, MJH's application is superior to the other three applications. The subsection includes consideration of "the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction." § 408.035(8), Fla. Stat. As an application proposing an HIH rather than a free-standing facility, not only can MJH coordinate its operations with other types of service settings at expected energy savings, its application involves less construction and substantially less cost that the other three applications. Subsection (9): Past and Proposed Provision of Services to Medicaid and Indigent Patients A provider's history of accepting the medically indigent, Medicaid and charity patients, influences patients and referral sources. Success with a provider encourages these patients on their own or through referrals to again seek access at that provider. As a safety net provider, MJH has a history of accepting financially challenged patients, many of whom are medically complex. Its application is superior to the others under Subsection (9) of the Statutory Review Criteria. Promise does not have a history of providing care in Florida. It has a history of providing health care services to Medicaid and the medically indigent at some of its facilities elsewhere in the country. As examples, its facility in Shreveport, Louisiana, provides approximately 7 percent of its care to Medicaid patients and a facility in California provides about 20 percent of its service to Medicaid patients. MJH committed to the highest percentage of patient days to Medicaid: 4.2 percent. Promise proposes a 3.0 percent commitment; Select-Dade and Kindred, 2.8 percent and 2.2 percent, respectively. Select-Dade's proposed condition is structured so as to allow it to include Medicaid days from a patient who later qualifies as a charity patient, thus accruing days toward the condition without expanding the number of patients served. Select-Dade's targeted service area, moreover, has fewer proportionate Medicaid beneficiaries identified (13 percent) as potential LTCH patients than identified by the methodologies used by the applicants (21 percent), indicating that Select's targeted area is generally more affluent than the rest of the County. Kindred does not have a favorable history of providing care to Medicaid and charity patients. For example, during FY 2004, Sister Emmanuel provided 6.1 percent of its services to Medicaid and charity patients. During this same period, Kindred-Coral Gables provided only 1.08 percent of its services to Medicaid and charity patients. Of all four applicants, Kindred proposes the lowest percentage of service to such patients: 2.2 percent. It has not committed to achieving the percentage upon its initiation of services. Its proposed condition and poor history of Medicaid and indigent care merit considerably less weight than the other applicants and reflects poorly on its application in a process that includes comparative review. MJH's proposed condition, although the highest in terms of percentage, is not the highest in terms of patient days because the facility it proposes will have only half as many beds as the facilities proposed by the other three applicants. Nonetheless, the proposal coupled with its past provision of health care services to Medicaid patients and the medically indigent, which is exceptional, makes MJH the superior applicant under Subsection (9) of the Statutory Review Criteria. Subsection (10) Designation as a Gold Seal Program None of the applicants are requesting additional nursing home beds. The subsection is inapplicable to this proceeding.
Recommendation Based on the foregoing Findings of Fact and Conclusion of Law it is RECOMMENDED that the Agency for Health Care Administration issue a final order that: approves Miami Jewish Home and Hospital for the Aged, Inc.'s CON Application No. 9893; approves Select Specialty Hospital-Dade, Inc.'s CON Application No. 9892; denies Promise Healthcare of Florida XI, Inc.'s CON Application No. 9891; and, denies Kindred Hospitals East LLC's CON Application No. 9894. DONE AND ENTERED this 17th day of May, 2007, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of May, 2007. COPIES FURNISHED: Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration Fort Knox Building III, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Associates, P.A. 3051 Highland Oaks Terrace, Suite D Tallahassee, Florida 32317-5828 Sandra E. Allen, Esquire Agency for Health Care Administration Fort Knox Building 3, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308-5403 F. Philip Blank, Esquire Robert Sechen, Esquire Blank & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Mark A. Emanuele, Esquire Panza, Maurer & Maynard, P.A. 3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street, Fifth Floor Tallahassee, Florida 32302-1110
The Issue The question in these cases is whether proposed rule 27J-1.062 is an invalid exercise of delegated legislative authority pursuant to section 120.54(4), Fla. Stat. (1985). The stipulated issues in these cases are: Does the Hospital Cost Containment Board have the authority to reduce a hospital's gross revenue per adjusted admission in applying the penalty specified in section 395.5094, Fla. Stat. (1985)? If so, may the reduced gross revenue per adjusted admission serve as the base for comparison in evaluating the rate of increase in the subsequent year's budgeted gross revenue per adjusted admission? No ruling will be made as to the second issue since the parties did not submit evidence or argument on the point. It appears that the issue has been abandoned. Florida Hospital Association, Inc., presented three exhibits, Florida League of Hospitals, Inc., presented one exhibit, the parties presented one joint exhibit, the Hospital Cost Containment Board (HCCB) presented two exhibits, and the prehearing stipulation was made a Hearing Officer's exhibit. All exhibits are in evidence. Testimony was presented from two witnesses, John Benz and James Bracher.
Findings Of Fact Petitioner Florida Hospital Association, Inc., is a non-profit corporation organized for the benefit of its 220 member hospitals, including not-for-profit, investor-owned, and governmental hospitals. T. 6. Petitioner Florida League of Hospitals, Inc., is a non-profit corporation organized for the benefit of its members, which are 80 investor- owned hospitals. The Respondent is the Hospital Cost Containment Board (HCCB). The Intervenor is the Public Counsel on behalf of the Citizens of the State of Florida. The following findings of fact are based upon stipulated facts: Throughout calendar year 1985, various drafts and revisions of the proposed rule were prepared by Respondent. The proposed rule was analyzed and discussed at meetings of the Financial Analysis Technical Advisory Panel (TAP) in August, October, and November 1985 and in January 1986. As a result of industry concern raised at those TAP meetings, Respondent made several substantial revisions to the proposed rule including: Amending subsection (3)(a) regarding the offset to the penalty from indigent care assessments, to allow credit for assessments paid by the hospital, rather than accrued in the fiscal year; Amending subsection (3)(b) to provide a "carry forward" provision in the rule that would allow hospitals to carry forward into subsequent years the amount of assessments paid minus the amount of revenues received for purposes of reducing the excess used in calculating the penalty; Amending subsection (5)(e) of the rule to provide that, in applying the penalty to gross revenues, the penalty would not apply to gross revenue reflecting charity care and certain fixed-priced government payors; and Amending subsection (5)(e) to allow other adjustments to the penalty on gross revenue [that might be justified as fair and equitable to all payors. In addition to the substantive changes described above, Respondent made various technical revisions to the proposed rule in response to suggestions from representatives of the hospital industry. The HCCB voted to adopt rule 27J-1.062 at its January 30, 1986, Board meeting, and instructed staff to initiate the rulemaking process. Joint Exhibit 1 is the April 17, 1986, draft of the proposed rule. This draft has not yet been published in the Florida Administrative Weekly, but is the proposed rule that is challenged herein. The draft incorporates the following stipulations: Paragraph (b) of subsection (1) of proposed rule 27J-1.062 shall be deleted from the proposed rule. Subsection (5) of proposed Rule 27J-1.062 shall be amended to specify that the budget reduction imposed pursuant to the proposed rule shall apply pro rata to the 12 months immediately following final Board action. Subsection (6) of proposed rule 27J-1.062 shall be deleted. Paragraph (c) of subsection (3) of proposed Rule 27J-1.062 shall be changed to specify that adjustments are based on adjusted admissions in the audited actual experience for the most recently complete fiscal year. Paragraph (b) of subsection (3) of proposed rule 27J-1.062 shall be changed to specify that the Board shall consider changes in case-mix in levying any penalty pursuant to the rule, It is officially recognized that the Respondent, the HCCB, published proposed rule 27J-1.062 in Vol. 12, Issue No. 7, at pp. 606-7, of the Florida Administrative Weekly on February 14, 1986. The proposed rule establishes a method of calculating the penalty provided in section 395.5094(1), Fla. Stat. (1985), which is commonly called the "main" penalty. Joint Ex. 1. Rule challenges by the Petitioners were timely filed. The proposed rule, implementing the above statute, requires an annual comparison by the HCCB of the hospital's audited actual experience for that year with both the Board approved budget for that year and the audited actual experience for the prior year. Joint Ex. 1. The proposed rule first calculates what is to be termed the "excess." The excess is the lesser of the following two amounts: either the absolute dollar amount of the difference between the audited actual net revenue per adjusted admission (NRAA) for the most recently completed fiscal year and the NRAA in the Board approved budget for the same year, or the absolute dollar difference between the audited actual NRAA for the most recently completed fiscal year and the prior fiscal year and the prior year's audited actual NRAA increased by the maximum allowable rate of increase (NARI). The Executive Director of the Board testified that the penalty will not be applied unless the hospital's actual audited experience for net revenues per adjusted admission exceeds both of these bases. T. 74-5. The proposed rule then contains a procedure for reducing the excess and the excess as reduced is called the "adjusted excess." The "penalty" then is calculated by multiplying the adjusted excess by the total adjusted admissions based on the actual audited data for the most recently completed fiscal year. The proposed rule also establishes procedures for reducing the hospital's budget based upon the penalty. Subparagraph (5), proposed rule 27J- 1.062. The reduction applies on a pro rata basis to the 12 months immediately following final Board action on the penalty. For the first occurrence within a five-year period, the Board is to reduce the hospital's budget for net revenues up to the amount of the adjusted excess not to exceed 5 percent of the prior year's actual net revenues inflated by the NARI. Any amount in excess of the 5 percent is then imposed as a fine. Subparagraphs (5)(a) and (c), proposed rule 27J-1.062. For the second occurrence within a five-year period, the Board is to reduce the hospital's budget for net revenues up to the amount of the adjusted excess not to exceed 2 percent of the prior year's actual net revenues inflated by the NARI. Any amount in excess of the 2 percent is then imposed as a fine. Subparagraphs (5)(a) and (c), proposed rule 27J-1.062. For the third occurrence within a five-year period, the Board does not reduce the budget of the hospital in any amount, but simply applies the entire penalty as a cash fine. Subparagraph (5)(b), proposed rule 27J-1.062. Finally, subparagraph (5)(e) of proposed rule 27J-1.062 provides that the gross revenue in the hospital's budget must be reduced. First, pursuant to subparagraph (5)(d) of the proposed rule, the percentage of the reduction of net revenues is calculated by dividing the amount of the penalty by the amount of actual audited net revenue for the most recently completed fiscal year. The percentage of the reduction of net revenues is then multiplied by the actual audited gross revenues for the most recently completed fiscal year. The result is multiplied again by the percentage of the hospital's gross revenue generated from sources other than charity care (which is further defined in the proposed rule) and fixed-price government payors specified in the FHURS (Florida Hospital Uniform Reporting System). Manual. To convert the reduced net and gross revenues in the budget to the NRRA and GRRA format, the reduced amounts are divided by the number of adjusted admissions in the budget. Subparagraph (5)(f) of the proposed rule. Petitioner, Florida Hospital Association, Inc., presented the testimony of John Benz, who was accepted as an expert in hospital finance, accounting, and budgeting. T. 17. Mr. Benz testified regarding the asserted effect of the proposed rule on a hypothetical group of eleven hospitals. See FHA Ex. 1. In this hypothetical, hospital number three was chosen as the hospital penalized, and the penalty amount was assumed to be $150 in gross revenues per adjusted admission. Hospital number three initially ranked above the 50th percentile, but just below the 80th percentile for GRAA. The hypothetical example further assumed that gross revenues per adjusted admission for each hospital would increase annually for ten years at 7 percent. It thus assumed no Board-approved GRAA in excess of 7 percent, or no automatically approved increase to GRAA above 7 percent. The current MARI is 7 percent. T. 88. It also assumed that the adjusted admissions for hospital number three would be 10,000 each of the ten years. T. 24. This is typical of a 300 bed hospital. T. 29. The assumption of uniform admissions is reasonable T. 54-5. It was also assumed in the hypothetical that the HCCB will annually use the GRAA as adjusted as the basis for future year budget calculations and determining the 50th and 80th percentiles for the group. Finally, the example assumed that a 5 percent overage is equal to $250 and a 2 percent overage is equal to $100. T. 34. The hypothetical example then calculated what the GRAA for all eleven hospitals would be for the ten-year period both without application of a penalty to gross revenues and with the penalty applied to gross revenues. In the first year, application of the penalty to GRAA lowers the GRAA of hospital three by $150, and lowers the total gross revenues of that hospital by $1,500,000. T. The reduction in GRAA lowers the 80th percentile GRAA by $20, or about 0.5 percent. Carrying these changes forward using the constant inflation factor of 7 percent, by the tenth year the GRAA of hospital three is $278 lower than it would have been without the penalty in the first year, the loss of gross revenues in the tenth year is $2,780,000, the cumulative loss of gross revenues in the ten years is $20,790,000, and the 80th percentile GRAA is less than it would have been by $55, or about 0.5 percent. T. 38; FHA Ex. 1. The decrease in the 80th percentile GRAA would potentially affect all eleven hospitals in the group. The hypothetical example presented by the Florida Hospital Association, Inc., also set forth a calculation of the asserted effect of the penalty after ten years imposed as a first, second, or third violation in a five-year period. T. 42. The asserted effect is mathematically different because the rule allocates the penalty differently for the first, second, or third violations. As mentioned above, the example assumes that a 5 percent overage is $250 and a 2 percent overage is $100. Again assuming a 7 percent rate of increase for each year in GRAA, the asserted effect of the three kinds of penalties is: Violation Total 10 year Total Cash Fine Asserted total reduction to effect gross revenues First $20,790,000 -0- $20,790,000 Second 13,880,000 500,000 14,380,000 Third -0- 1,500,000 1,500,000 As will be discussed ahead, it is not possible on this record to conclude that the above three-tiered penalty procedure will result in a harsher penalty for the first violation since (1) it is not certain that there will actually be a reduction to gross revenues for the entire 10 years, and (2) there is no expert evidence as to the time value of the cash fines. In the hypothetical discussed above, assuming as was assumed in the hypothetical that adjusted admissions would be 10,000 each year and that the GRAA would increase at 7 percent each year, in ten years, hospital three would have total gross revenues of $777,140,000. It would have lost $20,790,000 in gross revenues in the hypothetical example, and the sum of these two figures is $797,930,000. Thus, the percentage of the asserted amount of lost revenues is 2.6 percent. The Respondent, the Hospital Cost Containment Board, presented the testimony of James Bracher, Executive Director of the Board, who was accepted as an expert in health care financial regulation, including certificate of need, rate review, and budget regulation. T. 72-3. Mr. Bracher presented another hypothetical example to illustrate the asserted effects of the penalty applied only to net revenues and applied to both net and gross revenues. The hypothetical, contained in HCCB Ex. 2, assumes that net revenues will be 70 percent of gross revenues in any given year, that gross revenues will increase yearly by 8 percent, that 50 percent are fixed government payers, that the penalty is to be applied 3 months in 1987 and 9 months in 1988, and that gross revenues are initially $150,000 in 1987. T. 81-82. Finally, the example assumes that the penalty will be 5 percent of net revenues, and is a first violation penalty. T. 82. The result of the HCCB's hypothetical is that if the 5 percent penalty is applied only to net revenues, the penalty is completely recovered from those revenues in the first two years (pro rated since the first year has only a 3- month impact under the hypothetical assumption), and thereafter, net revenues return to the same level as if no penalty had been levied. This occurs directly as a result of the assumption that net revenues will always be 70 percent of gross revenues. T. 83. If the penalty is applied to gross revenues as well as net revenues, the HCCB hypothetical asserts that both gross revenues and net revenues will be permanently lowered. T. 83. This occurs because gross revenues in future years are assumed to be only a constant percentage increase from the penalty year, and net revenues are assumed to be 70 percent of gross revenues in any given year. By 1990, the gross revenues of the hypothetical hospital would be less by $4,462, or by about 2.4 percent, and net revenues would be less by $3,123, which of course would be the same percentage reduction since net revenues are directly related to gross revenues. HCCB Ex. 2. A projected budget is based in part upon historical budgets, and thus, if an earlier budget is incorrectly too high, it is possible that the error may be carried into the future. T. 96. However, the current Florida regulatory scheme provides all hospitals with the opportunity to justify increases in gross revenues annually, based upon current information. T. 86-7. It is possible in a future year for a hospital to gain HCCB approval of a budget for increased gross revenues due to new or expanded services, a change in case mix, or a change in length of stay. T. 90, 51. It is also possible for increases in GRAA to be automatically approved by the HCCB if the hospital is ranked below the 50th percentile in its group, or if the hospital is ranked below the 80th percentile in its group and the increase is less than the MARI. Thus, it is possible that the effect of a penalty to gross revenues in one year may be cancelled out in a future year by increases to GRAA due to approval of a new budget justified upon new facts or due to automatic approval. None of the hypotheticals presented in this case are expected to actually occur precisely as set forth above, and only serve as reasonable illustrations of the potential mathematical relationships between the penalty and future gross or net revenues. As discussed above, since a hospital might be able to justify a higher GRAA in a future year, the Petitioner's and Respondent's hypotheticals might never occur, or at least it is impossible to say whether the cumulative effect may continue for ten years, five years, or forever. Similarly, the assumption of the examples used, that a uniform increase in GRAA of 7 percent or 8 percent per year, while useful as a mathematical example, is unlikely to actually occur. T. 90. The rates of increase for competitor hospitals of the North Broward Hospital District have not been uniform. T. 55. Finally, the assumption of the HCCB that NRAA will be a uniform 70 percent of GRAA might be roughly correct, but in fact the relationship will vary from year to year. T. 123-4. However, notwithstanding the lack of precise examples, several conclusions can be drawn from the hypotheticals presented. First, although it is impossible to predict how long and how much of a cumulative penalty will be felt by a hospital if the penalty is applied to gross revenues, it is relatively certain that the effect of the penalty on gross revenues will continue for several years beyond the base year. This will occur because the budget review process of the HCCB is based primarily upon past history of GRAA. T. 120. If a hospital's GRAA is lowered in a single year, it is likely that this loss of approved GRAA will affect a number of future years. Second, it is also relatively certain that if the penalty is applied only to NRAA, a hospital will be able to return to the same NRAA it would have had without the penalty in a relatively short time, even if one assumes that the relationship between NRAA and GRAA will not uniformly be 70 percent each year. This should occur because GRAA has not been lowered, and thus stands as an approved basis in future years for justification of the higher NRAA. Indeed, if the GRAA is below the 50th percentile, approval will be automatic. Gross revenues minus other operating revenues equals total patient charges. T. 51, 57. Gross revenues minus other operating revenues is what is billable to the patient. Id; T. 56-7. Not all charges billed are collected. The percentage of uncollected patient billings differs from hospital to hospital. Indigents do not pay, and the percentage of indigent care can be 10 percent in some hospitals. T. 97. Medicare may not pay the entire amount billed for a Medicare eligible patient. T. 97. In Florida, hospitals may have 45-50 percent of their patients as Medicare patients. T. 98. Health maintenance organization patients and preferred provider patients may be billed discounted rates. T. 97. Net revenues equal the amount received from patients, and reflect gross receipts from charges to patients. T. 50, 57, 58. Net revenues are a product of patient charges, but are not a direct reflection of such charges. T. 59. Gross revenues thus do not "equal" the amount paid by patients since at least one-half of all patients in Florida do not themselves pay charges. However, excluding other operating revenue, gross revenues do reflect the charges paid by charge-paying patients and the charges paid by third-party payors whose payments are charge-based or discounted, which is somewhat less than one-half of all patients in Florida. There is a significant relationship between gross revenues and charges to patients such that the reduction of gross revenues in a budget is likely, over time, to contain or slow the increase of charges to Florida patients. Petitioner's example of a lump sum Medicare settlement causing a penalty due to increase of net revenues, without increase in gross revenues, is not likely to occur. The HCCB has procedures whereby receipt of a lump sum Medicare settlement may be recognized and approved through budget amendment. T. 90-3. Two prior final orders of the HCCB are in evidence as arguable precedent for the case at bar. These are the final orders in the Lake Hospital of the Palm Beaches case, DOAH Case Number 85-1666H, FHA Ex. 2, and the American Medical International cases, DOAH Case Numbers 85-2296H, 85-2297H, and 85-2265H, HCCB Ex. 1. In the Lake Hospital case, the Board applied the base year adjustment of section 395.509(11), Fla. Stat. (1984), to net revenues only. In the American Medical International cases, the Board construed its authority to review and approve "budgets" to include the power to approve or disapprove net revenue amounts as well as gross revenues. The North Broward Hospital District invests excess funds at a rate of interest of 8 percent to 10 percent. T. 50. The practical effect of the proposed rule is to provide a way to return a hospital to the approximate place it would have been had it not exceeded either its approved budget or its actual audited experience inflated by the MARI. A secondary effect is to alter the percentile relationship of all hospitals to the level it would have been had the subject hospital not exceeded these limits. If it is lawful for the HCCB to reduce GRAA as is intended in the proposed rule, and if the HCCB adopts the proposed rule and fails to follow it, the failure would unlawfully benefit both the subject hospital and all hospitals in the group since both the GRAA of the hospital and the percentile ranking of GRAA of all hospitals in the group, in that event, should be reduced. It would be an unlawful detriment in that event to Florida consumers as well.
Findings Of Fact The Parties St. Joseph's is a tertiary care hospital located at 3001 West Buffalo Avenue, Tampa, Hillsborough County, Florida. There is spatial capacity for 703 beds at St. Joseph's, but only 649 beds are licensed, staffed and in use. It is sponsored by the Franciscan Sisters of Allegheny, and is a subsidiary of a holding company, St. Joseph's Health Care Center, Inc. Without CON approval, St. Joseph's cannot increase licensed bed capacity at its current facility on West Buffalo Avenue, or open the satellite facility which is here at issue. St. Joseph's current service area includes Hillsborough County, particularly the central and northern portions of the County. Occupancy rates for St. Joseph's in medical surgical areas have been approximately 80 percent, and at peak times have exceeded 90 percent. However during the last half of 1986, the occupancy rate fell to 74 percent. St. Joseph's provided 16.8 percent of all Medicaid care in Hillsborough County during 1982-83 and 17 percent during 1983-84. It is second to Tampa General in provision of health care to indigents in Hillsborough County. With the exception of Tampa General, St. Joseph's has the largest Medicaid patient admissions of all Hillsborough County hospitals. In 1986, the bad debt/charity care/Medicaid contractual discount for St. Joseph's was approximately $11.3 million. However, while 6.9 percent of all patient days county wide are Medicaid patient days, St. Joseph's has only 5 percent Medicaid patient days. The cost of indigent care is absorbed and offset by paying patients. St. Joseph's decision to seek approval for a satellite in the Carrollwood area is a wise business decision since there is a high percentage of paying patients residing in that area of Hillsborough County. St. Joseph's has a 23 percent market share of all patient days reported in Hillsborough County, the largest market share for all hospital medical- surgical services provided in the County, and also has the largest market share in the proposed service are of the satellite. Its market share of paying patients is much higher than for Medicaid or indigent patients. However, since 1984 St. Joseph's market share has been declining while Tampa General's has been increasing. A relatively high proportion of admissions at St. Joseph's current facility, over 40 percent, are obtained through its emergency room. The proposed satellite will have an emergency room, but it will not offer the same intensity of services as at the current facility on West Buffalo Avenue. The Department is the state agency with the authority and responsibility to consider CON applications. Intervenor Humana of Florida, d/b/a Tampa Women's Hospital (Humana) owns and operates a 192 bed women's hospital in Tampa, Florida, which includes 96 obstetrical beds. Its occupancy rate in 1986 was approximately 50 percent. Intervenor University Community Hospital (University) is an existing hospital with 404 licensed and 320 operating beds located on East Fletcher Avenue, Tampa, Florida, and offers a full range of acute care hospital services. University is located within the service area of the proposed satellite and has been experiencing a decline in patient days from 109,000 in 1983 to 84,000 in 1986. It has had to reduce its number of employees in the last three years by 15 percent-20 percent. University has a 57 percent occupancy rate. Intervenor Tampa General Hospital (Tampa General) operates a publically supported hospital in Tampa, Florida, providing a full range of acute care services, including obstetrical/gynecological services with 707 licensed and 619 operating beds. Tampa General has CON approval for 1000 beds if it completes planned renovations. It has an occupancy rate of 80 percent-82 percent and is treating 70 percent of all Medicaid patients in Hillsborough County. Tampa General has provided $70 million of indigent care, including $40 million in charity, annually. Carrollwood is within its service and marketing area. Intervenor AMI Town and Country Medical Center (Town and Country) is a 201 bed general acute care hospital located at 6001 Webb Road, Tampa, Florida. Its occupancy rate in 1986 was approximately 46 percent. There is no dispute among the parties regarding the standing of Intervenors in this proceeding. The occupancy rates at University, Town and Country and Humana are substantially below optimal levels, and substantial unused capacity exists at each of these hospitals. St. Joseph's proposed satellite will not offer any services that are not currently available to residents of the proposed service area, and will duplicate services at University, Town and Country, and Carrollwood Community Hospital, as well as services provided at St. Joseph's existing facility. The Application and Project On or about October 15, 1985 St. Joseph's filed with the Department an application for CON 4288. This application sought approval for a 150 bed general acute care satellite hospital in Carrollwood, Hillsborough County, Florida, and proposed the transfer of 150 existing licensed beds from St. Joseph's facility on West Buffalo Avenue, Tampa, to the satellite. The estimated total cost of this project was $16,775,000. Specifically, St. Joseph's proposed the transfer of 96 medical/surgical beds, including ICU, CCU and progressive care beds, 15 obstetrical beds and 39 pediatric beds, including PICU. The Department provided St. Joseph's with an omissions letter on or about November 14, 1985, to which St. Joseph's responded on or about December 30, 1985. By letter dated February 28, 1986, the Department preliminarily denied St. Joseph's application for CON 4288 stating, "The project is not justified by the 1985 District VI Health Plan or the 1985-87 Florida State Health Plan." The Department's decision to deny this application was published in Volume 12, Number 11, Florida Administrative Weekly, on March 14, 1986, and St. Joseph's filed its petition for formal administrative hearing on April 4, 1986. On or about February 18, 1987 St. Joseph's and the Department executed a Stipulation and Settlement Agreement which, in pertinent part, provides: DHRS finds and agrees that there is a need for St. Joseph's to relocate and transfer 100 acute-care beds (but not any licensed obstetrical beds) and acute-care services (but not any obstetrical services) from its existing acute-care hospital and construct a 100 bed acute-care satellite hospital in Hillsborough County in light of a balance review of all relevant criteria established by Section 381.494 Florida Statutes, including the levels of indigent and Medicaid care agreed to herein. The project will occur entirely within Hillsborough County and not result in any increase in licensed beds for St. Joseph's. DHRS agrees that a partial approval of the St. Joseph's CON Application will satisfy this need and that said application should be partially approved as hereinbelow further specified ... The agreements and commitments made by DHRS in paragraph 1 above are predicated on commitments made by St. Joseph's concerning its intention to provide certain percentages of Medicaid and indigent care in its proposed satellite hospital and to seek only partial approval of its application as specified herein... St. Joseph's commitments, which are relied upon by DHRS and which shall be set forth as conditions in said CON, are as follows: Not less than 3.5 percent of the total number of admissions at St. Joseph's satellite hospital shall be rendered to Medicaid patients. Not less than 3.0 percent of said total admissions shall be rendered to non-Medicaid "charity/uncompensated" patients whose family income as applicable for the twelve months prior to determination of eligibility is equal to or less than 150 percent of the then current Federal Poverty Guidelines. St. Joseph's shall obtain and retain sufficient information to verify this eligibility determination. The 3.0 percent "charity/uncompensated" patients shall be acknowledged as such at admission, shall not include patients receiving third party payments and shall be in addition to St. Joseph's "bad debt" patients... DHRS specifically recognizes the lengthy history and mission of St. Joseph's in providing extensive indigent care services in Hillsborough County. St. Joseph's agrees to