Conclusions THIS CAUSE comes before the State of Florida, Agency for Health Care Administration (‘the Agency") concerning the preliminary approval of Certificate of Need (“CON”) Application No. 10220, submitted by Palm Coast Behavioral Health, LLC’s (“Palm Coast”) to establish a 63- bed adult inpatient psychiatric hospital in Service District 4, Flagler County. 1. On June 9, 2014, the Agency published its preliminary approval of Application No. 10220 submitted by Palm Coast Behavioral Health, LLC’s (“Palm Coast”) to establish a 63- bed adult inpatient psychiatric hospital in Service District 4, Flagler County. 2. In response, Halifax Hospital Medical Center (“Halifax”) filed a petition for formal hearing contesting the approval of CON Application 10220. The case was forwarded to the Division of Administrative Hearings. 3. Halifax subsequently voluntarily dismissed its petition for formal hearing. It is therefore ORDERED: 1. The preliminary approval of CON Application No. 10220 is upheld subject to the conditions in the State Agency Action Report for Application No. 10220. Filed October 2, 2014 11:06 AM Division of Administrative Hearings ORDERED in Tallahassee, Florida, on this 27 _ day ot Seem foec ans Elizabeth Dutek, Secretary Agency for Health Care Administration NOTICE OF RIGHT TO JUDICIAL REVIEW. A party who is adversely affected by this Final Order is entitled to judicial review, which shall be instituted by filing 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 of 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. CERTIFICATE OF SERVICE I CERTIFY that a true and correct copy of this Final Order was served on the below- on named persons by the method designated on this ate PRAL 2014. CSCO Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308 (850) 412-3630 Jan Mills Lorraine M. Novak, Esquire Facilities Intake Unit Agency for Health Care Administration Office of the General Counsel Agency for Health Care Administration (Electronic Mail) (Electronic Mail) James McLemore, Supervisor Marisol Fitch Certificate of Need Unit Health Services & Facilities Consultant Agency for Health Care Administration Certificate of Need Unit (Electronic Mail) Agency for Health Care Administration (Electronic Mail) 2 Karen A. Putnal, Esquire Susan C. Smith, Esquire Robert A. Weiss, Esquire Corinne T. Porcher, Esquire Moyle Law Firm, P.A. Geoffrey D. Smith, Esquire Kputnal@moylelaw.com Smith and Associates Rweiss@moylelaw.com Susan@smithlawtlh.com (Electronic Mail) Corinne@smithlawtlh.com Geoffi@smithlawtlh.com (Electronic Mail) R. Bruce McKibben Administrative Law Judge Division of Administrative Hearings (Electronic Mail)
Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement, attached hereto and incorporated herein as Exhibit “1.” Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the GE. day of ach , 2015, in Tallahassee, Florida. Led ELIZABETH DUDEK, SECRETARY Agency for Health Care Administration Final Order Engagement Nos. NH11-039L - NH11-044L Page 3 of 5 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. Andy Page 2501 Blue Ridge Road, Suite 500 Raleigh, North Carolina 27607 (Via U.S. Mail) Bureau of Health Quality Assurance Agency for Health Care Administration (Interoffice Mail) Stuart Williams, General Counsel Agency for Health Care Administration (Interoffice Mail) Shena Grantham, Chief Medicaid FFS Counsel Agency for Health Care Administration (Interoffice Mail) Agency for Health Care Administration Bureau of Finance and Accounting (Interoffice Mail) Zainab Day, Medicaid Audit Services Agency for Health Care Administration (Interoffice Mail) Kristin Bigham Assistant Attorney General Office of the Attorney General (Via Interoffice Mail) State of Florida, Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (Via U.S. Mail) Final Order Engagement Nos. NH11-039L - NH11-044L Page 4 of 5 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to orl the above named addressees by U.S. Mail on this the Fin of VA YA re £ , 2015. Richard J. Shoop, Esquire” Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 922-5873 Final Order Engagement Nos. NH11-039L - NH11-044L Page 5 of 5
Conclusions Having reviewed the Administrative Complaint, and all other matters of record, the Agency for Health Care Administration finds and concludes as follows: 1. The Agency has jurisdiction over the above-named Respondent pursuant to Chapter 408, Part II, Florida Statutes, and the applicable authorizing statutes and administrative code provisions. 2. The Agency issued the attached Administrative Complaint and Election of Rights form to the Respondent. (Ex. 1) The Election of Rights form advised of the right to an administrative hearing. 3. The parties have since entered into the attached Settlement Agreement. (Ex. 2) Based upon the foregoing, it is ORDERED: 1. The Settlement Agreement is adopted and incorporated by reference into this Final Order. The parties shall comply with the terms of the Settlement Agreement. 2. The Respondent shall pay the Agency $9,000.00. If full payment has been made, the cancelled check acts as receipt of payment and no further payment is required. If full payment has not been made, payment is due within 30 days of the Final Order. Overdue amounts are subject to statutory interest and may be referred to collections. A check made payable to the “Agency for Health Care Administration” and containing the AHCA ten-digit case number should be sent to: Office of Finance and Accounting Revenue Management Unit Agency for Health Care Administration 2727 Mahan Drive, MS 14 Tallahassee, Florida 32308 1 Filed December 26, 2012 3:52 PM Division of Administrative Hearings 3. The six-month survey cycle is imposed and conditional licensure status is imposed beginning on 9/19/2011 and ending on 10/06/2011. ORDERED at Tallahassee, Florida, on this al day of Decente — , 2012.
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to 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 of 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. CERTIFICATE OF SERVICE 1 CERTIFY that a true and correct copy of this Final Order was served on the below-named persons by the method designated on this sh ay of , 2012. Richard Shoop, Agency k Agency for Health Care Administration 2727 Mahan Drive, Bldg. #3, Mail Stop #3 Tallahassee, Florida 32308-5403 Telephone: (850) 412-3630 Jan Mills Finance & Accounting Facilities Intake Unit Revenue Management Unit | (Electronic Mail) (Electronic Mail) Tria Lawton-Russell Jonathan S. Grout, Esq. Office of the General Counsel Attorney for Respondent Agency for Health Care Administration Post Office Box 2011 (Electronic Mail) Winter Park, FL 32790 (U.S. Mail) Cathy M. Sellers Administrative Law Judge Division of Administrative Hearings | Electronic Mail)
Conclusions THE PARTIES resolved all disputed issues and executed a settlement agreement, which is attached and incorporated by reference. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is hereby CLOSED. DONE AND ORDERED on this haa day of DV , 201 g in Tallahassee, Florida. Ga Dudek, Secre' Agency for Health Care Administration Agency for Health Care Administration vy. Mobat, Inc. & Fiza Investment, Inc. d/b/a Windsor Court Final Order Page 2 of 4 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: Barry W. Taylor, Esq. Taylor & Taylor Law, P.A. 4440 P.G.A. Boulevard, Suite 600 Palm Beach Gardens, FL 33468 Ph: (561) 745-0757/Fax: (561) 745-9252 Email: bwtaylor@bellsouth.net (Via Electronic Mail) Tracie L. Hardin, Esquire Agency for Health Care Administration 2727 Mahan Drive Building 3, Mail Station 3 Tallahassee, Florida 32308 (Electronic Mail) Agency for Health Care Administration Bureau of Finance and Accounting 2727 Mahan Drive Building 2, Mail Station 14 Tallahassee, Florida 32308 (Electronic Mail) Bureau of Health Quality Assurance 2727 Mahan Drive, Mail Stop 9 Tallahassee, Florida 32308 (Electronic Mail) Richard Zenuch, Bureau Chief Medicaid Program Integrity 2727 Mahan Drive Building 2, Mail Station 6 Tallahassee, Florida 32308 (Electronic Mail) Eric W. Miller, Inspector General Medicaid Program Integrity 2727 Mahan Drive Building 2, Mail Station 6 Tallahassee, Florida 32308 (Electronic Mail) Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (Electronic Mail) Agency for Health Care Administration v. Mobat, Inc. & Fiza Investment, Inc. d/b/a Windsor Court CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by Electronic Mail, or the method designated, on this the Y day of L acele , 201Y, GO Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 412-3630 Agency for Health Care Administration v. Mobat, Inc. & Fiza Investment, Inc. d/b/a Windsor Court Final Order Page 4 of 4
Findings Of Fact In April, 1987, DOA submitted recommendations to the Florida Legislature which included proposed changes in the state employees' group insurance program. Among the recommendations was a proposal that would require the Department to competitively bid HMO contracts in the state health program on the basis of cost, service area, plan benefits, and accessibility. The stated objective of the recommendation was to: encourage HMOs in a geographic location to structure their premiums to reflect actual cost experience and to provide the lowest possible cost for the state and state employees, while at the same time changing the current concept of the state's contributions to HMOs..." At the time of the DOA legislative recommendation, existing state law provided that persons eligible to participate in the state group health insurance program had the option to elect membership in any qualified HMO engaged in providing basic health services in the HMO service area where the employee resided in lieu of participating in the state self-insurance plan. Section 110.123(3)(d), Florida Statutes, Rule 22K-1.1003(21), F.A.C. A "qualified" HMO was defined as an entity qualified under the federal Public Health Service Act, 42 U.S.C. 300e-9, or certified under Part II of Chapter 641, Florida Statutes, which had entered into a contract with the State, and had achieved a designated level of participation by state employees. Rule 22K- 1.1003(21), F.A.C. Effective October 1, 1987, Chapter 87-156, Laws of Florida (now codified as Section 110.123(3)(d), Fla. Stat.) was amended to add the following: (3) STATE GROUP INSURANCE PROGRAM. -- * * * (d) * * * 2. Effective January 1, 1988, the Department of Administration shall, by rule, contract with health maintenance organizations to participate in the state group health insurance plan through the competitive bid process based on cost, service area, plan benefits, and accessibility. Effective January 1, 1988, all employees participating in the state group health insurance plan, irrespective of whether or not the member participates in a health maintenance organization, shall be subject to the same total premium, regardless of the state or employee's share. THE REQUEST FOR PROPOSALS Dennis Nye, then the DOA Director of the Office of State Employees Insurance and administrator of the state health insurance program, was directly responsible for implementing the new legislation regarding the HMO contracts. He initially determined that procurement of HMO contractual services was governed by Section 287.057, Florida Statutes. The Request For Proposals For Health Maintenance Organization Coverage was issued on July 31, 1987, as "Bid No. 88-05." It scheduled a presubmission conference on August 12, 1987, and established the deadline for receipt of proposals of August 28, 1987, with a contemplated date of award of contract on September 14, 1987, and an effective contract date of January 1, 1988. The Department clearly set forth the general purpose of the RFP in Section II as requiring each proposal to meet the benefit objectives and to provide high quality benefits and services to state employees. More specific objectives were as follows: A proactive approach to cost containment, including an emphasis on aggressive claims management, utilization review and superior statistical reporting Quality medical care which encourages health promotion, disease prevention, early diagnosis and treatment. Stability in the financial structure of offered health plans. Professional, high quality service in all administrative areas including claims processing, enrollment, membership services, grievances, and communications. Competitive premium rates which take into account the demographics and, if appropriate, the claims experience of State employees. DOA stated other objectives to be as follows: Have each county or contiguous group of counties be considered one service area. Award no more than two contracts per service area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees. Have reciprocal agreements between locations, if an HMO has multiple service areas. For example, an employee covered in Miami with a covered dependent living in Gainesville, should be provided similar services. Enter into a two year, non-experience rated contract. A provision will be included tying renewal action at each of the two renewals to the Consumer Price Index (CPI) for Medical Care Services. This will become part of the contract. Section III of the RFP stated that to be considered as a "qualified" HMO, the proposer must be licensed by the Department of Insurance pursuant to Part II of Chapter 641, Florida Statutes. Each proposer was required to submit the following: Form PUR 7033, properly completed and signed. The completed Questionnaires Requirements Section (Please answer questions in the same order as they appear in that Section; do not reformat). The completed Cost Proposal forms (Please use the enclosed form on page 43 and 44; do not reformat). The completed Statement of Compliance on page 47. Documentation in support of the above. Section III further provided in part as follows: Proposals are to be submitted only on the forms and formats provided in this RFP. All exhibits requested must be submitted with your proposal along with answers to all questions contained in this RFP. Section IV of the RFP provided that each contract would be for a 24 month term, beginning January 1, 1988. The Department reserved the right to renew the contracts on the same terms and conditions of the initial contract for two additional one-year periods. Section VI of the RFP, concerning "Required Benefits and Services," listed the minimum benefits that must be provided, and also required that a complete list of all other intended services for each service area be provided. Section IX specified the following criteria for evacuation of the proposals: Premium Cost Extensiveness of Service Areas by County and/or contiguous Counties. Note: The State's objective is to award no more than two contracts per services (sic) area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees. Plan Benefits as follows: Covered services Limitations and exclusions Co-payments, deductibles and co-insurance features Range of providers including specialists and number of hospitals Out of service area coverage Grievance procedures Acessibility as follows: Reciprocal agreements Provider locations Number of primary care physicians and specialists, in relation to membership Completeness of proposals The RFP did not provide information on DOA's evaluation of the legislatively required criteria concerning the importance of price and other evaluation criteria. The Department weighed cost equal to benefits plus accessibility and determined accessibility was a part of the plan benefits. Section X was a questionnaire with forty-nine questions for the proposers to answer including questions regarding the proposer's license status, corporate structure, reserving practices, reinsurance contracts, service area, employee membership and staff, hospitals and other care facilities, participating physicians, utilization review, and other information regarding the proposer's case management, control mechanisms, statistical reporting, and the like. Each proposer was directed to submit audited financial statements for the last two fiscal years, together with financial statements for the first quarter of 1987. Section XI dealt with cost proposals and provided a form for completion as to proposed premium rates. In an undated addendum to the RFP, the Department added Question 50 to the RFP to provide information for use in a brochure which would allow state employees to compare the benefits offered by the various HMOs. In the pre-submission conference held on August 12, 1987, and attended by representatives of the HMOs, the participants were informed by Mr. Nye that the two criteria of cost and benefits would be weighted on an equal basis. He also advised that the State would enter into a two year, non-experience rated contract, subject to renewal which would tie rate increases to the Consumer Price Index for Medical Care Services. Proposers were told to quote a specific rate for the first year of the contract, and a percentage increase or decrease for each of the following three years. However, he noted that the State would evaluate cost solely on the basis of the premium for the first year. He indicated that two HMOs per service area would be awarded contracts based on the highest number of points received in the bid evaluation process, and not based upon the type of HMO, such as an individual practice association (IPA) or staff model. Then asked whether some factors would be weighted higher than others, Mr. Nye responded that benefits and cost would be weighted higher. THE PROPOSERS 15. Twelve HMOs submitted proposals to the Department for the South Florida area (Dade, Broward, and Palm Beach Counties) in response to the RFP by the deadline, and several of those submitted more than one proposal. There was, however, no prohibition on submitting multiple proposals, and prospective bidders were told that they had that option. In this proceeding, proposals were received from Health Options, Heritage, and Humana to serve Dade, Broward, and Palm Beach Counties, and a proposal from Gulfstream to serve Palm Beach County. Health Options is a for profit subsidiary of Blue Cross and Blue Shield of Florida, and is an individual practice association (IPA) model HMO. Health Options offers HMO services in Dade, Broward, and Palm Beach Counties. It has a total membership of 23,074 members, of which 517 are state employees and dependents. Heritage is a subsidiary of Heritage Health System, Inc., for profit Delaware Corporation, and is an IPA model HMO. Heritage offers HMO services in Dade, Broward, and Palm Beach Counties, and has a total membership of 12,500 members, including 10 state employees and dependents. Humana is a for profit subsidiary of Humana, Inc., and is a combination staff/IPA model HMO. Humana offers HMO services in Dade, Broward, and Palm Beach Counties, and has a total membership of 91,217 members, including 3,273 state employees and dependents. Gulfstream, at the time its proposal was filed, was a limited partnership whose general partner was Equicor Holding Company and whose limited partner was H.C.A. Care of Florida, Inc. The limited and general partners were wholly owned subsidiaries of Equicor, Equitable H.C.A. Corporation, which is owned by Hospital Corporation of America and the Equitable Life Assurance Society of the United States. On January 1, 1988, Gulfstream converted to corporate form, and is now known as Equicor Health Plan of Florida. Gulfstream offers services in Palm Beach County and has a total membership of 12,335 members, including 933 state employees and dependents. THE EVALUATION PROCESS The evaluation of the proposals submitted by HMOs throughout the state for the seven service areas was initially accomplished by employee evaluation teams made up of employees in Dennis Nye's office. He was assisted in his selection by Marie Walker, a benefits analyst in his office. Dennis Nye and Ms. Walker decided which employees could best evaluate the proposals based on the criteria established in the law, including familiarity with benefits and the request for proposal process. The employees selected for these duties had varying degrees of knowledge concerning health plan benefits, HMOs, and bid evaluations. After the initial evaluation was completed, the Department determined that inconsistent methods had been used to score the proposals and further directed Dennis Nye to continue the evaluation process based upon an objective scoring system which limited subjectivity to the maximum extent possible. As Secretary, I was concerned with the financial soundness of each bidder and instructed Dennis Nye to keep that aspect in mind when making his final recommendation. The second or "final evaluation" of the proposals was solely based on the five criteria contained in the RFP, i.e., premium cost, extensiveness of service area, plan benefits, accessibility, and completeness of proposals. In his memorandum of October 6, 1987, Mr. Nye initially recommended that contracts be awarded in the Jacksonville, Pensacola, and Gainesville Service Areas to the two HMOs in each area that had received the top rankings. 