undertake a diligent and good faith effort to encourage physicians on its medical staff to admit and treat Medicaid and charity/uncompensated care patients in such numbers as to comply with the minimum percentages established in paragraph (a)above ... (e) St. Joseph's agrees that it will request at hearing and henceforth seek only partial approval of its proposed CON Application, as follows: The satellite facility shall be reduced in scope from 150 licensed beds to 100 licensed beds. The number of licensed beds to be relocated from the existing St. Joseph's Hospital shall be reduced in scope from 150 licensed beds to 100 licensed beds. None of the licensed beds to be relocated to the satellite hospital shall include licensed obstetrical beds, nor shall the obstetrical services, if any, provided at St. Joseph's existing hospital be relocated to the satellite facility. Labor, delivery and nursery facilities shall be deleted from the satellite hospital. DHRS has consistently maintained the proposed square footage and project cost is inadequate for a 150 bed hospital and more appropriate for a 100 bed hospital. Therefore, the total square footage and total project cost shall remain unchanged... The Stipulation and Settlement Agreement referred to in Finding of Fact 21 was executed following, and in consideration of, additional information prepared and submitted by St. Joseph's to the Department on or about January 30, 1987 and February 9, 1987. At hearing, St. Joseph's and the Department sought partial approval of CON 4288 to conform to the terms of the Stipulation and Settlement Agreement. Intervenors opposed such partial approval. The partial approval sought by St. Joseph's and the Department represents an identifiable portion of St. Joseph's original CON application. Originally, St. Joseph's sought approval to transfer 150 acute care beds, including obstetrical, but at hearing St. Joseph's sought approval for a transfer of only 100 acute care beds, without obstetrical. Labor, delivery and nursery facilities have been deleted from the satellite proposal, but total square footage, physical designs and total cost of the project remain the same for the partial approval sought at hearing compared with the original application. The number of operating rooms has also remained the same. The proposed location in Carrollwood, Hillsborough County, remains unchanged. The project at issue in this case is a 100 bed acute care satellite hospital with, 96,500 total gross square footage (965 gross square feet per bed). The schematic plan submitted by St. Joseph's provides for the following beds and includes, but is not limited to, the following facilities: (72 private rooms, 2 Semi-private); pediatric beds (5 private, 5 semi-private), ICU/CCU (9 beds); space for radiology/nuclear medicine, emergency and outpatient services, laboratory, physical therapy, pharmacy, EEG/EKG, inhalation therapy, surgical suite, sterilization suite, cafeteria, laundry, storage, maintenance, chapel, nurses office, and other miscellaneous facilities. Total project costs are estimated at $16,775,000, the same as for the original 150 bed transfer proposal. The land upon which the satellite will be located was purchased for $3 million in cash. The satellite will be able to operate at a higher occupancy level than St. Joseph's existing hospital due to the larger proportion of single bed rooms and less severe cases being treated at the satellite. After review of St. Joseph's original application for the transfer of 150 acute care beds in March 1986, the Department concluded that the proposed gross square footage per bed of 643 was below the standard range of 800-1000 gross square feet per bed, and also that the total project cost estimate of $111,833 per bed was way below the average standard range of $175,000 to $200,000 per bed. After review of the identifiable portion of St. Joseph's application for which approval was sought at hearing, the Department concluded that the total gross square footage of the satellite, square footage per bed, construction estimates, and the total project cost estimates were reasonable and acceptable. The gross square footage was raised from 643 to 965, and the cost per bed was increased from $111,833 to $167,750. The Service Area The area which St. Joseph's proposes to serve with its satellite hospital is the Carrollwood area of northwest Hillsborough County which is located in the Department's District VI. This is the fastest growing area in Hillsborough County, with an average age which is lower than the rest of the County, and an average income level above the County average. Specifically, almost 35 percent of the population in the satellite's proposed primary service area was between 25 and 44 years old in 1980, compared with approximately 28 percent for the County. In the category of 65 years and older, the primary service area had 8.2 percent of its population, while the County had 11.4 percent. A higher percentage of paying patients reside within the proposed service area than for Hillsborough County as a whole. Nevertheless, 6 percent 7 percent of the service area population have incomes below the federal poverty level, compared with 16 percent for the County as a whole. The area is already served by Medicaid providers. St. Joseph's medical roster indicates over 140 of its physicians have offices in the satellite's proposed service area. However, approximately 100 of these physicians are also on the staffs of Intervenors. The site for the satellite was chosen after review of patient origin data and population growth projections for Hillsborough County. St. Joseph's is currently treating at its facility on West Buffalo avenue an average of 64 patients a day who reside within the proposed service area of the satellite and who are not cardiac, cancer or psychiatric patients. St. Joseph's has an average daily census of 519 patients and proposes to serve 64 of these patients, who reside within the satellite's primary service area, at the satellite. Stipulations The parties have stipulated that St. Joseph's is able to provide quality care at the proposed satellite, and also that St. Joseph's is not proposing or relying upon probable economies and improvements in service that may be derived from the operation of joint, cooperative, or shared health care resources, except to the extent that the project includes a satellite facility. Intervenors contend that health services will be most economically provided by not constructing the satellite facility. Finally, the parties stipulate that Section 381.494(6)(c)11., Florida Statutes, relating to the provision of a substantial portion of services or resources to individuals not residing in the service district in which the entities are located, or adjacent thereto, is not applicable in this case. Non-Rule Policy for Bed Transfers The Department currently has no rule governing the transfer of acute care beds. Rule 10-5.011(1)(m), previously Rule 10-5.11(23), does not apply to acute care transfers since it addresses new or additional beds. However, the Department has begun developing a departmental policy for review of acute care transfer applications which do not request additional beds, and is seeking industry and staff input for the concepts expressed in a draft policy. In its current conceptual form, the transfer policy follows the statutory review criteria as they might apply to transfer applications which do not request new beds. The emerging policy, urges review of acute care transfer applications with emphasis upon the following health care planning criteria: reduction of excess beds, better utilization of existing beds, the encouragement of hospital efficiency, improvement of financial and geographic access, the encouragement of quality care, and the encouragement of competition in the hospital industry. St. Joseph's partial approval request was reviewed for conformity with this emerging policy by Robert Sharpe, the Department's Director of Comprehensive Health Planning (the state's chief health planner), who is charged with development of the bed transfer policy. Bed reduction is a key element for consideration in the Department's emerging policy. However, St. Joseph's 79-80 percent occupancy is greater than the Department's 75 percent hospital occupancy threshold contained in the acute care rule (Rule 10-5.011(1)(m)). Application of a bed reduction formula is not reasonable, according to Sharpe, for a facility which is using its beds to a much greater extent than other facilities in the County. The Department's emerging policy would evaluate whether a proposed transfer of beds to a new site would encourage a better use of the beds than at the existing site. The emerging policy contemplates transfers of acute care beds within a single county or subdistrict in an effort to be responsive to the needs of communities. This concept is consistent with the District VI Local Health Plan's stated desire that planning occur on less than a county basis. The Department's emerging policy evaluates the relative efficiency of the hospital proposing a bed transfer. In evaluating the relative charges made by similar Florida hospitals, the Hospital Cost Containment Board has devised hospital groupings for evaluation purposes. Of the 23 hospitals that are characterized as "group nine" hospitals in Florida, St. Joseph's ranks 16th of those 23 and is below the 50th percentile in gross revenues per adjusted admission. This means that St. Joseph's has lower charges per adjusted admission than most of the other comparable hospitals in Florida. Despite the fact that St. Joseph's is a large tertiary facility, Hospital Cost Containment Board data establishes that St. Joseph's is an efficient hospital facility. Another aspect of the Department's emerging policy is that of improving Medicaid and indigent access for patients. Excluding Tampa General, St. Joseph's has more Medicaid patient admissions than all other hospitals in Hillsborough County. During the past four years, St. Joseph's has consistently provided approximately 17 percent of the Medicaid care to hospital patients in Hillsborough County. The Department considers St. Joseph's to be an indigent care facility in Hillsborough County. The Department also considers geographic access when reviewing transfers. The State Health Plan has an objective that 90 percent of the population in an urban area be within 30 minutes drive time to an acute care facility by 1989. The Local Health Plan has concluded that all of Hillsborough County is currently within a 30 minute drive time. The quality of care provided by a facility proposing a transfer is also considered, and the parties have stipulated that St. Joseph's will provide quality health care services. The Department examines the competitive affects of approval of a transfer of acute care beds. In this case, the charge levels, costs per admission, and current inventory of beds at Hillsborough County acute care hospitals were examined. Since St. Joseph's charges and costs are low relative to other hospitals, and since there is an excess of beds in the County, the Department assumed that there would be competition for existing patients, and further concluded that approval of the satellite facility would promote price and non-price competition among hospitals in Hillsborough County. Considering each of the outlined elements of the Department's emerging policy, the state's chief health planner testified that the emerging policy supports the requested approval of an identifiable portion of the St. Joseph's satellite application. Need And Consistency With State and Local Plans Health planning for CON purposes involves the assessment of need on a community-wide, rather, than an institution specific, basis. Planning on less than a county-wide basis is inappropriate in Hillsborough County. In 1986 there was an excess capacity of 1400 acute care beds in Hillsborough County. District VI is overbedded by nearly 700 beds. The Local Health Council projects that in 1992 there will still be a surplus of nearly 800 beds in the County. Since this application proposes the transfer of beds, it neither increases or decreases this excess capacity. The State Health Plan as well as the Department's non-rule policy recommends eliminating excess bed capacity, but this proposal is not consistent with that recommendation. Existing acute care hospitals in Hillsborough County experienced only percent occupancy in 1986, a drop from 71 percent in 1984. Patient days have declined at an average of 2.6 percent per year since 1983 while the population in Hillsborough County actually increased 11.2 percent during this time. In spite of a significant reduction in hospital utilization and average lengths of stay in the area, the number of licensed hospital beds in Hillsborough County increased from 3,028 in 1981 to 3,457 in 1986, an increase of 14.2 percent or 429 beds. The State Health Plan contains a stated goal of 80 percent occupancy by 1989. The Local Health Plan recognizes 80 percent for medical-surgical and ICU/CCU occupancy for all beds in the County and 90 percent occupancy for each institution. Only Tampa General and St. Joseph's are currently achieving these occupancy level goals. In fact, occupancy rates for the five hospitals within, or adjacent to, the proposed satellite's service area range from 40 percent to percent. Based upon review and consideration of the expert testimony and evidence presented at hearing, it is found that an acceptable hospital optimum occupancy rate would be from 75 percent to 85 percent overall, and 90 percent for medical-surgical beds. Of the 649 beds currently at St. Joseph's, on average there are 149 unoccupied beds on any given day. St. Joseph's proposal does not address the key element of the State Health Plan and the Department's non-rule policy which calls for bed reduction when transfers are considered. This failure is particularly significant in view of the substantial overbedding which currently exists in Hillsborough County and which is projected to exist through 1992. To the contrary, the proposal actually would result in a net increase of 3 coronary care unit beds and 3 pediatric intensive care unit beds. The most important stated purpose of the acute care policies in the 1985 District VI Health Plan is "optimizing utilization of existing resources", and this purpose is implemented through a policy that provides, "Suture changes in the hospital facilities and services systems should occur so as to maintain the fiscal and programmatic integrity of all institutions providing a full range of services... " This proposal is inconsistent with this aspect of the Local Health Plan since it does not reduce the number of excess beds, while at the same time it would transfer 100 beds to a predominantly affluent, young and growing area of the County from which St. Joseph's would realize a substantial number of paying, as opposed to indigent or Medicaid, patients. This could reasonably be expected to increase St. Joseph's already very strong patient payor mix, and increase occupancy rates above 80 percent while other facilities are at or below 50 percent. At the same time, this proposal could actually weaken St. Joseph's financial position since its margin of revenue over expenses was 12.5 percent in 1985 and 10 percent in 1986, and the pro forma for the satellite, although overly optimistic as discussed below, shows only a 4.8 percent margin in the second year of operation. Underutilization of existing facilities is not consistent with sound health care planning because it ultimately results in higher costs to patients. Other facilities currently serving the proposed service area will be more likely to achieve optimum occupancy levels if the satellite is not built, than if it is. Another important purpose of the Local Health Plan is "promoting access for the indigent and underserved population to adequate health care," a purpose also stated in the Department's non-rule policy. The service area of the proposed satellite has a median family income of $30,132 which is 26 percent higher than for Hillsborough County as a whole. Locating a hospital in a predominantly affluent area, does not generally increase access for indigents. In fact, by the terms of its Settlement Agreement, St. Joseph's will actually decrease its commitment to Medicaid patients from the current 5 percent to the proposed 3 percent at the satellite. The percentage of charity care to gross revenues at St. Joseph's in 1986 was .6 percent, and was budgeted at .5 percent for 1987. This is not a significant charity commitment in relation to gross revenues, and the satellite proposal will not improve this commitment. The State Health Plan states as an objective achieving a ratio of less than 4.11 beds per thousand by 1989. This proposal does not promote this objective because it does not represent any net reduction in total number of beds. This proposal is also inconsistent with the State Health Plan which recommends a minimum pediatric size of 20 beds since it will have only 18. Need In Relation to Geographic Accessibility According to the 1985 District VI Health Plan, "The geographic distribution of hospital services in Hillsborough County is such that the entire population is within the 30 minute drive time standard of adequate resources." Ernest J. Peters, who was accepted as an expert in traffic engineering, testified that the entire proposed satellite service area is within 30 minutes of at least one existing hospital. The 30 minute drive time standard is set forth as Objective 2.2 in the 1985-87 State Health Plan. Residents of the proposed service area have geographic accessibility to hospital services within a 30 minute drive time. St. Joseph's does not dispute this fact, but rather Barbara Myres-Fernandez, who was not accepted as an expert in traffic studies, testified that at peak travel times the 30 minute standard was exceeded. However, according to Robert Sharpe, the Department's Director of Comprehensive Health Planning, who was accepted as an expert in health care planning, as well as Ward Koutnik and Ernest J. Peters, who were accepted as experts in traffic engineering, all of the proposed service area is within 30 minutes of existing hospital facilities. Peters testified that if the satellite is built, travel times to the nearest hospital would only be improved by 2.77 minutes for Carrollwood residents in 1990. The weighted average travel time, according to Peters, for the entire proposed service area to the nearest acute care hospital is 13.13 minutes, which will only increase to 13.96 minutes in 1990. The evidence therefore establishes that there would be an insubstantial geographic access gain to Hillsborough County residents if the satellite is approved, and in any event need based upon a lack of geographic accessibility has not been established. Need In Relation to Financial Accessibility According to Myres-Fernandez, it is St. Joseph's contention on the issue of accessibility that approval of the satellite will improve financial accessibility to hospital services for indigent and Medicaid patients. In order to maintain its commitment to indigent, Medicare and charity care, St. Joseph's argues it must continue to attract and maintain its market share of private pay patients, and the Carrollwood area provides a growing source of such patients. However, according to St. Joseph's, 64 of the patients to be treated at the satellite are already being treated at West Buffalo Avenue. These 64 do not include cardiac, cancer or psychiatric patients. Therefore, only 16 "new" patients would be served at the satellite if it were to achieve the goal of 80 percent occupancy. Even with St. Joseph's predicted 90 percent occupancy rate, only 26 "new" patients would be served. No evidence was offered to establish that a higher level of indigents should be expected at the satellite hospital than at St. Joseph's existing facility, particularly since in its Agreement with the Department, St. Joseph's has committed to serve a lower percentage of indigents than is presently true at the main facility on West Buffalo. St. Joseph's current payor mix is very favorable, and no reasons have been shown why it should deteriorate in the foreseeable future. In fact, the mix may actually be improving, according to Hospital Cost Containment Board data. Indigent access to health care is not improved by locating a satellite hospital in a predominantly affluent area in which only 6-7 percent of the population is below the poverty level, as compared to 16 percent for the County as a whole. This proposal represents a wise business decision by St. Joseph's because it is an attempt to increase its number of private pay patients. However, it will not improve indigent access. Financial accessibility is a criteria to be evaluated under Section 381.494(6),(c), Florida Statutes, and the Department's non-rule policy. This proposal does not improve access for indigents and therefore is not consistent with this statutory and policy criterion. Availability and Adequacy of Alternatives There are five existing hospitals within, or adjacent to, the proposed service area with substantial unused capacity, including University and Carrollwood Community Hospital which is a 120 bed facility offering general acute care, emergency room and outpatient services. Carrollwood Community Hospital has an occupancy rate of approximately 50 percent, and thus has excess capacity. While one-third of its patients are osteopathic, two-thirds are allopathic; only one-fifth of its physician staff is comprised of osteopaths. The proposed service area of the satellite is within the current service areas of Intervenors. Thus, adequate alternative facilities are available to residents in the Carrollwood area. Since there are existing alternative acute care facilities within thirty minutes of the proposed service area, an ambulatory surgical center might be an appropriate alternative to the satellite proposal. However, St. Joseph's did not explore such an alternative, and presented no evidence to establish the basis for its assertion that this would not be appropriate. Such a facility could maintain and even enhance referral patterns to the main facility on West Buffalo. Additionally, it has not been shown that splitting St. Joseph's 649 beds between two locations will be more efficient than leaving all 649 beds on West Buffalo, and thereby saving the $16,775,000 in capital expense to construct the satellite. Therefore, alternatives to the construction of a satellite facility do exist, and St. Joseph's has not shown that such alternatives are less feasible or less efficient than the satellite proposal at issue. Needs For Special Equipment and Services It has not been established that any need exists within the proposed service area for special equipment and services which this proposal would provide, and which are not reasonably and economically accessible in adjoining areas. Need For Research and Educational Facilities It has not been shown that any need exists in the proposed service area for research and educational facilities which this application would address. Availability of Manpower During the hearing, the parties stipulated to the adequacy of the staffing patterns proposed by St. Joseph's for the 100 bed satellite, and also their ability to recruit and fill those staffing needs. Approval of this satellite would not have an adverse impact on Intervenors' ability to attract or retain qualified staff since the staff for the satellite would be primarily transferred from the West Buffalo Avenue facility along with the transfer of 100 beds. Since 64 patients who reside in the satellite's service area are currently being treated at the West Buffalo Avenue site, staff who serve these patients will be transferred to the satellite when it opens. Additionally, St. Joseph's conducts an extensive recruitment program outside, as well as within, the Hillsborough County area. It is therefore unlikely that staff for the satellite will come in any significant number from any of the Intervenors. It is recognized that there is almost a 20 percent vacancy level for registered nurses in District VI, and a 33 percent vacancy level for critical care nurses. However, St. Joseph's turn-over rate is relatively low, and therefore it is reasonable to expect that the satellite would be staffed predominantly with staff already employed at the West Buffalo location. Availability of Funds St. Joseph's revenues exceeded expenses by $10-$12 million for fiscal year ending June 30, 1986, and it is among the five most profitable hospitals in the State. It has no long term debt, and is the only facility of its size in Florida which has no debt. Financially, St. Joseph's is in an extremely sound position. St. Joseph's has the ability to financially support the satellite facility and to internally finance its construction. Third-party financing is also being considered. However, its operating margin will decrease slightly as a result of the construction of the satellite. Historically, it has realized an operating margin exceeding 10 percent, although it projects a profit margin of slightly under 5 percent for fiscal year 1987. Financial Feasibility St. Joseph's proposed satellite's total gross revenue for the first two years of operation was determined by multiplying the current average bed rate at the facility on West Buffalo by the expected occupancy. Proposed deductions from revenue were also based upon St. Joseph's historical experience. Assumptions utilized to prepare the satellite's pro forma relied upon St. Joseph's historical information, including but not limited to revenues, fixed expenses and variable expenses. St. Joseph's used a patient admission rate of 125 per 1,000, and a proposed average length of stay of 6 days compared with a current average length of stay at the main facility of 7-7.2 days. A basic assumption used by St. Joseph's was that on the first day of operation, 64 patients currently being treated at the main facility who reside in the Carrollwood area, will be transferred to the satellite for treatment, and thereafter an average of 64 of the satellite's beds will be occupied each day by Carrollwood residents who would have sought treatment at the West Buffalo location in the absence of the satellite. St. Joseph's assumed a case mix intensity level of 1.36 for the satellite, compared with 1.46-1.48 at the West Buffalo location. A decrease in the case mix index results in a corresponding decrease in revenues and expenses. Complex hospitalizations receive a high case mix index, and simple procedures receive a low case mix index. St. Joseph's did not conclusively establish that 64 patients presently at the main facility, except for cardiac, cancer and psychiatric patients, who reside in the service area of the satellite could be transferred on the first day of operation, or that this daily census could be maintained. Physician and patient preferences determine where a patient is admitted. Severity of illness or age of the patient are also factors. Admissions through the emergency room, which account for nearly 50 percent of the admissions on West Buffalo, cannot be redirected. It has not been shown that physicians or patients would prefer admission to a satellite, or that the very severe cases or aged patients, as well as emergency room admissions, could be redirected away from the main facility. While the satellite will have an emergency room, the satellite will not be equipped to handle the complexity of cases presently admitted on West Buffalo. Additionally, transferring 64 patients by ambulance on the first day of operation from West Buffalo to the satellite, in the middle of treatment, has not been shown to be reasonable or feasible, or that physicians and patients would tolerate such a procedure. The opening of a satellite usually begins incrementally and gradually while staff becomes familiar with the new facility and equipment. St. Joseph's has not shown that it is feasible to open the satellite with an immediate occupancy of 64 percent on day one, and 82 percent in the first year of operation. Historically, occupancy levels at satellites run between 20 percent-40 percent the first year. Forecasted revenues are unrealistic because St. Joseph's basic assumption about the transfer of 64 Carrollwood residents is unreasonable and unsubstantiated. St. Joseph's has also failed to correctly and fully estimate salary expenses at the satellite because salary estimates do not account for shift and weekend differentials paid to nurses. More than 50 percent of nurses at St. Joseph's receive shift differential pay, which is a 15 percent increase above their base hourly rate. Given the age of the service area population, a more accurate use rate for the satellite would be between 90 and 95 admissions per 1,000 population, rather than the 125 per 1,000 used by St. Joseph's. The lower use-rate reduces the available pool of patients in the service area from 136 estimated by St. Joseph's to 109. 94 Assumptions based on historical data from the main facility are inappropriate for developing the satellite's pro forma because the satellite will treat less complex cases than the main facility, and the age and income levels in the satellite's service area are significantly different from the County as a whole. Rather than a case mix index of 1.36, an average satellite and community hospital case mix index is 1.00. Using a corrected case mix index of 1.00 rather than 1.36, results in a projected loss for the satellite rather than a profit in its second year of operation. Because construction and operation of the satellite will reduce St. Joseph's overall operating margin below 5 percent-6 percent, which is a minimum standard, St. Joseph's will be less able to provide charity, indigent and Medicaid care after construction of the satellite than it is currently. Impact On Health Care Costs St. Joseph's proposal to spend approximately $16 million on construction of the satellite to serve from 16 to 26 "new" patients could reasonably be expected to adversely affect health care costs. This is exacerbated by the shelled-in space at both the satellite and the existing facility. The size of the satellite was not reduced when beds were reduced from 150 to 100, and the St. Joseph's architect testified there is enough square footage to add back the 50 beds. Despite St. Joseph's assertions that it will not increase rates to subsidize the satellite as a business investment in its own future, it appears reasonable to expect that rates would have to be increased if St. Joseph's is to maintain its historical profit margin, and to offset its failure to properly project salaries, use rates and the case mix index at the satellite. The satellite will continue to lose money through its second year of operation, and this would have to be recouped through increased charges, or reduced profit margins, which could then be expected to result in a reduced ability to fund charity, indigent and Medicaid patients. Project Costs Construction cost estimates are reasonable. The estimated cost for fixed equipment for a 150 bed satellite facility was reduced by $250,000 to reflect the decrease cost of moving 50 beds and the obstetrical surgical suite. This $250,000 savings provides an inflationary contingency in case of construction delays, and while it does increase construction costs from $9,650,000 to 9,900,000, it does not have a negative impact on the appropriateness of the proposed construction costs. Equipment cost estimates as well as total project cost estimates, with the exception of salary estimates, are reasonable. Admitting Practices St. Joseph's has a written admissions policy which requires that it receive patients regardless of their ability to pay. There is no evidence that St. Joseph has ever denied admission to any patient in a life threatening situation. It is standard practice at St. Joseph's to request a deposit on admission and to inform patients that arrangements for payment can be made upon discharge. However, inability to pay the deposit or to make financial arrangements does not result in a patient being denied admission. Patients who are unable to pay are sometimes admitted at St. Joseph's through, the emergency room when a physician sends such patients to the emergency room. Effect On Competition Enhancement of future competition is a factor which is considered under the Department's non-rule transfer policy There is substantial competition among acute care hospitals in Hillsborough County which are currently engaged in aggressive marketing campaigns. Dominance by one provider in a market can be anti-competitive, and at the present time St. Joseph's is the dominant provider for paying patients in Hillsborough County. The current market shares for hospitals already serving the satellite's proposed service area are: St. Joseph's - 33.45 percent; University - 28.92 percent; Town and Country - 17.72 percent; Tampa General - 11.06 percent; and Carrollwood Community - 8.86 percent. The satellite will allow St. Joseph's market share to increase and possibly approach 40 percent. Such market dominance is not consistent with a competitive market. St. Joseph's increase in market share will take patients away from the other hospitals now serving the Carrollwood area, particularly University which receives almost 38 percent of all its patients from this area. University is already projecting an operating loss for fiscal year 1987 of $563,000. Tampa General is a disproportionate provider of indigent services in the County. The Local Health Plan has as one of its objectives protecting such providers of indigent care. Tampa General lost $12 million in fiscal 1983, and in order to improve its financial condition embarked on a $160 million renovation and building effort. It is now indebted to bondholders in that amount. Tampa General's payor mix has begun to improve, and it is actively marketing in the proposed service area. Approval of this project will not further the Local Health Plan objective of protecting disproportionate indigent providers, because it will result in the loss to Tampa General of a significant number of paying patients.