1/ However, in the South Florida Service Area, he recommended awarding four contracts based on the need to provide one staff model and one IPA model HMO in each county in the service area. It was Mr. Nye's belief that federal law required that one HMO of each type be offered in each service area, if available. I was concerned about this issue and asked DOA's General Counsel, Augustus Aikens, to review it. He informed me that the federal requirement was not applicable because a state was not included within the definition of "employer" under the applicable federal law. On the bass of this legal advice, directed Mr. Nye to review his previous recommendations as they related to the need to retain one IPA model and one staff model HMO in each service area. In his memorandum of October 26, 1987, Mr. Nye recommended that contracts be awarded to Health Options and to Heritage on the bases that they were "the lowest, best bids for (the) service area." In his memorandum of October 30, 1987, he again recommended that contracts be awarded to Health Options and Heritage. Throughout the entire bidding process, it was my desire to avoid awarding a contract to an HMO which was not in compliance with state law or the rules of the Department of Insurance. I had written to the Department of Insurance seeking its assistance to determine the ability of each bidder to comply with the state law and to meet the needs of the state employees. By letter of October 23, 1987, the Department of Insurance informed DOA that it had approved the rates of Health Options and Heritage. EVALUATION OF THE PROPOSALS Premium Costs The Department specifically designed the RFP to require each proposer to list separate costs in categories of "employee only" and "family" for active employees and retired employees under sixty-five. Required rates for Medicare recipients were to be shown separately listing rates for retirees, retiree and spouse (both on Medicare), and retiree and spouse (one with Medicare, with or without other eligible dependents). A fixed premium cost was required for calendar year 1988 and a percentage of that rate was to be shown for the successive three years. Rates for those last three years were to be "established as a percentage of the first year's premiums" with the maximum increase "limited to the increase, if any, in the overall medical portion of the Consumer Price index." (RFP, Section XI) The rates bid by each HMO were as follows: 2/ A. Heritage (low bid): Employee Only Family Dade, Broward, 66.46 166.15 and Palm Beach B. Health Options (low bid) Dade and Broward: 78.00 195.00 Palm Beach: 75.00 185.00 C. Humana, Dade: 85.02 206.01 Broward: 83.01 199.22 Palm Beach: 77.44 185.86 D. Gulfstream, Palm Beach: 78.92 197.28 (The instructions provided that the total cost of the "family plan" shall not be greater than 2.5 times the total cost of the "employee only" plan.) DOA evaluators computed a "mean" premium cost by adding the premiums for all bidders, dividing by three, and comparing each premium to the "mean," which was then given five points. A premium above the mean gave a bidder less than five points while a premium below the mean gave the bidder more than five points. The same method was used for the "employee only" plan, the "family" plan and the three Medicare retiree groups. Based on the Department's estimate that active employees constituted 90 percent and retirees 10 percent of an HMO membership, the final point calculations were: A. Heritage (low bid): Combined (Dade, Broward and Palm Beach) 9.35 B. Health Options (low bid) Dade and Broward: 7.75 Palm Beach: 9.1 Combined (Dade, Broward and Palm Beach) 8.17 C. Humana Dade: 5.72 Broward: 6.26 Palm Beach: 8.65 Combined: 6.57 D. Gulfstream Palm Beach: 6.61 The Hearing Officer evaluated the above process and found that the Department's action was reasonable even though "the cost proposals were evaluated solely on the basis of premium for 1988." He based his conclusion on: First, Nye announced at the pre-bid conference that proposals would be evaluated solely on that basis. Second, premium costs in succeeding years were limited to the lower of the cost proposed or the future and presently unknown Consumer Price index for Medical Care Services. Accordingly, no meaningful evaluation could have resulted from a consideration of premium costs for succeeding years. (R.O., page 17) Extensiveness of Service Area At the pre-submission conference, proposers were told that they should designate their service areas and that bids would be awarded on the basis of the entire service area. DOA's evaluators awarded two points for each full county and one-half point for each partial county and proposers received 2, 4, or 6 base points depending on whether their proposal was being evaluated on one, two, or three county service area. Heritage submitted one proposal, and designated its service area as Dade, Broward, and Palm Beach Counties. Its proposal was evaluated on a composite or combined basis. Health Options submitted one proposal and designated its service area as Dade, Broward, and Palm Beach Counties. Its proposal contained two separate premium costs: one for Dade and Broward Counties, and one for Palm Beach County. The Department evaluated Health Options' proposal as it related to the individual counties of Dade, Broward, and Palm Beach County, and on a combined basis (Dade, Broward, and Palm Beach Counties). Humana submitted three separate proposals, which designated three separate service areas: Dade, Broward, and Palm Beach Counties. The Department evaluated Humana's proposal for each county and on a combined basis. Gulfstream submitted one proposal, and designated its service area as Palm Beach County. The Department evaluated Gulfstream's proposal for Palm Beach County. The Hearing Officer found that the above evaluation procedure "was reasonable and a valid exercise of the agency's discretion." (R.O., page 35) ACCESSIBILITY The Department evaluated accessibility criterion on the basis of ten points each for reciprocal agreements provided statewide and national services, ten points for each county of the service area in which a hospital was located, two points for each specialty provider in each county, and one point for each provider physician and specialist. These raw scores were then evaluated further to obtain a "mean" score for each proposer as follows A. Heritage (low bid), Combined: 5.8 B. Health Options (low bid), Dade and Broward: 8.71 Palm Beach: 1.1 Combined: 9.51 C. Humana, Dade: 4.16 Broward: 3.32 Palm Beach: 1.31 Combined: 8.79 D. Gulfstream Palm Beach: 1.18 The Hearing Officer found that the above evaluation procedure "was reasonable and a valid exercise of the agency's discretion." (R.O., page 36) COMPLETENESS OF PROPOSALS The original statutory criteria contained in Chapter 87-156, Laws of Florida, included the areas of "cost, service area, plan benefits, and accessibility." To these criteria, DOA added the fifth criterion of completeness of proposals." The Hearing Officer ruled that "(t)he Department's inclusion of this criterion was reasonable." (R.O., page 22) TOTAL POINTS Total points were calculated by adding the base points to a weighted score. In deriving the weighted score, the criteria were weighted as follows: premium costs at 3.5 times, plan benefits at 2.5 times, accessibility at 1 time, extensiveness of service area at 1 time, and completeness of proposal at 1 time. In evaluating the proposals, the Department first evaluated bids solely against other bids for the same service area. For example, Gulfstream's bid was first evaluated against only those other bids that proposed to provide services in that county. In this manner, Gulfstream ranked fourth out of the five bidders in Palm Beach County, and thirteenth overall. The points and ranking assigned by the Department to the top six proposers and to Gulfstream were as follows: HMO Base Points Weights Total Points Rank Heritage (low bid): 35.34 34.15 70.5 1 Health Options Combined (low bid) 38.59 30.79 59.48 2 Av Med 38.95 24.875 63.825 3 Health Options Dade & Broward (low bid) 34.03 27.73 51.76 4 Heritage (high bid) 34.17 25.925 60.095 5 Humana Combined: 35.05 23.46 58.51 6 Gulfstream Palm Beach: 22.46 22.03 44.49 13 A review of this table shows that the weights altered the relative positions of each of the top six proposers. Mr. Nye testified that the weighting utilized did not affect the ranking of the bids of the proposers and only affected the ranking of one bidder, AV-Med. As the Hearing Officer concluded, the proof was contrary to Mr. Nye's testimony. His finding on this point is supported by competent substantial evidence and is hereby adopted. Based on the results of its evaluation the Department proposed to award the contracts to Heritage (low) and to Health Options (combined-low). HUMANA'S COST/BENEFIT ANALYSIS Humana introduced expert testimony to demonstrate that, benefits and cost were weighted equally, its cost-to-benefits ratio would be comparable to or better than the successful proposers. Two analyses were presented. One actuarial expert adjusted the different benefit patterns of Heritage and Health Options up to the Human a benefit level and adjusted their price according to actuarial information filed with the Department of Insurance. The testimony sought to place the proposers on the same co-payment/benefit level to compare premium costs. The result was that Humana's premium cost was the second lowest for the South Florida Service Area. The second analysis adjusted Humana's benefit pattern down to the benefit/co-payment levels of Heritage and Health Options, and adjusted Humana's premium cost down accordingly based on Humana's filed actuarials. This testimony sought to place the proposers on the same co- payment/benefit level to compare premium costs, and Humana' premium cost was comparable to or lower than the second lowest bidder. The Hearing Officer found that the analyses by the expert witness were not persuasive in demonstrating that Humana was the second lowest proposer in this case, or that its cost/benefits were the second lowest. (R.O., page 26) For example, the fitness did not evaluate the bids based on the five criteria contained in the RFP, nor did he include in the cost/benefit analysis all of the criteria utilized by the Department to evaluate benefits. The findings of the Hearing Officer on this point are supported by competent substantial evidence and are therefore adopted. Plan Benefits The criteria for the evaluation of all proposals was set out in Section IX of the RFP as follows: Covered services; Limitations and exclusions; Co-payments, deductibles and co-insurance features; Range of providers including specialists and number of hospitals Out of service area coverage Grievance procedures Three sections in the RFP requested information which was relevant to the plan benefits. Section VI listed the required minimum benefits and requested a complete list of all other services. Each provider was directed to specify co-insurance, deductible, co-payment and other features for all benefits and services for each service area, and to list all limitations and exclusions for all benefits and services for each service area. Section X was a questionnaire which required each propose to list information concerning hospital, ambulatory care facilities services, available physician specialties, programs for health status evaluation, screening and health promotion, limitations or restrictions relative to organ transplants, range of providers and number of hospitals, availability of skilled nursing benefits, a list of the proposer's physician panel, and out-of-service area coverage. Under the Department's Scoring system, each propose received the following scores: A. Heritage 398 B. Health Options Dade & Broward 308 Palm Beach 165 C. Humana Dade 210.5 Broward 161.5 Palm Beach 184.5 D. Gulfstream Palm Beach 203 Using a similar method to calculate a "mean" score as was needed in the premium cost criteria, the base points were as follows: A. Heritage (low bid), Combined: 7.19 B. Health Options (low), Dade and Broward: 5.57 Palm Beach: 2.28 Combined: 5.91 C. Humana, Dade: 3.38 Broward: 2.92 Palm Beach: 3.34 Combined: 4.59 D. Gulfstream, Palm Beach: 3.57 Limitation to Two Successful Bidders Humana and Gulfstream argued that they should not be excluded from being awarded a contract because there was no foundation which required the limitation of the contracts to two or to any number of HMOs. The Department had considered awarding contracts to more than two proposers but rejected doing so because such action best effectuated the general objectives of the RFP, including that of promoting competitive rates. The Hearing Officer agreed with the Department and correctly found that "there was no showing that the selected HMOs could not adequately satisfy the needs of the state employees." (R.O., page 35). He concluded: "While the statute did not specify a number, it did specify that the Department contract through the competitive bid process. If the contracts are not limited in number, there is no competitive bidding process. Accordingly, it is concluded the Department acted reasonably in limiting the award to two HMOs." (R.O., page 35) Employee Evaluation Teams Yet another contention of the Petitioners was that the DOA employee evaluation teams lacked the experience and knowledge in the health care services field and should have been disqualified as not meeting the requirements of Section 287.057(16), Fla. Stat., which states as follows "A selection team of at least three employees who have experience and knowledge in the program areas and service requirements for which contractual serviced are sought shall be appointed by the agency head to aid in the selection of contractors for contracts of more than the threshold amount provided in s. 287.017 for CATEGORY FOUR." After full consideration of the above provision, the Hearing Officer agreed with the Department and found that the employees met the minimum statutory criteria (R.O., page 35) and had sufficient experience and knowledge in the area to properly evaluate the proposals (R.O., pages 13, 14). Departure From RFP At the pre-submission conference, Mr. Nye announced that cost and benefits would be weighted equally. In its final evaluation, the Department weighted cost at 3.5 and benefits at 2.5. The remaining criteria, accessibility, extensiveness of service area, and completeness of proposal , were weighted at I each. The Hearing Officer found that the Department's final evaluation failed to conform to the weighting factors announced at the pre- submission conference. 