Recommendation Based upon the foregoing, it is recommended that the Department enter a Final Order denying St. Joseph's application for CON 4288 for the establishment of a satellite hospital with the transfer of 100 acute care beds. DONE AND ENTERED this 8th day of September, 1987, in Tallahassee, Florida. DONALD D. CONN 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 8th day of September, 1987. APPENDIX TO RECOMMENDED ORDER Rulings on St. Joseph's Proposed Findings of Fact are as follows: Adopted in Finding of Fact 1. Rejected as unnecessary and cumulative. Adopted in Finding of Fact 1. Adopted in Findings of Fact 1, 2. Rejected as unnecessary and irrelevant. Adopted in Finding of Fact 2. Adopted in Finding of Fact 1. Adopted in Finding of Fact 8. Adopted in Finding of Fact86. Rejected as irrelevant. Adopted in Findings of Fact 3, 7. Adopted in Findings of Fact 4, 38. Adopted in Finding of Fact 4. Adopted in Findings of Fact 38, 54. Adopted in Findings of Fact 38, 6, 70, 54. Adopted in Finding of Fact 5. Adopted in Finding of Fact 5. Adopted in Finding of Fact 5. Rejected as irrelevant and not supported by competent substantial evidence. Adopted in Finding of Fact 5. Adopted in Findings of Fact 5, 44. Adopted in Finding of Fact 6. Rejected as irrelevant and unnecessary. Rejected as irrelevant and unnecessary. Rejected as unnecessary. Rejected as unnecessary. Adopted in Findings of Fact 6, 38, 70. Adopted in Finding of Fact 7. Rejected as irrelevant and unnecessary. 30-34. Rejected as irrelevant and unnecessary. Adopted in Finding of Fact 10. Adopted in Finding of Fact 11. Adopted in Finding of Fact 12. Rejected as irrelevant. Adopted in Finding of Fact 108. Adopted in Finding of Fact 12. 41-43. Rejected as irrelevant and unnecessary. Rejected as cumulative and unnecessary. Rejected as speculative, irrelevent and unnecessary. Adopted in Finding of Fact 12. Adopted in Findings of Fact 21, 23, 50. Adopted in Finding of Fact 21. Rejected in Findings of Fact 59, 68. Rejected in Findings of Fact 65, 71, 97, 106. Rejected as not based on competent substantial evidence. Adopted in Findings of Fact 18, 21, 22. Adopted in Finding of Fact 24. Adopted in Finding of Fact 24. Rejected as unnecessary and cumulative. Adopted in Findings of Fact 32, 67, but rejected in 89, 90. Adopted in Findings of Fact 32, 67. Adopted in Finding of Fact 21. Adopted in Finding of Fact 26. Rejected as not based competent substantial evidence, and irrelevant. Adopted in Finding of Fact 29. 62-63. Rejected as cumulative and unnecessary. 64-65. Adopted in Finding of Fact 29. Rejected in Findings of Fact 11, 72. Rejected in Findings of Fact 65, 72. Adopted in Finding of Fact 30. Adopted in Finding of Fact 31. 70-71. Adopted in Finding of Fact 7. Rejected as unnecessary and not based competent substantial evidence. Adopted in Findings of Fact 6, 70. Rejected as irrelevant and speculative. 75-76. Adopted in Finding of Fact 7. 77-78. Adopted in Finding of Fact 6. Rejected in Findings of Fact 59, 60, 68, 70, 95. Adopted in Findings of Fact 6, 70. Rejected as irrelevant. Adopted in Finding of Fact 30. 83-91. Rejected in Findings of Fact 7, 105 and otherwise rejected as cumulative and unnecessary. Adopted in Finding of Fact 34. Adopted in Finding of Fact 35. Adopted in Finding of Fact 36. Adopted in Finding of Fact 37. Adopted in Finding of Fact 38. Adopted in part in Finding of Fact 39. Rejected as cumulative. Adopted in Finding of Fact 40. Adopted in Finding of Fact 41. Adopted in Finding of Fact 42. Adopted in Finding of Fact 43. Adopted in Finding of Fact 44 104-105. Rejected as cumulative. Adopted and rejected in part in Finding of Fact 45. Adopted in Finding of Fact 46. Adopted in Finding of Fact 47. Rejected in Findings of Fact 47, 106, 107, 108. Adopted in Finding of Fact 48. 111-122. Rejected in Findings of Fact 63, 64, 65, and otherwise irrelevant and cumulative. Rejected in Findings of Fact 68, 70, 71. Adopted in Findings of Fact 29, 70. Adopted in Finding of Fact 78. Adopted in Finding of Fact 78. Rejected as unnecessary. Adopted in Finding of Fact 80. Rejected as cumulative. Adopted in Finding of Fact 81. 131-133. Rejected as cumulative and unnecessary. 134. Adopted in Findings of Fact 78, 83, 98, 99. 135-138. Rejected in Findings of Fact 50, 56, 57, 59, 61, 62, 65, 71, 108. Rejected as unnecessary. Adopted in part in Finding of Fact 59, but otherwise rejected as unnecessary and not based competent substantial evidence. 141-146. Rejected as unnecessary and irrelevant. 147. Rejected as not based on competent substantial evidence. 148. Rejected in Findings of Fact 50, 56, 57, 59, 61, 62, 65, 71, 108. Rejected in Finding of Fact 75. Rejected in Finding of Fact 73. Rejected in Findings of Fact 72-75. 152-153. Adopted in part in Findings of Fact 89, 90 but otherwise rejected as unnecessary. 154-155. Rejected as irrelevant and unnecessary. Adopted and rejected in part in Finding of Fact 72. Rejected as irrelevant. Adopted in Finding of Fact 42. Adopted in Finding of Fact 107. Rejected as unnecessary and speculative. Rejected in Findings of Fact 87, 89. Rejected as not based on competent substantial evidence. Rejected as irrelevant and not based on competent substantial evidence. Rejected as irrelevant and unnecessary. Rejected as not based on competent substantial evidence. 166-169. Rejected as irrelevant. 170-171. Rejected in Finding of Fact 106. 172. Rejected as unnecessary. 173-174. Rejected as not based on competent substantial evidence and irrelevant. 175. Rejected as unnecessary. 176-177. Adopted in Finding of Fact 82. Rejected as unnecessary. Adopted in Finding of Fact 82. Adopted in Finding of Fact 83. Rejected as unnecessary. Rejected in Findings of Fact 91-94. Adopted and rejected in part in Finding of Fact 83. Rejected in Findings of Fact 84-95. 185-189. Adopted in part in Finding of Fact 85 but otherwise rejected as unnecessary. Rejected in Finding of Fact 97. Adopted in Finding of Fact 85. Rejected as unnecessary. Rejected as unnecessary. 194-195. Rejected in Finding of Fact 92. 196-197. Rejected as unnecessary. 198. Adopted in Finding of Fact 85. 199-200. Rejected as unnecessary and irrelevant. Adopted in Finding of Fact 86 and rejected in Finding of Fact 93. Adopted in Finding of Fact 86. Adopted in Finding of Fact 87. Rejected as not based on competent substantial evidence. Rejected in Findings of Fact 89, 90, 91. Adopted in Finding of Fact,.88. Adopted in Finding of Fact 88, but rejected in Finding of Fact 94. Adopted in Finding of Fact 88. Rejected as unnecessary and cumulative. Adopted in Finding of Fact 89. Adopted in Finding of Fact 42. Adopted in Finding of fact 43. 213-217. Rejected as unnecessary and irrelevant. 218. Adopted in part in Finding of Fact 97, but otherwise rejected as irrelevant. 219-220. Rejected as unnecessary. Rejected as cumulative. Rejected as irrelevant and unnecessary. Adopted in Finding of Fact 98. 224-233. Missing. Adopted in Finding of Fact 98. Adopted in part in Finding of Fact 24, but otherwise rejected as cumulative and unnecessary. 236-241. Adopted in Finding of Fact 28. Adopted in Finding of Fact 96. Adopted in Finding of Fact 24. Rejected as irrelevant and unnecessary. 245-246. Adopted in Finding of Fact 100. 247. Adopted in Finding of Fact 102. 248-250. Adopted in Findings of Fact 100, 101. 251. Adopted in Findings of Fact 100-102. 252-253. Adopted in Finding of Fact 101 Adopted in Finding of Fact 102. Adopted in Findings of Fact 100-102. 256-259. Rejected as cumulative. 260. Rejected as irrelevant. Rulings on Department of Health and Rehabilitative Services Proposed Findings of Fact: Adopted in Finding of Fact 34. Adopted in Finding of Fact 35. Adopted in Finding of Fact 36. Adopted in Finding of Fact 37. Adopted in Finding of Fact 38. Adopted in Finding of Fact 39. Rejected as cumulative. Adopted in Finding of Fact 40. Adopted in Finding of Fact 41. Adopted in Finding of Fact 42. Adopted in Finding of Fact 43. Adopted in Finding of Fact 44. Rejected as cumulative. Rejected as cumulative. Adopted in Finding of Fact 45. Adopted in Finding of Fact 46. Adopted in Finding of Fact 47. Adopted in Finding of Fact 47. Adopted in Finding of Fact 48. Rulings on University Community Hospital's Proposed Findings of Fact: Adopted in Finding of Fact 1. Adopted in Finding of Fact 17. Adopted in Findings of Fact 19, 20. Adopted in part in Finding of Fact 21. Adopted in Finding of Fact 49. Rejected as unnecessary and cumulative. Adopted in Findings of Fact 19, 20. Adopted in Findings of Fact 37, 48. Adopted in Findings of Fact 50, 56. Adopted in Findings of Fact 51, 52, 57. Adopted in Finding of Fact 59. Adopted in Finding of Fact 61. 13-14. Rejected as unnecessary. 15. Adopted in Finding of Fact 58, but otherwise rejected as irrelevant and unnecessary. 16-17. Adopted; in Findings of Fact 63-65. 18. Rejected as irrelevant 19-21. Adopted in Findings of Fact 68-71. Adopted in part in Finding of Fact 29. Adopted in Finding of Fact 16. Adopted in Findings of Fact 72, 76, 77, 104. Adopted in Findings of Fact 56, 81. Adopted in Findings of Fact 80, 81 and otherwise rejected as not based on competent substantial evidence. 27-35. Adopted in Findings of Fact 85-94 but otherwise rejected, as cumulative and unnecessary. 36-38. Adopted in Findings of Fact 85, 94. 39-40. Adopted in Findings of Fact 88, 94. Adopted in Finding of Fact 94. Adopted in Finding of Fact 92. Adopted in Finding of Fact 73. 44-49. Adopted in Findings of Fact 96, 97 but otherwise rejected as cumulative, irrelevant and not based on competent substantial evidence. Adopted in Finding of Fact 6. Rejected as cumulative and unnecessary. Rejected as irrelevant. Adopted in Finding of Fact 105. Adopted in Finding of Fact 69. Adopted in Finding of Fact 69, but otherwise rejected as unnecessary and cumulative. Adopted in Findings of Fact 68, 95, 97. Adopted in Finding of Fact 60. Adopted in Finding of Fact 35. Adopted in Findings of Fact 38, 50. Adopted in Finding of Fact 55, but otherwise rejected as irrelevant and unnecessary. Rejected as cumulative. Adopted in Finding of Fact 53. 63-65. Rejected as cumulative and unnecessary. Adopted in Finding of Fact 104. Adopted in Finding of Fact 105. Adopted in Findings of Fact 82, 83. Adopted in Finding of Fact 105. 70-71. Rejected as unnecessary and cumulative. 72. Adopted in part in Finding of Fact 106, but otherwise rejected as cumulative and unnecessary. 73-76. Adopted in part in Findings of Fact 96, 97, but otherwise rejected as cumulative and unnecessary. Adopted in part in Finding of Fact 95, but otherwise rejected as unnecessary. Adopted in part in Findings of Fact 91, 97, but otherwise rejected as unnecessary. Rejected as cumulative. Adopted in Findings of Fact 1,1, 107. Adopted in Finding of Fact 30. 82-84. Adopted-in Finding of Fact 107, but otherwise rejected as cumulative. Rulings on Tampa General's Proposed Findings of Fact: Adopted in Finding of Fact 17. Adopted in Finding of Fact 18. Adopted in Finding of Fact 19. Adopted in Finding of Fact 22. Adopted in Finding of Fact 21. Rejected as unnecessary. Adopted in part in Finding of Fact 33, but otherwise rejected as unnecessary. 8-9. Adopted in part in Finding of Fact 1, but otherwise rejected as unnecessary. Adopted in Findings of Fact 1, 3. Adopted in Finding of Fact 4. 12-13. Rejected as irrelevant. Adopted in part in Findings of Fact 82, 83, but otherwise rejected as unnecessary. Adopted in Findings of Fact 7, 29, 57, 69, 105. Adopted in Finding of Fact 5. Adopted in Finding of Fact 11. Adopted in Finding of Fact 13. Adopted in Finding of Fact 12. Adopted in Findings of Fact 10, 72. Adopted in Findings of Fact 10, 11, 12, 13, 15, 72. Adopted in Findings of Fact 49, 50. Adopted in part in Findings of Fact 10, 11, 12, 13, 15, 50, 51, 52, 53, 54 and 72, but otherwise rejected as cumulative. Adopted in Finding of Fact 29. 25-26. Rejected as irrelevant. 27. Adopted in Finding of Fact 16. 28-35. Adopted in part in Findings of Fact 17, 21, 24, 25, 28, but otherwise rejected as unnecessary. Adopted in Findings of Fact 83, 97. Adopted in Findings of Fact 34, 35. Rejected as cumulative and unnecessary. 39-44. Adopted in Findings of Fact 63-65, but otherwise rejected as cumulative and unnecessary. 45-51. Adopted in Findings of Fact 66-71, but otherwise rejected as cumulative and unnecessary. 52-55. Adopted in Findings of Fact 36, 38, 50, 56, but otherwise rejected as unnecessary and cumulative. Adopted in Findings of Fact 12, 104. Adopted in Findings of Fact 14, 16, 72, 106. Adopted in Finding of Fact 106. Adopted in Findings of Fact 105, 106, 107. Adopted in Finding of Fact 108. Rejected as cumulative and unnecessary. Adopted in Finding of Fact 74. Rejected as irrelevant and unnecessary. 64-65. Adopted in part in Finding of Fact 74, but otherwise rejected as irrelevant. Adopted in Finding of Fact 16 Adopted in Finding of Fact 73. 68-69. Rejected as unnecessary and without specific citations to the record. 70-73. Adopted in Findings of Fact 91, 94, 95, 97, but otherwise rejected as cumulative and unnecessary. Adopted in part in Findings of Fact 81, 97. Adopted in part in Finding of Fact 57, but otherwise rejected as cumulative. Adopted in Finding of Fact 107. 77-83. Adopted in Finding of Fact 108, but otherwise rejected as cumulative and irrelevant. Rulings on Town and Country's Proposed Findings of Fact: 1-3. Introductory matters. Adopted in Finding of Fact 1. Adopted in Finding of Fact 17. Adopted in Findings of Fact 19, 20. Adopted in Finding of Fact 21. Adopted in Findings of Fact 24, 25. Adopted in Finding of Fact 56. Rejected as cumulative and unnecessary. Rejected as unnecessary. 12-16. Adopted in Findings of Fact 87, 89, 90. 17. Adopted in Finding of Fact 8. 18-24. Rejected as unnecessary and cumulative. 25-26. Adopted in Finding of Fact 67, but otherwise rejected as unnecessary. 27. Rejected as without citation to the record and cumulative. 28-37. Adopted in Findings of Fact 86, 93, but otherwise rejected as unnecessary and cumulative. 38-39. Adopted in Findings of Fact 106-108. Rejected as without citation to record and unnecessary. Adopted in Findings of Fact 15, 50, 51. 42-44. Adopted in Finding of Fact 51. Adopted in Finding of Fact 52. Adopted in Findings of Fact 4, 12, 38. Adopted in Findings of Fact 11, 13, 72. 48. Rejected as without citation to the record and unnecessary 49-51. Rejected as unnecessary and not based on competent substantial evidence Adopted in Finding of Fact 50. Rejected as without citation to the record and unnecessary. 54-55. Adopted in Finding of Fact 53. 56. Adopted in Finding of Fact 54. 57-58. Adopted in Finding of Fact 58. Rejected as cumulative. Adopted in Finding of Fact 60. Rejected as unnecessary. Adopted in Findings of Fact 5, 60. 63-64. Rejected as cumulative and unnecessary. Adopted in Findings of Fact 29, 70. Adopted in Finding of Fact 29. Adopted in Findings of Fact 71, 95. 68-70. Adopted in Findings of Fact 45, 63-65. Rejected as irrelevant and unnecessary. Adopted in Findings of Fact 103-108. 73-74. Adopted in Finding of Fact 16. 75-77. Adopted in Findings of Fact 82, 83. Rejected as unnecessary. Adopted in Finding of Fact 82. Rejected as cumulative. Rejected as irrelevant. Adopted in Finding of Fact 105. Adopted in Finding of Fact 82. Rejected in Finding of Fact 99. 85-92. Rejected in Finding of Fact 98, and otherwise rejected as not based on competent substantial evidence. 93-96. Rejected in Finding of Fact 99, and otherwise rejected as not based on competent substantial evidence. Adopted in Finding of Fact 97. Rejected as unnecessary. 99-103. Rejected as cumulative and unnecessary. 104-105. Adopted in Findings of Fact 95, 97, but otherwise rejected as unnecessary and cumulative. Adopted in Finding of Fact 95. Rejected as cumulative. Adopted in Finding of Fact 95. Adopted in Finding of Fact 97. Adopted in Findings of Fact 95, 97. 111-114. Rejected as cumulative and unnecessary. 115-116. Adopted in Finding of Fact 97, but otherwise rejected as cumulative and unnecessary. 117. Rejected as without citations to the record. 118-119. Adopted in Finding of Fact 88. 120-122. Adopted in Finding of Fact 94. 123. Rejected as cumulative and without citations to the record. 124-128. Adopted in Finding of Fact 92, but otherwise rejected as cumulative and unnecessary. 129-130. Rejected as not based on competent substantial evidence. 131-133. Rejected as cumulative and unnecessary. 134. Adopted in Finding of Fact 14. Rulings on Humana's Proposed Findings of Fact: 1-2. Adopted in Finding of Fact 1. Adopted in Finding of Fact 17. Adopted in Finding of Fact 19. Adopted in Finding of Fact 21. Adopted in Finding of Fact 24. Adopted in Finding of Fact 25. 8-10. Adopted in Finding of Fact 16. 11-12. Adopted in Finding of Fact 3. 13-14. Rejected as cumulative. 15-17. Adopted in Finding of Fact 50. Adopted in Findings of Fact 53, 54. Adopted in Finding of Fact 51. 20-21. Adopted in Finding of Fact 52. Adopted in Finding of Fact 51. Adopted in Finding of Fact 55. 24-41. Adopted in Findings of Fact 45, 63-65, but otherwise rejected as unnecessary and cumulative. 42-46. Adopted in Finding of Fact 29. Adopted in Finding of Fact 21. Rejected as unnecessary. Adopted in part in Finding of Fact 59. 50-51. Adopted in Finding of Fact 60. 52. Rejected as unnecessary. 53-55. Adopted in Findings of Fact 85-95, but otherwise rejected as unnecessary. 56-57. Adopted in Finding of Fact 90. 58-66. Adopted in Findings of Fact 86, 93, but otherwise rejected as unnecessary. 67-71. Adopted in Findings of Fact 87, 89, 90, 91. Adopted in Finding of Fact 88. Rejected in Finding of Fact 88. Rejected as cumulative. 75-77. Adopted in Finding of Fact 94, but otherwise rejected as unnecessary. 78-81. Adopted in Finding of Fact 92. 82-85. Rejected as unnecessary. 86-92. Adopted in part in Finding of Fact 97, but otherwise rejected as cumulative and unnecessary. 93-94. Adopted in Finding of Fact 82, but otherwise rejected as unnecessary. 95. Adopted and Rejected in part in Findings of Fact 4, 12. 96-97. Adopted in Findings of Fact 105, 106, 107. Rejected as cumulative. Adopted in Finding of Fact 61. 100-101. Adopted in Findings of Fact 63-65. 102. Adopted in Finding of Fact 50. 103-104. Rejected as cumulative. 105-107. Adopted in Findings of Fact 57, 107, 108. 108-109. Adopted in Finding of Fact 60. 110-114. Adopted in Findings of Fact 82, 83, but otherwise rejected as cumulative and unnecessary. Adopted in Finding of Fact 108. Rejected as unnecessary. Rejected as cumulative. 118-119. Adopted in Finding of Fact 62. 120-121. Adopted in Findings of Fact 72-75. 122. Adopted in Findings of Fact 50, 56. 123-125. Rejected in Finding of Fact 28 and as not based competent substantial evidence. COPIES FURNISHED: Ivan Wood, Esquire WOOD, LUCKSINGER & EPSTEIN The Park in Houston Center 1221 Lamar Street, Suite 1400 Houston, Texas 77010 Howard J. Hochman, Esquire Southeast Financial Center 200 S. Biscayne Blvd, Suite 3700 Miami, Florida 33131 James C. Hauser, Esquire Post Office Box 1876 Tallahassee, Florida 32302 John Radey, Esquire 101 North Monroe Street, Suite 1000 Tallahassee, Florida 32302 Cynthia Tunnicliff, Esquire Post Office Box 190 Tallahassee, Florida 32302 Douglas L. Mannheimer, Esquire Post Office Drawer 11300 Tallahassee, Florida 32302 Theodore E. Mack, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Michael J. Cherniga, Esquire Post Office Drawer 1838 Tallahassee, Florida 32302 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
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 2:48 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 issue for determination in this proceeding is whether NME Hospitals, Inc., d/b/a Hollywood Medical Center (HMC), is entitled to a certificate of need to convert 30 existing medical-surgical beds to 30 short term psychiatric beds at its hospital located in Hollywood, Florida.