45. He further stated that: 43. The Department's failure to accord equal weight to cost and benefits was arbitrary and capricious. Such failure was a material departure from the RFP, as supplemented by the pre-bid conference, and adversely impacted the bid procurement process. ... Plan benefits and accessibility under Section 110.123(3)(d), Florida Statutes, and the RFP were distinct criteria upon which proposers formulated their responses. They were also distinct criteria when the Department told proposers that cost and benefits would be weighted equally, were distinct criteria when evaluated by the Departmen, and had a distinct impact upon the ranking of proposers. Under the circumstances, the Department's failure to accord them equal weight was arbitrary and capricious. Rather than acknowledge the disparity that existed between cost and benefits, the Department contended at hearing that accessibility was a part of benefits, and therefore cost and benefits were weighted equally. The Department's contention, and proof, was not persuasive and is rejected as not credible. (R.O., pages 24, 25) The Department finds that the above findings of fact are supported by competent, substantial evidence and adopts them in this final order. INTERVENORS' EXCEPTIONS TO RECOMMENDED ORDER Exceptions of Heritage Heritage filed six exceptions to the Recommended Order and each exception will be considered separately. Exception Number 1: Heritage argued that the Hearing Officer erred when he found that the Department's failure to accord equal weight to cost and benefits was arbitrary and capricious. While the Department agrees with the cases cited by Heritage which hold that administrative agencies have broad discretion in evaluating contracts for personal services such as health services, the Department is aware of its statutory responsibility to adhere to the bidding requirements of Section 287.057, Fla. Stat., and does not believe that it has the discretion to enter into contracts absent the competitive process. As to the testimony of Mr. Burbank, the Hearing Officer, as the trier of fact, was in the best position to assess his credibility and determine the weight to be accorded to his testimony. Koltay vs. Department of General Services, 374 So.2d 1386 (Fla. 2nd DCA 1979). The Department is unable to reject the Hearing Officer's findings in an area clearly within his responsibility. Exception Number 1 is rejected. Exception Number 2: Heritage next argues that the Hearing Officer erred in applying the arbitrary and capricious standard to the Department's actions relating to the weights given to various factors. The evidence shows that at the presubmission conference, Mr. Nye informed all proposers that the weights to be assigned to premium costs and to plan benefits would be equal. That information was clearly erroneous because, in the actual evaluations, the evaluators used a different weighting system, one that gave premium costs 40 percent greater weight than plan benefits. It is not the weights given to each category that makes the Department's actions arbitrary and capricious but its failure to adhere to and apply its announced weighting factors. On this basis, Exception Number 2 is rejected. Exception Number 3: Heritage urges that the Hearing Officer erred in concluding that the Department's failure to comply with the provisions of Section 287.012(11), Fla. Stat., was fundamental error. The above statute by its terms provides that "(r)equests for proposals shall state the relative importance of price and any other evaluation criteria." (emphasis added). According to the common usage of the term "shall", this language is mandatory (Fla. Tallow Corporation vs. Bryan, 237 So.2d 308 (Fla. 4th DCA 1970); S.R. vs. State, 345 So.2d 1018 (Fla. 1977) and requires that the weight of the criteria must be included in the RFP. Therefore, Exception Number 3 is rejected. Exception Number 4: Heritage argues that the Hearing Officer erred in granting standing to Gulfstream. In Preston Carroll vs. Fla. Keys Aqueduct Authority, 400 So.2d 524 (Fla. 3rd DCA 1981), an unsuccessful bidder who was third low bidder, attempted to overturn the award of the contract to the low bidder. The district court held that while a second low bidder to the award of a contract had the necessary "substantial interest" to contest the award. However, a third low bidder was unable to demonstrate that it was "substantially affected" and therefore lacked standing to protest the award of the contract to another bidder. Under the holding in this case, the Department concludes that Gulfstream did not have standing in this case since it ranked 13th in the ranking of low bidders. According, Exception Number 4 is accepted and included in the Conclusions of Law of this Order. Exception Number 5: Heritage argues that the Hearing Officer erred in concluding that Humana had standing to protest the Department's failure to state the relative importance of price and any other evaluation criteria in the RFP because Humana did not raise this point as an issue in its formal protest. If Humana did not have standing, then it was improperly permitted to protest the award of one of the contracts to Heritage. A review of Humana's protest shows that in Item 9, it argued that: "That the rejection of Humana's response to RFP #88-05, HMO coverage for State employees in Clay, Dade, Broward and Palm Beach Counties was not in accordance with all applicable rules, regulations, procedures, precedents and bid criteria." The rules of the Division of Administrative Hearings (Rule 22I-6.004(3), F.A.C.) provide for the minimum filing requirements in initial pleadings and state as follows: "(3) All petitions should contain: The name and address of each agency affected and each agency's file or identification number, if known; The name and address of the petitioner or petitioners, and an explanation of how his/her substantial interests will be affected by the agency determinations; A statement of when and how petitioner received notice of the agency decision or intent to render a decision; A statement of all disputed issues of material fact. If there are none, the petition must so indicate; A concise statement of the ultimate facts alleged, as well as the rules and statutes which entitle the petitioner to relief; A demand for relief to which the petitioner deems himself entitled; and Other information which the petitioner contends is material." (emphasis added) The requirements of this rule are directory only and not mandatory and are not designed to deny petitioners a hearing in which their "substantial interests" are affected. Section 120.57, Fla. Stat., see Seminole County Board of County Commissioners vs. Long, 422 So.2d 938, 940 (Fla. 5th DCA 1982). The initial protest of Humana complied with the minimum filing requirements of Rule 22I-6.004(3), F.A.C., above, and was sufficient to place Heritage on notice of deficiencies alleged to be in the RFP. Exception Number 5 is rejected. Exception Number 6: Heritage argues that "(t)he Hearing Officer erred in concluding that the Department should invoke its right to reject all proposals." Contrary to Heritage's argument, the Department did not communicate how the criteria would be weighed in accordance with Section 287.012(11), Fla. Stat. It is not possible to cure the deficiency in the RFP by recalculating the proposals. The deficiency can be corrected by re-bidding for proposals for HMO medical services. On this basis, Exception Number 6 is rejected. HEALTH OPTIONS' EXCEPTION TO RECOMMENDED ORDER Health Options as one of the successful bidders filed an exception to the Hearing Officer's finding which stated that DOA had failed to state the relative importance of price and other criteria in the RFP. It argued that this issue was not presented by Humana or Gulfstream in the formal protests and thus could not be considered in the Recommended Order. Therefore, Health Options urged that the Department's award of the two HMO contracts was proper and should be upheld. As previously stated, Humana's protest argued that the rejection of its bid "was not in accordance with all applicable rules, regulations, procedures, precedents, and bid criteria." (Item 9 of Protest). Humana's protest complied with the minimum filing requirements of the Department of Administrative Hearings (Rule 22I-6.004(3), F.A.C.) which provide that petitions should contain: A statement of all disputed issues of material fact. If there are none, the petition must so indicate; A concise statement of the ultimate facts alleged, as well as the rules and statutes which entitle the petitioner to relief; A demand for relief to which the petitioner deems himself entitled; While Gulfstream's formal protest did not state that its protest was founded on the Department's failure to state the relative importance of price and other evaluation criteria in the RFP, all that was necessary for the Hearing Officer to rule on this issue was for one of the petitioner's to raise the issue in its initial protest. Since the issue was raised by Humana, the Exception of Health Options is rejected. DEPARTMENT'S EXCEPTIONS TO RECOMMENDED ORDER The Department also filed timely exceptions to the Recommended Order. After reviewing those exceptions, I find that to the extent they are not adopted and accepted herein, they are inappropriate findings of fact and have not been considered further in this Order.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department enter a final order rejecting all proposals submitted for the South Florida service area. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 22nd day of March, 1988. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1050 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 1988.