Findings Of Fact Background Information Hollywood Medical Center (HMC) is owned and managed by its parent company, NME Hospitals, Inc. NME Hospitals, Inc., is a wholly owned subsidiary of National Medical Enterprises, Inc. (NME), a Nevada corporation headquartered in California. HMC is a 334-bed acute care hospital located in Hollywood, Florida. HMC is a full service hospital with an emergency room, a nine-suite operating unit, an intensive care unit, a coronary care unit, a 40-bed telemetry unit, a progressive care unit, and a dedicated oncology unit. HMC has a medical staff of more than 400 physicians with virtually every medical specialty represented, including psychiatrists. In addition, it is accredited by the Joint Commission on Accreditation of Healthcare Organizations. Hollywood is in the southern portion of Broward County, which is the only county in HRS Service District 10. The primary service area of HMC is the southern portion of Broward County, generally described as between State load 84 on the north and the Broward/Dade County line on the south. HMC is located in a peaceful and serene residential area. A high percentage of elderly people reside in condominiums which surround the hospital. One of the largest condominium developments in South Broward County is located within walking distance of HMC. Almost all of the programs at HMC are geared toward elderly patients; HMC does not even offer pediatric or obstetrical services. In September 1988, HMC filed a CON application to convert 30 of its existing medical-surgical beds to short term psychiatric beds. The proposal calls for the conversion of existing space on the sixth floor of the hospital. The total project cost is $864,545.00. HMC's application was comparatively reviewed by HRS with an application by the South Broward Hospital District d/b/a Memorial Hospital ("Memorial") to add 30 additional short term psychiatric beds to its facility which is also located in Hollywood, Florida. In its State Agency Action Report ("SAAR"), HRS preliminarily denied both applications. Both HMC and Memorial filed Petitions for Formal Administrative Hearings challenging their respective denials. These Petitions were referred to the Division of Administrative Hearings and consolidated by Order dated March 28, 1989. On August 17, 1989, Memorial voluntarily dismissed its petition for Formal Administrative Hearing. HMC's Proposal The elderly have unique psychiatric as well as medical needs. For example, the elderly have a much higher incidence of medically related nervous system disorders. In addition, the elderly experience certain psychiatric syndromes such as bipolar and manic depressive disorders and organic brain syndrome much more commonly than the rest of the population. Many of the elderly with psychiatric disorders have concomitant physical or medical problems such as cerebral vascular problems, arteriosclerosis, pulmonary problems, arthritic problems, physical disabilities, and mental impairments caused by senile dementia. The availability of medical treatment is a significant consideration in the selection of the appropriate treatment setting of elderly psychiatric patients who also suffer from one or more physical or medical problems. HMC believes there is a need for additional short term psychiatric services in its service area. In keeping with its goal of being a full service hospital capable of providing a full continuum of care to the patients in its service area, HMC seeks to fill this perceived need by offering such services at its own facility. The need perceived by HMC was based in large part on in-house physicians informing HMC's hospital administration that the physicians felt there was a need for such services. In its application, HMC proposes a separate geri- psychiatric unit with programs focused on the specific needs of geriatric psychiatric patients with multi-medical problems. The principal difference between such a specialized unit and an ordinary psychiatric unit is in the nature of the staffing and the training given to staff. Staff in a geri-psychiatric unit need to be prepared to address more multi-medical problems than are customarily encountered in a general psychiatric unit. Rather than proposing to add new beds to the facility, HMC decided it would be much more economical and cost efficient to convert some of its existing and unused medical- surgical beds to short term psychiatric beds. In this regard, a high percentage of HMC's licensed medical-surgical beds are empty, with the facility experiencing an average daily census of only 110 patients in its 334 licensed beds. Findings Regarding Section 381.705(1)(a), F.S. Section 381.705(1)(a), Florida Statutes, requires HRS to review applications for CONs in relation to the applicable district plan and state health plan. The State Health Plan in effect at the time HMC's application was filed (and as of the date of final hearing) was published in 1985 and established goals for 1987. Because the planning horizon applicable to HMC's application is 1993, the goals of the applicable State Health Plan are not particularly relevant to HMC's application. HMC's application is consistent with several of the goals contained in the Local Health Plan. Specifically, the Local Health Plan identifies the elderly as an under-served group and encourages the conversion of under-utilized medical-surgical beds to other needed services. HMC's application is consistent with these goals because it proposes the conversion of under- utilized medical- surgical beds to a geri-psychiatric unit. In this regard, according to HRS' acute care bed need methodology, in 1993 District 10 will have over 1,200 excess medical-surgical beds. HMC's application is not consistent with that portion of the Local Health Plan which states that planning should be on a district-wide basis. Findings Regarding Sections 381.705(1)(b) and (2)(d), F.S. Existing Providers Section 381.705(1)(b), Florida Statutes, requires HMC's application to be reviewed against the 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. In this regard, there are eight existing providers of short term psychiatric services in Broward County. Four of these providers are free-standing psychiatric hospitals. They are: Coral Ridge Psychiatric Hospital ("Coral Ridge"), CPC Fort Lauderdale Hospital, The Retreat, and Hollywood Pavilion Psychiatric Hospital ("Hollywood Pavilion"). Coral Ridge and CPC Fort Lauderdale Hospital are located north of State Road 84 in northern Broward County. The Retreat is located in western Broward County, south of State Road 84 Hollywood Pavilion is located in southern Broward County, across the street from the applicant, HMC. The existing acute care hospitals in Broward County that have psychiatric units are: Broward General Medical Center ("Broward General") , Florida Medical Center, Imperial Point Hospital, and Memorial Hospital. Broward General, Florida Medical Center, and Imperial Point Hospital are all located north of State Road 84. Memorial Hospital is located in southern Broward County, about a half mile from HMC. The existing providers of short term psychiatric services in Broward County have a total of 507 existing short term psychiatric beds, distributed as follows: South Broward Memorial Hospital 74 Hollywood Pavilion 46 The Retreat 80 (of which 24 are geriatric) North Broward Coral Ridge 74 Fla. Medical Center 74 (of which 10 are geriatric) CPC Ft. Lauderdale 64 Broward General 48 Imperial Point 47 (of which 8 are geriatric) The utilization or occupancy rates (expressed in percentages) for the seven Broward County providers of short term psychiatric services which were in operation during 1987 and 1988 were as follows: Facility Cal. Yr. 7/87 thru Cal. Yr. 1987 6/88 1988 Private Facilities Fla. Medical Center 57.3 63.0 67.3 CPC Ft. Lauderdale 42.2 43.5 52.0 Coral Ridge 19.9 20.8 [unk.] Hollywood Pavilion 34.0 61.7 59.2 Average pvt. utilization 38.4 47.3 [unk.] Public Facilities Broward General 94.0 88.9 86.3 Imperial Point 91.0 92.7 92.4 Memorial 91.8 91.7 94.8 Average pub. utilization 92.3 91.1 91.2 Average of all 7 21. On May 9, 1986, the 62.3 Florida 66.0 Psychiatric [unk.] Center, d/b/a The Retreat, was issued a certificate of need to construct a 100-bed facility in Broward County consisting of 80 short term psychiatric beds and 20 short term substance abuse beds. The 80 psychiatric beds were divided into 40 geriatric beds, 15 adolescent beds, and 25 adult beds. The Retreat began operation in late September of 1988. By mid-March of 1989, the Retreat was requesting that HRS grant it a modification of its certificate of need to reduce the number of geriatric beds from 40 to 24 and to redesignate the remaining 16 beds for short term psychiatric services for children under the age of 12. The Retreat's request to reduce the number of geriatric beds appears to have been motivated in large part by the fact that the occupancy rate for those beds from October 1988 through March 1989 never exceeded one percent, even though the Retreat's pro forma had projected 70 percent occupancy after six months of operation. During the same six-month period in which the Retreat achieved only one percent occupancy in its geriatric psychiatric unit, it achieved occupancy rates of 77 percent in its adolescent unit and 86 percent in its adult unit. The Retreat is a private facility. For some elderly psychiatric patients it is advantageous to provide in-patient psychiatric care in an acute care facility rather than in a free- standing facility. This is because many geriatric patients have a variety of, or multiple levels of, health care needs. An acute care facility that offers psychiatric services can take higher acute types of psychiatric patients because it has the resources, support, and back-up should a patient become medically unstable. In this regard, geriatric psychiatric patients often do not have a pure psychiatric illness. Rather, their psychiatric condition is often accompanied by a medical condition requiring medical coverage. These considerations are addressed in HRS' need determination rule. North/South Division HRS recognizes that there tends to be a north/south division in Broward County with respect to the delivery of acute care health services. In this regard, HRS acknowledges that individuals in South Broward County who are in need of acute care services will generally not travel to acute care hospitals located in north Broward County and vice versa. Broward County has been divided into two political taxing subdivisions, the North Broward Hospital District and the South Broward Hospital District, for purposes of providing tax revenues for the provision of health care services to the indigent. Memorial is the only district hospital located in the South Broward Hospital District. Memorial has a rule requiring physicians on staff at Memorial to both reside within the boundaries of the South Broward Hospital District and to have their offices located within said district. As a general rule, psychiatric patients residing south of State Road 84 tend to stay in southern Broward County for purposes of obtaining psychiatric services and psychiatric patients residing north of that line tend to stay in northern Broward County for purposes of obtaining psychiatric services. This appears to be due in large part to the fact that psychiatrists tend to obtain staff privileges and practice only at hospitals in southern Broward County or northern Broward County, but not both. If a physician is not on the staff of a facility, he or she cannot admit a patient to that facility. Therefore, the numerous psychiatrists who reside in southern Broward County and who are only on the staff of facilities located in southern Broward County generally cannot admit their patients to facilities located in northern Broward County. Unavailability of beds at Memorial and Hollywood Pavilion South of State Road 84 there are three available alternatives for inpatient psychiatric care for the elderly residents of southern Broward County; The Retreat, Hollywood Pavilion, and the 74-bed short term psychiatric unit at Memorial Hospital. Hollywood Pavilion and Memorial Hospital accept geriatric psychiatric patients, but neither has a designated geri-psychiatric unit. The Retreat started operations with a 40- bed geri-psychiatric unit, which has since been reduced to a 24- bed unit. The 74 psychiatric beds at Memorial are, for all practical purposes, operating at full capacity. Memorial has maintained waiting lists for its psychiatric unit for the last seven or eight years and the number of people on the waiting lists has been increasing. The 46 psychiatric beds at Hollywood Pavilion, which is located across the street from Memorial, have recently been operating at about sixty percent of capacity. It is often clinically desirable to treat geriatric psychiatric patients on a different unit from younger psychiatric patients. This consideration is reflected in the fact that The Retreat was originally approved for three distinct units, adolescent, adult, and geriatric, and has more recently been permitted to redesignate a unit of beds for short term psychiatric services for children under the age of 12. The 24- bed geriatric psychiatric unit at The Retreat has recently been operating at about two percent of capacity. Findings Regarding Section 381.705(1)(d), F.S. Section 381.705(1)(d), Florida Statutes, requires consideration of the availability and adequacy of other health care services such as outpatient care and ambulatory or home care services which may serve as alternatives for the services proposed by the applicant. On this issue, there was no real dispute that outpatient care and ambulatory or home care services were not viable alternatives for persons in need of short term inpatient psychiatric services. Findings regarding Section 381.705(1)(i), F.S. As noted above, HRS stipulated that if HMC's project was approved and met the occupancy projections contained in its application it would be financially feasible. The financial break-even point for the 30 psychiatric beds proposed by HMC is an average daily census of only 9 patients, which would constitute 30 percent occupancy. The psychiatric unit at HMC would be managed by a professional psychiatric management company, Psychiatric Management Services. Psychiatric Management Services is a company that specializes in the management of psychiatric units in acute care hospitals. It has already developed psychiatric programs for geriatric patients that would be utilized at HMC. In addition, Psychiatric Management Services has a large variety of programs, services and specialists available to assist HMC in establishing the proposed unit. Through Psychiatric Management Services, the proposed unit will have access to a wide variety of services, including but not limited to, marketing, community liaison development, sophisticated policies and procedures manuals, accreditation services, licensure, staffing and community education seminars. Approval of HMC's application would also give HMC an opportunity to attempt to broaden its base of business and thereby possibly increase the overall profitability of the hospital. This would, if successful, help relieve the cost pressures from the acute care side of the hospital and potentially lower future increases in acute care patient charges. Moreover, by expanding the services offered at HMC, approval of HMC's applications would allow HMC to compete more effectively for health maintenance organizations (HMOs) and preferred provider organizations (PPOs) agreements. Currently, HMC is precluded from competing for some HMOs and PPOs such as SIGNA and Health Options because HMC does not offer a full array of services. Approval of HMC's application would also have the effect of adding 30 more beds to the existing pool of under- utilized short term psychiatric beds in Broward County. Findings regarding Section 381.705(1)(n), F.S. In its application, HMC projects a higher Medicaid utilization rate in its psychiatric unit than for its hospital overall because Medicaid services can only be provided to psychiatric patients in an acute care hospital setting and the psychiatric beds at Memorial, the only acute care facility in South Broward County presently authorized to provide psychiatric services, are full. In this regard, HMC has a Medicaid contract with the State of Florida. It is reasonable to anticipate that HMC would encourage Medicaid business at its facility and achieve the Medicaid projection contained in its application because HMC receives more from the State of Florida under its Medicaid contract than it would from an HMO or PPO. It is HMC's policy to treat all patients, regardless of their ability to pay. If HMC's application is approved, this policy would apply to psychiatric patients admitted to the hospital. During the first six months of 1988, 2.2 percent of HMC's patient days were provided to indigents. HMC currently averages 60 to 70 percent Medicare utilization. For its proposed geri-psychiatric unit, HMC projects 70 percent Medicare utilization. Given that the proposed unit would be geared toward the elderly, it is reasonable to project that 70 percent of HMC's geri-psychiatric utilization would be Medicare patients, regardless of what the total utilization rate might be. Findings regarding Section 381.705(2)(a), F.S. The design of HMC's proposed geri-psychiatric unit conforms to the requirements contained in Chapter 10D-28, Florida Administrative Code. As noted above, HRS stipulated that the costs and proposed methods of construction are reasonable. The psychiatric unit at HMC would occupy existing space on the sixth floor of the hospital. The renovations can be made quickly and at substantially less expense than the cost of new construction. Nevertheless, a less costly, more efficient, and more appropriate alternative would be to make greater use of existing under- utilized short term psychiatric beds in Broward County, particularly the beds in the privately owned facilities, which are Florida Medical Center, CPC Ft. Lauderdale, Coral Ridge, Hollywood Pavilion, and the Retreat. Findings regarding Section 381.705(2)(b), F.S. To the extent the three publicly owned providers of short term psychiatric services are being operated at or near their optimal capacity, they are being used in an appropriate and efficient manner. To the extent some of such facilities, like Memorial Hospital, appear to be operating above their optimal capacity, some inefficiencies necessarily result. Similarly, inefficiencies necessarily result from the substantial under- utilization of beds in privately owned short term psychiatric units. Approval of a new psychiatric unit at an existing acute care hospital in southern Broward County might help alleviate the waiting list and over crowding at Memorial, but it would do so at the expense of adding to the inefficiencies that result from current under-utilization of other existing facilities. Further, in light of recent utilization trends in Broward County, if short term psychiatric beds were to be added in Broward County, it would appear to be more appropriate to add them at publicly owned facilities. Findings regarding Rule 1O-5.O11(1)(o)3 and 4, F.A.C. Rule 10-5.011(1)(o), Florida Administrative Code, provides that a CON application for short term psychiatric beds will "not normally" be approved unless need is indicated in accordance with the mathematical need formula contained in the short term psychiatric rule. That rule allocates .35 beds per 1,000 population based on a five-year planning horizon. Since the application was submitted in 1988, the five-year planning horizon requires that HMC's application be reviewed against the need projected for 1993. The parties agreed that the numerical bed need methodology projects a gross bed need for 458 short term psychiatric beds in Broward County in 1993. However, the parties disagreed on the inventory of beds that should be subtracted from this figure. The inventory of 507 existing and approved short term psychiatric beds relied upon by HRS includes the 74 beds at Coral Ridge Hospital. The beds at Coral Ridge are licensed as short term psychiatric beds. The average length of stay of psychiatric patients at Coral Ridge has usually been in excess of 30 days, but substantially less than 90 days. The average length of stay at Coral Ridge does not appear to result from treatment of adolescent patients. Subpart 4a of Rule 10-5.011(1)(o) provides that a minimum of .15 beds per 1,000 population shall be in hospitals holding a general license and Subpart 4b provides that .20 beds per thousand may be in specialty hospitals. The .15 standard is currently met in Broward County. The short term psychiatric rule requires applicants to be able to project occupancy rates of 70 percent for adults in the second year of operation and 80 percent for adults by the third year of operation. In light of the utilization rates of existing privately owned providers of short term psychiatric services, and especially in light of the most recent utilization rates in the geriatric psychiatric unit at The Retreat, it is unlikely that HMC would achieve these occupancy rates. The short term psychiatric bed need rule also considers the occupancy of existing psychiatric beds. In this regard, HRS agreed that a 70 percent occupancy figure was the appropriate figure to be applied in this case. As noted in paragraph 20 of these findings of fact, during the twelve-month period prior to submission of HMC's application, the average occupancy of short term psychiatric beds in Broward County was only 66 percent. Subpart 4g of Rule 10-5.011(1)(o) provides that short term inpatient psychiatric hospital based services should have at least 15 designated beds. By proposing to convert 30 beds, HMC's application meets this criterion of the Rule. Findings regarding Rule 1O-5.O11(1)(o), F.A.C. Regarding Subpart 5e of Rule 10-5.011(1)(o), Florida Administrative Code, an important component of the proposed psychiatric unit would be the community education and outreach services described in HMC's application. These services, which would be provided at no cost to local residents, are representative of HMC's commitment to developing a cooperative relationship with existing providers. As an existing hospital, HMC has already established linkages with numerous health care providers. If its application were to be approved, HMC would expand its existing network to include community mental health centers and other local providers of mental health services.
Recommendation For all of the foregoing reasons, it is RECOMMENDED: That the application by NME Hospitals, Inc., d/b/a Hollywood Medical Center, to convert 30 medical-surgical beds to 30 short term psychiatric beds be DENIED. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 22nd day of November 1989. MICHAEL M. PARRISH 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 Divisions of Administrative Hearings this 22nd day of November 1989. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-1369 The following are my specific rulings on all findings of fact proposed by both parties. Findings proposed by Petitioner: Paragraphs 1 and 2: Accepted. Paragraph 3: Rejected as not supported by persuasive competent substantial evidence and as, in any event, unnecessary. Paragraphs 4, 5, 6, 7, 8, 9 and 10: Accepted. Paragraphs 11 and 12: Accepted in substance. Paragraphs 13, 14, and 15: Accepted. Paragraph 16: Rejected as unnecessary and as not fully consistent with the greater weight of the evidence. Paragraphs 17 and 18: Accepted. Paragraph 19: First sentence accepted. Last sentence rejected as constituting argument rather than findings of fact. Paragraph 20: Rejected as constituting a proposed conclusion of law rather than a proposed finding of fact. Paragraphs 21, 22, and 23: Accepted in substance. Paragraph 24: Rejected as not supported by persuasive competent substantial evidence. Although there is expert witness testimony in the record to the effect proposed in paragraph 24, I do not find that testimony to be persuasive. Specifically, I am not persuaded that the relationship between a patient and the patient's regular medical doctor is more severely impacted in a freestanding psychiatric facility than in a psychiatric facility located in an acute care facility. There are advantages and disadvantages to both types of psychiatric facilities. Paragraph 25: Rejected as repetitious. Paragraph 26: Rejected as subordinate and unnecessary details. Also, see comments above regarding paragraph 24. Paragraph 27: Rejected as constituting argument or proposed conclusions of law, rather than proposed findings of fact. Paragraph 28: Accepted. Paragraph 29: Rejected as constituting subordinate and unnecessary details. Paragraph 30: Accepted. Paragraph 31: First sentence rejected as constituting a broader statement than is supported by the competent substantial evidence. The remainder of this paragraph is accepted in substance. Paragraphs 32 and 33: Rejected as constituting subordinate and unnecessary details. Paragraph 34: Accepted. Paragraph 35: Rejected as irrelevant and as based on unpersuasive evidence. Although there is testimony to the effect that the considerations recited are significant considerations, it appears from the totality of the evidence that considerations of treating physician convenience (or efficiency) and where the treating physician has admitting privileges, are the primary determinants of patient placement. Paragraph 36: Rejected because this is a conclusion that does not necessarily follow from the evidence. [See Transcript, page 263, lines 5 to 10.] Paragraph 37: Rejected as not supported by persuasive competent substantial evidence. Although the record does contain opinion testimony to the general effect proposed here, the scope of that opinion testimony is more narrow than the fact proposed in paragraph 37. The testimony would support a finding that the Retreat is inconveniently located for some South Broward psychiatrists. Paragraph 38: First sentence rejected as not supported by persuasive competent substantial evidence. Second sentence rejected as contrary to the greater weight of the evidence. Paragraph 39: Accepted in substance. Paragraph 40: All but last sentence accepted in substance. Last sentence rejected as subordinate and unnecessary details. Paragraph 41: Rejected as quotation of testimony rather than proposed finding of fact. Also rejected as subordinate and unnecessary details. Paragraphs 42, 43 and 44: Rejected as subordinate and unnecessary details. Paragraph 45: First two sentences accepted. The remainder of this paragraph is rejected as not supported by competent substantial evidence. Although statements in the transcript, in depositions, and in affidavits contain opinions that Hollywood Pavilion offers quality of care that is "unacceptable" or "substandard," none of those opinions includes any factual basis for the opinion. (Ironically, the record contains more information about shortcomings in the psychiatric unit at Memorial Hospital; the unit with the highest occupancy rate and, therefore, presumably the most popular.) Paragraph 46: Rejected as not supported by persuasive competent substantial evidence. See comments above regarding paragraph 45. Paragraphs 47, 48, 49, 50, 51 and 52: Rejected as subordinate and unnecessary details. Paragraphs 53 and 54: Accepted. Paragraph 55: Rejected as irrelevant and unnecessary details, not all of which are fully supported by the evidence. For example, while the last sentence of paragraph 55 is sometimes true, it is not always true because if it were always true there would be precious little need for free standing psychiatric facilities. Paragraphs 56 and 57: Accepted. Paragraph 58: Accepted in substance with many subordinate and unnecessary details omitted. Paragraph 59: All but last sentence accepted. Last sentence rejected as contrary to the greater weight of the evidence. Paragraph 60: First sentence rejected as subordinate and unnecessary. Remainder of paragraph rejected as contrary to the greater weight of the evidence. Paragraph 61: Rejected as irrelevant and as not supported by persuasive competent substantial evidence. The testimony on this subject was too vague and generalized to form a basis for meaningful fact finding relevant to any issue in this case. Paragraphs 62 and 63: Accepted in substance. Paragraph 64: Rejected as contrary to the greater weight of the evidence. Paragraphs 65, 66, 67 and 68: Accepted. Paragraph 69: Accepted in substance. Paragraph 70: First two sentences accepted in substance. Last two sentences rejected as irrelevant as well as subordinate and unnecessary details. Paragraph 71: Rejected as contrary to the greater weight of the evidence. Paragraph 72: First sentence rejected as over broad and, therefore, not supported by competent substantial evidence. Also rejected as containing a conclusion not warranted by the evidence. Paragraph 73: Accepted. Paragraph 74: All but last sentence accepted. Last sentence rejected as constituting incomplete summary of rule definition. Paragraph 75: Accepted in substance. Paragraph 76: Rejected as constituting argument or conclusions of law rather than proposed findings of fact. Paragraph 77: Rejected as contrary to the greater weight of the evidence. Paragraph 78: Rejected as irrelevant in view of conclusion that the beds at Coral Ridge should be included in the inventory. Paragraph 79: Rejected as contrary to the greater weight of the evidence. Second sentence also rejected as constituting argument, rather than proposed findings of fact. Paragraph 80: Rejected as irrelevant, except for proposed findings regarding occupancy at The Retreat. Paragraph 81: Accepted. Paragraph 82: First sentence accepted. Last sentence rejected as contrary to the greater weight of the evidence. Paragraph 83: First two sentences accepted. Last sentence rejected as irrelevant because there is no demonstrated reason to exclude Coral Ridge. Paragraph 84: Accepted in substance. Paragraph 85: Rejected as not supported by competent substantial evidence. Paragraph 86: Rejected as contrary to the greater weight of the evidence. Paragraph 87: Accepted. Paragraph 88: Rejected as repetitious. Further, last sentence is not fully consistent with the greater weight of the evidence. Paragraphs 89 and 90: Accepted. Paragraph 91: Rejected as constituting a conclusion of law rather than a proposed finding of fact. Paragraphs 92 and 93: Rejected as constituting argument about the sufficiency of the evidence, rather than proposed findings of fact. Findings proposed by Respondent: Paragraphs 1, 2 and 3: Rejected as constituting subordinate procedural details which have been addressed in the Preliminary Statement. Paragraph 4: First two sentences accepted. The remainder is rejected as subordinate and unnecessary details. Paragraph 5: Rejected as constituting subordinate and unnecessary details or constituting argument and proposed conclusions of law. Paragraph 6: Rejected as constituting primarily argument and proposed ultimate conclusions rather than proposed findings of fact. Paragraph 7: First two lines of first sentence accepted. Remainder of first sentence rejected as argument. Second sentence rejected as irrelevant in view of HRS agreement that 70 percent occupancy was the appropriate standard. Third sentence accepted. Fourth sentence rejected as irrelevant. Fifth and sixth sentences rejected as argument. Paragraph 8: First and last sentences rejected as argument. Remainder rejected as subordinate and unnecessary details. Paragraph 9: First two sentences rejected as argument. Third and fourth sentences rejected as subordinate and unnecessary. Fifth and sixth sentences rejected as argument and comment on the testimony. Seventh, eight, and ninth sentences rejected as subordinate and unnecessary. Tenth sentence accepted in substance. Eleventh and twelfth sentences rejected as commentary on the evidence. Last sentence rejected as argument or ultimate conclusion. Paragraphs 10 and 11: Rejected as constituting primarily argument rather than proposed findings of fact. Paragraph 12: Rejected as constituting conclusion of law rather than proposed findings of fact. Paragraph 13 and the unnumbered paragraph following paragraph 13: Rejected as constituting discussion of the issues rather than proposed findings of fact. Paragraph 14: First two sentences rejected as discussion of issues, rather than proposed findings of fact. The remainder of this paragraph is accepted in substance, but with many unnecessary details omitted. Paragraph 15 and the unnumbered paragraph following paragraph 15: Rejected as constituting discussion of the issues, rather than proposed findings of fact. Paragraph 16 and 17: Accepted in substance with many unnecessary details omitted. Paragraph 18: First two sentences accepted in substance. The remainder of this paragraph is rejected as constituting discussion of issues or conclusions of law. Paragraph 19: Accepted in substance with many unnecessary details omitted. Paragraph 20: Rejected as constituting an amalgamation of conclusions of law, discussions of the issues, and argument. COPIES FURNISHED: C. Gary Williams, Esquire Stephen C. Emmanuel, Esquire Ausley, McMullen, McGehee, Carothers & Proctor 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 Deanna Eftoda Department of Health and Rehabilitative Services 2727 Mahan Drive Suite 103 Fort Knox Executive Center Tallahassee, Florida 32308 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