The Issue Whether Certificate of Need (CON) Application No. 10130, filed by Florida Regional Medical Center (FRMC) for an 80-bed acute-care hospital in Palm Beach County, Florida, Agency for Health Care Administration (AHCA) health planning district 9, sub-district 9-4, satisfies, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties The Applicant and affiliates The applicant in this case, FRMC, is a Florida, for- profit, corporation formed for the purpose of filing CON Application No. 10130. FRMC is a wholly-owned subsidiary of Tenet Healthcare Corporation (Tenet). Tenet is one of the largest, for-profit, hospital organizations in the nation. It operates 49 hospitals throughout the country. Tenet owns and operates five hospitals in Palm Beach County: Palm Beach Gardens Medical Center (PBGMC), St. Mary’s Medical Center (St. Mary's), Good Samaritan Medical Center (Good Samaritan), West Boca Medical Center, and Delray Medical Center. PBGMC, St. Mary's, and Good Samaritan are all located in AHCA sub-district 9-4, in the northern half of Palm Beach County. The three hospitals have a combined total of 854 licensed, acute-care beds making up approximately 60% of the licensed, acute-care beds in the sub-district. Jupiter Medical Center JMC is a stand alone, not-for-profit, 163-bed, acute- care hospital in sub-district 9-4 located on a 30-acre campus at 1210 Old Dixie Highway, Jupiter, Florida 33458. JMC also owns and operates a 120-bed, skilled-nursing facility on that campus. JMC is approximately three miles from FRMC's proposed location. West Palm and affiliates West Palm is a 245-bed, acute care, for-profit hospital located at 2201 45th Street, West Palm Beach, Florida 33407, approximately 12 miles from FRMC's proposed location. Its 245 beds include 157 acute-care beds and 88 specialty psychiatric beds. West Palm is affiliated with Hospital Corporation of America (HCA) which operates 163 hospitals in 20 states and Great Britain. HCA’s East Coast Division includes 14 hospitals in South Florida and the Treasure Coast, including two hospitals in addition to West Palm in Palm Beach County: Palms West Hospital (Palms West), located in Loxahatchee, AHCA sub-district 9-4; and JFK Medical Center (JFK), located in Atlantis, sub- district 9-5. Agency for Health Care Administration AHCA is the state health-planning agency responsible for administering the certificate of need (CON) program under the Health Facility and Services Development Act, sections 408.031-.0455, Florida Statutes, and related administrative rules found in chapters 59C-1 and 59C-2 of the Florida Administrative Code.5/ The Proposal Overview FRMC's CON Application No. 10130 (CON Application, Proposal, or proposed hospital) is for "the establishment of a new, general acute-care hospital of 80 licensed beds," to be composed of 64 general, medical-surgical beds and 16 intensive care unit (ICU) beds. The proposed hospital is to be located in Palm Beach Gardens, Palm Beach County, AHCA planning district 9, sub-district 9-4. The proposed service area is a ten zip code area with nine of the zip codes in northern Palm Beach County and one in southern Martin County. The Proposal states that "FRMC's CON application represents the first phase of a multi-year development project that is anticipated to result in an academic teaching and research hospital of 200 beds to serve the long-term needs of residents of District 9 and potentially other parts of the State." According to the Proposal, "[t]he first phase of the Hospital's development will be geared toward providing routine medical/surgical services to residents of the immediate area as well as a platform for its future role as an academic medical center and teaching hospital." The Proposal also states that "[n]on-Tertiary types of cases for adults [15 years old and older] are the focus of the proposed [FRMC] during its initial operation and the basis upon which this CON application is being submitted." FRMC defines the "non-tertiary" acute-care services planned to be offered by excluding psychiatric, substance abuse, inpatient rehabilitation, open-heart surgery, major cardiovascular surgery procedures, therapeutic cardiac catheterization, neonatal intensive care, burn care, transplants, neurosurgical and selected spinal surgery procedures, and major significant trauma services. There is a list of diagnostic-related groups (DRGs) attached to the CON Application which further describes additional tertiary services, as well as non-tertiary obstetrical services, that are specifically excluded from the Proposal. In addition, the Proposal explains that no pediatric services will be offered because of the proximity of St. Marys, which offers pediatrics. There is no indication in the CON Application whether the excluded services will ever be offered. The Proposal discusses a "20 Year Build-Out Plan," and maintains that it is appropriate to consider the vision of FRMC becoming a 200-bed, teaching hospital in cooperation with The Scripps Research Institute (Scripps) and Florida Atlantic University (FAU). The CON Application states, however, that "[e]stimation of the parameters of bed need 20 years into the future is speculative and . . . not specifically subject to CON review at this time ” The Proposed Site The site for the proposed hospital is in zip code 33418, between I-95 and Military Trail, on the south side of Donald Ross Road. The proposed hospital would be located on a 70-acre parcel of land owned by Palm Beach County within an 863- acre tract of undeveloped land known as the Briger Tract, east of I-95 in Palm Beach County. The 70-acre parcel is located just south of Donald Ross Road in Palm Beach Gardens, directly across the road from Scripps, FAU Wilkes Honors College MacArthur campus, and the Max Planck Florida Institute. The proposed hospital would occupy approximately 30 acres of the 70- acre parcel. Zoning for the site of the proposed hospital is not an issue in this proceeding. Palm Beach County leases the 70-acre parcel to Scripps for an annual lease payment of $1. The ground lease expires in 2021, but Scripps has an option to purchase the 70-acre parcel for $1 prior to the end of the lease if it meets certain covenants relating to job growth based on operations. If FRMC is constructed on the site, jobs associated with that project will count toward Scripps' job creation goal. On July 25, 2011, Scripps and Tenet entered into a letter of intent (Letter of Intent) regarding the proposed hospital which anticipates that Tenet will sublease the proposed hospital site from Scripps. Under the Letter of Intent, it is contemplated that Tenet will pay Scripps approximately $5,000,000 annually as a combined payment for the sublease, participatory interest distributions, and mission support payments. The commercial value of the sublease is between $560,000 to $680,000 annually. Stated Goals for the Project First, the CON Application states that FRMC is needed to decompress PBGMC and resolve access issues that patients and physicians currently experience there. FRMC proposes that all of its inpatients will be patients “redirected” from PBGMC, and states that, therefore, “[t]he impact of the new hospital will be limited solely to Palm Beach Gardens Medical Center.” According to FRMC, the "decompression" will allow PBGMC to “modernize for the future by re-configuring the space vacated by the non-tertiary patients who will use the new Florida Regional Medical Center.” Second, the CON Application states that the proposed hospital is designed to provide a unique blend of treatment, teaching, and research with the collaboration of Scripps, FAU, and FRMC. According to FRMC, the project will not only meet the needs of Scripps and FAU, but will also advance and improve health care in northern Palm Beach County. AHCA’s Preliminary Review and Approval Tenet met with AHCA officials twice before the CON Application was filed. The first meeting included representatives from Tenet and Scripps and the chief of AHCA's CON unit, Jeff Gregg. During the first meeting, Scripps indicated that the proposed hospital would not be just “another community hospital in Palm Beach County,” but rather a facility to further Scripps’ “translational research”6/ that would complement Scripps’ existing resources. The CON Application, however, does not specify whether or how FRMC would further Scripps’ translational research. At the second meeting, representatives from Tenet and Scripps and the president of FAU met with Mr. Gregg and AHCA Secretary Elizabeth Dudek. The President of FAU suggested that the proposed hospital would become a "facility of regional impact" that would "offer services that [are comparable to or] even differ from those that are available at academic medical centers in Miami-Dade County." Neither the CON Application nor the evidence, however, supports a finding that FRMC would offer services comparable to those that are available at academic medical centers in Miami-Dade County. After the CON Application was filed, AHCA undertook its review and made its preliminary determination, which are detailed in the State Agency Action Report (SAAR). The SAAR was primarily authored by AHCA CON unit manager, James McLemore, and edited by Mr. Gregg. Although draft SAARs often contain a recommendation whether to approve or deny an application, the draft SAAR for the Proposal did not contain such recommendation. Mr. Gregg felt that whether the CON should be granted was a close call. He discussed the Proposal and draft SAAR with Secretary Dudek and then, at Secretary Dudek's suggestion, Mr. Gregg drafted the following language which was incorporated into the final version of the SAAR: . . . . However, the most important factor in project approval is FRMC’s commitment to develop a world-class research and teaching hospital that has the potential to become a regional rather than a local community resource. The coalition of organizations associated with the proposed facility must work together on an ongoing basis to ensure that the population gains access to services that it would otherwise not have. There is no need for an additional small community hospital that offers basic services. Contrary to the language in the SAAR, there is no “commitment to develop a world-class research and teaching hospital” in the CON Application, and the evidence does not support such a finding. Rather, the evidence only supports a finding that FRMC, Scripps, and FAU had a vision of collaboration in the future. The Letter of Intent between FRMC and Scripps regarding the proposed hospital, by its terms, is not binding, and the parties to the letter of intent "acknowledge that it would be imprudent and unreasonable to rely on the expectation of entering into a contract regarding the subject matter of this letter." At the final hearing, Mr. Greg reiterated AHCA's preliminary determination that there "is no need for an additional small community hospital that offers basic services." He confirmed that such determination was based upon AHCA's consideration of the applicable statutory and regulatory criteria in view of the proposal for an 80-bed, acute-care hospital serving the ten zip code service area. Statutory and Rule Review Criteria The statutory criteria for reviewing CON applications for new hospitals are found in section 408.035, Florida Statutes. Before 2004, section 408.035 review criteria included: The needs of research and educational facilities, including, but not limited to, facilities with institutional training programs and community training programs for health care practitioners and for doctors of osteopathic medicine and medicine at the student, internship, and residency training levels. § 408.035(5), Fla. Stat. (2003). In 2004, however, the quoted provision was deleted from the CON review criteria. See ch. 2004-383, § 5, Laws of Fla. The 2004 changes also removed the requirement that existing facilities undergo CON review for increasing the number of their acute-care beds, so that now, after notifying AHCA, existing acute-care hospitals can generally add acute-care beds without CON review. Id., § 6 (amending § 406.036). In 2008, the Florida Legislature further modified section 408.035 by limiting the criteria applied to CON applications for general hospitals to "only the criteria specified in paragraph (1)(a), paragraph (1)(b), except for quality of care in paragraph (1)(b), and paragraphs (1)(e),(g), and (i) [of section 408.035(1)]." See ch. 2008-29, § 1, Laws of Fla. As a result of the 2008 amendments, the statutory review criteria found in section 408.035(1), which are no longer applicable to CON applications for general hospitals, are: The ability of the applicant to provide quality of care and the applicant’s record of providing quality of care. The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. (f) The immediate and long-term financial feasibility of the proposal. (h) The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction. The statutory CON review criteria in section 408.035 that remain applicable to general hospital applications since the 2008 amendments are subsections 408.035(1): The need for the health care facilities and health services being proposed. The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. (e) The extent to which the proposed services will enhance access to health care for residents of the service district. (g) The extent to which the proposal will foster competition that promotes quality and cost-effectiveness. (i) The applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent. Each of the applicable review criterion under section 408.035(1)(a), (b), (e), (g), and (i), as related to the facts of this case is discussed under separate headings, below. Section 408.035(1)(a): The need for the health care facilities and health services being proposed. AND Section 408.035(1)(b): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. The analyses under subsections 408.035(1)(a) and (1)(b) are generally combined. For instance, in applying the statutory review criteria to the CON Application, the SAAR cites subsections 408.035(1)(a) and (1)(b) in framing the issue as: "Is need for the project evidenced by the availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the applicant's service area?" Following the 2004 changes in the CON law, AHCA repealed its rule relating to the need for acute-care beds.7/ As a result, AHCA does not presently have a need methodology for acute-care hospitals or acute-care beds. Florida Administrative Code Rule 59C-1.008(2)(e)2. provides, in pertinent part: . . . . If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. 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. While there is no evidence that AHCA has a written policy apart from statutory and rule criteria, Mr. Gregg has summarized AHCA’s “policy” regarding criteria for approval of a new hospital as requiring: One, a primary service area with a large and rapidly growing population base. Two, an expanding market in the applicant’s service area, especially the primary service area, which minimizes the impact on existing providers. And three, the benefit of enhanced access outweighs the adverse impact on existing hospitals. AHCA’s unwritten policy as expressed by Mr. Gregg is consistent with existing statutory and rule criteria. The required topics listed in rule 59C- 1.008(2)(e)2.a.-d., quoted above, are compatible with a combined analysis of the review criteria under subsections 408.035(1)(a) and (1)(b), and a discussion of each in view of the facts is organized under subheadings 1 through 4, below. 1. Population demographics and dynamics FRMC’s proposed primary service area is made up of the five zip codes immediately surrounding the proposed hospital, and its proposed secondary service area is derived from five adjacent zip codes.8/ Population growth in the proposed service area and sub-district 9-4 is estimated to be at an annual rate of approximately 1.4% throughout the five-year planning horizon from 2011 through 2016. While some evidence was presented indicating that the population growth in the proposed primary service area is greater than 1.4%, the evidence was insufficient to establish that the proposed primary service area has a large and rapidly growing population base. 2. Availability, [and] utilization and quality9/ of like services in the district, subdistrict or both In July 2011, there were 1,423 licensed, acute-care beds among seven hospitals located in AHCA district 9, sub- district 9-4, plus approvals for 14 more acute-care beds based upon notifications from JMC and West Palm to add 12 beds and two beds, respectively. Those notifications were voided in favor of subsequent notifications from JMC and West Palm in October, 2011, to add 45 and 29 acute-care beds, respectively. JMC’s intended addition of 45 new-licensed, acute-care beds includes renovation of existing space and the addition of an 80,000- square foot wing scheduled to open in the fall of 2015.10/ During calendar year 2010, sub-district 9-4’s overall acute-care bed occupancy averaged 54.22%. That number declined to 53.8% in 2011, leaving an average daily census of 657 empty, acute-care beds within the sub-district. Projected need in the proposed service area is not sufficient to support a new 80-bed, acute-care hospital. Rather, with population growth projected to be less than 1.5% and flat or declining utilization rates, the projected need for acute-care beds for the proposed hospital's five-year planning horizon is only 21 to 27 beds. 3. Medical treatment trends There is a general trend in the hospital industry away from inpatient utilization in favor of outpatient services. The trend is attributable to advances in medical care and technologies, as well as the move toward managed care and changes in reimbursement under Medicaid, Medicare, and the Affordable Care Act that focus on cost savings and efficiencies. In fiscal year 2011, 37.04% of the weighted revenue average for all acute-care hospitals in Florida came from outpatient services. The trend away from inpatient utilization is expected to continue. 4. Market conditions Discharge data for basic, non-tertiary, acute-care services within FRMC's proposed service area for fiscal years 2009 through 2010, show that JMC has the largest percentage of the market, with a total market share of approximately 39.6%, including 41.7% of FRMC’s proposed primary service area (PSA) and 35.2% of FRMC's proposed secondary service area (SSA). PBGMC follows with approximately 29.7% of the market (36% of the PSA and 17.1% of SSA); then St. Mary's with 5.6% (5.3% PSA and 6.1% SSA); Good Samaritan with 4.3% (4.7% PSA and 3.4% SSA); West Palm with 2.4% (2.2% PSA and 2.6% SSA); JFK with 2% (1.7% PSA and 2.5% SSA); Palms West with 1.8% (0.6% PSA and 2.5% SSA); and the remaining 14.8% of the market divided among all other hospitals. Market share figures derived from updated data presented at the final hearing were not appreciably different. FRMC's proposed PSA completely overlaps JMC's PSA and all of the zip codes making up FRMC's proposed PSA are within JMC's existing PSA. Despite the overlap, FRMC contends that the proposed hospital will not affect JMC's market share, nor other hospitals within the subdistrict except PBGMC, because all of FRMC's inpatient admissions will come from a "redirection" of 70% of PBGMC's non-tertiary inpatients. It is unlikely that FRMC will be successful in filling its beds with patients "redirected" from PBGMC without otherwise affecting the market. The greatest factors driving inpatient admissions are patient preference and emergency admissions, not redirection from existing hospitals. There is a substantial overlap between medical staffs at PBGMC and JMC, and it is likely that many of those physicians would obtain staff privilages at FRMC. PBGMC does not control where physicians with privilages at PBGMC admit patients. For instance, PBGMC's largest admitter of patients, Dr. Baqir Murtaza Syed, while in favor of the proposed hospital, has no intention of redirecting patients from PBGMC to the proposed hospital except in cases where there is an access problem or where complex services not available at PBGMC are offered at FRMC. While sharing some administrative functions through common ownership by Tenet, FRMC is not a satellite to PBGMC. Rather, it is designed to be a stand-alone hospital offering basic, non-tertiary services duplicative and not more complex than those general acute-care services available at both PBGMC and JMC. Section 408.035(1)(e): The Extent to Which the Proposed Services Will Enhance Access11/ to Health Care for Residents of the Service District According to the CON Application, FRMC will enhance programmatic access for patients at PBGMC by decompressing PBGMC, enhance geographic and programmatic access to emergency care and basic hospital services, and enhance access to programs and resources of a teaching and research hospital affiliated with FAU and Scripps. Each of these assertions is addressed under separate headings below. 1. Programmatic Access by Decompressing PBGMC The CON Application states that approval will "[e]nhance programmatic access to inpatient and outpatient [sic] at [PBGMC] by decompressing its patient census and allowing it to re-configure the facility's existing space for modernization projects." It also states that decompression will "ease the capacity constraints and crowding that routinely occurs during the peak season months of January — April . . . ." According to FRMC, PBGMC is landlocked and cannot grow horizontally or expand vertically, has no outpatient surgery rooms, and needs to expand seven of its nine operating rooms. In addition, the CON Application complains that the current 1,291-square feet per bed at PBGMC12/ is less than half of the average 2,814-square feet per bed for new, general acute-care hospitals. As previously discussed, however, "decompression" by "redirection" is unlikely. In addition, while seasonal fluxuations may increase average occupancy levels at PBGMC during peak season, total inpatient days at PBGMC have been declining, and the evidence does not otherwise show that present utilization has interfered with recent renovations. First built in 1963, PBGMC has been renovated over time to meet its needs. In addition to its 199 licensed, acute- care beds, PBGMC has three observation beds and leases 11 of its acute-care beds to an unrelated hospice provider. Sixteen of PBGMC's 199 acute-care beds can be converted into semi-private rooms, which would give PBGMC a 218-bed capacity, not including the 11 hospice beds. In contrast to the CON Application's assertion that PBGMC cannot be expanded, in 2009, the City of Palm Beach Gardens approved a site plan ("Site Plan") authorizing PBGMC to expand its emergency department by 10,000-square feet; expand its surgical suite by 3,800-square feet; add 5,000-square feet of storage; add 300 additional acute-care beds; increase its parking; and construct a new 50,000-square-foot medical office building up to 46-feet in height. PBGMC completed the 10,000- square-foot emergency department expansion in 2010, but has not pursued the other authorized Site Plan expansions. PBGMC is currently undergoing renovations to accommodate a nuclear camera and combine two operating rooms. There is no evidence that those renovations, or the 10,000- square-foot emergency department expansion, were hindered by current utilization. In addition, PBGC has not utilized potential additional excess capacity by, for instance, converting the 16 beds that can be converted to semi-private rooms. PBGMC, like JMC, experiences higher occupancy levels during "peak season" each year from January through March. Evidence indicates that, during peak season, PBGMC's overall occupancy levels approach 80%, with even higher utilization in some specialty units such as surgical and cardio intensive care units.13/ As all beds at PBGMC are private, however, this seasonal influx does not present gender or clinical conflicts. The CON Application asserts an even higher utilization for PBGMC during peak season using a formula to derive what FRMC describes as PBGMC's "functional occupancy." FRMC's formula for "functional occupancy," however, is not reliable. It only considers PBGMC's licensed beds and observation beds, without considering emergency room bays or other available areas. In addition, the data utilized in the formula was defective because it does not reflect the number of outpatients and observation patients on any given day, but rather only reflects the day of the month on which hospital services were billed. While maintaining that renovations are cost prohibitive, PBGMC has yet to develop a formal plan of renovation that would "modernize" PBGMC in the manner suggested by the CON Application. In fact, Tenet has not engaged architects or planners to come up with conceptual documents for such a project, and such renovations have not been discussed between Tenet and PBGMC's board of directors. On the other hand, in addition to evidence of unused, excess-bed capacity and the previously approved Site Plan, evidence at the final hearing reasonably suggested that the Site Plan could be modified to permit additional expansion and improvements. PBGMC has been designated as a Planned Unit Development and, as such, has greater planning and renovation flexibility. The evidence showed that the City of Palm Beach Gardens has been supportive of renovations at PBGMC in the past and would likely continue that support in the future. Further, at the final hearing, FRMC's statement that vertical expansion of PBGMC would be cost prohibitive was shown to be premised on a misinterpretation of the Florida Building Code. The misinterpretation erroneously concluded that provisions of the Florida Building Code, Existing would require the entire hospital to be brought up to new code standards if certain vertical and lateral load thresholds were exceeded. Those provisions, however, do not apply to hospitals and other state-licensed facilities, as clarified by the scoping provisions found at section 419 of the Florida Building Code/Building. 2. Geographic and Programmatic Access to Emergency & Basic Hospital Services According to FRMC, the project will make emergency department services more convenient to residents of the area and enhance geographic access to basic hospital services within the immediate vicinity of the proposed hospital. The proposed hospital, however, is only six miles from PBGMC's recently expanded emergency department and less than four miles from JMC. The emergency department at JMC includes 26 treatment bays with an adjacent 10-bed, clinical-decision unit available to handle any temporary emergency department overflow. These factors, together with evidence of existing available acute-care beds and services available within the proposed service area, do not support a finding that the proposed hospital will appreciably enhance access to emergency department or basic hospital services. 3. Access to Programs and Resources of a Teaching and Research Hospital The CON Application states that "[t]he vision for FRMC is to expand the opportunities for clinical research, graduate medical education and medical surgical services while providing even better access to state-of-the-art medical care." It further states: The location of a medical center next to the Scripps Florida Research Institute and FAU's MacArthur campus will foster the positive relationship between science and medicine. Academic medical centers play a pivotal role in the effort to expand access to undergraduate and graduate medical education in the state that benefits students, faculty, and patients. Florida Regional Medical Center will be one of the clinical training sites for FAU's medical students and residents. Thus, programmatic access will be further enhanced by the opportunities to improve the health of the area's residents as well as to train the next generation of physicians and scientists. The CON Application further observes that "District 9 is one of the five districts in Florida without a statutory teaching hospital." Aside from the fact that the need for research and educational facilities has been removed from CON review criteria, and notwithstanding FRMC's acknowledgement that consideration of bed need beyond its immediate plans for an 80- bed, general acute-care hospital is "speculative," the evidence was insufficient to show that FRMC could reach its suggested goals with regard to research and education. Although the CON Application discusses Florida's nine statutory teaching hospitals, FRMC is not envisioned as a statutory teaching hospital. Rather, discussion of the statutory teaching hospitals was included in the application because data from those facilities were used as "parameters" in evaluating the need for FRMC's 20-year vision of a 200-bed facility. With regard to clinical research, the Proposal states that it will establish a clinical research program that will provide a crucial link to Scripps' research efforts. There is an apparent discrepancy, however, between FRMC's concept of the proposed program and Scripps' expectations. The Proposal only commits to the hiring of one full- time equivalent employee as a "research program coordinator." According to Tenet's chief executive officer over Florida Special Projects, the coordinator would be responsible for "setting up the programs" and assisting with the "enrollment of patients, collection of data, completion of reports and compliance with regulations pertaining to clinical research." In contrast, Scripps envisions the proposed research program coordinator as one who would serve a more general role geared toward learning about Scripps "and to know what the hospital is doing and to connect researchers for potential research topics." Scripps believes, and the evidence shows, that clinical studies are complex activities with multiple phases that require a number of staff to coordinate enrollment, interaction with institutional review boards, and protocol compliance.14/ Tenet hospitals in Palm Beach County, however, have no special expertise in enrolling patients and managing clinical research activities. FRMC did not otherwise provide evidence detailing the clinical research program or programs contemplated by the Proposal. In sum, evidence of FRMC's commitment to provide a crucial link to Scripps' research efforts is lacking. Evidence adduced at the final hearing casts doubt on FRMC's ability to become, in the foreseeable future, "one of the clinical training sites for FAU's medical students and residents." While FRMC and FAU have entered into a memorandum of understanding (MOU) which recites FAU's intention to sponsor graduate medical education (GME) and FRMC's intention to accept FAU medical students, FRMC's ability to do so is dependent upon it joining or affiliating with other entities under the FAU College of Medicine GME Consortium Agreement that exists to coordinate and promote the development and implementation of GME in South Florida (the GME Consortium Agreement). FAU is a party to the GME Consortium Agreement, along with Bethesda Memorial Hospital, Boca Raton Regional Hospital, and three Tenet hospitals, which include Delray Medical Center, West Boca Medical Center, and St. Mary's Medical Center. Paragraph B.2. of the MOU provides: GME: Pursuant to the agreement governing the GME Consortium, the admission of additional member institutions to the GME Consortium, as well as the addition of other hospitals and participating sites that may affiliate with the GME Consortium, is subject to the unanimous vote of all members of the GME Consortium, in each member's sole and absolute discretion. FRMC will submit a request to join the GME Consortium and obtain full consideration by the GME Consortium before offering any GME program(s) independently or in concert with any other entity. FRMC will also submit a request to the GME Consortium to be a rotational or participating site for FAU's Residents, as further described in subsequent master affiliation agreements or program letters of agreement as required by the ACGME [Accreditation Council for Graduate Medical Education]. At least one party to the GME Consortium Agreement, Boca Raton Regional Hospital, would not vote in favor of admitting FRMC as a member or participant under the GME Consortium Agreement.15/ The GME Consortium Agreement has a five-year term ending December 1, 2016, with automatic one-year renewals thereafter. The American Association of Medical Colleges (AAMC) is a national association representing medical schools and major teaching hospitals in the United States. Although not defined under Florida Law, the term "academic medical center" is understood by AAMC to refer to large hospitals, generally offering tertiary and more complex services, which are affiliated with and often on the same campus as a medical school. The size of the proposed hospital and complexity of the medical services proposed to be offered by FRMC are less than typical for an academic medical center as recognized by AAMC. FRMC does not even have a target date as to when it may offer services other than the general, non-tertiary hospital services that form the basis of the CON application. Section 408.035(1)(g): The Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost- Effectiveness Tenet is currently the dominant provider in the proposed service area, with five hospitals in Palm Beach County, including three hospitals located in AHCA sub-district 9-4 with 854 acute-care beds between them, including PBGMC, St. Mary’s, and Good Samaritan. Rather than increasing competition, the addition of FRMC would likely further Tenet’s dominance, thereby decreasing competition. As a large hospital system, Tenet has an advantage over non-affiliated hospitals, such as JMC, in negotiating favorable reimbursement rates with commercial insurers, including managed-care plans. The ability to negotiate favorable rates translates into a better “payor mix” with richer reimbursement from private insurance and less from fixed rate, non-negotiable, governmental programs such as Medicaid and Medicare. Rather than showing that approval of FRMC would promote cost effectiveness, the evidence indicates that another Tenet facility within sub-district 9-4 could further boost Tenet’s negotiating leverage, resulting in a higher payment structure16/ within the area for FRMC’s services reimbursed by private insurance. These factors, together with the fact that the CON Application was submitted for approval of a facility with a focus on non-tertiary acute-care services amply available in the area, do not support a finding that the proposed hospital will foster competition that promotes quality and cost-effectiveness. Moreover, as further discussed under the heading "Adverse Impact," below, approval of the proposed hospital would have a negative impact on both JMC and West Palm. Section 408.035(1)(i): The Applicant’s Past and Proposed Provision of Health Care Services to Medicaid Patients and the Medically Indigent As noted in the CON Application, “[FRMC] is newly incorporated and not an existing healthcare provider with a historical track record of utilization.” As a Proposed CON Condition, FRMC states that it “will provide a minimum of 4% of its total annual patient days to a combination of Medicaid, Medicaid HMO, and Charity patients.” In 2010, 6.3% of the total combined patient days in the proposed service area for non-tertiary, non-OB, adult services were Medicaid, Medicaid HMO, and charity patient days. As FRMC’s proposed 4% condition is less than the 6.3% actually served in the proposed service area in 2010, based on patient days, the evidence does not support a finding that the proposed hospital will enhance access for the medically indigent or underserved. Adverse Impact FRMC contends that there will be no adverse impact from the proposed hospital because its patients will come from a 70% “redirection” of PBGMC’s patients. As previously discussed, however, PBGMC does not have the ability to direct where patients are admitted for hospital care. As FRMC's success in redirection without affecting the market is unlikely, its assumption that neither JMC nor West Palm will lose patients to FRMC is unreasonable.17/ JMC JMC has a good reputation in its community and enjoys strong patient satisfaction and loyalty. As part of its mission to care for the health and welfare of its community, some of the needed services which JMC offers are not profitable for JMC, including obstetric services. No other hospital in north Palm Beach County provides obstetric services. JMC also provides benefits beyond the direct provision of hospital services. In 2011, JMC provided $3 million in charity care, $3.5 million in Medicaid underfunding, plus uncompensated services valued at $1.3 million through the operation of specialty healthcare clinics, including a diabetes clinic and oncology services clinics. JMC also expends approximately $300,000 each year for health education programs and community health screenings. In addition, JMC provides support to the Jupiter Volunteer Health Clinic, a free clinic established through collaboration with the Town of Jupiter, local physicians, Palm Beach County, and the community volunteer organization known as "El Sol." Despite the affluence in northern Palm Beach County, there is also a substantial population of poor without health insurance. The clinic is particularly important because there are no primary care doctors in northern Palm Beach County who accept Medicaid patients in their practice. Patients are often lined up outside the clinic before it opens. Clinic patients that require hospital admission are admitted to JMC. Even though JMC has a reputation for community service and patient loyalty, the establishment of FRMC would have a material effect on JMC’s operations. Proximity of a proposed facility to an existing hospital significantly affects the potential for adverse impact. JMC is the closest hospital to FRMC’s proposed site. The likelihood that JMC will lose patients to FRMC is increased by the fact that FRMC proposes to offer the same services, with the exception of obstetrics, as currently offered by JMC. In addition, there is currently substantial overlap between the medical staffs of JMC and PBGMC. FRMC anticipates that it will be staffed primarily by physicians who now practice both at JMC and PBGMC. The overlap of the medical staffs is yet another factor demonstrating the potential adverse impact on JMC, as many physicians who currently practice at PBGMC and JMC are likely to obtain medical staff privileges and admit a substantial number of their patients to FRMC, including patients they would otherwise admit to JMC. As an independent, not-for-profit, community provider, JMC's operating margins are very thin at 1.5% to 2% annually. JMC would lose a substantial number of inpatient admissions if the proposed hospital is approved. JMC reasonably anticipates the loss of 1,533 cases to FRMC in the first year of operation of the new hospital. There is insufficient population growth in FRMC's proposed service area to offset this adverse impact. Applying JMC's current contribution margin to JMC's projected lost patient volume results in a projected adverse impact to JMC of $11,254,000 in combined inpatient and outpatient lost contribution margin, including a projected loss of up to $5,000,000 of inpatient contribution margin, in the first year of operation of FRMC. While the ability to negotiate favorable payment rates is critical to the financial viability of all hospitals, it is particularly crucial for small, stand-alone, community hospitals like JMC. As the only hospital in its primary service area, JMC presently enjoys some leverage in negotiating terms with private insurers and managed care companies. The establishment of FRMC will eliminate JMC’s geographic advantage and erode JMC's ability to achieve favorable payment rates. The anticipated adverse financial impact on JMC will interfere with JMC's ability to invest in technology and human resources, and will threaten the viability of the Jupiter Volunteer Health Clinic. The evidence is insufficient to show that approval of FRMC will bring countervailing benefits to the community that would offset the adverse impacts on JMC. WEST PALM Although West Palm stands to lose fewer cases than JMC if FRMC is approved, the adverse impact on West Palm is substantial, especially considering its current financial condition. West Palm incurred a bottom line net loss of $7,502,651 in 2011, with a negative operating margin of $14,002,922. If FRMC is approved, a reasonable estimate of lost cases shows that West Palm will lose 118 discharges to FRMC in 2014, 120 discharges in 2015, and 122 in 2016. The 122 lost cases in 2016 amount to 466 patient days. For 466 lost patient days, West Palm’s combined lost contribution margin is estimated at $886,377.18/
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency for Health Care Administration issue a Final Order denying CON Application No. 10130. DONE AND ENTERED this 30th day of April, 2013, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of April, 2013.
Findings Of Fact The proposed dialysis clinic 1/ would be located in West Boca Raton near "Century Village," a large condominium complex serving mainly the retired and elderly. The clinic would be owned and controlled by Neil Schneider, M.D., a nephrologist. The application is opposed by two nearby clinics which are owned and controlled by Ashok Patel, M.D., also a nephrologist. The "Service Area" at issue was disputed by the parties. HRS District 9 encompasses Palm Beach, Indian River, Okeechobee, Martin and St. Lucie Counties. Although this district has not been subdivided by either the local health council or HRS, a smaller "Service Area" must be defined for purposes of these proceedings. Kidney dialysis patients are required to visit their dialysis facility three times each week for approximately four hours per treatment. Most patients are in poor health and unable to drive (or even be transported by others) for long periods. Thus, accessibility of the dialysis clinic is an important consideration in this health care field. Either Palm Beach County or a South Palm Beach County "cachment" area 2/ constitutes an appropriate service area for purposes of this proceeding. Patients can drive from most locations in the county to existing dialysis clinics in 45 minutes or less. As noted above, however, much shorter driving times are desirable for these patients. The HRS witness, who was qualified as an expert in health care planning, calculated a county-wide need for four additional kidney dialysis stations. She based her calculations on the mathematical formula set forth in Rule 10-5.11(18)(a), F.A.C., using information from "Network 19" quarterly report's 3/ and average patient census data for calendar year 1984. The Network 19 representative, who was similarly qualified, calculated a need for five additional kidney dialysis stations in the proposed South Palm Beach County sub-area. His input consisted of the latest Network 19 patient data and projections for mid-1986. Petitioners attacked the designation of a sub-area for this proceeding as well as the patient and general population estimates utilized. The identification of a sub-area is reasonable in this situation given the relative immobility of these patients. However, the sub-area need calculations should be cross checked and confirmed by county-wide figures. Given the similarity of conclusions, a number of four to five is found to be an appropriate "hard number" starting point in this proceeding. Rule 10-5.11(18)(a), F.A.C. provides that "the base period. . . is one year from the date that the application is deemed complete by. . .[HRS]. Petitioners argue that the application was complete several years ago, and that it is improper to consider 1986 population data. This argument is rejected, however, as it is inconsistent with HRS practice and with common sense. Because of the years which CON cases often spend in processing, litigation and facility construction, one year from the date of final hearing has been recognized as the most appropriate period for these determinations. Petitioners identified some relatively minor errors in input data and calculations. These errors would not, however, significantly change the so called "hard numbers" stated above. Both the Applicant and Petitioners presented additional expert testimony of health care consultants. Not surprisingly, their conclusions tended to reduce the need on one hand (Petitioners) and increase it on the other (Applicant). Although their testimony is incorporated in those considerations discussed below, it is rejected as to modification of the data utilized and generated by the HRS and Network 19 witnesses. The strongest argument favoring grant of the application concerns Petitioners' restrictive policies. This argument was well supported by the testimony of area nephrologists who have practiced in or attempted to utilize Dr. Patel's clinics, by the testimony of former employee, by patients of Dr. Patel's clinics and by documents setting forth these policies. One nephrologist (Dr. Krause) was refused admission to Petitioners' staff because he was not admitted to the staff of the local community hospital. However, that hospital also had a closed staff policy which, in "Catch 22" fashion, seriously limited this nephrologist's ability to practice his specialty. Petitioners argue that such hospital staff privileges are needed so that the nephrologist can follow his patient to the hospital in the event of emergency. This argument ignores the nephrologist's responsibility for his patients, and is not a proper basis for denial of staff privileges. Additionally, Petitioners denied staff privileges altogether to another nephrologist (Dr. Sonneborn) when he set up his practice in Boca Raton in 1976, on the claim that the Boca Raton facility was a closed unit. Here, it should be noted that Petitioners' two dialysis clinics are the only units in the South Palm Beach area. Because of patient immobility, this has resulted in something of a monopoly. Without staff privileges at a convenient dialysis clinic, Dr. Sonneborn was literally unable to practice nephrology, and turned these patients over to Dr. Patel. Area nephrologists also complained of being required to sign a contract with Petitioners as a condition of gaining staff privileges at either of Dr. Patel's clinics. Although such a contract is not customarily required, this in itself was not shown to be a restrictive measure. However, some of the conditions of the contract were, indeed, restrictive. For example, the contract required that only bona fide residents of Palm Beach County under the care of local physicians could be admitted. This effectively excluded seasonal and transient patients (except when Petitioners found it convenient to waive the restriction). Petitioners also refuse to admit new "hepatitis positive" dialysis patients to either facility. Many dialysis patients acquire hepatitis or show hepatitis positive on their blood tests. Special handling of such patients is required, but to exclude them altogether is in the words of one such patient- witness "mean-spirited" (TR 738). The Applicant (Dr. Schneider), on the other hand, has a reputation at his existing clinics for accepting transients and hepatitis positive patients. The Applicant proposes to continue such policy at the proposed clinic if the C.O.N. is granted. However, the initial operating instructions prepared for this proposed clinic appear to prohibit hepatitis patients. Therefore, any C.O.N. issued as a result of this proceeding should require acceptance of hepatitis positive patients. Patients without coinsurance have also been refused by Petitioners. This is the patient who has only the 80 percent Medicare cost coverage and lacks the insurance or private resources to pay the remaining 20 percent of the clinic dialysis charge. In fairness however, Petitioners have occasionally taken "undesirable" patients such as indigents without basic Medicare coverage and prisoners. The quality of care at Petitioners' facilities is generally satisfactory. There was a large turnover in staff nurses about two years ago, and more recently, some inadequacies in supplies. Although these problems have apparently been corrected, the lack of "crash carts" for emergency treatment of patients who experience cardiac arrest is a significant and continuing deficiency. Petitioners' contention that nearby hospital paramedics can be called on in cardiac arrest situations is not an adequate response. In fact, one patient died in Petitioners' clinic from cardiac arrest. This patient's chance of surviving would have been greater had such emergency facilities been available. The proposed seven station facility was shown to be financially feasible. Even with as few as four stations, the unit was expected to be profitable by its second year of operation. Petitioners question the patient acquisition assumptions of the proposal and may well be correct that these are overly optimistic. However, Dr. Schneider has extensive experience in operating other South Florida clinics profitably, and has more than adequate personal financial resources to see the new facility through its initial loss period. The rate set by Medicare is $122 per patient treatment in South Palm Beach County. This provides a steady, predictable and secure source of revenue to the dialysis clinic. Thus, financial feasibility in this health care specialty is a near certainty, particularly in a high growth area such as South Palm Beach County. It should also be noted that the opening of the proposed clinic will have no impact on health care costs, since these costs are effectively controlled by Medicare. The Applicant seeks additional stations for hemo dialysis training and CAPD training. While these are worthwhile goals, it was not shown that a real need for such special stations exists in this area. Neither is there any medical school connection which would support additional stations. The Applicant also seeks to justify additional stations on the basis of hepatitis treatment which requires isolation, and an allowance for the large number of tourists and transients present during the winter months. These visitors were not included in the statistics which support the four to five stations discussed previously. Petitioners argue that their existing South Palm Beach County Clinics are under-utilized and that they will be injured if this application is granted. As of March 31, 1985, these facilities had utilization rates of only 54 percent (Boca Raton) and 72 percent (Delray). Although these units remain profitable, this is significantly below the 80 percent "optimum," or industry utilization standard. Additionally, there are three kidney dialysis centers in North Palm Beach County whose utilization rates are in excess of 100 percent. Although Petitioners, because of their restrictive policies, may be partially responsible for their low utilization rates, county-wide utilization figures do, in fact, indicate a greater need for additional facilities in North Palm Beach County than in the Applicant's proposed sub-area. However, there was no evidence that any of the existing facilities are seeking to expand so as to meet additional Palm Beach County dialysis needs. Therefore, the "unmet" need for additional stations must be considered as available for award to this Applicant.
Recommendation From the foregoing it is RECOMMENDED that HRS issue a Certificate of Need to the West Boca Raton Artificial Kidney Center authorizing the opening of a five-station kidney dialysis clinic on or after July 1, 1986, with the specific requirement that this clinic accept hepatitis and hepatitis positive patients, and that it agree to add no new stations without HRS approval prior to July 1, 1988. DONE and ENTERED this 18th day of September, 1985 in Tallahassee, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 18th day of September, 1985.
